Information Memorandum : SABINA

Information Memorandum SABINA PUBLIC COMPANY LIMITED (SABINA) Head Office: 177 Moo 8, Wangkaithurn, Hanka, Chainat 17130 Tel. 056-437156-8, 02-422-9400 Fax: 056-437159, 02-434-5911 Website www.sabina.co.th Factory Location: Thapra Factory: 93/47 Soi 7, Petchakasem, Thapra Bangkokyai, Bangkok 10600 Tel. 02-467-1161 Fax: 02-457-0439 Nakhonpatom Factory: 30/5 Moo 5, Phuttamolthon 5 Road, Raiking, Sampran, Nakhonpathom 73210 Tel. 02-811-8220 Fax: 02-811-8081 Yasothorn Factory: 236 Moo 10, Dootung, Yasothorn 35000 Tel. 04-573-7351 Fax: 04-573-7356 Chainat Factory: 177 Moo 8, Wangkaithurn, Hanka, Chainat 17130 Tel. 05-643-7159 Fax: 05-643-7159 Listing Date As at 15 May 2008 (Trading commencement on 15 May 2008) Listing Securities No. of common shares 69,500,000 shares. Par value at 5 baht per share with total paid-up capital of 347.50 million baht. No. of IPO shares 10,500,000 shares. Par value at 5 baht per share with the paid-up capital of 52.50 million baht. Capital As of 15 May 2008 (Trading commencement) Registered Capital Common Shares 347.50 million baht Paid-up Capital Common Shares 347.50 million baht Secondary Market The Stock Exchange of Thailand (SET) Offering Price 32 baht per share Offering Date 2 and 6-7 May 2008 Objectives and plans for utilizing Repayment of short-term loan from financial institution for 60.00 million baht. the capital increase Repayment of long-term loan from financial institution for 4.50 million baht. Working capital for 259.42 million baht. Green Shoe Option None Types of Business and Nature of Operation - Product Characteristics can be classified into 2 categories, which are o Subsidiary own-branded products namely "Sabina", "Sabinie", "SBN", "Moldern Curve by Sabina", "Moldern Soft by Sabina", "Doomm Doomm", and "Viora" are distributed by the Company and the subsidiary. The distinctiveness of the products is colorful style and trendy design, which respond to the need of modern women while being able to solve women's shape problem or enhance their personality in dressing with fashion trend. o OEM underwear products under foreign customers' brands, are designed, manufactured and distributed to the customers which are distributors of famous brands in Europe and the US. - Revenue Structure can be categorized as follows : o Revenue by Products: sales revenue from OEM products is a major source of the Company's revenue, which was 63.04%, 60.46%, and 54.89% of total revenue in 2005, 2006 and 2007 respectively. On the other hand, sales revenue from own-branded products represented 35.89%, 38.89% and 43.80% of total revenue in 2005, 2006 and 2007 respectively. 2005 2006 2007 Million Baht Value % Value % Value % Own-Branded Products of The Subsidiary Domestic Sale Revenue 659.41 35.33% 847.64 38.40% 903.02 43.12% Brassiere 472.46 25.31% 566.95 25.68% 717.86 34.28% Panty 128.57 6.89% 183.69 8.32% 205.68 9.82% Others1 76.23 4.08% 118.29 5.36% 6.48 0.31% Less: Discount 2 -17.85 -0.96% -21.29 -0.96% -27.00 -1.29% Export Sale Revenue 3 10.60 0.57% 10.86 0.49% 14.06 0.67% Brassiere 7.75 0.42% 7.91 0.36% 10.49 0.50% Panty 1.44 0.08% 1.76 0.08% 2.40 0.11% Others1 1.41 0.08% 1.19 0.05% 1.18 0.06% Less: Discount 2 - - - - -0.01 0.00% Sale Revenue from Own-branded 670.01 35.89% 858.50 38.89% 917.08 43.80% Products of The Subsidiary OEM Products Brassiere 816.37 43.73% 959.81 43.48% 906.83 43.31% Panty 277.14 14.85% 293.97 13.32% 183.81 8.78% Others1 83.90 4.49% 95.22 4.31% 59.39 2.84% Less: Discount 2 -0.71 -0.04% -14.23 -0.64% -0.67 -0.03% Sale Revenue from OEM Products 1,176.70 63.04% 1,334.77 60.46% 1,149.36 54.89% Sales Revenue 1,846.71 98.93% 2,193.27 99.35% 2,066.44 98.69% Service Revenue 4 0.02 0.00% 3.40 0.15% 1.46 0.07% Other Revenue 5 19.90 1.07% 10.92 0.49% 26.07 1.25% Total Revenue 1,866.63 100.00% 2,207.59 100.00% 2,093.97 100.00% Note: 1. Other products are shape enhancer firming underwear, camisole, pajamas underwear, and underwear components, etc. 2. Discount is the discount upon purchase orders of some clients. 3. Export sales revenue means sales revenue of own branded products in foreign countries. 4. Service revenue is revenue from cutting service, and foreign sewing services. 5. Other Revenue comprises of interest income, revenue from export tax refund (tax coupon), revenue from duty refund, gain from exchange rate, dividend, and revenue from indemnification in case of purchase order cancellation, etc. o Revenue by Countries: export sales revenue was 64.29%, 61.36% and 56.30% of sale revenue in 2005, 2006 and 2007 respectively. The major clients were the US, the UK, and France, which accounted for 26.89%, 15.71%, and 10.65% of total sale revenue in 2007 respectively. Meanwhile, domestic sale revenue accounted for 35.71%, 38.65%, and 43.70% of total sale revenue in 2005, 2006 and 2007 respectively. -2- 2005 2006 2007 Million Baht Value % Value % Value % Own-Branded Products of The Subsidiary Domestic Sale 659.41 35.71% 847.64 38.65% 903.00 43.70% Export Sale Singapore 9.90 0.54% 5.34 0.24% 5.48 0.27% Dubai 0.70 0.04% 0.00 0.00% 4.44 0.21% England 0.00 0.00% 4.55 0.21% 2.95 0.14% Others 0.00 0.00% 0.97 0.04% 1.20 0.06% Export Sale Revenue 10.60 0.57% 10.86 0.50% 14.07 0.68% Sale Revenue of Own-Branded 670.01 36.28% 858.50 39.14% 917.07 44.38% Products of The Subsidiary OEM Products USA. 385.87 20.89% 486.30 22.17% 555.74 26.89% United Kingdom 497.84 26.96% 443.00 20.20% 321.82 15.57% France 105.77 5.73% 248.29 11.32% 220.16 10.65% Canada 