ANNUAL REPORT 2016 Annual Report 2016
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TICON Industrial Connection Public Company Limited TICON Industrial Connection Public Company Limited ANNUAL REPORT 2016 Annual Report 2016 Suite 1308, 13/1th Floor, Sathorn City Tower 175 South Sathorn Road, Thungmahamek, Sathorn, Bangkok 10120 Thailand Tel: (662) 679-6565 Fax: (662) 287-3153 www.ticon.co.th CONTENT 2 Message from the Chairman of the Board 49 Key Risks 4 Report of the Audit Committee on Corporate Governance 52 Shareholding Structure 6 Report of the Company Risk Management Committee 53 Management 7 Financial Highlights 70 Corporate Governance 8 Factory & Warehouse 89 Internal Control and Risk Management 10 TICON Social Responsibilities 93 Connected Transactions 14 Board of Directors and Management 97 Management Discussion and Analysis 22 General Information 114 Statement of Directors’ Responsibilities Concerning 26 Overview of Business the Company’s Financial Report 34 Nature of Business 115 Financial Statements 201 Certication of the Accuracy of Auditors’ Remuneration CONTENT 2 Message from the Chairman of the Board 49 Key Risks 4 Report of the Audit Committee on Corporate Governance 52 Shareholding Structure 6 Report of the Company Risk Management Committee 53 Management 7 Financial Highlights 70 Corporate Governance 8 Factory & Warehouse 89 Internal Control and Risk Management 10 TICON Social Responsibilities 93 Connected Transactions 14 Board of Directors and Management 97 Management Discussion and Analysis 22 General Information 114 Statement of Directors’ Responsibilities Concerning 26 Overview of Business the Company’s Financial Report 34 Nature of Business 115 Financial Statements 201 Certication of the Accuracy of Auditors’ Remuneration 2 Annual Report 2016 Message from the Chairman of the Board for the Year 2016 Owing to the increased investors’ confidence in the Thai two other business partners, namely Surya Semesta economy which registered a GDP growth of 3.2% in 2016 Internusa and Mitsui & Co., increased investment in as compared with 2.9% in 2015, overall demand for Indonesia as it is constructing two built-to-suit warehouse factory and warehouse space increased noticeable in facilities, at Kalimantan and Sulawesi, for lease to one 2016. The demand was also underpinned by the increase tenant. Construction of both facilities is expected to be in foreign direct investments following the more attractive completed in 2017. stimulus package offered by Thailand’s Board of Investment under the country’s Digital Economy Policy In the fourth quarter of 2016, our subsidiary company, or Thailand 4.0. TICON also benefitted from this TICON Logistics Park (“TPARK”), set up a joint venture development as our new factory and warehouse space with Prospect Development Company Limited. The new lease in 2016 increased significantly from last year. With joint venture company was named TPARK BFTZ more than half of the new leased warehouses in 2016 Company Limited and is a developer of built-to-suit were built to suit third party logistics business requirements, warehouse facilities for lease in the Bangkok Free Trade we expect to see demand for built-to-suit type of Zone area near Bangplee, Samutprakan. The project, warehouse continuing to grow in 2017 and are pleased which covers an area of 800 rai, has received strong to have, with the support from our new strategic interest of investors who have demand for built-to-suit shareholder, developed the built-to-suit capability ready warehouse space. TPARK holds a 60% stake in TPARK to capture this business opportunity. BFTZ while the remaining 40% belongs to Prospect Development Company Limited. Factory Lease TICON let out 60,175 square meters of new factory space Operational Result in 2016 while returned space from expiring warehouse In 2016, TICON deferred selling of assets to TICON REIT lease totalled 26,650 square meters bringing a net because TICON was about to finalize a deal with a potential increase in new leased factory space for 2016 of 33,525 strategic shareholder which will enable the company to square meters which was 91.3% increase over the new receive new funds from a capital increase in an amount leased factory space of 17,525 square meters in 2015. sufficient to finance TICON’s on-going working capital About two-thirds of the tenants of the new leased factory requirement, future business expansion as well as space in 2016 were supply chain manufacturers in the reducing debt to equity ratio from 2.16 times, estimated electronics, automobile, and auto parts industries. for the end of 2016, to just 0.34 times. As a result, TICON’s property sales income in 2016 was lower at 251 Warehouse Lease million Baht. In 2016, demand for new warehouse space mostly came from third party logistics providers. Approximately 55% TICON managed to grow its rental and related service of the 122,858 square meters of new warehouse space income from 1,048 million Baht in 2015 to 1,172 million in 2016 were leased to them. Manufacturers