Bangkok--12 Oct--TRIS Rating TRIS Rating Co., Ltd. has affirmed the company rating of Loxley PLC (LOXLEY) and the ratings of its debentures at “BBB+” with “negative” outlook. The ratings are based on LOXLEY’s diverse portfolio of businesses, its good reputation in the business community, and an experienced and capable management team, which support the company’s strong positions in the technology and trading sectors. However, these strengths are partially offset by LOXLEY’s relatively low profit margins, especially in the trading business, and the volatility of the revenue stream from project-based businesses. The rating outlook of LOXLEY is “negative”. TRIS Rating will closely monitor both the stability of LOXLEY’s recent turnaround performance and the company’s revenue stream, which is largely project-based, as project-based revenue tends to be volatile. Given no major deterioration in other areas, the continued success of the performance turnaround will likely positively affect the company’s outlook or credit profile. However, if the company’s financial performance in the second half of 2007 deteriorates, it will negatively impact the ratings. TRIS Rating reported that LOXLEY is an operating holding company. In mid-2007, the company restructured its principal business into five groups: ICT business, trading business, project business, service, and joint venture business group. LOXLEY’s ICT business can be classified into three major segments: information technology (IT), telecommunications, and consumer electronics. Its major trading activities involve consumer products, chemicals and construction materials, while government turnkey infrastructure projects represent the major portion of the company’s project business. While LOXLEY’s joint ventures represent partnerships between associated companies and leading global companies, e.g. BP PLC, BlueScope Steel Ltd. (Australia), Furukawa Group, etc., the company’s major services are the on-line lottery and the security business. Each business group is led by a senior executive director who has been with the company for a long time. The restructuring will benefit the company by strengthening business synergy and sharing resources among the group.LOXLEY, which has been in business for more than 60 years, has established long-lasting relationships with clients and suppliers. LOXLEY’s main strength stems from the expertise and experience of its management and personnel. Competent technical and engineering teams, which are well-trained and certified, provide quality products and services in the diverse segment of industries where LOXLEY competes. This is a major factor that not only strengthens relationships with business partners and suppliers, but also enhances the company’s ability to win projects that are up for bid. TRIS Rating said, LOXLEY’s customers are primarily government agencies and large private-sector companies. The main portion of government projects comes through competitive bidding; therefore, cash flow from operations partly depends on the company’s ability to successfully bid for and manage these projects. The company’s recurring revenue, which is derived from its consumer and chemical products, consumer electronics and service business, was in the range of Bt5,600-Bt6,300 million during 2003-2006 and Bt3,465 million for the first six months of 2007. Recurring revenue, which accounted for 57%-65% of total revenue during 2003-2006, increased to 71% for the first six months of 2007 due to revenue from the aviation security business, which has operated since September 2006. LOXLEY’s operating margin before dividend income improved from -3.79% in 2005 to 1.24% in 2006 and to 6.70% for the first six months in 2007. The improvement was mainly due to the restructuring of two major business groups: consumer electronics and Loxbit Group. In addition, the operating margin of LOXLEY’s consumer trading and IT businesses also improved from 0.06% and -4.8% in 2006 to 1.66% and 8.7% for the first six months of 2007, respectively.(Continue on page 2)Apart from LOXLEY’s own businesses, cash flow comes largely from fees, other revenues,and dividends from long-term investments in companies such as Aspac Oil (Thailand) Co., Ltd., BlueScope Lysaght (Thailand) Co., Ltd. and BlueScope Steel (Thailand) Co., Ltd. (BlueScope Group), Loxley WirelessCo., Ltd., Lao Soft Drink Co., Ltd., Loxley Trading Co., Ltd., and Thai Fiber Optics Co., Ltd. Aspac Oil(Thailand), the manufacturer and distributor of “Castrol” and “BP” lubricants in Thailand, was the main source of dividends during the last three years, although dividends have dropped from Bt180.3 million in 2004 to Bt117.6 million in 2005 to Bt62 million in 2006 and Bt37.6 million for the first six months of 2007. The constant decline in dividends was due to continued high oil prices, intense competition, and price controls on lubricant products. However, LOXLEY expects to receive a higher full-year dividend in 2007 since Aspac Oil’s net profit was Bt172 million for the first half of 2007, significantly higher than Bt57 million recorded for the first half of 2006. Due to expanding capacity by 90,000 tons on its painting and Zincalume production line, BlueScope Group, another major dividend contributor, has provided no dividends since 2006.The company’s leverage has steadily improved. Its total debt to capitalization ratio (adjusted for the committed guarantee for 35% of the debt of Loxley GTECH Technology Co., Ltd. -- LGT) improved from 45.73% in 2005 to 39.52% in 2006 as a result of a gain of Bt750 million from selling shares in LGT, and the reduction of debt after LGT was no longer consolidated in the financial statements. LOXLEY currently owns 35% of LGT and has a joint guarantee for LGT’s bank loan, together with other shareholders. The value of the company’s guarantee of LGT’s debt was approximately Bt422 million (35% of Bt1,205 million) at the end of June 2007. This joint commitment will persist until the project starts. LOXLEY’s leverage increased marginally to 40.95% as of June 2007, as it incurred short term debt during the early stages of the security business’s operations, said TRIS Rating. — End