News Detail: [NFC] The Opinion of the Business on the Tender Offer(Form250-2)Symbol: NFC Headline: The Opinion of the Business on the Tender Offer(Form250-2) Time: 29 Jul 2004 13:59:37 NFC 0031/2004 July 29, 2004 Subject: Submit the Opinion of the Business on the Tender Offer (Form 250-2) To : The President of the Stock Exchange of Thailand Attachment: The Opinion of the Business on the Tender Offer (Form 250-2) Issued on July 23, 2004 According to Mr. Nuttaphob Ratanasuwanthawee intention to purchase the remaining of the ordinary share of the NFC Fertilizer Public Company Limited ("NFC") (previously named National Fertilizer Public Company Limited) pursuant to the details in the Tender Offer (Form 247-4) issued on July 9, 2004. In order to comply with the Notification of the Securities and Exchange Commission (SEC) No. Kor Jor 59/2545 re: Reports and Time Period for Preparing Opinion on the Tender Offer, the C.J. Morgan Company Limited as the Plan Administrator of the NFC would like to submit the Opinion of the Business on the Tender Offer (Form 250-2) pursuant to the details in the attachment and the Opinion of the Advisory Plus Company Limited (shareholder's advisor) pursuant to last details in the attachment for assisting shareholders on considering the Tender Offer. Please be advised accordingly. Yours respectfully, Mr. Visoot Kajchamaporn and Mr. Ziriwat Anunkusri C.J. Morgan Company Limited On behalf of the Plan Administrator of NFC Fertilizer PCL. Form 247-3 National Fertilizer Public company Limited Form 250-2 Opinions of the Business Regarding the Tender Offer July 23, 2004 To Securities holders: On July 9, 2004, NFC Fertilizer Plc. (registered and changed from the previous name of National Fertilizer Plc. on July 20, 2004 and hereinafter called "the Company" or "NFC") received a copy of the statement of a tender offer for our securities from Mr. Nuttaphob Ratanasuwanthawee (hereinafter called "the Tender Offeror"), as follows: Type of Amount of securities Percentage of Offering Offering securities securitues share/unit shares to the total to the total price per (Bt.) with issued shares with unit voting securities voting right (Bt.)Ordinary 149,868,016 149,868,016 60.27 60.27 11.50 1,723,482,184 shares Preferred shares Warrants Convertible Debentures Other securuties ( if any )Total 60.27 Total 1,723,482,184 1/ Net price to be received by the Offeree is Bt. 11.4692 per share since the Offeree is subject to payment of a brokerage fee of 0.25% of the offering price and value-added tax of 7% of the brokerage fee. The tender offer period is during 9.00 - 16.30 hrs. of each of the 25 business days from July 12, 2004 to August 17, 2004. The said period is not the final tender offer period; therefore, the Tender Offeror may extend the period. After considering the tender offer with due regards for the benefits to the securities holders, we would like to express opinions for your consideration as follows: 1.The status of the Company in respect of past and future operating results together with assumptions Nature of business and past performance NFC was incorporated on November 11, 1982 pursuant to the government's resolution to establish a factory to produce compounded chemical fertilizers (NP/NPK) from basic raw materials for import substitution. This was also aimed at meeting the demand of farmers for availability of chemical fertilizers with good quality and proper prices. The Company is engaged in the production and import of fertilizers for distribution. Its products are divided into four types : 1) main products involving straight fertilizer and formulated compound fertilizer; 2) sulfuric acid; 3) ammonia and 4) by-products. The Company has been granted an investment promotion certificate by the Board of Investment (BoI) for the import of straight fertilizers and the manufacture of formulated compound fertilizers which are chemical fertilizers used in agriculture including such formulas as 16-20-0, 16-16-8, 15-15-15, 13-13-21, 16-8-8, etc., to be in line with the market demand. Most of its products are under "National Fertilizer" brand name and carry "six green leaves" trademark. They are distributed through distributors nationwide. The Company's current production capacity of formulated compound fertilizers is about 1 million tons/year while that of phosphoric acid and sulfuric acid, the intermediary product, for use in the production or to be sold to domestic customers, is about 180,840 tons/year and about 462,000 tons/year respectively. Besides, gypsum, which is a by-product, also generates additional income for the Company. The Company's plant is located at Map Ta Phut Industrial Estate, Rayong, covering an area of about 710 rai. In addition, NFC has its own port facilities which can serve sea freighters of 60,000 DWT and handle raw materials of approximately 1.5 million tons per year. In 2001, NFC recorded operational loss and encountered liquidity problems. Its financial ratios failed to come out as specified in the loan agreement. As a result, the Company defaulted on repayments of long-term debts that fell due in 2001 amounting to Bt. 1 billion, which has since then become its chronic problem all along. On July 5, 2002, the Ministry of Finance (MoF) responded to the issue raised by the Company on its status that, as of the closing date of the share register for the right of shareholders to attend the ordinary general meeting held on April 5, 2002, government agencies' shareholding in NFC was in an aggregate amount lower than 50%, thus the Company was no longer a state enterprise by virtue of the provisions of the Budgetary Procedure Act B.E. 2502 from April 5, 2002 onward. On June 6, 2003, NFC received a letter no. BorJor 453/2546 issued by the Stock Exchange of Thailand (SET) notifying the Company of its being required to prepare a business rehabilitation plan and the SET's proceedings due to the Company's negative net worth. NFC had to prepare a business rehabilitation plan in accordance with the SET's regulations and its share trading had to be suspended until it was able to remove such ground of share delisting from