11. MANAGEMENT DISCUSSION AND ANALYSIS

11.1 Summary of auditor report

Mrs. Unakorn Phruithithada, Certified Public Accountant (Thailand) No.
3257, the audit partner of PricewaterhouseCoopers ABAS Limited, has been
in charge of the auditing of consolidated and company financial
statements during 2010 – 2012. She was of an opinion that the
consolidated and company financial position as at 31 December 2012,
2011, and 2010, and the consolidated and company results of operations
and cash flows for the year then ended of Sri Trang Agro-Industry Public
Company Limited and its subsidiaries presented fairly in accordance with
generally accepted accounting principles.

11.2 Financial Statement

11.2.1 Statements of Financial Position

(Unit : Baht million)

+-------------------------------------+----------+----------+----------+
| Statements of Financial Position    | 31 Dec   | 31 Dec   | 31 Dec   |
|                                     | 2012     | 2011     | 2010     |
+=====================================+==========+==========+==========+
| Assets                              |          |          |          |
+-------------------------------------+----------+----------+----------+
| Current assets                      |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Cash and cash equivalents         | 1,534.0  | 2,273.0  | 1,774.0  |
+-------------------------------------+----------+----------+----------+
|   Derivative financial instruments  | 100.1    | 329.3    | 459.6    |
+-------------------------------------+----------+----------+----------+
|   Trade accounts receivable and     | 6,511.3  | 7,787.4  | 6,239.8  |
|   other receivables, net            |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Amounts due from futures brokers  | 384.5    | 406.4    | 135.1    |
+-------------------------------------+----------+----------+----------+
|   Inventories - net                 | 13,151.6 | 17,336.6 | 20,282.4 |
+-------------------------------------+----------+----------+----------+
|   Other current assets              | 289.4    | 198.9    | 60.2     |
+-------------------------------------+----------+----------+----------+
| Total current assets                | 21,970.9 | 28,331.7 | 28,951.0 |
+-------------------------------------+----------+----------+----------+
| Non-current assets                  |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Long-term loan to an associate    | 60.8     | 62.9     | -        |
+-------------------------------------+----------+----------+----------+
|   Fixed deposits pledged as         | 99.5     | 143.5    | 125.4    |
|   collateral                        |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Investments in associates         | 3,456.1  | 3,122.6  | 2,615.4  |
+-------------------------------------+----------+----------+----------+
|   Investment in a joint venture     | 489.3    | 456.5    | 325.3    |
+-------------------------------------+----------+----------+----------+
|   Available-for-sale investments    | 59.1     | 43.7     | 46.3     |
+-------------------------------------+----------+----------+----------+
|   Property, plant and equipment,    | 10,034.3 | 7,475.6  | 5,213.4  |
|   net                               |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Intangible assets, net            | 21.4     | 24.2     | 21.7     |
+-------------------------------------+----------+----------+----------+
|   Investment properties             | 160.4    | 102.3    | 48.0     |
+-------------------------------------+----------+----------+----------+
|   Witholding tax deducted at source | 169.7    | 76.6     | 143.3    |
+-------------------------------------+----------+----------+----------+
|   Deferred income tax assets        | 144.7    | 228.7    | 130.3    |
+-------------------------------------+----------+----------+----------+
|   Other non-current assets          | 29.8     | 35.0     | 35.6     |
+-------------------------------------+----------+----------+----------+
| Total non-current assets            | 14,725.2 | 11,771.5 | 8,704.7  |
+-------------------------------------+----------+----------+----------+
| Total assets                        | 36,696.2 | 40,103.2 | 37,655.8 |
+-------------------------------------+----------+----------+----------+
| Liabilities and shareholders’       |          |          |          |
| equity                              |          |          |          |
+-------------------------------------+----------+----------+----------+
| Current liabilities                 |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Trade accounts payable and other  | 2,428.5  | 2,543.7  | 3,042.1  |
|   payables                          |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Short-term loans from financial   | 12,173.0 | 15,425.6 | 20,452.6 |
|   institutions                      |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Current portion of long-term      | 114.0    | 120.0    | 597.6    |
|   loans from financial institutions |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Current portion of finance lease  | 9.8      | 11.5     | 17.2     |
|   liabilities                       |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Derivative financial instruments  | 164.2    | 1,112.2  | 493.5    |
+-------------------------------------+----------+----------+----------+
|   Current income tax liabilities    | 8.2      | 192.4    | 119.7    |
+-------------------------------------+----------+----------+----------+
|   Other current liabilities         | 45.3     | 65.2     | 64.9     |
+-------------------------------------+----------+----------+----------+
| Total current liabilities           | 14,943.1 | 19,470.6 | 24,787.6 |
+-------------------------------------+----------+----------+----------+
| Non-current liabilities             |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Long-term loans from financial    | 400.9    | 314.9    | 2,226.1  |
|   institutions                      |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Debentures                        | 2,150.0  | 2,150.0  | -        |
+-------------------------------------+----------+----------+----------+
|   Finance lease liabilities         | 5.6      | 12.3     | 22.9     |
+-------------------------------------+----------+----------+----------+
| Statements of Financial Position    | 31 Dec   | 31 Dec   | 31 Dec   |
|                                     | 2012     | 2011     | 2010     |
+-------------------------------------+----------+----------+----------+
|   Deferred income tax liabilities   | 171.3    | 19.8     | 138.4    |
+-------------------------------------+----------+----------+----------+
|   Provision for post employment     | 88.5     | 104.8    | 89.3     |
|   benefit obligations               |          |          |          |
+-------------------------------------+----------+----------+----------+
| Total non-current liabilities       | 2,816.2  | 2,601.7  | 2,476.7  |
+-------------------------------------+----------+----------+----------+
| Total liabilities                   | 17,759.4 | 22,072.3 | 27,264.3 |
+-------------------------------------+----------+----------+----------+
| Shareholders’ equity                |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Issued and paid-up share capital  | 1,280.0  | 1,280.0  | 1,000.0  |
+-------------------------------------+----------+----------+----------+
|   Premium on share capital          | 8,551.0  | 8,551.0  | 1,123.8  |
+-------------------------------------+----------+----------+----------+
|   Deduction arising from            | (173.1)  | (173.1)  | (173.1)  |
|   acquisition of additional         |          |          |          |
|   interest in subsidiaries from     |          |          |          |
|   non-controlling interests         |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Revaluation surplus, net of       | 1,176.4  | 833.2    | 850.0    |
|   accumulated depreciation          |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Unrealised gain on                | 13.5     | 0.6      | 3.0      |
|   available-for-sale investments    |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Actuarial gains on defined        | 23.1     | -        | -        |
|   employee benefit plan             |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Cumulative currency differences   | (347.9)  | (120.5)  | (283.8)  |
|   on translating financial          |          |          |          |
|   information                       |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Retained earnings                 |          |          |          |
+-------------------------------------+----------+----------+----------+
|   Appropriated - legal reserve      | 128.0    | 128.0    | 100.0    |
+-------------------------------------+----------+----------+----------+
|   Unappropriated                    | 8,201.0  | 7,437.3  | 7,729.4  |
+-------------------------------------+----------+----------+----------+
| Total parent’s shareholders’ equity | 18,851.9 | 17,936.4 | 10,349.3 |
+-------------------------------------+----------+----------+----------+
|   Non-controlling interests         | 84.9     | 94.4     | 42.2     |
+-------------------------------------+----------+----------+----------+
| Total shareholders’ equity          | 18,936.8 | 18,030.9 | 10,391.5 |
+-------------------------------------+----------+----------+----------+
| Total liabilities and shareholders’ | 36,696.2 | 40,103.2 | 37,655.8 |
| equity                              |          |          |          |
+-------------------------------------+----------+----------+----------+

