ANNUAL REPORT 2009 OF UNITED PALM OIL INDUSTRY PLC. · 2017. 3. 6. · Apart from achieving ISO...

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ANNUAL REPORT 2009 OF UNITED PALM OIL INDUSTRY PLC. Topics Page 1. Financial Highlights ……………………………………………………… 1-2 2. Message from the Chairman and the Managing Director …….…….. 3-4 3. Report of the Audit Committee………………………………………….. 5 4. Report of the Board of Directors’ Responsibilities for

Financial Statements ……………………………………………………. 6 5. Report on the Implementation of Principles of Good Corporate

Governance …………….………………………………………………… 7-18 6. General Information .…………………………………………………...... 19-21

6.1 Company profile..…………………………………………………….. 19 6.2 Companies in which the Company has investment holding

of more than 10%.…………..……………………………….………… 20 6.3 Other references…………………………………………………….... 21

7. Nature of Business.……………………………………………………….. 22-23 7.1 Revenue structure (Segment analysis) ……………………………. 22 7.2 News Highlights of previous year……………….…………………… 23

8. Risk Factors....………………………………….…………………..………. 24 9. Palm Oil Industry and Competitiveness…………………………………. 25-33 10. Management Discussion and Analysis…………..……………………… 34-39

10.1 Operation Overview ………………………………………………..... 34 10.2 Financial performance analysis and explanation ………………... 35-38 10.3 Factors which might affect financial performance

in the future ………………………………………………………….. 39 10.4 Remuneration of statutory auditor ..………….…………………….. 39

11. Shareholders and Management…………………………………………. 40-49 11.1 Shareholders..………………………………………………………... 40 11.2 Board of Directors and Management Committee.………………… 41-49 11.3 Dividend Payout Policy……….……………………………………... 49

12. Common Interested Persons and Connected Transactions………….. 50-51 12.1 Connected transactions with common interested persons,

necessity and reasons for connected transactions………………. 50 12.2 Measures or criteria to approve connected transactions..……….. 51 12.3 Connected transactions in the future………………………………. 51

13. Other Factors Affecting Investment Decisions…………………………. 52 13.1 Legal conflicts..…………………………..…………………………… 52 13.2 Obligations on future share issuance..…………………………….. None

14. Information on Debentures or Promissory Notes....…………………..... None 15. Financial Statements…………………………………….…………….…. Enc.

FINANCIAL HIGHLIGHTS (CONSOLIDATED FINANCIAL STATEMENTS)

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(Unit : Million Baht)

2007 2008 2009Total Assets 1,034 1,077 1,024Total Liabilities 88 91 94Shareholders’ Equity 946 986 930 Sales 638 1,305 823Total Revenues 658 1,333 847Gross Profit 319 550 278Net Profit 207 332 171

Financial ratios (Unit : %) 2007 2008 2009Net Profit Margin 31.50 24.88 20.20Return on Equity 21.90 33.62 18.39Return on Total Assets 20.03 30.77 16.70

Per share data (Unit : Baht) (par value adjusted to 1 Baht for comparison) 2007 2008 2009Earnings per Share 0.64 1.02 0.53Dividend Paid per Share 0.50 0.90 0.70Dividend per Share (operational year) 0.60 1.00 0.50(1)

Book Value per Share 2.92 3.04 2.87 Note : (1) According to the resolution of BOD meeting on 25 February 2010, to be proposed to AGM no. 33

FINANCIAL HIGHLIGHTS (CONSOLIDATED FINANCIAL STATEMENTS)

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500

600

700

800

900

1,000

1,100

2007 2008 2009

1,0341,077

1,024

TOTAL ASSETS (Million Baht)

50

100

150

200

250

300

350

2007 2008 2009

207

332

171

NET PROFIT(Million Baht)

1.00

1.50

2.00

2.50

3.00

3.50

2007 2008 2009

2.92 3.042.87

BOOK VALUE PER SHARE(Baht)

( par value adjusted to 1 Baht for comparison )

400

600

800

1,000

1,200

1,400

2007 2008 2009

658

1,333

847

TOTAL REVENUES( Million Baht )

0.00

0.50

1.00

1.50

2007 2008 2009

0.64

1.02

0.53

EARNINGS PER SHARE(Baht)


0.20

0.40

0.60

0.80

1.00

2007 2008 2009

0.60

1.00

0.50

DIVIDEND PER SHARE(Baht)


MESSAGE FROM THE CHAIRMAN AND THE MANAGING DIRECTOR

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2008 saw record high prices of petroleum fuel and other commodity goods. The same was true of Crude Palm Oil (CPO) price which has gone up with the monthly average price moving between 17.02 – 36.26 Baht/Kg. and a yearly average price at 28.96 Baht/Kg, rising for the third consecutive year. In 2009, however, the price band for CPO price narrowed significantly with the monthly average price moving between 21.48 – 27.51 Baht/Kg. and the annual average of 24.33 Baht/Kg. This was due to a reduction in petroleum fuel demand which resulted in a decrease of Bio-diesel prices and CPO requirements. Besides, Fresh Fruit Bunches (FFB) decreased 13% from 9.2 million tons in 2008 to 8.0 million tons in 2009. The Kingdom’s output of CPO was 1.3 million tons, or 13% less compared with 1.54 million tons in 2008. Similarly, there was a drop of FFB output in company’s estates as well. Company’s performance Revenue from sales decreased from 1,305 million Baht in 2008 to 823 million Baht in 2009 or 36.9% drop due to a decrease in your Company’s own and procurement of outsider’s FFB. This, coupled with the decline in CPO price, resulted in your Company’s net profit decreasing from 331.5 million Baht to 171.7 million Baht in 2009. Production Expansion of milling capacity was completed in 2009 with the crushing capacity increasing from 60 tons per hour to 75 tons per hour. Further, the Bio-gas project at Krabi crushing mill has been completed. Electricity power generated from waste water pond at capacity of 2 Megawatt has been approved by the Ministry of Energy. Installation of power grid line is in progress by Provincial Electricity Authority (PEA). The project is aimed to reduce GHG (Green House Gas) emission under the CDM (Clean Development Mechanism). In our oil palm germinated seeds and seedlings business, our imported elite CIRAD® material has received very good response from growers. Siam Elite Palm, the joint venture company between UPOIC and PalmElit (affiliated company of CIRAD), is expanding its CIRAD® seed production garden in Krabi to cope with future demand in the next 5 years. Social and Environment UPOIC has been an ordinary member of Round Table Sustainable Palm Oil (RSPO) since 2008. We are one of the leading members in National Interpretation Working Group to build and adopt indicators and criteria of oil palm sustainability in accordance with RSPO standards suitable for implementation in conditions in Thailand. Your Company is committed to achieve the sustainable palm oil certification. In 2009, we worked hard to cooperate and train various groups of growers in oil palm cultivation and management programmes to increase their productivity as well as for them to take cognizance of the environment in the long term. Apart from achieving ISO 9001 and 14001, your Company has been awarded of OHSAS 18001 standard certifying that we are working in safe environment and with standard practice to human health care. In September 2009, the National Industrial Works Department awarded your Company the certificate of Corporate Social Responsibility (CSR-IW) in recognition of its commitment to public contributions and awareness of environment in the surrounding community.

MESSAGE FROM THE CHAIRMAN AND THE MANAGING DIRECTOR

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Human Resources and Corporate Culture In 2009, your Company is giving priority to continuing develop human resources and corporate culture. This is the first year that we introduced Code of Business Conduct to be practiced in your Company as guideline for employees to follow and be in line with policy and good corporate governances. 2009 marks the 60th anniversary of the Lam Soon Group which has been in Thailand since 1974, when Lam Soon established the first palm oil refinery in the Kingdom. From 2003 onwards Lam Soon moved upstream into oil palm plantation and began to invest in UPOIC, which has since been consolidated as a subsidiary of Lam Soon. In 2004, through the acquisition of Universal Food Plc., Lam Soon broadened its business activity beyond palm oil. In 2007 UPOIC also entered into a joint-venture to cultivate nursery for oil palm seedling. As a manufacturer and marketeer, the Lam Soon Group has cultivated a corporate brand identity that focuses on such characteristics as trustworthiness, friendliness, and approachability. As the Group celebrates its 60 year legacy this year, Lam Soon will continue to lead the industry with innovative and value-added solutions, for the benefit of all stakeholders. UPOIC, as a quality upstream supplier of CPO to Lam Soon (Thailand), will continue to play an important role in the Group’s future development. On behalf of the Board of Directors, our Management team and other employees, I would take this opportunity to thank our Company’s shareholders, customers, and business partners for their continuing support and also for their interest in the development of the UPOIC business.

Mr. Whang Tar Liang Mr. Somchai Chongsawadchai The Chairman Managing Director

REPORT OF THE AUDIT COMMITTEE

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The Board of Directors appointed the Audit Committee comprising of independent directors as follows

Mr. Thira Wipuchanin Chairman of the Audit Committee Vilas Sinswat Ph.D. Member of the Audit Committee Mr. Wasin Patchakapati Member of the Audit Committee Mr. Yut Sakdejayont Secretary to the Audit Committee

In 2009, the Audit Committee has fulfilled and executed its duties and responsibilities in compliance with the Stock Exchange of Thailand’ s regulations and other activities assigned by the Board. The Committee held four meetings within the year, with substantive agenda as follows:

1. Approval of quarterly financial statements and review of annual financial statements including the disclosures of information in Notes to Financial Statements, submitted to the Board of Directors. The financial statements were in accordance with generally accepted accounting principles. The disclosures of information in Notes to Financial Statements were found to be adequate and accurate;

2. Examination of the reports of internal audit as set out in the annual audit plan, with proposals to the management to take necessary actions. In 2009, the Company was found to have exercised an appropriate and effective internal control system, with transparent governance and no material management failures;

3. Consultative meetings with the management, external and internal auditors in order to make suggestions and practical guidelines for management. The management has subsequently adopted these suggestions to improve the Company’s working efficiency including established Audit Working Plan for 2009; In addition, in 2009 the AC had one meeting with the External Auditor without the management attending. The information disclosed by the management to the Auditor was found to be adequate without any deficiencies.

4. Consultative meetings with the management and external auditors regarding the implementation of new Thai Accounting Standard and the readiness of the company;

5. Consideration of the corporate governance survey to some items of which the Company has not yet complied including the Corporate Governance Policy and the Code of Conduct to further propose to the Board approval;

6. Consideration of the rules and procedure for disclosing interest of directors, executives and related persons before proposing to the Board;

7. Reports to the Board of Directors the results of the meetings and all activities undertaken by the Audit Committee;

8. Proposal to the Board of Directors for approval at the 2010 annual general meeting of shareholders, the appointment of Ernst & Young Office Limited to be the statutory auditor of the Company for 2010 including appropriate remuneration;

9. Consideration of “Board Self-Assessment” Form, a part of the Corporate Government Self-Assessment, as an instrument to internally practice for good corporate governance principles;

The Committee concluded that management continued systematically to exercise good internal control and did not find that any relevant statutes and regulations have been contravened.

Mr. Thira Wipuchanin Chairman of the Audit Committee February 25, 2010

REPORT OF THE BOARD OF DIRECTORS’ RESPONSIBILITIES FOR FINANCIAL STATEMENTS

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The Board of Directors of the Company considered the consolidated financial statements of the Company and its subsidiaries, including information as shown in the Annual Report, and concluded that the financial statements have been prepared under generally accepted accounting standards in Thailand. Proper accounting policies have been chosen and have always been consistently adhered to. The financial standards have also been prepared with careful basis using the best estimation. Adequate material information has been disclosed in the notes to the financial statements. The Board has also adopted and maintained an effective system of internal controls in the Company so that we can be reasonably assured that accounting records are accurate, complete and adequate to protect the assets of the Company. These controls are also preventive measures against possible wrongdoing or other significant irregularities in the operations of the Company.

In this regard, the Board of Directors has appointed the Audit Committee responsible for the quality of the Company’s financial reports and the internal control systems, as well as other processes to support the financial documents to be prepared under generally accepted accounting standards, including to disclose information transparently.

The Audit Committee considered the operational performance of the Company during the year 2009 and provided the opinion that the Board of Directors and the Management make a great effort to achieve the Company’s objectives without any relevant statutes and regulations having been contravened, and attach importance to the effective internal control system and to the adequacy of the risk management. Information system has also been prepared to support the good corporate governance principles. In sum, the overall internal control system of the Company has been at satisfactory level which can assure the credibility of the consolidated financial statements of the Company and its subsidiaries as of December 31, 2009.

The opinion of the Audit Committee with regard to these matters is set out in the Report of the Audit Committee in this Annual Report and the Annual Registration Statement (Form 56-1).

Mr. Whang Tar Liang Mr. Somchai Chongsawadchai The Chairman Managing Director

REPORT ON THE IMPLEMENTATION OF PRINCIPLES OF GOOD CORPORATE GOVERNANCE

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United Palm Oil Industry Public Company Limited (UPOIC) recognizes the importance of Good Corporate Governance in promoting transparency in UPOIC’s operations, fair and equitable treatment to all stakeholders as well as an efficient management system aiming at sustainable growth. UPOIC therefore draws up this corporate governance policy to be used as the principle in its business operations. The corporate governance policy shall cover all topics in line with the Principles of Good Corporate Governance Practices of the Stock Exchange of Thailand (SET). namely, 1) Rights of Shareholders and Equitable Treatment of Shareholders, 2) Role of stakeholders, 3) Disclosure and Transparency, 4) Responsibilities of the Board. The Board has assigned the Audit Committee to develop an action plan and measures for monitoring to ensure implementation, assessment of compliance, and recommending improvement on the policy, as appropriate. 1. Rights of the shareholders and equitable treatment of shareholders

UPOIC shall hold an Annual General Meeting of Shareholders within 4 months of the end of UPOIC’s fiscal year. The meeting will consider the Annual Report of the Board of Directors presenting the operational performance of the past year, balance sheet, income statement, dividend distribution and legal reserve appropriation, election of directors to fill the vacancy caused by expiration of service term, director’s remuneration, appointment of auditor and auditor’s remuneration.

UPOIC may hold an extraordinary general meeting of shareholders as the Board of Directors thinks

fit. Shareholders holding shares amounting to not less than one-fifth of the total shares issued, or shareholders numbering not less than 25 persons holding shares amounting to not less than one-tenth of the total shares issued, shall be entitled to direct the board of directors to convene a shareholder meeting. The name of such persons and the reasons for calling such meeting shall be clearly stated in such request. The board of directors shall proceed to call a shareholder meeting to be held within one month of the date of receipt of such request from the said shareholders.

In calling a shareholder meeting, UPOIC shall prepare a written notice calling the meeting that

states the place, date, time, agenda of the meeting and the matters to be proposed to the meeting with reasonable detail by indicating clearly whether it is the matter proposed for information, for approval or for consideration, as the case may be, including the opinions of the board of directors in the said matters, and the said notice shall be delivered to the shareholders and the Registrar for their information at least 14 days prior to the date of the meeting.

UPOIC shall provide a proxy form in which a shareholder can give comments on his votes

enclosed in the meeting notices stating clearly the required documents and procedure for appointment of proxy and for attending the meeting. A shareholder who cannot attend the meeting in person but would like to exercise his voting right may appoint another person as proxy to attend and vote at the meeting. He may also appoint an independent director as his proxy.

At a shareholder meeting, in order to constitute a quorum, there shall be shareholders and proxies

(if any) amounting to not less than twenty-five persons and holding shares amounting to not less than one-third of the total number of shares issued. The Chairman of the board of directors shall be the chairman of the meeting and conducting the meeting according to the sequence in the agenda stated in the meeting notice.

In a regular agenda the ballot shall be used in the event any shareholder would like to cast a

negative vote or abstain from voting. The ballot shall always be used in important agenda such as election of directors, approving connected transactions, acquisition or disposal of assets, amendment of memorandum of association and articles of association.

UPOIC shall give opportunities for minority shareholders to propose matters to be included in the

meeting agenda and to nominate qualified persons for the election of directors, prior to the meeting date. The procedures are published on UPOIC’s website. Contact by email can be addressed to [email protected]


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UPOIC shall give opportunities for shareholders to submit relevant questions relevant to the

agenda items to the directors prior the meeting date through UPOIC’s website or by email to [email protected]

UPOIC shall post meeting documents and meeting notices on its website at least 30 days prior to

the meeting date so that the shareholders can study the information for the meeting in advance.

UPOIC shall record important issues raised by the shareholders and explanation of the board as well as recording clearly the number of affirmative votes, negative votes, abstained votes, in the meeting minutes. UPOIC shall post a draft minutes of the shareholder meeting on UPOIC’s website within 14 days of the completion of the meeting. The shareholders may inspect the correctness and may make objection if necessary without having to wait until the next meeting to do so.

2. The rights of stakeholders UPOIC has a policy that recognizes the rights and interests of all groups of stakeholders whether

they are employees or shareholders, creditors, customers, trade-counterparts, competitors, community and society. The expectations of one group of stakeholders may be different from another group. UPOIC shall ensure that the rights of each group will be protected according to relevant laws and handled carefully and with sensitively. Procedures are stated in the Company’s code of business ethics to respond to the needs of the stakeholders.

Mechanism for stakeholders to report concerns and complaints

2.1 UPOIC shall provide channel for stakeholders to submit complaint or information. Any stakeholder wishes to communicate to the board of directors directly without passing

through the management of the Company to express his opinions about the operation of the Company’s business including information or complaints such as incorrect financial report, violation of the law or ethics or deficiency of internal control system, etc. may address his communication directly to:

By post: Mr. Thira Wipuchanin

Chairman of the Audit Committee United Palm Oil Industry Plc.

64 Fl.1, Soi Bangna-Trad 25, Bangna, Bangkok 10260

By email: [email protected] 2.2 Protection of informer’s identity

A Stakeholder who communicate or make complaints in 2.1 will not be required to disclose his name.

2.3 Action after receiving information or complaint

The Audit Committee shall investigate the information and facts given by the informer in 2.1 and report to the Board within 30 days of the date receiving the information.

2.4 Measure of redress and damage compensation

If the Board determine that a stakeholder has suffer damages from any violation of law by the Company, the Board shall take steps to redress the problem as soon as possible as well as finding measure to prevent re-currence of the problem. Appropriate compensation will be given to the person suffered from violation of law.


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3. Disclosure and Transparency

The Company recognizes the importance of timely disclosure of information that shareholders may use for their investment decision as well as decision in exercise their votes at the shareholder meetings. UPOIC periodically assess the efficiency of information disclosure. The following information is regularly disclosed:

Disclosure of the following in Thai and English and updating of the information in the Company’s website.

Corporate Governance Policy Code of Business Conduct Shareholder Structure Structure of the Board of Directors Vision/Mission Environment Policy Annual Report Form 56-1 (Thai version) Financial Statement Meeting notices and meeting documents Minutes of the Shareholder Meetings News published by the Company

Submit periodically accurate, complete, and timely, information to the SET and the SEC

such as Form 56-1, Annual Report .

