4. BUSINESS OPERATION OF EACH PRODUCT LINE

4.1 Businesses

The key products we sell consist of Natural Rubber Products. In 2010,
2011 and 2012, Revenues from sales of Natural Rubber Products accounted
for approximately 98% of our Group’s total revenue. More than 70% of
total revenue comes from TSR followed by RSS, Concentrated latex, and
other products.

Revenue breakdown by product segment (%)

[]

4.1.1 Natural Rubber Products

We carry out our natural rubber supply chain operations on a
multi-national platform in Thailand, Indonesia, the PRC, the United
States and Singapore and we sell Natural Rubber Products to customers
globally. We believe that we are one of the largest processors of
natural rubber globally, with a global market share of approximately
8.9%[1]. We produce three main types of Natural Rubber Products — RSS,
TSR and Concentrated Latex. We also purchase Natural Rubber Products
from third party producers and our joint venture entity, Thai Tech
Rubber, from time to time, to meet demand from customers. We sell these
Natural Rubber Products to customers in various countries and
territories in Asia such as, the PRC, India, Singapore, Japan, Korea,
Vietnam, Malaysia, as well as to the United States and Europe.

Raw materials procurement and management

The raw materials which our rubber processing facilities utilise to
produce Natural Rubber Products include unsmoked rubber sheets, cup
lumps and field latex, which respectively accounted for 18.3%, 72.0% and
9.7% of raw materials purchased in the financial year ended 31 December
2012, respectively.

We have established a network of raw material procurement centres, which
as at 31 December 2012 comprise 61 procurement centres, 42 in Thailand,
mainly in the southern region of Thailand, and 19 procurement centres in
Indonesia. Our procurement centres consist of our 38 collecting centres
and our 23 natural rubber production facilities, which are located
strategically, close to sources of raw materials supply. The proportion
of purchasing raw material from Thailand to Indodonesia was
86.3 : 13.7.

While we purchase raw materials primarily from dealers, raw materials
are also sourced either directly from farmers or from farmer unions and
cooperatives and rubber centre markets at which farmers sell the raw
materials. As we obtain our raw materials through our procurement
network from diverse sources of raw materials, we do not have any
supplier of raw materials or Natural Rubber Products who accounts for 5%
or more of our raw material purchases for the three most recent
completed financial years ended 31 December 2012 apart from our
purchases of Natural Rubber Products from our joint venture entity, Thai
Tech Rubber, which accounted for approximately 5.1% of our raw material
purchases for the financial year ended 31 December 2012.

While we have well-established relationships with existing dealers and
suppliers, our procurement team seeks to maintain and improve our
relationship with such dealers and suppliers. This is done primarily
through the conduct of supplier surveys and regular visits to the local
villages. In addition, our procurement team will identify new dealers
and suppliers, based on our assessment of their business operations (if
evaluating dealers), quality and price of raw materials.

Our procurement team is also responsible for in-coming quality
assurance. The raw materials used in our production process have to meet
our specifications and are subject to our strict internal quality
assurance and testing. Prior to accepting delivery of raw materials,
sample testing is conducted on the raw materials. The raw materials are
tested for, amongst other things, its purity and dry rubber content to
ensure that it meets our requirements. The results of the sample testing
are recorded and considered prior to accepting delivery of a particular
batch of raw material.

The other responsibilities of our procurement team include (i)
monitoring the pricing and supply trend of the raw materials that we
require, (ii) inventory management and (iii) allocating raw materials to
our various production facilities.

Processing and production of Natural Rubber Products

We produce three main types of Natural Rubber Products:

(1) Ribbed Smoked Sheet (RSS)

  RSSs are unsmoked rubber sheets which have undergone processing and
  can be classified into five categories, namely, RSS1, RSS2, RSS3, RSS4
  and RSS5. The classification is based on the quality of each sheet,
  which takes into account factors like purity, elasticity and colour.

  RSS is used as a raw material in the production of products such as
  tyres, pipes, shoes and automobile parts. As it is a form of processed
  natural rubber, RSS is of a higher quality and can be subjected to
  dyeing treatments.

  The following is an illustration of our RSS production process:

  Unsmoked rubber sheets are produced by processing field latex which is
  collected and allowed to coagulate. The coagulated field latex is
  subsequently passed through a mill to extract water to produce
  unsmoked rubber sheets. The unsmoked rubber sheets are then washed,
  cleaned and cut to size before they are allowed to hang on racks to
  dry. The dried unsmoked rubber sheets are then transferred into a
  smoke house where they are smoked for several days at controlled
  temperatures before being manually sorted and visually classified
  based on quality. These are then packed into bales for shipment or
  storage.

(2) Technically Specified Rubber (TSR)

  TSR or block rubber is produced from raw materials such as cup lump
  and unsmoked rubber sheets. Cup lump is produced when field latex is
  allowed or made to coagulate in the cup in which it is collected.
  Unlike RSS, the quality of TSR is determined through chemical testing
  to ascertain its technical specifications. We produce two main types
  of TSRs — the Standard Thai Rubber (STR) and the Standard Indonesian
  Rubber (SIR). TSR is a raw material used mainly in the production of
  tyres for automobiles and airplanes.

  We utilise two processes in our production of TSRs — the “STR” process
  and the “compound rubber” process. Both processes are mainly
  automated.

  The following is an illustration of our TSR production processes:

  “STR” process

  In the “STR” process, the raw materials are cut into smaller pieces,
  washed and cleaned before being passed through rollers and flattened
  to form rubber crepes. The rubber crepes are then placed on racks to
  dry for approximately 10 to 15 days. Once dried, the rubber crepes are
  cut into smaller pieces before being washed to remove the remaining
  dirt and impurities. It is then passed through a dryer at high
  temperatures to remove excess water before being compressed into
  rubber blocks and packed for shipment or storage.

  “Compound rubber” process

  In the “compound rubber” process, the raw materials are cut into
  smaller pieces, washed and cleaned before being passed through rollers
  and flattened to form rubber crepes. The rubber crepes are then placed
  on racks to dry for approximately 10 to 15 days. Once dried, the
  rubber crepes are cut into smaller pieces before being washed to
  remove the remaining dirt and impurities and then passed through a
  dryer at high temperatures to remove excess water and mixed with
  chemicals. The resultant rubber mixture is then allowed to cool before
  it is compressed into rubber blocks and packed for shipment or
  storage. The “compound rubber” process produces a special type of
  compound rubber, which we sell into the PRC market.

(3) Concentrated Latex

  Concentrated Latex is derived from field latex and is liquid latex
  with a dry rubber content of approximately 60.0%. It is one of the
  cleanest forms of rubber and is used primarily in the production of
  various products such as, latex examination gloves, surgical gloves,
  condoms, elastic threads and adhesives.

