PT NIPPON INDOSARI CORPINDO Tbk

Transcription

1 This document is an unofficial English translation of the Prospectus issued by the Company in Bahasa Indonesia on the initial public offering conducted in the Republic of Indonesia and is provided by the Company for information purposes only. The Prospectus has been prepared in accordance with the regulatory framework and disclosure practices in the Republic of Indonesia and neither the Company nor the Lead Underwriter makes any representation or warranty as to the accuracy or the completeness of this translation of the Prospectus. Each person receiving this document acknowledges that disclosure requirements and practices in the Republic of Indonesia, as in other emerging markets, differ significantly from disclosure requirements and practices in other jurisdictions. Accordingly, each person receiving this document acknowledges that this document does not provide the level or type of disclosure that a prospective investor may require in connection with making an investment decision with regards to the Offering. In the event that a prospective investor would like to obtain more information about the Company and/or the Offering before making an investment in the Company, it would be advisable for such potential investor to read the Prospectus in Bahasa Indonesia. Effective Date June 18, 2010 Share Distribution Date June 25, 2010 Offering Period June 22-23, 2010 Refund Date June 28, 2010 Allotment Date June 24, 2010 Listing Date at IDX June 28, 2010 BAPEPAM-LK DOES NOT APPROVE NOR DISAPPROVE THIS OFFERING, NOR DOES IT PASS JUDGMENT UPON THE ACCURACY AND COMPLETENESS OF THIS PROSPECTUS. ANY CONTRADICTING REPRESENTATION THERETO IS ILLEGAL. TBK AND THE LEAD UNDERWRITER ARE FULLY RESPONSIBLE FOR THE ACCURACY OF INFORMATION OR MATERIAL FACTS AND OBJECTIVITY OF OPINIONS INCLUDED IN THIS PROSPECTUS. Cikarang: Jababeka Industrial Estate Jl. Jababeka XII A Block W No Cikarang, Bekasi Tel: (021) Fax: (021) , Tbk Line of Business: Establish factory and produce various types of bread Domiciled in Cikarang, Bekasi Head Office Jababeka Industrial Estate Jl. Jababeka XII A, Block W No , Cikarang, Bekasi Tel: (021) , Fax: (021) , Website: Factories Cikarang: Jababeka Industrial Estate Jl. Jababeka XVII B Block U No. 33 Cikarang, Bekasi Pasuruan: PIER Industrial Estate Jl. Rembang Industri Raya No. 28 Pasuruan East Java Tel: (0343) Fax: (0343) OFFERING 151,854,000 new shares or 15% of issued and paid-up capital after the Offering, each with a nominal value of Rp 100, offered to the public at an Offer Price of Rp1,275 per share, to be paid in full upon submission of the Share Subscription Form. The aggregate value of the Offering amounts to Rp193,613,850,000. THE NUMBER OF SHARES OFFERED IS RELATIVELY LIMITED AND AS SUCH THERE IS A POSSIBILITY THAT THIS WILL AFFECT THE TRADING OF AND CAUSE THE MARKET FOR THE COMPANY S SHARES TO BE LESS LIQUID. THE MAJOR RISK FACING THE COMPANY IS THE RISK RELATING TO PRODUCT CONTAMINATION, FROM RAW MATERIALS, DURING PRODUCTION AND AT DISTRIBUTION. THE COMPLETE BUSINESS RISKS OF THE COMPANY ARE SET OUT IN CHAPTER V OF THIS PROSPECTUS. THE COMPANY WILL NOT ISSUE COLLECTIVE CERTIFICATES FOR THE SHARES OFFERED HEREIN. THE SHARES ARE TO BE DISTRIBUTED ELECTRONICALLY AND ADMINISTERED IN A COLLECTIVE CUSTODIAN WITH PT KUSTODIAN SENTRAL EFEK INDONESIA. THE LISTING OF THE SHARES IS TO BE CONDUCTED ON THE INDONESIA STOCK EXCHANGE LEAD UNDERWRITER PT OSK NUSADANA SECURITIES INDONESIA UNDERWRITERS PT Asia Kapitalindo Securities Tbk, PT BNI Securities, PT CIMB Securities Indonesia, PT Ciptadana Securities, PT Danasakti Securities, PT Danatama Makmur, PT Dhanawibawa Artha Cemerlang, PT Dinamika Usahajaya, PT e-capital Securities, PT Erdikha Elit Sekuritas, PT HD Capital Tbk, PT Kresna Graha Securindo Tbk, PT Madani Securities, PT Makinta Securities, PT Mega Capital Indonesia, PT Panin Sekuritas Tbk, PT Phillip Securities Indonesia, PT Sinarmas Sekuritas, PT Sucorinvest Central Gani, PT Victoria Sekuritas, PT Yulie Sekurindo Tbk This prospectus is issued in Jakarta on June 21, 2010

2 PT Nippon Indosari Corpindo Tbk ( Company ) has submitted a statement of registration in relation to the Offering of its Shares to the Chairman of Bapepam-LK in Jakarta under letter No. 003/IV/LL/10 on April 5, 2010, according to the requirements stipulated in the Law of the Republic of Indonesia No. 8 of 1995 regarding Capital Market, as contained in the State Gazette of the Republic of Indonesia No. 64 of 1995, Supplement No. 3608/1995 and its implementing regulations and amendments ( Capital Market Law ). The Shares offered are planned to be listed on the Indonesia Stock Exchange ( IDX ) in accordance with the Preliminary Listing Agreement entered into between the Company and IDX on April 1, In the event that the Company cannot satisfy the listing requirements as stipulated by IDX, the Offering will be cancelled and payments for subscriptions of the Shares will be refunded to the respective subscribers. The Company, the Lead Underwriter, the Underwriters and the capital market supporting professionals and institutions involved in this Offering will be fully responsible for the accuracy of all data and objectivity of opinions, disclosure and reports presented in this Prospectus, based on their respective areas of duty and in accordance with the prevailing laws within the Republic of Indonesia, as well as their respective code of ethics, norms and the standards of their respective professions. In relation to the Offering, no affiliated parties will be allowed to make any disclosure and/or statements regarding any matter whatsoever not otherwise disclosed in this Prospectus, unless prior written consent has been given by the Company and the Lead Underwriter. The Underwriters hereby expressly declare that they are not in any way affiliated with the Company, whether directly or indirectly, as defined in the Capital Market Law. Explanations on affiliation are set out in Chapter XIII on Underwriting. This Offering has not been registered in any jurisdiction outside the Republic of Indonesia. If a party outside the jurisdiction of the Republic of Indonesia receives this Prospectus, it is not meant to serve as an offer to purchase shares, unless any such offer and subsequent purchase of shares are not in contradiction nor a violation of any of the laws and regulations prevailing in such country. The Company has disclosed all material information that is required to be disclosed to the public and there is no other material information that is not disclosed, the absence of which would otherwise mislead the public.

3 TABLE OF CONTENTS TABLE OF CONTENTS... i GLOSSARY... ii EXECUTIVE SUMMARY... v I. OFFERING... 1 II. USE OF PROCEEDS... 4 III. INDEBTEDNESS... 5 IV. MANAGEMENT DISCUSSION AND ANALYSIS... 9 V. BUSINESS RISKS VI. MATERIAL EVENTS SINCE THE DATE OF THE INDEPENDENT AUDITOR S REPORT VII. INFORMATION ABOUT THE COMPANY Brief history Permits and licenses Shareholding evolution Management and supervision Human resources Brief description of corporate shareholders Ownership, management and supervision relationship between the Company and its corporate shareholders Affiliated party transaction Agreements with third parties Assets Legal proceedings faced by the Company Insurance VIII. BUSINESS AND PROSPECT General Operational activities Prospects Strategy and Business Plan Environmental management and monitoring Research and development Corporate Social Responsibility Good Corporate Governance IX. SUMMARY OF IMPORTANT FINANCIAL INFORMATION X. SHAREHOLDERS EQUITY XI. DIVIDEND POLICY XII. TAXATION XIII. UNDERWRITING XIV. CAPITAL MARKET SUPPORTING PROFESSIONALS XV. LEGAL OPINION XVI. INDEPENDENT AUDITOR S REPORT AND THE COMPANY S FINANCIAL STATEMENTS XVII. APPRAISAL REPORT XVIII. ARTICLES OF ASSOCIATION XIX. TERMS OF SHARE SUBSCRIPTION XX. DISTRIBUTION OF PROSPECTUS AND SHARE SUBSCRIPTION FORMS i

4 GLOSSARY Affiliates : Parties referred to in Article 1 paragraph 1 of the Capital Market Law. Allotment Date : The date when the Allotment Manager determines the allotment of the Shares, which is at the latest two Business Days from the end of the Offering Period. Allotment Manager : The party conducting the allocation in accordance with Bapepam Regulation No. IX.A.7, Attachment to Bapepam Decree No. Kep- 45/PM/2000 dated October 27, 2000, on Responsibilities of Allotment Manager in Subscription and Allotment of Securities in a Public Offering, which in this Offering is conducted by the Lead Underwriter. Automatic sanding : Equipment to fill cream to sandroll bread automatically. Band slicer : Equipment to slice toast bread in accordance with the required thickness. Bapepam : Badan Pengawas Pasar Modal, the Capital Market Supervisory Board as referred to in Article 3 paragraph (1) of the Capital Market Law. Bapepam-LK : Badan Pengawas Pasar Modal dan Lembaga Keuangan, the Capital Market and Financial Institutions Supervisory Board in accordance with Decree of the Minister of Finance of the Republic of Indonesia No. KMK/606/KMK.01/2005 dated December 30, 2005, on the Organization and Administration of the Capital Market and Financial Institutions Supervisory Board. BKPM : Badan Koordinasi Penanaman Modal, the Investment Coordinating Board. BPOM RI : Badan Pengawas Obat dan Makanan Republik Indonesia, the National Agency of Drug and Food Control. Business day : Mondays through Fridays, except for national holidays designated by the Government of the Republic of Indonesia. Capital Market Law : Law No. 8 Tahun 1995 dated November 10, 1995, on the Capital Market, as published in the State Gazette of the Republic of Indonesia No. 64 of 1995, Supplement No. 3608, and its implementing regulations. Company : PT Nippon Indosari Corpindo Tbk, a limited liability company incorporated based on the laws of the Republic of Indonesia and is domiciled in Cikarang, Bekasi. Company Law : Law No. 40 of 2007 dated August 16, 2007, on Limited Liability Company, as published in the State Gazette of the Republic of Indonesia No. 106 of 2007, Supplement No. 4756, and its implementing regulations. Depanner : Equipment to remove bread from the baking pan. Divider : Equipment used to divide bread dough in accordance with the required weight. ii

5 Effective : The fulfillment of all requirements for Registration Statement in accordance with Bapepam-LK Regulation No. IX.A.2. Filler : Raw material in the form of bread filling. Final proofing : The last stage of dough development process. Flour Handling System : Equipment used to move and control flour usage from the flour silo to the mixer. Government : The Government of the Republic of Indonesia. GSM : General Shareholders Meeting (Rapat Umum Pemegang Saham) as defined in the Company Law and held in accordance with the provisions of the Company s articles of association. IDX or the Indonesian Stock : The stock exchange as defined in Article 1 paragraph 4 of the Capital Exchange Market Law that is organized by PT Bursa Efek Indonesia, a limited liability company incorporated and operating based in the laws of the Republic of Indonesia and domiciled in South Jakarta, which is the stock exchange where the Company s shares will be listed. KSEI : PT Kustodian Sentral Efek Indonesia (Indonesian Central Securities Depository), a limited liability company incorporated and operating under the laws of the Republic of Indonesia and domiciled in South Jakarta, whose business activities are and is licensed as securities depository and settlement institution as defined in the Capital Market Law. Kwik Lok : Toast bread plastic packaging bag closure device with printing of, amongst others, the product expiry date. Lead Underwriter : PT OSK Nusadana Securities Indonesia, a limited liability company which is fully responsible for the administration and implementation of the Offering in accordance with the terms and conditions of the Underwriting Agreement and is subject to the provisions of the Capital Market Law. Mixer : Dough mixing equipment. Moulder : Equipment used to form bread dough. Offer Price : The price of the Shares in the Offering. Offering : The initial public offering of the Company s Shares conducted in accordance with and under the Capital Market Law. Offering Period : A period of at a minimum one Business Day, where the public can submit subscription for the Shares based on the procedures set out in the SSF and Chapter XIX on Terms of Share Subscription. Overproof : Condition where the dough bread is overdeveloped. PMA : Penanaman Modal Asing, a foreign investment company under the auspices of BKPM. Prospectus : The prospectus issued by the Company for the Offering. iii

6 Registration Statement : The documents that shall be submitted to Bapepam-LK by the Company in relation to the Offering in accordance with the Capital Market Law. Rounder : Equipment used to shape bread dough into a round form with solid and even pores. Rp or Rupiah : The currency of the Republic of Indonesia. Sandroll : Bread product with an oval shape. Securities : Marketable securities, which include acknowledgement of indebtedness, commercial paper, shares, bonds, proof of indebtedness, participation unit in a Collective Investment Contract, futures contract Securities and each derivatives of Securities. Securities company : A party conducting the activities of Underwriter, Broker and/or Investment Manager in accordance with the provisions of the Capital Market Law. Share Registrar : A supporting professional in the Indonesian capital market as referred to Article 48 of the Capital Market Law. Shares : Shares issued by the Company, offered and sold in this Offering in accordance with the Underwriting Agreement. SSF or Share Subscription Form : Formulir Pemesanan Pembelian Saham, the form to be used to order or subscribe to the Shares which can be obtained from the Underwriters. Underproof : Condition where the bread dough is underdeveloped. Underwriters : The Lead Underwriter and other parties forming the syndicate of the Company s Underwriters based on notarial Deed of Underwriting, who shall take up all of the remaining Shares in the Offering. Underwriting Agreement : The agreement between the Company and the Lead Underwriter in accordance with the Deed of Underwriting Agreement for the Initial Public Offering of PT Nippon Indosari Corpindo Tbk, including its amendments and/or additions and/or renewals, which contains the terms of the underwriting of the Offering. USD : United States Dollar, the currency of the United States of America. Water meter : Equipment to measure water and send water from the tank to the mixer. iv

7 EXECUTIVE SUMMARY This executive summary forms an integral part of this Prospectus and must be read in conjunction with the more detailed information in the Company s financial statements and the notes thereto which is set out in Chapter XVI of this Prospectus. All financial information of the Company is stated in Rupiah and is prepared in accordance with the accounting principles generally applicable in Indonesia. 1. Brief history The Company was incorporated under the name PT Nippon Indosari Corporation by Deed of Establishment No. 11 dated March 8, 1995, as amended by Deed of Amendment of Articles of Association No. 274 dated April 29, 1995, both drawn up before Benny Kristianto, SH, Notary in Jakarta, which have been ratified by the Minister of Law and Human Rights (formerly Minister of Justice) pursuant to Decree No. C HT Th.95 dated March 18, 1995, registered in the District Court of Bekasi No 264 and 265 dated September 14, 1995, and published in the State Gazette of the Republic of Indonesia No. 94 dated November 24, 1995, Supplement No. 9729/1995. The Company s articles of association has been amended several times and in the last amendment, in relation to the Offering, the Company amended its articles of association in compliance with articles of association for listed companies and changed the name of the Company to PT Nippon Indosari Corpindo Tbk by Deed No. 86 dated February 24, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. AHU AH Tahun 2010 dated March 12, 2010, and registered in the Company Register No. AHU AH Tahun 2010 dated March 12, Based on Article 3 of the Company s Articles of Association as set forth in the Deed of Meeting Resolution No. 86 dated February 24, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, the Company s purpose and objective are: 1. To conduct business activities in the bread, cakes and other foodstuff 2. To achieve the above purpose and objective, the Company may perform the following busines activities: a. Main business activities: To establish factories and produce all types of bread, including but not limited to toast bread, sandwiches and other types of cakes b. Supporting business activities: To market and sell all types of bread, including but not limited to toast bread, sandwiches and other types of cakes. The Company is headquartered in Jababeka Industrial Estate, Jl. Jababeka XII A, Block W No , Cikarang, Bekasi. v

8 2. Financial summary The following table summarizes the Company s financial statements for the years ending December 31, 2009, 2008, 2007, 2006 and 2005, which have been audited by the Public Accounting Firm Purwantono, Suherman & Surja (previously Purwantono, Sarwoko & Sandjaja), a member of Ernst & Young Global Limited, with unqualified opinion. Balance sheet (in millions of Rupiah) Description December ASSETS CURRENT ASSETS Cash and cash equivalents 57,945 52,878 8,249 9,299 6,567 Trade payables third parties 53,135 42,717 28,222 18,305 16,514 Inventories 9,075 7,280 5,225 3,237 2,733 Restricted time deposits 13, ,758 2,028 Prepaid expenses and other current assets 4,412 1,326 1,327 5,618 1,028 Total current assets 137, ,200 43,023 38,217 28,870 NON-CURRENT ASSETS Fixed assets net of accumulated depreciation 204, , , , ,206 Guarantee deposits 4,346 2,600 2,148 1, Claims for tax refund Other non-current assets Total non-current assets 209, , , , ,176 TOTAL ASSETS 346, , , , ,046 LIABILITIES CURRENT LIABILITIES Bank loans ,827 - Trade payables third parties 37,635 24,975 17,757 12,354 9,616 Other payables 13,108 34,423 3,676 5,806 13,480 Taxes payable 12,162 11,857 4,599 2,202 1,296 Accrued expenses 7,543 5,597 5,499 6,566 4,537 Current maturities of long-term loans: Bank loans 25,000 14,588 5,000 12,506 13,685 Other loans Total current liabilities 95,448 91,439 36,700 46,720 43,017 NON-CURRENT LIABILITIES Customers deposits 4,420 2,979 2,436 1,851 1,209 Long-term bank loans net of current maturities 68,750 75,465 35,000 28,669 35,338 Convertible bonds ,929 22,929 Deferred tax liability net 6,590 5,195 5,049 3,956 3,153 Estimated liability for employee benefits 3,929 2,810 1,969 1,604 1,156 Total non-current liabilities 83,690 86,449 44,454 59,011 63,784 TOTAL LIABILITIES 179, ,888 81, , ,802 SHAREHOLDERS EQUITY Authorized, issued and fully paid 86,051 86,051 17,349 17,349 17,349 Additional paid-in capital ,123 30,123 30,123 Advances for future stock subsription ,928 16,000 16,000 Retained earnings 81,440 44,325 1,913 (15,865) (24,227) TOTAL SHAREHOLDERS EQUITY 167, ,725 88,313 47,606 39,244 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 346, , , , ,046 vi

9 Profit and loss statement (in millions of Rupiah) Description 12 months Net sales 485, , , , ,203 Cost of goods sold 263, , , ,579 83,924 Gross profit 222, , ,853 81,448 59,280 Operating expenses: Selling 113,068 83,360 62,190 49,608 35,578 General and administrative 20,735 16,166 12,703 11,550 10,305 Total operating expenses 133,803 99,526 74,894 61,158 45,883 Income from operations 88,295 61,667 29,959 20,290 13,397 Other income (expenses) Sales of scrap 5,517 3,981 2,875 1,928 1,731 Interest income 1, Gain (loss) on sale of fixed assets net 51 (21) 3 96 (17) Interest expense (12,356) (5,268) (6,741) (9,562) (6,124) Gain (loss) on foreign exchange net (1,932) (414) 16 (61) 649 Others net (412) (180) (83) (124) (469) Other expenses net (7,804) (1,242) (3,760) (7,440) (3,978) Income before income tax 80,491 60,425 26,199 12,849 9,419 Income tax expense: Current 21,981 17,867 7,328 3,684 3,008 Deferred 1, , Total 23,376 18,013 8,421 4,487 3,745 Net income 57,115 42,412 17,778 8,362 5, Business risks Any industry is subject to various risks that can affect a company s operations, which also applies to the Company. In conducting its business activities, the Company faces the following business risks : Risks relating to operational activities (i) Product contamination in pre-production, during production and at distribution (ii) Short shelf life of the products (iii) Availability of wheat as raw material of flour (iv) Availability of energy supply (v) Risk of labor strikes (vi) Risk relating to availability of spare parts Risks relating to market conditions and sales (i) Foreign exchange fluctuations (ii) Competition Risks relating to government policies and social environment (i) Increase of regional/provincial minimum wage (ii) Economic, political and social stability (iii) Preservative and halal issues (iv) Natural disaster. The complete description of the Company s business risks are set out in Chapter V of this Prospectus. vii

10 4. Initial public offering The Company is conducting an initial public offering of 151,854,000 shares with a nominal value of Rp100 per share, at an offering price of Rp1,275 per share, which must be paid in full upon submission of SSF. The shares offered in the Offering are new shares from shares under portfolio. These shares shall provide their holders equal and similar rights in all respects with the Company s issued and fully paid up shares, including the rights to dividend distributions. The capital structure of the Company prior to and after the Offering will be as follows : Pre-Offering Description Number of Par Value % Number of Shares (Rp) Shares Authorized capital 3,440,000, ,000,000,000 3,440,000, Subscribed and fully paid up capital: - Bonlight Investments Limited - Treasure East Investments Limited - Sojitz Corporation - Shikishima Baking Co. Ltd. - Public Total 344,202, ,202,400 86,050,600 86,050, ,506,000 34,420,240,000 34,420,240,000 8,605,060,000 8,605,060,000-86,050,600, ,202, ,202,400 86,050,600 86,050, ,854,000 1,012,360,000 Post-Offering Par Value (Rp) % 34,420,240,000 34,420,240,000 8,605,060,000 8,605,060,000 15,185,400, ,236,000,000 Shares under portfolio 2,579,494, ,949,400,000 2,427,640, ,764,000,000 A more detailed explanation of the Offering is presented in Chapter I of this Prospectus. 5. Prospects and strategy There are ample business opportunities in food and drinks in Indonesia. The Indonesian population, purchasing power and economic growth are significant factors in the food business. During an economic crisis the food industry can still grow. Increase of purchasing power and change of eating pattern, particularly in the cities where practical eating pattern is desired, will increase demand for bread.] The Company implements the following strategy in its business development: - Implementing supply chain management; - Using SAP as enterprise resources planning software; - Opening factories in other areas in Indonesia to meet the needs for quality, halal, clean and hygienic products; - Producing new products, be it bread and bread-based snacks; - Selecting appropriate distribution channels that can distribute the Company s products quickly and accurately. - Maintaining a mutually beneficial relationship with its customers; - Showing its consumer the cleanliness of the Company s production facilities and the Company s efforts to implement good manufacturing practice and sanitation; - Expanding by opening factories in locations near its consumer. 6. Dividend policy All of the Company s issued and paid-up shares, including the Shares offered in this Offering, have the same rights and entitlements and are equal in all respects, including with respect to rights to dividend distributions. In accordance with the prevailing laws, dividend distributions are approved by shareholders in an annual shareholder s meeting based on proposal from the Board of Directors. The Company s articles of association state that dividends can only be distributed in accordance with the Company s financial capacity based on decision taken in an annual shareholders meeting. The Board of Directors may amend the dividend policy from time to time with the approval from an annual shareholders meeting viii

11 The Company plans to distribute cash dividends at least once a year. Without prejudice to the Company s financial condition and the right of an annual shareholders meeting to otherwise determine based on the Company s articles of association, the amount of cash dividend to be distributed is related to the Company s profits in the relevant fiscal year. The Company s management plans to propose an annual dividend distribution of a maximum of 30% of the Company s net profit in the relevant fiscal year. 7. Use of proceeds The proceeds of the Offering, less expenses connected with the Offering, shall be used based on the following priorities : 1. Approximately 75% for development of new factories; 2. Approximately 25% for repayment of bank loans. A more detailed explanation of the use of proceeds is presented in Chapter II of the Prospectus. ix

