2005 Annual Report. co.th

Transcription

1 Color of Life PVC colors our life and shines our days because PVC plays important roles in our daily lives, from childhood to adults, from wake to sleep. We, thus, generate products of quality for your comfort and smiles. Nature Brightening TPC helps reserving environment by encouraging usages of PVC to substitute natural materials because the beauty of nature and bright environment are major factors that must be in existence with humans. Reduction in woodcuttings that are destroying forest, directly and indirectly, and saving of natural resources, therefore, help balancing nature and its sustainability. Bringing Growth TPC grows along with responsibilities to mankind, communities and environment. We succeed and grow with social responsibilities, transparency and fairness to all related parties and also generate appropriate returns to all share holders Annual Report THAI PLASTIC AND CHEMICALS PUBLIC COMPANY LIMITED co.th

2 Contents Financial Statements 30 Financial Highlight Message from the Chairman Board of Directors Executive Management Organization Structure Operation Review PVC Industry: Market Overview Results of Operations for the Company and Its Subsidiaries Major Achievements in 2005 Report on The Board of Directorsû Responsibility Report of the Audit Committee Report and Financial Statements Corporate Governance 1. Policies Regarding Good Corporate Governance 2. The Structure and Functions of the Board of Directors 3. Guidelines for Protecting the Interests of Shareholders & Stakeholders 4. The Equal Rights of Shareholders and Rights of Stakeholders 5. Systems of Internal Controls and Auditing 6. Business Ethics Summary of Significant Information Company Information General Information Business Overview Sales Revenue Structure Risk Factors 1. External Risk Factors 2. Internal Risk Factors Shareholders Structure and Management The Major Shareholders of the Company Board of Directors Authorities and Duties of the Committees Executive Management

3 1 Color of Life PVC colors our life and shines our days because PVC plays important roles in our daily lives, from childhood to adults, from wake to sleep. We, thus, generate products of quality for your comfort and smiles. Nature Brightening TPC helps reserving environment by encouraging usages of PVC to substitute natural materials because the beauty of nature and bright environment are major factors that must be in existence with humans. Reduction in woodcuttings that are destroying forest, directly and indirectly, and saving of natural resources, therefore, help balancing nature and its sustainability. Bringing Growth TPC grows along with responsibilities to mankind, communities and environment. We succeed and grow with social responsibilities, transparency and fairness to all related parties and also generate appropriate returns to all share holders. Life, Nature and TPC TPC realizes the necessity of PVC as an important part of the daily life of mankind, including being friendly to the nature, the breath of human beings. We, therefore, have continuously engaged in campaigning to reduce woodcutting and to protect destroying of forestry resources, by producing wood substitute materials. All are for the good sake of mutual growth and sustainability between human beings and nature.

4 2 (Million Baht) 40,000 4,000 40,000 35,000 3,500 35,000 3,152 30,000 25,000 25,711 24,162 3,000 2,500 2,820 30,000 25,000 20,000 2,000 20,000 20,176 20,134 15,000 1,500 15,000 10,000 1,000 10,000 5, , Revenues Net earnings Assets

5 3 Financial Highlight Financial Highlight Statement of Earnings (Million Bath) Revenues 25,711 24,162 18,381 16,206 13,880 Cost of sales and expenses 22,850 20,934 17,016 14,953 14,452 Net earnings 2,820 3,152 1,306 1, Balance Sheet (Million Bath) Assets 20,176 20,134 17,643 17,529 16,647 Liabilities 8,625 9,657 9,232 10,467 10,474 Shareholdersûequity 11,551 9,940 7,926 6,595 5,725 Share Capital Issued share capital (million share) ** Book value per share (Baht) Net earnings per share (Baht) Dividends per share (Bath) 0.60* Net earnings per total revenues (%) Return on total assets (%) Return on shareholdersû equity (%) * Interim dividend paid in 2005 ** Change the par value of common share from 10 Baht to 1 Baht effective from the date of 26 October 2004, and the number of share changed from 87.5 million shares to 875 million shares.

6 4 Message from the Chairman Growth in the global economy was slower in 2005 than the year before, due mainly to hefty hikes in the price of oil, interest rate increases, instability in the Middle East, and a spate of natural disasters. Thailandûs economy decelerated likewise as it recovered from the loss of tourism following the Tsunami that hit its shores at the end of Other domestic setbacks were steep rises in the oil prices and higher interest rates. Consequently, private sector spending growth began to cool. However, Thai Plastic and Chemicals Public Co., Ltd. (TPC) and its subsidiaries continued to produce good operating results. The local market for PVC and PVC pipe maintained the growth rates from 2004, namely 9% and 25%, respectively. Sales were driven mainly by a number of large construction projects in both the public and private sectors and new housing. The Company and its subsidiaries recorded a net profit of billion Baht, down 10% from the previous year due to a fall in world-wide and domestic PVC prices. Competition in this sector has become more intense since output from China started to rise. The ongoing drought has resulted in serious water shortages for industries in eastern Thailand, particularly for the petrochemical industry in Map Ta Put Industrial Estate, Rayong, as these plants use large quantities of fresh water in their processes. To resolve this problem, the Company had to arrange for external sources of reserve water, and established water treatment systems that would allow it to recycle and reuse its limited supplies. Therefore, the Company was able to maintain production without any interruption. These precautionary measures enable the Company to protect itself from possible future water shortages as well.

