Independent Financial Advisor Report

Transcription

1 Attachment 2 Independent Financial Advisor Report Opinion of the Independent Financial Advisor regarding the acquisition of the charter capital of Holcim (Vietnam) Company Limited By Siam City Cement Public Company Limited Presented to Shareholders of Siam City Cement Public Company Limited Prepared by Bualuang Securities Public Company Limited 14 November 2016

2 Table of Contents Page Executive Summary 1. Characteristics and Details of the Transaction 1.1. Objective and characteristic of the Transaction Section 1 page Counterparties and Relationships Section 1 page Type and Size of the Transaction Section 1 page Value of the Acquired Assets, Basis Used to Determine the Consideration Section 1 page 6 and Source of Fund to Finance the Transaction 1.5. Details of the Assets Acquired Section 1 page Summary of Key Contracts Section 1 page 8 2. Appropriateness of the Transaction 2.1. Objective of entering into the Transaction Section 2 page Advantages and Disadvantages of entering into the Transaction Section 2 page Risk of entering into the Transaction Section 2 page 5 3. Fairness of the Acquisition Price and Conditions 3.1. Fairness of the Acquisition Price Section 3 page Fairness of the Transaction Conditions Section 3 page Summary of the Opinions by the Independent Financial Advisor Section 4 page 1 Appendix 1 General Information of Holcim (Vietnam) Limited 1.1 Company Background Appendix 1 page Board of Directors Appendix 1 page Dividend Policy Appendix 1 page Summary of Financial Statement and Operating Performance Appendix 1 page 4 in the past 3 years 1.5 Industry Review Appendix 1 page 8 Appendix 2 General Information of Siam City Cement Public Company Limited 2.1 Company Background Appendix 2 page Board of Directors Appendix 2 page Shareholders Appendix 2 page Dividend Policy Appendix 2 page Summary of Financial Statement and Operating Performance Appendix 2 page 12 in the past 3 years 2.6 Industry Review Appendix 2 page 18

3 Glossary Key Terms β : Beta Definition Advisers : SCCC s other advisers related to the Transaction, namely, financial adviser, strategic consultant, accounting and tax adviser, and legal adviser Amended ERC : An amended Enterprise Registration Certificate ATIGA : ASEAN Trade in Goods Agreement BLS : Bualuang Securities Public Company Limited BOT : Bank of Thailand BTMU : Bank of Tokyo-Mitsubishi UFJ, Ltd. CB : Cemex Cement (Bangladesh) Limited CCTA : Contributed Capital Transfer Agreement for the sale and purchase of the charter capital of Holcim (Vietnam) Limited dated 4 August 2016 Cemasco Loan : The existing shareholder loan between LafargeHolcim Limited s Group and Holcim (Vietnam) Limited Cemex transactions : The acquisition of 100 percent interest in Cemex (Thailand) Company Limited and Cemex Cement (Bangladesh) Limited Central Vietnam : A region comprising of the following provinces collectively: Nghe An, Ha Tinh, Quang Binh, Hue, Da Nang, Quang Na, and Quang Ngai Company : Siam City Cement Public Company Limited Conwood : Conwood Company Limited and PT. Conwood Indonesia CT : Cemex (Thailand) Company Limited D/E : Total liabilities to total shareholders equity DPI : Department of Planning and Investment of Ho Chi Minh City EBITDA : Earnings Before Interest, Taxes, Depreciation and Amortization EV/EBITDA : Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization EV/Ton : Enterprise Value to Ton FDI : Foreign Direct Investment g : Long-term growth rate GDP : Gross Domestic Product Globe Cement : Globe Cement Co., Ltd. HLCM : Holcim Philippines Inc. HLL : Holcim (Lanka) Limited and its subsidiaries Holcim : Holcim Limited Holderbank : Holderbank Financiere Glaris Limited HT I : Ha Tien 1 Cement Company HT1 : Ha Tien 1 Cement JSC HVL : Holcim (Vietnam) Limited IFA : Independent Financial Advisor

4 Key Terms Definition IFA Report : Independent Financial Advisor Report regarding reasonableness and fairness of the Transaction IFRS : International Financial Reporting Standard IMF : International Monetary Fund INSEE Ecocycle : INSEE Ecocycle Co., Ltd. INTP : PT Indocement Tunggal Prakarsa Tbk JVC : The Joint Venture Contract between Vietnam Cement Industry Corporation and LafargeHolcim Limited Initial Price : EUR 460 million or equivalent to THB 17,957 million (or USD 503 million) INSEE Superblock : INSEE Superblock Co., Ltd. K d : Cost of Debt K e : Cost of Equity Kg : Kilogram Late Filing : SCCC failed to submit the Circular, including the IFA Report, to the SEC within the timeframe contemplated by the CCTA LCV : Lafarge Cement Limited Liability Company LH : LafargeHolcim Limited Linklaters : Linklaters LLP LMC : Lafarge Malaysia Berhad Locked Box Account Date : 31 May 2016 m 3 : Cubic meters Major Acquisition Rule : The Notification of the Capital Market Supervisory Board No. TorJor. 20/2551 Re: Rules concerning the Material Transactions in the Acquisition and Disposition of Assets dated 31 August 2008 (as amended) and the Notification of the Board of Governor of the Stock Exchange of Thailand Re: Disclosure of Information and other Acts of Listed Companies concerning the Acquisition and Disposition of Assets B.E dated 29 October 2004 (as amended) Management ; Mr. Charin Satchayan, Independent Director of the Company, and Mr. Siva Mahasandana, Director and Chief Executive Officer of the Company Net IBD/E : Net interest bearing debt to total shareholders equity Northern Vietnam : A region comprising of the following provinces collectively: Hai Phong, Hung Yen, Hai Duong, Quang Ninh, Thai Binh, Ha Nam, Nam Dinh, Ninh Binh, Thanh Hoa, Hanoi, Hoa Binh, Bac Ninh, Bac Giang, Thai Nguyen, Bac Kan, Vinh Phuc, Phu Tho, Son La, Dien Bien, Lai Chau, Ha Giang, Cao Bang, Lang Son, Lao Cai, Yen Bai, and Tuyen Quang OECD : The Organization for Economic Cooperation and Development Opinion : the Independent Financial Advisor s opinion regarding fairness and appropriateness of the Transaction P/BV : Price to Book Value P/E : Price to Earnings

5 Key Terms Definition Pre-Closing Date : No later than 3 business days after all condition precedents in CCTA have been fulfilled PP&E : Property, plant and equipment R f : Risk Free Rate R m : Market Return RMX : Ready-Mixed Concrete ROFR : Right of First Refusal SCC : Siam Cement Public Company Limited SCCC : Siam City Cement Public Company Limited SCCC (Bangladesh) : Siam City Cement (Bangladesh) Ltd. SCCC (Lanka) : Siam City Cement (Lanka) Ltd. (Previously known as Holcim (Lanka) Limited ) SCCO : Siam City Concrete Co., Ltd. SCP : Siam City Power Co., Ltd. SEC : The Securities and Exchange Commission Seller : LafargeHolcim Limited SET : The Stock Exchange of Thailand SMBR : PT Semen Baturaja (Persero) Tbk SMCB : PT Holcim Indonesia Tbk SMGR : PT Semen Indonesia Persero Tbk Southern Vietnam : A region comprising of the following provinces collectively: Binh Dinh, Khanh Hoa, Phu Yen, Ninh Thuan, Binh Thuan, Gia Lia, Dak Nong, Dak Lak, Kon Tum, Lam Dong, HCM, Long An, Dong Nai, Binh Duong, Binh Phuoc, Tay Nihn, Ba Ria Vung Tau, Tien Giang,Tra Vinh, Dong Thap, Can Tho, Hau Giang, Soc Trang, Ben Tre, An Giang, Kien Giang, Ca Mau, Bac Lieu, and Vinh Long T : Corporate Income Tax Target : Holcim (Vietnam) Limited THB : Thai Baht Transaction : The acquisition of charter capital of 65 percent of the total charter capital of Holcim (Vietnam) Limited by Siam City Cement Public Company Limited from LafargeHolcim Limited TSA : Transactional Services Agreement tpa : Tonnes per annum TV : Terminal Value USD : United States Dollar Valence : Valence Corporation Limited VICEM : Vietnam Cement Industry Corporation VND : Vietnam Dong WACC : Weighted average cost of capital

6 14 November 2016 Subject Independent Financial Advisor s Opinion regarding the Asset Acquisition of Siam City Cement Public Company Limited To Shareholders of Siam City Cement Public Company Limited Reference is made to the resolution of Board of Directors of Siam City Cement Public Company Limited (the Company or SCCC ) No. 141 and No. 143, which was held on 22 July 2016 and 3 August 2016, respectively, approving the Company to proceed with an acquisition of 65 percent of the total charter capital of Holcim (Vietnam) Limited ( HVL ) from LafargeHolcim Limited (the Seller or LH ). The Company subsequently entered into the Contributed Capital Transfer Agreement (the CCTA ) for the sale and purchase of the charter capital of HVL dated 4 August 2016 with the Seller, under which the Company will acquire 65 percent of the total charter capital of HVL from the Seller (the Transaction ). The Transaction is considered as an acquisition of assets in accordance with the Notification of the Capital Market Supervisory Board No. TorJor. 20/2551 Re: Rules concerning the Material Transactions in the Acquisition and Disposition of Assets dated 31 August 2008 (as amended) and the Notification of the Board of Governor of the Stock Exchange of Thailand Re: Disclosure of Information and other Acts of Listed Companies concerning the Acquisition and Disposition of Assets B.E dated 29 October 2004 (as amended) (collectively, the Major Transaction Rule ). The highest comparative value derived from the calculation of the transaction size, taking into account the value of the acquisition transactions entered into by the Company and/or its subsidiaries during the past six months, is equivalent to not more than percent on a total value of consideration basis. The Transaction is, therefore, categorized as a Type-1 transaction according to the Major Transaction Rule. In accordance with the Major Transaction Rule, the Company is required to (1) disclose information memorandum regarding the Transaction to the Stock Exchange of Thailand (the SET ), (2) send a notice to attend the Shareholders Meeting together with the opinion of independent financial advisor regarding the reasonableness and fairness of the Transaction ( IFA Report ) to shareholders no less than 14 days prior to the date of the Shareholders Meeting, and (3) obtain an approval from the Shareholders Meeting for entering into the Transaction with the votes of not less than three fourths of the total votes of shareholders present at the meeting and having the right to vote. The Board of Director s Meeting of the Company no. 143 held on 3August 2016, therefore, approved in principal for Mr. Charin Satchayan, Independent Director of the Company, and Mr. Siva Mahasandana, Director and Chief Executive Officer of the Company (together called Management ), to engage Independent Financial Advisor ( IFA ) to provide the opinion regarding fairness and appropriateness of the Transaction to the Company s shareholders (the Opinion ) in making a decision regarding the Transaction. Management subsequently engaged Bualuang Securities Public Company Limited ( IFA ) to act as IFA regarding the Transaction. In rendering the Opinion, IFA has relied on information gathering from interviews and site visit with the Company s management, employees and advisors, documents provided by the Company, and other publicly disclosed information, as well as the IFA s assessment of current economic conditions. Any significant changes of the aforementioned information and documents in the future may alter the Opinion on the Transaction accordingly. Information and documents used in preparing the Opinion included but are not limited to the following:

7 1. The resolution of the Board of Directors of Siam City Cement Public Company Limited No. 141, No. 143 and No. 144, which was held on 22 July 2016, 3 August 2016 and 27 October Disclosure of Information Memorandum concerning the acquisition of the charter capital of Holcim (Vietnam) Limited of Siam City Cement Public Company Limited dated 8 August 2016 and as amended 3. Disclosure of Information Memorandum concerning the acquisition of shares in Holcim (Lanka) Limited of Siam City Cement Public Company Limited dated 29 July 2016 and as amended 4. Disclosure of information concerning the acquisition of some part of business of Valence Corporation Limited dated 5 April 2016 and report on the progress of the purchase of some part of assets and business of Valence Corporation Limited dated 2 June Disclosure of information concerning the share purchase in Cemex (Thailand) Company Limited and Cemex Cement (Bangladesh) Limited dated 10 March Report on the completion of the purchase of the shares in Cemex (Thailand) Company Limted dated 4 May Report on the completion of the sale and purchase of the shares in Cemex Cement (Bangladesh) Limited dated 27 May Annual Information Form (Form 56-1) for the year 2015 of Siam City Cement Public Company Limited 9. Audited Financial Statements for the year 2013 to 2015, Reviewed Financial Statement for the second quarter ended 30 June 2016 of Siam City Cement Public Company Limited and Reviewed Financial Statement for the nine-month ended 30 September 2016 of Siam City Cement Public Company Limited 10. Separated Audited Financial Statements for the year 2013, Combined Financial Statements using management accounts for the year and Interim Consolidated Financial Statement for 5-month period ended 31 May 2016 of Holcim (Vietnam) Company Limited 11. Confidential Information Memorandum of Holcim (Vietnam) Company Limited as of June Agreements and draft agreements related to the Transaction 13. Due Diligence Reports and draft Due Diligence Reports related to the Transaction Draft Debt & Debt Like Analysis dated 2 August 2016 prepared by PricewaterhouseCoopers Limited Draft Financial and Tax Red Flag Report dated 24 July 2016 prepared by PricewaterhouseCoopers Limited Legal Due Diligence Report dated 24 June 2016 and 9 August 2016 prepared by Linklaters LLP Legal Due Diligence Report dated 27 June 2016 and 8 August 2016 prepared by Vietnam International Law Firm (VILAF) 14. Information from interviews with the Company s management and employees 15. Other information and documents provided by the Company related to the Transaction

8 As IFA has limited access to the information of HVL, IFA has prepared the Opinion based on the accessible and publicly disclosed information of HVL and information and documents provided by the Company and/or other relevant parties. In this regards, IFA had no opportunity to interview HVL s management regarding the future business plan, therefore, the information received from the Company may not be as complete as information directly provided by HVL. However, IFA believes that such limitation is not materially affecting the IFA s ability to conduct its duty in preparing the Opinion. The Opinion is based on the assumptions that (1) all information and documents provided by the Company and interviews with management, employees and advisors of the Company were reliable, complete and accurate at the issuance date of the IFA Report, (2) no past events or imminent events or impending events would create significant negative impacts on HVL s operating performance and its financial position, and (3) all business contracts relating HVL were legal and binding, with no amendments, revocation or cancellation of the laws underlying contracts. BLS hereby certify that we have studied, analyzed and prudently performed our duties as IFA, complying with the generally accepted professional standard and rendered our Opinion based on the unbiased analysis with regards to the best benefit of the shareholders. The Opinion is based on the information and documents received from the Company and other publicly available information. The IFA assumes that such information is accurate and reliable at the issuance date of the IFA Report. If there is any significant change on and/or inaccuracy of the aforementioned information or documents, it may have material effect on the Opinion. The objective of this IFA Report is specifically to provide an opinion on the Transaction to the Company s shareholders only. The decision making of approving or not approving the Transaction is to be made at the shareholder s own discretion. The shareholders are advised to study the information and consider reasons, advantages, disadvantages, risk factors and opinions on the factors relating to the entering into Transaction attached hereto before casting a vote to ensure that you are able to consider and approve the entering into Transaction in an appropriate manner. The IFA shall not be responsible for any adverse impacts on the Company and its shareholders resulting from the Transaction and the IFA has no obligation to update, revise or reaffirm the Opinion stated herein.

9 Executive Summary The Board of Directors held meetings No. 141 and No. 143 on 22 July 2016 and 3 August 2016, respectively, to approve the Company to proceed with an acquisition of 65 percent of the total charter capital of HVL from the Seller. Consequently, the Company entered into the Contributed Capital Transfer Agreement (the CCTA ) with the Seller, under which the Company will acquire charter capital of VND 1, billion (or equivalent to approximately THB 3, million 1 ) or 65 percent of the total charter capital of HVL from the Seller at approximately EUR 479 million or THB 18,694 million (at the exchange rate of one EUR per THB according to the average of the selling and buying rate available on the BOT s website on 3 August 2016), under assumption that the Pre-Closing Date 2 is on 31 December The Closing Price comprises of the Initial Price of EUR 460 million plus incremental amount less leakage. The Closing Price depends on the Pre-Closing Date and conditions stated in the CCTA please see detail of the acquisitions price in Section 1 Characteristic and Details of the Transaction. The Transaction will be completed once these following conditions precedent are fulfilled. (1) VICEM, being 35 percent shareholder of HVL, does not exercise its right of first refusal to purchase the Capital in relation to HVL pursuant to the Joint Venture Contract between VICEM and the Seller ( JVC ). In this regard, VICEM had a period of 60 days from the date that it has been notified by the Seller, which was 7 September 2016, to exercise its right of first refusal which shall be expired on 6 November As of the date of the IFA Report, the ROFR period had been expired. In this regard, VICEM did not exercise its rights. Thus, according to JVC, it shall be deemed to have given VICEM s written consent to LH s assignment of the charter capital to the Company; (2) the resolution of the shareholders meeting of the Company of not less than three-fourths of the total votes of shareholders present at the meeting and having the right to vote, approving entry into the Transaction having been obtained by the Company; and (3) consent and approval from Vietnamese authorities, which is Department of Planning and Investment of Ho Chi Minh City ( DPI ), having been obtained by the Seller for the acquisition approval. In this regard, if the Company and the Seller cannot fulfill the second and third condition abovementioned within 180 days (or the latest of approximately 210 days) from the expiration of ROFR period, the CCTA shall automatically terminate without any breakup fee. In addition, the period of 180 days and approximately 210 days from the expiration of ROFR period ( Effective Date ), which is 6 November 2016, is on 5 May 2017 and 5 June 2017, respectively. According to the CCTA, the date that is 1 business day after the second and third condition are fulfilled is the Unconditional Date. As of the date of the IFA Report, the Company expects the Transaction to be completed in the first quarter of 2017, which shows in the figure below about the key milestone of the Transaction. 1 Calculated using the average of the selling rate and buying rate determined by the Bank of Thailand ( BOT ) as of 3 August 2016 equal to THB per VND 1. 2 Pre-Closing Date is the date that (1) the following conditions have been fulfilled (i) the Company obtains approval from shareholders meeting and (ii) the Company obtains acquisition approval from DPI, (2) the Company transfers the Closing Price to escrow account as agreed and (3) the Seller submits the application for the Amended ERC to DPI. In this regard, the Pre-Closing Date shall take place no later than 3 business days after the Unconditional Date, which is 1business day after the condition (1) has been fulfilled.

10 The Key Milestone of the Transaction Note: 1 Amended Enterprise Registration Certificate (Amended ERC) is a document to be issued by DPI to HVL, reflecting, among others: (1) the Company as the legal owner of the transfer capital of HVL; and (2) the change of the name of HVL to adopt the new name which does not consist of or incorporate the word Holcim or Lafarge or any name which is substantially or confusingly similar. In this regard, the Seller will submit the application the Amended ERC to DPI once the escrow agent receives the Closing Price from the Company 2 The conditions will be fulfilled once (1) the Company obtains approval from shareholders meeting and (2) the Company obtains acquisition approval from DPI 3 Conditions in CCTA state that (1) shareholders meeting approval and (2) acquisition approval from DPI must be obtained within 180 days from Effective Date or this may be deferred for one month (Deferred Long Stop Date) at sole discretion of the Seller. In this regard, if the abovementioned conditions cannot be fulfilled within the stated timeline, the CCTA shall automatically terminate. Please see more information in Section Summary of Joint Venture Contract Nonetheless, the Pre-Closing Date (equivalent to not more than 3 business days after the Unconditional Date according to the CCTA) may occur later than when the Company has expected, which is the end of 2016, to end of the first quarter of 2017, or possibly until 8 June This will result in the Company paying for the incremental amount from the Initial Price. Therefore, the IFA has prepared sensitivity analysis to present the impact of timing of the Pre-Closing Date on the Closing Price (and assuming no leakage). If the Pre-Closing Date occurs at the end of December 2016 to 8 June 2017, the Closing Price for 65 percent of the total charter capital of HVL will be in the range of EUR 479 million to EUR 493 million (or equivalent to THB billion to THB billion 3 ). Closing Price Initial Price Pre-Closing Date 31Dec 16 31Jan 17 28Feb 17 31Mar Apr 17 31May 17 8Jun 17 EUR 460 million THB billion Note: 1 Calculated at the exchange rate of EUR 1 per THB according to the average of the selling and buying rate available on the BOT s website on 3 August The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1

11 The Transaction is considered as an acquisition of assets in accordance with the Major Transaction Rule. The highest comparative value derived from the calculation of the transaction size, taking into account the value of the acquisition transactions entered into by the Company and/or its subsidiaries during the past six months, is equivalent to not more than percent on a total value of consideration basis. Moreover, the transaction size based on the reviewed consolidated financial statements of the Company for the six-month ended 30 June 2016 and the Pre-Closing Date on 8 June 2017 is equivalent to not more than percent on a total value of consideration basis. The Transaction is, therefore, categorized as a Type-1 transaction according to the Major Transaction Rule. In accordance with the Major Transaction Rule, the Company is required to (1) disclose information memorandum regarding the Transaction to the SET, (2) send a notice to attend the Shareholders Meeting together with the IFA Report to shareholders no less than 14 days prior to the date of the Shareholders Meeting, and (3) obtain an approval from the Shareholders Meeting for entering into the Transaction with the votes of not less than three fourths of the total votes of shareholders present at the meeting and having the right to vote. From the IFA s analysis regarding the appropriateness of the Transaction including the fairness of the acquisition price and acquiring 65 percent of the total charter capital of HVL, the IFA has the opinion that the Transaction is appropriate because of the following: (1) SCCC would gain control in HVL, one of the leading cement players (both in terms of capacity and sales) in Southern Vietnam, allowing SCCC to immediately establish a strong footprint in a high growth market; (2) The acquisition of HVL would increase sources of revenue of the Company and geographically diversify the risks associated with a specific country. The Company s strong reliance on the Thai Market would be reduced as sales to customers outside Thailand would be increased; (3) HVL has best-in-class asset base, strong distribution network and strong historical financial performance; (4) Investment in HVL is expected to create potential synergies to the existing operations of SCCC such as vertical integration with SCCC s clinker, expanding SCCC s existing products into Vietnam market, and scale benefits from shared procurement and services; (5) The Company s competitiveness is enhanced in terms of higher revenue generating capability, enhancing the competitive cost position, and the reduction of dependence on conventional export markets; (6) If the Pre-Closing Date occurs at the end of December 2016 to 8 June 2017, the Closing Price for 65 percent of the total charter capital of HVL will be in the range of EUR 479 million to EUR 493 million (or equivalent to THB billion to THB billion 4 ). The range of the Closing Price is in the range of appropriate valuation of THB billion to THB billion estimated by the IFA using DCF, forward EV/EBITDA multiple, implied EV/EBITDA multiple, and implied EV/ton multiple approaches. Please see details on the Fairness of the Acquisition Price in Section 3 Fairness of the Acquisition Price and Conditions.; and (7) Terms and conditions of the acquisition of 65 percent of the total charter capital of HVL are fair, appropriate and protect the benefits of SCCC. The Transaction s deal structure as well as terms and conditions set out in CCTA are reasonably in line with general market practice and enable SCCC to continue managing HVL s business smoothly after the Transaction. Please see details on the Fairness of the Transaction conditions in Section 3 Fairness of the Acquisition Price and Conditions. 4 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1

12 Therefore, the IFA recommends the shareholders to approve the Transaction. However, in making their decisions, the shareholders should consider the disadvantages and risks of entering into the Transaction before casting the vote. Please see details in Section 2 under Disadvantages of entering into the Transaction and 2.3 Risk of entering into the Transaction. Disadvantages of entering into the Transaction (1) As the Company plans to finance the Transaction by using 1-year bridging loan of up to USD 580 million (or equivalent to THB 20,190 million 5 ) from Bank of Tokyo-Mitsubishi UFJ, Ltd ( BTMU ), interest bearing debts and interest expenses of the Company are expected to increase which will result in higher Net IBD/E and D/E ratios. Given the existing loan covenant of the debentures of not more than 2 times Net IBD/E, the Company might breach the loan covenant in the future. In addition, the Company s consolidated earnings may be impacted as a result of higher interest expense. However, the loan covenant is tested twice a year which are every 30 June and 31 December. For the 1-year bridging loan from BTMU to fund this Transaction, the Company plans to drawdown early 2017 and it is expected that the Company may refinance this loan with a combination of long-term debt and equity in the near future. However, such capital raising plan is under consideration of management, and the amount and means of capital increase is subject to approval from the Board of Directors of the Company and final approval from the shareholders meeting of the Company. If the Company is unable to raise capital, or raise capital in an insufficient amount, by 30 June 2017, the Company is at risk of breaching bond s covenants; (2) Potential control and earnings dilution to SCCC s shareholders from refinancing the bridging loan using a combination of long-term debt and new equity. However, as of the date of the IFA Report, the long-term capital structure and size of capital increase have not yet been determined. The amount and means of capital increase, if any, shall require the approval by the board of directors and the final decision is subjected to the approval of the shareholders meeting of SCCC; (3) The ability of SCCC to pay or maintain dividend payment could be impacted in case that funding cost of the acquisition loan is higher than earnings/returns from the investment in HVL. However, as aforementioned, the bridging loan is temporary and should be refinanced by long-term debt and equity injection to attain an appropriate capital structure, which shall reduce the impact of funding costs and may restore the Company s dividend payment capability in the future; (4) Impact from the accounting of goodwill recorded in the Company s financial statements in accordance with the TFRS 3: Business Combinations. The Company shall be required to appraise and allocate the purchase price into various assets and liabilities acquired from the Transaction at their fair values at the acquisition date. Goodwill represents future economic benefit that the acquirer expects to obtain from acquiring assets. As of the date of the IFA Report, the Company has not yet engaged an independent asset appraiser to appraise a fair value of acquisition price or equity value of HVL. Consequently, the IFA cannot determine an accounting impact of recognizing goodwill arising out of this Transaction on the Company s financial statement. In addition, if the Company records goodwill arising out of this Transaction on its consolidated financial statement, after the Transaction is completed, there is a chance that the Company may assess impairment on goodwill or a chance that the Company may record impairment on goodwill on its consolidated financial statement. 5 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per USD 1

13 Risks of entering into the Transaction (1) SCCC plans to finance the acquisition by using 1-year bridging loan of up to USD 580 million (or equivalent to THB 20,190 million 6 ) from BTMU and the Company has existing loan covenant of the debentures of not more than 2 times Net IBD/E which is tested twice a year which are every 30 June and 31 December. Hence, there is a risk of having limited financial flexibility or breaching its existing covenant of the debenture in the future. According to the interview the management of the Company, the Company plans to drawdown the aforementioned bridging loan early 2017 and may refinance this with a combination of long-term debt and equity in the near future. However, such capital raising plan is under consideration of management, and the amount and means of capital increase is subject to approval from the Board of Directors of the Company and final approval from the shareholders meeting of the Company. If the Company is unable to raise capital, or raise capital in an insufficient amount, by 30 June 2017, the Company is at risk of breaching bond s covenants. Therefore, the Company may have to immediately repay to the bondholders the outstanding amount of principal plus interest at that time, which will materially affect the Company s financial position and may affect the Company s credit rating and the ability to issue new bonds in the future. (2) SCCC will be more exposed to foreign exchange risk with respect to sales, expenses, profits, assets and liabilities which are denominated in VND and dividend received from HVL which is declared in VND and is distributed to SCCC in USD. In addition, the 1-year bridging loan in the amount of USD 580 million (or equivalent to THB 20,190 million 7 ) is denominated in USD or a dual THB/USD facility. Therefore, any changes to the foreign exchange currency could impact SCCC However, as of the date of the IFA Report, the Company is considering hedging against such foreign exchange rate risk; (3) During the transition of majority ownership changeover, SCCC faces the risk that HVL s performance could be adversely impacted if, for example (1) brand transition from existing brands to new brands may not be smooth or the new brands cannot command the same price premium in the medium term, and (2) interruptions in the supply of raw materials and services during the transition may materially adversely affect HVL s business, financial condition, results of operations and prospects; (4) Risk from unexpected adverse performance of HVL which may arise from internal and external factors such as unstable industry, economic, political or social conditions, civil unrest in Vietnam; increased competition from local or international companies, particularly in case that they may have greater financial resources than SCCC has; inability to realize economies of scale and expected synergies; inability to maintain effective costs controls; foreign ownership restrictions; restrictions on the import or export of our products or raw materials used in our products, etc.; (5) HVL and the Company did not have the value of HVL s fixed assets appraised by an independent asset appraiser. Thus, there is a risk that the appraised value of fixed assets may be lower than the book value of such fixed assets. 6 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per USD 1 7 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per USD 1

14 However, according to management interview, there is no need for such appraisal of the fixed assets as the assets are believed to be in a good working condition and fairly valued. Moreover, the Company and its financial advisor, the Hongkong and Shanghai Banking Corporation Limited, have considered that the discounted cash flow and EBITDA multiple methodologies should be the most appropriate methodologies for the valuation of the Transaction. The Company will arrange an asset appraisal of fixed assets and the valuation estimation of net assets of HVL that will be required under TFRS 3: Business Combination after the Transaction is completed. (6) A number of risks and uncertainties associated with operating in Vietnam such as the macroeconomic climate, including high rates of inflation, and levels of cement consumption in these markets, excess supply of cement in Vietnam, difficulty competing against competitors who may have greater financial resources and/or a more effective or established localized business presence. These types of risks and uncertainties, many of which are beyond the Company s control, could have a material adverse effect on the Company s business, results of operations, financial condition and prospects; and (7) Last but not least, as HVL shares are not listed on the stock exchange, SCCC will have limited liquidity for this investment as the shares cannot be bought or sold quickly enough to prevent or minimize a loss.

