ICHITAN GROUP Public Company Limited Contents Message from Chairman Financial Highlights General Information Board of Directors Executive Committee Profiles of Directors and Executive Committee Members Profiles of Company Secretary and Internal Audit Head 2014 Highlights Social and Environmental Responsibility Business Policy and Overview Nature of Business Risk Factors Operating Assets Legal disputes Information of Securities and Shareholders Management Structure Corporate Governance Corporate Social Responsibility Internal Control and Risk Management Related-Party Tracsaction Management Discussion and Analysis Report of the Audit Committee Report of the Nomination and Remuneration Committee Report of the Board of Directors’ Responsibility for the Financial Reporting Financial Statement 02 04 06 08 10 11 21 22 24 26 31 42 45 62 63 66 82 93 109 112 127 135 136 137 138 Message from Chairman Dear shareholders, It is probably not right to say that Ichitan’s growth in the year 2014 is an unprecedented growth. In 2014, we earned Baht 6,179 million in revenue at the production capacity of 1 billion bottles of drinks which will be increased to 1.2 billion bottles in 2015. Completing the construction of our factory which is recognized as one of the factories with the most advanced technology in Thailand. Stepping up as No.1 leader in the ready-to-drink tea market. Listing on the Stock Exchange of Thailand. Adding Bireley’s drink to our production line of green tea and herbal tea drinks. Partnering with our regional and global alliances to build “Ichitan Indonesia” …All of these were materialized within just 1 year. So… It is not right to say that Ichitan’s growth 2014 was unprecedented. Because Ichitan has witnessed big leaps of growth every year,And this is the fourth successive years of impressive success. ANNUAL REPORT 2014 Because Ichitan has witnessed big leaps of growth every year, And this is the fourth successive years of impressive success. Challenging and seemingly impossible goals were achieved and new records were set again and again. Thanks to the devotion and commitment of all employees of Ichitan. With less than 400 staff members, our united effort has proven to be more than enough to conjure a miracle. Next year will see more challenges...from the new market frontier. Our opportunities will extend from over 60 million people in Thailand, To 600 million people from all AEC countires. I really do hope that the devotion and effort of our management team and the employees, Together with the confidence of all our shareholders in Ichitan, Will be the wind beneath our business wings and make miracles happen for Ichitan again. On behalf of the Board of Directors, I would like to thank all our shareholders, customers, executives, employees, partners, financial institutions, the press, and related public and private agencies for their continued support for the Company. Please be assured that we will solidly grow our business and take our company to another level of sustainable success and growth in the beverage market. We hold firmly to the principles of corporate governance, transparency, and responsibilities towards the society and the environment and concurrently create the best value for our shareholders. Tan Passakornnatee Chairman and CEO Financial Highlights Unit 2012 2013 2014 STATEMENTS OF COMPREHENSIVE INCOME (Million Baht) 4,483 6,532 6,209 (Million Baht) 3,653 5,648 5,189 (Million Baht) 830 884 1,020 (Million Baht) 306 884 1,079 Total Assets Total Liabilities Shareholders’ Equity STATEMENTS OF CASH FLOWS (Million Baht) (Million Baht) (Million Baht) 5,205 4,224 1,074 6,541 4,573 1,968 9,008 2,813 6,195 Cash Flows From Operating Activities (Million Baht) 220 951 1,473 Cash Flows From Investing Activities (Million Baht) -1,536 -1,492 -2,475 Cash Flows From Financing Activities (Million Baht) 1,213 589 1,070 Increase in Cash and Cash Equivalents - Net (Million Baht) -103 48 68 1.0 0.88 0.89 Total Revenues Total Expenses Profit Before Income Tax Expenses Profit for the Years STATEMENTS OF FINANCIAL POSITION FINANCIAL RATIO Earnings per Share : EPS 4 Operating Profit Margin (%) 9.6 15.4 18.0 Gross Profit Margin (%) 26.6 31.8 34.2 Net Profit Margin (%) 7.7 13.5 17.4 Current Ratio (X) 0.7 1.2 1.9 Return on Equity : ROE (%) 50.7 66.7 26.4 Return on Assets : ROA (%) 8.2 15 14 Debt to Equity ratio : D/E (X) 3.9 2.3 0.5 Account Receivable Turnover : A/R Turnover (Times) 11.4 10.2 7.2 Average Collection Period (Days) 31.7 35.2 50.1 Inventory Turnover (Times) 15.80 17.0 13.0 Average Inventory Period (Days) 22.8 21.20 27.0 Accounts Payable Turnover (Times) 9.9 12.5 10.1 Average Payment Period (Days) 36.3 28.9 35.8 Cash Cycle (Days) 18.20 27.6 41.3 ANNUAL REPORT 2014 Net Profit (Million Baht) 1,000 5,000 800 600 3,000 1,000 200 - 2014 2012 2014 Net Profit Margin 34% 25% 20% 27% 15% 10% 5% 2013 2014 2012 2013 2014 Return on Equity (ROE) 26% 80% 70% 60% 50% 40% 30% 20% 10% - 67% 2012 51% 40% 35% 30% 25% 20% 15% 10% 5% - 32% Gross Profit Margin 2013 17% 2013 14% 2012 306 400 2,000 8% 4,000 3,907 6,000 1,079 1,200 884 7,000 6,179 6,484 Sale Revenue (Million Baht) 2012 2013 2014 5 General Information Company Name Symbol Registration Number Industry Sector Type of Business Head Office Ichitan Factory : : : : : : Ichitan Group Public Company Limited (“ICHI”) ICHI 0107556000485 Agro & Food Industry Food & Beverage The Company manufactures and sells ready-to-drink green tea, functional drink, ready-to-drink black tea, herbal drink, and lowsugar tea under the brands of Ichitan Green Tea, Ichitan Double Drink, Ichitan Dragon Black Tea, Yen Yen by Ichitan, and Ichitan Selected, respectively. : 2922/301, Charn Issara II Building., 28th Floor, New Pethchburi Road, Bangkapi, Huaykwang, Bangkok, 10310 Telephone 0-2716-5555, Fax 0-2716-7000 : Ichitan Green Factory, Rojana Industrial Park Zone 3, 111/1 Moo 4 Uthai, Ayutthaya, 13210 Registered Capital Paid-up Capital Company Secretary : : : Investor Relations : Telephone 035-2761111, Fax 035-276123 Baht 1,300,000,000 (one billion and three hundred million baht) Baht 1,300,000,000 (one billion and three hundred million baht) Telephone 02-716-5555 Ext. 701 E-mail : [email protected] Telephone 02-716-5555 Ext. 912 E-mail : [email protected] General Information of Co-Venturer Company Name Registration No. Type of Business Office 6 : PT Ichitan Indonesia Company Limited : 4014112536103886 : Manufacturing and distributing ready-to-drink beverage branded Ichitan : Jl. MH. Thamrin No.9, Kel. Cikokol, Kec. Tangerang, Tangerang 15117, Banten Telephone Registered Capital : 021-55755951 : IDR 400,000 million (approximately Baht 1,184.0 million) Paid-up Capital : IDR 100,000 million ANNUAL REPORT 2014 References Registrar Certified Public Accountant : Thailand Securities Depository Company Limited (TSD) 62, The Stock Exchange of Thailand Building, 4th, 6th and 7th Floors, Ratchadapisek Road, Klongtoey, Bangkok 10110, Telephone 02-229-2800 : KPMG Phoomchai Audit Limited 1, Empire Tower, 50th-51th Floors, South Sathorn Road, Yannawa, Sathorn, Bangkok, 10120, Telephone 02-677-2000 7 Board of Directors 1. Mr. Tan Passakornnatee Chairman of the Board 2 8 3 5 4 6 8 7 9 10 ANNUAL REPORT 2014 2. Mrs. Eng Passakornnatee 3. Mr. Chiu Yueh-Chin 4. Mr. VirojSupasoon 5. Mr. Tanapan Khongnuntha 6. Ms. Araya Panichayanon 7. AVM.Nathawat Nimmolthanakorn 8. Mr. Prasan Limpipatanakul 9. Mr. Issarachai Decharit 10. Mr. Apichat Sukachirawat Director Director Director Director Director Independent Director Independent Director Independent Director Company Secretary 9 Executive Committee 1. Mr. Tan Passakornnatee 3 5 1 2 4 2. 3. 4. 5. 10 Chairman of the Board Mrs. Eng Passakornnatee Director Mr. Preecha Augcharanonda Director Mr. Viroj Supasoon Director Mr. Tanapan Khongnuntha Director Profiles of Directors and Executive Committee Members ANNUAL REPORT 2014 01 Name-Surname Position Mr. Tan Passakornnatee Chairman of the Board / Chairman of the Executive Committee and CEO Age (years) 55 Nationality Thai Education • Honorary Doctorate, Ramkhamhaeng University • Honorary Doctorate, Business Administration, Suratthani Rajabhat University • Honorary Doctorate, Lampang University Training • DAP 12/2004, Thai Institute of Directors Association Shareholding (%) 13.85 (as of 28 August 2014) Family Relationship with Executive • Spouse of Mrs. Eng Passakornnatee Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Chairman of the Board / Chairman of the Executive Committee and CEO Ichitan Group Pcl. 1999 - 2010 • Director and Managing Director Oishi Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand Present • • • • • • • • • • • • Director Eng and Eng Sriracha Asset Co., Ltd. Director Tan and Tan Sriracha Asset Co., Ltd. Director Eng Tan Asset Co., Ltd. Director Tanboon Co., Ltd. Director Japanese Prime Restaurants Management Co., Ltd. Director DST Asset Co., Ltd. Director Tan and Tan Asset Co., Ltd. Director Diew Diew Kub Tan Co., Ltd. Director Gluay Gluay Co., Ltd. Director Passakornnatee Co., Ltd. Director Ichipung Co., Ltd. Director Tan Eng Asset Co., Ltd. 11 Work Experience : Positions in companies listed on the Stock Exchange of Thailand 02 Present • Director, Member of the Executive Committee and Senior Executive Vice President Ichitan Group Pcl. 1999 - 2010 • Director and Deputy Managing Director Oishi Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand Present • • • • • Name-Surname Mrs. Eng Passakornnatee Position Director / Member of the Executive Committee / Member of the Risk Management Committee / Member of the Nomination and Remuneration Committee and Senior Executive Vice President Age (years)44 Nationality Thai Education • Bachelor of Business Administration (Finance), Bangkok University • Master of Business Administration, Ramkamhaeng University Training • • • • • • • • • • • • • • • • • • • • DAP 12/2004, Thai Institute of Directors Association • • DCP 44/2004, Thai Institute of Directors Association • Shareholding (%) 9.23 (as of 28 August 2014) Family Relationship with Executive 12 • Spouse of Mr. Tan Passakornnatee Director Eng and Eng Sriracha Asset Co., Ltd. Director Tan and Tan Sriracha Asset Co., Ltd. Director Eng Tan Asset Co., Ltd. Director Tanboon Co., Ltd. Director Japanese Prime Restaurants Management Co., Ltd. Director DST Asset Co., Ltd. Director Tan and Tan Asset Co., Ltd. Director Diew Diew Kub Tan Co., Ltd. Director Gluay Gluay Co., Ltd. Director Passakornnatee Co., Ltd. Director Ichipung Co., Ltd. Director Wedding Business Consultant Co., Ltd. Director Thank You Service Co., Ltd. Director T.Y Marriage Studio Co., Ltd. Director Tokiya Co., Ltd. Director My Memory Studio Co., Ltd. Director Your Studio Co., Ltd. Director Modern Wedding Studio Co., Ltd. Director Victoria Wedding Professional Co., Ltd. Director The Classic Studio Co., Ltd. Director White Mary Studio Co., Ltd. Director Beloved Studio Co., Ltd. Director Mary Me Wedding Studio Co., Ltd. Director Mu Tierra Wedding Gown and Planner Co., Ltd. Director Kin Kub Tan Co., Ltd. Director Tan Eng Asset Co., Ltd. ANNUAL REPORT 2014 03 Name-Surname Mr. Chiu Yueh-Chin Position Director and Factory Consultant Age (years) 53 Nationality Taiwanese Education • Bachelor of Mass Communication (Journalism and Print Media), Shih Hsin University Training • None Shareholding (%) 4.83 (as of 28 August 2014) Family Relationship with Executive • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand 2011 - Present • Director and Factory Consultant Ichitan Group Pcl. 1999 - 1994 • Director and Member of the Executive Committee Oishi Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand Present • Director Wedding Business Consultant Co., Ltd. • Director Thank-You Service Co., Ltd. 1993 - 1994 • Manager, Franchise Sale Sew Wi Zu Sue Lian Tsaw Co., Ltd. 13 04 Name-Surname Mr. Viroj Supasoon Position Director / Member of the Executive Committee / Member of the Risk Management Committee and Executive Vice President, Factory Department Age (years) 49 Nationality Thai Education • Bachelor of Science, Microbiology, Kasetsart University Training • DAP 106/2013, Thai Institute of Directors Association Shareholding (%) 0.56 (as of 28 August 2014) Family Relationship with Executive • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Director, Member of the Executive Committee and Executive Vice President, Factory Department Ichitan Group Pcl. 2011 • Executive Vice President, Factory Department Ichitan Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand 2004 - 2011 • General Manager Oishi Trading Pcl. 1998 - 2004 • Factory Manager Foremost Friesland (Thailand) Co., Ltd. 1997 - 1998 • Project Manager Dairy Plus Co., Ltd. 1989 - 1997 • Production Manager Foremost Friesland (Thailand) Co., Ltd. 1987 - 1989 • Production Team Head Dutch Mill Co., Ltd. 14 05 ANNUAL REPORT 2014 Name-Surname Mr. Tanapan Khongnuntha Position Director/Member of the Executive Committee/Member of the Risk Management Committee and Executive Vice President, Beverage Business Age (years)40 Nationality Thai Education • Bachelor of Science in Agribusiness Management, King Mongkut’s Institute of Technology Ladkrabang • Master of Business Administration, Ramkhamhaeng University Training • DAP 106/2013, Thai Institute of Directors Association Shareholding (%) 0.52 (as of 28 August 2014) Family Relationship with Executive • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Director/ Member of the Executive Committee and Executive Vice President, Beverage Business Ichitan Group Pcl. 2004 - 2006 2011 • Commercial Marketing Manager Oishi Group Pcl. • Executive Vice President, Beverage Business Ichitan Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand 2010 • Department Director (Marketing), Beverage Business Oishi Group Pcl. 2008 - 2010 2006 - 2007 • General Manager, Marketing Department Klang Plaza Jomsurang Co., Ltd. • Assistant Director (Marketing), Beverage Business Oishi Group Pcl. 2007 - 2008 • Marketing Manager, Beverage Business Oishi Group Pcl. 15 06 Name-Surname Ms. Araya Panichayanon Position Director and Deputy Financial Director Age (years) 39 Nationality Thai Education • Bachelor of Business Administration (Finance), Thai Chamber of Commerce University Training • DAP 106/2013, Thai Institute of Directors Association Shareholding (%) 1.61 (as of 28 August 2014) Family Relationship with Executive • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Director and Deputy Financial Director Ichitan Group Pcl. 2011 • Deputy Financial Director Ichitan Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand Present • Director Lopburi Inn Plaza Co., Ltd. • Director Diew Diew Kub Tan Co., Ltd. 2011 - 2013 • Director I Am Green Tea Co., Ltd. (formerly Ichitan Trading Co., Ltd.) 1999 - 2011 • Manager, Finance Department Wedding Business Consultant Co., Ltd. 16 07 ANNUAL REPORT 2014 Name-Surname AVM. Nathawat Nimmolthanakorn Position Independent Director / Chairman of the Audit Committee and Member of the Risk Management Committee Age (years) 64 Nationality Thai Education • Bachelor of Education (Secondary Education), Srinakharinwirot University Training • DAP 106/2013, Thai Institute of Directors Association • AACP 16/2014, Thai Institute of Directors Association Shareholding (%) None Family Relationship with Executive • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Independent Director, Chairman of the Audit Committee and Member of the Risk Management Committee Ichitan Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand 2007 - 2012 • Manager Royal Thai Air Force Headquarters Savings Cooperatives Limited 2005 - 2006 • Deputy Chief, Staff Officer to Commander-In-Chief, Royal Thai Air Force Royal Thai Air Force 2002 - 2005 • Deputy Director-General Directorate of Welfare 2000 - 2002 • Chief of Staff Directorate of Welfare 1994 - 1997 • Director, Welfare Store Division Directorate of Welfare 17 08 Name-Surname Mr. Prasan Limpipatanakul Position Independent Director/ Member of the Audit Committee and Member of the Nomination and Remuneration Committee Age (years) 58 Nationality Thai Education • Bachelor of Accounting, Chulalongkorn University • Master of Business Administration, Kasetsart University Training • DAP 106/2013, Thai Institute of Directors Association • AACP 16/2014, Thai Institute of Directors Association Shareholding (%) None Family Relationship with Executive • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Independent Director/ Member of the Audit Committee and Member of the Nomination and Remuneration Committe Ichitan Group Pcl. 2009 - 2014 • Deputy Managing Director Siam Commercial Samaggi Insurance Pcl. 2009 - 2014 • Member of the Executive Committee and Consultant Wongpaitoon Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand 2007 - 2009 • Executive Consultant Siam Ball Sport Factory Co., Ltd. 2002 - 2006 • Member of the Executive Committee and Consultant Siam Unisole Co., Ltd. 1999 - 2000 • Managing Director K. M. Foam Co., Ltd. 18 09 ANNUAL REPORT 2014 Name-Surname Mr. Issarachai Decharit Position Independent Director / Member of the Audit Committee and Chairman of Nomination and Remuneration Committee Age (years) 55 Nationality Thai Education • Bachelor of Laws, Chulalongkorn University • Thai barrister at law, Thai Bar Association Training • DAP 27/2004, Thai Institute of Directors Association • AACP 17/2014 Thai Institute of Directors Association Shareholding (%) None Family Relationship with Executive : • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Independent Director, Member of the Audit Committee , Chairman of Nomination Remuneration Committee Ichitan Group Pcl. 2003 - Present • Director ACAP Advisory Pcl. 1984 - 2003 • Senior Executive Vice President Thai Petrochemical Industry Pcl. Positions in companies not listed on the Stock Exchange of Thailand 2014 - Present • Director Global Service Center Co., Ltd. 2003 - Present • Director ACAP Consulting Co., Ltd. • Director ACAP Corporate Services Co., Ltd. • Director Capital OK Co., Ltd. • Director Professional Collection Co., Ltd. 2003 - 2014 • Director ACAP Asset Management Co., Ltd. 19 10 Name-Surname Mr. Preecha Augcharanonda Position Member of the Executive Committee and Executive Vice President, Accounting & Finance Age (years) 52 Nationality Thai Education • Bachelor of Accounting, Thammasat University • Master of Accounting, Thammasat University Training • DAP 106/2013, Thai Institute of Directors Association Shareholding (%) 0.12 (as of 28 August 2014) Family Relationship with Executive • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand Present • Member of the Executive Committee and Executive Vice President, Accounting and Finance Ichitan Group Pcl. 2013 - 2014 • Director Ichitan Group Pcl. 2011 • Executive Vice President, Accounting and Finance Ichitan Group Pcl. 2002 - 2011 • Department Director, Accounting and Finance Oishi Group Pcl. Positions in companies listed on the Stock Exchange of Thailand • None 20 ANNUAL REPORT 2014 Profiles of Company Secretary and Internal Audit Head Name-Surname Mr. Apichat Sukachirawat Position Company Secretary / Work Experience : Secretary to the Executive Committee / Secretary to the Risk Management Committee and Secretary to theNomination and Remuneration Committee Positions in companies listed on the Stock Exchange of Thailand Age (years) 49 Nationality Thai Education • Vice President, Accounting & Finance Ichitan Group Pcl. 2011 - Present 2002 - 2011 Training • Deputy Director, Accounting Department Oishi Group Pcl. Positions in companies not listed on the Stock Exchange of Thailand Shareholding (%) 1995 - 1998 • Bachelor of Accounting, Ramkhamhaeng University 1998 - 2002 • DAP 106/2013, Thai Institute of Directors Association • Accounting Manager Wedding Business Consultant Co., Ltd. • Company Secretary Program, Class 30 • Accounting Manager BKK (1985) Pcl. 0.45 (as of 28 August 2014) Family Relationship with Executive • None 1994 - 1995 • Accountant Thai-Denmark Swine Breeder Pcl. Name-Surname Mr. Sumol Hobumphen Position Internal Audit Manager Age (years) 37 Nationality Thai Education Family Relationship with Executive • Master of Science in Corporate Governance, Chulalongkorn University • Bachelor of Accounting, Rajamangala University of Technology, Phanakhon • Manager, Internal Audit Ichitan Group Pcl. Training • Certified public accountant, Federation of Accounting Professions Under the Royal Patronage of His Majesty the King • Endorsed Internal Auditing Program (EIAP), Class 9, Chulalongkorn University • Internal Auditing Program, Federation of Accounting Professions Under the Royal Patronage of His Majesty the King Shareholding (%) None • None Work Experience : Positions in companies listed on the Stock Exchange of Thailand 2013 - Present 2006 - 2009 • Assistant Manager, Internal Audit Thanulux Pcl. Positions in companies listed on the Stock Exchange of Thailand 2011 - 2013 • Manager, Internal Audit Perfect Engineering Service Pcl. 1999 - 2006 • Assistant Manager, Internal Audit Division Dr. Virach & Associates Office 21 2014 Highlights 21 April 2014 Ichitan Group Public Company Limited first listed and traded on the Stock Exchange of Thailand in the food and beverage sector of the agro and food industry under the stock ticker symbol of “ICHI”. 14 April 2014 • The Board of Directors approved the Company’s deal worth Baht 240 million to acquire Bireley’s trademark and beverage formula from Sunny Herb International Beverage Company Limited (Sunny) in 16 countries, i.e. Thailand, Cambodia, South Korea, Canada, Myanmar, the Philippines, Malaysia, Singapore, USA, China, India, Hong Kong, Bangladesh, Indonesia, Taiwan and Vietnam. • Approval was granted for the acquisition of land (76-1-60 rai) in Rojana Industrial Park in Ayutthaya worth Baht 244.9 million from Rojana Industrial Park Public Company Limited. • Investments in building construction and installation of systems, machine and equipment totaling Baht 1,295.1 million. • The 3 investment transactions mentioned above totaled Baht 1,780 million. 22 ANNUAL REPORT 2014 26 August 2014 • The Board of Directors approved the Company’s joint venture (JV) in Indonesia with PT Atri Pasifik (“AP”), an Indonesian company, at 50:50 with the initial investment of IDR 200,000 million (around Baht 592 million) each, representing the JV’s total registered capital of IDR 400,000 million (around Baht 1,184 million). • Approval was granted for the loan commitment for the JV worth IDR 141,250 million (around Baht 418.1 million), out of the total loan commitment of IDR 282,500 million (around Baht 836.2 million) to be granted to the JV by the shareholders in proportion to their equity in the JV. Loan drawdown is subject to the fulfilment of sales target conditions under the agreement and the JV’s construction of production plant in Indonesia. • Approval was granted for the investments in installation of systems, machine and equipment totaling Baht 750 million for the Phase 2 Capacity Increase Project of the production factory in Rojana Industrial Park in Ayutthaya. 27 August 2014 The Company signed a joint venture establishment agreement to establish a joint venture (JV) which will manufacture and sell ready-to-drink tea branched “Ichitan” in Indonesia. The Company has authorized the JV to use the Company’s trademarks and beverage formula. The joint venture agreement was made with AP to mutually agree on the JV structure, business operation, business management and administration, rights and duties of each shareholders, management of return on investment in the JV and applicable legal procedures. 29 December 2014 Mr. Chanitr Charnchainarong, Executive Vice President, Stock Exchange of Thailand (SET) congratulated executives of Ichitan Group Public Company Limited (ICHI), a ready-to-drink green tea beverage manufacturer and distributor, on the Company’s success as a constituent of the SET-100 index which will be effective from 1 January 2015. 23 Social and Environmental Responsibility Recognizing the significance of the betterment of society, community and environment, the Company is committed to address social and environmental needs and make meaningful contributions to needy communities to give back to the society. Following Thailand’s worst flooding in 2011, Mr.Tan Passakornnatee, the Chairman of the Board, was inspired to instill an awareness and respect for the natural environment among the public. Guided by the Greenovation concept, “Tan Land”, an education center worth more than Baht 50 million, has been established over 2,000 square meters of ICHI’s factory compound in Ayutthaya. Tan Land exists to tell the story of Ichitan, its glory and crisis, through hologram, 3D and interactive media to raise awareness for balancing business interests with environmental protection and disseminate knowledge beneficial for creating a world where the business, the society and the environment can prosper in harmony. In 2013, the Company donated a total of Baht 6 million in cash to hospitals nationwide which are in need of medical equipment and aspirators. In 2014, the Company gave priority to education which is a necessary foundation for every member of the society. However, a number of children have limited educational opportunities, especially small schools in rural areas of Thailand which did not receive adequate governmental support. Therefore, the Company is committed to building better educational access and foundation for deprived students and schools through the 2014 Ichitan Brings Smiles project which saw our employees’ active participation and contribution to CSR activities for local communities. The project brought benefits to not only underprivileged students in rural or remote areas but also to the Company’s sustainability and its employees’ sense of community. The Company made donation in cash and in kind to Kok Sa-nga School in Dong Nonkok Village of Pa-inplang Subdistrict, Erawan District, Loei Province to provide the school and its student with learning materials, sports equipment and funds for student scholarships and building construction. The school has 20 teachers/staff members and 144 students of different ages, from kindergarten to grade 9. Financial donations have been made to several entities such as Thairath Foundation, mobile breast cancer X-ray unit of Ayutthaya Provincial Health Office, Chiangrai ASEAN Flowers Festival, Pradabos Schools in Southern border provinces and charity rallies. The Company also contributed as a beverage sponsor for events and activities of many schools, educational institutes, public and private organizations and road show exhibitions. 24 ANNUAL REPORT 2014 Environmental Protection Cutting-Edge and Green Technology To pave the way to the greener future, the Company selected the most advanced and eco-friendly production technology for its Ichitan Green Factory which integrates the cutting-edge cold aseptic filling technology with the Greenovation design concept to showcase the equilibrium between business and respect for the nature. We strive to minimize the consumption of natural resources and energy by optimizing the use of recyclable materials and renewable energy to help preserve and restore the nature through our Ichitan Green Factory which is built for environmental friendliness. 25 Business Policy and Overview The Board of Directors of Ichitan Group Public Company Limited is vested with the authority to approve the Company’s vision, mission, strategies, goals and business plan and budget plan. The Board regularly meets to continuously monitor the Company’s performance and acknowledge key business progress and decisions implemented by the management team. In addition, monitoring mechanism and system have been put in place to facilitate effective supervision, monitoring and assessment of the management team’s execution to ensure accomplishment of short-term and long-term goals of the Company. Vision, Objective and Goal The Company is a mission-led business and aspires to be a leader in the quality beverage business and innovation and grow sustainably with the quality society. Mr. Tan Passakornnatee has consistently demonstrated strong commitment towards building a business that can solidly grow and make far-reaching contribution to the society betterment. To this end, the Company has strived to source the best and quality ingredients for our drinks from farms of hill tribes with an aim to create legitimate, self-sustaining jobs for these farmers as well as has invested in the renewable energy system of our production plant for a greener environment. Mission As a mission-led business, the Company aims to offer not only quality products to consumers but also meaningful contribution to the betterment of the society and the quality of life in synchronized pace with profitability growth. For Consumers : Ichitan aims to offer quality drinks which are good for the health of consumers to maximize their satisfaction. For Shareholders : Ichitan aims to foster innovation in our business undertaking to continuously enhance our operational efficiency, develop and expand our distribution channels, and tap into new business opportunities to optimize our profitability. For Society : Ichitan aims to be a role model of a socially responsible organization that gives For Employees : Ichitan aims to actively encourage its employees to continuously develop back to the society for the advancement of Thailand. themselves into professionals as the development will contribute to their better life quality and stronger sense of engagement with the organization. Vision Ichitan Group Public Company Limited aspires to be a leader in the quality beverage business and innovation and grow sustainably with the quality society. 26 ANNUAL REPORT 2014 Business Goals The Company aspires to be a leader in the quality beverage business and innovation and grow sustainably with the quality society. In the next 5 years, the Company will focus on the development of product quality and new products to expand our product variety, cater to the consumer demand growth, and enhance our competitiveness in context of the ASEAN Economic Community (AEC). The Company targets to introduce 3-4 new products each year through our in-house research and development projects and new brand acquisition as and when appropriate. As work process and operational efficiency improvement is one of our key priorities, the Company plans to integrate cutting-edge technology with our production platform to save time, enhance efficiency and contribute to the society. Major Change and Milestone Major milestones of the Company are as listed below: Timeline Milestones 2010 September 2010 • Established Mai Tan Co., Ltd. on 3 September 2010 with the registered capital of Baht 500 million and issued 5,000,000 ordinary shares at the par value of Baht 100 per share. November 2010 • Entered into an agreement to buy or sell land for a land property in Rojana Industrial Park in Ayutthaya Province with the area size of 75-3-80 for factory construction. • Applied for an investment promotion certificate and other licenses. December 2010 • Engaged a third party in the production of Ichitan Double Drink product and launched marketing and promotion campaign for the product. 2011 January 2011 • Introduced Ichitan Double Drink, a functional drink, in 420-ML package to the market. March 2011 • EGM No. 2/2011 of the Company approved the registered capital increase to Baht 600 million through the right issue by offering 6,000,000 ordinary shares at the par value of Baht 100 per share to existing shareholders. April 2011 • Earned the investment promotion certificate no. 1496(2)/2554 from the Board of Investment (BOI) 27 Timeline Milestones 2011 May 2011 • Introduced Ichitan Green Tea, a ready-to-drink green tea beverage, in 420-ML bottle package to the market. September 2011 • Started the test-run of the production lines which comprise 1 production line for bottle type and 1 production line for box type. October 2011 • Hit by the 2011 flood crisis which inflicted the financial damage worth Baht 1,180.6 million on the Company, partially offset by the initial insurance indemnity of Baht 600 million which reduced the net loss from flood recognized in 2011 to Baht 580.6 million. In the following year, the Company was paid the remaining indemnity of Baht 518.8 million from the insurer which was additionally recognized as income in 2012 (net of the loss from building and equipment amortization worth Baht 50.5 million in 2012) November 2011 • Changed the Company’s name to Ichitan Group Company Limited. 2012 January 2012 March-April 2012 • Introduced Ichitan Green Tea in 250-ML box package to the market. • Started the production line for bottle type in March and the production line for box type in April. July 2012 • Started a new production line for box type, increasing the production line for box type to 2. September 2012 • Started a new production line for bottle type, increasing the production line for bottle type to 2. • EGM No. 4/2012 of the Company approved the registered capital increase to Baht 1,000 million through the right issue by offering 10,000,000 ordinary shares at the par value of Baht 100 per share to existing shareholders. • Introduced Ichitan Dragon Black Tea, a ready-to-drink black tea beverage, in 420-ML package to the market. • Introduced Ichitan Green Tea in 840-ML package to the market. 2013 28 January 2013 • Divested the food business. February 2013 • Introduced Yen Yen by Ichitan, a cool herbal green tea drink, in 400-ML package to the market. March 2013 • Started a new production line for bottle type, increasing the production line for bottle type to 3. June 2013 • Introduced Yen Yen by Ichitan, a cool herbal green tea drink, in 250-ML box package to the market. ANNUAL REPORT 2014 Timeline Milestones 2013 July 2013 • EGM No. 2/2013 of the Company approved the conversion of the Company into a public limited company, the decrease of the par value from Baht 100 per share to Baht 1 per share, and the registered capital increase to Baht 1,300 million, divided into 1,300 million shares at the par value of Baht 1 per share. 2014 March 2014 • Introduced Ichitan Selected, a low-sugar tea drink, in 450-ML package to the market. • Introduced Yen Yen by Ichitan, a cool herbal green tea drink, in 240-ML slim can package to the market. April 2014 • Listed and traded on the Stock Exchange of Thailand. • Started a new production line for bottle type, increasing the production line for bottle type to 4. May 2014 • Acquired the Bireley’s trademark and beverage formula from Sunny Herb International Beverage Company. June 2014 • Discontinued Ichitan Double Drink functional beverage. July 2014 • Introduced Yen Yen by Ichitan, a cool herbal green tea drink, in 800-ML package (also known as Giant Yen Yen) to the market. • Invested in a joint venture in Indonesia. August 2014 • Introduced Yen Yen by Ichitan, a cool honey-mixed chrysanthemum drink, in 400-ML package to the market. • Introduced Yen Yen by Ichitan, a cool honey-mixed chrysanthemum drink, in 250-ML box package and 800-ML bottle package (also known as Giant Yen Yen honey-mixed chrysanthemum drink) to the market. September 2014 • Introduced a ready-to-drink honey and lemon green tea beverage, in 290-ML package to the market. • Introduced Ichitan Dragon Black Tea, a ready-to-drink mulberry-flavored black tea beverage, in 290-ML package to the market. November 2014 • Introduced a ready-to-drink lychee-flavored green tea beverage, in 420-ML package to the market. 29 Shareholding Structure Ichitan Group Public Company Limited operates beverage business, and manufactures and sells ready-todrink green tea beverage, ready-to-drink black tea beverage, herbal drink, and low-sugar ready-to-drink tea beverage, under the brands of Ichitan Green Tea, Ichitan Dragon Black Tea, Yen Yen by Ichitan and Ichitan Selected, respectively. On 27 August 2014, the Company entered into a joint-venture agreement with PT Atri Pasifik (“AP”), an Indonesian company, to establish a new entity named PT Ichitan Indonesia to manufacture and distribute ready-to-drink beverage branded “Ichitan” in Indonesia. The Company and AP will hold equal equity in the joint venture (50% of the total issued and sold shares of the joint venture). The investment is worth IDR 200,000 million (around Baht 575 million) in total and the Company already injected the initial capital of Baht 135.6 million, representing 50% of the JV’s paid-up capital. The JV has established since 25 November 2014 and thus, as of 31 December 2014, PT Ichitan Indonesia is a jointly controlled entity of the Company. Shareholding Structure Ichitan Group Public Company Limited (ICHI) Registered Capital: Baht 1,300 million. Paid-up Capital: Baht 1,300 million. 50% PT Atri Pasifik (Co-Venturer) PT Ichitan Indonesia Company Limited Registered Capital: IDR 400,000 million (Approximately Baht 1,184.0 million) Relationship with Business of Major Shareholder -None- 30 50% Nature of Bussiness ANNUAL REPORT 2014 History Ichitan Group Public Company Limited (hereinafter referred to as “the Company” or “Ichitan”) which was formerly known as “Mai Tan Company Limited” has been established since 3 September 2010 with the registered capital of Baht 500 Million to operate fusion Japanese-styled steak and food restaurant, Japanese-styled fresh chocolate shop business and beverage business. However, the Company divested its restaurant business in January 2013 to solely focus on the beverage business as the Company aspires to be Thailand’s leader of the quality green tea business. The Company has operated the beverage business since its inception. The first 2 flavors of our functional drinks branded Ichitan Doubledrink were commercially distributed in January 2011 before Ichitan Green tea, ready-to-drink green tea beverage, available in 3 different flavors was introduced to the market in May 2011. The products were then manufactured by our sub-contracted partners. Subsequently, the Company constructed its own production plant with 2 production lines, one for bottle type and another for box type, at Rojana Industrial Park in Ayutthaya, and test-ran the production lines in September 2011. Unfortunately, the factory was severely hit by the great flood in October 2011 and thus could not run until early 2012. In the same year, the Company increased the production capacity of our factory to 4, divided into 2 production lines for bottle type and another two for box type. In 2013, the Company invested in a new production line for bottle type, expanding its production capacity to 3 lines bottle type and 2 line for box type, to meet the growing consumer demand. In 2014, the Company added a new production line for bottle type to increase the production capacity to 4 production lines for bottle type. Therefore, the Company currently has the production of 800 million bottles and 200 million boxes per year from its 6 production lines, of which 4 are for bottle types and 2 are for box types. The Company also offers a wide selection of beverages in 19 different flavors which can be divided into 4 categories: (1) Ready-to-drink green tea beverage branded “Ichitan Green Tea” (2) Ready-to-drink black tea beverage branded “Ichitan Dragon Black Tea” (3) Herbal drinks branded “Yen Yen by Ichitan” (4) Low-sugar tea beverage branded “Ichitan Selected”. Business Overview Ichitan Group Public Company Limited has been incorporated since 3 September 2010. The Company’s registered capital is worth Baht 1,300 million, fully paid up and divided into 1,300 million shares at the par value of Baht 1.00 each. The Company manufactures and sells ready-to-drink green tea beverage, ready-to-drink black tea beverage, herbal drink, and low-sugar ready-to-drink green tea beverage under the brands of Ichitan Green Tea, Ichitan Dragon Black Tea, Yen Yen by Ichitan and Ichitan Selected, respectively. Regarding the marketing strategy, the Company positions its products as high quality beverage made from carefully selected, premium quality raw materials. We always ensure that our manufacturing, bottling and boxing processes meet the food hygiene standards because the consumers’ health and the preservation of the original taste and flavor are our key concerns. The strengths of our products are as follows: 31 • High quality, healthy drinks made from organic green tea leaves certified by the Department of Agriculture, Ministry of Agriculture and Cooperatives. • Trendy packaging with a variety of serving sizes to maximize the consumer’s satisfaction and cater to the needs of each target group. • Good flavor as right as Thai taste. • Brand image as products that foster sustainable growth of the business and the society. As of 31 December 2014, the total production capacity of the Company was as follows: • A total of 4 bottling lines with the aggregate capacity of 800 million bottles per year (or about 336 million liters per year). • A total of 2 UHT boxing lines with the aggregate capacity of 200 million boxes per year (or 50 million liters/year). Currently, our products can be divided into 4 categories which are available both in bottle and box types: 1. Ichitan Green Tea is quality ready-to-drink green tea and is available in 12 selections: (1) Original (2) Honey Lemon (3) Kikucha (Chrysanthemum) (4) Genmai (5) Sugar-Free (6) Midori Punch (7) Super Berry (8) Apple-Kiwi (9) Corn (10) Japanese Plum (11) Sugar-Free OoLong Tea (12) Lychee. 2. Ready-to-drink black tea, “Ichitan Dragon Black Tea”, is available in 3 flavors: (1) Lemon (2) Strawberry (3) Mulberry. 3. The herbal drink “Yen Yen by Ichitan” offers 2 flavors: (1) YenYen cool herb green tea (2) YenYen honeymixed chrysanthemum. 4. Low-sugar “Ichitan Selected” offers 2 flavors: (1) Matcha (2) Oolong The Company distributes all products through 3 distributors, namely (1) DKSH (Thailand) Co., Ltd. (2) Boonrawd Asia Co., Ltd. and (3) I Am Green Tea Co., Ltd. which is our related-party. To protect our customer base from existing traditional trade channels, focusing on the target group that does not overlap with those of DKSH and Boonrawd Asia, the Company founded I Am Green Tea Co., Ltd. (IGT) in June 2011 which was 75% owned by Mrs. Eng Passakornnatee (Mr. Tan Passakornnatee’s spouse) and 25% owned by the Tri Pruek Family which is related to neither the Company nor its executives. The purpose of establishing IGT is to distribute Ichitan products through the dealers. However, the Company subsequently shifted its focus only to manufacturing, marketing and branding in order to avoid distribution-related works which require substantial dedication and resources. Therefore, the Company agreed to separate IGT from the Company’s business group before proceeding with the SET-listing. In addition, Mrs. Eng Passakornnatee entirely sold her equity in IGT to Ms. Tanita Passakornnatee (Mr. Tan’s elder sister) who owns 99.99% shares in O.G.T. Company Limited. Formerly, OGT had distributed green tea beverage products through the dealer channel for another green tea drink company distribution. At the present, OGT no longer provides such distribution service to the said green tea drink company and do not run any competing or related business with Ichitan. OGT earns land lease fees from IGT under the prior land lease agreement. 32 ANNUAL REPORT 2014 Revenue Structure The Company’s revenue structure from 2012 - 2014 is as shown below: Revenue Structure 2012 2013 2014 MB % MB % MB % Net revenue from sales 3,906.8 87.1% 6,484.4 99.3% 6,179.1 99.5% Net revenue from flood insurance claims 518.8 11.6% - - - - Other revenue 57.3 1.3% 47.5 0.7% 29.8 0.5% Total revenue 4,482.9 100.0% 6,531.8 100.0% 6,208.9 100.0% Sales Growth 269.7% 66.0% (4.7%) Market Share* 27.1% 42.1% 43.8% 16 17 19 Number of Flavors Source: Retail Index of Nielsen, January 2015. The Company’s revenue is primarily from the sales of ready-to-drink tea beverages which stood at Baht 3,906.8 million, Baht 6,484.4 million and Baht 6,179.1 million in 2012, 2013 and 2014, respectively. The said sales figures accounted for 87.1%, 99.3% and 99.5% of the total sales in 2012, 2013 and 2014 respectively and were expected to continuously grow. In 2012, the Company recorded the sales revenue of Baht 3,906.8 million, accounting for 87.1% of the total revenue, the revenue from flood insurance claims of Baht 518.8 million Baht, which was 11.6% of the total revenue, and other revenue of Baht 57.3 million which represented 1.3% of the total revenue. In 2013, the Company achieved the sales revenue of Baht 6,484.4 million or 99.3% of the total revenue and other revenue of Baht 47.5 million which represented 0.7% of the total revenue. In 2014, the Company gained Baht 6,179.1 million from sales or 99.5% of the total revenue and its other revenue totaled Baht 29.8 million or 0.5% of the total revenue. 