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PT Ultrajaya Milk Industry & Trading Company Tbk. Business & 9M 2013 Performance Update

December 2013

PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

Disclaimer The following discussion contains the most recent update on operating and financial performance of PT Ultrajaya Milk Industry & Trading Company Tbk. ("Ultrajaya") as at September 30, 2013 and recent developments of Ultrajaya. A Bahasa Indonesia version of this discussion is being prepared by Ultrajaya and will be published within six business days after publication of this information. This document is not intended to be a public offering document under Law of the Republic of Indonesia No.8 of 1995 on Capital Markets and its implementing regulations. Persons in possession this document are required to inform themselves about and to observe, any restrictions in distributing this document. This document may not be used for the purpose of an offer or an invitation in any circumstances in which such offer or invitation is not authorized. This document does not constitute and is not an offer to sell or the solicitation of an offer to buy securities (the “Securities") of Ultrajaya in the United States or elsewhere. Ultrajaya has not registered and does not intend to register the Securities under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and the Securities may not be offered or sold in the United States absent registration under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, registration. Ultrajaya does not intend to make any public offering of the Securities in the United States or elsewhere. This document includes forward-looking statements. These statements contain the words "anticipate", "believe", "intend", "estimate", "expect“, “plan” and words of similar meaning. All statements other than statements of historical facts included in this document, including, without limitation, those regarding Ultrajaya's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Ultrajaya's business and services) are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Ultrajaya to be materially different from results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Ultrajaya's present and future business strategies and the environment in which Ultrajaya will operate, and must be read together with those assumptions. These forward-looking statements speak only as at the date of this document. Predictions, projections or forecasts of the economy or economic trends of the markets are not necessarily indicative of the future or likely performance of Ultrajaya. Past performance is not necessarily indicative of future performance. The future financial performance of Ultrajaya is not guaranteed. You are cautioned not to place undue reliance on these forwardlooking statements, which are based on the current views of Ultrajaya on future events. Ultrajaya expressly disclaims any obligation or undertaking to disseminate any updates or revisions, except as required by law, to any forward-looking statements contained herein to reflect any change in Ultrajaya's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. In this document, unless otherwise specified references to “we”, “us” and “our” refer to Ultrajaya and its consolidated subsidiaries. .


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Table of contents Section 1

Analysis and review of our performance

Section 2

Our strengths

18

Section 3

Our business

24

Section 4

Our strategies

49

Section 5

Our risks and challenges

53


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Section 1

Analysis and review of our performance


Analysis and review of our performance In the following section we discuss our historical results of operations and financial condition for the years ended December 31, 2011 and 2012, and the nine months ended September 30, 2012 and 2013, and our management's assessment of the factors that may affect our prospects and performance in future periods. The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes. Results for the interim periods are not necessarily indicative of the results for the full year. Our consolidated financial statements as of and for the year ended December 31, 2012 have been audited by Bambang Budi Tresno, Registered Public Accountants. Our consolidated financial statements as of and for the year ended December 31, 2011 have been audited by Kantor Akuntan Publik Koesbandijah, Beddy Samsi & Setiasih. Our consolidated financial statements as of and for the nine months ended September 30, 2012 and 2013 have been reviewed by Tanubrata Sutanto Fahmi & Rekan, a member of BDO International Limited. This discussion contains forward-looking statements that involve risks and uncertainties. The actual results of our business may differ significantly from those anticipated in the forward-looking statements.

Factors Affecting Our Financial Condition and Results of Operations Pricing and Sales Volume of our Products As our net sales is a function of the prices we are able to charge for our products and our sales volumes, these factors have a significant impact on our results of operations. Market forces of supply and demand generally determine the pricing of our products. Our gross profits are principally derived from the difference between the direct costs of materials, direct labor costs and factory overhead costs and the price at which we are able to sell our products to our customers. As Indonesian consumers have enjoyed growing levels of purchasing power, their per capita consumption of milk and tea drinks have grown and demand for our products has increased. All of our product segments recorded sales volume growth between 2011 and 2012, in line with improvements in macroeconomic conditions. Our sales volumes continued to increase in the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. See “Our business — Our Products and Services”. We generally price our products based on our corporate and marketing strategies, input costs, purchasing power of our customers, competition and logistics expenses. Although, in the past, we have been successful in passing on increased costs to consumers, we may not always be able to do so and cannot provide any assurance that we will be able to do so in the future. We increased our ultra-high temperature (“UHT”) liquid milk and ready-to-drink (“RTD”) tea prices on average by approximately 5% in the last quarter of 2011, primarily due to increases in direct material costs. In the second quarter and fourth quarter of 2013, we raised our UHT liquid milk and RTD tea prices on average by approximately 5% and 10%, respectively, primarily due to rising direct material costs due to the depreciation of the Rupiah against the U.S. dollar and upward inflationary pressure.


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Analysis and review of our performance Costs and Availability of Raw Materials Costs and availability of our key raw materials, primarily raw milk, tea leaves, packaging materials, powdered milk and sugar, are crucial for our operations. Any disruption in supply, or increase in the costs, of such materials could affect our business and profitability. For details of direct material costs, see "Our business — Raw Materials and Suppliers". We have been able to meet our raw milk supply requirements from the dairy farm operated by our subsidiary, PT Ultra Peternakan Bandung Selatan ("UPBS"), and local dairy farmers' cooperatives, including the South Bandung Farmers Cooperatives (Koperasi Peternakan Bandung Selatan or "KPBS"), which are located close to our production facility. The price that we pay for our raw milk supplies is influenced by factors such as competition and the quality of raw milk sourced. Although we have not entered into any formal contracts with our raw milk suppliers, we have had good relations with them since the 1970s and have not faced any significant disruption in the supplies of raw milk. We have been able to meet our packaging material supply requirements by entering into long-term supply contracts with PT Tetra Pak Indonesia (“Tetra Pak”) and SIG Combibloc Limited (“SIG Combibloc”). Consumer preferences change rapidly, and we need to consistently ensure that our product packaging appeals to our customers. Although monitoring our exposure to commodity prices is an integral part of our overall risk management program, continued volatility in the prices of commodities could increase the costs of our products, and our profitability could suffer. To the extent that we are unable to increase our prices to compensate for any increase in raw material costs, our results of operations could be materially and adversely affected. A portion of our raw materials purchases such as packaging materials, sugar and skimmed milk powder are denominated in U.S. dollars and represented 43.3%, 41.8% and 52.4% of our net sales in 2011, 2012 and the nine months ended September 30, 2013, respectively. Fluctuations in exchange rates of the Rupiah, which is our functional and reporting currency, against the U.S. dollar would affect the value, translated or converted into the Rupiah, of our raw material costs and may adversely affect our results of operations. We have in the past hedged but do not currently hedge against fluctuations in exchange rates of the Rupiah against the U.S. dollar. Raw materials costs as a percentage of net sales increased from 56.9% to 58.3% in the nine months ended September 30, 2012 and 2013, respectively, in part due to depreciation of the Rupiah against the U.S. dollar by 20.1%, according to the middle rate issued by Bank Indonesia and also due to an approximately 40% increase in the price of skimmed milk powder during the nine months ended September 30, 2013.

Production Capacity Our sales volume is partly a function of our production capacity, which determines the amount of products that we can sell. We have been increasing our production capacity by adding new production lines and intend to continue to increase our production capacity. Our production of UHT beverages, including liquid milk, tea drinks, health and other drinks which are sold under our own brands as well as fruit juices which are toll manufactured, depends on, among other things, the processing and aseptic packaging machinery, equipment and know-how procured from Tetra Pak and SIG Combibloc. Our production of solid-based products, comprising sweetened condensed milk and powdered milk, depends on processing and packaging machinery, equipment and know-how procured primarily from GEA-Niro.


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Analysis and review of our performance Indonesian Economy and General Economic Condition Our business relies on consumer spending and is, consequently, highly dependent on the state of the Indonesian economy. Indonesia is the fourth most populous nation in the world with an estimated population of 246.9 million people in 2012. (Source: World Bank). Indonesia’s real GDP growth was 6.2% in 2010, 6.5% in 2011 and 6.2% in 2012 and private consumption expenditure grew by 17.6% in 2010, 16.9% in 2011 and 14.8% in 2012. (Source: Indonesian Central Statistics Bureau, "BPS"). Inflation in Indonesia and elsewhere has also generally resulted in higher costs incurred for raw materials and fuel, increase in wages and higher operating expenses. According to BPS, Indonesia’s annual overall inflation rate as measured by the change in the consumer price index was approximately 7.0% in 2010, 3.8% in 2011 and 4.3% in 2012. Demand for our products depends upon the size and disposable income levels of Indonesia’s middle and upper class (our primary target market segments) which in turn depends primarily upon the state of the Indonesian economy. As the economy grows, more consumers have sufficient disposable income to be able to afford our products which may potentially increase the size of our market and demand for our products.

Expansion Plans We plan to start building a new distribution center in Jakarta, Bogor, Depok, Tangerang and Bekasi ("Greater Jakarta") in 2014 to help enhance our distribution efficiency and speed to market, most notably in the Greater Jakarta area. In addition, to expand our production capacity, we intend to build a new modern and automated production facility which will likely commence operations in 2016, and plans for this facility will be made in 2014. Furthermore, we also plan to establish a dairy farm in Sumatra with approximately 23,000 dairy cows through PT Ultra Sumatera Dairy Farm ("USDF"), a 50-50 joint venture with PT Karya Putrajaya Persada ("Karya Putrajaya"), and we plan to have approximately 11,800 producing dairy cows at this farm by the end of 2016. We also plan to build a new production facility and warehouse in Sumatra once the farm achieves a certain operating capacity to improve our distribution efficiency and reach. For details, see "Our business — Joint Ventures — PT Ultra Sumatera Dairy Farm" and “Our strategies — Expansion of our dairy farming operations and further collaboration with local dairy farmers’ cooperatives to improve vertical integration of our business and expansion of our presence to Sumatra”. We plan to commence the construction of a new office building in Bandung in 2014. We believe that our planned expansion will enhance our business and, consequently, lead to an increase in our revenues. The implementation of these plans will also require significant capital expenditures and once these facilities and our dairy farm become operational will also result in an increase in our expenses, including nonoperating expenses such as depreciation.


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Analysis and review of our performance Critical Accounting Policies Accounting policies which we believe are or will be the most critical to a full understanding and evaluation of our reported and future consolidated financial results are set forth in Notes 2 and 3 of our consolidated financial statements as of and for the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2012 and 2013, respectively.

Description of Selected Income Statement Line Items The following discussion provides a description of the composition of certain of the line items in our statement of comprehensive income for the periods under review.

Net Sales Our net sales comprises local and export sales of our products and revenue from toll manufacturing services, after payment of value-added tax.

Cost of Goods Sold Cost of goods sold consists of the manufacturing costs of the finished goods inventory sold. The principal costs we incur in manufacturing products are (i) direct materials costs and direct labor costs and (ii) factory overhead costs, which consist primarily of costs related to depreciation of fixed and leased assets, electricity and energy, repairs and maintenance, salaries and wages, spare parts and indirect materials. For details, see Note 29 of our consolidated financial statements as of and for the years ended December 31, 2011 and 2012 and Note 28 of our consolidated financial statements as of and for the nine months ended September 30, 2012 and 2013, respectively.

Selling Expenses Selling expenses consist primarily of expenses related to (i) advertising and promotion, (ii) freight out (related and third parties), (iii) salaries of personnel directly involved in the sales and marketing of our products and (iv) rent.