11.2.2 Statements of Comprehensive Income

(Unit : Baht million)

+--------------------------------------+---------+----------+----------+
|   Statements of Comprehensive Income | 2012    | 2011     | 2010     |
+======================================+=========+==========+==========+
|   Revenues from sales of goods and   | 9       | 1        | 83,845.3 |
|   services                           | 9,639.1 | 33,703.8 |          |
+--------------------------------------+---------+----------+----------+
|   Cost of sales and services         | (94     | (12      | (7       |
|                                      | ,864.0) | 7,941.3) | 8,678.5) |
+--------------------------------------+---------+----------+----------+
| Gross profit                         | 4,775.1 | 5,762.5  | 5,166.8  |
+--------------------------------------+---------+----------+----------+
|   Other income                       | 363.9   | 165.2    | 77.2     |
+--------------------------------------+---------+----------+----------+
|   Selling expenses                   | (2      | (        | (        |
|                                      | ,888.0) | 3,199.9) | 1,780.7) |
+--------------------------------------+---------+----------+----------+
|   Administrative expenses            | (1      | (        | (576.5)  |
|                                      | ,033.4) | 1,032.4) |          |
+--------------------------------------+---------+----------+----------+
|   Gains (loss) on exchange rates     | 815.1   | (22.7)   | 925.5    |
+--------------------------------------+---------+----------+----------+
|   Other gain (loss) - net            | (340.7) | 505.7    | (10.4)   |
+--------------------------------------+---------+----------+----------+
| Operating profit                     | 1,691.9 | 2,178.4  | 3,801.8  |
+--------------------------------------+---------+----------+----------+
|   Share of profit of investments in  | 526.8   | 648.9    | 702.8    |
|   associates and a joint venture     |         |          |          |
+--------------------------------------+---------+----------+----------+
| Profit before net financial costs    | 2,218.7 | 2,827.3  | 4,504.7  |
| and income tax                       |         |          |          |
+--------------------------------------+---------+----------+----------+
|   Finance income                     | 15.2    | 16.2     | 6.2      |
+--------------------------------------+---------+----------+----------+
|   Finance costs                      | (709.7) | (885.0)  | (397.7)  |
+--------------------------------------+---------+----------+----------+
|   Finance costs - net                |         |          |          |
|                                      | (694.5) |  (868.8) |  (391.5) |
+--------------------------------------+---------+----------+----------+
| Profit before income tax             | 1,524.2 | 1,958.5  | 4,113.2  |
+--------------------------------------+---------+----------+----------+
|   Income tax expenses                | (145.7) | (629.2)  | (272.7)  |
+--------------------------------------+---------+----------+----------+
| Profit for the year                  | 1,378.5 | 1,329.3  | 3,840.5  |
+--------------------------------------+---------+----------+----------+
|   Owners of the parent               | 1,378.9 | 1,306.2  | 3,819.6  |
+--------------------------------------+---------+----------+----------+
|   Non-controlling interests          | (0.3)   | 23.0     | 20.9     |
+--------------------------------------+---------+----------+----------+

11.2.3 Statements of Cash Flows

(Unit : Baht million)