12 I. OFFERING The Company is conducting an initial public offering of 151,854,000 shares with a nominal value of Rp100 per share, at an offering price of Rp1,275 per share, which must be paid in full upon submission of SSF. The total value of the Offering is Rp193,613,850,000. The shares offered in the Offering are new shares from shares under portfolio. These shares shall provide their holders equal and similar rights in all respects with the Company s issued and fully paid up shares, including the rights to dividend distributions. Tbk. Line of Business: Establish factory and produce various types of bread Domiciled in Cikarang, Bekasi Head Office: Jababeka Industrial Estate Jl. Jababeka XII A, Block W No , Cikarang, Bekasi Tel (021) , Fax: (021) , Website : Factories: Cikarang : Jababeka Industrial Estate Jl. Jababeka XII A Block W No Cikarang, Bekasi Tel: (021) Fax: (021) , Cikarang : Jababeka Industrial Estate Jl. Jababeka XVII B Block U No. 33 Cikarang, Bekasi Pasuruan : PIER Industrial Estate Jl. Rembang Industri Raya No. 28 Pasuruan East Java Tel: (0343) Fax: (0343) THE MAJOR RISK FACING THE COMPANY IS THE RISK RELATING TO PRODUCT CONTAMINATION, FROM RAW MATERIALS, DURING PRODUCTION AND AT DISTRIBUTION. THE COMPLETE BUSINESS RISKS OF THE COMPANY ARE SET OUT IN CHAPTER V OF THIS PROSPECTUS. The Company was incorporated under the name PT Nippon Indosari Corporation by Deed of Establishment No. 11 dated March 8, 1995, as amended by Deed of Amendment of Articles of Association No. 274 dated April 29, 1995, both drawn up before Benny Kristianto, SH, Notary in Jakarta, which have been ratified by the Minister of Law and Human Rights (formerly Minister of Justice) pursuant to Decree No. C HT Th.95 dated March 18, 1995, registered in the District Court of Bekasi No 264 and 265 dated September 14, 1995, and published in the State Gazette of the Republic of Indonesia No. 94 dated November 24, 1995, Supplement No. 9729/

13 The Deed of Establishment, which contains the Company s articles of association, have been amended by the following deeds: 1. Deed of Amendment of Articles of Association No. 23 dated July 7, 1997, drawn up before Benny Kristianto, SH, Notary in Jakarta, which has been ratified by and reported to the Minister of Law and Human Rights (formerly Minister of Justice) pursuant to Decree No. C HT TH.97 dated September 2, 1997, registered in the Company Register at the Office of Company Register of the District of Bekasi under agenda No. 37/BH.10.07/X/1997 dated October 31, 1997, and published in the State Gazette of the Republic of Indonesia No. 4 dated January 13, 1998, Supplement No. 268/1998, that has been revised by the State Gazette of the Republic of Indonesia No. 11 dated February 6, 2001, Supplement No. 268a/2001. This deed approves the amendments to Articles 2, 3 and 4 of the Company s articles of association. 2. Deed of Meeting Resolution No. 5 dated July 23, 2003, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights (formerly Minister of Justice and Human Rights) pursuant to Decree No. C HT TH.2003 dated August 14, 2003, registered in the Company Register at the Office of Company Register of the District of Bekasi under agenda No. 418/BH.10.07/X/2003 dated October 9, 2003, and published in the State Gazette of the Republic of Indonesia No. 85 dated October 24, 2003, Supplement No /2003. This deed approves the increase of the Company s authorized capital, confirmation of the Company s boards and change of the Company s name from PT Nippon Indosari Corporation to PT Nippon Indosari Corpindo. Notice of change of the name of the Company has been received and registered by BKPM pursuant to BKPM letter No. 228/B2/A6/2003 dated September 4, 2003, regarding the Change of the Name of the Company. 3. Deed of Meeting Resolution No. 3 dated June 7, 2005, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. C HT TH.2005 dated July 13, 2005, registered in the Company Register at the Office of Company Register of the District of Bekasi No. 546/BH.10.07/XI/2005 dated September 21, 2005, and published in the State Gazette of the Republic of Indonesia No. 104 dated December 30, 2005, Supplement No. 1234/2005. This deed approves the amendments to Articles 11.3(a), 11.3(b) and 11.6(b) on the Responsibility and Authority of the Board of Directors. 4. Deed of Meeting Resolution No. 1 dated July 1, 2008, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. AHU AH Tahun 2008 dated September 18, 2008, registered in the Company Register No. AHU AH Tahun 2008 dated September 18, 2008, and published in the State Gazette of the Republic of Indonesia No. 92, Supplement No /2008, on increase of capital and amendment to entire articles of association in accordance with Law No. 40/2007 on Limited Liability Company. 5. Deed of Meeting Resolution No. 17 dated December 30, 2009, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been reported to the Minister of Law and Human Rights by Receipt of Notice of Change of Company Data No. AHU-AH dated February 12, 2010, and registered in the Company Register No. AHU AH Tahun 2010 dated February 12, This deed approves the cancellation of Deed of Meeting Resolution No. 10 dated November 16, 2009, the change of the Company s Board of Directors and Board of Commissioner and the sale of shares belonging to Bonlight Investments Limited to Treasure East Investments Limited. In relation to the Offering, the Company amended its articles of association in compliance with articles of association for listed companies and changed the name of the Company to PT Nippon Indosari Corpindo Tbk by Deed No. 86 dated February 24, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. AHU AH Tahun 2010 dated March 12, 2010, and registered in the Company Register No. AHU AH Tahun 2010 dated March 12,

14 As of the date of this Prospectus, the Company s capital structure and shareholding are as follows: Description Par value Rp100 per share No. of shares Par value (Rp) Percentage Authorized capital 3,440,000, ,000,000,000 Issued and paid-up capital: Bonlight Investments Limited 344,202,400 34,420,240, Treasure East Investments Limited 344,202,400 34,420,240, Sojitz Corporation 86,050,600 8,605,060, Shikishima Baking Co., Ltd 86,050,600 8,605,060, Total issued and paid-up capital 860,506,000 86,050,600, Shares in portfolio 2,579,494, ,949,400,000 Assuming all shares offered in this Offering are subscribedm the Company s proforma capital structure and shareholders shall become as follows: Description Par value Rp100 per share No. of shares Par value (Rp) Percentage Authorized capital 3,440,000, ,000,000,000 Issued and paid-up capital: - Bonlight Investments Limited - Treasure East Investments Limited - Sojitz Corporation - Shikishima Baking Co. Ltd. - Public Total issued and paid-up capital 344,202, ,202,400 86,050,600 86,050, ,854,000 1,012,360,000 34,420,240,000 34,420,240,000 8,605,060,000 8,605,060,000 15,185,400, ,236,000,000 Shares in portfolio 2,427,640, ,764,000,000 Simulatenously with the listing of Shares from the Offering of 151,854,000 shares or 15% of the Company s issued and paid-up capital after the Offering, the Company shall also list all shares that have been issued prior to the Offering of 860,506,000 shares or 85% of the Company s issued and paid-up capital after the Offering. As such, the total number of the Company s shares in IDX is 1,012,360,000 shares or 100% of the issued and paid-up capital after the Offering. The Company does not plan to issue or list other shares and/or other securities that can be converted into shares within twelve months from the Effective date of this Offering. Should the Company decide to do so in the future, the Company shall follow the provisions of the prevailing regulations. Employee Stock Allocation (ESA) The ESA program shall be implemented in accordance with Bapepam Regulation No. IX.A.7, Attachment to Decree of the Chairman of Bapepam No. KEP-45/PM/2000 dated October 27, 2000, on Responsibilities of Allotment Manager in Subscription and Allotment of Securities in a Public Offering, which allows up to 10% of the Shares offered to the public to be owned by employees. The Company has decided to implement the ESA program to all of the Company s employees, which shall be administered in the Offering through special orders with the following conditions: 1. The number of shares allocated is up to 15,185,500 shares; 2. Payment for shares ordered by employees shall be made in cash. Shares offered in the ESA program shall originate from the fixed allocation portion. Should the order under the ESA program is less than 15,185,500 shares, the remaining shares shall be offered to the public

15 II. USE OF PROCEEDS The proceeds of the Offering, less expenses connected with the Offering, will be used based on the following priorities: 1. Approximately 75% for development of new factories. The Company expands its business by opening new factories to increase capacity and penetrate other regions in Indonesia. The new factories to be opened are located in Semarang and Medan. If the funds required to develop these factories are not met by the proceeds of the Offering, the Company will use bank financing to complete the expansion. 2. Approximately 25% for repayment of bank loans. Lender: PT Bank Central Asia Tbk Outstanding: Rp65,000,000,000 Interest rate: 1% below prime rate Maturity date: July 21, 2014 Note: Terms and conditions of the loan can be seen in Chapter III on Indebtedness In accordance with Bapepam-LK s Circular No. SE-05/BL/2006 dated September 29, 2006, on Disclosure of Expenses in a Public Offering, the total expenses incurred by the Company in the Offering is approximately 3% of the total proceeds of the Offering, consisting of: - Underwriting fee: 0.75% - Management fee: 0.75% - Selling fee: 0.50% - Capital market supporting entities and professionalsl 0.48% consisting of Legal counsel: 0.10% Auditor: 0.28% Appraiser: 0.05% Registrar: 0.02% Notary: 0.03% - Others: 0.52%. According to Bapepam s Regulation No. X.K.4, Attachment to the Decree of the Chairman of Bapepam No. Kep- 27/PM/2003 dated July 17, 2003, on Report of the Realization of the Use of Proceeds from a Public Offering, the Company shall periodically report the realization of the use of proceeds from the Offering to Bapepam-LK and shall account for the same to the Company s shareholders in a general meeting of shareholders. Should at any time in the future the Company intend to amend its plan for the use of proceeds from the Offering, the Company shall first report such intention to Bapepam-LK by stating the grounds and considerations for such amendment and shall obtain prior approval for the amendment of the use of proceeds from the Company s shareholders in a general meeting of shareholders. The use of proceeds of the Offering shall be implemented in accordance with the prevailing Capital Market regulations. 4

16 III. INDEBTEDNESS Based on the Company s financial statements for the year ending December 31, 2009, which has been audited by the Public Accounting Firm Purwantono, Suherman & Surja (previously Purwantono, Sarwoko & Sandjaja), a member of Ernst & Young Global Limited, with an unqualified opinion, the Company has a total indebtedness of Rp179,138 million with the following details: (in millions of Rupiah) Description Balance as of December 31, 2009 CURRENT LIABILITIES Trade payables third parties 37,635 Other payables 13,108 Taxes payable 12,162 Accrued expenses 7,543 Current maturities of long-term loans 25,000 Total current liabilities 95,448 NON-CURRENT LIABILITIES Customers deposits 4,420 Long-term bank loans net of current maturities 68,750 Deferred tax liability net 6,590 Estimated liability for employee benefits 3,929 Total non-current liabilities 83,690 TOTAL LIABILITIES 179, Trade payables third parties Trade payables to third parties arising from purchases of raw materials and packaging materials amounted to Rp37,635 million as of December 31, Other payables Other payables arising from transportation and distribution services, construction of a new plant and purchases of machinery and equipment amounted to Rp13,108 million as of December 31, Taxes payable Taxes payable as of December 31, 2009, amounted to Rp12,162 million, with the following details: (in millions of Rupiah) Description Balance as of December 31, 2009 Income taxes: Article Article Article Article Article 29 10,744 Total 12, Accrued expenses Accrued expenses as of December 31, 2009, amounted to Rp7,543 million, with the following details: (in millions of Rupiah) Description Balance as of December 31, 2009 Promotion expenses 2,502 Transportation and distribution 1,884 Royalty fees 1,591 Electricity, gas and water 921 Others (below Rp500 million each) 646 Total 7,543 5

17 5. Customers deposits Customers deposits amounted to Rp4,420 million as of December 31, Bank loans The following are details of the bank loans: (in millions of Rupiah) Description Balance as of December 31, 2009 PT Bank Central Asia Tbk 68,750 PT Bank Resona Perdania 25,000 Total 93,750 Less: current maturities 25,000 Long-term portion 68,750 PT Bank Central Asia Tbk ( BCA ) Based on notarial deed No. 40 dated July 21, 2008, of Veronica Sandra Irawaty Purnadi, SH, BCA agreed to grant investment credit facility to finance the Company s expansion in Cikarang. The facilility has a maximum amount of Rp75,000 million, a certain portion of which has been used to issue Letter of Credit. The loan was available for withdrawal until June 2009 and is payable in monthly installments from August 2009 through July 2014 and carried an interest rate ranging from 11.75% to 14% pa in The loan is secured by land at Block U-33, Jababeka Industrial Estate, Cikarang, Bekasi, together with the manufacturing plant, machinery and equipment as well as production supporting facilities thereon with net book value amounting to Rp86,696 million as of December 31, Under the terms of the loan agreement, the Company is required to obtain prior written approval from BCA with respect to, among others: a. Obtaining new loan and/or acting as guarantor in whatever form and/or pledging the Company s assets while the Company is in violation of its financial covenants; b. Lending money, including but not limited to its affiliated companies, other than in the normal course of business; c. Entering into transactions with another party, including but not limited with its affiliated companies, on a nonarms length basis; d. Submitting application for bankruptcy or deferral of payments to the relevant authority (court of law); e. Making investments in or opening new businesses other than the Company s existing business activities; f. Divesting the Company s fixed assets or major assets that constitute more than 20% of the Company s equity or 10% of the Company s revenues, whichever is lower, unless in the normal course of business; g. Conducting merger, consolidation, takeover or dissolution of the Company; h. Amending the status of the Company and the articles of association on objectives of the Company and reduction of capital. The Company is also required to maintain the following financial ratios: 1. Debt to equity ratio of not more than 2x 2. EBITDA (earnings before interest, taxes, depreciation and amortization) to interest and monthly principal repayment ratio of not less than 1.25x 3. Current ratio of not less than 1x. As of December 31, 2009, the Company has met all the required financial ratios. In relation to the Offering, the Company has obtained approval from BCA to change the status of the Company by letter No /GBK/2010 dated February 23, There are no negative covenants that put the public shareholders at a disadvantage. 6

18 PT Bank Resona Perdania ( BRP ) On June 15, 2007, the Company obtained a loan amounting to Rp40,000 million from BRP to finance the Company s expansion. This non-revolving loan is payable in quarterly installments of Rp2,500 million starting on September 18, 2008, through June 18, 2012, and is secured by a fiduciary transfer of ownership on certain machinery and equipment of the Company with net book value amounting to Rp23,840 million as of December 31, The loan carried an interest rate ranging from 8.81% to 12.43% in Under the terms of the loan agreement, the Company is required to obtain prior written approval from BRP with respect to, among others: a. Obtaining new loan and/or acting as guarantor in whatever form and/or pledging the Company s assets; b. Lending money, including but not limited to its affiliated companies, other than in the normal course of business; c. Conducting consolidation, takeover, investment, dissolution or declaring bankruptcy in the Commercial Court; d. Amending the status of the Company e. Entering into transactions with another party, including but not limited with its affiliated companies or shareholders, on a non-arms length basis. As of December 31, 2009, the Company has met all the loan requirements. In relation to the Offering, the Company has obtained approval from BRP to amend the terms of loan by letter No. 29/CRD/II/2010 dated February 11, There are no negative covenants that put the public shareholders at a disadvantage. 7. Deferred tax liability net The following are details of the deferred tax liability of Rp6,590 million as of December 31, 2009: (in millions of Rupiah) Description Balance as of December 31, 2009 Deferred tax asset Estimated liability for employee benefits (982) Deferred tax liability Fixed assets 7,573 Total 6, Estimated liability for employee benefits The following are details of the deferred tax liability of Rp3,929 million as of December 31, 2009: (in millions of Rupiah) Description Balance as of December 31, 2009 Present value of defined benefit obligation 5,848 Unamortized balance of the non-vested past service costs (454) Net cumulative unrecognized actuarial loss (1,466) Total 3,929 The components of the net defined benefit costs recognized in the profit and loss statement and the amount of defined benefits in the balance sheet has been calculated by independent actuaries PT Bumi Dharma Aktuaria with projected-unit-credit method in its report dated January 12, 2010, based on the following principal assumptions: Normal retirement age: 55 years 2009 discount rate: 10.5% pa Salary increment rate: 8% pa Mortality rate: CSO 80. 7

19 As of the date of this Prospectus, the Company has no overdue liabilities. The Company s management hereby states that as of December 31, 2009, the Company has no other liabilities and commitments other than what has been disclosed in this Prospectus and in the Company s consolidated financial statements as attached to this Prospectus. Between December 31, 2009, and the date of the independent auditor s report and between the date of the independent auditor s report and the effective date of the Registration Statement, the Company has no material new liabilities, other than trade payables and other liabilities arising out of the normal course of the business. The Company s management believes that it will be able to meet all its liabilities in accordance with their terms. 8

20 IV. MANAGEMENT DISCUSSION AND ANALYSIS The following discussion and analysis of the Company s financial condition and results of the operations should be read in conjunction with the Company s audited financial statements and the notes thereto as set out in Chapter XVI of this Prospectus on Independent Auditor s Report and the Company s Financial Statements. The Company s financial statements for the years ending December 31, 2009, 2008 and 2007, have been audited by the Public Accounting Firm Purwantono, Suherman & Surja (previously Purwantono, Sarwoko & Sandjaja), a member of Ernst & Young Global Limited, with unqualified opinions. 1. Overview The Company was incorporated in 1995 and is currently headquartered in Jababeka Industrial Estate, Cikarang, Bekasi. It is a company engaged in the business of bread, cake and other food manufacturing. The Company carries out its business activities by establishing bread factory, producing, marketing and selling toast bread and other types of bread. At its incorporation, the Company had two production lines, one for production of toast bread and one for production of sweet bread. In 2001, in line with the growth of sales, the Company doubled its production capacity by adding two production lines namely for toast bread and sweet bread. In November 2005, the Company opened its second factory in Pasuruan, East Java, by installing two production lines. Production output of this factory is marketed in East Java, Central Java and Bali. In 2009, the Company added one production line of sweet bread in Pasuruan. In December 2008, the Company opened its third factory with two production lines in Block U, Jababeka Industrial Estate, Cikarang, Bekasi, West Java, one for production of toast bread and one for production of sweet bread. In addition, the Company built an auditorium in Block U factory for consumer visit so they can directly view the Company s production process that incorporates hygienic and halal (prepared in the manner prescribed by Islamic law) methods. 2. Financials The following table shows the Company s financial position based on the financial statements for the years ending December 31, 2009, 2008 and 2007, that have been audited by the Public Accounting Firm Purwantono, Suherman & Surja (previously Purwantono, Sarwoko & Sandjaja), a member of Ernst & Young Global Limited, with unqualified opinions. Balance sheet (in millions of Rupiah) Description December Assets Current assets 137, ,200 43,023 Non-current assets 209, , ,445 Total assets 346, , ,468 Liabilities and shareholders equity Current liabilities 95,448 91,439 36,700 Non-current liabilities 83,690 86,449 44,454 Total liabilities 179, ,888 81,154 Total shareholders equity 167, ,725 88,313 Total liabilities and shareholders equity 346, , ,468 9

21 Statements of income Net sales Cost of goods sold Gross profit Operating expenses Income from operations Other expenses net Income before income tax Income tax expense Net income Description (in millions of Rupiah) 12 months , , , , , , , , , ,803 99,526 74,894 88,295 61,667 29,959 (7,804) (1,242) (3,760) 80,491 60,425 26,199 23,376 18,013 8,421 57,115 42,412 17, Sales, costs and profit The following chart shows the Company s sales and profits over the years: Sales and Profits For the 12-month periods ending December 31, 2007, 2008 and 2009 (in millions of Rupiah) 485, , , , , ,853 29,959 17,778 61,667 42,412 88,295 57, Sales Gross Profit Operating Profit Net Income Net sales The following is the breakdown of the Company s net sales based on products: (in millions of Rupiah) Description 12 months Sweet bread - Sari Roti 287, , ,633 Toast bread - Sari Roti 230, , ,097 Sweet bread - Boti 8,527 10,291 9,888 Toast bread - Boti 4,965 5,019 4,387 Sari Cake 2,614 2,726 - Others 1, Gross sales 536, , ,432 Sales returns (50,307) (38,943) (26,919) Net sales 485, , ,513 10

22 Sales comparison for the years 2009 and 2008 The Company s gross sales for 2009 was Rp536,227 million, of which 53.6% came from Sari Roti sweet bread and 43.1% came from Sari Roti toast bread. Gross sales increased by 26.9% in 2009 from Rp422,496 million in 2008 due to the increase in sales volume as a result of the Company s promotional activities. Net sales for 2009 was Rp485,920 million, a 26.7% increase from Rp383,553 million in Sales returns for 2009 was Rp50,307 million or 9.4% from gross sales, similar to the 2008 level of 9.2% or Rp38,943 million. The Company has been able to maintain the balance between production volume and market demand such that the rate of product returns have been stable. Sales comparison for the years 2008 and 2007 The Company s gross sales for 2008 was Rp422,496 million, of which Sari Roti sweet bread contributed 49.7% or Rp210,063 million and Sari Roti toast bread contributed 45.9% or Rp193,725 million. Gross sales for 2008 increased 52.3% from Rp277,432 million in 2007 as a result of the Company s decision to increase selling price due to the increase of raw material prices. The Company s net sales for 2008 was Rp383,553 million, a 53.1% increase from Rp250,513 million in While the nominal amount of sales returns increased by 44.7% in 2008 to Rp38,493 million from Rp26,919 million in 2007, the ratio of sales returns to gross sales actually decreased from 9.7% in 2007 to 9.2% in 2008, resulting in a higher rate of growth in net sales compared to the rate of growth of gross sales Cost of goods sold The following is the breakdown of the Company s cost of goods sold: (in millions of Rupiah) Description 12 months Raw materials and packaging materials 201, , ,517 Direct labor 11,162 9,090 6,688 Manufacturing overhead: Depreciation 13,663 8,276 7,690 Utilities 11,190 8,157 6,366 Professional fees 8,247 6,453 4,603 Repairs and maintenance 7,124 4,804 4,815 Royalty fees 6,317 4,986 3,257 Others 4,483 4,113 1,841 Total manufacturing overhead 51,024 36,788 28,572 Total manufacturing costs 263, , ,776 Finished goods inventory: Balance, beginning of year Balance, end of year (494) (444) (294) Cost of goods sold 263, , ,660 Cost of goods sold comparison for the years 2009 and 2008 Cost of goods sold for 2009 was Rp263,821 million, an 18.6% increase from Rp222,360 million in 2008, which came as a result of the increase of raw material prices and volume of raw material purchase as demand for the Company s products increased. 11

