Future Projects

6.1 Future project (Turkey)

The Project

  Consistent with the overall strategy of geographically diversifying
  manufacturing operations, the company has set 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 which commenced operations in December, 2005.
  The scope was enhanced to include a Metallizer with an installed
  capacity of 5000 MT per annum which has also started production in
  March, 2006. The plant is 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.

  Currently, a pet resin project is under construction in Turkey in the
  same location which would enable PE to reduce its raw material input
  cost. The company is evaluating adding another pet film line in Turkey
  so as to reach the optimum mix of 2 pet film lines, captive pet resin
  and value added metallised film plant.

  The Free Zone location provides PE 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) had been formed in September, 2004 for
  implementation of the project.

  The current estimate of the total project cost is USD 68 million based
  to be financed as under:

  - Long term / short term loans of about USD 26.60 million borrowed by
  PE from various local / international banks. PTL is co-guarantor.

  - Equity of about USD 41.40 million with the contribution being
  brought in from PTL through PSPL. To part-finance this equity
  investment in PE, PTL has contracted a loan of 14 million Euro (about
  USD 18.90 million) 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 2005 which accounted for 16% 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 has a Customs Union with EU, which
  facilitates duty free movement of goods between the two territories.
  Proximity to customers also helps 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 has ready access to an existing large market in Western Europe
  where no new capacity has been added in the last 4-5 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 7.75% in the last 4-5 years. Further, about 40% of the
  demand in this market is satisfied by imports, largely coming from
  Asia in the PIE segments. In addition, the unit is 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.

  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 thin pet film line and Metallizer have been commissioned
  successfully during the last year and capacity utilization has been
  increased progressively. The resin project is at an early stage of
  construction and is expected to be completed by December, 2006

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.
  Since start up of production, PE has been able to sell its production
  volume without problem and started increasing sales to new markets and
  customers. However, given the depressed market scenario, profitability
  in PE would remain low for some time.

  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. This will help reduce the overall cost
  structure in Turkey due to savings in project cost, personnel costs
  and other overheads.

2.  Investment in Extrusion Coating project

  Project Details

  In order to improve its product mix towards more value added products,
  the company proposes to set up an extrusion coating project. This
  project would be implemented by partially using a new plot of land
  (35-2-54.80 rais) being acquired from Siam Eastern Industrial Park
  Limited at an agreed cost of Baht 1.6 million per rai aggregating to
  Baht 57.02 million Baht. This plot of land is opposite the existing
  plant location in Siam Eastern Industrial Park.

  It is proposed to put up two separate extrusion coating lines in
  phases. The likely width of the line would be approx. 1970 mm with a
  trimmed width of 1905 mm. This will give an annual capacity of about
  150-200 million sq mtrs.

  The estimated capital cost of the project is USD 5 million per line
  i.e. USD 10 million for both the lines. Bulk of this cost for each
  line would be incurred on the main extrusion coating machine ($ 3.0
  Mn) and the balance on auxiliary equipment ($ 0.5 Mn), Land ($ 0.3 Mn)
  utilities ($ 0.1 Mn), civil construction costs ($ 0.5 Mn) and
  preoperative expenditures/contingencies ($ 0.6 Mn). The company is in
  the process of tying up the financing of this project.

  Product & Usage

  A typical extrusion coated product would be a combination of base pet
  film of between 12-50 micron thickness and EVA / PE coating of between
  20 -100 GSM. The end uses of this product are largely in developed
  countries / regions like US and EU in schools used for book /
  documents lamination as also a large trade segment for similar uses
  besides some packaging applications also.

  Project Rationale

a)  The project would help improve the product mix of the company away
    from plain films (commodity products in nature and high degree of
    competition) to value added films (Coated, Metallized and Extrusion
    coated) where the margins would be higher and competition levels
    limited.

b)  As the major markets for this product are in US and EU, most of the
    existing players are also located there. Thus, by locating this
    facility in Thailand, there would be significant gains on cost
    effectiveness due to:

    -   Low operating costs in Thailand

    -   Captive integration with Plain film unit

    -   Integration with existing manufacturing operations with
        resultant optimization in capital / operating costs

c)  The existing sales & distribution network in US and EU can be
    leveraged to market and promote this product effectively.

d)  Some of the big customers of extrusion coated products are long
    standing buyers of plain films from Polyplex group and discussions
    are at an advanced stage to enter in sales tie-ups.

6.3 Investment in Polyplex (Americas) 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, 2006. 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.
  With effect from January 1, 2006, PTL has acquired a 80.24% stake in
  the distributor (Spectrum Marketing Inc.) and renamed the company as
  Polyplex (Americas) Inc. PCL has a 9.88% stake and the balance 9.88%
  is held by a foreign shareholder. This acquisition would enable PTL to
  take control of the distribution in the key North American markets
  which are critical to the success of PTL, especially after the EU
  market has been 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.

  PTL has commissioned a Transfer Pricing study from a reputed
  consultant in the USA to facilitate the sale of film on a arms length
  basis by PTL to its subsidiary company in the US. The Policy has been
  approved by the Audit Committee and the Board of PTL.

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
  12-15 months for such projects is estimated at between Bt. 75-125
  million. Some of the key expense items would be housing colony for
  staff/managers, creation of extra storage space besides acquisition of
  some insurance spares and miscellaneous equipment.