11. Financial Condition and Operating Results

  The corporate accounting period begins on November 1 and ends on
  October 31 of every year.

11.1) Report of Independent Auditor

1)  Auditor

  Year 2009 Miss Praphasri Leelasupha, Certified Public Accountant,
  Registration No. 4664,

  Sam Nak-Ngan A.M.C. Co., Ltd.

  Year 2010 Miss Sansanee Poonsawat, Certified Public Accountant,
  Registration No. 6977,

  Sam Nak-Ngan A.M.C. Co., Ltd.

  Year 2011 Miss Wimolporn Boonyusthian, Certified Public Accountant,
  Registration No. 4067,

  Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.

2)  Summary of the audit reports over the past three years

  Year 2009 The Auditor reviewed corporate financial statements and
  issued unqualified opinions.

  Year 2010 The Auditor reviewed corporate financial statements and
  issued unqualified opinions.

  Year 2011 The Auditor reviewed corporate financial statements and
  issued unqualified opinions.

  The Auditor clarified the scope of her responsibilities that she had
  not audited financial statements of three foreign subsidiaries and six
  local subsidiaries which are included in this consolidated financial
  statements. In 2011, the financial statements of the subsidiaries
  indicated the total assets of THB 7,077.21 million, accounting for
  26.95 percent of the total assets. The total sales was THB
  2,985.73million, accounting for 18.16 percent of the year’s total
  sales. The net income totaled THB 14.31 million, accounting for 0.70
  percent of the year’s total sales. The financial statements of the
  subsidiaries were audited by other certified public accountants. The
  Auditor presented parts of the reports related to monetary amounts of
  transactions of the subsidiaries included in the consolidated
  financial statements; those amounts presented were based on the other
  certified public accountants' reports.

11.2) Percentage of Shareholding in the Subsidiaries and Consolidated
Financial Statements Preparation Criteria

(Refer to the attached Financial Statements for details.)

The 2008 financial statements, the 2009 financial statements, and the
2010 financial statements comprise of 14 subsidiaries.

Table 11.1: Percentage of Direct and Indirect Corporate Shareholding

  ---------------------------------------- -------------- ---------- ---------
                                           Percentage of             
                                           Shareholding              

                                           2009           2010       2011

  Tamaka Sugar Industry Co., Ltd.          90.21          90.21      90.21

  New Krung Thai Sugar Factory Co., Ltd.   93.01          95.78      95.78

  New Kwang Soon Lee Sugar Factory Co.,    98.61          98.61      98.61
  Ltd.                                                               

  KSL Real Estate Co., Ltd.                80.31          80.31      80.31

  KSL Export Trading Co., Ltd.             79.11          79.11      79.11

  KSL Chemicals Co., Ltd.                  100.00         100.00     100.00

  Khon Kaen Sugar Power Plant Co., Ltd.    100.00         100.00     100.00

  Khon Kaen Alcohol Co., Ltd.              100.00         100.00     100.00

  KSL Agro and Trading Co., Ltd.*          100.00         100.00     100.00

  Savannakhet Sugar Co., Ltd.              97.00          98.49      98.49

  Koh Kong Plantation Co., Ltd.**          50.00          70.00      70.00

  Koh Kong Sugar Industry Co., Ltd.        50.00          70.00      70.00

  Wynn In Trading Co., Ltd.                100.00         100.00     100.00

  Thai Sugar Terminal Public Company       23.82          23.82      23.82
  Limited***                                                         
  ---------------------------------------- -------------- ---------- ---------

NOTE:

* Formerly Name as KSL Agro Co.,Ltd.

** Koh Kong Plantation Co., Ltd. holds shares through Wynn In Trading
Co., Ltd.

*** Although the company only has 23.82 percent shareholding in Thai
Sugar Terminal Public Company Limited, it has controlling power in that
particular company. Thai Sugar Terminal Public Company Limited is,
therefore, considered a corporate subsidiary.

Thai Sugar Terminal Public Company Limited, a KSL subsidiary listed by
the SET as TSTE, has 5 subsidiaries:

TSG Assets Company Limited operates real estate rentals. TSTE holds
79.78% shares.

TS Oil Industry Company Limited (formerly name as TSG Property Company
Limited) trades, leases, develops real estate, and operates a palm oil
refinery plant. TSTE holds 94.31% shares.

TS Flour Mill Company Limited rents out real estate and manufactures
wheat flour. TSTE holds 98.82% shares.

TS Warehouse Company Limited stores and transfers goods. TSTE holds
64.13% shares.

TS Transport and Logistics Company Limited provides transport service
and security service. It also manufactures plastic sacks. TSTE holds
85.90% shares.

For details, refer to Listed Company Information on Thai Sugar Terminal
Public Company Limited (TSTE).

11.3) Profit and Loss Statement

In 2011, the company generated the revenues from operations of THB
16,460 million, in total, increasing from that in the previous year by
36 percent which the revenue from sales amounted to THB 16,283 million
and the revenue from services amounted to THB 177 million. The company’s
total cost was THB 11,596 million, increasing from that in the previous
year by 26 percent. Other incomes amounted to THB 313 million. The
company had profit before selling and admin expenses totaled THB 5,176
million, increasing from that in the previous year by 62 percent.