+--------------------------------+-----------+-----------+-----------+
| Statements of cash flows       | 2012      | 2011      | 2010      |
+================================+===========+===========+===========+
| Cash flows from operating      |           |           |           |
| activities                     |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Profit before income tax       | 1,524.2   | 1,958.5   | 4,113.2   |
+--------------------------------+-----------+-----------+-----------+
| Adjustments for:               |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Unrealised (gain) loss on    | (57.2)    | 139.8     | (462.7)   |
|   foreign currency             |           |           |           |
|   translations                 |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Unrealised (Gain) loss from  | (718.8)   | 749.0     | 79.7      |
|   revaluation of derivative    |           |           |           |
|   financial instruments        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Allowance for (reversal of)  | 41.2      | 31.2      | (36.4)    |
|   impairment of trade accounts |           |           |           |
|   receivable                   |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Allowance for (reversal of)  | (753.0)   | 869.6     | (1.0)     |
|   inventory cost in excess of  |           |           |           |
|   net realisable value         |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Allowance for impairment of  | -         | 18.4      | -         |
|   other receivables -          |           |           |           |
|   non-controlling interests    |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Provision for                | 14.1      | 17.5      | 15.8      |
|   post-employment benefit      |           |           |           |
|   obligations                  |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Depreciation                 | 612.3     | 476.1     | 366.0     |
+--------------------------------+-----------+-----------+-----------+
|   Amortisation                 | 8.8       | 7.1       | 6.0       |
+--------------------------------+-----------+-----------+-----------+
|   Loss on asset revaluation    | 15.6      | 5.2       | -         |
+--------------------------------+-----------+-----------+-----------+
|   Finance costs                | 709.7     | 885.0     | 397.7     |
+--------------------------------+-----------+-----------+-----------+
|   Dividend income              | (1.3)     | (1.2)     | (17.6)    |
+--------------------------------+-----------+-----------+-----------+
|   Share of profit of           | (526.8)   | (648.9)   | (702.8)   |
|   investments in associates    |           |           |           |
|   and a joint venture          |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Gain from revaluation of     | (33.5)    | (15.4)    | -         |
|   investment properties        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   (Gain) loss on disposal and  | (11.5)    | (8.0)     | 6.7       |
|   write-off of property, plant |           |           |           |
|   and equipment and intangible |           |           |           |
|   assets                       |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Changes in operating assets    |           |           |           |
| and liabilities:               |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| (Increase)/decrease in         |           |           |           |
| operating assets               |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Trade accounts receivable    | 1,234.9   | (1,605.7) | (1,946.3) |
|   and other receivables        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Amounts due from futures     | 22.0      | (271.4)   | 177.5     |
|   brokers                      |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Inventories                  | 4,938.1   | 2,076.2   | (         |
|                                |           |           | 10,108.2) |
+--------------------------------+-----------+-----------+-----------+
|   Other current assets         | 37.3      | (98.7)    | (18.2)    |
+--------------------------------+-----------+-----------+-----------+
|   Other non-current assets     | (7.6)     | 0.7       | (25.8)    |
+--------------------------------+-----------+-----------+-----------+
| Increase/(decrease) in         |           |           |           |
| operating liabilities          |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Trade accounts payable and   | (111.9)   | (488.5)   | 1,068.0   |
|   other payables               |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Other current liabilities    | (19.9)    | (1.6)     | 234.8     |
+--------------------------------+-----------+-----------+-----------+
| Cash (used in)/provided by     | 6,916.7   | 4,095.1   | (6,853.9) |
| operating activities           |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Interest paid                | (714.5)   | (878.2)   | (390.2)   |
+--------------------------------+-----------+-----------+-----------+
|   Income tax paid              | (414.8)   | (628.2)   | (284.9)   |
+--------------------------------+-----------+-----------+-----------+
|   Employee benefits paid       | (2.2)     | (2.0)     | -         |
+--------------------------------+-----------+-----------+-----------+
| Net cash (used in)/provided by | 5,785.2   | 2,586.7   | (7,528.9) |
| operating activities           |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Cash flows from investing      |           |           |           |
| activities                     |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Cash paid for long-term      | -         | (62.9)    | -         |
|   loans to an associate        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   (Increase) Decrease in fixed | -         | -         | 0.3       |
|   deposits at financial        |           |           |           |
|   institutions                 |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   (Increase) decrease in fixed | 44.0      | (18.0)    | (42.0)    |
|   deposits pledged as          |           |           |           |
|   collateral                   |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Cash paid for purchases of   | (0.2)     | (0.1)     | (0.0)     |
|   available-for-sale           |           |           |           |
|   investments                  |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Dividends received           | 136.7     | 75.8      | 749.0     |
+--------------------------------+-----------+-----------+-----------+
|   Cash paid for investments in | (8.0)     | (30.3)    | -         |
|   subsidiaries and associates  |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Proceeds from disposal of    | 62.0      | 162.5     | 37.5      |
|   property, plant and equiment |           |           |           |
|   and intangible assets        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Cash paid for purchases of   | (2,927.6) | (2,853.5) | (1,397.3) |
|   property, plant and          |           |           |           |
|   equipment and intangible     |           |           |           |
|   assets                       |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Cash paid for purchases of   | (27.3)    | (6.8)     | -         |
|   investment property          |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Proceeds from a decrease in  | -         | -         | 19.1      |
|   share capital of an          |           |           |           |
|   associate                    |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Net cash used in investing     | (2,720.3) | (2,733.4) | (633.4)   |
| activities                     |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Cash flows from financing      |           |           |           |
| activities                     |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Increase/(decrease) in       | (3,235.5) | (4,854.1) | 8,163.5   |
|   short-term loans from        |           |           |           |
|   financial institutions       |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Proceeds from long-term      | 200.0     | 62.3      | 1,609.6   |
|   loans                        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Repayments of long-term      | (120.0)   | (2,695.9) | (192.4)   |
|   loans                        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Proceeds from issuance of    | -         | 2,150.0   | -         |
|   debentures                   |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Payments on finance lease    | (8.3)     | (21.9)    | (16.8)    |
|   liabilities                  |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Dividends paid to minority   | -         | -         | (8.0)     |
|   interests                    |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Dividend payment             | (640.0)   | (1,600.0) | (600.0)   |
+--------------------------------+-----------+-----------+-----------+
|   Proceeds from capital        | -         | 7.2       | -         |
|   increase from                |           |           |           |
|   non-controlling interest     |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Proceeds from issuance of    | -         | 8,034.9   | -         |
|   new ordinary shares          |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Costs directly attributable  | -         | (436.7)   | -         |
|   to the issue of new shares   |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Net cash (used in)/provided by | (3,803.9) | 645.7     | 8,955.9   |
| financing activities           |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Net increase in cash and cash  | (739.0)   | 499.1     | 793.6     |
| equivalents                    |           |           |           |
+--------------------------------+-----------+-----------+-----------+
|   Cash and cash equivalents at | 2,273.0   | 1,774.0   | 980.4     |
|   beginning of the year        |           |           |           |
+--------------------------------+-----------+-----------+-----------+
| Cash and cash equivalents at   | 1,534.0   | 2,273.0   | 1,774.0   |
| end of the year                |           |           |           |
+--------------------------------+-----------+-----------+-----------+

11.2.4 Financial ratios

  -------------------------------------------------------------------------
  Financial Ratios                     2012         2011        2010
  ---------------------------- ------- ------------ ----------- -----------
  Liquidity Ratios                                              

  Current ratio                Times   1.47         1.46        1.17

  Quick ratio                  Times   0.54         0.52        0.32

  Cash flow liquidity ratio    Times   0.34         0.12        (0.39)

  Account receivable turnover¹ Times   14.67        20.38       17.05

  Average collection period    Days    24.55        17.67       21.11

  Inventory turnover²          Times   6.22         6.80        5.17

  Inventory period             Days    57.85        52.93       69.68

  Account payable turnover³    Times   50.17        55.75       38.54

  Average payment period       Days    7.18         6.46        9.34

  Cash Cycle                   Days    75.22        64.14       81.45

  Profitability Ratios                                          

  Gross profit margin          (%)     4.79         4.31        6.16

  Operating profit margin      (%)     1.70         1.63        4.53

  Operating cashflow to        (%)     3.42         1.19        (1.98)
  operating profit ratio                                        