11.64 0.63% 9.47 0.43% 12.34 0.60% Spain 0.00 0.00% 0.49 0.02% 11.50 0.56% Sweden 65.78 3.56% 40.17 1.83% 8.66 0.42% Netherland 54.24 2.94% 23.14 1.06% 6.84 0.33% Germany 28.24 1.53% 74.29 3.39% 1.07 0.05% Others 27.32 1.48% 9.62 0.44% 11.24 0.54% Sale Revenue From OEM 1,176.70 63.72% 1,334.77 60.86% 1,149.37 55.62% Products Sale Revenue 1,846.71 100.00% 2,193.27 100.00% 2,066.44 100.00% - Business Objectives The Company's objective is to be one of the leading underwear producers in Thailand. In 2008, the Company will decrease OEM revenue proportion and shift the concentration to own-branded products, which generate higher profit margin. This helps reduce risk associated with OEM business and foreign exchange. The growth in domestic sale revenue from the subsidiary's own-branded products is 15 percent in 2007 and is expected to be 15 percent annually from 2008 to 2010 on average, while the proportion of revenue from OEM products will be maintained at 50 percent of total revenue within year 2008. The Company will focus on strengthening the own-branded products and its brand image among current customers and target customers. It also maintains the profit margin level, since 2005, by concentrating on domestic market development in young adult and adult segments, which are large in number and also have high purchasing power. In the meantime, the subsidiary has increased own- branded export in order to enhancing brand recognition overseas, such as in Singapore, Myanmar, Brunei, and Turkey, and continuously improving its competency by aiming export sales revenue from own-branded product reach to 50 million baht within 2008. As for domestic market, the subsidiary projected to open 5 more Sabina flagship and mall stores in the next couple of years, where two Sabina stores have already been opened in May 2008 at Fashion Island Department Store and MBK Center. For production development and efficiency enhancement, the Company set up industrial engineering (IE) department, which is responsible for planning and developing the production process to increase efficiency and reduce non-value added processes. At the same time, the IE department helps improve labor skills through multi-skill training to elevating the skills utilized in complex manufacturing process. The Company also appoints coaching team for training and preparing the staff for the time when new products will be launched. Moreover, the Company plans to establish human resource development -3- and training centers, like "Skilled Labor Training Center according to Skilled Labor Development Act B.E. 2545", which was set up in 2006 at Yasothorn factory, and the training center will be set up in all factories within 2008 to minimize the effect of skilled labor shortage. The Company also needs to control production costs and product quality to increase competitive advantage and create customers' confidence, especially in OEM production whereby the Company targets to develop the efficiency in every part of production and operation for the sake of cost advantage, such as reducing the time spent in preparing raw materials and production (lead time). The Company also sets the policy to develop product quality and continuously control production cost in the future by planning to purchase 4 more molding machines in 2008. Moreover, the Company also targets to participate in social and community standard of living development and environmental reserve to creating healthy environment not only in industrial area, but also in the community. - Target Customers The Company's products can be categorized into 3 main target groups, which are o Girls and Teenagers: This group is a main target customer of the Company because the Company's products can serve their demand very well due to the characteristics and styles of the products along with the regular placement of newly launched products. Therefore, the Company can continually generate revenue from this group. o Young Women and Adults: This group concerns more on functionality than focusing entirely on beautiful design. They also have high purchasing power and are large customer group. Thus, the Company plans to design the products to catch more potential customers in this target group by designing functional product, which helps solve shape problems, and respond more to the needs of this target group. o Foreign Customers: The foreign customer group place orders of the products manufactured under their own brands. Most of the clients are well-known underwear companies operating in Europe, America, and Scandinavia, i.e. the US, France, England, Canada, the Netherlands, Norway, Sweden, and Finland, etc. - Distribution Channels o The Company and its subsidiary's own-branded products are pervasively distributed through many channels such as department stores and discounted stores to the end-customers in a total number of 343 counters all over Thailand. As for export market, the Company sells own-branded products, which are "Sabina", "Sabinie" and "SBN", to Singaporean dealer which distribute Sabina products in the department stores. In addition, there are many imported distributors import the subsidiary's own-branded products to distribute in their countries such as Myanmar, Brunei, U.A.E., and Turkey. o For OEM products, the Company will directly distribute the products, after the quality control check, to the clients, or through the dealers. - Sources of Supply The production volume depends on various factors, such