  The following is an illustration of our Concentrated Latex production
  process:

  Field latex is tapped by farmers from the rubber tree and collected.
  To prevent the field latex from coagulating during transportation to
  the processing facility, ammonia, among other chemicals, is added to
  the field latex by the collectors. At the processing facility, the
  mixture is centrifuged to separate impurities and to obtain a latex
  concentration containing approximately 60.0% dry rubber content.
  Ammonia is then added back to the extract to prevent it from
  coagulating before it is packed and prepared for shipment or storage.
  The quality of the Concentrated Latex is dependent on the level of
  ammonia in it. There are generally three grades of Concentrated Latex
  — high ammonia latex, medium ammonia latex and low ammonia latex.

Production facilities and rates of utilisation

As at 31 December 2012, we have a total of 22 processing facilities, 20
processing facilities[2] located in Thailand and 2 processing facilities
located in Indonesia with an estimated total effective production
capacity of approximately 1.1 million tons of Natural Rubber Products
per annum.

Our production capacity is limited by available space, production lines,
number of machines and manpower. Our estimated annual effective
production capacity and the annual utilisation rates of our natural
rubber processing facilities which were in operation during the last
three years based on our three categories of Natural Rubber Products for
each of the three most recent completed financial years are as follows:

[TABLE]

Notes:

(1) Calculated based on the annual engineering capacity of the relevant
processing facility at the end of the relevant period which takes into
consideration the estimated total number of working days, the down time
for the maintenance of machinery and equipment and the amount of time
needed to complete one cycle of production for each of our Natural
Rubber Products at the relevant processing facility.

(2) The engineering specified capacities of our natural rubber
processing facilities are derived from the specifications certified or
provided by the supplier of the relevant processing machinery.

(3) Calculated based on actual production volume of the relevant
processing facility for the relevant period divided by the weighted
average effective capacity for that period, and in the case of
production facilities that commenced operations during the relevant
period, also taking into consideration the actual processing capacity
for the relevant period.

The machinery and equipment used in our production of Natural Rubber
Products are maintained weekly by the maintenance teams located at each
of our rubber processing facilities to ensure that they operate under
optimum conditions to produce quality products and minimise disruptions
to our production activities. Generally, all maintenance of our
machinery and equipment is carried out by Premier System Engineering,
with certain exceptions when we will call upon third party vendors to
service the machinery and equipment. Our maintenance team comprises
qualified engineers and technicians who have been appropriately trained.

Quality assurance

We have implemented comprehensive quality assurance and monitoring
procedures to ensure that our products meet our stringent quality
control standards and the expectations and requirements of our
customers. Our quality assurance system encompasses stringent quality
control checks at each stage of our production processes, from
procurement and processing of raw materials, to the inspection of the
end product.

As at 31 December 2012, we have received the following quality assurance
certifications and awards in respect of our Natural Rubber Products
production processes and/or the Natural Rubber Products that we produce:

  -----------------------------------------------------------------------------------------
  For the         Name of             Awarding body/  Validity period of  Process/Natural
  operation of    certification/      authority       certificate/award   Rubber Product
                  award                                                   awarded
  --------------- ------------------- --------------- ------------------- -----------------
  STA (Trang)     ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     RSS and
                                                                          Concentrated
                                                                          Latex

                  ISO14001:2004       TÜV Rheinland   13 November 2012 to Manufacture of
                                      Cert GmbH       15 October 2015     Concentrated
                                                                          Latex

  STA (Chumporn)  ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     Concentrated
                                                                          Latex

  STA (Surat      ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
  Thani)                              Cert GmbH       to 20 July 2015     Concentrated
                                                                          Latex

  STA             ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
  (Kanchanadit)                       Cert GmbH       to 20 July 2015     Concentrated
                                                                          Latex

  STA (Hat Yai)   ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     RSS

                  ISO14001:2004       TÜV Rheinland   13 November 2012 to Manufacture of
                                      Cert GmbH       15 October 2015     RSS

                  BS OHSAS18001:2007  TÜV Rheinland   10 December 2012 to Manufacture of
                                      Cert GmbH       14 July 2015        RSS

  STA (Thungsong) ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     TSR and compound
                                                                          rubber

                  ISO14001:2004       TÜV Rheinland   13 November 2012 to Manufacture of
                                      Cert GmbH       15 October 2015     TSR and compound
                                                                          rubber

  STA (Sikao)     ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     TSR and compound
                                                                          rubber

                  ISO14001:2004       TÜV Rheinland   13 November 2012 to Manufacture of
                                      Cert GmbH       15 October 2015     TSR and compound
                                                                          rubber

  STA (Huay Nang) ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     TSR and compound
                                                                          rubber

  STA Group       ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     RSS, Concentrated
                                                                          Latex, and
                                                                          compounded rubber

  Rubberland      ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
  Product (Hat                        Cert GmbH       to 20 July 2015     Concentrated
  Yai)                                                                    Latex

  Rubberland      ISO9001:2008        TÜV Rheinland   25 August 2011 to   Manufacture of
  Product (Bueng                      Cert GmbH       20 July 2012        TSR and compound
  Karn)                                                                   rubber

                  ISO 14001:2004      TÜV Rheinland   13 November 2012 to Manufacture of
                                      Cert GmbH       15 October 2015     TSR and compound
                                                                          rubber

  Rubberland      ISO9001:2008        TÜV Rheinland   16 May 2012 to 15   Manufacture of
  Product                             Cert GmbH       May 2015            TSR and
  (Buriram)                                                               

  Rubberland      ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
  Product                             Cert GmbH       to 20 July 2015     TSR and
  (Mukdahan)                                                              

  Nam Hua Rubber  ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
  (Sadao)                             Cert GmbH       to 20 July 2015     Concentrated
                                                                          Latex

                  ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
                                      Cert GmbH       to 20 July 2015     TSR and compound
                                                                          rubber

  Sadao P.S.      ISO9001:2008        TÜV Rheinland   17 September 2012   Manufacture of
  Rubber (Sadao)                      Cert GmbH       to 20 July 2015     RSS

  PT Sri Trang    ISO 9001:2008       TÜV Rheinland   27 May 2010 to 6    Manufacture of
  Lingga                              Cert GmbH       August 2013         TSR

  Premier System  ISO9001:2008        Management      27 May 2010 to      Design and
  Engineering                         System          26 May 2013         development,
  (Hat Yai)                           Certification                       manufacture,
                                      Institute                           installation and
                                      (Thailand)                          maintenance
                                                                          services for
                                                                          machinery and
                                                                          electrical
                                                                          devices.