7 5 Mr. Yos Euarchukiati Chairman of the Board of Directors During the year, TPC had made a number of major investments to strengthen the business operations. With Siam Cement Plc., the Companyûs major shareholder, the Company jointly bought all the shares of PT. Siam Maspion Polymers, a manufacturer and distributor of PVC in Indonesia, from the portion of the Indonesian owners, by holding shares through Siam TPC (Singapore) Pte. and Siam TPC Co.,Ltd.. The Company, therefore, now holds (indirectly) 40% share in PT. Siam Maspion Polymers, up from the original 20% share. The name of the PT. Siam Maspion was also changed to PT. TPC Indo Plastic and Chemicals. This acquisition suits well with the Companyûs policy on expanding its PVC and finished product base in the Asean Region, especially in Indonesia and Vietnam. In addition, the Board of Directors approved investment for the expansion of PVC Line 9 at Rayong Plant. This new investment will cost approximately 2.5 billion Baht. Construction has been started and production is scheduled to commence in the middle of Resulting from the resignation of Mr. Dhep Vongvanich, Managing Director of Thai Plastic and Chemicals Public Co., Ltd., at the end of last year, the Board of Directors had appointed Mr. Kanet Khaochan to replace him as from January 1, However, Mr. Dhep remains as a Director of the Board and an Executive Director of the Company, thus ensuring continuity of management. On behalf of the Board of Directors, I would like to thank our shareholders, our investment partners, our clients, our staff, and our supporting financial institutions, in Thailand and abroad, for contributing so generously to the Companyûs success. We assure you all that the Company is committed to optimum results proportionate to the trust and confidence you have reposed in us.

8 6 Board of Directors The Companyûs Board of Directors are appointed and approved at the Meeting of the Company Shareholders to direct, oversee, and review the Companyûs operations, and to ensure that such operations comply with the law, the objectives of the organization, its rules, and resolutions of shareholdersû meetings. The Board of Directors comprises 13 members whose names appear as follows; 1. Mr. Yos Euarchukiati Chairman 2. Mrs. Vilaiphan Euarchukiati Vice Chairman (1) 3. Mr. Sak Euarchukiati Director 4. Mr. Nitya Pibulsonggarm Independent Director * 5. Mr. Sivavong Changkasiri Independent Director * 6. Mr. Apiporn Pasawat Director 7. Mr. Aviruth Wongbuddhapitak Director 8. Mr. Cholanat Yanaranop Director 9. Mr. Dhep Vongvanich Director 10. Mr. Prawit Ninsuvannakul Independent Director * 11. Mr. Bunlue Kampanartsanyakorn Independent Director * 12. Mr. Somchai Kongsala Independent Director * 13. Mr. Kanet Khaochan Director and Managing Director (2) * Note: Independent Directors are qualified, possess outside experiences in the Companyûs line of business, do not represent any major shareholders, and have the characteristics required by the Stock Exchange of Thailand In order to operate specific issues effectively, the Board of Directors has appointed three specific committees to be in charge of operating specific assigned work.

9 7 1. Executive Committee The Executive Committee consists of six members whose names appear as follows: 1. Mr. Apiporn Pasawat Chairman (1) 2. Mrs. Vilaiphan Euarchukiati Member 3. Mr. Aviruth Wongbuddhapitak Member 4. Mr. Dhep Vongvanich Member 5. Mr. Cholanat Yanaranop Member (3) 6. Mr. Kanet Khaochan Member (3) The Executive Committee has been appointed by the Board of Directors to act as its representative in matters pertaining to direction and supervision of operations, monitoring results, and assessing the performances of management. The authorities assigned by the Board of Directors are those, which are most appropriate to performing its functions effectively. 2. Audit Committee The Audit Committee consists of the following 3 independent directors: 1. Mr. Prawit Ninsuvannakul Chairman 2. Mr. Somchai Kongsala Member 3. Mr. Bunlue Kampanartsanyakorn Member The Audit Committee has been appointed by the Board of Directors. The main task of the Audit Committee is to review the Companyûs financial statements and internal controls, to nominate an appropriate external auditor, and to ensure that the Company operates according to the laws and the regulations of the Stock Exchange of Thailand. 3. Remuneration Committee The Remuneration Committee consists of the 4 members whose names are listed as follows: 1. Mr. Sivavong Changkasiri Chairman 2. Mr. Somchai Kongsala Member 3. Mr. Bunlue Kampanartsanyakorn Member 4. Mr. Sak Euarchukiati Member The Remuneration Committee has been appointed by the Board of Directors and responsible for determining the Companyûs remuneration policy, including structure and administration of salary increases and bonuses. (1) The Executive Committee was appointed on January 24, 2006 at the meeting of the Board of Directors. (2) Mr. Kanet Khaochan became Managing Director of the Company from January 1, (3) The Board of Directors resolved to appoint two new directors to the Executive Committee, namely Mr. Cholanat Yanaranop and Mr. Kanet Khaochan, on January 24, 2006.