  Net profit margin            (%)     1.38         0.98        4.56

  Return on equity (ROE)⁴      (%)     7.46         9.19        43.01

  Efficiency Ratios                                             

  Return on assets (ROA)⁵      (%)     3.59         3.36        12.57

  Return on fixed assets⁶      (%)     22.74        28.09       88.50

  Fixed assets turnover ratio⁷ Times   11.38        21.07       17.73

  Total assets turnover ratio⁸ Times   2.60         3.44        2.76

  Financial Leverage Ratios                                     

  Net debt to equity ratio     Times   0.86         1.10        2.45

  Debt to equity ratio         Times   0.94         1.22        2.62

  Interest coverage ratio      Times   9.36         4.63        (17.25)

  Debt service coverage ratio  Times   0.83         0.21        (3.43)

  Dividend payout ratio        (%)     46.41        49.00       41.89
  -------------------------------------------------------------------------

Notes:

1.  Computed by dividing sales of goods and services by average trade
    accounts receivable

2.  Computed by dividing cost of sales and services by average
    inventories

3.  Computed by dividing cost of sales and services by trade accounts
    payable

4.  Computed by dividing net profit for the year (attributable to owners
    of the parent) by average shareholders’ equity

5.  Computed by dividing net profit for the year (attributable to owners
    of the parent) by average total assets

6.  Computed by dividing summation of net profit for the year
    (attributable to owners of the parent) and depreciation by average
    fixed assets

7.  Computed by dividing sales of goods and services by average fixed
    assets

8.  Computed by dividing total revenues by average total assets

11.2 Management’s Discussion and Analysis of Financial Condition and
Results of Operations

Financial Result Overview

Year 2012 has been another challenging year. Amidst lacklustre demand
environment, Natural Rubber supply reduction from ITRC, and rubber price
intervention of Thai Government, the Group delivered an industry record
sales volume, which was the highest volume since our inception. Our
revenues from sales of goods and services, however, declined from lower
average selling price due to the slowdown in economy of many countries.
Since Q3 2012, a variety of easing measures for economic stimulus of
giant countries has been favourable to rubber market sentiment. Our
increase of net profit margin compared with the previous year was
primarily attributable to 1) unrealised gain from financial derivative
instruments for foreign currency exchange as a result of an appreciation
of Thai Baht against US dollar at the end of the year, 2) the reversal
of inventory allowance from upward trend of NR price in the final
quarter of the year, 3) the decrease in selling expenses which mainly
came from lowered cess rate from Baht 5 to 3 per kg. as F.O.B price of
Natural Rubber during the second half of 2012 was less than Baht 100 per
kg., 4) the decrease in finance costs as a result of less amount of
short-term loan due to lower NR price, 5) a decrease in income tax
expenses from lower corporate income tax rate and BOI benefit, and 6)
the increase in other income from cess refund which was our one time
revenue.

Income Statement Overview

Unit: Baht million

  --------------------------- ------------ ------------- --------- ------------ ------------ ---------
                              FY 2012      FY 2011       % YoY     Q4 2012      Q4 2011      % YoY

  Revenue from sale of goods  99,639.1     133,703.8     -25.5%    22,794.2     28,135.8     -19.0%
  and services                                                                               

  Cost of sales and services  (94,864.0)   (127,941.3)   -25.9%    (21,404.9)   (27,635.5)   -22.5%
  (net)                                                                                      

  Gross profit                4,775.1      5,762.5       -17.1%    1,389.2      500.3        177.7%

  SG&A                        (3,921.4)    (4,232.3)     -7.3%     (952.6)      (1,162.1)    -18.0%

  Other income                363.9        165.2         120.2%    42.1         49.2         -14.5%

  Gains/(Losses) on exchange  815.1        (22.7)        3692.1%   164.9        98.3         67.8%
  rate                                                                                       

  Other gains/(losses) (net)  (340.7)      505.7         -167.4%   40.1         235.1        -83.0%

  Operating profit            1,691.9      2,178.4       22.3%     683.7        (279.2)      344.9%

  Share of profit from        526.8        648.9         -18.8%    102.0        62.1         64.3%
  investments in associates                                                                  
  and a joint venture                                                                        

  EBITDA                      2,839.8      3,310.6       -14.2%    950.3        (80.5)       1280.0%

  EBIT                        2,218.7      2,827.3       -21.5%    785.6        (217.2)      461.8%

  Finance costs (net)         (694.5)      (868.8)       -20.1%    (143.1)      (274.9)      -47.9%

  Income tax                  (145.7)      (629.2)       -76.8%    (7.7)        (160.3)      -95.2%

  Net Profit for the period   1,378.5      1,329.3       3.7%      634.8        (652.3)      197.3%

  Attributed to owners of the 1,378.9      1,306.2       5.6%      635.5        (647.6)      198.1%
  parent                                                                                     

  Attributed to               (0.3)        23.0          -101.5%   (0.7)        (4.7)        -85.7%
  non-controlling interests                                                                  
  --------------------------- ------------ ------------- --------- ------------ ------------ ---------

In 2012, total sales of goods and services was Baht 99,639.1 million,
decreased by 25.5% YoY. The decline of sales was due mainly to the
decrease in average selling price of 27.5%, despite being offset by the
increase in sale volume of 2.5%. The uncertainties of global economy
from prolonged sovereign debt in Europe, the slow recovery of US
economy, and the slower down of economic in the PRC have affected
overall market sentiment and pressured NR prices to move in downward
trend during the first eight months of 2012. This resulted to a decrease
in average selling price in comparison with the previous year. Thanks to
our extensive and strong sales and distribution networks, our 2012 sale
volume growth rate was higher than the growth rate of 2012 world tyres
production.

In terms of sale volume, the Group sold 975,604 tons of Natural Rubber
in 2012, the highest record since our inception amidst the uncertainty
of world economic conditions, or increased by 2.5% YoY which was higher
than a stagnancy of world NR consumption in 2012. Sale volume to China,
our main market contributed 43.3% of our total sale volume, continued a
robust growth of 33.1% YoY to reach 422,548 tons in 2012. This resulted
from the expansion of its demand which was in line with the moderate
economy improvement and a switch from tightening policy to easing policy
to cope with the slower down economy. However, a fall in NR consumption
of the rest of the world was due to the deteriorating level of the world
economic activities while most customers deferred their purchase order
during negative market sentiment.