Regarding selling and administrative expenses, the company had selling
expenses totaled THB 341 million, increasing by 27 percent and
administrative expenses totaled THB 605 million, increasing by 24
percent. The proceeds to the cane and sugar fund was THB 813 million due
to increasing in sugar sales. The company had an extraordinary item;
loss from entering into the sugar futures contract totaled THB 17
million. Subsequently, the company had the profit before financial cost
and tax expenses totaled THB 3,257 million, increasing by 514 percent.

In 2011, the company's financial cost of THB 465 million, increasing by
36 percent.. The corporate income tax burden of THB 751 million,
increasing by 538 percent. After deduction of a THB 142 million profit
in minority interests, the company’s net profit increased by 1,091
percent from the previous year from THB 159 million to THB 1,890 million
in 2011.

Table 11.2 : Consolidated Profit and Loss in the past 3 years

[]

NB: The company revised the 2009 financial statements to correspond to
and be comparable to the 2010 financial statements.

With reference to the company’s revenue structure, the total revenues
from operations was THB 16,460 million. The company had revenues from
sales of sugar and molasses amounted to THB 12,649 million, accounting
for 77 percent of the total revenue. Revenues from sales of ethanol and
gasoline totaled THB 685 million, representing 4 percent of the total
revenue. Electricity sales, which the corporate power generation
facilities had distributed to the Electricity Generating Authority of
Thailand according to the firm contract, amounted to THB 483 million,
accounting for 3 percent of the total revenue. Revenues from sales of
wheat flour, palm oil, and sacks totaled THB 1,972 million, accounting
for 12 percent of the total revenue. Other types of revenues were
generated from sales of fertilizer, service provision, and other
sources.

Table 11.3 : Consolidated Revenue Structure in the past 3 years

[]

[]Table 11.4 : Sales and Sale Volumes of Sugar, Molasses, Ethanol and
Electricity (Firm Contract)

Table 11.5 : NYBOT World Sugar Prices

[]

In 2011, the company had net profit of THB 1,890 million compare to
previous year’s net profit of THB 159 million, the company’s net profit
increased THB 1,731 million or accounting for 1,089 percent compare to
2010. The main reasons of the increase in 2011 were as follows:

1.  Sugar Business in Thailand : Sugar Sale Volume and Selling Price
    increased, Unit Cost of Production decrease, as a result, The
    company recorded higher gross margin.

    1.  Sugarcane crushed volume increased by 42 percent from 4,342,083
        tons in 2010 to 6,171,851 tons in 2011 and also sugar sales
        volume increased by 32 percent from 466,089 tons in year 2010 to
        617,013 tons in 2011.

    2.  According to increasing in world sugar price in 2011, the
        company’s average selling price increased by 8 percent compared
        to previous year.

    3.  Production cost per unit decreased due to increasing in sugar
        volume and also lower fixed cost per unit.

    4.  Year 2010, the company performance decreased from the Loss from
        Oversold Position (the export volume less than the committed
        physical contracts and committed derivative contracts) which did
        not happen in 2011.

  For overall Sugar Business in Thailand, the profit increased from THB
  158 million in 2010 to THB 1,619 million in 2011.

2.  Power Business : Year 2011, the company’s electricity sold to EGAT
    increased by 26 percent, compared to previous year, from 137,134
    MW-hr to 172,879 MW-hr due to a new power plant in Bo-Ploy project
    phase-1 commercial run and average selling price increased by 3
    percent. Therefore Power Business performance increased by 33
    percent or profit increased from THB 192 million in 2010 to THB 256
    million in 2011.

3.  Ethanol & Fertilizer Business : Since molasses price surged in 2011
    and average ethanol price was almost the same as previous year,
    therefore overall margin decreased and profit decreased form THB 79
    million in 2010 to THB 49 million in 2011 with 29 million liters of
    ethanol sales volume.

4.  Oversea Sugar Business : The company’s performance had less loss
    from THB 285 million in 2010 to THB 68 million in 2011 due to
    increasing in sugarcane crushed volume and increasing in selling
    price.

The Selling and Administrative Expenses consist of 4 main parts:

(1) Selling expenses include expenses from transport and exportation. In
2011, selling expenses increased by 27 percent from those in 2010 due to
increasing in the sales volume of sugar.

(2) Administrative expenses increased by 24 percent as a result of the
allocation of production cost to be Administrative expenses , consulting
fees and other fees.

(3) Proceeds to the Cane and Sugar Fund have been made to stabilize the
cane and sugar industry. They consist of 2 parts: The first part is the
amount from the THB 5 /kilogram increased domestic selling price in mid
2008. The second part is the difference from the price adjustment.
Controlled prices of sugar originally included VAT, while currently they
do not. The difference in this sugar price is required by the Cabinet to
be contributed to the Cane and Sugar Fund. The proceeds are based on
domestic sugar sales volumes. In 2011, the total proceeds increased by 4
percent.