                  BSOHSAS18001:2007   TÜV Rheinland   29 October 2012 to  Design,
                                      Cert GmbH       28 October 2015     production,
                                                                          installation and
                                                                          maintenance
                                                                          service for
                                                                          machinery and
                                                                          electrical
                                                                          devices, service
                                                                          for calibration
                                                                          and information
                                                                          technology

                  ISO/IEC 17025:2005  Thai Industrial 9 June 2011 to      Standard
                                      Standards       8 June 2014         calibration
                                      Institute                           laboratory
                                      (TISI)                              

  Starlight       ISO9001: 2008       Management      25 June 2010 to 24  Services of land
  Express                             System          June 2013           transport,
  Transport                           Certification                       import-export,
  (Trang)                             Institute                           forklift rental
                                      (Thailand)                          and forklift
                                                                          maintenance
  -----------------------------------------------------------------------------------------

In-processing quality assurance

We conduct random in-process sampling at every stage of our production
process to ensure that the Natural Rubber Products that we produce meet
our stringent quality standards and that our production capacity is
effectively utilised. For example, prior to the packing and storage of
our TSRs at our rubber processing facilities, samples of our TSR will be
sent to our quality assurance department for testing to ensure that the
TSR meets industry specifications.

Out-going quality assurance

All of the finished Natural Rubber Products that we produce are subject
to a further round of quality inspection after packaging and labelling
to ensure that they meet the quality criteria established by our quality
inspection department. Finished Natural Rubber Products that do not meet
our quality standards will be removed, recorded and analysed by our
quality assurance department to identify the issues and to refine our
production processes to reduce such occurrences. Our quality assurance
department also monitors and ensures that the finished Natural Rubber
Products are properly handled and stored in accordance with our ISO9001
requirements.

Pre-delivery quality assurance

Prior to delivery, we would conduct a final round of inspection of the
finished Natural Rubber Product to ensure that it is delivered to our
customers in good condition and that they meet our customers’
specifications.

Sales and marketing and customers

Our global sales and distribution function is located in and managed out
of Singapore, a global purchasing hub for Natural Rubber Products. We
have established three trading and distribution networks based in
Singapore, the United States and the PRC for the Natural Rubber Products
that we sell, through our subsidiaries Sri Trang International, Sri
Trang USA and Shi Dong Shanghai respectively. Together with the various
sales teams established in Thailand and in our major geographical
markets, such as the PRC, we are able to ensure that the Natural Rubber
Products that we sell are distributed efficiently.

The responsibilities of our sales and marketing department include the
following:

• developing sales strategies in connection with our penetration into
domestic and international markets;

• recommending products to existing customers through the distribution
of our product samples;

• procuring new customers;

• monitoring and analysing our competitors’ product development and
pricing;

• coordinating the delivery of our products to our customers; and

• purchasing Natural Rubber Products from third party producers.

In addition, our sales and marketing department is also responsible for
maintaining our Group’s customer records, attending to customer
complaints and maintaining and improving customer relations and inviting
our existing customers to visit our processing facilities, enabling them
to gain a better understanding of our operations and products.

We have an extensive and diversified customer network of leading players
globally and we sell Natural Rubber Products to customers in various
countries and territories in Asia such as the PRC, India, Singapore,
Japan, Vietnam, Malaysia, and Korea, as well as to the United States and
Europe.

Shipping, logistics and maintenance

In Thailand, services for shipping and logistics activities in relation
to the sale of Natural Rubber Products are provided by our subsidiary,
Starlight Express Transport. Such services include the arrangement of
product shipping and the preparation of the related import and export
documentation. In addition, Starlight Express Transport also undertakes
the business of forklift rental and repair services to companies within
our Group.

We typically engage third party transportation and freight forwarding
companies to provide services in relation to shipping and logistics
activities relating to the export of the Natural Rubber Products that we
sell.

Our subsidiary, Premier System Engineering, is responsible for carrying
out general maintenance on all of our Group’s machinery and equipment as
well as the machinery and equipment of certain of our associates. The
maintenance team of Premier System Engineering comprises qualified
engineers and technicians who have been appropriately trained.

4.1.2 Examination Gloves

In addition and complementary to our Natural Rubber Products business,
we have diversified our income stream through our interest in SSC, our
associate, in which we have an aggregate interest (direct and indirect)
of approximately 40.2%. We are closely involved in the day-to-day
operations of SSC which primarily produces latex examination gloves and
nitrile examination gloves. These examination gloves are used for
medical and industrial purposes. As at 31 December 2012, SSC has 4
processing plants in southern Thailand with a total production capacity
of approximately 12.5 million glove pieces annually. We believe that SSC
is Thailand’s largest examination gloves producer and one of the leading
producers of latex and nitrile examination gloves globally.

Raw materials procurement and management

The base raw material SSC requires for its production of its latex
examination gloves is Concentrated Latex which is supplied by our Group.

Production of examination gloves

Latex and nitrile examination gloves

The following is an illustration of SSC’s production process of latex
and nitrile examination gloves:

The base raw material used is compounded with chemicals, which varies
with our customers’ specifications. After compounding, the mixture is
transferred into a dipping tank where hand formers, which are first
cleaned, are dipped into the mixture, coated with a thin layer of latex
and then dried in controlled temperatures. The hand formers are then
immersed in a leaching tank to wash away water-soluble materials, to
ensure cleanliness. This is followed by curing in ovens. Thereafter, the
examination gloves are stripped from the hand formers prior to packing
and export. For the powder free glove, a chlorine substance will be
added to make it easier to wear prior to putting it into drying process.
Finally, all the gloves are tested according to certain examination
glove standards such as ASTM and EN Std before they are packed and
prepared for shipment or storage.

Sales and marketing

SSC’s sales and marketing department is responsible in their markets
for:

• developing the sales strategies for its examination gloves;

• recommending products to existing customers through the distribution
of product samples;

• procuring new customers;

• monitoring and analysing competitors’ product development and pricing;
and

• coordinating the delivery of products to customers.

SSC regularly markets and showcase its products and canvass for
customers by participating in regional and international trade
exhibitions in various markets. Participation in such trade fairs and
exhibitions allow SSC to promote its products, obtain up-to-date
information on industry developments and market trends, and secure new
customers. Moreover, SSC also hold meetings abroad with its overseas
core customers to look into customers’ needs and maintain good
relationship.

We have, together with our business partner Semperit Technische, also
established two companies, Sempermed USA and Sempermed Brasil, which
focus on the sales and distribution of the examination gloves produced
by SSC in North America and Brazil respectively.

4.1.3 Other Businesses

-   Rubber wood processing business

  Through our subsidiary, Anvar Parawood, we are also involved in the
  production and distribution of rubber wood for the furniture industry
  in both local and global market.