15 Section 1: Characteristics and Details of the Transaction 1.1 Objective and Characteristic of the Transaction LafargeHolcim Limited ( LH or the Seller ) (previously known as Holcim Limited ) announced its intention to divest its 65 percent stake in Holcim (Vietnam) Limited ( HVL or the Target or the JV ), a limited liability company which was established under Joint Venture Contract ( JVC ) between LH and Vietnam Cement Industry Corporation ( VICEM ). HVL is a manufacturer and seller of cement and readymixed concrete. The Company received bidding invitation for this transaction on 2 June The Company viewed this as a good investment opportunity which supports its overall regional expansion plan. HVL will enable the Company to diversify its revenue source into high growth market, while serving as additional captive channel for the Company s clinker output and reduce the Company s dependence on conventional export markets. The Board of Directors then held meetings No. 141 and No. 143 on 22 July 2016 and 3 August 2016, respectively, to approve the Company to proceed with an acquisition of 65 percent of the total charter capital of HVL from the Seller. Consequently, the Company entered into the Contributed Capital Transfer Agreement for the sale and purchase of the charter capital of HVL dated 4 August 2016 (the CCTA ) with the Seller, under which the Company will acquire charter capital of VND 1, billion (or equivalent to THB 3, million) 1 or 65 percent of the total charter capital of HVL from the Seller (the Transaction ). Figures below shows the pre- and post-shareholding structure of the Transaction Figure 1.1 Pre-shareholding structure Figure 1.2 Post-shareholding structure Note: 1 LH is a listed company in Switzerland, which is a manufacturer and distributor of cement, aggregates, ready-mix concrete, concrete and asphalt products as well as associated services and solutions. Moreover, Lafarge S.A. and Holcim Limited have a global merger in As of 9 November 2016, LH had a market capitalization of CHF 34, million (or equivalent to THB 1, billion, which is calculated using the average of the selling rate and buying rate determined by the BOT as of 9 November 2016 equal to THB per 1 CHF) In addition, the major shareholders of LH are Schweizerische Cement-Industrie-Gesellschaft, Groupe Bruxelles Lambert, NNS Jersey Trust, Dodge & Cox, BlackRock, Inc. and Harris Associates Investment Trust, which hold 11.38%, 9.43%, 4.77%, 3.27%, 3.04% and 3.03%, respectively. (Source: 2 VICEM is a state-owned enterprise in Vietnam, which is a manufacturer and distributor of cement. VICEM has no relationship with the Company in a manner as a connected person under the notification of the Capital Market Supervisory Board No. TorJor. 21/2551 Re: Rules on Connected Transactions. (Source: 1 Calculated using the average of the selling rate and buying rate determined by the Bank of Thailand (the BOT ) as of 3 August 2016 equal to THB per VND 1. Section 1 Page 1

16 The Transaction will be completed once these following conditions precedent are fulfilled. (1) VICEM, being 35 percent shareholder of HVL, does not exercise its right of first refusal ( ROFR ) to purchase the Capital in relation to HVL pursuant to the Joint Venture Contract between VICEM and the Seller ( JVC ). In this regard, VICEM had a period of 60 days from the date that has been notified by the Seller, which was 7 September 2016, to exercise its right of first refusal, which shall be expired on 6 November As of the date of the IFA Report, the ROFR period had been expired. In this regard, VICEM did not exercise its rights. Thus, according to JVC, it shall be deemed to have given VICEM s written consent to LH s assignment of the charter capital 2 to the Company; (2) the resolution of the shareholders meeting of the Company of not less than three-fourths of the total votes of shareholders present at the meeting and having the right to vote, approving entry into the Transaction having been obtained by the Company pursuant to the Major Transaction Rule and Public Limited Companies Act, Clause 107; and (3) consent and approval from Vietnamese authorities, which is Department of Planning and Investment of Ho Chi Minh City ( DPI ), having been obtained by the Seller under relevant law for the acquisition approval. In this regard, if the Company and the Seller cannot fulfill the second and third condition abovementioned within 180 days (or the latest of approximately 210 days) from the expiration of ROFR period, the CCTA shall automatically terminate without any breakup fee. In addition, the period of 180 days and approximately 210 days from the expiration of ROFR period ( Effective Date ), which is 6 November 2016, is on 5 May 2017 and 5 June 2017, respectively. As at 27 October 2016, the Board of Directors Meeting of the Company No. 144 resolved to propose convening the Extraordinary General Meeting No. 1/2016, which will be held on 9 December 2016, to consider and approve an acquisition of 65 percent of the total charter capital of HVL. In case that the Extraordinary General Meeting of the Company s shareholders No. 1/2016 approves the Transaction, the Company expects the Transaction to be completed in the first quarter of The following figure shows the key milestones for entering into the Transaction. 2 Charter Capital is the total value of assets contributed or undertaken to be contributed by members of a limited liability company. In this regard, limited liability company is a Vietnamese entity, which does not have any shares as limited company or public company in Thailand (Source: Mayer Brown JSM (A leading legal advisor firm, which has offices around Asia, America and Europe), Guide to Doing Business in Vietnam) Section 1 Page 2

17 Figure 1.3 Key milestones for entering into the Transaction Note: 1 Amended Enterprise Registration Certificate (Amended ERC) is a document to be issued by DPI to HVL, reflecting, among others: (1) the Company as the legal owner of the transfer capital of HVL; and (2) the change of the name of HVL to adopt the new name which does not consist of or incorporate the word Holcim or Lafarge or any name which is substantially or confusingly similar. In this regard, the Seller will submit the application the Amended ERC to DPI once the escrow agent receives the Closing Price from the Company 2 The conditions will be fulfilled once (1) the Company obtains approval from shareholders meeting and (2) the Company obtains acquisition approval from DPI 3 Conditions in CCTA state that (1) shareholders meeting approval and (2) acquisition approval from DPI must be obtained within 180 days from Effective Date or this may be deferred for one month (Deferred Long Stop Date) at sole discretion of the Seller. In this regard, if the abovementioned conditions cannot be fulfilled within the stated timeline, the CCTA shall automatically terminate. Please see more information in Section Summary of Joint Venture Contract 1.2 Counterparties and Relationships Seller : LafargeHolcim Limited Relationship with the Company : The Seller has no relationship with the Company in a manner as a connected person under the notification of the Capital Market Supervisory Board No. TorJor. 21/2551 Re: Rules on Connected Transactions. Purchaser : Siam City Cement Public Company Limited 1.3 Type and Size of the Transaction The Transaction is considered as an acquisition of assets in accordance with the Notification of the Capital Market Supervisory Board No. TorJor. 20/2551 Re: Rules concerning the Material Transactions in the Acquisition and Disposition of Assets dated 31 August 2008 (as amended) and the Notification of the Board of Governor of the Stock Exchange of Thailand Re: Disclosure of Information and other Acts of Listed Companies concerning the Acquisition and Disposition of Assets B.E dated 29 October 2004 (as amended) (collectively, the Major Transaction Rule ). Section 1 Page 3

18 The comparative value calculation for the size of Transaction is based on the reviewed consolidated financial statements of the Company for six-month period ended 30 June 2016, the latest financial statement as at the date on which the Board of Directors of the Company resolved to approve the Company to proceed with the Transaction, and the audited consolidated financial statements of HVL for the year ended 31 December The highest comparative value of the Transaction is equivalent to not more than percent on total value of consideration basis. However, as of the date of the IFA report, the Company has disclosed the reviewed consolidated financial statement for the nine-month ended 30 September Thus, the IFA has prepared comparative value calculation, which calculated from the Company s reviewed consolidated financial statement and HVL s financial statement for the year ended 31 December 2015, for illustration purpose. The highest comparative value of the Transaction is equivalent to not more than percent on net tangible assets basis. In this regard, the highest comparative value is changed from the value calculated based on the reviewed consolidated financial statement for the six-month ended 30 June 2017 because the Company s financials has materially changed due to the investment in Holcim (Lanka) Limited in August However, the calculation did not consider the change in exchange rate, which may affect the Closing Price. In addition, the Closing Price may be subject to change depending on the Pre-Closing Date (according to the CCTA, the Pre-Closing Date shall take place no later than 3 business days after the Unconditional Date). Please see details of the acquisition price in Section 1.4 Value of the Acquired Assets, basis used to determine the consideration and source of fund to finance the Transaction. Thus, the IFA has prepared comparative value calculation, which incorporates the effect of delay in Pre-Closing Date to 8 June 2017 for illustration purpose. The calculation will affect only on the comparative value based on the total value of consideration basis. The total value of consideration basis based on the Company s reviewed consolidated financial statements for the six-month ended 30 June 2016 is equivalent to percent, while the total value of consideration basis based on the Company s reviewed consolidated financial statements for the nine-month ended 30 September 2016 is equivalent to percent. The following table shows details of the calculation of the comparative value of the Transaction as mentions above. Considerations for the Comparative Value of the Transaction (percent) 1. Comparison of Net Tangible Assets = Percent Net tangible assets of HVL Net tangible assets of the Company Based on Consolidated Financial Statements for six-month ended 30 June 2016 Pre-Closing Date on Pre-Closing Date on 31 December June Based on Consolidated Financial Statements for nine-month ended 30 September 2016 Pre-Closing Date on Pre-Closing Date on 31 December June % x THB 5, mm 1 65% x THB 5, mm 1 65% x THB 5, mm 1 65% x THB 5, mm 1 THB 20, mm 2 THB 20, mm 2 THB 8, mm 7 THB 8, mm 7 2. Comparison of Net Profit = Percent Net Profit of HVL Net Profit of the Company 3. Comparison of Total Value of Consideration = Total consideration paid Total assets of the Company 65% x THB mm 3 65% x THB mm 3 65% x THB mm 3 65% x THB mm 3 THB 4, mm 4 THB 4, mm 4 THB 3, mm 8 THB 3, mm THB 18, mm 5 THB 19, mm 10 THB 18, mm 5 THB 19, mm 10 THB 41, mm 6 THB 41, mm 6 THB 57, mm 9 THB 57, mm 9 4. Comparison of Equity Share Value N.A. N.A. N.A. N.A. = Number of shares issued as consideration Total number of issued and paid-up shares Not applicable as there is no share issuance Not applicable as there is no share issuance Not applicable as there is no share issuance Not applicable as there is no share issuance of the Company The highest comparative value of the four basis Note: 1 Total of net tangible assets of HVL as of 31 December 2015, equal to VND 3, billion or equal to THB 5, million, calculated using the average of the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per VND 1. 2 Total of net tangible assets of the Company and its subsidiaries as of 30 June 2016 based on the consolidated financial statement for the six-month period ended 30 June Net profit of HVL for the year ended 31 December 2015, is VND billion or equal to THB million, calculated using the average of the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per VND 1. Section 1 Page 4

19 4 Net profit of the Company and its subsidiaries for a period of 12 months ended on 30 June Based on the transaction value of EUR 479 million under assumption that the Pre-Closing Date is on 31 December 2016 (comprising an initial price of EUR 460 million plus an incremental amount less any leakage -- please see details of the acquisition price in Section 1.4 Value of the Acquired Assets, basis used to determine the consideration and source of fund to finance the Transaction). The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1. 6 Total assets of the Company and its subsidiaries as of 30 June Total of net tangible assets of the Company and its subsidiaries as of 30 September 2016 is according to reviewed consolidated financial statements for the nine-month ended 30 September Net profit of the Company and its subsidiaries for a period of 12 months ended on 30 September Total assets of the Company and its subsidiaries as of 30 September Based on the transaction value of EUR 493 million (or equivalent to THB 19,231 million) under assumption that the Pre-Closing Date is on 8 June The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1. However, during the past six months from the date on which the Board of Directors of the Company resolved to approve the Company to proceed with the Transaction, the Company and its subsidiaries have entered into the following acquisition transactions which have been done and approved separately; 1. The Acquisition of Cemex Transactions; 1.1 The Acquisition of 100 percent interest in Cemex (Thailand) Company Limited ( CT ) in May 2016 with a total consideration of USD 3.00 million or equivalent to THB million 3 ; 1.2 The Acquisition of 100 percent interest in Cemex Cement (Bangladesh) Limited ( CB ) in May 2016 with a total consideration of USD million or equivalent to THB 1, million; 2. The Acquisition of some part of assets and business of Valence Corporation Limited ( Valence ) in June 2016 with a total consideration of THB million; and 3. The Acquisition of percent interest in Holcim (Lanka) Limited ( HLL ) and its subsidiaries in August 2016 with a consideration of USD million or equivalent to THB 13, million In this regard, referring to the notification of Extraordinary General Meeting of the Company s shareholders No. 1/2016, the Board of Directors had proposed agenda to consider acknowledgement and/or ratification of the completion of the abovementioned transactions, which occurred during The summary of comparative value calculation for the size of the transactions is as follows: Transaction Comparison of Net Tangible Comparison of Net Profit Methodology (Percent) Comparison of Total Value of Consideration Comparison of Equity Share Value 1. Acquisition of Cemex transactions 1.1 Acquisition of CT N.A N.A. 1.2 Acquisition of CB N.A N.A. 2. Acquisition of some Part of Assets and N.A. N.A N.A. 3 Calculated using the average of the selling rate and buying rate determined by the BOT as of 29 February 2016 equal to THB per USD 1 4 Calculated using the average of the selling rate and buying rate determined by the BOT as of 21 July 2016 equal to THB per USD 1 Section 1 Page 5

20 Transaction Comparison of Net Tangible Comparison of Net Profit Methodology (Percent) Comparison of Total Value of Consideration Comparison of Equity Share Value Business of Valence 3 3. Acquisition of HLL N.A. 4. Acquisition of HVL N.A. Total N.A. Note: 1 The calculation is based on the audited consolidated financial statements of the Company for the year ended 31 December 2015 and the unaudited financial statements (management account) of CT as of 31 December Net income for the year ended 31 December 2015 of CT is negative, thus Comparison of Net Profit method cannot be calculated. The net tangible asset of CT as of 31 December 2015 is THB million. 2 The calculation is based on the audited consolidated financial statements of the Company for the year ended 31 December 2015 and the unaudited financial statements (management account) of CB for the year ended 31 December The net tangible asset of CB as of 31 December 2015 is BDT million or THB 1, million. Net income for the year ended 31 December 2015 of CB is negative, thus Comparison of Net Profit method cannot be calculated. Calculation using the average of the selling rate and buying rate determined by the BOT as of 29 February 2016 equal to THB 1 per BDT The calculation is based on the audited consolidated financial statements of the Company for the year ended 31 December The calculation is based on the reviewed consolidated financial statements of the Company for the six-month ended 30 June 2016 and the audited consolidated financial statements of HLL for the year ended 31 December Calculation using the average of the selling rate and buying rate determined by the BOT as of 21 July 2016 equal to LKR 1 per THB and USD 1 per THB The comparative value of the Transaction is based on the reviewed consolidated financial statements of the Company for the six-month ended 30 June 2016 and financial statements (audited) of HVL for the year ended 31 December Moreover, the Closing Price is based on the transaction value of EUR 479 million under assumption that the Pre-Closing Date is on 31 December The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1. Based on the above calculation, the highest comparative value derived from the calculation of the transaction size, taking into account the value of the acquisition transactions entered into by the Company and/or its subsidiaries during the past six months, is equivalent to not more than percent on a total value of consideration basis. Moreover, the transaction size based on the reviewed consolidated financial statements of the Company for the six-month ended 30 June 2016 and the Pre-Closing Date on 8 June 2017 is equivalent to not more than percent on a total value of consideration basis. Therefore, the Transaction is categorized as a Type-1 transaction according to the Major Transaction Rule as the highest comparative value of the transaction size is higher than 50 percent but lower than 100 percent. As a result, the Company is required to (1) disclose information memorandum regarding the Transaction to the Stock Exchange of Thailand (the SET ), (2) send a notice to attend the Shareholders Meeting together with opinion of independent financial advisor regarding the reasonableness and fairness of the Transaction ( IFA Report ) to shareholders no less than 14 days prior to the date of the Shareholders Meeting and (3) obtain an approval from the Shareholders Meeting for entering into the Transaction with the votes of not less than three-fourths of the total votes of shareholders present at the meeting and having the right to vote. 1.4 Value of the Acquired Assets, basis used to determine the consideration and source of fund to finance the Transaction The asset to be acquired under the Transaction is 65 percent of the total charter capital of HVL. Total transaction value comprises the aggregate of: (1) EUR 460 million 5 or equivalent to approximately THB 17,957 million (the Initial Price ); plus (2) an incremental amount calculated at a rate of 7 percent per annum (on a 365-day basis) on the Initial Price (EUR 460 million) from (but excluding) the Locked Box Accounts Date (i.e. 31 May 2016) to (and including) the Pre-Closing Date. For example, if number of days between the day after the Locked Box Accounts Date and the Pre-Closing Date is 30 days, the incremental amount is equivalent to EUR 2.65 million (calculated from EUR 460 million x 7% x ) ; less 5 The Initial Price of EUR 460 million is an equity value for the 65 percent of the total charter capital of HVL, which is derived from the enterprise value deducted by net financial debt, change in working capital and dividend payable, which is the permitted leakage. Section 1 Page 6

21 (3) any leakage 6 together with interest at a rate of 3 percent per annum (on a 365-day basis) on such amount from (but excluding) the date of any such leakage to (and including) the Pre-Closing Date. For example, if HVL declares dividend to its shareholders between Locked Box Accounts Date and Closing Date in an amount other than agreed in the CCTA, such dividend will be considered as leakage. Moreover, this should include the interest of 3 percent of such dividend, which calculated based on number of days between the day after the Leakage occurred to (and including) the Pre-Closing Date. (The aggregate of such amounts being the Closing Price ) In this regard, the Closing Price depends on the Pre-Closing Date and conditions stated in the CCTA The Company s Board of Directors approved to enter into the Transaction with a closing price of approximately EUR 479 million or equivalent to THB 18,694 million (The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1) or USD 524 million (The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to USD per EUR 1) 7. The closing price is under an assumption that the Pre-Closing Date is on 31 December Nonetheless, the Pre-Closing Date (equivalent to not more than 3 business days after the Unconditional Date according to the CCTA) may occur later than when the Company has expected, which is the end of 2016, to end of the first quarter of 2017, or possibly until 8 June This will result in the Company paying for the incremental amount from the Initial Price. Therefore, the IFA has prepared sensitivity analysis to present the impact of timing of the Pre-Closing Date on the Closing Price (and assuming no leakage). If the Pre-Closing Date occurs at the end of December 2016 to 8 June 2017, the Closing Price for 65 percent of the total charter capital of HVL will be in the range of EUR 479 million to EUR 493 million (or equivalent to THB billion to THB billion 8 ). Closing Price Initial Price Pre-Closing Date 31 Dec Jan Feb Mar Apr May 17 8 Jun 17 EUR 460 million THB billion Note: 1 Calculated at the exchange rate of EUR 1 per THB according to the average of the selling and buying rate available on the BOT s website on 3 August 2016 In addition, the Seller undertakes to SCCC that if any leakage occurs which has not been taken into account in the Closing Price and which SCCC notifies to the Seller pursuant to the terms of the CCTA, Seller will pay an amount equal to such leakage to SCCC. Total transaction value shall be calculated and paid in all respects in EUR and will be designated once all of the conditions precedent have been satisfied, as specified in the CCTA. 6 Leakage means, in each case, directly or indirectly, to, on behalf of, or for the benefit of, the Seller or any other member of the Seller Group and from, or by, any Target Company, between the Locked box Accounts Date and the closing date for certain items specified in the CCTA. Items that are counted as leakage are such as declared/paid dividend (other than the dividend that is already agreed in CCTA (permitted leakage)) and payments otherwise than in the ordinary course of business and on arm s length terms. 7 EUR is a currency that is agreed by the parties for paying the Closing Price, according to the CCTA, while USD is the currency used for the Company s Board of Director s approval 8 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1 Section 1 Page 7

22 The value of consideration is derived from negotiations between the Seller and the Company. The Company adopted a number of methodologies which are internationally accepted. The Company and its financial advisor, the Hongkong and Shanghai Banking Corporation Limited, have considered that the discounted cash flow and EBITDA multiple methodologies should be the most appropriate methodologies for the valuation of the Transaction. Such methodologies suggest the total enterprise value of approximately THB 31,388 million or equivalent to EUR 805 million (or USD 880 million). The source of funding for the acquisition shall be bridging loan facility from Bank of Tokyo-Mitsubishi UFJ, Ltd ( BTMU ) with 12-month term, which is already committed by BTMU, according to the second commitment letter dated 29 July Meanwhile, we have been informed by the Company the commitment letter may be amended on certain conditions, including, but not limited to, the drawdown currency from USD to dual THB/USD currency. 1.5 Details of the Assets Acquired The asset to be acquired by the Company is 65 percent of the total charter capital of HVL. Please find more information of HVL in Appendix Summary of Key Contracts There are three main contracts relating to the Transaction have been summarized by Linklaters LLP ( Linklaters ), the legal advisor of SCCC on this Transaction Summary of Contributed Capital Transfer Agreement (the CCTA ) Topic Provisions Counterparties LafargeHolcim Limited, a legal entity duly established and operating under the laws of Switzerland. (the Seller ) Siam City Cement Public Company Limited ( SCCC ) Dated 4 August 2016 Effectiveness and Conditionality VICEM has a right of first refusal ( ROFR ) exercisable within 60 days of its written notification of the proposed sale from the Seller. If VICEM waives or does not exercise its ROFR within abovementioned period, it shall be deemed to have given its written consent to LH s assignment of the charter capital to SCCC ( Effective Date ) However, if VICEM determines to exercise its ROFR, the CCTA shall automatically terminate, according to the conditions stated in the CCTA, without any claims by any party beside any breach incurred prior the termination of the CCTA. The Transaction will be completed once these following conditions precedent having been fulfilled. (1) SCCC shareholder approval (with the votes of not less than three-fourths of the total votes of shareholders present at the meeting and having the right to vote). In this regard, a shareholder circular must be submitted to the SEC no later than 20 business days after signing and issued to shareholders within seven business days from the date that SEC completes its consideration. In this regard, the submission of the shareholder circular to the SEC for its consideration is under an agreement between the Seller and SCCC. This is not a requirement under any SEC s regulations. (2) Approval from the Department of Planning and Investment of Ho Chi Minh City ( DPI ). It is expected that this approval will take approximately 2-3 months to obtain (the statutory period is only 15 days but in practice the Vietnamese authority takes longer period than that e.g. 2-3 months). In this regard, the 1 st and 2 nd conditions stated above must be fulfilled within 180 days after the Effective Date or this may be deferred for one month (Deferred Long Stop Date) at sole discretion of the Seller. In this regard, if the abovementioned conditions cannot be fulfilled within the stated timeline, the CCTA shall automatically terminate. However, the termination of the CCTA shall not affect any rights, obligations or liabilities of any party which have accrued before termination or under any of the surviving provisions. Section 1 Page 8

23 Topic Purchase Price and Payment Pre-Closing Undertakings Seller Warranties Tax Provisions Closing Date will occur once an amended enterprise registration certificate 1 ( Amended ERC ) is obtained by HVL. It is expected to receive the Amended ERC within 2 3 weeks after obtaining the acquisition approval from DPI and submitting the application for the Amended ERC to DPI The locked box accounts dated is on 31 May 2016 ( Locked Box Account Date ) The Initial Price was determined as at the Locked Box Accounts Date and the Seller covenants to pay SCCC any leakage from the Locked Box Accounts Date. In this regard, the audited locked box accounts have been provided. The Closing Price is denominated in EUR. Shortly following receipt of acquisition approval from DPI, the Closing Price must be deposited into an escrow account (to be opened with BNP Paribas). The Closing Price will be released from escrow once the HVL s Amended ERC is obtained, which is expected to occur within 2-3 weeks after the submission date of the application for Amended ERC to the DPI. In the event that such approval for the Amended ERC is not obtained, escrow funds will be returned to SCCC. The price to be paid for the transfer capital by SCCC to the Seller shall be the aggregate of: o EUR 460 million (the Initial Price ); plus o an incremental amount calculated at a rate of 7 percent per annum (on a 365-day basis) on the Initial Price from (but excluding) the Locked Box Accounts Date (i.e. 31 May 2016) to (and including) the Pre-Closing Date; less o any leakage together with interest at a rate of 3 percent per annum (on a 365-day basis) on such amount from (but excluding) the date of any such leakage to (and including) the Pre-Closing Date. The aggregate of such amounts being the Closing Price The Seller undertakes to SCCC that if any leakage occurs which has not been taken into account in the Closing Price and which SCCC notifies to the Seller pursuant to the terms of the CCTA, the Seller will pay an amount equal to such leakage plus an amount to interest at a rate of 3 percent per annum from the date on which leakage incurred to (but excluding) the date it is received by the SCCC to SCCC. The Seller must ensure that HVL s business operation between the date of the CCTA and the Closing Date is in accordance with the Pre-Closing Undertakings stated in the CCTA, such as modification of charter, increase or reduction its paid-up charter capital, borrowing, settlement of disputes, related party agreement and tax issues. The warranties provided are generally consistent with a transaction of this nature, transfer of share. The scope of these warranties covers, among other things, accounts, compliance with law, tax matters and the existence and condition of plant and machinery. The Seller covenants to pay SCCC for indemnities in respect of: (i) the Target group s pre-closing taxes; and (ii) the Seller s capital gains tax. Limitations on liability For all claims (other than title claims) under the CCTA, the Seller shall be liable subject to the following limitation: a. SCCC can claim if the amount of any single claim exceeds 0.20 percent of the Initial Price (EUR 460 million); and b. SCCC can claim at the aggregate amount of all claims (other than title claims) of not exceeds 0.75 percent of the Initial Price (EUR 460 million) The maximum limit for all claims that the Seller shall be liable for are as follows: a. SCCC can claim at amount of not exceed 12 percent of the Initial Price (EUR 460 million) in respect of claims under the warranties (other than title claims and tax claims); and b. SCCC can claim in respect of tax claims at amount of not exceed 17 percent of the Initial Price (EUR 460 million); and c. SCCC can claim in respect of all other claims (other than claims under warranties and tax claims, but including title claims) at amount of not exceed 100 percent of the Initial Price (EUR 460 million) Section 1 Page 9

