CONTENT 2016-04-04¢  a 17.1 percent drop from 5.86 billion Baht in 2014 to 4.85 billion...

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Transcript of CONTENT 2016-04-04¢  a 17.1 percent drop from 5.86 billion Baht in 2014 to 4.85 billion...

  • CONTENT 4

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    Message from the Chairman of the Board

    Report of the Audit Committee on Corporate Governance

    Report of the Risk Management Committee

    Financial Highlights

    Factory/Warehouse

    Social Responsibilities

    Board of Directors and Management

    General Information

    Overview of Business

    Nature of Business

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  • Key Risks

    Shareholding Structure

    Management

    Corporate Governance

    Internal Control and Risk Management

    Connected Transactions

    Management Discussion and Analysis

    Statement of Directors’ Responsibilities Concerning

    the Company’s Financial Report

    Financial Statements

    Certification of the Accuracy of Auditors’ Remuneration

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  • MESSAGE FROM THE CHAIRMAN OF THE BOARD 2015 remained as challenging as 2014 for the world and for Thailand. Global economic growth slowed to a growth rate of merely 2.4 percent, according to the World Bank. The value of Thai exports dropped 5.8 percent from 2014 resulting in a sluggish GDP growth of 2.8 percent for 2015. The factory lease activity was just moderate, with tenants seen from new industries besides electronics and automotive. The warehouse lease business continued to perform well in 2015 due mainly to demand from AEC manufacturers and the logistics industry.

    In 2015, we focused on improving the occupancy rate of our factories and warehouses. We limited new construction only at locations where strong customer demand was apparent. In addition, we diversified into a new market by investing in a joint venture in Indonesia to develop warehouses and factories for lease to international firms expecting to benefit from Indonesia’s attractive economic growth.

    Factory Lease

    Unlike in 2014, Thai politics in 2015 looked stable throughout the year. Peace seemed to have been restored successfully in Thailand. However, disappointing global economic growth and low consumption power of Thai consumers due largely to high household debt negatively impacted the Thai economy, making it sluggish in 2015. Negative export growth due to commodity prices and poor automobile sales in Thailand were two main causes of the modest growth in new leased factory space. Thanks to new SME entrants from a variety of industries, TICON was able to improve our lease of factory space in 2015. More tenant industrial diversification was witnessed as a result.

    In 2015, we leased out a total of 40,300 square meters of new factory space to tenants, an increase of 29.7 percent. However, 22,775 square meters of factory space was returned by other tenants, which resulted in a net new leased area of 17,525 square meters. This compares positively to a net new leased factory area of minus 2,200 square meters in 2014. Approximately 59percent of new tenants in 2015 were from the electronics and automotive industries. On nationality, 35percent were European tenants and 24percent were Japanese tenants.

    The average occupancy rate of factories in 2015 was 49 percent compared to 62 percent in 2014. While the occupancy rate of factories was a poor 35 percent in Ayudhya, which was the previously flooded zone, there was steady flow of enquiries from potential customers to lease the factory space there of these, several were from the automotive industry and some are European companies. Meanwhile, in the now-popular Eastern Seaboard area of Thailand, the occupancy rate was 72 percent.

    Warehouse Lease

    In 2015, consolidation in the logistics industry continued. This resulted in a large expansion amongst logistics specialists in Thailand. Third-party logistics providing companies (“3PL”) continued to top our warehouse tenant list; and there was strong demand for very large warehouses and distribution centers (“DC”) most of which were built-to-suit. We leased out a total of 97,896 square meters built-to-suit warehouses and DCs in 2015 compared to 62,177 square meters in 2014. Built-to-suit warehouses and DCs were approximately 41percent of the total new leased warehouse space in 2015 versus 33 percent in the previous year. 3PL providing companies were 61percent of new warehouse tenants in 2015. On nationality, 37 percent of new tenants were Thai companies and 36 percent were European firms.

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  • We believe that the consolidation in the logistics industry and the demand from both international and local manufacturers for superior quality warehouses will continue to bring in growth in new warehouse leases. Many global top-tier manufacturers demand the use of quality warehouses to store inventory pending distribution into AEC countries. Demand for warehouses and DCs was particularly strong in Bangna and Bangplee. In 2015, there were a total of 33 logistics park locations under the TICON Group. A newly-added logistics park was added under the Group in 2015 was TPARK Bangplee 6.