10 8 Executive Management Mr. Kanet Khaochan * Managing Director 1 Mr. Namsak Choonhajutha General Manager, Commercial Group Responsibilities include sales and marketing 2 Mr. Vitoon Nitwatanagul General Manager, Technical Group Responsibilities include engineering, research and development, technology development and material management 3 Mr. Prachak Sotornsak General Manager, Managing Directorûs Office Responsibilities include PVC resin production and PVC resin joint ventures 4 Mr. Wirat Mongkolpiyathana General Manager, Compound Business Responsibilities include production and sales of PVC compound both in the domestic and overseas markets 6 Mr. Tada Tearprasert General Manager, Managing Directorûs Office Responsibilities include total quality management, corporate planning office and corporate affairs 5 Mr. Amphol Raungturakit General Manager, Corporate Services Group Responsibilities include accounting, credit control, treasury, company secretary and investor relation, legal and information technology 7 Note: * As of January 1, 2006, Mr. Kanet Khaochan was appointed as Managing Director.

11 9 Organization Structure Board of Directors Audit Committee Remuneration Committee Executive Committee Managing Director Internal Audit Office Office Direct to the Managing Director Corporate Affairs Production Group Commercial Group Technical Group Corporate Services Group Compound Business

12 10 Color of Life PVC colors our life and shines our days because PVC plays important roles in our daily lives, from childhood to adults, from wake to sleep. We, thus, generate products of quality for your comfort and smiles.

13 11 Operation Review PVC Industry: Market Overview In 2005, global demand for PVC amounted to approximately 31 million tons, up around 3% from the previous year. The increase was less than in 2004 because of volatility in the price of fuel and oil. Asian markets, however, maintained their torrid pace of expansion, led by the Peopleûs Republic of China at over 10%. That countryûs public sector was well into an enormous building boom in preparation for hosting the Olympics in There were announcements for PVC production capacity worldwide, but only at a certain extent. Most of the increased output took place in China, which affected less import to China and had a large impact to regional producers in terms of prices of their products. Overall, global PVC prices were high, but on average lower than in The main influence on price was the cost of raw materials. Turbulence in crude oil prices caused the price of upstream ethylene to rise. A shortage of VCM, used in PVC production, also occurred, due to a shortfall in production in the wake of hurricanes that struck the United States towards the end of the year. Consequently, many PVC manufacturers had to halt production, creating a shortage in the fourth quarter. Considering the economic growth of the world and the leading industrial regions, forecasts point to an increase in demand for PVC of 4-5% or more. Asia will continue to lead among regions with high growth in demand for PVC.

14 12 Domestic Market In 2005, domestic demand for PVC rose by approximately 9%. The main factor behind this increase was the governmentûs ongoing support for large-scale infrastructure projects, as well as state-sponsored housing developments (Ban Eua Artorn). Construction in the private sector also maintained a healthy rate of growth. Due to the drought affecting Thailand in 2005, water system became necessary at record-breaking levels, thus increasing the demand for PVC pipe. Demand for PVC cable was also much higher, particularly for electrical wiring used in manufacturing automobiles should see a continuing growth in demand for PVC, in line with global and national economic expansion rates that are expected to be higher than Growth in demand for PVC could, however, be lower due to rising interest rates that would have a negative impact on the real estate industry. High oil prices will likely depress consumer buying power as well. Export Market The situation of the Companyûs main export markets could be summarized as follows: The Peopleûs Republic of China Demand for PVC in China remains on an upward course, based on ongoing construction projects and the governmentûs preparation for the Olympics in Due to continuing expansion of PVC Resin capacities in China, imports of PVC have fallen, and are expected to fall further to 1.3 million tons per year during Japan and Korea remain the two largest exporters of PVC to China. ASEAN Countries The capacity of the Association of Southeast Asian Nations to produce PVC is greater than demand, and this demand is set to slow down somewhat due to the dampening effects of high oil prices and higher costs of living, which act as brakes on economic growth.

15 13 There are a few countries, such as Vietnam, where demand for PVC remains high. Competition from manufacturers is increasing, both locally and from outside suppliers such as Japan, South Korea, and particularly Taiwan, Asiaûs largest producer. This stronger competition is largely caused by a drop in imports by China, forcing manufacturers to seek markets elsewhere, such as ASEAN. Within ASEAN itself, the main PVC producers -- Thailand, Vietnam, Malaysia, the Philippines, and Indonesia -- are seeing their rivalry heat up. Due to this boost in competition, the volume of production seeking outside markets, such as South Asia and Africa, has also risen. It is expected that competition in the PVC industry will continue strong. Several major producers are expanding production capacities, hoping to exploit the potential offered by global economic growth and rising oil prices. South Asian Countries The nations of South Asia include India, Pakistan, Bangladesh, Sri Lanka, Afghanistan, and Nepal. Due to constant economic growth in this region, particularly India, the need for PVC has continued to rise. It is expected that Indiaûs demand for PVC will be no less than 1 million tons. Most of this amount will be used for agriculture and irrigation pipes. This region, therefore, is one to which the Company can continue to export. India and Bangladesh, in particular, appear to need PVC imports on a large scale. Middle Eastern Countries The Middle East is an interesting market for the Companyûs exports. The wealth of natural resources, especially crude oil and natural gas, in this region provides the impetus for ongoing economic growth, and this, in turn, has sparked a growing demand for PVC. Despite competition from other suppliers, the Company has been able to raise the volume of exports to this region.