23 The biggest contributor to cost of goods sold are raw materials and packaging materials, which constituted 76.4% of cost of goods sold or Rp201,686 million. This represented an increase of 14.2% from Rp 176,632 million in Cost of goods sold comparison for the years 2008 and 2007 Cost of goods sold for 2008 was Rp222,360 million with raw materials and packaging materials representing the largest contributor of 79.4% or Rp176,632 million. Total cost of goods sold experienced a significant increase in 2008 by 56.2% from Rp145,660 million in 2007 as a result of raw materials and packaging materials cost increase from Rp110,517 million to Rp176,632 million or by 59.8% due to the limited supply of raw materials in In addition, direct labor also increased quite significantly by 35.9% from Rp6,688 million in 2007 to Rp9,090 million in 2008 due to the significant increase of the regional minimum wage in 2008 in accordance with the inflation rate Gross profit Gross profit comparison for the years 2009 and 2008 Gross profit for 2009 was Rp222,099 million, a 37.8% increase from Rp161,193 million in This came as a result of a 26.7% growth in net sales, which is higher than the increase in cost of goods sold of 18.6%, improving gross margin from 42.0% in 2008 to 45.7% in Gross profit comparison for the years 2008 and 2007 Gross profit for 2008 was Rp161,193 million, a 53.7% increase from Rp104,853 million in This came as a result of a 53.1% growth in net sales, which is higher than the increase of cost of goods sold of 52.6%, improving gross margin slightly from 41.9% in 2007 to 42.0% in Operating expenses and operating profit The following is the breakdown of the Company s operating expenses: (in millions of Rupiah) Description 12 months Selling expenses 113,068 83,360 62,190 General and administrative expenses 20,735 16,166 12,703 Total operating expenses 133,803 99,526 74,894 Operating profit 88,295 61,667 29,959 Operating expenses and operating profit comparison for the years 2009 and 2008 Operating expenses for 2009 was Rp133,803 million, of which the biggest contributor was selling expenses of Rp113,068 million or 84.5% of total operating expenses. In 2009 operating expenses increased by 34.4% from Rp99,526 million in 2008, as a result of the increase in advertising and promotion expenses by 57.8% from Rp24,933 million in 2008 to Rp39,337 million in General and administrative expenses increased by 28.3% from Rp16,166 million in 2008 to Rp20,735 million in 2009, driven by the increase of salaries and benefits by 35.7% from Rp8,581 million in 2008 to Rp11,645 million in Operating profit for 2009 was Rp88,295 million or a 43.2% increase from Rp61,667 million in 2008 as a result of the sales growth of the Company. Operating margin improved to 18.2% in 2009 from 16.1% in

24 Operating expenses and operating profit comparison for the years 2008 and 2007 Operating expenses for 2008 was Rp99,526 million, of which the biggest contributor was selling expenses of Rp83,360 million or 83.8% from total operating expenses. In 2008 operating expenses increased by 32.9% from Rp74,894 million in 2007, as a result of the increase in selling expenses, particularly from expired products inventory expenses by 56.5% from Rp13,615 million in 2007 to Rp21,304 million in 2008 due to raw material price increase that affected the cost of goods sold for expired products. The increase of selling expenses was also driven by the increase of advertising and promotion expenses by 37.9% from Rp18,074 million in 2007 to Rp24,933 million in Operating profit for 2008 was Rp61,667 million, a 105.8% increase from Rp29,959 million in 2007 due to the significant sales growth that was higher than the increase in expenses. Operating margin was 16.1% in 2008, an improvement from 12.0% in Net profit Net profit comparison for the years 2009 and 2008 Net profit for 2009 was Rp57,115 million, a 34.7% increase from Rp42,412 million in Net margin in 2009 was 11.8%, an improvement from 11.1% in Other expenses increased by 528.3% in 2009 from Rp1,242 million in 2008 to Rp7,804 million, due to the significant increase of interest expense by 134.5% from Rp5,268 million in 2008 to Rp12,356 million in 2009, even though the Company had an increase in sales from expired products by 38.6% to Rp5,517 million from Rp3,981 million, which came as a result of the increase in sales returns. The increase in net profit was attributable to the sales growth that is not accompanied by the same rate of growth in expenses, therefore net margin also improved. Net profit comparison for the years 2008 and 2007 Net profit for 2008 was Rp42,412 million, a 138.6% from Rp17,778 million in Net margin improved to 11.1% in 2008 from 7.1% in Other expenses decreased by 67.0% from Rp3,760 million in 2007 to Rp1,242 million in 2008, as a result of the increase in sales of expired products by 38.5% from Rp2,875 million in 2007 to Rp3,981 million in 2008 due to the increase in the volume of expired products. In addition, interest expense declined by 21.9% from Rp6,741 million in 2007 to Rp5,268 million in The increase of net profit was mainly attributed to the increase of sales. The increase in expenses was not as high as the increase of sales, therefore net profit experienced a significant increase that resulted in a higher net margin. 13

25 2.2. Assets, liabilities and equity The following chart shows the Company s assets, liabilities and equity over the years: Assets, Liabilities and Equity As of December 31, 2007, 2008 and 2009 (in millions of Rupiah) 308, , ,468 81,154 88, , , , , Assets Liabilities Equity Assets The following are the details of the Company s assets: (in millions of Rupiah) Description December Current assets : Cash and cash equivalents 57,945 52,878 8,249 Trade receivables third parties 53,135 42,717 28,222 Inventories 9,075 7,280 5,225 Restricted time deposits 13, Prepaid expenses and other current assets 4,412 1,326 1,327 Total current assets 137, ,200 43,023 Non-current assets: Fixed assets net of accumulated depreciation 204, , ,499 Guarantee deposits 4,346 2,600 2,148 Claims for tax refund Other non-current assets Total non-current assets 209, , ,445 Total assets 346, , ,468 Assets comparison as of December 31, 2009, and December 31, 2008 Total assets as of December 31, 2009, was Rp346,978 million, a 12.4% increase from Rp308,613 million as of December 31, 2008, which came as a result of the increase of trade receivables due to the higher sales. In addition, the Company opened a restricted time deposit for the purpose of letter of credit opening in The Company placed an order for oven and top sealer equipment from Sanko Machinery Co. Ltd. and Daisey Machinery Co. Ltd., Japan, with total order of JPY million. The Company placed a time deposit in BCA for the purpose of issuance of letter of credit by Sumitomo Mitsui Banking Corporation and Mizuho Bank Ltd. for the purchase of the equipment. 14

26 Assets comparison as of December 31, 2008, and December 31, 2007 Total assets as of December 31, 2008, was Rp308,613 million, an 82.1% increase from Rp169,468 million as of December 31, 2007, which came as a result of a significant increase in cash and cash equivalents as well as increases in trade receivables and fixed assets. The increase of cash and cash equivalents was due to a new longterm loan and the increase of cash receipts from buyers as the Company s sales increased. The Company made capital expenditure in 2008 for the construction of Block U factory in Jababeka Industrial Estate, Cikarang, and the purchase of the machinery and equipment for the factory Liabilities The following are the details of the Company s liabilities: (in millions of Rupiah) Description December Current liabilities: Trade payables third parties 37,635 24,975 17,757 Other payables 13,108 34,423 3,676 Taxes payable 12,162 11,857 4,599 Accrued expenses 7,543 5,597 5,499 Current maturities of long-term loans: Bank loans 25,000 14,588 5,000 Other loans Total current liabilities 95,448 91,439 36,700 Non-current liabilities: Customers deposits 4,420 2,979 2,436 Long-term bank loans net of current maturities 68,750 75,465 35,000 Deferred tax liability net 6,590 5,195 5,049 Estimated liability for employee benefits 3,929 2,810 1,969 Total non-current liabilities 83,690 86,449 44,454 Total liabilities 179, ,888 81,154 Liabilities comparison as of December 31, 2009, and December 31, 2008 Total liabilities as of December 31, 2009, were Rp179,138 million, a slight increase of 0.7% from Rp177,888 million as of December 31, Even though trade payables increased quite significantly in 2009 by 50.7% from Rp24,975 million in 2008 to Rp37,635 million in 2009 as a result of the higher operational activities, other payables decreased significantly by 61.9% from Rp34,423 million to Rp13,108 million due to the payables relating to the Block U factory construction and equipment purchase in 2008 that were recorded as other payables. Liabilities comparison as of December 31, 2008, and December 31, 2007 Total liabilities as of December 31, 2008, were Rp177,888 million, a 119.2% from Rp81,154 million as of December 31, 2007, due to the 125.1% increase of bank loans from Rp40,000 million to Rp90,053 million. The loan was used to acquire fixed assets relating to the construction of Block U factory in the Jababeka Industrial Estate, Cikarang, Bekasi, and by the same token, other payables consisting of payables arising from the construction of the new factory and the acquisition of machinery and equipment increased. 15

27 Equity The following are the details of the Company s equity account: (in millions of Rupiah) Description December Issued and paid-up capital 86,051 86,051 17,349 Additional paid-in capital ,123 Advances for future stock subscription ,928 Retained earnings 81,440 44,325 1,913 Total equity 167, ,725 88,313 Equity comparison as of December 31, 2009, and December 31, 2008 Total equity as of December 31, 2009, was Rp167,840 million, a 28.4% increase from Rp130,725 million, which came as a result of an 83.7% increase of retained earnings from Rp44,325 million in 2008 to Rp81,440 million in Equity comparison as of December 31, 2008, and December 31, 2007 Total equity as of December 31, 2008, was Rp130,725 million, a 48.0% increase from Rp88,313 million, which came as a result of a significant increase in retained earnings by 2,217.0% due to the additional capital from conversion of convertible bond and advances for future stock subscription and additional paid-up capital that increased total paidup capital of the Company to Rp86,051 million Solvency and profitability Solvency Solvency is the ability to meet all obligations using all assets or equity. Solvency is measured by comparing total liabilities to total equity (equity solvency ratio) and total liabilities to total assets (asset solvency ratio). The Company s equity solvency ratios as of December 31, 2009, 2008 and 2007 were 1.07x, 1.36x and 0.92x, respectively, while asset solvency ratios as of December 31, 2009, 2008 and 2007 were 0.52x, 0.58x and 0.48x, respectively Profitability Profitability is measured, amongst others, by net margin, return on average assets and return on average equity. These ratios show the Company s ability to generate profit during a certain period of time: - Net margin is the ratio of net profit to revenues - Return on average assets is the ratio of asset turnover in generating profit - Return on average equity is the ratio of net profit to average equity. Description 12 months Net margin 11.8% 11.1% 7.1% Return on average assets 17.4% 17.7% 11.0% Return on average equity 38.3% 38.7% 26.2% 16

28 2.4. Liquidity The Company s liquidity is reflected in cash flows as detailed in the following table: (in millions of Rupiah) Description 12 months Net cash provided by operating activities 56,084 83,854 20,416 Net cash used in investing activities (32,782) (88,694) (13,190) Net cash provided by (used in) financing activities (16,302) 49,883 (8,292) Net increase (decrease) in cash and cash equivalents 5,068 44,629 (1,050) Cash and cash equivalents at beginning of year 52,878 8,249 9,299 Cash and cash equivalents at end of year 57,945 52,878 8, Risk management In facing the risks described in Chapter V Business Risks, the Company applies the following risk management policies: - The Company continues to find suppliers for all types of raw materials. The Research and Development division conducts quality tests with the objective of having an alternative supply should there be a delivery disruption from the main suppliers while ensuring that the product quality is maintained. - The Company anticipates risk of competition by continuously increasing brand awareness for the Company s products so that they continue to be demanded by the consumer. In addition, the Company continues to upgrade the quality of its products and create new products that meet the consumer taste. - To reduce the risk of foreign exchange fluctuations relating to the purchase of machinery, the Company sets aside reserves in the currency needed for this purpose. - Should there be a shortage in energy supply, the Company uses a modified oven with burner that can use liquified petroleum gas (LPG). In addition, the Company has power generator facilities for temporary electricty outages. - The Company recognizes that labor is a key component to the Company s success, therefore the Company continues to attend to its employees needs. The Company has met all relevant Government labor regulations and provides sufficient facilities to its employees to minimize the risk of labor strikes. - The Company s Research and Development division continues to find alternative equipment from other suppliers to minimize dependency to the current machinery supplier. - The Company conducts quality control in each step of its production process to minimize contamination risks. The quality contol process is described in Chapter VIII on Business and Prospect. - To address issues relating to the Company s products, the Company provides explanations to the public through the media and invites consumer who wants to understand the Company s production process by providing an auditorium where consumer can see the Company s profile and production process. If needed, groups of consumer can visit the Company s factory and directly view the Company s production process. 17

29 V. BUSINESS RISKS Investment in the Shares contain significant risks. Prior to investing in the Shares, prospective investors should be aware the the Company, and therefore its business activities, are subject to the laws, regulations and investment climate in Indonesia. The Company s business is affected by a number of factors, some of them are outside the control of the Company. Prior to making investment decision, prospective investors shall review the following risks and shall make its own investment analysis. Other risks that are currently unknown to the Company or that are considered immaterial by the Company may have an impact on the Company s business activities. The following risks have been presented in accordance with its potential impacts on the Company s performance based on the Company s judgment. The Company has disclosed all material risks relating to its business. Risks relating to operational activities (i) Product contamination in pre-production, during production and at distribution The Company faces the risks of product contamination from the raw material stage, during production process and at distribution to the outlets and end consumer. Product contamination will result in the loss of consumer trust in the Company and in turn in the decline of the Company s sales. (ii) Short shelf life of the products As the Company s products are products with limited shelf life, delay in the collection of expired products will result in the display in the shelves of products that are stale and not consumable, that will result in loss of consumer trust in the Company and in turn in the decline of the Company s sales. (iii) Availability of wheat as raw material of flour The Company uses flour which is processed from wheat that is imported and purchased based on international market price. As an agricultural product, wheat is produced seasonally and may not always be available. In addition, should there be a fluctuation in world demand, wheat availability may be limited. If there is a shortage that results in the Company s suppliers not being able to produce flour, the Company would not be able to conduct its operational activities. Shortage of wheat in the international market will also result in the increase of flour price that may not be able to be passed on to the Company s selling price due to the sensitivity of demand for the products to price. Therefore a significant increase in wheat price would result in the increase of the Company s raw material cost and in turn the decline in the Company s profitability. (iv) Availability of energy supply One of the essential raw materials for the Company s production is energy. Currently the Company utilizes liquefied natural gas and electricity as source of energy, which are supplied by the industrial estates where the Company s factories are located. Shortage of energy supply will result in disruption in the Company s production and in lower production output, which in turn will impact the Company s sales. (v) Risk of labor strikes Labor is an essential asset of the Company as the Company s operational activities are dependent on labor productivity. Even though the Company s management maintains a good relationship with its labor force, there is no guarantee that there will be no labor strikes in the future. Should there be a strike, the Company s operational activities will be disrupted and in turn will impact the Company s profitability. 18

30 (vi) Risk relating to availability of spare parts The Company uses equipment produced by certain suppliers that own the technology and patent rights over their products. The Company needs to purchase spare parts from the equipment suppliers to replace broken or old spare parts. If the spare parts are not available, be it due to outdated technology or due to discontinued equipment, the Company would have to purchase them from other equipment suppliers with specifications that may not be the same as what is required. The possibility of difficulty in obtaining spare parts could increase repair and maintenance costs that will in turn impact the Company s profitability. Risks relating to market conditions and sales (i) Foreign exchange fluctuations Some of the Company s main raw materials are influenced, directly and indirectly, by foreign exchange fluctuations, such as flour, sugar and yeast. In addition, spare parts for machinery and packaging materials are also dependent on the Rupiah exchange rate to foreign currencies. On the other hand, the Company s sales are denominated in Rupiah. A significant change in the Rupiah exchange rate against foreign currencies may result in the increase of prices of certain raw materials, packaging materials and spare parts, which may not be accompanied by the increase of the Company s selling price and therefore has a negative impact on the Company s profitability. (ii) Competition The Company s products that are sold through retailers accounted for more than 50% of the Company s sales in With the trend of retailers producing and selling its own bread under its own brand, the Company faces the risk of competition from the retailers as they try to maximize the sale of their own products. In addition, the Company faces competition from boutique bakeries and home industry that even though are of smaller scale but are numerous with their own target consumer. Risks relating to government policies and social environment (i) Increase of regional/provincial minimum wage An increase in the regional/provincial minimum wage that is higher than inflation rate will affect the Company s production costs. The contribution of direct labor to production costs for the year ending December 31, 2009, was approximately 5% as the Company still relies in labor in its production process. The Company has tried to pass on the increase in the regional/provincial minimum wage to the Company s selling price. However, if the regional minimum wage increased significantly and is not properly managed, the Company s production costs will also increase significantly. (ii) Economic, political and social stability Indonesia s economic, political and social conditions have an influence on the Company s operating activities. Economic, political and social instability may result in labor or mass riots that are outside the control of the Company. In addition, these may impact the purchasing power of the Company s consumer that in turn will result in the decline of the Company s sales. Economic, political and social instability will negatively impact the Company s operations, performance and business prospects. (iii) Preservative and halal issues As the Company s products have a shelf life of more than one day, the Company faces the risks of issues on the use of preservatives to make the Company s products last for a few days. These issues will paint a negative picture on the Company s raw materials and production process. In addition, issues could also develop over the halal status of 19

31 the Company s products. Should these issues arise, there is a possibility that demand for the Company s products becomes lower and in turn results in the decline of the Company s sales. (iv) Natural disaster The Company s factories are located in Indonesia and distribution of the Company s products is directed to the Indonesian market. Indonesia is a country that is susceptible to natural disasters such as earthquake, volcano eruption, floods and others. Should there be a natural disaster in Indonesia, the Company s production process will be disrupted. In addition, there will be disruptions in the delivery of raw materials by suppliers and in the distribution of the Company s products to retailers or to stock points. Transportation problems due to natural disasters that disrupt distribution of the Company s products will result in a shorter shelf life where the products will have to be immediately sold and consumed. 20

32 VI. MATERIAL EVENTS SINCE THE DATE OF THE INDEPENDENT AUDITOR S REPORT There are no material events since May 3, 2010, the date of the independent auditor s report for the Company s financial statements for the year ending December 31, 2009, that has been audited by the Public Accounting Firm Purwantono, Suherman & Surja (previously Purwantono, Sarwoko & Sandjaja), a member of Ernst & Young Global Limited, with an unqualified opinion, that would require disclosure in this Prospectus. 21

33 VII. INFORMATION ABOUT THE COMPANY 1. Brief history The Company was incorporated under the name PT Nippon Indosari Corporation by Deed of Establishment No. 11 dated March 8, 1995, as amended by Deed of Amendment of Articles of Association No. 274 dated April 29, 1995, both drawn up before Benny Kristianto, SH, Notary in Jakarta, which have been ratified by the Minister of Law and Human Rights (formerly Minister of Justice) pursuant to Decree No. C HT Th.95 dated March 18, 1995, registered in the District Court of Bekasi No 264 and 265 dated September 14, 1995, and published in the State Gazette of the Republic of Indonesia No. 94 dated November 24, 1995, Supplement No. 9729/1995. The Deed of Establishment, which contains the Company s articles of association, have been amended by the following deeds: 1. Deed of Amendment of Articles of Association No. 23 dated July 7, 1997, drawn up before Benny Kristianto, SH, Notary in Jakarta, which has been ratified by and reported to the Minister of Law and Human Rights (formerly Minister of Justice) pursuant to Decree No. C HT TH.97 dated September 2, 1997, registered in the Company Register at the Office of Company Register of the District of Bekasi under agenda No. 37/BH.10.07/X/1997 dated October 31, 1997, and published in the State Gazette of the Republic of Indonesia No. 4 dated January 13, 1998, Supplement No. 268/1998, that has been revised by the State Gazette No. 11 dated February 6, 2001, Supplement No. 268a/2001. This deed approves the amendments to Articles 2, 3 and 4 of the Company s articles of association. 2. Deed of Meeting Resolution No. 5 dated July 23, 2003, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights (formerly Minister of Justice and Human Rights) pursuant to Decree No. C HT TH.2003 dated August 14, 2003, registered in the Company Register at the Office of Company Register of the District of Bekasi under agenda No. 418/BH.10.07/X/2003 dated October 9, 2003, and published in the State Gazette of the Republic of Indonesia No. 85 dated October 24, 2003, Supplement No /2003. This deed approves the increase of the Company s authorized capital, confirmation of the Company s boards and change of the Company s name from PT Nippon Indosari Corporation to PT Nippon Indosari Corpindo. Notice of change of the name of the Company has been received and registered by BKPM pursuant to BKPM letter No. 228/B2/A6/2003 dated September 4, 2003, regarding the Change of the Name of the Company. 3. Deed of Meeting Resolution No. 3 dated June 7, 2005, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. C HT TH.2005 dated July 13, 2005, registered in the Company Register at the Office of Company Register of the District of Bekasi No. 546/BH.10.07/XI/2005 dated September 21, 2005, and published in the State Gazette of the Republic of Indonesia No. 104 dated December 30, 2005, Supplement No. 1234/2005. This deed approves the amendments to Articles 11.3(a), 11.3(b) and 11.6(b) on the Responsibility and Authority of the Board of Directors. 4. Deed of Meeting Resolution No. 1 dated July 1, 2008, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. AHU AH Tahun 2008 dated September 18, 2008, registered in the Company Register No. AHU AH Tahun 2008 dated September 18, 2008, and published in the State Gazette of the Republic of Indonesia No. 92, Supplement No /2008, on increase of capital and amendment to entire articles of association in accordance with Law No. 40/2007 on Limited Liability Company. 5. Deed of Meeting Resolution No. 17 dated December 30, 2009, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, which has been reported to the Minister of Law and Human Rights by Receipt of Notice of Change of Company Data No. AHU-AH dated February 12, 2010, and registered in the Company Register No. AHU AH Tahun 2010 dated February 12, This deed approves the cancellation of Deed of Meeting Resolution No. 10 dated November 16, 2009, the change of the Company s Board of Directors and Board of Commissioner and the sale of shares belonging to Bonlight Investments Limited to Treasure East Investments Limited. 22

34 In relation to the Offering, the Company amended its articles of association in compliance with articles of association for listed companies and changed the name of the Company to PT Nippon Indosari Corpindo Tbk by Deed No. 86 dated February 24, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. AHU AH Tahun 2010 dated March 12, 2010, and registered in the Company Register No. AHU AH Tahun 2010 dated March 12, Based on Article 3 of the Company s Articles of Association as set forth in the Deed of Meeting Resolution No. 86 dated February 24, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, the Company s purpose and objective are: 1. To conduct business activities in the bread, cakes and other foodstuff 2. To achieve the above purpose and objective, the Company may perform the following busines activities: a. Main business activities: To establish factories and produce all types of bread, including but not limited to toast bread, sandwiches and other types of cakes b. Supporting business activities: To market and sell all types of bread, including but not limited to toast bread, sandwiches and other types of cakes. The Company is headquartered in Jababeka Industrial Estate, Jl. Jababeka XII A, Block W No , Cikarang, Bekasi. 2. Permits and licenses The following are the list of the Company s permits and licenses in operating its business: No. Document Permit/License No. Date From 1 Import duty reduction for machinery 2485/KM.4/2008 October 27, 2008 Minister of Finance 2 Notice of the approval of the President for the foreign 687/III/PMA/1997 May 30, 1997 BKPM investment facilities 3 Change of shareholding (Model III.A) 687/III/PMA/1997 May 30, 1997 BKPM 4 Change of Limited Importer Identification Number No. 284/P-APIT/2009/PMA April 29, 2009 BKPM 410/APIT/PMA/1995 dated September 6, 1995, in conjunction with latest amendment No. 229/P- APIT/PMA/2005 dated April 13, Change of Industrial Business Permit No. 05/P-IUT/2009 January 30, 2009 BKPM 74/T/INDUSTRI/1999 dated February 22, 1999, and Expansion Permit No. 367/T/INDUSTRI/2005 dated May 11, 2005, No. 962/T/INDUSTRI/2006 dated December 7, 2006, No. 887/T/INDUSTRI/2008 dated August 27, Block W Office Expansion Permit 367/T/INDUSTRI/2005 May 11, 2005 BKPM 7 Block C Office Expansion Permit 877/T/INDUSTRI/2008 August 27, 2008 BKPM 8 Block U Office Expansion Permit 8/1/P/II/PMA/2010 February 2, 2010 BKPM 23