33 Product and Package The Company sells beverages in 19 flavors and 8 serving sizes detailed below: Package Can UHT PET PET PET PET PET PET 240 ml 250 ml 290 ml 400 ml 420 ml 450 ml 800 ml 840ml THB 12 THB 10 THB 10 THB 15 THB 15-20 THB 20 THB 25 THB 25 1.Original - - - - ✓ - - - 2. Honey Lemon 3.Kikucha (Chrysanthemum) - ✓ ✓ - ✓ - - ✓ - ✓ - - ✓ - - ✓ 4.Genmai - ✓ - - ✓ - - ✓ 5. Sugar Free - - - - ✓ - - - 6. Midori Punch - ✓ - - ✓ - - - 7.Corn - - - - ✓ - - - 8. Super Berry - ✓ - - - - - - 9.Apple Kiwi - ✓ - - - - - - 10. Japanese Plum - - - - ✓ - - - 11. Oolong Sugar Free - - - - ✓ - - - 12. TLychee Black Tea - - - - ✓ - - - 13.Lemon - - - - ✓ - - - 14.Strawberry - - - - ✓ - - - 15.Mulberry Herb Tea - - ✓ - ✓ - - - ✓ ✓ - ✓ - - ✓ - - ✓ - ✓ - - ✓ - 18. Matcha Low Sugar - - - - - ✓ - - 19. Oolong Low Sugar - - - - - ✓ - - Price Green Tea 16. YenYen Cool Herb Tea 17. YenYen Chrysanthemum Honey Low Sugar 34 ANNUAL REPORT 2014 BOI Certificate On 3 September 2013, the Company received the investment promotion certificate number 5175(2)/2556 from the Board of Investment (BOI) (a new certificate issued by the Board of Investment to support the restoration of business affected by the flood crisis based on the Company’s prior BOI certificate number of 1496(2)/2554 issued on 27 April 2011). Under the eligibility criterion number 1.11 Businesses related to food manufacture, food preservation or food additives by using the modern technology applicable to the business related to sealed vegetable and fruit juice beverages, the Company is entitled to the BOI incentive as the beverages produced by the Company use green tea leaves as a main ingredient. Summary of BOI Privileges • Permission for employment of alien skilled workers and experts. • Exemption from import duty on machinery. • Exemption from corporate income tax on the net profit of the business eligible for BOI privilege whereas the aggregate benefits shall not exceed Baht 6,311.5 million or 150% of the investment value excluding the land costs and working capital. The benefit amount will vary by the investment value, exclusive of the actual land costs and working capital as of the commencement date of the entitled business. As of 31 December 2014, the Company recorded the investment of approximately Baht 4,132.9 million in buildings and equipment. • 8-year exemption from corporate income tax on net profit of the entitled business, starting from 16 March 2012 to 15 March 2020. • Exemption from income tax on dividend by the BOI-supported business throughout the corporate income tax exemption period. Key BOI Terms and Conditions • No mortgage, sales, transfer, lease out or permit other person to use machinery exempted from the import duty, unless prior permission for the machinery mortgage has been granted. • Products must meet the international quality standards and certified by ISO 9000 or ISO 14000, or any other similar certification standards within 2 years from the starting date. • At least 51% of the total registered capital must be held by Thais. Distribution Channels At the present, the Company sells all products through 4 distribution channels as follows: 1. DKSH (Thailand) Co., Ltd. is the main distributor of the Company. Goods distributed by DKSH accounted for 76.98% of the total sales of the Company in 2014. DKSH mainly distributed products through modern trade and traditional trade channels. The Company has entered into a long-term distribution contract with DKSH and has continuously monitored the movement of modern traders in DKSH’s portfolio to support the Company’s distribution and promotion management. 35 2. I Am Green Tea Co., Ltd. distributed 11.83% of the total sales in 2014, focusing on selling through dealer networks, restaurants, traditional trade shops, cash vans and other channels not covered by other distributors. 3. Boonrawd Asia Co., Ltd. distributed 10.88% of the total sales in 2014, focusing on the distributor network, traditional trade and channel and outlets in Boonrawd’s network. 4. Export to AEC countries such as Laos, Cambodia, Myanmar, etc. However, the distributors have their exclusive sales territory and networks which do not overlap. Market and Competition Competitive Strategy 1. Brand Strategy As there is minimal differentiation in Thailand’s green tea market in terms of products’ appearance and taste. Therefore, the outstanding product design and powerful branding are considered key differentiators and contributors to customer base protection. The Company also aims to position Ichitan as a quality brand and thus consistently convey such brand image to the market through the 360-degree marketing strategy. 2. Product Strategy To highlight the standpoint of the quality brand, the Company strictly controls quality in every step of our process, from the initial steps of research and development and raw materials selection to the production which employs advanced technology to preserve ingredients’ freshness and deliver quality products to consumers. In addition, our R&D team is comprised of professional experts in the beverage field who truly understand customers’ needs and expectation which enable them to develop new products that match the taste of Thai consumers such the herbal drink “Yen Yen by Ichitan”. As for packaging, the Company pays attention to the details of package designs that respond to customers’ needs and the needs for food safety and convenience. We have selected labels that present modern design to draw attention and urge purchase decision at the point of sale. 3. Effective Inventory and Cost Management In addition to the economies of scale from the spread of fixed costs such as machinery amortization and land lease expenses over more units of output, the Company has employed the cold aseptic filling system, an advanced technology, in our production process to further reduce our production cost. The technology offers the benefits of (1) lighter materials used (2) longer, continuous production up to 120 hours before each cleaning session which makes production (3) automation features which offers labor-cost saving advantage. As for the inventory management, the Company has implemented the automated storage & retrievable system which leads to higher efficiency and lower labor costs. These factors altogether contribute to the Company’s enhanced efficiency, the ability to immediately respond to customer’s demand and ultimately our better profitability. The Company has also strived to closely control and monitor production costs and resource utilization to achieve optimized effectiveness. 36 ANNUAL REPORT 2014 4. Sales and Distribution Management In order to make our products available to the customers in a timely manner and avoid the issue of product shortage, the Company has exercised controls throughout the finished goods distribution process, from the production site to distributors and retailers. The Company has also kept track of and analyzed sales performance and inventory turnover to support effective stock management. Sales and marketing strategy has been carefully crafted and customized to the each zone. The Company has planned to penetrate the AEC markets more aggressively. 5. Marketing and Sales Strategy Consumer Demand Forecast: Our forecasts of consumers’ demands are based on historical and statistical data and seasonal factors such as weather conditions, special and festive occasions, competition environment and the economic situations. The Company has strived to ensure the forecast accuracy and limit the deviation to 10% at a maximum. Realistic forecasts will contribute to the efficiency of production and promotional activities. Marketing and Sales Promotion Plan: The sales of beverage business are subject to seasonal factors and typically reached a peak in summer. Therefore, to promptly respond to the shift in consumers’ demand, the Company uses the above the line and below the line marketing strategies in summer months and offers trade discounts to distributors in other months when lower consumption is typically seen. Furthermore, the Company has implemented the proactive marketing plan to increase our market shares and concurrently focused on PR communications to portray Ichitan as a quality product brand. To emphasize our product position, we have 4 different types of sales promotions: sales promotion specific to retailers, sales promotions specific to distributors, nationwide campaigns, and online sales promotions. Our annual budget allocation to these activities is based on the sales forecast. Pricing and Trade Discounts: As mentioned above, ready-to-drink beverage business is sensitive to seasonal factors. Thus, it is essential for the Company to regularly review and align its trade discount strategy to the changing market demands. However, the selling price is probably not as flexible due to the intense competition. Industry Conditions As the Company’s primary source of income is the ready-to-drink tea business which accounts for 99% of the total revenue in 2014, our analysis of industry conditions mainly focuses on the ready-to-drink tea section. In 2012, the ready-to-drink tea market was worth Baht 13,177 million, up 39% from the previous year on the back of the consumers’ purchasing power which surged sharply from 2011 when the flood crisis struck Thailand. In 2013, the ready-to-drink tea market recorded the total value of Baht 16,143 million, increasing 23% from the previous year and achieving the highest growth if compared to other beverage categories. It was expected that the growth trend would continue its upward movement because in the past 4 years (from 2010 to 2013) the value of the ready-to-drink tea market showed the compound annual growth rate (CAGR) of approximately 26.75%. 37 In 2014, the ready-to-drink tea market was worth value only Baht 15,405 million in total (excluding the herbal drink, “Yen Yen”, and the honey-mixed chrysanthemum drink which are categorized as vegetable and fruit juice drinks and other beverages), shrinking 4.57% from the prior year. This was the first negative growth of the business in 10 years after its consistent, buoyant growth with the CAGR of around 20.39% in the prior 5 years (2010 – 2014). Market Value 20,000 Growth Rate 50% 38.98% 16,143 15,000 15,405 13,177 23.44% 10,000 9,481 21.58% 22.51% 36.25% 22.50% 7,798 6,317 8.75% 5,000 0 -4.57% 2009 2010 2011 2012 2013 Value of Ready-To-Drink Tea Market (MB) 2014 -5% Growth Rate The top 3 leaders of ready-to-drink tea market in 2014 was Ichitan, Oishi and Puriku with the market share of 43.80%, 37.70% and 7.50% respectively. (Source: Retail Index of Nielsen, January 2015) LIPTON 4% PURIKU 0.75% OTHER 7% ICHI 0.438 ICHI OISHI PURIKU LIPTON OTHER OISNI 0.377% *Remarks: The above market share does not include the herbal drink, Yen Yen and the honey-mix chrysanthemum drink which belong to the category of vegetable and fruit juice and other beverages. 38 ANNUAL REPORT 2014 The ready-to-drink tea market had seen continuous growth rate until in 2014 when the growth was stemmed by the domestic political conflicts and the economic conditions which were pressured by the prices of agricultural commodities which had fallen and the weakened purchase power of consumers. Besides, the competition had intensified in terms of pricing and promotional campaigns. However, it was expected that the ready-to-drink tea market can further expand on the back of new market entrants. Healthy drinks have been increasingly introduced to the market, especially low-sugar drinks, no-sugar drinks and drinks with natural sweetener which have been designed for health-conscious consumers. As the consumers’ health has always been one of our focuses, the health awareness trend gives the Company competitive advantages because we already have a research and development team which has dedicated the efforts to the development new products that are good for health and at the same time match the needs of customer, including health-focused consumers. The rise in popularity of healthy drinks will attract more players to the market and the price competition might ensue. However, the ready-to-drink market still has strong potential for growth. The Company strongly believes that the ready-to-drink market will see continuous growth. To expand our customer base and increase sales performance, we will relentlessly develop and roll out new products and promotional campaigns. Our strategy includes product differentiation and the introduction of unique, trendsetting products to the market to offer new choices to customers as evident in the case of the herbal drink “Yen Yen” by Ichitan, of which sales accounted for more than 18.40% of the total ready-to-drink tea market value in 2014 (excluding Yen Yen chrysanthemum drink). Our position as No. 1 leader with 43.80% market share bespeaks the consumers’ confidence in Ichitan’s products. In 2014, the Company refined its marketing strategy to capture new markets through the launch of new products such as “Ichitan Selected”, a low-sugar, premium-grade tea drink which targets health-focused consumers. The premium product has been well-received by consumers and boosted the sales of our premium product portfolio. Another new product is “Yen Yen” by Ichitan, a honey-mixed chrysanthemum drink, which offers the pre-eminent taste like no other green tea drinks and has a distinctive quality as a great refreshment that goes well with hot and spicy foods. Apart from advertisements, the Company used other marketing tools such as road shows and sales promotions to urge consumers to try out our new products and widen our customer base. The Company plans to add more variety to our products by introducing new flavors and products with natural sweetener. With the wider selection, the Company will be able to sharpen its competitive edge and increase our market share. In addition, we will continue to adopt integrated marketing approaches and focus on research and development to concoct great drink formulas that match customers’ needs and expectation to sustain our position as a solid No.1 leader of the ready-to-drink green tea market. Product Sourcing Raw Material Sourching Besides in-house production capacity, the Company outsources production to external suppliers where our production capacity is lower than the sales forecast. In the past 4 years (2011-2014), the proportion of outsourcing activities continuously dropped from 100% in 2011 to 46%, 25% and 9% in 2012-2014, respectively. 39 In 2014, the Company implemented phase 2 of our production capacity increase project which resulted in the addition of an extra bottling line. It was expected that the outsourcing activities will further decrease to 2% or lower in 2015. As regards the sourcing of key raw materials such as tea leaves, fructose, cane sugar, water and flavor ingredients, the Company has exercised quality control over every step in the pre-production process, from cultivation to raw material selection and storage, to ensure that all ingredients meet the high-quality standards. Outsourcing manufacturers have been provided with premix substance to protect the secrecy of our drink recipe. In addition, as a quality control measure, all manufacturers are provided with detailed list of ingredients and obligated to use raw materials supplied by vendors on our approved list. In addition, our quality control team will conduct a monthly inspection to ensure that the goods produced meet our quality standards. Organic Tea Leaves: To mitigate the risk of raw material shortage, the Company has developed an annual production and sourcing plan as well as entered into sale and purchase agreements, usually with the validity period of 1 year, with suppliers who gather tea leave supplies from farmers. Moreover, to control the quality of tea leaves, our research and development team jointly supervises the entire process, from organic farming, tea leave fermentation, harvesting, steaming to pre-delivery storage. The team also check the quality of tea leave supplies in terms of odor, flavor, weight and color, prior to the manufacturing process. Then, tea leaves are stored in the temperature chamber to prevent quality deterioration. Tea leaves supplies are from the Northern region of Thailand where the weather conditions are ideal for tea leave growing and thus the Company has never experienced tea leave supply shortage. The Company has entered into sale and purchase agreement with 2-3 suppliers and tea leaves from these supplies are of equivalent substitutes for each other, given that fact that all products, despite varying flavor additives, use the same kind of fresh tea leaves and difference between green tea and black tea lies in the way tea leaves are processed. Fructose and Sugar: These materials can be easily procured in Thailand and sugar products from different manufacturers are of comparable quality. Though sugar prices fluctuate at a certain extent with the quantity supply and the global price movement, the domestic sugar prices are controlled by the government, hence slight price volatility. Water: Water used in our production process is supplied by Rojana Industrial Park. The water has been purified by the reverse osmosis system and treated in accordance with WHO’s 1993 guidelines. Flavor: Though the flavor additives are only slightly used, it is one of key ingredients as it scents our drinks and creates first impression of customers towards our products. The Company sources flavor additives from various suppliers. Packaging: The Company sources PET bottles, boxes, lids, cartons and labels from reliable suppliers who successfully meet our selection criteria which also factor in the reliability of the suppliers’ work system. This provides us with the assurance that the suppliers will be able to punctually deliver quality materials as agreed upon. The Company also regularly monitors and checks performance and quality of goods provided by the suppliers. Natural Gas: The Company has entered into a natural gas sale and purchase agreement with a domestic supplier. The agreement is valid until 31 August 2018 and can be renewed with a 90-day prior written notice. 40 ANNUAL REPORT 2014 In addition, to reduce the risk from overdependence on suppliers and to obtain the reasonable material prices, the Company has the policy to purchase raw materials from various major suppliers. In addition, the Company has forged positive business relationship with raw material suppliers and have never sourced more than 30% of its total raw material needs from a particular supplier. Production Process Major steps in our production processes include tea leaves extracting, brewing, bottling, and quality control. Every step is controlled through our advanced systems and chemical-free. Organic tea leaves will be brought to the temperature-controlled extractor and then cooled down. After precipitation, the tea is strained off and transferred to flavor-mixing station and subsequently the bottling station. The Company uses the cold aseptic filling system which is the most advanced filling technology from Japan to preserve the freshness and quality as well as to ensure the food hygiene of our drinks. The flavor-added beverages will be sterilized at 137 degree Celsius for 4 seconds and then immediately cooled down to 25 degree Celsius, filled in sterilized packages which include PET bottles and with plastic lids and boxes. Every step in the production processes is controlled and recorded by automated systems. The production line will halt immediately upon irregularity and errors will be reported to production control staff who are on shift in order to immediately resolve the errors and minimize undesired effects on production. Quality Assurance and Control The Company has implemented quality control at every step such as the selection of suppliers, suppliers’ system check, and pre-production quality check. In addition, the “Quality Plan” which is a random quality check tool under the MIL-STD_105E standard has been used in the inspection of production process. Quality check of finished products is also performed to ensure compliance with physical, chemical, biological and sensory standards prior to release from the production site. Besides, the Company encourages continuous quality improvement by adopting the integrated quality management principles to achieve quality, hygiene and food safety standards such as GMP, HACCP, ISO9001:2008, HALAL and other internationally-recognized standards. Environmental Effect -None- 41 Risk Factors • Risk from linkage between Ichitan brand and Mr. Tan Passakornnatee Linkage between Ichitan brand and Mr. Tan Passakornnatee who is the Company’s major shareholder has strategically contributed to the brand recognition and awareness among consumers. The Company recognizes potential threats consequential to the absence of such linkage and has attempted to mitigate the risk by strengthen the brand identity without tying it up with any individual. To reach the goal, our marketing team is phasing out the distinctive presence of Mr. Tan Passakornnatee in new commercials and advertisements, except for certain new products which the Company intends to convey to the general public, clients and consumers that they are Mr. Tan’s products. • Risk from new product development Continuous new product development is essential for the Company’s ability to effectively respond to the evolving needs of consumers. The Company is exposed to the risks associated with new product development such as substantial investment in the innovation, marketing and PR processes. Therefore, before the launch of each product, the Company focuses on consumer behavior study, popularity and demand survey, and analysis of return on investment. The Company has its own R&D laboratory worth up to Baht 10 million to support our new product development projects which typically are not costly. The budget for marketing and promotional activities is rather high yet controllable and it is the Company’s policy to discontinue marketing and promotional campaigns for a new product or a new product itself if its popularity remains unsatisfactory after more than Baht 50 million has been spent on its marketing and promotional activities. Marketing and PR expenses of products have been within the allocated budget which can be revised as and when appropriate. • Risk from Shortage and Price Fluctuation of Raw Material Key raw materials are tea leaves, fructose, cane sugar and flavor ingredients which altogether account for 30% of the production costs. As the climate change affects agricultural productivity, the Company might experience raw material shortage and the resultant price fluctuation. To mitigate the risk, the Company has developed a raw material sourcing plan and the Procurement Department has developed an annual production and sourcing plan as well as entered into sale and purchase agreements, usually with the validity period of at least 1 year, with major suppliers to secure adequate raw materials at reasonable prices. In addition, the Company has made agreements with at least 3 suppliers to avoid overdependence on any particular supplier as well as to prevent the shortage of raw material in the event that a suppliers cannot provide the Company with sufficient raw materials. With regard to tea leaves, the Company has entered into tea leave procurement agreement with several suppliers and tea leaves from these supplies are equivalent substitutes for each other, given the fact that all products, despite varying flavor additives, use the same kind of fresh tea leaves and difference between green tea and black tea lies in the way tea leaves are processed. With this, the Company can effectively avoid overdependence on a particular supplier. • Risk from Food Safety Hazard Food hygiene is among our top priorities as even a minor mistake can have material impact on the credibility of all Ichitan’s products. We have carefully selected ingredients and supervised every step 42 ANNUAL REPORT 2014 of the production process to achieve the consumer confidence in the quality of our products which meet international standards such as GMP, HACCP, ISO9001:2008 and HALAL. To assure food safety, batch samples are tested for 7 days in accordance with applicable standards before the release of each batch for distribution to the market and the samples are retained as reference. If the test results of the batch samples indicate contamination, the entire batch will be destroyed. However, our products are manufactured in closed, hi-tech systems and no food contamination has been found. • Risk from Interest Rate Increase As of 31 December 2014, the Company has the loan obligations worth Baht 1,963 million charged at the floating interest rate and thus is exposed to the risk of interest rate hike which might have adverse effect on the Company’s financial performance. In April 2014, the Company launched an IPO and successfully raised the capital worth Baht 3,900 million. The IPO proceeds were used to repay directors’ loans and bank loans worth approximately Baht 3,000 million. The decrease of the outstanding loan obligations with banks to Baht 1,963 million as of 31 December 2014 has significantly reduced the Company’s risk associated with the interest rate movement. • Risk from Dependence on Major Distributors At present, the Company’s products have been distributed through the modern trade channel (accounting for 56% of the total sales of the year ended 31 December 2014) and the traditional trade channel (accounting for 44% of the total sales of the year ended 31 December 2014) by 3 major distributors, namely DKSH (Thailand) Co., Ltd., I AM Green Tea Co., Ltd., and Boon Rawd Asia Co., Ltd. under the distribution agreements, of which validity periods range from 3 – 5 years. The distribution volumes of the distributors for the year ended 31 December 2014 were 77% (DKSH), 12% (I AM Green Tea) and 11% (Boon Rawd). Based on this fact, the Company is exposed to the risk of overdependence on the major distributors. The engagement of 3 distributors instead of only 1 distributor in the product distribution is a means of risk mitigation and the distribution agreement made with DKSH which has been the original distributor of the Company allows the Company to involve 2 more distributors. Given the positive relationship between the Company and the distributors and the Company’s strict compliance with the distribution agreements, the Company is confident that the distributors will agree to renew their distribution agreements with the Company. • Risk from Intense Competition As the beverage business benefits from the weather conditions of Thailand and has continuously recorded buoyant growth, many new players have entered the market. This has intensified the competition and harmed the profitability of manufacturers, especially those with inefficient management system. Pricing should be suitable and the Company does not support the price cut strategy. Rather, the Company aims to win customers through creative marketing and promotional campaigns. For the green-tea products which can hardly be differentiated, the Company aims to make effective production and logistics management our key strength for higher profit. Product development is another key strength of Ichitan as evident in “Yen Yen by Ichitan” herbal drink which is unbeatable by any competitors in terms of its unique taste and brand. The Company targets to launch new fruit juice products under “Bireley’s” trademark in 2015 to diversify our product portfolio and widen the opportunity horizon. 43 • Risk from Liability for Excise Tax on Green Tea Beverage The Company has been exempted from excise tax because the contents of fruit and vegetable juice mix in our green tea beverage products meet the requirements under the Notification of the Excise Department Re: Tax exemption criteria and conditions for fruit and vegetable juice beverages. However, the Excise Department is reviewing the excise tax rates for green tea and if it is concluded that green tea beverage products are not entitled to tax exemption, all green tea beverage manufacturers will be adversely affected as the increasing tax burden will hurt their bottom lines. To mitigate such potential undesirable impact, the Company will focus on cost control, advanced technologies and effective management which altogether can significantly reduce our operating expenses, thus offsetting the potential increase in tax expense in the future. • Risk from Flood Disaster The 2011 flood crisis materially affected the Company’s production and distribution plan. Rojana Industrial Park built a flood wall of 6 meters in height around its compound. The concrete wall base was 3 meters below the ground level and its top was also 3 meters above the ground level. In addition, the Company has taken out insurance which covers all possible damage and planned to invest in overseas joint venture and factory construction. • Risk from Majority Control by the Passakornnatee Group As of 31 December 2014, the Passakornnatee group (inclusive of Mr. Tan Passakornnatee’s nominees), as the Company’s majority shareholder, owned 60.0% of the total paid-up capital. As the Passakornnatee group is nearly in full control of the decisions of the shareholders’ meetings, the minority shareholders might be unable to counterbalance the power of the majority shareholder, except for matters requiring the three-fourths majority of shareholders. The Passakornnatee group does not have the right to vote on agenda items concerning related-party transactions related to the Passakornnatee group. On the one hand, the overwhelming power of the Passakornnatee group contravenes the principle of good corporate governance. On the other hand, it provides assurance that Mr. Tan Passakornnatee and his spouse will continue their positions as executives of Ichitan which they have built with their own hands from scratch. In addition to the Board, the Company also has the Audit Committee and the Nomination and Remuneration Committee. The scope of authority and duty of the Board and the committees has been clearly defined. The Audit Committee is comprised of 3 independent directors who possess business acumen and professional knowledge related to financial statements and reports. With their professional expertise and qualifications, the independent directors can greatly contribute to the transparent, effective and verifiable undertakings of the Board and the board committees. The Company has also established policies governing transactions with related parties, directors, the majority shareholders, persons with controlling power and persons with potential conflicts of interest to ensure that transactions are conducted on an arm’s length basis and proposed through the Audit Committee to the Board for approval. Persons with conflicts of interest shall not be allowed to approve transactions involving themselves and all related-party transactions will be monitored by the Audit Committee on a quarterly basis and audited by the internal auditors. 44 ANNUAL REPORT 2014 Operating Assets The Company’s core operating assets as of 31 December 2014 were: Property, Plant and Equipment The Company’s core operating assets as of 31 December 2014 were: Detail Value Ownership Net Book (MB) Obligation 1. Land and land improvement • Land under the title deeds nos. 13425 The Company and 33355 with the total area size of 75-3-80 rai. The land is in Rojana Industrial Park, Zone 8, Uthai, Ayutthaya, and houses the Company’s production factory. 265.7 Mortgaged • Land under the title deed no. 3172 with The Company the total area size of 72-0-14 rai. The land is in Rojana Industrial Park, Zone 8, Uthai, Ayutthaya. 2.Land and land improvement The Company (including interior improvement) • Factory, office building and other buildings k under the land title deeds nos. 13425 and 33355 in Rojana Industrial Park, Zone 8, Uthai, Ayutthaya. 3. Machinery and plant equipment The Company 1,736.7 Mortgaged 3,400.9 Mortgaged • Production machinery of the Company’s production plant in Rojana Industrial Park. 4. Furniture and office supplies The Company 5. Tools The Company 35.9 54.6 None None 6. Vehicles The Company 7. Assets under construction and installation The Company Total 1.6 1,068.6 6,795.2 None None 231.2 Remark: Assets as per 1.-3. above have been mortgaged with 3 banks as detailed in 4.5.7. The mortgage value of assets as per 1. and 2. is to Baht 5,687.84 million and that of asset as per 3. is Baht 3,784.50 million. 45 Service Mark As of 31 December 2014, the Company owns the following 3 service marks: Service Mark Registration No. Date of Registration บ54348 Service Type Period 12 April 2011 Food and beverage บ54349 12 April 2011 Food and beverage บ55390 6 October 2011 Food and beverage 10 years from the date of registration and renewable every 10 years 10 years from the date of registration and renewable every 10 years 10 years from the date of registration and renewable every 10 years Trademark As of 31 December 2014, the Company owns 29 trademarks as follows: Domestic Trademark 46 Registration No. Date of Registration Type of Product Kor372021 (Thailand) 30 November 2011 Fruit juice, syrup, water and mineral water Kor372022 (Thailand) 30 November 2011 Kor383448 (Thailand) 30 November 2011 Kor383458 (Thailand) 30 November 2011 Period 10 years from the date of registration and renewable every 10 years Coffee, tea, 10 years from the date cocoa, coffee of registration and substitute and renewable every 10 RTD green tea years 10 years from the date Fruit juice, of registration and syrup, water and renewable every 10 mineral water years Coffee, tea, 10 years from the date cocoa, coffee of registration and substitute and renewable every 10 RTD green tea years ANNUAL REPORT 2014 Trademark Registration No. Date of Registration Kor346374 (Thailand) 5 March 2012 Kor371265 (Thailand) 30 November 2011 Kor386674 (Thailand) 30 November 2011 Kor371264 (Thailand) 30 November 2011 Kor371263 (Thailand) 30 November 2011 Registration No. Date of Registration Type of Product Period Beer, ale, black beer, mineral water, mineral 10 years from the date water, soda drink, of registration and non-alcoholic renewable every 10 beverage, syrup years and beverage ingredient Coffee, tea, 10 years from the date cocoa, coffee of registration and substitute and renewable every 10 RTD green tea years 10 years from the date Fruit juice, of registration and syrup, water and renewable every 10 mineral water years 10 years from the date Fruit juice, of registration and syrup, water and renewable every 10 mineral water years 10 years from the date Coffee, tea, of registration and cocoa, coffee renewable every 10 substitute and years RTD green tea Overseas Trademark 11432/2012 (Myanmar) 11433/2012 (Myanmar) Type of Product 1 October 2012 Tea, green tea and tea-mixed beverage 2 October 2012 Non-alcoholic beverage Period 1 October 2012 – 30 September 2015 Renewable upon agreement expiry as agreed between the parties to the agreement 2 October 2012 – 1 October 2015Renewable upon agreement expiry as agreed between the parties to the agreement 47 Trademark Registration No. Date of Registration Type of Product Period 5 September 2012 Tea, green tea and tea-mixed beverage 10 years from the date of registration and renewable every 10 years 5 September 2012 Tea, green tea and tea-mixed beverage 10 years from the date of registration and renewable every 10 years 14 January 2013 Tea, green tea and tea-mixed beverage 10 years from the date of registration 22 January 2013 Tea, green tea and tea-mixed beverage 10 years from the date of registration 27068 (Lao) 10 May 2013 Tea, green tea and tea-mixed beverage 10 years from the date of registration 27069 (Lao) 10 May 2013 Non-alcoholic beverage 10 years from the date of registration 302787788 (Hong Kong) 1 November 2013 Tea, green tea and tea-mixed beverage 10 years from the date of registration 302787779 (Hong Kong) 1 November 2013 Non-alcoholic beverage 10 years from the date of registration 49533/14 (Cambodia) 1 January 2013 Tea, green tea and tea-mixed beverage 10 years from the date of registration 49534/14 (Cambodia) 1 January 2013 Non-alcoholic beverage 10 years from the date of registration 2012056944 (Malaysia) 5 September 2012 Tea, green tea and tea-mixed beverage 10 years from the date of registration 2012056945 (Malaysia) 5 September 2012 Non-alcoholic beverage 10 years from the date of registration 01650792 (Taiwan) 16 June 2014 Tea, green tea and tea-mixed beverage 10 years from the date of registration 01650792 (Taiwan) 16 June 2014 Non-alcoholic beverage 10 years from the date of registration T1213049I (Singapore) T1213048J (Singapore) 011159068 (27 Eurozone countries) 971686 (New Zealand) 48 ANNUAL REPORT 2014 Trademark Registration No. Date of Registration 48,220 (Brunei) 10 July 2012 48,220 (Brunei) 10 July 2012 1512052 (Australia) 10 September 2013 1512052 (Australia) 10 September 2013 Type of Product Tea, green tea and tea-mixed beverage Non-alcoholic beverage Tea, green tea and tea-mixed beverage Non-alcoholic beverage Period 10 years from the date of registration 10 years from the date of registration 10 years from the date of registration 10 years from the date of registration Bireley’s As of 31 December 2014, the Company owns 25 trademarks as follows: Trademark Registration No. 351117 (Thailand) 369430 (Thailand) 425983 (Thailand) 351116 (Thailand) Date of Registration Type of Product Period 16 May 2014 Coffee, tea, cocoa, chocolatemixed drink, 10 years from the date candy, ice cream, of registration and flavored ice and perpetually renewable flavor essence every 10 years. excluding essential oil 16 May 2014 Bottle 10 years from the date of registration and perpetually renewable every 10 years. 16 May 2014 Juice-mixed beverage, noncarbonated soda and carbonated soda, fruit juice 10 years from the date of registration and perpetually renewable every 10 years. 16 May 2014 Flavored milk, yoghurt, frozen yoghurt and marmalade jam 10 years from the date of registration and perpetually renewable every 10 years. 49 Trademark Registration No. 425984 (Thailand) 434390 (Thailand) 434389 (Thailand) 369670 (Thailand) 348221 (Thailand) 17134 (ประเทศเวียดนาม) KH/3279/93 (Cambodia) 40-319639 (Korea) 50 Date of Registration Type of Product Period 16 May 2014 Juice-mixed beverage, noncarbonated soda and carbonated soda, fruit juice 10 years from the date of registration and perpetually renewable every 10 years. 16 May 2014 10 years from the date Soda, mineral and of registration and carbonated drink perpetually renewable every 10 years. 16 May 2014 10 years from the date Soda, mineral and of registration and carbonated drink perpetually renewable every 10 years. 16 May 2014 10 years from the date of registration and perpetually renewable every 10 years. Bottle 16 May 2014 10 years from the date Soda, mineral and of registration and carbonated drink perpetually renewable every 10 years. 30 September 2014 Beer, mineral water, soda drink, 10 years from the date nonalcoholic of registration and beverage, perpetually renewable juice drink, juice, every 10 years. syrup and drink ingredient 21 July 2014 Beer, mineral water, soda drink, 10 years from the date nonalcoholic of registration and beverage, perpetually renewable juice drink, juice, every 10 years. syrup and drink ingredient 30 May 2014 10 years from the date of registration and perpetually renewable every 10 years. Soda drink ANNUAL REPORT 2014 Trademark Registration No. 40-43998 (Korea) 8051/2014 (Myanmar) T5316335I (Singapore) T5316336G (Singapore) T7460498B (Singapore) 620267 (Taiwan) 636051 (Taiwan) 778887 (India) Date of Registration 30 May 2014 27 June 2014 Type of Product Period Ice 10 years from the date of registration and perpetually renewable every 10 years. Beer, mineral water, soda drink, 10 years from the date non-alcoholic of registration and beverage, juice perpetually renewable drink, juice, every 10 years. syrup and drink ingredient 16 June 2014 Coffee, tea, cocoa, coffee substitute and RTD green tea 10 years from the date of registration and perpetually renewable every 10 years. 16 June 2014 Coffee, tea, cocoa, coffee substitute and RTD green tea 10 years from the date of registration and perpetually renewable every 10 years. 16 June 2014 18 June 2014 Beer, mineral water, carbonated drink, non10 years from the date alcoholic of registration and beverage, juice perpetually renewable drink, juice, every 10 years. syrup and drink ingredient Milk, milk powder, butter, yoghurt and cheese 10 years from the date of registration and perpetually renewable every 10 years. 18 June 2014 น�้ำแข็ง, ไอศครีม, น�้ำ 10 years from the date ผลไม้, น�้ำ, น�้ำแร่, ชา, of registration and กาแฟ,โกโก้, โคล่า perpetually renewable และสปอร์ตดริ้งค์ every 10 years. 30 May 2014 กาแฟ, ชา, โกโก้, กาแฟเทียม,ชาเขียว พร้อมดื่ม 10 years from the date of registration and perpetually renewable every 10 years. 51 Trademark Registration No. Date of Registration 778888 (India) 30 May 2014 4-2001-00259 (Philippines) 30 May 2014 19741340 (Hong Kong) 30 December 2014 19500327AB (Hong Kong) 19520606AA (Hong Kong) Type of Product Period Beer, mineral water, soda drink, 10 years from the date non-alcoholic of registration and beverage, juice perpetually renewable drink, juice, every 10 years. syrup and drink ingredient 10 years from the date Non-carbonated of registration and drink perpetually renewable every 10 years. 10 years from the date Non-alcoholic of registration and beverage, juice perpetually renewable and soda drink every 10 years. 30 December 2014 Syrup and non-carbonated drink 10 years from the date of registration and perpetually renewable every 10 years. 30 December 2014 Food ingredient, mineral water and root beer 10 years from the date of registration and perpetually renewable every 10 years. All other products are in the trademark registration process. Intangible Asset As of 31 December 2014, the Company’s intangible assets are software worth Baht 2.5 million and the exclusive right to use the trademark worth Baht 84.1 million, totaling Baht 86.6 million. Summary of Agreements 1. Manufacturing Agreement 52 The Company entered into manufacturing agreements with various manufacturers to manufacture beverage products of the Company. The agreements include provisions about the product manufacturing and delivery specifications, beverage formula, rights to the beverage formula (prior written consent from the Company is required for use of the Company’s product formula), protection of business confidentiality, prices, and payment terms. Generally, the agreements have the term of 1 year from the signing date. Each party to the agreement has the right to terminate the agreement in the event of agreement breach. The parties to the agreement may agree on the renewal upon the agreement expiry. ANNUAL REPORT 2014 2. Raw Material Supply Agreement The Company has entered into raw material supply agreements with several suppliers of key raw materials such as tea leaves, syrup, white sugar and artificial flavors. The agreements include specifications of raw materials, prices and payment terms. Generally, the agreements have the term of 1 year from the signing date. Each party to the agreement has the right to terminate the agreement in the event of agreement breach. The parties to the agreement may agree on the renewal upon the agreement expiry. 3. Package Supply Agreement The Company has entered into package supply agreements for preform and UHT boxes and labels with several suppliers. The agreements include provisions about the package specifications, prices, payment terms and delivery. Generally, the agreements have the term of 1-3 years from the signing date. Each party to the agreement has the right to terminate the agreement in the event of agreement breach. The parties to the agreement may agree on the renewal A) upon the agreement expiry or B) perpetual renewal until an agreement termination notice is given. 4. Natural Gas Purchase and Sale Agreement The Company has entered into a natural gas purchase and sale agreement with PTT Natural Gas Distribution Company Limited with the term of 7 years and the quantity and price of natural gas supply have been fixed throughout the agreement term. The parties to the agreement agree to conclude the terms and conditions of each agreement within 30 calendar days prior to the agreement expiry; otherwise it shall be deemed that the agreement is terminated upon its expiry date. 5. Land and Office Lease Agreement Counterparty Office Building Lease... Agreement • Lessee: Ichitan Group Pcl. • Lessor: Charn Issara Development Pcl. Location Condition/Fee • 28th Fl., Charn • Lease fee of Baht Issara Tower II, 2,712/month 28th Fl. (corridor) with the area size of 13.56 sq.m. Period • 11 August 2013 – 10 August 2016 • Renewable upon agreement expiry as mutually agreed between the parties to the agreement Agreement date: 11 August 2013 53 Counterparty Office Building Lease... Agreement • Lessee: Ichitan Group Pcl. • Lessor: Bangkok Commercial Property Fund Location Condition/Fee • 28th Fl., Charn • Lease fee of Baht Issara Tower II, Unit 180,310/month F28/A (partial), B, C, D, 2922/300 (partial), and 2922/301-303 with the area size of 901.55 sq.m. Period • 11 August 2013 – 10 August 2016 • Renewable upon agreement expiry as mutually agreed between the parties to the agreement Agreement date: 11 August 2013 6. Distributor Agreement Counterparty Distributor Agreement... Manufacturer: Ichitan Group Pcl. Distributor: Boonrawd Asia Co., Ltd. Agreement date: 9 October 2014 Distributor Agreement... Manufacturer: Ichitan Group Pcl. Distributor: DKSH (Thailand) Co., Ltd. Agreement date: 14 January 2011 Condition • To be the sole distributor for RTD beverage products listed in the agreement and its appendix and amendments at the agreed prices. Period • 1 November 2014 – 30 October 2017 • Renewable upon each agreement expiry. • In the event of agreement breach, a party to the • All distribution channels in agreement which does Thailand, except for modern not breach the agreement trade channel. may initiate the agreement cancellation. • 1 February 2011 – 31 January • To be the sole distributor 2016 for beverage products listed in the agreement and its appendix and amendments • Automatic renewal for 3 years, unless a party to the at the agreed prices. agreement notifies another party of its intent not to renew • All distribution channels the agreement at least 6 in Thailand, inclusive of months prior to the agreement modern trade and traditional expiry. trade channels. • In the event of agreement breach, a party to the agreement which does not breach the agreement may initiate the agreement cancellation. 