Gross profit in 2012 was recorded at Baht 4,775.1 million, down 17.1%.
Our gross profit margin of 2012 was 4.8%, increased from last year at
4.3 %. The improvement of gross profit margin was partly due to the
reversal of inventory allowance amounted Baht 753.0 million, thanks to
price improvement and positive momentum at the final quarter of 2012 led
by stimulus packages of major countries. Assuming the reversal of
inventory allowance was not made, our gross profit would have been Baht
4,022.1 million and gross profit margin would have been at 4.0% which
was lower than the adjusted gross profit margin of 2011 at 5.0%. The
decline in adjusted gross profit margin compared to the previous year
was mainly attributable to global economic turbulence from EU, the US,
Japan, and the PRC which have adversely affected market sentiment and
consumer confidence during the year. Moreover, a volatile price of
Natural Rubber in downward direction throughout the first eight months
of 2012 coupled with global sluggish demand also directly impacted our
adjusted gross profit margin.

Operating profit in 2012 amounted to Baht 1,691.9 million, down from
operating profit of Baht 2,178.4 million in 2011, or 22.3% YoY.
Operating profit margin was 1.7%, increased from 1.6% in 2011. An
improvement in operating profit margin was due principally to 1) an
increase in gross profit margin, 2) the increase in other income largely
contributed by cess refund* of Baht 238.4 million, 3) the decrease in
selling expenses which mainly came from lowered cess rate from Baht 5
per kg. to Baht 3 per kg. as F.O.B price of NR during second half of
2012 was less than Baht 100 per kg., and 4) unrealised gain on foreign
exchange as a result of an appreciation of Thai Baht against US Dollar
throughout second half of 2012, although partially offset by loss from
financial derivative instruments for rubber trading.

Note: *Cess refund from NR inventories that ORPAF has examined during
20 - 30 September 2010, which is the period before the new cess rate (5
Baht per Kg.) come into effect, will be allowed to pay cess at the
former rate (1.4 Baht per Kg.).

Net profit in 2012 was Baht 1,378.9 million rose by 5.6% YoY. Net profit
margin was 1.4%, increased from 1.0% in 2011. This was due to the
decrease in finance costs as a result of less amount of short-term loan
since an average NR price of 2012 declined by 30.0% YoY and a decrease
in income tax expenses from the lower corporate income tax rate and BOI
benefit, even though partially offset by a decrease in share of profit
of investments in associates and a joint venture due mainly to the
decrease in net profit of our examination gloves business.

Key Factors Affecting the Company’s Operation

1.  Price and Volatility of Natural Rubber

[]

Daily Price Movement of TSR20 and RSS3 at SICOM

Price and volatility of Natural Rubber directly affect our revenues and
profitability. In 2012, NR price was relatively volatile and continued
to move in downward direction from Q2 2011 to hit the bottom of 240 US
cent per kilogram in mid-August 2012. However, easing policies to
stimulate the economy of major countries and global NR supply reduction
agreed by International Tripartite Rubber Council (ITRC) have positively
improved rubber market sentiment and NR price from mid-Q3 2012 onwards.
Such improvement of NR price at the final quarter of 2012 enabled us to
reverse the inventory allowance amounted Baht 753.0 million which
consequently improved our gross profit in 2012.

The NR price are affected by a number of factors including 1) world
economic conditions which directly affected automobile and tyre
industry, 2) demand & supply of Natural Rubber, 3) exchange rate between
exporting countries such as Thai Baht, Indonesian Rupiah, and Malaysia
Ringgit against US dollar and Japanese Yen 4) government intervention,
and 5) oil and synthetic rubber price.

Price Movement of TSR20 and RSS3 at Singapore Commodity Exchange Limited
(SICOM) during 2011-2012

(Unit : US dollar per ton)

  ----------------- --------- -------- --------- -------- -------- ---------
                    RSS3                         TSR20             

                    2011      2012     %Change   2011     2012     %Change

  Q1 Average        5,688     3,861    -32.1%    5,216    3,695    -29.1%

  Q2 Average        5,290     3,589    -32.2%    4,668    3,297    -29.4%

  Q3 Average        4,652     2,971    -36.1%    4,564    2,752    -39.7%

  Q4 Average        3,598     3,097    -13.9%    3,579    2,884    -19.4%

  Year Average      4,802     3,378    -29.7%    4,504    3,155    -30.0%

  Closing price as  3,275     3,240              3,270    2,988     
  at 31 December                                                   
  ----------------- --------- -------- --------- -------- -------- ---------

2.  Foreign Exchange rate

[]

Historical Exchange Rate of Thai Baht against US dollar

The fluctuations between Thai baht and US Dollars could directly affect
our revenues since approximately 83.0% of our total revenues is
denominated in US Dollars while our financial reporting currency is in
Thai Baht. In order to mitigate this risk, the Group, therefore, use
forward and options of foreign exchange contracts to hedge our foreign
exchange exposures. The mark-to-market of financial derivatives will be
recognised as unrealised gain/loss on foreign exchanges.

Overall, Thai Baht has weakened against US Dollar from an average of
30.2490 Baht/US dollar in 2011 to 30.8445 Baht/US dollar in 2012,
representing a depreciation of 2.0%. However, due to the capital inflow
to Asian countries led by stimulus packages of the US and Japan since
September 2012 that created a strong appreciation of Thai Baht towards
the end of 2012. When marking-to-market at the end of the year, the
Company posted gains on foreign exchange of Baht 815.1 million in 2012
compared with losses on foreign exchange of Baht 22.7 million in 2011.

3.  Finance costs

The key factors that affect our finance costs are interest rate, NR
price, sale volume, and capacity expansion plan. In 2012, finance costs
decreased 19.8% YoY to Baht 709.7 million due mainly to less amount of
short-term loan since average NR price of 2012 declined by 30.0% YoY.
Also, being a leader in rubber industry allows us to better access to
cheaper source of fund.

Graph below exhibited our average interest rates during 2011-2012, which
were lower than the average Minimum Loan Rate (MLR) of three large
commercial banks; Bangkok Bank, Kasikorn Bank, and Siam Commercial Bank
and closed to Bank of Thailand’s policy rate.