News on important changes which may have material impact on securities prices according to the regulations of the SET.

The Board of Directors assumes the responsibility for the financial statement and financial

report which are signed by the Chairman of the Board and the Managing Director as disclosed in the Annual Report and Form 56-1. The financial statement is prepared in accordance with generally accepted accounting standards with appropriate accounting policies which are conformed to consistently. Information in the notes to the financial statement which is audited by an independent external auditor shall be reviewed by the Audit Committee to ensure that sufficient disclosure is made.

The Executive Directors shall be responsible for communicating with investors both

individual and institutional, shareholders, analysts and relevant government sectors. Information can be requested from Tel: 02-361 8959/87 or Fax: 02-361 8988/9 or by email: [email protected] or through the Company’s website.

4. Responsibilities of the Board

4.1 Board of Directors

4.1.1 Structure of the Board The Board composes of not less than 5 Directors of which at least one-third of the total number of directors are independent directors. Independent directors shall not be less than 3 persons.

4.1.2 Duties and responsibilities of the Board 1. To review and approve the vision, commission, strategy, objectives, risk, plan and budget of the Company. 2. To control and supervise the management in the implementation of the business plan to achieve the objectives and increase the wealth for the shareholders. 3. To set a Corporate Governance Policy and encourage every employee in the organisation to implement the policy, assessment of policy implementation and reviewing the policy at least once a year.


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4. To set a code of business conduct to cover all level of personnel namely, directors, executives, and employees. To encourage all persons in the Company to comply with the policy, monitoring of implementation and assessment of effectiveness of the implementation regularly.

5. To set up internal control system, internal auditing, and measures for risk management as well as regularly monitoring the same.

6. Appointment of sub-committees, assignment of roles and duties and responsibilities of each sub-committee.

7. To have clear communication regarding the roles, duties and responsibilities of the Board, Audit Committee, Remuneration Committee, Nomination Committee, Management and employees.

8. To be responsible for the disclosure of the Company’s financial status in the Financial Statement of the Company and its subsidiaries, in the annual report, annual submission (form 56-1) as well as disclosure of information to meet the requirement of law and relevant government authorities.

9. To set guideline for reviewing the suitability of transaction with potential conflict of interest.

10. To hold at least one board meeting every three months and convene a shareholder’s meeting at least once a year.

11. Such other duties and responsibilities stipulated by law and resolutions passed at shareholder meeting.

4.1.3 Company Secretary The Company appointed a company secretary in accordance to section 89/15 of the

Securities and Exchange Act B.E. 2551 with the following duties and responsibilities: 1. preparing and keeping the following documents:

(a) a register of directors; (b) a notice calling director and shareholders meetings; (c) a minute of meeting of the board of directors and meeting of shareholders;

(d) an annual report of the Company; 2. Follow-up to ensure implementation of the resolutions of the board and shareholder

meetings. 3. Keeping a report on interest filed by a director or an executive and submit a copy of

report to the Chairman and the Chairman of audit committee within seven business days from the date on which the Company has received such report.

4. To advise directors with regard to the law and relevant regulation as well as to supervise and oversee to ensure that the Company, board of directors, and the management comply to all the laws and regulations.

5. To ensure the disclosure of information according to the regulations of the Stock Exchange of Thailand and the Securities and Exchange Commission and other relevant laws.

6. To liaise with relevant regulatory bodies. 7. To do other things assigned by the Board and/or performing any other acts as specified

in the notification of the Capital Market Supervisory Board . 4.1.4 Procedure for director nomination

The Nomination Committee shall have the duty to recommend names of suitable candidates for the Board or Shareholder Meeting to elect as directors according to the Company’s Articles of Association. The Nomination Committee shall undertake the task of identifying, evaluating, selecting and proposing new nominees to the Board. The Board shall consider that the candidates possess experience suitable for the post of directorship, to assist the board to act prudently as well as capability to make rational business decisions, strategic thinking, leadership, and expertise in the profession, honesty and suitable personal qualification.


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4.1.5 The Chairman of the Board The Chairman of the Board may be an executive director or non-executive director. The Chairman must be a different person from the managing director so that the two roles are clearly separated.

4.1.6 Qualification of Independent Directors

The Board has set the qualification of the Independent Directors as follows: (a) holding shares not exceeding 0.5 percent of the total number of voting rights of any Relevant Entity, including the shares held by related persons of the independent director; (b) neither being nor having been an executive director, employee, staff, or advisor who receives salary, or a controlling person of any Relevant Entity unless the foregoing status has ended not less than two years prior to the date of application filing with the Office; (c) not being a person related by blood or registration under laws, such as father, mother, spouse, sibling, and child, including spouse of the children, executives, major shareholders, controlling persons, or persons to be nominated as executive or controlling persons of the Company or its subsidiary; (d) not having a business relationship with any Relevant Entity, in the manner which may interfere with his independent judgment, and neither being nor having been a major shareholder, non-independent director or executive of any person having business relationship with any Relevant Entity unless the foregoing relationship has ended not less than two years prior to the date of application filing with the Office. The term 'business relationship' includes any normal business transaction, rental or lease of immovable property, transaction relating to assets or services or grant or receipt of financial assistance through receiving or extending loans, guarantee, providing assets as collateral, including any other similar actions, which result in the applicant or his counterparty being subject to indebtedness payable to the other party in the value of three percent (3%) or more of the net tangible assets of the applicant or twenty million Baht or more, whichever is lower. The amount of such indebtedness shall be calculated according to the calculation method for value of connected transactions under the Notification of the Capital Market Supervisory Board Re: Disclosure of Information and Act of Listed Companies Concerning the Connected Transactions mutatis mutandis. The combination of such indebtedness shall include indebtedness taking place during the course of one year prior to the date on which the business relationship with the person commences; (e) neither being nor having been an auditor of any Relevant Entity, and not being a major shareholder, non-independent director, executive or partner of an audit firm which employs auditors of any Relevant Entity unless the foregoing relationship has ended not less than two years from the date of application filing with the Office; (f) neither being nor having been any professional advisor including legal advisor or financial advisor who receives an annual service fee exceeding two million Baht from any Relevant Entity, and neither being nor having been a major shareholder, non-independent director, executive or partner of the professional advisor unless the foregoing relationship has ended not less than two years from the date of application filing with the Office; (g) not being a director who has been appointed as a representative of the Company's director, major shareholder or shareholders who are related to the Company's major shareholder; (h) not having any characteristics which make him incapable of expressing independent opinions with regard to the Company's business affairs.

The Board had set the criterion for the amount of shareholding allowed to an independent director to be more stringent than laid out by the SEC, The Company’s independent directors are allowed to hold the Company’s share not exceed 0.5%.


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In this paragraph 4.1.6 a “Relevant Entity” means the Company, its parent company, subsidiary, affiliate, jointly controlled entity or juristic person who may have conflicts of interest.

4.1.7 Director’s Term of Office

According to Article 12 of the Articles of Association of the Company in every annual general meeting of shareholders, a new board of directors shall be elected.

4.1.8 Directors concurrently being directors of other companies To ensure that directors have sufficient time to perform his duties fully, the Company has

set the number of companies allowed for Chairman, directors to be directors of other listed companies as follows:

Chairman: only 1 company (except for companies in the same group)

Director: not more than 5 companies. The Company does not set limit for being directors in other non-listed companies.

4.1.9 Executives holding directorship in other companies Executives may hold directorship or executive positions in subsidiary, affiliates or jointly

controlled entity or other related companies in the same group. In case of holding positions in companies other than those in the same group, prior approval must be obtained from the Managing Director.

4.2 Sub-committees 4.2.1 Audit Committee The Audit Committee shall comprise at least 3 independent directors with at least 1

committee member possessing knowledge in finance and accounting. The Chairman of the audit committee shall not be the same person as the Chairman of the Board. The term of office shall be 3 years subject to re-election as directors at the annual election.

Duties and Responsibilities of the Audit Committee

1. To review the sufficiency, credibility and objectivity of the financial reporting. 2. To review the adequacy and effectiveness of internal control systems and internal audit functions and the independence of internal auditing unit as well as to approve the appointment, transfer, dismissing of the head of internal auditing unit or any other unit responsible for internal auditing. 3. To review compliance with the Securities and Exchange Acts, Regulations of the SET, and any other relevant laws. 4. To consider and advise the appointment of an independent person to work as the external auditors including the audit fee. The Audit Committee shall hold at least one meeting with the auditor without the management’s presence at the meeting. 5. To consider compliance with all connected transaction disclosures or the conflict-of-interests disclosures, to ensure that the transaction is justified and for the best benefit of the Company. 6. To report the activities of the Audit Committee in the Company's annual report, which must be signed by the chairman of the Audit Committee. The following information should be included in the report:

(6.1) Comments on the Company's financial reporting process and the disclosure of its financial information, which must be correct, sufficient, and credible.

(6.2) Comments on the adequacy of the Company's internal control systems. (6.3) Comments on compliance with the Securities and Exchange Acts,

Regulations of the SET, and any other relevant laws. (6.4) Statements on whether the Company's auditor is suitable (6.5) Comments on the transaction with potential conflicts of interest. (6.6) The number of audit committee meetings and meeting attendance of each

member.


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(6.7) General comments or observation from the performing of duties according to the Charter.

(6.8) Other statements that shareholders and general investors deem to be considered under the scope of the functions and responsibilities assigned to them by the board.

(7) To take care of any other matters assigned to it by the Board of Directors, with the consent of the Audit Committee.

In 2009 the Audit Committee held 4 meetings, with attendance of each member shown as below:-

Name Position Period of Directorship

Attendance / Total Meetings

(1) Mr. Thira Wipuchanin Chairman of the Audit Committee 2008-2011 4/4

(2) Vilas Sinswat Ph.D. Independent Director 2008-2011 4/4(3) Mr. Wasin Patchakapati Independent Director 2008-2011 4/4

4.2.2 Remuneration Committee The Remuneration Committee shall comprise a majority of independent directors with its chairman being an independent director who shall not be the same person as the chairman of the board. The term of office shall be 3 years subject to re-election as directors at the annual election.

Duties and Responsibilities of the Remuneration Committee 1. To set the criteria and procedure for determining remuneration of directors, executive

directors, managing director and proposed to the Board of Directors and/or the shareholder meeting for approval.

2. Other functions related to remuneration as assigned by the Board.

In 2009, the Remuneration Committee held 2 meetings, with attendance of each member shown as below:-


Attendance / Total Meetings

(1) Mr. Thira Wipuchanin Chairman of the Remuneration Committee 2008-2011 2/2

(2) Vilas Sinswat Ph.D. Independent Director 2008-2011 2/2(3) Mr. Wasin Patchakapati Independent Director 2008-2011 2/2(4) Mr. Whang Shang Ying Director 2008-2011 2/2

4.2.3 Nomination Committee The Nomination Committee shall comprise a majority of independent directors with its chairman being an independent director who shall not be the same person as the chairman of the board. The term of office shall be 3 years subject to re-election as directors at the annual election.

Duties and Responsibilities of the Nomination Committee 1. To specify the qualifications of candidates according to the structure, size and composition of the Board as set by the Board of Directors. 2. Selecting qualified candidates for appointment as directors and recommend to the Board 3. Selecting qualified candidates for executive positions especially, the managing director.


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In 2009, the Nomination Committee held 1 meeting, with attendance of each member shown as below:-


Attendance / Total Meeting

(1) Mr. Thira Wipuchanin Independent Director 2008-2011 1/1(2) Vilas Sinswat Ph.D. Independent Director 2008-2011 1/1(3) Mr. Wasin Patchakapati Independent Director 2008-2011 1/1(4) Mr. Whang Shang Ying Director 2008-2011 1/1

4.3 Board of Directors’ Meetings The Company shall meet at least once in every quarter provided always that the Chairman

of the Board may call special meetings as he deems necessary. The meeting schedule shall be set in advance annually and inform to each director in November every year.

The Company Secretary shall set agenda required to comply with the law and related

regulations. Other agenda shall be jointly set by the Chairman and the Managing Director. Other Director may also propose agenda items for the meeting by sending the agenda items through the Company Secretary 14 days prior to the meeting date. The Company Secretary shall collect all the proposed agenda items for the Chairman consideration before include them in the meeting agenda.

The Company shall send meeting document with the meeting notice, clearly stated the matter as for information, for approval or for consideration as the case may be, to all directors at least 7 days prior to the meeting date to enable each director to have time to study the information before the meeting. During the meeting, the Chairman will allocate sufficient time for the management to present detail information and answer additional questions from the directors, and allow sufficient time for the directors to discuss the matters. In 2009, the Board of Directors held 4 regular meetings. The attendance of each member is as follows :

Name of Director Period of Attendance (Times) Directorship Regular Extra Total

(1) Mr. Whang Tar Liang 2009-2010 3 - 3 (2) Mr. Thira Wipuchanin 2009-2010 4 - 4 (3) Vilas Sinswat Ph.D. 2009-2010 4 - 4 (4) Mr. Wasin Patchakapati 2009-2010 4 - 4 (5) Mr. Whang Shang Ying 2009-2010 4 - 4 (6) Mr. Somchai Chongsawadchai 2009-2010 4 - 4 (7) Miss Anchalee Suebchantasiri 2009-2010 4 - 4 (8) Miss Piyathida Sukchan 2009-2010 4 - 4

The minutes of the meeting shall be in writing stating the date, time of meeting commencement and termination, names of directors attending the meeting and directors absent from the meeting, summary of topics and issues as well as observation of the directors, resolutions and opinion of dissenting directors, name of persons recording the minutes and certifying the minutes. After being confirmed the minutes shall be kept by the Company Secretary and will be ready for examination by related parties. Non-executive directors may have meetings among themselves without the management present at the meeting in order to discuss management issues of interest. The result of the meeting shall be reported to the managing director. In 2009, there was 1 meeting of non-executive Directors which were not attended by Executive Directors.


15

4.4 Board Self Assessment The Company shall have the board assess themselves using the assessment form of the

SET’s Corporate Governance Center. The assessment will be done once each year in February. Each director shall hand in the completed assessment form to the Company Secretary to compile and report to the Board so that improvement can be considered.

4.5 Remuneration of Directors and Executives

1) Remuneration of Directors

The Remuneration Committee shall consider the criteria and principle and the form of remuneration for directors and make its recommendation to the Board. The Remuneration of directors shall be approved by the shareholder meeting. Comparison shall be made to other companies in the same industry, of the same experience, commission, scopes and roles and responsibilities as well as the remuneration survey of other companies listed on the SET. The remuneration shall be set at a level sufficient to attract and retain qualified persons.

Remuneration of Directors and Sub-Committees (Baht)

No. of Persons

2008 2009

Directors fees 8 4,380,000 4,476,000 Audit Committee fees 3 1,548,000 1,668,000

Besides monetary remuneration, overseas directors attending the meeting shall be reimbursed for air-tickets and accommodation. The Company also takes out insurance against director liability for directors and executives. It is to cover the risk of directors and officer in performing duties for the Company. However, protection will not be provided in the case of wilful misconduct or gross negligence or any act in bad faith.

2) Remuneration of Executives The remuneration of Executives shall be according to guidelines and policy set by the Remuneration Committee from time to time. The remuneration shall be commensurate to job scope competence and the performance of the Company. The remuneration Committee shall recommend the appropriateness of remuneration to the Board for review and approval. In 2009 Executive Directors, Managing Director and Executives jointly defined key performance indicators (KPIs) for assessment criteria used by the Remuneration Committee in assessing the performance of Executive Directors, Managing Director and Executives.

Executive Remuneration (Baht)

No. of Persons 2008 2009

Executives 8 13,667,585 13,618,414 Apart from salary and bonus, other forms of remuneration include Company’s cars, residence, medical expense, accidental insurance, and related expenses. The Managing Director and Executive Directors received no other forms of remuneration. Furthermore, some directors concurrently holding positions as directors and executives of subsidiary company will not receive remuneration from subsidiary company.


16

4.6 Board and Management Training

The Company arranges orientation for new directors, which includes factory tour arranged by the management to observe production processes as well as introduction to the nature of business of the Company and its subsidiaries. The following documents would be provided to the new directors: 1. Listed Company Director Handbook containing topics such as roles and responsibilities, things directors should not do as they are prohibited by relevant law, roles and responsibilities of sub-committees. 2. Good Corporate Governance Policy and Code of Business Conduct of the Company. 3. Memorandum and Articles of Association of the Company. 4. The latest annual report and form-56-1 annual submission. Furthermore, the Company has the policy to encourage directors to receive training or joining program to enhance knowledge regarding roles and duties as company directors and sub-committee members. Particularly, DCP program conducted by Thai Director Association to promote knowledge of company directors and understanding of rules and regulations relating to listed company directorship.

4.7 Code of Business Conduct

The Company recognizes that following code of conduct on the part of executives and employees is necessary for the sustainability and achievement of the Company in the long term. The Company believes that the code of business conduct is a basic foundation for promoting and upgrading good corporate governance. UPOIC has updated its code of business conduct as a codification of good behavior patterns which have been approved by the Board of Directors and announced to all directors, executives and employees. The Company has subsequently monitored the compliance to the code strictly and regularly.

4.8 Conflict of Interests 4.8.1 Prevention of using inside information

To prevent directors and executives from using inside information for personal gains and disclose it to outside parties, UPOIC sets the following rules:

Executives shall report their holding of UPOIC’s shares and report change of holding to the Securities and Exchange Commission (SEC) according to section 59 of the Securities and Exchange Act B.E. 2535 within 3 days of the transaction date and handing copy thereof to the Company Secretary as well as report shareholding to the Board every quarter. Future change of law (if any) shall also enforceable.

“Executives” means directors, manager or top 4 management officers from managing director downward. This shall include executive level accounting or finance officer of manager level or equivalence who have the duty to prepare and file report of shareholding both in his own name, spouse and minor child to the SEC.

Directors, executives, managers and employees who have access to inside

information shall be prohibited from disclosing such information to outside parties who has no duty involving the Company and shall refrain from buying and selling UPOIC’s shares in the period of 1 month prior to disclosure of Company financial statement to the public.

Directors, executives, managers and employees shall be prohibited from using

inside information, that may materially affect the share prices, which has not yet disclosed to the public, for personal gains and/or persuading other persons to buy or sell UPOIC’s shares. The Company shall take action against violation of the rule which shall be punishable by law.


17

In case directors, executives managers and employees intentionally commit any criminal act according to law on securities and exchange, the Company shall punish the violators by any one or more penalties as follows:

o cut wages or compensation or other benefits o layoff, dismiss, or discharge from the post of director, executive manager and

employee as it would be deemed intentionally causing damage to the Company’s reputation. In case the violator is a director, the matter shall be submitted to the shareholder meeting to consider the penalty.

o report the violation to the SET and the SEC o report to the police to take action according to the law o take other measures according to the resolution of the board or the

shareholder meetings. 4.8.2 Approval of transaction containing conflict of interest In the event that directors, executives, or other persons enter into related party transaction

or transaction containing potential conflict of interest and transaction regarding acquisition or disposal of material assets as defined by the Announcements of the SEC and the SET which are in force on the date of such transaction. The following rules shall be strictly followed:

(1) Person with interest or potential conflict of interest shall refrain from approving the transaction.