-   Production and sale of finished products business

  We have expanded our business operation to manufacture and distribute
  finished products through investments in our associates that we have
  jointly established with Semperit Technische, namely Semperflex Asia,
  Semperflex Shanghai, and Shanghai Semperit. We have participated in
  the production and sale of high-pressure hydraulic hoses for
  industrial, mining, and other specific applications through Semperflex
  Asia and Semperflex Shanghai and participated in the production and
  sale of escalator handrails through Shanghai Semperit.

-   Future broker

  Through our associate, Pattana Agro Futures, we are also a commodity
  futures broker in the Agricultural Futures Exchange of Thailand.

4.2 Industry and Competition

-   Natural Rubber Industry

Demand and Supply of Natural Rubber in 2012

According to International Rubber Study Group (IRSG), The world Rubber
Industry Outlook, Review and Prospects to 2022, December 2012, world
demand of Natural Rubber in 2012 was 10,947,000 tons, 0.02% increase
from 2011, whereas world production of natural rubber was 11,406,000
tons, 3.6% growth from 2011. China is a world’s major natural rubber
consumer accounting for 34.4% of total global consumption followed by
North America and European Union who consumed about 10.0% and 9.7% of
total global consumption, respectively. Thailand, world’s topmost
natural rubber producing country, produced 3,522,000 tons or 30.9% of
world’s natural rubber production followed by Indonesia and Vietnam
whose production contributed 26.4% and 8.4% of world’s natural rubber
production, respectively.

Diagram exhibits Demand and Supply of Natural Rubber during 2002-2013

[]

Trend of Demand and Supply of Natural Rubber in 2013

Global’s Natural Rubber consumption in 2013 is expected to be 11,592,000
tons, up 5.9% from the year 2012 which grew at only 0.02% (Source:
IRSG - The World Rubber Industry Outlook, Review and Prospect to 2020,
December 2012). The increase in demand coincides with growth of tyre
industry which accounted for more than 70% of global Natural Rubber
demand. Most growing demand comes primarily from emerging countries such
as China and India whose relatively high GDP growth would benefit
automotive industry which is directly related to tyre industry, as part
of component. Meanwhile, IRSG forecasted that total global Natural
Rubber production will be increased by 3.2% YoY to 11,771,000 tons. Such
increase is mainly contributed by Thailand and Indonesia, world’s major
Natural Rubber producing countries. It is anticipated that Natural
Rubber supply will surpass Natural Rubber demand by 179,000 tons in
2013.

Diagram exhibits Supply Surplus (Deficit) of Natural Rubber during
2002-2013

[]

Diagram Exhibits World’s Major Natural Rubber Producing Countries during
2002-2013

[]

Diagram Exhibits World’s Major Natural Rubber Consuming Countries during
2002-2013

[]

Diagram Exhibits Growth of World’s Natural Rubber Consumption and GDP
Growth during
2003-2013

[]

Key factors affecting the Natural Rubber price

The price of natural rubber are affected by a number of factors
including 1) world economic conditions which directly affected
automobile industry and tyre industry, 2) exchange rate fluctuation
especially US dollar, Japanese Yen, and natural rubber exporting
currencies such as Thai Baht and Indonesian Rupiah as natural rubber is
mainly traded in US Dollars, and 3) oil price since natural rubber and
synthetic rubber which is by product from crude oil, are the main raw
materials of automobile tire, the rubber price tends to fluctuate and
move same direction as oil price.

In 2012, price of Natural Rubber was relatively volatile and continued
to move in downward direction from 2011. This was due to the economic
slowdown in various countries. However, such concerns on economic
problems are expected to ease up from money injection to stimulate the
economy of China, Japan, and the US. The revised up world GDP compared
to the prior year could rebuild consumer confidence which will increase
overall demand of Natural Rubber.

Diagram Exhibits Price of STR20 in 2011- 2012

[]

-   Competition

The main Natural Rubber producing and exporting countries are Thailand,
Indonesia, Vietnam, and Malaysia. There are only a few large Natural
Rubber producers in the world. To operate a sustainable growth and
success business, Natural Rubber producer needs an extensive experience,
an insight in rubber industry, and continuous support from financial
institutions for large working capital requirement. We believe that our
main competitors are primarily larger Natural Rubber processors and
exporters such as Von Bundit Company Limited, Southland Group, and Thai
Hua Rubber Public Company Limited based in Thailand, The Tat Lee Group
and The Kirana Group based in Indonesia, and Lee Rubber Group based in
Malaysia and Indonesia.

We believe we are the world’s largest fully integrated Natural Rubber
processing company. In 2012 our sales volume accounted for 8.9%[3] of
world’s Natural Rubber consumption. The benefits that large firm have
over the small to medium firms include to create the economies of scale,
balance the bargaining power with both suppliers and customers, and
enhance accessibility to different sources of fund for using as a
working capital and funding business expansion, all of which are the key
success of Natural Rubber business.

We realise that the potential to sufficiently procure raw material is as
important as effective distribution channels that allow us to penetrate
into strategic markets. We, therefore, strategically set up production
base in Thailand and Indonesia, the world’s two largest Natural Rubber
producing countries collectively contributed more than 60% of world
production. For sales & distribution, we have established subsidiaries
in China, Singapore, and the US to carry out sales & distribution
activities. With the high international quality standard of products,
the Company is able to sell Natural Rubber products to world’s leading
tyremakers as well as other tyre manufacturers in every corner of the
world.

Majority of our products are globally sold to conventional tyre
manufacturers. Diagram below exhibits the proportion of geographic sale
during the past three years.