35 3. Shareholding evolution Establishment 1995 Pursuant to Deed of Establishment No. 11 dated March 8, 1995, as amended by Deed of Amendment of Articles of Association No. 274 dated April 29, 1995, both drawn up before Benny Kristianto, SH, Notary in Jakarta, the Company s capital structure and shareholding at establishment are as follows: Description Par value Rp100,000 per share No. of shares Par value (Rp) % Authorized capital 35,360 3,536,000,000 Issued and paid-up capital: PT Sari Indoroti 28,288 2,828,800, Nissho Iwai Corporation 3, ,600, Shikishima Baking Co., Ltd 3, ,600, Total issued and paid-up capital 35,360 3,536,000, Shares in portfolio Pursuant to Deed of Amendment of Articles of Association No. 23 dated July 7, 1997, drawn up before Benny Kristianto, SH, Notary in Jakarta, the Company s shareholders approved: i. an increase of the Company s authorized capital from Rp3,536,000,000 to Rp11,050,000,000, ii. an increase of the Company s issued and paid-up capital from Rp3,536,000,000 to Rp11,050,000,000, and iii. a change in the Company s par value per share from Rp100,000 to Rp55,250. All of the increase in the issued and paid-up capital of Rp7,514,000,000 has been paid in cash by the Company s shareholders in proportion to their shareholding. The increase of capital has been approved by BKPM by letter No. 687/III/PMA/1997 dated May 30, Based on the above change, the Company s capital structure and shareholding became as follows: Description Par value Rp55,250 per share No. of shares Par value (Rp) % Authorized capital 200,000 11,050,000,000 Issued and paid-up capital: PT Sari Indoroti 160,000 8,840,000, Nissho Iwai Corporation 20,000 1,105,000, Shikishima Baking Co., Ltd 20,000 1,105,000, Total issued and paid-up capital 200,000 11,050,000, Shares in portfolio Pursuant to Deed of Meeting Resolution No. 5 dated August 3, 2001, drawn up before Suryati Moerwibowo, SH, Notary in Jakarta, the Company s shareholders approved the transfer of all of the shares of PT Sari Indoroti of 160,000 shares to Bonlight Investments Limited, which transfer was executed through Deed of Share Sale and Purchase No. 6 dated August 3, 2001, drawn up before Suryati Moerwibowo, SH, Notary in Jakarta. The transfer of shares has been reported to the Minister of Law and Human Rights on September 12, 2001, and received approval from BKPM by letter from the Deputy Chairman for Investment Services of BKPM on Approval of a Change in Capital Structure No. 1009/III/PMA/2001 dated August 1,

36 With the above transfer of shares, the Company s shareholding became as follows: Description Par value Rp55,250 per share No. of shares Par value (Rp) % Authorized capital 200,000 11,050,000,000 Issued and paid-up capital: Bonlight Investments Limited 160,000 8,840,000, Nissho Iwai Corporation 20,000 1,105,000, Shikishima Baking Co., Ltd 20,000 1,105,000, Total issued and paid-up capital 200,000 11,050,000, Shares in portfolio Pursuant to Deed of Meeting Resolution No. 5 dated July 23, 2003, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, the Company s shareholders approved the following: i. an increase in the Company s authorized capital from Rp11,050,000,000 to Rp17,348,500,000, and ii. an increase of the Company s issued and paid-up capital from Rp11,050,000,000 to Rp17,348,500,000. All of the increase in the issued and paid-up capital of Rp6,298,500,000 has been paid in cash by the Company s shareholders in proportion to their shareholding. The increase of capital has been approved by BKPM by letter No. 814/III/PMA/2003 dated July 17, Based on the above change, the Company s capital structure and shareholding became as follows: Description Par value Rp55,250 per share No. of shares Par value (Rp) % Authorized capital 314,000 17,348,000,000 Issued and paid-up capital: Bonlight Investments Limited 251,200 13,878,800, Nissho Iwai Corporation 31,400 1,734,850, Shikishima Baking Co., Ltd 31,400 1,734,850, Total issued and paid-up capital 314,000 17,348,500, Shares in portfolio Pursuant to Deed of Meeting Resolution No. 3 dated February 4, 2005, drawn up before Ukon Krisnajaya, SH, Sp.N, Notary in Jakarta, in the Company s extraordinary shareholders meeting dated April 15, 2004, it was informed that one of the Company s shareholders, Nissho Iwai Corporation, has changed its name to Sojitz Corporation based on Merger Agreement between Nichimen Corporation and Nissho Iwai Corporation dated April 1, This change has been recorded by the Deputy Chairman for Capital Investment Services of BKPM by letter No. 153/B.1/A.6/2005 on Change of Name of Foreign Shareholder as revised by letter No. 253/B.1/A.6/2005 dated February 17, The change has also been received by and recorded in the Sisminbakum database of the Directorate General of Administration of General Laws of the Department of Law and Human Rights by letter No. C-UM dated June 9, 2005, on Receipt of Notice of Change of Shareholders. Based on the above change, the Company s capital structure and shareholding became as follows: Description Par value Rp55,250 per share No. of shares Par value (Rp) % Authorized capital 314,000 17,348,000,000 Issued and paid-up capital: Bonlight Investments Limited 251,200 13,878,800, Sojitz Corporation 31,400 1,734,850, Shikishima Baking Co., Ltd 31,400 1,734,850, Total issued and paid-up capital 314,000 17,348,500, Shares in portfolio

37 2008 Pursuant to Deed of Meeting Resolution No. 1 dated July 1, 2008, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, the Company s shareholders approved the following: i. an increase in the Company s authorized capital and a change in the par value of the Company s shares such that the Company s authorized capital changes from Rp17,348,500,000 divided into 314,000 shares, each with a par value of Rp55,250, to Rp344,000,000,000 divided into 344,000,000 shares, each with a par value of Rp1,000 ii. a cancellation of all of the Company s issued shares of 314,000 shares, each with a par value of Rp55,250, to be replaced with shares with par value of Rp1,000 iii. issuance of 86,050,600 new shares with total par value of Rp86,050,600,000 through conversion of convertible bond, additional paid-in capital and advance for future stock subscriptions totaling Rp86,050,600,000. Based on the above change, the Company s capital structure and shareholding became as follows: Description Par value Rp1,000 per share No. of shares Par value (Rp) % Authorized capital 344,000, ,000,000,000 Issued and paid-up capital: Bonlight Investments Limited 68,840,480 68,840,480, Sojitz Corporation 8,605,060 8,605,060, Shikishima Baking Co., Ltd 8,605,060 8,605,060, Total issued and paid-up capital 86,050,600 86,050,600, Shares in portfolio 257,949, ,949,400, Pursuant to Deed of Meeting Resolution No. 10 dated November 16, 2009, drawn up before Ukon Krisnajaya, SH, SpN, Notary in Jakarta, the Company s shareholders approved the transfer of 34,420,240 shares held by Bonlight Investments Limited to Market Bright Profits Limited. With the above transfer of shares, the Company s shareholding became as follows: Description Par value Rp1,000 per share No. of shares Par value (Rp) % Authorized capital 344,000, ,000,000,000 Issued and paid-up capital: Bonlight Investments Limited 34,420,240 34,420,240, Market Bright Profits Limited 34,420,240 34,420,240, Sojitz Corporation 8,605,060 8,605,060, Shikishima Baking Co., Ltd 8,605,060 8,605,060, Total issued and paid-up capital 86,050,600 86,050,600, Shares in portfolio 257,949, ,949,400,000 Pursuant to Deed of Meeting Resolution No. 17 dated December 30, 2009, drawn up before Ukon Krisnajaya, SH, Notary in Jakarta, the Company s shareholders approved the following: i. cancellation of Deed of Meeting Resolution No. 10 dated November 16, 2009, drawn up before Ukon Krisnajaya, SH, SpN, Notary in Jakarta, ii. a change the composition of the Company s Board of Directors and Board of Commissioners, and iii. the sale of 34,420,240 shares of Bonlight Investments Limited to Treasure East Investments Limited. The above Deed has been notified to the Minister of Law and Human Rights with Receipt of Notification of Change of Company Data No. AHU-AH dated February 12, 2010, and has been registered in the Company Register No. AHU AH Tahun 2010 dated February 12, The transfer of shares has been approved by BKPM by letter from the Deputy Chairman for Investment Services of BKPM on Approval of a Change in Capital Structure No. 16/1/IU/II/PMA/Industri/2010 dated February 19,

38 With the above transfer of shares, the Company s shareholding became as follows: Description Par value Rp1,000 per share No. of shares Par value (Rp) % Authorized capital 344,000, ,000,000,000 Issued and paid-up capital: Bonlight Investments Limited 34,420,240 34,420,240, Treasure East Investments Limited 34,420,240 34,420,240, Sojitz Corporation 8,605,060 8,605,060, Shikishima Baking Co., Ltd 8,605,060 8,605,060, Total issued and paid-up capital 86,050,600 86,050,600, Shares in portfolio 257,949, ,949,400, Pursuant to Deed No. 86 dated February 24, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. AHU AH Tahun 2010 dated March 12, 2010, and registered in the Company Register No. AHU AH Tahun 2010 dated March 12, 2010, the Company s shareholders approved the change of the par value of the Company s shares from Rp1,000 per share to Rp100 per share, such that the Company s capital structure and shareholding became as follows:. Description Par value Rp100 per share No. of shares Par value (Rp) % Authorized capital 3,440,000, ,000,000,000 Issued and paid-up capital: Bonlight Investments Limited 344,202,400 34,420,240, Treasure East Investments Limited 344,202,400 34,420,240, Sojitz Corporation 86,050,600 8,605,060, Shikishima Baking Co., Ltd 86,050,600 8,605,060, Total issued and paid-up capital 860,506,000 86,050,600, Shares in portfolio 2,579,494, ,949,400, Management and supervision The current composition of the Company s Board of Commissioners and Board of Directors as set out in Deed No. 36 dated April 14, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, is as follows: Board of Commissioners President Commissioner: Commissioner: Independent Commissioner: Benny Setiawan Santoso Tan Hang Huat Seah Kheng Hong Conrad Board of Directors President Director: Director: Director: Director: Director: Unaffiliated Director: Wendy Sui Cheng Yap Indrayana Kaneyoshi Morita Takao Okabe Yenni Husodo Chin Yuen Loke The Company shall form an Audit Committee within six months from the listing date of the Company s shares in IDX, at which time the Company shall announce it to the public and notify Bapepam-LK in accordance with Regulation X.K.1 on Disclosure of Information to the Public. 27

39 Based on letter No. 001/CS/NIC/II/2010 dated February 24, 2010, the Company s Board of Directors has appointed Arlina Sofia as Corporate Secretary. The following are brief resume of the members of the Company s Board of Commissioners and Board of Directors: Board of Commissioners Benny Setiawan Santoso President Commissioner Indonesian citizen, 52 years of age. President Commissioner of the Company since Currently also an Executive Director of Salim Group and Director of PT Indocement Tunggal Prakarsa Tbk since 1994, Non-Executive Director in First Pacific Company Limited, President Commissioner in PT Indosiar Karya Media Tbk and Director/Advisory Board in Phillipines Long Distance Telephone Company since 2003, and Commissioner of PT Indofood Sukses Makmur Tbk since Graduated in Business Studies from Ngee Ann College in Tan Hang Huat Commissioner Singapore citizen, 54 years of age. Commissioner of the Company since Currently also a Commissioner of PT Ria Bintan since 1997, Commissioner of PR Agro Green Asia since 2006 and President Commissioner of PT Panduharapan Nusa since Graduated with Bachelor of Commerce from Newscastle University, Australia, in Seah Kheng Hong Conrad Independent Commissioner Singapore citizen, 48 years of age. Commissioner of the Company since Currently also Managing Director of Ennea Resources Pte Ltd. Previously worked as General Manager in Pynacle Pte. Ltd. ( ), Vice President of Prudential Bache Securities Ltd. Singapore ( ), Vice President of Bankers Trust Company Singapore ( ) and as Merchant in Cargill Commodity Trading Singapore ( ). Graduated with Bachelor of Science (Hons) from University of Singapore in

40 Board of Directors Wendy Sui Cheng Yap President Director Indonesian citizen, 54 years of age. President Director of the Company since Currently also a Director of PT Suryamas Dutamakmur Tbk (since 1994). Previously President Director of PT Wendy Citrarasa ( ), Alternate Director of Kerry Trading Hongkong ( ), President of Wemith Corporation California, USA ( ) and President of Prima Development Company, USA ( ). Graduated with Bachelor of Commerce from University of Melbourne in Indrayana Director Indonesian citizen, 48 years of age. Compliance Director of the Company since Currently also holds a position in Business Development of Salim Group (since 2008). Previously Marketing Director of PT Samsung Electronic Indonesia ( ), Regional Director of Electrolux Asia, Bangkok ( ), General Manager of PT Phillips Electronic Indonesia ( ), Executive Director of PT Topjaya Sarana Utama Indonesia ( ), Sales Marketing Manager of PT Tootal Thread Indonesia ( ), Marketing Manager of PT Tempo Scan Pacific Tbk ( ) and in Production of Verkade Biskuit PT Makindo Perdana (1986). Graduated with Bachelor degree in Food and Nutrition Technology from Bogor Agriculture Institute (1985) Lulus sebagai Sarjana dari Jurusan Teknologi Pangan dan Gizi, Institut Pertanian Bogor (1985) and Master of Business Administration from Central Institute of Management, Jakarta (1989). Kaneyoshi Morita Director Japanese citizen, 52 years of age. Director of Product Development and Technology since April Previously Senior Managing Director of Shikishima Baking Co., Ltd. ( ), Managing Director of Shikishima Baking Co., Ltd. ( ), Director of Shikishima Baking Co., Ltd. ( ), General Manager of Shikishima Baking Co., Ltd. ( ), Manager of Shikishima Baking Co., Ltd ( ), staff of The Fuji Bank Ltd. ( ). Graduated from the Economics Department, College of Economics, Aoyama Gakuin University, in Takao Okabe - Director Japanese citizen, 40 years of age. Purchasing Director of the Company since April Previously a General Manager of PT Sojitz Indonesia ( ) and worked at Nissho Iwai Corporation ( ). Graduated from the Spanish Department of the Faculty of Foreign Studies, Kobe City University, in

41 Yenni Husodo - Director Indonesian citizen, 48 years of age. Finance Director of the Company since April Previously a Commissioner of the Company (February 2010 April 2010), Director of the Company (November 2009 February 2010), President Commissioner of the Company (May 2006 November 2009), Finance Controller of PT Trampil Mutiara Rezeki ( ), Finance Controller of PT Nusa Bintang Kirana ( ), Finance Controller of PT Maharani Graha ( ), Finance Controller of PT Planet Dwimas ( ), Finance & Accounting Manager of PT Wendy Citrarasa ( ), Finance & Accounting Manager of PT Sinar Dunia Kristal ( ), Finance & Accounting Supervisor of PT Tarpintex ( ), Finance & Accounting Staff of PT Atithya Loka ( ). Graduated from the Faculty of Economics of the University of Indonesia in Chin Yuen Loke Unaffiliated Director Singapore citizen, 53 years of age. Unaffiliated Director of the Company since April Previously President of Canexcel International Pte. Ltd. (January 2000 December 2009), Vice President of Union Bancaire Privee (August 1998 June 1999), Director of Credit Suisse Private Banking (May 1994 July 1998), Senior Manager of Standard Chartered Bank (March 1991 April 1994), General Manager of Canadian Imperial Bank of Commerce (August 1987 January 1991), Manager of Banque National De Paris (May 1985 June 1987), Assistant Vice President of First Interstate Bank of California (May 1983 May 1985), Assistant Manager of Industrial Bank of Japan (February 1981 April 1983). Graduated with Bachelor of Arts in Economics from University of Western Ontario, Canada, in The total remuneration of the Board of Commissioners and Board of Directors for the years ending December 31, 2007, 2008 and 2009, was Rp1,064 million, Rp1,685 million and Rp2,568 million. 5. Human resources The Company considers continuous training program for its employees in personal development, business perspectives and management, as well as technical knowledge, as an important aspect of its operations. The following are some of the internal and external training programs that the Company provides to its employees: - Good Manufacturing Practice and Sanitation Operating Procedure - Work Safety - Work Instruction Training - Total Productivity Maintenance - Baking Training School - Hazard Analytical Critical Control Point Training - Introduction of policies and LPPOM MUI standard operating procedure - Tax training - Internal audit training - Leadership. The Company employs staff possessing special skills obtained through various baking training courses. 30

42 To improve the welfare of its employees, the Company employs a performance-based compensation system. In addition, the Company provides the following employee benefits: - Social security (Jamsostek) - Transportation - Health insurance for the employees and their families - Outpatient clinic - Sports facilities - Religious facilities - Canteen - Religious holiday allowance - Incentives. The Company is in compliance with the prevailing provincial/regional minimum wage as follows: - Decree of the West Java Governor No.561/Kep.1665-Bangsos/ Decree of the East Java Governor No. 69/ Decree of the Yogyakarta Governor No. 217/ Decree of the Lampung Governor No.G/681/III.05/HK/2009. In hiring, the Company implements standard recruitment and selection process to meet its needs. The following table shows the breakdown of permanent employees as of December 31, 2009, 2008 and 2007, based on ranks, education and age groups: Composition of Employees based on Ranks Rank Manager Staff Non-staff Total Composition of Employees based on Education Education > Bachelor Bachelor Diploma High school/equivalent < High school Total Composition of Employees based on Age Groups Age Group > < Total The following table shows the breakdown of permanent and contract employees as of December 31, 2009, 2008 and 2007: Status Permanent Contract Total

43 The following chart shows the Company s organization structure: 6. Brief description of corporate shareholders 6.1. Bonlight Investments Limited ( BIL ) Brief History BIL is a company incorporated based on the laws of the British Virgin Islands pursuant to Certificate of Incorporation No dated January 2, 1997, under the name Bonlight Investments Limited. Management and Supervision Based on Certificate of Incumbency dated March 8, 2010, the current directors of BIL are as follows: 1. Wendy Sui Cheng Yap 2. Emily Yap Lan Cheng. Capital Structure Based on Memorandum and Articles of Association of Bonlight Investments Limited No dated January 2, 1997, BIL s capital structure is as follows: Authorized capital: USD50,000, consisting of 50,000 shares, each with a par value of USD1. Based on Directors Statement dated March 4, 2010, BIL s shareholding structure is as follows: Shareholder No. of Shares Value (USD) % The PY Family Foundation, Panama Sari Roti TM Limited, BVI Business Activities BIL s business activity is in investment. 32

44 6.2. Treasure East Investments Limited ( TEIL ) Brief History TEIL is a company incorporated based on the laws of the British Virgin Islands pursuant to Certificate of Incorporation No dated December 3, 2009, under the name Treasure East Investments Limited. Management and Supervision Based on Register of Directors No , the current director of TEIL is Tan Hang Huat. Capital Structure Based on Register of Members No , TEIL s capital structure and shareholding are as follows: Shareholder No. of Shares Value (USD) % Tan Hang Huat % Business Activities TEIL s business activity is in investment Sojitz Corporation ( SC ) Brief History SC is a company incorporated under the name Sojitz Holding Corporation on April 1, 2003, based and in accordance with the laws of Japan, and changed its name into Sojitz Corporation on October 1, The articles of association of SC was last amended on June 23, Management and Supervision Based on Certificate of Commercial Registry & Statement Letter dated January 15, 2010, which has been legalized by Registration No dated February 18, 2010, by Shigenori Ishiguro, Notary in Japan and by the Embassy of the Republic of Indonesia in Tokyo, Japan, on February 19, 2010, the members of SC s Board of Directors are as follows: Director: Director: Director: Director: Director: Director: Director: Masaki Hashikawa Akio Dobashi Yutaka Kase Yoji Sato Kazunori Teraoka Yoshizaku Sashida Toru Nagashima Capital Structure Based on Company Data as of March 31, 2009, as set out in the 2009 Annual Report, SC s capital structure is as follows: Authorized capital: 160,339,000 Yen. 33

45 Based on shareholding information as of March 31, 2010, SC s majority shareholders are as follows: Shareholder No. of Shares % Japan Trustee Services Bank, Ltd. 142, The Master Trust Bank of Japan, Ltd. 34, Trust & Custody Services Bank, Ltd. 21, State Street Bank and Trust Company , Mellon Bank, N.A. as Agent for its client Mellon Omnibus US Pension 14, The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account 12, Juniper 11, State Street Bank West Client Treaty 10, Mellon Bank, N.A. Treaty Client Omnibus 10, Nomura Singapore Limited Customer Segnegated A/C FJ , Business Activities SC is a holding company with subsidiaries in various businesses Shikishima Baking Co., Ltd. ( SBCL ) Brief History SBCL is a company incorporated as Shikishima Baking Co., Ltd. on December 27, 1919, based on Japanese laws. Management and Supervision Based on Certificate of All Items that are Currently Effective dated February 17, 2010, that has been legalized by Registration No dated February 18, 2010, by Shigenori Ishiguro, Notary in Japan, and by the Embassy of the Republic of Indonesia in Tokyo, Japan, on February 19, 2010, the directors of SBCL are as follows: Director: Director: Director: Director: Director: Director: Director: Director: Director: Director: Director: Director: Director: Director: Director: Kazuaki Morita Atsuo Morita Masaki Tanaka Masasaki Tsubota Kaneyoshi Morita Katsumi Mizuno Hiroyuki Takahashi Hiroshi Morita Atsushi Banno Masayoshi Shibuya Shigeru Ieda Shuji Hirata Kenji Suzuki Chikafumi Hori Chikara Nemoto Capital Structure Based on Certificate of All Items that are Currently Effective dated February 17, 2010, that has been legalized by Registration No dated February 18, 2010, by Shigenori Ishiguro, Notary in Japan, and by the Embassy of the Republic of Indonesia in Tokyo, Japan, on February 19, 2010, SBCL s capital structure is as follows: Authorized capital: 1,799,533,200 Yen. 34

46 Based on Shareholders Register dated August 31, 2009, that has been legalized by Registration No dated February 18, 2010, by Shigenori Ishiguro, Notary in Japan, and by the Embassy of the Republic of Indonesia in Tokyo, Japan, on February 19, 2010, shareholders holding more than 10% of SBCL s issued shares are as follows: Shareholder No. of Shares Morita Enterprise Co., Ltd. 3,997,223 Moritax Co., Ltd. 3,884,559 Business Activities SBCL is in the business of production and selling of bread, candies, cakes, ice cream and other foods and drinks. 7. Ownership, management and supervision relationship between the Company and its corporate shareholders 7.1. Ownership relationship Notes: BIL : TEIL: SC : SBCL: Bonlight Investments Limited Treasure East Investments Limited Sojitz Corporation Shikishima Baking Co,. Ltd Management and supervision relationship Name Affiliation with Shareholder Company BIL TEIL SC SBCL Benny Setiawan Santoso Affiliated PC Tan Hang Huat Affiliated C - D - - Seah Kheng Hong Conrad Not Affiliated IC Wendy Sui Cheng Yap Affiliated PD D Indrayana Affiliated D Kaneyoshi Morita Affiliated D D Takao Okabe Affiliated D Yenni Husodo Affiliated D Chin Yuen Loke Not Affiliated UD Notes: PC: President Commissioner PD: President Director C: Commissioner D: Director IC: Independent Commissioner UD: Unaffiliated Director 35