General and Administrative Expenses General and administrative expenses consist primarily of salaries of office staff and depreciation of fixed assets (other than assets used directly in the production process).


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Analysis and review of our performance Loss on Foreign Exchange Rates - Net At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the Rupiah at the exchange rate prevailing at such date. Exchange gains and losses arising from the translation of foreign currency-denominated monetary assets and liabilities are recognized, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Gain (Loss) on Sales of Fixed Assets Gain (loss) on sales of fixed assets consists primarily of gains or losses arising from the sale of obsolete or unused machinery and equipment (calculated as the difference between the disposal proceeds and the carrying amount of such machinery and equipment).

Others - Net Others - net consists primarily of rent income from PT Kraft Ultrajaya Indonesia ("KUI"), revenue on sales of used and scrap items, certain tax expenses, gain (loss) on sales of long term livestock, bank charges and write offs in relation to damaged raw materials and finished goods.

Finance Income Finance income consists primarily of interest received on bank deposits.

Finance Cost Our finance cost consists primarily of interest paid on bank loans availed by us.

Share of Net Income (Loss) in Associated Company Shares of net income (loss) in associated company consist of our share in the post-acquisition profits or losses of our associates and jointly controlled entities, including KUI, PT Toll Indonesia ("Toll Indonesia"), USDF, PT Ito En Ultrajaya Wholesale ("IEU Wholesale") and PT Ultrajaya Ito En Manufacturing ("UIE Manufacturing").

Tax Income (Expense) Tax income (expense) comprises current and deferred taxes. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect of previous years. Deferred tax is recognized in respect of temporary differences between the carrying amounts, net of depreciation, of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.


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Analysis and review of our performance Results of Operations The following table provides a breakdown of our consolidated statement of income components for the periods indicated. You should read this table together with our consolidated financial statements, including the notes thereto.

Revenue Net Sales Cost of Goods Sold Gross Profit Operating Expenses Selling Expenses General and Administrative Expenses Loss on Foreign Exchange Rate - Net Loss on Sales of Fixed Assets Others - Net Operating Income Finance Income Finance Cost Shares of Net Income (Loss) in Associated Company Other Incomes (Expenses) - Net Profit Before Income Tax Tax Income (Expense) Current Tax Deferred Tax Net Income for the Current Year/Period Total Net Comprehensive Income for the Current Year/Period Income attributable to: Owners of the Company Non-controlling interests

Year ended December 31, Nine months ended September 30, 2011 2012 2012 2013 (Rp. in billions) 2,102.4 (1,476.7) 625.7

2,809.9 (1,908.1) 901.7

2,064.4 (1,413.6) 650.8

2,529.6 (1,754.9) 774.7

(361.5) (82.2) (3.3) (16.0) (26.1) (489.1) 136.6 16.4 (27.6)

(366.4) (82.7) (13.5) (14.8) 5.1 (472.3) 429.4 12.1 (11.9)

(253.7) (60.8) (11.9) (14.8) 0.5 (340.8) 310.0 6.0 (8.9)

(302.8) (86.7) (26.7) 0.3 (1.1) (416.9) 357.8 16.7 (5.4)

31.4 20.2 156.8

28.5 28.6 458.0

20.0 17.2 327.2

3.3 14.5 372.3

(33.3) 4.9 (28.4) 128.4

(111.6) 7.1 (104.5) 353.4

(80.9) 6.7 (74.2) 253.0

(104.2) 9.8 (94.4) 277.9

128.4

353.4

253.0

277.9

128.4 0.1

353.0 0.5

253.0 (0.0)

278.3 (0.4)


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Analysis and review of our performance Comparison of the results of operations for nine months ended September 30, 2012 and 2013 Net Sales. Our net sales increased by 22.5% to Rp.2,529.6 billion in the nine months ended September 30, 2013 ("9M 2013") from Rp.2,064.4 billion in the nine months ended September 30, 2012 ("9M 2012"), primarily due to increases in sales volumes of dairy products (comprising UHT liquid milk and sweetened condensed milk) of 17.3% and UHT tea and health drinks of 16.8%, and an increase in net sales derived from toll manufacturing services and exports of 39.2%. In the second quarter of 2013, we also increased the selling prices of our products on average by approximately 5%, which had a positive impact on our net sales in 9M 2013. Cost of Goods Sold. Our cost of goods sold increased by 24.1% to Rp.1,754.9 billion in 9M 2013 from Rp.1,413.6 billion in 9M 2012, primarily as a result of increases in direct materials costs. Direct materials costs increased by 25.6% to Rp.1,474.7 billion in 9M 2013 from Rp.1,173.9 billion in 9M 2012 due to an increase in raw materials consumed as a result of increased production volumes and a depreciation of the Rupiah against the U.S. dollar, which adversely affected the net payments, in Rupiah terms, made for purchase of raw materials denominated in U.S. dollars such as packaging materials, sugar and skimmed milk powder. Direct material costs were also impacted by an approximately 40% increase in the price of skimmed milk powder during 9M 2013. Other costs, increased by 124.7% to Rp.21.8 billion in 9M 2013 from Rp.9.7 billion in 9M 2012 primarily due to costs incurred in relation to waste water treatment at our production facility. In line with the increase in our net sales and expansion of our operations, electricity and energy cost increased by 15.4% to Rp.54.6 billion in 9M 2013 from Rp.47.3 billion in 9M 2012, repairs and maintenance cost increased by 27.0% to Rp.39.1 billion in 9M 2013 from Rp.30.8 billion in 9M 2012, indirect materials cost increased by 86.0% to Rp.18.6 billion in 9M 2013 from Rp.10.0 billion in 9M 2012 and depreciation of fixed assets increased by 4.8% to Rp.80.2 billion in 9M 2013 from Rp.76.5 billion in 9M 2012. Direct labor costs also increased by 7.6% to Rp.19.9 billion in 9M 2013 from Rp.18.5 billion in 9M 2012, primarily due to an approximately 28% increase in minimum wages payable to employees working at our manufacturing facility as a result of change in local government regulations, effective January 1, 2013. Gross Profit. As a result of the foregoing, our gross profit increased by 19.0% to Rp.774.7 billion in 9M 2013 from Rp.650.8 billion in 9M 2012. Gross profit as a percentage of net sales decreased to 30.6% in 9M 2013 from 31.5% in 9M 2012. Selling Expenses. Our selling expenses increased by 19.3% to Rp.302.8 billion in 9M 2013 from Rp.253.7 billion in 9M 2012. This was primarily due to an increase in advertising and promotion expenses of 29.0% to Rp.131.1 billion in 9M 2013 from Rp.101.6 billion in 9M 2012 as a result of increased marketing, an increase in freight costs paid to third parties by 13.9% to Rp.89.0 billion in 9M 2013 from Rp.78.1 billion in 9M 2012 in line with the growth in our operations and increase in fuel prices during the period, an increase in salary paid to sales, marketing and distribution personnel by 15.1% to Rp.38.1 billion in 9M 2013 from Rp.33.1 billion in 9M 2012 due to an increase in our team strength and an increase in minimum wages payable during 2013, and an increase in rent expense by 18.3% to Rp.12.9 billion in 9M 2013 from Rp.10.9 billion in 9M 2012 due to leasing of an additional warehouse in line with the growth of our operations. General and Administrative Expenses. Our general and administrative expenses increased by 42.5% to Rp.86.7 billion in 9M 2013 from Rp.60.8 billion in 9M 2012. This increase was primarily attributable to an increase in other general and administrative expenses by 206.8% to Rp.31.6 billion in 9M 2013 from Rp.10.3 billion in 9M 2012 which comprised of additional payments made to third-parties for providing loading and unloading services at our newly rented warehouse, amortization of costs incurred in relation to the Oracle Enterprise Resource Planning (“ERP”) system we introduced in 2012 and related payments made to information technology (“IT”) consultants. In addition, electricity and energy expenses in relation to our administrative operations increased by 169.2% to Rp.3.5 billion in 9M 2013 from Rp.1.3 billion in 9M 2012 due to an increase in our electricity consumption in line with growth of our operations and increase in electricity tariffs during 9M 2013.


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Analysis and review of our performance Comparison of the results of operations for nine months ended September 30, 2012 and 2013 (cont'd) Loss on Foreign Exchange Rate - Net. Our loss on foreign exchange rate - net increased to Rp.26.7 billion in 9M 2013 from Rp.11.9 billion in 9M 2012. This increase was attributable to an approximate depreciation of 20.0% in the value of the Rupiah against the U.S. dollar during 9M 2013. Others - Net. We recorded others - net expense of Rp.1.1 billion in 9M 2013 compared to others - net income of Rp.0.5 billion in 9M 2012. This decrease was primarily due to an increase in tax expense as a result of payments made in relation to a tax audit for a prior period, which was partially offset by an increase in revenue derived from sales of old machinery and scrap items. Operating Income. As a result of the foregoing, our operating income increased by 15.4% to Rp.357.8 billion in 9M 2013 from Rp.310.0 billion in 9M 2012. Finance Income. Our finance income increased to Rp.16.7 billion in 9M 2013 from Rp.6.0 billion in 9M 2012. This increase was primarily due to an increase in cash deposits with financial institutions, which resulted in an increase in interest received from deposits. Finance Cost. Our finance cost decreased by 39.3% to Rp.5.4 billion in 9M 2013 from Rp.8.9 billion in 9M 2012. This decrease was primarily due to a decrease in interest charges incurred as a result of decrease in our weighted indebtedness during 9M 2013 as a result of repayment of certain long-term loans. Shares of Net Income in Associated Company. Our shares of net income in associated company decreased by 83.5% to Rp.3.3 billion in 9M 2013 from Rp.20.0 billion in 9M 2012. This decrease was primarily due to a decrease in the net income of KUI to Rp.31.0 billion in 9M 2013 from Rp.66.6 billion in 9M 2012. Tax Expense. Our tax expense increased by 27.2% to Rp.94.4 billion in 9M 2013 from Rp.74.2 billion in 9M 2012. This increase was primarily due to an increase in current taxes by 28.8% to Rp.104.2 billion in 9M 2013 from Rp.80.9 billion in 9M 2012 in line with increases in our net sales. Total Net Comprehensive Income for the Current Period. As a result of the foregoing, our total net comprehensive income for the current period increased by 9.8% to Rp.277.9 billion in 9M 2013 from Rp.253.0 billion in 9M 2012.