the SET. NFC issued a letter no. PorChor 0691/2546 dated July 31, 2003 informing the SET of its business rehabilitation guidelines and seeking of a new business partner. As regards, NFC and the financial creditors reached mutual agreement to have NFC's financial restructuring by entering into business rehabilitation through the central bankruptcy court as well as to seek a new potential business partner tosupport the Company's working capital requirement. Later on August 28, 2003, the Company signed a memorandum of understanding on investment with new joint venture group and financial creditors, mutually agreeing to NFC's financial restructuring through the business rehabilitation procedure of the central bankruptcy court. In this relation, NFC on August 14, 2003 filed a petition for business rehabilitation to the central bankruptcy court and the court on September 8, 2003 approved of the Company's business rehabilitation and appointed C.J. Morgan Co., Ltd. as the planner. The court later on December 30, 2003 approved the plan and appointed C.J. Morgan Co., Ltd. as the plan administrator. On February 11, 2004, the central bankruptcy court allowed the Company to decrease and then increase its paid-up capital (first capital increase). With this respect, the Company, on May 11, 2004, registered a decrease of its paid-up capital with Department of Business Development, Ministry of Commerce (MoC), by wiping off the not yet issued registered ordinary shares numbering 180,509,206 shares. The Company then proceeded with the registration of capital decrease from Bt. 13,139,468,790 to Bt. 64,861,970 on May 24, 2004. On May 19, 2004, the central bankruptcy court gave order allowing for NFC's second increase of paid-up capital. The Company on May 26, 2004 filed application for an increase of capital to Bt. 3 billion, of which Bt. 648,619,720 was paid-up, by means of issuance of 58,375,775 new shares to accommodate the debt to equity conversion of two creditors, namely Thai Asset Management Corporation (TAMC) and Siam Commercial Bank Plc. (SCB) at a debt conversion ratio of Bt. 10 for one share. On June 8, 2004, NFC carried out the increase of its paid-up capital with Department of Business Development of the MoC by issuing 183.80 million new ordinary shares on a private placement basis at the par value of Bt. 10 per share, making a total of Bt. 1.838 billion. After the second capital increase, the Company's paid-up capital surged from Bt. 648,619,720 to Bt. 2,486,619,720. At present, NFC has followed the business rehabilitation procedure in all cases, e.g. the seeking of business partner, capital restructure, and issuance of debentures. For the debt settlement under the business rehabilitation plan, NFC is now in the final process of transferring land ownership for debt set-off amounting to Bt. 188.3 million. Upon completion of such process, the Company will have its debts cleared and collateral security released by the creditors. In this regard, the plan administrator expects that NFC will be able to file application for the exit from the business rehabilitation plan around the third quarter of 2004. NFC's financial position and operational performance during 2001-2003 (In millions of baht except per share amount which is in baht) 2001 2002 2003 NFC Consolidated NFC Consolidated NFC ConsolidatedTotal only only only Total Assets12,809 13,994 11,660 12,823 10,537 11,643Total liabilities11,895 13,069 12,892 14,152 14,062 15,262 Shareholders' Equity 914 925 (1,231) (1,329) (3,525) (3,619) Registered Capital 14,945 14,945 14,945 14,945 14,945 14,945Paid-up Capital 13,139 13,139 13,139 13,139 13,139 13,139Revenue from sale of finished fertilizers 3,171 3,171 2,475 2,475 2,180 2,180Total Revenue 3,286 3,362 2,654 2,754 2,447 2,569Cost of sale of finished fertilizers 3,404 3,404 2,866 2,866 2,592 2,592 Total Expenses 5,150 5,291 4,616 4,825 4,557 4,675Net profit (loss) (1,863) (1,863) (1,962) (1,962) (2,110) (2,204)Dividend per share 0.00 0.00 0.00 0.00 0.00 0.00 Book value per share 0.70 0.70 (0.94) (1.01) (2.68) (2.75) Note Investors may access NFC's latest financial statements and consolidated statements at the websites of the SEC (www.sec.or.th) or the SET (www.set.or.th).The Company's total revenue dropped continuously from Bt. 3,362 million in 2001 to Bt. 2,754 million in 2002 and Bt. 2,569 million in 2003 due chiefly to the falling sales volume of chemical fertilizers from 528,370 tons in 2001 to 391,872 tons in 2002 and 322,270 tons in 2003. Such drop was caused by lack of credit lines from the financial institutions. The Company was also undergoing financial restructuring with the financial creditors through the business rehabilitation process of the central bankruptcy court and seeking new business partner. Over the first 11 months of 2003, as no working capital credit for raw material procurement was yet received, the Company had to carry out its production based on the working capital available. This forced it to reduce the production capacity utilization, hence decrease in the sales volume. During 2001-2003, total cost and expenses accounted for Bt. 5,291 million, Bt. 4,825 million, and Bt. 4,675 million respectively and cost of fertilizer sold consecutively contracted from Bt. 3,404 million in 2001 to Bt. 2,866 million in 2002, and Bt. 2,592 million in 2003. The decrease was attributable to the dwindling sales volume. However, considering the cost per unit, it is found that the cost per ton edged higher continuously from Bt. 6,443 in 2001 to Bt. 7,315 in 2002, and Bt. 8,044 in 2003. This was evident as regards the economy of scale that the declining volume of fertilizer production caused the Company to carry higher fixed production cost per unit. Interest payable continuously rose from Bt. 1,171 million in 2001 to Bt. 1,255 million and Bt. 1,293 million during 2002-2003 respectively, as financial creditors had the interest rates charged based on the default rates. For the above reasons, NFC recorded net loss during 2001-2003 in an amount of Bt. 1,863 million, Bt. 1,962 million, and Bt. 2,204 million, respectively. As regards financial