24 Topic SCCC shareholder loan Cemasco Loan Waiver of Brand Payments Board and employees Post-closing Covenants Publicity Transitional Services Agreement Provisions Before the Closing Date, HVL will declare and pay a dividend of approximately VND 1,052 billion (or equivalent to THB 1,648 million 2 ). As of the date of the CCTA, HVL did not have the cash on hand to pay such dividend. As such, it will upsize an existing loan to fund the VICEM portion. The Seller s portion will be funded by a shareholder loan from SCCC to HVL on the Closing Date. However, as of the date of the IFA Report, the IFA was informed by the SCCC s management that HVL will take out additional loan to finance such dividend (VICEM s and the Seller s portion) from commercial banks. Thus, SCCC does not have to provide loan to HVL to finance such dividend. As of the date of the CCTA, HVL had loans from Cemasco, which is in the Seller Group. In this regard, the Seller and SCCC agreed that the Cemasco Loan will be novated to SCCC on the Closing Date in exchange for payment by SCCC to Cemasco of the amount outstanding under such loan at the Closing Date, which will be notified by the Seller of not less than 3 business days before the Closing Date. According to the interim financial statements for the five-month ended 31 May 2016 of HVL, the outstanding amount of the Cemasco Loans was VND billion (or equivalent to THB million 2 ) However, as of the date of the Report, the IFA was informed by the Company s management that HVL had fully repaid the Cemasco Loan in October The source of fund for the repayment is from its internal cash flow. Thus, SCCC does not have any obligation for such loan in the future. HVL currently owes the Seller group VND 87 billion (or equivalent to THB million 2 ) under a master brand rights agreement. The Seller has agreed to waive any payment obligations under this brand rights agreement. Directors appointed by the Seller and HVL s senior management will resign on the Closing Date, except as specified in the TSA -- please see more information in Section Summary of Draft Transitional Services Agreement. On the Closing Date, SCCC must procure that all of HVL s debt owed to the Seller group is repaid (other than the Cemasco Loan and brand payments referred to above). After the Closing Date, SCCC must procure that HVL changes its name to remove any references to Holcim or Lafarge (within 30 days) and ceases to use any Holcim or Lafarge brands (within 180 days). For one year after the Closing Date, SCCC undertakes not to engage in or permit a plant closing, mass layoff, collective redundancy programme or comparable plan or action. For two years after the Closing Date, the Seller undertakes not to compete with HVL in Vietnam. This non-compete does not apply to: a. supplying coal, clinker or other raw materials (other than bag or bulk cement) to third parties; or b. importing or exporting products through Vietnam (provided they are not sold to customers in Vietnam); or c. providing quality and technical services to The Vissai Cement Group 3 Joint press releases will be made on signing and closing. On closing, HVL will enter into a transitional services agreement relating to the provision of certain IT and supply services (as well as the ongoing secondment of certain expatriate employees) -- please see more information in Section Summary of Draft Transitional Services Agreement. Deed of adherence On signing date of the CCTA, SCCC entered into a deed of adherence to the existing joint venture agreement in respect of the Target. This will become effective on the Closing Date. In other word, SCCC undertakes to be bound by the JVC and named in it in place of the Seller at the Closing Date. Intellectual Property SCCC does not intend to use any Seller s brands on a long-term basis. The CCTA provides a transitional period for Seller s marks and logos to be removed from HVL s assets, according to the Post-Closing Covenants as stated above. Note: 1 Amended Enterprise Registration Certificate (Amended ERC) is a document to be issued by DPI to HVL, reflecting, among others: (1) the Company as the legal owner of the transfer capital of HVL; and (2) the change of the name of HVL to adopt the new name which does not consist of or incorporate the word Holcim or Lafarge or any name which is substantially or confusingly similar. 2 Calculated using the average of the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per VND 1. 3 The Vissai Cement Group is a manufacturer and distributor of cement and clinker in Vietnam and abroad. The Vissai Cement Group has cement plants in Northern Vietnam, which have total capacity of 13.6 million tonnes per year. In addition, affiliate companies of The Vissai Cement Group also engage in textile and garment business, hospitality business and hydroelectricity business etc. (Source: Section 1 Page 10

25 As of the date of the IFA Report, one of the covenants specified in the CCTA has been breached. SCCC failed to submit the Circular, including the IFA Report, to the SEC within the timeframe contemplated by the CCTA (the Late Filing ). In this regard, Linklaters, SCCC s legal advisor, has advised that pursuant to the CCTA neither party has a contractual right to terminate the CCTA as a result of a breach by the other party. Accordingly, the two remedies of the Seller for the Late Filing are likely to be (1) damages and (2) specific performance. In making a claim for damages according to the first remedy, the Seller would need to demonstrate that it had suffered a loss as a result of the Late Filing. The only likely way that the Late Filing would cause damages would be to delay the Closing Date. However, given that Vietnamese regulatory approvals are likely to take approximately 2 to 3 months following the Effective Date, the Closing Date is likely to occur in early February The Seller would only be likely to have suffered damages as a result of the Late Filing if the Late Filing were to delay the Closing Date beyond early February 2017 ie. the Late Filing results in the delay in convening the shareholders meeting of SCCC to approve this transaction to occur after February Given the current timeline, the Board of Directors Meeting of the Company No. 144 which held on 27 October 2016 resolved to propose convening the Extraordinary General Meeting No. 1/2016, which will be held on 9 December 2016, to consider and approve an acquisition of 65 percent of the total charter capital of HVL. Separately, interest would accrue on the Initial Price from the Locked Box Date through the Pre-Closing Date. Accordingly, even if the Pre-Closing Date were delayed as a result of the Late Filing, the Seller would need to show what additional damages it suffered as a result of the Late Filing that had not already been compensated by the accrued interest. According to the second remedy, the Seller could also seek specific performance and obtain an order forcing SCCC to file the Circular with the SEC. However, this remedy would no longer be available once the Circular is filed. In this regard, IFA has been informed by the Company that the Company and the Seller are currently under negotiation on the amendment of such provision. It is expected that the CCTA amendment will be executed after the end of ROFR period. The amendment of such provision will not affect or make other conditions or agreements in the CCTA worse-off from the current status Summary of Joint Venture Contract in respect of HVL (the JVC ) The Joint Venture Contract has executed since HVL was established in If the Transaction is completed, the Company must fulfill the obligations and responsibilities under the JVC. In this regard, as of the date of the IFA Report, the Company has no plan to amend the JVC. The Company has considered and confirmed that all current provisions in the JVC will not have any materially negative effect on the management of HVL in the future. Topic Provisions Counterparties Holcim Limited ( LH ) (Currently known as LafargeHolcim Limited ) Vietnam Cement Industry Corporation ( VICEM ) Duration The JV shall have duration of 50 years from 25 February 1994 or such other period licensed by the People s Committee of Ho Chi Minh City ( SCCI ) and approved by the board of the JV. If the parties agree to extend the duration of the joint venture (in this regard, it is subject to approval from the SCCI). Negotiations for such extension of the joint venture must commence no later than two years, and end not later than six months, prior to the expiration of the joint venture. Capital Contributions LH s contribution to charter capital represents 65 percent of the total charter capital of HVL. VICEM s contribution to charter capital represents 35 percent of the total charter capital of HVL. Both parties shall consider entering into an agreement to increase VICEM s capital contribution, provided that LH s contribution shall at all times be at least 51 percent of the total charter capital. The parties may jointly agree to make additional contributions of capital. Section 1 Page 11

26 Topic Provisions Profit Sharing HVL s profits shall be distributed in accordance with each party s ratio of contributed charter capital to HVL. HVL s profits shall be distributed on an annual basis in amounts determined by the board. Right of First Refusal (ROFR) Any party wishing to sell its interest in HVL must first give notice to the other party stating the name of the proposed assignee and the proposed purchase price to be paid by the assignee. The non-transferring party shall have a ROFR to purchase the interest on terms no less favorable than those offered to or by the proposed assignee. The non-transferring party has 60 days to exercise the ROFR. If the non-transferring party waives or does not exercise its ROFR within the period, it shall be deemed to have given its written consent to transferring party s assignment of such capital contribution to the assignee.any assignee must assume the obligations and responsibilities of the assignor party in HVL. Board and Voting The board shall have six members, with Holcim appointing four members and VICEM appointing two members. Board members serve for five years The appointing party has the right to replace its board member at any time with 30 days prior written notice. LH has the right to appoint the chairman of the board. VICEM has the right to appoint the vice chairman of the board. Board meetings shall occur no less than twice per year. A special meeting of the board requires 30 days advance notice and may be called by the chairman or 2/3 or more of the board members. Decisions of the board shall be made by majority approval of those board members present and voting at a meeting, unless the decision requires unanimous approval under Vietnamese law. VIRAF, the Vietnamese legal advisor of the Company, understands that while no matters require unanimous approval, the Enterprise Law of Vietnam 1 gives VICEM, holding more than 25 percent of HVL s total charter capital, an effective veto right over the following matters: a. a sale of assets valued at 50 percent or more of the total value of assets recorded in the latest financial statements of HVL; b. the amendment of HVL s charter; c. the reorganisation or dissolution of HVL; and d. the boards meeting is taken by way of circular. In addition, referring to the Charter of HVL, the decision of such boards meeting requires for the unanimous approval VILAF has confirmed that any vote with respect to a related party transaction with a member or its affiliates must be taken without the vote of board members appointed by the related party, which means in practice that the other party controls the outcome and effectively has a veto over such vote. Procurement HVL shall endeavor to purchase raw materials, components, machinery, supplies and services in Vietnam. To the extent not available in Vietnam to the satisfaction of HVL, HVL may source such goods and services from outside Vietnam. Collective Bargaining HVL shall adopt a collective labor agreement stipulating wages, working conditions, social insurance and collective welfare of employees within six months of the operating date. HVL shall create favorable conditions for the establishment of trade unions and allow its employees to join mass organizations pursuant to the laws of Vietnam. Currency Amendments Dispute Resolution All payments to LH shall be made in USD. Any amendments of the JVC must be submitted to the successor of the State Committee for Cooperation and Investment for approval. Arbitration in Stockholm under the auspices of the Arbitration Institute of the Stockholm Chamber of Commerce. Governing Law Laws of Vietnam, unless no relevant law of Vietnam which is then existing addresses the particular subject matter, in which case the laws of the Canton of Zurich, Switzerland shall govern. If no relevant law of the Canton of Zurich, Switzerland addresses the particular subject matter, then generally accepted international legal principles and practices shall govern. Note: 1 Enterprise Law is a corporate law that applies to all entities incorporated in Vietnam, which may equivalent to the Civil and Commercial Code in Thailand. Section 1 Page 12

27 1.6.3 Summary of Draft Transitional Services Agreement (the TSA ) The TSA is an only draft agreement, which is subject to any change as agreed by the parties. In this regard, the TSA will be executed by the parties and became effective at the Closing Date. Topic Provisions Counterparties LafargeHolcim Limited (the Supplier or LH ) Holcim (Vietnam) Company Limited ( HVL ) Services to be provided and Service standards Duration Early termination of Services Supply agreements to continue in operation Charges and Payment During the TSA s term, the Supplier will procure the provision of the following services (the Services ): Licensing for the use of certain LH s corporate marks: the service term of 6 months from the Effective Date, which is the Closing Date in the CCTA. Certain IT services: the service term of 12 months from the Effective Date, which is the Closing Date in the CCTA, and optional extension terms of 6 months for most of the IT services HVL will use the IT services from the Supplier Group, such as global communication & collaboration services, infrastructure services which ensure connectivity to regional datacenter and SAP and non-sap system etc.; and Secondments of: (i) Oliver Wilke (CFO); (ii) James Ruxton (Manufacturing Director); and (iii) Stefan Kaufmann (Head of Marketing): the service terms for these 3 managements will end on various period ranging from 2018 to These secondments are subject to further discussions with the LH group. The Services will be provided to standards of services and performance substantially equivalent to the Services in the 12 months prior to the Closing Date and using reasonable care and skill. The TSA starts on the Effective Date and expires automatically on the day which the last of the service terms expires. Services may be terminated by HVL before the end of a service term according to the minimum notice periods as stated in the TSA. If this termination requires negotiation with a third party supplier for early termination, the Supplier will use reasonable endeavours to do so. Such termination will be at HVL s cost in accordance with the effective rate card, and HVL will pay all exit fees which may be required by the relevant third party supplier. Existing supply agreements will continue in operation in accordance with their terms, notwithstanding HVL s execution of the TSA. In this regard, the list is to be updated by the Supplier prior to the Closing Date. Most of these supply agreements terminate on 31 December The charges for the Services in the TSA stated that HVL will also pay the Supplier for any migration support services calculated on the basis of the rate cards, plus any travel and accommodation expenses at cost in accordance with the Supplier s travel policy. Invoices for charges are to be paid within 30 days after the date of the invoice. Migration HVL is to deliver a draft migration plan to the Supplier no later than 20 business days from the Effective Date. Parties will discuss in good faith and finalise the migration plan within 10 business days from the Supplier s receipt of the draft migration plan. Relationship management and change control Each party will appoint a Project Leader (overall responsibility for provision / receipt of the Services) and a Project Manager (day-to-day responsibility for provision / receipt of the Services), and Project Managers will coordinate regular meetings with Project Leaders. In the event HVL identifies that a change to the Services is required, it must follow the change control procedure. Section 1 Page 13

28 Topic Obligations of HVL and indemnities Third party supply contracts and consents Intellectual property rights Fiscal cap / Exclusion of liability Non-solicitation Dispute resolution Governing Law Provisions HVL is under a best endeavours obligation to transition from each Service as soon as possible after the Effective Date and in any event before the end of the relevant service term. HVL is under certain record keeping obligations and IT security obligations (including to comply with security policies that apply to the Supplier s group generally which apply mutually to both parties) HVL has certain obligations to the Supplier, such as giving employees of the Supplier Group access to the facilities, premises or personnel of HVL during working hours and HVL promptly provide information and other assistance to the Suppliers etc.. HVL has granted an indemnity in favour of the Supplier and any of its affiliates against all direct costs that result from HVL s breach of the following three obligations: a. unauthorised use, access or interference of the Supplier group s IT Systems or data; b. failure to ensure that HVL s employees and contractors carry identification, comply with security and other directions and withhold from interfering with the Supplier s employees or contractors while visiting the premises of the Supplier group; and c. materially changing the way HVL uses any of the Services delivered under a third party contract without the Supplier s prior written consent, such consent not being unreasonably withheld. The Supplier is to use reasonable endeavours to obtain any consents necessary under any third party supplier contracts to provide the Services to HVL. If a third party refuses to provide this consent, the Supplier is excused from providing the particular Service and will notify HVL and work with HVL to agree in good faith alternate means of continuing the provision of the Service. The Supplier grants to HVL a license to use the intellectual property rights owned by the Supplier for the receipt of the Services during the TSA term. At the term s expiry, HVL group must cease to use or display any marks, names, logos, domain names or other related intellectual property owned by the Supplier group, or any mark, name or logo which is substantially or confusingly similar to the marks: (i) Lafarge ; (ii) Holcim ; (iii) LafargeHolcim ; (iv) Ready Flow ; (v) Ready Flow + ; and (vi) Extra. The Supplier s aggregate liability under the TSA for all claims shall not exceed the charges for the Services paid or payable in respect of the Service giving rise to the claim. The Supplier is excluded from certain types of liability, including certain direct losses, particularly loss of data. The Supplier is also not liable for failure / delay in performing a Service if the failure / delay is caused by: (i) the failure / delay on the part of HVL or its affiliates in complying with the Supplier s reasonable instructions; (ii) a failure of HVL s system; or (iii) a failure to provide any data or inaccurate data by HVL. HVL and its affiliates cannot solicit any employees from the Supplier at any time during the service term. However, HVL group may solicit or offer to employ any person who, without any separate solicitation by HVL group, responds to a genuine advertisement by HVL group made generally available and not directed at the Supplier group s employees. Disputes will be referred for informal mediation by a panel consisting of one nominee of each party. If the dispute cannot be resolved, then the matter will be referred to arbitration in Zurich, Switzerland administered in accordance with the Arbitration Rules of the International Chamber of Commerce. English law. Section 1 Page 14

29 Section 2: Appropriateness of the Transaction 2.1 Objective of entering into the Transaction This acquisition will support the mission of the Company to become a world class construction materials and services provider who is vital to the economic growth in Thailand and the wider region. The Transaction shall enhance business competency of the Company s group, resulting in opportunity to generate additional source of revenues and better performance in the future by having an additional captive channel in a high growth market, reducing the Company s dependence on local and conventional export markets and creating synergies between current business of the Company and HVL. This Transaction will strengthen SCCC s competitive position in both domestic and regional markets. 2.2 Advantages and Disadvantages of entering into the Transaction Advantages of entering into the Transaction Expand into new high growth market By acquiring 65 percent of the total charter capital of HVL, SCCC would gain control in HVL, one of the leading cement players (both in terms of capacity and sales) in Southern Vietnam, allowing SCCC to immediately establish a strong footprint in a high growth market. Vietnam is amongst the fastest growing economies in Southeast Asia. Its GDP growth over the past 5 years ( ) averaged 5.9 percent per annum, underpinned by robust direct investments and private consumption. With its large population of 93 million in the mid of 2016 and an trend of rising urban population ratio from 20 percent in 1995 to 34 percent in 2015, coupled with strong government infrastructure spending, the IFA expects that the demand for cement will be strong and growing. Size of Vietnam s cement market is approximately 57 million tonnes per year. Moreover, Southern Vietnam s cement market is quite attractive relative to Northern and Central Vietnam due to (1) the balanced demand and supply outlook and (2) the average selling price premium relative to Northern and Central Vietnam (The retail cement price in 2014 in the South is USD 75 per ton compared to USD 59 per ton in the Central and North). Please see more details on Vietnam s cement market in the Appendix 1 under Industry Overview section Geographical diversification Currently, from the sources of sales and services revenue are from domestic and foreign customers. In 2015, the Company had sales and services revenue in Thailand amounting to THB 25,068 million or equivalent to 80.6 percent of total net sales and services revenue. Thus, as HVL is a company operating in Vietnam with its main revenues coming from Vietnam, the acquisition of HVL would increase diversity of the sources of revenue of the Company, geographically diversify the risks associated with a specific country and reduce the Company s strong reliance on the Thai Market Invest into one of the leading cement players with best-in-class asset base, strong distribution network and strong historical financial performance HVL is one of the leading cement players in terms of capacity and sales in Southern Vietnam. HVL produces and distributes cement and Ready Mix Concrete ( RMX ) under branded names with various types for different applications. As of 31 December 2015, HVL operates cement and RMX with total annual cement grinding capacity of 6.3 million tonnes and RMX capacity of 1.3 million m 3. Section 2 Page 1

30 According to the information provided by the Company, in 2015, HVL ranked #2 with a cement market share of 20 percent in Southern Vietnam market and 8 percent in RMX market share in Southern Vietnam market. Cement Top Players in Southern Vietnam RMX Top Players in Southern Vietnam Hatien The Gioi Nha 14% 27% HVL FICO 14% Le Phan 11% 4% 5% 5% 5% 9% 20% Halong Taydo Cam Pha Thang Long Nghi Son Others 50% 8% 11% 9% 8% Hong Ha BD HVL FTC Others Source: Information Memorandum of HVL (June 2016) received from the Company Source: Information Memorandum of HVL (June 2016) received from the Company HVL captures the growth of cement and RMX market with strategically located manufacturing facilities near key demand centers with port access, high quality assets and a strong distribution network. HVL has high quality equipment with an average age of only 14 years for its cement plants and won the Gold award for quality for the last seven years from the Ministry of Science and Technology of Vietnam. The full integrated plant of HVL, Hon Chong, is one of the LH Group s flagship plants worldwide in terms of cost efficiency and quality. For marketing and distribution, as of 31 December 2015, HVL had strong distribution network with 64 distributors serving its key market through more than 7,200 retailers. HVL exhibited strong revenue growth and healthy earnings based on the Combined Financial Statements using management accounts of HVL for with net sales of VND 5,126 billion, VND 4,997 billion, and VND 5,667 billion, and net income of VND 287 billion, VND 237 billion, and VND 537 billion with net profit margin of 5.6 percent, 4.7 percent and 9.5 percent, respectively. Please see more details on HVL in the Appendix Potential synergies Investment in HVL is expected to create potential synergies to the existing operations of SCCC. The examples of potential synergies are as follows; 1) Vertical integration with SCCC s clinker Summary of Cement Production Process Employed by SCCC and HVL Raw Material Preparation Burning Clinker Production Cement Production Packaging & Dispatch As Southern Vietnam is distinctively short of supply of clinkers, one of the key raw materials used for producing cement, HVL has been sourcing clinkers from North and Central Vietnam. With the abolition of import tariff under ASEAN Trade in Goods Agreement (ATIGA), clinkers sourced from Thailand are cost competitive, allowing HVL to source clinkers from SCCC at a cheaper cost to produce cement. Section 2 Page 2

31 Moreover, given continued overcapacity in Thailand, HVL can become a secured and long-term captive off-taker for SCCC s excess clinker capacity, helping SCCC to maintain its cost-base and utilization with additional trading margins for sourcing clinker to HVL. 2) Expanding SCCC s existing products into Vietnam market SCCC does not only have an opportunity to sell clinker to HVL but also have an opportunity in the long run to introduce and sell other products currently sold in Thailand such as other types of cement (i.e ordinary portland cement), aggregates, and wood-replacement products to Vietnam market through HVL or HVL s cement distribution network allowing SCCC to increase its distribution channels and revenue generating capability in the future. As of the date of the IFA Report, the Company is considering the potential of introduction those products in Vietnam. 3) Scale benefits from shared procurement and services Procurement with volume pooling can be leveraged for better sourcing and bargaining power for replacement equipment, spare parts, bags, raw materials and fuels, which would achieve economies of scale resulting in cost and expenses synergies in the long run. IT, in relation to operation and administration, technical services, regional marketing, and advanced construction know-how can also be exchanged to increase SCCC s competency in cement business in the long run Enhancing the Company s competitiveness Investing in HVL will enhance SCCC s competitiveness in terms of higher of revenue generating capability, enhancing the competitive cost position, and the reduction of dependence on conventional export markets Disadvantages of entering into the Transaction Increase of interest bearing debts and interest expenses The Company plans to finance the acquisition of 65 percent of the total charter capital of HVL by using 1-year bridging loan from BTMU. BTMU has committed to providing credit facility for this Transaction of up to USD 580 million (or equivalent to THB 20,190 million 1 ) in order to fund the payment to the Seller. If the Transaction has been delayed to the Deferred Long Stop Date, the Closing Price that the Company will pay to the Seller will be EUR 493 million (or equivalent to THB 19,231 million 2 ), calculated under the assumption of no Leakage and Pre- Closing Date is on 8 June please see details of the acquisition price in Section 1 Characteristics and Details of the Transaction Therefore, interest bearing debts and interest expenses of the Company are expected to increase which will result in higher net interest bearing debt to equity ( Net IBD/E ) and consolidated debt to equity ( D/E ) ratios. Given the existing loan covenant of the debentures of not more than 2 times Net IBD/E and the illustrative calculation below, the Company might breach the loan covenant in the future. In addition, the Company s consolidated earnings may be 1 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per USD 1 2 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1 Section 2 Page 3

32 impacted as a result of higher interest expense. However, the actual financial position of SCCC post-transaction may be different from the table below. After the acquisitions of HVL, the Company will have higher net interest bearing debt, total liabilities, Net IBD/E, and D/E ratios comparing to the existing as of 30 September Details are as follows: Unit As of 30 September 2016 (SCCC) Pro-forma after the acquisition of HVL (SCCC + HVL) Net interest bearing debt 4 THB million 24,431 46,207 1,2 Total liabilities 4 THB million 35,505 59,869 1,3 Total shareholders equity 4 THB million 21,622 21,622 Net IBD/E 4 Times D/E 4 Times Source: Note: Consolidated financial statement of SCCC as of 30 September 2016 and the pro-forma consolidated financial statement of HVL as of 31 May Foreign exchange rate is based on average foreign exchange rate as of 3 August 2016 stated by the BOT at THB : VND 1 2 The calculation is based on (1) loan to be taken out by the Company for acquisition of HVL at EUR 493 million or equivalent to THB 19,321 million under the assumption that the Company takes out a loan at Closing Price and Pre- Closing Date is on 8 June 2017, (2) net interest bearing debt of HVL at VND 538 billion (or equivalent to THB 861 million) as at 31 May 2016, excluding Cemasco Loan amounting to VND 394 billion (or equivalent to THB 630 million) which had been repaid in October 2016,and (3) additional loan from commercial banks to be taken out by HVL for dividend payment of VND 1,052 billion (or equivalent to THB 1,684 million) 3 The calculation is based on (1) loan to be taken out by the Company for acquisition of HVL at EUR 493 million or equivalent to THB 19,321 million under the assumption that the Company takes out a loan at Closing Price and Pre- Closing Date is on 8 June 2017, (2) total liabilities of HVL at VND 2,156 billion (or equivalent to THB million) as at 31 May 2016, excluding Cemasco Loan amounting to VND 394 billion (or equivalent to THB 630 million) which had been repaid in October 2016 and (3) additional loan from commercial banks to be taken out by HVL for dividend payment of VND 1,052 billion (or equivalent to THB 1,684 million) 4 Table is for illustrative purpose only. The actual financial position of SCCC post-transaction may be different from the table above However, the loan covenant is tested twice a year which are every 30 June and 31 December. For the 1-year bridging loan from BTMU to fund this Transaction, based on management interview, the Company plans to drawdown early 2017 and it is expected that the Company may refinance this with a combination of long-term debt and equity in the near future. However, such capital raising plan is under consideration of management, and the amount and means of capital increase is subject to approval from the Board of Directors of the Company and final approval from the shareholders meeting of the Company. If the Company is unable to raise capital, or raise capital in an insufficient amount, by 30 June 2017, the Company is at risk of breaching bond s covenants -- Please see details of such risk in Section Risk of breaching its loan covenants Potential control and earnings dilution to SCCC s shareholders from refinancing the bridging loan using a combination of long-term debt and new equity As the Company plans to use a 1-year bridging loan as a source of funding for the Transaction, the Company may in the near future use a combination of long-term debt and new equity injection to refinance the bridging loan in order to maintain an appropriate capital structure and its credit rating. Refinancing by using new equity injection may lead to control and earnings dilution if (1) in a rights offering and existing shareholders do not exercise his/her right for the capital increase through right offering or (2) the Company increases its capital through private placement to other shareholders who are not existing shareholders. However, as of the date of the IFA Report, the long-term capital structure and size of capital increase is under consideration of the Company s management. The amount and means of capital increase, if any, shall require the approval by the board of directors and the final decision is subjected to the approval of the shareholders meeting of SCCC. Section 2 Page 4