47 8. Affiliated party transaction Type of affiliation - Shikishima Baking Co., Ltd. is one of the Company s shareholders. - Based on announcement made by First Pacific Company Limited to the Hong Kong Stock Exchange (HKSE) on February 23, 2010, it is stated, amongst others, that the Company is 40% owned by a company controlled by Mr. Anthoni Salim and therefore in accordance with the HKSE listing rules is an associate of Mr. Anthoni Salim. As such the Company is affiliated to: - PT Indofood Sukses Makmur Tbk, a company controlled by the Salim Group; and, - PT Lion Superindo, an associate of Mr. Anthoni Salim based on First Pacific Company Limited announcement to HKSE dated April 26, 2005, as part of the disclosure requirements of HKSE. Transaction details The following are the details of the affiliated party transaction: Description Value per December 31, 2009 (Rp millions) Percentage to Total Assets Trade receivables: PT Lion Superindo* 1, % Description Value per December 31, 2009 (Rp millions) Percentage to Total Liabilities Trade payables: PT Indofood Sukses Makmur Tbk (Bogasari Flour Mill Division)* 10, % Accrued expenses: Royalty Shikishima Baking Co., Ltd. 1, % Description Value for 2009 (Rp millions) Percentage to Net Sales Cost of goods sold: Purchase PT Indofood Sukses Makmur Tbk (Bogasari Flour Mill Division)* Royalty Shikishima Baking Co., Ltd. 6, % Note: * Became a related party to the Company as of February 23, 2010 The following is the agreement that the Company has entered into with its affiliated party: a. On June 12, 1995, the Company entered into Technical Agreement with Shikishima Baking Co., Ltd. (shareholder) and Nissho Iwai Corporation (now Sojitz Corporation) (shareholder) on the provision of technical know-how and training, including know-how on raw material control, quality, quantity, sanitation, production safety, equipment control and energy conversion. In this matter Sojitz acts as the intermediary between Shikishima Baking Co., Ltd. and the Company. This agreement was subsequently followed by the signing of Restated Technical Royalty Agreement on January 1, 2007, whereby the Company agrees to pay quarterly royalty at a certain percentage to net sales. During 2009 the royalty paid amounted to Rp6,317 million. The agreement expires on December 31, b. On February 23, 2010, the Company entered into a Sale and Purchase Agrement of flour with PT Indofood Sukses Makmur Tbk-Bogasari Division, which is valid until December 31, The purchase price shall be determined on a monthly basis. 9. Agreements with third parties The following are agreements and commitments entered into between the Companies and third parties: 36

48 a. On November 4, 2008, the Company entered into a supply agreement for cheese with PT Kraft Ultrajaya Indonesia for a period to be agreed by both parties, or until such time the agreement is terminated by one party with 30-day prior written notice to the other party. During 2009 the transaction value between the Company and PT Kraft Ultrajaya Indonesia amounted to Rp13,986 million. b. On November 28, 2007, the Company entered into transportation agreement with PT Bangun Putra Kerawang which is valid until December 31, 2010, whereby the Company appointed PT Bangun Putra Kerawang to transport, send and distribute the Company s products to the buyers. During 2009 the transaction value between the Company and PT Bangun Putra Kerawang amounted to Rp9,592 million. c. In 2004, the Company entered into a Distribution Agreement with PT Indomarco Prismatama (IP), whereby IP agrees to distribute the Company s products through its outlets and the Company agrees to pay distribution fee as set out in the agreement. d. On November 29, 2007, the Company entered into transportation agreement that was subsequently amended on January 2, 2008, whereby the Company appointed PT Adira Sarana Armada to transport, send and distribute the Company s products to the buyers. The agreement is valid until December 31, During 2009 the transaction value between the Company and PT Adira Sarana Armada amounted to Rp13,722 million. e. On June 9, 2008, the Compay entered into transportation agreement with PT Wira Logitama Saksama which is valid until December 31, 2010, whereby the Company appointed PT Wira Logitama Saksama to transport, send and distribute the Company s products to the buyers. During 2009 the transaction value between the Company and PT Wira Logitama Saksama amounted to Rp3,192 million. f. On January 1, 2009, the Company entered into agency agreements with 279 agents whereby the Company appointed each agent to sell the Company s products in certain regions in Java, Madura, Bali and Lampung. The agreements are valid until December 31, During 2009 the transaction value between the Company and the agents amounted to Rp88,293 million. g. The Company entered into eighteen Stock Point and Distributor Appointment Agreements to distribute the Company s products to stores in Jabodetabek (Jakarta, Bogor, Depok, Tangerang, Bekasi), Bandung, East Java, Central Java and Bali. During 2009 the transaction value between the Company and the distributors amounted to Rp48,735 million. h. Based on SAP Enterprise Support Agreement between the Company and PT Metrodata e-bisnis, the Company is licensed to use the SAP software by SAP AG, with PT Metrodata e-bisnis providing software management services including continuous development of the SAP software, software problem resolutions, quality control and transfer of technology as well as access to the SAP community. The agreement is valid from January 2010 to December i. Based on Warehouse Lease Agreement No. 5 dated September 15, 2001, the Company leases warehouse with an area of approximately 99 square meters in Gedebage, Bandung, West Java. The lease period is until September 15, The value of the contract is Rp16 million. j. Based on lease agreement dated April 2, 2008, the Company leases a house with an area of 140 square meters with 304 square meter land in Riung Bandung, West Java. The lease period is until March 31, 2010, and is currently under renewal. The building is used by the Company distribution center. The value of the contract is Rp16 million. k. Based on lease agreement dated January 1, 2008, the Company leases house with land of 536 square meters in Cirebon, West Java. The lease period is until December 31, 2011, and can be renewed. The building is used by the Company as distribution center. The value of the contract is Rp44 million. l. Based on lease agreement dated June 1, 2009, the Company leases 500 square meter warehouse in Kedaton, Bandar Lampung. The lease period is until May 31, 2012, and can be renewed. The building is used by the Company as distribution center. The value of the contract is Rp67 million. m. Based on lease agreement dated August 28, 2009, the Company leases a building in Jagakarsa, South Jakarta. The lease period is until August 28, 2011, and can be renewed. The building is used by the Company as stock point. The value of the contract is Rp49 million. n. Based on lease agreement dated June 1, 2009, the Company leases a building in Kebayoran Baru, South Jakarta. The lease period is until May 31, 2010, and can be renewed. The building is used by the Company as stock point. The value of the contract is Rp38 million. o. Based on lease agreement dated December 1, 2007, the Company leases 561 square meter building in Sleman, Central Java. The lease period is until December 31, 2010, and can be renewed. The building is used by the Company as distribution center. The value of the contract is Rp22 million. 37

49 p. The Company entered into Gas Supply Agreement with PT Perusahaan Gas Negara (Persero) Tbk, Region I Distribution Unit, West Java, Bekasi District. The term of the agreement for Block W factory is two years since March 1, 2008, while the term for Block U factory is two years since December 1, The value of gas purchase during 2009 amounted to Rp4,943 million. q. The Company entered into an Electricity Supply Agreement with PT Cikarang Listrindo. The term of the agreement is from the date of its signing and continues to be valid while PT Cikarang Listrindo still holds the license to generate and distribute electricity. The value of electricity supply during 2009 amounted to Rp7,307 million. r. Based on letter from PT Jababeka Infrastruktur No. 100/NI/KI/Ext-VI/08 dated June 6, 2008, on Connection for Clean and Waste Water, PT Jababeka Infrastruktur approved the Company s request on May 25, 2008, to obtain connection for clean and waste water at the prevailing connection and operational fees in accordance with the operational procedures. The costs relating to this during 2009 amounted to Rp1,053 million. s. The Company entered into agreements with third parties relating to vehicle rentals for the purpose of the Company s transportation and operational needs. The value of such contracts during 2009 amounted to Rp3,152 million. t. In relation to the additional production line in Block U, Cikarang, in 2009, the Company placed an order for oven and top sealer equipment to Sanko Machinery Co., Ltd. Based on Sales Contract dated March 13, 2009, and October 31, 2009, and to Daisey Machinery Co., Ltd., Japan, baed on Purchasing Agreement dated December 10, 2009, with total value of JPY137 million. The Company opened a time deposit for the purpose of issuance of letters of credit for the order. 10. Assets The following is the list of land with certificate of building rights title (Hak Guna Bangunan or HGB) in the name of and are owned by the Company with total acquisition costs of Rp14,263 million: No. Certificate No. 1. HGB No. 24 BPN (Land National Office) Bekasi 2. HGB No. 38 BPN Bekasi 3. HGB No. 563 BPN Bekasi 4. HGB No. 29 BPN Pasuruan 5. HGB No. 227 BPN Bekasi Issuance Date August 27, 1996 August 27, 1996 September 5, 2002 Expiry Date Land Area (sq.m) Location and Situation Drawing Juni 29, ,103 Lot W 41, Karang Baru Village, Cikarang Subdistrict, Bekasi Regency, West Java Province, as per Situation Drawing dated May 7, 1996, No. 6741/1996, Karang Baru, Bekasi September 24, 5,174 Lot W 40, Karang Baru Village, Cikarang 2023 Subdistrict, Bekasi Regency, West Java Province, as per Situation Drawing dated May 7, 1996, No. 6651/1996 June 29, Lot C 45F, Pasirgombong Village, Lemah Abang Subdistrict, Bekasi Regency, West Java Province, as per Survey Certificate dated August 1, 2002, No. 41/2002 June 6, 2005 June 6, ,727 Pandean Village, Rembang Subdistrict, Pasuruan Regency, East Java Province, as per Survey Certificate dated May 23, 2005, No. 2/Pandean/2005 August 22, 2006 September 24, ,900 Lot U-33, Karang Baru Village, Cikarang Subdistrict, Bekasi Regency, West Java Province, as per Survey Certificate dated June 20, 2006, No. 89/2006 Title Company Company Company Company Company The Company possesses the following land to operate its business: No. Basis of Ownership Land Area (sq.m) Location 1. Deed of Sale and Purchase No. 183/2009 3,200 Jl. Tugu Industri Raya, Randugarut Village, Tugu Subdistrict, Semarang, West Java Title in Name of PT Kawasan Industri Wijaya Description Based on letter No. 949/PPAT/I/2010 dated January 26, 2010, by Nurwulandari, SH, land notary in Semarang, the Building Rights Title certificate is in the process of transfer and change of title with the Semarang Land Office The acquisition cost of the above asset is Rp1,072 million. 38

50 The Company uses warehouses and houses for offices and stock points as follows: Land and Building No. Description of Property Area (sq.m) 1. Building for warehouse Building area 99 sq.m 2. House with land and yard for product distribution 3. House with land and yard for product distribution 4. House with adjacent warehouse for office or product distribution 5. Building for Sari Roti and Boti stock point 6. Building for Sari Roti and Boti stock point Land area 304 sq.m with building area 140 sq.m Land area 536 sq.m Land area 500 sq.m Land area 25 m x 12 m Building area 20 m x 7.5 m Location and Situation Drawing Lease Agreement Expiry Jl Cipamokolan No. 20, Cipamokolan Village, Rancasari Subdistrict, Gedebage Area, Bandung, West Java Jl Cipamokolan I No. 12/RT 03/RW 01, Taman Permata Complex, Riung Bandung, West Java Kertawinangun Village, Cirebon Barat Subdistrict, Cirebon Regency, West Java, locally known as Jl Cideng Raya No. 168 Rt. 02/02, Kertawinangun, Cirebon, as per Situation Drawing No. 120 dated December 23, 1989 Kedaton Village, Kedaton Subdistrict, Bandar Lampung, locally known as Jl Cempaka No. 27, Kedaton, Bandar Lampung, as per Situation Drawing No. 846 dated July 28, 1992 Jl H. Kayar No. 11 A RT. 10/06, Ciganjur, Jagakarsa, South Jakarta Jl H. Syahrin No. 28 Rt.001/10, North Gandaria, Kebayoran Baru, South Jakarta Warehouse Lease Agreement No. 5 dated September 15, 2001, and its renewals: - Deed No. 2 dated August 2, Deed No. 3 dated August 27, 2007 Lease Agreement dated April 1, 2008 Lease Agreement dated January 1, 2008, between the Company and Sutrisno Lease Agreement dated June 1, 2009, between the Companya and Muhari MZ Lease Agreement dated August 28, 2009, between the Company and Dra. Sari Wulandari M Lease Agreement dated June 1, 2009, amongst the Company, PT Swara Gangsing and Haji Rochmani September 15, 2011 March 31, 2010 December 31, Mei 2012 August 28, Mei 2010 The total lease over the above properties in 2009 was Rp369 million. 11. Legal proceedings faced by the Company Based on confirmations issued by the relevant institutions, there is no lawsuit nor civil or criminal case in the District Court, dispute under the Indonesian National Board of Arbitration (Badan Arbitrase Nasional Indonesia), submission of bankruptcy and/or moratorium through the Commercial Court involving the Company and members of the Board of Directors and Board of Commissioners that may materially affect the Company s operations or financial conditions, and the Company has never been a party to a severance case or an industrial relations dispute in the Industrial Relations Court. 12. Insurance The Company insures its assets such as vehicles, buildings and facilities as follows: No. Insurer Insurance Policy No. Insured Amount (Rp) Term Insured Asset 1 PT Asuransi Central Asia ,000,000 December 31, 2009 Vehicles December 31, PT Asuransi Central Asia ,998,347,875 December 31, 2009 December 31, 2010 Bread Factory, Pasuruan, East Java 3 PT Asuransi Central Asia ,811,660,719 December 31, 2009 December 31, 2010 Warehouse, Block C, Cikarang, Bekasi 4 PT Asuransi Central Asia ,520,167,695 December 31, 2009 December 31, 2010 Bread Factory, Block W Cikarang, Bekasi 5 PT Asuransi Central Asia ,410,841,146 December 31, 2009 December 31, 2010 Bread Factory, Block U, Cikarang, Bekasi 39

51 The Company is not affiliated to the above insurance company. The Company believes that the premium paid for the insured assets above is sufficient. 40

52 VIII. BUSINESS AND PROSPECT 1. General The Company was incorporated by Deed No. 11 dated March 8, 1995, and Notification Letter of Presidential Approval No. 126/I/PMA/1995 dated February 27, 1995, and currently is domiciled in Jababeka Block W, Jababeka Industrial Estate, Cikarang, Bekasi, West Java. The Company is a foreign investment company manufacturing various types of bread and has grown to become one of the companies in the bread industry with large scale, utilizing modern technology in its production process. At establishment, the Company had two production lines, of which one line is for bread loaves and one line is for sweet bread. In 2001, along with the growth of its sales, the Company doubled its capacity by adding two production lines, each for bread loaves and sweet bread. In November 2005, the Company opened its second factory in Pasuruan, East Java, by installing two production lines. The production from this factory is marketed to East Java, Central Java and Bali. In 2009, the Company added one sweet bread line in Pasuruan. In December 2008, the Company opened its third factory with two production lines in Jababeka Block U, Jababeka Industrial Estate, Cikarang, Bekasi, West Java. One line is for the production of bread loaves and the other line is for the production of sweet bread. In addition, the Company constructed an auditorium in Block U for consumer visit so the consumer can view the Company s production process that is hygienic and halal. The Company s main brand is Sari Roti that was launched since the Company started its commercial production. A supporting brand for the middle low segment is Boti, which was launched in the beginning of Sari Roti is targeted towards to middle upper class with monthly expenditure of Rp1,500,000 and above, while Boti is targeted towards the middle low class with monthly expenditure of below Rp1,500,000. Each brand has a number of products divided into two main categories: bread loaves and sweet bread that contains bread fillings. Sari Roti bread loaves have seven variance with the highest sales coming from Special White Bread, while the sweet bread has twenty two variance with Chocolate Bread contributing the highest sales. Boti has two variance of bread loaves and thirteen variance of sweet bread, with Boti Special White Bread and Chocolate-filled Boti contributing the highest sales. The Company has also entered the cake segment by introducing Sari Cake. Currently Sari Cake has three variance: Pandan Chiffon, Chocolate Cup Cake and Pandan Cup Cake. The Sari Roti brand s tagline is Soft Nutritious Tasty With Filling and carries the 3H catchphrase: Hygienic, Healthy, and Halal, which means it is safe to consume. The Company always strives to carry out activities that maintain these principles. All of the Company s products have halal certificates that are regularly renewed. This is critical as the majority of the Indonesian population is Moslem. The Company applies good manufacturing practice starting in 1996 and by 2006, it obtained the Hazard Analysis Critical Control Point (HAACP) certificate which is the standard for food safety. The Company has adopted enterprise resources planning since 2007 by utilizing SAP information technology software to integrate all systems and procedures starting from raw material purchase to product distribution. The program can also integrate the real time conditions of the three factories, which is a useful feature considering the different locations of the factories. 41

53 2. Operational activities 2.1. Production facility The Company has three factories in Bekasi and Pasuruan with the following production process: Sweet bread production process Ingredients Scaling Equipment: Silo Sponge mixing First fermentation Dough mixing Floor time Dividing Equipment: Divider Rounding Equipment: Rounder Intermediate Proofing Equipment: OHP Pressing, sheeting Equipment: Moulder Filling Panning Final fermentation Baking Equipment: Tunnel Oven Cooling Packing and coding Metal detecting Storage Machine name: Metal detector Function: To detect any metal objects 42

54 Toast bread production process Ingredients Scaling Sponge mixing First fermentation Dough mixing Floor time Dividing Equipment: Divider Rounding Equipment: Rounder Intermediate Proofing Equipment: OHP Dough pressing/sheeting Equipment: Moulder Moulder Panning Final fermentation Baking Equipment: Tunnel Oven Depanning Cooling Slicing Packing Metal detecting Storage Equipment : Metal detector Function: To detect any metal objects The following describes the Company s production process: 1. Required materials for bread production such as flour, yeast, egg, sugar, salt, milk, water and butter are prepared. 43

55 2. The materials are weighed in accordance to batch needs. For flour, storing and weighing are done automatically by the flour handling system, while other materials are manually weighed, with water introduced into the system directly from the water meter machine. 3. The materials are mixed using mixer for sweet bread and mixer for bread loaves. The dough then goes through the first fermentation for a period of time, followed by another mixing by adding other materials using the mixer. 4. Sweet bread dough rests through the floor time after mixing, while bread loaves dough is cut and weighed in accordance with the standards using divider machine. Both the sweet bread dough and the bread loaves dough are then rounded in accordance with the weight standards using the rounder machine. After rounding the dough undergoes another floor time. 5. Pressing or sheeting process is then done to the dough using the moulder machine. 6. After the sweet bread dough becomes thin, filling with chocolate, cheese, coconut and strawberry is done, while bread loaves dough is directly put into the baking pan. 7. The dough goes through another floor time in the baking pan. 8. Baking is then done using the oven. From the oven, bread loaves go through curve conveyor with removal of the bread done by the depanner machine. 9. Both sweet bread and bread loaves then go through cooling. 10. After cooling bread loaves are sliced in accordance with the required size using the band slicer, then packaged and sealed using Kwik Lok. 11. From cooling sweet bread goes directly to the packing machine. Sandroll products will be filled using the automatic sanding machine. 12. The last step is for the sweet bread and bread loaves to go through the metal detector to identify if there is any metal in the product Cikarang Blok W Factory ( CBWF ) CBWF started operating in 1997 and is located in Jababeka Industrial Estate, Jl. Jababeka XII A Block W No , Cikarang, Bekasi. The installed capacity, production capacity and capacity utilization for CBWF are: Description Installed capacity: Toast bread (packs/day) Sweet bread (pieces/day) Production capacity: Toast bread (packs/day) Sweet bread (pieces/day) Capacity utilization: Toast bread (packs/day) Sweet bread (pieces/day) 117, ,000 96, ,880 63, , , ,000 97, ,872 94, , , ,000 96, ,224 87, , , ,000 87, ,000 71, , , ,000 97, ,000 73, ,803 Notes: 1 pack = 10 slices, 1 pack of tear-off bread = 4 pieces of tear-off bread Installed capacity: capacity of machine installed in the Company s factory in accordance with the specification of the machine Production capacity: capacity produced when the machine is operational, which is influenced by working hours and number of bread types produced Capacity utilization: the amount of production during the relevant period CBWF s supporting facilities are provided by Cikarang Listrindo as electricity supplier, Jababeka Industrial Estate Municipal Waterworks and PT PGN (state-owned gas company) as liquefied natural gas provider. For water treatment, the Company utilizes the water treatment facility provided by the industrial estate. CBWF possesses facilities to produce cakes with installed capacity of 37,000 pieces per day. In addition, the Company s administrative offices are located in CBWF. 44

56 Cikarang Blok W Factory ( CBUF ) CBUF started operating in 2009 and is located in Jababeka Industrial Estate, Jl. Jababeka XVII B Block U No. 33, Cikarang, Bekasi. The installed capacity, production capacity and capacity utilization for CBUF are: Description Installed capacity: Toast bread (packs/day) Sweet bread (pieces/day) Production capacity: Toast bread (packs/day) Sweet bread (pieces/day) Capacity utilization: Toast bread (packs/day) Sweet bread (pieces/day) 70, ,000 58, ,713 46, ,832 Notes: 1 pack = 10 slices, 1 pack of tear-off bread = 4 pieces of tear-off bread Installed capacity: capacity of machine installed in the Company s factory in accordance with the specification of the machine Production capacity: capacity produced when the machine is operational, which is influenced by working hours and number of bread types produced Capacity utilization: the amount of production during the relevant period CBUF s supporting facilities are provided by Cikarang Listrindo as electricity supplier, Jababeka Industrial Estate Municipal Waterworks and PT PGN (state-owned gas company) as liquefied natural gas provider. For water treatment, the Company utilizes the water treatment facility provided by the industrial estate. CBUF has an auditorium facility used to introduce the Company s hygienic production process by showing the Company s company profile video Pasuruan Factory ( PF ) PF started operating in 2005 and is located in PIER Industrial Estate, Jl. Rembang Industri Raya No. 28, Pasuruan 67152, East Java. The installed capacity, production capacity and capacity utilization for PF are: Description Installed capacity: Toast bread (packs/day) Sweet bread (pieces/day) Production capacity: Toast bread (packs/day) Sweet bread (pieces/day) Capacity utilization: Toast bread (packs/day) Sweet bread (pieces/day) 70, ,000 58, ,203 26, , , ,800 58, ,387 20, , , ,800 58, ,306 18,662 69, , ,800 58, ,112 12,924 54, , ,800 59, ,109 4,962 21,441 Notes: 1 pack = 10 slices, 1 pack of tear-off bread = 4 pieces of tear-off bread Installed capacity: capacity of machine installed in the Company s factory in accordance with the specification of the machine Production capacity: capacity produced when the machine is operational, which is influenced by working hours and number of bread types produced Capacity utilization: the amount of production during the relevant period PF s supporting facilities are provided by PLN (state-owned electricity company) as electricity supplier, Pasuruan Municipal Waterworks for clean water and PGN Pasuruan as liquefied natural gas provider. For water treatment, the 45