position, NFC's total assets consistently decreased from Bt. 13,994 million to Bt. 12,823 million and Bt. 11,643 million during 2001-2003 respectively. Main assets with decreasing value comprised net accounts receivable and inventories. Such drop resulted from the decline in production volume, and hence sales drop, and the fact that the value of fixed assets decreased due to depreciation by time of useful life. NFC's total liabilities soared continuously from Bt. 13,069 million to Bt. 14,152 million and Bt. 15,262 million during 2001-2003 respectively, attributable to the increase in accrued interests on loans and defaulted payment for shares in subsidiary company. Meanwhile, accounts payable and advance receivable declined. Shareholders' equity dropped consecutively from Bt. 925 million to Bt. -1,329 million and Bt. -3,619 million during 2001-2003 respectively as a result of successive net loss during such period.The Company has currently been under the business rehabilitation process. The central bankruptcy court approved the rehabilitation plan on December 30, 2003 and appointed C.J. Morgan Co., Ltd. As the plan administrator. The Company is anticipated to be able to comply with the plan and eventually exit the process around the third quarter of 2004. Projected operational performance Given the government's apparent and continuous policy on development and support of the agricultural sector, Thai farmers have been developed and gained more insights in chemical fertilizers, leading to the rising trend in chemical fertilizer consumption. NFC has been all along engaged in the production and distribution of quality fertilizers with emphasis given on chemical compounded fertilizers, which is its main source of income. Coupled with its impairment of assets and debt restructuring under the business rehabilitation plan, NFC's financial structure has much improved at present. Thus, the Company has earned higher confidence among its trade partners and financial sponsors, which will accordingly facilitate its higher funding for use as capital in its business operations. This is one of the key factors that will allow for the Company's efficient proactive planning in respect of raw material procurement, production, and marketing, in a bid to boost its competitiveness and improve its operational performance. The Company expects to increase its production volume to 300,000 tons in 2004 (representing 30% of total production capacity), 650,000 tons in 2005 (representing 65% of total production capacity), and 750,000 tons in 2006 (representing 75% of total production capacity). The Company is anticipated to generate profits by 2005. However, the forecast does not take into account the business integration planned by the Tender Offeror. For the current claims and complaints by NFC's minor shareholders filed directly to the plan administrator and various organizations relating to the damages arising from the Company's capital decrease under the business rehabilitation plan, the plan administrator is now under negotiation with the Company's business partners, financial creditors, and the creditors committee in order to seek ways to alleviate the damages incurred to the minor shareholders. 2. Opinion on the accuracy of the Company's information stated in the tender offer The plan administration board views that all information relevant to the Company as shown in the tender offer statement (Form 247-4) is accurate.3.Relationship or any agreements between the Company's director/s, either on his/their own behalf or in his/their capacity as the Company's director/s or as representative/s of the Tender Offeror, and the Tender Offeror, including the shareholding by the director/s in the Tender Offeror's juristic person and any contracts or agreements made or to be made between them (in such matters as administration, etc.) On June 28, 2004, the Tender Offeror acquired ordinary shares of the Company from Mrs. Bongkot Rasmeepaisarn and SCB. After such share acquisition, the Tender Offeror has altogether 98,793,956 ordinary shares, making its shareholding in NFC total 39.73% of the Company's total issued and paid-up shares. Top ten shareholders of NFC as of June 28, 2004: NameNo. of shares % of total issued and paid-up shares of the Company 1.Mr. Nuttaphob Ratanasuwanthawee 98,793,95639.73 2.Thai Asset Management Corporation4 3,143,082 17.35 3.Mr. Direk Chatpimonkul30,300,000 12.194.Mr. Suchart Thongtang 30,083,334 12.10 5. Mr. Wichai Thongtang20,000,000 8.04 6.Mr. Sunthorn Chaikulngamdee 8,400,000 3.38 7. Mrs.GasesineePhimolsathian 4,166,6 1.68 Mr. Vichai Chaikulngamdee 2,000,000 0.80 10. Mr. Fook 1,600,000 0.64 Chatpimonkul Total 242,403,704 97.49List of NFC's board of directors (as per the latest director register) At present, NFC is under the business rehabilitation process through the central bankruptcy court, with C.J. Morgan Co., Ltd. being the plan administrator. The Company has the rights, power and duties to the extent as stipulated in the plan and as provided in the Bankruptcy Act in order to enable the Company to carry on its business and accomplish the business rehabilitation plan. C.J. Morgan Co., Ltd. proposed Mr. Chamni Janchai, Mr. Visoot Kajchamaporn, and Mr. Ziriwat Anunkusri as directors in charge of administering the rehabilitation plan. As such, other directors of NFC will have no power in regard thereof until upon the Company's exit from the rehabilitation plan.Relationship of the directors in charge of administering the rehabilitation plan with the Tender Offeror - None - Common directors between the plan administrator and the Tender Offeror - None - Shareholding by the directors in charge of administering the rehabilitation plan in the Tender Offeror - None - Existing or tentative mutual contract or agreement - The Tender Offeror is the major shareholder and director of Chemicals and Aromatics (Thailand) Co., Ltd. (CA) which is engaged in distribution of chemicals and is one of NFC's customers. CA purchases from NFC ammonia which is a raw material in fertilizer production for further distribution. Sales value of ammonia between both parties, based