54 ANNUAL REPORT 2014 Counterparty Condition Period Distributor Agreement... • To be the sole distributor • 1 July 2014 – 30 June 2017 for beverage products listed Manufacturer: Ichitan Group Pcl. • Renewable upon each in the agreement and its agreement expiry. appendix and amendments Distributor: Ichitan Trading Co., Ltd. at the agreed prices. (currently I Am Green Tea Co., Ltd.) • In the event of agreement breach, a party to the • All distribution channels in Agreement date: 20 June 2014 agreement which does Thailand, except for modern not breach the agreement trade channel. may initiate the agreement cancellation. 7. Loan Agreement Loan agreement with Bank No. 1 worth Baht 972.0 million Signing date 4 April 2012 Agreement .. Loan agreement and the annex to the loan agreement dated 4 April 2012 Borrower .. Ichitan Group Pcl. Purpose .. To finance the land acquisition and development costs and machinery acquisition costs Facility .. Long-term loan worth Bath 972.0 million maturing on 31 March 2021 Interest rate (%).. Initial drawdown – 31 December 2012 4.0% 1 January 2013 – 31 March 2015 MLR - 2.3% After 31 March 2015 MLR – 2.1% Term of repayment .. • Monthly repayment, starting from April 2014: April 2014 – March 2015: Baht 1.7 million/month April 2015 – March 2016: Baht 8.7 million/month April 2016 – March 2017: Baht 10.8 million/month April 2017 – March 2018: Baht 13.1 million/month April 2018 – March 2019: Baht 14.7 million/month April 2019 – March 2020: Baht 15.4 million/month April 2020 – February 2021: Baht 15.9 million/month March 2021: Baht 24.3 million • Interest payment shall be made monthly on the last business day of each month, starting from the month the initial drawdown is made. 55 Collateral .. • Mortgage of machinery and equipment. • Mortgage of land and buildings under the following title deeds: Existing collateral as per the agreement dated 29 March 2011 for the loan worth Baht 1,663.0 million - Title deeds nos. 13425 and 33355 of the lands in Ayutthaya owned by Ichitan Group Pcl., with the mortgage value of Baht 3,765.5 million. • Debt service coverage ratio (DSCR)*: 1.25x Key terms and .. conditions • Debt to equity ratio (D/E**): 2.8x • Mr. Tan Passakornnatee and his family must maintain the shareholding at 30% of the registered capital or higher. Loan agreement with Bank No. 1 worth Baht 600.0 million Signing date 14 October 2014 Agreement Loan agreement Borrower Ichitan Group Pcl. Purpose To finance the machinery investment for bottled drink production Facility Long-term loan worth Baht 600 million Interest rate (%) Initial drawdown – final installment Term of repayment ... • Monthly repayment, starting from October 2015: BIBOR (6M) +1.25 p.a. a. Installments 1-83: Baht 7.14 million/installment b. Final installment: The remaining amount • Interest payment shall be made monthly at the end of each month, starting from the month the initial drawdown is made. Collateral... • Mortgage of machinery and equipment. • Mortgage of land and buildings under the following title deeds: Existing collateral as per the agreement dated 29 March 2011 for the loan worth Baht 1,663.0 million - Title deeds nos. 13425 and 33355 of the lands in Ayutthaya owned by Ichitan Group Pcl., with the mortgage value of Baht 3,765.5 million. Key terms and .. conditions 56 • Debt service coverage ratio (DSCR)*: 1.25x • Debt to equity ratio (D/E**): 2.8x • Mr. Tan Passakornnatee and his family must maintain the shareholding at 30% of the registered capital or higher. ANNUAL REPORT 2014 Loan agreement with Bank No. 2 worth Baht 1,860.0 million Signing date... Agreement... 20 August 2012 Bridge Loan Credit Facility Agreement and Guarantee Agreement Medium-Term Loan Credit Facility Agreement and Guarantee Agreement Borrower... Purpose... Revolving Credit Facility Agreement and Guarantee Agreement Ichitan Group Pcl. • Bridge loan credit facility agreement and guarantee agreement for the acquisition of machinery and equipment (uncommitted credit line • Medium-term loan credit facility agreement and guarantee agreement to finance the repayment of the bridge loan which finances the machinery investment in new production line and automated storage system (uncommitted credit line) Credit limit... Interest rate (%) • Revolving credit facility agreement and guarantee agreement for use as working capital, equipment acquisition, and L/G for electricity and import duty expenses (uncommitted credit line) Bridge Loan Medium-Term Loan Revolving Credit Baht 990.0 million Baht 770.0 million Baht 100.0 million L/T: BIBOR + 1.0% USD facility: SIBOR (6M) + BIBOR (6M) + 1.25% 1.5% O/D: MOR-2.5% THB facility: BIBOR (6M) + LG: 1.0% 1.25% Facility in other currencies: Term of repayment... Cost of finance + 1.50% 360 days. The outstanding of bridge loan will be refinanced as a term loan which shall not exceed the forced sale value of collateral. 5 years from the initial drawdown (the loan must be drawn by 22 February 2014). - Quarterly repayment shall be made in 19 installments. The first repayment shall be made within 6 months from the initial drawdown. 57 Collateral... Key terms and... conditions • Mortgage of machinery and equipment owned by Ichitan Group Pcl. with the mortgage value of Baht 924 million. • Second mortgage of the land in Ayutthaya owned by Ichitan Group Pcl., under the title deeds nos. 13425 and 33355, with the mortgage value of Baht 20 million. • Maintenance of the borrower’s businesses, including all rights, privileges and franchises rights. Loan agreement with Bank No. 3 worth Baht 1,000.0 million Signing date 12 July 2013 Agreement Loan agreement Borrower Ichitan Group Pcl. Purpose To finance the production machinery acquisition for Phase 2 of the project Facility Long-term loan worth Baht 1,300.0 million with the tenor of 7 years Interest rate (%).. Years 1-2 CIMB T’s MLR - 2.625% Years 3 onwards CIMB T’s MLR - 2.0% Term of repayment.. • Grace period of 12 months from the initial drawdown. • Bullet repayment with monthly repayment of Baht 25.0 million.ย • Interest payment on 1st of each month, starting from the month the initial drawdown is made. Collateral.. • Mortgage of machinery and equipment. • Mortgage of land and buildings under the following title deeds: Third mortgage of the land in Ayutthaya owned by Ichitan Group Pcl. under the title deeds nos. 13425 and 33355 with the mortgage value of up to Baht 1,902.3 million (pending mortgage registration). Key terms and.. conditions • Debt service coverage ratio (DSCR)*: 1.25x • Dividend payment is prohibited where DSCR is below 1.25x. If DSCR is higher than 1.25x, the Company is unconditionally allowed to make dividend payment following its SET-listing in accordance with its Dividend Policy and performance and the economic conditions. • Debt to equity ratio (D/E**): 2.8x 58 ANNUAL REPORT 2014 Key terms and.. conditions • Mr. Tan Passakornnatee and his family must maintain the shareholding at 30% of the registered capital or higher. • The borrower agrees not to materially change the major shareholders or the management structure whereas Mr. Tan Passakornnatee must and his family must maintain the shareholding at 30% of the registered capital or higher. In addition, Mr. Tan Passakornnatee and Mrs. Eng Passakornnatee must be the chairman and the member of the Executive Committee of the Company throughout the loan period, unless changes thereto are notified to and approved by the lender in advance. (The IPO launch had been approved by the lender.) 8.Insurance • Production Plant in Ayutthaya The Company has taken out insurance with Siam Commercial Samaggi Insurance Pcl. for protection of the plant and properties as detailed below: Factory Phase 1 Phase 2 Signing date 29 May 2014 Type of insurance Property insurance Coverage 29 May 2014 – 29 May 2015 Sum insured Baht 5,700 million The insured Ichitan Group Public Company Limited Insured location 111/1 Moo 4, Rojana Industrial Park, Zone 3, Uthai, Ayutthaya Insured properties 1. Buildings, walls, fences and utilities 2. Machinery and parts, tools, and equipment and spare parts 3. Furniture, fixture, and office equipment and supplies 4. Raw materials, inventory, and all packages 5. Other properties of the insured Perils covered Fire, lightning, explosion, aircraft damage, water damage, impact damage from vehicles, smoke, storm, bush fire, flood, hail, earthquake, volcano eruption, tsunami, strike, riot, malicious damage, spontaneous combustion or natural explosion and unexpected accidents caused by external factors or any other perils not specified as exceptions in the GIA form. 59 Factory Phase 1 Phase 2 Terms and conditions Excess 1) Baht 5,000 for each and every loss, except for loss caused by fire, lightning, explosion, impact damage from vehicles, aircraft damage and smoke. 2) A minimum of Baht 10,000 or 10%, whichever is higher, of the loss caused by each and every accident to properties, machinery and electrical breakdown, boiler and pressure vessel damage, damage to electronic devices, computers and processors, theft without forcible entry, robbery and burglary. 3) A minimum of Baht 100,000 or 10%, whichever is higher, of the loss to properties caused by each and every accident which includes flood, storm, hail, earthquake, volcano eruption or tsunami, strike, riot or malicious act. • Office Building The Company has taken out insurance LMG Insurance Pcl. for partial protection of the head office located at Charn Issara Tower II as detailed below: Factory Phase 1 Phase 2 Signing date 1 January 2014 Type of insurance Property insurance Coverage 1 January 2014 – 1 January 2015 Sum insured Baht 10 million The insured Ichitan Group Public Company Limited Insured location 2922/301-303, 28th Fl., Charn Issara Tower II, New Petchburi Road, Bangkapi, Huaykwang, Bangkok, 10310 Insured property Furniture, fixtures, office supplies and equipment, computers, electrical appliance, and accessories of shops and other properties of the insured (exclusive of computers, laptops, iPod, iPad, tablets and other accessories) Perils covered Fire, lightning, storm, earthquake, volcano eruption, tsunami, hail, water damage, impact damage from vehicles, aircraft damage, smoke, explosion, strike, riot, malicious damage and unexpected accidents caused by external factors or any other perils not specified as exceptions in the GIA form. Limited liability: The maximum flood coverage shall be Baht 1,000,000 per flood claim and throughout the coverage period. Other conditions Excess 1) Baht 5,000 for each and every loss caused by external factors, except for perils covered by this insurance policy. 2) 10% or a minimum of Baht 100,000 per claim and for every flood claim. 60 ANNUAL REPORT 2014 Policy on Investment in Subsidiaries and Associate Companies As the Company’s management team is highly experienced in beverage business, the Company has a policy to focus on beverage business investments, excluding alcoholic beverage, at the proportion which allows the Company to have the authority to manage and set business direction for entities in which it has invested. The Company does not have a plan to make any new investment in the near future. 61 Legal disputes Company and the subsidiaries had no legal dispute that significantly affected the Company’s business or posed negative effects on the Group’s assets of which its overall value, as at 31 December 2014, was higher than 5% of shareholders’ equity. The Company and the subsidiaries had no legal dispute arisen from an out-of-the-ordinary course of business of the Group either. 62 ANNUAL REPORT 2014 Information of Securities and Shareholders Ordinary Shares Registered and paid-up capital as of 31 December 2014 Registered capital is worth Baht 1,300,000,000 (one billion three hundred million baht), divided into 1,300,000,000 shares (one billion three hundred million shares) at the par value of Baht 1.00 per share. Paid-up capital was worth Baht 1,300,000,000 (one billion three hundred million baht), divided into 1,300,000,000 shares (one billion three hundred million shares) at the par value of Baht 1.00 per share. Shareholders Major shareholders per the shareholders register as of 28 August 2014: No. 1 2 3 4 5 6 7 8 9 10 11 Name-Surname Shareholders in Mr. Tan and Mrs. Eng Passakornnatee’s Group Mr. Tan Passakornnatee Mrs. Eng Passakornnatee Mr. Jaruworn Sukpanthaworn Miss Supanee Sukpanthaworn Mr. Jaruwat Sukpanthaworn Miss Varisa Passakornnatee Mrs. Jamnien Sukpanthaworn Miss Tantita Passakornnatee Miss Sukanya Sukpanthaworn Total shares held by shareholders in Mr. Tan and Mrs. Eng Passakornnatee’s Group Nominee of Mr. Tan Passakornnatee Miss Supaporn Jaroensopa Miss Jinda Songrod No. of Share % 180,000,000 120,000,000 88,767,200 40,473,000 40,000,000 30,000,000 5,150,000 1,280,000 1,250,000 13.85 9.23 6.83 3.11 3.08 2.31 0.40 0.10 0.10 506,920,200 38.99 80,370,000 50,518,000 6.18 3.89 63 No. Name-Surname No. of Share % 12 13 14 15 Miss Wanwimon Nilpruek Miss Nisakorn Induang Miss Vichitra Hematurin Miss Araya Panichayanon Total shares held by nominees of Mr. Tan Passakornnatee Total shares held by shareholders in Mr. Tan and Mrs. Eng Passakornnatee’s Group and nominees of Mr. Tan Passakornnatee Mr. Chiu Yueh-Chin 80,370,000 40,205,000 40,107,500 20,926,600 6.18 3.09 3.09 1.61 272,487,100 272,487,100 779,407,300 62,842,000 59.95 4.83 16 Other Securities -None- Dividend Policy The Company will pay dividend at the rate of at least 40% of net profits after corporate income tax and legal reserve. The dividend payment shall be made at least once each year based on the Company’s consolidated financial statements, subject to the shareholders’ approval. However, all dividend payments are subject to cash flows, investment plans, economic conditions, operating results, financial performance, liquidity of the Company and other factors as appropriate and necessary for the Company’s future business. The dividend payment shall not exceed the retained earnings shown in the separate financial statements of the Company and/or shall not have material impact on the Company’s normal business operations. The Board of Directors shall have the power to approve the interim dividend payment and shall report the matter to the subsequent shareholders’ meeting. In 2014, the Company paid the dividend from 2014 operating results and retained earnings at the rate of Baht 1.00 per share. The interim dividend at the rate of Baht 0.50 (fifty satang) was approved by the Board Meeting on 13 August 2014 and paid to the shareholders on 12 September 2014, totaling Baht 650 million. The final dividend payment at the rate of Baht 0.50 (fifty satang) was approved by the Board Meeting No. 1/2015 on 25 February 2015 and will be paid to the shareholders on 25 May 2015, totaling Baht 650 million 64 ANNUAL REPORT 2014 and subject to the shareholders’ approval. Thus, the total dividends amounted to Baht 1,300 million or 120.5% of the 2014 net profit. Such dividend payments are in accordance with the Company’s Dividend Policy. Dividend Payments Detail 2014 Dividend (Baht per share) Interim dividend Final dividend Dividend payout ratio 1.00 0.50 0.50 120.50 65 Management Structure Board of Directors Nomination and Remuneration Committee Risk Management Committee Audit Committee Internal Audit Mr. Sumol Hobamphen Executive Committee CEO Mr. Tan Passakornnateee Senior Executive Vice President Mrs. Eng Passakornnateee Consultant Design Department Executive Vice President Accounting & Finance Mr. Preecha Augcharanonda Executive Vice President Beverage Department Mr. Tanapan Khongnuntha Vice President Accounting & Finance Mr. Apichat Sukachirawat Senior Vice President Beverage Department Marketing Communication Department Legal Department Remark: Mr. Chiu Yueh-Chin is the Company’s production consultant 66 Human Resources Department Executive Vice President Factory Department Mr. Viroj Supasoon Procurement Department Marketing Communication Department ANNUAL REPORT 2014 Ichitan Group Public Company Limited has the Board of Directors and the Audit Committee which have distinct and clearly defined scope of duties and responsibilities as follows: Board of Directors As of 31 December 2014, the Board is composed of 9 directors: 1. Mr. Tan 2. Mrs. Eng 3. Mr. Chiu 4. Mr. Viroj 5. Mr. Tanapan 6. Miss Araya 7. Avm. Nathawat 8. Mr. Prasan 9. Mr. Issarachai 10. Mr. Apichat Passakornnatee Passakornnatee Yueh-Chin* Supasoon Khongnuntha Panichayanon Nimmolthanakorn** Limpipatanakul Decharit Sukachirawat Chairman Vice Chairman Director Director Director Director Independent Director and Chairman of Audit Committee Independent Director and Audit Committee Independent Director and Audit Committee Company Secretary Remark: * The Board Meeting No. 3/2014 dated 13 August 2014 resolved to appoint Mr. Chiu Yueh-Chin as a director in replacement for Mr. Preecha Augcharanonda who resigned as director on 13 August 2014. **Avm. Nathawat Nimmolthanakorn is formerly known as Avm. Paitoon Reejinda. Authorized Signatories Mr. Tan Passakornnatee or Mrs. Eng Passakornnatee shall co-sign with Mr. Chiu Yueh-Chin or Mr. Viroj Supasoon or Mr. Tanapan Khongnuntha or Miss Araya Panichayunont and affix the Company’s seal to legally bind the Company. Scope of Authority, Duty and Responsibility of Board of Directors 1. The Board has authority, duty and responsibility to manage and operate the Company’s business according to laws, objectives, Articles of Association, the resolution of the shareholders’ meeting with honesty and due care to protect the Company’s benefits. 2. To hold a Board meeting at least once every 3 months. 3. To ensure that the balance sheet and income statement of the Company as of the end the accounting period are audited and proposed to the shareholders’ meeting for approval. 4. To review and approve the Company’s policies, directions, strategies and business plans proposed by the management team. 5. To formulate the enterprise-wide Risk Management Policy and to monitor the risk management systems and procedures to effectively mitigate and control the risk impact on the Company’s business. 67 6. To set the directions, policies, business plans and budget plans and undertake monitoring and supervision of the business operations executed by the management team to ensure effective and efficient implementation of such policies, business plans and budget plans. 7. To approve the management structure and the appointment and authority scope of the Executive Committee, CEO and other committees as appropriate. The appointment and authority delegation shall in no way empower the Executive Committee to consider or approve transactions that may have conflicts of interest between the Company and affiliates, unless specific guidelines for handling such transactions that have been approved by the Board are complied with. 8. To prepare the Board’s annual report and to be responsible for the preparation and release of the Company’s financial statements to disclose the financial positions and performance in the past year which shall be approved by the shareholders’ meeting. 9. The Board may delegate to a director or directors or other persons the authority to perform acts on its behalf and under its supervision or may authorize that person perform any duties during a specific period. The Board may cancel, revoke or change the authorization when appropriate. The Board may delegate a director, directors or other persons to perform acts on its behalf and under its supervision; or delegate to such persons the authority within the scope as the Board deems appropriate. Such delegation may be annulled or amended or re-assigned to other persons as the Board deems appropriate. Such delegation shall not explicitly or implicitly vest such persons with the power to consider and approve transactions involving conflict of interest between themselves or their related parties and Company or its subsidiaries (if any) (according to the definitions under the notifications issued by the Capital Market Supervisory Board and/or the SET and/or other relevant authorities), unless otherwise permitted by applicable policies and criteria previously approved by the Board. The Board held 9 meetings in 2013 and 5 meetings in 2014 and details of the meeting attendance are as shown below: Name - Surname 1. Mr. Tan Passakornnatee 2. Mrs. Eng Passakornnatee 3. Mr. Preecha Augcharanonda 4. Mr. Chiu Yueh-Chin 5. Mr. Viroj Supasoon 6. Mr. Tanapan Khongnuntha 7. Ms. Araya Panichayanon 8. AVM. Nathawat Nimmolthanakorn 9. Mr. Prasan Limpipatanakul 10. Mr. Issarachai Decharit 68 Board of Directors 2013 9/9 9/9 8/8 8/8 7/8 8/9 8/8 8/8 8/8 2014 5/5 5/5 2/2 4/4 5/5 5/5 5/5 5/5 5/5 4/5 ANNUAL REPORT 2014 Audit Committee As of 31 December 2014, the Audit Committee is composed of 3 members: 1. Avm. Nathawat 2. Mr. Prasan 3. Mr. Issarachai Mr. Sumol Nimmolthanakorn Limpipatanakul* Decharit Hobumphen Chairman of Audit Committee and Independent Director Audit Committee Member and Independent Director Audit Committee Member and Independent Director Secretary to Audit Committee Notation: * Mr. Prasan Limpipatanakul has knowledge and experience in accounting and finance. Scope of Authority, Duty and Responsibility of Audit Committee 1. To review the Company’s financial reporting to ensure the accuracy and adequacy thereof. 2. To review the appropriateness and effectiveness of the Company’s internal control and internal audit systems, assess the independence of the internal audit team, and endorse the appointment, job transfer and employment termination of head of internal audit team or any other teams responsible for the Company’s internal audit. 3. To review and ensure the Company’s compliance with the Securities and Exchange Act, the SET’s requirements and the laws governing the Company’s business. 4. To consider, screen and nominate an independent auditor, propose audit fee and attend a meeting with the auditor without management’s participation at least once every year. 5. To review connected transactions and transactions with potential conflicts of interest in accordance with the laws and the SET’s requirements to ensure that such transactions are reasonable and contribute to the Company’s best interest. 6. To prepare the Audit Committee’s Report which is part of the Company’s annual report. The Audit Committee’s Report must be signed by the Chairman of the Audit Committee and entails, at a minimum, the following: (a) Opinions on the accuracy, completeness and reliability of the Company’s financial statements. (b) Opinions on the adequacy of the Company’s internal controls. (c) Opinions on the Company’s compliance with the Securities and Exchange Act, the SET’s rules and requirements and other laws applicable to the Company’s business. (d) Opinions on the suitability of the auditor. (e) Opinions on transactions with conflicts of interest. (f) Number of the Audit Committee’s meetings and attendance report of each Audit Committee member. (g) Opinions or observations of the Audit Committee on matters gained from their performance of duties under the Audit Committee’s charter. (h) Any other items which the Audit Committee views that should be made known to the shareholders and the general investors in accordance with the scope of duties and responsibilities assigned by the Board. 69 7. Perform any other duties as assigned by the Board, subject to the Audit Committee’s approval thereof. The Audit Committee held 9 meetings in 2013 and 5 meetings in 2014 and details of the meeting attendance are as shown below: Audit Committee Name - Surname 1.Avm. Nathawat Nimmolthanakorn 2.Mr. Prasan Limpipatanakul 3. Mr. Issarachai Decharit 2013 2014 9/9 9/9 9/9 5/5 5/5 4/5 Risk Management Committee As of 31 December 2014, the Risk Management Committee is composed of 4 members: 1. Mrs. Eng 2. Avm. Nathawat 3. Mr. Viroj 4. Mr. Tanapan Mr. Apichat Passakornnatee Nimmolthanakorn Supasoon Khongnuntha Sukachirawat Chairman of Risk Management Committee Risk Management Committee Member Risk Management Committee Member Risk Management Committee Member Secretary to Risk Management Committee Scope of Authority, Duty and Responsibility of Risk Management Committee 1. To formulate integrated risk management policies and framework which cover key risks such as business risk and operational risk. 2. To assess potential risks from internal and external factors and their impact on the organization. 3. Monitor progress of the implementation of the Company’s risk management plan. 4. To inform the Audit Committee of key risks which have impact on internal controls. 5. To report risks and risk management measures to the Board. 6. To perform any other duties as assigned by the Board. The Risk Management Committee held 4 meetings in 2013 and 4 meetings in 2014 and details of the meeting attendance are as shown below: Name - Surname 1. Mrs. Eng Passakornnatee 2. Avm. Nathawat Nimmolthanakorn 3. Mr. Viroj Supasoon 4. Mr. Tanapan Khongnuntha 70 Risk Management Committee 2013 4/4 4/4 3/4 4/4 2014 4/4 4/4 4/4 3/4 ANNUAL REPORT 2014 Nomination and Remuneration Committee As of 31 December 2014, the Nomination and Remuneration Committee is composed of 3 members: 1. Mr. Issarachai 2. Mr. Prasan 3. Mrs. Eng Mr. Apichat Decharit Limpipatanakul Passakornnatee Sukachirawat Chairman of Nomination and Remuneration Committee Nomination and Remuneration Committee Member Nomination and Remuneration Committee Member Secretary to Nomination and Remuneration Committee Remark: The 3 members of the Nomination and Remuneration Committee were appointed on 13 August 2014. Scope of Authority, Duty and Responsibility of Nomination and Remuneration Committee Nomination 1. To set criteria and policies for the nomination of members of the Company’s Board of Directors and board committees in view of the structure, composition and member qualifications before proposing thereof to the Board and/or the shareholders’ meeting as applicable for approval. 2. To screen and nominate candidates for directorships for vacancies from retirement and/or resignation and/or new position. 3. To perform any other acts related to the nomination process as assigned by the Board. 4. To evaluate performance of CEO and propose the evaluation to the Board for approval. Remuneration 1. To develop remuneration criteria and policies applicable to the Board of Directors and board committees prior to proposal thereof the Board and/or the shareholders’ meeting as applicable for approval. 2. To determine financial and non-financial remuneration of individual members of the Board in view of their scope of duties, responsibilities and performance, comparable industry benchmark and expected benefits from such directors prior to proposal thereof through the Board to the shareholders’ meeting for approval. 3. To be responsible for the Board and provide clarification and response to questions related to directors’ remuneration at the shareholders’ meeting. 4. To disclose policies, principles/rationale supporting the proposed remuneration of directors and executives in the annual filing form (Form 56-1) and the Company’s annual report. 5. To perform any other remuneration-related duties as assigned by the Board. 71 As of 31 December 2014, the Nomination and Remuneration Committee held 2 meetings and details of the meeting attendance are as shown below: Name - Surname 1. Mr. Issarachai Decharit 2. Mr. Prasan Limpipatanakul 3. Mrs. Eng Passakornnatee Nomination and Remuneration Committee 2014 2/2 2/2 2/2 Executive Committee As of 31 December 2014, the Executive Committee of is composed of 5 members as follows: 1. Mr. Tan 2. Mrs. Eng 3. Mr. Preecha 4. Mr. Viroj 5. Mr. Tanapan Mr. Apichat Passakornnatee Passakornnatee Augcharanonda Supasoon Khongnuntha Sukachirawat Chairman Member Member Member Member Secretary to Risk Management Committee Scope of Authority, Duty and Responsibility of Executive Committee 1. The Executive Committee shall have the authority to execute policies of the Board under the laws and the Company’s rules and regulations, except for matters which the laws stipulate as being subject to the approval from the shareholders’ meeting. 2. To formulate and recommend to the Board the Company’s business policies, directions and strategies. 3. To propose business plans, managing authority, business plans and budget plans to the Board for approval and execute the Company’s business plans and strategies in accordance with the policies and business plans presented to the Board. 4. To execute the Company’s general affairs and determine the organizational and management structures and the human resources management process, from recruitment to training, employment and employment termination. 5. To approve the Company’s filing of credit or loan applications with banks including guarantee, payment or disbursement transactions of the Company in its normal course of business such as investment and payment of expenses. Each transaction shall be capped at Baht 200 million or its equivalent or at the amount approved by the Board. Change to the said limit is subject to the Board’s approval. 72 6. To approve the opening of deposit accounts with banks and to specify payment amount authorizers of the Company’s deposit accounts. ANNUAL REPORT 2014 7. To approve the budget for salary increase or annual merit increase and bonus payment to employees, except for CEO and above. 8. To approve the appointment and removal of the Company’s employees below CEO level. 9. To perform any other duties as assigned. The delegation of authority and duty by the Executive Committee shall not explicitly or implicitly vest the attorneys-in-fact appointed through power delegation or sub-delegation to approve transactions involving conflict of interest between themselves or their related parties according to the definitions under the notifications issued by the Capital Market Supervisory Board and/or the SET and/or other relevant authorities) and Company or its subsidiaries and/or related companies. Such transactions are beyond the scope of authority of the Executive Committee and must be approved by the Board or the shareholders’ meeting (as applicable), unless otherwise classified as transactions in normal course of business and on an arm’s length basis according to the definitions determined by the Market Supervisory Board and/or the SET and/or relevant authorities. The Executive Committee held 6 meetings in 2013 and 12 meetings in 2014 and details of the meeting attendance are as shown below: Name - Surname 1. Mr. Tan Passakornnatee 2. Mrs. Eng Passakornnatee 3. Mr. Preecha Augcharanonda 4. Mr. Viroj Supasoon 5. Mr. Tanapan Khongnuntha Executive Committee 2013 6/6 6/6 6/6 6/6 6/6 2014 12/12 12/12 12/12 11/12 12/12 Chief Executive Officer The Board Meeting No. 6/2013 dated 17 June 2013 resolved to appoint Mr. Tan Passakornnatee as Chief Executive Officer with the scope of authority, duty and responsibility as detailed below: Scope of Authority, Duty and Responsibility of Chief Executive Officer 1. To oversee business and/or routine operations of the Company. 2. To develop and propose policies, business plans, business strategies and annual budget plans of the Company through the Executive Committee to the Board for approval. 3. To execute or manage operations in accordance with policies, plans and budgets approved by the Board and/or the Executive Committee. 73 4. To regularly monitor and evaluate the Company’s performance and report the results and progress to the Executive Committee, the Audit Committee and the Board. 5. To approve the Company’s filing of credit or loan applications with banks including guarantee, payment or disbursement transactions of the Company in its normal course of business such as investment and payment of expenses. Each transaction shall be capped at Baht 100 million or its equivalent or at the amount approved by the Board. Change to the said limit is subject to the Board’s approval. Transaction Purchases and payments related to business administration Asset purchase order and payment Payment under contract Asset amortization Entertainment expense Donation and promotional good expense Limit Up to Baht 50 million Up to Baht 50 million Up to Baht 100 million Up to Baht 20 million Up to Baht 20 million Up to Baht 20 million 6. To approve expenses related to the Company’s operations in its normal course of business such as procurement deals whereas the limit of each transaction shall be according to the table of approval authority approved by the Board and within the annual budget approved by the Board as well as to execute agreements and contracts related to such deals. 7. To determine the organizational structure and approve the appointment, recruitment, job transfer, remuneration, compensation, bonus and employment termination of employees at senior executive vice president level and under. 8. To issue directives, regulations, announcements and statements necessary for the Company’s business operations for compliance with the policies, the Company’s benefits and sound disciplines of the Company. 9. To work with the head of internal audit team and the Audit Committee on supervision of business operations and risk management of the Company in accordance with the Company’s objectives and Articles of Association and the Corporate Governance Policy. 10. To appoint committees and working teams in order to support effective and transparent operation. CEO may delegate to a person or persons the authority to perform acts under his supervision; or delegate to such persons the authority within the scope as CEO deems appropriate. Such delegation may be annulled or amended or re-assigned to other persons as CEO deems appropriate. 11. Perform any other duties as assigned by the Executive Committee or the Board. The delegation of authority and duty by CEO shall not explicitly or implicitly vest the attorneys-in-fact appointed through power delegation or sub-delegation to approve transactions involving conflict of interest between themselves or their related parties according to the definitions under the notifications issued by the Capital Market Supervisory Board and/or the SET and/or other relevant authorities) and Company or its subsidiaries and/or related companies. Such transactions are beyond the scope of authority of CEO and must be approved by the Board or the shareholders’ meeting (as applicable), unless otherwise classified 74 ANNUAL REPORT 2014 as transactions in normal course of business and on an arm’s length basis according to the definitions determined by the Market Supervisory Board and/or the SET and/or relevant authorities. Management Team As of 31 December 2014, the Company’s management team is composed of 5 executives as follows: 1. Mr. Tan 2. Mrs. Eng 3. Mr. Preecha 4. Mr. Tanapan 5. Mr. Viroj Passakornnatee Passakornnatee Augcharanonda Khongnuntha Supasoon Chief Executive Officer Senior Executive Vice President Executive Vice President – Accounting & Finance Executive Vice President – Beverage Department Executive Vice President – Factory Department Directors and Executives’ Holdings of Securities According to the Company’s policy, directors and executives shall report the changes in their holdings of the Company’s securities to the Board by submitting Form 59-2 to Company Secretary who is responsible for compiling and presenting such information to the Board meeting. No. 1 2 3 4 5 6 7 8 9 Name Mr. Tan Passakornnatee Mrs. Eng Passakornnatee Mr. Chiu Yueh-Chin Miss Araya Panichayanon Mr. Viroj Supasoon Mr. Tanapan Khongnuntha Avm. Nathawat Nimmolthanakorn Mr. Prasan Limpipatanakul Mr. Issarachai Decharit Number of Shares Number of Shares As of 31 Dec 13 As of 31 Dec 14 Increase (Decrease) 180,000,000 120,000,000 64,842,000 20,926,600 7,300,000 6,700,000 - 180,000,000 120,000,000 59,858,000 20,926,600 7,300,000 6,670,000 - Remark (4,984,000) (30,000) - Report on Holdings of Securities by Retiring and Resigning Director in 2013 and 2014 No. 1 Name Mr. Preecha Augcharanonda Number of Shares As of 31 Dec 13 2,000,000 Number of Shares Increase As of 31 Dec 14 (Decrease) 1,500,000 (500,000) Remark 75 Company Secretary The Company has appointed Mr. Apichat Sukajirawat, First Senior Vice President, Accounting & Finance, as Company Secretary, effective from 18 February 2013, to perform company secretariat functions in accordance with the Securities and Exchange Act (No.4) B.E. 2551. The Board has supported and encouraged Company Secretary to continuously develop his knowledge and abilities pertaining to laws, accounting and company secretariat function through training courses and seminars. Profile of Company Secretary is as detailed below: Name-Surname Position Age Nationality Education/ Training : : : : : : Shareholding (%) Family relationship with Executive : : Mr. Apichat Sukachirawat Company Secretary 49 years Thai Bachelor of Accounting, Ramkhamhaeng University DAP 106/2013, Thai Institute of Directors Association Company Secretary Program, Class 30 0.45 None Work experience : Year 2011 - Present 2002 - 2011 1998 - 2002 1995 - 1998 1994 - 1995 Position Vice President, Accounting & Finance Vice President, Accounting Department Accounting Manager Accounting Manager Accountant Company Ichitan Group Pcl. Oishi Group Pcl. Wedding Business Consultant Co., Ltd. BKK(1985) Pcl. Thai-Denmark Swine Breeder Pcl. Duty and Responsibility of Company Secretary Company Secretary must perform duties as stipulated in Section 89/15 and Section 89/16 of the Securities and Exchange Act (No. 4) B.E. 2551 which has come into force since 31 August 2008 and demonstrate responsibility, due care, honesty and compliance with the laws, the Company’s objectives and Articles of Association, and the resolutions of the Board and the shareholders’ meetings. Statutory duties of Company Secretary are as follows: 1. Prepare and retain the following documents: • Register of directors • Invitation to Board meetings, minutes of Board meetings and annual reports of the Company. • Invitation to shareholders’ meetings and minutes of shareholders’ meetings. 76 ANNUAL REPORT 2014 2. Retain reports on conflicts of interest of directors or executives • Directors and executives have the duty to “report their conflicts of interest”. (It means that directors and executives have the duty to report the conflicts of interest of themselves and their related parties to the Company.) • Company Secretary shall submit a copy of such report to the Chairman of the Board and the Chairman of the Audit Committee within 7 days from the receipt thereof. • There must be an effective filing system to ensure that all relevant documents and evidence are retained properly and completely and are available for verification for at least 5 years from the date such documents and information are prepared. 3. To perform any other duties according to the notifications of the Capital Market Supervisory Board. Remuneration of Director and Executive The remuneration of directors and executives has been clearly and transparently determined and are commensurate with their scope of duties and responsibilities. In addition, the remuneration has been properly reviewed based on considerations such as the Company’ best interest. Remuneration of directors and executives in 2012 – 2014 are as detailed below: Remuneration of Board of Directors It is the Company’s policy not to offer remunerations for service as Board members to executive directors – directors being on the Company’s management team or the Company’s employees. Only non-executive directors are entitled to remunerations, in the form of monthly salary and attendance fee, which were approved by the Board Meeting No. 1/2014 dated 7 March 2014 as detailed below: Position Monthly Salary (THB) Attendance Fee (THB/Meeting) Chairman of the Board Board member 45,000 35,000 - Remuneration of Audit Committee The Board Meetings No.1/2014 dated 7 March 2014 approved the remunerations of the Audit Committees in the form of monthly salary and attendance fee as detailed below: Position Monthly Salary (THB) Chairman of the Audit Committee Audit Committee member 45,000 35,000 Attendance Fee (THB/Meeting) - 77 Remuneration of Audit Committee in 2013 – 2014 Name – Surname Position 1. Avm. Nathawat Nimmolthanakorn 2. Mr. Prasan Limpipatanakul 3. Mr. Issarachai Decharit Total Chairman Member Member Monthly Salary and Attendance Fee (THB) 2013 540,000 420,000 420,000 1,380,000 2014 540,000 420,000 420,000 1,380,000 Remuneration of Executive Committee Members of the Executive Committee are not entitled to remunerations for their positions on the Executive Committee as they are the Company’s executives. Remuneration of Risk Management Committee It is the Company’s policy to offer remunerations for service as Risk Management Committee members only to those who are not on the Company’s management team or are the Company’s employees. The Board Meeting No. 1/2014 dated 7 March 2014 approved the remunerations of the Board committees, in the form of monthly salary and attendance fee, as detailed below: Position Chairman of each Board committee Member of each Board committee Monthly Salary (THB) Attendance Fee (THB/Meeting) - 15,000 15,000 Remuneration of Risk Management Committee in 2013 – 2014 Name – Surname 1. Mrs. Eng Passakornnatee 2. Avm. Nathawat Nimmolthanakorn 3. Mr. Viroj Supasoon 4. Mr. Tanapan Khongnuntha Position Chairman Member Member Member Monthly Salary and Attendance Fee (THB) 2013 2014 30,000 - 60,000 - Remark: In 2013, the Risk Management Committee held 4 meetings and the remunerations shown in the above table are for 2 meetings which were held after the remunerations were approved by the Board Meeting No. 6/2013 dated 17 June 2013. 78 ANNUAL REPORT 2014 Remuneration of Nomination and Remuneration Committee According to the Company’s policy, remuneration for the Nomination and Remuneration Committee shall be paid only to members who are not the Company’s executives or employees. Monthly salary and attendance fee of the Nomination and Remuneration Committee are within the remuneration framework for Board committees as approved by the Board Meeting No. 1/2014 dated 7 March 2014, details of which are as shown below: Position Monthly Salary (THB) Attendance Fee (THB/Meeting) Chairman of each Board committee Member of each Board committee - 15,000 15,000 Remuneration of Nomination and Remuneration Committee in 2014 Name - Surname 1. Mr. Issarachai Decharit 2. Mr. Prasan Limpipatanakul 3. Mrs. Eng Passakornnatee Position Monthly Salary and Attendance Fee (THB) 2557 30,000 30,000 - Chairman Member Member Remark: In 2014, the Nomination and Remuneration Committee held 2 meetings. Remuneration of Executive The remunerations in the form of monthly salary, bonus and other compensations paid by the Company to its executives in 2013 – 2014 are as follows: Remuneration of the Company’s Executive in 2013 – 2014 Type Salary Bonus Total 2013 No. of Executive 5 5 2014 Amount (THB) 20,988,000 2,247,000 23,235,000 No. of Executive 6 6 Amount (THB) 22,767,040 6,041,760 28,808,800 Remark: In 2013, Mr. Tan Passakornnatee and Mrs. Eng Passakornnatee waived their right to the remunerations. Thus, the figures shown above represent the bonus of 3 executives. 79 Other Remuneration In 2013 – 2014, the provident fund contributions paid by the Company for its executives are as detailed below: 2013 Type Contribution to provident fund Total No. of Executives 5 2014 Amount No. of Executives (THB) 942,600 6 942,600 Amount (THB) 1,032,352 1,032,352 Personnel Recognizing that personnel is a valuable resource, the Company attaches importance to human resources management and continuous people development to ensure that its personnel is highly capable and knowledgeable as human resources is a key driver of the Company’s competitiveness. Manpower As of 31 December of 2013 - 2014, the numbers of the Company’s employees were 211 and 275, respectively. Manpower in 2013 – 2014 by Department Department 1. Office of CEO 2. Accounting & Finance 3. Beverage Marketing 4. Production Plant 5. Design 6. Marketing Communications 7. Online Marketing 8. Human Resources 9. Business Development 10. Procurement 11. Legal 12. Internal Audit Total 80 Manpower 31 Dec 13 14 12 19 125 6 3 5 8 3 13 2 1 211 31 Dec 14 12 12 30 181 6 3 5 9 2 11 2 2 275 ANNUAL REPORT 2014 Significant Change in Number of Employee in Previous 3 Years In 2014, the Company increased its manpower in certain departments such as production plants and beverage marketing to support our production capacity expansion. Remuneration of Employee The Company offered to its employees the remuneration in the form of salary, bonus, provident fund contribution, group insurance, overtime pay and other types of compensation. Remunerations paid to employees (exclusive of executives) in 2013 – 2014 are as detailed below: Remuneration (THB) 2013 Salary Bonus Other remunerations* Total 67,092,573 15,214,014 48,419,902 130,726,489 2014 84,707,846 19,773,120 50,658,917 155,139,883 Remark: *Other remunerations refer to the contributions to provident fund and social security fund, vehicle allowance, telephone allowance, labor costs, overtime pay, employee welfare and benefits, and share-based payment etc. Major Labor Dispute in Previous 3 Years The Company has no labor dispute with its executives or employees with respect to right infringement or employment contract violation. People Development Policy The Company is fully aware of the importance of people development to the enhancement of organizational effectiveness and efficiency, including competitive advantages and sustainable growth and achievements. Therefore, the Company has consistently encouraged its employees to sharpen their skills, expand their knowledge and internalize the deep sense of social responsibility through the following: • To promote the career advancement of our employees, the Company has developed career growth roadmap to communicate to employees their promotion and job transfer opportunities, including the skills and competencies required for such positions. Also, criteria for promotion/job transfer have been clearly defined. • Our training and people development programs primarily evolve around training plans which have been customized to the development needs in terms of competencies, attitude and functional skills. Development and training have been conducted through in-house and external programs and regularly offered to employees at all levels across the organization to ensure that our employees are equipped with knowledge and competencies required for their effective performance. 