16 14 Nature Brightening TPC helps reserving environment by encouraging usages of PVC to substitute natural materials because the beauty of nature and bright environment are major factors that must be in existence with humans. Reduction in woodcuttings that are destroying forest, directly and indirectly, and saving of natural resources, therefore, help balancing nature and its sustainability.

17 15 Results of Operations for the Company and Its Subsidiaries Sales In 2005, the Company and its subsidiaries recorded sales amounting to 24,754 billion Baht, up 6% from the year before. This increase was due to a higher volume of domestic demand for PVC, proportionate to Thailandûs economic growth. The real estate sector continued to enjoy growth from the previous year, while the state sector invested in a number of large-scale projects, particularly those related to solving the nationûs shortage of water. Sales were up even though there was a slight decline in the per-unit price of PVC, and manufacturers of PVC products had to struggle with higher production costs, causing them to hold back on purchasing supplies. The Company and its subsidiaries, however, were able to raise output and move their products to market. The leading products by volume were PVC pipe and finished construction materials made of PVC, such as doors and windows. The Companyûs export was down by 3%, reflecting the need to satisfy higher domestic demand first. TPC emphasizes sales to foreign markets with high potential and attractive return, namely the Middle East and Africa. Financial Operating Results The Company and its subsidiaries earned a net profit of 2,820 billion Baht, down 11% from The cause of this decline was a slight drop in the sale price of PVC, while the cost of ethylene highly moved along with oil prices and the conditions of supply and demand. During the year, the Company purchased more shares of its Indonesian joint venture, and restructured it to improve its financial status. Production costs rose by over 10%, but the Company was successful in introducing new efficiencies to its product delivery system, resulting in savings of up to 20%. During 2005, the Company received a dividend of 731 million Baht from its investments in the petrochemical industry, where high product prices continued from the previous year.

18 16 Major Achievements in Production TPC has always regarded improvements in productivity to be among its most important goals, and so has undertaken frequent system upgrades to ensure continuity of production. In 2005, TPC was affected by a number of external factors beyond its control, such as the drought in Thailandûs eastern provinces. The Company dealt with the consequent shortage of water by procuring water treatment equipment that allowed it to reuse its effluent water with a quality sufficient for its purposes, and it was able to find outside reserve water sources to cope up with the critical situations. TPC is confident that similar problems will not occur in 2006, as the government has taken steps to develop water reserves for industry in the East. TPC and other manufacturers in the same industrial estate have also embarked on projects that will help reduce water consumption. In addition, TPC invested in the replacement of old control systems with new state-of-the-art ones, thus minimizing the risk of plant shutdowns due to a lack of parts that are no longer sold. The new system, moreover, offers better, more accurate control and monitoring of production. For the sake of leading-edge customer service, the Company introduced an automatic packaging system for its products, along with new information technology to enhance volumetric precision. The updated system can also check product information more rapidly and accurately. Preparedness, effective problem-solving, and system modernization, thereby reducing production downtime for annual repairs, enabled TPC to increase total productivity by almost 20,000 tons from 2004.

19 17 2. Marketing and Distribution With increased productivity, TPC was able, in 2005, to manufacture more PVC for sale to producers of finished products in Thailand, and also for export. While maintaining its Asian customer base, the Company continued to assert leadership in the PVC industry by maximizing output, emphasizing product quality, precision in the quantity of merchandise delivered, and consistency of customer services. Strong competition, both domestically and internationally, occurred during the year due to excess production capacity and price volatility. TPC was able, nonetheless, to preserve its leading role in sales and marketing through tactical adjustments and enhanced competitiveness. For delivery of PVC products, in particular, the Company switched container trucks, installed tank pressure equipment, and attached to each truck a vehicle tracking system to ensure greater safety and reliability on the road to customers. 3. Product Developments and R&D The main objective of TPCûs research and development program is to enhance competitiveness through higher product quality and specifications that fit to market demand and customers. New products are developed, maintaining the same or even higher quality, and to substitute for the consumption of natural resources. TPCûs products should not only be better in themselves, but they should cause no harm to the environment. Improvements in productivity and reliance on domestic raw materials rather than imports are two other goals of the Companyûs research and development efforts. Most of the Companyûs present efforts in PVC resin research and development are aimed at providing the higher quality customers demand. New technologies are studied, moreover, with an eye to raising productivity. The search is for systems and methods that enhance output, reduce processing time, minimize raw material consumption, and make use of new alternative sources of raw materials while maintaining or improving the quality of PVC