57 Company utilizes the water treatment facility provided by the industrial estate. The Company also has an administrative office in this location. To meet demand and take advantage of the available market opportunity, the Company implements a policy that if capacity utilization has reached 70% of installed capacity for a particular factory, the Company shall purchase a new equipment to meet the growing demand for the Company s products. It takes six months for the Company to install a new production line until it can operate commercially Quality Control The Company has a quality control procedure in each step of its production process. There are two parts to the quality control: Control Point (CP) and Critical Control Point (CCP). CP is generally done in all production stage, but CCP requires a higher level of supervision as it involves food safety. When receiving delivery of raw materials, Incoming QC (Quality Control) will conduct random physical check of the good, including packaging integrity, weight per pack and organoleptic test for filler which involves inspection through visual examination, feeling and smelling of products. In addition, incoming raw materials shall be accompanied by Certificate of Analysis containing results of chemical and microbiology tests of the materials. Subsequently, raw materials are tested at weighting to ensure that they are in accordance with the required formula as this will affect the Company s product quality. Particularly at weighting of flour, which is automatically conducted, there are sifters that screen flour for foreign objects. As this process is not visible to the naked eye, sifters must always be maintained in good condition. Considering the risks and potential danger, the flour weighting stage is the first CCP in the HAACP bread production process. The second dough mixing process plays a critical role in the quality of the bread produced. Undermixed or overmixed dough will result in bread with substandard quality. A good dough can be physically inspected from the elasticity of the dough, so when the dough is stretched, it will form a smooth and transparent thin film. The next phase requiring supervision in the final proofing, where the volume of the dough needs to be properly controlled in addition to the stability of the temperature and humidity of the room. Dough that are removed too quickly will result in underproofed dough, while dough that are left for too long will result in overproofed dough, therefore the work accuracy of the operators working in this area is critical. In general this process will run approximately one hour. Baking will influence the look of the finished product, particularly from coloring and degree of baking. Temperature and baking time are adjusted in accordance with the type of bread to be baked. The Company has a color guide standards that also function as a determinant of the degree of baking. The color guide is a gradation from yellow to dark brown. The oven has windows that can be used to inspect whether the products have been sufficiently baked and to avoid production loss due to non-standard products. The baked bread cooling process will need to be done. Warm bread will cause condensation on the packaging as steam is trapped inside the packaging, which will result in mold developing on the bread earlier than it should be. In addition, slicing warm toast bread will result in dented bread as warm bread is usually still soft. In general the cooling process takes two hours for toast bread and thirty minutes for sweet bread, taking them to 35ºC at packing. Control over the cooling process will have to be maintained as bread will harden if let cooled and open for longer than necessary. Prior to packaging bread will be sorted such that bread that does not meet the standards set by the Company will be discarded. Examples of bread that are substandard are dented bread, caved bread, overfilled filling and burned bread. In addition, packaging condition will also need to be monitored to ensure proper sealing and correct pricingproduction date-expiry date on the packaging. 46

58 The second CCP in the production process is metal detecting, where all packed products will go through a metal detector to ensure that the products are safe and free from metal contamination Sales and marketing To increase product brand awareness, the Company implements active promotion activities, both above the line and below the line. The Company promotes its products through various media, including television, radio, print media, and conducts other promotions such as sponsorship, exhibition and others. The Company puts an emphasis on below the line activities, including regular factory visit program from Mondays through Fridays. Factory visit is an educational program to the consumer on the Company s profile. In this program consumer can visit the factory to directly view the production process. Consumer can also view the company profile video in a special auditorium prepared for this program. Approximately 60% of the consumer visit comes from kindergarten and elementary school students. This regular program has seen its results in 2009 where Sari Roti toast bread were awarded 2009 Top Brand for Kids and 2009 Top Brand by Frontier Consulting Group. The main buyers of the Company s products are children of two years old and older and homemakers who are the decision makers in product selection. The Company targets the middle upper consumer with income of more than Rp1.5 million for Sari Roti and the middle lower consumer with income of less than Rp1.5 million for Boti. The Company s distribution channel can be divided into three main categories: a. Modern channel, consisting of minimarkets, supermarkets and hypermarkets b. Traditional channel, consisting of tricycles travelling from home to home and mom-and-pop stores c. Institutions, which uses bread to produce other derivative products. 69% of the Company s products are distributed through the modern channel and 31% are distributed through the traditional channel. As of December 31, 2009, the Company distribution network includes 725 supermarkets and hypermarkets, 8,290 minimarkets, 7,587 mom-and-pop stores, 2,022 tricycles and 38 institutions. The Company s products are distributed throughout Java, Madura, Bali and Lampung. Since 2007 the Company implements enterprise resources planning using SAP software to integrate all systems and procedures starting from raw materials purchase to distribution of the products. SAP also provides the Company s financial information. With the program, the Company can integrate real time conditions of its three factories. The shelf life of the Company s products is five days. However, to maintain freshness, the Company collects products that are four days old. Expired products are collected by the Distribution Division from the retailers and are delivered to the expired product warehouse with its collection document. The products are then destroyed by chopping machine and sold to certain collectors to be used as feedmill. Defective products that are found during production are separated from the remaining products, then sold to the collectors together with the expired products. The Company s strength lies in the integrated operations of its different divisions, close cooperation with the suppliers of raw materials and in its supply chain management that is able to improve the efficiency and therefore the Company s performance. 47

59 The following table shows the nominal value of the Company s net sales for the past five years: (in millions of Rupiah) Description Sari Roti sweet bread 261, , ,768 85,578 60,122 Sari Roti toast bread 207, , ,254 93,502 68,480 Boti sweet bread 8,227 9,951 9,600 9,328 9,868 Boti toast bread 4,815 4,914 4,255 4,486 4,693 Sari Cake 1,647 1, Others 1, Total 485, , , , ,203 The following table shows the volume of the Company s net sales for the past five years: (in packs) Description Sari Roti sweet bread 71,859,466 54,649,859 42,224,158 31,971,735 27,294,294 Sari Roti toast bread 42,077,285 37,021,995 32,919,301 26,012,334 20,107,570 Boti sweet bread 4,625,817 5,904,271 6,997,166 7,368,446 9,244,992 Boti toast bread 1,281,906 1,388,776 1,524,930 1,663,573 1,929,016 Sari Cake 167, , Others 790, , ,144 93,641 34,548 Total 120,802,696 99,687,104 84,114,699 67,109,729 58,610, Awards and certifications The Company has been granted a number of awards and certifications as follows: Top Brand Award for toast bread from Frontier Consulting Group, a marketing consulting company Top Brand for Kid for toast bread from Frontier Consulting Group - Favorite food in Jakarta and Surabaya for 2009 based on polling by Bogasari, one of the flour producers in Indonesia - Favorite bread brand based on survey by Jawa Pos, a newspaper the Indonesia, at the end of Top customer in Indonesia in volume of purchase of compressed yeast of PT Jaya Fermex based on letter No. 009/ASM/JF/NIC/II/2010 dated February 12, Top customer amongst bakeries in volume of flour purchase of the Bogasari Flour Mills Division of PT Indofood Sukses Makmur Tbk based on letter No. 00/IS-BKR/II/2010 dated February 12, Top bakery customer of PT Freyabadi Indotama, supplier of chocolate, based on letter No. 003/frey-sm/II/2010 dated January 1, The Company applies HACCP for risk management and critical control point system, which are the management system for food safety. HACCP is an effort to manage food production by minimizing contamination risks from harvesting, production process up to presentation so that food is safe to consume. The HAACP system emphasizes on prevention by tightening control in each critical control point in food preparation so that it is safe and free from contamination. The Company was granted a certificate by M-BRIO, an HACCP certification body, No. E-HCB SSH 024-IDN dated November 28, 2006, which was valid until November 28, 2009, and is currently in the process of reassessment. The document certifies that the Company has met the HACCP standards: SNI and CAC/RCP , Rev.4, 2003, scope of certification: toast bread and sweet bread, baking process. 48

60 Based on Decision of Chairman of the National Agency of Drug and Food Control (Badan Pengawas Obat dan Makanan or BPOM RI) No. HK00/ /2004 on Criteria and Implementation of Food Product Evaluation, the Company has registered and obtain the approval for its products as shown in the following table: a. Sari Roti No. Product Name BPOM RI MD No. Validity 1 Strawberry cream filled bread July July Cheese cream filled bread July July Sesame seed burgen bun bread April April Chocolate cheese filled bread January January Chocolate chips bread January January Yam bread November November Chocolate strawberry filled tear-off bread June June Cheese tear-off bread June June Special toast bread December December Wheat bread November November Butter tear-off bread November November Burgen bun October October Milk tear-off bread October October Chocolate cream bread October October Strawberry cream bread October October Hot dog bun October October Toast bread October October Mocha cream bread October October Vanilla-flavored chocolate cream bread October October Raisin bread October October Chocolate cheese tear-off bread September September Coconut filled bread September September Chocolate nut filled bread September September Chocolate kaya tear-off bread September September Chocolate tear-off bread September September Peeled toast bread August August Kaya filled bread July July Strawberry filled bread July July Cheese filled bread July July Milk toast bread July July Chocolate cream filled bread July July Chocolate filled bread July July 2010 b. Sari Cake No. Product Name BPOM RI MD No. Validity 1. Chocolate sponge cake August August Pandan sponge cake August August Pandan chiffon cake April April 2013 c. Boti No. Product Name BPOM RI MD No. Validity 1. Chocolate kaya filled tear-off bread August August Strawberry cream filled bread April April Pandan toast bread April April Mocha cream filled bread April April Mung bean filled bread February February Cheese filled bread January January Milk filled bread November November Kaya filled bread November November Coconut filled bread November November

61 No. Product Name BPOM RI MD No. Validity 10. Pineapple filled bread November November Chocolate filled bread November November Toast bread November November Chocolate cream bread November November Chocolate filled tear-off bread February February Chocolate filled tear-off bread February February 2010 The Company has obtained halal certificate for its Sari Roti, Sari Cake and Boti products based on Halal Certificate No issued by the Indonesian Ulemas Council dated February 3, 2010, which is valid until February 2, The following are the Company s products that receive the halal certificate: 1. Sari Roti Toast bread 1 Special toast bread 2 Raisin bread 3 Whole wheat bread 4 Premium toast toast bread 5 Chocolate chip bread 6 Peeled toast bread 7 Pandan toast bread 8 Marble bread 9 Milk toast bread (Disney edition) Sweet bread 1 Kaya filled bread 2 Strawberry filled bread 3 Cheese filled bread 4 Chocolate filled bread 5 Coconut filled bread 6 Chocolate cheese filled bread 7 Banana chocolate filled bread 8 Banana cheese filled bread 9 Blueberry filled bread Sandroll bread 1 Mocha cream filled bread 2 Chocolate cream filled bread 3 Chocolate vanilla cream filled bread 4 Cheese cream filled bread 5 Chocolate cream filled bread (Disney edition) 6 Cheese cream filled bread (Disney edition) 7 Strawberry cream filled bread (Disney edition) 8 Blueberry cream filled bread 9 Sausage filled bread Tear-off bread (roti sobek) 1 Chocolate and kaya filled tear-off bread 2 Chocolate and cheese filled tear-off bread 3 Chocolate filled tear-off bread 4 Chocolate and strawberry filled tear-off bread 5 Chocolate and pineapple filled tear-off bread 6 Chocolate and blueberry filled tear-off bread Tear-off bread (roti kasur) 1 Milk tear-off bread 2 Cheese tear-off bread 3 Coffee tear-off bread 4 Chocolate cheese tear-off bread Tear-off bread (roti sisir) 1 Butter tear-off bread Plain rolls 1 Plain rolls bun 50

62 2 McDonald s plain rolls bun Burger bun 1 Burger bun 2 Sesame seed burger bun 3 McDonald s burger bun 4 McDonald s sesame seed burger bun Snack roll Butter roll Butter stick roll 2. Boti Toast bread 1 Toast bread 2 Pandan toast bread Sweet bread 1 Coconut filled bread 2 Chocolate filled bread 3 Pineapple filled bread 4 Kaya filled bread 5 Milk filled bread 6 Cheese filled bread 7 Mung bean filled bread 8 Strawberry filled bread Sandroll bread 1 Mocha cream filled bread 2 Chocolate cream filled bread 3 Chocolate mocha cream filled bread 7 Strawberry cream filled bread 8 Vanilla cream filled bread Tear-off bread 1 Chocolate and cheese filled tear-off bread 2 Chocolate and kaya filled tear-off bread 3 Chocolate filled tear-off bread 3. Sari Cake No. Product name 1 Pandan flavored chiffon cake 2 Chocolate flavored chiffon cake 3 Cheese flavored chiffom cake 4 Chocolate sponge cake 5 Pandan sponge cake 6 Banana cake In addition to the above certificates and awards, the Company is one of the Companies registered in the Worldwide Directory of Sanitarily Approved Food Establishments for Armed Forces Procurement, Department of The Army, United States of America, based on letter from Department of Defense of the United States of America dated June 3, 2008, for the Cikarang, Bekasi factories and dated July 23, 2009, for the Pasuruan, East Java factory. With this registration, the Company can be one of the bread suppliers for the US army. 3. Prospects There are ample business opportunities in food and drinks in Indonesia. The Indonesian population, purchasing power and economic growth are significant factors in the food business. During an economic crisis the food industry can still grow. The Central Statistic Bureau Publication No. 48/08/Th.XII dated August 3, 2009, shows that the food and beverage industry grew by 16.81% during the second quarter of 2009 compared to the same period in

63 Companies operating in the food industry continue to invest due to the large market opportunity. The Company has the same opportunity. As a leading bread producer as signified by various awards and certifications, the Company s market opportunity has become even greater. Demand Demand for bread products in Indonesia is influenced by purchasing power and change in eating pattern. Bread is a food product that is easy to consume and is efficient as well as contains sufficient nutrition. Increase of purchasing power will increase demand for bread. In addition, change in eating pattern, especially in the cities, will also increase demand for bread. A fast pace life in the cities requires food that is practical. Raw materials and supporting materials The main raw material for bread is flour that is processed from wheat. The price of wheat and therefore flour is influenced by international market prices and fluctuations of the Rupiah exchange rate. There are currently nineteen flour producers in Indonesia (source: Company, compiled from a number of sources). Since 1998, the Indonesian government has opened imports of flour by general importers, under the condition that the flour shall meet the National Standards (Standar Nasional Indonesia) for flour. The policy to open imports of flour and provision of licenses to establish flour mills guarantee the availability of supply for the Company s main raw material. The Company purchases all of its raw materials domestically and therefore is not dependent on imports of raw materials. In addition, the Company maintains more than one supplier for each of its raw materials and continues to conduct research to find other suppliers. In its production process, the Company uses additional materials as fillings such as chocolate, cheese, kaya, coconut and strawberry jam. In addition, the Company uses bread improver to produce a higher quality bread. The Company utilizes plastic packaging from domestic supplier for its product packaging. Competition The bread industry in Indonesia consists of: (1) mass production industry such as the Company, (2) home industry, and (3) boutique bakery industry. The above three sectors supply the bread to meet the needs of the Indonesian people. The bread industry is a perfectly competitive industry. The industry trend for the next five years still shows a lot of potential along with the growth of income per capita and needs for practical and variety of food. As a perfectly competitive industry, investors can come in and exit without high barrier. Investors can come in as mass producer, small or medium business or by opening a bread shop through franchise. The Company s nearest competitors are mass producers and private labels by retailers. Industry challenges and trends A significant challenge in the bread industry, particularly the mass production segment, is the ability to distribute its products efficiently and accurately. The Company applies a supply chain management as bread is a perishable product that requires proper distribution including the management of expired products. Another challenge is that the taste of the products made by the Company must be acceptable to the Indonesian people. 52

64 Similar to the food and beverage industry, the trend of the bread industry for the next five years is towards functional needs, such as bread containing high fiber, calcium, Docosahexaenoic acid (DHA), Omega 3 and others that are essential for health. Adequacy of vitamins and mineral in bread products are also a must. 4. Strategy and Business Plan The Company implements the following strategy in its business development: - Implementing supply chain management (SCM), a management activity that monitors movement of materials from suppliers, producers, distributors, retailers to consumer, involving coordination, collaboration and integration of a chain of processes inside and outside the Company. The implementing a good SCM, the Company becomes more efficient and competitive. - Using SAP as enterprise resources planning software, an information technology that assists in the analysis of transaction process between the Company and its customers and suppliers. By utilizing SAP, data can be analyzed quickly and accurately so that the Company has a competitive strength compared to similar companies. - Opening factors in other areas in Indonesia to meet the needs for quality, halal, clean and hygienic products. - Producing new products, be it bread and bread-based snacks. - Selecting appropriate distribution channels that can distribute the Company s products quickly and accurately. Minimarkets, supermarkets and hypermarkets are distribution channels that are appropriate for the Company s products. In addition, the Company works with food peddlers by financing the tricycles to enable distribution of products directly to the consumer from home to home. The Company also utilizes traditional shops such as mom-and-pop stores, canteen and cooperatives. - The Company continues to maintain a mutually beneficial relationship with its customers. The margins provided to its customers are competitive compared to other consumer products. - From a promotional perspective, the Company continuously strives to show its consumer of the cleanliness of the Company s production facilities and the Company s efforts to implement good manufacturing practice and sanitation by receiving factory visit from Mondays through Fridays as well as placing commercials and ads through various media to emphasize the strengths of the Company s products - The Company plans to expand by opening factories in locations near its consumer to manage the limited shelf life of the Company s products of five days. 5. Environmental management and monitoring The Company uses facilities available within the industrial estates where the Company s factories are located for waste management. Based on Decree of State Minister for Investment/Chairman of BKPM No. 74/T/INDUSTRI/1999 on the Granting of Industrial Permit dated February 22, 1999, the Company must follow the terms of the Statement of Environmental Management and based on Decree of Chairman of BKPM No. 367/T/INDUSTRI/2005 on Expansion Approval dated May 11, 2005, the Company must follow the terms of the Environmental Management (UKL) and Environmental Monitoring (UPL) documents, amongst others: a. Conduct proper environmental management in accordance with the types of wastes, b. Conduct monitoring of wastes c. Conduct biannual monitoring of the following wastes: - Solid wastes, such as raw material and supporting material packaging, raw material wastes, defective products, fats, expired products, used masks and gloves or domestic wastes of paper and plastics, - Liquid wastes, such as liquid wastes from factories, used oil and domestic liquid wastes from toilets and water for crates, - Air, such as noise inside and outside the office and factories, - Gas, such as office areas and emission from smoke chimneys, - Air, such as dusts in the office areas, emission dusts, dusts outside the factories and working environment. 53

65 Based on the above, the Company has met its obligations by issuance of Letter from the Bekasi Regency Head of the Office of Environmental and Mining Impacts Control dated June 22, 2007, responding to letter from the Company No. 006/HRD-GA/XII/2006 dated December 11, 2006, stating that upon inspection, the Company s UPL and UKL documents are in accordance with Response Letter No /09/ADL/DPDLP dated January 18, The Company stated that it is willing to renew the UKL and UPL documents if there is a change in the Company s factories in terms of capacity, process and others, or every three years since the UKL and UPL documents are first submitted. The Company has also met its obligations by issuance of Letter from the Pasuruan Refency Head of the Office of Environmental and Mining Impacts Control dated March 15, 2006, responding to letter from the Company dated March 3, 2006, No. 004/LT NIC/III/06, stating that the Company s UKL and UPL documents are in accordance with Response Letter No. 666/195a/ /2006 dated March 10, Research and development To be able to produce quality products that are demanded by the consumer, the Company maintains a research and development facilities that include a laboratorium and experts in the bread making technology. In addition, the Company is supported by Shikishima Baking Co., Ltd., an affiliate, in providing know how. 7. Corporate Social Responsibility The Company participated in the following activities, amongst others, in the implementation of its corporate social responsibility: - Providing the Company s products to orphanages located around the Company s factories, such as Baitur Rahman Orphanage in Malang, Ulin Nuha Orphanage in Sidoarjo and Sunan Kalijaga Orphanage in Sidoarjo. - Providing the Company s products as participation in the Moslem New Year 1431 H celebration in Al-Kautsar elementary school, Cikarang. - Providing the Company s products as participation in the 2005 and 2006 Christmas celebration in St. Antonius Padova church, Pasuruan. - Providing the Company s products as participation in the Christmas celebration with the Christian communities in Jababeka and the surrounding areas in Accepting students as interns such as students of Karya Bhakti 4 Technical School in Bekasi (2009 and students of the Industrial Engineering of the Technology Faculty of Trisaksi University, Jakarta (2009). - Providing the Company s products as participation in the Danger and Impacts of Drugs. - Providing the Company s products as participation for Gita Taruna Melati Drum Band of Muhammadiyah I elementary school, Sidoarjo (2009). - Providing the Company s products as participation in the Mass Circumcision X/2007 in Nurul Iman Mosque, Malang. - Working with Sonora and M radios to distribute the Company s products to break the fast in the Citra Marga and Jasa Marga toll gates. - Opening factory visit to the public to directly see the Company s production process. 8. Good Corporate Governance To protect the interests of all stakeholders and to increase shareholders value, the Company exercises good corporate governance in its business activities. The Company is committed to follow business ethics and transparency principle in accordance with the prevailing laws and regulations. As part of the implementation of good corporate governance, the Company has appointed an Independent Commissioner, Unaffiliated Director, Corporate Secretary, Internal Audit Department and will form an Audit Committee within six months from the listing date of the Company in accordance with Bapepam regulation IX.I.7. 54

66 IX. SUMMARY OF IMPORTANT FINANCIAL INFORMATION The following table summarizes the Company s financial statements for the years ending December 31, 2009, 2008, 2007, 2006 and 2005 that have been audited by the Public Accounting Firm Purwantono, Suherman & Surja (previously Purwantono, Sarwoko & Sandjaja), a member of Ernst & Young Global Limited, with unqualified opinion. Balance sheet (in millions of Rupiah) Description December ASSETS CURRENT ASSETS Cash and cash equivalents 57,945 52,878 8,249 9,299 6,567 Trade payables third parties 53,135 42,717 28,222 18,305 16,514 Inventories 9,075 7,280 5,225 3,237 2,733 Restricted time deposits 13, ,758 2,028 Prepaid expenses and other current assets 4,412 1,326 1,327 5,618 1,028 Total current assets 137, ,200 43,023 38,217 28,870 NON-CURRENT ASSETS Fixed assets net of accumulated depreciation 204, , , , ,206 Guarantee deposits 4,346 2,600 2,148 1, Claims for tax refund Other non-current assets Total non-current assets 209, , , , ,176 TOTAL ASSETS 346, , , , ,046 LIABILITIES CURRENT LIABILITIES Bank loans ,827 - Trade payables third parties 37,635 24,975 17,757 12,354 9,616 Other payables 13,108 34,423 3,676 5,806 13,480 Taxes payable 12,162 11,857 4,599 2,202 1,296 Accrued expenses 7,543 5,597 5,499 6,566 4,537 Current maturities of long-term loans: Bank loans 25,000 14,588 5,000 12,506 13,685 Other loans Total current liabilities 95,448 91,439 36,700 46,720 43,017 NON-CURRENT LIABILITIES Customers deposits 4,420 2,979 2,436 1,851 1,209 Long-term bank loans net of current maturities 68,750 75,465 35,000 28,669 35,338 Convertible bonds ,929 22,929 Deferred tax liability net 6,590 5,195 5,049 3,956 3,153 Estimated liability for employee benefits 3,929 2,810 1,969 1,604 1,156 Total non-current liabilities 83,690 86,449 44,454 59,011 63,784 TOTAL LIABILITIES 179, ,888 81, , ,802 SHAREHOLDERS EQUITY Authorized, issued and fully paid 86,051 86,051 17,349 17,349 17,349 Additional paid-in capital ,123 30,123 30,123 Advances for future stock subsription ,928 16,000 16,000 Retained earnings 81,440 44,325 1,913 (15,865) (24,227) TOTAL SHAREHOLDERS EQUITY 167, ,725 88,313 47,606 39,244 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 346, , , , ,046 55