(2) The price or compensation for such transaction shall be under normal business terms and conditions with the benefit of the Company as the main consideration.

(3) The Audit Committee shall review and give opinion prior to the transaction. If the Audit Committee has no expertise in the matter, the Company shall arrange to have independent expert to give opinion to the Audit Committee which will be used in its scrutiny of the matter before submitting to the Board and the shareholder meeting for approval.

However, in order to facilitate normal business transaction, the Board has approved in principle to allow the management to do the transaction between the Company and its subsidiaries if the transaction fall into the following categories:

1. Being a transaction with the same commercial terms as those an ordinary person would agree with any unrelated counterparty under the similar circumstances, on the basis of commercial negotiation and without any dependent interest resulted from the status of the director, executive or related person. 2. Being reasonable advance payments occurring in the normal course of business operation and with reimbursement on an actual basis.

The management shall report transaction with value over 100,000 Baht to the quarterly Board meetings.

(4) The Company shall disclose the transaction according to the rule and procedure set out by the SEC and the SET.

4.8.3 To disclose information on the interest of directors, executives, and related

persons In order for the Board to make decision based on the common interest of the Company

and to have directors, executives who have transaction with interest involving the Company business to comply with the announcement of the Capital Market Supervisory Board no. Tor.Jor. 2/2552 re: Reporting of interest of directors, executives and related persons, UPOIC set the following rules:

Directors, Executives and related persons who have transaction with interest in

relation to management of the Company or its subsidiary with the value of 1 million Baht or more, or 0.03% of the Net Tangible Assets (NTA) of the Company or its subsidiary, whichever amount is higher, shall file a report to the Company Secretary, according to the report form, within 7 business days from the date of transaction. Every time there is a change of the transaction, such change must be reported within 7 business days from the date of change.


18

The Company Secretary shall submit a copy of the report on interest under

paragraph 1 to the Chairman of the Board and Chairman of the Audit Committee within 7 business days from the date of receipt of such report.

Directors and Executives who have interest in the agenda item under consideration of the meeting shall not participate in making decision and shall leave the meeting room. The Company will not send document related to the said agenda to such interested persons.

The Company shall disclose such interest in the annual report and Form 56-1.

4.9 Controlling System and Internal Audit In order to have an independent internal auditing which can be fully functioning the Audit

Committee arranged for the Company to hire an outside firm which is an audit firm in the list approved by the SEC to do the auditing, to ensure that the operations, financial activities of the Company have complied with the guidelines effectively, including compliance with the law and regulations. The internal auditor shall report directly to the Audit Committee every quarter.

4.10 Risk Management The Company set a policy that risk management is part of the management to achieve

objective, target, and strategic plans of the Company. Every executive and employee in the Company is the owner of the risk and has the duty to assess the risk in every unit and work process, assessing the efficiency and existing control measure and propose plan and method to reduce risk.

4.11 Succession Plan The Company has prepared for succession plan by recruiting management trainees to

develop knowledge and ability for being Company future executives. In addition, the Company assigned the following persons to take charge and act in behalf

in case the Managing Director is unable to function, namely, 1. Mr. Ampol Simarojana, Assistant Managing Director, to act and make decision regarding

the crushing mill of the Company and its subsidiaries; 2. Miss Anchalee Suebchantasiri, Executive Director to act and make decision in other

matters of the Company and its subsidiaries.

GENERAL INFORMATION

19

Company Profile

Name of Company : United Palm Oil Industry Public Company Limited No. of Registration : 0107536000404 (formerly Bor Mor Jor 114) Home Page : www.upoic.co.thNature of Business : A plantation company that produces crude palm oil

(CPO) and crude palm kernel oil (CPKO) Registered Share Capital : 324,050,000 Baht Outstanding common shares : 324,050,000 shares Par value : 1 Baht

Corporate Headquarters : 64 Floor 1, Soi Bangna-Trad 25, Bangna, Bangkok 10260 Tel 02-744 1046-8 Fax 02-744 1049

Krabi Office and Crushing Mill : 98 Moo 6, Nuaklong-Khao Phanom Road, Huayyoong Sub-District, Nuaklong District, Krabi 81130 Tel 075-666 075-80 Fax 075-666 072

Oil Palm plantation : Oil palm planted area of 44,354.82 rai (7,096.77 ha) excluding building sites, swamp reserves and nursery area

Details of Estates

1. Krabi Noi Estate 7,359.31 rai (1,177.49 ha) 78 Moo 4, Krabi Noi Sub-District, Muang District, Krabi 2. Khao Phanom Estate 5,191.19 rai (830.59 ha) 38/2 Moo 8, Khao Phanom Sub-District, Khao Phanom District, Krabi 3. Khao Khen Estate 3,032.25 rai (485.16 ha) Ao Luk Tai Sub-District, Ao Luk District, Krabi 4. Ban Mark Estate 3,840.75 rai (614.52 ha) 65/1 Moo 6, Bangsawan Sub-District, Prasaeng District, Surat Thani 5. Koh Noi Estate 3,582.38 rai (573.18 ha) 904 Moo 2, Bangsawan Sub-District, Prasaeng District, Surat Thani

Sub-total Company’s Planted area 23,005.88 rai (3,680.94 ha)

6. Khiansa Estate 8,467.44 rai (1,354.79 ha) -- subsidiary’s concession land 229 Moo 2, Khiansa Sub-District, Khiansa District, Surat Thani 7. Chaiburi Estate 12,881.50 rai (2,061.04 ha) -- subsidiary’s concession land 16 Moo 5, Chaiburi Sub-District, Chaiburi District, Surat Thani

Sub-total Subsidiaries Planted area 21,348.94 rai (3,415.83 ha)

Total Planted Area 44,354.82 rai (7,096.77 ha)

GENERAL INFORMATION

20

Companies in which the Company has investment holding of more than 10%

1 Name of Company : Phansrivivat Company Limited

Office : 98 Moo 6, Nuaklong-Khao Phanom Road, Huayoong Sub-District, Nuaklong District, Krabi 81130 Tel 075-666 075-80

Fax 075-666 072 Nature of Business : 99.99% shareholder in Phansri Company Limited and

Prachakvivat Company Limited , which own the concession of oil palm plantation with combined concession area of 30,600 rai

Registered Capital : 27,400 shares (par value of 10,000 Baht per share) Shareholding (common shares) : 27,394 shares or 99.98%

Remarks :

Phansri Company Limited Office : 98 Moo 6, Nuaklong-Khao Phanom Road,

Huayoong Sub-District, Nuaklong District, Krabi 81130 Tel 075-666 075-80 Fax 075-666 072

Concession Site : Chaiburi Sub-District, Chaiburi District, Surat Thani Concession Area : 20,000 rai Concession Period : from 2nd January 1985 to 1st January 2015 Registered Share Capital : 500 shares (par value of 10,000 Baht per share)

Prachakvivat Company Limited

Office : 98 Moo 6, Nuaklong-Khao Phanom Road, Huayoong Sub-District, Nuaklong District, Krabi 81130 Tel 075-666 075-80

Fax 075-666 072

Concession Site : Khiansa and Kamvaree Sub-District, Khiansa District, Surat Thani

Concession Area : 10,600 rai Concession Period : from 9th July 1984 to 8th July 2014 Registered Share Capital : 5,000 shares (par value of 1,000 Baht per share)

2 Name of Company : Siam Elite Palm Company Limited Corporate Headquaters : 64 Floor 1, Soi Bangna-Trad 25,

Bangna, Bangkok 10260 Tel 02-744 1046-8 Fax 02-744 1049

Krabi Office : 98 Moo 6, Nuaklong-Khao Phanom Road, Huayyoong Sub-District, Nuaklong District, Krabi 81130 Tel 075-666 075-80 Fax 075-666 072

Nature of Business : Oil palm seed propagation Registered Capital : 5,000,000 shares (par value of 10 Baht per share) Shareholding (common shares) : 2,500,000 shares or 50.00%

GENERAL INFORMATION

21

Other references

1. Registrar

Name : Thailand Securities Depository Co., Ltd. Address : 62 Rajadapisek Road, Klongtoey, Klongtoey,

Bangkok 10110 Tel 02-359 1200/01 Fax 02-359 1259

2. Auditor

Name : Ms. Siraporn Ouaanunkun Certified Public Accountant No. 3844

Address : Ernst & Young Office Limited 33rd Floor, Lake Rajada Office Complex, 193/136-137 Rajadapisek Road, Klongtoey, Bangkok 10110 Tel 02-264 0777, 02-661 9190 Fax 02-264 0789-90, 02-661 9192

: 4 No. of years beingthe Company’s Auditor

Relations or interestswith the Company /the Company’ssubsidiaries /the management /major shareholders /or any relevant personsof the aforementioned

: Ernst & Young is the Auditor of the Company’s subsidiaries, related company, and jointly controlled entity.

NATURE OF BUSINESS

22

United Palm Oil Industry Public Company Limited (UPOIC) is a plantation company that produces

crude palm oil (CPO) from its own source of fresh fruit bunches (FFB) as well as FFB purchased from outgrowers in the immediate area of the crushing mill (palm oil mill – POM). Other minor products are palm kernel oil (PKO) extracted from palm kernel (PK) and palm kernel cake (PKC) which are by-products from the earlier-mentioned process and mainly used for the feed mill industry. UPOIC has the largest holding under oil palm cultivation in Thailand with a consolidated planted area of 44,356 rai (7,097 hectares) straddling Krabi and Surat Thani provinces. UPOIC also owns a POM in Krabi province and with a processing capacity of up to 360,000 tons of FFB per annum (60 tons per hour). The palm kernel expeller plant (PKX) is capable of processing up to 26,500 metric tons of PK per annum. UPOIC’s current revenues come mainly from domestic sales. Its main products, namely CPO, PKO, PKC, CPO and PKO, are important raw materials for products such as edible (cooking) oil, pet food, butter, margarine, soap, shampoo, detergent, cleansing liquid, cosmetics as well as food ingredients for snacks and ice cream. PKC is mainly supplied to local poultry farmers and feed millers. Revenue structure (Segment analysis)

Product/Services 2007 2008 2009 Mil. Bht. % Mil. Bht. % Mil. Bht. %

Crude Palm Oil 541 84.80 1,098 84.12 692 84.00Crude Palm Kernel Oil 74 11.60 137 10.49 93 11.27Others 23 3.60 70 5.39 38 4.73Total Sales 638 100.00 1,305 100.00 823 100.00

Note : All sales are carried out by UPOIC itself.

NATURE OF BUSINESS

23

News Highlights of previous year

Share Capital : Changing of Par Value from 10 Baht to 1 Baht In order to enhance the liquidity of the Company’s shares trading on the Stock Exchange, the

change in the par value of the Company’s shares from 10 Baht to 1 Baht per share was approved by the Board of Directors on 25 February 2009.

Corporate Governance : Changing authorised directors who sign on behalf of Company In order to comply with the SEC definition of “amendment of required qualifications of independent

directors and audit committee”, which provided that audit committee shall not take part in the management of the company, the Board of Directors approved on 25 February 2009 to amend the list of directors empowered to act on behalf of the Company by excluding the audit committee members and amend Affidavit, clause 3.

Corporate Governance : Changing the position of Mr. Whang Shang Ying from Executive Director to Director In order to comply with the SEC definition of “director participation in management”, the Board of

Directors approved on 13 August 2009 to change the position of Mr. Whang Shang Ying from Executive Director to Director.

Corporate Governance : The establishment of Corporate Governance Principle and Code of Conduct United Palm Oil Industry Public Company Limited (UPOIC) recognises the importance of Good

Corporate Governance in promoting transparency in UPOIC’s operations, fair and equitable treatment to all stakeholders as well as an efficient management system aiming at sustainable growth. UPOIC therefore draws up this corporate governance policy to be used as the principle in its business operations, which has been approved by the Board of Directors on 13 August 2009.

The Company also recognises that code of business conduct on the part of executives and

employees is necessary for the sustainability and achievement of the Company in the long term. The Company believes that the code of business conduct is a basic foundation for promoting and upgrading good corporate governance. UPOIC has updated its code of business conduct as a codification of good behavior patterns, which update has been approved by the Board of Directors on 13 August 2009 and announced to all directors, executives and employees. The Company has subsequently monitored the compliance to the code strictly and regularly.

Production : CDM Biogas Project is completed

UPOIC constructed the biogas digester – a bio-energy project to generate power electricity and

distribute for company own and public consumption.

RISK FACTORS

24

1. Climate

Because the major raw material of the Group’s production comes from agricultural product, future financial performance of the Group is to a large extent dependent on uncontrollable factors such as weather condition, rainfall level, and the quantity of Fresh Fruit Bunch (FFB) harvested in Thailand in each season. For the Company itself in particular, the performance is also subject to the quantity and the price of Fresh Fruit Bunch (FFB) which have a material impact on cost of goods sold for its crushing mill.

2. Palm Oil Price Volatility

The monthly average price of CPO in 2009 fluctuated between 21.48 and 27.51 Baht/kg. The

average price was 24.33 Baht/kg, or a 16% decrease from 2008. More recently, because of usage of palm oil as substitution energy sources, petroleum oil price has become another main factor which affects palm oil price and this further increases the volatility of palm oil price. Faced with high volatility of price, the Company has taken steps to mitigate business risk by practicing cautious stock management of raw materials and products. Data on production, export and volume of palm oil inventory in the Kingdom and in other countries including world price of petroleum are closely monitored for the purpose of forecasting the price and volume of FFB to be supplied in the market each season.

3. Continuous increase of CPO crushing mills

There has been a continuous increase in the number of new CPO crushing mills, together with an expansion in the production capacity of existing mills. At present, there are approximately 65 CPO crushing mills, most of which are located in Krabi, Surat Thani, Chumporn, and Trang provinces, giving rise to a combined fresh fruit bunch (FFB) processing capacity of 18 million tons per year. Therefore, there is a serious mismatch between such overall high processing capacity and FFB output in 2009 at 8,021,495 tons (decrease from 2008 by 13.31%) from 2.8 million rai growing mature area. The milling utilized capacity is only 44% leading to competition in buying FFB and high prices, irrespective of quality.

The Company has taken steps to mitigate such high production cost, including its good management system, quality standard systems and participation in Energy Conservation Project and integration in the palm oil industry.

4. Part of Oil Palm Planted Areas Under Concession The Company has around 21,349 rai of oil palm planted area held under concession, equivalent to

48% of the total planted area of the Company. This comprises Chaiburi estate of 12,881.50 rai, whose concession will expire in 5 years, and Khiansa estate of 8,467.44 rai with 4 years before expiration. The latter area overlaps with royal land whose leasing terms and conditions may be subject to alteration. There is a risk that in the future the government might not extend the concession. In such a case, the Company has to buy a higher proportion of FFB from outside sources and may face increased raw materials cost, as a result. Being a major customer with good relations with growers in nearby areas and having continuously bought FFB from them, the Company is less likely to face raw material shortage. Moreover, with constantly improved production efficiency, the Company will be able to control its production cost.

5. Selling of CPO to Major Customer In 2008 and 2009, the Company sold 87% and 92% respectively of its CPO, CPKO, and FFB to one major customer, namely Lam Soon (Thailand) Plc. (LST). While this constitutes a risk of relying on any single major customer, the Company has had continued good relations with LST, who is also the Company’s major shareholder. LST is a separate public listed company with strong financial background and has enjoyed a good reputation in the palm oil industry. For these reasons, the Company considers that the risk of losing LST as its customer or that it will encounter financial difficulty is remote. In any case, the Company can sell its products to other customers. In particular, as palm oil is in demand not only as edible oil but also as alternative energy i.e. bio-diesel.

PALM OIL INDUSTRY AND COMPETITIVENESS

25

2009 Overview

Oil Palm Harvesting Areas At present, there are approximately 2.8 million rai of harvesting areas in the Kingdom. Around 95% of oil palm growing areas are located in Southern Thailand; i.e. the Provinces of Krabi, Surat Thani, Chumporn, and Trang. There is a trend to continue expanding oil palm growing areas especially in Central, Northern and North East parts of Thailand where the Agricultural Extension Department has been testing results for five years under the project of alternative crops. The project is part of the palm oil development plan for 2008-2012 to enlarge oil palm area by 2.5 million rai in total or 500,000 rai a year, together with the project of increasing production efficiency and development plan of alternative energy 15 years (2008-2022). The objective is to use CPO as a major feed stock to replace the imported petroleum and encourage the application of Bio-diesel B3 B5 and further developed B10. Hence, interested farmers started to grow oil palm in every parts of Thailand. It is estimated that expanding areas in those locations is 100,000 Rai per year and for Southern and Eastern parts are 300,000 Rai per year. In addition, 20,000 Rai of old mature areas mainly in Southern part are due for replanting.

With the expansion of new planting areas, the demand for production materials and labour is increasing. There will be development of employment and earning for workers in such areas and less migration of workers to other parts of the Kingdom. Also, such an increasing of the areas will require approximately 10 million of oil palm seeds to grow; benefiting palm material producers in the supply chain.

Oil Palm Output and Productivity In 2009, both quantity and price of FFB decreased. FFB

output decreased from 9.2 million tons in 2008 to 8.0 million tons. The lowest output was 430,145 tons in December and highest output was 828,083 tons in March. In total, 1,345,245 tons of CPO was produced in 2009, a decrease of 13% from 2008. By these figures, the Kingdom’s average oil extraction rate (OER) in 2009 was 16.8%, about the same as in 2008. CPO stock at end 2009 was 137,559 tons (source : Internal Trade Department), compared to 107,947 tons at end 2008.

Source: Internal Trade Department


26

Processing capacity The number of CPO crushing mills has increased from 43 in 1999 to 65 at present, giving rise to a

current total milling capacity of about 18 million tons of FFB per year, which is higher than FFB output registered at 8 million tons from harvesting areas of 2.8 million Rai. It corresponded to total mill capacity exceeding the current FFB supply by over 50%, contributing to palm oil market price volatility and ultimately hindering the development of the palm oil milling industry in Thailand.

Palm Oil Price and Market Condition In 2009, CPO price in world market was lower than that in

2008 after rising for three consecutive years; the 3rd month Bursa Malaysia derivatives CPO price ranged from a low of 1,740 Ringgit per ton in January to a high of 2,789 Ringgit per ton in May, or an average of 2,232 Ringgit per ton, a 22% decrease compared to 2,852 Ringgit per ton in 2008.

Monthly average domestic price of CPO in 2009 fluctuated less than in 2008 ranging between

21.48 – 27.51 Baht/kg (2008 : 17.02 – 36.26 Baht/kg). The monthly average domestic price of FFB fluctuated between 3.14 – 4.70 Baht/kg (2008 : 2.88 – 6.05 Baht/kg) (figures from the Internal Trade Department). The annual average price of FFB and CPO was 3.99 and 24.33 Baht/kg (2008 : 4.56 and 28.96 Baht/kg). The reason was mainly due to lower demand for petroleum fuel further causing the average price of diesel as well as the demand for palm oil to produce Bio-diesel to be lower.