Comparison of the results of operations for 2011 and 2012 Net Sales. Our net sales increased by 33.7% to Rp.2,809.9 billion in 2012 from Rp.2,102.4 billion in 2011, primarily due to increases in sales volumes of dairy products of 29.3% and UHT tea and health drinks of 26.2%, and an increase in net sales derived from toll manufacturing services and exports of 25.4%. We also increased the selling prices of our products on average by approximately 5% in the last quarter of 2011, which positively impacted our net sales in 2012. Cost of Goods Sold. Our cost of goods sold increased by 29.2% to Rp.1,908.1 billion in 2012 from Rp.1,476.7 billion in 2011, primarily as a result of increases in direct materials costs. Direct materials cost increased by 32.1% to Rp.1,572.5 billion in 2012 from Rp.1,190.7 billion in 2011, primarily due to an increase in raw materials consumed as a result of increased production volumes and depreciation in the value of the Rupiah compared to the U.S. dollar which impacted the costs, in Rupiah terms, payable for raw materials denominated in the U.S. dollar. Electricity and energy costs relating to our production facility increased by 31.8% to Rp.64.6 billion in 2012 from Rp.49.0 billion in 2011 due to an increase in our electricity consumption in line with growth of our operations and increase in electricity tariffs during 2012. Fixed assets depreciation increased by 7.4% to Rp.103.5 billion in 2012 from Rp.96.4 billion in 2011 due to an increase in our asset base as a result of PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Analysis and review of our performance Comparison of the results of operations for 2011 and 2012 (cont'd) purchases of additional packaging lines. As a result of the increase in our asset base in the form of machinery and equipment, repairs and maintenance cost also increased by 11.7% to Rp.40.5 billion in 2012 from Rp.36.2 billion in 2011. Indirect material cost increased by 134.7% to Rp.14.2 billion in 2012 from Rp.6.1 billion in 2011 in line with the increase in our operations. Direct labor cost also increased by 23.0% to Rp.23.7 billion in 2012 from Rp.19.3 billion in 2011, primarily due to an increase in minimum wages payable to our employees which was partially offset by a decrease in our headcount to 1,293 as of December 31, 2012 from 1,437 as of December 31, 2011. Other costs also increased in line with the increase in our production volume and sales which was in line with our expansion. Gross Profit. As a result of the foregoing, our gross profit increased by 44.1% to Rp.901.7 billion in 2012 from Rp.625.7 billion in 2011. Gross profit as a percentage of net sales increased to 32.1% in 2012 from 29.8% in 2011. Selling Expenses. Our selling expenses increased by 1.4% to Rp.366.4 billion in 2012 from Rp.361.5 billion in 2011. This increase was primarily attributable to an increase in freight costs paid to third parties by 34.3% to Rp.112.1 billion in 2012 from Rp.83.5 billion in 2011, which was in line with the growth in our operations and also due to an increase in fuel prices, and an increase in salary paid to sales and marketing personnel by 9.6% to Rp.42.2 billion in 2012 from Rp.38.5 billion in 2011. These increases were partially offset by, among other things, a decrease in advertising and promotion expenses by 9.0% to Rp.167.6 billion in 2012 from Rp.184.2 billion in 2011, primarily due to a change in marketing strategy in 2012 compared to 2011 and a decrease in other expenses by 29.2% to Rp.10.9 billion in 2012 from Rp.15.4 billion in 2011 due to general cost cutting measures. General and Administrative Expenses. Our general and administrative expenses increased by 0.6% to Rp.82.7 billion in 2012 from Rp.82.2 billion in 2011. This increase was primarily attributable to an increase in depreciation of fixed assets by 13.2% to Rp.8.6 billion in 2012 from Rp.7.6 billion in 2011 due to new additions of office and warehouse equipment and an increase in electricity charges paid by us of 57.1% to Rp.2.2 billion in 2012 from Rp.1.4 billion in 2011 primarily as a result of increase in electricity usage in relation to our administrative operations and higher electricity tariffs, which was partially offset by a decrease in other general and administrative expenses by 3.4% to Rp.16.8 billion in 2012 from Rp.17.4 billion in 2011 primarily due to payment of consulting fees relating to the implementation of our Oracle ERP system in 2012 and a decrease in rent expenses by 12.5% to Rp.3.5 billion in 2012 from Rp.4.0 billion in 2011 relating to housing provided for expatriate employees. Loss on Foreign Exchange Rate - Net. Our loss on foreign exchange rate - net increased to Rp.13.5 billion in 2012 from Rp.3.3 billion in 2011. This increase was primarily attributable to the depreciation of the Rupiah against the U.S. dollar. Others - Net. We recorded others - net income of Rp.5.0 billion in 2012 from an others - net loss of Rp.26.1 billion in 2011. In 2011, we recorded a one-time loss of inventory which occurred due to an inadvertent accounting error during prior periods. This change in others - net was also attributable to a decrease in damaged goods, an increase in rental income received from our affiliate, KUI, which leased additional office and warehouse space from us at our Padalarang, West Bandung, premises and an increase in revenue from sales of scrap and other used goods. Operating Income. As a result of the foregoing, our operating income increased to Rp.429.3 billion in 2012 from Rp.136.6 billion in 2011. Finance Income. Our finance income decreased by 26.2% to Rp.12.1 billion in 2012 from Rp.16.4 billion in 2011, primarily due to a reduction in the amount of bank deposits during this period. Finance Cost. Our finance cost decreased by 56.9% to Rp.11.9 billion in 2012 from Rp.27.6 billion in 2011, primarily due to a decrease in our weighted indebtedness during 2012 as a result of repayment of certain longterm debts. PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Analysis and review of our performance Shares of Net Income in Associated Company. Our shares of net income in associated company decreased by 9.2% to Rp.28.5 billion in 2012 from Rp.31.4 billion in 2011. This decrease was primarily due to a decrease in the net income of KUI to Rp.94.3 billion in 2012 from Rp.103.7 billion in 2011. Tax Expense. Our tax expense increased to Rp.104.5 billion in 2012 from Rp.28.4 billion in 2011. This increase was primarily due to an increase of current taxes to Rp.111.6 billion in 2012 from Rp.33.3 billion in 2011 which was in line with the increase in our net sales. Total Net Comprehensive Income for the Current Year. As a result of the foregoing, our total net comprehensive income for the current year increased by 175.2% to Rp.353.4 billion in 2012 from Rp.128.4 billion in 2011.

Financial Condition, Liquidity and Capital Resources We maintain cash balances to fund the daily cash requirements of our business. Historically, our funding requirements for working capital, capital expenditure and other requirements have been met through internally generated cash flows and bank loans. As of September 30, 2013, we had Rp.584.7 billion in cash and cash equivalents and had bank loans totaling Rp.45.7 billion. As our liquidity and capital requirements are affected by many factors, some of which are beyond our control, our funding requirements may change. We believe that we will have sufficient capital resources from our operations and access to other financings from financial institutions to meet our capital requirements for at least the next 12 months.

Statement of Cash Flows The following table sets forth certain selected data from our consolidated statements of cash flows for the periods indicated.

Nine months ended September 30, 2012 2013 (Rp. in billions) 491.6 330.0 124.9 (36.4)(1) (9.7) (45.5) (162.1) (1) (133.2) (30.6) 293.1 187.1 48.8

Year ended December 31, 2011 2012 Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Net increase (decrease) in cash and equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalent at the end of period

323.0 (293.6) (169.7) (140.3) 383.1 242.8

242.8 535.9

242.8 429.9

535.9 584.7

(1) We are reclassifying certain items in our consolidated statements of cash flows for 2012. As a result, dividends received in an amount of Rp.15.0 billion in 2012 was moved from cash flows from financing activities to cash flows from investing activities.

Net cash provided by operating activities In 9M 2013, net cash provided by operating activities was Rp.124.9 billion, which consisted primarily of receipts from customers of Rp.2,752.9 billion, which was partially offset by, among other things, payments made to suppliers of raw materials of Rp.1,952.9 billion, other operating expenses of Rp.460.5 billion, income tax payments of Rp.128.2 billion and payments to employees of Rp.124.3 billion. In 2012, net cash provided by operating activities was Rp.491.6 billion, which consisted primarily of receipts from customers of Rp.3,045.9 billion, which was partially offset by, among other things, payments made to suppliers, employees and other operating expenses of Rp.2,488.8 billion and income tax payments of Rp.70.9 billion. In 2011, net cash provided by operating activities was Rp.323.0 billion, which consisted primarily of receipts from customers of Rp.2,245.2 billion, which was partially offset by, among other things, payments made to suppliers, PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

13

Analysis and review of our performance employees and other operating expenses of Rp.1,841.3 billion, income tax payments of Rp.73.0 billion and interest expense of Rp.27.6 billion.

Net cash used in investing activities In 9M 2013, net cash used in investing activities was Rp.45.5 billion, which consisted primarily of cash used for fixed asset additions of Rp.63.2 billion and increase in investments in shares of Rp.24.1 billion. These were partially offset by, among other things, dividend receipt of Rp.15.0 billion from KUI, proceeds from the sale of fixed assets of Rp.14.6 billion and cash received from minority investments of Rp.13.5 billion. In 2012, net cash used in investing activities was Rp.36.4 billion, which consisted primarily of cash used for fixed assets additions of Rp.34.6 billion and additions of non-current assets of Rp.19.1 billion related to obtaining the license for our Oracle ERP system. These were partially offset by, among other things, dividend receipts of 15.0 billion from KUI and proceeds from the sale of used fixed assets such as obsolete machineries and equipment of Rp.2.9 billion. In 2011, net cash used in investing activities was Rp.293.6 billion, which consisted primarily of cash used for fixed assets additions of Rp.265.0 billion due to additions of land and machinery and investment in livestock of Rp.35.1 billion, which was partially offset by, among other things, proceeds from sales of used fixed assets such as obsolete machinery and equipment of Rp.3.5 billion.

Net cash used in financing activities In 9M 2013, net cash used in financing activities was Rp.30.6 billion, which consisted primarily of repayment of long-term loan of Rp.30.7 billion and payments on capital leases of Rp.4.7 billion, which were partially offset by additions of short term loans of Rp.5.8 billion. In 2012, net cash used in financing activities was Rp.162.1 billion, which consisted of payments of current maturities of long term bank loans of Rp.92.1 billion, repayments of short term loans of Rp.46.8 billion and payments on capital leases of Rp.23.2 billion. In 2011, net cash used in financing activities was Rp.169.7 billion, which consisted primarily of payments of current maturities of long term bank loans of Rp.152.1 billion and payments on capital leases of Rp.29.5 billion, which were partially offset by additions of short term loans of Rp.13.4 billion.

Indebtedness The following table sets forth our debt maturity profile as of the dates indicated: As of December 31, 2011 2012 (Rp. in billions) Payments due in: One year One to two years Two to five years Total


137.0 90.7 227.7

65.3 30.7 96.0

As of September 30, 2013

71.1 71.1

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Analysis and review of our performance Trade Receivables Depending on the product and the shipment time, we typically provide credit terms of 30 days to distributors. The following table sets forth the aging schedule of our trade receivable as of the dates indicated. As of September 30,

As of December 31, 2011 Current Overdue in: 1 – 30 days 31 – 60 days 61 – 90 days More than 90 days Provision for impairment Total

197.6

2012 (Rp. in billions) 248.9

48.6 4.5 2.2 3.4 (0.8) 255.5

36.3 6.9 1.1 4.9 (0.8) 297.3

2013 268.8 47.7 1.3 1.7 4.8 (0.8) 323.5

Our turnover for trade receivables, or debtors’ turnover ratio (calculated based on average trade receivables net of provision for impairment (based on accounts receivable-trade at the beginning and end of the period divided by two), divided by net sales over 365 days for 2011 and 2012 or 273 days for the nine months ended September 30, 2013), was 44.4 in 2011, 38.6 in 2012 and 34.9 in the nine months ended September 30, 2013.

Trade Payables Depending on the product, we typically obtain credit terms of 30 days from our domestic suppliers and up to 45 days from certain overseas suppliers. The following table sets forth the aging schedule of our trade payables as of the dates indicated. As of December 31, 2011 Current Overdue in: 1 – 30 days 31 – 60 days 61 – 90 days More than 90 days Total

As of September 30,

379.3

2012 (Rp. in billions) 369.7

5.9 8.8 13.8 2.0 409.8

5.3 8.0 8.6 2.8 394.4

2013 443.3 8.0 5.1 5.6 2.5 464.5

Our turnover for trade payables, or creditors’ turnover ratio (calculated based on average trade payable (based on trade payable at the beginning and end of the period divided by two), divided by cost of goods sold over 365 days for 2011 and 2012 or 273 days for the nine months ended September 30, 2013), was 101.3 in 2011, 75.5 in 2012 and 72.3 in the nine months ended September 30, 2013.