20 18 resin. PVC compounds are also scrutinized for ways to improve quality and satisfy the needs or specifications of clients that may vary from one country to another, depending on the final products e.g. water bottle, electrical wiring, or shoes. TPC has developed formulas for products that can be used as substitutes for the wood in flooring, or are lighter than wood in applications that do not require much resistance to weight or pressure, such as ceiling and siding. Such formulas must meet all necessary health and safety requirements for indoor uses. TPC also provides technical advices to customers who are experiencing product problems, thus striving to maintain their satisfaction, or that of their clients in turn. The Company possesses equipment that can easily and quickly discovers what their problems are, and how to solve them, and so saving them considerable expenses. TPC made some major investments in equipment for research and development in The main measuring instruments and software connected to the Companyûs analysis equipment were upgraded, and its scanning electron microscope / energy dispersive X-ray (SEM/EDX) was made compatible with Windows XP to provide the most modern operational system of its kind today. This allowed for easier, faster, and more accurate analysis of defects and contaminants. As for PVC compounds, TPC invested in testing equipment to enhance its research capabilities, including the means to determine how flammable various plastics are. This will enable the Company to develop compounds that are fireproof for use in residential areas, in buildings, and in public transport. 4. Finance During 2005, TPC was able to keep its low cost of funds, even as the money marketûs interest rates rose markedly in the second half of the year. Reasons for this are: ë More of the Companyûs short-term loans were obtained at fixed interest rates, rather than call loans. ë More than half of the Companyûs long-term loans were obtained at fixed rates of interest, thus protecting it from much of the fallout from rising interest rates.

21 19 ë ë The Company obtained a long-term loan for its PVC Line 9 capacity expansion. Construction has commenced, and is scheduled for completion in mid To reduce the risk of rising interest rates, the Company sought more long-term loans at fixed rates of interest and reduced its exposure to short-term loans. 5. Human Resource Management TPC always believes that employees are a vital element in corporate success. To ensure that all staffs are treated well and fairly, TPC has, accordingly, set up Personnel Committees for both the entire corporation and for each business group. It is the duty of management to pay close attention to the needs and work condition of employees through education and training, through evaluation, through wages and salaries, and through suitable benefits that match industry standards. To acquire the best calibre of personnel, TPCûs recruitment process focuses on selecting people whose qualifications, knowledge, skills, and behaviour ùworkû best for the Company. After joining the organization, employees continue to receive training and education, no matter what their level may be. Personnel are constantly being sent outside for special training courses as well, and some are given scholarships to proceed with Masterûs degrees both in Thailand and abroad. Non-degree technicians were also selected to join C-ChEPS (Constructionism-Chemical Engineering Practice School) for supplementary knowledge. During 2005, programs dedicated to technical knowledge and foreign languages were offered by way of preparing for corporate expansion abroad. This emphasis on learning and personnel development is what makes TPC confident that its employees have the knowledge and ability necessary for the tasks of today and tomorrow. TPC surveys the compensation standards implemented by leading companies in the industry as a benchmark for its own remuneration policy. The aim is to attract the best possible candidates in the labour pool and keep employees whose knowledge and abilities can best serve the Company over the long term. Compensation is based on knowledge, competencies, and the work results of each employee. These variables are assessed in a systematic manner, which is constantly being reviewed and revised as necessary.

22 20 6. Environmental, Health, and Safety Management ë Environmental Management TPC is well aware of the importance of guarding the quality of our air, water, and soil, as well as the quality of human life itself, and has worked to improve its existing environmental systems in a systematic, constant, and comprehensive manners. Its environmental systems are able to deal with various types of emergencies so that the ecology of the area is not affected in any way. Due to the Companyûs commitment to its environmental responsibilities, TPC has been certified as compliant with ISO environmental management standards by the MASCI since February In August 2005, the Company received the latest environmental management accreditation, namely ISO Version In 2005, the Company undertook a number of improvements to its existing environmental management system: ë enlarging scrubber for adequate control of waste gas in case of emergency (the waste gas catchments tower). ë installation of a reserve wastewater-stripping tower to collect wastewater in case the present system proves inadequate. The tower helps to make optimum use of any raw chemicals in wastewater suitable for recycling. TPC made a great effort to overcome the challenge of industrial water shortages in the East of Thailand during the drought of Water conservation was instituted through various programs, including cutbacks in consumption. This resulted in a reduction in water use of up to 25%. These programs included: ë filtering and reusing treated wastewater from the wastewater treatment plant. ë reusing effluent water from steam system and cooling water systems of VCM plants by a reverse osmosis system. ë with the support of a government program to obtain artesian well water and utilize it through reverse osmosis.

23 21 ë Occupational Health and Safety Management It is TPC policy to protect the health of its employees and encourage them to take care of themselves through good diet and exercise. To promote the benefits of strong, vibrant health, TPC organizes various activities, both educational and recreational. The Company participates in a health promotion program provided by The Thai Health Promotion Foundation under the Ministry of Public Health (Sor Sor Sor), and contributes through budgets for various sports programs organized by the employees by form of sport clubs, including intramural competitions of various kinds. The Company is also quite concerned to keep accidents to a minimum. All employees are expected to participate in preventing actions or situations that could cause accidents as part of a risky point termination program, in operation since The result has been a noticeable decline in accidents occurring among employees and on-site contractors. Thanks to this constant commitment by staff and contract workers on site, TPC has been certified as compliant with TIS health and safety management standards by the Management System Certification Institute (MASCI) since November Activities for Society Ever since its establishment, TPC has been committed to involving itself for the good sake of its society. On special occasions, or when natural disasters strike, TPC is one private-sector organization quick to respond and participate in relief efforts with whatever agencies are involved. In 2005, for example, the Company helped procure diagnostic equipment for cancer patients at Chulalongkorn Hospital. In addition, TPC supports a number of programs on an annual basis, such as çthai Plastic Loves Rayong Beaché, a program intended to preserve the cleanliness and beauty of the Rayong coastline as a tourist attraction. In this and other ways, TPC takes part, with other members of the private sector and local organizations, in maintaining the provinceûs environment.