as the forecast of market competition, season of launching new products, production capacity of each factory, and management policy, all of which depend basically on the demand of the clients. Every year, the Company issues a future product distribution plan for the own-branded products in order to create efficient production. As for OEM products, the Company will manufacture OEM products only when there are orders from clients, which correspond to OEM clients' distribution plans so as to preventing the delay in production and shipment. At present, the Company and subsidiary own 4 factories, located in Chinat, Yasothorn, Bangkok and Nakornprathom, with the maximum capacity of 13.44 million pieces per year in total. In procurement process, the Company and subsidiary do not have the policy of stocking raw materials. Instead, the Company will make long-term forward contract that is to do the contract in order for the suppliers to reserve their capacity for the Company's orders and in order for the materials to be delivered in the specified time. The Company and its subsidiary purchase raw materials from a total of more than 200 domestic and foreign suppliers, most of which have been trading with the Company and have maintained good relationship for long period of time. Whenever core materials have never been used in the production before, the Company and its subsidiary will arrange the bidding among suppliers. - Underwear Demand and Supply Condition in Thailand For underwear demand, in Thailand, there were more women than men in 2006 that is to say there are 33.6 million women accounted for 51.68 percent of total population. Out of total women population in 2006, 28.6 million women are in the age range of 10 to 79 years old, those of which need to spend on underwear. The main factor affecting consumer decision in selecting each brand of underwear is the functionality. However, the consumer behavior is currently changing to be the more concerned about fashion and style of the underwear, and underwear is fundamental goods and has limited usable life; therefore, these supplement the frequency of purchase and continuously support the need of underwear consumption. On the supply side, there are more than 40 of large-sized, medium-sized, and small-sized underwear manufacturers operating in all over the country. Apart from domestic capacity, there are also both high-end famous brands from Europe and the US and economical-priced underwear from neighboring countries such as China competing in Thailand. The nature of production of these players includes manufacturing OEM products for export market, buying the license of foreign brands for manufacturing and selling domestically and abroad, manufacturing own-branded products as well as manufacturing unbranded products. However, manufacturers are focusing more on product value; thus, the manufacturing process, industrial network, and raw material management have been developed to immediately improve the products to meet consumers' preference. Moreover, specialists in manufacturing and designing underwear from foreign countries are hired for better product development. - Market Competition o Domestic market competition: Domestic market competition is competitive at every price level. There are many manufacturers competing in underwear industry; for example, Thai Wacoal Public Company Limited, the manufacturer of "Wacoal": Triumph International (Thailand) Company Limited, the manufacturer of "Triumph": and the Company, the manufacturer of "Sabina". Furthermore, there are numerous small-sized manufacturers of unbranded products involving in the price sensitive consumer segment. In terms of market share, the Company ranks third after Thai Wacoal Public Company Limited and Triumph International (Thailand) Company Limited. However, the products of each company catch different target customer groups. As the result, the competition among the major domestic manufacturers remains quite tamed. In addition, other foreign manufacturers, such as England, France and the US, snatch some market share in premium consumer segment. For price sensitive segment, the competition is caused by the low price underwear imported from neighboring country such as China, which gains advantage from a low production cost. o Export Market Competition: The competition in OEM market tends to be more aggressive over time not only from major domestic OEM manufacturers, but also from Chinese manufacturers. Chinese manufacturers not only gain the advantage from low cost of production, but they are also subsidized and supported by Chinese government and most Chinese manufacturers also operating in the whole production chain of garment industry. Apart from Chinese manufacturers, there are also many other low cost producers from neighboring countries competing in this industry. However, these competitors emphasize on low price strategy rather than on product quality. As a result, Thai manufacturers, who emphasize on product quality, can still compete and gain advantage over those foreign manufacturers. - Competitive Edge of the Company o Product Quality: The Company has a capacity to produce underwear of the equivalent quality to those of major domestic manufacturers, as well as underwear which requires special sewing skill. In addition, it also provides the design service to OEM clients, a full scale service which allows the Company to gain advantage over its competitors from neighboring countries. (more)