Given the lower volatility of CPO price in 2009, the Internal Trade Department did not adjust ceiling

retail price of bottled palm oil during the year, which was maintained at 38 Baht per 1-Lt bottle (incl. VAT); whereas two adjustments were made on occasions in 2007 and another two in 2008.


27

15.8

7

15.4 16

.52

26.0

7

18.1

5

12.9

5

10.8

17.3

3

18.2

8

20.1

7

16.8

9

15.7

7

24.4

5 28.9

6

24.3

3

14.5

2

11.9

0 15.5

2

25.0

9

14.2

5

11 10.6

1

15.3

6

17.2

1

17.5

8

14.8

3

15.7

3

24.8

28.5

6

21.9

6

0

5

10

15

20

25

30

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bah

t/Kg

.COMPARISON OF CPO WHOLESALE PRICE BETWEEN BANGKOK AND

MALAYSIAN MARKET

CPO Wholesale Price in Bangkok marketCPO Wholesale Price in Malaysian market

Sources : Agricultural Economic Research, Internal Trade Department

Palm Oil Production for 2010

FFB trend will increase in 2010 because of an expansion of maturing areas and improved yield as a result of better production techniques such as the selection of planting materials, fertilisation, and upkeep and maintenance. In 2010, estimated FFB is 8.8 million tons representing an increase of 800,000 tons from 2009 or 10% addition. The smooth monthly distribution of the crop will be an average of 730,000 tons.

Due to the development of planting material in the last ten years and good practice in growing oil palm, FFB quality especially in term of oil extraction rate might be better than former years – in fact, the actual oil extraction rate (OER) is only 16.5-17.0% whereas it should be at 19.0%. This situation is because of the FFB purchased and distributed 80% are mediated by collection ramp owners – who kept the FFB overnight, sprayed them with water before delivery and separated loose fruits to be sold on its own to earn more profit; such practices critically lower the overall OER and swells free fatty acid.

An estimate of OER for 2010 is 16-17% which is similar to or slightly less than the 2009 OER for reason that in areas such as in Northern, North East, and Central Thailand, where the new oil palm planting are, the rainfall is lower than Southern part eventually resulting in lower quality FFB.


28

Impact of AFTA and Price Outlook for 2010

In principle, the import tax of palm oil under ASEAN Free Trade Association (AFTA) has been lowered to 5% since 1st January 2003. However, such import has only been allowed under some certain criteria approved by the Government Cabinet, the procedure of which is supervised by the Public Warehouse Organisation (PWO) as a tool intended to lessen the volatility of Thai palm oil market.

After several years delay, 1st January 2010 should have been the real deadline for AFTA to fully

take effect. However, oil palm growers in Thailand who are uncompetitive compared to Malaysia and Indonesia are still demanding the Thai Oil Palm Board (TOPB), as the Government’s arm in charge to impose criteria and necessary procedures to retain some protection for the industry such as the following.

1. set up the quantity / quality and standard specification of imported edible palm oil; 2. determine the low season period during Nov-Dec/Jan for importing edible palm oil; 3. authorise PWO as the sole importer. However, in view the trade liberalisation commitment and appropriate period of time for

implementation, it is believed that AFTA would eventually come into full function in 2010 under very minimal constraints. Once this happens, the major competitors include neighbouring Malaysia and Indonesia whose oil palm plantations and palm oil exports volume are larger in scale and enjoy lower cost compared to Thailand will enter the Thai market. Moreover, about 80-90% of their plantations are owned by large corporations. As such, the production costs of both Malaysia and Indonesia are comparatively low run by economy of scale. The structure of Thailand is the reverse i.e. most plantations belong to small farmers leading to high production costs. AFTA will affect the profit margin of Thai oil palm industries by having to lessen FFB and CPO prices to effectively compete in the world market. Assuming there are no intervention measures from government agencies, average price for FFB is estimated 3.00-3.50 Baht/kg and 20.00-22.00 Baht/kg for CPO.

In the longer term we foresee the potential of AFTA to enhance the sustainable growth and

development of the Thai palm oil industry. Players in the industry will be competing on a level playing field. Smuggling oil will automatically disappear. VAT avoidance is also likely mitigating in parallel. In this regards, the Company will benefit from such movement thanks to free flow of its feedstock. AFTA could open up the development of palm oil and its diversification into advanced downstream processing industry, which practically require huge investment budget for economy of scale production such as biochemical and Bio-diesel industry in particular.

Forecasted Demand for Bio-Diesel

2008 2009 2010 2011 2012 B2 B3 B5

Demand for B100 (Mil. Liters/day) 1.16 1.33 2.07 3.02 3.40 Demand for CPO (Mil. Tons/year) 0.39 0.45 0.68 1.02 1.06

Source : Ministry of Energy

Equilibrium of CPO Demand & Supply in 2009 (TH)

Supply (‘000 MT.) Demand (‘000 MT.) Opening Stock 108 Local Consumption 718 Production 1,345 Bio-diesel 450 Import -0- Export CPO 67 Export refined olein

(converted to CPO) 80

Ending Stock 138 TOTAL 1,453 TOTAL 1,453


29

Equilibrium of CPO Demand & Supply in 2010F (TH / MY / ID)

(‘000 MT.) THAILAND* MALAYSIA INDONESIA

Opening Stocks 138 1,950 1,750 Production 1,452 18,000 22,400 Import 200 650 40 Export 100 16,030 17,000 Local Consumption (+Bio-diesel)

1,550 2,670 5,340

Closing Stock 140 1,900 1,850 Stocks/Usage 8.5% 10.2% 8.2%

* Company Forecast Growth Trends in the Palm Oil Industry

1. Bio-diesel To encourage conservation of the environment and to lessen global warming by reducing the

reliance on petrochemical products, Thai state policy has been promoting the development of substitute energy. Biodiesel will eventually become an important alternative energy source of petroleum fuels. Thailand as an agricultural country produces adequate foods for its citizens and has surplus to supply foreign countries. As such, it is able to develop more energy crop. However, significant volatility of petroleum fuel prices such as occurred in 2008 would increase risk in managing cost of substitute bio fuels.

Furthermore, to produce substitute bio fuels from food crops it might be necessary to introduce complementary measures to explicitly demarcate growing for foods from producing for energy sources. Otherwise it would affect industrial food pricing structure. In the United States of America, for instance, a large amount of corn was manufactured into ethanol and caused high price of corn. This had the result of corn growers preferring to sell corn to the corn ethanol manufacturer rather than food producers.

In 2008, the Ministry of Energy has ordered every fuels traders to sell bio fuel – B2 (2% of B100 bio fuel mixed to diesel oil) instead of petro fuels effected from 1st February 2008. There are plans to sell B3 and B5-bio fuels in 2010 and 2011 respectively. In 2011 there will be demand for 3 million liters of B100 per day or equivalent to 1 million ton CPO, compared to 300,000-400,000 tons CPO per year to produce B2 nowadays. To do so, however, palm oil supply needs to expand 2.5 million rais of oil palm planting by using certified planting materials to grow in vacant land, disused paddy field, acid soil areas, and swamp rubber areas for which palm oil development plan for 2008-2012 has budgeted of 9,500 million Baht. Therefore, in addition to the existing areas of 3 million rais, a total of 5.5 million rais is needed to produce about 9 million tons of CPO to support B5 bio-diesel utilisation.

Price and supply of palm oil are the important constraints to produce bio fuels; if CPO price continuing to be at a high level. The following situations will arise:

1. B100 producer to stop the process; 2. High cost of producing bio fuels undermines the policy to promote alternative source of

energy, while increasing cost of consuming palm oil products and eventually affecting food industry;

3. Without free market under AFTA, palm oil continues to be smuggled from abroad; 4. Obstacle from legal restrictions on selling of B3- bio fuel.

2. The industry of oil palm seed and seedling production

Steadily rising FFB price will logically attract growers to proper planting material, efficient

fertilisation, soil and water conservation, standard harvesting practice, and ultimately high productivity. Furthermore, oil palm growing areas is expected to expand as rubber is replanted with oil palm.


30

The production of quality oil palm seed and its seedling in the up-stream industry is the key factor

to efficiency of oil palm production. The use of quality seed will not only yield high output per rai but also high oil extraction rate (OER), resulting in 40% increase of output compared to unqualified seed. To date, about 400,000 rai have been planted with unqualified oil palm seed due to insufficient supply of quality seed and seedling in Thailand. Recently, with FFB price at a high level and Government support for the expansion of planted areas, growers in many areas outside the south have become interested in growing oil palm. This could lead to a shortage of quality oil palm seed. The private sector therefore has started producing oil palm seed and seedling for resale to meet demand of growers. However, research and development of outstanding planting material has taken more than 30 years to investigate yield through out the growing generation.

3. Utilisation of factory waste and by-product

By-product and scrap from mill process comprise more than 60% of input materials. Palm oil

extraction process consumes a lot of water and produces waste water with high organic elements contamination. Other solid by-products are empty fruit bunch, fruit fiber, fruit shell, and decanter cake which are biomass – an important energy source. Utilisation of these by-product and waste would not only cut disposal expenses but reduce environmental pollution. Therefore, state organisation such as the Energy Ministry has provided financial support and technical advice to encourage usage of biomass as current source of electricity and production of biogas from crushing mill waste water. The crushing mill uses electricity from biomass either as its own energy source or to sell to Provincial Electricity Authority (PEA). Biogas and biomass electric-powered system, which have been implemented in some crushing mills, will expand in the near future by using their residual waste materials from production as bio-fuel for steam boiler in the crushing mill as a substitute for petroleum fuel.

At present, there is an effort to solve the problem of green house effect and emission of green

house gas which is a cause of the world climate change. Although Thailand is not under any commitment to reduce its cabon dioxide emission, it is one of the countries with which industrial countries intend to cooperate to undertake green house gas emission reduction project. They aim to share carbon credit under the Clean Development Mechanism (CDM) which is known as the Certified Emissions Reduction (CER : 1 CER = 1 ton CO2 equivalent reduction). At present, a number of crushing mills are attracted to join this project.

4. Future development of the palm oil industry

Oil palm is a crucial economic crop. As such it needs to be supported by an integrated and

comprehensive R&D starting from planting, harvesting, quality maintenance, oil extracting to downstream applications of oil palm in related industries such as oleochemical industry. The palm oil industry can then develop a variety of value-added palm-based products and utilisations.

As explained earlier, the palm oil industry has the potential capability to make use of biomass and biogas as energy sources, providing alternative to more expensive petroleum fuel. In order to sustain competitive capability of the business and to successfully develop alternative energy sources, proper measures have to be adopted to achieve efficiency improvement in energy and environment management. In addition, the state government has urgently supported oil palm planting project to produce bio-diesel as a substitute energy source. In the near future, consumed demand of CPO is expected to increase to about 2 million -3 million tons per year after the government made it compulsory to use “B2” Bio-Diesel since February 2008, and “B3” and “B5” Bio-Diesel in 2010 and 2011 respectively. Moreover, this industry may be further diversified by bio-refinery hi-tech process for the production of paper pulp, wood pulp and other supporting industries that will arise subsequently.


31

Competition

As explained earlier, Thailand currently faces a shortage of FFB, with its 65 crushing mills having

low average utilisation of production capacity. Because of the short supply and the intense competition in buying FFB to reduce the average processing cost, the quality of raw materials is sometimes over-looked. Another uncontrollable factor, namely weather condition, has a direct impact on volume of FFB to be supplied to the market in each season. External factors determining domestic CPO price include world market price and the price of other substitutable vegetable oils and, increasingly, petroleum fuel price as well.

Furthermore, in the past years, not only the volatility of petroleum oil price but also intervention policy enforced by the Government, especially during 1-2 years ago, greatly affected CPO price structure in Thailand. Such unpredictable factors make it difficult to make forecasts about the Thai palm oil industry.

There has been an increase in over supply of palm oil after basic consumption in the Kingdom from

300,000 tons to 600,000 tons at present. Nevertheless, pricing and quantity fluctuations from year to year remain an obstacle for the market to reach equilibrium before it is ready to further develop downstream industries.

The implementation of AFTA is a tool intended to lessen the volatility of Thai palm oil market. In

the longer term we foresee the potential of AFTA to enhance the sustainable growth and development of the Thai palm oil industry. AFTA could open up the development of palm oil and its diversification into advanced downstream processing industry, which practically require huge investment budget for economy of scale production such as biochemical and Bio-diesel industry.


32

PERFORMANCE OF PALM OIL IN THAILAND 2009 (Source: Internal Trade Department)

PRODUCTION OF CRUDE PALM OIL (’000 tons)

0

20

40

60

80

100

120

140

160

180

J F M A M J J A S O N D

2007 2008 2009

CLOSING STOCK OF PALM OIL(’000 tons)

0

20

40

60

80

100

120

140

160

180

200

220

240


2007 2008 2009


33

EXPORT OF PALM OIL (’000 tons)

0

10

20

30

40

50

60

70


2007 2008 2009

LOCAL DELIVERED CRUDE PALM OIL PRICE

(Baht/kg)

0

5

10

15

20

25

30

35

40


2007 2008 2009

MANAGEMENT DISCUSSION AND ANALYSIS

34

Operation Overview

Production: 1. CDM Biogas Project is complete UPOIC constructed the biogas digester – a bio-energy project to generate power electricity and distribute for company own and public consumption. The project is being applied under the United Nations Clean Development Mechanism (CDM). The system is to digest palm oil mill effluent and capture the methane gas for power generating plant which reduces greenhouse gas emissions. The project is commissioning in October 2009 at electricity generating capacity of 2 Megawatts, which are sold to the Provincial Electricity Authority (PEA). In 2009, the Company sold electricity at 614,819 Kwh to the PEA amounting to 2.2 Million Baht. 2. Siam Elite Palm – an affiliate company to produce best quality oil palm seeds Siam Elite Palm (SEP) is a joint venture between UPOIC and PalmElit SAS established in 2006. In 2009, CIRAD, a France state own agricultural development corporation, founded its subsidiary PalmElit SAS with SOFIPROTEOL; Armed with its experience at CIRAD, the PalmElit team gathers and interprets results from an international network of research partners and multi-site trials. CIRAD® seeds are produced by its long-standing partners in Benin (CRA-PP), Ivory Coast (CNRA), Cameroon (CEREPAH) and Indonesia. In order to guarantee availability at all times, seed gardens have also been set up under license in Colombia, Ecuador, and recently in Thailand by Siam Elite Palm. A series of selected top characters parent palm progenies among the multi-site trials is introduced to SEP and has been planting up in Krabi province since 2007. To ensure the renowned seed quality and guaranteed by routinely applied standardised procedures the company can produce elite seeds for sale to oil palm growers from 2012 onwards. The Society and the Environment: 3. UPOIC has accomplished standard systems UPOIC is continually developing quality, health and safety, environmental management system, and Corporate Social Responsibility. The company has been certified with standard systems namely ISO9001, ISO14001, OHSAS18001, CSR, and Kosher and Halal by the certified body representatives such as TUV SUD and SGS. The certification of TLS8001 (Thai Labor Standard) compliance is also in process. The scope of certification is covering most of activities starting from oil palm seed germination, seedlings production, clearing and planting, upkeep of plantation, harvesting and delivery, palm oil and kernel oil processing, and biogas plant and power generation and distribution. Especially, UPOIC is the first to have the oil palm plantation certified for such systems in Thailand. 4. UPOIC is a member of RSPO UPOIC has been an ordinary member of the Roundtable on Sustainable Palm Oil (RSPO) since 2008 and the company is commited to become certified as a supplier of sustainable palm oil in the near future. RSPO will be formulating a global Sustainability Standards principles and criteria to ensure the production does not harm environment or stakeholder and is economically efficient. There is careful use of natural resources, the fair treatment of workers and the efficient design of production processes and gives concrete guidelines for the implementation of sustainable development.


35

Financial Overview

Financial performance analysis and explanation

1. Review of operations

Estate operations

The Company has been implementing the replanting programme since 2001. As of 2009, 45.60% out of the total area has already been replanted. Of such replanted areas, only 69.68% can be harvested as oil palm ordinarily starts to give crop 2.5 years after planting and reaches the peak cropping period from 7 years onwards. Furthermore, the aging of palm trees located in Khiensa and Chaiburi, accounting to 51.87% of the total area, was 20 years old in average. For those reasons, the overall owned FFB crop in 2009 dropped by 18.20% compared with what was achieved in 2008, a year which produced the maximum volume of FFB crop in nearly 10 years. For such replanting programme, the Company has been ordering CIRAD® oil palm seeds which are recognised for their high yield per rai and high oil extraction rate. Besides, such oil palm seedlings were also resold to growers as quality planting materials. Oil palm has been on the restricted list of imports since 2008. By the time the Company was granted Import Permit of oil palm seeds in February 2009, the replanting programme then was postponed from the schedule and the Company had missed the selling opportunity of oil palm seeds as a consequence of the delay.

Mill operations

For reasons explained earlier (see PALM OIL INDUSTRY AND COMPETITIVENESS : Palm Oil Price and Market Condition), the volume of purchased FFB crops were reduced by 40.75% despite the average price of FFB purchased by the Company in 2009 decreased by 19.53% from 2008. As such, the volume of FFB processed decreased by 27.05% from 2008. Of the total FFB processed, 34.09% was from FFB purchased and 65.94% from own estates, compared to 41.63% and 58.37% respectively in 2008. Corporate income tax exemption privilege no. 1817/2539, dated December 11, 1996 from profits of CPKO production expired in March 2006. However, the Company continues to enjoy a 50% reduction in corporate income tax rate on profits arising from this project until 2011. The Company received corporate income tax privilege no. 1043(2)/2548, dated January 18, 2005 from the Board of Investment under CPO and Palm Kernel Seed production capacity at 15 tons FFB/hour by being exempted from corporate income tax on business operation of an aggregate value not higher than 100% of investment value (excluding land value and working capital) for 8 years starting from the first date of realising income (January 7, 2009). The Company received corporate income tax privilege no. 2245(9)/2550, dated December 18, 2007 from the Board of Investment under electricity produced from biogas power plant being exempted from corporate income tax on business operation for 8 years starting from the first date of realizing income. The Company has not yet started to execute the BOI privilege for this project. Additionally the BOI privilege no. 1262(2)/2550, dated March 13, 2007 for the project of oil palm seed propagation provided exemption of corporate income tax on business operation for 8 years starting from the first date of realizing income. Its jointly controlled entity has not yet started to execute the BOI privilege for this project.

Sales

Total sales in 2009 decreased by 481.66 million Baht or 36.90% from 2008, which was caused by CPO dropping by 37.00% and CPKO at 32.40% in term of value, both sales value of which contributed 95.24% of total sales. The average selling price of CPO and CPKO was decreased by 17.97% and 39.53%


36

respectively. In addition, sales volume of CPO dropped by 23.19% because of the lower FFB processed as mentioned above.

