6 Future Projects

6.1 Future project (Turkey)

The Project

  Consistent with the overall strategy of geographically diversifying
  manufacturing operations, the company is in the process of setting up
  a PET film manufacturing plant in Turkey to service the European,
  Middle-East and CIS markets. The initial scope of the project included
  an 8.7m wide film line with an annual capacity of 24,000 MT and a
  captive cogeneration power plant. The scope is proposed has been
  enhanced to include a Metallizer with an installed capacity of 5000 MT
  per annum. The plant is to be located in the European Free Zone, in
  Corlu which is about 100 km west of Istanbul, on the European
  mainland. The location is optimum in terms of logistics, being about
  80 km from the Istanbul sea-port with an added advantage of land
  shipments to the proximate regions in Europe.

  The Free Zone location would provide Polyplex with special investment
  incentives such as Corporate Tax exemption (till Turkey joins EU) and
  exemption from VAT and Import duties for exports outside the EU and
  Turkey. In addition to this, the Free Zone comes with excellent
  infrastructure and insulates the Company to a large extent, from the
  Government intervention and vagaries of the local economy. In July,
  2004, the company had set up a wholly owned investment company by the
  name of Polyplex (Singapore) Pte. Ltd (PSPL) in Singapore and in turn,
  a wholly-owned subsidiary of PSPL, Polyplex Europa Polyester Film
  Sanayi ve Ticaret A.S. (PE) has been formed in September, 2004 for
  implementation of the project.

  The current estimate of the total project cost is Euro 37.04 Mn (USD
  50 million based on Euro/USD = 1.35). The investment cost of USD 50
  million would be financed as under:

  - Loans of about Euro 15 milloon (USD 20.25 million) borrowed by PE
  from a German Bank. PTL is co-guarantor.

  - Equity of about USD 29.75 million with the contribution being
  brought in from PTL through PSPL. To part-finance this equity
  investment in PE, PTL would be taking a loan of 7 million (about USD
  9.45 million) Euro from Thai Bank(s).

The Rationale

  Turkey’s location as a bridge between Asia and Europe providing access
  to a large market in Europe, Russia/CIS, and the Middle East, demand
  for PET film in West Europe in 2004 which accounted for 17% of world
  demand and high per capita consumption (please refer to Section
  3.4.1), availability of trained manpower and relatively lower
  operating costs have been important considerations in the decision on
  setting up of the project. Turkey is also the location of Customs
  Union of EU, which facilitates duty free movement of goods between the
  two territories. Proximity to customers would also help serve the
  varying requirements of smaller customers on a timely basis.

  The plant is to be located in a Free Trade Zone in Turkey. A Free
  Trade Zone provides a conducive investment environment especially for
  import/export intensive operations as minimal controls on foreign
  currency . Investment can be freely brought in and also remitted out,
  foreign currency bank accounts are permitted, foreign currency
  earnings can be retained in these accounts. With this location, the
  Company shall have ready access to an existing large market in Western
  Europe where no new capacity has been added in the last 3-4 years and
  no capacity addition is proposed notwithstanding a continued growth in
  the market. The PIE segments in the Western European market have grown
  at a CAGR of 7.1% in the last five years. Further, about 38-40% of the
  demand in this market is satisfied by imports, largely coming from
  Asia in the PIE segments. In addition, the unit would be in a position
  to access markets in Russia, CIS and Central and Eastern Europe,
  which, though small currently, have a lot of potential given the stage
  of economic growth of these regions. Furthermore, the countries around
  the Mediterranean rim are another possible destination for the output.
  Both the Central & Eastern European markets and the Middle-East
  countries are currently being served mainly by imports, as there is no
  significant producer of PET films in the entire region.

  This project would be a key element in the plan to build a global
  footprint and associate with dominant customers in the converting and
  industrial segments. Savings in delivery costs and likely better
  pricing would offset the higher operating costs of a manufacturing set
  up in Europe.

Current Status

  The project is at an advanced stage of construction and the film line
  is expected to be completed by October, 2005 with the metallizer
  likely to start about 3-4 months later. The security / loan
  documentation for the term loan to PE has been completed and the first
  disbursement is expected shortly.

Outlook for the Project

  Going by Polyplex’s experience in South-East Asia, a ‘local’ presence
  in the market with quick turnaround time for servicing the customers
  is not only an advantage over imports but it also improves the market
  penetration significantly. Moreover based on the current sales of
  Polyplex in the region, the incremental volumes in the region required
  to fill in the capacity from the proposed line would not be very
  significant. This would also enable PCL and PTL to sell larger volumes
  in their regional markets, where they have not been able to fully meet
  their customers’ requirements due to lack of product availability.
  Based on conservative financial projections and market outlook, the
  company is confident of the viability of the project.