33 Ability to pay dividends Using loan as a source of fund for the entire Transaction will result in the increase of interest bearing debt and interest expenses. The increase of interest expenses might affect the Company s earnings and thus the ability to pay or maintain dividends in case that funding cost of the aforementioned loan is higher than earnings/returns from the investment in HVL. However, as aforementioned, the bridging loan is temporary and should be refinanced by long-term debt and equity injection to attain an appropriate capital structure, which shall reduce the impact of funding costs and may restore the Company s dividend payment capability in the future Accounting impact from the goodwill recorded in the Company s financial statements In accordance with the TFRS 3: Business Combinations, SCCC shall be required to appraise and allocate the purchase price into various assets and liabilities acquired from the Transaction at their fair values at the acquisition date. Goodwill represents future economic benefit that the acquirer expects to obtain from acquiring assets. As of the date of the IFA Report, the Company has not yet engaged an independent asset appraiser to appraise a fair value of acquisition price or equity value of HVL. Consequently, the IFA cannot determine an accounting impact of recognizing goodwill arising out of this Transaction on the Company s financial statement. If the Company records goodwill arising out of this Transaction on its consolidated financial statement, after the Transaction is completed, there is a chance that the Company may assess impairment on goodwill or a chance that the Company may record impairment on goodwill on its consolidated financial statement. 2.3 Risk of entering into the Transaction Risk of breaching its bond covenants The Company plans to finance the acquisition by using 1-year bridging loan of up to USD 580 million (or equivalent to THB 20,190 million 3 ) from BTMU and the Company has existing covenant of the debentures of not more than 2 times Net IBD/E which is tested twice a year which are every 30 June and 31 December. Hence, there is a risk of having limited financial flexibility or breaching its existing loan covenant in the future. From the management interview, the Company plans to drawdown the aforementioned bridging loan early 2017 and may refinance this with a combination of long-term debt and equity in the near future. However, such capital raising plan is under consideration of management, and the amount and means of capital increase is subject to approval from the Board of Directors of the Company and final approval from the shareholders meeting of the Company. If the Company is unable to raise capital, or raise capital in an insufficient amount, by 30 June 2017, the Company is at risk of breaching bond s covenants. According to terms and conditions governing the rights and obligations of the Company, as the bond issuer, and bondholders, if the Company is in breach of such bond covenants without approval of bondholders meeting on waiver or change of such terms and conditions, the Company may have to immediately repay to the bondholders the outstanding amount of principal plus interest at that time, which will materially affect the Company s financial position and may affect the Company s credit rating and the ability to issue new bond in the future. 3 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per USD 1 Section 2 Page 5

34 2.3.2 Foreign exchange rate risk SCCC s reporting currency is the THB. However, after entering into this Transaction, SCCC will be more exposed to foreign exchange risk with respect to sales, expenses, profits, assets and liabilities which are denominated in VND and dividend received from HVL which is declared in VND and is distributed to SCCC in USD. Moreover, the source of fund for the Transaction is short-term bridging loan from BTMU which is dominated in USD or a dual THB/USD facility, while the CCTA specifies that SCCC shall pay the net cash in EUR as at the Closing Date. Hence, there is a risk of exchange rate fluctuations for the payment of the net cash to the Seller and the debt repayment to BTMU. For these reasons, fluctuations in foreign currency exchange rates may materially adversely affect the Company s business, financial condition, results of operations and prospects. However, as of the date of the IFA Report, the Company is considering hedging against such foreign exchange rate risk Risk from ownership transition During the transition of majority ownership changeover, SCCC faces the risk that HVL s performance could be adversely impacted if, for example (1) brand transition from existing brands to new brands may not be smooth or the new brands cannot command the same price premium in the medium term, and (2) interruptions in the supply of raw materials and services during the transition may materially adversely affect HVL s business, financial condition, results of operations and prospects During the transition of majority ownership changeover, SCCC faces the risk that HVL s performance could be adversely impacted if, for example; 1) Brand HVL currently has a strong brand positioning in Southern Vietnam and as a result commands price premium for its products. However, in accordance with CCTA, (1) HVL s trademark licensing agreements between HVL and Holcim IP Ltd. (as licensor) and (2) LCV s master brand agreement between LCV and Lafarge (as licensor) will be terminated after the 180- day period from the Closing Date. The Company has to replace those brands with new brands launch which requires strong marketing effort to create new brands awareness to distributors, retailers and customers. Therefore, there is a risk of brand transition from existing brands to new brands may not be smooth or the new brands cannot command the same price premium in the medium term. 2) Raw materials and services HVL and LCV purchase raw materials such as coal, clinker and receive services such as IT or technical services from related parties of LH. However, in accordance with the draft TSA, some of the said transactions will be ceased after the 12-month period from the Closing Date, with an optional extension term of 6-month. Therefore, If HVL is unable to secure such raw materials and services during or after the transitional period at comparable terms and quality, the availability and quality of HVL products may be adversely affected, or HVL and LCV may as a result be unable to sell its products at the same prices or suffer damage to HVL and LCV reputation, either of which may materially adversely affect SCCC s business, financial condition, results of operations and prospects. Section 2 Page 6

35 2.3.4 Risk from unexpected adverse performance of HVL SCCC may face difficulties in correctly estimating performance of HVL where the Company has limited operating experience in Vietnam. If SCCC materially overestimates the projected performance of HVL (i.e.actual performance is lower than projected performance) which could be due to internal and external factors such as unstable industry, economic, political or social conditions, acts of war, terrorist acts, civil unrest in Vietnam; increased competition from local or international companies, particularly in case that they may have greater financial resources than SCCC has; inability to realize economies of scale and expected synergies; inability to maintain effective costs controls; foreign ownership restrictions; restrictions on the import or export of our products or raw materials used in our products etc. The aforementioned factors could negatively impact SCCC s expected growth and returns on investments and thereby have a material adverse effect on its business, financial position, results of operations and prospects Risk from not having asset appraisal conducted by an independent asset appraiser HVL and the Company did not have the value of HVL s fixed assets appraised by an independent asset appraiser. Thus, there is a risk that the appraised value of fixed assets may be lower than the book value of such fixed assets. However, according to management interview, there is no need for such appraisal of the fixed assets as the assets are believed to be in a good working condition and fairly valued. Moreover, the Company and its financial advisor, the Hongkong and Shanghai Banking Corporation Limited, have considered that the discounted cash flow and EBITDA multiple methodologies should be the most appropriate methodologies for the valuation of the Transaction. The Company will arrange an asset appraisal of fixed assets and the valuation estimation of net assets of HVL that will be required under TFRS 3: Business Combination after the Transaction is completed Country Risk After entering the Transaction, SCCC is, and will be, exposed to a number of risks and uncertainties associated with operating in Vietnam, including but not limited to: political, social and economic instability, including wars, acts of terrorism, political unrest, boycotts, sanctions and other business restrictions; the macroeconomic climate, including high rates of inflation, and levels of cement consumption in these markets; excess supply of cement in Vietnam; foreign exchange rate fluctuations, the imposition of currency controls and restrictions on repatriation of earnings and cash to Thailand; nationalization or other expropriation of private enterprises and land; protectionist and other adverse public policies, including local content requirements, import/export tariffs, increased regulations or capital investment requirements; unexpected changes in laws or enforcement practices, including those relating to land use regulations and permitting requirements, taxation policies and/or the regulatory or legislative environment in Vietnam; longer sales and payment cycles and greater difficulty collecting accounts receivable; inability to obtain adequate financing on attractive terms and conditions; Section 2 Page 7

36 difficulty in developing any necessary partnerships with local businesses on commercially acceptable terms and/or timely identifying, attracting and retaining qualified technical and other personnel; difficulty competing against competitors who may have greater financial resources and/or a more effective or established localized business presence; international business practices that may conflict with other customs or legal requirements to which we are subject, including anti-bribery and anti-corruption laws; any downgrading of the sovereign debt ratings of Vietnam by an international rating agency; inability to obtain, maintain or enforce intellectual property rights; and being subject to the jurisdiction of foreign courts, including uncertainty of judicial processes and difficulty enforcing contractual agreements or judgments in foreign legal systems or incurring additional costs to do so. These types of risks and uncertainties, many of which are beyond the Company s control, could have a material adverse effect on the Company s business, results of operations, financial condition and prospects Liquidity Risk As HVL shares are not listed on the stock exchange, SCCC will have limited liquidity for this investment as the shares cannot be bought or sold quickly enough to prevent or minimize a loss. Section 2 Page 8

37 Section 3: Fairness of the Acquisition Price and Conditions 3.1 Fairness of the Acquisition Price Key Assumptions in Rendering IFA s Opinion The IFA s opinion is rendered based on the following assumptions The IFA assumes that all the information and documents including, but not limited to, financial statements, financial projection, business plan, internal documentation, reports prepared by SCCC s other advisers related to the Transaction, namely, financial adviser, strategic consultant, accounting and tax adviser, legal adviser ( advisers ) and other correspondences provided by SCCC and its advisers, including information obtained through management interview, conference call, and site visit, are materially accurate and complete. None of the events, other than those explicitly made in the assumptions in relation to this IFA s opinion, which has occurred, is about to occur or is expected to occur, could have a substantial impact on SCCC or HVL financial results or financial status. Additionally, the IFA has assumed: - There is no other risk that may cause delay of the Transaction or increase the cost of the Transaction - The IFA s report was prepared based on the economic conditions and other factors as of the time of report preparation only. However, the IFA is not able to accurately estimate an effect of changes in the economic conditions and other factors mentioned earlier after the time of report preparation and has no obligation to adjust and revise up-to-date information in this IFA Report - There is no other material adverse events including, but not limited to, those relevant to economic, political, and legal environment that could have material adverse effect on HVL Methodologies Employed in Evaluating the Fairness of the Acquisition Price In evaluating the fairness of the acquisition price, the IFA has carried out the following valuation methodologies: Book Value Approach Adjusted Book Value Approach Market Comparables Approach - Trailing EV to EBITDA Multiple Approach (Trailing EV/EBITDA Multiple) - Forward EV to EBITDA Multiple Approach (Forward EV/EBITDA Multiple) - Trailing Price to Earnings Multiple Approach (Trailing P/E Multiple) - Forward Price to Earnings Multiple Approach (Forward P/E Multiple) - Price to Book Value Multiple Approach (P/BV Multiple) Section 3 Page 1

38 Precedent Transaction Comparables Approach - Implied EV to EBITDA Multiple Approach (Implied EV/EBITDA Multiple) - Implied Price to Earnings Multiple Approach (Implied P/E Multiple) - Implied EV per Ton Multiple Approach (Implied EV/Ton Multiple) Discounted Cash Flow Approach Book Value Approach Under Book Value Approach, book value of equity of HVL is determined based on the latest audited consolidated financial statement of as of 31 May 2016 under IFRS Audited Interim Consolidated Financial Statements 31 May May 2016 (VND billion) (THB billion) 1. Contributed charter capital 3, Retained earnings Other reserves (114.08) (0.18) Total equity or book value of HVL 3, % of total equity or book value 2, Note: The IFA used VND/THB exchange rate at to convert VND to THB based on BOT as of 2 August 2016 This method only measures the accounting value of HVL s equity at a particular point in time, without taking into account expectations of future operating performance, industry trends, and fair value of HVL s assets and liabilities. Therefore, IFA believes that this method is not an appropriate valuation approach for this Transaction Adjusted Book Value Approach Under Adjusted Book Value Approach, book value of equity of HVL is adjusted for (1) the dividend anticipated to be paid out of HVL s retained earnings before the closing of the Transaction, (2) the loss on disposal of HVL s ship, its fixed asset, which was sold in August 2016 (after 31 May 2016, the period end of the audited interim consolidated financial statements), and (3) the gain on forgiveness by Seller of an accounts payable under brand right agreements according to the CCTA. No other adjustments were made as (1) there is no investment in securities which needs to be adjusted to market value, and (2) according to our management interview, HVL did not have its fixed assets appraised by an independent appraiser, and according to management of SCCC, there is no need for such appraisal of the fixed assets as the assets are believed to be in a good working condition and fairly valued. In this regard, the fact that there is no appraisal on fixed asset performed by an independent appraiser could result in the number from Adjusted Book Value Approach not appropriately reflecting a fair value of equity value of HVL. The equity of HVL used is based on the latest audited consolidated financial statement of as of 31 May 2016 Audited Interim Consolidated Financial Statements 31 May May 2016 (VND billion) (THB billion) Total equity or book value of HVL 3, Adjustments on (1) expected dividends (1,052.52) (1.68) (2) loss on disposal of ship (60.00) (0.10) (3) Accounts payable under brand right agreement to be forgiven Adjusted book value of HVL 2, % of adjusted book value 1, Note: The IFA used VND/THB exchange rate at to convert VND to THB based on BOT as of 2 August 2016 Section 3 Page 2

39 This approach only measures, at a particular point in time, the accounting value of HVL s equity with an adjustment for expected dividends, loss on disposal of HVL s ship, and gain on forgiveness of accounts payable, without taking into account expectations of future operating performance, industry trends, and fair value of HVL s fixed assets (as there is no asset appraisal conducted by an independent appraiser). Therefore, the IFA believes that this method is not an appropriate valuation approach for this Transaction Market Comparables Approach Market Comparables Approach allows the users determine the value of a company based on the assumption that comparable companies that operate in similar business or industry are expected, on average, to have similar characteristics and a similar range of trading multiples. The IFA has viewed that there are limited public information on Vietnamese peers who operate similar business to HVL and thus selected several ASEAN peers as comparable benchmark as they operate under similar business environment as HVL. However, the peers used in valuing HVL are not exactly the same as they may differ from one another in certain aspects such as national accounting standard, accounting policies, size of business, product mix, cost structure, quality of operating assets. In addition, the trading multiples generally reflect the value of minority stake without factoring in any control premium. The summary of key contents of comparable companies selected from ASEAN (by the order of market capitalization) is as follows: 1. Siam Cement Public Company Limited ( SCC ) Siam Cement Public Company Limited is a diversified industrial company. SCC's operations include cement manufacturing, petrochemicals manufacturing, paper manufacturing, building product manufacturing, and distribution. In cement business, SCC has cement production capacity of 26.7 million ton per year and 726 ready-mixed concrete plants, and its products are sold under various brands such as Tra Chang, Elephant, Tiger, SCG, K-Cement, CPAC, Jayamix. 2. PT Indocement Tunggal Prakarsa Tbk ( INTP ) PT Indocement Tunggal Prakarsa Tbk manufactures cement and building materials, including aggregate and trass. Its cement is sold under brand name Tiga Roda. Through its subsidiaries, INTP also manufactures and processes ready-mix cement as well as owns and manages properties and hotels. INTP has cement production capacity of 20.5 million ton per year. INTP is a subsidiary of Heidelberg Cement Group. 3. PT Semen Indonesia (Persero) Tbk ( SMGR ) PT Semen Indonesia (Persero) Tbk manufactures cement including portland cement, oil well cement, and mixed cement. Through its subsidiaries, SMGR also develops and operates an industrial estate, mines limestone and clay, and packages and distributes cement. SMGR has four brands inherent in the hearts of consumers, namely Semen Gresik, Semen Padang,and Semen Tonasa and Thang Long Cement. SMGR has cement production capacity of 31.8 million ton per year 4. Holcim Philippines Inc ( HLCM ) Holcim Philippines Incorporated manufactures and distributes portland cement and pozzolana cement. HLCM was incorporated in HLCM has cement production capacity of 7.7 million ton per year. Section 3 Page 3

40 5. Siam City Cement Public Company Limited ( SCCC ) Siam City Cement Public Company Limited produces and distributes cement under branded names (such as Insee) with various type of cement for different applications. SCCC also produces and distributes ready-mix concrete and aggregates under branded names, as well as branded wood-replacement products. SCCC has cement production capacity of 14.8 million ton per year. 6. Lafarge Malaysia Berhad ( LMC ) Lafarge Malaysia Berhad, an investment holding company, manufactures and sells cement, ready-mixed concrete, and other related building materials primarily in Malaysia and Singapore. It operates through Cement, and Aggregates and Concrete segments. LMC offers ordinary Portland cement, oil well cement, green label cement, versatile masonry cement, high sulphate resisting cement, Portland pulverized-fuel ash cement, and Portland blast furnace cement under the Mascrete LH, Mascrete Pro, Blue Circle, Phoenix, Rumah, and Walcrete names and brands. It also provides drymix products, such as skim coats, tile adhesives, flooring mortars, and premixed plasters under the QuickMix brand name; Lafarge Drymix Sdn Bhd (a wholly owned subsidiary) s signature product under the QuickPlast brand name; aggregates that are used in various concrete mixes; and road materials, as well as blended aggregates for use in the road, paving, brick, and block industries. In addition, the company offers conventional standard, structural, and decorative concrete products under the Agilia, Hydromedia, Artevia, and UltraSeries names. Further, it produces clinker; trades in cement, other building materials, and aggregates and related products; ships bulk cements and charters vessels; manages and operates a jetty; quarries and trades in granite and quarry products; and provides accounting shared and management consulting services. Lafarge Malaysia Berhad operates as a subsidiary of Associated International Cement Limited. LMC has cement production capacity of 1.2 million ton per year (by the end of 2016). 7. PT Semen Baturaja (Persero) Tbk ( SMBR ) PT Semen Baturaja (Persero) Tbk produces and distributes cement primarily in Indonesia. It offers ordinary Portland cement Type I and Portland composite cement under branded products. SMBR was founded in 1974 and is headquartered in Palembang, Indonesia. SMBR has cement production capacity of 2 million ton per year. 8. PT Holcim Indonesia Tbk ( SMCB ) PT Holcim Indonesia Tbk produces cement and operates other related activities. Through its subsidiaries, SMCB also manufactures and markets ready-mix concrete, operates stone quarries, and provides transportation services. SMCB has cement production capacity of 11.6 million ton per year. 9. Ha Tien 1 Cement JSC ( HT1 ) Ha Tien 1 Cement JSC produces a wide range of cement products. HT1 also provides building and construction services and port services, warehouse rental, transportation, labour services. HT1 has cement production capacity of 9.3 million ton per year. Section 3 Page 4

41 Trailing (Last 12 Months) Enterprise Value to Earnings before Interest, Tax, Depreciation, and Amortization Multiple (Trailing EV/EBITDA Multiple) Under this method of valuation, HVL s last 12 months EBITDA is multiplied by trailing EV/EBITDA multiple of peers to arrive at the enterprise value of HVL. Net interest bearing debt (interest bearing debt minus cash and cash equivalents) and adjustments of debt-like items and dividends anticipated to be declared after 31 May 2016 are then deducted from the enterprise value to arrive at the equity value of HVL. HVL s EBITDA used is based on HVL s latest combined financial statements for the year ended 31 December 2015 under IFRS with full 12 months operating performance of both HVL and LCV (There is no detailed monthly breakdown of financial information prepared that allows the IFA to derived actual last 12 month EBITDA from June 2015 to May 2016). A range of trailing EV/EBITDA multiple compiled is derived from an average of trailing EV/EBITDA multiple of peers over 15-trading days, 30- trading days, 60-trading days, 90-trading days, 180-trading days, 240-trading days, and 360-trading days ending 2 August Trailing EV/EBITDA Multiple (Times) Company Name 15 Trading 30 Trading 60 Trading 90 Trading 180 Trading 240 Trading 360 Trading Days Days Days Days Days Days Days Siam Cement Public Company Limited PT Indocement Tunggal Prakarsa Tbk PT Semen Indonesia (Persero) Tbk Holcim Philippines Inc Siam City Cement Public Company Limited Lafarge Malaysia Bhd PT Semen Baturaja (Persero) Tbk PT Holcim Indonesia Tbk Ha Tien 1 Cement JSC Average Source: Bloomberg as of 2 August 2016 Summary of Valuation Based on Trailing EV/EBITDA Multiple For the Year Ended 31 December 2015 Adjusted EBITDA (VND billion) 1 1, Upper Range of Trailing EV/EBITDA multiple (times) Lower Range of Trailing EV/EBITDA multiple (times) 9.85 Range of Enterprise Value (VND billion) 15, , Less: Interest bearing debt (VND billion) 2 (1,035.79) Less: Debt-like items (VND billion) 3 (203.78) Less: Dividends (VND billion) 4 (1,052.52) Add: Cash and cash equivalents (VND billion) Range of Equity Value (VND billion) 13, , Range of 65% of Equity Value (VND billion) 8, , Range of 65% of Equity Value (THB billion) Note: 1 Adjusted EBITDA is calculated by using reported EBITDA of VND 1,511 billion adjusted for (1) reclassification items from below EBITDA line to above EBITDA line, (2) recurring items, and (3) non-recurring items totaling VND 38 billion, as per Draft Financial and Tax Red Flag Report prepared by PwC 2 Interest bearing debt of VND 1, billion and cash and cash equivalents of VND billion are derived latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS 3 Debt-like items are liabilities, net of relevant deduction, reported on latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS that in the IFA s view is similar to debt from the perspective of SCCC and then should be deducted from the enterprise value 4 Dividends of VND 1, billion are derived from dividends anticipated to be declared after 31 May VND/THB at as of 2 August 2016 from BOT Section 3 Page 5

42 From the table above, the estimated 65 percent of equity value of HVL is in a range of THB billion to THB billion Forward Enterprise Value to Earnings before Interest, Tax, Depreciation, and Amortization Multiple (Forward EV/EBITDA Multiple) Under this method of valuation, HVL s forecasted EBITDA is multiplied by forward EV/EBITDA multiple of peers to arrive at the enterprise value of HVL. Net interest bearing debt (interest bearing debt minus cash and cash equivalents) and adjustments of debt-like items and dividends anticipated to be declared after 31 May 2016 are then deducted from the enterprise value to arrive at the equity value of HVL. HVL s forward EBITDA used is based on HVL s forecasted EBITDA for the year 2016 and As the Transaction is expected be completed in the first quarter of 2017, the IFA views that forward EV/EBITDA for 2017 multiple should also be used to determine the valuation in addition to forward EV/EBITDA for 2016 multiple. A range of forward EV/EBITDA multiple compiled is derived from forward EV/EBITDA multiple of peers. Company Name Forward EV/EBITDA Multiple (Times) 2016E 2017E Siam Cement Public Company Limited PT Indocement Tunggal Prakarsa Tbk PT Semen Indonesia (Persero) Tbk Holcim Philippines Inc Siam City Cement Public Company Limited Lafarge Malaysia Bhd PT Semen Baturaja (Persero) Tbk NA NA PT Holcim Indonesia Tbk Ha Tien 1 Cement JSC Average Max Min Source: Bloomberg as of 2 August 2016 Note: Forward 2016E and 2017E EV/EBITDA multiples of PT Semen Baturaja (Persero) Tbk are at 24.48x and 19.51x, which is viewed as outliers and thus were removed from the calculation Summary of Valuation Based on Forward EV/EBITDA Multiple FY 2016 FY 2017 EBITDA (VND billion) 1 1, , Upper Range of Trailing EV/EBITDA multiple (times) Lower Range of Trailing EV/EBITDA multiple (times) Range of Enterprise Value (VND billion) 10, , , , Less: Interest bearing debt (VND billion) 2 (1,035.79) (1,035.79) Less: Debt-like items (VND billion) 3 (203.78) (203.78) Less: Dividends (VND billion) 4 (1,052.52) (1,052.52) Add: Cash and cash equivalents (VND billion) Range of Equity Value (VND billion) 8, , , , Range of 65% of Equity Value (VND billion) 5, , , , Range of 65% of Equity Value (THB billion) Note: 1 EBITDA for 2016 and 2017 of VND 1, billion and VND 1, are estimated by BLS based on the assumptions set out in section Discounted Cash Flow ( DCF ) Approach 2 Interest bearing debt of VND 1, billion and cash and cash equivalents of VND billion are derived latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS 3 Debt-like items are liabilities, net of relevant deduction, reported on latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS that in the IFA s view is similar to debt from the perspective of SCCC and then should be deducted from the enterprise value 4 Dividends of VND 1, billion are derived from dividends anticipated to be declared after 31 May VND/THB at as of 2 August 2016 from BOT From the table above, the estimated 65 percent of equity value of HVL is in a range of THB 8.97 billion to THB billion. Section 3 Page 6

43 Trailing (Last 12 Months) Price to Earnings Multiple (Trailing P/E Multiple) Under this method of valuation, HVL s last 12 months net profit is multiplied by trailing P/E multiple of peers to arrive at the equity value of HVL. HVL s net profit used is based on HVL s latest combined financial statements for the year ended 31 December 2015 under IFRS with full 12 months operating performance of both HVL and LCV (There is no detailed monthly breakdown of financial information prepared that allows the IFA to derived actual last 12 month net profit from June 2015 to May 2016). A range of trailing P/E multiple compiled is derived from an average of trailing P/E multiple of peers over 15-trading days, 30-trading days, 60-trading days, 90- trading days, 180-trading days, 240-trading days, and 360-trading days starting from 2 August Trailing P/E Multiple (Times) 15 Trading 30 Trading 60 Trading 90 Trading 180 Trading 240 Trading 360 Trading Days Days Days Days Days Days Days Siam Cement Public Company Limited PT Indocement Tunggal Prakarsa Tbk PT Semen Indonesia (Persero) Tbk Holcim Philippines Inc Siam City Cement Public Company Limited Lafarge Malaysia Bhd PT Semen Baturaja (Persero) Tbk PT Holcim Indonesia Tbk NA NA NA NA NA NA Ha Tien 1 Cement JSC Average Source: Bloomberg as of 2 August 2016 Note: Trailing P/E multiples of Holcim Indonesia Tbk PT in certain periods are not applicable because (1) net profit are negative, or (2) P/E multiples are too high and thus considered as outliers and removed from the calculation. Summary of Valuation Based on Trailing P/E Multiple For the Year Ended 31 December 2015 Net profit after tax (VND billion) Upper Range of trailing P/E multiple (times) Lower Range of trailing P/E multiple (times) Range of Equity Value (VND billion) 8, , Range of 65% of Equity Value (VND billion) 5, , Range of 65% of Equity Value (THB billion) Note: 1 Net profit after tax of VND 538 billion is derived combined financial statement of HVL and LCV for 2015 under IFRS 2 VND/THB at as of 2 August 2016 from BOT From the table above, the estimated 65 percent of equity value of HVL is in a range of THB 8.84 billion to THB billion Forward Price to Earnings Multiple (Forward P/E Multiple) Under this method of valuation, HVL s forecasted net profit is multiplied by forward P/E multiple of peers to arrive at the equity value of HVL. HVL s forecasted net profit used is based on HVL s forecasted net profit for 2016 and As the Transaction is expected be completed in the first quarter of 2017, the IFA views that forward P/E for 2017 multiple should also be used to determine the valuation in addition to forward P/E for 2016 multiple. A range of forward P/E multiple compiled is derived from forward P/E multiple of peers. Section 3 Page 7