on the market price, accounted for Bt. 159.82 million in 2003 and about Bt. 116.93 million during January - June 2004. Such mutual transaction will be disclosed in the notes to financial statements for 2004 with opinions given by the plan administrator (in case where NFC remains under the business rehabilitation plan) or by the audit committee (in case where NFC exits the business rehabilitation plan), which comply with the securities and exchange law and the rules, notifications and orders or requirements of the SET. 4. Opinions of the board of directors of the Company to the securities holders C.J. Morgan Co., Ltd. In its capacity of NFC's plan administrator arranged a meeting of the plan administration board on July 23, 2004 to consider the tender offer prepared by the Tender Offeror. The three directors attending the meeting were: NamePosition 1. Mr. Chamni JanchaiChairman of the plan administration board according to the order of the central bankruptcy court 2. Mr. Visoot Kajchamaporn Director of the plan administration board according to the order of the central bankruptcy court 3. Mr. Ziriwat AnunkusriDirector of the plan administration board according to the order of the central bankruptcy court 4.1Reasons to accept/reject the tender offer The plan administration board passed a non-unanimous resolution with two-thirds votes to recommend to the shareholders the rejection of the tender offer. The directors gave comments on the six share valuation methods obtained from Clause 5 as calculated by the financial advisor to the shareholders, as follows: Bt./share Share valuation methoValued share price 1. Book value(2.75) 2. Adjusted book value13.02 3. Price to book value 23.70 - 31.12 4. Market value 0.08 5. Price to earning ratioN/A 6. Discounted cash flow 6.79 - 9.51 1. The book value method is considered inappropriate. The share price derived from this method is calculated based on the book value as of December 31, 2003 which was the period before the capital restructuring and implementation of the business rehabilitation, but after such period there have been several material changes occurring to the Company. 2.The adjusted book value method can be regarded as the method to project net asset value at present after the successful implementation of the business rehabilitation plan. There is also impairment of assets to reflect the real asset value. Hence, this approach should be used to figure out the share price in comparison with the offering price. Besides, the success of the business rehabilitation has brought about more confidence in the Company among its trade partners and financial sponsors, thus allowing for more efficient business operations. 3.Price to book value approach should be used to compare the share price with the offering price because it takes into account the Company's future business operations after the success of its business rehabilitation and under the assumption that there are no long-term liabilities and that the Company has firm financial position based on the current book value of its assets. As regards, this will be a driving force for the Company's future business operations. This approach can reflect the Company's real business capability. In addition, a price to book value multiplier factor should drive to increase share price. In this regard, whether the price to book value can be compared with the companies that are engaged in similar business, i.e. Thai Central Chemical Plc. depends on future parameters. 4.Market value method fails to reflect the real picture of the Company because the trading of the Company's shares has been suspended since September 3, 2003, hence no market value over such period. Moreover, there has been material change in the Company's capital over such period. 5.Price to earning ratio also fails to reflect the real picture of the Company. The Company has not shown the operation result in net profit in 2004 yet because it still shoulders huge financial burden before debt restructuring. Nonetheless, if implementations are carried out in line with the rehabilitation plan, especially the business integration by the Tender Offeror, NFC is likely to register net operating profits from 2005 onwards. Therefore, this method cannot be used to figure out the share price under current circumstances. 6.The discounted cash flow approach calculates the share price based on the current business plan of the Company before any business integration proposed by the Tender Offeror. Therefore, the share price derived should be in the range of Bt. 6.79 - 9.51 per share given the cost of equity (Ke) of 14.63% - 17.88%. If the expected Ke is below 14.63%, the share price derived will be higher. Besides, should the business integration proposed by the Tender Offeror be taken into account, more positive impact will be posed on the share price. Considering all of the above reasons, it is thus possible that the valued price of ordinary share will be higher than the offering price. In other word, the offering price is considered inappropriate. However, in deciding as to whether to accept or reject the tender offer, the shareholders should make consideration on the opinions provided by the financial advisor. In this regard, the final decision depends principally on the discretion of the shareholders. Currently, the plan administrator is under negotiation with the business partner, financial creditors, and creditor committee in order to seek ways to alleviate the damages arising to the minor shareholders from the capital decrease following the business rehabilitation plan. In this light, if the directions of damage alleviation are mutually agreed upon by all concerned parties, the share price may be favorably affected. At present, however, such impacts cannot be figured out because such event may not take place or, if taking place, to what extent the impacts will be is still unknown. 