15

Analysis and review of our performance Inventories The following table sets forth our inventories as of the dates indicated. As of December 31, 2011 Raw materials Finished goods Animal feed Spare-parts Total Allowance for obsolescence Net

238.4 100.0 4.1 29.0 371.5 (3.0) 368.5

2012 (Rp. in billions) 204.3 86.6 7.0 39.2 337.1 (3.0) 334.1

As of September 30, 2013 403.4 101.2 47.0 13.7 565.3 (3.0) 562.3

Our total inventory turnover ratio (calculated based on average inventories (based on inventories at the beginning and end of the period divided by two), divided by cost of goods sold over 365 days for 2011 and 2012 or 273 days for the nine month ended September 30, 2013) was 91.1 in 2011, 63.9 in 2012 and 87.5 in the nine months ended September 30, 2013. See “Our business —Inventory Management”.

Capital Expenditure Our capital expenditure consists primarily of purchase of livestock, land, buildings and machinery. Historically, we have financed capital expenditure through a combination of internally generated cash and bank loans. We incurred Rp.308.4 billion and Rp.63.0 billion and Rp.65.9 billion in capital expenditures in 2011, 2012 and 9M 2013, respectively. Our aggregate capital expenditure in 2014 is expected to be approximately Rp.410.0 billion, comprising of additions in land, construction of a new warehouse, procurement of an automatic storage and retrieval system for such warehouse and construction of our new office in Bandung.


16

Analysis and review of our performance Contractual Obligations and Contingent Liabilities Contractual Obligations We have various contractual obligations and commercial commitments under which we are obligated to make future payments, such as bank loans, leased vehicles and rent. The following table summarizes our future obligations as of September 30, 2013.

Less than one year Short-term loans Long-term loans Trade payables Lease payables Accruals Short-term employee benefits liabilities Total

25.4 45.7 466.5 2.5 53.6 1.6 595.3

Between one More than five and five years years (Rp. in billions) 0.2 0.2

Total -

25.4 45.7 466.5 2.7 53.6 1.6 595.5

Off-Balance Sheet Arrangements As of September 30, 2013, we did not have any off-balance sheet arrangements.

Risk Management Our business involves certain risks some of which are not quantifiable and beyond our controls. We endeavor to continually manage risk in order to avoid material adverse events. In order to mitigate risks which arise in the conduct of our business, we have undertaken the following initiatives: 1. implementing product quality standards in all aspects of our operations, including by purchasing the best available quality raw materials, operating high quality raw materials and products testing laboratories and employing third-party experts; 2. implementing the latest available technology, including aseptic processing and packaging machinery and equipment and inventory management systems; and 3. implementing and developing internal controls to safeguard our assets. For details of various types of market risks that we face in our ordinary course of business, see Note 38 of our consolidated financial statements as of and for the years ended December 31, 2011 and 2012 and Note 37 of our consolidated financial statements as of and for the nine months ended September 30, 2012 and 2013, respectively.


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Section 2

Our strengths

We believe that we have strong advantages over our competitors given the following key strengths…


Our strengths

1

Market leader in liquid milk and carton packed RTD tea in Indonesia with strong brand equity and best positioned to capitalize on continued market growth

We are the largest producer of liquid milk products in Indonesia with a 27.5% market share, by volume, in the nine months ended September 30, 2013, and the fourth largest producer of RTD tea in carton pack and Polyethelene terephthalate ("PET") bottles with a 15.6% market share, by volume, in the 12 months ended September 30, 2013, according to PT The Nielsen Company Indonesia ("Nielsen"). Specifically within the liquid milk market, we believe that we pioneered the use of UHT processing in Indonesia, commencing production of UHT milk 38 years ago in 1975. Since then, we have grown to become the largest producer of UHT milk in Indonesia with a 47.1% market share, by volume, in September 2013, according to Nielsen, which is more than double the market share of our nearest competitor in this segment. Similarly, specifically within the RTD tea in carton packs segment, we are the market leader in Indonesia with a 60.6% market share, by volume, in October 2013, according to Nielsen, which is more than double the market share of our nearest competitor in this segment. Furthermore, KUI, our joint venture with Mondelez Nederland Services B.V. ("Mondelez Nederland"), a subsidiary of Mondelez International, Inc. ("Mondelez International"), is the market leader in cheese products in Indonesia, according to data from Nielsen. We expect both the liquid milk segment and RTD tea segment in Indonesia to continue to demonstrate high growth on the back of strong economic and consumer fundamentals. According to the United States Department of Agriculture ("USDA"), rising disposable income and the resulting growth in the middle class will lead to growth in consumption of dairy products as well as a growing consumer awareness of health benefits of milk in Indonesia. In addition to the growth in the dairy segment overall, there has been an increasing consumer preference for liquid milk resulting in significantly faster volume growth than powdered milk. According to Nielsen, the compounded annual growth rate ("CAGR") for the 10 months ended October 31, 2011 to the 10 months ended October 30, 2013 for liquid milk, by volume, was 19.0% compared to 5.3% for powdered milk. Another factor which supports growth in the liquid milk market is the fact that per capita milk consumption in Indonesia is significantly below other countries in Southeast Asia at 12.8 liters per annum in 2013 according to the USDA, which compares to 22.1 liters per annum in the Philippines, 50.9 liters per annum in Malaysia and 33.7 liters per annum in Thailand. Similarly, given its healthy product positioning as compared to other segments such as carbonated soft drinks, the RTD tea segment continues to demonstrate rapid growth. The volume CAGR for RTD tea for the 10 months ended October 2011 to the 10 months ended October 30, 2013, according to Nielsen, was 32.3%.

We are the largest manufacturer of liquid milk in Indonesia

We believe that we have developed strong brand equity with consumers in Indonesia. Our brands and products are positioned as those using fresh ingredients and being of high quality and we believe that this differentiated positioning helps to continue to drive our growth as consumers increasingly become more health conscious. We believe that given our market leading positions in liquid milk products and RTD tea in carton packs in Indonesia, as well as our strong brand equity and unique brand positioning, we are well positioned to capitalize on the continuing strong growth of these segments in the future. PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Our strengths

2

High quality production facility with highly automated processing and strong quality controls

We believe that product quality and safety are among the most important priorities of our customers and are key drivers of brand equity, notably for dairy products. We are focused on consistently providing high quality products and, to this end, our production process is highly automated and we follow global best practices with stringent quality controls across the entire production chain at our production facility in Padalarang, West Bandung. We have never had a quality control incident requiring a recall of any of our products.

We have received the FSSC 22000:2010 certificate for excellence in food safety systems

We aim to minimize the risk of product contamination throughout our production process. For example, for our UHT milk products, from the time when raw milk is received at our production facility to the point where the finished products are delivered to our warehouse, there is minimal human interaction and the process is highly automated. Once we receive the raw milk at our production facility and it has passed quality controls and testing, it is pumped directly from milk trucks into our silos from where it is subsequently pumped into our plant to be filtered, sterilized and pasteurized, and to undergo UHT treatment before then being pumped directly into aseptic tanks prior to filling. We use aseptic milk packaging where our aseptic packaging machine forms, fills and seals our cartons in one continuous operation in a sterile environment to ensure minimal risk of contamination. The aseptic cartons have multiple layers which prevent ultraviolet light, air and bacteria from coming in contact with the milk. This combination of UHT sterilization and aseptic packaging ensures that our products remain fresh for an extended period of time without the use of any preservatives. Once the cartons have been filled and sealed, they are automatically transported using a conveyer belt to be packed and stored in the warehouse. The process of packing and transportation to our warehouse is also automated and we have an automatic storage and retrieval system ("ASRS") in our warehouse. In addition, we have stringent quality controls at each stage of the production process and thorough laboratory tests are conducted across the entire production process to ensure that only the best quality and safest products are delivered to consumers for consumption. For example, raw milk is tested for acceptance and pricing purposes as soon as it is received in milk trucks from our suppliers and samples are then taken from the storage tank before further processing. Samples are also taken during the filling process and from finished products and are tested to ensure that they meet our quality standards. We also retain samples of our finished products, test such samples after production and continue to undertake periodic testing up until the expiry date of each product batch to ensure that our products are safe to be consumed by consumers and retain their quality. Furthermore, our products are traceable and all of our products are tagged with a batch identification number so that each carton can be traced back to the batch of raw milk from where it came in the event that there are any product quality issues. In recognition of our high standards of quality controls, we have received the FSSC 22000:2010 certificate from SGS United Kingdom Limited for excellence in food safety systems and the ISO 14001:2004 certificate from Bureau Veritas Certification for our compliance with their dairy processing and management system standards.


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Our strengths

3

Strong track record of expertise and product development with an established presence across multiple segments

Having started production as a single product UHT milk producer in 1975, we have leveraged on our expertise developed over the years, notably in UHT processing, and successfully expanded our product portfolio into multiple segments. Today we produce, or have interests in the production of, seven different product segments including UHT milk, UHT tea drinks, sweetened condensed milk, UHT health drinks, cheese, powdered milk and UHT fruit juices. We believe our product diversification, which has allowed us to diversify our income streams away from a single product and to generate growth from multiple avenues, has been a result of long-term product development and our expertise as well as our understanding of local consumer trends.

We have expanded our product portfolio both organically and through partnerships. Following our launch of UHT milk under the brand name "Ultra Milk" in 1975, we entered into the UHT fruit juice segment in 1978 through launching the brand "Buavita", which we currently toll manufacture for PT Unilever Indonesia Tbk ("Unilever Indonesia"). We entered into the UHT tea drinks segment in 1979 with the launch of the "Teh Kotak" brand, the UHT health drinks segment in 1985 with the launch of mung bean health drinks under the "Sari Kacang Ijo" brand and the sweetened condensed milk segment in 1994 under our "Cap Sapi" brand. We also gained exposure and expertise in other segments through joint ventures including the cheese segment through our joint venture with Mondelez Nederland, a subsidiary of Mondelez International, as well as the infant formula segment as a result of toll manufacturing of powdered milk for PT Sanghiang Perkasa ("Sanghiang Perkasa"), an affiliate of PT Kalbe Morinaga Indonesia ("Kalbe Morinaga"). Furthermore, in July 2013, we entered into two joint venture agreements with Ito En Asia Pacific Holdings Pte. Ltd. ("Ito En Asia"), an affiliate of Ito En Limited ("Ito En") of Japan to further expand our product portfolio in RTD tea such as RTD green tea in PET bottles (See "Our Strategies"). We believe that our high standards of quality and production, as well as our leading market presence, make us a partner of choice for multinationals looking to enter into the dairy and RTD tea markets in Indonesia.

4

Extensive sales and distribution network across Indonesia allowing for broad distribution of our products

We have a nationwide distribution network in Indonesia with a strong reach within the Greater Jakarta area and other parts of Java, including several major cities such as Bandung and Surabaya, as well as deep coverage of other major islands and regions in Indonesia. We believe that we have differentiated distribution capabilities from some of our competitors in having our own on-the-ground sales and distribution capabilities in Java as well as strong relationships with distributors in other regions.