44 Company Name Forward P/E Multiple (Times) 2016E 2017E Siam Cement Public Company Limited PT Indocement Tunggal Prakarsa Tbk PT Semen Indonesia (Persero) Tbk Holcim Philippines Inc Siam City Cement Public Company Limited Lafarge Malaysia Bhd PT Semen Baturaja (Persero) Tbk NA PT Holcim Indonesia Tbk Ha Tien 1 Cement JSC Average Max Min Source: Bloomberg as of 2 August 2016 Note: Forward 2017E P/E multiple of PT Semen Baturaja Persero Tbk is at 46.85x, which is viewed as outlier and thus were removed from the calculation Summary of Valuation Based on Forward P/E Multiple FY 2016 FY 2017 Net profit after tax (VND billion) , Upper Range of forward P/E multiple (times) Lower Range of forward P/E multiple (times) Range of Equity Value (VND billion) 8, , , , Range of 65% of Equity Value (VND billion) 5, , , , Range of 65% of Equity Value (THB billion) Note: 1 Net profit after tax for 2016 and 2017 of VND billion and VND 1, billion are estimated by BLS based on the assumptions set out in section Discounted Cash Flow ( DCF ) Approach 2 VND/THB at as of 2 August 2016 from BOT From the table above, the estimated 65 percent of equity value of HVL is in a range of THB 8.70 billion to THB billion Price to Book Value Multiple (P/BV Multiple) This method of valuation is calculated by multiplying HVLs book value with P/BV multiple of peers to arrive at the equity value of HVL. HVL s book value used is based on HVL s latest audited consolidated financial statements for 5-month period ended 31 May A range of P/BV multiple compiled is derived from an average of trailing P/BV multiple of peers over 15-trading days, 30-trading days, 60-trading days, 90-trading days, 180-trading days, 240-trading days, and 360-trading days starting from 2 August P/BV Multiple (Times) 15 Trading 30 Trading 60 Trading 90 Trading 180 Trading 240 Trading 360 Trading Days Days Days Days Days Days Days Siam Cement Public Company Limited PT Indocement Tunggal Prakarsa Tbk PT Semen Indonesia (Persero) Tbk Holcim Philippines Inc Siam City Cement Public Company Limited Lafarge Malaysia Bhd PT Semen Baturaja (Persero) Tbk PT Holcim Indonesia Tbk Ha Tien 1 Cement JSC Average Source: Bloomberg as of 3 August 2016 Section 3 Page 8

45 Summary of Valuation Based on P/BV Multiple As of 31 May 2015 Book value (VND billion) 1 3, Upper Range of P/BV multiple (times) 2.55 Lower Range of P/BV multiple (times) 2.38 Range of Equity Value (VND billion) 8, , Range of 65% of Equity Value (VND billion) 5, , Range of 65% of Equity Value (THB billion) Note: 1 Book value of VND 3, billion is derived latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS 2 VND/THB at as of 2 August 2016 from BOT From the table above, the estimated 65 percent of equity value of HVL is in a range of THB 9.19 billion to THB 9.83 billion. Market Comparables Approach which involves the use of regional peers or peers from different countries may be subject to the possible different national accounting standards among those countries, leading to different accounting policies. However, in practice, this approach remains one of the key approaches that market participants (sellers and buyers of securities, and research analysts) employ when conducting valuation even if no adjustments on difference of such accounting standards are made. The IFA views that market comparables approach of valuation based on historical or trailing multiples is not appropriate valuation approach for this Transaction. Trailing trading multiples namely trailing EV/EBITDA, trailing P/E and P/BV generally rely on historical metrics namely EBITDA, net profit, book value, with no regards to future performance of HVL, which is of more interest and benefit to the investor community. In contrast, forward trading multiples namely forward EV/EBITDA and forward P/E generally rely on future performance metrics namely EBITDA and net profit, which convey meaningful future performance of HVL which the investor community is looking for when making investment decisions. In addition, forward EV/EBITDA multiples remove the effects of capital structure and accounting policies on depreciation and amortization of assets of peers whereas forward P/E multiples are impacted by these effects. Therefore, the IFA views that market comparables approach using forward P/E is not an appropriate approach while market comparables approach using forward EV/EBITDA is an appropriate one Precedent Transaction Comparables Approach Under Precedent Transaction Comparable Approach, HVL s valuation is estimated based on selected past transactions in ASEAN that are similar to this acquisition transaction. In determining the fair value of HVL by using this approach, the IFA used implied EV/EBITDA, implied P/E and implied EV/ton derived from the past transactions to calculate the equity value of HVL. Section 3 Page 9

46 Summary of Precedent Transaction Comparables Completion Date Acquirer Target Country % Acquired EV (USD million) LTM EV/EBITDA (Times) LTM P/E (Times) September 2015 AEV CRH Holdings Republic Cement & Building Materials Philippines 99.1% 1, April 2015 Jardine Cycle & Carriage Ltd Siam City Cement Pcl Thailand 24.9% 2, December 2012 Bangkok Broadcasting & Siam City Cement Pcl Thailand 9.3% 2, Television December 2012 PT Semen Indonesia Thang Long Cement Vietnam 70.0% N/A N/A December 2012 PT Cemindo Gemilang Chinfon Cement Vietnam 70.0% N/A N/A Min Max Average Median Source: SET, Capital IQ, Merger Market, Company Filings, Asian Venture Capital Journal, ABSCBN News, BLS estimates EV/Ton (USD) Section 3 Page 10

47 Implied Enterprise Value to EBITDA Multiple (Implied EV/EBITDA Multiple) Fair Value of HVL Based on Implied EV/EBITDA Multiple of Precedent Transaction Comparables For the Year Ended 31 December 2015 Adjusted EBITDA (VND billion) 1 1, Upper Range of Implied EV/EBITDA multiple (times) Lower Range of Implied EV/EBITDA multiple (times) 9.30 Range of Enterprise Value (VND billion) 14, , Less: Interest bearing debt (VND billion) 2 (1,035.79) Less: Debt-like items (VND billion) 3 (203.78) Less: Dividends (VND billion) 4 (1,052.52) Add: Cash and cash equivalents (VND billion) Range of Equity Value (VND billion) 12, , Range of 65% of Equity Value (VND billion) 7, , Range of 65% of Equity Value (THB billion) Note: 1 Adjusted EBITDA is calculated by using reported EBITDA of VND 1,511 billion adjusted for (1) reclassification items from below EBITDA line to above EBITDA line, (2) recurring items, and (3) non-recurring items totaling VND 38 billion, as per Draft Financial and Tax Red Flag Report prepared by PwC 2 Interest bearing debt of VND 1, billion and cash and cash equivalents of VND billion are derived latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS 3 Debt-like items are liabilities, net of relevant deduction, reported on latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS that in the IFA s view is similar to debt from the perspective of SCCC and then should be deducted from the enterprise value 4 Dividends of VND 1, billion are derived from dividends anticipated to be declared after 31 May VND/THB at as of 2 August 2016 from BOT 6 There is no detailed monthly breakdown of financial information prepared that allows the IFA to derived actual last 12 month EBITDA from June 2015 to May 2016 From the table above, the estimated 65 percent of equity value of HVL is in a range of THB billion to THB billion Implied Price to Earnings Multiple (Implied P/E Multiple) Fair Value of HVL Based on Implied P/E Multiple of Precedent Transaction Comparables For the Year Ended 31 December 2015 Net profit after tax (VND billion) 1, Upper Range of implied P/E multiple (times) Lower Range of implied P/E multiple (times) Range of Equity Value (VND billion) 8, , Range of 65% of Equity Value (VND billion) 5, , Range of Equity Value (THB billion) Note: 1 Net profit after tax of VND 538 billion is derived combined financial statement of HVL and LCV for 2015 under IFRS 2 VND/THB at as of 2 August 2016 from BOT 3 There is no detailed monthly breakdown of financial information prepared that allows the IFA to derived actual last 12 month net profit from June 2015 to May 2016 From the tables above, the estimated 65 percent of equity value of HVL is in a range of THB 8.62 billion to THB billion. Section 3 Page 11

48 Implied Enterprise Value to Ton Multiple (Implied EV/Ton Multiple) Fair Value of HVL Based on Implied EV/Ton Multiple of Precedent Transaction Comparables For the Year Ended 31 December 2015 HVL s ton of Capacity (million ton) 6.30 Upper Range of implied EV/ton multiple (USD) Lower Range of implied EV/ton multiple (USD) Range of Enterprise Value (USD million) , Range of Enterprise Value (VND billion) 1 11, , Less: Interest bearing debt (VND billion) 2 (1,035.79) Less: Debt-like items (VND billion) 3 (203.78) Less: Dividends (VND billion) 4 (1,052.52) Add: Cash and cash equivalents (VND billion) Range of Equity Value (VND billion) 8, , Range of 65% of Equity Value (VND billion) 5, , Range of 65% of Equity Value (THB billion) Note: 1 USD/VND at 22,294 as of 2 August 2016 from Bloomberg 2 Interest bearing debt of VND 1, billion and cash and cash equivalents of VND billion are derived latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS 3 Debt-like items are liabilities, net of relevant deduction, reported on latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS that in the IFA s view is similar to debt from the perspective of SCCC and then should be deducted from the enterprise value 4 Dividends of VND 1, billion are derived from dividends anticipated to be declared after 31 May VND/THB at as of 2 August 2016 from BOT From the table above, the estimated 65 percent of equity value of HVL is in a range of THB 9.31 billion to THB billion. Estimating a fair value of HVL s share price based on this approach is generally appropriate in that the selected transaction comparables are recent (over the last 5 years) and occurred in ASEAN region which is expected to have similar business environment. Moreover, implied multiples from transaction comparables will normally already include control premium on the acquisition. Precedent Transaction Comparables approach which involves the use of precedent transactions occurred in various countries may face the possible different national accounting standards among those countries, leading to different accounting policies. However, in practice, this approach remains one of the key approaches that market participants (sellers and buyers of securities, and research analysts) employ when conducting valuation even if no adjustments on difference of such accounting standards are made. However, the most commonly used multiples for cement production business is EV/EBITDA and EV/ton of capacity. EV/EBITDA again remove the effects of different capital structure and accounting policies on depreciation and amortization of assets of peers which is better for calculating valuation of HVL than do P/E multiple. EV/ton of capacity represents the replacement of building new cement production facilities, which also takes account of the value of the hard-to-find plant locations, existing distribution network, and prompt operation. Therefore, the IFA believes that implied EV/EBITDA and implied EV/ton based on transaction comparables are the appropriate valuation approaches. Section 3 Page 12

49 Discounted Cash Flow ( DCF ) Approach Discounted cash flow approach is based on the calculation of present value of all future cash flows that a firm expects to obtain from its business operation with an appropriate discount rate. In determining the equity value of HVL, IFA has used 5-year financial projection ( ) obtained from SCCC to calculate free cash flow to firm which was discounted at the weight average cost of capital and to calculate the terminal value based on the assumed perpetual growth in order to arrive at enterprise value and equity value of HVL. The relevant information used in such calculation is derived from public sources, information from the management and SCCC s advisers follows: The detailed assumptions underlying the valuation of HVL under DCF Approach are as Key assumptions for financial projections 1. Revenues HVL s core revenues stem from 2 sources: cements and ready-mixed concrete. The IFA then projected HVL s revenues from these 2 sources Cement When projecting cement revenues, the IFA started with projected cement capacity and utilization rate of all plants of HVL. During , the cement capacity of HVL will be around 6.30 million ton to 6.31 million ton, depending on the planned shutdown in each year. From 2013 to 2015, the utilization rate of HVL (combined HVL and LCV) was at 60.1 percent, 59.8 percent and 65.3 percent, respectively. The IFA projected that utilization rate of HVL will grow to 70.2 percent in 2016 and keep growing to reach 90.8 percent in 2020 (without any expansion of HVL s cement capacity as HVL s plants have not run its cement operation at full capacity) to support higher growing demand of cement in Southern Vietnam expected at an average growth rate of 6 percent per year in (Source: Company - the Company engaged McKinsey & Co as a strategic advisor to prepare information of cement industry in Vietnam), especially in Ho Chi Minh City and Mekong Delta region. The IFA viewed that information about cement demand mentioned above is reasonable as (1) OECD has forecasted in the short term that an average real GDP growth in Vietnam would be at 6.0 percent per year in (Source: OECD), which is in line with PwC s long-term forecast of an average GDP growth in Vietnam at 5.3 percent per year in (Source: PwC), (2) information from World Bank and Stoxplus indicates that a multiple of cement consumption growth in Vietnam to real GDP growth in is about 1.66 times (Source: World Bank, Stoxplus from VNCA, BLS estimate), (3) Oxford Economics and PwC has forecasted that Vietnam s infrastructure spending growth rate would be at 9% on average in (Source: Oxford Economics, PwC), (4) there has been a forecast of infrastructure projects in Vietnam such as roads and bridges, railways, and airports, etc. amounting to USD 165 billion in (Source: Stoxplus), equivalent to VND 3,679 trillion or THB 9 trillion, (5) when taking account of demographic factor, population in Vietnam has been forecasted to rise from 92.7 million in 2015 to million in 2049, representing a growth rate of 17.0 percent over 34 years, and urban population ratio has been forecasted to rise from 33.6 percent in 2015 to 58.2 percent in 2049 (Source: Population Reference Bureau, Statistica, General Statistics Office of Vietnam). All of the above evidence support the assumption of growing cement demand in Vietnam. Section 3 Page 13

50 The IFA then projected revenue from sales of cement by using average selling prices of cement times cement volume sold. Average selling price of cement is generally expected to move according to inflation rate. Average selling price of cement is expected to increase at 1.0 percent in 2016 (below forecasted inflation rate in Vietnam in 2016 at 3.0 percent) due to growing competition in cement market in Vietnam and at 2.0 percent in 2017 (below forecasted inflation rate in Vietnam in 2017 at 4.0 percent) due to a transitional period from Holcim brand to new brands to be introduced by HVL postacquisition. Average selling price of cement is expected to increase at 3.5 percent from , which is in line with inflation rate in Vietnam forecasted in a range of 3.0 percent-4.0 percent, which is conservative than the 20-year historical average inflation rate from of Vietnam is at 6.75 percent. Additionally, the IFA takes into account the cement produced that is used as a raw material of ready-mixed concrete delivery by subtracting it out of sales from cement calculated, as mentioned above, and this subtraction is expected to grow according to growth of volume of ready-mixed concrete delivery Total cement capacity (million ton per year) Utilization rate (%) Total cement production (million ton per year) Average selling price (kvnd/ton) 1, , , , , Selling price growth (%) Sales from cement (VND billion) 5, , , , , Ready-mixed concrete (RMX) Ready-mixed concrete delivery ( RMX delivery ) When projecting RMX delivery revenues, the IFA started with projected RMX capacity and utilization rate of HVL. In 2015, RMX capacity was at 432,212 m 3 per year and the IFA projected the RMX capacity to keep growing at 35.0 percent, 20.0 percent, 15.0 percent, 10.0 percent, and 9.6 percent from to support growing demand of RMX especially in Ho Chi Minh City area where infrastructure construction projects are expected to occur intensively. The increase in capacity is consistent with increased capital expenditure. The IFA then projected revenue from sales of RMX delivery by using average selling price of RMX times RMX volume sold. Average selling price of RMX is expected to increase similar to average selling price of cement at 1.0 percent, 2.0 percent, 3.5 percent, 3.5 percent and 3.5 percent, respectively due to its similar market environment to cement. Ready-mixed concrete pumping services ( RMX pumping services ) Ready-mixed concrete pumping services is about pumping RMX for using in constructing building or high-rise building, rather than construction on the ground. When projecting RMX pumping services revenues, the IFA started with projected RMX pumping services as a percentage of RMX delivery volume. In 2015, such percentage stood at 21.4 percent. The IFA projected that such percentage will be constant at 21.4 percent as this pumping service is expected to continue in the future. The IFA then projected revenue from RMX pumping services by using average service price times RMX pumping services volume. The average selling price of RMX pumping services is expected to increase similar to average selling price of cement at 1.0 percent, 2.0 percent, 3.5 percent, 3.5 percent and 3.5 percent, respectively due to its similar market environment to cement. Section 3 Page 14

51 Total RMX delivery sales volume 432, , , , ,732 (m 3 per year) Total RMX growth in delivery sales volume (%) Average selling price of RMX 1, , , , , delivery (kvnd/m 3 ) Growth of average selling price of RMX delivery (%) Sales of RMX Delivery , , (VND billion) % of RMX delivery used pumping services (%) Total RMX pumping services 70,018 93, , , ,717 (m 3 per year) Average selling price of RMX pumping services (kvnd/m 3 ) Growth of average selling price of RMX pumping services (%) Sales of RMX pumping services (VND billion) Total sales of RMX (VND billion) , , Cost of sales Cost of sales consists of cost of raw materials (such as clinker, gypsum, limestone, pozzalana, slag), packaging, electricity, and distribution costs, personnel costs associated directly with production functions and maintenance costs. In , cost of sales to sales ratios of HVL (combined HVL and LCV) were at 71.1 percent, 70.7 percent and 65.6 percent, respectively. The cost of sales to sales ratios of HVL for 5 months of 2016 was at 65.5 percent. The cost of sales to sales ratio in 2015 decreased because costs of raw materials, energy and packaging decreased as a result of lowering market prices of those materials and greater cost efficiency management and economies of scale while sales increased. The IFA projected that such ratio will stay at 65.6 percent from as a result of economies of scale post-merger of HVL and LCV in end 2015 and the increased production volume going forward that will reduce fixed costs per ton Cost of sales (VND billion) 4, , , , , Cost of sales to sales ratio (%) Selling, general and administrative expenses ( SG&A ) SG&A consists mainly of personnel costs associated directly with non-production functions, marketing costs, royalty fees, and others. These costs varies mainly according to inflation In , SG&A to sales ratio of HVL (combined HVL and LCV) were at 8.6 percent, 8.7 percent, and 7.7 percent, respectively. The SG&A to sales ratios of HVL for 5 months of 2016 was at 7.1 percent. The SG&A to sales ratio in 2015 decreased because of a reduction in personnel costs from a policy of hiring local personnel which generally cost less. The IFA projected that SG&A to sales ratio will be at 7.0 percent in 2016 which is in line with actual percentage in the 5 months of 2016, that SG&A to sales ratio will go up to 7.5 percent in 2017 as a result of increased extraordinary marketing and advertising program to promote new brands of HVL for cement and RMX products, and that SG&A to sales ratio will reduce to 7.0 percent in after such marketing and advertising program is reduced to a normal level after the brand awareness program starts to take effect. Generally, Vietnamese consumers Section 3 Page 15

52 perceive products from Thailand as premium products compared to local products. SG&A in absolute terms in has been projected to increase each year from as presented in the table below SG&A (VND billion) SG&A to sale ratio (%) Depreciation and amortization Depreciation is on buildings and installations, machinery and equipment, leased vehicles, furniture, vehicles, and tools. Depreciation in 2015 was at VND billion. Amortization is on computer software, land leasing advantage, and brand names. Amortization in 2015 was at 8.98 VND billion. Based on average historical number from 12-month period in 2015 and 5-month periods in 2016, depreciation is projected at a range of 9.20 percent of opening PP&E balance and amortization is projected at a range of 5.66 percent of opening balance. In this regard, the IFA projects that HVL will not have expansion plan in the future, which is in line with information from our management interview Depreciation and amortization (VND billion) Corporate income tax Statutory corporate income tax rate in Vietnam is 20 percent. As HVL s operation in Hon Chong and Cat Lai receives special tax rate of 10 percent until 2044 as a result of tax privilege program obtained as well as taxable profits earned by HVL from waste treatment activities is subject to 15 percent tax rate (represent only 1 percent of total revenue), the blended tax rate for HVL is assumed at 13.5 percent until 2044, which is in line with effective tax rate in 2015 of 13.9 percent. Thereafter the tax rate of HVL should revert to 20 percent statutory tax rate. 6. Capital expenditure The IFA projected the capital expenditure of HVL based on management forecast. Capital expenditure is projected to stay at VND billion in However, capital expenditure is expected to grow to VND billion in as HVL plans to increase clinker capacity from 4,620 ton/day to 5,000 ton/day to support higher production plan in support of expected growing demand of cement in the future and to improve compatibility between IT system of HVL and that of SCCC. Capital expenditure is then reduced to VND billion in Such expected capital expenditure cover annual minor maintenance and major maintenance. 7. Working capital The IFA projected trade account receivable days, inventory days, accounts payable days equivalent to 3-year average from as follows: Trade account receivable (days) Inventory (days) Accounts payable (days) Section 3 Page 16

53 8. Discount rate The IFA used the weighted average cost of capital (WACC) as a discount rate to calculate the present value of free cash flows to firm. WACC can be calculated as follows: WACC Where K e K d T = K e x 1 / (1 + D/E) + K d x (1- T) x (D/E) / (1+D/E) = cost of equity of HVL = cost of debt of HVL = corporate income tax rate of HVL D/E = target interest bearing debt to equity ratio of HVL Cost of equity Cost of equity could be estimated based on Capital Asset Pricing Model (CAPM) with the perspective of Thai investors as the underlying assets have operation solely in Vietnam. The calculation of return on equity is presented below K e = R f + β (R m R f + country risk premium) Where R f β = risk-free rate, which is based on a 10-year Thai government bond yield on 2 August 2016 at 2.08 percent (Source: Thai Bond Market Association). It is theoretically expected that the 10-year government bond reflect the pure risk-free rate. = beta or the coefficient of variation of return, which is derived from HVL s peers levered beta (SCC, INTP, SMGR, HLCM, SCCC, LMC, SMBR, SMCB, and HT1), then unlevered and relevered beta to reflect the target capital structure. As a result, the relevered beta is 0.98 (Source: Bloomberg) R m = market return based on the historical compound average annual return from investment in the SET since its inception ( ), which is expected to cover the cycle of investment in the SET and could represent the investors expected return in the future. Such return is at percent per year (Source: SET) Country risk premium = Additional return that, from the perspective of Thai investors, is required to compensate for risk associated with investing in a foreign country (such as political risk, exchange rate risk, sovereign risk), which is derived from the study by Aswath Damodaran in 2016 (Aswath Damodarn. (July 2016), Country Default Spreads and Risk Premiums (Source: at a rate of 2.13 percent for investment in Vietnam. Section 3 Page 17

54 Based on the variables above, K e or the cost of equity from the perspective of Thai investors that is calculated based on Capital Asset Pricing Model (CAPM) equals percent with the calculation being as follows: Items Assumptions Risk-free rate (1) 2.08% Beta (2) 0.98 Market return (3) 10.82% Market risk premium (4) = (3) (1) 8.74% Country risk premium (5) 2.13% Cost of equity (6) = (1) + ((2) x [(4) + (5)]) 12.74% Discount rate As mentioned earlier, WACC can be calculated as follows: WACC Where K e = K e x 1 / (1 + D/E) + K d x (1- T) x (D/E) / (1+D/E) = cost of equity of HVL at percent K d = cost of debt of HVL which is based on average cost of debt of HVL for 2014 and 2015 at 8.74 percent T = corporate income tax rate of HVL which is based on statutory corporate income tax rate at 20 percent D/E = target interest bearing debt to equity ratio of HVL which is based on historical average D/E ratio of HVL as at 31 December 2015 and 31 May 2016 at 0.28 times Based on the variables above, WACC or discount rate is percent with the calculation being as follows: Items Assumptions Cost of equity (K e ) (1) 12.74% Cost of debt (K d ) (2) 8.74% D/E (3) 0.28x Corporate income tax rate (t) (4) 20.00% Weighted average cost of capital 11.49% (5) = (3) / [(1 + (3) ] x (2) x (1 (4)) + [ 1 / ( 1 - (3)) ] x (2) Terminal value Terminal value is estimated for 2 periods: The first period of terminal value is from in which HVL is subject to assumed effective tax rate of 13.5 percent based on the tax benefit of HVL as the tax benefit HVL is currently enjoying will expire in This first period of terminal value can be estimated based on the following formula TV 1 = [ CF 2021 / (WACC - g) ] x [ 1 ((1 + g) / (1 + WACC)) n ] Where CF 2021 = free cash flow to firm of HVL for year 2021, which is a normalized free cash flow to firm of HVL based on year 2020 by adjusting capital expenditure to be equal to depreciation Section 3 Page 18

55 g = long-term growth rate of free cash flow from 2021 onwards, which is conservatively projected at 4 percent based on the discount of GDP growth of Vietnam which is the key driver of cement industry. 15- year average GDP growth of Vietnam from is at 6.52 percent and forecasted GDP growth of Vietnam in is expected to be at 6.15 percent, 6.32 percent and 6.35 percent (average at 6.27 percent) (Source: Worldbank) WACC = weighted average cost of capital n = 24 (from year 2021 to year 2044) The second period of terminal value is from 2045 onwards in which HVL is subject to statutory tax rate of 20.0 percent. This second period of terminal value can be estimated based on the following formula TV = CF 2045 / (WACC g) Where CF 2045 = free cash flow to firm of HVL for year 2045 which is a normalized free cash flow to firm of HVL based on year 2020 adjusting for annual growth of 4 percent (equal to g) and adjusting capital expenditure to be equal to depreciation g = long-term growth rate of free cash flow from 2021 onwards, which is conservatively projected at 4 percent based on the discount of GDP growth of Vietnam which is the key driver of cement industry. 15-year average GDP growth of Vietnam from is at 6.52 percent and forecasted GDP growth of Vietnam in is expected to be at 6.15 percent, 6.32 percent and 6.35 percent (average at 6.27 percent) (Source: Worldbank) WACC = weighted average cost of capital 8. Other assumption 8.1 For the purpose of calculating present value of HVL s free cash flows, mid-year convention has been applied. 8.2 The management believes that the Transaction will lead to synergies postacquisition such as Cat Lai utilization ramp up, additional RMX plants, procurement synergies. The IFA has not taken such synergies into account. Unit: VND billion Earnings before interest and tax 1, , , , , (EBIT) Tax rate (%) EBIT x (1-Tax rate) 1, , , , , Depreciation and amortization Changes in net working capital (176.68) (9.26) (10.42) (10.71) (11.39) Capital expenditure (289.82) (511.19) (511.19) (289.82) (289.82) Free cash flow to firm 1, , , , , Section 3 Page 19