4.2 Opinions and reasons of each director and the number of shares held by each director (only in case that the opinions of the board of directors in 4.1 are not unanimous) NameNo. of NFC shares heldNote 1. Mr. Chamni Janchai-Chairman of the plan administration board according to the order of the central bankruptcy court 2. Mr. Visoot Kajchamaporn- Director of the plan administration board according to the order of the central bankruptcy court 3. Mr. Ziriwat Anunkusri-Director of the plan administration board according to the order of the central bankruptcy court Two out of the three directors of the plan administration board, namely Mr. Chamni Janchai and Mr. Visoot Kajchamaporn mutually agree to the point that the adjusted book value and the price to book value approaches presented in the share valuation report by the financial advisor should be taken into consideration together with the discounted cash flow approach. In so doing, the price of NFC ordinary share should be in the range of Bt. 6.79 per share to more than Bt. 13.02 per share, based on the opinions of the financial advisor. It is thus possible that the appropriate share price will be higher than the offering price. In our preliminary opinion, we view that the shareholders should reject the tender offer. However, the shareholders should prudently study other risk factors before making final decision on whether to reject or accept the tender offer. In the meantime, the remaining director of the plan administration board, namely Mr. Ziriwat Anunkusri, is of opinion that the shareholders should accept the tender offer as the offering price of the Company's share is appropriate as per the opinion provided by the financial advisor to the shareholders. More importantly, if the shareholders reject the tender offer, they may encounter liquidity shortfall, being unable to trade the shares at the time they want, pursuant to the SET's regulations regarding the resumption of stock trading on the stock exchange. 4.3 Benefits or impacts from the plans and policies indicated in the tender offer and viability of such plans and policies. The opinion of the directors of the plan administration board is in the same direction as that provided in the tender offer that there are still good investment prospects for the Company to improve its business operations. Due to the Tender Offeror experience in the business related to that of the Company and his intention to integrate the business of SC Group, which is engaged in logistics and distribution of chemicals to that of the Company. The company's revenue will increase. However, net effect on the Company's increase operational performance is subject to its administration and management system to be set up in the future. We hereby certify that the above statements are accurate and complete, without any information that will lead to misunderstanding in material aspects, and no concealment has been made on any material information that should be disclosed. Signed (Chamni Janchai) C.J. Morgan Co., Ltd. On behalf of the plan administrator of NFC Fertilizer Plc. 5. Opinions of the shareholders' advisor certified by the SEC Mr. Nuttaphob Ratanasuwanthawee ("the Tender Offeror") has made a tender offer to purchase ordinary shares of NFC Fertilizer Plc. ("the Company" or "NFC") as per a copy of the tender offer statement (Form 247-4) dated July 9, 2004. Advisory Plus Co., Ltd., as the financial advisor approved by the Office of the Securities and Exchange Commission ("the SEC"), has been appointed by the plan administrator as the independent financial advisor to provide opinions for small shareholders regarding the tender offer. We have studied the information in the tender offer (Form 247-4) of the Tender Offeror, the information and documents obtained from the plan administrator and the Company such as financial statements, financial projection and interviews with the plan administrator as well as the information disclosed to the public as a basis for our analysis and provision of opinions. Our opinions are given based on the assumption that the information in the tender offer and all the information and documents obtained from the plan administrator and the Company and that from the interviews with the plan administrator and concerned parties are true. Any future changes in the said information or any future event may have material impacts on the Company's operations and the shareholders' decision-making on such tender offer. Our opinions can be summed up below:5.1. Appropriateness of the offering price The Tender Offeror has made a tender offer to purchase the Company's ordinary shares at the price of Bt. 11.50 per share. We have carried out share valuation through various approaches to consider the appropriateness of the offering price as detailed below: 5.1.1 Book value approach This approach will reveal the book value of a business at a certain period of time. In this case, the share price is derived based on the net book value of the assets shown in the Company's consolidated financial statements as of December 31, 2003 duly audited by the auditor. Pursuant to the SEC's rules, conditions and procedures regarding disclosure of information on financial position and operational performance of the issuing company (No. 10), NFC, now in the process of implementation under the business rehabilitation plan, is not required to provide the SEC with the financial statements for the first and third quarters. As a result, the Company's book value is figured out by basing on the latest audited financial statements ended December 31, 2003 as follows: (Bt.million) Items Amount Paid-up registered capital 13139.47 Paid-in surplus 240.00 Share deficit (4569.73) Revaluation increment in property 2661.95 Retained earnings (accumulated loss)1 (15090.99) Total shareholders' equity (3619.30) Total number of shares issued (million shares) 1313.95 Book value per share (2.75) Source: Consolidated financial statements as of December 31, 2003. By this method, the book value of the Company is Bt. -2.75 per share or worthless. The offering price of Bt. 11.50 per share is thus Bt. 14.25 higher than the book value per share. 