We have an in-house modern trade team that focuses on sales to modern retailers in Indonesia such as hypermarkets, supermarkets, minimarts and convenience stores. For sales and distribution of our products through traditional retail stores in Java, we use our 70%-owned subsidiary, PT Nikos Distribution Indonesia ("NDI"), which has access to approximately 70,000 points of sale throughout Java, as of September 30, 2013. To support our sales and distribution operations in Java, NDI operates 12 marketing offices and nine supply depots, as of September 30, 2013, which are located in strategic locations in Java. In addition, our distribution system in Java is connected through our own IT system which allows us to monitor daily sales across our distribution network. To broaden our reach to other regions of Indonesia outside of Java, we sell our products through approximately 50 independent distributors, as of September 30, 2013, who are located in the major regional cities. We believe that the use of third party distributors for regions outside of Java expands our reach in a more efficient and cost effective manner, notably for distribution of our products to smaller cities and towns. We believe that our reach across Indonesia provides us with a strong competitive advantage and positions us well for future growth. PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Our strengths

5

Collaborative relationship with local dairy farmers providing a consistent supply of high quality raw milk

Given our focus on UHT milk, which requires a higher quality of raw milk as compared to powdered milk, as well as our brand being positioned as being fresh and of high quality, we place significant emphasis on improving the quality of supply of raw milk. In this regard, we believe that we have devised a collaborative approach in working together with local dairy farmers' cooperatives and farmers who supply us with our raw milk so as to ensure a high and consistent quality of raw milk for our use.

Our subsidiary, UPBS, a 75%-owned joint venture with KPBS, operates a model dairy farm with a total herd of approximately 2,900 dairy cows, comprising approximately 1,400 producing dairy cows as of September 30, 2013. At the UPBS model dairy farm, 69 farmers individually own approximately 15 cows each and the remaining herd is owned by UPBS as of September 30, 2013. The farm is managed by a professional who has significant experience in operating dairy farms. The entire milk output of UPBS is sold exclusively to us. As well as supplying high quality raw milk to meet our needs, UPBS also operates as a model dairy farm for the member farmers of KPBS and other dairy farmers' cooperatives in the area. Through UPBS, we also provide guidance, education, technical and managerial training and financing programs to local dairy farmers who collectively comprise the majority of the supply of our raw milk. Our approach not only supplies a higher quality and greater supply of raw milk from the model dairy farm operated by UPBS, but also from other local dairy farms as well given the improved farming methods of local dairy farmers.

Through UPBS, we provide guidance, education, technical and managerial training and financing programs to local dairy farmers Dairy Farmers' Cooperatives – majority of raw milk supply



Secure, stable and long-term supply



Access to high quality raw milk



Cooperative arrangement

Model Dairy Farm – at least 25% of raw milk supply

 Improved dairy farming methods  Higher quality raw milk and higher output level  Replication of best practice and improvement of product quality at large scale


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Our strengths

6

Highly experienced management team

We have a highly experienced senior management team that has led us to become a market leader in our key product segments today, with significant expertise in dairy and other consumer products. Our Board of Directors has combined experience with us of over 100 years. Our President Director, Sabana Prawirawidjaja, is our founder and has been in his current position since 1971. His son, Samudera Prawirawidjaja, has been one of our directors for over 20 years, having been with us since 1989. Our Board of Directors also comprises of Jutianto Isnandar, who joined us in 1974 as production manager and became our director in 1996. Our senior management team also has significant experience in their relevant functions and also within the consumer products sector and include:

• Rob Nieuwendijk, our Chief Financial Officer who has been with us since 2011 and previously had senior

management positions at leading dairy companies such as Royal FrieslandCampina NV and Royal Numico NV;

• Siska Suryaman, our Head of Marketing, has over 14 years of experience in marketing and previously was a brand marketing manager for PT Mead Johnson Indonesia;

• Azwar M Muhthasawwar, our Plant Manager, has over 10 years of experience with us. He has previously held positions at PT Frisian Flag Indonesia and PT Heinz Suprama;

• Flemming Lindekilde Schmidt, our Engineering and Project Manager, is responsible for investments in new machinery and equipment. He has over 35 years of experience in industrial installations and has held positions at Monberg & Thorsen A/S in Denmark and Saudi Arabia, and Danish Turnkey Dairies in Singapore; and

• Henry Khor, General Manager Supply Chain, has been with us since 2008 and previously held positions at Toll Asia Logistics and Cold Storage Chain.


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Section 3

Our business


Our business Overview We are the largest producer of liquid milk products in Indonesia and the fourth largest producer of RTD tea in carton packs and PET bottles, according to Nielsen, with a 27.5% market share, by volume, in liquid milk products (which includes UHT milk and sterilized milk) in the nine months ended September 30, 2013 and 15.6% market share, by volume, in RTD tea in carton packs and PET bottles in the 12 months ended September 30, 2013. We have been using UHT processing for our products since 1975 and we believe that we pioneered the use of UHT processing and technical aseptic packaging in the Indonesian beverage industry. As a result of our early adoption of UHT technology, we have achieved a 47.1% market share, by volume, in September 2013 in the UHT milk category, according to Nielsen. We are also the market leader in RTD tea in carton pack with a 60.6% market share, by volume, in October 2013, according to Nielsen. We have produced and packaged UHT milk products under the brand name "Ultra Milk" since 1975, UHT tea drinks sold in carton packs under the brand name "Teh Kotak" since 1979 and a range of health drinks such as mung bean drinks under the brand name "Sari Kacang Ijo" since 1985. We also produce and package sweetened condensed milk under our "Cap Sapi" brand. We believe our products have a strong reputation for their quality and taste as evidenced by their leading market share, by volume, in the UHT milk and the cartonpacked RTD tea segments. We have received numerous awards in recent years which recognize the strength of our brands, including the "Top Brand" award in 2012. In addition, we partner with companies which we believe are market leaders in their fields. As part of our toll manufacturing services, we produce and package UHT fruit juice beverages under the "Buavita" brand for Unilever Indonesia and nutritional powdered milk for Sanghiang Perkasa, an affiliate of Kalbe Morinaga. Further, in 1981, we were appointed as the exclusive manufacturer and marketer of "Kraft" brand cheese products in Indonesia and subsequently, in 1994, formed a joint venture company with Mondelez Nederland, a subsidiary of Mondelez International. In 2013, we formed two joint venture companies with Ito En Asia, an affiliate of Ito En, a leading Japanese manufacturer of green tea products, each for the production and distribution of RTD green tea products in Indonesia. Our UHT milk production process is vertically integrated. We believe the dairy farm operated by our subsidiary, UPBS and our long standing relationship with local dairy farmers and various dairy farmers' cooperatives, including KPBS, provide us with a reliable source of high quality raw milk supplies. We work closely with local dairy farmers to improve the quality of raw milk by providing such farmers training related to dairy farming best practices. Providing products of the highest standards of quality and safety is a priority for us and we believe that this is a key driver of brand equity and gaining trust of consumers. To this end, our production and packaging facility in Padalarang, West Bandung, in West Java is highly automated and equipped with state-of-the-art machinery involving minimal human intervention. We adhere to global best practices and apply stringent quality control processes and standards and have received the FSSC 22000:2010 certificate from SGS United Kingdom Limited for excellence as a result of our high standards of quality control and the ISO 14001:2004 certificate from Bureau Veritas Certification for compliance with their dairy processing and management system standards. Furthermore, since 1995, our facility at Padalarang, West Bandung, has been equipped with an ASRS which allows us to reduce labor for transporting items into and out of inventory by using robotic palletizers and automated guided vehicles ("AGVs"). We have a dedicated research and development team that aims to improve the efficiency of our production process and expand our product offering by focusing on product development to cater to evolving consumer tastes.


25

Our business Overview (continued) We sell our products through various channels, including modern retailers (which consist primarily of supermarkets, hypermarkets, minimarts and convenience stores), traditional retailers (which consist primarily of small independent retailers) and wholesalers, as well as to various institutional clients in Indonesia. Within Java, we sell directly to modern retailers and use the distribution network of our 70%-owned subsidiary, NDI, to sell our products mainly to traditional retailers and wholesalers totaling approximately 70,000 points of sale, as of September 30, 2013. Outside Java, we sell our products to consumers through approximately 50 distributors spread across Indonesia, as of September 30, 2013. We also export our products to various countries including Australia, Cambodia, Micronesia, Nigeria, Saudi Arabia, South Korea and the United States. We plan to increase our level of sales efficiency through our distribution network by investing in IT and technology to increase the level of sales automation. For example, we introduced an Oracle ERP system in 2012 to replace our then existing SAP ERP system which we had used for a decade. We have developed a proprietary IT connectivity system which we apply group-wide and which is linked to our Oracle ERP system to allow us to monitor daily sales across our distribution network in Java. This IT system connectivity allows us to have visibility over our inventory throughout our distribution network. In 2011 and 2012, our net sales were Rp.2,102.4 billion and Rp.2,809.9 billion, respectively, and our total net income attributable to the owners of the Company increased from Rp.128.4 billion to Rp.353.0 billion, respectively. For the nine months ended September 30, 2012 and 2013, our net sales increased from Rp.2,064.4 billion to Rp.2,529.6 billion and our total net income attributable to the owners of the Company increased from Rp.253.0 billion to Rp.278.3 billion, respectively.

History A brief history and milestones of our business and operations are set out below: 1975:

Our production facility in Padalarang, West Bandung, in West Java started commercial production of UHT milk products under the brand name "Ultra Milk"

1978:

We commenced production of UHT fruit juices under the brand name "Buavita"

1979:

We commenced production of UHT tea drinks under the brand name "Teh Kotak"

1981:

We were appointed as the exclusive manufacturer and marketer of "Kraft" brand cheese products in Indonesia

1985

We commenced production of UHT mung bean health drinks under the brand name "Sari Kacang Ijo"

1990:

Initial public offering of shares in July 1990

1994:

We formed KUI, a joint venture company with Mondelez Nederland, a subsidiary of Mondelez International, pursuant to a joint venture agreement with Kraft General Foods International Inc (currently known as Mondelez International) in 1993, for the purpose of producing and marketing "Kraft" cheese products in Indonesia

1994:

We commenced production of sweetened condensed milk

1995:

We commenced toll manufacturing-based production of powdered milk for Sanghiang Perkasa

1995:

We commenced production of UHT milk targeted at growing children and teens under the brand name "Ultra Mimi"

2005:

We entered into a joint venture agreement with Toll Holdings Limited ("Toll Holdings") for the warehousing and distribution of our products in Java


26

Our business History (continued) 2008:

We incorporated UPBS, a joint venture to operate a model dairy farm

2008:

We sold the trademarks of "Buavita" and "Go-Go" to Unilever Indonesia and entered into an agreement to manufacture and package "Buavita" on a toll manufacturing basis for Unilever Indonesia

2013:

We incorporated two joint venture companies, each relating to the production and distribution of RTD green tea products in PET bottles, with Ito En Asia, an affiliate of Ito En, a leading Japanese manufacturer of green tea products

Our Products and Services Our business comprises three product segments: (i) dairy, (ii) UHT tea and health drinks and (iii) others. In our dairy product segment, we produce and package UHT milk under the "Ultra Milk" brand and sweetened condensed milk under the "Cap Sapi" brand. In our UHT tea and health drinks segment, our primary product is UHT tea drinks under the "Teh Kotak" brand and we also produce and package tamarind fruit health drinks under the "Sari Asem Asli" brand and mung bean health drinks under the "Sari Kacang Ijo" brand, all of which are processed through UHT treatment. Our other segment sales comprises export sales and revenue from toll manufacturing services and exports. We export our products to Australia, Cambodia, Micronesia, Nigeria, Saudi Arabia, South Korea and the United States. As part of our toll manufacturing services we manufacture and package "Buavita" UHT fruit juice beverage for Unilever Indonesia and powdered milk for Sanghiang Perkasa. We process our liquid milk products, tea and health drinks using a UHT treatment to achieve commercial sterilization, under which a beverage is heated up to 140˚C for three to four seconds for UHT milk and 120˚C for three to four seconds for UHT tea and health drinks, to kill all micro-organisms. This process ensures minimal loss of nutritional value, freshness and aroma of our UHT products. "Buavita" fruit juice beverages which we produce and package on a toll manufacturing basis also undergo UHT treatment at our production facility. All UHT beverages are then packaged in aseptic packaging, which protects such beverages from bacteria and ultra violet light and extends their shelf life. The following table sets forth a breakdown of our net sales by product segments for the periods indicated. Year ended December 31, 2011 2012 Dairy(1) UHT Tea and Health Drinks Others(2) Total

1,316.4 571.4 214.6 2,102.4

(Rp. in billions) 1,785.7 755.1 269.1 2,809.9

Nine Months ended September 30, 2012 2013 1,307.5 570.1 186.8 2,064.4

1,575.9 693.5 260.1 2,529.5

(1) Dairy includes net sales of UHT milk and sweetened condensed milk. (2) Others includes net sales from exports and from toll manufacturing services for the production and packaging of UHT fruit juice beverage for Unilever Indonesia and powdered milk for Sanghiang Perkasa.


