12. Financial Condition and Operating Results

  The corporate accounting period begins on November 1 and ends on
  October 31 in the next year.

12.1) Review Report of Independent Auditor

1)  Auditor

  Year 2007 Miss Praphasri Leelasupha Certified Public Accountant
  Registration No. 4664

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

  Year 2008 Miss Praphasri Leelasupha Certified Public Accountant
  Registration No. 4664

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

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

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

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

  Year 2005 The Auditor reviewed corporate financial statements.
  Unqualified opinions and comments are as follows:

  The financial statements as of October 31, 2004 shown for comparison
  were audited by another auditor from the same firm. Qualified opinions
  relating to non-observation of the inventory counting as at the end of
  the year 2002.

  Year 2007 The Auditor reviewed corporate financial statements as
  unqualified opinions.

  Year 2008 The Auditor reviewed corporate financial statements as
  unqualified opinions.

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

  The Auditor clarified the scope of her responsibilities that she had
  not audit financial statements of the six domestic subsidiaries and
  three overseas subsidiaries included in the corporate financial
  statements. As of October 31, 2009 and 2008, the financial statements
  of the subsidiaries indicated the total assets of THB 6,632.50 million
  and THB 3,403.62 million respectively. As of the year ending October
  31, 2009 and 2008 the total income was THB 1,512.72 million and THB
  30.22 million respectively. Net loss totaled THB 152.09 million and
  34.97 million respectively. The financial statements of the
  subsidiaries were audited by other certified public accountants. The
  Auditor received reports from the other certified public accountants,
  and presented parts of the reports related to monetary amounts of
  transactions of the subsidiaries included in the consolidated
  financial statement. The amounts presented were based on the other
  certified public accountants' reports.

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

(Refer to the attached financial statements for detail.)

The 2007 financial statements as of October 31, 2007 include 12
subsidiaries. The 2008 financial statements as of October 31, 2008, and
the 2009 financial statements as of October 31, 2009 include 14
subsidiaries.

Table 12.1: Percentage of Shareholding in Subsidiaries

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

                                           2007           2008       2009

  Thai Sugar Terminal Public Company       23.82          23.82      23.82
  Limited                                                            

  Tamaka Sugar Industry Co.,Ltd.           90.21          90.21      90.21

  New Krung Thai Sugar Factory Co.,Ltd.    91.06          93.01      93.01

  New Kwang Soon Lee Sugar Factory         96.85          98.61      98.61
  Co.,Ltd.                                                           

  KSL Real Estate Co.,Ltd.                 80.31          80.31      80.31

  KSL Export Trading Co.,Ltd.              78.63          79.11      79.11

  KS LAXMI 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 Co.,Ltd.                        100.00         100.00     100.00

  Savannakhet Sugar Co.,Ltd.               97.00          97.00      97.00

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

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

  Wynn In Trading Co.,Ltd.                 -              100.00     100.00
  ---------------------------------------- -------------- ---------- ----------

NOTE:

(1) In 2009, the shardeholding structure was adjusted. The Company holds
shares of Koh Kong Plantation through Wynn In Trading Co., Ltd.

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

(3) Thai Sugar Terminal Public Company Limited, a KSL subsidiary listed
by the SET as TSTE, has five subsidiaries:

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

TSG Property Company Limited sells, buys, rents out and develops real
estate. 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 detail refer to listed company information on รThai Sugar Terminal
Public Company Limited (TSTE).

12.3) Income Statements

In 2009, the Company and its subsidiaries generated revenues of THB
12,070 million in total, increasing from that in the previous year by 6
percent. The revenue from operations amounted to THB 11,689 million.
Dividend income amounted to THB 0.179 million. Other incomes amounted to
THB 380 million. Share of profits from investments amounted to THB 1.365
million. Cost of goods sold totaled THB 8,680 million, increasing from
that in the previous year by 3 percent. Selling and administrative
expenses amounted to THB 1,817 million, a 26 percent increase from the
previous year. Interest payments amounted to THB 246 million, increasing
by 13 percent. Minority interest and others totaled THB 56 million.
Subsequently, the net profit increased by 5 percent, from THB 860
million in the previous year to THB 901 million in 2009.

Table 12.2 : Consolidated Profit and Loss in year 2009, 2008, 2007

[]

According to the Company’s revenue structure, the total income was THB
12,070 million. In 2009, income from sales of sugar and molasses
amounted to THB 8,789 million, representing 73 percent of the total
revenue. Income from sales of ethanol and gasoline amounted to THB 905
million, representing 7 percent of the total revenue. Income from
fertilizer sales (in-house production) amounted to THB 74 million.
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 367 million, accounting
for 3 percent of the total revenue. Income from sale of wheat flour
totaled THB 1,143 million, accounting for 9 percent of the total
revenue. Other types of incomes were generated from service provision,
property leasing, sale of electricity with a non-firm contract, sale of
gasoline to sugarcane farmers (trading), sugarcane harvesting service,
sale of fertilizer to sugarcane farmers (trading), and other sources
such as interest received and miscellaneous revenues.