67 Profit and Loss Statement (in millions of Rupiah) Description 12 months Net sales 485, , , , ,203 Cost of goods sold 263, , , ,579 83,924 Gross profit 222, , ,853 81,448 59,280 Operating expenses: Selling 113,068 83,360 62,190 49,608 35,578 General and administrative 20,735 16,166 12,703 11,550 10,305 Total operating expenses 133,803 99,526 74,894 61,158 45,883 Income from operations 88,295 61,667 29,959 20,290 13,397 Other income (expenses) Sales of scrap 5,517 3,981 2,875 1,928 1,731 Interest income 1, Gain (loss) on sale of fixed assets net 51 (21) 3 96 (17) Interest expense (12,356) (5,268) (6,741) (9,562) (6,124) Gain (loss) on foreign exchange net (1,932) (414) 16 (61) 649 Others net (412) (180) (83) (124) (469) Other expenses net (7,804) (1,242) (3,760) (7,440) (3,978) Income before income tax 80,491 60,425 26,199 12,849 9,419 Income tax expense: Current 21,981 17,867 7,328 3,684 3,008 Deferred 1, , Total 23,376 18,013 8,421 4,487 3,745 Net income 57,115 42,412 17,778 8,362 5,674 EBITDA 109,411 76,434 42,604 31,689 21,971 Financial ratios Description December 31 / 12 months Growth ratios (%) Sales net 26,7 53,1 29,8 34,8 28,1 Gross profit 37,8 53,7 28,7 37,4 24,9 Income from operations 43,2 105,8 47,7 51,5-9,4 Net income 34,7 138,6 112,6 47,4-9,5 Assets 12,4 82,1 10,5 5,0 74,8 Liabilities 0,7 119,2-23,2-1,0 61,9 Shareholders equity 28,4 48,0 85,5 21,3 123,4 Business ratios (%) Gross profit/sales 45,7 42,0 41,9 42,2 41,4 Income from operations/sales 18,2 16,1 12,0 10,5 9,4 Net income/sales 11,8 11,1 7,1 4,3 4,0 Net income/average equity 38,3 38,7 26,2 19,3 20,0 Net income/average assets 17,4 17,7 11,0 5,6 4,9 Financial ratios (x) Liabilities/shareholders equity 1,07 1,36 0,92 2,22 2,72 Liabilities/assets 0,52 0,58 0,48 0,69 0,73 Bank loans/shareholders equity* 0,56 0,69 0,45 1,01 1,25 Current assets/current liabilities* 1,44 1,14 1,17 0,82 0,67 EBITDA/interest expense* 8,86 14,51 6,32 3,31 3,59 Productivity ratios Inventory turnover (x) 32,26 35,57 34,43 37,38 29,58 Inventory days (days) Receivables days (days) Notes: * ratios for bank loans financial covenants, with the following requirements: - Debt to equity ratio of not more than 2 - EBITDA to interest expense and principal amortization of note less than Current ratio of not less than 1 56

68 X. SHAREHOLDERS EQUITY 1. Capital structure The following table shows the Company s equity position based on the Company s financial statements for the years ending December 31, 2009, 2008 and 2007, which have been audited by the Public Accounting Firm Purwantono, Suherman & Surja (previously Purwantono, Sarwoko & Sandjaja), a member of Ernst & Young Global Limited, with unqualified opinion: (in millions of Rupiah) Description December Authorized, issued and fully paid 86,051 86,051 17,349 Additional paid-in capital ,123 Advances for future stock subsription ,928 Retained earnings 81,440 44,325 1,913 Total shareholders equity 167, ,725 88, Change in the Company s capital structure Pursuant to Deed No. 86 dated February 24, 2010, drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, which has been ratified by the Minister of Law and Human Rights pursuant to Decree No. AHU AH Tahun 2010 dated March 12, 2010, and registered in the Company Register No. AHU AH Tahun 2010 dated March 12, 2010, the Company s shareholders approved the change of the par value of the Company s shares from Rp1,000 per share to Rp100 per share. On April 5, 2010, the Company submitted a Registration Statement to Bapepam-LK in relation to an Offering of 151,854,000 shares. Had the Offering of 151,854,000 shares with par value of Rp100 per share at the offer price of Rp1,275 per share occurred on December 31, 2009, the proforma equity as of that date would have been as follows: Description Equity position based on financial statements of December 31, 2009, with a total of 86,050,000 issued and paid-up shares with par value of Rp1,000 per share Change in equity after December 31, 2009, assuming it had happened on December 31, 2009: - Stock split, changing the par value from Rp1,000 per share to Rp100 per share Change in equity after December 31, 2009, assuming it had happened on December 31, 2009: - Offering of 151,854,000 shares at the offer price of Rp1,275 per share Issued and paid-up capital Additional paid-in capital Retained earnings (in millions of Rupiah) Total equity 86, , , , , ,614 Proforma equity at December 31, 2009, after the Offering 101, ,778 81, ,454 57

69 XI. DIVIDEND POLICY All of the Company s issued and paid-up shares, including the Shares offered in this Offering, have the same rights and entitlements and are equal in all respects, including with respect to rights to dividend distributions. In accordance with the prevailing laws, dividend distributions are approved by shareholders in an annual shareholder s meeting based on proposal from the Board of Directors. The Company s articles of association state that dividends can only be distributed in accordance with the Company s financial capacity based on decision taken in an annual shareholders meeting. The Board of Directors may amend the dividend policy from time to time with the approval from an annual shareholders meeting. The Company plans to distribute cash dividends at least once a year. Without prejudice to the Company s financial condition and the right of an annual shareholders meeting to otherwise determine based on the Company s articles of association, the amount of cash dividend to be distributed is related to the Company s profits in the relevant fiscal year. The Company s management plans to propose an annual dividend distribution of a maximum of 30% of the Company s net profit in the relevant fiscal year. 58

70 XII. TAXATION Income tax on dividends are imposed pursuant to the prevailing laws. By virtue of Law No. 36 of 2008 (effective date January 1, 2009) on the fourth amendment to Law No. 7 of 1983 on Income Tax, dividends or distributions of profit received by resident corporate taxpayers, cooperatives, state-owned enterprises or regional government-owned enterprises, arising out of capital participation in a business entity established and domiciled in Indonesia, are not subject to income tax as long as the following conditions are met: a. The source of dividends is from retained earnings, and b. For limited liability companies, state-owned enterprises and regional government-owned enterprises receiving dividends, they must hold at least 25% from the issued and paid-up capital in the company that distributes the dividends. Pursuant to Government Regulation No. 14 of 1997 dated May 29, 1997, on Amendment to Government Regulation No. 41 of 1994 on Income Tax on Sale of Shares in the Stock Exchange and Circular of the Directorate General of Tax No. SE-06/PJ.4/1997 dated June 20, 1997, on Collection of Income Tax on Income from Sale of Shares in the Stock Exchange, which revises Circular of the Directorate General of Tax No. SE-07/PJ.42/1995 dated February 21, 1995, on Imposition of Income Tax on Income from Sale of Shares in the Stock Exchange: a. Income received by individuals and entities from sale of shares in the stock exchange are subject to a final income tax of 0.1% from the gross value of the transaction, which shall be deducted by the stock exchange through the broker upon settlement of transaction b. Founding shareholders are subject to additional final income tax of 0.5% from the value of the shares held by them at initial public offering, which can be paid by the company on behalf of the founding shareholders within one month from the listing date of the shares in the stock exchange c. Should the founding shareholders choose not to pay this final income tax, they are subject to capital gain tax upon divestment of their shares, which is calculated based on the prevailing capital gain tax rate as stipulated in Article 17 of Law No. 36 of Pursuant to Decree of the Minister of Finance of the Republic of Indonesia No. 651/KMK.04/1994 dated December 29, 1994, on Certain Investment Areas Providing Income to Pension Funds Sanctioned under the Minister of Republic of Indonesia That are Exempted from Income Tax, income of pension funds which have received approval from the Minister of Finance of the Republic of Indonesia is not subject to income tax if such income is received or obtained from investment in shares traded in the Indonesian Stock Exchange. In accordance with Article 17 paragraph 2(c) of Law No. 36 of 2008, the highest rate on dividends to resident taxpayers is 10% final tax. Dividends paid or payable to non-resident taxpayers are subject to withholding tax in accordance with Article 26 of Law No. 36 of 2008 at the rate of 20% or lower if such dividends are received by shareholders who are tax residents of or domiciled in a country that has signed a treaty with Indonesia on the avoidance of double taxation. In order to obtain the lower rate, the non-resident taxpayer must comply with Circular of the Director General of Tax No. SE- 03/PJ.101/1996 dated March 29, 1996, which requires the non-resident taxpers to submit an original Certificate of Domicile from the foreign country s competent tax authority and confirmation of the address or residence of the party receiving dividends. In the case of individual recipient, the country of domicile shall be the country where the individual resides, while for legal entities, the country of domicile shall be the country where the shareholder or more than 50% of the shareholders, individually or collectively, resides, or where the effective management resides. The Certificate of Domicile shall be valid for one year and has to be renewed, except for banks where the certificate will continue to be valid as long as the bank does not change its address. Prospective purchasers of the Shares in this Offering should consult their own tax consultants with respect to any tax consequences that may arise from the purchase, holding and sale of the Shares. 59

71 Company s Taxation On April 26, 2010, the Company received a Tax Claim Letter in relation to penalty over the late payment of Article 21 Income Tax for the period of December 2009 in the amount of Rp200,333. The Company has fully settled this claim on May 10,

72 XIII. UNDERWRITING 1. Information Regarding Underwriting of Securities Pursuant to the terms and conditions of the Deed of Underwriting Agreement of the Initial Public Offering of PT Nippon Indosari Corpindo Tbk No. 01 dated April 1, 2010, as amended by Addendum I to the Deed of Underwriting Agreement of the Initial Public Offering of PT Nippon Indosari Corpindo Tbk No. 38 dated June 9, 2010, both drawn up before FX Budi Santoso Isbandi, SH, Notary in Jakarta, and its amendments and/or additions and/or renewals to be made, the Underwriters listed herein agree to underwrite on a full commitment basis the Shares offered by the Company in this Offering on a several basis based on each underwriter s underwriting commitment and committed to purchase the unsold portion at the end of the Offering Period. The above agreements constitute comprehensive agreements which supersede any agreements which may have been previously entered into regarding matters set forth in the agreements and there shall be no other agreements made amongst the parties that contradict with the agreements. The Underwriters participating in the underwriting of the Company s Offering have agreed to carry out their duties in accordance with Bapepam-LK Regulation No. IX.A.7, Attachment to Decree of the Chairman of Bapepam-LK No. KEP-45/PM/2000 dated October 27, 2000, on Responsibilities of Allotment Manager in the Subscription and Allotment of Securities in a Public Offering. The list and underwriting commitment from each underwriter are as follows: Underwriter No. of shares Amount (Rp) % 1. PT OSK Nusadana Securities Indonesia 144,004, ,605,100, % 2. PT Asia Kapitalindo Securities Tbk 50,000 63,750, % 3. PT BNI Securities 1,100,000 1,402,500, % 4. PT CIMB Securities Indonesia 350, ,250, % 5. PT Ciptadana Securities 200, ,000, % 6. PT Danasakti Securities 100, ,500, % 7. PT Danatama Makmur 1,600,000 2,040,000, % 8. PT Dhanawibawa Artha Cemerlang 50,000 63,750, % 9. PT Dinamika Usahajaya 500, ,500, % 10. PT e-capital Securities 100, ,500, % 11. PT Erdikha Elit Sekuritas 100, ,500, % 12. PT HD Capital Tbk 100, ,500, % 13. PT Kresna Graha Securindo Tbk 150, ,250, % 14. PT Madani Securities 50,000 63,750, % 15. PT Makinta Securities 100, ,500, % 16. PT Mega Capital Indonesia 50,000 63,750, % 17. PT Panin Sekuritas Tbk 400, ,000, % 18. PT Phillip Securities Indonesia 200, ,000, % 19. PT Sinarmas Sekuritas 2,300,000 2,932,500, % 20. PT Sucorinvest Central Gani 100, ,500, % 21. PT Victoria Sekuritas 100, ,500, % 22. PT Yulie Sekurindo Tbk 150, ,250, % Total 151,854, ,613,850, % The Capital Market Law defines affiliation as the following: a. Family relationship due to marriage and lineage up to the second level, both horizontally and vertically b. Relationship between parties and their employees, directors and commissioners c. Relationship between two companies having one or more common members of the Board of Directors or Board of Commissioners d. Relationship between a company and parties directly and indirectly controlling, are controlled or under common control 61

73 e. Relationship between two companies controlled, directly and directly, by the same party, or f. Relationship between a company and its main shareholder. The Underwriters are not affiliated to the Company as defined in the Capital Market Law. 2. Share price determination The price per share in this Offering has been determined based on mutual agreement between the Company and the Lead Underwriter and considering the following factors: - market demand that was reflected in the results of the book building; - the Company s business activities in the consumer product sector. Based on the above, the Company and the Lead Underwriter have agreed on the share price in the Offering of Rp1,275 per share. The Company s share price after listing in the Stock Exchange may experience an increase or a decline compared to the offering price. The price fluctuations may come as a result of market mechanism. 62

74 XIV. CAPITAL MARKET SUPPORTING PROFESSIONALS The capital market supporting professionals of this Offering are as follows: 1. Public accountant: Purwantono, Suherman & Surja Indonesia Stock Exchange Building Tower 2, 7 th Floor Jl. Jenderal Sudirman Kav Jakarta Tel: (021) Fax: (021) Public Accountant Permit No in name of Benyanto Suherman STTD No. 16/BL/STTD-AP/2006 in name of Benyanto Suherman Appointment Letter No. PSS-38673/02 dated December 1, The main duties and responsibilities of the public accountant in this Offering is to conduct an audit based on accounting standards set by the Indonesian Public Accountants Institute, in which an independent auditor must plan and conduct audit to obtain adequate assurance that the financial statements are free from material misrepresentation. The independent auditor is responsible for the opinion given for the audited financials statements. The audit carried out by the independent auditor covers the examination and testing of the supporting evidence and the disclosure made in the financials statements as well as the evaluation over the accounting principles used and the estimates made by management towards the presentation of the overall financial statements. 2. Legal counsel: Hadiwidjojo Wirya Mukhtar Ardibrata Law Offices Haery 1 Building, 4 th Floor Jl. Kemang Selatan Raya No. 151 Jakarta Tel: (021) Fax: (021) Capital Market Legal Counsel Association member No in name of Kukuh Komandoko H. STTD No. 541/PM/STTD-KH/2004 in name of Kukuh Komandoko H. Appointment Letter No. 299/KKO-HWMA/2009 dated November 19, The main duties and responsibilities of the legal counsel in this Offering is to conduct an examination from a legal perspective of facts regarding the Company and other related information that is provided by the Company. The results of the examination are presented in a Legal Audit that is the basis for the Legal Opinion that is given objectively and independently, referring to the code of ethics, profesional standards and the prevailing capital market regulations. 3. Asset appraiser : Felix Sutandar & Partners Jl. Balikpapan I No. 6 Jakarta Tel: (021) /42/43 Fax: (021) License from the Ministry of Finance of the Republic of Indonesia No. P in name of Wahyu Sri Utomo, ST Member of Indonesian Professional Appraisers Community (Masyarakat Profesi Penilai Indonesia) No. 03-S in name of Wahyu Sri Utomo, ST STTD No. 39/BL/STTD-P/A/2009 atas nama Wahyu Sri Utomo, ST Appointment Letter No. 044/FSR/Spn-wsu/0107/2010 dated January 7,

75 The main duties and responsibilities of the Appraiser in this Offering is determine the market value of the Company s fixed assets based on the Professional Standards and the prevailing capital market regulations on appraisal of market value on fixed assets owned/controlled by the Company. 4. Share Registrar: PT Raya Saham Registra Plaza Sentral, 2 nd Fl. Jl. Jenderal Sudirman Kav Jakarta Tel: (021) Fax: (021) License: Kep-79/PM/1991 dated September 18, 1991, in name of PT Risjad Salim Registra. Appointment Letter No. 011/DIR-RSR/PWR/2009 dated December 29, As per the Standards of the Profession and the prevailing Capital Market Law, the main duties and responsibilities of the Share Registrar in this Offering is to receive orders for Shares in the by way of Share Subscription Form and Share Subscription List that have been completed with the required documents and have been approved by the Lead Underwriter as subscriptions valid for allocation, as well as to administer the share subscription in accordance with the available applications. Together with the Lead Underwriter, the Share Registrar has the right to reject unqualified subscription based on the agreed upon regulations. In addition, the Share Registrar shall issue allocation confirmation form and prepare the initial public offering report based on the prevailing regulations. 5. Notary: FX Budi Santoso Isbandi, SH Jl. Tanah Abang II No. 5 Jakarta TelFax: (021) Faksimili: (021) STTD No. 50/STTD-N/PM/1997 in name of FX Budi Santoso Isbandi, SH Appointment Letter No. 002/NIC/II/2010 dated February 9, The scope of work of the Notary of supporting professional in this Offering is to, amongst others, prepare and draw the deeds relating to the agreements of the Offering, including the amendment of the Company s articles of association, and the Underwriting and Share Registration Agreements, in accordance with the regulations and notary s code of conduct. None of the capital market professionals involved in this Offering is directly or indirectly affiliated to the Company as defined in the Capital Market Law. 64

76 XV. LEGAL OPINION 65

77 No.: 258/KKO-HWMA/0610 Jakarta, 9 June 2010 PT Nippon Indosari Corpindo, Tbk. Kawasan Industri Jababeka Jalan Jababeka XII A Blok W Cikarang/Bekasi Jawa Barat Re : LEGAL OPINION ON, TBK IN CONNECTION WITH THE PREPARATION OF INITIAL PUBLIC OFFERING Dear Sir, The undersigned below, Kukuh Komandoko Hadiwidjojo, S.H., M.Kn., Advocate and Legal Consultant of Hadiwidjojo Wirya Mukhtar Ardibrata Law Offices, having its office at Haery I Building, 4 th Floor, JL. Kemang Selatan Raya No.151, South Jakarta , Indonesia and admitted as capital market counsel under Registration Letter for Capital Market Supporting Professional at the Capital Market Supervision Board and Financial Institution (hereinafter shall be referred to as the BAPEPAM & LK ) Number 541/PM/STTD-KH/2004 and listed as member of Association of Capital Markets Legal Consultants Number and has been appointed by PT Nippon Indosari Corpindo, Tbk., a limited liability company domiciled in Jakarta (hereinafter referred to as the ISSUER ) in accordance with Letter of Appointment Number 299/KKO-HWMA/2009, dated 19 November 2009, to provide a legal opinion (hereinafter shall be referred to as the "Legal Opinion") as required by the applicable regulations of capital markets in connection with the Issuer plans to offer and sell of its shares to the public through the Indonesian Stock Exchange, at the maximum of 151,854,000 new shares with a nominal value of each share amounting to Rp.100,00 (one hundred rupiah) or in the aggregate value of Rp ,- (fifteen billion a hundred and eighty five million and four hundred thousand Rupiah) (hereinafter shall be referred to as the Initial Public Offering ). In regard to the prevailing laws and regulations of capital market and in connection with the Initial Public Offering, Issuer has signed: (i) Share Administration Agreement with PT. Raya Saham Registra, as evidenced in Deed of Share Administration of PT. Nippon Indosari Corpindo, Tbk Number 2, dated 1 April 2010, made before FX Santoso Isbandi, S.H., Notary in Jakarta (hereinafter shall be referred to as the Share Administration Agreement ) and also the Addendum/Amendment I to the Deed of Share Administration of PT. Nippon Indosari Corpindo, Tbk Number 39 dated 9 June 2010, drawn up before the same Notary; (ii) Underwriting Agreement with PT. OSK Nusadana Securities Indonesia, as evidenced in Deed of Underwriting Agreement of PT. Nippon Indosari Corpindo, Tbk Number 01, dated 1 April 2010 made before FX Santoso Isbandi, S.H., Notary in Jakarta (hereinafter shall be referred to as the Underwriting Agreement ) and also the Addendum/Amendment I to the Deed of Underwriting Agreement of PT. Nippon Indosari Corpindo, Tbk Number 38 dated 9 June 2010, drawn up before the same Notary; (iii) Equity Registration Agreement in Indonesian Central Securities Depository Number SP-003/PE/KSEI/0310 dated 4 March 2010

78 (hereinafter referred to as the Equity Registration Agreement ); and Preliminary Agreement of Securities Listing with PT. Bursa Efek Indonesia dated 05 April 2010 (hereinafter referred to as the Preliminary Agreement of Securities Listing ). In accordance with the prevailing laws and regulations of capital market, in favor of the effectiveness of Registration Statement on Initial Public Offering, the Issuer shall have received a notice from Bapepam & LK concerning the effective registration statement of Initial Public Offering (hereinafter shall be referred to as the "Registration Statement"). In connection with Initial Public Offering, all of shareholders in the Extraordinary General Meeting of Shareholders has approved the Initial Public Offering plan and grant authority to the Board of Directors to perform the Initial Public Offering, as evidenced in Deed of Shareholders Resolution Statement Number 86, dated 24 February 2010, made before FX Budi Santoso Isbandi, S.H., Notary in Jakarta, which deed has obtain an approval from the Ministry of Law and Human Rights according to Decree Number AHU AH Tahun 2010, dated 12 March 2010, and registered in Company List Number AHU AH Tahun 2010, dated 12 March As disclosed in the Issuer s Statement Letter, dated 9 June 2010, after being deducted by any cost incurred in relation to the Initial Public Offering, the Issuer will use the remaining proceeds to increase capital and financing the business development as follows: 1. Approximately 75% (seventy five percent) of the proceeds will be used for the construction of new factories; and 2. Approximately 25% (twenty five percent) of the proceeds will be used for the repayment of bank loans. BASIS, SCOPE AND QUALIFICATION The Legal Due Diligence Report and Legal Opinion has been made on the basis, scope and qualifications as follows and without prejudice basis, scope and other restrictions as well as assumptions which we had stated in other parts of the Legal Due Diligence Report: 1. This legal opinion is rendered based on the legal due diligence that we have made and write down in our legal due diligence report (hereinafter shall be referred to as the Legal Due Diligence Report ) and which is an integral part with this Legal Opinion. 2. Unless the context expressly stipulated otherwise in Legal Due Diligence Report and Legal Opinion, Legal Due Diligence Report and Legal Opinion consist of: (1) legal aspect of the Issuer since the establishment until the date hereof; and (2) legal aspect of the Initial Public Offering have complied with: (a) applicable laws and regulations of capital market, and (b) Legal Examination Standard and Legal Opinion Standard as contain in HKHPM Decree Number KEP.01/HKHPM/2005, dated 18 February 2005, (hereinafter referred to as the