Other Revenues

Other revenues of the group decreased by 4.02 million Baht or 14.65% when compared with 2008 due to:-

‐ sales on sludge oil decreasing by 5.25 million Baht; ‐ the reversal of allowance for diminution in inventory value increasing by 3.41 million Baht. ‐ Interest income decreased by 3.44 million Baht because of the lower banking deposit rate.

Cost of Sales and Selling and Administrative Expenses

‐ Cost of sales in 2009 was 66.26% of net sales (2008 : 57.87%) due to the decrease in

average selling prices of CPO and CPKO at 17.97% and 39.53% respectively. ‐ Selling expenses decreased by 14.53 million Baht because of lower transportation cost

corresponding to the decrease in sales volume. ‐ Allowance for diminution in value of inventory decreased by 5 million Baht because the

market price dropped sharply since the third quarter 2008, resulting in the cost of inventories at the end of 2008 being higher than the market price. As such, the Company recorded a decrease in allowance for diminution in value of inventory in 2009.

‐ Losses on write off of property plant and equipment decreased by 18.27 million Baht due to destruction of ungerminated palm seeds in 2008 which the Company had imported for sale in 2007. At that time, the price of rubber was so high that the farmers shifted to growing rubber instead of palm, leading an excess supply of palm seeds in the market. Hence, imported palm seeds could not be processed according to schedule.

Consolidated Profits

As mentioned above, operating profit decreased by 236.12 million Baht or 51.26% while the

operating profit margin decreased to 27.26% in 2009 (2008 : 35.29%). Net profit margin decreased from 24.88% in 2008 to 20.20% in 2009. The group recorded a decrease in net profit of 160.46 million Baht or 48.40%; earnings per share (EPS) in 2009 was 0.53 Baht (2008 : 1.02 Baht).

Return on Shareholders’ Equity

From the above reason, the decrease in 2009 net profit caused return on shareholders’ equity to decrease from 33.62% in 2008 to 18.39% in 2009.

2. Financial status Assets

The Company and its subsidiary have total assets of 1,024.21 million Baht, compared with 1,077.46

million in 2008, accounting to 4.94% decrease. Return on assets decreased to 16.70% (2008 : 30.77%). The major factors for which are as follows:-

- Cash and cash equivalents decreased by 67.92 million Baht because in 2009 the Company recorded lower sales value than 2008.

- Trade accounts receivable from related party increased by 17.80 million Baht because at the end of 2008 when FFB price was low, the Government supported farmers by implementing the price intervention policy and offering CPO price much higher than the market price at that time, leading to CPO price varied. For this reason, during the end of 2008 the volume sales of CPO to a related party were reduced.

- Trade accounts receivable from an unrelated party decreased by 18.17 million Baht because in 2009 the sales contract with such unrelated party was expired.

- Inventories decreased by 37.20 million Baht due to the decrease in CPO price during the end of 2008. As a consequence, the Company delayed selling stock at the end of 2008 resulting in higher inventories in 2008.


37

- Net property, plant, and equipment increased by 40.45 million Baht, derived from the BOI

expansion project to increase the production capacity. - Other non-current assets increased by 2.96 million Baht owing to the increase in deposit of

machinery purchased.

3. Source of Fund

Source of Fund

The Company and its subsidiary had total debt to shareholders’ equity ratio at 0.10 times in 2009 (2008 : 0.09). The major source of fund derived from shareholders’ equity which stemmed from the operating performance of each year.

Shareholders’ equity Shareholders’ equity decreased by 55.76 million Baht from 2008 due to :- - Net profit of 171.07 million Baht in 2009. - Dividend payment from operating result of Q4/2008 and from interim dividend payment from

operating result of first nine-month 2009 at 226.83 million Baht.

Liabilities The Company and its subsidiary recorded liabilities at 93.81 million Baht, which comprised current

liabilities at 73.34 million Baht and non-current liabilities at 20.47 million Baht, increased by 2.52 million Baht from 2008 or 2.76% , due to:-

- Trade accounts payable increasing by 2.09 million Baht as a result of price intervened by the Government at the end of 2008 leading to higher price of FFB and CPO. The Company, hence, delayed buying FFB.

- Accrued corporate income tax decreasing by 0.91 million Baht following the lower net profit in 2009 than in 2008.

- Accrued expenses decreasing by 2.02 million Baht mainly due to the decrease in accrued bonus payment.

- Accounts payable for purchase of machinery increasing by 3.38 million Baht due to investment in machinery and equipment of expansion project.

Financial liquidity Cashflow

At the end of 2009, the Company and its subsidiary recorded cash and cash equivalents at 70.09

million Baht, decreasing from 138.02 million Baht at the end of 2008. The major reasons are as follows: - net cash flow from operating activities of 279.23 million Baht decreasing by 151.45 million

Baht was because of lower profit; while cashflow increased from inventories reducing by 51.47 million Baht.

- net cash flow used in investing activities of 120.32 million Baht compared with 178.62 million Baht in 2008 derived from acquisition of property, plant, equipment and computer software decreasing. - net cash flow used in financial activities amounting to 226.83 million Baht derived from

dividend paid from the operating results of Q4/2008 at 129.62 million Baht and nine-month of 2009 at 97.21 million Baht.

Thus, in 2009 the Company and its subsidiary had net decrease in cash and cash equivalent of

67.92 million Baht (2008 : 39.58 million Baht). The Company and its subsidiary have brought forward cash and cash equivalent from 2008 at 138.02 million Baht; therefore, cash and cash equivalent at December 31, 2009 was 70.09 million Baht.


38

Financial ratios

- The ratio of current assets to current liabilities was 1.96 times in 2009 (2008 : 3.41 times)

because cash and cash equivalents dropped by 67.92 million Baht Company resulting from a lower sales in 2009. Inventory in 2009 also decreased by 37.20 million Baht. Current liabilities increased by 3.38 million Baht due to the purchase in machineries in the BOI expansion project.

- For the same reasons, as the Company had lower cash and cash equivalents and inventory in 2009 as explained above, the quick ratio in 2009 was 1.59 times (2008 : 2.50 times).

- The ratio of cash flow from operating activities to current liabilities was 3.81 times in 2009 (2008 : 6.08 times) owing to a decrease in operating profit.

4. Capital expenditure

Capital expenditure was incurred mostly for improvement of mill efficiency and replanting programme. This replanting programme of 450 hectares per annum started from 2001 and will last 10 years. Replanted oil palms will produce FFB from the age of 2.5 years onwards and will generate high volume of FFB from the age of 7 years onwards.


39

Factors which might affect financial performance in the future

Factors which affect the Company’s future operating results are FFB quantity, FFB price, palm oil quantity utilized by bio-diesel industry, an increase in the number of CPO crushing mills, the Company’s replanting programme including the Government sanction to shore up FFB and CPO price in order to support farmers.

Apart from the uncontrollable natural factor and government intervention, trade liberalisation of palm oil under AFTA with the reduction of import tax to 5% is expected to materially affect the future of Thai palm oil industry. The major competitors include neighbouring Malaysia and Indonesia whose oil palm plantations and palm oil exports volume are larger in scale and enjoy lower cost. AFTA, which is scheduled to commence on 1 January 2010, will compel Thai oil palm industries to reduce FFB and CPO prices, thus affecting their profit margin.

In addition, palm oil presently plays a major role as an alternative source of energy. To blend with

the optimum proportion with diesel, it can significantly reduce the demand for diesel. Bio-diesel is expected to be the essential alternative source of energy in the future. The Government policy to determine the volume of palm oil import and export will greatly affect the palm oil industry as well. Remuneration of statutory auditor

1) Audit Fee

The Company, its subsidiaries, and the related companies nominated the same office of the statutory auditor and paid audit fee as follows:-

2009 2010 - for the Company 900,000 Baht 900,000 Baht - for one subsidiary 60,000 Baht 60,000 Baht - for related companies 245,000 Baht 280,000 Baht Total 1,205,000 Baht 1,240,000 Baht

2) Non-Audit Fee

The Company paid a fee to the statutory auditor for verifying BOI project including imported machineries and corporate income tax submission.

2009 2010

- a fee per BOI project --0-- Baht 100,000 Baht

SHAREHOLDERS AND MANAGEMENT

40

Shareholders

As at 30 November 2009, the top ten shareholders and their holdings are as follows:-

Shareholder’s Name Percentage of

Paid-up Capital

1. Lam Soon (Thailand) Plc.* 69.96 2. Wattanachote Co., Ltd. 6.86 3. Mr. Somkiat Peetakanonda 2.05 4. Bangkok Insurance Plc. 1.86 5. Mr. Thammanoon Sahadithdamrong 1.23 6. Wattanasophonpanich Co., Ltd. 1.12 7. Mr. Boonserm Kumpwongpetch 0.80 8. GreenSpot Co., Ltd. 0.73 9. Mr. Dusadee Thanissaranont 0.72

10. Mr. Chawalit Tsao 0.71 Source : Thailand Securities Depository Co., Ltd.

* Lam Soon (Thailand) Plc. is a manufacturer and distributor of vegetable oil products, margarine and shortening. As at 13 March 2009, shareholders holding not less than 10% of Lam Soon (Thailand) Plc. are as follows:-

Shareholder’s Name Percentage of

Paid-up Capital 1. Lam Soon Holding Co., Ltd. 42.11 2. Hap Seng Consolidated Berhad 20.00 3. CIMB-GK Securities Pte Ltd 11.02

Source : Thailand Securities Depository Co., Ltd.


41

Board of Directors and Management Committee

1. The Composition of Board of Directors and Sub-committees

- Board of Directors (1) Mr. Whang Tar Liang (2) Mr. Thira Wipuchanin (3) Vilas Sinswat Ph.D. (4) Mr. Wasin Patchakapati (5) Mr. Somchai Chongsawadchai (6) Mr. Whang Shang Ying (7) Ms. Anchalee Suebchantasiri (8) Ms. Piyathida Sukchan (9) Mr. Yut Sakdejayont

Chairman of Board of Directors Independent Director Independent Director Independent Director Managing Director Director Executive Director Executive Director Company Secretary

- Audit Committee (1) Mr. Thira Wipuchanin (2) Vilas Sinswat Ph.D. (3) Mr. Wasin Patchakapati

Independent Director and Chairman of Audit Committee Independent Director Independent Director

- Nomination Committee (1) Mr. Thira Wipuchanin (2) Vilas Sinswat Ph.D. (3) Mr. Wasin Patchakapati (4) Mr. Whang Shang Ying

Independent Director Independent Director Independent Director Director

- Remuneration Committee (1) Mr. Thira Wipuchanin (2) Vilas Sinswat Ph.D. (3) Mr. Wasin Patchakapati (4) Mr. Whang Shang Ying

Independent Director and Chairman of Remuneration Committee Independent Director Independent Director Director

The details of duties and responsibilities of the Board and Sub-committees were presented in item 4.2 under “REPORT ON THE IMPLEMENTATION OF PRINCIPLES OF GOOD CORPORATE GOVERNANCE”. The following member of the Audit Committee has an experience in reviewing financial statements. Member of the Audit Committee Experience in reviewing financial statements Mr. Thira Wipuchanin (The Chairman of the Audit Committee)

Was Senior Executive Vice President (SEVP), Export-Import Bank of Thailand (1997-2003)

2. The Criteria on recruiting Directors and Management

The Nomination Committee is to recruit the suitable candidates to replace directors whose terms are expired in April 2010 by including the consideration of candidates proposed by shareholders under the rules and criteria regarding director nomination before submitting to the Board for further consideration. The Board shall submit a list of suitable candidates to the shareholders meeting for final approval. The qualification of such persons must conform to SEC regulations, and they must be knowledgeable and possess the relevant experience beneficial to the Company.

The qualifications of Independent Directors were presented in item 4.1.6 under “REPORT ON

THE IMPLEMENTATION OF PRINCIPLES OF GOOD CORPORATE GOVERNANCE”.


42

In accordance with the Company’s Articles of Association, the Company has not determined the number of directors based on proportionate shareholdings in the Company but the election for directors can be done as cumulative voting, which will allow shareholders to vote electing Directors based on proportionate shareholdings.

3. The Number of Board Meetings and the Attendance of Directors

In 2009, the Board of Directors held 4 below:-

meetings, with attendance of each member shown as

Name Attendance / Total Meetings 4/3 gnaiL raT gnahW .rM )1( 4/4 ninahcupiW arihT .rM )2( 4/4 .D.hP tawsniS saliV )3( 4/4 itapakahctaP nisaW .rM )4( 4/4 iahcdawasgnohC iahcmoS .rM )5( 4/4 gniY gnahS gnahW .rM )6( 4/4 irisatnahcbeuS eelahcnA .sM )7( 4/4 nahckuS adihtayiP .sM )8(

4. Names and Position of the Management

Name Position(1) Mr. Somchai Chongsawadchai Managing Director (2) Ms. Anchalee Suebchantasiri Executive Director

rotceriD evitucexE nahckuS adihtayiP .sM )3(rotceriD gniganaM tnatsissA anajoramiS lopmA .rM )4(

(5) Mrs. Yupadee Opaspimoltham Sales & Quality Assurance Manager

reganaM yrotcaF deeaY tariahC .rM )6( reganaM noitatnalP targnoR dikmoS .rM )7(

reganaM tnempoleveD ssenisuB nahtalohC turaS .rM )8(

5. Details of Executive Board and Company Executives

(1) Name : Mr. Whang Tar Liang Position : The Chairman

Age : 83 years Education : Bachelor of Science Degree,

University of California at Berkeley, U.S.A. % of share holding : None The number of directorships in listed companies - Chairman : 2 companies - Director : 0 company

Family relation with management: Mr. Whang Shang Ying’s father Other Experience :

Chairman and Executive Director, Lam Soon (Thailand) Plc. Director, Lam Soon Holding Co., Ltd. Director, Bangkok Edible Oil Co., Ltd. Chairman and Group Managing Director of The Lam Soon Group for Singapore, Malaysia

and Thailand Independent Director of G.K. Goh Holdings Limited, a public listed company in Singapore

Chairman/Deputy Chairman, Singapore Manufacturers’ Association Deputy Chairman, The Public Service Commission of Singapore

Note : present experience past experience


43

(2) Name : Mr. Thira Wipuchanin

Position : Independent Director and Chairman of Audit Committee Age : 61 years

Education : BA Business Administration and Economics, University of Wisconsin, U.S.A.

% of share holding : None The number of directorships in listed companies - Chairman : 1 company - Director : 5 companies Family relation with management: None

Other Experience : Independent Director and Member of Audit Committee, Precious Shipping Plc. Independent Director and Member of Audit Committee, Siam Macro Plc. Independent Director and Chairman of Audit Committee,

Bangkok First Investment & Trust Plc. Chairman, Interhides Plc. Independent Director, Privatisation Committee of TOT, CAT, PTT, AAT Senior Executive Vice President (SEVP), Export-Import Bank of Thailand

(3) Name : Vilas Sinswat Ph.D.

Position : Independent Director and Member of Audit Committee Age : 66 years

Education : Doctor of Philosophy (Engineering), Cambridge University, United Kingdom

% of share holding : None The number of directorships in listed companies - Chairman : 0 company - Director : 1 company Family relation with management: None

Other Experience : Director, Chotechalit Co., Ltd. Director, C.S. Capital Co., Ltd.

(4) Name : Mr. Wasin Patchakapati

Position : Independent Director and Member of Audit Committee Age : 56 years Education : BSc. Engineering, Chulalongkorn University


Other Experience : Director, Phansrivivat Co., Ltd. Director, Phansri Co., Ltd. Director, Prachak Vivat Co., Ltd.

(5) Name : Mr. Somchai Chongsawadchai

Position : Managing Director Age : 52 years Education : Bachelor’s Degree in Accountancy,

Chulalongkorn University; Certificate of Completion DCP 36/2003 from

Thai Institute of Directors (IOD) % of share holding : 0.14 The number of directorships in listed companies - Chairman : 0 company - Director : 2 companies Family relation with management: None



44

Other Experience :

Managing Director, Lam Soon (Thailand) Plc. Managing Director, Universal Food Plc. Managing Director, Union Frost Co., Ltd. Director, Lam Soon Holding Co., Ltd. Director, Bangkok Edible Oil Co., Ltd. Director, Phansrivivat Co., Ltd. Director, Phansri Co., Ltd. Director, Prachak Vivat Co., Ltd. Director, Siam Elite Palm Co., Ltd. Director and General Manager, Lam Soon (Thailand) Plc. President, Palm Oil Refinery Association Director, Reckitt and Coleman (Thailand) Co.,Ltd.

(6) Name : Mr. Whang Shang Ying

Position : Director Age : 49 years Education : Bachelor of Arts (Hons.) in Law,

Oxford University, United Kingdom % of share holding : None The number of directorships in listed companies - Chairman : 0 company - Director : 2 companies Family relation with management: Mr. Whang Tar Liang’s son

Other Experience : Executive Director, Lam Soon (Thailand) Plc. Chairman and Executive Director, Universal Food Plc. Chairman, Union Frost Co., Ltd. Director, Lam Soon Holding Co., Ltd. Director, Bangkok Edible Oil Co., Ltd. Executive Director, Lam Soon (M) Berhad Executive Director, Lam Soon Singapore Pte Ltd. Director, Jurong Cement Limited, a public listed company in Singapore

(7) Name : Miss Anchalee Suebchantasiri

Position : Executive Director Age : 51 years Education : Bachelor’s degree in Accountancy,

Thammasat University; Certificate of Completion DCP 36/2003 from Thai Institute of Directors (IOD)

% of share holding : None The number of directorships in listed companies - Chairman : 0 company - Director : 2 companies

Family relation with management: None Other Experience :

Company Secretary, Lam Soon (Thailand) Plc. Executive Director, Lam Soon (Thailand) Plc. Finance Manager, Lam Soon (Thailand) Plc. Executive Director, Universal Food Plc. Director, Union Frost Co., Ltd. Director, Lam Soon Holding Co., Ltd. Director, Bangkok Edible Oil Co., Ltd. Director, DTSL (Thailand) Co., Ltd. Director, Phansrivivat Co., Ltd. Director, Phansri Co., Ltd. Director, Prachak Vivat Co., Ltd. Director, Siam Elite Palm Co., Ltd.



45

(8) Name : Miss Piyathida Sukchan

Position : Executive Director Age : 41 years Education : M.A. (Hons.) in Development Economics, National Institute Development Administration;

B.A. in Economics (Finance), Thammasat University; Certificate of Completion DCP 36/2003 from Thai Institute of Directors (IOD)


Other Experience : Assistant to Managing Director and Manager of Analysis Division,

Lam Soon (Thailand) Plc. Director, Universal Food Plc. Director, Union Frost Co., Ltd. Director, Bangkok Edible Oil Co., Ltd. Director, DTSL (Thailand) Co., Ltd. Director, Phansrivivat Co., Ltd. Director, Phansri Co., Ltd. Director, Prachak Vivat Co., Ltd. Director, Siam Elite Palm Co., Ltd. Assistant Vice President for Securities Analysis Dept, Cathay Capital Co., Ltd.