5.1.2. Adjusted book value approach As several significant events took place after the audited financial statements ended December 31, 2003, we have made adjustments with such events taken into account. The share price by this method is derived from the book value of the Company's total assets as of June 30, 2004 which have not yet been reviewed by the auditor, deducted by total liabilities as of June 30, 2004 and adjusted by the items under the business rehabilitation plan including commitments and contingent liabilities, then divided by total number of shares of the Company. The share price calculated by this method is as follows: (Bt.million) Total assets as of June 30, 2004 not yet reviewed by the auditor 4,452.79 Plus Additional investment in inventory (source of funds from additional short-term loans) 410.07 Less Land at cost price for debt set-off under the business rehabilitation plan 24.00 Decrease in cash due to debt settlement under guarantee agreement to the IEAT 10.13 Total assets after adjustment 4,828.73 Total liabilities as of June 30, 2004 not yet reviewed by the auditor 12,545.62 Less Debt forgiveness under the business rehabilitation plan - overdraft line 90.59 Debt forgiveness under the business rehabilitation plan - short-term borrowings from bank and financial institution 455.00 Debt forgiveness under the business rehabilitation plan - trust receipt 1,536.55 Debt forgiveness under the business rehabilitation plan accrued interest 5,567.42 Debt forgiveness under the business rehabilitation Plan onshore long-term loans - fertilizer project 2,829.18 Debt forgiveness under the business rehabilitation plan - IFCT long-term loan - fertilizer project 930.93 Debts under the two guarantee agreements with the IEAT 10.13 Plus Additional short-term loans from bank and financial institution 50.00 Trust receipt loans 360.07 Total liabilities after adjustment 1,535.89 Shareholders' equity after adjustment 3,292.84 Less Commitments under letter of guarantee 44.85 Realized loss expected to be incurred from Rayong Bulk Terminal Co., Ltd. by the second half of 2004 10.25 Total shareholders' equity after adjustme 3,237.74 No. of issued and paid-up shares (million shares) 248.66 Share price by adjusted book value approach (Bt./share) 13.02 Source: Financial statements ended June 30, 2004 not yet reviewed by the auditor NFC has already entered into the financial restructuring as ordered by the central bankruptcy court, thereby it completed its capital write-down and increase in June 2004. Thai Asset Management Corporation (TAMC) and Siam Commercial Bank Plc. (SCB) the creditors converted debts to equity at the ratio of Bt.10 for one share, and the Company issued 183.8 million shares at Bt. 10/share via private placement totaling Bt. 1,838 million on June 8, 2004. Moreover, the Company has serviced part of its debts under the business rehabilitation plan while certain debt forgiveness has been allowed by the creditors. The Company's share price calculated by this method will thus be Bt. 13.02 per share which is higher than the offering price by Bt. 1.52 per share or 13.22%. However, the Company has operated at loss throughout the past several months due to working capital shortfall, disabling it to meet the break-even point. Thus, the share value by this method will drop in line with the loss incurred each month. 5.1.3. Price to book value approach (P/BV) By this method, the share price is figured out by multiplying the Company's book value and adjusted book value by the average P/BV ratio of the SET-listed companies in the chemicals and plastics sector. There is only one SET-listed company engaging in the similar business to the Company's, namely Thai Central Chemical Plc. (TCCC). The average P/BV ratios of this sector and TCCC over the retroactive 3 months, 6 months, 9 months and 12 months counting from July 8, 2004 were as follows: Calculation period Average P/BV of chemicals Average P/BV of TCCC chemicaland plastics sector Average of retroactive 3 months 2.141.82 Average of retroactive 6 months 2.612.17 Average of retroactive 9 months 2.632.39 Average of retroactive 12 months 2.382.34 Source : Setsmart The above table shows that the average P/BV ratios of the SET-listed companies in the chemicals and plastics sector are close to those of TCCC. We figure out the Company's share value by basing on the average P/BV ratio of TCCC which engages in the similar business to the Company's. According to the consolidated financial statements as of December 31, 2003, the Company's book value was Bt. -2.75 per share and adjusted book value Bt. 13.02 per share. Therefore, the share price derived by this method is between Bt. 23.70 and Bt. 31.12 per share, which is higher than the offering price by Bt. 12.20 - Bt.19.62 per share, or 106%-171%. However, as NFC shares trading has been suspended since September 3, 2003, the share price by this approach may not reflect the real business value. 5.1.4 Market value approach The share price by this method is figured out based on the weighted average closing prices of the Company's shares traded on the SET. We have considered the average share prices for the past one year counting retroactively from July 8, 2004. The results are shown below: Calculation period Weighted average closing price (Bt./share) Average of retroactive 3 months N/A Average of retroactive 6 months N/A Average of retroactive 9 months N/A Average of retroactive 12 months 0.08 Source : Setsmart By this share valuation method, the Company's share price will be Bt. 0.08 per share, which is Bt. 11.42 or 99% lower than the offering price of Bt. 11.50 per share. However, as trading of NFC shares has been suspended since September 3, 2003 and there have been changes to its registered capital in early 2004, this share valuation approach may not reflect the real business value of the Company. 5.1.5 Price to earning ratio approach(P/E) By this method, the share price is derived by multiplying the Company's net earnings per share in 2004 under the assumptions as stated in Clause 5.1.6 by the average P/E ratios of TCCC that has the similar business to NFC over the retroactive 3 months, 5 months, 9 months and 12 months counting from July 8, 2004 6 which can be summarized as follows: Calculation period Average P/E of Average P/E of chemical TCCC and plastics sector Average of retroactive 3 months 13.868.14 Average of retroactive 6 months 16.5510.31 Average of retroactive 9 months 16.8811.46 Average of retroactive 12 months15.4411.28 Source : Setsmart However, according to the projected financial statements for 2004, the Company records loss in its operations. Thus, the share price cannot be figured out by this share valuation method. 