Khonburi Sugar Public Company Limited (Kbs)
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-Information Memorandum- KHONBURI SUGAR PUBLIC COMPANY LIMITED (KBS) Head Office: 164 Soi Sukhumvit 23 (Prasarnmit) Sukhumvit Rd, Klongtoey Nua, Wattana, Bangkok 10110 Tel: (662) 260-4951 Fax: (662) 260-4950 Website: www.kbs.co.th Factory Location: 289 Moo 13 Jarakhe-hin, Khonburi, Nakornratchasima 30250 Thailand Tel: (664) 444-8338 Fax: (664) 444-9020 Listing Date As at 27 May 2011 (Trading commencement on 27 May 2011) Listing Securities 500,000,000 ordinary shares with a par value Baht 1 per share, totaling Baht 500,000,000 Company’s Capital As at 27 May 2011(Trading commencement date) Registered capital Ordinary shares: Baht 500,000,000 Paid-up capital Ordinary shares: Baht 500,000,000 Secondary Market Stock Exchange of Thailand (the “SET”) Offering Price Baht 9.1 per share The Company offers 150,000,000 new common shares and existing shareholders offer 26,000,000 existing common shares. Existing shareholders that offer to sale include: Kosol Nuntileepong 6,500,000 shares Tarinee Sermleelatham 6,500,000 shares Kan Tawiltermsup 6,500,000 shares Teerawat Tawiltermsup 6,500,000 shars Offering Dates 19, 20 and 23 May 2011 Use of Proceeds Approximate Amount Use of Proceeds (Baht millions) 1. Expansion of electricity business 500.0 2. Sugar production capacity expansion and investment in machine development and 400.0 breeding project 3. Working Capital 465.0 Total 1,365.0 Green Shoe Option -None- Type of Business and Nature of Operation Khonburi Sugar Public Company Limited was established in 1965. The Company produces sugar from sugarcane. Sugars that the Company produced include refined sugar, white sugar, brown sugar, and raw sugar. At present, the Company business can be divided into two businesses including 1) sugar production and distribution business and 2) business related to by-products from sugar production process. As a sugar manufacturer, the Company is fully integrated sugar company, operating as producer and distributor both domestically and internationally. Revenue from sugar sales is the main revenue for the Company, representing approximately 80% of the Company’s total revenue. Most of the revenues from the business related to by-products from sugar production process include revenue from selling molasses, revenue from selling electricity to Provincial Electricity Authority (PEA) and revenue from selling agricultural equipment to farmers. The Company has three subsidiaries. One subsidiary has started its operation while two other subsidiaries were founded to support the Company’s future projects. The subsidiary that is operational is Agricultural Machines Service Co., Ltd. which provides agricultural machine service for sugarcane farmers. Subsidiaries founded to support future projects are Khonburi Power Plant Co., Ltd. and Khonburi Bio Energy Co., Ltd. Khonburi Power Plant Co., Ltd. was founded to support electricity generation project with bagasses as feedstock. Currently, Khonburi Power Plant has already installed new 15MW turbine generator for the project. Khonburi Bio Energy Co., Ltd. was founded to support ethanol production project with molasses as feedstock. Khonburi Bio Energy Co., Ltd. has no operation presently. If there are positive factors in the future such as gasoline price, government policy regarding renewable energy etc., Khonburi Bio Energy will consider investment in this business again. Revenue Structure The revenue structure of the Company for fiscal year 2008, 2009, 2010 and the first quarter of 2011 (the Company’s accounting period starts from October 1st and ends on September 30th) are as followed:- (Unit: million Baht) Fiscal Year 2008 Fiscal Year 2009 Fiscal Year 2010 Q1 Fiscal Year 2011 1. Revenue from Sugar Sales Domestic 695.9 825.4 936.6 211.9 International 1,675.4 1,824.9 3,019.7 - Total 2,371.3 2,650.3 3,956.3 211.9 2. Revenue from Molasses Sales Domestic 180.9 284.2 388.5 57.3 International 23.1 9.6 0.0 - Total 204.0 293.8 388.5 57.3 3. Revenue from others sales . Electricity 45.9 42.2 66.9 3.4 Other Sales and Services* 263.3 176.6 271.4 51.8 Total 309.2 218.8 338.3 55.2 Total Revenue from Sales and Services 2,884.3 3,162.9 4,683.0 324.3 Note: -Other sales and Services revenue include revenue from gasoline sold to farmers’ trucks that deliver cane to the factory and revenue from agricultural products sales such as fertilization and agricultural tools Distribution Channels In domestic market, the Company distributes sugar through four main channels which are 1) Industrial customers, 2) Modern trade customers, 3) Wholesalers and 4) Direct sales to end consumers According to the Sugar Cane and Sugar act of 1984, a sugar company can export sugar only through authorized export companies. Khonburi Sugar PCL. appointed The Thai Sugar Trading Corp. Ltd. as its export agent. The Company is responsible for negotiating with its customers overseas while The Thai Sugar Trading Corp. Ltd. is responsible for exporting, documenting, and