+---------------------+--------+-----+--------+-----+---------+-----+
| Continental         | 2010   |     | 2011   |     | 2012    |     |
+=====================+========+=====+========+=====+=========+=====+
|                     | Ton    | (%) | Ton    | (%) | Ton     | (%) |
+---------------------+--------+-----+--------+-----+---------+-----+
| Overseas markets    |        |     |        |     |         |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| Asia                | 551    | 6   | 589    | 6   | 65      | 6   |
|                     | ,855.5 | 5.6 | ,781.6 | 2.0 | 2,746.7 | 6.9 |
+---------------------+--------+-----+--------+-----+---------+-----+
| -   The PRC         | 307    | 3   | 317    | 3   | 42      | 4   |
|                     | ,705.7 | 6.6 | ,513.0 | 3.4 | 2,547.9 | 3.3 |
+---------------------+--------+-----+--------+-----+---------+-----+
| -   India           | 41     | 5.0 | 37     | 3.9 | 3       | 3.2 |
|                     | ,813.9 |     | ,048.6 |     | 0,976.7 |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| -   Japan           | 26     | 3.1 | 28     | 3.0 | 1       | 1.8 |
|                     | ,335.2 |     | ,865.3 |     | 7,580.9 |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| -   Korea           | 25     | 3.0 | 28     | 3.0 | 2       | 2.7 |
|                     | ,436.1 |     | ,290.6 |     | 6,717.4 |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| -   Malaysia        | 21     | 2.6 | 11     | 1.3 | 1       | 1.3 |
|                     | ,914.9 |     | ,969.4 |     | 3,055.0 |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| -   Singapore       | 97     | 1   | 127    | 1   | 11      | 1   |
|                     | ,501.9 | 1.6 | ,446.7 | 3.4 | 0,225.8 | 1.3 |
+---------------------+--------+-----+--------+-----+---------+-----+
| -   Others          | 31     | 3.7 | 38     | 4.1 | 3       | 3.2 |
|                     | ,148.3 |     | ,648.1 |     | 1,642.9 |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| America             | 84     | 1   | 107    | 1   | 9       | 9.5 |
|                     | ,680.2 | 0.1 | ,518.9 | 1.3 | 2,443.1 |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| Europe              | 55     | 6.6 | 77     | 8.2 | 6       | 7.0 |
|                     | ,406.7 |     | ,631.5 |     | 7,833.8 |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| Others              | 3      | 0.4 | 7      | 0.8 | 4,005.0 | 0.4 |
|                     | ,456.2 |     | ,283.5 |     |         |     |
+---------------------+--------+-----+--------+-----+---------+-----+
| Total overseas      | 695    | 8   | 782    | 8   | 81      | 8   |
| markets             | ,398.6 | 2.7 | ,215.5 | 2.2 | 7,028.6 | 3.7 |
+---------------------+--------+-----+--------+-----+---------+-----+
| Domestic market     | 145    | 1   | 169    | 1   | 15      | 1   |
|                     | ,063.4 | 7.3 | ,719.1 | 7.8 | 8,575.5 | 6.3 |
+---------------------+--------+-----+--------+-----+---------+-----+
| Grand Total         | 840    | 10  | 951    | 10  | 97      | 10  |
|                     | ,462.0 | 0.0 | ,934.6 | 0.0 | 5,604.1 | 0.0 |
+---------------------+--------+-----+--------+-----+---------+-----+

We believe that the major competitive factors in the Natural Rubber
processing industry include product quality, production capability and
capacity, economies of scale, customer service, product pricing,
geographical presence and management capability.

Key Strengths of our Group

1.  Being the world’s largest natural rubber processing company with a
    market share of 8.9%

-   Capture all possible market segments with full range of Natural
    Rubber products.

-   Benefit from economies of scale.

-   Balance the bargaining power with suppliers and customers.

-   Enhance accessibility to different sources of fund to support our
    operation and expansion.

-   

2.  Fully integrated Natural Rubber supply chain business model

-   Gain direct access to supply and demand information

-   Enables us to respond to changes in market conditions and manage our
    production and position efficiently.

-   Maximise competitive edge and cost efficiency.

-   Create potential for business expansion in the future.

3.  Well-balanced portfolio with a good coverage of sales and
    distribution

-   Have more than 250 diversified customer network across the globe, no
    single customer accounts more than 6% of our total sales.

-   Cover all class of customers to serve all demand from every corner
    of the word.

-   Get direct access to end-users to gain demand flow and market
    sentiment.

4.  Having production base in major Natural Rubber producing countries

-   Advantage in secure raw material as Thailand and Indonesia are world
    major Natural Rubber producing countries collectively contributed
    more than 60% of global production.

-   Flexible production management from different seasonal period
    throughout the year.

-   Having a rich number of raw material procurement centers to reduce
    the reliance on dealers.

5.  Expand upstream to rubber plantation business

-   Emphasize on cost leading position

-   Enhance profitability and reduce volatility in earning

-   Create procurement networks for potential raw material from
    neighboring area.

-   Pinpoint strategic locations for midstream factories in the future

6.  Captained by highly experienced managements

-   Led by a group of seasoned managements with over 20-year experience
    in Natural Rubber industry

4.3 Insurance

As at 31 December 2012, we have taken insurance against damage
(inclusive of fire and natural disaster such as lightening, bombing,
storm, and etc.) for all our fixed assets (including our offices,
production facilities and machinery) as well as our inventory for an
aggregate of approximately Baht 37,938.92 million.

Our Directors believe that the insurance policies taken up by our Group
are adequate for our business needs and operations, and will
periodically conduct a review of our Group’s insurance coverage.

4.4 Environment, Health and Safety

Environmental Regulation

Our operations are subject to significant environmental laws and
regulations, including the Enhancement and Conservation of National
Environmental Quality Act B.E. 2535 (A.D. 1992) (the “Environmental
Act”). In 1992, Thailand strengthened its environmental laws and
regulations in order to promote sustainable development and to better
protect the natural environment. The 2007 Thai Constitution also
contains definitions and provisions relating to the government’s
responsibility and the citizen’s rights in the management and
development of natural resources and the environment.

Environmental laws and regulations that primarily relate to air
emissions and water discharged from our facilities affect all aspects of
our business, including rubber manufacturing and the construction and
maintenance of our facilities. We are required by environmental law to
maintain the emissions of our various facilities within certain limits.

According to the Environmental Act, operators of pollution-generating
facilities are required to install pollution control equipment and must
collect data and compile statistics on the daily operations of their
facilities and pollution control equipment, and keep and compile records
on pollution sources. In addition, they must submit monthly summary
reports that provide information on the functioning of their facilities
and equipment to the local authorities. Pollution control officials are
authorised to enter buildings and premises where business facilities or
sources of pollution are located in order to inspect the functioning of
the facilities and equipment. They have the authority to issue written
orders to require the owners, persons in possession, or person(s)
monitoring or controlling the operation to correct, modify, improve, or
repair the facilities or equipment. Moreover, the officials have the
statutory power to impose a fine on the owners or persons in possession
of the sources of pollution for breach of their obligations under the
Environmental Act. The officials may recommend the closure of the plants
or premises, the suspension or revocation of licenses, or the suspension
of the operation of facilities that illegally discharge sewage or other
pollutants into the environment. If leakage or contamination from any
point source of pollution is the cause of death or injury of any person,
or has caused damage in any manner to the property of any private person
or of the state, then the owner or the possessor of such a point source
is liable to pay compensation, regardless of whether the leakage or
contamination is the result of a willful or negligent act on the part of
the owner or the possessor of the facility. Compensation for which a
business enterprise may be liable includes all costs incurred by the
government in cleaning up the pollution. Violation of the provisions of
the Environmental Act may also lead to criminal sanctions consisting of
a fine or imprisonment, or both.

In addition to the Environmental Act, the Factory Act B.E. 2535 empowers
the Minister of Industry to issue ministerial regulations to impose
obligations on business facilities to observe requirements concerning
protection of the environment including the standards and methods to
control the discharge of waste, pollutants, or anything that affects the
environment in the normal course of business. Under this law, any
operator acting in contravention of the regulations imposed by the
ministry may be subject to a shutdown order and a fine not exceeding
Baht 200,000.