  []

4.  Shares of Profit from Investment in Affiliates

  In 2012, the Company received share of profit from investments in
  affiliates and joint venture companies in total of Baht 526.8 million
  of which 52.5% contributed by glove business, 19.8% by Natural Rubber
  processing business, and 17.5% by high pressure hydraulic hoses
  business. Share of profit from investment in affiliates decreased by
  18.8% compared to the previous year due mainly to the decrease in net
  profit of our examination gloves business as a result of the switching
  from NR gloves to NBR, the decrease in net profit of Natural Rubber
  processing business, and the decrease in net profit of high pressure
  hydraulic hose business from sluggish demand during a slowdown of
  industrial sector in China.

Business Segmentation Analysis

Revenue breakdown by product segment (Baht million)

  -------------------- ---------- ----------- -------- ---------- ---------- --------
                       FY 2012    FY 2011     % YoY    Q4 2012    Q4 2011    % YoY

  RSS                  13,591.0   24,942.8    -45.5%   2,750.2    5,144.1    46.5%

  %                    13.6%      18.7%                12.1%      18.3%       

  TSR                  77,499.7   96,138.6    -19.4%   18,070.2   20,380.1   11.3%

  %                    77.8%      71.9%                79.3%      72.4%       

  Concentrated Latex   6,436.4    10,236.6    -37.1%   1,462.1    2,058.6    29.0%

  %                    6.5%       7.7%                 6.4%       7.3%        

  Others⁽¹⁾            2,112.0    2,385.8     -11.5%   511.7      553.0      -7.5%

  %                    2.1%       1.8%                 2.2%       2.0%        

  Total revenue        99,639.1   133,703.8   -25.5%   22,794.2   28,135.8   19.0%
  -------------------- ---------- ----------- -------- ---------- ---------- --------

Note: (1) Comprises revenue from (i) the sale of dried rubber wood and
wood packing products and (ii) the provision of certain services (such
as logistics, research and development and information technology
services) to our associates and a joint venture entity as well as other
external third parties. (iii) RSS processing fee for Thai Government
recognized from Q3 2012 onwards.

Total sales and services income was Baht 99,639.1 million of which 97.9%
or Baht 97,527.1 million contributed by Natural Rubber Products. Total
sales and services income comprised TSR of Baht 77,499.7 million or
77.8%, RSS of Baht 13,591.0 million or 13.6%, concentrated latex of Baht
6,436.4 million or 6.5%, and other products and services including RSS
processing fee for Thai Government recognized from Q3 2012 onwards,
sales of parawood, transportation and engineering services of Baht
2,112.0 million or 2.1%.

Ribbed Smoked Sheet (RSS)

Revenue from the sale of RSS decreased by 45.5% YoY. Such decline was
driven by a decrease of both average selling price by 29.4% and sale
volume by 22.8%. The decrease in average selling price was in line with
SICOM price that tilted downward throughout the first eight month of
2012, down 29.7% YoY, pressured by concerns over global economic
slowdown. The decrease in sale volume was partly due to the switching
trend from the use of RSS to TSR by tyre makers and cooperative
agreement among Thailand, Indonesia, and Malaysia (International
Tripartite Rubber Council : ITRC) to withdraw Natural Rubber exports of
300,000 tons during October 2012 to March 2013.

In 2012, our gross profit from the sale of RSS decreased by 65.9% YoY.
Gross profit margin lowered from 2011 as a result of downward movement
in price and sluggish demand. Moreover, price intervention scheme of the
Thai government to buy rubber from farmers at prices above market prices
also affected our raw materials cost to some extent.

Technically Specified Rubber (TSR)

Revenue from the sale of TSR decreased by 19.4% YoY due mainly to a
decrease in average selling price of 27.6%, despite offset by the
increase in sale volume of 11.3% YoY. The decrease in average selling
price of TSR products was in tandem SICOM price. However, our strategy
to expand our market share in China, the world largest NR consuming
country, made our sale volume grew at much faster rate compared to the
growth rate of global tyre production in 2012 at 1%*. The expiration of
import tariff of the US on Chinese car and light-truck tires in
September 2012 also benefited automobile and tyre industry in China
which resulted in the rising in demand of TSR.

Source*: The World Rubber Industry Outlook, Review and Prospects to 2022
by International Rubber Study Group (IRSG), December 2012

In 2012, gross profit margin of TSR grew 9.5% YoY. Gross profit margin
also improved from 2011 as tyre makers have restocked after the recovery
of NR prices from mid-Q3 2012 as a result of more positive market
sentiment. Furthermore, the improvement of gross profit margin was due
to a reversal of inventory allowance for TSR of Baht 650.5 million in
2012 as compared to an inventory allowance of Baht 732.3 million in
2011.

Concentrated Latex

Revenue from the sale of Concentrated Latex was down 37.1% YoY. The
decrease was attributable to a decline in average selling price of 27.4%
and a decline in sale volume of 13.4%. The decrease in sale volume was
due mainly to a switching trend of glove makers from using Natural
Rubber as raw material for their production to NBR (synthetic rubber)
since the price of concentrated latex has been generally higher than
Butadiene Nitrile in the past few years.

Our gross profit from the sale of Concentrated Latex in 2012 contracted
by 58.5% YoY. Gross profit margin also lowered from the previous year
due to sluggish demand from glove industry.

Consolidated Balance Sheet

Current assets

Current assets decreased by Baht 6,360.8 million, or 22.5%, from Baht
28,331.7 million for the year end 2011 to Baht 21,970.9 million for the
year end 2012 which due primarily to a decrease in inventories of Baht
4,185.0 million from lower NR price and inventory level at the end of
2012, a decrease in trade accounts receivables and other receivables of
Baht 1,276.1 million due mainly to the decrease in average selling price
of NR products, a decrease in cash and cash equivalent of Baht 739.0
million, and a decrease in derivative financial instruments of Baht
229.2 million from lowered unrealised gain from mark-to-market of
physical forward derivatives as well as rubber futures, which were
partially offset by an increase in other current assets of Baht 90.5
million.

At the end of 2012, 98.9% of our accounts receivable were not yet due or
overdue less than 1 month while 0.4% was overdue by more than 1 year.
The allowance for doubtful debts was 1.7% of total accounts receivable.