(9) Name : Mr. Yut Sakdejayont

Position : Company Secretary and Secretary to the Audit Committee

Age : 69 years Education : M.A. (Sociology),University of Michigan, U.S.A.

Barrister-at-law Thai Bar Association LL.B. (Hons), Thammasat University

% of share holding : 0.07 Family relation with management: None

Other Experience : Attorney at law, Sak Law Office

(10) Name : Mr. Ampol Simarojana

Position : Assistant Managing Director Age : 53 years Education : Bachelor of Science (Chemical Engineering),

Chulalongkorn University; Certificate of Completion DCP 37/2003 from Thai Institute of Directors (IOD)

% of share holding : None Family relation with management: None

Other Experience : Executive Director, Lam Soon (Thailand) Plc. Factory Manager, Lam Soon (Thailand) Plc. Executive Director, Universal Food Plc. Director, Union Frost Co., Ltd. Director, Lam Soon Holding Co., Ltd. Director, DTSL (Thailand) Co., Ltd. Manager of Melting Division, Siam Asahe-Technoglass Co., Ltd. Assistant Production Manager, Lam Soon (Thailand) Co., Ltd.



46

(11) Name : Mrs. Yupadee Opaspimoltham

Position : Sales & Quality Assurance Manager Age : 56 years Education : BSc. Chemistry, Chulalongkorn University

% of share holding : 0.01 Family relation with management: None

Other Experience : Chemist, SGS Far East Co., Ltd.

(12) Name : Mr. Chairat Yaeed

Position : Factory Manager Age : 39 years Education : M. Eng. (Industrial Engineering), Thammasat University

Bsc. (Food Science and Technology), Kasetsart University

% of share holding : None Family relation with management: None

Other Experience : Production Department Manager, Greenspot Co., LTd. Surat Thani Production Planning and Logistic Manager, Majorette (Thailand) Co., LTd. Manufacturing Section Manager, Pulse Production (Thailand) Co., LTd. Production Engineer: Packaging Business, Siam Cement Group Quality Control Supervisor, Thai Q.P. Co., Ltd.

(13) Name : Mr. Somkid Rongrat

Position : Plantation Manager Age : 59 years Education : MS. (Hons.) in Agricultural Economics,

Kasetsart University BSc. (Soil Science), Kasetsart University

% of share holding : None Family relation with management: None Other Experience :

Estate Manager (Krabi), United Palm Oil Industry Plc. Lecturer, Kanasawad College

(14) Name : Mr. Sarut Cholathan

Position : Business Development Manager Age : 48 years Education : MPA (Policy&Project Management), National Institute Development Administration

B. Science, Kasetsart University % of share holding : None Family relation with management: None Other Experience :

Estate Manager, United Palm Oil Industry Plc.



47

6. Directors and Executives holding shares in the Company

Name No. of shares

at the end of 2008

Increase (Decrease) in no. of shares

during the financial year

No. of shares at the end of 2009

(1) Mr.Whang Tar Liang - - -(2) Mr.Thira Wipuchanin - - -(3) Vilas Sinswat Ph.D. - - -(4) Mr.Wasin Patchakapati - - -(5) Mr.Somchai Chongsawadchai 46,900 - 46,900(6) Mr. Whang Shang Ying - - -(7) Ms.Anchalee Suebchantasiri - - -(8) Ms.Piyathida Sukchan - - -(9) Mr. Yut Sakdejayont 22,900 - 22,900(10) Mr. Ampol Simarojana - - -(11) Mrs. Yupadee Opaspimoltham 3,000 - 3,000(12) Mr. Chairat Yaeed - - -(13) Mr. Somkid Rongrat - - -(14) Mr. Sarut Cholathan - - -

7. Remuneration of Directors and Management Monetary Remuneration (a) Director’s fees : Total fees paid to all 8 members of the Board 6,144,000 Baht

Name Director’s fees in 2009

Director Audit Committee

(1) Mr. Whang Tar Liang (2) Mr. Thira Wipuchanin (3) Vilas Sinswat Ph.D. (4) Mr. Wasin Patchakapati (5) Mr. Somchai Chongsawadchai (6) Mr. Whang Shang Ying (7) Ms. Anchalee Suebchantasiri (8) Ms. Piyathida Sukchan

Chairman of the Board of Directors Independent Director and Chairman of Audit Committee Independent Director and Member of Audit Committee Independent Director and Member of Audit Committee Managing Director Director Executive Director Executive Director

792,000 540,000

540,000

540,000

516,000

516,000 516,000

516,000

556,000

556,000

556,000

(b) Directors’ fees paid to the Company’s Directors as Directors of subsidiaries : - - None - -

(c) Remuneration of all 8 persons of the Management including salary and bonus : 13,618,414 Baht*

* Remuneration of the Management includes remuneration paid to Executive Directors, Managing Director, the first 4 Heads of Department ranking immediately below the Managing Director as specified in the Notification of The Office of Securities and Exchange Commission.


48

Other Remuneration The Company has paid no other remuneration, except the cost of air-ticket and accommodation

for directors residing outside Thailand who attend the meetings, and the cost of director liability insurance for all members of the Board. Other forms of remuneration for the Management include Company’s cars and related expenses, health insurance, accidental insurance.

As for Provident Fund, the Management has been paid at 5% of salary for Provident Fund, the same rate as other employees. However, no Provident Fund has been paid to Executive Directors.

8. Directors and the Management having positions in subsidiaries and related companies

Name CompanyRelated Company Subsidiaries

LST UFC Phansrivivat Co., Ltd.

Phansri Co., Ltd.

PrachakvivatCo., Ltd.

(1) Mr. Whang Tar Liang X X (2) Mr. Whang Shang Ying / // X (3) Mr. Somchai Chongsawadchai // // // / / / (4) Ms. Anchalee Suebchantasiri // // // / / / (5) Ms. Piyathida Sukchan // / / / /

Notes X : Chairman of Board of Directors LST : Lam Soon (Thailand) Plc. / : Director UFC : Universal Food Plc. // : Executive Director

9. Control system of utilising insider information

The following policy and guidelines of the Company prevents the Management from

utilising insider information of the Company for personal gain: 1. Management and Directors are obliged to report to the Board on each person’s

securities holding and the holding of securities in the Company by his spouse and minor children. This includes penalty provisions under the Securities and Exchange Act B.E. 2535 and the regulations of the Stock Exchange of Thailand;

2. Management is obliged to report their holdings of securities in the Company to the Board in every quarter on which the Board meeting is called;

3. Material insider information of the Company should not be revealed to others. This includes impacts on the Company’ securities, and the penalty provisions of a law that the Management may face according to the Securities and Exchange Act B.E. 2535, as a result of their violation;

4. Management is prohibited from trading in the Company’s shares 1 month prior to the Company’s financial statements being announced.

The Company has established the rules for prevention of using inside information including the penalties for violator stated in item 4.8.1 under “REPORT ON THE IMPLEMENTATION OF PRINCIPLES OF GOOD CORPORATE GOVERNANCE”. 10. Internal Control Management The Company places importance on internal control system which it regards as a vital

management tool to reduce business risk, to build up a confidence of business management, to assist the Company operating efficiency and fulfill expected goal. The internal control system also enhances shareholders’ benefits and investment, supports verification and creditability of financial statement reports and operating reports of the Company, prevents loss of assets and assists employees working under laws and regulations.

The Company employed Dr. Virach & Associates Office to be the Company internal

auditors. The Company assigns the Office to prepare quarterly internal audit plans, which are to evaluate the efficiency of the Company’s internal control system and create effectively internal control system for the Company and practice in consistency.


49

During the Board Meeting No.1/2010 held on February 25, 2010, in the presence of three

independent directors and audit committee members, the Board reviewed the internal control system of the Company by using the evaluation form initially completed and presented by the management and reviewed by the audit committee. The evaluation of the internal control system of the Company covered 5 areas, namely organisation and environment, risk management, operational control of the management, information system and communication, and monitoring. The Board concluded and provided an opinion that the Company has enough internal control system for the above mentioned areas.

Besides, the business transactions with majority shareholder and subsidiary companies

are mentioned in item 6 of the Notes to financial statements, as well as the transactions corresponding to the rules and regulations of the SET regarding related transactions are also mentioned. The Board provided the opinion that the Company maintains adequate internal control measures.

Other significant items of internal control have been reviewed every quarter by the audit

committee and the Company’s internal auditor, Dr. Virach & Associates. Major issues are reported to the Board by the audit committee. The Board provided an opinion that Company’s internal control measure is further strengthened by the quarterly review as well.

Regarding the Company’s subsidiaries, most of assets are oil palm plantations, which are

monitored and supervised by the Management of the Company.

Dividend Payout Policy

With effect from 1993, the Company has a policy of paying approximately 50% of net profit after tax as dividend, subject to prevailing economic situation and capital expenditure requirements.

At the Board Meeting No. 1/2010 on 25 February 2010, the Company’s Board of

Directors passed a resolution to propose the payment of a final dividend of 0.20 Baht/share in respect of October to December 2009 earnings. For the nine-month period of 2009, the Company already paid an interim dividend at the rate of 0.30 Baht/share. Thus, the total dividend for 2009 shall be 0.50 Baht/share, accounting for 94.3% of net profit, compared with 1.00 Baht/share in 2008 at accounting for 96.4% of net profit.

In 2009, the Company was making lower dividend payout ratio than in 2008 due to a

decrease in operating result. For its subsidiary, as no dividend payout policy has been determined yet, dividend is paid

based on its financial performance and cash flow.

COMMON INTERESTED PERSONS AND CONNECTED TRANSACTIONS

50

Connected transactions with common interested persons, necessity and reasons for connected transactions During the years, the Company 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. (Unit: Million Baht)

Name Relation Transactions

Separate financial

statements Pricing policy Necessity

2009 2008 Lam Soon (Thailand) Public Company Limited

Major Shareholder

Sales of crude palm oil and palm kernel

752 1,122 Market prices on the contract’s date

The Company sold CPO to Lam Soon (Thailand) Public Company Limited (LST) who is its major shareholder and customer. LST owns and operates a refinery in Thailand and has over 30 years experience in the palm oil business. As such, LST has assisted the Company to develop CPO quality.

Sales of fresh fruit bunch

3 19 Market price Selling of palm fruits was happened when there is an excess supply of palm fruits, which could not be put in the process in time, and during the period of machinery break-down and maintenance.

Siam Elite Palm Company Limited

Jointly controlled entity

Purchase of oil palm seeds

1 - Market price Siam Elite Palm Co., Ltd. is the exclusive distributor

of CIRAD®

palm seed in Thailand.

The balances of the accounts as at 31 December 2009 and 2008 between the Company and those related companies have been declared in Notes to financial statements item no. 6.

COMMON INTERESTED PERSONS AND CONNECTED TRANSACTIONS

51

Measures or criteria to approve connected transactions

In 2009, 92.3 % of the Company’s total CPO, CPKO, and FFB sales were sold to LST. The selling was based on the ongoing market price as normal business transactions on an arm’s length basis. It was done without any commitment, but on the basis of the CPO selling contract and in compliance with normal business practice in the palm oil industry.

Mr. Somchai Chongsawadchai, Managing Director of the Company and of LST, approved the CPO sold to LST. The approval was based on the market price references of various customers at the same or the following day.

Connected transactions in the future

The Company has had business transaction with LST before the latter became a major shareholder, owing to LST’s high usage of CPO, its strong financial status, and its being a reliable customer. The Company will continue to sell CPO to LST on an arm’s length basis.

OTHER FACTORS AFFECTING INVESTMENT DECISIONS

52

Legal conflicts

Phansrivivat Company Limited received notification from the Surat Thani Provincial Treasury Office of the Finance Ministry, informing that a land concession previously granted was state property, under the jurisdiction of the Ministry of Finance, by virtue of a ruling issued by the Judicial Council. Such concession land at Khiansa belongs to Prachakvivat Company Limited, and is leased to Phansrivivat Company Limited for oil palm plantation and Phansrivivat also rents this plantation to the Company. The notice called to enter into a land lease agreement for a period of 3 years, commencing January 1, 2001, and to pay retroactive land rental for the years 1991 to 2000, amounting to approximately 12 million Baht. However, the subsidiary recorded the provision of land rental charges retroactively from 1991 to 2007 for the entire amount.

Save for the above, there was no litigation involving the Company which could have a material adverse impact on the assets of the Company or its subsidiaries amounting higher than 5% of shareholders’ equity in consolidated financial statements at December 31, 2009.

Obligations on future share issuance - None -

INFORMATION ON DEBENTURES OR PROMISSORY NOTES

53

- None -

FINANCIAL STATEMENTS

54

United Palm Oil Industry Public Company Limited, its subsidiaries and its jointly controlled entity

Report and consolidated financial statements 31 December 2009 and 2008

Report of Independent Auditor To the Shareholders of United Palm Oil Industry Public Company Limited

I have audited the accompanying consolidated balance sheets of United Palm Oil Industry

Public Company Limited, its subsidiaries and its jointly controlled entity as at 31 December

2009 and 2008, the related consolidated statements of income, changes in shareholders’

equity and cash flows for the years then ended, and the separate financial statements of

United Palm Oil Industry Public Company Limited for the same periods. These financial

statements are the responsibility of the management of the Company, its subsidiaries and its

jointly controlled entity 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.

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 provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all material

respects, the financial position of United Palm Oil Industry Public Company Limited, its

subsidiaries and its jointly controlled entity and of United Palm Oil Industry Public Company

Limited as at 31 December 2009 and 2008, the results of their operations, and cash flows for

the years then ended, in accordance with generally accepted accounting principles.

Siraporn Ouaanunkun

Certified Public Accountant (Thailand) No. 3844

Ernst & Young Office Limited

Bangkok: 25 February 2010

Kanokwan.m

Stamp


Balance sheets

As at 31 December 2009 and 2008

Consolidated financial statements Separate financial statements

Note 2009 2008 2009 2008

Assets

Current assets

Cash and cash equivalents 70,094,178 138,018,132 58,386,836 120,521,786

Current investments - fixed deposits 6,000,000 - - -

Trade accounts receivable

Related party 6 34,667,654 16,864,027 34,667,654 16,864,027

Unrelated parties 2,221,094 20,387,918 2,221,094 20,387,918

Total trade accounts receivable 7 36,888,748 37,251,945 36,888,748 37,251,945

Short-term loans and advance to employees 540,860 399,539 540,860 399,539

Inventories - net 8 26,978,856 64,175,108 26,797,056 64,175,108

Other current assets 3,422,011 1,646,375 3,355,796 1,645,599

Total current assets 143,924,653 241,491,099 125,969,296 223,993,977

Non-current assets

Investments in subsidiaries 9 - - 307,895,303 307,895,303

Investment in joint venture 10 - - 25,000,000 25,000,000

Property, plant and equipment - net 11 836,900,910 796,447,064 768,606,577 714,881,622

Intangible asset - net 12 11,425,992 10,515,317 1,284,000 -

Goodwill on business combination 27,972,977 27,972,977 - -

Other non-current assets 3,989,973 1,029,659 3,989,973 1,029,659

Total non-current assets 880,289,852 835,965,017 1,106,775,853 1,048,806,584

Total assets 1,024,214,505 1,077,456,116 1,232,745,149 1,272,800,561

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

(Unit: Baht)


Balance sheets (continued)

As at 31 December 2009 and 2008


Note 2009 2008 2009 2008

Liabilities and shareholders' equity

Current liabilities

Trade accounts payable 9,234,257 7,145,521 9,208,057 7,145,521

Advance from related parties 6 3,017 892 269,064,442 257,567,784

Other current liabilities

Corporate income tax payable 8,723,781 9,633,065 6,695,017 7,355,631

Dividend payable 2,899,892 3,324,221 2,899,892 3,324,221

Accrued expenses 15,974,841 17,997,101 15,751,955 17,774,601

Accounts payable for purchase of machinery 26,448,573 23,068,905 26,448,573 23,068,905

Others 10,058,096 9,651,795 10,039,863 8,863,091

Total current liabilities 73,342,457 70,821,500 340,107,799 325,099,754

Non-current liabilities

Provision for land rental charge 13 20,468,000 20,468,000 - -

Total non-current liabilities 20,468,000 20,468,000 - -

Total liabilities 93,810,457 91,289,500 340,107,799 325,099,754

Shareholders' equity

Share capital

Registered 14

324,050,000 ordinary shares of Baht 1 each

(31 December 2008: 32,405,000 ordinary shares

of Baht 10 each) 324,050,000 324,050,000 324,050,000 324,050,000

Issued and fully paid up 14

324,050,000 ordinary shares of Baht 1 each

(31 December 2008: 32,405,000 ordinary shares

of Baht 10 each) 324,050,000 324,050,000 324,050,000 324,050,000

Share premium 321,544,740 321,544,740 321,544,740 321,544,740

Retained earnings

Appropriated - statutory reserve 15 60,305,000 60,305,000 32,405,000 32,405,000

Unappropriated 224,504,308 280,266,876 214,637,610 269,701,067

Total shareholders' equity 930,404,048 986,166,616 892,637,350 947,700,807

Total liabilities and shareholders' equity 1,024,214,505 1,077,456,116 1,232,745,149 1,272,800,561

- - - -


Directors

(Unit: Baht)


Income statements

For the years ended 31 December 2009 and 2008


Note 2009 2008 2009 2008

Revenues

Sales 823,488,754 1,305,145,439 820,043,804 1,305,145,439

Other income

Dividend income - - 12,327,300 17,806,100

Interest income 1,494,556 4,933,668 1,429,090 4,906,644

Reversal of allowance for diminution in value of inventory 3,411,616 - 3,420,797 -

Gain on sales of property, plant and equipment 2,839,498 2,023,323 2,839,498 2,023,323

Others 15,661,569 20,468,985 15,661,839 20,468,432

Total revenues 846,895,993 1,332,571,415 855,722,328 1,350,349,938

Expenses

Cost of sales 545,633,919 755,273,212 550,860,446 763,042,890

Selling expenses 28,117,827 42,652,471 28,068,094 42,652,471

Administrative expenses 30,192,365 30,283,944 27,585,210 29,436,577

Management benefit expenses 18,395,814 19,595,585 18,395,814 19,595,585

Allowance for diminution in value of inventory - 4,997,870 - 4,997,870

Loss on write off of property, plant and equipment 84,804 18,359,408 82,631 18,301,071

Other expenses 1,630 631,911 1,630 631,911

Total expenses 622,426,359 871,794,401 624,993,825 878,658,375

Income before finance cost and

corporate income tax 224,469,634 460,777,014 230,728,503 471,691,563

Finance cost - (188,210) (10,705,199) (12,198,652)

Income before corporate income tax 224,469,634 460,588,804 220,023,304 459,492,911