In accordance with the Public Health Act B.E. 2535, the Pollution
Control Department is involved in a wide range of waste disposal issues,
from overseeing the process of waste transportation and disposal to
establishing criteria aimed at controlling public nuisance caused by
odor, light, radiation, sound, heat, vibration, dust, toxic tar and ash,
and other hazardous substances. Under this law, any operator acting in
contravention of an order to eliminate any public nuisance may be
subject to a shutdown order or such contravention may lead to criminal
sanctions consisting of a fine or imprisonment, or both.

The primary governmental bodies which supervise our operations are the
Office of Natural Resources and Environmental Policy and Planning, the
Pollution Control Department and the Department of Industrial Works.

Group’s environmental policy and practice

Management of the Group has been focusing on the environment and has
announced the environmental policy since 2005 to implement environmental
management systems. The Group is committed and ready to work with its
sense of responsibility towards the environment. Environmental
Management Systems (EMS/ISO14001) is implemented in our organization
with the objectives, goals, plans, and activities on the environment as
well as plan follow-up under the slogan "Environmental conservation with
care and treatment, Sri Trang will develop and add value for society”.
The Group’s environmental performances in accordance with laws and
regulations were as follows;

-   to comply with laws, regulations, and legislations of government
    agencies or related environmental unit;

-   to prevent and reduce waste as well as implement policies to
    minimise the adverse effects to the environment;

• to continually develop and improve on our environmental management
systems by checking and follow-up;

• to conserve resources and energy and ensure that they are utilised
efficiently;

• to educate and increase the awareness of environmental issues among
our employees as well as to know how to prevent significant impact on
the environment; and

• to disclose our environmental policy to the public

The Group has 5 branches that are certified to ISO14001 environmental
management system, each of which has their own internal inspector and
certified external assessor. Moreover, each branch also sets
environmental goals and objectives such as reducing the use of chemicals
and energy, recycle the waste, as well as monitoring and measuring
environment such as waste water and air emitted, etc. on annual basis to
comply with laws.

The Group has complied with the law associated with wastewater treatment
system. Currently, there are two plants that have to be connected to the
remote pollution measure machine (BOD online), our plant in Trang
province and SSC in Songkhla province. In this regard, the Group has
already installed and connected the signal with Department of Industrial
Works to control and monitor. In addition, the Group has also developed
a wastewater treatment system at the new plant in the Northeast of
Thailand to provide effective water treatment that can be 100% recycled
to reduce the use of water resource and environmental impacts.

In terms of air pollution, we install Multi-cyclone system for the
plants with boiler. The quality of our air emitted is in accordance with
the law.

We also hold a licence for the storage of hazardous and waste disposal
and comply with the Environmental Monitoring Efforts Report and
Management Efforts Report for our operations in Indonesia.

Participation in Environmental Project

Our environmental projects that we have attended during 2012 were as
follows;

1.  Rubberland Products, Buriram branch received the certification for
    environmental governance project, co-hosted by provincial industry
    and Department of Industrial Works

2.  Nam Hua (block rubber), Rubberland Products (Concentrated latex HA),
    and STA Sikao branch received Carbon Footprint Labeling co-certified
    by Thai Environment Institute Foundation and the Federation of Thai
    Industries

3.  Rubberland Products, Bueng Kan branch was awarded “Love Mom…Preserve
    the River 2012” for their collaboration in conserving and restoring
    the river.

4.  STA, Huay Nang branch was certified with Step 1 of environmental
    management system

5.  Rubberland Products, Buriram branch received the certification for
    environmental governance project, co-hosted by provincial industry
    and Department of Industrial Works

6.  STA Kanchanadit branch co-hosted with Mangrove Forest Resources
    Development Station 14 to hold mangrove forest planting project to
    rebalance the land and release aquatic animals at Baan Gadae,
    Karnchanadid district, in Surat Thani province

7.  Supporting reforestation project to honor H.M. the King and H.M.
    Queen and granted scholarship to the students of Baan Kuan Samed
    School in Songkhla province

8.  Fishing for lunch project and library construction for Baan Kok
    Petch School in Buriram province

9.  Green industrial wok project: This project was organized by the
    Ministry of Industry. Following is list of our plants that were
    certified;

  Level 1 : “Green Commitment” is a commitment to reduce environmental
  impact where the commitment has been communicated throughout the
  organization. The company that has been certified at this level
  includes Rubberland Products, Mukdahan branch.

  Level 2 : “Green Activity” is an activity to minimize the impact on
  the environment according to predetermined plan. The company that has
  been certified at this level includes Rubberland Products, Buriram
  branch and STA, Surat Thani branch.

Health and Safety

We place significant emphasis on the health and safety of our employees
and contractors. Moreover, we are required to comply with a range of
health and safety laws and regulations such as inspection, equipment for
an emergency event, annually emergency training plan, working
environment measurement including light, noise, heat, dust, vapour, and
building inspection.

We review our health and safety standards on an ongoing basis and our
operations are subject to government authority inspections throughout
the year.

Our employees undergo periodic health check-ups. For safety at work, we
provide training on health and safety, safety equipment, knowledge about
chemical, and how to control the contractor to our employees.

4.5 Sales Commitment

As at 31 December 2012, the Group was committed to certain sales of Baht
16,948.38 million of which comprised 2 types of contracts; fixed
contractual prices which the price will be settled at future dates and
undertrained contractual prices which the price is the market prices at
the end of period.

4.6 Tax Incentives

Tax Incentives from The Board of Investment of Thailand

Under the Industrial Investment Promotion Act B.E. 2520 (as amended),
the Company and certain subsidiaries incorporated in Thailand have been
granted privileges by the Board of Investment at various times relating
to, among others, manufacture of latex and skim crepe and/or skim block,
concentrated latex, block rubber and mixed rubber, rubber smoked sheets
and providing service of calibration laboratory (the “promoted
operations”).

The privileges granted, subject to compliance with the terms and
conditions prescribed in the relevant promotional certificates, include:

(a) exemption from payment of import duty on machinery approved by the
Board of Investment;

(b) exemption from payment of corporate income tax on net profit from
promoted operations for a period of eight years from the date on which
income is deemed to be first derived from such operations;

(c) a 50% reduction in the normal corporate income tax rate on the net
profit derived from promoted operations for a period of five years,
commencing from the expiry date in (b) above (if applicable);

(d) a five-year carry forward period for losses for tax purposes from
promoted operations during the period in (b) above;

(e) income exclusions and additional deductions in computing the taxable
income for promoted operations during the period in (b) above;

(f) exemption from income tax on dividend paid to the shareholders from
the profit of the promoted operations during the corporate income tax
exemption period; and

(g) double deduction of the cost of transportation, electricity and
water supply for corporate income tax purposes for a period of 10 years
from the date on which income is deemed to be first derived from the
promoted operations.