27

Our business Overview of our Dairy Products In our dairy product segment, we produce and package UHT milk under the "Ultra Milk" brand and sweetened condensed milk under the "Cap Sapi" brand. Net sales of our dairy products increased by 35.7% in 2012 as compared to 2011 and 20.5% in the nine months ended September 30, 2013 as compared to the same period in the prior year. Our dairy products sales volume was 118.2 million liters in 2011, 152.8 million liters in 2012 and 132.4 million liters in the nine months ended September 30, 2013.

UHT Milk We are the largest producer of UHT milk products in Indonesia, with a market share of 47.1%, by volume, in September 2013, and a 27.5% market share, by volume, in the liquid milk category (which includes UHT milk and sterilized milk) in the nine months ended September 30, 2013, according to Nielsen. We produce a variety of UHT milk products to target different customer segments. Our primary product is our UHT milk product under the "Ultra Milk" brand. We also produce other UHT milk variants to target different customer groups. Our UHT milk products are sold in packaging ranging from 125 ml to 1 liter carton packs and retail in single packs and cases ranging from 12 to 40 packs. Our UHT milk products retain their freshness at room temperature for a period of up to 10 months. The table below sets forth our UHT milk products: Logos

(1)

Ultra Milk

Brand

Plain

Flavors

Target Markets Adults, young children(1)

[•]

Ultra Milk Rasa

Chocolate, Strawberry, Mocha

Flavored milk for adults, young children

[•]

Low Fat Hi Cal

Plain, Chocolate

Health conscious customers

Ultra Mimi

Plain, Chocolate, Strawberry, Vanilla

Growing children, teens

As part of routine product rationalization, we plan to also sell "Ultra Milk" branded UHT milk marked "not for resale" to certain institutional clients, to replace our "Susu Sehat" milk brand which we currently sell primarily to institutional clients.


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Our business Sweetened Condensed Milk We produce sweetened condensed milk under our "Cap Sapi" brand, which is targeted for consumption as a dairy creamer and for baking purposes. Our sweetened condensed milk products are sold in 388 gram tin packaging.

Overview of our UHT Tea and Health Drinks Under our UHT tea and health drinks segment, we produce and package UHT tea drinks under the "Teh Kotak" brand and we also produce and package tamarind fruit health drinks under the "Sari Asem Asli" brand and mung bean health drinks under the "Sari Kacang Ijo" brand. Our UHT tea and health drinks net sales grew at a CAGR of 30.9% over the two-year period ended December 31, 2012. Our UHT tea and health drinks sales volume was 91.2 million liters in 2011, 115.1 million liters in 2012 and 102.6 million liters in the nine months ended September 30, 2013.

UHT Tea Drinks Our UHT tea drinks are sold in carton packs under our "Teh Kotak" brand. We achieved a market share of 60.6%, by volume, in the carton-packed RTD tea category in October 2013 and were the fourth largest, by volume, in the combined carton-packed and PET bottled RTD tea category with a market share of 15.6%, by volume, for the 12 months ended September 30, 2013, according to Nielsen. We produce six flavors of UHT tea drinks. Our primary UHT tea drink comes in jasmine flavor and is sold in carton packs under the "Teh Kotak" brand. "Teh Kotak" means 'tea in a box' in Bahasa Indonesia. Our flavored UHT tea drinks are sold under the "Teh Kotak Rasa" brand in apple, blackcurrant, guava and strawberry flavors. In 2013, we launched "Teh Kotak Less Sugar" which has reduced sugar content compared to our "Teh Kotak" branded UHT tea drink and is targeted at our health conscious customers. We also produce chrysanthemum flavored tea under the "Teh Bunga" brand. Our UHT tea drinks are sold in packaging ranging from 200 ml to 500 ml carton packs. Our UHT tea drinks retain their freshness at room temperature for a period of up to 12 months. We intend to expand our UHT tea drinks offering by introducing RTD green tea products in PET bottles pursuant to our two joint venture agreements with Ito En Asia, an affiliate of Ito En, a leading Japanese manufacturer of green tea products. For details, see "— Joint Ventures — Ito En Joint Ventures".

UHT Health Drinks We also produce tamarind fruit health drinks under the "Sari Asem Asli" brand and mung bean health drinks under the "Sari Kacang Ijo" brand. Our health drink products are sold in packaging ranging from 200 ml to 250 ml carton packs and retail in single packs and cases of 24 packs. Our tamarind fruit and mung bean drinks retain their freshness at room temperature for a period of up to 12 months and 10 months, respectively.


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Our business Overview of our Other Segment We export certain of our products which we sell under our own brands and, as part of our toll manufacturing services, manufacture and package UHT fruit juice under the "Buavita" brand for Unilever Indonesia and powdered milk under various brands for Sanghiang Perkasa.

Export Sales We export our products to several countries, including Australia, Cambodia, Micronesia, Nigeria, Saudi Arabia, South Korea and the United States through eleven agents located outside Indonesia.

Toll Manufacturing Agreement with Unilever Indonesia On September 6, 2007, we entered into an agreement with Unilever Indonesia pursuant to which we agreed to produce and package UHT fruit juices for Unilever Indonesia, on a toll manufacturing basis. We currently produce UHT fruit juices under the "Buavita" brand for Unilever Indonesia. This agreement was last amended on April 8, 2013 and is valid until January 2018 and may be terminated by either party by 12 months prior written notice. Further, each party is entitled to terminate the agreement if certain events occur, including (i) the takeover of us by certain specified competitors of Unilever Indonesia, (ii) if a party commits a breach of the terms of the toll manufacturing agreement and fails to remedy such breach within a certain period of time or (iii) upon the insolvency, dissolution or bankruptcy of either party. The agreement specifies quality control standards which are required to be followed by us. If we fail to meet these quality control standards, we would be required to return, repair or destroy any defaulting products at our own cost.

Toll Manufacturing Agreement with Sanghiang Perkasa On November 13, 2000, we entered into a toll manufacturing agreement with Sanghiang Perkasa pursuant to which we agreed to produce and package infant formula powdered milk. Sanghiang Perkasa is the nutritional and health foods division of PT Kalbe Farma Tbk, a leading Indonesian pharmaceutical and foods company, and operates under its trade name, "Kalbe Nutritionals". Sanghiang Perkasa is licensed by Morinaga Milk Industry Co., Ltd. ("Morinaga") to produce, sell and distribute Morinaga's infant and follow-on powdered milk formula in Indonesia. Powdered milk produced pursuant to this agreement includes the "Chil Mil", "Chil Kid Growing Up", "Morinaga BMT", "NL-33" and "Entrasol" brands, which trademarks are owned by Morinaga. This agreement is currently valid until terminated by either party after providing 12 months written notice. This toll manufacturing agreement may be terminated by either party with 90-day prior written notice in certain events, including (i) the termination of Sanghiang Perkasa's license to produce, sell and distribute Morinaga products, (ii) if a party commits a breach of the terms of the agreement and fails to remedy such breach within a certain period of time or (iii) upon the insolvency, dissolution or bankruptcy of either party. The agreement specifies certain quality control standards which are required to be followed by us. If we fail to meet these quality control standards, Sanghiang Perkasa has the right to demand for the destruction, improvement or re-packing of the products.


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Our business Sales and Distribution Network We sell our products through various channels, including modern retailers (which consist primarily of supermarkets, hypermarkets, minimarts and convenience stores), traditional retailers (which consist primarily of small independent retailers) and wholesalers, as well as to certain institutional clients in Indonesia. Within Java, we leverage the distribution network of our 70%-owned subsidiary, NDI, to sell our products primarily to traditional retailers and wholesalers totaling approximately 70,000 points of sale, as of September 30, 2013. NDI operates 12 marketing offices and nine supply depots as of September 30, 2013 which are located in strategic locations across Java. We sell our products to modern retailers in Indonesia through our dedicated marketing office located in Jakarta. We exclusively lease two warehouses located in Jakarta and Surabaya which are operated by our joint venture company, Toll Indonesia. For details, see "— Joint Ventures". We plan to start building a new distribution center in Greater Jakarta in 2014 to help enhance our distribution efficiency. In addition, we operate a group-wide IT connectivity system which allows us to monitor daily sales across our distribution network in Java. For details, see "— Inventory Management". Outside Java, we sell our products in Indonesia to independent distributors who are located in major regional cities. As of September 30, 2013, we have entered into distribution agreements with approximately 50 distributors outside Java. These agreements are typically for a two-year period and are automatically extended at the end of each term, unless either party gives three months written notice of its intention not to extend. The distributors are permitted to sell our products in their designated territories under the terms of the respective distribution agreements. In addition, we require our distributors to provide an irrevocable bank guarantee from specified banks in the amount of at least such distributor's 45 days purchases based on the preceding three months average daily purchases which we can exercise after a specified grace period for payments not received in a timely manner by us.

Production Process We own and operate a highly automated production facility for the production and packaging of our products, including products sold to third party customers pursuant to toll manufacturing agreements, at Padalarang, West Bandung, in West Java. We adhere to global best practices and apply stringent quality control processes and standards. We have received the FSSC 22000:2010 certificate, which is valid between September 17, 2012 and September 17, 2015, from SGS United Kingdom Limited for excellence in recognition of our high standards of quality control. In addition, we have received the ISO 14001:2004 certificate from Bureau Veritas Certification for our compliance with their dairy processing and management system standards, which is valid between September 24, 2012 and September 23, 2015. Our production process is conducted in a sterile production line involving minimal human intervention. Our highly automated production line ensures high levels of production efficiency and standardization of our products. We have never had a quality control incident requiring recall of any of our products.


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Our business UHT Beverages All of our beverages are processed through UHT treatment and an integrated aseptic packaging system using machinery and know-how purchased from Tetra Pak and SIG Combibloc.