(4) A loss from entering into a sugar futures contract: The loss was
caused by volatile sugar prices in the previous year. The company and
its subsidiaries operating sugar businesses were subject to the risk in
prices of estimated sugar outputs not yet sold to customers. The company
might experience decreased selling prices if market prices fell sharply.
To prevent part of the estimated sugar outputs from the risk in sugar
prices; the company entered into the sugar futures contract with a
financial institution. As an effect of this risk prevention, when the
market is in an upturn, the company will experience a loss from the
futures contract made. It will, however, gain from actual sale at a
higher price to offset the loss. When the sugar market is experiencing a
downturn, the selling price of an actual sale will be lower, but there
will be actual gain from the sugar futures contract made to offset. In
2011, the company had loss from derivatives totaled THB 17 million. For
details on risk hedging procedure against sugar price volatility and the
corporate accounting records of the items in the financial statements,
refer to the topic number 12: Other Related Information.

Regarding the financial cost and corporate income tax, the company had
increased interest burden from investment in projects requiring more
loans. The company’s financial cost, consequently, increased by 36
percent. The increasing in tax expenses was a result of the increasing
in operating results.

From all the factors mentioned above, the company recorded the net
profit, increasing from THB 159 million in 2010 to THB 1,890 million in
2011, increased by THB 1,731 million or 1,089 percent.

The company and its subsidiaries businesses diverse in industry
categories with profitability and tendency being different for each
business. To facilitate analysis and comprehension of each business, the
company compared the profits that contribute to the consolidated profit
and loss statement in relation to business categories as shown in Table
11.6.

Table 11.6: Comparing Profits, related to Business Categories that
contribute to the Company’s Consolidated Profit and Loss Statement

[]

11.4) Balance Sheet Statement

Table 11.7 : A Summary of the Company’s Balance Sheets in the past 3
years

[]

In 2011, the company and its subsidiaries had the total assets of THB
26,257 million, which was a 13 percent increase from THB 23,153 million
in 2010. The increase was mainly results of: (1) increased investment in
lands, buildings and machinery in the renewable energy project in
Boploy; (2) working capital provided for cane growers for expanding cane
plantations to support the company’s renewable energy project in Boploy
and new project in Loei province; (3) Increasing in Inventory due to
increasing in sugarcane volume; (4) Account Receivable, since flooding
situation in Thailand during the end of the year affected some
customers, therefore the company prolonged credit term for them; and (5)
Non-Operating Asset, most of them are lands which prepare for a new
project in Loei province.

The increasing in total assets were invested by the use of credit loans
from financial institutions and issuance of bonds. Consequently, the
total liability increased by 10 percent, from THB 13,219 million in 2010
to THB 14,606 million in 2011. However, The D/E ratio was decreased from
1.33 in 2010 to 1.25 in 2011 by increasing in operating performance.

11.5) Cash Flow Statement
Table 11.8 : Cash Flow Statements of the Company, Years 2010, 2009 and
2008

[]

In 2011, the company and its subsidiaries received cash flows from their
operations before change in working capital totaled THB 4,045 million,
which was a 340 percent increased from that in 2010. The main reason was
due to increasing in operating results, especially in sugar and power
business, combined with less loss from oversea business. As a result, in
2011 cash flows from operating activities of the company and its
subsidiaries increased to THB 2,038 million or increased by 721 percent
compare to 2010.

In 2011, the company and its subsidiaries had cash paid in investing
activities (net) totaled THB 1,787 million, of which THB 1,387 million
was invested in lands, buildings and machinery (net), mainly for the
renewable energy project in Boploy. Cash flow from investing activities
decresed by 46 percent were due to less investment cost in the second
phase of renewable energy project in Boploy,

Regarding financing activities in 2011, the company and its subsidiaries
paid the net cash of THB 164 million because improving in operating
result, the company and its subsidiaries could manage internal cash flow
and partially repay loans.

11.6) Financial Ratios

Table 11.9 : Financial Ratios

[]

According to the 2011 financial ratios, liquidity ratios, specifically
decreasing in current ratio and acid test ratio were due to, in 2011,
interest rates for short-term loans were much lower than those for
long-term loans. The company managed its finance by using short-term
credits as working capital for its investment projects. Once the
long-term loan contract periods were due, the company switched to use
the long-term credits. The purpose was to relieve the interest burden on
loans. The current ratio and acid test ratio, subsequently, decreased.
The collection period and days of inventory decreased, indicating
increased abilities to collect and manage inventories.

Regarding solvency ratios, as a result of improving in operating result,
it can be seen that the D/E ratio, IBD/E ratio and LTD to equity
decreased. Times interest earned increased as a result of the improving
in 2011 operating results as well.

In terms of profitability ratios, the ROA and ROE increased were due to
the increasing 2011 operating results. The changes were in line with
other financial ratios, such as operating profits to sales, net income
to sales, book value per share, and earning per share.

11.7) Audit Fees

Khon Kaen Sugar Industry Public Co., Ltd. and subsidiaries were
responsible for audit fees in 2011 totaling THB 6,300,000.