Corporate income tax 17 (53,399,902) (129,062,981) (48,254,461) (123,474,502)

Net income for the year 171,069,732 331,525,823 171,768,843 336,018,409

Basic earnings per share 19

Net income 0.53 1.02 0.53 1.04

Weighted average number of ordinary share (shares) 324,050,000 324,050,000 324,050,000 324,050,000


(Unit: Baht)


Cash flow statements



2009 2008 2009 2008

Cash flows from operating activities

Net income before tax 224,469,634 460,588,804 220,023,304 459,492,911

Adjustments to reconcile net income before tax to net cash

provided by (paid from) operating activities:

Depreciation and amortisation 68,062,362 57,723,218 54,210,040 43,977,513

Loss on write off of property, plant and equipment 84,804 18,359,408 82,631 18,301,071

Allowance for diminution in value of inventory (Reversal) (3,411,616) 4,997,870 (3,420,797) 4,997,870

Allowance for impairment loss on assets 158,991 - 158,991 -

Gain on sales of property, plant and equipment (2,839,498) (2,023,323) (2,839,498) (2,023,323)

Gain on sales of investment in available-for-sale securities - (117,750) - (117,750)

Dividend income - - (12,327,300) (17,806,100)

Interest expenses - - 10,705,199 12,014,075

Income from operating activities before changes in operating

assets and liabilities 286,524,677 539,528,227 266,592,570 518,836,267

Operating assets (increase) decrease

Trade accounts receivable - related party (17,803,627) 28,785,444 (17,803,627) 28,785,444

Trade accounts receivable - unrelated parties 18,166,824 (17,733,066) 18,166,824 (17,733,066)

Short-term loans and advance to employees (141,321) (136,947) (141,321) (136,947)

Inventories 51,472,933 (1,586,214) 51,663,914 (1,586,214)

Other current assets (1,753,225) (952,279) (1,710,197) (944,137)

Other non-current assets (2,960,314) 8,870,889 (2,960,314) 8,870,889

Operating liabilities increase (decrease)

Trade accounts payable 2,088,736 (6,911,295) 2,062,536 (6,911,295)

Advance from related parties 2,125 892 11,700,550 10,199,717

Other current liabilities (2,036,238) 15,267,642 (1,266,153) 14,473,128

Cash flows from operating activities 333,560,570 565,133,293 326,304,782 553,853,786

Cash paid for interest expenses - - (10,909,091) (10,000,000)

Cash paid for corporate income tax (54,331,597) (134,452,168) (48,915,075) (128,820,550)

Net cash flows from operating activities 279,228,973 430,681,125 266,480,616 415,033,236


(Unit: Baht)


Cash flow statements (continued)



2009 2008 2009 2008

Cash flows from investing activities

Increase in current investments - fixed deposits (6,000,000) - - -

Proceeds from sales of property, plant and equipment 3,405,841 2,535,988 3,404,296 2,535,988

Acquisition of property, plant and equipment (116,117,418) (176,987,458) (115,905,812) (176,549,262)

Increase in intangible assets (1,605,000) (10,764,200) (1,605,000) -

Dividend received - - 12,327,300 17,806,100

Cash receipt from sales of investment in

available-for-sales securities - 6,600,000 - 6,600,000

Net cash flows used in investing activities (120,316,577) (178,615,670) (101,779,216) (149,607,174)

Cash flows from financing activities

Dividend paid (226,836,350) (291,646,012) (226,836,350) (291,646,012)

Net cash flows used in financing activities (226,836,350) (291,646,012) (226,836,350) (291,646,012)

Net decrease in cash and cash equivalents (67,923,954) (39,580,557) (62,134,950) (26,219,950)

Cash and cash equivalents at beginning of year 138,018,132 177,598,689 120,521,786 146,741,736

Cash and cash equivalents at end of year 70,094,178 138,018,132 58,386,836 120,521,786

- - - -

Supplemental cash flows information:

Non-cash transaction

Transferred nursery to inventories 10,865,065 14,369,363 10,865,065 14,369,363


(Unit: Baht)

Issued and Unrealised loss

fully paid-up on available-for-sale

share capital Share premium securities Appropriated Unappropriated Total

Balance as at 31 December 2007 324,050,000 321,544,740 (732,353) 60,305,000 240,384,253 945,551,640

Income and expenses recognised directly in equity:

Investment in available-for-sale securities

Transferred to income statement on disposal - - 732,353 - - 732,353

Net income and expenses recognised directly in equity 324,050,000 321,544,740 - 60,305,000 240,384,253 946,283,993

Net income for the year - - - - 331,525,823 331,525,823

Dividend paid (Note 22) - - - - (291,643,200) (291,643,200)

Balance as at 31 December 2008 324,050,000 321,544,740 - 60,305,000 280,266,876 986,166,616





-


Retained earnings


Statements of changes in shareholders' equity


(Unit: Baht)

Consolidated financial statements

Issued and Unrealised loss

fully paid-up on available-for-sale

share capital Share premium securities Appropriated Unappropriated Total

Balance as at 31 December 2007 324,050,000 321,544,740 (732,353) 32,405,000 225,325,858 902,593,245

Income and expenses recognised directly in equity:

Investment in available-for-sale securities

Transferred to income statement on disposal - - 732,353 - - 732,353

Net income and expenses recognised directly in equity 324,050,000 321,544,740 - 32,405,000 225,325,858 903,325,598








-


Retained earnings


Statements of changes in shareholders' equity (continued)


(Unit: Baht)

Separate financial statements

1

United Palm Oil Industry Public Company Limited, its subsidiaries and its jointly controlled entity Notes to consolidated financial statements For the years ended 31 December 2009 and 2008

1. Corporate information

United Palm Oil Industry Public Company Limited (“the Company”) is a public company

incorporated and domiciled in Thailand. Its parent company is Lam Soon (Thailand)

Public Company Limited, which was incorporated in Thailand. The Company is

principally engaged in the manufacture of crude palm oil and palm kernel oil and its

registered address is 64, 1st Floor, Soi Bangna-Trad 25, Bangna, Bangkok.

2. 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 30 January 2009, 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

2.2 Basis of consolidation

a) The consolidated financial statements include the financial statements of the

Company (“the Company”) and the following subsidiary companies (“the

subsidiaries”) and jointly controlled entity (“the jointly controlled entity”):

Country of Percentage of indirect

Company’s name Nature of business incorporation shareholding

2009 2008

Percent Percent

Held by subsidiary company

Prachak Vivat Co., Ltd.

(100 percent held by Phansrivivat Co., Ltd.)

Holder of concessions to use

forest reserve land

Thailand 100 100

Phansri Co., Ltd.

(100 percent held by Phansrivivat Co., Ltd.)

Holder of concessions to use

forest reserve land

Thailand 100 100

b) The subsidiaries and the jointly controlled entity are fully consolidated as from the

date of acquisition, being the date on which the Company obtains control, and

continue to be consolidated until the date when such control ceases.

c) The financial statements of the subsidiaries and the jointly controlled entity are

prepared for the same reporting period as the parent company, using consistent

significant accounting policies.

d) Material balances and transactions between the Company, the subsidiary and the

jointly controlled entity have been eliminated from the consolidated financial

statements.

e) Investments in subsidiaries as recorded in the Company’s books of account are

eliminated against the equity of subsidiary companies. The resultant differences

are presented separately under the caption of “Goodwill on business

combination” in the balance sheets.

Assets as a

percentage

to the consolidated

Country of Percentage of total assets as at

Company’s name Nature of business incorporation shareholding 31 December

Revenues as a

percentage

to the consolidated total

revenues for the years

ended 31 December

2009 2008 2009 2008 2009 2008

Percent Percent Percent Percent Percent Percent

Held by the Company

Phansrivivat Co., Ltd. Owner of oil palm

plantation

Thailand 100 100 7 8 - -

Jointly controlled entity

Siam Elite Palm Co., Ltd. Production and

distribution of

oil palm seeds

Thailand 50 50 2 2 - -

3

2.3 The separate financial statements, which present investments in subsidiaries and joint

venture under the cost method, have been prepared solely for the benefit of the public.

3. Adoption of new accounting standards

In June 2009, the Federation of Accounting Professions issued Notification No.

12/2552, assigning new numbers to Thai Accounting Standards that match the

corresponding International Accounting Standards. The numbers of Thai Accounting

Standards as referred to in these financial statements reflect such change.

The Federation of Accounting Professions has issued Notification No. 86/2551 and

16/2552, mandating the use of new accounting standards, financial reporting standard

and accounting treatment guidance as follows.

3.1 Accounting standards, financial reporting standard and accounting treatment guidance which are effective for the current year

Framework for the Preparation and Presentation of Financial Statements (revised 2007) TAS 36 (revised 2007) Impairment of Assets TFRS 5 (revised 2007) Non-current Assets Held for Sale and Discontinued

Operations Accounting Treatment Guidance for Leasehold Right Accounting Treatment Guidance for Business Combination under Common Control

These accounting standards, financial reporting standard and accounting treatment

guidance became effective for the financial statements for fiscal years beginning on or

after 1 January 2009. The management has assessed the effect of these standards

and believes that TFRS 5 (revised 2007) and Accounting Treatment Guidance for

Business Combination under Common Control are not relevant to the business of the

Company, while Framework for Preparation and Presentation of Financial Statements

(revised 2007), TAS 36 (revised 2007) and Accounting Treatment Guidance for

Leasehold Right do not have any significant impact on the financial statements for the

current year.

4

3.2 Accounting standards which are not effective for the current year

Effective date TAS 20 Accounting for Government Grants and

Disclosure of Government Assistance 1 January 2012

TAS 24 (revised 2007) Related Party Disclosures 1 January 2011 TAS 40 Investment Property 1 January 2011

However, TAS 24 (revised 2007) and TAS 40 allow early adoption by the entity before

the effective date.

The management of the Company has assessed the effect of these standards and

believes that TAS 20 and TAS 40 are not relevant to the business of the Company,

while TAS 24 (revised 2007) will not have any significant impact on the financial

statements for the year in which it is initially applied.

4. Significant accounting policies

4.1 Revenue recognition

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.

4.2 Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, cash at banks, and all highly liquid

investments with an original maturity of three months or less and not subject to

withdrawal restrictions.

4.3 Trade accounts receivable

Trade accounts receivable 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 experience

and analysis of debtor aging.

4.4 Inventories

Finished goods and work in process are valued at the lower of average cost and net

realisable value. Such cost includes all production costs and attributable factory

overheads.

Raw materials, chemicals, spare parts and factory supplies are valued at the lower of

average cost and net realisable value and are charged to production costs wherever

consumed.

5

4.5 Investments

Investments in subsidiaries and joint venture are accounted for in the separate

financial statements using the cost method.

4.6 Property, plant and equipment/depreciation and amortisation

Land is stated at cost less allowance for loss on impairment of assets (if any). Buildings

and equipment are stated at cost less accumulated depreciation and amortization and

allowance for loss on impairment of assets (if any).

Depreciation of plant and equipment is calculated by reference to their costs on the

straight-line basis over the following estimated useful lives:

Cost of rights to use forest reserve land - Concession period Buildings and construction - 20 years Factory machinery and equipment - 5-10 years Agricultural machinery and equipment - 5-10 years Furniture and fixtures - 5-10 years Motor vehicles - 5 years

Depreciation is included in determining income.

No depreciation is provided for land and construction in progress.

Oil palm plantation development costs represent the costs of palm tree plantations, and

are amortised over the estimated productive life of the palm trees (25 years) or over

the remaining period of the forest reserve land concession, whichever is shorter.

Costs of supplying palm vacancies and infilling mature areas are included in

determining income.

4.7 Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost.

Following initial recognition, 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 the income statement.

6

A summary of the intangible assets with finite useful lives is as follows:

Useful lives

Licenses - The remaining period of the license agreements as at the

date of obtaining the right (approximately 29 years)

Computer software - 5 years

4.8 Goodwill

After initial recognition, goodwill is measured at cost less any accumulated impairment

losses. Goodwill is tested for impairment annually and when circumstances indicate

that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is

allocated to each of the Company’s cash generating units (or group of cash-generating

units) that are expected to benefit from the synergies of the combination. The

Company estimates the recoverable amount of each cash-generating unit (or group of

cash-generating units) to which the goodwill relates. Where the recoverable amount of

the cash-generating unit is less than the carrying amount, an impairment loss is

recognised. Impairment losses relating to goodwill cannot be reversed in future

periods.

4.9 Related party transactions

Related parties comprise enterprises and individuals that control, or are controlled by,

the Company, whether directly or indirectly, or which are under common control with

the Company.

They also include associated companies and individuals which directly or indirectly

own a voting interest in the Company that gives them significant influence over the

Company, key management personnel, directors, and officers with authority in the

planning and direction of the Company’s operations.

4.10 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 balance sheet

date.

Gains and losses on exchange are included in determining income.

7

4.11 Impairment of assets

At each reporting date, the Company performs 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 also

carries 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’s fair value less costs to sell and its value in use, is less than the carrying

amount. In determining value in use, the estimated future cash flows are discounted to

their present value using a pre-tax discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset. In

determining fair value less costs to sell, an appropriate valuation model is used.

These calculations are corroborated by a valuation model that, based on information

available, reflects the amount that the Company could obtain from the disposal of the

asset in an arm’s length transaction between knowledgeable, willing parties, after

deducting the costs of disposal.

An impairment loss is recognised in the income statement.

4.12 Employee benefits

Salaries, wages, bonuses and contributions to the social security fund and provident

fund are recognised as expenses when incurred.

4.13 Provisions

Provisions are recognised when the Company has 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.

4.14 Income tax

Income tax is provided for in the accounts based on the taxable profits determined in

accordance with tax legislation.

8

5. Significant accounting judgments 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.

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.

Property plant and equipment/Depreciation

In determining depreciation of plant and equipment, the management is required to

make estimates of the useful lives and salvage values of the Company’s plant and

equipment and to review estimate useful lives and salvage 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 in the period 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.

Goodwill and intangible assets

The initial recognition and measurement of goodwill and other intangible assets, and

subsequent impairment testing, require management to make estimates of cash flows

to be generated by the asset or the cash generating units and to choose a suitable

discount rate in order to calculate the present value of those cash flows.

Contingent liabilities

The Company has contingent liabilities as a result of the land issue. The Company’s

management has used judgment to assess of the liabilities that may arise and

believes that no loss will result. Therefore no contingent liabilities are recorded as at

the balance sheet date. However, actual results could differ from the estimates.

9

6. Related party transactions

During the years, the Company, the subsidiaries and the jointly controlled entity 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

companies.

(Unit: Million Baht)

Consolidated

financial statements

Separate


Transfer

pricing policies

2009 2008 2009 2008

Transactions with parent company:

Sales of crude palm oil and palm kernel 752 1,122 752 1,122 Market price on the

contract’s date

Sales of fresh fruit bunch 3 19 3 19 Market price

Transactions with subsidiary company:

(eliminated from the consolidated

financial statements)

Palm plantation rental expenses - - 21 21 Fixed rental charge of

Baht 21 million per

annum

Interest charges - - 11 12 MLR –1.5% per annum

Transactions with jointly controlled entity:

Purchase of oil palm seeds - - 1 - Market price

The balances of the accounts as at 31 December 2009 and 2008 between the Company

and those related companies are as follows:

(Unit: Baht)

Consolidated


Separate


2009 2008 2009 2008

Trade accounts receivable - related party

Parent

Lam Soon (Thailand) Public

Company Limited 34,667,654 16,864,027 34,667,654 16,864,027

Advance from related parties

Parent

Lam Soon (Thailand) Public

Company Limited 3,017 892 3,017 892

Subsidiary

Phansrivivat Company Limited - - 269,061,425 257,566,892

Total advance from related parties 3,017 892 269,064,442 257,567,784

10

Directors and management’s benefits

In 2009 the Company paid salaries, bonuses, meeting allowances and gratuities to

their directors and management totaling Baht 18 million (2008: Baht 20 million).

7. Trade accounts receivable

The aging of the outstanding balances of trade accounts receivable as at 31 December

2009 and 2008, aged on the basis of due dates, are summarised below:

(Unit: Baht)

Age of receivables

Consolidated financial statements/


2009 2008

Trade accounts receivable - related party

Not yet due 31,602,809 16,864,027

Past due

Up to 1 month 3,064,845 -

Total 34,667,654 16,864,027

Trade accounts receivable - unrelated parties

Not yet due 2,221,094 150,936

Past due

Up to 1 month - 20,236,982

Total 2,221,094 20,387,918

Total trade accounts receivable 36,888,748 37,251,945

8. Inventories

(Unit: Baht)


Allowance for diminution in value of inventory

Cost

Reduction cost to

net realisable value Stock obsolescence

Inventories - net

2009 2008 2009 2008 2009 2008 2009 2008

Finished goods 13,465,996 50,074,200 - (5,062,166) (666,657) - 12,799,339 45,012,034

Work in process 730,536 597,245 - - - - 730,536 597,245

Spare parts, supplies

and others 14,441,633 18,574,588 - - (992,652) (8,759) 13,448,981 18,565,829

Total 28,638,165 69,246,033 - (5,062,166) (1,659,309) (8,759) 26,978,856 64,175,108

11

(Unit: Baht)


Allowance for diminution in value of inventory

Cost

Reduction cost to

net realisable value Stock obsolescence

Inventories - net

2009 2008 2009 2008 2009 2008 2009 2008

Finished goods 13,390,959 50,074,200 - (5,062,166) (657,476) - 12,733,483 45,012,034

Work in process 614,592 597,245 - - - - 614,592 597,245

Spare parts, supplies

and others 14,441,633 18,574,588 - - (992,652) (8,759) 13,448,981 18,565,829

Total 28,447,184 69,246,033 - (5,062,166) (1,650,128) (8,759) 26,797,056 64,175,108

9. Investments in subsidiaries

Details of investments in subsidiaries as presented in separate financial statements are

as follows:

(Unit: Baht)

Company’s name Paid-up capital

Shareholding

percentage Cost

Dividend received

during the year

2009 2008 2009 2008 2009 2008 2009 2008

% %

Phansrivivat Co., Ltd. Baht 274

million

Baht 274

million

100 100 307,895,303 307,895,303 12,327,300 17,806,100

Total 307,895,303 307,895,303 12,327,300 17,806,100

10. Investment in joint venture

10.1 Details of investment in joint venture:

Investment in joint venture represents investment in entity which is jointly controlled by

the Company and other company. Details of this investment are as follows:

(Unit: Baht) Separate financial statements

Jointly controlled entity Nature of business Shareholding percentage Cost

2009 2008 2009 2008 % %

Siam Elite Palm Co., Ltd. Production and distribution of oil palm seeds

50 50 25,000,000 25,000,000

Total 25,000,000 25,000,000

12

10.2 Summarised financial information of jointly controlled entity

Siam Elite Palm Company Limited

The Company’s proportionate shares of the assets, liabilities, revenue and expenses of

Siam Elite Palm Company Limited, according to proportion under joint venture

agreement, is as follows:

(Unit: Thousand Baht)

As at 31 December

2009 2008

Current assets 13,112 13,548 Non-current assets 10,879 11,047

23,991 24,595

Current liabilities (127) (871)

Net assets 23,864 23,724

(Unit: Thousand Baht)

For the year ended 31 December

2009 2008

Revenue 4,482 23 Cost of sales (3,536) - Selling and administrative expenses (806) (710)

Income (loss) before finance cost 140 (687) Finance cost - (3)

Net income (loss) 140 (690)

13

11. Property, plant and equipment

(Unit: Baht) Consolidated financial statements

Cost of forest land rights & plantation development Building & Machinery & Furniture & Motor Land costs construction equipment fixtures vehicles Others Total

Cost As at 31 December 2008 123,528,648 450,684,037 222,143,898 439,600,181 28,487,676 113,961,989 144,811,622 1,523,218,051 Additions - - - 2,560,476 1,064,844 14,053,182 101,818,584 119,497,086 Disposals (35,588) (206,292) (130,566) (3,735,104) (1,413,376) (13,552,085) (1,545) (19,074,556) Transfer in / (out) - 55,236,146 8,770,501 80,748,013 26,560 - (155,646,285) (10,865,065)

As at 31 December 2009 123,493,060 505,713,891 230,783,833 519,173,566 28,165,704 114,463,086 90,982,376 1,612,775,516

Accumulated depreciation and amortisation

As at 31 December 2008 - 259,395,542 117,653,361 214,480,998 26,138,527 94,614,611 - 712,283,039 Depreciation and amortisation for the year - 19,997,994 9,856,191 30,390,324 1,234,965 5,888,563 - 67,368,037 Depreciation and amortisation on disposals - (113,028) (130,526) (3,250,626) (1,411,828) (13,517,401) - (18,423,409)

As at 31 December 2009 - 279,280,508 127,379,026 241,620,696 25,961,664 86,985,773 - 761,227,667

Allowance for impairment loss 31 December 2008 14,487,948 - - - - - - 14,487,948 Increase during the year 150,330 8,661 - - - - - 158,991

31 December 2009 14,638,278 8,661 - - - - - 14,646,939

Net book value 31 December 2008 109,040,700 191,288,495 104,490,537 225,119,183 2,349,149 19,347,378 144,811,622 796,447,064

31 December 2009 108,854,782 226,424,722 103,404,807 277,552,870 2,204,040 27,477,313 90,982,376 836,900,910

Depreciation and amortisation for the year 2008 (Baht 54 million included in manufacturing cost, and the balance in selling and administrative expenses) 57,474,335

2009 (Baht 65 million included in manufacturing cost, and the balance in selling and administrative expenses) 67,368,037

14

(Unit: Baht) Separate financial statements

Cost of forest land rights & plantation development Building & Machinery & Furniture & Motor Land costs construction equipment fixtures vehicles Others Total

Cost As at 31 December 2008 123,528,648 143,826,426 205,324,988 439,600,181 28,487,676 113,961,989 144,373,426 1,199,103,334 Additions - - - 2,560,476 1,064,844 14,053,182 101,606,978 119,285,480 Disposals (35,588) (196,986) - (3,735,104) (1,413,376) (13,552,085) - (18,933,139) Transfer in / (out) - 55,236,146 8,770,501 80,748,013 26,560 - (155,646,285) (10,865,065)

As at 31 December 2009 123,493,060 198,865,586 214,095,489 519,173,566 28,165,704 114,463,086 90,334,119 1,288,590,610

Accumulated depreciation and amortisation

As at 31 December 2008 - 32,446,328 102,053,300 214,480,998 26,138,527 94,614,611 - 469,733,764 Depreciation and amortisation for the year - 6,693,421 9,681,767 30,390,324 1,234,965 5,888,563 - 53,889,040 Depreciation and amortisation on disposals - (105,855) - (3,250,626) (1,411,828) (13,517,401) - (18,285,710)

As at 31 December 2009 - 39,033,894 111,735,067 241,620,696 25,961,664 86,985,773 - 505,337,094

Allowance for impairment loss 31 December 2008 14,487,948 - - - - - - 14,487,948 Increase during the year 150,330 8,661 - - - - - 158,991

31 December 2009 14,638,278 8,661 - - - - - 14,646,939

Net book value 31 December 2008 109,040,700 111,380,098 103,271,688 225,119,183 2,349,149 19,347,378 144,373,426 714,881,622

31 December 2009 108,854,782 159,823,031 102,360,422 277,552,870 2,204,040 27,477,313 90,334,119 768,606,577

Depreciation and amortisation for the year 2008 (Baht 41 million included in manufacturing cost, and the balance in selling and administrative expenses) 43,977,513

2009 (Baht 52 million included in manufacturing cost, and the balance in selling and administrative expenses) 53,889,040

15

The total area utilised by the Company amounts to approximately 23,000 rai, of which

10,161 rai is supported by land title deeds or other land ownership documents (Nor

Sor 3 Kor and Nor Sor 3). For the remaining land the Company has received

possessory rights and is currently in the process of acquiring legal documentation of

ownership.

As at 31 December 2009, certain plant and equipment items have been fully

depreciated but are still in use. The original cost of those assets amounted to

approximately Baht 307 million (2008: Bath 316 million) (Separate financial

statements: Baht 294 million, 2008: Baht 304 million).

12. Intangible assets

(Unit: Baht)


License

Computer

software Total

Cost: As at 31 December 2008 10,764,200 - 10,764,200 Additions - 1,605,000 1,605,000

As at 31 December 2009 10,764,200 1,605,000 12,369,200

Accumulated amortization: As at 31 December 2008 248,883 - 248,883 Amortisation for the year 373,325 321,000 694,325

As at 31 December 2009 622,208 321,000 943,208

Net book value: As at 31 December 2008 10,515,317 - 10,515,317

As at 31 December 2009 10,141,992 1,284,000 11,425,992

16

(Unit: Baht)

Seperate financial statements

Computer software

Cost: As at 31 December 2008 - Additions 1,605,000

As at 31 December 2009 1,605,000

Accumulated amortization: As at 31 December 2008 - Amortisation for the year 321,000

As at 31 December 2009 321,000

Net book value:

As at 31 December 2008 -

As at 31 December 2009 1,284,000

In April 2008, the Jointly controlled entity paid royalty for the use of a trademark in the

production and distribution of oil palm seed amounting to EUR 150,000 (in proportion

to the Company’s interest) and technical assistance fees amounting to EUR 50,000

(in proportion to the Company’s interest) to a foreign shareholder. The Jointly controlled

entity recorded the amounts paid under “intangible assets” in the balance sheets.

13. Provision for land rental charge

In 2001, a subsidiary company received notification from the Surat Thani Provincial

Treasury Office of the Finance Ministry that land with an area of 8,600 rai covered by

a concession previously granted to the company by the Forestry Department was

state property, under the jurisdiction of the Ministry of Finance, by virtue of a ruling

issued by the Judicial Council. The notice called for the subsidiary company to enter

into a land lease agreement commencing 1 January 2001, and also to pay retroactive

land rental for the years 1991 to 2000. At present, the subsidiary company is in the

process of negotiating with the relevant government agencies. However, for prudent

reasons the subsidiary company has set up a full provision for its estimated liabilities

in the accounts.

17

14. Share capital

The Annual General Meeting of Shareholders No. 32 held on 28 April 2009 approved

to change the par value of its ordinary shares from 32,405,000 ordinary shares of

Baht 10 each to 324,050,000 ordinary shares of Baht 1 each. The Company

registered the change of the par value of its ordinary shares with the Ministry of

Commerce on 29 April 2009.

15. 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

income 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.

16. Expenses by nature

Significant expenses by nature are as follow:

(Unit: Baht)

Consolidated


Separate


2009 2008 2009 2008

Salary and wages and other employee benefits 139,069,573 144,552,613 139,009,476 144,552,613

Depreciation 47,370,043 39,429,384 47,195,619 37,685,243

Amortisation expenses 20,692,319 18,293,834 7,014,421 6,292,270

Loss on write off of property, plant and

equipment 84,804 18,359,408 82,631 18,301,071

Transportation expenses 26,966,964 41,651,057 26,958,585 41,651,057

Rental expenses 473,252 458,026 21,734,752 21,719,526

Repair and maintenance expenses 28,143,793 27,638,371 28,143,793 27,638,371

Raw materials and consumables used 261,669,231 526,964,146 258,001,977 526,964,146

Changes in inventories of finished goods and

work in process 36,474,913 (9,909,834) 36,665,894 (9,909,834)

17. Corporate income tax

Corporate income tax has been calculated from the earnings of the operations which

have not received privileges from the Board of Investment exempting them from

corporate income tax, after deducting adding back expenses disallowable for tax

computation purposes.

18

18. Promotional privileges

The Company has received promotional privileges from Board of Investment for the

manufacture of crude palm oil and palm kernels up to a capacity stipulated in the

certificates, subject to certain imposed conditions. Details are as follow:

Certificate No. Principal privileges 1043(2)/2548 − Exemption from corporate income tax on income

from the promoted operations for a period of eight years from the date of first earning operating income (7 January 2009), with such tax exemption capped at 100 percent of the amount invested excluding in land and working capital.

The Company has received promotional privileges from the Board of Investment for

the manufacture of crude palm kernel oil up to a capacity stipulated in the certificate,

subject to certain imposed conditions. Details are as follow:

Certificate No. Principal privileges 1817/2539 − Exemption from corporate income tax on income

from the promoted operations for a period of eight

years commencing as from the date of first

earning operating income. Such privileges expired

in March 2006. − Profits derived from the promoted activity after

expiry of the tax exemption period will then be

subject to income tax at a reduced rate of fifty

percent of the normal tax rate for a further period

of five years.

In addition, the Company has been granted promotional privileges by the Board of

Investment for the generation of electricity from biogases up to a capacity stipulated in

the certificate, subject to certain imposed conditions. Details are as follow:



years commencing as from the date of first

earnings operating income. The Company has not

yet begun utilizing such privileges.

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The jointly controlled entity has received promotional privileges from the Board of

Investment for the manufacture of palm seeds up to a capacity stipulated in the

certificate, subject to certain imposed conditions. Details are as follow:



years from the date of first earning operating

income, with such tax exemption capped at 100

percent of the amount invested excluding in land

and working capital. The Jointly controlled entity

has not yet begun utilising such privileges.

The Company’s operating revenues for the years are below shown divided according

to promoted and non-promoted operations.

(Unit: Baht)

Promoted operations Non-promoted operations Total

2009 2008 2009 2008 2009 2008

Sales 170,426,244

- 649,617,560

1,305,145,439 820,043,804

1,305,145,439

19. Earnings per share

Basic earnings per share is calculated by dividing the net income for the year by the

weighted average number of ordinary shares in issue during the year, equivalent to

shares with a par value of Baht 1.

20. Segment information

The Company, the subsidiaries and the jointly controlled entity’s business operations

involve three principal segments (1) oil palm plantation, crude palm oil and crude palm

kernel oil processing (2) generation of electricity from biogases (3) production and

distribution of oil palm seeds. These activities are carried on exclusively in the single

geographic area of Thailand. During the year, there were no material activities

pertaining to the generation of electricity from biogases segment and the production

and distribution of oil palm seeds segment for the Company and the jointly controlled

entity. Accordingly, most of the revenues, income and assets as reflected in these

financial statements pertain to the industry segment (1) and geographic area

mentioned above.

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21. 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 rate of 5 percent of basic salary. The

fund, which is managed by Kasikorn Bank Public Company Limited, will be paid to

employees upon termination in accordance with the fund rules. During the year 2009,

the Company contributed Baht 2 million (2008: Baht 2 million) to the fund.

22. Dividends

(Unit: Baht)

Dividends Approved by Total dividends

Dividends per share

(equivalent to

shares with a par

value of Baht 1)

Final dividends for 2007 Shareholders’ Annual General

Meeting on 28 April 2008 97,214,400 0.30

Interim dividends on January to Board of Directors’ Meeting

June 2008 earnings No. 3/2008 on 6 August 2008 129,619,200 0.40

Interim dividends on July to Board of Directors’ meeting

September 2008 earnings No. 4/2008 on 12 November 2008 64,809,600 0.20

Total for 2008 291,643,200 0.90

Final dividends for 2008 Shareholders’ Annual General

Meeting on 28 April 2009 129,619,200 0.40

Interim dividends on January to Board of Directors’ Meeting

June 2009 earnings No. 3/2009 on 13 August 2009 64,808,600 0.20

Interim dividends on July to Board of Directors’ meeting

September 2009 earnings No. 4/2009 on 12 November 2009 32,404,500 0.10

Total for 2009 226,832,300 0.70

23. Commitments and contingent liabilities

23.1 Capital commitments

As at 31 December 2009, the Company had capital commitments of approximately

Baht 1.7 million relating to the purchase of machinery and equipment.

23.2 Long-term service commitments

Under the agreements with a foreign shareholder in relation to the use of its trademark

in the production and distribution of oil palm seed, the jointly controlled entity is obliged

to pay royalty calculated as a percentage of the net annual sales of the products, as

defined in the agreements. The jointly controlled entity and such foreign shareholder

are also required to comply with conditions stipulated in the contracts.

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23.3 Guarantees

As at 31 December 2009, there were outstanding bank guarantees of approximately

Baht 3.3 million issued by banks on behalf of the Company in respect of certain

performance bonds as required in the normal course of business.

23.4 Contingent liabilities

a) In 2004, the Company received a letter of invitation from the Agricultural Land

Reform Office (ALRO) concerning the issue of land overlapping with ALRO land.

On 6 October 2004 the Company attended a fact-finding consultation meeting

with ALRO and handed over various relevant documents for use by ALRO in

considering this issue. The result of this matter is not known at this time.

b) On 11 April 2008, the Company met with the working committee responsible for

reviewing practical methods and negotiations for distributing land belonging to

holders of large plots in land reform areas to farmers, which was set up by the

Suratthani Land Reform Commission. The purpose of the meeting was to find a

practical solution to the land issue arising as a result of the Company holding

land amounting to approximately 1,210 rai in designated forest areas and another

276 rai in land reform areas. The 276 rai in land reform areas represents a large

landholding and a holding in excess of the area that can be owned under Section

30 of the Land Reform for Agriculture Act. These land plots represent 6 percent of

the total area utilised by the Company.

On 29 August 2008, the Company entered into a memorandum of negotiation,

agreeing to transfer land in land reform areas to the custody of ALRO for

development for agricultural use; with the Company signalling its intention to

allow ALRO to take approximately 80 rai of land into the land reform program.

However, on 17 September 2009, the Company received notice from ALRO to

vacate a total of approximately 133 rai of land in land reform areas and demolish

all construction thereon, within 30 days from receipt of notice, since the Company

has no land ownership documents. The cost of this land and the net book value

of the palm plantation development on such land amounted to approximately

Baht 0.2 million. The Company has already set aside full allowance for

impairment loss on the cost of these assets as at 31 December 2009.

At present, the Company is in the process of negotiating with the relevant

government agencies concerning the land in designated forest areas.

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c) In 2008, the subsidiaries received notification from the Surat Thani Provincial

Office of Natural Resources, ordering it to enter into a memorandum of

acknowledgement and consent to comply with the conditions of the Forestry

Department’s 2005 regulation concerning permission to exploit National Forest

land, to lodge an application for permission to gather forest produce in

accordance with Section 15 of the National Forest Act 1964, and to pay official

royalty fees at the rate of 10 percent of the market price of oil palm and forest

maintenance fees, at a rate of double the official royalty fees, when harvesting

the oil palm crops planted.

On 6 August 2009, the subsidiaries entered into a memorandum of

acknowledgement and consent to comply with the conditions stipulated by the

Forestry Department. On 18 December 2009, the subsidiaries lodged an

application for permission to gather forest produce in a National Forest. At

present, the relevant government agencies are processing the application.

24. Financial instruments

24.1 Financial risk management

The Company, the subsidiaries and the jointly controlled entity’s financial instruments,

as defined under Thai Accounting Standard No. 32 “Financial Instruments: Disclosure

and Presentations”, principally comprise cash and cash equivalents, trade accounts

receivable and investments. The financial risks associated with these financial

instruments and how they are managed is described below.

Credit risk

The Company is exposed to credit risk primarily with respect to trade accounts

receivable since the majority of sales are supplied to a limited number of customers.

However, due to those customers’ creditworthiness, the Company does not anticipate

material losses from its debt collection.

Interest rate risk

The Company, the subsidiaries and the jointly controlled entity’s exposure to interest

rate risk relates primarily to its cash at financial institutions. However, since cash at

financial institutions bear floating interest rates or fixed interest rates which are close to

the market rate, the interest rate risk is expected to be minimal. As at 31 December

2009, the Company, the subsidiaries and the jointly controlled entity had cash at

financial institutions totaling approximately Baht 76 million (Separate financial

statements: Baht 58 million), bearing interest at rates of 0.50 - 1.13 per annum

(Separate financial statements: 0.50 - 1.13 per annum).

23

Foreign currency risk

The Company’s exposure to foreign currency risk arises mainly from machinery

purchase transactions that are denominated in foreign currency. The Company

manages its exposure to foreign currency risk by balancing net position of receipt and

payment of the foreign currency transactions in each period, and considering

purchase/sale of forward contracts from time to time so as to reduce exposure to the

foreign currency risk which may incur. The Company had no forward contracts

outstanding at the balance sheet date.

The balances of financial asset and liabilities denominated in foreign currency as at 31

December 2009 are summarised below.

Financial Financial Exchange rate Foreign currency assets liabilities as at 31 December 2009

(Million) (Million) (Baht per 1 foreign currency unit) USD - 0.51 33.5168 EUR 0.08 - 47.4583

24.2 Fair value of financial instruments

Since the majority of the Company, the subsidiaries and the jointly controlled entity’s

financial instruments are short-term in nature, their fair value is not expected to be

materially different from the amounts presented in the balance sheets.

A fair value is the amount for which an asset can be exchanged or a liability settled

between knowledgeable, willing parties in an arm’s 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.

25. Capital management

The primary objectives of the Company, the subsidiaries and the jointly controlled entity’s

capital management are to ensure that it has an appropriate financial structure and

preserves the ability to continue its business as a going concern.

According to the balance sheet as at 31 December 2009, the Group's debt-to-equity ratio

was 0.10:1 (2008: 0.09:1) and the Company's was 0.38:1 (2008: 0.34:1).

26. Subsequent events

On 25 February 2010, a meeting of the Company’s Board of Directors passed a resolution

to propose the payment of a dividend of Baht 0.20 per share in respect of October to

December 2009 earnings, or a total of Baht 64.81 million, for approval by the annual

general meeting of the Company’s shareholders.

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27. Approval of financial statements

These financial statements were authorised for issue by the Board of Directors on

25 February 2010.

ANNUAL REPORT 2009 OF UNITED PALM OIL INDUSTRY PLC. · 2017. 3. 6. · Apart from achieving ISO...

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