The following table summarises the expiry dates of the Board of
Investment tax incentives granted to our Company and certain of our
subsidiaries incorporated in Thailand.

  ---------------------------------------------------------------------------
  Company                     Certificated   Expiry for Full Expiry for 50%
                              no.            Exemption from  Reduction in Tax
                                             Tax             
  --------------------------- -------------- --------------- ----------------
  STA                         1165/2542      3 January 2008  3 January 2013

  (Trang - Concentrated                                      
  Latex)                                                     

  STA                         1046/2543      1 January 2008  1 January 2013

  (Thung Song - TSR)                                         

  STA                         1803(2)/2547   30 April 2013   Not applicable

  (Surat Thani - Concentrated                                
  Latex)                                                     

  STA                         1802(2)/2550   17 September    Not applicable
                                             2016            

  (Khanjanadit - Concentrated                                
  Latex)                                                     

  STA                         1803(2)/2550   9 March 2016    Not applicable

  (Sikao - TSR)                                              

  STA                         2213(2)/2550   3 October 2016  Not applicable

  (Huay Nang - TSR)                                          

  STA                         1100(2)/2554   10 October 2019 Not applicable

  (Trang - Concentrated                                      
  Latex)                                                     

  STA                         1101(2)/2554   3 October 2019  Not applicable

  (Surat Thani - Concentrated                                
  Latex)                                                     

  Nam Hua Rubber              1167/2542      7 January 2008  7 January 2013

  (Sadao - Concentrated                                      
  Latex)                                                     

  Nam Hua Rubber              1264/2543      28 September    28 September
                                             2008            2013

  (Sadao - TSR)                                              

  Nam Hua Rubber              2379(2)/2553   2 December 2010 2 December 2018

  (Sadao - TSR)                                              

  Sadao P.S. Rubber           1028/2543      31 August 2008  31 August 2013

  (Sadao - RSS)                                              

  Rubberland Products         1402(2)/2552   30 March 2018   30 March 2023

  (Bueng Karn - TSR)                                         

  Rubberland Products         1887(2)/2553   30 November     30 November 2018
                                             2010            

  (Buriram - TSR)                                            

  Rubberland Products         2387(2)/2553   1 April 2011    1 April 2019

  (Hat yai - Concentrated                                    
  Latex)                                                     

  Rubberland Products         1016(2)/2555   22 December     Not applicable
                                             2011            

  (Mukdahan – TSR)                                           
  ---------------------------------------------------------------------------

Global Trader Programme

Sri Trang International enjoys certain tax benefits under the Global
Trader Programme launched by International Enterprise Singapore,
pursuant to which Sri Trang International is only taxed on 10% of its
qualifying income (i.e. income which is derived from offshore sales or
sales to companies under the Global Trader Programme). Sri Trang
International renewed its status under the Global Trader Programme in
January 2010 for the period from 1 January 2010 to 31 December 2014.

4.7 Present Applicable Regulations

We have all necessary permits and licences required for our business.
Some of the laws and regulations which are material to our business and
operations are set out below.

4.7.1 General Rules

The laws governing domestic activities in respect of rubber in Thailand
have been reformed in accordance with the commitments to which Thailand
is bound as a member of the International Natural Rubber Organisation,
the commitments under the Treaty on Maintenance of Stability of Natural
Rubber Price, the Project on Establishment of Common Market of Natural
Rubber of the Natural Rubber Producer Association, the Project on
Control and Cooperation of Rubber Standard and Trade of the
International Natural Rubber Organisation and the United Nations Treaty
on Cooperation on Natural Rubber. Currently, the activities in respect
of rubber are governed by the Rubber Control Act B.E. 2542 (A.D. 1999)
(the “Rubber Control Act”), which is the law controlling all the
processes in rubber industry, including rubber plantation, rubber-tree
propagation, import and export of rubber trees, transportation of
natural rubber, rubber processing plants, rubber trade, rubber import
and export, and rubber quality analysis or assessment etc. According to
the Rubber Control Act, a Rubber Control Board has been established to
provide opinions or advice to the Minister or the authorities approving
notifications or ministerial regulations on rubber control under the
said law. Under the Rubber Control Act, the approving authority is the
Department of Agriculture, while the co-ordination authority is the
Rubber Research Institute. Both authorities are under the supervision of
the Agriculture and Cooperatives Minister.

Policy on Rubber Plantation

Pursuant to the Rubber Control Act, the Minister is empowered to set up
policies on rubber plantation, by scheduling the dates and time at which
rubber planters give information regarding rubber plantation to the
authorities. Such information includes, amongst others, amount of area,
number of rubber trees, rubber breeds and quantity of rubber sheets
produced per annum. The Minister is also empowered, under the law, to
declare the rubber plantation zones: (1) Restricted zones: these zones
will be designated at the breakout of rubber plagues and will be
prohibited for rubber plantation, in addition, the Minister, under the
law, may instruct the rubber planters to destroy the rubber trees which
may cause plagues, and (2) Rubber plantation zones: the rubber planters
shall grow the good breeds of rubber which are identified by the
Minister of Agriculture and Cooperatives which has been determined to be
planted in the rubber plantation zones and shall undertake the
plantation under the procedures as prescribed in the law.

Licenses

Pursuant to the Rubber Control Act, several activities in respect of
rubber require licenses to be obtained from the authorities which can be
summarised as follows:

1. License for importers or exporters of rubber trees, buds, seeds or
knots or any part of rubber trees which may grow;

2. License for commercial propagation of rubber trees: the person
wishing to propagate rubber trees for commerce shall file an application
to the authority in charge of its area and thereafter such authorities
shall inform the Rubber Research Center to send officers to conduct a
survey at the rubber plantation and prepare a report to the Rubber
Research Institute for further approval by the Department of
Agriculture;

3. License for rubber trade: the rubber trade shall include sales and
purchases of rubber or rubber exchange, which include the sales and
purchases of instruments on rubber issued by a person or otherwise, but
excludes sales of fresh latex, cup lumps, rubber scraps or raw sheet
rubber which are produced by rubber planters from their rubber
plantation;

4. License for establishment of rubber plants, operated by rubber
traders, using fresh latex, cup lumps, rubber scraps or raw sheet rubber
to be processed to concentrated latex, dried rubber, smoked sheet
rubber, rubber blocks, crepe rubber, other raw rubbers compounded with
another kind or other kinds of raw rubber, including the plants
producing mixed rubber but excluding the plants producing raw sheet
rubber;

5. License for importers or exporters of rubber: the rubber traders
wishing to import or export rubber shall obtain permits, except for the
import or export of rubber samples of which the weight does not exceed 5
kilograms. A permit for rubber import or export must be obtained for
each customs checkpoint;

6. Custom checkpoint clearance: the export of rubber requires a custom
checkpoint clearance granted by the authorities. The fees for custom
checkpoint clearance is at the rate of Baht 0.002 per kilogram; and

7. License for arrangement of analysis or assessment of rubber quality:
the rubber traders wishing to arrange an analysis or assessment of
rubber quality shall file an application under the Rubber Control Act
and the Regulation of the Department of Agriculture governing Rules for
License on TSR Block Rubber Laboratory B.E. 2542 (A.D. 1999).