81 Corporate Governance Corporate Governance Policy Ichitan Group Public Company Limited is committed to the principles of corporate governance and the continuous enhancement of its corporate governance system to achieve business excellence and operational effectiveness for the best benefits of our shareholders and stakeholders. The Company has consistently adhered to the principles of integrity, business ethics, transparency and disclosure and translated such principles into its Corporate Governance Policy which is based on the SET’s guidelines. The policy is enforced on and complied with by all directors, executives and employees of the Company. Corporate Governance Goal The Board has attached importance to the corporate governance principles and aimed to ensure the Company’s proper compliance with the laws and applicable rules, practices and requirements to achieve transparency and fairness in all dimension of the Company’s business operations. The Board has also given priority to the Company audit, internal control, risk management and disclosure which to foster continuous and sustainable growth of the Company and generate the maximum value and return to all shareholders and stakeholders within the scope permissible by the law and business codes of conducts. In addition, the Company has actively promoted the awareness of the corporate governance principles and policy and the adherence thereto through the Corporate Governance Handbook and the Code of Conduct of the Company which are available on the Company’s website in Thai and English to facilitate easy access thereto by all employees, shareholders, investors, stakeholders and relevant parties. The corporate governance practices of the Company can be divided into 5 parts as follows: Part 1 Rights of Shareholders Part 2 Equitable Treatment of Shareholders Part 3 Roles of Stakeholders Part 4 Disclosure and Transparency Part 5 Responsibilities of the Board Part 1 Rights of Shareholders The Company recognizes the importance and rights of shareholders and encourages shareholders to exercise their rights. Policies and guidelines of the Company in respect of the promotion of shareholders’ right are as detailed below: 82 ANNUAL REPORT 2014 1. The Company provides shareholders with information in respect of the date, time, venue, agenda items and all supporting documents in advance of shareholders’ meetings. Shareholders are notified of meeting and voting procedures which are published on the Company’s website to allow them sufficient time to study the meeting documents before the documents containing such information are delivered to them. 2. The Company does not perform any act that could hinder shareholders from studying the Company’s information. 3. The Board facilitates shareholder participation and voting at meetings. 4. The chairman of the meeting allocates adequate time for discussion and encourages shareholders to express their opinions and ask questions related to the Company. Shareholders are offered opportunities to submit their questions to the Company prior to the meeting date. 5. All directors attend shareholders’ meetings and shareholders can raise questions directly to the chairpersons of the committees responsible for any specific issues. Investor Relations Division of the Company is in charge of releasing the Company’s information to shareholders, investors, analysts, the press and the general public and ensuring that the disclosures are accurate, complete, timely, transparent and fair to all audiences. Information disclosed includes, for example, the Company’s information, financial statements, annual report, notice of shareholders’ meeting, SET filings and news about the Company’s securities. Such information is available in Thai and English under the section of “Investor Relations” on the Company’s website at www.ichitangroup.com. Shareholders may directly contact Investor Relations Division via e-mail at [email protected] or www.ichitangroup.com. Part 2 Equitable Treatment of Shareholders The Company offers equal opportunity to all shareholders and has a policy on equitable treatment of shareholders as follows: 1. The Board facilitates the minority shareholders’ proposal of meeting agenda in advance of the shareholders’ meeting date. 2. The Board has set clear criteria for deciding whether agenda items proposed by minority shareholders should be included on the meeting agenda. 3. Unless necessary, the Board refrains from adding extra items to the meeting agenda without advance notification thereof, especially important matters which require substantial time for studying by shareholders,. 4. The Board establishes procedures for the nomination of directors by minority shareholders. 5. The Board encourages shareholders to use proxy form on which they can specifically indicate their votes and to appoint at least 1 independent director as their proxy. 83 6. The Board encourages shareholders to use voting ballots for important agenda items to promote transparency and verification. 7. The Board allows shareholders to appoint directors on an individual basis. 8. The Board establishes guidelines for information retention and protection and the Insider Trading Policy in writing for enterprise-wide compliance. All directors and executives are required to report their shareholdings to the Board in accordance with applicable laws. In 2014, the Company held 1 shareholders’ meeting, i.e. the annual general meeting of shareholders (AGM) no. 1/2014 on 31 March 2014. In this regard, the notice of the AGM containing the agenda, the Board’s recommendations, the minutes of the previous meeting, accompanying documents, proxy form and proxy appointment instruction had been submitted at least 7 days prior to the meeting to all shareholders whose name appeared on the register as of the closing date. The notice had been published in at least one daily newspaper for at least 3 consecutive days. Shareholders were offered the opportunity to appoint independent directors or any other persons as their proxy. In the 2014 AGM, all of the 9 directors of the Company attended the meeting and the chairman of the Board presided over as the chairman of the AGM. Details regarding the quorum, voting and vote counting procedures, and instruction on use of ballots were notified to the AGM. The voting results were transparently disclosed. Shareholders were allowed sufficient opportunities and time to raise questions and offer opinions, and received satisfactory and clear responses and clarification from directors and executives. The meeting proceeded in full compliance with the laws and registration could be made before the meeting began until it was adjourned. The minutes of the meeting were accurately and completely recorded and systematically retained for the ease of reference and verification. Part 3 Roles of Stakeholders The Company is committed to equitable treatment of external and internal stakeholders and justly protect the interest of all stakeholders in accordance with the laws and its policy on stakeholder treatment. The Audit Committee of the Company is an independent entity in charge of oversight the Company’s compliance thereof. The Company’s guidelines on the rights of stakeholders are as follows: • Customers: We aim to deliver the maximum value and satisfaction to all groups of customers by offering the best and quality products. • Shareholders: The Company strives to continuously achieve solid growth and strong business momentum through efficient and transparent business operations in order to generate suitable and fair returns for shareholders and increase the Company’s value. The Company has implemented effective internal control, internal audit and risk management systems and equitably treated all shareholders. Disclosures have been made in a timely, complete and accurate manner. • Employees: The Company has continuously developed its human resources and offered career advancement opportunities to employees. All employees receive equitable treatment and suitable and fair remuneration which is commensurate with their knowledge, abilities and performance. 84 ANNUAL REPORT 2014 • Suppliers and creditors: The Company aims to establish trust, cooperation and positive relationship with its suppliers and creditors though its compliance with agreed terms and conditions and legal and regulatory requirements for the mutual benefits of all parties concerned. • Partners and competitors: The Company treats all partners and competitors with fairness and adheres to the laws and rules governing confidentiality as well as fair competition best practices. The Company does not use dishonest or unethical means to gain information about its partners and competitors • Community, society and environment: The Company is responsible for the society and the environment and sensitive to issues which might affect the community, society and environment. The Company cares about environmental protection, operates in accordance with business ethics and supports activities that contribute to the society. Additionally, the Company fosters the environmental awareness and a sense of social responsibility among its employees. The Company will continue to comply with applicable legal and regulatory requirements in order to promote and protect the stakeholders’ rights. Part 4 Disclosure and Transparency The Company fully and accurately releases its financial and non-financial information in accordance with applicable disclosure rules of the SEC and the SET as follows: 1. The Company discloses information in accordance with applicable requirements through the SET, annual filing (Form 56-1) and annual report. Information about the Company in Thai and English is also available through the Company’s website. 2. The Board discloses the approved Corporate Governance Policy in brief and the results of the implementation thereof through the Company’s annual report and website. 3. The Company is responsible for the consolidated financial statements of the Company and its subsidiaries including financial information disclosed in the annual report. 4. The Company publishes the scope of roles and responsibilities of the Board and committees, the number of meetings held, the meeting attendance report, and opinions on their performance in its annual filing form (Form 56-1). 5. The Company discloses in the annual filing form (Form 56-1) the remuneration of directors and executives which are commensurate with their scope of duties and responsibilities. Investor Relations Investor Relations Division of the Company is in charge of releasing the Company’s information to shareholders, investors, analysts, the press and the general public and ensuring that such disclosure is fair and equitable to all parties. Ichitan has attached importance to the disclosure of the Company’s information through IR activities in which the management team also participates to promote correct understanding about the Company’s operations and management direction as well as positive relationship and exchange of beneficial opinions and ideas. 85 The Company’s IR activities in 2014 include 3 analyst meetings, regular company visit programs and correspondence with investors and the press via e-mail and telephone. Information about the Company, its performance, financial statements, news, securities information, and annual report etc. is regularly updated and available from the Company’s website under the section of Investor Relations. Investors can directly contact Investor Relations via telephone at 02-716-5555 or via e-mail at [email protected]. Part 5 Responsibilities of the Board 1. Board Composition • The Board is comprised of 9 directors, of which 6 are executive directors and 3 are non-executive directors, and their term of position is 3 year. The 3 non-executive directors qualify as independent directors in accordance with the SEC’s qualification criteria. The number of the Company’s independent directors meets the SEC’s requirements which stipulate that, among other, listed companies must have independent directors at least one-third of their total directors. The Company’s directors possess expertise and knowledge in different fields such as business administration, accounting and finance which are considered beneficial and relevant to the Company’s business. • The Company has 4 board committees, i.e. the Audit Committee, the Executive Committee, the Risk Management Committee and the Nomination and Remuneration Committee. • The Chairman of the Board also serves as the Chief Executive Officer of the Company. In this regard, the Company has clearly defined the scope of authority, duty and responsibility to promote the checks and balances. • The Company has delegated to the Company Secretary the duty to provide advice and consultation regarding legal and regulatory requirements applicable to the Board as well as to ensure that the Board’s resolutions are duly implemented. 2. Board Committees • The Board decentralizes its authority to promote efficient and transparent management. The Audit Committee is delegated by the Board to review compliance of the Company with corporate governance principles whereas the Risk Management Committee is responsible for review and screen specific matters to support decision-making by CEO. • The Chairman of the Audit Committee must be an independent director to promote the transparency and independence. 3. Roles and Responsibilities of the Board The Board is comprised of members who possess suitable qualifications in terms of their leadership, knowledge, skills and expertise in various fields. Roles and responsibilities of the Board are as follows: • To determine the vision, mission, strategies, and annual business and budget plans of the Company, including to meet regularly to oversee and monitor the management in implementing the business plan efficiently and effectively. 86 ANNUAL REPORT 2014 • To formulate written policies pertaining to good corporate governance, professional and business ethics, codes of conduct for directors, executives and employees for internal implementation. • To set guidelines and policies governing transactions with potential conflicts of interest in order to protect the interest of the Company and its shareholders. In this regard, the Board and the Audit committee have established relevant operating and disclosure procedures. • To set financial policies which contribute to effective controls and compliance. • To formulate enterprise-wide Risk Management Policy and regularly inform the management of relevant updates. Corporate Governance Policy The Company has in place the written Corporate Governance Policy which has been approved by the Board. The policy has been regularly reviewed and consistently implemented across the organization. Following the SET-listing of Ichitan securities, the Company has additionally complied with all rules and regulations stipulated by the SEC and the SET. The corporate governance report is part of the annual report and annual filing (Form 56-1). Business Code of Conduct The Company has determined codes of conduct for directors, executives and employees to promote integrity and fairness, including proper treatment of all stakeholders, the public and the society. The codes of conduct have been communicated across the organization and conformity thereto has been continuously monitored. Conflicts of Interest The Company’s policy on conflicts of interest is based on the principle that all transactions shall be only for the Company’s best interest and acts potentially causing conflicts of interest shall be avoided. Parties related to or involving in such transactions shall report to the Company their relationship or connection with respect to such transactions and shall not participate in the consideration or approval process of such transactions. Connected transactions and conflicts of interest shall be carefully reviewed by the Audit Committee in accordance with the requirements and rules stipulated by the SEC and the SET before proposal there of to the Board as well as disclosed in the annual report and the annual filing (Form 56-1). Internal Control System The Company has recognized the importance of the internal control system at operational and managerial levels as a key contributor to business excellence. Therefore, the Company has clearly determined the authority and duties of operating officers and executives in writing to support effective asset utilization and control, segregation of duties of operating officers, supervisors and controllers. Also, the Audit Committee is tasked with the review of the Company’s internal control and internal audit systems to ensure appropriateness and effectiveness of the systems. Independent experts have been engaged in the monitoring and review of our internal control system and report the results to the Audit Committee to ensure that core activities of the Company are in line with relevant guidelines and effective. 87 Risk Management The Company has reviewed the adequacy of its internal control system in order to identify areas for improvement and further enhance the effectiveness of its operations. Reporting The Audit Committee is in charge of reviewing financial statements which had been proposed and reviewed by the Accounting Department and the auditors on a quarterly basis. The Board is responsible for the Company’s financial statements and financial information (report on the Board of Directors’ responsibility for financial reporting) disclosed in the annual report. The Company’s financial statements have been prepared in accordance with the accounting standards and certified/reviewed by the Company’s auditors. Important information, financial information and non-financial information are regularly and completely disclosed and based on actual facts. Succession Plan The Board recognizes that the efficiency, effectiveness and continuity of business are vital to the sustainable growth of the organization. Therefore, in 2014 the Company first initiated the succession planning to the Company has successors for its key positions. 4. Board Meetings • The Company regularly holds Board meetings at least once every 3 months and special meetings of the Board will be held as and when necessary. All directors attach importance to the Board meetings and attended every meeting. The invitation to Board meetings together with meeting agenda are submitted to directors at least 7 days prior to each meeting to allow directors sufficient time to study the materials. • Directors can freely and openly express their opinions and ideas at Board meetings and the minutes of the meetings are duly recorded in writing. Meeting minutes which have been adopted by the Board are properly retained and available for verification by directors and related parties. Senior executives have been invited to attend Board meetings to provide information and opinions on matters discussed by the Board. • The Chairman of the Board is responsible for determining the meeting agenda and all directors are vested with the authority to independently propose agenda items as they deem appropriate. • Senior executives also participate in Board meetings. 5. Remuneration The Company has appointed the Nomination and Remuneration Committee which is responsible for offering to the Board its opinions on the remuneration of each committee which shall be in accordance with the Director Remuneration Policy of the Company. Remuneration of directors has been transparently and clearly determined based on the Company’s operating results and are commensurate with the scope of duties and responsibilities of each director. The Company aims to offer appropriate remuneration scheme to effectively retain competent directors for the Company’s best interest. The director remuneration is subject to approval from the annual general meeting of shareholders. Remuneration of directors and executives is disclosed based on the template of the SEC. 6. Director and Executive Development 88 The Board encourages all directors and executives to regularly attend training courses and seminars to enhance their knowledge in all related fields, develop their job-related competencies and strengthen their corporate governance repertoire. ANNUAL REPORT 2014 7. Self-Evaluation of the Board The Board has a policy to adopt self-assessment for the performance of the Board and individual directors. Nomination of Director and Executive In the process of director nomination, the Nomination and Remuneration Committee takes into consideration the qualifications of candidates in terms of their education, knowledge, abilities work experience as well as the applicable legal and regulatory requirements. The nominations are proposed to the Board and/or the shareholders’ meeting for consideration and approval in accordance with the Company’s policy. Director The nomination of directors shall be in accordance with the Company’s Articles of Association and the nominated candidates shall possess all qualifications required under the Public Limited Companies Act B.E. 2535, the Securities and Exchange Act and the notifications of the SEC, the Market Supervisory Board and/or other relevant regulations. According to the Company’s Articles of Association, the Board shall be comprised of at least 5 members and not less than half of the total Board members shall have domicile in Thailand. The Board shall elect the Chairman of the Board and, where appropriate, the Vice Chairman of the Board. Directors shall be elected at the shareholders’ meeting according to the majority and the following procedures: 1. Each share shall represent one vote. 2. ach shareholder shall cast all the votes he/she has to elect one or several directors and may not split the votes for multiple candidates. 3. The candidates who receive the highest votes will assume directorship according to vacant seats applicable to a particular election. In case of vote tie, the Chairman shall have the casting vote. At each annual general meeting of shareholders, one-third of the directors, or the closet thereof if the number cannot be evenly divided, shall retire by rotation. Retiring directors may be re-elected. It shall be deemed that directors vacate their seat upon their death, resignation, disqualification, or possession of prohibited characteristics under the Public Limited Companies Act, or removal according to the resolution of the shareholders’ meeting or the court’s order. As such, the Board may appoint persons who possess suitable qualifications and no prohibited characteristics under the Public Limited Companies Act to fill the vacated seat in the subsequent Board meeting, unless the remaining term of such directors is less than 2 months. The office terms of a new director appointed in replacement for another director shall be equal to the remaining office term of the directors whom he/she replaces and such director appointment by the Board shall require a three-fourths majority of the remaining directors. Directors are prohibited by the Company from operating a business of the same nature as and in competition with the Company, or to enter to be a partner in an ordinary partnership or a partner of limited liability in a limited partnership or a director of a private company or other company which operates a business of the same nature as and in competition with the Company, whether for their own or others’ benefit, unless the meeting of shareholders had been notified prior to their appointment as director of the Company. Directors shall notify the Company without delay of their direct or indirect interest in any contracts of the Company or changes to their holding of shares or debentures issued by the Company or its affiliates. 89 Independent Director The Board shall select independent directors in accordance with the qualification criteria under the Public Limited Companies Act B.E. 2535, the Securities and Exchange Act, the notifications of the SEC and the Market Supervisory Board, and any other applicable notifications and/or rules and regulations. The Company shall have at least 3 independent directors or one-third of its directors, whichever is higher. Qualifications of Independent Director Independent directors shall not have business with the Company or involve in the management of the Company or have any interest related to the Company in a way that may affect the independence of their decisions. Independent directors must possess the following qualifications: 1. An independent director and his/her related parties shall altogether hold not more than 1% of the total shares with voting right of the Company, its parent company, subsidiaries, affiliates, major shareholders or persons having controlling power over the Company. 2. An independent director must not be and have been executive director, employee, salaried consultant or the Company, its parent company, subsidiaries, affiliates, sister companies, major shareholders or persons having controlling power over the Company unless he/she has ended such status for 2 years or longer from the date of filing permission with the SEC. The above prohibited characteristics exclude the independent director’s status as a civil servant or consultant of a government entity which is the major shareholder or person having controlling power over the Company. 3. An independent director must not have blood relationship or relationship through legal registration as a father, mother, spouse, sibling, and child, including as a spouse of a child, of any director, executive, major shareholder, person with controlling power, or person nominated as director, executive or person with controlling power of the Company or its subsidiaries. 4. An independent director must not have or have had any business relationship with the Company, its subsidiaries, affiliates, major shareholder, or person with controlling power of the Company in a manner that may hinder his/her independent judgment. An independent director must not have or have had been a significant shareholder or a person with controlling power of an entity which has business relationship with the Company, its parent company, subsidiary, affiliate, major shareholder, or person with controlling power, unless he/she has ended such status for 2 years or longer from the date of filing permission with the SEC. Business relationship stated above refers to any commercial transactions in the normal course of business, real property leasing, transactions related to assets or services, lending or borrowing, guarantee, collateralization or any other similar acts which cause the Company or its counterparty to have debt obligations to the other party in the amount of 3% of the Company’s net tangible assets or Baht 20 million and above, whichever is lower. The calculation of such debt obligations shall be according to the calculation method for connected transactions under the notifications of the Capital Market Supervisory Board on the criteria for connected transactions mutatis mutandis and shall also cover the period of 1 year prior to such business relationship. 90 5. An independent director must not be or have been an auditor of the Company or its parent company, subsidiary, affiliate, major shareholder or person with controlling power of the Company; or a significant shareholder or a person with controlling power or a partner of an auditing firm which provides auditing service for has the Company, its parent company, subsidiary, affiliate, major shareholder, or person ANNUAL REPORT 2014 with controlling power, unless he/she has ended such status for 2 years or longer from the date of filing permission with the SEC. 6. An independent director must not be or have been a professional service provider, including legal or financial advisor who obtains fee of more than Baht 2 million per year from the Company, its parent company, subsidiary, affiliate, major shareholder, person with controlling power of the Company; or significant shareholder or person with controlling power or a partner of such professional service provider, unless he/she has ended such status for 2 years or longer from the date of filing permission with the SEC. 7. An independent director shall not be a representative of the Company’s directors, major shareholder or shareholder being related party of the Company’s major shareholder. 8. An independent director shall not operate business of the same nature as and in competition with the Company or its subsidiary; shall not be significant partner of partnership, or executive director, employee, officer or salaried consultant or holder of more than 1% of the shares with voting rights of business of the same nature as and in competition with the Company or its subsidiary. 9. An independent director shall not possess any other characteristics which can obstruct his/her independent judgment of the Company’s business operations. An independent director may be assigned by the Board to make collective decisions related to business operations of the Company, its parent company, subsidiary, affiliate, sister company, major shareholder or person with controlling power of the Company. If a person appointed as an independent director has or had business relationship or is or was a professional service provider which resulted in the transactions worth more than the amount specified in 4) or 6) above, the Board may grant relaxation for such appointment provided that it does not affect his/her independence and the following information has been disclosed in the notice of shareholders’ meeting under the agenda item of independent director appointment: 1. Nature of business relationship or professional service which cause the deviation from the qualification requirements. 2. Rationale and necessity for the appointment or retention of such person as the Company’s independent director. 3. The Board’s opinion on the nomination of such person as an independent director. Executive The nomination and selection policies and criteria for the position of CEO are determined by the Board whereas the same for senior executive vice president and executive at vice president level and above are determined by CEO. Control over Use of Insider Information To promote the Company’s good governance system, the Board has approved the Insider Information Policy as follows: 91 1. Directors, executives, employees and staff of the Company shall protect confidential information and/ or inside information of the Company. 2. Directors, executives, employees and staff of the Company shall not disclose confidential information and/or insider information of the Company for their personal gain or interest of others either directly or indirectly, regardless of whether they receive compensation for such disclosure. 3. Directors, executives, employees and staff of the Company, including their spouse and dependent children shall not use insider information of the Company for the benefit of securities trading, securities transfer transactions or legal acts which may cause damage the Company either directly or indirectly. Violation of this rule is considered a grave offence. 4. The Company has established guidelines for retention of insider information and prevention against use of insider information to prohibit directors, executives at vice president level and above, and employees having access to insider information, including their related parties from trading the Company’s securities during the period of 1 month prior to the release of quarterly and annual financial statements and 48 hours following the release of important information. 5. Directors and executives at vice president level and above shall report to the Company all of their trading transactions of the Company’s securities. Policy and Guideline on Use of Insider Information by Executive The Company has established the Insider Information Policy to prevent and prohibit the use of insider information, especially the Company’s non-public financial information, by limiting the number of employees having access to such information. The Company has also communicated to all executives their duties in this respect which include the obligation to report to the Company the holding of the Company’s securities by themselves, including their spouse and dependent children, and applicable punitive measures in accordance with the Securities and Exchange Act B.E. 2535 and its amendments. In addition, executives of the Company are required to report changes to their holding to the Company’s securities to the SEC in accordance with Section 59 of the Securities and Exchange Act as well as to strictly comply with Section 24 of the Securities and Exchange Act. Audit Fee • Audit Fee The Company paid the audit fee worth Baht 1,740,000 to KPMG Phoomchai Audit Limited in 2014. • Out-of-Pocket Expense The out-of-pocket expense amounted to Baht 80,000. Compliance with Corporate Governance Principle The Board, executives and employees of Ichitan Group Public Company Limited have duly complied with the corporate governance principle and continuously monitored compliance thereof. In 2014, no non-compliance was identified. 92 ANNUAL REPORT 2014 Corporate Social Responsibility Ichitan Group Public Company Limited (“the Company”) strives to maximize the satisfaction of our customers, buyers and end-consumers. In addition to offering products of premium quality and fair prices, the Company aspires to positively contribute to the society and the environment and strictly refrains from acts which appear to be the infringement of the consumer rights. To attain the aforesaid goals, the Company has strictly adheres to our Corporate Social Responsibility Policy which encompasses the following pillars: Fairness and Integrity Fair Competition The Company has operated on the principle of fairness and complied with competition-related laws and regulations. The culture of integrity and fairness has been embedded in our corporate culture and the anti-unfair competition measures have been integrated with the Company’s rules and regulations which are enforced enterprise-wide to promote transparency and disclosure. Our corporate social responsibility (CSR) extends to cover responsible political participation, compliance with the laws, fair competition, promotion of CSR awareness among business units and honoring commitments agreed with our suppliers and creditors. These topics have been detailed in the Company’s code of business conduct which ultimately aims to foster the fairness and integrity in the relationship between the Company and its customers and partners, which include suppliers, farmers and the local community, which are the foundation for mutual trust and sustainable future of all parties concerned. To promote fairness, integrity and transparency in our business practices, the Company has developed our internal guidelines which cover the following: • Clearly indicate mutually agreed terms and conditions in purchase and sale agreements and strictly comply with such terms and conditions. Where issues which might cause the Company to be unable to comply with the agreed terms and conditions arise, customers must be notified and consulted immediately to solve such issues. • Provide customers with correct and sufficient product information in a timely manner. • Deliver quality products that meet the promises given to customers at fair price without price gouging. Promotion of CSR Network Among Our Business Partners • Scrutinize the relationship between employees at all levels with suppliers, subcontractors and contractors of the Company regularly to prevent unfair or inequitable treatment. • Promote fair employment practices among the Company’s suppliers, subcontractors and contractors through communication, cooperation and examination. • Incorporate CSR practices, with particular attention to the society and the environment, in our procurement policy and procedures. 93 • Encourage alliances/business partners to adopt similar practices without instigating unfair competition. • Encourage business partners to undertake CSR activities and engage them in our CSR activities. • Promote CSR activities of suppliers and continuously engage them in our CSR activities directly as volunteers in projects and indirectly through in-cash or in-kind donations. Respect for Property Rights Ichitan Group Public Company Limited has advocated for and demonstrated the respect for property right, intellectual property right, copyright, patent and moral right. It is the Company’s policy to comply with laws governing the protection of intellectual property right and copyright. We are well aware that intellectual property is one of the most valuable assets and vital for the Company’s ability to gain competitive edge. Brand identity consists of the Company’s name, logo, copyright, patent, trademark, service mark, trade secret, work process, innovation, and other legal rights. The Company must protect the aforesaid properties of itself and mutually respect the same of others in all aspects of its business operations, including the use of computers, the Internet and information. To ensure our proper compliance with the laws, rules and contractual obligations related to intellectual property right, patent, copyright, trade secret and proprietary information, the Company has established the following guidelines: • The Company shall not infringe or abuse intellectual property rights. • It is the duty of employees at all levels of the Company to strictly protect the confidentiality of trade secrets, secret formulas, production processes or confidential business practices and prevent the leakage thereof. • Employees at all levels of the Company shall demonstrate due respect for intellectual property rights of others and shall not use contents that are protected by intellectual property rights, in whole or in part, without prior permission or compensation payment to the owners. • Works created in the course of employment shall be regarded the Company’s intellectual properties. • Upon employment termination, intellectual properties in all forms, including the works of invention, shall be handed over and returned to the Company. • The Company shall regularly check computers and software programs used. • Employees shall use only licensed software programs which are permitted by the Company on the Company’s computers in order to prevent the infringement of intellectual property rights. • Unauthorized downloads are prohibited. • The Company discourages the use of proprietary works or information of external parties. If such works or information are to be used, applicable procedures shall be undertaken to ensure compliance with and respect for intellectual property rights and copyrights of others. 94 ANNUAL REPORT 2014 Responsible Political Participation The Company has adopted non-partisan approach and does not take any political side nor directly or indirectly use the Company’s capital or resources to make political contribution to any political party or politician in exchange for preferential treatment. In addition, our executives and employees are prohibited from the acts of coercion, manipulation, intimidation and extortion. Our Political Contribution Policy addresses the following aspects: • The Company encourages employees at all levels to exercise their civil rights and political rights as decent individuals within the scope permissible by the Constitution and the laws. Prohibitions are imposed against abusive use of authority, position, the Company’s names or logos by employees at all level to influence others to provide financial contributions or supports in other forms to politicians or political parties. The Company refrains from providing direct or indirect financial contributions to any political party or politician for their own benefit. • The Company pledges to remain its political neutrality, non-involvement and non-participation in any political activity and to refrain from expressing opinions which may lead to misinterpretation that the Company is involved with or supports any political party or politician or political affiliation as such may cause division among Thais and the Company’s employees. • The Company’s capital and resources shall not be directly or indirectly used for the benefits of any political party or politicians or political affiliation in exchange for preferential treatment or undue enrichment. • The Company shall not be involved in any political canvassing or campaign of any political party or politician. • The Company respects the rule of democracy and encourage its employees to exercise their voting rights under the Constitution. Anti-Corruption Ichitan Group Public Company Limited (“the Company”) is committed to adhering the principle of business integrity and demonstrating responsibility towards the society and all stakeholders in accordance with the good corporate governance philosophy, its business code of conduct and stakeholder treatment policies and guidelines. In 2014, the Company expressed its intent and commitment to fight corruption by stipulating anti-corruption framework and policy which was approved by the Board Meeting No. 3/2014 on 13 August 2014. The Anti-Corruption Policy is enforced on the Company’s directors, executives and employees at all levels and entails the following: Definitions under the Anti-Corruption Policy Corruption means bribery in all forms such as an offer, promise, guarantee, solicitation or acceptance of money, assets, or unethical benefits from or to the government officers, government organizations, private organizations any persons either directly or indirectly in exchange for patronage or omission of duty for any undue business gains and benefits which are not allowed by the laws, regulations, rules, local traditions or customary business practices. 95 Fraud means solicitation of undue and unlawful enrichment through the abuse of function by directors, executives, the Company, customers, trading partners or contractual parties which shall include but shall not be limited to falsification of financial evidences, use of the Company’s capital and resources for personal gains, exploitation, embezzlement, defraud or conflicts of interest. Corrupt payment or fraudulent benefit distribution shall include the distribution of money, assets or benefits directly by the Company itself or indirectly through customers/trading partners or third parties. Anti-Corruption Program The Company’s anti-corruption program includes the following policies: • Anti-Corruption Policy • Political Contribution Policy • Policy on Receiving Gifts, Assets or Benefits • Whistleblowing and Whistleblower Protection Policy Anti-Corruption Policy Ichitan Group Public Company Limited (“the Company”) recognizes the importance of the good corporate governance practice and consistently adheres to the principles of business integrity, honesty, transparency, fairness, accountability and prudence in accordance with applicable laws, rules, regulation and standards. The Company is highly committed to anti-corruption and does not tolerate corruption in any form. The Anti-Corruption Policy has been established and implemented both within the organization and with our business partners to promote transparency and integrity in every step of our process and to avoid acts which may cause inappropriate behaviors or contravention against the principle of good governance. Anti-bribery measures and corresponding disciplinary punishments have been also been defined. To provide a clear framework for handling issues exposed to high level of corruption risk, the Company’s directors, executives and employees at all levels shall proceed with extra care and prudence in relation to the following: • Gift, hospitality and expense: Practices related to giving and receiving gifts and hospitality shall comply with the Company’s Code of Conduct. • Donation and financial contribution: Donations and financial contributions made or received must be transparent and lawful and shall in no way be used as a bribery tool. • Business relationship with government sector: Bribery in all forms is strictly prohibited and relationship with government sector must be transparent, honest and lawful. Non-compliance with the aforesaid guidelines by directors, executives and employees of the Company shall result in disciplinary actions against the violators. Disciplinary punishments shall be decided based on facts and circumstantial evidence. According to the Company’s policy, no employee shall suffer demotion, punishment or negative consequence from their anti-corruption actions even if such actions may result in the Company’s loss of business opportunity. 