5.1.6 Discounted cash flow approach This method mainly takes into account the profitability of the Company in the future. The share price is figured out from the present value of free cash flow expected to receive in each year based on the projected financial statements for 2004-2008 prepared by the Company for use in application for working capital loan of Bt. 2,000 million- Bt. 2,500 million from a commercial bank. We have adjusted some items of the assumptions based on the fact that the Company runs on a going concern basis. However, if there are any deviations of the major factors from the assumptions, there will be impacts on the financial projection and the share value so derived. The assumptions used are as below: Key assumptions used in the financial projection are summarized below: 1. Revenues from sales of goods 1.1 Revenue from sales of compounded fertilizers Production capacity : 1,000,000 tons per year. The Company has no plan to scale up its production capacity as it has not yet fully utilized the capacity. Capacity utilization rate :Capacity utilization rate is 30% in 2004 and is projected to reach 65% - 85% during 2005-2008. Selling price per ton : Average domestic selling price is around Bt. 7,700 per ton in 2004 and is projected to reach Bt. 7,700 - Bt. 8,000 per ton during 2005-2008.Average export price is around Bt 6,970 per ton in 2004 and is projected to be Bt. 7,000 - Bt. 7,300 per ton during 2005-2008. 1.2 Revenue from sales of straight fertilizers Selling price per ton : Average selling price is about Bt. 8,400 per ton in 2004 and is projected at around Bt. 8,200 - Bt. 8,600 per ton during 2005-2008. 2. Other revenues (after deduction of other expenses) Other revenues (after deduction of other expenses) are set at 1% of revenues from sales of goods during 2004-2008. 3. Cost of sales In 2004, cost of sales accounts for 108% of revenues from sales of goods During 2005-2008, cost of sales is set to drop every year from 95% in 2005 to 91% in 2008 due to economy of scale. Fixed cost : In 2004, the fixed cost will be 22% of revenues from sales of goods and range between 7%-9% during 2005-2008. 4. Selling and administrative expenses Selling and administrative expenses are averaged at about 5% of revenue from sales of goods. 5. Exchange rate The Company projects the exchange rate on a constant basis at Bt. 41/USD during 2004-2008. 6. Terminal value Cash flow is set to be constant from 2009 onwards, that is, a zero growth of cash flow. 7. Discount rate The discount rate used in the discounted cash flow approach is based on the weighted average cost of capital (WACC), which is between 13.07% - 14.65% during 2004-2008 depending on debt and equity proportion in each year. WACC consists of cost of debt (Kd) which is 6.5% and cost of equity (Ke) which is 16.25%. Formula for the calculation is presented below: Ke = Rf + ((Rm - Rf) Ke:Return on equity Risk Free Rate (Rf):5.58% based on 18-year government bond yield Beta (B)0.99 (information from Bloomberg) Rm16.36% derived from the average return on investments in the SET for the past 15 years By the discounted cash flow method using the above discounted rate (WACC), the derived share price is Bt. 8.02 per share. We have conducted a sensitivity analysis of share valuation by the discounted cash flow approach, using Ke of between 14.63% and 17.88%, as follows: Ke Share value (Bt./share) 14.63%9.51 16.25%8.02 17.88%6.79 By the discounted cash flow method, the derived share price is Bt. 6.79 - Bt. 9.51 per share which is lower than the offering price of Bt. 11.50 per share by Bt. 1.99 - Bt. 4.71 per share or 17% - 41%. Table of the Company's share price by the above methods in comparison with the offering price (Bt) Share valuation Offering Valuation Above (below) offering price Method price price 1. Book value 11.50 (2.75)(14.25)N/A 2. Adjusted 11.50 13.021.5213.22 book value 3. Price to 11.50 23.70 - 31.12 12.20 - 19.62 106 - 171 book value 4. Market value 11.50 0.08 11.42) (99) 5. Price to earning ratio11.50 N/A N/A N/A 6. Discounted cash flow 11.50 6.79 - 9.51 (1.99) - (4.71) (17) - (41) After consideration of various share valuation methods, it is evident that the share price derived by the book value, adjusted book value, price to book value, market value, and discounted cash flow approaches will range between Bt. -2.75 and Bt. 31.12 per share. We are of the opinion that the price to book value, market value and price to earning methods are considered inappropriate since the trading of NFC shares has been suspended since September 3, 2003. As such, the share prices so derived may not reflect the real business value. We view that the book value and adjusted book value are methods that figure out the share price based chiefly on past information and asset value at a certain period of time without taking into account the Company's profitability and business prospects in the future. Hence, they cannot reflect the real value of the Company. In particular, for the share price derived by the adjusted book value method which is Bt. 13.02 per share, being higher than the offering price by Bt. 1.52 per share, the higher share price results mainly from profit from debt restructuring of around Bt. 11,221 million, which is non-cash item not generated from business operation. After completion of its capital decrease and increase as ordered by the central bankruptcy court on June 8, 2004, the Company still needs to request funding for its working capital in the amount of about Bt. 2,000 million - Bt. 2,500 million to ensure business operation as planned. The projection is based on the assumption that the Company is granted a working capital credit line of Bt. 2,000 million - Bt. 2,500 million from a bank soonest possible. Otherwise, it will suffer a larger amount of loss since it cannot run the production to meet the break-even point at present. That has been the reason why the Company has all along operated at loss. The discounted cash flow method takes into account the Company's business outlook and profitability in the future. Therefore, we view that the discounted cash flow is an appropriate method. The share price derived by this method is between Bt. 6.79 - Bt. 9.51 per share, which is lower than the offering price by Bt. 1.99 - Bt. 4.71 per share. In view of this, we are of the opinion that the offering price is appropriate. 