UHT Milk The following diagram describes the major processing steps involved in the processing and packaging of our UHT milk products. UHT MILK PROCESSING AND PACKAGING Milk Delivery

Milk Processing

Packaging

Raw milk delivery by third parties

Standardization

Aseptic Packaging

Pasteurization/ Homogenization

Attaching straws to milk package

Intermediate Storage

Packing into boxes

UHT Treatment

Warehouse storage

Aseptic Storage

Distribution

Milk reception and Quality Control

Clarification, Pasteurization and Storing

The first step of milk processing is the inspection of raw milk once it is delivered to our production facility. We first conduct a physical check of the seal of each delivery truck for signs of tampering. A milk sample is then taken for testing to ensure that the raw milk meets our quality standards before it is processed. Once the raw milk has passed quality controls, it is pumped directly from milk trucks into our silos to be filtered. The raw milk is then clarified, whereby any physical impurities are separated by centrifugal force and discarded to ensure the raw milk is clean. Clarified milk is then pasteurized at the milk reception plant, cooled and stored in silo tanks. At the next stage, pasteurized milk is pumped into our production facility for processing. Skimmed milk powder may be added in a small amount at this stage to maintain consistency in nutritional content of our products. Flavorings may also be mixed in at this stage according to our specific recipes. The formulated product is then homogenized, a process whereby milk fat globules are broken up and dispersed throughout the liquid, resulting in a smooth and uniform texture. The milk is then pasteurized by heating up to 85˚C for a few seconds in order to kill pathogenic micro-organisms.


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Our business UHT Milk (continued) The formulated and pasteurized product is then stored in intermediate storage tanks, pending a quality control check and before being released for UHT processing. At the UHT processing stage, the milk is heated up to 140˚C for three to four seconds, to kill all micro-organisms while preserving the nutritional value, freshness and aroma. The UHT product is stored in aseptic storage tanks before filling into aseptic packaging. The aseptic filling enables filling of the UHT product into sterile packaging, called 'bricks', at an ambient temperature, providing extended shelf life up to one year of milk based UHT product. The filling line also applies a screw cap on the brick top or glues drinking straws on the brick side, optional film wrapping and outer carton packing. The bricks sizes vary from 125 ml to 1 liter, and cartons typically holds around 6 liters of products and vary from aggregate weight of 4.8 to 12 liters depending on the brick type. The cartons are mechanically palletized and remain on automated conveying systems and AGVs while being transported to the warehouse. The finished product is stored in the warehouse and quarantined for at least five days for incubation. After the incubation period, our quality control unit releases the product for sale, provided the product has passed tests for physical and chemical standards and the absence of micro-organisms.

UHT Tea Drinks The following diagram describes the major processing steps involved in the processing and packaging of our UHT tea drinks. UHT TEA DRINK PROCESSING AND PACKAGING

Tea Delivery

Tea leaves delivery

Tea Processing

Packaging

Tea leaves inspection

Aseptic packaging

Infusion

Attaching straws to package

Storing

Packing into boxes Filtering Warehouse storage

UHT treatment


Distribution

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Our business UHT Tea Drinks (cont'd) The production of our UHT tea drink commences when black and green tea leaves procured from third parties reach our production facility. A sample is taken for inspection and testing to ensure that the tea leaves meet our applicable quality standards before they are processed in a highly automated and hygienic process. Tea leaves are immersed in water at a specified temperature to brew so as to extract the active and soluble substances of the tea leaves which result in the taste and aroma of the beverage. After infusion, coarse, insoluble substances that have a negative impact on the appearance of the beverage are removed through a separation process by means of filtration. Ingredients including sugar and flavorings are then mixed according to a specific recipe. Filtered tea is then UHT processed and filled into aseptic packaging in the same manner as for our UHT milk products.

Sweetened Condensed Milk The following diagram describes the major processing steps involved in processing sweetened condensed milk products. SWEETENED CONDENSED MILK PROCESSING AND PACKAGING Milk Processing

Packaging

Pasteurized milk inspection

Packaging

Mixing and Homogenization

Packing into boxes

Pasteurization and clarification

Warehouse storage

Evaporation

Distribution

Crystallization

The production of sweetened condensed milk involves the same process as UHT milk up to the point of homogenization. The milk is then pasteurized by heating up to 85˚C for up to three to four seconds in order to kill pathogenic micro-organisms. As water evaporates from the mixture, the mixture reaches a specific density standard as prescribed by our product specifications. Next, the process of crystallization takes place, in which lactose is seeded into the mixture in order to finely distribute and control the amount of sugar in the mixture, which gives the sweetened condensed milk its smooth texture. The product is then filled into tin cans which were pre-sterilized through gas flaming, in a hygienic environment to avoid any cross contamination. The product is stored in our warehouse and quarantined for at least three days while samples are tested, and is distributed only after testing results confirm that the product complies with applicable quality standards. PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Our business Powdered Milk The following diagram describes the major processing steps involved in producing powdered milk. POWDERED MILK PROCESSING AND PACKAGING Milk Processing

Packaging

Pasteurized milk inspection

Packing into bags

Mixing and Homogenization

Warehouse storage

Pasteurization, spray drying and evaporation

Distribution

The production of powdered milk involves the same process as UHT milk up to the point of homogenization. The formulated milk is then spray-dried to evaporation in a drying tower until milk powder containing approximately 85.0% of protein is isolated. The spray-drying process pasteurizes the milk by killing all pathogenic micro-organisms. Isolated milk powder is then collected and after passing quality control inspections is released for packaging as finished product. The finished product is stored in our warehouse and quarantined for at least five days and then tested to ensure that there is no contamination of pathogenic micro-organisms prior to distribution. Packaging is mainly in 25 kg bags, which are filled directly from the drying tower, with our quality control personnel monitoring the on-line filling process. Our current powdered milk production capability comprises wet-mix dry ingredient addition and one multi-stage drier.

Our Aseptic Packaging Technology We apply a highly automated aseptic packaging and distribution line system which is fully integrated with our production line. Aseptic packaging allows our beverages to be stored for extended periods of time without refrigeration which increases the shelf life of our products and eliminates the risk of contamination. Our aseptic carton processing, packaging, distribution line and plant know-how and technologies are procured through multi-year aseptic carton supply and service contracts with Tetra Pak and SIG Combibloc. We procure aseptic cartons in the form of sleeves or rolls specifically designed to be used with each supplier's aseptic filling machines. The packaging materials are printed by Tetra Pak and SIG Combibloc according to our product graphic design and labeling. Our aseptic filling machines can only use aseptic carton materials provided by the supplier of such machines to produce and fill carton packaging. We use technologically advanced filling machines which can be reconfigured for numerous different package formats, which provide flexibility in our production processes.


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Our business Machinery Maintenance We have implemented a system for the maintenance of our production equipment and facility. Our packaging machines undergo regular weekly maintenance and cleaning. We also undertake monthly preventive maintenance for all of our machinery. Further, packaging machinery is subjected to servicing after completing 3,000 hours of operation, which requires approximately three to five days of downtime. We have not experienced any material or prolonged stoppages of our facility due to equipment failure.

Raw Materials and Suppliers Our primary raw materials are raw milk for our production of UHT milk and other milk products, black and green tea leaves for our UHT tea drinks, sugar, packaging materials and skimmed milk powder. Expenses relating to purchases of raw materials represented 56.6%, 56.0% and 58.3% of net sales in 2011, 2012 and the nine months ended September 30, 2013, respectively.

Raw Milk As of September 30, 2013, we procured raw milk from 11 dairy farmers' cooperatives and various local dairy farmers. At least 25% of our raw milk supply is procured from the model dairy farm operated by our subsidiary, UPBS. To ensure freshness and maintain high quality standards, fresh raw milk undergoes quality control tests at milk collection centers operated by dairy farmers' cooperatives and after delivery at our production facility. For details of our quality controls procedures over raw milk, see "— Quality Control and Performance Management — Quality Control Over Raw Milk". Only milk that meets our quality standards is accepted and processed further. To improve the quality of fresh raw milk we have a dedicated team to provide training related to dairy farming best practices to farmers in the 11 dairy farmers' cooperatives. We also provide assistance to dairy farmers' cooperatives in procuring cooling and storage facilities. In addition, we also monitor the quality of feed provided at the dairy farms operated by our subsidiary, UPBS, as well as at KPBS. Expenses relating to the purchase of raw milk represented 14.9%, 12.3% and 9.0% of our cost of goods sold in 2011, 2012 and the nine months ended September 30, 2013, respectively. We have not entered into formal supply agreements with any of our raw milk suppliers. However, we provide informal purchase commitments as long as their products meet our specifications. Under our current customary arrangement, the pricing of raw milk we purchase is determined by a formula which is calculated with reference to a base price with upward or downward adjustments depending on the quality of each batch of raw milk received at our production facility. The base price of our raw milk purchases is determined in accordance with the prices which other dairy product producers offer to purchase raw milk from dairy farmers in West Java. We typically pay for raw milk deliveries on a weekly basis.


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Our business PT Ultra Peternakan Bandung Selatan We have sourced at least 25% of our raw milk requirements from UPBS since its incorporation in February 2008. UPBS was incorporated as a joint venture with KPBS to operate a model dairy farm for the member farmers of KPBS and other dairy farmers' cooperatives located in and around Padalarang, West Bandung. We chose Pangalengan as the site of our dairy farm for its strategic location as a center of dairy production and its proximity to our production facility in Padalarang, West Bandung. We own a 75% equity interest in UPBS and the remaining 25% equity interest is owned by KPBS. We are the exclusive purchaser of raw milk from the UPBS dairy farm. The following table sets forth the approximate number of employees, dairy cows and total herd of UPBS as of the dates indicated. Nine months ended September 30,

Year ended December 31, 2011 Employees Producing dairy cows(1) Total herd(2)

2012 50 1,500 3,100

2013 60 1,600 3,000

70 1,400 2,900

(1)

Producing dairy cows includes producing dairy cows which are owned by local dairy farmers but are housed at the dairy farm operated by UPBS.

(2)

Total herd includes dairy cows and immature dairy cows which are too young to produce milk. Total herd includes the herd which are owned by local dairy farmers but are housed at the dairy farm operated by UPBS.

At the model dairy farm, as of September 30, 2013, 69 individual farmers owns approximately 15 cows each and the remaining herd is owned by UPBS. The farmers have access to the UPBS dairy farm and leave their cows at the premises of UPBS for housing, grazing, milking and vaccination. UPBS charges a fee for providing these services. We also provide some financial assistance to these farmers for initial purchase of their cows. For more information about our model dairy farm program, see "— Corporate Social Responsibility and Community Development".

Other Raw Milk Suppliers As of September 30, 2013, we also procure raw milk from 11 dairy farmers' cooperatives, including KPBS, and various local dairy farmers. Such local dairy farmers' cooperatives collect raw milk from individual dairy farmers and dairy farms in their vicinity.

Packaging Materials We obtain packaging materials and aseptic filling machines, aseptic cartons, spouts, caps, straws and manufacturing and technical know-how pursuant to multi-year supply and service contracts with Tetra Pak and SIG Combibloc. We believe our long standing relationships with Tetra Pak, which began in 1975, and SIG Combibloc, which began in 2001, give us secure sources of packaging materials and allow us to procure the best available technologies and services from them. We have not experienced any material shortage in


37

Our business Packaging Materials (continued) equipment or materials supplied by Tetra Pak and SIG Combibloc. Expenses relating to the purchase of packaging materials was Rp.491.9 billion, Rp.635.5 billion and Rp.568.8 billion, which represented 33.5%, 33.5% and 32.1% of our cost of goods sold in 2011, 2012 and the nine months ended September 30, 2013, respectively. Our payments to Tetra Pak and SIG Combibloc are made in U.S. dollars. On January 1, 2011, we entered into a packaging material supply agreement with Tetra Pak pursuant to which Tetra Pak agreed to supply carton packaging materials to be used for certain of our UHT beverage products. The agreement is valid for an initial period of one year and will automatically renew for additional one-year terms of each subsequent calendar year unless terminated by us after giving 30 days written notice or by Tetra Pak after giving 60 days written notice. On March 22, 2013, we entered into a supply agreement with SIG Combibloc pursuant to which SIG Combibloc agrees to supply carton packaging materials to be used for certain of our UHT beverage products at the selling price applicable upon the time of order. This supply agreement is valid until terminated by either party.