79 Legal Standard ) issued by the Association of Capital Market Legal Consultants. 3. The Legal Due Diligence Reports and Legal Opinion has been made and submitted under the laws and jurisdiction of the Republic of Indonesia, therefore, the Legal Due Diligence Report is not intended to be applied or interpreted according to any other laws and jurisdictions. 4. In conducting the Legal Due Diligence Report, we have examined and reviewed: (i) Provisions of the applicable laws and regulations in Indonesia, which based on our opinion is related to Legal Due Diligence, especially to the capital market area; (ii) Original documents and or copies of the document or other copies by other means of reproduction of the Issuer that has been provided and/or shown to us for the purpose of the Legal Due Diligence Report, which based on the Issuer s statement are authentic, true and accurate. 5. In consideration with the above number 2, 3 and 4, our Legal Due Diligence is limited to the examination of documents and therefore, this Legal Due Diligence Report and Legal Opinion contained only for the legal aspects of: I. Establishment of the Issuer, the deed of establishment; articles of association and its amendments, capital structure and ownership and transfer of shares of the Issuer. II. Licenses, approvals and registration of the Issuer that we deem significant and material. Ownership of assets and property insurance coverage that we deem important and material. III. Fulfillment of Issuers s obligations to: (i) obtain a taxpayer registration number and propose an Annual Income Tax return for fiscal year 2009, (ii) comply with formal requirements in labor field, (iii) comply with formal requirements in environmental field and (iii) comply with another legal obligations (if any) which applied to the Issuer according to its business licensings. IV. Material and important agrements between Issuer and third parties. V. Corporate actions which made by the Issuer in connection with Initial VI. Public Offering. Information regarding civil cases, criminal, labour and taxes which may involve the Issuer before the judicial board and Indonesian National Board of Arbitration. VII. Information regarding : (i) registration of postponement of debt settlement obligation which might be done by, or bancruptcy statement which might be done on Issuer, as referred in Law number : 37 Year 2004 concerning Bancruptcy and Posponement of Debt Settlement Obligation on Commercial Court in Central Jakarta District/Commercial Court and (ii) dissolution or liquidation of Issuer as referred in Law Number : 40 Year 2007 concerning Limited Liability Company (hereinafter referred to as the UUPT ) in the judicial board where the

80 Issuer domiciled and / or have business facilities that we consider important and material. 6. Our responsibilities as an independent Legal Consultant for the Initial Public Offering of of the Issuer, and in connection with the Legal Due Diligence, Legal Due Diligence Report and Legal Opinion is limited to the legal consultant s responsibilities as defined in Article 80 of Law Number 8 Year 1995 concerning Capital Market (hereinafter referred to as the UUPM ) and other provisions of legal profession code of ethics which apply to us. 7. In conducting the Legal Due Diligence Report, we have implemented a materiality principle as required in Legal Standard, and provisions that the materiality value is also determined by the Issuer by the way of approving our disclosure of information, data and facts related to the Issuer, as described in Legal Due Diligence Report. 8. Eventhough number 7 as above mentioned stated so, in conducting the Legal Due Diligence, preparation of Legal Due Diligence Report and provide a Legal Opinion, we do not : (i) provide assessment or opinion of fairness of commercial value from Initial Public Offering, (ii) provide assessment or opinion of fairness of commercial or financial value of Issuer s assets, (iii) provide assessment or opinion regarding commercial and legal position of Issuer in Initial Public Offering, (iv) provide assessment or opinion regarding compliance, accuracy, and correctness of the tax payment obligations of the Issuer, the obligations of the Issuer to its creditors, and fulfillment of obligations beyond the legal aspects and contractual or other liabilities of the Issuer. 9. In conducting Legal Due Diligence and preparing Legal Due Diligence Report and also providing Legal Opinion, we have implemented 2 (two) supervision levels, which are supervision by Partner who is responsible of, and sign inlegal Due Diligence Report and Legal Opinion, and supervision by middle level supervisor who supervise the examination conducted by the executive staff in accordance with best legal practice standards that we adopt and apply in our legal profession and the Legal Standards that are applicable for us. 10. We do not only conduct Legal Due Diligence according to the examination and interpretation of what is written in documents that provided to us, but also according to the substances of those documents, and if the supporting documents are unavailable to support a legal transaction involving the Issuer and/or its assets that we consider as important and material, we rendered to facts which based on our best knowledge, supporting apparent legal relation in accordance with concepts, practices and legal customs which basedon our best knowledge, are applicable in Indonesia for transaction or legal relation referred to, and as long as necessary, we also rendered to the written statement and confirmations provided by the Issuer and/or other related parties.

81 DOCUMENTS REVIEWED Legal Opinion of Initial Public Offering plan as described above is made by examining and researching the applicable laws and regulations in Indonesia, particularly those involving capital markets, information and statements from members of the Issuer s Board of Directors and Commissioners, opinions or statements from another independent consultant party which is necessary and also documents that are directly related to the legal aspects of the Issuer and the Initial Public Offering, either the original or a copy or a duplicate of which has been declared true and accurate by the Issuer, inter alia: 1. Articles of Association and its amendment of the Issuer; 2. Permits that obtained by the Issuer consist of licenses, approvals, legalizations and statements provided or issued by the Government of Republic of Indonesia, and registrations made by the Issuer, in this matter including BAPEPAM & LK, Department of Trade, Department of Finance, Department of Law and Human Rights, Department of Public Works, regional government and also another government bodies and institutions, as attached on Legal Due Diligence Report (hereinafter shall be referred to as Permits ); 3. Transactions and agreements which we have deemed as important and material connecting to the core business and activities of the Issuer, whether the Issuer shall be a party in it or of its assets which we have deemed as important and bound material, including agreements that related to its activities and business activities, agreements that related to financing facilities received by Emiten and agreements made between the Issuer and all the parties affiliated with the Issuer (hereinafter shall be referred to as the Agreement ), as specified in the Legal Due Diligence Report; 4. Issuer s Property consisting of land and buildings, motor vehicles, as well as other issuers assets that we have deemed asimportant and material as specified in the Legal Due Diligence Report; 5. Insurance policies that we have considered as important and material relating to the closure of the risks that may occur on Issuer s assets that we have deemed as important and material as specified in the Legal Due Diligence Report; 6. The Issuer s Financial Statement and Independent Auditor Report for fiscal years ended on 31 December 2009, 2008 and 2007 which have been examined by Registered Public Accountant Office Purwantono, Sarwoko, dan Sandjaja (hereinafter shall be referred to as the Financial Statement ); 7. Agreements and statements that related to Initial Public Offering including: a. Share Administration Agreement; b. Underwriting Agreement; c. Equity Registration Agreement; d. Preliminary Agreement of Securities Listing.

82 8. Corporate Documents of Issuer which required by the Issuer s Articles of Association to conduct the Initial Public Offering; 9. Registration Statement of the Initial Public Offering which shall be proposed by the Issuer and Securities Underwriter to BAPEPAM & LK and another important documents which based on our opinion are closely relating to the Initial Public Offering and its attachments; 10. Fulfillment of the Issuer s formal obligation in applicable labor and taxes law in Indonesia; 11. Fulfillment of the Issuer s formal obligation in applicable environmental law in Indonesia; 12. Another documents which we havedeemed as important and material to be reviewed in connection with the Initial Public Offering; All documents which become the basis of Legal Due Diligence Report and Legal Opinion, whether in the form of originals, copies or other duplicates or written statements from the Issuer and / or other parties and attachments also other documents submitted collectively with Legal Due Diligence Report shall be an integral part of Legal Due Diligence Report. ASSUMPTIONS This Legal Opinion shall be rendered with the following assumptions: 1. We assume that all the signatures on the original documents submitted and showed to us by the Issuer, and / or another third parties are authentic, and the documents submitted to us in copy form or another duplicates shall be in conformity with the originals documents; 2. We assume that the documents, statements, data, facts, information and explanations and also confirmations provided by the Issuer, and / or another third parties to us are already true, accurate, complete, not misleading and reflect the actual condition, and have not been changed until the date of the issuance of this Legal Opinion. 3. We also separately and independently, and on our own discretion, as long as possible by the rules and practices of applicable law, and as far as possible we do as an independent legal consultant, have conducted inspections and requested directly to third parties that we have deemed as relevant, including executive and judicative institutions to provide data, information, explanations, facts, statements, examinations and specific confirmations, whether oral or written, relating to some aspect of law which in our opinion are important and closely relating to the Legal Due Diligence, and for the purpose of providing Legal Opinions, we have assumed the truth, completeness, and correctness or accuracy of the data, facts and information, descriptions, requirements, inspection, and confirmation provided by these third parties until the date of the Legal Opinion.

83 Information, facts and opinions contained in this Legal Opinion or Legal Due Diligence Report may be affected if the assumptions mentioned above are not correct or incorrect or do not comply with reality. LEGAL OPINION After checking and examining the documents mentioned above and based on the basis of data, information, facts and, remarks, statements and assertions provided by the Issuer and third parties to us or available for us as the Issuer s independent legal consultant for the Initial Public Offering and on the basis of the scope, limitations and assumptions mentioned above and by pointing Legal Due Diligence Report, we hereby convey our Legal Opinion as follows: 1. The Issuer is an Indonesian legal entity in the form of limited liability company and established for foreign investment, domiciled and having its main office at Cikarang, Bekasi and may open another branches or representative, whether inside or outside the Republic of Indonesia which legally established in accordance with laws and regulations of the Republic of Indonesia. 2. The establishment of the based on Deed of Establishment Number: 11 dated 8 March 1995 which has been amended with Deed of Amendment of Articles of Association Number: 274 dated 29 April 1995, both drawn up before Benny Kristianto, S.H., Notary in Jakarta, which deeds has obtained approval from Minister of Law and Human Rights (prior Minister of Justice of the Republic of Indonesia) in accordance with Decree Letter Number: C HT Th.95 dated 18 May 1995 and has been registered in register book in Bekasi District Court Office Number: 264 and 265 dated 14 September 1995, and also has been announced in State Gazette of the Republic of Indonesia Number: 94 dated 24 November 1995, Supplement Number: 9729/1995. Articles of Association of the Issuer has been amended several times, most recently for the Initial Public Offering which has been amended with Deed of Limited Liability Company Shareholder Resolution Number: 86 dated 24 February 2010 drawn up before FX Budi Santoso Isbandi, S.H., Notary in Jakarta, which deed has obtained approval from Minister of Law and Human Rights in accordance with Decree Letter Number: AHU AH Year 2010 dated 12 March 2010, and has been registered in Company List Number: AHU AH Year 2010 dated 12 March Deed of Establishment and amendment of Issuer s Articles of Association have been conducted in accordance with prevailing laws and regulations. Articles of Association of the Issuer have implemented the provisions of BAPEPAM & LK Rule particularly Bapepam Rule Number IX.J.1 concerning Articles of Association of Companies Conducting Public Offerings and Public Companies and already contained the provisions related to Bapepam Rule Number IX.D.1, IX.D.2, IX.E.1 and IX.E.2. In addition, the Issuer s Articles of Association havealso contained the provisions regarding Collective Custody as provided in Article Section Two Chapter VII of Capital Market Law.

84 3. The Issuer shall be entitled to run the activities and its business in accordance with the permits. The purpose and objective of the Issuer as referred to in Article 3 of Article of Association of the Issuer is undertake to manufacture the bread, cakes and other foods. To achieve the purpose and objectives as above mentioned, the Issuer may carry out its business activities as follows: a. Core business activities: Construct of factories and produce all types of bread, including but not limited to all sort of bread, sandwiches and all kinds of cakes. b. Supporting business activities: marketing and selling all types of breads, including but not limited to all sort of bread, sandwiches and all kinds of cakes. The Issuer in running its business activities has complied with the objectives and purposes as set forth in the Articles of Association of the Issuer and in compliance with the prevailing laws and regulations. 4. On the date of this Legal Opinion, the capital structure of the Issuer are as follows: Authorized Capital : Rp. 344,000,000, (three hundred and forty four billion Rupiah), which consists of 3,440,000,000 (three billion and four hundred forty million) shares with a nominal value of each share of Rp (one hundred Rupiah). Issued and fully paid-up Capital : Rp. 86,050,600, (fifty billion eighty-six million six hundred thousand Rupiah) consisting of 860,506,000 (eight hundred sixty-six million five hundred thousand) shares. The composition of the shareholders of the Issuer are as follows: Shareholder Number of Share Nominal Value (Rp100.00) Percentage (%) Bonlight Investment Limited 344,202,400 34,420,240, Treasure East Investment Limited 344,202,400 34,420,240, Sojitz Corporation 86,050,600 8,605,060, Shikishima Baking 86,050,600 8,605,060, TOTAL 860,506,000 86,050,600,

85 Capital structure, transfer of shares and the composition of the shareholders of the Issuer since its establishment until the date of this Legal Opinion are: (i) valid and in accordance with the laws and regulations, and (ii) contents in the Prospectus are correct and in accordance with our assessment. The Board of Directors of the Issuer has complied with its obligation to make the Register of Shareholders and Special List as referred to in Article 50 of the Company Law. 5. On the date of issuance of this Legal Opinion and in regard with the Deed of Shareholders Resolution Statement Number 36, dated 14 April 2010, made before FX Budi Santoso Isbandi, S.H., Notary in Jakarta, composition of the members of Board of Directors and Board of Commissioners of the Issuer are as follows: BOARD OF DIRECTORS President Director : Wendy Sui Cheng Yap Director : Indrayana Director : Kaneyoshi Morita Director : Takao Okabe Director : Yenni Husodo Director : Chin Yuen Loke (and Unaffiliated Director) BOARD OF COMMISSIONERS President Commissioner : Benny Setiawan Santoso Commissioner : Tan Hang Huat Commissioner : Seah Kheng Hong Conrad (and Independent Commissioner) The members of Board of Directors and Board of Commissioners had been appointed pursuant to the Deed of Shareholders Statement Resolution No. 86, dated 24 February 2010, made before Isbandi FX Budi Santoso, SH, Notary in Jakarta. The members of Board of Directors and Board of Commissioners of the Issuer is served for a period of five (5) years as of the closing meeting of the Extraordinary General Shareholders which appoint them and shall be terminated at the closing of the 5 th (fifth) Annual General Meeting of Shareholders. Appointment of members of Board of Directors and Board of Commissioners of the Issuer has been legitimately made in accordance with the Articles of Association of the Issuer. The foresaid members of Board of Directors and Board of Commissioners Issuer has complied with the provisions of Bapepam Rule Number IX.I.6. In accordance with the Statement Letter of the Issuer, dated 5 March 2010, The Audit Committee shall be established in accordance with the applicable regulations, at the latest within a period of six (6) months as of the date of commencement of the listing and trading of shares of the Issuer at the Indonesian Stock Exchange.

86 In regard with the Director s Decree of the Issuer Number 001/CS/NIC/II/2010 concerning the Appointment of Employee, dated 24 February 2010, Issuer has appointed Mrs. Arlina Sofia as a Corporate Secretary. 6. Issuer has obtained permits, in connection with its business activities and such permits are still valid. Permits that had expired or which have not obtained yet is not adversely affect the business, activities and operations of the Issuer. Issuer is currently processing the renewal of permits that must be obtained and we did not found obstacles that are significant to the Issuer to extend or obtain of such permits. 7. Issuer has complied with the provisions of its Articles of Association and the prevailing laws and regulations of capital market. 8. The Issuer has complied with the licensing, notification or approval related to Issuer s Initial Public Offering plan from the government bodies and other parties which engage with the Issuer. 9. Issuer is entitled to create, sign and implement agreements. The making of any such agreements do not violate legal provisions and regulations applicable to the Issuer and of any other agreements which the Issuer is a party therein and / or assets of the Issuer that are important and bound materially, and Articles of Association of the Issuer, and agreements are therefore valid and binding on the parties therein, as well as at the date of the Legal Opinion, the Issuer has complied with its obligations as they fall due as stipulated in the agreements arising out of a notice or passage of time or both. Initial Public Offering conducted by the Issuer does not conflict with the treaties in which the Issuer is a party therein, including but not limited to financing agreements that have been made by the Issuer, and in the framework of Initial Public Offering, the Issuer has obtained approval from its creditors. 10. Ownership and control of the Issuer s assets, such as land and buildings, equipment, vehicles and other property that we deem important and material was legal and protected by a valid ownership documents. Issuer s assets which can be insured, covered by insurances for the important risks. Whereas Issuer s assets is currently not being in a state of dispute. Among the machines, equipment, inventory and other assets owned by the Issuer, some of them are for collateral in Issuer s Credit Agreement with PT Bank Central Asia Tbk, which is land with right to use of building permit (HGB) Number 227 and production machinery and equipment owned by the Issuer contained in the Deed of Fiduciary Security Number 2, dated 2 September 2009 and Fiduciary Deed No. 3, dated 2 September In addition to that, the machines are listed according Deed of Fiduciary No. 46, dated 25 June 2007 in the loan agreement with PT Bank Resona Perdania.

87 11. In accordance with the prevailing laws and regulations in manpower, (i) Issuer and its employees have joined into the employee social security (Jamsostek) in PT Jamsostek (Persero); (ii) have been conducting manpower report; (iii) Issuer has obtained the approval of Issuer Regulation; (iv) Issuer has complied with the prevailing payment requirement of Minimum Wages where the Issuer s head office, branch office, and distribution office domiciled in accordance with Governor s Decree/Regulation concerning Minimum Wages of Province/Regency/City year This matter is proven by the lowest employee s paycheck and Director s statement concerning fulfillment of minimum wages; (v) Issuer has had special permits in manpower, which are, permission to employ woman labor at night and permits to use tools for production. 12. The Issuer has performed its obligation in environmental according to the prevailing government laws and regulations in environmental, by conducting Environmental Management Efforts Report and Environmental Controlling Report (UKL dan UPL) in the factories where Issuer s head office and branch office domiciled. Such UKL dan UPL shall be still applicable until the date of the issuance of this Legal Opinion. Special for Issuer s factory that residing at Jl. Jababeka XVIIB U No.33, Jababeka Industry District, Cikarang, Bekasi, currently, UKL and UPL documents are in stage of the process of preparation and approval from Regional Environmental Management Bord (BPLHD) of Bekasi Regency.Such process shall be completed in July This matter is proven by Reference Letter from the Board of Directors dated 23 March 2010 concerning matters mentioned above and also Reference Letter from PT. Jababeka Infrastruktur Number: 012/EXT/ENV-JI/III/2010 dated 23 March In connection with the execution of the Issuer s business activities, the Issuer has complied with its obligations as required by the prevailing laws and regulations and the government policies. 14. The Issuer conducts the Technical Royalty Agreement or Technical Agreement (hereinafter shall be referred to as the "Technical Agreement") with Shikishima Baking Co., Ltd. (hereinafter shall be referred to as "SBC"), and Sojitz Corporation (hereinafter shall be referred to as "Sojitz"), the Issuer s shareholders, on 12 June 1995, in which SBC agreed to provide technical guidance, knowledge and training in the production of bread and Sojitz acts as a mediator between them. The agreement was terminated in 2000 and had been extended in 2001, and last extended in 2007 for a period of 5 (five) years. The Issuer, under the Agreement, agreed to pay a royalty fee (payable in quarterly) based on a certain percentage of net sales. Technical Agreement mentioned above is categorized as an Affiliate Transactions and Conflict of Interest of Certain Transaction referred to in Bapepam Rule Number IX.E.I in terms of the stewardship or the ownership of shares in the Issuer.

88 15. The Issuer entered into sale and purchase agreement of raw materials which is wheat flour, with PT Indofood Sukses Makmur, Tbk based on Sale and Purchase Agreement Number 02/BS-NIC/IS-Bkry/II/10 dated 23 February This agreement is valid until 31 December Based on the Consolidated Financial Statement of PT Indofood Sukses Makmur, Tbk for Three Months Period Ended March 31, 2010 and 2009 (Unaudited), and also Curriculum Vitae of Mr. Benny Setiawan Santoso, indicate that besides serving as a President Commissioner of the Issuer, he is also a member of the Board of Commissioners of PT Indofood Sukses Makmur, Tbk. Therefore, this transaction is categorized as an Affiliate Transaction as referred to Bapepam Rule Number IX.E.I in terms of the management aspects of the Issuer. 16. According to the Statement of Issuer, members of Board of Directors and Board of Commissioners of the Issuer based on the basis of our research on the District Court where the head office and branch offices domiciled, the Industrial Relations Court of District Court where the head office and branch offices domiciled, the State Administrative Court in which the head office and branch offices domiciled, the Indonesian National Arbitration Board (BANI) in which its head office and branch offices domiciled, and the Tax Court in the Ministry of Finance, the Issuer, the Board of Commissioners and Board of Directors shall not be involved in criminal matters, private matters, state administrative before the public court, the case of manpower, taxation and arbitration dispute in Indonesia which may materially affect the financial condition and the sustainability of the Issuer. 17. On the basis of our examination in the Commercial Court in the District Court / Commerce / Human Rights and the Central Jakarta Commercial Court in the District Court / Commerce Surabaya, where the Issuer s head office and branch office domiciled, the Issuer shall not be listed as a defendant in the case of bankruptcy or has been declared as insolvent, postponement of debt payment obligations (PKPU) and / or dissolution of the Issuer as stipulated in Law No. 37 Year 2004 concerning Bankruptcy and Postponement of Debt Payment Obligation and the Company Law. 18. According to the Statement of Issuer, the Issuer will be accountable for realization of the Initial Public Offering funds utilization periodically to shareholders through the Annual General Meeting of Shareholders and to report to Bapepam & LK in accordance with Bapepam Rule Number XK4 Attachment of Chairman of Bapepam No.Kep-27/PM/2003 dated 17 July 2003 concerning the Reports on The Use of Funds Received From a Public Offering. According to the Statement of Issuer s Director on 9 June 2010, the utilization of Initial Public Offering funds shall be used for: - construction of new factoriest; - debt repayment;

89 The utilization of funds as debt repayment is not categorized as a Material Transaction prescribed by the provisions of Bapepam Rule. However, the utilization of funds to build new factories is not categorized as a Material Transactions as referred to in Article 3 letter a number (5) of Bapepam Rule No. IX.E.2 concerning Material Transactions and Core Business Shifting. Construction of new factories with an estimated amount of 75% (seventy five percent) from the Initial Public Offering funds, exceeding 20% of the total equity of the Issuer which in amount of Rp ,00. Therefore, it is categorized as a Material Transaction as defined in Article 2 letter a of Bapepam Rule Number IX.E.2. Furthermore, this material transactions exempt from the provisions / obligations in relation to the Material Transaction, as performed directly by the Issuer for the production process or the Core Business Activities and / or for directly supporting the production process or the Core Business Activities and, therefore, this Material Transactions disclosed in the Prospectus. Furthermore, the plan of the Initial Public Offering funds utilization is not categorized as Affiliated Transactions and Conflict of Interest as stipulated in Bapepam Rule No. IX.E.1. If in the future the Issuer intends to amend its plan of Initial Public Offering funds utilization, the Issuer shall prior report to Bapepam & LK and provide its consideration and the amendments of the funds utilization shall obtain prior approval from shareholders of the Issuer through the General Meeting of Shareholders. If the utilization of funds as mentioned above is a material transaction and / or conflict of interest as provided in Regulation No. IX.E.2 and / or Regulation No. IX.E.1, the Issuer shall comply with such provisions. 19. The Issuer has no affiliation with the Underwriter in the Initial Public Offering as referred to in Law No. 8 Year 1995 concerning Capital Market. 20. The Legal aspects contained in the prospectus is correct and in accordance with the results of our investigation.

90 This Legal Opinion has been made and given by us according to professional standard and professional codes of ethic as Capital Market Law Consultant and we have acted independently and have no conflict of interest with the Issuer, and other Capital Market Supporting Professionals and also responsible to the legal opinion given. Sincerely, Hadiwidjojo Wirya Mukhtar Ardibrata Law Offices Kukuh Komandoko Hadiwidjojo, S.H., M.Kn STTD No.: 541/PM/STTD-KH/2004 Member of HKHPM No.: Cc: 1. Chairman of Capital Market Supervision Board and Financial Institution; 2. Head of Corporate Finance Assesment of the Real Sector; 3. Indonesian Stock Exchange; 4. OSK Nusadana Securities Indonesia as Securities Underwriter.

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