56 Unit: VND billion 31 May 2016 Present value of free cash flow to firm ( ) 5, Present value of terminal value 15, Enterprise value 20, Less: Interest bearing debt (VND billion) 1 (1,035.79) Less: Debt-like items (VND billion) 3 (203.78) Less: Dividends (VND billion) 2 (1,052.52) Add: Cash and cash equivalents (VND billion) Equity value 18, Percentage acquired 65% 65 percent of Equity value (VND billion) 12, percent of Equity value (THB billion) Note: 1 interest bearing debt of VND 1, billion and cash and cash equivalents of VND billion are derived from the latest consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS. 2 dividends of VND 1, billion are derived from dividends anticipated to be declared after 31 May Debt-like items are liabilities, net of relevant deduction, reported on latest audited consolidated financial statement of HVL and LCV as of 31 May 2016 under IFRS that in the IFA s view is similar to debt from the perspective of SCCC and then should be deducted from the enterprise value From the tables above, the estimated 65 percent of equity value of HVL is THB billion Sensitivity Analysis As the valuation of HVL based on DCF Approach depends upon certain key assumptions, the IFA has prepared a set of sensitivity analysis to present the impact of changes or variation of such key assumptions on valuation as shown in the tables below. Sensitivity analysis of 65 percent of equity value in VND billion and THB billion between discount rate and terminal growth rate Equity Value (VND billion) Terminal Growth Rate Discount Rate 10.5% 11.0% 11.5% 12.0% 12.5% 3.0% 12, , , , , % 13, , , , , % 14, , , , , % 15, , , , , % 16, , , , , Equity Value (THB billion) Terminal Growth Rate Discount Rate 10.5% 11.0% 11.5% 12.0% 12.5% 3.0% % % % % Based on the sensitivity analysis, the IFA has concluded that the range of 65 percent of equity value of HVL based on DCF approach with sensitivity of discount rate from 11.0 percent-12.0 percent and terminal growth rate of 3.5 percent percent is THB billion to THB billion. Section 3 Page 20

57 Valuation Methodology Equity Value (THB billion) Book Value Approach 3.86 Adjusted Book Value Approach 2.80 Market Comparables Approach Trailing EV/EBITDA Multiple Forward EV/EBITDA Multiple Trailing P/E Multiple Forward P/E Multiple P/BV Multiple Precedent Transaction Comparables Approach Implied EV/EBITDA Multiple Implied P/E Multiple Implied EV/Ton Multiple Discounted Cash Flow Approach Based on the nature of each of the valuation approaches that the IFA explained and commented earlier in the valuation topic, the IFA views that forward EV/EBITDA multiple approach, implied EV/EBITDA multiple and implied EV/ton multiple derived from precedent transaction comparables approach, and DCF approaches are most appropriate. From the table above, 65 percent of the fair equity value of HVL is in a range of THB billion to THB billion, which is the intersected range based on all the IFA-selected approaches namely forward EV/EBITDA multiple, implied EV/EBITDA multiple, implied EV/ton multiple and DCF approaches. Therefore, the IFA views that the acquisition price of THB billion, which is calculated based on the Pre-Closing Date is at the end of 2016, for 65 percent equity ownership of HVL is considered fair and reasonable compared to the acquisition price at which SCCC s board of directors decided to buy 65 percent of HVL s contributed capital. Section 3 Page 21

58 However, the Pre-Closing Date (equivalent to not more than 3 business days after Unconditional Date according to the CCTA) may occur later than when the Company has expected, which is the end of 2016, to end of the first quarter of 2017, or possibly until 8 June This will result in the Company paying incremental amount from the Initial Price. Therefore, IFA has prepared a sensitivity analysis to present the impact of timing of the Pre-Closing Date on the Closing Price (and assuming no Leakage)as shown in the table below Closing Price Initial Price Pre-Closing Date 31 Dec Jan Feb Mar Apr May 17 8 Jun 17 EUR 460 million THB billion Note: 1 Calculated at the exchange rate of EUR 1 per THB according to the average of the selling and buying rate available on the BOT s website on 3 August 2016 Based on the above sensitivity analysis, the IFA views that if the Pre-Closing Date occurs from 31 December 2016 to 8 June 2017, the Closing Price of 65 percent of the total charter capital of HVL will be in the range of EUR 479 million to EUR 493 million (or THB billion to THB billion) Fairness of the Transaction Conditions The IFA has considered terms and conditions regarding execution of the Transaction from CCTA dated 4 August 2016, the detailed of which was specified in section of this IFA Report. The IFA is of the opinion that terms and conditions set out in CCTA are adequately protecting the benefits of SCCC in connection with the acquisition of charter capital of HVL. The Transaction s deal structure as well as terms and conditions set out in CCTA are reasonably in line with general market practice. Furthermore, such terms and conditions will enable SCCC to continue managing HVL s business smoothly after the Transaction. For example, Covenant regarding conduct of business where, between the date of the CCTA and Closing, the Seller shall procures that HVL shall carry on its business as going concern in and only in the ordinary course as carried on prior to the date of CCTA Covenant regarding the cooperation in relation to employment where the Seller shall not offer to employ or seek to entice away a Senior Manager directly employed by HVL at any time for a period of 2 years from Closing Date Covenant regarding the transitional period where the Seller Group will procure the provision of the services such as IT services, secondment of key managements. The Services will be provided to standards of services and performance substantially equivalent to the Services in the 12 months prior to the closing date and using reasonable care and skill. Covenant regarding non-compete business where the Seller undertakes not to compete with HVL in Vietnam. For the term regarding Holcim trademarks and logos Lafarge trademarks and logos, the Seller will terminate trademark licensing agreements after the 180-day period from the Closing Date. The IFA renders the opinion that the Company shall replace those brands with new brands launch which requires strong marketing effort to create new brands awareness to distributors, retailers and customers. Therefore, brand transition from existing brands to new brands may not be smooth or the new brands cannot command the same price premium in the medium term. Section 3 Page 22

59 Section 4: Summary of the Opinions by the Independent Financial Advisor The IFA analyzes the appropriateness of the Transaction, including but not limited to the fairness of the price and conditions of the acquisition of 65 percent of the total charter capital of HVL from LH, and has an opinion that the Transaction is appropriate because: (1) SCCC would gain control in HVL, one of the leading cement players (both in terms of capacity and sales) in Southern Vietnam, allowing SCCC to immediately establish a strong footprint in a high growth market; (2) The acquisition of HVL would increase sources of revenue of the Company and geographically diversify the risks associated with a specific country. The Company s strong reliance on the Thai Market would be reduced as sales to customers outside Thailand would be increased; (3) HVL has best-in-class asset base, strong distribution network and strong historical financial performance; (4) Investment in HVL is expected to create potential synergies to the existing operations of SCCC such as vertical integration with SCCC s clinker, expanding SCCC s existing products into Vietnam market, and scale benefits from shared procurement and services; (5) The Company s competitiveness is enhanced in terms of higher revenue generating capability, enhancing the competitive cost position, and the reduction of dependence on conventional export markets; (6) If the Pre-Closing Date occurs at the end of December 2016 to 8 June 2017, the Closing Price for 65 percent of the total charter capital of HVL will be in the range of EUR 479 million to EUR 493 million (or equivalent to THB billion to THB billion 1 ). The range of the Closing Price is in the range of appropriate valuation of THB billion to THB billion estimated by the IFA using DCF, forward EV/EBITDA multiple, implied EV/EBITDA multiple, and implied EV/ton multiple approaches. Please see details on the Fairness of the Acquisition Price in Section 3 Fairness of the Acquisition Price and Conditions.; and (7) Terms and conditions of the acquisition of 65 percent of the total charter capital of HVL are fair, appropriate and protect the benefits of SCCC. The Transaction s deal structure as well as terms and conditions set out in CCTA are reasonably in line with general market practice and enable SCCC to continue managing HVL s business smoothly after the Transaction. Please see details on the Fairness of the Transaction conditions in Section 3 Fairness of the Acquisition Price and Conditions. Therefore, the IFA recommends the shareholders to approve the Transaction. However, in making their decisions, the shareholders should consider the disadvantages and risks of entering into the Transaction before casting the vote. Please see details in Section 2 under Disadvantages of entering into the Transaction and 2.3 Risk of entering into the Transaction. Disadvantages of entering into the Transaction (1) As the Company plans to finance the Transaction by using 1-year bridging loan of up to USD 580 million (or equivalent to THB 20,190 million 2 ) from BTMU, interest bearing debts and interest expenses of the Company are expected to increase which will result in higher Net IBD/E and D/E ratios. Given the existing loan covenant of the debentures of not more than 2 times Net IBD/E, the Company might breach the loan covenant in the future. In addition, the Company s consolidated earnings may be impacted as a result of higher interest expense. However, the loan covenant is tested twice a year which are every 30 June and 31 December. For the 1-year bridging 1 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per EUR 1 2 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per 1 USD Section 4 Page 1

60 loan from BTMU to fund this Transaction, the Company plans to drawdown early 2017 and it is expected that the Company may refinance this loan with a combination of long-term debt and equity in the near future. However, such capital raising plan is under consideration of management, and the amount and means of capital increase is subject to approval from the Board of Directors of the Company and final approval from the shareholders meeting of the Company. If the Company is unable to raise capital, or raise capital in an insufficient amount, by 30 June 2017, the Company is at risk of breaching bond s covenants; (2) Potential control and earnings dilution to SCCC s shareholders from refinancing the bridging loan using a combination of long-term debt and new equity. However, as of the date of the IFA Report, the long-term capital structure and size of capital increase have not yet been determined. The amount and means of capital increase, if any, shall require the approval by the board of directors and the final decision is subjected to the approval of the shareholders meeting of SCCC; (3) The ability of SCCC to pay or maintain dividend payment in the short-term could be impacted in case that funding cost of the acquisition loan is higher than earnings/returns from the investment in HVL. However, as aforementioned, the bridging loan is temporary and should be refinanced by long-term debt and equity injection to attain an appropriate capital structure, which shall reduce the impact of funding costs and restore the Company s dividend payment capability in the future; (4) Impact from the accounting of goodwill recorded in the Company s financial statements in accordance with the TFRS 3: Business Combinations. The Company shall be required to appraise and allocate the purchase price into various assets and liabilities acquired from the Transaction at their fair values at the acquisition date. Goodwill represents future economic benefit that the acquirer expects to obtain from acquiring assets. As of the date of the IFA Report, the Company has not yet engaged an independent asset appraiser to appraise a fair value of acquisition price or equity value of HVL. Consequently, the IFA cannot determine an accounting impact of recognizing goodwill arising out of this Transaction on the Company s financial statement. In addition, if the Company records goodwill arising out of this Transaction on its consolidated financial statement, after the Transaction is completed, there is a chance that the Company may assess impairment on goodwill or a chance that the Company may record impairment on goodwill on its consolidated financial statement. Risks of entering into the Transaction (1) SCCC plans to finance the acquisition by using 1-year bridging loan of up to USD 580 million (or equivalent to THB 20,190 million 3 ) from BTMU and the Company has existing loan covenant of the debentures of not more than 2 times Net IBD/E which is tested twice a year which are every 30 June and 31 December. Hence, there is a risk of having limited financial flexibility or breaching its existing covenant of the debenture in the future. According to the interview the management of the Company, the Company plans to drawdown the aforementioned bridging loan early 2017 and may refinance this with a combination of long-term debt and equity in the near future. However, such capital raising plan is under consideration of management, and the amount and means of capital increase is subject to approval from the Board of Directors of the Company and final approval from the shareholders meeting of the Company. If the Company is unable to raise capital, or raise capital in an insufficient amount, by 30 June 2017, the Company is at risk of breaching bond s covenants. Therefore, the Company may have to immediately repay to the bondholders the outstanding amount of principal plus interest at that time, which will materially affect the Company s financial position and may affect the Company s credit rating and the ability to issue new bond in the future. 3 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per 1 USD Section 4 Page 2

61 (2) SCCC will be more exposed to foreign exchange risk with respect to sales, expenses, profits, assets and liabilities which are denominated in VND and dividend received from HVL which is declared in VND and is distributed to SCCC in USD. In addition, the 1-year bridging loan in the amount of USD 580 million (or equivalent to THB 20,190 million 4 ) is denominated in USD or a dual THB/USD facility. Therefore, any changes to the foreign exchange currency could impact SCCC However, as of the date of the IFA Report, the Company is considering hedging against such foreign exchange rate risk; (3) During the transition of majority ownership changeover, SCCC faces the risk that HVL s performance could be adversely impacted if, for example (1) brand transition from existing brands to new brands may not be smooth or the new brands cannot command the same price premium in the medium term, and (2) interruptions in the supply of raw materials and services during the transition may materially adversely affect HVL s business, financial condition, results of operations and prospects; (4) Risk from unexpected adverse performance of HVL which may arise from internal and external factors such as unstable industry, economic, political or social conditions, civil unrest in Vietnam; increased competition from local or international companies, particularly in case that they may have greater financial resources than SCCC has; inability to realize economies of scale and expected synergies; inability to maintain effective costs controls; foreign ownership restrictions; restrictions on the import or export of our products or raw materials used in our products, etc.; (5) HVL and the Company did not have the value of HVL s fixed assets appraised by an independent asset appraiser. Thus, there is a risk that the appraised value of fixed assets may be lower than the book value of such fixed assets. However, according to management interview, there is no need for such appraisal of the fixed assets as the assets are believed to be in a good working condition and fairly valued. Moreover, The Company and its financial advisor, the Hongkong and Shanghai Banking Corporation Limited, have considered that the discounted cash flow and EBITDA multiple methodologies should be the most appropriate methodologies for the valuation of the Transaction. The Company will arrange an asset appraisal of fixed assets and the valuation estimation of net assets of HVL that will be required under TFRS 3: Business Combination after the Transaction is completed. (6) A number of risks and uncertainties associated with operating in Vietnam such as the macroeconomic climate, including high rates of inflation, and levels of cement consumption in these markets, excess supply of cement in Vietnam, difficulty competing against competitors who may have greater financial resources and/or a more effective or established localized business presence. These types of risks and uncertainties, many of which are beyond the Company s control, could have a material adverse effect on the Company s business, results of operations, financial condition and prospects; and (7) Last but not least, as HVL shares are not listed on the stock exchange, SCCC will have limited liquidity for this investment as the shares cannot be bought or sold quickly enough to prevent or minimize a loss. Based on the above rationale, the IFA has an opinion that the shareholders should vote in favor of the entering into the Transaction; however, the decision making of approving or not approving the Transaction is to be made at the shareholder s own discretion. The shareholders are advised to study the information and consider reasons, advantages, disadvantages, risk factors, limitations and opinions on the factors relating to the entering into Transaction attached hereto before casting a vote to ensure that you are able to consider and approve the entering into Transaction in an appropriate manner. 4 The exchange rate used in the calculation is the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per 1 USD Section 4 Page 3

62 BLS as the IFA of the Company has performed the study and analysis with due care in accordance with the professional standard and has provided the opinion based on the fair analysis of information by taking into consideration the benefits of all shareholders. The opinion of the IFA is based on the information which has been received from the Company, as well as interviews and site visit with the Company s management and employees, and publicly available information and other relevant documents. The IFA assumes that all information and documents received are reliable, complete and accurate at the issuance date of the IFA Report. Therefore, if the said information is incorrect and/or is not truthful and/or has been significantly changed in the future, it will affect the opinion of the IFA. Therefore, the IFA is unable to certify or warrant the future impact that may arise to the Company and the shareholders. In addition, the opinion of the IFA is only to provide comments to the shareholders, and providing this opinion does not warrant the accomplishment of the Transaction and any impact from the Transaction to the Company. Sincerely yours, Bualuang Securities Public Company Limited Mrs. Yaowadee Nakhata (Mrs. Yaowadee Nakhata) Director Mr.Pichet Sithi-Amnuai (Mr. Pichet Sithi-Amnuai) Director Miss Nicha Tayjasanant (Miss Nicha Tayjasanant) Operational Controller Section 4 Page 4

63 Appendix 1: General Information of Holcim (Vietnam) Company Limited 1.1 Company Background Holcim (Vietnam) Company Limited, previously known as Morning Star Cement Limited, was established in 1994 under a Joint Venture contract between Hatien I Cement Company ( HT I ) and Holderbank Financiere Glaris Limited ( Holderbank ), currently is LafargeHolcim Limited. As of 31 May 2016, HVL s registered charter capital was VND 3, billion or equivalent to approximately THB 4, million 1, of which LH and VICEM hold shares in an amount of 65.0 percent and 35.0 percent, respectively. HVL is now known as a leader manufacturer and supplier of cement and ready mixed concrete in Southern Vietnam. In 2015, HVL s operations have been augmented by the acquisition of LCV s business in Vietnam as part of the global merger between Lafarge S.A. and Holcim Limited Key Milestones 1993 : Hatien I and Holderbank entered into a Joint Venture contract for an establishment of Morning Star Cement Limited 1994 : Morning Star Cement Limited was established in accordance with the Investment License 1996 : Start-up of Cat Lai grinding station with maximum packing and dispatch capacity of 4.1 million ton per annum and cement blending/grinding capacity of 0.5 million tonnes per annum 1999 : Start-up of Hon Chong integrated plant with cement grinding capacity of 1.4 million ton per annum 2001 : Process modifications in Hon Chong plant to increase cement grinding capacity to 2.3 million ton per annum 2002 : Morning Star Cement became Holcim (Vietnam) Limited HVL switches from its old brand from SAO MAI to Holcim 2005 : Start-up of operations in Thi Vai grinding station with cement grinding capacity of 1.6 million ton per annum 2006 : Legal capital of 35.0 percent in the HVL was transferred from HT I to VICEM 2008 : HVL transformed into a limited liability company with two or more members HVL purchased Hiep Phuoc grinding plant with cement grinding capacity of 1.1 million ton per annum 2012 : Waste Heat Recovery System installed in Hon Chong 2015 : Acquisition of share capital of LCV and LCV becomes a fully owned subsidiary of HVL HVL has added one grinding plant called Nhon Trach grinding plant with a capacity of 0.8 million ton per annum as a result of merger of LCV 1 THB translation assumed 1 VND = THB with reference to the average of the selling rate and buying rate available on the Bank of Thailand s website on August 3, Appendix 1 Page 1

64 1.1.2 Companies that HVL holds more than 10 percent shares As of 31 May 2016, legal entity which HVL owns at least 10 percent shares is as follows: Company Lafarge Cement Limited Liability Company Source: Note: Percentage of Ownership Interest (percent) Charter Capital VND 812,131,485,975 or equivalent to approximately THB 1,299 million (1) Type of Business Manufacture and sale of cement and ready-mix concrete The Company (1) Calculated using the average of the selling rate and buying rate determined by the BOT as of 3 August 2016 equal to THB per VND HVL s Business Description Currently, HVL operates five cement plants and seven ready mixed concrete batching plants. As of 31 December 2015, HVL has total cement production capacity of approximately 6.3 million tonnes per year, clinker production capacity of 1.4 million tonnes per year, and a ready-mixed concrete capacity of 1.3 million m 3 year. These plants are strategically located near major cement demand centers in Southern Vietnam. The first plant is Hon Chong grinding plant, which is a fully integrated plant with an annual cement grinding and clinker capacity of 2.3 million tonnes and 1.4 million tonnes, respectively. Limestone, slag and gypsum are major raw materials used in the plant. Hon Chong has a captive operational limestone and clay quarry located in close proximity to the plant. Thus, HVL can ensure high quality limestone with more than 30 years of proven reserves. Moreover, it is one of lowest cash costs producer per ton in LH Group in Asia Pacific (exclude China). Clinker and cement produced are transferred to other HVL s plants for further process and sell to third parties. Product portfolios of the plant are Holcim Top standard and Holcim Ready Flow. In addition, Hon Chong has a Waste Heat Recovery plant, which generates approximately 25.0 percent of electricity demand. Cat Lai grinding station is primarily used for blending and grinding mineral components and dispatching cement. Cat Lai has capacity for grinding and blending of 0.5 million ton per annum and dispatch capacity of 4.1 million ton per annum. Product portfolios of the plant are Holcim Top Standard and Holcim Ready Flow. Thi Vai grinding station and Hiep Phuoc grinding station has a grinding capacity of 1.6 million ton and 1.1 million ton per annum, respectively. Their product portfolios are Holcim Ready Flow, Holcim Top Standard and Holcim Slag Cement. Nhon Trach grinding station was formerly owned by LCV. It has grinding capacity of 0.8 million tonnes per annum. Its products are Ximang Lavilla and Xi mang Mascrete. In addition, the seven ready-mix concrete plants are located in Ho Chi Minh City, namely District 2, District 7, District 9 and Nha Be, with a combined annual capacity of 1.3 million m 3. All plants are equipped with controlled batching systems to guarantee concrete composition and quality. Appendix 1 Page 2

65 Figure A1.1 - Geographical Location of Key Operations Source: The Company The cement produced from HVL is sold in both bag and bulk under trademarks of Holcim, SAO MAI, LaVilla, Mascrete etc. However, some of trademarks owned by LH group, namely Holcim, Lafarge, LafargeHolcim, Ready Flow, Ready Flow + and Extra, can be retained for 6 months after the closing date of the transaction, according to draft TSA. HVL has a strong sales and distributors. As of 31 December 2015, HVL had 64 distributors serving its key markets through 7,200 retailers. 1.2 Members Council (equivalent to the Board of Directors) As of 31 May 2016, the Members Council of HVL is as follows: Name of Directors 1. Mr. Daniel Bach 1 Chairman 2. Mr. Tran Viet Thang 2 Vice Chairman 3. Mr. William Magennis 1 Member 4. Mr. Gary Schutz 1 Member 5. Ms. Beat Wafler 1 Member 6. Mr. Hoang Kim Cuong 2 Member Source: The Company Note: 1 Directors appointed by LH 2 Directors appointed by VICEM Position As of 31 December 2015, the Members Council of LCV is as follows: Name of Directors 1. Mr. Daniel Nikolaus Bach Chairman Source: The Company Position In this regard, the Company will assign the Company s directors and/or management to be directors at HVL after the completion of the Transaction. Pursuant to the conditions prescribed in the draft TSA, HVL will second high-level management from LH Group for a transitional period. However, the secondments are subject to further discussions with the LH Group. Appendix 1 Page 3

66 1.3 Dividend Policy After fulfilling all of the Joint Venture s obligations to the Government of Vietnam and setting up the Joint Venture s funds, the remaining net profits of the Joint Venture shall be distributed to the shareholders on an annual basis in accordance with the ratio of the contributions made by the shareholders to the Legal Capital at that time (adjusted pro rata to reflect ownership changes during the year) and provided that the actual amount of after tax profit to be distributed will be decided by the Board after giving due consideration to such matters as the need for debt reduction and future capital funding requirement. 1.4 Summary of Financial Statements and Operating Performance The following table provides a summary of financial information in accordance with (1) HVL s separated financial statements under IFRS audited by Ernst & Young Vietnam Limited for the Statement of Financial Position as at 31 December 2013, (2) HVL s combined financial statements using management accounts under IFRS, issued by PricewaterhouseCoopers AG (PwC Switzerland) in the Vendor Assistant report and further prepared by PricewaterhouseCoopers Limited, for the combined Statement of Financial Position as at 31 December 2014 and 2015 and the combined Income Statement and Cash Flow Statement for the years ended 31 December 2013, 2014 and The combined financial statements were prepared for illustration of the merger between HVL and LCV in 2015 only. and (3) Interim consolidated financial statements for the five-month period ended 31 May 2016 under IFRS, which is audited by Ernst & Young Vietnam Limited for the purposes of the locked box mechanism. In this regard, the details in the interim consolidated statement of profit or loss and other comprehensive and interim consolidated statement of cash flows for the five-month ended 31 May 2016 are comparing profit or loss and cash flow between twelve-month period ended 31 December 2015 and five-month ended 31 May Moreover, the IFA has no information regarding the five-month ended 31 May Thus, the IFA cannot provide an explanation on operating performance for the five-month ended 31 May 2016 comparing with 31 May 2015 in the following section. Statement of Financial Position (Unit: VND bn) As at December For the fivemonth ended 31 May 2016 Current Assets Cash and Cash equivalents Inventories Trade and other receivables Supplier advances Other current assets Total current assets 1,201 1,045 1, Non-current assets Property, plant and equipment ( PP&E ) 4,723 5,043 4,494 4,353 Construction in progress Intangible assets Goodwill Deferred tax assets Other non-current assets Total non-current assets 5,354 5,670 5,377 5,379 Total Assets 6,555 6,715 6,404 6,265 Current liabilities Trade and other payables Short-term borrowing Customer advances Other current liabilities Total current liabilities 1,295 1,290 1,633 1,959 Non-current liabilities Long-term borrowing 1,945 1, Deferred tax liabilities Other non-current liabilities Total non-current liabilities 2,131 1,784 1, Total liabilities 3,425 3,074 2,747 2,550 Appendix 1 Page 4

67 Statement of Financial Position (Unit: VND bn) As at December For the fivemonth ended 31 May 2016 Shareholders' equity Contributed charter capital 3,039 3,852 3,039 3,039 Retained earnings , Currency translation reserve - (347) (367) - Other reserves (114) (114) (113) (114) Total shareholders' equity 3,129 3,641 3,657 3,714 Total liabilities and shareholders' equity 6,555 6,715 6,404 6,264 Note: The statement of financial position as at 31 December 2013 is in accordance with HVL s separated financial statements under IFRS. As the Vender Assistance Report does not have a completed composition of the statement of financial position as at 31 December The statements of financial position as at 31 December 2014 and 2015 are in accordance with HVL s combined financial statements. The statement of financial position as at 31 May 2016 is in accordance with HVL s interim financial statements prepared under International Financial Reporting Standards. Combined Income Statements (Unit: VND bn) For the year ended December For the fivemonth ended 31 May 2016 Net sales 5,126 4,997 5,667 2,276 Cost of goods sold (3,646) (3,535) (3,719) (1,491) Gross profit 1,480 1,463 1, Selling expense (192) (157) (125) (94) General administrative expense (251) (278) (312) (98) Other operating incomes EBITDA 1,037 1,027 1,511 N.A. Depreciation and amortization (419) (445) (626) N.A. EBIT Net finance expense (136) (197) (132) (44) Other expenses (139) (104) (129) 0 Net income before tax Income tax (56) (44) (87) (61) Net income after tax Combined Cash Flows Statements (Unit: VND bn) For the year ended December For the fivemonth ended 31 May 2016 Net cash provided by operating activities 1,037 1,257 1, Net cash provided by (used in) investing activities (264) (336) (225) (28) Net cash provided by (used in) financing activities (764) (901) (1,591) (542) Net increase (decrease) in cash and cash equivalents 9 22 (60) (34) Note: 1 The income statements and cash flow statements for year ended 31 December 2013, 2014, and 2015 are in accordance with HVL s combined financial statements. The income statement and cash flow statement for five-month ended 31 May 2016 are in accordance with HVL s interim financial statement for five-month ended 31 May 2016 under International Financial Reporting Standards. Appendix 1 Page 5