96 ANNUAL REPORT 2014 Political Contribution Policy Political support refers to contributions in cash and in kind and/or participation or promotion of employees’ participation in political activities in the name of the Company in exchange for business advantages. This shall exclude the participation of employees as individuals in political activities according to their civil liberties. The Company has adopted non-partisan approach and does not take any political side nor directly or indirectly use Company’s capital or resources to make political contribution, as defined by the above paragraph, to any political party or politician in exchange for preferential treatment. The Company’s Political Contribution Policy: • The Company encourages employees at all levels to exercise their civil rights and political rights as decent individuals within the scope permissible by the Constitution and the laws. Prohibitions are imposed against abusive use of authority, position, the Company’s names or logos by employees at all level to influence others to provide financial contributions or supports in other forms to politicians or political parties. The Company refrains from providing direct or indirect financial contributions to any political party or politician for their own benefit. • The Company pledges to remain its political neutrality, non-involvement and non-participation in any political activity and to refrain from expressing opinions which may lead to misinterpretation that the Company is involved with or supports any political party or politician or political affiliation as such may cause division among Thais and the Company’s employees. • The Company’s capital and resources shall not be directly or indirectly used for the benefits of any political party or politicians or political affiliation in exchange for preferential treatment or undue enrichment. • The Company shall not be involved in any political canvassing or campaign of any political party or politician. • The Company respects the rule of democracy and encourage its employees to exercise their voting rights under the Constitution. Policy on Receiving Gifts, Assets or Benefits Ichitan Group Public Company Limited stipulates that giving or receiving gifts, assets or benefits must be within a reasonable scope and shall in no way have influence on the Company’s judgment. On receiving money or benefit: Directors, executives and employees shall not personally accept money or benefit given by customers or trading partners of the Company or any other persons because of their positions in the Company and shall not demonstrate acts or behaviors that might be suspected as bribery or fraud. Directors, executives and employees shall not lend or borrow or solicit funds or in-kind contribution from customers or business partners of the Company, except where they borrow funds from banks or financial institutions as customers of such banks or financial institutions themselves. On receiving and giving gifts and entertainment: Directors, executives and employees shall refrain from receiving pecuniary and non-pecuniary gifts from trading partners of the Company or other parties involving with the Company unless such gifting is customary for special occasions or festivals. Gifts and 97 entertainments received or given shall in no way have influence on the recipients’ business judgment and shall be reported to supervisors according to the line of command. Gifts received should not be excessive in value and should not be cash or cash-equivalent. Giving and receiving of gifts are allowed if they are transparently and publicly made and disclosed. Directors, executives and employees are allowed to receive business entertainments for business benefits of the Company and shall avoid extravagant or lavish entertainments from parties involved in the Company business or potential business partners of the Company. • On incentives and rewards: It is the Company’s policy not to offer incentives, rewards or privileges in any form to its customers, trading partners or third parties in exchange for business deals, except for those being customary business entertainments, trade discounts or promotional activities of the Company. Whistleblowing and Whistleblower Protection Policy Ichitan Group Public Company Limited has made available whistleblowing channels as detailed below: 1. Objectives 2. Whistleblowing scope 3. Whistleblowers 4. Whistleblower protection 5. Whistleblowing channels 6. Related parties 7. Process 7.5 Case registration and escalation 7.5 Investigation and instruction 7.5 Progress reporting to whistleblower and rectification 7.5 Malicious whistleblowing and use of wrong whistleblowing channels 7.5 Responsibilities of case coordinators, case owners and upper level managers 1. Objective Ichitan Group Public Company Limited encourages its executives, employees and staff to adhere to the principles of transparency, integrity and disclosure, good corporate governance practices, and the Company’s code of conduct. Acts which violate or appear to violate the aforesaid principles should be reported in good faith to the Company in order to solve such issues and promote integrity, transparency and fairness. According to the Securities and Exchange Act, whistleblowers who report cases in good faith to regulators shall be protected and the same is applied by the Company. The Company has established the Whistleblowing and Whistleblower Protection Policy to provide the management and Human Resources team with the framework for monitoring and supervising behaviors, conducts and acts employees and staff as well as offering consultation. Whistleblowers who report cases in good faith shall be protected. 98 ANNUAL REPORT 2014 2. Whistleblowing Scope When there are reasonable doubts or concerns about non-compliance with the laws, rules, good corporate governance principles, code of business conducts, policies, regulations or requirements of the Company, employees and staff should seek consultation from their supervisors. Or, they can report their concerns and complaints through the following channels: • Cases related to other units or upper-level management should be filed with CG Report or the Company Secretariat or Internal Audit or the Audit Committee. • Cases related to the CEO should be filed with the Audit Committee. 3. Whistleblowers Employees or staff of Ichitan group and third parties who witness or have concern about non-compliance of the Company’s executives, employees or staff with the laws, rules, good corporate governance principles, code of business conducts, policies, regulations or requirements of the Company can raise their concerns. 4. Whistleblower Protection Employees or staff who report cases, concerns, evidence or useful information within the scope as mentioned in 2 above with good faith shall be reasonably protected by the Company from victimization such as job transfer, suspension, intimidation, disturbance or employment termination or any other form of unfair treatment. Change to or cancellation of the protection program shall be subject to prior approval from the Audit Committee. • Claimers/informants can choose to remain their anonymity. In order to be better able to respond to any information or complaint, the Company would prefer the claimers/informants to reveal their identities to the Company. • Information related to concerns and complaints raised shall be treated with confidentiality and claimers and informants will be protected against unfair treatment and retaliation. • The Company may tighten its whistleblower protection program upon request by claimers/informants or as the Company deems appropriate. • Remedial actions will be undertaken on the basis of appropriateness and fairness to abate the injury suffered by victims. 5. Whistleblowing Channels 5.1 CG Report • Telephone: 02-716-5555 • E-mail : [email protected] 5.2 Company Secretariat • Address: Company Secretariat, Ichitan Group Public Company Limited 28th Floor, Charn Issara II Building, 2922/301-303, New Pethchburi Road, Bangkapi, Huaykwang, Bangkok, 10310 99 5.3 Internal Audit • Telephone: 02-716-5555 • E-mail: [email protected] • Address: Internal Audit, Ichitan Group Public Company Limited 28th Floor, Charn Issara II Building, 2922/301-303, New Pethchburi Road, Bangkapi, Huaykwang, Bangkok, 10310 5.4 Audit Committee • E-mail Audit Committee: [email protected] Secretary to the Audit Committee: [email protected] The cases received via this channel will be proposed to the Audit Committee, investigated and reported to the Board. • Address: Audit Committee, Ichitan Group Public Company Limited 28th Floor, Charn Issara II Building, 2922/301-303, New Pethchburi Road, Bangkapi, Huaykwang, Bangkok, 10310 6. Related Parties Parties related to the whistleblowing process include: 6.1.Callers or claimers: Persons, including internal and external parties, who report cases to the Company. 6.2.Case coordinators: Persons in charge of receiving cases and retaining relevant information and results, namely CG Report, Company Secretariat and Internal Audit. 6.3.Case owners: Direct supervisors of employees who are complained or executives directly in charge of the units which are complained. In case where such case owners are not available for a long period of time, their supervisors shall assume the role of case owners in their stead. 6.4.Disciplinary action owners: Human Resources (HR). 6.5.Chief Executive Officer (CEO): Top executive of the Company. 6.6.Audit Committee 6.7.Board of Directors 7. Process 7.1.Case registration and escalation 100 ANNUAL REPORT 2014 (1) Case coordinators register cases reported and determine the date the case progress will be reported back to callers/claimers according to the following guideline: • Cases which have serious impact on the Company’s reputation shall be handled immediately. • Other cases shall be handled as soon as possible. • General inquiries such as inquiries about share prices and dividend payment shall not be registered bit shall be forwarded to relevant units. (2) Case coordinators shall record the following information: • Name of caller/claimer, unless in the case of anonymity. • Date of case reporting • Name of person complained or subject of complaint • Other relevant information (3) Following the registration, the classification levels of the cases shall be identified (except for general inquiries) and the following actions shall be undertaken: • Cases shall be escalated to case owners for investigation and consideration of actions to be undertaken within their scope of authority. • Cases shall be reported to Human Resources for information which shall provide consultation or initiate disciplinary action or other action as applicable. • Cases shall also be reported to CEO. • Cases and complaints related to the CEO shall be escalated to the Audit Committee. 7.2.Investigation and action • Case owners investigate the cases and instruct complainees and related parties to improve their behaviors and conducts. If disciplinary actions must be undertaken, case owners shall consult with Human Resources and impose disciplinary punishment against complianees in accordance with applicable disciplinary standard. If case owners do not have the authority to punish complianees, such cases shall be escalated to authorized persons whereas the investigation results, actions taken and punitive measures to be implemented shall be submitted to CEO through supervisors of case owners in accordance with the line of command for information or instruction. • If the callers/claimers are anonymous and available information is not sufficient, case owners shall submit investigation results and their opinions to CEO through their supervisors in accordance with the line of command in order to solicit guidance and instruction. If CEO is of the opinion that such cases cannot be proceeded, the cases will be closed and reported to case coordinators concerned in order to report the case closure to the Audit Committee. • If the investigation conducted by case owners reveals that complainees are innocent or the cases are caused by misunderstanding or if the complianees and persons involved have been admonished to demonstrate proper conducts and it is thus concluded that the cases should be closed without any punishment, the case owners should submit the cases to their supervisors (1 level above) to seek approval for case closure. The cases shall also be reported to the case coordinators, who will inform the callers/ claimers of the update, 101 • Complaints related to CEO shall be investigated by the Audit Committee and escalated to the Board for instruction. 7.3.Response to Caller/Claimer and Rectification • Case owners shall follow the instructions of CEO or the Board (as applicable) and recommended proper conducts which should be demonstrated. The results shall be reported to case coordinators. • Case coordinators report the results to callers/claimers and record the case results which shall be presented to the Audit Committee on a quarterly basis. • Case coordinators shall follow up on corrective actions (if any) and report the results thereof to CEO and the Audit Committee. 7.4.Malicious whistleblowing or use of wrong whistleblowing channels Complaints, whistleblowing, statements and information which are reported with malicious intention or through incorrect channels could result in disciplinary actions or legal actions may be taken against individuals committing such offence. 7.5.If case coordinators or case owners demonstrate ignorance or do not comply with this policy, they and their supervisors shall be subject to disciplinary actions. Respect for Human Rights Policy on Human Rights The Board respects the human right laws and principles and recognizes that all humans are born free and equal in dignity and rights without distinction of any kind, such as social origin, race, nationality, color, sex, religion, age, language, physical and mental health, personal, financial or social status, belief, education or political or other opinions. Also, the Company has strived to foster the awareness of individuals’ rights and responsibilities towards the society and other citizens. Our policy and guidelines on human rights are as follows: 1. To operate our business in strict compliance with the human right laws and principles and educate our employees in the human right laws and principles to promote their compliance. 2. To ensure that all employees thoroughly study and strictly comply with laws applicable to their duties and responsibilities. 3. To encourage the respect for and adherence to the principles of human rights in recognition of equality and dignity of all humans. 4. To treat employees with dignity and respect as individual. 5. To avoid discrimination and offer equal employment opportunities to all individuals, including women, the disabled or the underprivileged. 102 6. To refrain from the acts of discrimination or preferential treatment based on race, nationality, color, sex, religion, age, language, physical and mental health, personal, financial or social status, belief, education and political opinions. ANNUAL REPORT 2014 7. To ensure that our facilities are properly equipped to accommodate employees with disabilities. 8. To establish policies or measures to screen the qualifications of its major trading partners such as suppliers or contractors to ensure that they adopt the principles of fair business and do not infringe human rights. 9. To encourage employees’ involvement and respects their rights to form groups, offer recommendations or suggest suitable directors and solutions for the mutual benefits of all relevant parties and healthy relationship. The Company has made available channels for reporting our employees’ violation of human rights including their involvement in or ignorance of such violation. Employees and parties witnessing acts of our employees which appear to be a discrimination or an infringement of human rights or the violation of the Company’s policy or the laws in this respect can report their concerns to the Company through the following channels: • Supervisors • Human Resources • Office of CEO • By mail Human Rights Infringement Complaint Center Ichitan Group Public Company Limited 2922/301-303, 28th Floor, New Pethchburi Road, Huaykwang, Bangkapi, Bangkok, 10310 Email: [email protected] Upon being notified of such infringement, the Company will proceed with further actions as deemed appropriate. Confidentiality of information and privacy of parties involved in the investigation process will be strictly protected. However, the Company cannot guarantee complete confidentiality. The investigative process may require the Company to contact the individuals who may have engaged in prohibited conduct as well as witnesses to such conduct. If the Company concludes that a violation of this policy has occurred, violators will be subject to disciplinary action, up to and including employment termination. Fair Labor Practice Human resources are the most valuable asset of the organization and a key driving force that will move the Company towards its goals and sustainable growth. The Company has professionally implemented a solid and effective human resources management system, from recruitment to people development, to enhance our employees’ knowledge, potential, sense of ownership, positive attitude and sense of duty towards the organization, their family and the society. Our human resources management practices are based on the good corporate governance principles and aim to promote mutual trust. Employees are encouraged to actively participate in driving positive changes within the organization, recognize their rights and duties, and adhere to the principles of ethics and integrity. The Company complies with the fair labor treatment practices, including the laws and the code of ethics, in order to promote peace and security of the society and the sustainable growth of the organization. We have integrated the Declaration 103 on Fundamental Principles and Rights into our employee treatment practices in accordance with relevant laws and internal regulations and concurrently protect the occupational health and safety of our employees. Our fair labor practice guidelines are as follows: Recruitment and Employment For effective recruitment process, we have rigorously screened the qualifications of candidates in terms of their knowledge, competencies, experience, attitude and behaviors through written exams, tests and interview. Successful candidates shall be placed on probation which covers a period of up to 119 consecutive days, during which they shall prove their ability or potential to deliver and perform their functional duties in accordance with the Company’s standard. The Company’s recruitment is free of discrimination and offers equal opportunities to all individuals without distinction of any kind such as political opinions, age or disabilities. In addition, the Company has also put in place the mechanism to eliminate vulnerability to unequal treatment. Employee Development It is the Company’s policy to encourage continuous learning and development, and offer career growth opportunities and equal promotion opportunities among male and female employees. The Company has regularly reviewed and assessed its relevant practices and processes to enhance its compliance with the policies on employment and career growth promotion. Working Hours To avoid overwork, standard working hours are limited in accordance with applicable practices and can be divided into 2 patterns: • Office work: Mondays to Fridays, from 08.30-17.30 hrs. • On-site work: Working hours shall be as agreed with supervisors and customers within the scope permissible by the Labor Protection Act B.E. 2541 and applicable laws. Remuneration The Company offers fair remuneration to its employees in the form of salary at the rates comparable to the market and special compensation in the event of job transfer or promotion. Rewards and fringe benefits are commensurate with employees’ knowledge and competency to ensure fairness, appropriateness and equal treatment. Remuneration scheme is reviewed regularly. Disciplinary Action Employees demonstrating avoidance and violation of rules and prohibition shall receive warnings from their supervisors according to basic administrative principles. The Company does not compromise or tolerate unfair punishment, or physical, verbal or psychological harassment. The severity of punishment will be considered in accordance with disciplinary procedures and based the type of offence, intention, consequence and merits whereas severance pay will be given to employees who are punished in form of employment termination in accordance with applicable labor laws. Advocacy Against Unlawful Child Labor The Company does not exploit child labor or forced labor or slave labor, except where such employment is within the scope permissible by the laws and complies with rules and regulations governing age, working hour, pay, health and safety. 104 ANNUAL REPORT 2014 Internal Communication The Company is committed to communicating the letter and the spirit of all of its policies across the organization through mechanisms which include the onboarding program and internal communication channels of Human Resources. Formal and information meetings were held to share with our employees the Company’s performance, status and other relevant information as and when appropriate and upon internal change in order to solicit opinions from employees and encourage their involvement in driving positive changes. Grievance Procedure The Company has established internal grievance procedures and channels to allow employees to air their workplace-related grievance and personal issues via email at [email protected] and raise concerns about harassment, unequal treatment, right infringement and victimization. Positive Work Environment The Company is committed to a workplace that provides dignity and respect to promote occupational health and safety and pleasant environment. The Company also strives to encourage employees to balance their personal and work life and do exercise for their good health. Betterment of Quality of Life The Company is committed to the betterment of the quality of life and well-being of our employees by encouraging them to plan their financial future and achieve work-life balance. Responsibility Towards Consumers The Company has attached importance to the health and safety of our consumers and aspires to achieve the highest level of quality and hygienic product standard. Therefore, we have engaged food safety experts in our process and arranged trainings for all employees to enhance their knowledge, understanding and compliance with our standards which are in line with certification standards widely recognized. Our guidelines on responsibility towards consumers encompass the following: • Respect the consumers’ right to satisfaction of basic needs • Respect the consumers’ right to safety • Respect the consumers’ right to be informed • Respect the consumers’ right to choose • Respect the consumers’ right to be heard • Respect the consumers’ right to redress • Respect the consumers’ right to consumer education • Respect the consumers’ right to healthy environment 105 Environmental Protection The Company has endeavored to protect the environment by minimizing the environmental impact of its business operations and complying with the rules and laws governing environmental protection. The Company’s guidelines on environmental protection are as follows: • Establish environmentally friendly work process and practices • Evaluate the results of its work processes and practices regularly • Study and analyze the results to identify areas for improvement • Foster environmental awareness and consciousness among our employee Contribution to Community and Society The Company is committed to the synchronous growth of its business, the community and the society to live up to its philosophy of environmental protection and social responsibility. We are fully aware that the seed of generosity grows into a great society and, as a decent corporate citizen, aim to pay back to the community through environment protection, development of the community and society, and the betterment of quality of life of local residents by creating job opportunities and diversifying economic activities to strengthen local entities and communities. Community and society development activities have been carried out through the collaboration between the Company and local communities affected by the Company’s operations or initiatives in order to strengthen and restore cultural and environmental richness. In addition to these CSR activities for nearby communities, we have also implemented outreach program for the benefits of communities in distant areas. The Company’s CSR Policy covers the following: • To achieve sustainable growth of the Company and concurrently contribute to environmental preservation and the society betterment. • Utilize our business strengths and professional expertise for CSR activities. • Initiate CSR activities for the far-reaching benefits of communities in nearby and remote areas. • Optimize the use of renewable resources and local supplies in accordance with the sufficiency economy. CSR Roadmap Our CSR roadmap is based on the following framework: • Community development and contribution activities such as donation to school should be organized at least once annually. • Emergency program in response to incidents caused by the Company’s business operations shall be immediately 106 ANNUAL REPORT 2014 Our business operations, especially our corporate social responsibility, have evolved around the awareness and sense of responsibility of our executives and employees at all levels who are determined to avoid acts which potentially cause undesirable consequences or jeopardy to others parties, including all stakeholders, the economy, the society and the environment. We also attempt to refrain from contravening the laws, rules, conditions or cultural traditions of the local communities. The Company’s operations is strictly governed by the principle of business integrity, professional ethics and good corporate governance for the ultimate goal of transparency, honesty and fairness. Our business is guided by the philosophy of sufficiency economy and operated on the basis of prudence and carefulness. Also, the Company aims to actively contribute to the betterment of the society and communities in nearby and remote areas. Dissemination of CSR-Driven Innovation Innovations driven by our CSR goals under the Greenovation thrust have been shared with the organizations through Tan’s Land to promote resource conservation awareness and respect for the nature. The learning center showcases successful innovations which have been inspired by our commitment to corporate social responsibility and led to the shift of paradigm as well as the improvement and transformation of work processes for enhanced efficiency and effectiveness included added value for the business and all stakeholders in the longer run. The CSR-oriented innovations, such as the production process improvement, are beneficial not only to the Company’s solid growth, competitive advantages and sustainability but also to the betterment of Thailand with respect to its economy, the well-being of Thais, and the preservation and restoration of the environment. Innovations of the Company are meaningful to our CSR commitment. They are not only driven by our CSR goals but also, in turn, contribute to the economic and social development, value creation and the equilibrium between business imperatives and social responsibility. Guidelines • The Company fully recognizes the benefits of socially responsible business practices to value-added innovations. • t is the Company’s policy to promote the advantages and benefits of socially responsible business practices in the same way it promotes the same of innovation development, especially through the Sustainability Report which illustrates our CSR activities. • The Company aims to conceive and research for new, unconventional ideas and knowledge in respect of business, economic, social, technological and environmental development. • The Company engages internal and external parties in its value-added innovation development processes. • The Company keeps abreast of new studies, researches and innovations to support its innovation development projects. • The Company aspires to develop innovations which benefit the Company and the society as a whole. Our innovations shall not cause destruction, terrorism or adverse impact on stakeholders. 107 • The Company fosters the culture of innovation in which creativity are welcomed and can be freely expressed to promote innovation from within. • The Company collaborates with stakeholders such as trading partners on the development of CSR-driven innovations and promote CSR awareness by sharing our innovations and being a role model in CSR-driven innovation development. • The Company regularly reviews its businesses and work processes to identify risks or undesirable impact thereof on the society and the environment in order to immediately eliminate such risks and impact, if any. • The Company integrates its CSR commitment with business goals in the context of Thailand to balance its efforts to improve the productivity, quality and competitive advantages with its contribution to the society and the economy. • The Company strictly protects and respects confidential information and intellectual properties of others in the same manner as it does for its confidential information and intellectual properties. 108 Internal Control and Risk Management ANNUAL REPORT 2014 The Company has always attached significance to effective internal control system in accordance with the good corporate governance principles which aims to promote transparency, fairness, integrity, disclosure, and checks and balances for the ultimate benefits of the shareholders, employees and stakeholders. The Audit Committee, at its Meeting No. 1/2015 held on 25 February 2015, and the Board of Directors, at its Meeting No. 1/2015 held on 25 February 2015, with the participation of the 3 Audit Committee members reviewed and assessed the adequacy of the Company’s internal control system through the interview of the Company’s management team and the internal control adequacy assessment questionnaire which addressed 5 dimensions of the internal controls: 1) Control environment 2) Risk assessment 3) Control activities 4) Information and communication 5) Monitoring activities. The Company has established the Internal Control Policy and the Risk Management Policy and the Audit Committee has been delegated to review and assess the internal control system to ensure that it is adequate and appropriate for the Company’s business operation. In this regard, Mr. Sumol Hobampen has been appointed as the internal auditor. The Board is of the view that the Company’s internal control system is adequate and appropriate for its business operations. The Board has also encouraged the management team to continuous enhance the Company’s internal control system to promote good corporate governance. The results of the internal control system assessment which have been reviewed by the management team are as follows: Control Environment The Company has good organizational structure and environment which contribute to the effective implementation of the internal control system in accordance with the Company’s plan and policy. The Board has emphasized and adhered to the principles of integrity, legitimacy and ethics as well as fostered the awareness and environment that are conducive to effective internal control and a sense of duty and responsibility across the organization. In addition, our organizational structure also enhances the management’s effectiveness. To support the internal control system, the Company has established clear and measurable business goals, policies, work processes, scope of authority, duty and responsibility of each line of operations. KPIs have also been reasonably and fairly set and deployed for the achievement of the corporate business goals as well as the checks and balances. The internal audit team directly reports to the Audit Committee and has a dotted line relationship with the Board. The Company also has in place the human resources management policy as a framework for effective recruitment, development, retention and motivation of quality employees who possess desired capabilities, knowledge, skills and traits which contribute to the achievement of the Company’s goals. Risk Assessment The Company’s executives have attached significance to risk management and the Company’s risk assessment methodology has been aligned to its business objectives and goals. Prevailing and potential 109 risks have been identified, analyzed and assessed to devise appropriate risk monitoring and control measures to minimize risk probability and impact. Comprehensive risk analysis has been conduct to identify the materiality of internal and external risk factors such as changes in consumer behaviors, raw material shortage, intense competition, business imperative for new product development, debt servicing ability, access to finance, and interest rate increase on the Company’s operations, business and goal achievement. Internal fraud is another risk issue that the Company has seriously addressed and prevented through the communication and implementation of the Whistleblowing Policy across the organization. Practices and policies have been regularly reviewed and updated to employees. Our management team is fully aware of changes and their associated risk and has adequately and appropriately monitored the causes of risks. The Risk Management Committee which directly reports to the Board regularly meets to strategically prevent, mitigate and manage risks which might harm the Company’s performance, business or reputation. The Company also has a dedicated risk management team in charge of risk management, monitoring and assessment. Control Activities The Company has effectively controlled operations executed by the management team through the clear written scope of approval authority and limits of executives at each level in, segregation of duties and organizational structure which contributes to clear scope of duties and responsibilities and line of command of every division. Related-party transactions and potential conflicts of interest are escalated to the Audit Committee for consideration and to the Board for approval in strict compliance with applicable procedures, rules and regulations. Information and Communication The Company’s data storage and information systems which are adequate and can effectively support its business operations. Data and information related to internal control have also been compiled, used for control activities and communicated to relevant employees at each level based on their scope of responsibility for correct and mutual understanding. The Board has been supplied with adequate information to support their decision-making. In addition, meeting documents have been delivered to the directors prior to each Board meeting in accordance with the regulatory requirements. Documents are filed and retained systematically by category and accounting and financial documents which are essential for financial reporting are reviewed by the Board. The Company has also established effective and appropriate internal and external communication tools to provide our staff with convenient access to information necessary for their performance of duties and our stakeholders with channels to voice their suggestions/complaints as well as share and retrieve information through, for example, our consumer hotline/call center and investor relations. 110 ANNUAL REPORT 2014 Monitoring Activities The Audit Committee reviewed and approved the annual audit plan of the Company as well as jointly deliberated on audit findings and issues with the internal audit team. The auditor was also invited to present the results of financial statements audits and internal control issues to the Audit Committee. The Company has regularly monitored its internal control performance through the internal audit team to ensure compliance with established policies and operating procedures. Compliance monitoring reports have also been prepared and presented to the Audit Committee and the Board for consideration to support corrective actions required. Monitoring activities have been regularly undertaken by the Company to monitor and evaluate in-process and after-action internal control against established targets by taking into account the ever-changing operating environment of the Company. Profile of Internal Audit Head Name-Surname : Mr. Sumol Hobumphen Position : Internal Audit Manager Age : 37 years Nationality : Thai Education/Training : • Master of Science in Corporate Governance, Chulalongkorn University • Bachelor of Accounting, Rajamangala University of Technology, Phanakhon • Certified public accountant, Federation of Accounting Professions Under the Royal Patronage • Endorsed Internal Auditing Program (EIAP), Class 9, Chulalongkorn University • Internal Auditing Program, Federation of Accounting Professions Under the Royal Patronage Shareholding (%) : None Family Relationship with Executives : None Work Experience: • Positions in companies listed on the Stock Exchange of Thailand Year 2013 – Present 2006 – 2009 Position Manager, Internal Audit Assistant Manager, Internal Audit Company Ichitan Group Pcl. Thanulux Pcl. • Positions in companies not listed on the Stock Exchange of Thailand Year 2011 – 2013 1999 – 2006 Position Manager, Internal Audit Assistant Manager, Internal Audit Division Number of Internal Audit Team Personnel • The Company’s internal audit team consists of 2 members. Company Perfect Engineering Service Pcl. Dr. Virach & Associates Office 111 Related-Party Transaction Related Party and Relationship Related Party 1. Mr. Tan Passakornnatee (Mr. Tan) 2. Mrs. Eng Passakornnatee (Mr. Eng) 3. I Am Green Tea Co., Ltd. (IGT)Distributes beverage products of the Company and is granted the right from Mr. Tan Passakornnatee to produce and sell products with Mr. Tan’s pictures, drawings, symbols and work of design of Mr. Tan Passakornnatee for 5 years. 4. Japanese Prime Restaurants Management Co., Ltd. (JPRM) Operates restaurant business Relationship • Director and major shareholder of the Company • Director and major shareholder of the Company • Miss Tantita Passakornnatee, the elder sister of Mr. Tan Passakornnatee owns 80% equity in IGT. • Mr. Tan Passakornnatee and Mrs. Eng Passakornnatee are directors of both Ichitan and JPRM. • Mr. Tan Passakornnatee and Mrs. Eng Passakornnatee are major shareholders owning the aggregate equity of 86% in JPRM. 5. Passakornnatee Co., Ltd. (PAS) Operates • Mr. Tan Passakornnatee and Mrs. Eng Passakornnatee hotel business are directors of both Ichitan and PAS. • Mr. Tan Passakornnatee and Mrs. Eng Passakornnatee are major shareholders owning the aggregate equity of 80% in PAS. 6. Kin Kub Tan Co., Ltd. (KIN) Operates • Mrs. Eng Passakornnatee is director of both Ichitan restaurant business and KIN. • Mrs. Eng Passakornnatee is major shareholder owning 79.7% equity in KIN. 7. Tan Asset Co., Ltd. (TAN) Operate land • Mr. Tan Passakornnatee, Mrs. Eng Passakornnatee leasing and soccer field rental service and Miss Varisa Passakornnatee, Mr. Tan’s daughter, are major shareholders owning the aggregate equity of 91.1% in TAN. 8. Ezili Co., Ltd. (EZL) Operates restaurant • Mr. Tan Passakornnatee, Mrs. Eng Passakornnatee business and Mr. Jaruworn Sukpanthaworn, Mrs. Eng’s younger brother, are major shareholders owning the aggregate equity of 54% in EZL. 9. Kin Rong Deum Co., Ltd. (KRD) • Mrs. Eng Passakornnatee is the major shareholder Restaurant and karaoke business owning 48.8% in KRD. 10. Tan Boon Co., Ltd. (TANBOON) Operates • Mr. Tan Passakornnatee and Mrs. Eng Passakornnatee real estate business are directors of both Ichitan and TANBOON. • Mr. Tan Passakornnatee, Mrs. Eng Passakornnatee and Miss Varisa Passakornnatee, Mr. Tan’s daughter, are major shareholders owning the aggregate equity of 90% in TANBOON. 112 ANNUAL REPORT 2014 Related-Party Transaction Related-party transactions of the Company in 2013 and 2014 did not cause conflicts of interest and are listed below: Related Party 1. I Am Green Tea Co., Ltd. (IGT) Transaction Transaction Value (MB) 2013 2014 Revenue from 1,034.43 782.08 sales Outstanding balance at the end of the accounting period 206.92 38.24 Necessity and Rationale •Sales of the Company’s beverage products to IGT which is the Company’s distributor through the traditional trade channel under the agreement dated 20 June 2011, effective from 1 July 2011 – 30 June 2014. The agreement was renewed on 20 June 2014 and is valid from 1 July 2014 – 30 June 2017. •IGT must buy beverages at the selling prices determined by the Company as of the date IGT sells beverages to its customers. The Company issues invoices at the selling prices comparable to those applied to other traditional trade distributors of the Company. •Audit Committee’s Opinion The Audit Committee viewed that the target customers of IGT did not overlap with those of other distributors of the Company and this distribution through IGT would help expand the Company customer base. Product pricing applicable to IGT was fair, competitive and higher than other trading partners. Therefore, the Audit Committee concluded that the transactions were reasonable and in the normal course of business operations. Expenses on sales promotion (giveaways) Outstanding balance at the end of the accounting period 13.86 40.86 - 10.07 •Reimbursements paid to distributors for giveaways offered to customers under the monthly sales promotion in accordance with the distribution agreements. The monthly reimbursements were calculated at the same prices charged to IGT and approved by Senior Executive Vice President. •Audit Committee’s Opinion The Audit Committee opined that the monthly giveaway promotions were beneficial to the Company and was in the normal course of business operations. Monthly giveaway promotions were reviewed by executives and approved by Senior Executive Vice President. The reimbursements were calculated at the same prices charged to IGT and the practice has been applied consistently to all distributors of the same channel. 113 114 1. IGT (Cont.) Expenses on promotional campaign Fridges Outstanding balance at the end of the accounting period Related Party Transaction - 0.09 2014 0.09 2013 Transaction Value (MB) •The Company sponsored beverage fridges to 5 operators, i.e. 2 food courts (1 fridge for each), 1 school (1 fridge), 1 restaurant (2 fridges) and 1 TV program production company (1 fridge) to showcase the Company’s products in its TV programs. Operators can request beverage fridges from the Company through IGT which would forward the request to Traditional Trade & Event Marketing Director for approval. The models and size of beverage fridges will be decided by the Company while IGT will handle the fridge purchase and delivery to operators. The costs will then be charged to the Company without markup. These transactions were in accordance with the Company’s Beverage Fridge Sponsorship Policy of the Company which has been communicated to all operators. Entitled operators must meet the following qualification requirements and criteria: »»Qualifications: 1) The place of business must be in a populated area and the request must be initiated by an operator. 2) Average sales in the previous 6 months must be at least 30 crates per month. 3) The decision shall be at the Company’s discretion. »»Conditions: 1) Trademark labels as determined by the Company must be attached to the fridges. 