Table 12.3 : Consolidated Revenue Structure in 2009, 2008 and 2007

[]

According to the Company’s revenue structure, the main increased incomes
in 2009 compared to that in 2008 include:

(1) Income from sugar and molasses sales increased due to the fact that
    in mid 2008 the Government increased domestic sugar selling prices
    by THB 5 per kilogram. The increase contributed to the Cane and
    Sugar Fund to ensure stability of the domestic cane and sugar
    industry. The increase had been recorded for half of the year in the
    2008 account. In 2009, the THB 5 increase had been recorded for the
    entire year of the account. The overall income from sugar sales
    subsequently increased by 8 percent. The Company was required to
    contribute the increased income to the Cane and Sugar Fund, which
    resulted in increased selling and administrative expenses. The
    corporate profit and loss statements, however, were not affected. To
    make analysis and comparison easy, Management had removed the THB 5
    per kilogram. Consequently, income from sugar sales in 2009 and 2008
    amounted to THB 7,749 million and THB 7,448 million, a 4 percent
    increase. The increase was caused by increased sugar prices in the
    world market. The Company’s average sugar selling price increased by
    19 percent, from THB 11,873 per ton in 2008 to THB 14,091 per ton
    in 2009. In 2009, the Company had lower amount of cane crushed due
    to the fact that some of the machines had been sold to the sugar
    mills in Laos and Cambodia. Sugar sales, thus, reduced by 14
    percent, from 627,341 tons in 2008 to 549,967 tons in 2009. Income
    from sugar sales increased slightly by 4 percent. Income from
    molasses sales decreased by 31 percent, as some of the molasses had
    been used in ethanol production.

(2) Income from ethanol and gasoline sales increased by 6 percent; the
    average selling price of ethanol increased from THB16.75 per liter
    to THB 21.13 per liter. Due to the Company’s limited availability of
    raw materials for ethanol production, the sale volume decreased from
    50.4 million liters in 2008 to 42.5 million liters in 2009.

(3) Sales of electricity according to the firm contract with the EGAT
    decreased from 136,997 Mw-hr. to 127,459 Mw-hr. The average selling
    price increased from THB 2.67 per kw-hr to THB 2.88 per kw-hr. This
    made the total revenue from electricity sales remain unchanged.

(4) In 2008, the Company and its subsidiaries sold the investment in
    Kerry Siam Seaport Limited; the income from assets and investment
    sales increased by THB 9 million in 2008 to THB 146 million in 2009.
    The Company, hence, realized increased profit from the sale of the
    investment (after minority interest) in 2009 at THB 75 million.

Table 12.4 : Sales and Sale Volumes from sugar, molasses, ethanol and
electricity (firm contract)

[]

The total amount of sugarcane crushed in 2008 increased from that in
2007 by 9 percent, from 5,265,362 tons to 5,737,019, as a result of
sufficient rain in late 2007. The total amount of sugarcane crushed in
2006 and 2005 were relatively low due to droughts.

To facilitate analysis and calculation of the corporate financial ratios
compared to corporate main revenues (earnings from sales of sugar and
molasses, and service provision), the Company has revised its profit and
loss statements as shown in Table 12.5. Annual profit and loss
statements, and gross margin from sales and services are presented. The
Company’s gross profit margin generated from sales and services in 2009
and 2008 equaled 26.0 percent and 24.6 percent in respectively. The
Government raised domestic sugar selling prices by THB 5 per kilogram in
mid 2008. Subsequently, in 2009 and 2008 the Company realized the income
from the THB 5 per kilogram increase (THB 765 million in 2009 and THB
427 million in 2008). It also realized higher expenses; the increased
income from the THB 5 per kilogram increase was contributed to the Cane
and Sugar Fund. The higher expenses were indicated as increased selling
and administrative expense (THB 646 million in 2009 and THB 340 million
in 2008.), and increased cost of sales (THB 119 million in 2009 and THB
87 million in 2008).

To enable comparison of the previous operation results, the Company
removed the THB 5 / kilogram increased domestic selling price and THB 5
/ kilogram increased expense. As shown in table 12.5, the gross profit
margin generated from sales and services decreased slightly from 22.3
percent to 21.8 percent in 2009. The net profit margin slightly
increased, from 8.3 percent to 8.4 percent in 2009.