68 Financial Ratio As of and for the year ended December For the fivemonth ended 31 May 2016 Liquidity Ratios Current Ratio (times) Quick Ratio (times) Cash Flow Liquidity Ratio (times) N.A Accounts Receivable Turnover (times) N.A ,3 Average Collection Period (days) N.A Inventory Turnover (times) N.A ,3 Inventory Days (days) N.A Accounts Payable Turnover (times) N.A ,3 Accounts Payable Days (days) N.A Cash Cycle (days) N.A. 1 (13) (27) Profitability Ratios Gross Profit Margin ( percent) Operating Profit Margin ( percent) Cash Flow to Income Ratio ( percent) Net Profit Margin ( percent) Return on Equity ( percent) N.A Efficiency Ratios Return on Total Assets ( percent) N.A ,3 Return on Fixed Assets ( percent) N.A ,3 Total Assets Turnover (times) N.A ,3 Financial Policy Ratios Debt to Equity Ratio (times) Interest Coverage Ratio (times) N.A. N.A. N.A Cash flows from operating activities to capital expenditure ratio (times) Note: 1 The statement of financial position as at 31 December 2013 is in accordance with HVL s separated financial statements under IFRS. However, the combined Income Statement and Cash Flow Statement for the years ended 31 December 2013 are in accordance with combined financial statements. Thus, some of the financial ratios cannot be calculated. 2 Calculated by annualizing items in the Income Statements for the five-month ended 31 May Calculated by using average value of items in the financial position, which is in accordance with interim consolidated statement of financial position as at 31 December 2015 and 31 May Explanation and Assessment of Financial Statements and Overall Operating Performance Revenue Net Sales Breakdown of Net Sales For the year ended December 31 (Unit: VND bn) Cement 4,585 4,620 5,127 RMX RMX Pumping services Others Total Net Sales 5,126 4,997 5,667 The combined HVL and LCV net sales are VND 5,126 billion, VND 4,997 billion and VND 5,667 billion in 2013, 2014 and 2015, respectively. The net sales are primarily driven from cement sales, which accounted for percent, percent and percent in in 2013, 2014 and 2015, respectively. The consolidated net sales is VND 2,276 billion for the five month ended 31 May Net sales decreased by 2.52 percent in 2014 due to decrease in sales volumes and average selling price of ready-mixed concrete as the slowdown in real estate segment. However, net sales increased in 2015 by percent from the recovery of infrastructure and real estate construction activities in the Southern Vietnam. This was witnessed by the increase in both sales volume and average selling price of RMX and increase in volume of cement, while average selling price remained relatively stable. Appendix 1 Page 6

69 Expense Cost of Goods Sold and Gross Profit Margin The combined HVL and LCV cost of goods sold are VND 3,646 billion, VND 3,535 billion and VND 3,719 billion in 2013, 2014 and 2015, respectively. The gross profit margins are percent, percent and percent in 2013, 2014 and 2015, respectively. The decrease in cost of goods sold in 2014 comes from the lower sales volume of ready-mixed concrete, which surpassed an increase in cement raw material price. Similarly, gross profit margin in 2015 improved due to cost saving initiatives, lower cement raw materials cost and lower fuel cost. The consolidated cost of goods sold is VND 1,491 billion for the five month ended 31 May 2016, which gross profit margin is in line with 2015 margin. Selling and General Administrative Expenses Selling and general administrative expenses are VND 443 billion, VND 435 billion and VND 437 billion in 2013, 2014 and 2015, respectively. SG&A has improved over the period due to a reduction in promotion and advertising expense due to slowdown of the industry, personnel cost and reduction in rental rates for offices (excluding the one-off expense incurred from merger between HVL and LCV in 2015). The consolidated SG&A is VND 193 billion for the five month ended 31 May Assets PP&E, trade and other receivables, and inventories are major components of the Company s asset. Total asset value of HVL is VND 6,555 billion in 2013 and the combined asset value of HVL and LCV are VND 6,715 billion, VND 6,404 billion and VND 6,265 billion in 2014, 2015 and as at 31 May 2016, respectively Working Capital In 2015, the cash cycle day improved by 14 days from 1 day in 2014 to (13) days in This is mainly due to an efficient cash collection; also HVL has a policy to maintain low stock level. In addition, trade payable balance increased as (1) increased balance of CAPEX payable (2) extended credit terms especially from selected supplier and (3) improved negotiation power with raw materials and transportation suppliers as a result of increased purchased volumes. Moreover, the cash cycle day for the five-month period ended 31 May 2016 is (27) days Property, plant and equipment PP&E are the largest asset of HVL at amounted to VND 4,723 billion, accounting for percent of that total asset in 2013 and the largest asset of combined HVL and LCV at amounted to VND 5,043 billion and VND 4,494 billion or percent and percent of total asset value in 2014 and 2015, respectively. The sharp decrease in 2015 is as result of the disposal of a ship which use for transferring cement between its plants. However, in each year most of CAPEX is for maintenance to sustain the existing production line and plants. In addition, PP&E, the largest asset composition, as at 31 May 2016 is VND 4,353 billion or percent. For the first five months in 2016, HVL purchased in PP&E approximately VND 28 billion. Appendix 1 Page 7

70 Liabilities Total liabilities of HVL are VND 3,425 billion in 2013, which consists of long-term borrowing of VND 1,945 billion. In addition, total liabilities of combined HVL and LCV are VND 3,074 billion and VND 2,747 in 2014 and 2015, respectively, which long-term borrowing is VND 1,580 billion and VND 900 billion in 2014 and 2015, respectively. The decrease in liabilities was mainly from the debt repayment in 2014 and In addition, total consolidated liabilities as at 31 May 2016 is VND 2,550 billion, which has no materially change from previous year ended Shareholders Equity Total shareholders equity of HVL is VND 3,129 billion in In addition, total shareholders equity of combined HVL and LCV are VND 3,641 billion, VND 3,657 and VND 3,714 billion, in 2014, 2015 and as at 31 May 2016, respectively. The increase in equity is mainly due to increased retained earnings of HVL and less incremental net loss from LCV during the year Liquidity Combined HVL and LCV s net cash from operating activities are VND 1,037 billion, VND 1,257 billion, VND 1,756 and VND 536 billion, in 2013, 2014, 2015 and the first five month in 2016, respectively. The increase is mainly driven from improvement of EBITDA and more efficient net working capital management, stricter collection policy on customers, low inventory level and extended credit term.. Combined HVL and LCV had net cash used in investing activities of VND 264 billion, VND 336 billion, VND 225 and VND 28 billion, in 2013, 2014, 2015 and the first five month in 2016, respectively. Key investing activity in 2013 and 2014 is the maintenance CAPEX, while in 2015 HVL mainly invested in production volume of packing and dispatch capacity in Hon Chong plant. In addition, net cash used in financing activity are VND 764 billion, VND 901 billion, VND 1,591 and VND 542 billion, in 2013, 2014, 2015 and the first five month in 2016, respectively. The cash was used for loans repayments to financial institutions and related parties and dividend payment to the shareholders. 1.5 Industry Overview According to the Organization for Economic Cooperation and Development ( OECD ), Vietnam is one of the fastest growing economies in the Southeast Asia region with 5.4 percent average real GDP growth during Vietnam s real GDP growth is expected to grow at annual average rate of 6.0 percent in , which is the highest among ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam). The robust growth has been led by a rapid acceleration of strong foreign direct investment inflow, expansion of urbanization rate and robust consumption. The private sector s performance has improved, with strong retail sales growth, while Vietnam s net exports have restrained overall growth as a result of strong imports. In addition, Vietnam has entered into more free trade agreements with Eurasian Economic Union, the European Union and South Korea, together with the integration on ASEAN Economic Community which will enhance the country to integrate into regional and global economies and increase the investment flow to the country. Appendix 1 Page 8

71 Figure A1.2 Real GDP Growth of ASEAN Country (avg.) (avg.) ASEAN-5 Indonesia Malaysia Philippines Thailand Vietnam Brunei Darussalam and Singapore Brunei Darussalam Singapore CL countries Cambodia Lao PDR Source: OECD Development Centre Figure A1.3 Real GDP Growth of Vietnam in Real GDP growth of Vietnam Real GDP growth of Vietnam Real GDP growth of Vietnam Source: World Bank The foreign direct investment ( FDI ) substantial increased during the past decade as Vietnam has a low production cost, lower trade barriers and lucrative tax arrangements. The key FDI investors are South Korea and ASEAN countries, which accounting for 30 percent and 18 percent of total FDI in 2015, respectively. However, it is expected that in 2016 ASEAN, namely Singapore and Malaysia will take up approximately 30 percent of total FDI. The key destinations of investment are Hanoi, Ho Chi Minh City and Dong Nai as these localities have well-developed infrastructure and concentration of talent and resources in areas. The growth in FDI will enhance industrial activity, which consequently, will increase infrastructure and residential construction activities throughout the area. Figure A1.4 Value of FDI 14,000 12,000 11,800 USD mm 10,000 8,000 6,700 9,579 7,600 8,000 7,430 8,368 8,900 9,200 6,000 4,000 2,000 1,300 1,400 1,450 1,610 1,954 2, Source: World Bank As of mid of 2016, Vietnam had population of 93 million, which is the third most populous country in ASEAN. Hanoi, Ho Chi Minh City and Haiphong, are the three largest urban areas in Vietnam. The population in Vietnam has been forecasted to reach 108 million in (Source: Population Reference Bureau and General Statistics of Vietnam) Appendix 1 Page 9

72 Urbanization is another key factor that enhances Vietnam s economic growth and expansion of the infrastructure. According to the Statistica, Vietnam s urban population ratio is percent in 2015, which has been continuously growing during the past decade. The General Statistics of Vietnam has been forecasted that the population in Vietnam will be continuously growing to percent in 2020 and to percent in Figure A1.5 Urban Population Ratios of Vietnam 35% 30% 27.28% 27.89% 28.50% 29.13% 29.76% 30.39% 31.03% 31.67% 32.31% 32.95% 33.59% 25% 20% 15% 10% 5% 0% Source: Statistica Figure A1.6 Future Urban Population Ratios of Vietnam 70% 60% 50% 40% 36.19% 40.37% 44.03% 47.75% 51.50% 55.23% 58.18% 30% 20% 10% 0% Source: General Statistics of Vietnam Cement Industry in Vietnam Vietnamese cement industry consists of three key players, which are Vietnam National Cooperation, Joint Venture companies and small players with a market share in 2015 of 39 percent, 27 percent and 35 percent, respectively. Specifically, Southern Vietnam s cement market is more concentrate than the North and Central as a result of raw materials shortage. HVL, the cement manufacturer in southern Vietnam, holds a second market share of approximately 20 percent of total cement sales in Southern Vietnam, which behind only the VICEM. By considering demand and supply of vietnamese cement industry, it continues to experience an excessive oversupply for domestic consumption with the utilization rate of 60 percent, despite the strong growth in domestic cement demand of 14 percent in Furthermore, the demand for cement is continuously increasing from many cement projects have been taken out of the national plan, improvement in the Vietnamese real estate market and higher urbanization rate. According to Ministry of Construction expects that cement market in Vietnam will have a positive trend as shown in the first four months of 2016; 19.9 million tonnes of Appendix 1 Page 10

73 cement was sold in the domestic market, an increase of 17.4 percent year-on-year. Meanwhile, cement exports remained stable with 5.2 million tonnes. This is in line with information stated in A Summary of South East Asia Infrastructure Spending: Outlook to 2025, PwC report. Vietnam s infrastructure spending is expected to be USD 56 billion by 2025 with growth rate of around 9 percent per annum, namely in transportation and manufacturing sectors. Figure A1.7 Vietnam Cement Consumption Million Tons Total Domestic Production Cement Consumption Source: StoxPlus from VNCA Figure A1.8 Forecast Infrastructure Spending in Vietnam Total Infrastructure Spending per year Infrastructure Spending By Broad Sector Transportation Infrastructure Investment Source: PwC, A Summary of South East Asia Infrastructure Spending: Outlook to 2025 Appendix 1 Page 11

74 Figure A1.9 Flow of Clinkers in Southern Vietnam Source: StoxPlus Vietnam has an imbalance demand and supply of cement and clinker among the regions. In the Northern and Central Vietnam experiences an oversupply and is expected to be oversupply for the next ten years. However, Southern Vietnam faces an undersupply of clinker. Limestone, major raw materials for clinker production, is concentrated in the Northern and Central Vietnam. Thus, the clinker production in Southern Vietnam has to be supplied from the North and Central regions or import from neighbering countries. Moreover, the gap between demand and production capability of clinker in the South continuously increases. The shortage of raw materials cuases the South to enjoy selling price premium. The retail cement price in 2014 in the South is USD 75 per ton compared to USD 59 per ton in the Central and North. Figure A1.10 Clinker Capacity and Domestic Demand by Location, North Central South Whole Country Capacity Demand Unbalance -8.5 Source: StoxPlus from VNCA Appendix 1 Page 12

75 Figure A1.11 Annual Cement Capacity vs. Demand in South Vietnam Million Tons F 17F 18F 19F 2020F 5 0 Local Clinker Cements Non Local Clinker Cements Planned Capacity Demand Source: StoxPlus Figure A1.12 High Cement Retail Price in Southern Vietnam (MT, USD, 2014) mt % % US$/t 0 South Center and North 0 Demand Capacity Cement Price % of demand to capacity Source: Public Sources Appendix 1 Page 13

76 Appendix 2: General Information of Siam City Cement Public Company Limited 2.1 Company Background Siam City Cement Public Company Limited was founded in 1969 with initial registered capital of THB 100 million. SCCC is one of Thailand s leading cement manufacturers and ready-mixed concrete and aggregates producer. SCCC also involves in architectural decorative materials, lightweight concrete products and other supporting businesses. As of 31 December 2015, SCCC has a cement production capacity of 14.5 million tons per year, which is the second largest cement producer in Thailand. SCCC was the first Thai cement producer to substitute imported bunker oil with lignite coal in production process and to introduce a Waste Heat Recovery System in the production of electricity to lessen consumption on oil, which is the main cost of cement production Key Milestones 1969 : SCCC was founded on 16 May : Cement production started 1977 : SCCC became a listed company on the Stock Exchange of Thailand 1981 : SCCC was the first Thai cement producer to substitute imported bunker oil with lignite coal in the production process 1989 : SCCC became the first cement producer in SEA to introduce a Waste Heat Recovery System in the production of electricity for its own production process 1993 : SCCC became a fully listed company and renamed to Siam City Cement Public Company Limited 1998 : Holcim Limited through their subsidiaries; Thai Roc-Cem Compay Limited and HOLDERFIN B.V., became SCCC shareholders 1999 : Company restructuring was completed with the capital increased to THB 3 billion 2012 : Thai Roc-Cem Company Limited and HOLDERFIN B.V. sold their holdings in SCCC to Bangkok Broadcasting & Television Company Limited, a company in the Ratanarak Group, resulting in an increase of the Ratanarak Groups s holding in SCCC to 104,360,727 shares or approximately percent : The Company acquired Superblock Public Company Limited, light-weight block plant in Singburi Province and Prosperity Concrete Company in Rachaburi province 2015 : The Company s shareholding structure was adjusted to reflect Jardine Matheson Group s acquisition of percent of shares in SCCC through Jardine Cycle & Carriage Ltd., its Singapore-listed subsidiary. SCCC invested with a 40 percent stake in joint venture, Chip Mong INSEE cement Corporation in the Kingdom of Cambodia to build the most modern cement plant in the country 2016 : SCCC acquired 100 percent interests in Globe Cement Company Limited, previously known as Cemex (Thailand) Company Limited, and Siam City Cement (Bangladesh) Limited, previously known as Cemex Cement (Bangladesh) Limited INSEE Ecocycle Company Limited, a fully owned subsidiary of the Company, purchased some part of assets and business of Valence Corporation Limited Siam City Concrete Company Limited, a wholly-owned subsidiary of the Company, acquired percent interests in Holcim (Lanka) Limited (currently known as Siam City Cement (Lanka) Limited ) Appendix 2 Page 1

77 2.1.2 Securities Issued by SCCC As of 30 September 2016, SCCC s register capital was THB 2,800,000,000, of which 280,000,000 shares were ordinary shares with a par value of THB per share. The Company s paid-up capital was THB 2,300,000,000, of which 230,000,000 shares were ordinary shares with a par value of THB per share. In addition, as of 30 September 2016, the Company has the following debentures: Appendix 2 Page 2

78 Unsubordinated and Unsecured Debentures of Siam City Cement Public Company Limited No. 1/2556 Tranche 1 due B.E Bond type : unsubordinated, unsecured and no discount debentures with a name-registered debenture certificate Distribution : Institutional investors plus high net worth investors Issue size : THB 4,000 million Initial par : THB 1,000 Current par : THB 1,000 Issue term : 4 years Issue date : 14 June 2013 Maturity date : 14 June 2017 Coupon rate : Fixed 3.79 percent per annum Repayment : Repayment in full on the maturity date Interest payment : Every 6 months on 14 June and 14 December of each year. The first interest payment is on December 14, The last interest payment is on the maturity date Residual value : THB 4,000 million Redemption : The issuer can redeem the debenture on the maturity date by repaying in full to the bondholder. The bond issuer cannot redeem the bond prior the maturity date. The bondholder cannot demand the bond issuer to redeem the bond prior the maturity date. Bond buyback : Issuer has the right to buy back its debenture from the secondary market or other markets at anytime and anyplace. However, if the issuer tenders its debenture in general public, the issuer must make a tender offer from every bondholder according to the offered portion on fair basis. After completion of the tender offer, thereby the Company s liabilities on the debenture will be legally terminated. The issuer will not be able to offer the aforementioned debenture anymore. The issuer must report the buy back to the bond registrar for terminating the tendered debentures. In addition, the issuer shall notify the buy back to the secondary market and the SEC as soon as possible. In this regards, this will have to follow any relevant notification by authorities and governing law. Financial Covenants : SCCC shall at all times ensure that the ratio of consolidated net interest bearing debt to consolidated equity does not exceed 2.00 to The financial covenant will be tested at the end of each financial half-year and each financial year of SCCC. (please refer the definitions of specific items in the debenture filing in Rating : A/FITCH (on 11 April 2016) Appendix 2 Page 3

79 Unsubordinated and Unsecured Debentures of Siam City Cement Public Company Limited No. 1/2556 Tranche 2 due B.E Bond type : unsubordinated, unsecured and no discount debentures with a name-registered debenture certificate Distribution : Institutional investors plus high net worth investors Issue size : THB 2,000 million Initial par : THB 1,000 Current par : THB 1,000 Issue term : 7 years Issue date : 14 June 2013 Maturity date : 14 June 2020 Coupon rate : Fixed 4.30 percent per annum Repayment : Repayment in full on the maturity date Interest payment : Every 6 months on 14 June and 14 December of each year. The first interest payment is on 14 December The last interest payment is on the maturity date Residual value : THB 2,000 million Redemption : The issuer can redeem the debenture on the maturity date by repaying in full to the bondholder. The bond issuer cannot redeem the bond prior the maturity date. The bondholder cannot demand the bond issuer to redeem the bond prior the maturity date. Bond buyback : Issuer has the right to buy back its debenture from the secondary market or other markets at anytime and anyplace. However, if the issuer tenders its debenture in general public, the issuer must make a tender offer from every bondholder according to the offered portion on fair basis. After completion of the tender offer, thereby the Company s liabilities on the debenture will be legally terminated. The issuer will not be able to offer the aforementioned debenture anymore. The issuer must report the buy back to the bond registrar for terminating the tendered debentures. In addition, the issuer shall notify the buy back to the secondary market and the SEC as soon as possible. In this regards, this will have to follow any relevant notification by authorities and governing law. Financial Covenants : SCCC shall at all times ensure that the ratio of consolidated net interest bearing debt to consolidated equity does not exceed 2.00 to The financial covenant will be tested at the end of each financial half-year and each financial year of SCCC. (please refer the definitions of specific items in the debenture filing in Rating : A/FITCH (on 11 April 2016) Appendix 2 Page 4

80 Unsubordinated and Unsecured Debentures of Siam City Cement Public Company Limited No. 1/2559 Tranche 1 due B.E Bond type : unsubordinated, unsecured and no discount debentures with a name-registered debenture certificate Distribution : Institutional investors plus high net worth investors Issue size : THB 2,000 million Initial par : THB 1,000 Current par : THB 1,000 Issue term : 8 years Issue date : 29 April 2016 Maturity date : 29 April 2024 Coupon rate : Fixed 2.46 percent per annum Repayment : Repayment in full on the maturity date Interest payment : Every 6 months on 29 April and 29 October of each year. The first interest payment is on 31 October The last interest payment is on the maturity date Residual value : THB 2,000 million Redemption : The issuer can redeem the debenture on the maturity date by repaying in full to the bondholder. The bond issuer cannot redeem the bond prior the maturity date. The bondholder cannot demand the bond issuer to redeem the bond prior the maturity date. Bond buyback : Issuer has the right to buy back its debenture from the secondary market or other markets at anytime and anyplace. However, if the issuer tenders its debenture in general public, the issuer must make a tender offer from every bondholder according to the offered portion on fair basis. After completion of the tender offer, thereby the Company s liabilities on the debenture will be legally terminated. The issuer will not be able to offer the aforementioned debenture anymore. The issuer must report the buy back to the bond registrar for terminating the tendered debentures. In addition, the issuer shall notify the buy back to the secondary market and the SEC as soon as possible. In this regards, this will have to follow any relevant notification by authorities and governing law. Financial Covenants : SCCC shall at all times ensure that the ratio of consolidated net interest bearing debt to consolidated equity does not exceed 2.00 to The financial covenant will be tested at the end of each financial half-year and each financial year of SCCC. (please refer the definitions of specific items in the debenture filing in Rating : A/FITCH (on 11 April 2016) Appendix 2 Page 5

81 Unsubordinated and Unsecured Debentures of Siam City Cement Public Company Limited No. 1/2559 Tranche 2 due B.E Bond type : unsubordinated, unsecured and no discount debentures with a name-registered debenture certificate Distribution : Institutional investors plus high net worth investors Issue size : THB 2,000 million Initial par : THB 1,000 Current par : THB 1,000 Issue term : 10 years Issue date : 29 April 2016 Maturity date : 29 April 2026 Coupon rate : Fixed 2.70 percent per annum Repayment : Repayment in full on the maturity date Interest payment : Every 6 months on 29 April and 29 October of each year. The first interest payment is on 31 October The last interest payment is on the maturity date Residual value : THB 2,000 million Redemption : The issuer can redeem the debenture on the maturity date by repaying in full to the bondholder. The bond issuer cannot redeem the bond prior the maturity date. The bondholder cannot demand the bond issuer to redeem the bond prior the maturity date. Bond buyback : Issuer has the right to buy back its debenture from the secondary market or other markets at anytime and anyplace. However, if the issuer tenders its debenture in general public, the issuer must make a tender offer from every bondholder according to the offered portion on fair basis. After completion of the tender offer, thereby the Company s liabilities on the debenture will be legally terminated. The issuer will not be able to offer the aforementioned debenture anymore. The issuer must report the buy back to the bond registrar for terminating the tendered debentures. In addition, the issuer shall notify the buy back to the secondary market and the SEC as soon as possible. In this regards, this will have to follow any relevant notification by authorities and governing law. Financial Covenants : SCCC shall at all times ensure that the ratio of consolidated net interest bearing debt to consolidated equity does not exceed 2.00 to The financial covenant will be tested at the end of each financial half-year and each financial year of SCCC. (please refer the definitions of specific items in the debenture filing in Rating : A/FITCH (on 11 April 2016) Appendix 2 Page 6

82 2.1.3 Companies that SCCC holds more than 10 percent shares As of 30 September 2016, legal entities of which SCCC owns at least 10 percent shares are as follows: Percentage of Ownership Company Interest ( percent) Subsidiaries Cement Segment and Support Cement Operation Globe Cement Co., Ltd. ( Globe Cement ) Siam City Cement (Bangladesh) Ltd. ( SCCC (Bangladesh) ) Siam City Power Co., Ltd. ( SCP ) INSEE Ecocycle Co., Ltd. (formerly known as Energy and Environmental Services Co., Ltd.) ( INSEE Ecocycle ) Registered Capital Paid-up Capital Type of Business THB 701 mm THB 701 mm Cement manufacturing BDT 2,800 mm BDT 2,242 mm Cement manufacturing THB 2,000 mm THB 2,000 mm THB 400 mm THB 400 mm INSEE Digital Co., Ltd THB 100 mm THB 100 mm Siam City Cement (Lanka) Limited (formerly known as Holcim (Lanka) Limited) ( SCCC (Lanka) ) Concrete and Aggregates Segment Siam City Concrete Co., Ltd. ( SCCO ) INSEE Superblock Co., Ltd. ( INSEE Superblock ) Other Segments LKR 1,641 mm LKR 1,641 mm THB 2,500 mm THB 2,500 mm Electricity generation from waste heat Industrial waste disposal services Technical service and information technology management and development services Cement manufacturing, importing, selling, promoting and others and other related products Ready-mixed concrete and aggregates THB 500 mm THB 500 mm Light-weight block producer Conwood Co., Ltd THB 300 mm THB 300 mm PT. Conwood Indonesia (held by Conwood Co.,Ltd.) USD 78 mm USD 78 mm Associated Company Lanna Resources Plc. Ltd THB 525 mm THB 525 mm Coal Mining Joint Venture Company Chip Mong INSEE Cement Co., Ltd USD 60 mm USD 60 mm Investment Holcim Cement (Bangladesh) Co., Ltd BDT 270 mm BDT 270 mm Source: The Company s Form 56-1 as at December 31, 2015 and the Company SCCC s Business Description Architectural and decorative building material producer Architectural and decorative building material producer Cement manufacturing and trading Cement manufacturing and trading SCCC has grown in leaps and bounds and has expanded its business to cover many aspects of construction and energy. On the construction and construction material areas, SCCC has incorporated into its business SCCO, producer of ready-mixed concrete and aggregates, Conwood Co., Ltd. architectural and decorative building material producer, and INSEE Superblock, producer of light-weight blocks. In summary, the SCCC Group Company has 3 business operations, namely cement, concrete and sandstone, and other products and services Cement Products under SCCC In 2015, SCCC continued to improve products with top-of-the-class services with four key products: Portland cement, mixed cement, INSEE Mortar, INSEE Concrete Franchise. Appendix 2 Page 7