  Based on the initial experience at the new location and market
  conditions, plans call for subsequent setting up of another line
  alongside the proposed unit and integrating backwards into chips so
  that there is a facility similar to that in Thailand. The Board of
  Directors of PTL have already approved in principle the project for
  setting up a captive Pet resin facility in Turkey. The likely project
  cost (depending upon technology / capacity chosen) would be between
  Euro 7-10 million (USD 9.45 – 13.5 million). PE is in the process of
  getting the necessary Government approvals required for the project.
  In this regard, it may be mentioned that PTL already has an sanction
  letter from 2 local Thai Banks’ for an additional term loan
  aggregating to Euro 7 million each to part-finance the investment in
  the Pet resin project.

  The Turkish economy has not been so stable in the past with continuing
  concerns over its burgeoning current account deficit, high inflation &
  real interest rates and a high level of government debt. However,
  efforts at economic stabilization and reforms are underway with IMF
  support, partly prompted by Turkey’s desire to initiate accession
  negotiations with the EU.

  With most of the product meant for exports, the operations shall be
  based in a Free Trade Zone in Turkey. Moreover, with exposure now
  being spread between Thailand and Turkey, the overall country risk for
  PTL stands reduced.

6.2 Metallised film project

  PTL is in the process of installation of the equipment for setting up
  a unit to manufacture metallised PET film at its existing site in
  Rayong. Metallised film is a value added product whereby the plain PET
  film produced by the film plants would be coated with a layer of
  aluminum to improve the barrier properties and thus improve price
  realizations. Metallised film finds use in various end uses especially
  in the packaging segments, flexible ducting and certain decorative
  applications.

  The BoI approved installed capacity of the metallizer, with a width
  2.45 meters is 7,500 tons per year. The estimated project cost is
  about Bt. 100 million. Under the project, some PET film portion
  produced from both PET film production lines which earlier were used
  for distribution to European market will be used for the production of
  metallized film. Commencement of commercial operations is anticipated
  around June 2005. Start-up of the metallizer is expected to generate
  income for the Company in 2005-2006. This will also improve its
  ability to cater to a wider segment of customers especially in
  Thailand, SE Asia, the US, etc.

6.3 Investment in Polyplex (America) Inc

  The North American market has been one of the principal export markets
  since inception for PTL with about 25% of annual sales volume during
  the financial year ended March 31, 2005. For the Polyplex group
  (Polyplex) also, this market has been an important market for the last
  10 years or so with a significant share in the total sales volume.

  Once PTL started operations in mid-2003 in Thailand, the export sales
  from India were replaced by sales from PTL gradually and sold to the
  North American market through a distributor as also some direct sales
  It is now proposed to take control of the distribution in the key
  market of North America by incorporating a new company given that the
  North American markets are critical to the success of PTL, especially
  when the Turkey project starts operations towards the end of 2005 and
  the EU market is gradually handed over by PTL to the Turkey
  operations. PTL would also be able to fully integrate the US
  distribution with its operations and also access new markets,
  particularly packaging and converting segments.

  Based on the above, a new company has been formed by the name of
  Polyplex (America) Inc. The paid up equity capital would be about USD
  1 million of which PTL would contribute 80% (USD 800,000) and the
  balance would be contributed by a local partner. The working capital
  requirement, estimated at between USD 1.5-2 million, would be arranged
  either by borrowings by the new company or Loans / additional capital
  investment from the shareholders. An appropriate Transfer Pricing
  Policy is being worked out to facilitate the sale of film by PTL to
  its subsidiary company in the US. The Policy would be submitted to the
  Audit Committee and the Board for their approval.

6.4 Other Capital Expenditure

  As an ongoing effort to improve productivity, reduce losses, develop
  products and enhance quality control, PTL undertakes several
  small/medium capital expenditures. The total outlay over the next 9-15
  months for such projects is estimated at Bt. 125 million. Some of the
  key expense items would be additional slitting machines, creation of
  extra storage space besides acquisition of some insurance spares and
  miscellaneous equipment.

7. Legal Dispute

  - None –

8 Capital Structure

8.1 Securities

  PTL’s current registered capital is Bt. 960 million, of which Bt. 800
  million is paid up, divided into 800 million ordinary shares each of
  Bt. 1 par value.

8.2 Shareholders

  The shareholders structure as on 31^(st) March 2005 is as follows:

  ------------------------------------ ---------------------- ------------
  Name                                 Ordinary shares        %

  Polyplex Corp. Ltd. (PCL)            131,999,940            16.50

  Polyplex (Asia) Pte. Ltd. (PAPL)     427,999,915            53.50

  General public                       240,000,000            30.00

  Existing small shareholders*         145                    0.00

  Total                                800,000,000            100.00
  ------------------------------------ ---------------------- ------------

  * Beneficial interest held by PCL and PAPL

  PCL’s shareholding structure as of March 31, 2005 is shown as below:

PAPL is 100% held by PCL and together PAPL and PCL hold 70% of PTL.

8.3 Dividend payment policy

  The Board of PTL has recommended a dividend of Baht 0.35 per share as
  per its policy stated in the prospectus of about 40% of its annual net
  profit, taking into account economic conditions, growth plans, future
  deployment opportunities, the Company’s financial position and
  liquidity and subject to the approval by the shareholders’.