collecting money from the Company’s customers overseas. All company’s overseas customers are large international traders. For the distribution of by-products from sugar production process, the Company sells molasses to ethanol manufacturers and to customers in the food industry. For electricity, the Company only sells electricity to the Provincial Electricity Authority (“PEA”). Sources of Supply The Company buys sugarcane from farmers in the area close to the factory for its sugar production. Normally, the Company will give financial support to the farmers to sponsor the plantation of sugar cane. The sum given to farmers is considered as advance payment for the purchases of sugar cane. During the harvest season, farmers will deliver sugar cane to the Company to offset the advances received. The Company believes sugar cane procurement is an important part of the business because sugarcane is the Company’s main raw material for its sugar production. Thus, the Company established supporting offices located within the factory’s proximity, where agricultural specialists are positioned to provide agricultural knowledge and promote the plantation of sugar cane. Market Competition As sugar is considered as necessary commodity, the Company is able to sell as much sugar as it can produce. Therefore, the competition within the industry is not as intensive as in the other industries. Normally the sugar factories have high fixed cost and thus, sugar companies have to secure as much as sugarcane they can to reduce cost per unit. Competition among sugar factories is more towards the competition to secure raw material. Sugar companies that have factory located close to the Company’s factory include Surin Sugar Co., Ltd., Korach Industry Co., Ltd., Burirum Sugar Co., Ltd., and Anvian Industry Co., Ltd. Environmental Impacts The Company has limited residuals from its production process because by-products from production process such as bagasse, filter cake and molasses can be used for other purposes. The company adopts a close water system. Thus, the wastewater will not be discharged outside. The company burns bagasse in its electricity generation process with might involve dust emission. However, the Company has controlled to ensure that the air quality is within the industrial standards. Summary of Material Contracts Power purchase agreement VSPP-PEA 077/2550 between Khonburi Sugar Company Limited (“Electricity producer”) and Provincial Electricity Authority (“Electricity authority”) signed on December 3rd, 2007 and modifying contract agreement VSPP-PEA 077/2550 no.1 signed on October 21st, 2009. Electricity producer, considered as a very small power producer (VSPP), agrees to supply electricity at the maximum limit of 8 MW at 22,000 Volt to the specified electricity authority. The length of the contract is one year after the signing date, and it will be automatically renewed every year until the contract is terminated. The electricity producer can cease the contract by submitting the letter stating the intention to cease the contract to the electricity authority. If one of the parties violates terms and conditions specified in the contract, the other party shall send the letter to notify the other party regarding the violation. If the violating party does not take action to remedy the event of violation, the other party can terminate the contract. Feasibility Study -None- Technical and Management Assistance -None- Future Projects Khonburi Sugar Public Company Limited holds 99.9% shares of Khonburi Power Plant Co., Ltd, which has been established to operate the electricity generation project with bagasses as feedstock. Khonburi Power Plant Co., Ltd will buy bagasse from Khonburi Sugar Public Company Limited. The electricity produced by Khonburi Power Plant Co., Ltd, will be sold to the Provincial Electricity Authority and to Khonburi Sugar Public Company Limited. The total electricity output is approximately 15 MW. In addition, Khonburi Power Plant Co., Ltd will also sell water streams to Khonburi Sugar Public Company Limited. The investment for the project is expected to be Baht720 million which will use debt and equity in the ratio of 75:25. The Company has already purchased and installed new 15 MW turbine generator. The Company is under consideration for purchasing boiler. Khonburi Power Plant Co., Ltd. is expected to be able to generate electricity within fiscal year 2013. Related Party Transactions 1. Transactions with shareholders 1.1 Transactions with Mr.Somkiat Twiltermsup Mr.Somkiat Twiltermsup is an authorized director and holds approximately 9% of the company’s shares and holds 7.8% of Khonburi Capital Co., Ltd’s shares. Khonburi Capital Co., Ltd holds 37.1% of the company’s shares. 1.1.1 Director Loan - Agriculture Machine Services Co., Ltd. borrows Baht 2,000,000 from Mr.Somkiat Twiltermsup to finance its working capital. The loan agreement required no interest. Agriculture Machine Services Co., Ltd. fully repaid this director loan on November 26th, 2010.