24 22 TPC has set aside a part of its annual budget for participation in the activities of the community surrounding it. Among the local activities in which the Company participated was the çthe 2 nd Mobile Program for a Healthy Community with MPRé, an effort by the MPR (Map Ta Phut Plant Public Relations Club) to look after the health of people residing in the industrial estateûs vicinity. Another program was a çstudy Tour to the Science Museumé, which aims to produce leaders among the young people of Map Ta Phut by teaching them to take care of their own community and conserve its natural resources and the environment that are Rayongûs tourist attractions. The leadership training involved in both theoretical and practical, and gives opportunities for young people to exchange ideas with their peers at other schools. The MPR hopes that these youths will convey the knowledge they receive from such activities to their schoolmates and their fellow residents in the community. Besides all this, TPC conducts an annual program of education about PVC and the environment for students living in the plantûs vicinity, from Rayong all the way to Samut Prakarn. The purpose is to inform them about PVC, its applications, and how to use it in an environmentally responsible way. These classes also provide knowledge about the petrochemical industry. 8. Corporate Image The overall operational results of the Company and its growth throughout 2005 attracted many more investors to invest in TPC by buying shares. The Company gained the attention of a number of institutions engaged in assigning ratings to corporations, namely: ë Money and Banking Magazine (2005 Edition) rated TPC as number 11 among outstanding corporations, and number 5 among dividend-yield companies registered in the Stock Exchange of Thailand, in its coverage of çcompany of the Year 2005é. ë Forbes Asia magazine listed TPC as one of 11 Thai companies in çthe 200 Finest: Forbes Asiaûs Annual Best Under a Billion Listé in October These honours are clear indications of the competence and effectiveness of TPCûs management.

25 23 9. Business Expansion The manufacture and sale of PVC is the Companyûs core business. In line with its vision of becoming Southeast Asiaûs leader in this industry, TPC has plans to invest and expand in ways that will promise solid, enduring growth. In 2005, TPC invested in two major undertakings. Details concerning these two projects were provided to the Stock Exchange of Thailand, which can be summarized here as follows: 1. Expansion of PVC Production Capacity by 120,000 Tons per Year This project has a cost of 2.2 billion Baht (excluding working capital), and will raise TPCûs capacity from 480,000 to 600,000 tons per year. The expected outcome is an extra 2 billion Baht per year in revenue. One third of the cost of this project is financed from the Companyûs retained earnings, while the remainder relies on loans from financial institutions. 2. Increased Shareholding in P.T. Siam Maspion Polymers of Indonesia TPC and Siam Cement Public Co., Ltd. purchased 50% of the shares in P.T. Siam Maspion Polymers (SMP) of Indonesia from its Indonesian shareholders, at a cost of 500 million Baht. Subsequently, the two buyers now own 100% of the company, with TPCûs share at 40%. SMP is a manufacturer and distributor of PVC resin located in Surabaya, Indonesia, with a production capacity of 120,000 tons per year. After its acquisition, its name was changed to P.T. TPC Indo Plastic and Chemicals (TPC Indo), and its production line was quickly reorganized to support production at full capacity. The Commercial group of the Company is responsible for overseeing any export volume in excess of what is required for Indonesiaûs domestic market.

26 24 Bringing Growth TPC grows along with responsibilities to mankind, communities and environment. We succeed and grow with social responsibilities, transparency and fairness to all related parties and also generate appropriate returns to all shareholders.

27 25 Report on The Board of Director s Responsibility for The Financial Reports The Companyûs Board of Directors is responsible for ensuring that the financial statements of Thai Plastic and Chemicals Public Co., Ltd. and the consolidated financial statements of the Companyûs and its subsidiaries are made in accordance with principles of accounting generally accepted in Thailand. The accounting policies chosen are those most suitable to the Companyûs line of business, and are adhered to consistently. Important information that could benefit shareholders and the general public is provided in sufficient detail through notes attached to the financial statements. The Board of Directors has appointed an Auditing Committee, consisting of independent directors, to oversee the preparation of the financial statements, to evaluate the Companyûs system of internal controls, and to maintain their efficiency and effectiveness. In this way, they ensure that accounting items are entered correctly, completely, sufficiently, and punctually. They also ensure that the financial statements are done properly. A trustworthy auditor is employed to examine and investigate and assess these financial statements, and to determine whether any fraud or irregularities occurred. The opinion of the Auditing Committee is expressed in the Report of the Auditing Committee, which is part of this Annual Report. The Board of Directors is convinced that the Companyûs system of internal controls is credible enough to assert that the financial statements of Thai Plastic and Chemicals Public Co., Ltd. and the consolidated financial statements of the Companyûs and its subsidiaries portray the financial situation and operational results with substantial accuracy. Mr. Yos Euarchukiati Chairman of the Board of Directors Mr. Kanet Khaochan Director and Managing Director