2) There must be at least 80% of Ichitan beverages in the fridge. IGT sales representatives will inform the operators of terms and conditions in further details upon the fridge handover. »»Repair costs: Repair costs incurred during the first 3 years from the fridge handover date shall be absorbed by the Company at 50% or less and will be reimbursed through the distributors. •Audit Committee’s Opinion This could be considered a promotional activity which helped strengthen the Company’s brand presence and products. All of these transactions were in accordance with the Beverage Fridge Sponsorship Policy and the qualifications of the operators requested for the fridges were considered carefully by Traditional Trade & Event Marketing Director. The payback period is less than 1 year considering the cost of fridges and sales performance of those operators plus the extra benefit of brand promotion. For the sponsorship transaction to TV production company, the Company received the benefits of promoting its products and brands on TV program. IGT charged the Company for the fridges at their costs and were comparable to other distributors. Thus, the transactions were considered reasonable and beneficial to the Company. Necessity and Rationale 1. IGT (Cont.) Outstanding balance at the end of the accounting period Expenses on promotional activities – premium gifts Related Party Transaction 1.16 - - 2014 1.55 2013 Transaction Value (MB) •Purchase of specially-designed premium gifts (Mr. Tan figurines and gifts such as bags, money boxes and drinking glasses displayed at Tan’s Land at Rojana Industrial Park in Ayutthaya) •The transactions were in accordance with the license agreement dated 1 July 2011 made between the Company and IGT to authorize the production and distribution of products with pictures of Mr.Tan including products featuring his drawings, symbols and work of design, subject to the condition that such products must be sold only to entities which Mr. Tan serves as a director or hold shares in. No license fee was charged but Mr. Tan reserved the right to dictate the selling prices of such products and IGT can mark up the prices only by 10% at a maximum as its management fee. Audit Committee’s Opinion Sale of gifts with Mr. Tan’s pictures and works of design originated from the Company’s drive to quickly establish its brand presence at the initial stage of the Company. Thus, Mr. Tan was the Company’s presenter and products bearing his pictures and works of designs were displayed and sold to visitors. Nonetheless, the Company would not link its brand image entirely to Mr. Tan and has planned to engage other presenters in its promotional activities and advertisements in the future. Moreover, the Company commercially sold such products to end-consumers at a profit. Thus, the transactions were beneficial to the Company and conditions of the transactions were in line with the license agreement. The Audit Committee opined that the transactions were reasonable, fair and beneficial to the Company. Necessity and Rationale ANNUAL REPORT 2014 115 116 1. IGT (Cont.) Outstanding balance at the end of the accounting period Transportation expenses 0.05 - 0.02 2014 0.57 2013 Transaction Related Party Transaction Value (MB) The Audit Committee viewed that the transactions originated from causes beyond the Company’s control and the hike in demand during the promotion periods. The goods pickup by IGT’s partners at the Company’s factory was reasonable and helped prevent the shortage of the Company’s products in the market which, if happened, would harm the Company’s reputation. In addition, the transportation service was charged at the actual costs and market comparable. Thus, the transactions were considered reasonable. •Audit Committee’s Opinion •The promotional campaigns led to a surge in demand for Ichitan products and the Company could not deliver the products to IGT’s distribution center on time. Therefore, IGT’s partners hired transportation trucks to pick up the products at the Company’s factory while the Company was responsible for the actual transportation expenses. Necessity and Rationale 1. IGT (Cont.) (These transactions will not recur.) Auto part expenses Outstanding balance at the end of the accounting period Related Party Transaction - - 2014 0.14 2013 Transaction Value (MB) •These transactions included a repair in May 2013 which cost Baht 68,224. The repair was necessary for the Company’s truck which broke down during the delivery of goods to a sales promotion event outside Bangkok. The repair cost according to an authorized dealer’s assessment was Baht 150,000. However, expert automotive mechanics advised the Company to buy spare parts from a third-party spare part dealer which has provided services and offered special discount to IGT because it was a second-hand truck that had been in use for 8 years and was no longer covered by the authorized dealers’ protection plan. The IGT mechanics coordinated the repair and the purchase of spare parts for the Company by using IGT’s credits. The expenses were subsequently charged by IGT to the Company and the costs of repair and spare parts were around 4% cheaper that the costs charged by car repair centers in general. •The remaining 5 transactions occurred in the second quarter (2 transactions) and the third quarter (3 transactions) which were: 1) Change of tires for 1 truck (4 tires) which cost Baht 11,657 because it was found during the transportation of goods to IGT that the tires worn out. The tire change service as provided by a third-party garage at paid on IGT’s credit. 2) Change of anti-vibration mounting which cost Baht 10,006 because the old mounting was damaged. 3) Change of brake set which cost Baht 9,744 to replace the old set. 4) Change of air compressor which cost Baht 26,407 because the old one burned up and leaked. 5) Change of air conditioner which cost Baht 11,340 to replace the old one which leaked. The Company bought spare parts from third-party garages/shops that IGT is a member by using IGT’s credits for special discounts and IGT’s automotive mechanics helped with the purchases and repairs. •Expenses from all of the aforesaid transactions were paid by IGT and subsequently reimbursed by the Company at the actual cost plus the service fee of up to 5%. The Company did not have a policy to procure automotive repair services from IGT but the incidents were unexpected. Such transaction did not occur in the fourth quarter and will not recur in the future. •Audit Committee’s Opinion The Audit Committee viewed that the Company had its own contractual garages but the incidents were unexpected and beyond the Company’s controls. In addition, IGT mechanics had professional expertise in the automotive repair and the Company received special discounts from garages through IGT. Thus, the transactions were considered reasonable. However, the Audit Committee emphasized that in the future the Company must coordinate the vehicle repairs itself and assistance could be asked from IGT only for special discounts which garages offered to IGT as a frequent customer. All future vehicle repair transactions must be made in the name of the Company and paid directly by the Company. Thus, these transactions will not recur in the future. Necessity and Rationale ANNUAL REPORT 2014 117 118 3. Passakornnatee Co., Ltd. (PAS) 2.Japanese Prime Restaurants Management Co., Ltd. (JPRM) Outstanding balance at the end of the accounting period 0.46 - 0.37 - - 0.00 Outstanding balance at the end of the accounting period Hotel accommodation expenses 0.25 0.88 2014 Food and beverage 2013 Transaction Related Party Transaction Value (MB) The Audit Committee viewed that the transactions were beneficial to the Company given the special discount of 50% offered to the Company for its PR events. The transactions were considered beneficial, reasonable and in the normal course of business. •Audit Committee’s Opinion •Special discount of around 50% was offered. •Expenses on hotel accommodation paid to PAS which operates Villa Maroc Resort in Pranburi for room rentals under its PR events such as thank-you parties for members of the media. Meals for the Company’s customers were paid by the Company for its own benefits and the prices charged by JPRM were at the same rates applicable to other customers of JPRM. Thus, the Audit Committee viewed that the transactions were reasonable and in the normal course of business. •Audit Committee’s Opinion •Meal expenses for the Company’s customers and the meal prices were at the same rates applicable to other customers of JPRM. Necessity and Rationale - - 30.00 (30.00) 0.14 - 94.93 - Beginning balance Increase during the period (Decrease) during the period Outstanding balance at the end of the accounting period Interest expenses Outstanding balance at the end of the accounting period Proceeds from sale of asset and raw materials/ inventories (divestment of food business) Outstanding balance at the end of the accounting period 2014 4. Kin Kub Tan Co., Ltd. (KIN) 2013 Transaction Related Party Transaction Value (MB) •As food business comprises a small proportion of the Company’s revenue and net profits, compared to beverage business, the Company sold its food business to KIN at Baht 94.79 million and transferred the assets (only operating assets of the food business) on 1 January 2013. However, the Company did not sell or transfer other assets and liabilities of the food business due to certain legal obligations. The transfer of the remaining assets and liabilities was subject to consent from all business partners. However, the Company received and paid for all of the remaining assets and liabilities in the first quarter of 2013. •The assets sold to KIN were equipment, furniture and fixtures at the restaurants (Melt Me and Tokiya) and the central kitchen as well as raw materials and inventories according to sale and purchase agreement dated 28 December 2012 between the Company and KIN in a deal worth Baht 94.79 million (exclusive of VAT and withholding tax). •Items sold to KIN, in addition to items under the said sale and purchase agreement, included the employee uniforms worth Baht 0.14 million, thus increasing the deal value to Baht 94.93 million in total. The Company recorded the net profit of Baht 66,699.50 from the deal. •Audit Committee’s Opinion Since the Company’s main objective is to operate beverage business and the revenue and net profit from the food business comprised a small proportion, compared to its beverage business, the Company sold its food business to KIN. The Audit Committee viewed that the transactions were reasonable and in the normal course of business operations. •On 28 December 2012, the Company sought unsecured, callable P/N credits from KIN. The debts were fully settled in February 2013. •Interest rate was 4% p.a. •Audit Committee’s Opinion The Audit Committee viewed that the transactions were beneficial to the Company. The credits resulted in the Company’s extra liquidity and were used as working capital. The interest rate of 4% p.a. was lower than banks’ rates. Thus, the Audit Committee concluded that the transactions were reasonable and in the normal course of business operations. Necessity and Rationale ANNUAL REPORT 2014 119 120 5. Tan Asset Co., Ltd. (TAN) 4. Kin Kub Tan Co., Ltd. (KIN) (Cont.) Outstanding balance at the end of the accounting period 0.20 0.20 - Outstanding balance at the end of the accounting period Expenses on book purchase 0.21 0.23 - 0.43 0.03 0.05 - 0.18 2014 0.96 Raw materials and equipment Food and beverage Outstanding balance at the end of the accounting period 2013 Transaction Related Party Transaction Value (MB) The Audit Committee viewed that the transactions were reasonable and beneficial to the Company because the gifts helped promote the Company and the books were sold to the Company at cost prices. •Audit Committee’s Opinion •The transactions were at cost prices. •Purchase of the books titled “Wi Thee Mai Tan” and “Kam Tan” from TAN as gifts and goods for sale at Melt Me shops and Tan Land, Rojana Industrial Park. The Audit Committee viewed that the transactions were reasonable and beneficial to the Company because the ice cream products were sold to general customers at a profit. •Audit Committee’s Opinion •The transactions were at cost prices. •Purchase of ice cream and equipment for the sale of ice cream at Tan Land, Rojana Industrial Park. Meals for the Company’s customers were paid by the Company for its own benefits and the prices charged by KIN were at the same rates applicable to other customers of KIN. Thus, the Audit Committee viewed that the transactions were reasonable and in the normal course of business. •Audit Committee’s Opinion •The meals were charged at the normal rate applied to other customers of KIN. •Meals at KIN for customers of the Company. Necessity and Rationale (KRD) 7. Kin Rong Deum Co., Ltd. Entertainment expenses 6. Ezili Co., Ltd. (EZL) Outstanding balance at the end of the accounting period Outstanding balance at the end of the accounting period Entertainment expenses Billboard rental expenses Outstanding balance at the end of the accounting period 5. Tan Asset Co., Ltd. (TAN) 0.12 - - - - - 0.02 0.03 - 0.02 0.24 2014 - 2013 Transaction Related Party Transaction Value (MB) Meals for the Company’s customers were paid by the Company for its own benefits and the prices charged by KRD were at the same rates applicable to other customers of KRD. Thus, the Audit Committee viewed that the transactions were reasonable and in the normal course of business. •Audit Committee’s Opinion •The transactions were charged at the same rates applicable to other customers of KRD. •Meals at KRD for the Company’s customers. The Audit Committee viewed that the transactions were at the same rates applicable to other customers of EZL and thus were reasonable and in the normal course of business operations. •Audit Committee’s Opinion •Expenses on meals at EZL for the Company’s customers which were charged at the same rates applicable to other customers of EZL. The Audit Committee opined that the billboard advertisements contributed to brand communication and promotion. The transactions were in the normal course of business operation and were at a discounted. Thus, it was concluded that the transactions were beneficial to the Company and reasonable. •Audit Committee’s Opinion •The billboard rental was 40% discounted. •Promotion of the Company’s brands in accordance with the marketing plan. Necessity and Rationale ANNUAL REPORT 2014 121 122 - Outstanding balance at the end of the accounting period 9. Mrs. Eng Passakornnatee - Hotel accommodation expense 8. Tan Boon Co., Ltd. (TANBOON) Outstanding balance at the end of the accounting period Interest expenses - 53.40 (Decrease) during the 1,000.00 period - - (270.00) 41.9 - 520.00 Increase during the period Outstanding balance at the end of the accounting period - 750.00 - - 0.00 2014 Beginning balance 2013 Transaction Related Party Transaction Value (MB) The Audit Committee viewed that the transactions were beneficial to the Company. The credits resulted in the Company’s extra liquidity and were used as working capital. The interest rate of 4% p.a. was lower than banks’ rates. Thus, the Audit Committee concluded that the transactions were reasonable and in the normal course of business operations. •Audit Committee’s Opinion •In 2012, the interest rate was 5% p.a. and changed to 4% p.a. from Q2/2013 onwards. The interest rate will be reviewed quarterly. •The Company sought unsecured P/N credits from Mrs. Eng to be repaid on 30 June 2015. The Audit Committee viewed that the transactions were beneficial to the Company given the special discount offered to the Company for room rentals under its PR events. The transactions were considered beneficial, reasonable and in the normal course of business. •Audit Committee’s Opinion •Special discount was offered. •Expenses on hotel accommodation paid to TANBOON which operates Eastin Tan Hotel in Chiangmai for promotional activities of the Company and its customers. Necessity and Rationale ANNUAL REPORT 2014 Necessity and Reasonableness of Transaction Related-party transactions are carefully executed for the best interest of the Company and its shareholders. All related-party transactions and transactions with conflicts of interest are in the Company’s normal business operations, reasonable and necessary for the Company’s normal business. Terms and conditions of such transactions are at an arm’s length basis and comparable to the markets or other similar customers. Credit transactions between the Company and its related parties are executed only when necessary for extra liquidity of the Company. Related-Party Transaction Approval Procedure The Company’s decisions to approve related-party transactions are primarily based on the Company’s interest. Such transactions were escalated to relevant authorities, i.e. the Audit Committee, the Board of Directors and the Company’s senior executives, in accordance with applicable approval procedures to ensure that implications and pricing of the transactions are appropriate and at an arm’s length basis. The Company has obtained approval for the guiding principles for transactions at an arm’s length between the Company and its directors, executives and related parties. According to the approved principles, the Company may enter into related-party transactions, subject to the approval by the management team, if the transactions have the same commercial terms and those an ordinary persons would agree with another party under similar circumstances and on the basis of commercial negotiation which is not influenced by their status as director, executive or related party. The related-party transaction report is presented to the Audit Committee on a quarterly basis. Directors, members of the Executive Committee and persons with potential conflict of interest do not have the authority to approve transactions concerned in order to comply with the requirements and rules stipulated by the SEC and/or the SET. Any related-party transactions which are beyond the scope of expertise of the Audit Committee shall be escalated to independent experts for opinions to support the consideration of and decision on such transactions by the Board, the Audit Committee or shareholders as applicable. Material related-party transactions are disclosed under the notes to the financial statements which have been audited by the Company’s auditor. Related-Party Transaction Policy and Future Trend It is the Company’s policy that all related-party transactions during the present time and in the future must be on an arm’s length basis, reviewed in accordance with the corporate governance principles, the Company’s rules and approved by relevant authorities as specified in 3) above to promote transparency and fairness. 123 Summary of Key Contract/Agreement 1. Distributor Agreement On 20 June 2014, the Company entered into a distributor agreement with I Am Green Tea Co., Ltd. (IGT) to appoint IGT as the Company’s distributor. The agreement is valid from 1 July 2014 to 30 June 2017. Parties to Agreement : I Am Green Tea Co., Ltd (“the distributor”) and the Company (“the manufacturer”) Date of Agreement : 20 June 2014 Effective Date : 1 July 2014 Validity Period : 3 years (1 July 2014 – 30 June 2017) Territory : The manufacturer agrees that the distributor can distribute its beverage products in Thailand according to the agreed terms and conditions through all channels, except for the modern trade channel. Pricing and Payment Terms : The distributors must purchase products from the manufacturer at the selling prices determined by the manufacturer as of the date such products are sold to customers. The manufacturer will issue invoices at the selling prices indicated in the agreement. The distributor shall sell products to shops and merchants according to the pricing structure specified by the manufacturer in the agreement. Distribution Center and Delivery : The distributor shall ensure that it has sufficient warehouse space of Goods to Distribution Center for storage of the products delivered to the distributor by the manufacturer. : The manufacturer shall deliver products to distribution centers as specified in the 30-day advance notice of the distributor. The delivery costs and expenses shall be borne by the manufacturer. Product Ownership : Products stored at distribution centers are owned by the distributor. Marketing and Promotion : The expenses shall be borne by the manufacturer. Expenses Expenses on Product Recall : Recall caused by the manufacturer’s error: The manufacturer shall be responsible for the costs and expenses associated with the recall of defective products. : Recall caused by product defects: The manufacturer agrees to be responsible for and pay compensation to the distributor at the agreed prices. : Recall caused by the distributor’s error: The manufacturer shall not be responsible for such recall. Agreement Cancellation : The agreement cancellation may be initiated on a reasonable ground in the following circumstances by a party to the agreement which does not breach the agreement: 124 ANNUAL REPORT 2014 1) Either party to the agreement is in solvency, bankruptcy, business dissolution or liquidation. 2) Either party to the agreement breaches this agreement or fails to honor obligations under this agreement within 30 days from the receipt of notice thereof from another party. Responsibility for Damage : The manufacturer must provide clear and sufficient usage and care Caused by Unsafe Product instructions, warnings and production information. The manufacturer shall be solely responsible for damage caused by unsafe products and protect the distributor from damage associated with claims, litigation, accusation and fine penalties caused by unsafe products. Confidentiality : Confidential information shall continue to be protected 3 years following the agreement termination or cancellation. 2. License Agreement for Production and Distribution of Products with Mr. Tan Passakornnatee’s Pictures, Drawings, Symbols and Work of Design Parties to Agreement : Mr. Tan Passakornnatee (“the licensor” or “Mr. Tan”) and I Am Green Tea Co., Ltd (“the licensee”) (formerly Ichitan Trading Co., Ltd.) Date of Agreement : 1 July 2011 Effective Date : 1 July 2011 Validity Period : 5 years (1 July 2011 – 30 June 2016) License Fee : Waiver of fees and charges for the licensee under this agreement. Manufacturing and Distribution : The figurine and goods with pictures, symbol or works of design of of Product the licensors must be manufactured by the licensee or a manufacturer hired by the licensee for products which are suitable with such figurine or goods at the licensee’s expense. Selling Price : The licensor reserves the right to determine the prices of such goods whereas the licensee is authorized to mark up the prices by 10% at a maximum as management fee. Duty of Licensee : The licensee does not have the right to transfer or assign its rights and obligations under this agreement, either partially or entirely, to a third party unless otherwise permitted in writing by the licensor. Agreement Cancellation : Where the licensee breaches any provision under this agreement or attempts to exploit rights under this agreement for any purpose other than those stated in this agreement, the licensor shall have the right to immediately cancel this agreement by submitting a written to notice via registered mail. Upon the termination of this agreement due to any cause whatsoever, the rights granted to the licensee under this agreement shall be terminated and void. 125 126 ID, AC ID, AC ID, // D D D D D D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 C, CEO, MD D D D D D D D D D D D D D, ED, M D D D D D D D D D D D D D D D D D D D D D D D D D D D, M D D D, ED D D ED, M D, ED, M D, ED, M Related Companies 17 = ACAP ADVISORY PLC. 17 = Acap Consulting Co.,Ltd. 18 = Global Service Center Co., Ltd. 7 = Tan And Tan Asset Co.,Ltd. 8 = Deaw Deaw Kab Tan Co.,Ltd. 9 = Gluay Gluay Co.,Ltd. 27 = The Classic Studio Co.,Ltd. 26 = Victoria’s Wedding Professional Co.,Ltd. 25 = Modern Wedding Studio Co.,Ltd. 23 = My Memory Studio Co.,Ltd. 24 = Your Studio Co.,Ltd. 15 = Professional Collection Co.,Ltd. 22 = Tokiya Co.,Ltd. 5 = Japanese Prime Restaurants Management Co.,Ltd. 14 = Capital OK Co.,Ltd. 13 = Wedding Business Consultant Co.,Ltd. 4 = Tan Boon Co.,Ltd. 20 = Thank You Service Co.,Ltd. 21 = T.Y. Marriage Studio Co.,Ltd. 6 = DST Asset Co.,Ltd. 11 = Ichi Pang Co.,Ltd. 12 = Lopburi Inn Plaza Co.,Ltd. 2 = Tan And Tan Sriracha Asset Co.,Ltd. 3 = Eng Tan Asset Co.,Ltd. 10 = Passakornnatee Co.,Ltd. 1 = Eng And Eng Sriracha Asset Co.,Ltd. 19 = ACAP Corporate Services Co.,Ltd 33 = Tan Eng Asset Co.,Ltd. 32 = Kin Kab Tan Co.,Ltd. 31 = Mu Tiare Weddind Gown & Planner Co.,Ltd. 30 = Marry Me Wedding Studio Co.,Ltd. 29 = Beloved Studio Co.,Ltd. 28 = White Marry Studio Co.,Ltd. C = Chairman D = Director ID = Independent Director // = Chairman of the Audit Committee AC = Audit Committee CEO = CHAIRMAN OF EXECUTIVE COMMITTEE ED = Executive Director MD = Managing Director M = Management List of companies Remark: Mr. Viroj Supasoon Mr. Tanapan Khongnuntha AVM. Nathawat Nimmolthanakhorn Mr. Prasan Limpipatanakul Mr. Issarachai Decharit Mr. Preecha Augcharanonda Mr. Tan Passakornnatee Mrs. Eng Passakornnatee Mr. Chiu Yueh-Chin Miss. Araya Panichayanon Name The Company Details of office of directors and executive officers of the Company. In subsidiaries and related companies ANNUAL REPORT 2014 Management Discussion and Analysis Analysis of Operating Results Revenue In 2012-2014, the Company recorded the revenues of Baht 4,482.9 million, Baht 6,531.8 million and Baht 6,208.9 million respectively, while the sales revenues were Baht 3,906.8 million, Baht 6,484.4 million and Baht 6,179.1 million. The YOY growth rates of 2012-2014 were 269.7%, 66.0% and (4.7)%, respectively. In 2014, the sales revenue of the Company declined by 4.7% from the previous year due to the prolonged cool weather which continued into the first 2 months of the year and the subdued ready-to-drink tea market. The 2011 sales performance reflected the adverse impact of the great flood. However, the Company’s factory resumed normal production in 2012 and the Company introduced new 7 flavors to the market and launched aggressive promotional campaigns to increase our market share. In addition, the brand recognition of Ichitan started to gain ground among the public and our distribution network was expanded and strengthened. In early 2013, the Company launched Yen Yen product which received good feedback from customers and greatly contributed to our rapid market share growth. In 2011-2013, sales revenues were mainly from Ichitan green tea product before herbal drink products started to general sales revenue in 2014. Percentage of sales from modern trade and traditional trade was nearly equal. In 2014, sales revenues were from ready-to-drink tea and the Company launched Ichitan Selected, a low sugar tea drink product, Ichitan Dragon Black Tea (mulberry flavor), and Yen Yen by Ichitan, a honey-mixed chrysanthemum drink. Other revenues included FX gains from machinery imports which stood at Baht 52.8 million, Baht 41.0 million and Baht 8.3 million in 2012-2014 respectively. In 2014, the Company additionally recorded the interest income of Baht 9.4 million and the marketing fee of Baht 8.0 million. Revenue Structure Net sales revenue Net revenue from flood Other revenue Total revenue Sales growth Market share* No. of flavors 2012 MB 3,906.8 518.8 57.3 4,482.9 % 87.1% 11.6% 1.3% 100.0% 269.7% 27.1% 16 รสชาติ 2013 MB 6,484.4 47.5 6,531.8 % 99.3% 0.7% 100.0% 66.0% 42.1% 17 รสชาติ 2014 MB 6,179.1 29.8 6,208.9 % 99.5% 0.5% 100.0% (4.7%) 43.8% 19 รสชาติ Source: * Retail Index of Nielsen, January 2014 127 Cost of Sales In 2012-2014, the cost of sales was primarily from raw materials and supplies which accounted for 90% of the total cost of goods sold. Cost of Sales 2012 MB Raw materials, supplies and changes in 2,504.3 inventories of finished goods Depreciation and amortization 133.1 Utility expenses (fuel, gas, electricity 79.1 and water) Transportation cost 46.0 Employee expenses 42.8 Share-based payment 14.4 Other 46.5 Total 2,866.1 Sales revenue (MB) Gross profit margin (%) 2013 2014 % 87.4% MB 3,766.5 % 85.1% MB 3,235.3 % 79.6% 4.6% 2.8% 256.2 161.6 5.8% 3.6% 358.5 203.9 8.8% 5.0% 1.6% 1.5% 0.5% 1.6% 100.0% 3,906.8 26.6% 61.6 76.0 2.9 100.7 4,425.0 1.4% 1.7% 0.1% 2.3% 100.0% 6,484.4 31.8% 43.7 102.8 121.0 4,065.2 1.1% 2.5% 3.0% 100% 6,179.1 34.2% In 2012 – 2014, the Company’s gross profit margins of beverage business were 26.6%, 31.8% and 34.2%, respectively. The 2012 gross profit margin was rather low because the in-house production line was not fully operational and the Company had to outsource 47% of its production activities to OEM, hence the higher unit cost and lower gross profit margin. In 2014, the Company’s production capacity increased and thus it gradually reduced dependency on OEM to 9% of the total production volume. This contributed to the Company’s improved performance in terms of unit cost and gross profit margin as evident in the 2014 gross profit margin which increased to 34.2% from the same period of the previous year as a result of a new production line for bottle type which started operation in April 2014, coupled with the decrease in the OEM to 9% of the total production volume. The use of OEM was expected to continuously decline, especially following the completion of construction and machinery installation under phase 2 of the production capacity increase project in April 2015. Share-based payment resulted from the personal share purchase and sale agreement between a major shareholder and employees of Ichitan and the stock option offered by a major shareholder to a group of business partners at par value. Such transactions were classified and recorded as share-based payment transactions and were subject to the fair valuation. 128 ANNUAL REPORT 2014 Share-Based Payment Share-based payment (employee) – Cost of sales Share-based payment (employee) – Administrative expense Share-based payment (business partner) – Administrative expense Total 2012 2013 2014 14.4 2.9 - 5.9 6.6 - 23.0 3.2 - 43.3 12.8 - Selling Expenses Major selling expenses primarily include advertisement and promotional expenses. The selling expenses were Baht 531.5 million in 2012, Baht 931.2 million in 2013 and Baht 774.2 million in 2014 and the ratios of selling expenses to sales revenue in each of the aforesaid years were 13.6%, 14.4% and 12.5%, respectively. The decline was attributed to the Company’s plan to strictly control marketing and promotional expenses within the level of 14% of the sales revenue through cost-effective and efficient marketing tools. The management has reviewed the marketing and promotional strategies every quarter to ensure that they are appropriate for the prevailing market conditions. In 2014, selling expenses amounted to Baht 774.2 million, accounting for 12.5% of the sales revenue, decreasing from 14.4% of the previous year because the Company organize only 1 major promotional event in 2014 and strictly curbed its selling expenses. Administrative Expense In 2012-2014, administrative expenses mainly included expenses on staff, education, sports and charities which altogether accounted for approximately 65.0% of the total administrative expenses. The administrative expenses were Baht 134.9 million in 2012, Baht 130.3 million in 2013 and Baht 250.4 million in 2014. In 2014, administrative expenses totaled Baht 250.4 million, increasing Baht 120.1 million or 92.1% from the previous year mainly due to the recognition of the impairment loss worth Baht 121.5 million for the trademark right, divided into Baht 84.1 million in the “intangible asset” account and Baht 37.4 million in the “advance payment for trademark right” account. As of 31 December 2014, the Company registered the transfer of trademarks in 10 countries (Thailand, Cambodia, India, Myanmar, the Philippines, Singapore, Hong Kong, South Korea, Taiwan and Vietnam) which were recognized as intangible assets with the total value (before tax) of Baht 168.22 million. Trademarks in 4 countries (China, Malaysia, USA and Canada) are still pending the ownership transfer registration and were recorded as advance payment for trademark right of Baht 37.38 million (before tax). However, the Company has not yet finalized its plan to sell “Bireley’s” products in these countries, except for Thailand, and thus a realistic cash inflow projection associated with such products cannot yet be made. In this connection, to comply with the Accounting Standard No. 36 on Impairment of Assets and the Accounting Standard No. 38 on Intangible Assets which stipulate that an impairment test must be performed annually for intangible assets with indefinite useful life to identify their recoverable amount at the same time every year, the Company has set aside the impairment allowance totaling Baht 121.49 million for the year ended 2014. 129 Profit (Loss) Before Financing Cost and Income Tax If the impact of the great flood and the performance of businesses halted is not factored in, the Company’s profit before financing cost and income tax stood at Baht 431.6 million in 2012 and Baht 1,045.3 million in 2013, or 9.6% and 15.4% of the total revenues in 2012 and 2013 respectively. The Company’s factory commenced operation in March 2012 with 1 production line for bottle type and 1 production line for box type. The production capacity was increased in the third quarter of 2012 to 2 production lines for bottle type and 2 production lines for box type. The production capacity increase coupled with the reduction in OEM production contributed to lower unit cost and higher profit margin. In 2014, the Company’s profit before financing cost and income tax was Baht 1,119.1 million, accounting for 18.0% of the total revenue and Baht 73.8 million higher than the same period of the previous year. The growth was attributed to a new production line for bottle type in April 2014, the “Ruay Prieng 3” promotional campaign launched in March 2014, and the launch of a new product, Yen Yen, a honey-mixed chrysanthemum drink, in August which received good response from consumers. Comprehensive Profit (Loss) The Company’s comprehensive income (loss) was Baht 697.7 million in 2012, Baht 881.7 million in 2013 and Baht 1,061.2 million in 2014, representing the net profit margin ratio of 15.6%, 13.5% and 17.1% respectively. The operating profit margins of 2012-2014 were 6.8%, 13.5% and 17.5% of the total revenue. Analysis of Financial Position Asset – Continuing Operation As of 31 December of 2012-2014, the Company’s total assets stood at Baht 5,371.0 million, Baht 6,540.9 million and Baht 9,026.2 million, respectively. As the Company operates beverage production and distribution businesses, its core assets include machinery, factory equipment, land and buildings which altogether account for 75.3% of the total assets as of 21 December 2014. In the previous year, the Company saw growth in its total assets due to its capacity increase initiatives, driven by its expansion into overseas markets and OEM reduction and, including the increase in current assets on the back of business growth, and the IPO launch. Key transactions which contributed to the asset growth of Baht 2,485.2 million were: 1. Net increase of Baht 1,813.3 million in property, plant and equipment, mainly from machinery investment in the production line for bottle type. 2. Increase of Baht 100.7 million in accounts receivable on the back of business growth. The Company recorded the sales growth of 66.0% in 2013 and (4.7)% in 2014. Our credit term is 30-45 days while the average collection period ranges from 32-50 days, i.e.32 days in 2012, 36 days in 2013 and 50 days in 2014. The average collection period of 2014 was longer than that of 2013 because the collection period was extended for a key distributor in accordance with the terms and conditions under a distribution agreement. 130 ANNUAL REPORT 2014 Major accounts receivable of the Company are distributors who are granted the credit term of 30-45 days. Details of accounts receivable as of the end of 2012-2014 Aging Related Party Undue Overdue • Less than 3 months • Longer than 6 months Total Third Party Undue • Overdue • Less than 3 months • Longer than 6 months Total Grand Total 2012* MB 2013 2014 % MB % MB % 5.1 1.1% 206.9 25.6% 38.2 4.2% 1.1 0.0 6.2 0.2% 0.0% 1.3% 206.9 25.6% 38.2 4.2% 444.2 95.6% 602.0 74.4% 870.7 95.7% 14.4 0.0 458.6 464.8 3.1% 0.0% 98.7% 100.0% 0.1 .0% 74.4% 100.0% 0.7 0.1% 95.8% 100.0% 602.0 809.0 871.4 909.6 Remark: * Accounts receivable of 2012 included accounts receivable worth Baht 4.8 million from discontinued business (food business) 3. Increase of Baht 337.5 million in inventories in line with the business growth. The Company adopts the 30-day policy for its inventory stocking. The inventory turnover rates were 15.8x in 2012, 17.0x in 2013 and 13.3x in 2014 while the average holding periods in 2012-2014 were 23 days, 21 days and 27 days, respectively. The return on assets declined to 15.0% in 2013 and 14.0% in 2014 and the return on fixed assets decreased from 25.8% in 2013 to 24.6% in 2014 due to extra machinery investment in phase 2 of the capacity increase project which is partially pending installation and not operative in 2014. The machinery installation will be fully completed in the second quarter of 2015. Liability – Continuing Operation As of 31 December of 2012-2014, the Company’s liabilities totaled Baht 4,224.0 million, Baht 4,572.6 million and Baht 2,813.3 million, respectively, most of which are bank loans. The outstanding of bank loans as of 31 December 2014 amounted to Baht 1,962.5 million. Long-term bank loans by maturity: – Loans due for repayment in 1 year: Baht 182.0 million. – oans due for repayment in 1-5 years: Baht 1,672.7 million. – Loan due for repayment in 5 years and longer: Baht 107.8 million. 131 Financing Structure The Company’s major source of funds of are bank loans and director loans. As of 31 December 2013 and 31 December 2014, the debt to equity ratios of continuing business of the Company stood at 2.3x and 0.5x respectively. The debt to equity ratios of the Company computed according to the requirements of lending banks (where equity includes loans from directors and related companies and debts excludes the same) were 1.2x as of 31 December 2013 and 0.5x as of 31 December 2014. The debt to equity ratios met the lending banks’ financial covenant requirement which stipulates that the Company’s debt to equity ratio must not exceed 2.5x. The debt to equity ratio of 2014 improved as a result of the repayment of director loans and bank loans in April 2014 from IPO proceeds. Liabilities and Contingencies as of 31 December 2014 – Capital commitment worth Baht 307.7 million from the acquisition of properties, plants and equipment. – Operating lease commitment worth Baht 19.5 million from the office building and facilities lease agreements of which terms range from 1-4 years and end in 2014-2016. – Commitment worth Baht 369.3 million according to the undrawn L/C facilities. – Commitment worth Baht 57.3 million under purchase orders agreed with suppliers of goods and materials. – Commitment worth Baht 5.5 million under guarantee issued by a bank to a state enterprise. Shareholders’ Equity As of 31 December 2014, the shareholders’ equity was worth Baht 6,212.9 million, divided in the paid-up registered capital of Baht 1,300 million, the premium on ordinary shares of Baht 3,515.4 million, the surplus on share-based payment of Baht 56.1 million, the legal reserve of Baht 130.0 million and the retained earnings of 1,211 million. In 2013, the shareholders’ equity was worth Baht 1,968.3 million, divided in the paid-up registered capital of Baht 1,000 million, the surplus on share-based payment of Baht 56.1 million, the legal reserve of Baht 45.0 million and the retained earnings of Baht 867.2 million. From the inception to this point of time, the Company has never paid dividends to shareholders. In 2012, the shareholders’ equity was worth Baht 1,073.9 million, up Baht 1,141.0 million from 2011 as a result of the registered capital increase of Baht 400 million. The profit from normal operation of the beverage business was Baht 306.4 million and the remaining insurance claim of Baht 569.4 million was recognized. The return on equity ratios in 2013 and 2014 were 66.7% and 26.4%, respectively. Book Value Per Share 132 As of 31 December 2014, the Company’s book value was Baht 4.62 per share. ANNUAL REPORT 2014 Liquidity Analysis and Source and Use of Fund In 2014, the Company’s main sources of fund were operating cash flow, bank loan and IPO proceeds. Operating Cash Flow In 2014, the Company recorded the operating cash flow of Baht 1,472.8 million from sales and operating profit. Liquidity Ratio The Company’s liquidity mainly depended on the efficiency of inventory turnover management, collection of accounts, cash flow from collection of accounts receivable and payment to accounts payable. In 2012-2014, the Liquidity ratio Average collection period Inventory turnover Account payable turnover Cash cycle Unit วัน วัน วัน วัน 2012 31.7 22.8 36.3 18.2 2013 35.2 21.2 28.9 27.6 2014 50.1 27.0 35.8 41.3 In 2014, the average collection period lengthened from 35.2 days in 2013 to 50.1 days due to the extension of the collection period for a key trading partner from 30 days to 45 days in accordance with the terms and conditions of applicable agreement. In this regard, the Company requested its raw material suppliers to change the credit terms to 45 days and this led to the longer account payable turnover. In 2014, the cash cycle increased to 41.3 days from 27.6 days in 2013 as a result of the extension of the collection period for a key distributor. As the average collection period and the account payable turnover were extended by 14.9 days and 6.9 days, respectively, the cash cycle was lengthened by 13.7 days. Debt Service Coverage Ratio According to the lending banks’ requirement, the Company must maintain the debt service coverage ratio of at least 1.25x and the debt to equity ratio of 2.5x or lower. As of 31 December 2013 and 2014, the Company’s debt service coverage ratios stood at 3.3x and 5.9x, respectively while its debt to equity ratios were 1.2x and 0.5x, respectively. Cash Flow from Investing Activity In 2014, the Company’s net cash flow from investing activity stood at Baht (2,475.2) million. Key investing activities were land acquisition, construction costs, purchase of machinery and equipment, acquisition of trademark rights and investment in jointly-controlled entities. 133 Cash Flow from Financing Activity In 2014, the Company’s net cash flow from financing activity amounted to Baht 1,070.5 million, primarily from bank loan and IPO proceeds. The said cash flow was used for land acquisition, construction, purchase of machinery and equipment, loan repayment, dividend payment and working capital. Audit Fee In 2014, the audit fee paid to KPMG Phoomchai Audit Limited amounted to Baht 1.8 million. Factor and Influence Potentially Affecting Performance or Financial Position in the Future Major Factor Affecting the Company’s Performance 1) Major incidents affecting past performance In 2014, the Company installed a new production line for bottle type which increased its production capacity as of 31 December 2014 to 6 production lines, of which 4 are for bottle type and 2 are for box type. Launch of new product and market share expansion Price competition in the beverage market has been rather fierce as there are several players in the market, especially the ready-to-drink market. Most players have adopted aggressive strategy and continuously introduced promotional campaigns to the market. Development of value-added products and product differentiation have been key focus of beverage business operators as evident in the number of new ready-to-drink products which has consistently grown since mid-2012. Therefore, it is vital for the Company to continuously develop new products which can cater to the growing needs and demands of consumer in order to sharpen its competitive edge, protect its market share and prevent against negative impact on its performance. The Company has formulated a product research and development roadmap and a dynamic sales strategy to effectively respond to changes in the market landscape as well as to attract new customers and retain existing customers which ultimately will lead to our higher market share. In the past 4 years, the Company has introduced 19 products to the market. 