5.2 Reasons for acceptance and/or rejection of the tender offer 5.2.1 Reasons to accept the tender offer We view that the share price derived by the discounted cash flow method is lower than the offering price of Bt. 11.5 per share by Bt. 1.99 - Bt. 4.71 per share or 17% - 41%. Thus, the offering price is considered appropriate. 5.2.2 Other factors for consideration The shareholders who reject the tender offer may be impacted as follows: - Delayed exit from the business rehabilitation plan : - The Company has followed the procedures - of the business rehabilitation plan, namely seeking - of business partner (complete), capital restructuring (complete), - and debenture issue (complete). At present, the Company - is in the process of land ownership transfer to - settle the last portion of debts. - Pending the exit from the business rehabilitation plan, - minor shareholders who show no intention to sell ordinary shares - at this tender offer may lack trading liquidity and may fail - to sell securities at the time required. - Besides, the Company still cannot generate profit in the near future - and uncertainties still exist in the long run. - According to the SET's rules regarding share trading resumption, - the Company must comply with the following conditions: 1. The Company has shareholders' equity (after auditor's opinion adjustment) of above zero. 2. The Company records net profit from operation for three consecutive quarters or 1 year. 3. The Company's restructured debts account for more than 75% of total debts and it can make debt repayment to the creditors as scheduled. 4. It can be presented that the Company has sound financial position and operational performance on a consistent basis in line with its business condition with cash flow also taken into account. From the above requirements, the Company is vulnerable to the timing for its shares to resume trading on the SET - Management risk : The Tender Offeror intends to buy all securities of the Company. Thus, should the Tender Offeror fail to gather enough tendered securities from other shareholders, there may be impacts on the Company's business policy and direction. - Business risk : Supply of chemical fertilizers in form of both raw materials or finished fertilizers comes mostly from imports. The prices are volatile all the time. The Company has to keep a close watch on exchange rate and fluctuation of freight rate of imported raw materials and finished fertilizer. Particularly as NFC's fertilizer plant utilizes basic raw materials in production of compounded fertilizers, it has to more keep up with the market condition and prices of various raw materials compared with its rivals. It is thus quite difficult for the Company to set out plans to control production cost to be competitive with the rivals. 5.3 Benefits or impacts from the plans and policies indicated 5.4 in the tender offer and viability of such plans and policies We are of the opinion that the business plan and policy stated in the tender offer (Form 247-4) are viable and may benefit the Company's business operations as follows: 1. The Tender Offeror has no intention to make changes to the nature of its business operations, but it has tried to boost its sales volume so that its production capacity will reach the break-even point and allow for expansion in the future. We view that the proposal of the Tender Offeror is viable since the Tender Offeror is experienced in the related business to the Company's. The Tender Offeror also has a plan to integrate to the Company's operations the logistics and chemicals business under the SC Group where the Tender Offeror is the CEO in order to create synergy. In addition, at present, the joint undertaking agreement between Rayong Bulk Terminal Co., Ltd.(RBT), which is NFC's subsidiary providing port facilities and services, and the Industrial Estate Authority of Thailand (IEAT) has been terminated, and the port occupation delivered to the IEAT. RBT is now preparing the business rehabilitation plan. As provided in the agreement with the IEAT, RBT was designated as a "special purpose port" to render port services only to NFC and Siam Cement Plc. (SCC) as well as associated companies in which NFC and SCC hold shares of 25% up at present and in the future. If the dispute between RBT and the IEAT is settled and the IEAT allows RBT to resume managing the port, the Tender Offeror will put best efforts to request fairness from the IEAT and have the conditions of the agreement amended. This will provide wider opportunity for the Company to generate higher income in the future. 2. Feasibility of the fund raising plan to support working capital for the broadening of business opportunities : The Company now has a clearer and more practical plan. Meanwhile, demand for chemical fertilizers is on the rising trend since the government has consistently developed and promoted the agricultural sector. As such, Thai farmers have been more developed and have more insights of chemical fertilizers, leading to higher utilization of chemical fertilizer in the future. This indicates that demand for chemical fertilizers tends to expand in the future which will benefit the Company and its shareholders. We hereby certify that we have given opinions on the tender offer prudently in line with professional practices and with due regards for the interest of the shareholders. Advisory Plus Co., Ltd. (Prasert Patradhilok) Advisor to the shareholders