28 26 Report of the Audit Committee The Audit Committee of Thai Plastic and Chemicals Public Co., Ltd. was appointed according to a resolution of the Board of Directors on December 9, 1999 that provided for each audit committeeûs term of office to be three years. After expiry of its first term, the Audit Committee was reappointed for another three years, to continue the work of auditing in conformity with the guidelines of the Stock Exchange of Thailand. The Audit Committee consists of Dr. Prawit Ninsuvannakul as Chairman, Dr. Somchai Kongsala and Mr. Bunlue Kampanartsanyakorn as directors. The Audit Committee performed the duties assigned by the Board of Directors, according to the regulations pertaining to the Audit Committee, to ensure that the good control of the Companyûs operations. The Audit Committee found that the operations of TPC are transparent and open to scrutiny, that internal controls are satisfactory, that the system of risk management is appropriate, and that financial reports are accurate, complete, and credible. In 2005, the Audit Committee convened nine meetings. Eight of these were in the normal course of business, and one was called for special circumstances. The matters of concern were as follows: 1. Reviewed the Companyûs quarterly and annual financial statement for the year 2005, and the consolidated financial statements of the Company and its subsidiaries, to ensure that they were prepared in accordance with generally accepted accounting principles, and that everything was performed correctly and consistently according to the regulations of the Securities Exchange Commission and the Stock Exchange of Thailand. The Audit Committee also reviewed whether the information in the financial statements was disclosed in an adequate and timely manner. As its so happened, the Company was able to present its financial statements before the deadline set by the Stock Exchange, both quarterly and annual financial statements, and no significant corrections were required after the auditor had conducted his/her examination. With every deliberation over the Companyûs quarterly and annual financial statements, the auditor was invited to take part, and his/her recommendations were incorporated into the preparation of the financial statements. 2. Reviewed the Companyûs compliance with the fifteen principles of good corporate governance set by the Stock Exchange of Thailand (SET) and those of the OECD. In general, the Companyûs adherence to these principles was commendable, and the Company will strive for even more improvement. 3. Reviewed the Companyûs risk assessment reports, prepared by the auditor, and monitoring whether the opinions of the auditor were implemented. This is an important step towards ensuring the effective audit plan for auditing the year 2005 financial statement.

29 27 4. Reviewed whether the Company possesses effective internal controls, and whether such controls are upgraded to reflect present economic conditions on a regular basis. The results of the investigation carried out by the Audit Committee concur with the opinions expressed by the auditor in the annual financial statements for the year 2005, namely that no significant defects or problems were found. The Audit Committee also provided some suggestions as to how the Companyûs system of internal controls could be improved with regard to corporate operations. 5. Reviewed the work of the Office of Internal Audits, from its plan of operations and its auditing work to its reporting and monitoring activities. Suggestions concerning how to make its performance more effective were made, along with ways of enhancing its role. The Office of Internal Audits held a seminar for management regarding risk management and internal controls. It also notified management concerning what its audit work revealed, and ways of solving problems that could be learned and implemented by various departments. 6. Coordinated with external and internal auditors in determining the objectives, plans, results, and main issues of consideration in corporate audits and investigations in complying with the legislation and regulations pertaining to the Companyûs business. 7. A self-audit of the Audit Committee itself, which produced decent results. 8. Considering and proposing an auditor to the Board of Directors, for subsequent submission to the Annual General Meeting Shareholders for approve. It is proposed that either Mr. Winid Silamongkon or Mr. Pisit Chiwaruangroch of KPMG Phoomchai Auditing Ltd. be appointed as the Company auditor for the year The Audit Committee, finally, was independent to perform its functions and deliberations, and the recommendations it made were well received by all parties. For that, the Audit Committee would like to express its appreciation at this time. On Behalf of the Audit Committee Prawit Ninsuvannakul, Ph.D., C.P.A. Chairman of the Audit Committee

30 28 Report and Financial Statements Report of Independent Auditor To the Board of Directors and Shareholders of Thai Plastic and Chemicals Public Company Limited I have audited the accompanying consolidated balance sheets of Thai Plastic and Chemicals Public Company Limited and its subsidiaries as at 31 December 2005 and 2004, the related consolidated statements of earnings, changes in shareholdersû equity and cash flows for the years then ended, and the separate financial statements of Thai Plastic and Chemicals Public Company Limited for the same years. These financial statements are the responsibility of the management of the Company and its subsidiaries as to their correctness and the completeness of the presentation. My responsibility is to express an opinion on these financial statements based on my audits. I did not audit the financial statements of two overseas subsidiaries, which are included in the consolidated financial statements. As at 31 December 2005 and 2004, the subsidiary companiesû financial statements present total assets of Baht 2,284 million and Baht 2,307 million, respectively, revenues for the years then ended of Baht 3,007 million and Baht 3,245 million, respectively. As at 31 December 2005 and 2004, the Companyûs financial statements included its investments in the subsidiary companies recorded under the equity method, amounting to Baht 1,104 million and Baht 1,057 million, respectively. The financial statements of the subsidiary companies were audited by other auditors whose reports which have been furnished to me, expressed unqualified opinions, and my opinion in so far as it relates to the amounts of the various transactions of these companies included in the consolidated financial statements and the Companyûs financial statements, is based solely on those auditorsû reports.