Generally, the licenses issued under the Rubber Control Act are valid
for one year from the issuance date. The operator shall file an
application for renewal of license prior to the expiration date. After
having filed an application for renewal of license, the business can be
operated until the Department of Agriculture disapproves the renewal of
license.

Law Governing Rubber Plantation Aid Fund

The Rubber Plantation Aid Fund was established under the Rubber
Plantation Aid Fund Act B.E. 2503 (A.D. 1960) (as amended) (the “Aid
Fund Act”) in order to maximise the volume of rubber crops. The aid to
plantation was implemented by replacing the original rubber trees or
perennial trees with better rubber breeds or other economic perennial
plants.

The sources of the Rubber Plantation Aid Fund under the Aid Fund Act
consist of (1) contributions collected from the rubber exporters, and
(2) contributions from government budget.

The current contribution (cess rate) which was effective on 1 October
2010 is as follows:

1. Smoked rubber sheet

  (a) 90 satang per kilogram (in case the rubber price does not exceed
  Baht 40);

  (b) Baht 1.40 per kilogram (in case the rubber price exceeds Baht 40
  but does not exceed Baht 60);

  (c) Baht 2.00 per kilogram (in case the rubber price exceeds Baht 60
  but does not exceed Baht 80);

  (d) Baht 3.00 per kilogram (in case the rubber price exceeds Baht 80
  but does not exceed Baht 100); and

  (e) Baht 5.00 per kilogram (in case the rubber price exceeds Baht
  100).

2. Latex — the cess rate is the same as smoked rubber sheet, but shall
be calculated at the rate of 35% of the total latex weight.

3. Concentrated latex or concentrated latex masterbatch — the cess rate
is the same as smoked rubber sheet, but shall be calculated at the rate
of 60% of the total concentrated latex weight or concentrated latex
masterbatch weight.

4. Compound rubber or rubber masterbatch — the cess rate is the same as
smoked rubber sheet, but shall be calculated from the proportion of
natural rubber thereof, as indicated in the certificate issued by the
Rubber Research Institution of Thailand, Department of Agriculture.

5. Other rubber e.g. block rubber, crepe rubber, lump rubber, rubber
scraps, etc, the cess rate is the same rate as smoked rubber sheet.

The annually collected contributions shall be allocated to the Rubber
Research Institute, Department of Agriculture, as follows: up to 5% for
research on rubber, up to 10% for administration expenses of the Fund
and the remaining, which is no less than 85% for the funds granted to
the planters requesting for technical and production assistance. These
funds cannot be spent for other purposes.

4.7.2 Regulations by Other Laws

License and Rules under the Medical Device Act

The Medical Device Act B.E. 2551 (A.D. 2008) (the “Medical Device Act”)
provides the rules on the control of medical devices and the protection
of consumers’ safety. It is required that the production or import of
medical devices shall be approved by the Food and Drug Administration.
According to the application procedure for production of medical
devices, the producers shall register the establishment and comply with
the requirements on the production plants, including amongst others
building scales, room division and waste water treatment. The producers
must obtain the license on establishment prior to the application for
license on production of medical devices. A license on production of
medical devices shall be valid until 31 December of the fifth year from
the date of issuance. The licensee of establishment license shall file
an application for renewal of license prior to the expiration date of
such license. Upon the filing of application for renewal of the license,
the business can be operated until the renewal of license is
disapproved.

Currently, under the Notification of the Ministry of Public Health,
surgical rubber gloves, latex medical gloves and condoms are medical
devices for which the producers and importers shall be licensed. As a
result, the production of such products which are made of rubber latex
shall be licensed under the Medical Device Act. In addition, the
production of latex gloves and condoms shall meet the standard as
prescribed in the law.

License and Rules under the Factory Act

According to the Factory Act B.E. 2535 (A.D. 1992) (as amended) (the
“Factory Act”), prior to the commencement of production of a rubber
factory, the production of concentrated rubber latex, rubber blocks,
rubber sheets or rubber crepes which use the machinery with over 50
horse power shall be licensed by the Ministry of Industry. In addition,
the producers shall comply with the requirements under the Factory Act
covering (1) location, environment, building structure and internal
components of factories; (2) specification or type of machinery and
equipment used in production; (3) rules on employees; (4) pollution
control (including waste water treatment and noise control); and (5)
rules on safety measures. A license to operate a factory is generally
valid for five years from the date of the commencement of operations.
The licensed producers shall file an application for renewal of license
within 60 days prior to the expiration date. Such license may be renewed
for a period of five years and the producers shall comply with all
relevant conditions. Each licensed factory shall annually prepare and
file a report on environment assessment to the Ministry of Industry.

License under the Public Health Act

According to the Public Health Act B.E. 2535 (A.D. 1992) (as amended),
the activities of washing, smoking, baking and collection of raw rubber
are considered as health threatening activities and the producers shall
be licensed by the local authorities prior to the operations. A license
shall be valid for one year from the date of issuance. The licensee
shall file an application for renewal of license and have paid the
relevant fees prior to the expiration date. In the case of revocation of
license, the producers may re-apply for a new license upon the lapse of
one year from the date of such revocation.

4.7.3 Indonesia

We hold various licences issued by, among others, the Capital Investment
Coordinating Board, the Department of Trade and the Department of
Manpower, including an industrial business licence from the Capital
Investment Coordinating Board and a licence for the storage of hazardous
and waste disposal as set out in Decree No. 104/2009. We are required to
comply with the Environmental Monitoring Efforts Report and Management
Efforts Report.

[1] Based on our sales volume of Natural Rubber Products of
approximately 975,604 tons for the financial year ended 31 December 2012
and the total global demand for Natural Rubber Products of approximately
10,947,000 tons in 2012. (Source : International Rubber Study Group
(IRSG), The World Rubber Industry Outlook, Review and Prospects to 2022,
December 2012)

[2] Comprises 19 processing facilities which produce Natural Rubber
Products and one processing facility which processes cup lump for the
production of TSR.

[3] Based on our sales volume of Nutural Rubber Products of
approximately 975,604 tons for the financial year ended 31 December 2012
and the total global demand for Natural Rubber Products of approximately
10,947,000 tons in 2012.