83 Portland cement: A quality product for standard concrete works, precast products, works that require high performance concrete and other special concrete works in sophisticated construction projects. Mixed cement: A high-quality, application-based product suitable for bricklaying, plastering and small concreting has been developed to satisfy the highest masonry standards. INSEE Mortar: Products that are easy to use and that offer convenience, speed and efficiency for all construction works which have been developed through continuous research. As a result, the Company offer a quality product range that is perfect for four application groups, including: Plastering mortar: for general plastering, fine plastering, light-weight block plastering, fine light-weight block plastering, concrete plastering and skim coating Brick laying mortar: For normal bricklaying and light-weight block brick laying Floor leveling: For floor screeding and leveling Tile adhesive: For general floor and wall application and high bonding application for large tiles as well as tile-to-tile application. INSEE Concrete Franchise: Ready-mixed concrete services by SCCO and its strategic partners, INSEE Concrete Franchise, continuously expand its integrated network to ensure customer convenience through nationwide coverage. With experience throughout the years, the Company has gained an in-depth understanding of its customer requirement, from homeowners to international contractors, which help INSEE Concrete improve its service quality and expertise to serve each of its customers specific needs. In May 2016, SCCC acquired all shares in Globe Cement and SCCC (Bangladesh). Globe Cement is a cement manufacturer in Thailand with a cement clinker plant having a capacity of 844,800 ton per year. SCCC (Bangladesh) is a cement manufacturer in Bangladesh with a cement clinker plant having a capacity of 520,000 ton per year. On 10 August 2016, SSSO acquired 164,065,201 ordinary shares or percent of the total paid-up capital of Holcim (Lanka) Limited (currently known as Siam City Cement (Lanka) Limited ). SCCC (Lanka) is the only clinker manufacturer operating a fully integrated cement plant with a capacity approximately 1.3 million ton per annum in Puttalam, Sri Lanka. Additionally, SCCC (Lanka) operates a cement grinding facility with a capacity approximately 1.0 million ton per annum and manages three terminals with packing capacities of 1.6 million ton per annum Concrete and Aggregates Products under SCCO SCCO is a professional producer of ready-mixed concrete and aggregates, offering reliable conventional products and value added solution for concrete works. It has two business units, comprising of INSEE Concrete and INSEE Aggregates. INSEE Concrete: One of leading ready-mixed concrete producers in Thailand with outstanding experience and world class expertise. Customer accomplishment is ensured through product development as well as production and service excellence. In 2015, INSEE Concretes batching plant network was widened throughout Thailand with a total of 97 plants and 800 mixer trucks, of which 700 trucks are 6-cubic-meter capacity and the remaining are small trucks or mini-mixers. The total concrete production was 3.7 million cubic meters, with high-value specialty product (value added product) accounting for as much as 20 percent. Appendix 2 Page 8

84 In the past year, INSEE Aggregates supply represented about 20 percent of aggregates used in the ready-mixed production process. Cement is another main raw material, occupying percent of the concrete mix. The total cement consumed was supplied solely by SCCC. INSEE Aggregates: INSEE Aggregates was established to support the expanding inhouse ready-mixed concrete business and external customers. The business strategy is to consistently provide quality sand and crushed rock while being backed by dependable supply chain management and logistic services that underpins the clients success. This is to serve a variety of customer requirements including concrete product manufacturing, land filling, and other construction applications. INSEE Aggregates has invested in privilege resources, referring to quality and location, in order to efficiently supply customers in the key markets, Greater Bangkok and the Eastern Seaboard. In 2015, there were four active operation sites as follows: 1. INSEE Suphanburi A quarry with a crushing plant with the total capacity of 2.0 million tons per year; 2. INSEE Ayudhya A sand pit with two production lines with the total capacity of 1.0 million tons per year; 3. INSEE Angthong A sand pit with the total capacity of 1.0 million tons per year; and 4. INSEE Chonburi A sand pit with the total capacity of 100,000 tons per year. (Operations shutdown since August 2015) Other Products and Services Lightweight Concrete Block Products under INSEE Superblock INSEE Superblock is a lightweight concrete products maker under the INSEE Superblock brand. INSEE Superblock products are AAC type (Autoclaved Aerated Concrete). The production processes could produce items with customized dimensions as required by customers. Products are suitable for all types of construction, such as factory, hotel, hospital, government building and infrastructure. INSEE Superblock is the distributor of SCCC s INSEE Mortar which is bundled with lightweight concrete products and some accessories for lightweight concrete product works such as metal straps. Architectural Decorative Materials under Conwood Company Limited and PT. Conwood Indonesia (collectively called Conwood ) Conwood is the manufacturer of the Conwood brand products of architectural decorative materials, which are made from high-quality Portland cement and cellulose fibers. Produced through advanced and environmentally-friendly technology from Switzerland, all products are of a unique quality, combining beauty, durability and other appealing attributes such as being weatherproof, termite-resistant, non-combustible, and perfect for use like real wood. Production of Conwood currently takes place at a production facility that is equipped with three production lines and a combined annual production capacity of 135,000 tons. In addition to the Thailand - based production lines, the Company are also operating a modern production facility in Indonesia, PT. Conwood Indonesia, where the products have also been divided into four groups like those produced in Thailand. The Indonesian factory started operations in 2014 to serve the local market and to act as an important base for exports to other countries. Appendix 2 Page 9

85 Waste Management Services under INSEE Ecocycle INSEE Ecocycle is the waste management trademark of SCCC Group Company. The Company provides its business partners and stakeholders with insight and peace of mind by offering sustainable waste management in a sincere and trustworthy manner and protects customer reputation. Electricity Generation from Hot Air Waste in a Cement Production Process under SCP SCP runs the business of generating electricity from hot air waste in a cement production process. Two portions of the hot air one left from the kiln s clinker-cooler room and the other from the pre-heater tower in the clinker production process at Kiln No. 5 and Kiln No. 6 production lines of SCCC are put in a heat exchange, with a maximum production capacity of 18 megawatts per production line. Previously these two portions of hot air were of no use. Information and Digital Technology Services under INSEE Digital Company Limited INSEE Digital Company Limited is a subsidiary of SCCC that was established in 2013 to offer complete information and digital technology services to all SCCC subsidiaries. In the future, INSEE Digital Company Limited is expected to expand its services to other customers outside the Company, particularly its business partners. INSEE Digital is an industrial partner for all businesses, helping them to apply IT and digital technology in their operations in order to create business differentiation and a competitive edge in the cement industry and the construction materials business SCCC s Revenue Structure Revenue structure of SCCC and its subsidiaries for the year and nine-month ended 30 September 2016 are as follows: For the year ended December 31 For nine-month ended September 30 Segment THB mm percent THB mm percent THB mm percent THB mm percent THB mm percent Net Sales 1. Cement 23, , , , , Concrete & Aggregates 8, , , , , Others 1, , , , ,129 4 Total Net Sales 33, , , , , Elimination (3,075) (9) (3,192) (9) (3,312) (10) (2,431) (9) (2,737) (10) Consolidated Net Sales 29,950 31,862 31,120 23,712 24,793 Source: The Company s Form 56-1 and Financial Statement as at 31 December 2015 and 30 September Board of Directors As of 30 September 2016, the Board of Directors of SCCC is as follows: Name of Directors Position 1. Mr. Veraphan Teepsuwan Chairman 2. Mr. Paul Heinz Hugentobler Vice Chairman 3. Mr. Chachchon Ratanarak Director 4. Mr. Vanchai Tosomboon Director 5. Ms. Nopporn Tirawattanagool Director 6. Mr. Pongpinit Tejagupta Director 7. Mr. David Alexander Newbigging Director 8. Mr. Harald Link Independent Director 9. Dr. Sunee Sornchaitanasuk Independent Director and Chairperson of Audit Committee 10. Mr. Pradap Pibulsonggram Independent Director and Audit Committee 11. Mr. Charin Satchayan Independent Director and Audit Committee 12. Mr. Siva Mahasandana Director & CEO Source: The Company and Appendix 2 Page 10

86 Names and number of the directors who are authorized to sign and bind the Company are Mr. Paul Heinz Hugentobler, Mr. Chachchon Ratanarak, Mr. Vanchai Tosomboon and Mr. Siva Mahasandana, provided that two of them jointly sign with the Company s seal affixed to bind the Company. 2.3 Shareholders Lists of SCCC s major shareholders at the book closing date of 9 August 2016 are as follows: No. Shareholders Shares Percentage Holding ( percent) 1. Sunrise Equity Company Limited 80,065, JARDINE CYCLE & CARRIAGE LIMITED 57,270, Bangkok Broadcasting and Television Company Limited 21,681, Thai NDVR Company Limited 5,412, BNP PARIBAS SECURITIES SERVICES LUXEMBOURG 5,093, CHASE NOMINEES LIMITED 3,393, Vayupak Mutual Fund by Krungthai Asset Management Public Company Limited 2,254, Vayupak Mutual Fund by MFC Asset Management Public Company Limited 2,254, Mrs. Sasithorn Ratanarak 2,110, THE BANK OF NEW YOUR (NOMINEES) LIMITED 1,910, Krungsri Dividend Stock Fund 1,838, STATE STREET BANK EUROPE LIMITED 1,803, AIA Company Limited- AIA D-PLUS 1,750, THE BANK OF NEW YORK MELLON 1,456, Ms. Pilanuch Ratanarak 1,439, Aberdeen Long Term Equity Fund 1,266, Major Shareholder by Group No. Shareholders Shares Percentage Holding ( percent) 1. Ratanarak Group Company 109,685, JARDINE Group Company 57,270, Others 63,044, Total 230,000, Source: The Company and Dividend Policy The Company shall allocate dividend payment at least 60 percent of net profit on its consolidated financial statements. In case of negative financial situation, the Board may propose a lower percentage of dividend payment as it considers appropriate under such circumstance. Appendix 2 Page 11

87 2.5 Summary of Financial Statements and Operating Performance The following table provides a summary of financial information in accordance with SCCC s consolidated financial statements, audited and/or reviewed by EY Office Limited, for the years ended 31 December, and nine-month ended 30 September Statement of Financial Position (Unit: THB mm) As at December 31 As at September Current Assets Cash and Cash equivalents 3, , , ,839.5 Trade and other receivables 3, , , ,367.1 Inventories 1, , , ,914.5 Other current assets ,003.2 Total current assets 9, , , ,124.3 Non-current assets Restricted bank deposits Advance payments for investments in subsidiary and joint venture Investment in joint venture investment in associated companies 1, , , ,987.8 Other investment Property, plant and equipment , , , ,003.1 Assets not used in operations Goodwill ,630.9 Intangible assets 1, , , ,692.9 Deferred tax assets Other non-current assets Total non-current assets 24, , , ,996.7 Total Assets 33, , , ,121.0 Current liabilities Short-term loans from related financial institution ,049.3 Bank overdrafts and short-term loans from other ,123.7 financial institutions Trade and other payables 2, , , ,022.5 Current portion of long-term loans from related financial institution Current portion of long-term loans from other financial institution Current portion of long-term liabilities for concession Current portion of debentures ,998.3 Income tax payable Deferred Revenue , Accrued electricity Other accrued expenses ,401.1 Other current liabilities Total current liabilities 5, , , ,026.4 Non-current liabilities Long-term loans from related financial institution - net of current portion 1, , Long-term loans from other financial institution net of current portion Debentures net of current portion 5, , , ,987.8 Provision for long-term employee benefits 1, , , ,471.2 Provision for site restoration and decommissioning costs Deferred tax liabilities Total non-current liabilities 8, , ,478.4 Total liabilities 14, , , ,504.8 Appendix 2 Page 12

88 Statement of Financial Position (Unit: THB mm) As at December 31 As at September Shareholders' equity Registered share capital 2, , , ,800.0 Issued and fully paid up share capital 2, , , ,300.0 Share premium 10, , , ,106.3 Retained earnings Appropriated - statutory reserve Unappropriated 6, , , ,939.8 Other components of shareholders' equity (58.7) (32.8) 33.2 (23.6) Equity attributable to owners of the Company 19, , , ,622.4 Non-controlling interests of the subsidiaries (6.2) Total shareholders' equity 19, , , ,616.2 Total liabilities and shareholders' equity 33, , , ,121.0 Income Statements (Unit: THB mm) For the year ended December (Restated) For ninemonth ended September Revenues Net sales and service income 29, , , ,793.1 Dividend income Gain on exchange Other income Total revenues 30, , , ,975.7 Expenses Cost of goods sold and services 16, , , ,104.3 Selling and distribution expenses 6, , , ,285.6 Administrative expenses 1, , , ,346.5 Loss on exchange Total expenses 24, , , ,736.4 Profit before share of profit from investments 5, , , ,239.3 in associated companies, finance cost and income tax expenses Share of profit from investments in associated companies Profit before finance cost and income tax 6, , , ,336.6 expenses Finance cost (304.9) (373.3) (453.2) (520.0) Profit before income tax expenses 5, , , ,816.6 Income tax expenses (1,152.8) (1,229.9) (1,101.4) (779.0) Profit for the year 4, , , ,037.6 Statements of Cash Flows (Unit: THB mm) For ninemonth For the year ended December 31 ended September (Restated) Net cash provided by operating activities 6, , , ,683.4 Net cash used in investing activities (4,817.1) (3,408.9) (3,567.2) (17,496.3) Net cash provided by (used in) financing (707.1) (3,030.8) (3,233.5) 14,383.9 activities Increase (decrease) in translation adjustments (59.8) Net increase (decrease) in cash and cash equivalents 1,011.8 (414.1) (433.6) Appendix 2 Page 13

89 Financial Ratio As of and for the year ended December 31, (Restated) As of and for the nine-month ended September 30, Liquidity Ratios Current Ratio (times) Quick Ratio (times) Cash Flow Liquidity Ratio (times) (1) Accounts Receivable Turnover (times) (1) Average Collection Period (days) (1) Inventory Turnover (times) (1) Inventory Days (days) (1) Accounts Payable Turnover (times) (1) Accounts Payable Days (days) (1) Cash Cycle (days) (1) Profitability Ratios Gross Profit Margin ( percent) Operating Profit Margin ( percent) Cash Flow to Income Ratio ( percent) Net Profit Margin ( percent) Return on Equity ( percent) (1) Efficiency Ratios Return on Total Assets ( percent) (1) Return on Fixed Assets ( percent) (1) Total Assets Turnover (times) (1) Financial Policy Ratios Debt to Equity Ratio (times) Interest Coverage Ratio (times) Cash flows from operating activities to capital expenditure ratio (times) Note: (1) Calculated by annualizing items in the Income Statements for the nine-month period ended 30 September 2016 Appendix 2 Page 14

90 2.5.1 Explanation and Assessment of Financial Statements and Overall Operating Performance Financial Performance Revenue Total Net Sales Total net sales are THB 29,949.5 million, THB 31,862.2 million and THB 31,120.4 million in 2013, 2014 and 2015, respectively. Sales growth in 2014 of 6.39 percent came from placing higher volumes into export markets which expanding key building material businesses domestically. However, the positive factors to sales such as pricing were partially offset by a decrease in domestic cement volumes. Total net sales in 2015 was declined by 2.33 percent from the 2014 mainly due to the lower average selling prices across main businesses ranged from 1.0 percent to 7.0 percent year on year basis. However, the Company rapidly increased clinker export, a volume growth of 44.0 percent to assure full utilization of its production assets. For the first nine months of 2016, SCCC s net sales increased from the first nine months of 2015 of THB 23,712.3 million to THB 24,793.1 million or equivalent to 4.56 percent from the same period of the previous year. It was a result of contribution from the newly acquired company, SCCC (Lanka). However, domestic cement sales, majority of SCCC s sales, dropped in volume and selling price due to the drop in domestic cement consumption of 1% y-o-y, according to the Office of Industrial Economics data, while concrete and aggregates had a volume growth but dropped in selling price. Other Income Other income in 2015 posted an increase by THB million mainly from the charge back of THB 86 million as pre-establishment costs to the joint venture company in Cambodia which was written-off in The increase in other incomes in the first nine months of 2016 mainly incurred from SCCC s subsidiaries Expense Production of cost of goods sold Production of cost of goods sold is THB 16,522.3 million, Bath 17,592.6 million and THB 17,336.0 million in 2013, 2014 and 2015, respectively. The cost of goods sold increased in 2014 by 6.48 percent from the previous year due to higher volume sales, escalation from electricity and wages inflation, reactivation of Kiln 1 and new plant expansion. However, a decline in coal prices was a cushion from those negative effects. In 2015, cost of goods sold decreased by 1.46 percent despite of much lower production cost in cement due to the increased production volume that offset the lower cost. The Company launched a number of cost reduction initiatives from energy savings to maintenance cost optimization so that the gross profit margin could be maintained at percent (2014: percent). The key driver of the slight decrease in gross profit margin was from fiber cement business in Indonesia which has not been fully utilized its full capacity as it is under market ramp up. Gross margin for the first nine month of 2016 is percent, which is lower than gross profit margin from the same period of the previous year of percent. This is mainly due to lower gross profit margin of newly acquired subsidiaries and decrease in selling price in major products. Appendix 2 Page 15

91 Assets Selling, Distribution and Administrative Expenses (SG&A) Selling, distribution and administrative expenses are THB 7,431.5 million, Bath 7,951.7 million and THB 7,995.4 million in 2013, 2014 and 2015, respectively. In 2014, the expenses increased by 7.00 percent due to support business expansion, higher promotion and marketing expenses, marketing research and sales planning for fibre cement business in Indonesia and competitive salary and bonus adjustment. Selling, distribution and administrative were contained with no significant change in 2015 from prior year. In addition, the expenses in the first nine months of 2016 is THB 6,632.1 million, which increased by percent or THB million from the same period of the previous year. Moreover, SG&A/net sales ratio increased to percent in the nine months of 2016 from percent of SG&A/net sales from the same period of the previous year is mainly due to consolidation of newly acquired subsidiaries and onetime expenses, advisory fees for the acquisitions. Loss on exchange Loss on exchange was mainly in respect of unrealized translation losses from overseas subsidiary operation in Indonesia Net Profit The Company s net profit is THB 4,795.9 million, THB 5,090.6 million and THB 4,579.2 million in 2013, 2014 and 2015, respectively. The increase in net profit in 2014 was due to the increase of operating EBITDA, while the drop in 2015 came from the increase in depreciation charge, financial expenses and lower earnings from associates, despite of sustained operating EBITDA. The decrease in net profit in the first nine months of 2016 by THB million or percent from the same period of the previous year is due to costs related to the acquisition activities, the annual shut down costs and higher financing cost. Total asset value of the Company is THB 33,453.9 million, THB 35,516.9 million, THB 37,507.6 million and THB 57,121.0 million in 2013, 2014, 2015 and the first nine months of 2016, respectively. PP&E, goodwill, trade and other receivables, intangible assets, cash and cash equivalents, inventories are major components of the Company s asset Working Capital In 2014, the cash cycle day decreased by 3 days from 36 days in 2013 to 33 days in This supported by efficient cash cycle management and better liquidity as it has a longer period of payable and higher turnover in inventory sold. However, cash cycle days in 2015 is longer by 1 day which is resulted from a change in business mix leading to longer days account receivable outstanding and plant maintenance schedule leading to longer days inventory outstanding despite better control of terms on account payable. The cash cycle days is longer by 6 days in the first nine months of 2016 from year ended 2015 as mainly from the longer inventory days of 5 days due to the Company had higher amount of inventory by percent from the end of 2015 level, while collection period and account payable days had not significantly changed Property, plant and equipment (PP&E) PP&E has the largest asset of the Company at amounted to THB 18,859.7 million, THB 20,800.7 million, THB 21,420.7 million and THB 26,003.1 million or percent, percent, percent and percent of total asset value in 2013, 2014, 2015 and the nine-month ended 30 September 2016 of 2016, respectively. The increase in PPE is due to new investment projects and capital expenditure relating Appendix 2 Page 16

92 to maintaining productive capacity. In addition, the significant increase of PP&E in the first nine months of 2016 is from the increase from business combinations of THB 3,748.1 million, which mainly from the acquisition of SCCC (Lanka) in 10 August Goodwill As at 30 September 2016, goodwill value is THB 11,630.9 million or percent of the total asset value. The goodwill derives from the acquisition of Globe Cement, SCCC (Bangladesh) and SCCC (Lanka) in 3 May 2016, 26 May 2016 and 10 August 2016, respectively. Please see more details in notes number 6 Investments in Subsidiary Companies in Notes to Financial Statements for the nine-month period ended 30 September Intangible assets Intangible assets value is THB 1,975.3 million, THB 2,250.5 million, THB 3,297.1 million and THB 3,692.9 million or 5.90 percent, 6.34 percent, 8.79 percent and 6.47 percent of total asset value in 2013, 2014, 2015 and the first nine months of 2016, respectively. The increase in intangible asset value is due to renewal of concession license and forestry permit and new IT project and its licenses acquired. In addition, the increase of intangible assets at the nine-month ended 30 September 2016 is from the increase from business combinations of THB million Liabilities Total liabilities of the Company is THB 14,209.6 million, THB 14,614.3 million, THB 15,415.7 million and THB 35,504.8 million in 2013, 2014, 2015 and the first nine months of 2016, respectively. As of 31 December 2014, total liabilities increased by THB million or 2.85 percent from the previous year due to increase in loans from financial institutions. In addition, as of 31 December 2015 the total liabilities increased by THB million or 5.48 percent from the previous year due to increase in deferred revenue by THB million and net short-term loans from financial institution is THB million. As of 30 September 2016, total liabilities increase from 2015 due to the issuance of debenture of THB 3,990.1 million and the borrowing of bank overdrafts and short-term loans from financial institution of THB 15,292.3 million Shareholders Equity Total shareholders equity of the Company is THB 19,244.3 million, THB 20,902.6 million, THB 22,091.9 million and THB 21,616.2 million in 2013, 2014, 2015 and the first nine months of 2016, respectively. These figures represented increases of THB 1,658.3 million or 8.62 percent in 2014 and THB 1,189 million or 5.69 percent in 2015 due to increased retained earnings during the years. However, the decrease of THB million or 2.15 percent in the first nine months of 2016 is due to the lower profit for the period comparing to the same period in previous year and declaring dividend in the second and third quarter of Liquidity SCCC s net cash from operating activities are THB 6,472.0 million, THB 6,008.9 million and THB 6,362.5 million in 2013, 2014 and 2015, respectively, while in first nine months of 2016 is THB 3,683.4 million. Profit before tax is the majority item with the amounts of THB 5,948.7 million, THB 6,320.6 million, THB 5,680.7 million and THB 3,816.6 million in 2013, 2014, 2015 and the first nine months of 2016, respectively. Appendix 2 Page 17

93 2.6 Industry Review While net cash used in investing activities are THB 4,817.1 million, THB 3,408.9 million and THB 3,567.2 million in 2013, 2014 and 2015, respectively. Majority of the investment are in PP&E, intangible assets and investment in associated company/joint venture. Acquisitions of PP&E are THB 4,969.7 million, THB 3,320.4 million and THB 2,147.5 million in 2013, 2014 and 2015, respectively. Investment in intangible assets are THB 69.7 million, THB million and THB 1,215.7 million in 2013, 2014 and 2015, respectively. In addition, in 2014, SCCC invested in associated company in amount of THB 94.5 million, while THB million were used for investment in joint venture in In the first nine months of 2016, net cash used in investing activities is THB 17,496.3 million, which mostly consisted of net cash paid for acquisition of Globe Cement, SCCC (Bangladesh) and SCCC (Lanka) and acquisition of PP&E. In addition, net cash used in financing activities are THB million, THB 3,030.8 million and THB 3,233.5 million in 2013, 2014 and 2015, respectively. These were used to pay dividend and repay loans from financial institutions. In the first nine months of 2016, net cash provided by financing activities is THB 14,383.9 million, which consists of short-term loans from financial institutions, issuance of debenture, dividend payment and loan repayments to financial institutions. Thailand s economy is projected to grow at a rate of 3.1 in 2016 when fiscal spending and public investment, particularly through the government s infrastructure development project, should drive growth and spur an increase in private investment compared to last year. The gradual global economic recovery and the likely weakening of the THB should buttress both the export market and the tourism sector, while the continued decline in oil prices, which represents a boon for exporters, should remain a major factor to limit inflation. According to the International Monetary Fund ( IMF ), real GDP growth for Thailand in 2015 is 2.8 percent, which is below the Asian s average GDP of 5.9 percent. This affected the construction industry in Thailand as its growth is tied with the country s economy. Thailand economy in 2015 was slow down due to weaker consumer spending, delay in implementation of the government s infrastructure construction plans and global economic slowdown. The cement market has also been impacted by the aforementioned factors and seen heightened competition among cement producers and distributors as a result of falling demand. Consequently, price competition has become fiercer. Many have employed short-term pricing strategies to maintain their customer bases. Figure A2.1 - Real GDP Growth of Thailand 10% 8% 7.81% 6.52% 6% 4.93% 4% 2.46% 2.70% 2.82% 3.00% 3.20% 3.00% 2% 0.82% 0% -2% -4% -2.30% 0.05% F 2017F 2021F Source: IMF Appendix 2 Page 18

94 Figure A2.2 - Land and building Transactions Nationwide in Thailand (THB bn) 1,800 1,600 1,400 1,200 1, % 19.50% 27.60% 16.70% 18.80% -6.80% % -4.20% -0.80% 1, F 50% 0% -50% -100% -150% -200% -250% -300% Value % Growth Source: Bank of Thailand However, GDP was recovered in the first half of 2016 as a result of heavy government spending, stronger consumer spending, and increase in construction business and expansion in hotel and restaurant industry. In addition, IMF expects the real GDP to grow approximately 3 percent per annum in 2016 and This is supported by (1) an increase in government spending, (2) government policy to accelerate economy through tax incentives and a decrease of transaction costs in housing industry, (3) 10 percent revenue increase in tourism sector in 2016, (4) low fuel cost compared to 2015, and (5) better agricultural sector as climate is back to normal. However, laggard world economy, foreign exchange rate risk and more rigid loan approvals are key considerations regarding the economic expansion in In 2016, the government s infrastructure development project will play a vital role in the growth of the cement industry. In brief, the Thai government has planned to invest in the development of various transport infrastructure projects under a budget of THB 2 trillion, while its implementation may be impacted by political risk factors. Furthermore, on 1 December 2015, the cabinet acknowledged the implementation plan on key transport infrastructure projects, which is worth of THB trillion. These projects are expected to start bidding during 2015 until The immediate projects with a total investment of THB billion that were approved by the cabinet are (1) Dual Track (meter gauge) Jira Junction Khon Kaen, (2) Motorway Pattaya Mab Taphut, (3) Motorway Bang Pa In Saraburi Nakhon Ratchasima, (4) Maritime Transport - Coastal port development (Terminal A), Laem Chabang Port, and (5) Maritime Transport - Single Rail Transfer Operator (SRTO) Phase 1, Laem Chabang Port and 5) Suvanrnabhumi Airport Phase II. Appendix 2 Page 19

95 Figure A Transport Infrastructure Investment Projects Source: The Office of Transport and Traffic Policy and Planning, Ministry of Transport All of these infrastructure development projects should spur property developers to boost their investment in new condominium projects in Bangkok, especially in the areas along the electric rail lines, and also lead to residential development projects and other construction projects in various provinces outside of Bangkok that have a promising growth outlook. Likewise, such developments should drive the construction of new department stores and material stores to accommodate an expected rise in consumer demand. Moreover, other cement player expects that cement industry will grow at 5 percent per year from 2014 to Taking the above elements into consideration that the government can boost investor confidence by accelerating the implementation of its multi-billion-dollar infrastructure investment plan and thereby increase economic growth and support for the construction sector overall. For the overall economic condition for the ASEAN, IMF expects real GDP of ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam) to sustainably grow further. The establishment of ASEAN Economic Community (AEC) in 2015 will drive the intra-asean free trade and enhance economic activities among the countries. Vietnam and the Philippines will be the leader with real GDP, while Indonesia, Malaysia and Thailand will increase at moderate level. Moreover, growth in the ASEAN-5 expects to increase further in 2017, underpinned by strong domestic demand and a gradual increase in exports. Moreover, FDI is a crucial factor that drives the ASEAN economy. In 2014, ASEAN s net inflow of FDI grew by 3.3 percent, mainly from intra-asean flow which benefitted from robust regional economic fundamentals, cost advantages and regional integration. However, the ASEAN net inflow of FDI decreased by 6.5 percent due to the slowdown of global economy. Appendix 2 Page 20