of food and Baht in 2016, giving a 12% increase. With additional beverages accounted for about 16% whilst E-commerce income from sales of undeveloped land in the fourth business accounted for another 6% of the total new quarter, income from sales of investment in unit trusts in leased warehouse space. Nearly 32% of the tenants of the the first quarter, and property management fee income new leased warehouse space in 2016 were German in 2016 totaling 737 million Baht, TICON’s total revenues companies followed by Thai tenants in second place at 25%. in 2016 were 1,873 million Baht. Consequently, the company’s net profit for the year was 278 million Baht; Investment Activity a 64% drop from the net profit in 2015. In 2016, TICON invested a total of 1.86 billion Baht in construction of factory and warehouse buildings. No land Strategic Development and Business Outlook was bought during the year. A development that was significance and will be beneficial for TICON to achieve sustainable growth in the PT SLP Surya TICON Internusa (or “SLP”), which is the long run took place in the fourth quarter of 2016 when joint venture company in Indonesia between TICON and Frasers Property Holding Thailand Company Limited Message from the Chairman of the Board 3 (or “FPHT”) acquired approximately 40% of TICON’s the economy will increase demand for warehouses and shares by subscribing to 735 million new shares issued distribution centers, especially the on-line trades which by TICON. The capital increase was completed and could see substantial growth in 2017. TICON received payment for the new shares totaling 13.2 billion Baht from the new investor, FPHT, on January 16, 2017. Last, but not least, as Chairman of the Board, I would like to thank our shareholders and business allies for their FPHT is a company in the Group led by Frasers continuous support for TICON, and thank our Board of Centrepoint Limited (or “FCL”) which is a listed on Directors, management executives, and employees for Singapore’s stock market and is a developer of industrial, their collective efforts and hard work in making 2016 housing, commercial, and retail properties in Singapore, another successful year for TICON. I believe that with the Australia, China, UK, Thailand and Vietnam. FCL also has strengths of all shareholders and management team, the extensive experience and expertise in developing and much stronger financial structure of the company and managing large scale factory and high quality logistics the revised business strategy TICON will become one facilities in the Australian market. of the leading developers and providers of international standard quality factories and warehouses together with FPHT, as TICON’s major shareholder, will support TICON effective total solution for its customers and be able to in every area of business - finance, marketing, and achieve a sustainable growth in the long run. networks within and outside Thailand. Experienced industrial property professionals will be brought in from FCL Group to join TICON’s management team and share their knowledge with TICON’s staff on how to develop built-to-suit warehouse facility for modern logistics business and how to effectively provide total business solution for factory and warehouse customers both in Thailand and overseas which should give TICON the competitive edge over every competitor. Subsequent to the share acquisition by FPHT, the new (Mr. Chainoi Puankosoom) strategic shareholder, TICON has revised its business Chairman of the Board strategy from only leasing factory and warehouse buildings to providing Total Solutions for the Factory and Warehouse tenants. TICON now has a full range of products and services to accommodate all the industrial property needs of each customer. The revised strategic plan will capitalize on the strengths and network of FPHT and emphasize development of built-to-suit warehouse to capture increasing market demand. With respect to overseas expansion, It can be expected that FPHT and FCL Group’s network will be instrumental for TICON to seek more investment opportunities in AEC countries other than just Indonesia. TICON anticipated that the domestic economy will continue to recover in 2017 and the manufacturing industry’s excess capacity in Thailand will correspondingly decrease thereby investors will soon begin to expand capacity again. However the conventional labor intensive type of production facility will be transformed to use more automation and robots which will result in more demand for larger factory and warehouse space. More trades in 4 Annual Report 2016 Report of the Audit Committee on Corporate Governance for the Year 2016 To: The shareholders of TICON Industrial Connection Public Company Limited TICON’s Audit Committee Which was appointed by the Company’s Board of Director is comprised of experts with relevant work experience in business administration and finance. The Committee is independent and qualifies in accordance with the corporate governance guideline for Audit Committee.