Table 12.5: Consolidate income statements (arranged for analysis
purpose) years 2009, 20008 and 2007

[]

The corporate selling and administrative expenses consist of three main
parts:

(1) Selling expenses included expenses from transport and exportation.
    In 2009, selling expenses decreased by 31 percent from those in 2008
    due to a decrease in the total sales of sugar and no ethanol export.
    Part of the decrease was also caused by decreased oil prices in
    2009.

(2) Contribution to the Cane and Sugar Fund consists of 2 parts: The
    first part was the amount from THB 5 / kilogram increased domestic
    selling price in mid 2008, which was the contributing fund. The
    second part was 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. Financial statements
    of years 2007, 2008, and 2009 recorded the second part. To enable
    comparison between operating results of 2009 and the year before,
    the first part had been separated. The expenses from the second part
    depended on domestic sugar sales which decreased from that in the
    previous year. This was because the domestic sugar quota had
    decreased and the Company had decreased amount of cane crushed.

(3) Administrative expenses increased by approximately 43 percent due to
    higher personnel expenses. Loss accounts from the projects in Laos
    and Cambodia were recorded in terms of sugarcane cultivation, loss
    from exchange rates, and higher depreciation.

Regarding interest and taxes, the Company had increased interest burden
from investment in projects requiring more loans. Tax expenses
increased. In 2009, the Company domestic enterprises experienced
improved operating results, while those overseas experienced losses. The
losses were due to the fact that those operations were at the beginning
phase. They did not allow the Company to claim any tax deduction in
Thailand.

From the factors mentioned above, the Company’s net profit margin
increased, from 8.3 percent in 2008 to 8.4 percent in 2009. Since its
incomes from sales and services increased by 4 percent, the net profit
grew by 5 percent, from THB 860 million in 2008 to THB 901 million in
2009.

12.4) Balance Sheet

Table 12.6: Balance Sheets of the Company in 2009, 2008 and 2007

[]

In 2009, the Company and its subsidiaries had the total assets of THB
20,562 million, which was a 21 percent increase from THB 16,985 million
in 2008. The increase was mainly the result of increased in investments
in different projects, such as the renewable energy project in Boploy,
sugarcane plantations and sugar mills in Laos and Cambodia. The
investments had required the Company to borrow. The total liabilities
increased by 48 percent, from THB 6,528 million to THB 9,668 million in
2009. The total shareholder’s equity increased by 4 percent from THB
10,457 million to THB 10,894 million in 2009. The book value per share
increased from THB 5.47 per share in 2008 to THB 5.67 per share in 2009.

12.5) Cash Flow

Table 12.7 : Cash Flow Statements of the Company in 2009, 2008 and 2007

[]

In 2009, the Company had cash flow from its operations before change in
operating assets and liabilities totaled THB 1,997 million, which was an
8 percent increase from that in 2008. In 2009, the Cane and Sugar Fund
had performed some payments. Subsequently, the Company’s operating cash
flow increased by 78 percent, from THB 950 million in 2008 to THB 1,695
million in 2009.

Cash paid in investing activities totaled THB 3,996 million in which THB
3,821 million had been invested in lands, buildings and machinery (net)
used in sugarcane plantation and sugar mill projects in Laos and
Cambodia, as well as the renewable energy project in Boploy.

Regarding the Company’s financing activities, in 2009 the Company
received the net cash of THB 1,988 million from short and long term
loans, and issuing bills of exchange and debentures. Some of the cash
was used for dividend payments in the mother company and dividend
payments made to minority shareholders.

12.5) Financial Ratio

Chart 12.8 : Financial ratios of years 2009, 2008 and 2007

[]

In 2009, the Company had on-going projects resulting in an increase in
non-income generating assets. Expenses related to investing activities
increased resulting in decreased return on investment ratios, such as
ROA. The D/E and long-term D/E increased. In terms of liquidity, the
Company had more days of inventory. Collection periods were longer.
Regarding the Company's operating results, the Company had higher gross
profit margin, but lower net profit. This was partially caused by the
THB 5 increase in domestic selling prices of sugar for contribution to
the Cane and Sugar Fund. Also, its selling and administrative expenses
increased.

The Company’s book value increased from THB 5.47 per share in the year
before to THB 5.67 per share. Earnings per share remained close to that
in the year before. In the past year the dividend payout ratio was 40
percent of earnings per share.

12.6) Audit Fees

Khon Kaen Sugar Industry Public Co., Ltd. was responsible for audit fees
(excluding its subsidiaries) in 2007 totaled THB 925,000, in 2008
totaled THB 1,017,500 and in 2009 totaled THB 1,150,000.