31 29 I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits, together with the reports of other auditors discussed in the first paragraph, provide a reasonable basis for my opinion. In my opinion, based on my audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Thai Plastic and Chemicals Public Company Limited and its subsidiaries and of Thai Plastic and Chemicals Public Company Limited as at 31 December 2005 and 2004, and the results of their operations and cash flows for the years then ended in accordance with generally accepted accounting principles. Rungnapa Lertsuwankul Certified Public Accountant (Thailand) No Ernst & Young Office Limited Bangkok: 8 February 2006

32 30 Balance Sheets Thai Plastic and Chemicals Public Company Limited and its subsidiary companies As at 31 December 2005 and 2004 ASSETS Current assets Cash and cash equivalents Trade accounts receivable Related parties Trade accounts receivable - others Less: Allowance for doubtful accounts Trade accounts receivable, net Amounts due from and advance to related parties Inventories, net Other current assets Revenue Department receivable Other current assets - others Total other current assets Total current assets Non-current assets Investments accounted for under the equity method Other long-term investments, net Property, plant and equipment, net Intangible assets Goodwill, net Development cost of software, net Land use rights, net Total intangible assets Other non-current assets Properties foreclosed, net Other non-current assets - others Total other non-current assets Total non-current assets TOTAL ASSETS (Unit: Baht) Consolidated The Company Only Note ,592, ,500, ,319,824 13,660, ,711, ,170,021 1,315,141,834 1,629,699,440 2,975,009,505 2,905,457,213 1,921,822,017 1,977,104,931 4 (60,428,382) (59,625,881) (53,828,873) (56,050,013) 4 3,033,292,204 2,975,001,353 3,183,134,978 3,550,754, ,474,192 1,796,041 83,647,815 80,972, ,278,554,364 5,161,798,155 2,601,967,402 3,116,901,934 54,131,895 53,425,868 19,840,965 13,935, ,842, ,599, ,324,535 94,098, ,974, ,025, ,165, ,034,422 7,878,887,661 8,502,121,329 6,125,235,519 6,870,322, ,902, ,289,031 3,781,328,999 3,291,726, ,575,363,823 1,423,861,450 1,569,452,836 1,413,303, ,906,512,221 9,593,200,914 6,187,529,262 5,953,449,544 9 (93,687,588) (73,198,107) ,682,894 36,026,341 22,273,062 13,845, ,638, ,777, ,633, ,605,821 22,273,062 13,845,099 2,436,000 2,436,000 2,436,000 2,436,000 61,860,931 16,351,311 14,904,635 11,672,655 64,296,931 18,787,311 17,340,635 14,108,655 12,296,708,821 11,631,744,527 11,577,924,794 10,686,432,522 20,175,596,482 20,133,865,856 17,703,160,313 17,556,755,489 The accompanying notes are an integral part of the financial statements

33 31 Balance Sheets (Cont.) Thai Plastic and Chemicals Public Company Limited and its subsidiary companies As at 31 December 2005 and 2004 LIABILITIES AND SHAREHOLDERSû EQUITY Current liabilities Bank overdrafts and short-term loans from financial institutions Trade accounts payable Related parties Trade accounts payable - others Total trade accounts payable Current portion of long-term loans Amounts due to and advance from related parties Accounts payable on forward exchange contracts, net Other current liabilities Accrued interest expense Accrued expenses Other payable Other current liabilities - others Total other current liabilities Total current liabilities Non-current liabilities Long-term loans Other non-current liabilities Unearned income Pension funds Allowance for losses in excess of investment in associated company Other non-current liabilities - others Total other non-current liabilities Total non-current liabilities Total liabilities (Unit: Baht) Consolidated The Company Only Note ,861,495,821 1,953,344,234 1,123,863,702 1,381,096, ,439, ,839, ,715, ,232,602 1,969,058,091 2,879,274,125 1,675,667,786 2,386,007,835 2,444,497,786 3,381,113,268 2,123,383,691 2,853,240, ,361,516,429 1,303,730,389 1,031,258, ,642, ,893,136 22,369,013 10,997,750 11,237, ,599 8,054, ,214 8,818,421 8,186,160 5,419,377 5,367,116 1,801, ,556,694 57,279,712 87,153,500 35,905, ,306, ,871, ,568, ,148, ,810, ,990,900 81,159,181 94,023, ,860, ,561, ,248, ,878,710 6,211,259,417 7,117,173,124 4,583,735,513 5,341,915, ,326,574,321 2,342,049,544 2,008,255,182 2,031,397, ,703,427 57,313,648 87,203,281 84,718,015 82,594,548 73,332, ,127, ,127, , ,203, ,966, ,297, ,773,483 2,413,777,602 2,540,015,781 2,144,553,157 2,275,170,785 8,625,037,019 9,657,188,905 6,728,288,670 7,617,086,158 The accompanying notes are an integral part of the financial statements