Non-current assets

Non-current assets increased by Baht 2,953.7 million, or 25.1%, from
Baht 11,771.5 million for the year end 2011 to Baht 14,725.2 million for
the year end 2012 which primarily consists of an increase in property,
plants and equipments of Baht 2,558.8 million (net of depreciation and
write-off) for the construction of our new factories in Udorn Thani,
Ubonratcha Thani, Phitsanulok and for the expansion of existing
factories in Palembang (Indonesia) as well as for acquisition of
landbank for rubber plantation, an increase in investment in associates
of Baht 333.5 million from increase of their operating results, an
increase in withholding tax deducted at source of Baht 93.1 million, and
an increase in investment properties of Baht 58.1 million, which
partially offset by a decrease in deferred income tax assets of Baht
84.0 million and a decrease in fixed deposits pledged as collateral of
Baht 44.0 million.

Net book value of the Group's land and buildings as at 31 December 2012
(THB million):

  -------------------------------------------------------------- ---------
  Freehold land including land improvements                      3,793.1

  Leasehold land                                                 218.7

  Buildings and structures                                       2,539.7

  Total                                                          6,551.5
  -------------------------------------------------------------- ---------

Current liabilities

Current liabilities decreased by Baht 4,527.5 million, or 23.3%, from
Baht 19,470.6 million for the year end 2011 to Baht 14,943.1 million for
the year end 2012 which was mainly on account of a decrease in
short-term loans of Baht 3,252.6 million due to lower average selling
prices of NR products, a decrease in derivative financial instruments of
Baht 948.0 million, a decrease in trade accounts payable and other
payables of Baht 115.2 million due to lower price of raw materials, and
a decrease in current income tax liabilities of Baht 184.2 million.

Non-current liabilities

Non-current liabilities increased by Baht 214.5 million, or 8.2%, from
Baht 2,601.7 million for the year ended 2011 to Baht 2,816.2 million for
the year ended 2012 which was primarily due to an increase in deferred
income tax liabilities of Baht 151.5 million and an increase in
long-term loans of Baht 86.0 million (net of current portion).

Shareholders’ equity

Equity increased by Baht 905.9 million, or 5.0%, from Baht 18,030.9
million for the year end 2011 to Baht 18,936.8 million for the year end
2012 due mainly to net profit during the year, despite offset by
dividend payment of Baht 640.0 million.

Consolidated Cash Flow

As at 31 December 2012, the Group had cash and cash equivalents of Baht
1,534.0 million, a decrease of Baht 739.0 million, or 32.5% from the
balance of Baht 2,273.0 million as at 31 December 2011.

The Group generated cash flows from operations before net change in
operating assets and liabilities of Baht 823.8 million. The Company
generated cash amounted Baht 6,092.9 million arising from change in our
operating assets and liabilities which was due primarily to the decrease
in inventories of Baht 4,938.1 million and the decrease in trade
accounts receivable and other receivables of 1,234.9 million, which were
partially offset by the decrease in trade accounts payable and other
payables of 111.9 million.

The Company paid benefit, interest, and income tax of Baht 1,131.5
million. Overall, the Company had net cash flows of Baht 5,785.2 million
provided by operating activities.

Investing activities utilised net cash flows of Baht 2,720.3 million,
principally from investment in property, plants and equipments of Baht
2,927.6 million for the construction of our new factories in Udorn
Thani, Ubonratcha Thani, Phitsanulok and for the expansion of existing
factories in Palembang (Indonesia) as well as for acquisition of
landbank for rubber plantation. This was partially offset by dividend
received of Baht 136.7 million from associate and joint venture
companies and proceeds from disposal of fixed assets and intangible
assets of Baht 62.0 million.

Net cash flow used in financing activities amounted to Baht 3,803.9
million consisted of the decrease of short-term loans from financial
institutions of Baht 3,235.5 million, repayment of long-term loans of
Baht 120.0 million, and dividend payment of Baht 640.0 million, which
was partially offset by proceeds from long-term loans of Baht 200.0
million.

Source of Fund

In 2012, our capital expenditure was Baht 2,922.8 million, principally
comprised Baht 1,616.5 million for construction and expansion of TSR
block rubber facilities and Baht 1,161.0 for the expansion of rubber
plantation business. Our 4 mains source of fund consisted of cash flows
from operations, short-term and long-term facilities from financial
institutions, debentures, and proceeds from IPO in Singapore of SGD
336.0 million. As at 31 December 2012, proceeds from IPO of SGD 101.8
million has not yet been utilised while only 30% of total loan
facilities were utilised. Consequently, our debt to equity ratio was
less than one time, a very conservative level compared with our
competitors in the industry.

Financial Ratios

Current ratios

Current ratio is calculated by dividing total current assets by total
current liabilities. As at 31 December 2012 and 31 December 2011 our
current ratios were 1.47 and 1.46 times, respectively. The marginal
increase in our current ratio was due primarily to a decrease in total
current liabilities at a faster rate than a decrease in total current
assets.

Fixed asset turnover ratio

Fixed asset turnover ratio is calculated by dividing sales of goods and
services by average property, plant and equipment (net). As at 31
December 2012 and 31 December 2011, our fixed asset turnovers were 11.38
and 21.07 times, respectively. A decrease in fixed asset turnover ratio
was due mainly to an increase in property, plant and equipment and a
decrease in revenues from NR products as a result of lower average
selling prices.

Return on assets ("ROA")

ROA is calculated by dividing net profit (parent company) for the year
by average total assets. As at 31 December 2012 and 31 December 2011,
our ROA were 3.59% and 3.36%, respectively. An improvement of ROA was
due to a decrease in total assets and an increase in net profit.

Return on equity ("ROE")

ROE is calculated by dividing net profit (parent company) for the year
by average total equity. As at 31 December 2012 and 31 December 2011,
our ROE were 7.46% and 9.19%, respectively. The decrease in ROE was due
mainly to an increase in average total equity resulted from the equity
offering in Singapore in 2011.

Debt to equity ratio ("D/E")

D/E is calculated by dividing total debt by total equity. As at 31
December 2012 and 31 December 2011, our D/E were 0.94 and 1.22 times,
respectively. The decrease in D/E was due mainly to the decrease in
short-term loans from financial institutions as the Group required less
working capital during a downward movement of Natural Rubber price
during 2012.