    The average occupancy rate of warehouses increased from 63 percent in 2014 to 68 percent in 2015. This was due mainly to the fast growth of built-to-suit warehouses.

    Investment Activity

    Approximately 6.8 billion baht was invested by the Company in 2015 to construct factory and warehouse buildings. There were more built-to-suit warehouses constructed than ready-built buildings since demand for built-to-suit warehouses was greater. Unlike in 2014, land acquisition was minimal in 2015 because the Company already had secured itself enough land at those locations it desired to serve potential customers.

    In the second quarter of 2015, the Company set up a new wholly-owned subsidiary company, TICON (Hong Kong), as a holding company to invest in factory and warehouse developing business outside Thailand. The Company co-established a joint venture firm (namely “PT SLP Surya TICON Internusa”) in Indonesia with a local partner named Surya Semesta Internusa or SSIA, and Mitsui & Co., to develop factories and warehouses for lease in Indonesia. TICON (Hong Kong) holds 25percent stake, Mitsui & Co. equally has 25 percent stake and SSIA has 50percent stake in the JV firm.

    In the fourth quarter of 2015, the Company worked with TREIT to have the fund capital raised to buy and lease 155,182 square meters of both warehouse and factory space from TICON Group. The combined value of properties sold to TREIT was 3.2 billion Baht. Additionally, the Company sold 23-rai from its land portfolio in Bangplee to a buyer for an amount of 260 million Baht.

    On December 31, 2015 the TICON Group had 20 percent investment in TREIT, up from 12 percent in 2014.

    Overall Performance

    In 2015, the net profit of the Company was 769.7 million Baht, an increase of 1.2 percent from the net profit in 2014. Rental and related service income, which was the Company’s core business income, rose 8.5 percent from 966.1 million Baht in 2014 to 1,048.5 million Baht in 2015. Property sales income dropped 26.6 percent from 4.56 billion Baht in 2014 to 3.35 billion Baht in 2015 since there were fewer properties sold to TREIT than the previous year. Total income posted a 17.1 percent drop from 5.86 billion Baht in 2014 to 4.85 billion Baht in 2015, again mainly due to fewer properties transacted to trust funds.

    The Company sold partial investment in three property funds (TFUND, TLOGIS and TGROWTH) in the fourth quarter of 2015 and booked a total gain of 354.0 million Baht --including deferred gain realized from the sales.Property management fee income, which the Company earned from being the property manager of TFUND, TLOGIS, TGROWTH and TREIT, increased 23.5 percent from 165.3 million Baht in 2014 to 204.1 million Baht in 2015.

    Outlook

    For 2016, we expect the world economy and consequently the Thai economy will remain sluggish. The over-capacity in production worldwide will continue to depress demand for standard factories. As well, the structural changes in the Thai manufacturing landscape from labor intensive production to robotic process will continue. Lastly, the implementation of the AEC integration will lead to further demand in quality warehouses and distribution centers. Under such scenarios, TICON Group’s strategies are:

    • Emphasizing on improving occupancy of standard factories (and less capital expenditures for rental factories construction in Thailand).

    • Enlarging warehouse portfolio of TICON Group to take advantage of AEC interconnectivity.

    • Diversifying into new AEC markets to capitalize on the experience of TICON.

    The Company has a clearcompetitive edge over its peers through its long partnership with customers, strong on-site property management and maintenance service, and its trusted, in-houseJapanese and Chinese speaking marketing teams.

    It is important for TICON Group to have warehouses in strategic regional locations.Warehouse construction in KhonKaen and Lumphun logistics parks will be completed in 2016. These two locations are prime areas for our potential customers to set up distribution centers, cross-dock warehouses, consolidation/deconsolidation warehouses. In 2016, more built-to-suit warehouse demand is expected from third-party logistics providing firms in the wake of the AEC network.

    Lastly, aside from the Company’s 25percentIndonesian stake of PT SLP Surya for lease in the high-end Indonesian warehouse and factory market,TICON is i