2) Sales forecast, production planning and effective cost and expense management Most of the Company’s production costs are fixed costs, i.e. machinery depreciation and land lease. Given the fact that the unit cost decreases as output increases, the Company needs to forecast its sales performance to optimize the effectiveness of its production planning, raw material procurement and product distribution. Key factors affecting demand and consumption are weather and promotional activities. The rate of ready-to-drink tea consumption hikes in summer and slows in winter. Therefore, it is imperative for the Company to seasonally adjust its promotional strategy to match the changing demand levels of consumers. For effective cost and expense management, the Company has applied advanced technology to its production process as well as controlled its production costs. In addition, the Company has reviewed its resource utilization such as staffing and amount of raw material used to ensure cost-effectiveness and determine appropriate unit cost. 134 ANNUAL REPORT 2014 Report of the Audit Committee Dear Shareholders The Audit Committee consists 3 independent directors, namely AVM Nathawat Nimmolthanakhorn, as the Chairman of the Audit Committee, Mr. Prasan Limpipatanakul and Mr. Issarachai Decharit. All members of the Audit Committee meet the qualification criteria under the Audit Committee’s charter which has been formulated under the requirements and best practices applicable to audit committees as stipulated by the Securities and Exchange Commission and the Stock Exchange of Thailand. In 2014, the Audit Committee held 5 meetings and performed duties with independence and in accordance with the scope of authority and responsibilities as summarized below: • Review of financial reports and disclosures in collaboration with the auditors and the management responsible for quarterly and annual financial reports to ensure the adequacy and adequacy thereof. Review of the Company’s internal control systems jointly with the auditor and the internal auditor team to ensure that the Company’s internal control and internal audit were adequate and appropriate. • Oversight and evaluation of the internal audit team’s performance in view of the annual internal audit plan and manpower to promote the independence of the internal audit function. • Nomination of the 2015 auditor of the Company to the Board following the joint review of the auditor’s profile, proven track records and the auditor’s fee in collaboration with the management. Review of the qualifications and independence of the auditors in compliance with applicable requirements of the Securities and Exchange Commission and the Stock Exchange of Thailand. In this regard, the Audit Committee proposed to the Board the nomination of Mrs. Munchupa Singsuksawat from KPMG Phoomchai Audit Limited as the Company’s auditor for 2014 and the auditor’s fee which shall be further proposed to the shareholders’ meeting. • Oversight of the Company’s compliance with the corporate governance principles, the Securities and Exchange Act, requirements stipulated by the Stock Exchange of Thailand or legal and regulatory requirements applicable to the Company’s business. Review of related-party transactions and potential conflicts of interest to ensure the Company’s proper and reasonable compliance with regulatory requirements and rules for the Company’s best interest as well as the management’s strict compliance with the related-party transaction policies approved by the Board. • Proposal of the reviewed Audit Committee’s charter to the Board which had been revised according to the changing business environment of the Company. Self-evaluation of the Audit Committee’s performance to identify achievements, issues and areas for improvement of the Audit Committee and other relevant units. Participation in relevant training courses and seminars to enhance knowledge related to roles and responsibilities of audit committees. The Audit Committee concurs with the auditor that the Company’s 2014 financial statements have been prepared in accordance with applicable financial reporting standards. Disclosures have been adequately made by the Company and its internal control system is satisfactory and presents no material weakness. The Company has complied with applicable statutory and regulatory requirements and the management team has committed to adhering to the principles of integrity and business ethics. The internal audit results have been directly reported by the internal audit team to the Audit Committee and rectifications per the Audit Committee’s recommendations have been regularly monitored. AVM Nathawat Nimmolthanakhorn Chairman of the Audit Committee 135 Report of the Nomination and Remuneration Committee Dear Shareholders The Nomination and Remuneration Committee of Ichitan Public Company Limited is appointed by the Board Meeting No. 3/2014 dated 13 August 2014 and is comprised of 3 members as follows: 1. Mr. Issarachai 2. Mr. Prasan 3. Mrs. Eng Decharit Limpipatanakul Passakornnatee Chairman of Nomination and Remuneration Committee Nomination and Remuneration Committee Member Nomination and Remuneration Committee Member The Nomination and Remuneration Committee has performed duties as assigned by the Board and in accordance with the charter of the Nomination and Remuneration Committee. The key responsibilities of the Nomination and Remuneration Committee include the nomination of qualified candidates as members of the Board and Board Committees and the proposal of remuneration of the Chairman of the Board and the Chief Executive Officer to the Board. In 2014, the Nomination and Remuneration Committee held 2 meetings. The Nomination and Remuneration Committee has clearly formulated applicable policies, criteria and procedures in accordance with the charters and regulatory requirements to provide appropriate operating frameworks for the Company as approved by the Board as follows: • The nomination of qualified candidates as members of the Board and Board Committees and the Chief Executive Officer shall be based on qualifications, knowledge, abilities, skills, experiences, expertise, leadership, vision and attitudes. Considerations are also given to the size, structure and composition of the Board to promote the compliance with good corporate governance principles and effective management which are appropriate to the evolving business environment and regulatory changes. • The determination of remuneration offered to directors and the Chief Executive Officer is based on the scope of responsibilities, duties and performance of the incumbents together with the operating results, business conditions and factors which may affect the Company’s businesses and the economic conditions. As of 31 December 2014, the Board is comprised of 9 members, of which 3 are independent directors. The Nomination and Remuneration Committee has requested the directors conduct self-evaluation to review their performance in the prior year. Details of the remunerations offered to directors and executives are shown under the remuneration of directors and executives section of the annual report. The Nomination and Remuneration Committee views that the remunerations are appropriate in view of with the scope of responsibilities of the directors and executives and in accordance with the policies and criteria set by the Nomination and Remuneration Committee and approved by the Board. Mr. Issarachai Decharit 136 Chairman of Nomination and Remuneration Committee ANNUAL REPORT 2014 Report of the Board of Directors’ Responsibility for the Financial Reporting According to the Public Limited Companies Act B.E. 2535, the Accounting Act B.E. 2543, the Securities and Exchange Act B.E. 2535 and the Capital Market Supervisory Board’s Notification Re: Criterial, Conditions and Procedures for Disclosure of Financial Positions and Performance of Securities Issuers, the Board is required to ensure that the financial statements of the Company are properly prepared to accurately and reasonably disclose its financial positions, performance, changes in the equity and cash flows in the prior year. The Board of Directors of Ichitan Group Public Company Limited is responsible for the Company’s financial statements and financial information disclosed in the annual report. The financial statements are prepared in accordance with accounting standards generally accepted in Thailand which are primarily in line with international standards and are based on appropriate accounting policies that are applied on a consistent basis. The financial statements are also prepared with the use of appropriate estimates and judgments. Material information is adequately disclosed in the notes to the financial statements together with the management discussion and analysis in order to facilitate understanding of all shareholders and stakeholders about the Company’s overall financial position. The Board has undertaken steps to ensure the effectiveness of the Company’s internal controls with a view to provide reasonable assurance that the accounting records are accurate, complete and adequate for effective safeguard of assets and identification of vulnerabilities and weaknesses to prevent against frauds and material irregularities and errors. The Board has appointed the Audit Committee which is comprised of non-executive, independent directors to conduct a qualitative review of the Company’s financial reports and internal controls. The opinions of the Audit Committee on these matters are under the Audit Committee’s Report section of this annual report. The Board is of the view that the Company’s overall internal controls are satisfactory and can provide reasonable confidence in the reliability of the Company’s financial system and that the financial statements as of 31 December 2014 of the Company are in accordance the accounting standards generally accepted in Thailand and applicable laws and notifications. Mr. Tan Passakornnatee Chairman of the Board 137 Ichitan Group Public Company Limited Financial statements for the year ended 31 December 2014 and Independent Auditor’s Report Annual Report 2014 Independent Auditor’s Report To the Shareholders of Ichitan Group Public Company Limited I have audited the accompanying financial statements in which the equity method is applied and separate financial statements of Ichitan Group Public Company Limited (the “Company”), which comprise the statement of financial position in which the equity method is applied and separate statement of financial position as at 31 December 2014, the related statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements in which the Equity Method is Applied and Separate Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in which the equity method is applied and separate financial statements in accordance with Thai Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements in which the equity method is applied and separate financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility My responsibility is to express an opinion on these financial statements in which the equity method is applied and separate financial statements based on my audit. I conducted my audit in accordance with Thai Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements in which the equity method is applied and separate financial statements are free from material misstatement. 139 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements in which the equity method is applied and separate financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2014 and its financial performance and cash flows for the year then ended in accordance with Thai Financial Reporting Standards. (Munchupa Singsuksawat) Certified Public Accountant Registration No. 6112 KPMG Phoomchai Audit Ltd. Bangkok 25 February 2015 140 Annual Report 2014 Ichitan Group Public Company Limited Statement of financial position Financial statements in which the equity method is applied 31 December Assets Current assets Cash and cash equivalents Trade accounts receivable Other receivables Refundable value added tax Inventories Other current assets Total current assets Current assets Cash and cash equivalents entity Advances for purchase of machinery and equipment Advances for purchase of right to use trademark Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets Total non-current assets Total assets Separate financial statements 31 December Note 2014 5 4, 6 7 151,787,255 909,636,298 77,716,093 88,310,030 675,902,595 12,326,010 1,915,678,281 151,787,255 909,636,298 77,716,093 88,310,030 675,902,595 12,326,010 1,915,678,281 83,655,341 808,969,969 98,510,229 93,003,483 338,450,088 11,237,387 1,433,826,497 117,683,141 135,620,414 - 30,578,290 30,578,290 120,452,693 6,795,180,663 86,573,463 59,487,245 3,052,429 7,092,555,231 6,795,180,663 86,573,463 59,487,245 3,052,429 7,110,492,504 4,981,921,606 2,517,509 2,217,429 5,107,109,237 9,008,233,512 9,026,170,785 6,540,935,734 8 9 11 10 11 12 2014 (in Baht) 2013 The accompanying notes are an integral part of these financial statements. 141 Ichitan Group Public Company Limited Statement of financial position Financial statements in which the equity method is applied 31 December Liabilities and equity Current liabilities Short-term loans from financial institutions Trade accounts payable Other payables Payables on purchase of property, plant and equipment Accrued expenses Current portion of long-term loans from financial institutions Other current liabilities Total current liabilities Note 13 14 2014 Separate financial statements 31 December 2014 (in Baht) 28,224,000 519,324,591 24,723,033 28,224,000 519,324,591 24,723,033 355,825,857 288,858,239 23,520,841 101,357,939 186,399,592 101,357,939 186,399,592 165,310,609 140,809,801 153,840,796 8,032,453 1,021,902,404 153,840,796 8,032,453 1,021,902,404 230,805,263 8,881,150 1,214,011,760 Non-current liabilities Long-term loans from financial institutions 13 Long-term loans from related parties 4, 13 Employee benefit obligations 15 Total non-current liabilities 1,780,437,180 10,960,402 1,791,397,582 1,780,437,180 10,960,402 1,791,397,582 2,350,929,857 1,000,000,000 7,681,006 3,358,610,863 Total liabilities 2,813,299,986 2,813,299,986 4,572,622,623 4 13 The accompanying notes are an integral part of these financial statements. 142 2013 Annual Report 2014 Ichitan Group Public Company Limited Statement of financial position Financial statements in which the equity method is applied 31 December Liabilities and equity (continued) Equity Share capital Authorised share capital Issued and paid-up share capital Additional paid in capital Premium on ordinary shares Surplus on share-based payment transactions Retained earnings Appropriated Legal reserve Unappropriated Other components of equity Total equity Total liabilities and equity Note 2014 Separate financial statements 31 December 2014 (in Baht) 2013 16 1,300,000,000 1,300,000,000 1,300,000,000 1,300,000,000 1,300,000,000 1,000,000,000 3,515,423,218 3,515,423,218 - 16 56,079,360 56,079,360 56,079,360 17 130,000,000 1,211,394,874 (17,963,926) 6,194,933,526 130,000,000 1,211,368,221 6,212,870,799 45,000,000 867,233,751 1,968,313,111 9,008,233,512 9,026,170,785 6,540,935,734 16 9 The accompanying notes are an integral part of these financial statements. 143 Ichitan Group Public Company Limited Statement of comprehensive income Financial statements in which the equity method is applied Year ended 31 December Note Income Revenue from sale of goods Interest income Other income Total income Expenses Cost of sale of goods Selling expenses Administrative expenses Finance costs Total expenses Share of profit of jointly controlled entity Profit before income tax expense Tax income Profit for the year 4 2014 Separate financial statements Year ended 31 December 2014 (in Baht) 6,179,080,161 9,364,836 20,420,163 6,208,865,160 6,179,080,161 9,364,836 20,420,163 6,208,865,160 6,484,375,339 1,352,337 46,113,591 6,531,841,267 8, 20 20 4, 20 4, 21 4,065,204,432 774,179,994 250,418,023 99,415,486 5,189,217,935 4,065,204,432 774,179,994 250,418,023 99,415,486 5,189,217,935 4,425,029,742 931,190,500 130,348,130 161,618,262 5,648,186,634 9 26,653 1,019,673,878 59,086,769 1,078,760,647 1,019,647,225 59,086,769 1,078,733,994 883,654,633 883,654,633 4 22 The accompanying notes are an integral part of these financial statements. 144 2013 Annual Report 2014 Ichitan Group Public Company Limited Statement of comprehensive income Financial statements in which the equity method is applied Year ended 31 December Note Other comprehensive income Foreign currency translation differences for foreign operations Defined benefit plan actuarial losses Income tax on other comprehensive income ก�ำไรขาดทุนเบ็ดเสร็จอื่น Other comprehensive income for the year, net of income tax Total comprehensive income for the year Earnings per share Basic earnings per share ไผ Separate financial statements Year ended 31 December 2014 2014 (in Baht) 2013 (17,963,926) - - 15 - - (2,002,379) 12 400,476 400,476 - (17,563,450) 400,476 (2,002,379) 1,061,197,197 1,079,134,470 881,652,254 0.89 0.89 0.88 24 The accompanying notes are an integral part of these financial statements. 145 17 16 25 1,300,000,000 3,515,423,218 - 3,515,423,218 300,000,000 - 3,515,423,218 - - 300,000,000 - 1,000,000,000 The accompanying notes are an integral part of these financial statements. Transfer to legal reserve Balance at 31 December 2014 Comprehensive income for the year Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, recorded directly in equity Issue of ordinary shares Dividends to owners of the Company Total transactions with owners, recorded directly in equity Year ended 31 December 2014 Balance at 1 January 2014 56,079,360 - - - 56,079,360 85,000,000 130,000,000 - - - 45,000,000 (85,000,000) 1,211,394,874 1,078,760,647 400,476 1,079,161,123 (650,000,000) (650,000,000) 867,233,751 (17,963,926) (17,963,926) (17,963,926) - - - 3,165,423,218 3,815,423,218 (650,000,000) 1,968,313,111 Total equity 146 (17,963,926) 6,194,933,526 - 1,078,760,647 (17,963,926) (17,563,450) (17,963,926) 1,061,197,197 - - - Financial statements in which the equity method is applied Retained earnings Other components of equity Surplus on Total Issued and Premium on share-based Currency other paid-up ordinary payment Legal translation components transactions reserve Unappropriated differences of equity Note share capital shares (in Baht) Statement of changes in equity Ichitan Group Public Company Limited Annual Report 2014 17 16 Note The accompanying notes are an integral part of these financial statements. Transfer to legal reserve Balance at 31 December 2013 Comprehensive income for the year Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, recorded directly in equity Share-based payment transactions Total transactions with owners, recorded directly in equity Year ended 31 December 2013 Balance at 1 January 2013 Statement of changes in equity Ichitan Group Public Company Limited 1,000,000,000 - - 1,000,000,000 Issued and paid-up share capital 56,079,360 - 12,765,300 12,765,300 43,314,060 - - - 45,000,000 45,000,000 (in Baht) (45,000,000) 867,233,751 883,654,633 (2,002,379) 881,652,254 - 30,581,497 Separate financial statements Surplus on Retained earnings share-based payment Legal transactions reserve Unappropriated 147 1,968,313,111 883,654,633 (2,002,379) 881,652,254 12,765,300 12,765,300 1,073,895,557 Total equity 17 16 25 Note 1,300,000,000 - 300,000,000 300,000,000 1,000,000,000 3,515,423,218 - 3,515,423,218 3,515,423,218 - Issued and paid-up Premium on share capital ordinary shares The accompanying notes are an integral part of these financial statements. ไ Transfer to legal reserve Balance at 31 December 2014 Comprehensive income for the year Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, recorded directly in equity Issue of ordinary shares Dividends to owners of the Company Total transactions with owners, recorded directly in equity Year ended 31 December 2014 Balance at 1 January 2014 Statement of changes in equity Ichitan Group Public Company Limited 56,079,360 - - 56,079,360 (in Baht) 85,000,000 130,000,000 - - 45,000,000 (85,000,000) 1,211,368,221 1,078,733,994 400,476 1,079,134,470 (650,000,000) (650,000,000) 867,233,751 Separate financial statements Surplus on Retained earnings share-based payment Legal transactions reserve Unappropriated 148 6,212,870,799 1,078,733,994 400,476 1,079,134,470 3,815,423,218 (650,000,000) 3,165,423,218 1,968,313,111 Total equity Annual Report 2014 Annual Report 2014 Ichitan Group Public Company Limited Statement of cash flows Financial statements in which the equity Separate method is applied financial statements Year ended Year ended 31 December 31 December Note Cash flows from operating activities Profit for the year Adjustments for Depreciation Amortisation of intangible assets Impairment losses on advances for purchase of right to use trademark Impairment losses on intangible assets Interest income Finance costs Loss on write-off of inventories Allowance for decline in value of inventories Unrealised (gain) loss on exchange Loss on write-off of equipment (Gain) loss on disposal of equipment Gain on disposal of intangible assets Employee benefit expenses Expenses for share-based payment transactions Share of profit of jointly-controlled entity Tax income 2014 2014 (in Baht) 2013 1,078,760,647 1,078,733,994 883,654,633 10 11 369,583,530 331,596 369,583,530 331,596 266,839,090 312,000 11 37,383,178 37,383,178 - 11 84,112,150 (9,364,836) 99,415,486 2,046,244 84,112,150 (9,364,836) 99,415,486 2,046,244 (1,352,337) 161,618,262 4,790,457 15 11,733,071 1,574,188 192,141 4,044 3,279,396 11,733,071 1,574,188 192,141 4,044 3,279,396 3,712,136 (3,929,198) 2,990,189 (57,783) (1,851) (197,648) 16 - - 12,765,300 21 8 9 22 (26,653) (59,086,769) (59,086,769) 1,619,937,413 1,619,937,413 1,331,143,250 The accompanying notes are an integral part of these financial statements. 149 Ichitan Group Public Company Limited Statement of cash flows Financial statements in which the equity Separate method is applied financial statements Year ended Year ended 31 December 31 December Note Changes in operating assets and liabilities Trade accounts receivable Other receivables Refundable value added tax Inventories Other current assets Other non-current assets Trade accounts payable Other payables Accrued expenses Other current liabilities Net cash from operating activities Cash flows from investing activities Interest received Advances for purchase of machinery and equipment Advances for purchase of right to use trademark Purchase of property, plant and equipment Sale of property, plant and equipment Purchase of intangible assets Sale of intangible assets Net cash outflow on investment in jointly-controlled entity Net cash used in investing activities 2014 2014 (in Baht) (100,666,329) (100,666,329) 20,794,136 20,794,136 4,693,453 4,693,453 (351,231,822) (351,231,822) (1,088,623) (1,088,623) (835,000) (835,000) 230,538,722 230,538,722 1,202,192 1,202,192 50,322,598 50,322,598 (848,697) (848,697) 1,472,818,043 1,472,818,043 (344,202,929) 30,892,157 83,283,464 107,069,327 (6,124,771) 6,750,282 (170,385,253) (5,322,490) (85,430,776) 3,224,016 950,896,277 9,364,836 9,364,836 1,352,337 88,353,754 88,353,754 (59,063,159) (37,383,178) (37,383,178) - (2,231,441,339) (2,231,441,339) (1,532,392,883) 62,617 62,617 93,156,396 (168,499,700) (168,499,700) (158,589) 4,534,600 9 (135,620,414) (135,620,414) (2,475,163,424) (2,475,163,424) (1,492,571,298) The accompanying notes are an integral part of these financial statements. 150 2013 Annual Report 2014 Ichitan Group Public Company Limited Statement of cash flows Financial statements in which the equity Separate method is applied financial statements Year ended Year ended 31 December 31 December Note Cash flows from financing activities Interest paid Dividends paid to owners of the Company Proceeds from borrowings Repayment of borrowings Net proceeds from initial public offering Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 2014 2014 (in Baht) (119,886,922) (119,886,922) 2013 (168,669,864) 25 (650,000,000) (650,000,000) 1,655,856,997 1,655,856,997 2,502,483,374 (3,630,915,998) (3,630,915,998) (1,744,590,966) 16 3,815,423,218 3,815,423,218 1,070,477,295 1,070,477,295 5 Supplemental disclosures of cash flows information: Property, plant and equipment paid by cash are detailed as follows: Increase in property, plant and equipment Less-Changes in payables - Unrealised (gain) loss on exchange -Capitalised interest Property, plant and equipment paid by cash 589,222,544 68,131,914 68,131,914 47,547,523 83,655,341 83,655,341 36,107,818 151,787,255 151,787,255 83,655,341 2,183,101,389 2,183,101,389 1,314,117,809 63,952,670 63,952,670 228,006,158 125,909 (15,738,629) 125,909 (15,738,629) (3,929,198) (5,801,886) 2,231,441,339 2,231,441,339 1,532,392,883 The accompanying notes are an integral part of these financial statements. 151 Ichitan Group Public Company Limited Notes to the financial statements NoteContents 1 General information 2 Basis of preparation of the financial statements 3 Significant accounting policies 4 Related parties 5 Cash and cash equivalents 6 Trade accounts receivable 7 Other receivables 8Inventories 9I nvestment in jointly-controlled entity 10 Property, plant and equipment 11 Intangible assets 12 Deferred tax 13 Interest-bearing liabilities 14 Trade accounts payable 15 Employee benefit obligations 16 Share capital 17Reserves 18 Segment information 19 Employee benefit expenses 20 Expenses by nature 21 Finance costs 22 Income tax 23 Promotional privileges 24 Basic earnings per share 25Dividends 26 Financial instruments 27 Commitments with non-related parties 28 Events after the reporting period 29 Thai Financial Reporting Standards not yet adopted 152 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements These notes form an integral part of the financial statements. The financial statements issued for Thai statutory and regulatory reporting purposes are prepared in the Thai language. These English language financial statements have been prepared from the Thai language statutory financial statements, and were approved for issue by the Board of Directors on 25 February 2015. 1 General information Ichitan Group Public Company Limited, the “Company”, is incorporated in Thailand on 3 September 2010 and has its registered office as follows: Head office is located at 2922/301-303, 28th Floor, Charn Issara II Building, New Petchburi Road, Kwang Bangkapi, Khet Huaykwang, Bangkok 10310, Thailand. Branch office is located at 111/1 Moo 4, Rojana Industrial Park, Tambol U-Thai, Amphur U-Thai, Ayutthaya 13120, Thailand. The Company was listed on the Stock Exchange of Thailand in April 2014. The Company’s major shareholders during the financial year were Tan Passakornnatee and Eng Passakornnatee who owned 14% and 9% of the Company’s share capital as at 31 December 2014, respectively. The principal activities of the Company are the manufacturing and sale of beverages. Detail of jointly-controlled entity as at 31 December 2014 is disclosed in note 9 to the financial statements. 2 Basis of preparation of the financial statements (a) Statement of compliance The financial statements are prepared in accordance with Thai Financial Reporting Standards (“TFRS”); guidelines promulgated by the Federation of Accounting Professions (“FAP”); and applicable rules and regulations of the Thai Securities and Exchange Commission. The FAP has issued the following new and revised TFRS relevant to the Company’s operations and effective for annual accounting periods beginning on or after 1 January 2014: TFRS TAS 1 (revised 2012) TAS 7 (revised 2012) TAS 12 (revised 2012) Topic Presentation of financial statements Statement of Cash Flows Income Taxes 153 Ichitan Group Public Company Limited Notes to the financial statements TFRS TAS 17 (revised 2012) TAS 18 (revised 2012) TAS 19 (revised 2012) TAS 21 (revised 2012) TAS 24 (revised 2012) TAS 31 (revised 2012) TAS 34 (revised 2012) TAS 36 (revised 2012) TAS 38 (revised 2012) TFRS 2 (revised 2012) TFRS 5 (revised 2012) TFRS 8 (revised 2012) TFRIC 1 TFRIC 4 TFRIC 10 TFRIC 13 TIC 15 TIC 27 TIC 32 Topic Leases Revenue Employee Benefits The Effects of Changes in Foreign Exchange Rates Related Party Disclosures Interests in Joint Ventures Interim Financial Reporting Impairment of Assets Intangible Assets Share-based Payment Non-current Assets held for Sale and Discontinued Operations Operating Segments Changes in Existing Decommissioning, Restoration and Similar Liabilities Determining whether an Arrangement contains a Lease Interim Financial Reporting and Impairment Customer Loyalty Programmes Operating Leases-Incentives Evaluating the Substance of Transactions Involving the Legal Form of a Lease Intangible Assets-Web Site Costs The initial application of these new and revised TFRS has resulted in changes in certain of the Company’s accounting policies. These changes have no material effect on the financial statements. In addition to the above new and revised TFRS, the FAP has issued a number of other new and revised TFRS which are effective for annual financial periods beginning on or after 1 January 2015 and have not been adopted in the preparation of these financial statements. Those new and revised TFRS that are relevant to the Company’s operations are disclosed in note 29 to the financial statements. 154 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements (b) Basis of measurement The financial statements have been prepared on the historical cost basis except as stated in the accounting policies. (c) Functional and presentation currency The financial statements are prepared and presented in Thai Baht, which is the Company’s functional currency. All financial information presented in Thai Baht has been rounded in the notes to the financial statements to the nearest thousand Baht unless otherwise stated. (d) Use of estimates and judgements The preparation of financial statements in conformity with TFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements is included in the following notes: Note 3 (q) Note 11 Note 12 Note 15 Note 26 Current and deferred taxation Key assumptions used in discounted cash flow projections Utilisation of tax losses Measurement of defined benefit obligations Valuation of financial instruments (e) The first time preparation of the financial statements in which the equity method is applied During 2014, the Company has invested in PT Ichi Tan Indonesia, a jointly-controlled entity, with PT Atri Pasifik. As established by the joint venture agreement, investors have joint control over the significant financial and operating decisions. Accordingly, the Company has accounted for the investment in the jointly-controlled entity using the equity method and has initially prepared the financial statements in which the equity method is applied for the year ended 31 December 2014 (see note 9 to the financial statements). 155 Ichitan Group Public Company Limited Notes to the financial statements 3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. (a) Basis of preparation of the financial statements in which the equity method is applied The financial statements in which the equity method is applied relate to the Company and a jointlycontrolled entity. Jointly-controlled entity Jointly-controlled entity is the entity over whose activities the Company has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Investment in jointly-controlled entity is accounted for in the financial statements in which the equity method is applied using the equity method (equity-accounted investee) and are recognised initially at cost. The cost of the investment includes transaction costs. Transactions eliminated on financial statements in which the equity method is applied Unrealised gains arising from transactions with jointly-controlled entity are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (b) Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to the functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rates at the reporting date. Non-monetary assets and liabilities measured at cost in foreign currencies are translated to the functional currency at the exchange rates at the dates of the transactions. Foreign currency differences are generally recognised in profit or loss. 156 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Foreign operations The assets and liabilities of foreign operations are translated to Thai Baht at the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated to Thai Baht at rates approximating the exchange rates at the dates of the transactions. Foreign exchange differences are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity until disposal of the investment. When a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity until disposal of the investment. (c) Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and highly liquid short-term investments. (d) Trade and other accounts receivable Trade and other accounts receivable are stated at their invoice value less allowance for doubtful accounts. The allowance for doubtful accounts is assessed primarily on analysis of payment histories and future expectations of customer payments. Bad debts are written off when incurred. (e)Inventories Inventories are measured at the lower of cost and net realisable value. Cost is calculated using the weighted average cost principle, and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to complete and to make the sale. 157 Ichitan Group Public Company Limited Notes to the financial statements (f)Investment Investment in jointly-controlled entity Investment in jointly-controlled entity in the separate financial statements of the Company is accounted for using the cost method. Investment in jointly-controlled entity in the financial statements in which the equity method is applied is accounted for using the equity method. (g) Property, plant and equipment Recognition and measurement Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss. Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. 158 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Depreciation Depreciation is calculated based on depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. The estimated useful lives are as follows: Land improvements Building and building improvements Machinery and equipment Furniture, fixtures and office equipment Tool and equipment Vehicles 5 - 20 5 - 30 10 - 15 5 - 15 5 5 years years years years years years No depreciation is provided on freehold land or assets under construction and installation. Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (h) Intangible assets Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. Amortisation Amortisation is based on the cost of the asset, or other amount substituted for cost, less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than right to use trademark, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Software licences Right to use trademark 10 years Indefinite useful lives 159 Ichitan Group Public Company Limited Notes to the financial statements Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (i)Impairment The carrying amounts of the Company’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. For intangible assets that have indefinite useful lives, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The impairment loss is recognised in profit or loss. Calculation of recoverable amount The recoverable amount of a non-financial asset is the greater of the asset’s value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment Impairment losses recognised in prior periods in respect of non-financial assets are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (j) Interest-bearing liabilities Interest-bearing liabilities are recognised at cost. (k) Trade and other accounts payable Trade and other accounts payable are stated at cost. 160 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements (l) Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity (provident fund) and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the term of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The Company recognises all actuarial gains and losses arising from defined benefit plans in other comprehensive income and all expenses related to defined benefit plans in profit or loss. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profitsharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Share-based payments The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met. For business partners, the share-based payment awards granted vest immediately on the grant date, and the grant-date fair value of the awards is recognised as an expense immediately. 161 Ichitan Group Public Company Limited Notes to the financial statements (m)Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. (n)Revenue Revenue excludes value added taxes and is arrived at after deduction of trade discounts. Sale of goods Revenue is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there is continuing management involvement with the goods or there are significant uncertainties regarding recovery of the consideration due, associated costs or the probable return of goods. Loyalty programmes The Company has customer loyalty programmes whereby customers are awarded the right to purchase products from the Company at a discount. The fair value of the consideration received or receivable in respect of the initial sale is allocated between the right and the other components of the sale. The amount allocated is estimated by reference to the fair value of the right to purchase products at a discount. The fair value is estimated based on the amount of the discount adjusted to take into account the expected forfeiture rate. Such amount is deferred and revenue is recognised only when the right is redeemed and the Company has fulfilled its obligations. The amount of revenue recognised in those circumstances is based on the number of the right that has been redeemed in exchange for discounted products, relative to the total number of the right that is expected to be redeemed. Deferred revenue is also released to profit or loss when it is no longer considered probable that the right will be redeemed. Interest income Interest income is recognised in profit or loss on the accrual basis. (o) Finance costs Finance costs comprise interest expense on borrowings and unwinding of the discount on provisions and contingent consideration. 162 Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss. Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements (p) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. Determining whether an arrangement contains a lease At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Company the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Company concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Company’s incremental borrowing rate. (q) Income tax Income tax expense for the year comprises current and deferred tax. Current and deferred taxes are recognised in profit or loss except to the extent that they relate to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and differences relating to investments in jointly-controlled entities to the extent that is probable that they will not reverse in the foreseeable future. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 163 Ichitan Group Public Company Limited Notes to the financial statements Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, using tax rates enacted or substantively exacted at the reporting date. In determining the amount of current and deferred tax, the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised. (r) Earnings per share The Company presents basic earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. (s) Segment reporting Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. 164 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements 4 Related parties For the purposes of these financial statements, parties are considered to be related to the Company if the Company has the ability, directly or indirectly, to control or joint control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Relationship with jointly-controlled entity is disclosed in note 9 to the financial statements. Relationship with key management and other related parties were as follows: Name of entities Country of Nature of relationships incorporation/ Tan Passakornnatee Thai I Am Green Tea Co., Ltd. Thailand Kin Kab Tan Co., Ltd. Tan Asset Co., Ltd. Tan Eng Asset Co., Ltd. Passakornnatee Co., Ltd. Japanese Prime Restaurants Management Co., Ltd. Wedding Business Consultant Co., Ltd. Ezili Company Limited Kin Rong Deum Co., Ltd. Tanboon Co., Ltd. Thailand Thailand Thailand Thailand Thailand Persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including major shareholder and director of the Company Major shareholder and director of the Company Shared shareholders and a close relative of the director of the Company is the director Shared directors and shareholders Shared shareholders Shared directors and shareholders Shared directors and shareholders Shared directors and shareholders Eng Passakornnatee Thai Thailand Shared directors and shareholders Thailand Thailand Thailand Shared shareholders Shared shareholders Shared directors and shareholders 165 Ichitan Group Public Company Limited Notes to the financial statements The pricing policies for transactions with related parties are explained further below. Transactions Pricing policies Sale/Purchase of goods Other income/expense Interest expense Sales promotion expenses Market price Agreed price Close to the prevailing market interest rate Agreed price Significant transactions for the years ended 31 December with related parties were as follows: Financial statements in which the equity method Separate is applied financial statements Year ended 31 December Related parties Sale of goods Gain on sale of assets of food segment Sales promotion expenses Other expense Interest expense Key management personnel Key management personnel compensation Short-term employee benefit Post-employment benefits Total key management personnel compensation 166 2014 2014 (in thousand Baht) 741,215 3,221 11,726 30,477 2013 741,215 3,221 11,726 1,034,575 67 14,007 4,588 42,096 28,809 1,668 20,988 1,731 30,477 22,719 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Balances as at 31 December with related parties were as follows: Financial statements in which the equity method Separate is applied financial statements Trade accounts receivable 2014 Related parties 2014 (in thousand Baht) 38,238 38,238 2013 206,926 Financial statements in which the equity method Separate is applied financial statements Accrued expenses 2014 Related parties 2014 (in thousand Baht) 10,253 10,253 2013 - Financial statements in which the equity method Separate is applied financial statements Accrued interest 2014 Major shareholder 2014 (in thousand Baht) - 2013 3,397 Financial statements in which the equity method Separate is applied financial statements Long-term loans from related parties Major shareholder 2014 2014 (in thousand Baht) - 2013 1,000,000 167 Ichitan Group Public Company Limited Notes to the financial statements Movements during the years ended 31 December of long-term loans from related parties were as follows: Financial statements in which the equity method Separate is applied financial statements 2014 Major shareholder At 1 January Increase Decrease At 31 December Related party At 1 January Decrease At 31 December Total long-term loans from related parties At 1 January Increase Decrease At 31 December 2014 (in thousand Baht) 2013 1,000,000 (1,000,000) - 1,000,000 (1,000,000) - 750,000 520,000 (270,000) 1,000,000 - - 30,000 (30,000) - 1,000,000 (1,000,000) - 1,000,000 (1,000,000) - 780,000 520,000 (300,000) 1,000,000 The unsecured long-term loans from a major shareholder bear interest at the rate of 4% to 5% per annum. The Company fully repaid these loans in April 2014. 168 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Significant agreement with related party Product distribution agreement On 20 June 2014, the Company entered into an agreement to grant a related party (I Am Green Tea Co., Ltd.) the authority and responsibility to act as a product distributor for the Company. This agreement shall be in effect from 1 July 2014 to 30 June 2017. 5 Cash and cash equivalents Financial statements in which the equity method Separate is applied financial statements 2014 2014 (in thousand Baht) 2,280 (7,293) (7,293) 156,800 156,800 151,787 Cash on hand Cash at financial institutions - current accounts Cash at financial institutions - savings accounts Total 2013 95 (84,140) 167,700 83,655 Cash and cash equivalents of the Company as at 31 December 2014 and 2013 were denominated entirely in Thai Baht. 6 Trade accounts receivable Financial statements in which the equity method Separate is applied financial statements Note Related parties Other parties Total 4 2014 2014 (in thousand Baht) 38,238 38,238 871,398 871,398 909,636 909,636 2013 206,926 602,044 808,970 169 Ichitan Group Public Company Limited Notes to the financial statements Aging analyses for trade accounts receivable were as follows: Financial statements in which the equity method Separate is applied financial statements 2014 Related parties Within credit terms Other parties Within credit terms Overdue less than 3 months Total 2014 (in thousand Baht) 2013 38,238 38,238 38,238 38,238 206,926 206,926 870,723 675 871,398 870,723 675 871,398 601,976 68 602,044 909,636 909,636 808,970 The normal credit term granted by the Company ranges from 30 days to 45 days. Trade accounts receivable of the Company as at 31 December 2014 and 2013 were denominated entirely in Thai Baht. 7 Other receivables Financial statements in which the equity method Separate is applied financial statements 2014 Other parties Refundable import duty Rebate and sponsorship receivables Prepaid expenses Others Total 170 2014 (in thousand Baht) 49,332 16,955 10,914 515 77,716 49,332 16,955 10,914 515 77,716 2013 83,776 9,816 4,226 692 98,510 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements 8Inventories Financial statements in which the equity method Separate is applied financial statements 2014 Finished goods Raw materials Supplies Total Less allowance for decline in value Net Inventories recognised as an expense in ‘cost of sale of goods’: -Cost -Write-down to net realisable value -Loss on write-off of inventories Net 2014 (in thousand Baht) 410,362 410,362 261,046 261,046 10,508 10,508 681,916 681,916 (6,013) (6,013) 675,903 675,903 4,051,425 11,733 2,046 4,065,204 4,051,425 11,733 2,046 4,065,204 2013 200,213 139,442 2,507 342,162 (3,712) 338,450 4,425,030 4,425,030 171 Ichitan Group Public Company Limited Notes to the financial statements 9 Investment in jointly-controlled entity Financial statements in which the equity method Separate is applied financial statements 2014 Jointly-controlled entity At 1 January Acquisitions Share of net profits of equity-accounted jointly-controlled entity Foreign currency translation differences At 31 December 2014 (in thousand Baht) 2013 135,620 135,620 - 27 (17,964) 117,683 135,620 - Acquisitions On 27 August 2014, the Company entered into a joint venture agreement with PT Atri Pasifik (“AP”), a company incorporated in Indonesia, in order to invest in PT Ichi Tan Indonesia, a new joint venture established in Indonesia. The purposes of the joint venture are to produce and sell readyto-drink beverage branded “Ichitan” in Indonesia. The Company and AP will equally invest in the joint venture (50% of the issued and paid-up share capital of the joint venture) totalling Indonesian Rupiah 200,000 million (or approximately Baht 575 million). The Company paid an initial authorised share capital in 50% of the paid-up share capital of Baht 135.6 million and the incorporation of the joint venture was completed on 25 November 2014. As at 31 December 2014, PT Ichi Tan Indonesia is the jointly-controlled entity of the Company. 