11.3 Business Outlook

Industry in general

  ------------------------------------------- --------- --------- ---------
                                              2011      2012f     2013f

  %Global Growth (GDP)                        3.9%      3.2%      3.5%

  Advance economies                           1.6%      1.3%      1.4%

  Emerging market and developing economies    6.3%      5.1%      5.5%

  China (major NR consumer)                   9.3%      7.8%      8.2%

  Vehicle production (mil. Unit)              80        85        90

  % change                                    3.1%      6.4%      5.7%

  Tyre production (mil. Unit)                 1,584     1,600     1,686

  % change                                    7.2%      1.0%      5.4%

  NR consumption (‘000 tons)                  10,944    10,947    11,592

  % change                                    1.3%      0.0%      5.9%
  ------------------------------------------- --------- --------- ---------

Source : IMF and The World Rubber Industry Outlook forecasted by
International Rubber Study Group (IRSG), December 2012

The world economy is the primary determinant of the world rubber
outlook. According to International Monetary Fund (IMF) forecast as of
January 2013, global economy is expected to marginally improve in 2013
at the rate of 3.5%, a moderate uptick from 2012 at 3.2%. Emerging
markets was projected to grow at 5.5% whereas economy of China, the
world largest NR consumer, was forecasted to grow at 8.2% in 2013.

After a synchronised slowdown of global economy during the past year,
global economic prospects and financial conditions have shown the signs
of stabilization in the recent months. Easing policies of major
countries in advanced and emerging markets have rebuilt consumer
confidence and created more positive market sentiment for NR
consumption. Overall NR consumption in 2013 is expected to pick up from
a stagnant growth in the previous year to grow at 5.9%, in line with
tyre production and new vehicle production. Healthier economic outlook
of China, the world largest consuming country of Natural Rubber with
one-third of global demand, in 2013 would also support growth of global
NR consumption.

High volatility and downward movement of NR price during Q2 2011 to
mid-Q3 2012 have eliminated a number of speculative investors. An
approximately 25% jump of NR price as compared to the bottom price in
mid-August 2012 so far has brought the NR price back to its equilibrium
level. Better growth prospect of main consuming countries will support
the balance of global NR demand and supply as well as create more price
stability. In the short to medium term under this economic climate,
there should be less volatility in NR price and NR price should be
dictated by fundamental demand & supply.

The expiration in March 2013 of both supply reduction through the Agreed
Export Tonnage Scheme (AETS) of ITRC and market intervention of Thai
Government to buy rubber at the above market price should not largely
affect NR price as the wintering period in Thailand will start from
February to May where the low season of supply is. Moreover, NR price
should benefit from the movement of Thai baht and Japanese Yen against
US dollar as recent stimulus policies of key markets have spurred
capital flows into emerging markets.

Demand & Supply Balance

World Natural Rubber production and consumption during 2011 - 2013

  --------------------------------- ------------ ------------ ------------
  Unit : 000’tons                   2011         2012         2013

  NR production                     11,004       11,406       11,771

  % change                          5.5%         3.6%         3.2%

  NR consumption                    10,944       10,947       11,592

  % change                          1.3%         0.0%         5.9%

  NR Balance                        60           459          179
  --------------------------------- ------------ ------------ ------------

Source: The World Rubber Industry Outlook forecasted by International
Rubber Study Group (IRSG), December 2012

According to The World Rubber Industry Outlook forecasted by
International Rubber Study Group (IRSG) in December 2012, overall
global’s Natural Rubber consumption in 2013 is expected to be 11,592,000
tons, up 5.9% YoY. The increase in demand coincides with growth of tyre
industry which accounted for 70% of global Natural Rubber demand. Most
of growing demand will primarily come from emerging countries, namely
China and India. Demand from the US and EU countries are also projected
to pick up in 2013 after a negative growth in the previous year.
Meanwhile, IRSG forecasted that total global Natural Rubber production
will be increased by 3.2% YoY to 11,771,000 tons. Thailand and Indonesia
continue to be major NR suppliers of the world. The additional NR supply
is partly contributed by new planting and replanting of rubber trees
during the boom-cycle of NR price in mid-2000s. Besides, more
remunerative average NR price in comparison with the previous year would
improve tapping frequency of rubber farmers.

Under gradual economic recovery prospect, NR demand and supply should
shift to more equilibrium level. IRSG anticipated that in 2013 Natural
Rubber supply will be slightly outstrip NR demand by 179,000 tons, or
1.5% of global NR consumption, improved from that of 459,000 tons in the
previous year.

Progress of our businesses in value chain

Our upstream integration through rubber plantation that the Group has
earmarked for future entry remains on track. As at 31 December 2012, the
Group has acquired land approximately 27,400 rai (4,384 hectares), most
of them are in the North of Thailand. Approximately 460 rai (74
hectares) are under tapping, 12,675 rai (2,028 hectars) have been
planted and will be mature for tapping from 2016 onwards. The vacant
land of 14,265 rai (2,282 hectars) will be planted during raining season
of the next year. The achievement of our plan to have 50,000 rai (8,000
hectars) of rubber plantation in 2014 will depend on the reasonability
of land price and advantages of location as well as sufficiency of
saplings. Although the Group has yet to achieve mature plantation at the
necessary scale, the Group believes that the upstream integration shall
further enhance our Natural Rubber supply chain that the Group has
capitalized on with sustainable profitability.

As at 31 December 2012, our optimum annual capacity was registered at
industry record at 1.1 million tons per annum, the highest capacity in
the industry. By the end of this year, our production capacity should be
arrived at 1.2 million tons per annum with additional capacity from new
TSR plants in the in Ubon Ratchathani and the expansion capacity of
Palembang (Indonesia). The Group aims to reach capacity of 1.5 million
tons per annum in the next couple of years. The achievement of capacity
ramp-up would depend on several factors such as global demand-supply
situations and the earning of necessary permits/licenses of operation.
Thailand remains to be our primary production base with additional 3
plants to be completed in different timeline. The Group is also in the
process of building new plants in Indonesia and exploring the
opportunity to expand our business in new territories.

11.4 Auditor’s Compensation

Audit Fee

STA paid audit fee to the auditors of STA for the preparation of the
2012 consolidated financial statements and stand-alone financial
statements in amount of Baht 5,315,000. STA paid audit fee for its
subsidiaries in amount of Baht 1,585,000.

Non-Audit Fee

None