172 Manufacturing and sale of beverages Indonesia 50 2014 (%) 2013 - 286,780 2014 2013 - 135,620 135,620 - 2014 2013 (in thousand Baht) None of the Company’s jointly-controlled entity is publicly listed and consequently do not have published price quotations. PT Ichi Tan Indonesia Total Jointly-controlled entity Type of business Financial statements in which the equity method is applied / Separate financial statements Country of Ownership incorporation interest Paid-up capital Cost Investment in jointly-controlled entity as at 31 December 2014 and 2013 for the years then ended were as follows: Notes to the financial statements Ichitan Group Public Company Limited 117,683 117,683 2014 2013 Equity 173 - 2014 Jointly-controlled entity PT Ichi Tan Indonesia 31 December Total 50 (%) 251,209 251,209 10 251,219 10 251,219 314 314 - (in thousand Baht) 314 314 1,057 1,057 1,004 1,004 174 53 53 NonNonReporting Ownership Current current Total Current current Total Total Total date interest assets assets assets liabilities liabilities liabilities revenues expenses Profit The following summarised financial information on jointly-controlled entity is not adjusted for the percentage ownership held by the Company: Notes to the financial statements Ichitan Group Public Company Limited Annual Report 2014 Cost At 1 January 2013 Additions Transfers Disposals At 31 December 2013 and 1 January 2014 Additions Transfers Disposals At 31 December 2014 54,790 422 55,212 18,544 73,756 200,508 - 200,508 231,190 431,698 Land 1,105,258 34,325 795,544 (25) 1,935,102 1,065,007 22,718 17,533 2,905,676 42,537 971,749 3,919,962 1,859,348 129,291 917,037 - 54,715 1,848 (104) 56,459 46,906 7,821 (12) (in thousand Baht) 59,453 26,927 2,180 (294) 88,266 42,581 19,091 1,742 (3,961) 3,978 544 (148) 4,374 3,621 521 (164) Total 175 1,010,938 5,395,738 1,845,730 2,183,101 (1,788,017) (571) 1,068,651 7,578,268 812,997 4,085,758 1,134,253 1,314,117 (936,312) (4,137) Financial statements in which the equity method is applied / Separate financial statements Assets Furniture, Building under fixtures and construction Tool and Land building Machinery and and office and improve- improvements equipment equipment equipment Vehicles installation ments 10 Property, plant and equipment Notes to the financial statements Ichitan Group Public Company Limited Net book value At 1 January 2013 At 31 December 2013 and 1 January 2014 At 31 December 2014 Depreciation At 1 January 2013 Depreciation charge for the year Disposals At 31 December 2013 and 1 January 2014 Depreciation charge for the year Disposals At 31 December 2014 (3,477) (8,557) - 50,132 65,199 (5,080) - 200,508 431,698 (2,770) - - 52,480 (2,310) - 200,508 Land 997,488 1,736,691 1,015,641 (90,658) 17 (198,411) (107,770) (58,404) - (49,366) 2,638,243 3,400,923 1,778,132 (251,606) (519,039) (267,433) (186,217) - (81,216) 42,114 35,893 41,587 (8,031) 66 (20,566) (12,601) (7,286) 4 (5,319) (in thousand Baht) 40,594 54,563 34,015 (14,993) 149 (33,703) (18,859) (11,377) 1,084 (8,566) 1,905 1,563 2,273 (819) 81 (2,811) (2,073) (785) 60 (1,348) 1,010,938 1,068,651 812,997 - - - - Financial statements in which the equity method is applied / Separate financial statements Assets Furniture, Building under fixtures and construction Tool and Land building Machinery and and office and improve- improvements equipment equipment equipment Vehicles installation ments Notes to the financial statements Ichitan Group Public Company Limited 176 4,981,922 6,795,181 3,937,633 (369,584) 313 (783,087) (413,816) (266,839) 1,148 (148,125) Total Annual Report 2014 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Security As at 31 December 2014, the Company had mortgaged/pledged assets amounting to approximately Baht 4,059.6 million (2013: Baht 2,157.3 million) as collateral against loans from financial institutions, as described in note 13 to the financial statements. Assets under construction and installation Assets under construction and installation as at 31 December 2014 amounted to Baht 1,068.7 million (2013: Baht 1,010.9 million), and mainly represented construction costs of factory building and cost of machinery and equipment including the related installation costs. Capitalised borrowing costs relating to the construction of the factory amounted to Baht 15.7 million (2013: Baht 5.8 million), with a capitalisation rate ranging from 3.53% to 5.00% per annum (2013: 4.19% - 5.01% per annum). 11 Intangible assets Financial statements in which the equity method is applied / Separate financial statements Software Right to use licences trademark Total (in thousand Baht) Cost At 1 January 2013 Additions At 31 December 2013 and 1 January 2014 Additions At 31 December 2014 2,999 159 3,158 275 3,433 168,224 168,224 2,999 159 3,158 168,499 171,657 177 Ichitan Group Public Company Limited Notes to the financial statements Financial statements in which the equity method is applied / Separate financial statements Software Right to use licences trademark Total (in thousand Baht) Amortisation and impairment losses At 1 January 2013 Amortisation for the year At 31 December 2013 and 1 January 2014 Amortisation for the year Impairment loss At 31 December 2014 (328) (312) (640) (332) (972) (84,112) (84,112) (328) (312) (640) (332) (84,112) (85,084) Net book value At 1 January 2013 At 31 December 2013 and 1 January 2014 At 31 December 2014 2,671 2,518 2,461 84,112 2,671 2,518 86,573 On 15 May 2014, the Company entered into a master sale and purchase agreement to acquire the right to use Bireley’s fruit beverage trademark, including the production formulas, from a local company for the consideration of Baht 224.3 million. The total purchase price is comprised of the right to use Bireley’s trademark to produce and distribute fruit beverage in 16 countries worldwide at the amounts as specified in the agreement, totalling Baht 215.0 million, and the production formulas of Baht 9.3 million. As at 31 December 2014, the Company has paid for the right to use Bireley’s trademark and production formulas in amount of Baht 205.6 million; of which the right to use Bireley’s trademark in certain countries and the production formulas are registered and transferred to the Company totalling Baht 168.2 million, and were recorded in the account “Intangible assets”. The rights to use Bireley’s trademark in some countries were in the process of registration, totalling Baht 37.4 million, and were recorded in the account “Advances for purchase of right to use trademark”. These advances will be transferred to the account “Intangible assets” upon the completion of the subsequent transfer. 178 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements As at 31 December 2014, the Company has no plan to sell product under Bireley’s trademark to overseas countries, except for Thailand, and unable to reliably estimate future cash flows from the use of Bireley’s trademark excluding the use of Bireley’s trademark in Thailand. Therefore, the management of the Company recognised an impairment loss for the right to use trademark in the account “Intangible assets” amounting Baht 84.1 million and in the account “Advances for purchase of right to use trademark” amounting to Baht 37.4 million totalling Baht 121.5 million. 12 Deferred tax Movements in total deferred tax assets and liabilities during the year were as follows: Financial statements in which the equity method is applied / Separate financial statements (Charged) / Credited to: At 31 Other Profit or comprehensive December 2014 income loss (in thousand Baht) At 1 January 2014 Deferred tax assets Allowance for decline in value of inventories Impairment loss on advances for purchase of right to use trademark Impairment loss on intangible assets Employee benefit obligations Tax loss carry forward Total - 862 - 862 - 7,477 16,140 1,792 33,812 60,083 400 400 7,477 16,140 2,192 33,812 60,483 Deferred tax liability Amortisation gap of intangible assets Total - (996) (996) - (996) (996) Net - 59,087 400 59,487 179 Ichitan Group Public Company Limited Notes to the financial statements Deferred tax assets have not been recognised in respect of the following items: Financial statements in which the equity method is applied 2014 Tax losses Deductible temporary differences Total Separate financial statements 2014 (in thousand Baht) - 2013 75,845 2,123 77,968 As at 31 December 2013, the Company did not recognise tax losses from non-promoted business which expire in 2015 to 2018. The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that there will be future taxable profits against which the Company can utilise the benefits therefrom. 13 Interest-bearing liabilities Note Current Trust receipts - secured Total short-term loans from financial institutions Current portion of long-term loans from financial institutions - secured Total current 180 Financial statements in which the equity method Separate is applied financial statements 2014 2014 (in thousand Baht) 2013 28,224 28,224 355,826 28,224 28,224 355,826 153,841 182,065 153,841 182,065 230,805 586,631 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Financial statements in which the equity method Separate is applied financial statements Note Non-current Long-term loans from financial institutions - secured Long-term loans from related parties - unsecured Total non-current Total 4 2014 2014 (in thousand Baht) 2013 1,780,437 1,780,437 2,350,930 1,780,437 1,780,437 1,000,000 3,350,930 1,962,502 1,962,502 3,937,561 The periods to maturity of interest-bearing liabilities as at 31 December were as follows: Financial statements in which the equity method Separate is applied financial statements 2014 Within one year After one year but within five years After five years Total 2014 (in thousand Baht) 182,065 182,065 1,672,672 1,672,672 107,765 107,765 1,962,502 1,962,502 2013 586,631 2,757,117 593,813 3,937,561 Interest-bearing liabilities of the Company as at 31 December 2014 and 2013 were denominated entirely in Thai Baht. The Company’s liabilities under trust receipts, machinery and equipment have been released to the Company in trust for the financial institutions. The Company is accountable to the financial institutions for such machinery and equipment. 181 Ichitan Group Public Company Limited Notes to the financial statements Secured interest-bearing liabilities as at 31 December were secured on the following assets: Financial statements in which the equity method Separate is applied financial statements Note Property, plant and equipment Total 11 2014 2014 (in thousand Baht) 4,059,619 4,059,619 4,059,619 4,059,619 2013 2,157,339 2,157,339 Long-term loans from financial institutions As at 31 December 2014, the Company entered into significant secured long-term loan agreements with financial institutions as follows: The first financial institution Carrying amount Approved as at 31 credit December Borrowing 2014 agreement facilities 182 Number 1 dated 29 March 2011 and addendum to the loan agreement dated 4 April 2012 691.0 million Baht - Number 2 dated 11 October 2011 437.5 million Baht - Interest rate (% per annum) Interest from the signing date of the loan agreement to 31 December 2012 at the rate of 4% per annum, from 1 January 2013 to 31 March 2015 at the rate of MLR minus 2.37% per annum and subsequently at the rate of MLR minus2.12% per Annum Interest from the drawdown date to 31 March 2014 at the rate of MLR minus 2.37% per annum and subsequently at the rate of MLR minus 2.12% per annum Term of payment Monthly, repayable in 9 years and the first installment is due in April 2014 Monthly, repayable in 7 years and the first installment is due in April 2013 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Carrying amount Approved as at 31 credit December Borrowing 2014 agreement facilities Number 3 dated 4 April 2012 972.0 million Baht Number 4 dated 20 July 2012 224.0 million Baht Number 5 dated 14 October 2014 600.0 million Baht Interest rate (% per annum) 400.0 Interest from the drawdown million Baht date to 31 December 2012 at the rate of 4% per annum, from 1 January 2013 to 31 March 2015 at the rate of MLR minus 2.37% per annum and subsequently at the rate of MLR minus 2.12% per annum Interest from the drawdown date to 31 March 2015 at the rate of MLR minus 2.37% per annum and subsequently at the rate of MLR minus 2.12% per annum 15.5 Interest rate is 6 months million Baht BIBOR rate plus 1.25% per annum Term of payment Monthly, repayable in 9 years and the first installment is due in April 2014 Monthly, repayable in 9 years and the first installment is due in April 2014 Monthly, repayable in 7 years and the first installment is due in October 2015 In April 2014, the Company repaid long-term loans agreements number 1, number 2 and number 4 with the fund proceeds from the initial public offering. As security for its borrowings, the Company must mortgage/pledge land and construction thereon, machinery and equipment of the factory, and land and construction thereon of related parties, including personal guarantees of some directors of the Company, and a related party, as collateral against loans from financial institution. On 13 November 2013, the Company mortgaged its assets amounting to Baht 2,860.5 million with the first financial institution to secure the loan obligation as prescribed under the long-term loan agreements. 183 Ichitan Group Public Company Limited Notes to the financial statements Under the long-term loan agreements, the Company must be in compliance with the debt covenants and maintain the required financial ratios and other terms as stated in the agreements, such as Tan Passakornnatee and his family must maintain his shareholding at not less than 30% of the authorised share capital and restrictions on dividend distributions if DSCR is less than 1.25. The second financial institution Approved Carrying amount as at 31 Interest rate credit Borrowing agreement facilities December 2014 (% per annum) Number 1 dated 12 July 2013 and addendum to the loan agreement dated 26 August 2014 1,300.0 million Baht 1,000.0 million Baht Interest for the first to the second year at MLR minus 2.625% per annum and subsequently at MLR minus 2% per annum. Term of payment Monthly, repayable in 7 years and the first installment is due in January 2016 As security for its borrowings, the Company must mortgage/pledge land and construction thereon, machinery and equipment of the factory, including personal guarantees of some directors of the Company. Under the long-term loan agreements, the Company must be in compliance with the debt covenants and maintain the required financial ratios and other terms as stated in the agreements, such as Tan Passakornnatee and his family must maintain his shareholding at not less than 30% of the authorised share capital and restrictions on dividend distributions if DSCR is less than 1.25. The third financial institution Approved Carrying amount as at 31 Interest rate credit Borrowing agreement facilities December 2014 (% per annum) Number 1 dated 20 August 2013 184 770.0 million Baht 518.8 million Baht Interest rate is 6 months BIBOR rate plus 1.25% per annum Term of payment Quarterly, repayable in 5 years and the first installment is due in February 2014 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements As security for its borrowings, the Company must mortgage/pledge land and construction thereon, machinery and equipment of the factory, and land and construction thereon of related parties, including personal guarantees of some directors of the Company and a related party. On 2 August 2013, the Company registered a second mortgage of land with the third financial institution to secure these loan obligations for credit facilities of Baht 20 million. Interest rates Interest rates as at 31 December 2014 and 2013 were as follows: Financial statements in which the equity method is applied/ Separate financial statements 2014 2013 (% per annum) 3.09 - 3.40 3.30 - 5.00 4.00 3.53 - 4.88 3.92 - 4.89 Short-term loans from financial institutions Long-term loans from related parties Long-term loans from financial institutions Unutilised credit facilities As at 31 December 2014 the Company had unutilised credit facilities totaling Baht 1,356.3 million (2013: Baht 2,166.9 million). 14 Trade accounts payable Financial statements in which the equity method is applied 2014 Other parties Total Separate financial statements 2014 (in thousand Baht) 519,325 519,325 519,325 519,325 2013 288,858 288,858 185 Ichitan Group Public Company Limited Notes to the financial statements The currency denomination of trade accounts payable as at 31 December was as follows: Financial statements in which the equity method is applied 2014 Separate financial statements 2014 (in thousand Baht) 485,011 485,011 34,314 34,314 519,325 519,325 Thai Baht (THB) United States Dollars (USD) Total 2013 288,858 288,858 15 Employee benefit obligations Financial statements in which the equity method is applied 2014 Statement of financial position obligations for: Post-employment benefits Total Year ended 31 December Statement of comprehensive income: Recognised in profit or loss: Post-employment benefits Total 186 2014 (in thousand Baht) 10,960 10,960 Financial statements in which the equity method is applied 2014 Separate financial statements 10,960 10,960 2013 7,681 7,681 Separate financial statements 2014 (พันบาท) 3,279 3,279 2013 34 34 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Financial statements in which the equity method is applied Year ended 31 December 2014 Recognised in other comprehensive income: Actuarial losses recognised in the year Cumulative actuarial losses recognised Separate financial statements 2014 (in thousand Baht) 2,002 2,002 2013 2,002 2,002 The Company operate a defined benefit pension plan based on the requirement of Thai Labour Protection Act B.E. 2541 (1998) to provide retirement benefits to employees based on pensionable remuneration and length of service. The statement of financial position obligation was determined as follows: Financial statements in which the equity method is applied 2014 Present value of unfunded obligations Statement of financial position obligation Separate financial statements 2014 (in thousand Baht) 10,960 10,960 10,960 10,960 2013 7,681 7,681 187 Ichitan Group Public Company Limited Notes to the financial statements Movement in the present value of the defined benefit obligations Financial statements in which the equity method Separate is applied financial statements 2014 Defined benefit obligations at 1 January Current service costs and interest Curtailment gain Actuarial losses in other comprehensive income Defined benefit obligations at 31 December 2014 (in thousand Baht) 2013 7,681 3,279 - 7,681 3,279 - 5,645 1,557 (1,523) 10,960 10,960 2,002 7,681 Expense recognised in profit or loss (note 19 to the financial statements) Financial statements in which the equity method Separate is applied financial statements 2014 Current service costs Interest on obligation Curtailment gain Total 188 2014 (in thousand Baht) 2,949 330 3,279 3,279 2013 1,326 231 (1,523) 34 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements The expense is recognised in the following line items in the statement of comprehensive income: Financial statements in which the equity method is applied 2014 Cost of sale of goods Administrative expenses Finance costs Total Separate financial statements 2014 (in thousand Baht) 757 757 2,192 2,192 330 330 3,279 3,279 2013 362 (559) 231 34 Actuarial losses recognised in other comprehensive income: Financial statements in which the equity method is applied 2014 Included in retained earnings: At 1 January Recognised during the year At 31 December Separate financial statements 2014 (in thousand Baht) 2,002 2013 2,002 2,002 2,002 2,002 Principal actuarial assumptions at the reporting date (expressed as weighted averages): Financial statements in which the equity method is applied 2014 Discount rate Future salary increases Separate financial statements 2014 (in thousand Baht) 4.3 4.3 8-10 8-10 2013 4.3 8-10 Assumptions regarding future mortality are based on published statistics and mortality tables. 189 Ichitan Group Public Company Limited Notes to the financial statements 16 Share capital 2014 2013 Par value Number Number per share of shares Amount of shares Amount (in Baht) Authorised At 1 January - ordinary shares At 1 January - ordinary shares Reduction in par value - from Baht 100 to Baht 1 Issue of new shares At 31 December - ordinary shares Issued and paid-up At 1 January - ordinary shares At 1 January - ordinary shares Reduction in par value - from Baht 100 to Baht 1 Issue of new shares At 31 December - ordinary shares (thousand shares/thousand Baht) 1 1,300,000 1,300,000 - - 100 - - 10,000 1,000,000 1 1 - - 1,000,000 300,000 1,000,000 300,000 1 1,300,000 1,300,000 1,300,000 1,300,000 1 1,000,000 1,000,000 - - 100 - - 10,000 1,000,000 1 1 300,000 300,000 1,000,000 - 1,000,000 - 1 1,300,000 1,300,000 1,000,000 1,000,000 The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. 190 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Reduction of par value and increase in authorised share capital At the extraordinary meeting of the shareholders of the Company held on 3 July 2013, the shareholders approved the reduction of the par value from Baht 100 to Baht 1 and the increase in the authorised share capital of Baht 300 million (from Baht 1,000 million to Baht 1,300 million) by issuing 300 million ordinary shares at Baht 1 par value for the Initial Public Offering (“IPO”). The Company registered the par value reduction and the capital increase with the Ministry of Commerce on 11 July 2013, and approved the listing of its ordinary shares on the Stock Exchange of Thailand. Initial public offering In April 2014, the Company offered its ordinary shares to the initial public offering (“IPO”) by issuing 300 million common shares. The new shares were sold to the subscribers at a price of Baht 13 per share (Baht 1 paid in capital and Baht 12 share premium) totalling Baht 3,900.0 million (share premium of Baht 3,600.0 million). The Company registered the increase in paid-up share capital with the Ministry of Commerce on 17 April 2014 and the shares of the Company began trading in the Stock Exchange of Thailand on 21 April 2014. Expenses directly attributable to the initial public offering amounting to Baht 84.6 million were debited to the share premium associated with the IPO (share premium - net of Baht 3,515.4 million). Share premium Section 51 of the Public Companies Act B.E. 2535 requires companies to set aside share subscription monies received in excess of the par value of the shares issued to a reserve account (“share premium”). Share premium is not available for dividend distribution. Share-based payments In November 2013, management was informed that a major shareholder of the Company had entered into agreements for the sale and purchase of a portion of his personally owned shares with employees and had granted the rights to acquire his personally owned shares to a group of business partners during the period 2010 to 2013 for consideration equivalent to share par value. The grant dates are the same as the exercise dates. These transactions are considered to be share-based payment transactions. Therefore, the Company is required to measure the fair value of the employees’ and business partners’ rights to acquire the shares at grant dates based on the underlying fair value of the shares and the consideration payable and to recognise related expenses, with a corresponding increase in equity in accordance with TFRS 2. The estimated fair values of each share at the grant dates were based on calculations performed by a qualified independent valuer using the Discounted Cash flows model (DCF) excluding expected dividends that were incorporated into the measurement of fair value. The key financial assumptions used were the Weighted Average Cost of Capital (WACC) rates of 10% to 13% per annum, the Terminal Growth rate at 3% per annum and sales growth rate which was calculated from the Compounded Annual Growth Rate (CAGR) of tea market during the years 2009 to 2012. 191 Ichitan Group Public Company Limited Notes to the financial statements The fair value of the shares and exercise price at the grant dates and total number of shares in each year were as follows: Grant date Fair value Exercise price (in Baht) 1 October 2010 - 31 December 2010 1 January 2011 - 31 December 2011 1 January 2012 - 31 December 2012 1 January 2013 - 21 May 2013 0.7 0.7 5.6 9.5 1 1 1 1 Number of shares (in thousand shares) 8,144 59,664 9,416 1,502 In July 2013, the Company had decreased the par value of the Company’s shares. Consequently, the Company has restated the par value of ordinary shares from Baht 100 to Baht 1 to use in the computation of fair value, assuming the reduction in par value occurred at the beginning. The Company has recognised the related expenses in the financial statements for the year ended 31 December 2013 amounting to Baht 12.8 million as “employee benefit expenses and expenses for share-based payment transactions with business partners” with a corresponding increase in equity as “surplus on share-based payment transactions” at the same amount. 17Reserves Reserves comprise: Appropriations of profit and/or retained earnings Legal reserve Section 116 of the Public Companies Act B.E. 2535 requires that a public company shall allocate not less than 5% of its annual net profit, less any accumulated losses brought forward, to a reserve account (“legal reserve”), until this account reaches an amount not less than 10% of the registered authorised capital. The legal reserve is not available for dividend distribution. Other components of equity Currency translation differences The currency translation differences account within equity comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. 192 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements 18 Segment information Reportable segment Management considers that the Company operates in a single line of business, namely the Beverage business, and has, therefore, only one reportable segment. Geographical information Management considers that the Company is managed and operates principally more than 99% in Thailand. There is no material revenues derived from, or assets located in, foreign countries. Major customer Revenues from one customer of the Company represents approximately Baht 5,090 million (2013: Baht 4,935 million) of the Company’s total revenues. 19 Employee benefit expenses Financial statements in which the equity method Separate is applied financial statements Note Salaries and wages Expenses for share-based payment transactions Defined benefit plan Defined contribution plan Others Total 16 15 2014 2014 (in thousand Baht) 167,843 167,843 2013 3,279 2,825 12,864 186,811 9,364 34 2,318 8,082 153,113 3,279 2,825 12,864 186,811 133,315 193 Ichitan Group Public Company Limited Notes to the financial statements Defined contribution plan The defined contribution plan comprise provident fund established by the Company for its employees. Membership to the fund is on a voluntary basis. Contributions are made monthly by the Company and employees each at the rates ranging from 2% to 5% of their employees’ basic salaries. The provident fund is registered with the Ministry of Finance as juristic entity and is managed by a licensed Fund Manager. 20 Expenses by nature The statement of comprehensive income includes an analysis of expenses by function. Expenses by nature disclosed in accordance with the requirements of various TFRS were as follows: Financial statements in which the equity method Separate is applied financial statements Note Included in cost of sale of goods: Changes in inventories of finished goods Raw materials and supplies Depreciation and amortisation Utility expenses Employee benefit expenses 16 Distribution and transportation expenses Others Total Included in selling expenses: Advertising and sales promotion expenses Entrance and other service fees Distribution and transportation expenses Total 194 2014 2014 (in thousand Baht) 2013 (210,149) 3,445,493 358,520 203,857 102,841 43,691 120,951 4,065,204 (210,149) 3,445,493 358,520 203,857 102,841 43,691 120,951 4,065,204 96,827 3,669,722 256,021 161,059 78,889 61,419 101,093 4,425,030 705,507 36,139 32,534 774,180 705,507 36,139 32,534 774,180 889,966 9,822 31,403 931,191 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Note Included in administrative expenses: Impairment loss Employee benefit expenses Expenses for share-based payment transactions with business partners Education, sports and other donations Depreciation and amortisation Others Total Financial statements in which the equity method Separate is applied financial statements 2014 2014 (in thousand Baht) 2013 11 16 121,495 83,640 121,495 83,640 73,993 16 1,130 11,395 32,758 250,418 1,130 11,395 32,758 250,418 3,203 5,643 11,130 36,379 130,348 21 Finance costs Note Interest expense: Related parties Financial institutions Total interest expense Transaction costs and others Total Less amounts included in the cost of qualifying assets -Property, plant and equipment under construction Net Financial statements in which the equity method Separate is applied financial statements 2014 2014 (in thousand Baht) 2013 4 11,726 103,098 114,824 330 115,154 11,726 103,098 114,824 330 115,154 42,096 125,093 167,189 231 167,420 10 (15,739) 99,415 (15,739) 99,415 (5,802) 161,618 195 Ichitan Group Public Company Limited Notes to the financial statements 22 Income tax Income tax recognised in profit or loss Financial statements in which the equity method Separate is applied financial statements Note 2014 Current tax expense Current year Deferred tax expense Movements in temporary differences Tax loss carry forward Total 2014 (in thousand Baht) 2013 - - - (25,275) (33,812) (59,087) (25,275) (33,812) (59,087) - 12 Income tax recognised in other comprehensive income Financial statements in which the equity method Separate is applied financial statements Note Defined benefit plan actuarial losses Total 196 12 2014 2014 (in thousand Baht) (400) (400) (400) (400) 2013 - Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Reconciliation of effective tax rate Financial statements In which the equity method is applied Rate (%) Profit before income tax expense Income tax using the Thai corporation tax rate Income not subject to tax Expenses not deductible for tax purposes Expenses that are deductible for tax purposes Recognition of previously unrecognised tax losses Total 20 (6) 2014 (in thousand Baht) 1,019,674 203,935 (169,444) 1,621 (17,631) (77,568) (59,087) Separate financial statements Rate (%) Profit before income tax expense Income tax using the Thai corporation tax rate Income not subject to tax Expenses not deductible for tax purposes Recognition of previously unrecognised tax losses Unrecognised tax losses Total (6) 2014 (in thousand Baht) 1,019,647 2013 Rate (in thousand (%) Baht) 883,655 (169,438) 1,621 (17,631) (196,247) 5,977 - (77,568) (59,087) 13,539 - - 197 Ichitan Group Public Company Limited Notes to the financial statements Income tax reduction Royal Decree No. 530 B.E. 2554 dated 21 December 2011 grants a reduction in the corporate income tax rate for the three accounting periods 2012, 2013 and 2014; from 30% to 23% for the accounting period 2012 which begins on or after 1 January 2012 and to 20% for the following two accounting periods 2013 and 2014 which begin on or after 1 January 2013 and 2014, respectively. Royal Decree No. 577 B.E. 2557 dated 10 November 2014 extends the reduction to 20% for the accounting period 2015 which begins on or after 1 January 2015. The Company has applied the reduced tax rate of 20% in measuring deferred tax assets and liabilities as at 31 December 2014 and 2013 in accordance with the clarification issued by the FAP in 2012. 23 Promotional privileges By virtue of the provisions of the Industrial Investment Promotion Act of B.E. 2520, the Company has been granted privileges by the Board of Investment relating to manufacture of beverages from plants, vegetables or fruits in pack. The privileges granted include: (a) exemption from payment of import duty on machinery approved by the Board; (b) exemption from payment of corporate income tax on net profit of the promoted business for certain periods and conditions as stipulated in the promotional certificates; and (c) exemption to include the dividend income from the promoted business in the computation of corporate income tax throughout the period the Company being granted exemption. As promoted companies, the Company must comply with certain terms and conditions prescribed in the promotional certificates. Summary of revenue from promoted and non-promoted businesses: Financial statements in which the equity method is applied / Separate financial statements 2014 2013 NonNonPromoted promoted Promoted promoted businesses businesses Total businesses businesses Total Local sales Export sales Total revenue 198 4,587,397 17,788 4,605,185 (in thousand Baht) 1,572,080 6,159,477 4,692,375 1,815 19,603 16,681 1,573,895 6,179,080 4,709,056 1,763,903 6,456,278 11,416 28,097 1,775,319 6,484,375 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements 24 Basic earnings per share The calculations of basic earnings per share for the years ended 31 December 2014 and 2013 were based on the profit for the years attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares outstanding during the years as follows: Financial statements in which the equity method Separate is applied financial statements 2014 Profit attributable to ordinary shareholders of the Company (basic) Number of ordinary shares outstanding at 1 January Effect of shares issued during the year Weighted average number of ordinary shares outstanding (basic) Earnings per share (basic) (in Baht) 2014 (in thousand Baht) 2013 1,078,761 1,078,734 883,655 1,000,000 212,877 1,000,000 212,877 1,000,000 - 1,212,877 1,212,877 1,000,000 0.89 0.89 0.88 25Dividends At the meeting of the Board of Directors of the Company held on 13 August 2014, the Board of Directors approved the appropriation of interim dividend of Baht 0.50 per share, amounting to Baht 650 million. The dividend was paid to shareholders on 12 September 2014. 26 Financial instruments Financial risk management policies The Company is exposed to normal business risks from changes in market interest rates and currency exchange rates and from non-performance of contractual obligations by counterparties. The Company does not hold or issue derivative financial instruments for speculative or trading purposes. 199 Ichitan Group Public Company Limited Notes to the financial statements Risk management is integral to the whole business of the Company. The Company has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Company’s risk management process to ensure that an appropriate balance between risk and control is achieved. Capital management The Board of Directors’ policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the return on capital, which the Company defines as result from operating activities divided by total shareholders’ equity, and also monitors the level of dividends to ordinary shareholders. Interest rate risk Interest rate risk is the risk that future movements in market interest rates will affect the results of the Company’s operations and its cash flows. The Company is primarily exposed to interest rate risk from its borrowings (note 13 to the financial statements). The effective interest rates of interest-bearing financial liabilities as at 31 December and the periods in which those liabilities mature were as follows: Financial statements in which the equity method is applied / Separate financial statements After 1 year Within but within After Interest rate 1 year 5 years 5 years Total (% per annum) 2014 Current Short-term loans from financial institutions Current portion of long-term loans 200 Market rate 6 months BIBOR plus 1.25 (in thousand Baht) 28,224 - - 28,224 153,841 - - 153,841 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Financial statements in which the equity method is applied / Separate financial statements After 1 year Within but within After Interest rate 1 year 5 years 5 years Total (% per annum) Non-current Long-term loans from financial institutions Total (in thousand Baht) MLR minus 2.625, MLR minus 2 and MLR minus 2.12 and 6 months BIBOR plus 1.25 182,065 1,672,672 1,672,672 107,765 1,780,437 107,765 1,962,502 Financial statements in which the equity method is applied / Separate financial statements After 1 year Within but within After Interest rate 1 year 5 years 5 years Total (% per annum) 2013 Current Short-term loans from financial institutions Current portion of long-term loans (in thousand Baht) Market rate 355,826 - - 355,826 MLR minus 2.37 and 6 months BIBOR plus 1.25 230,805 - - 230,805 201 Ichitan Group Public Company Limited Notes to the financial statements Financial statements in which the equity method is applied / Separate financial statements After 1 year Within but within After Interest rate 1 year 5 years 5 years Total (% per annum) Non-current Long-term loans from financial institutions Long-term loans from related parties Total MLR minus 2.37, MLR minus 2.12 and 6 months BIBOR plus 1.25 4 (in thousand Baht) - 1,757,117 593,813 2,350,930 586,631 1,000,000 2,757,117 - 1,000,000 593,813 3,937,561 Management believes that such interest rate risk is minimal. Foreign currency risk The Company is exposed to foreign currency risk relating to purchase and sale which are denominated in foreign currencies. However, as at 31 December 2014 and 2013 the Company does not have material foreign currency risk. 202 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements At 31 December, the Company was exposed to foreign currency risk in respect of financial assets and liabilities denominated in the following currencies: Note United States Dollars Trade accounts payable Payables on purchase of property, plant and equipment Japanese Yen Payables on purchase of property, plant and equipment Statement of financial position exposure 14 Financial statements in which the equity method Separate is applied financial statements 2014 2014 (in thousand Baht) 2013 34,314 34,314 - 9,707 44,021 9,707 44,021 23,720 23,720 150 150 150 150 44,782 44,782 44,171 44,171 68,502 Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Company as and when they fall due. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the reporting date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. However, management does not anticipate material losses from its debt collection. Liquidity risk The Company monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Company’s operations and to mitigate the effects of fluctuations in cash flows. 203 Ichitan Group Public Company Limited Notes to the financial statements Denomination of fair values The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Since the majority of the financial assets and liabilities classified as short-term and loans are bearing interest at rates based on current market rates, the management believes that at 31 December 2014 and 2013, the carrying value of the Company’s financial statements does not materially differ from their aggregate fair value. 27 Commitments with non-related parties Financial statements in which the equity method is applied 2014 Capital commitments Contracted but not provided for: Property, plant and equipment Total 2014 (in thousand Baht) 307,691 307,691 Financial statements in which the equity method is applied 2014 Non-cancellable operating lease commitments Within one year After one year but within five years Total 204 Separate financial statements 307,691 307,691 1,081,176 1,081,176 Separate financial statements 2014 (in thousand Baht) 19,054 2013 13,918 5,136 19,504 2013 15,073 13,375 28,448 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements The Company has lease agreements with local companies covering office premises including facilities and others for periods of 1 to 4 years expiring in 2015 to 2016. Financial statements in which the equity method is applied 2014 Other commitments Unused letters of credit Purchase orders for goods and supplies Total 426,516 Separate financial statements 2014 (พันบาท) 369,257 57,259 426,516 2013 886,114 135,143 1,021,257 Letter of guarantee The Company had commitment to a financial institution for letter of guarantee issued by the financial institution in favor of a state enterprise of Baht 5.5 million (2013: Baht 5.5 million). Significant agreements with non-related parties Supply agreements The Company has supply agreements with local companies. Under the terms of the agreements, the Company agrees to purchase raw material for production of packaging according to the quantity required at the price specified in the agreements. These agreements shall be in effect until 31 December 2016 with the renewal option. Product distribution agreements The Company has two production distribution agreements with two local companies. Under the terms of the agreements, the Company agrees to pay distribution fees at the rates as specified in the agreements. The first agreement shall be in effect from 1 February 2011 to 31 January 2016 and is renewable automatically for another 3 years. The contractual parties have a right to terminate the agreement by giving advance notice of not less than 6 months prior to the expiration of the agreement. The second agreement shall be in effect from 1 November 2014 to 31 October 2017. Natural gas purchase agreement The Company has a natural gas purchase agreement with a local company. Under the terms of the agreement, the Company agrees to pay disbursements and comply with conditions as specified in the agreement. The agreement shall be in effect from 5 September 2011 to 31 August 2018 and is renewable by giving advance written notice of not less than 90 days prior to the expiration of the agreement. 205 Ichitan Group Public Company Limited Notes to the financial statements Domestic transportation services agreement The Company has a domestic transportation services agreement with a local company. Under the terms of the agreement, the Company agrees to pay disbursements and comply with conditions as specified in the agreement. The agreement shall be in effect from 1 April 2014 to 31 March 2019 and is renewable automatically for another 5 years. The contractual parties have a right to terminate the agreement by giving advance notice of not less than 6 months prior to the expiration of the agreement. 28 Events after reporting period At the meeting of the Board of Directors of the Company held on 25 February 2015, the Board of Directors approved the appropriation of annual dividend for the year 2014 of Baht 1.0 per share, amounting to Baht 1,300 million, which is included the interim dividend paid to shareholders on 12 September 2014 of Baht 0.50 per share, amounting to Baht 650 million. Consequently, the remaining dividend of Baht 0.50 per share, amounting to Baht 650 million, is scheduled to be paid to the Company’s shareholders on 25 May 2015. The annual dividend, however, is subject to the final approval from the shareholders of the Company. 29 Thai Financial Reporting Standards not yet adopted A number of new and revised TFRS have been issued but are not yet effective and have not been applied in preparing these financial statements. Those new and revised TFRS that may be relevant to the Company’s operations, which become effective for annual financial periods beginning on or after 1 January 2015. The Company does not plan to adopt these TFRS early. TFRS TAS 1 (revised 2014) TAS 2 (revised 2014) TAS 7 (revised 2014) TAS 8 (revised 2014) TAS 10 (revised 2014) TAS 12 (revised 2014) TAS 16 (revised 2014) TAS 17 (revised 2014) TAS 18 (revised 2014) 206 Topic Presentation of Financial Statements Inventories Statement of Cash Flows Accounting Policies, Changes in Accounting Estimates and Errors Events after the Reporting Period Income Taxes Property, Plant and Equipment Leases Revenue Year effective 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 Annual Report 2014 Ichitan Group Public Company Limited Notes to the financial statements Topic Year effective TAS 19 (revised 2014) TAS 21 (revised 2014) TAS 23 (revised 2014) Employee Benefits The Effects of Changes in Foreign Exchange Rates Borrowing Costs 2015 2015 2015 TAS 24 (revised 2014) TAS 27 (revised 2014) TAS 28 (revised 2014) TAS 33 (revised 2014) TAS 34 (revised 2014) TAS 36 (revised 2014) TAS 37 (revised 2014) Related Party Disclosures Separate Financial Statements Investments in Associates and Joint Ventures Earnings per Share Interim Financial Reporting Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets Share-based Payment Non-current Assets Held for Sale and Discontinued Operations Operating Segments Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement Operating Leases - Incentives Income Taxes - Changes in the Tax Status of an Entity or its Shareholders Evaluating the Substance of Transactions Involving the Legal Form of a Lease Revenue - Barter Transactions Involving Services Advertising Changes in Existing Decommissioning, Restoration and Similar Liabilities 2015 2015 2015 2015 2015 2015 2015 TFRS TAS 38 (revised 2014) TFRS 2 (revised 2014) TFRS 5 (revised 2014) TFRS 8 (revised 2014) TFRS 10 TFRS 11 TFRS 12 TFRS 13 TSIC 15 (revised 2014) TSIC 25 (revised 2014) TSIC 27 (revised 2014) TSIC 31 (revised 2014) TFRIC 1 (revised 2014) 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 2015 207 Ichitan Group Public Company Limited Notes to the financial statements TFRS TFRIC 4 (revised 2014) Topic Determining whether an Arrangement contains a Lease TFRIC 10 (revised 2014) Interim Financial Reporting and Impairment TFRIC 13 (revised 2014) Customer Loyalty Programmes Year effective 2015 2015 2015 2015 The Company has made a preliminary assessment of the potential initial impact on the financial statements in which the equity method is applied and separate financial statements of these new and revised TFRS and expects that there will be no material impact on the financial statements in the period of initial application. 208 Ichitan Group Public Company Limited 2922/301-303 28th Floor. Charn Issara II Bldg., New Petchburi Rd., Bangkapi, Huaykwang, Bangkok 10310
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