Others Raw Materials We purchase black and green tea leaves in dried form on a spot basis from various local Indonesian companies. We procure refined sugar from local Indonesian sugar refineries pursuant to short term contracts, which payments are typically made in U.S. dollars. Skimmed milk powder is a traded commodity which we purchase on a spot basis from various commodity brokers whom we typically pay in U.S. dollars. Other raw materials that we use in our products include flavorings and other additives, vitamin and mineral supplements and chocolate. These raw materials are generally available from numerous suppliers. We also use water as a raw material. Our operations have not experienced any material water shortages.

Inventory Management We monitor and control our inventory levels of finished products to optimize our operations. We have a fully computerized ASRS at our Padalarang, West Bandung, facility involving robotic packing machinery and AGVs. At the completion of the aseptic packaging line, each individual finished product is transported on a conveyor belt to be packed into large cardboard boxes, palletized and wrapped with a weather-proof stretch film in a continuous process using automated packing machinery. The pallets are then transported from the conveyor belt onto AGVs for storage at our warehouse. We believe that ASRS allows us to reduce labor for transporting items into and out of inventory, which has improved our operational efficiency and resulted in more accurate tracking of inventory. Our finished products are typically stored for an average period of five to seven days and up to a maximum of 17 days, before dispatch for distribution. During product dispatch, an AGV is prompted to retrieve the relevant pallet and load it onto the designated delivery truck. We distribute finished products on a first-in-first-out basis to ensure our products' freshness. We operate a group-wide IT connectivity system which allows us to monitor daily sales across our distribution network in Java, which allows us to track inventory movements, trades receivable and payable settlements and purchase orders on a daily basis. This allows us to have visibility over our inventory throughout our distribution network in Java. We plan to also achieve IT connectivity with all of our distributors outside Java in the future. PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Our business Quality Control and Performance Management We place great emphasis on quality control and have installed and implemented strict monitoring and quality control systems to manage our operations. We operate a highly automated production process involving minimal human intervention and follow global best practices with stringent quality controls across our entire production chain which minimizes the risk of product contamination. Since our establishment, we have never been required to recall any of our products. We operate a quality control department which closely monitors our production process. The head of our central quality control department and most of the supervisors of the quality control teams at our farm have extensive quality control related experience and relevant working experience at large dairy products producers.

Quality Control Over Raw Milk To ensure the freshness and maintain high quality standards of our raw milk, fresh raw milk undergoes quality control tests at multiple stages of the production process. Every shipment of raw milk is tested at the milk collection centers operated by dairy farmers' cooperatives and UPBS. Only raw milk which meets prescribed standards is sent to our production facility, which is done using refrigerated tanks to maintain freshness of such raw milk. After raw milk is delivered to our production facility, it is subjected to rigorous product quality tests (including temperature and protein, fat and mineral content) at our laboratory to ensure that the quality of our end product would not be compromised. In the event that the raw milk does not meet applicable quality standards once it is received by us, we reject and send the shipment back to the relevant dairy farmers' cooperatives or local dairy farms. We also monitor the quality of feed provided at the dairy farms operated by our subsidiary, UPBS, and KPBS.

Quality Control During Production Process Generally, we perform quality control tests at different stages of the production process, including several quality inspection and testing procedures, such as sensory testing, physico-chemical index valuation and total bacterial count testing to ensure that our products comply with all applicable laws and regulations. We do not add any additives or chemical substances, including melamine and hormone substances, to our raw milk to increase its fat or protein content. In addition, we closely monitor our production lines and regularly conduct inspections and testing on the packaging materials before and after the packaging process is completed. Samples are taken during the filling process and from finished products and are tested to ensure that they meet our quality standards. We also retain samples of our finished products and test such samples after production and continue to undertake periodic testing up until the expiry date of each product batch to ensure that our products are safe to be consumed by consumers and retain their quality. Each product and product batch is electronically tagged at the end of the production line, which gives us the ability to track our products even after they leave our distribution network as well as trace each batch of product back to the date of production and the source of the raw milk used. Our production facility has been certified by the Foundation of Food Safety Certification, awarded a 22000:2010 certificate from SGS United Kingdom Limited for excellence in food safety system and the ISO 14001:2004 certificate from Bureau Veritas Certification for our compliance with their dairy processing and management system standards. PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Our business Quality Control in Toll Manufacturing Services Each of our toll manufacturing contracts with Unilever Indonesia and Sanghiang Perkasa specify quality control procedures and standards and product specifications which we must follow. We are required to test all raw materials including ingredients and packaging materials to be used in the processing of toll manufactured products. Samples of finished products are tested at our laboratories in order to ensure their conformity with the agreed specifications. If we fail to meet these quality control standards, we would be required to return, repair or destroy any defaulting products at our own cost. In addition, we are required to keep a representative number of samples of toll manufactured products for a specified period of time.

Joint Ventures We currently own equity interests in six joint venture companies. Our joint venture partners include Mondelez International, Toll Holdings, KPBS, Ito En, with whom we have formed two joint venture companies, and Karya Putrajaya.

PT Kraft Ultrajaya Indonesia ("KUI") In 1981, we entered into an agreement with Mondelez International pursuant to which we obtained exclusive rights to produce and market "Kraft" cheese products in Indonesia. This agreement was terminated in 1994 when we set-up a joint venture company, KUI, with Mondelez Nederland, a subsidiary of Mondelez International. We own a 30% equity interest in the joint venture and the remaining 70% equity interest is owned by Mondelez Nederland. KUI is currently responsible for the production of "Kraft" cheese products and was the largest producer of cheese products, by volume, in Indonesia for the 10 months ended October 31, 2013, according to Nielsen. The total sales of KUI was Rp.631.8 billion in 2011, Rp.713.7 billion in 2012 and Rp.564.3 billion for the nine months ended September 30, 2013. The net income of KUI was Rp.103.7 billion in 2011, Rp.94.3 billion in 2012 and Rp.31.0 billion for the nine months ended September 30, 2013. Dividends received from KUI were Rp.15.0 billion in 2011 and Rp.15.0 billion in 2012. The following table summarizes KUI's financial statements for the periods indicated. As of and for the year ended December 31, 2011

2012

As of and for the nine months ended September 30, 2012

2013

(Rp. in billions)

748.6

Total assets

456.8

584.8

459.6

Total liabilities

234.4

297.7

186.2

Net assets

222.4

287.1

273.4

318.0 95.4 564.3

430.6

66.7

86.1

82.0

Total sales

631.8

713.7

550.8

Net Income

103.7

94.3

66.6

31.0

31.1

28.3

20.0

9.3

Our share of net assets of KUI

Our share in net income of KUI


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Our business PT Toll Indonesia Pursuant to a joint venture agreement dated January 24, 2005 among our 60%-owned subsidiary, PT Nikos Intertrade, and Toll Holdings, previously Sembcorp Logistics Limited, we incorporated Toll Indonesia in 2005, in which we own a 49.0% equity interest and Toll Holdings owns a 51.0% equity interest through its subsidiary, PT Toll Asia, for the purpose of operating a warehouse located in Jakarta and a warehouse located in Surabaya which we use on an exclusive basis. This agreement is currently valid unless terminated by a shareholders' meeting upon the occurrence of an event of default or if the cumulative losses of Toll Indonesia should at any time amount to a sum equivalent to 80% or more of its paid capital or by either party after providing six months written notice.

PT Ultra Peternakan Bandung Selatan UPBS was incorporated in February 2008 as a joint venture with KPBS to operate a model dairy farm for the member farmers of KPBS and other dairy farmers' cooperatives located in and around Padalarang, West Bandung. We own a 75% equity interest in UPBS and the remaining 25% equity interest is owned by KPBS. For details, see "— Raw Materials and Suppliers — Raw Milk — PT Ultra Peternakan Bandung Selatan" and " — Corporate Social Responsibility and Community Development — UPBS Model Dairy Farm ".

Ito En Joint Ventures On June 28, 2013 we entered into a master agreement and two joint venture agreements with Ito En Asia (the "Ito En JV Agreements") for the production, sales and distribution of RTD tea products in PET bottles and carton packs under certain trademarks owned by Ito En, the parent of Ito En Asia. Ito En is a leading Japanese producer of green tea products. Pursuant to the Ito En JV Agreements, we incorporated two entities in Indonesia: UIE Manufacturing, in which we own the majority 55.0% equity interest and Ito En Asia owns the remaining 45.0% equity interest, and IEU Wholesale, in which we own a 45.0% equity interest and Ito En Asia owns the majority 55.0% equity interest (collectively, the "Ito En JV Companies"). UIE Manufacturing was set-up for the purpose of producing RTD tea products under certain trademarks of Ito En or new trademarks to be owned by IEU Wholesale. IEU Wholesale was set-up for the purpose of selling and distributing the RTD tea products produced by UIE Manufacturing. Pursuant to the Ito En JV Agreements, dividends of the Ito En JV Companies will be distributed equally among us and Ito En Asia. Furthermore, any increase in the capitalization of, or any shareholder's loan provided to, the Ito En JV Companies will be made by us and Ito En Asia in equal proportion. We currently intend to temporarily outsource the production and packaging of our RTD green tea products and expect to roll out our first PET bottled RTD green tea products by June 2014. The primary responsibilities of Ito En include (i) granting the Ito En JV Companies the license to utilize certain of the trademarks that Ito En owns, (ii) granting the Ito En JV Companies non-exclusive rights to utilize Ito En's proprietary know-how and (iii) providing know-how relating to the production of RTD tea products. Our primary responsibilities include (i) providing sales and marketing services to IEU Wholesale, (ii) providing IT, accounting and human resource systems services to the Ito En JV Companies and (iii) toll manufacture cartonpacked RTD tea for UIE Manufacturing until completion of UIE Manufacturing's manufacturing plant.


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Our business Ito En Joint Ventures (continued) The Ito En JV Agreements may be terminated by either party with 30-day prior written notice in certain events, including (i) the ceasing of operations by either of the respective Ito En JV Companies for six consecutive months or (ii) if a party commits a breach of the terms of the respective Ito En JV Agreements and fails to remedy such breach within a certain period of time. In addition, if a change of control occurs in either of the party to the joint venture, the other party would have the option to purchase shares in the Ito En JV Companies it does not already own.

PT Ultra Sumatera Dairy Farm ("USDF") On July 25, 2008, we incorporated USDF with Karya Putrajaya in which we and Karya Putrajaya each own a 50.0% equity interest. USDF was incorporated to establish a dairy farm in Sumatra, which is currently expected to commence operations by 2015. We expect the proposed dairy farm to comprise approximately 23,000 dairy cows and plan to have approximately 11,800 producing dairy cows at this farm by the end of 2016. As of September 30, 2013, we have invested Rp.12.5 billion as our equity contribution in USDF and expect to invest an additional Rp.350.0 billion over the next three years.

Branding, Advertising and Promotion We believe brand recognition is key to the growth of our business. We have primarily focused on building strong brand recognition in Indonesia for our primary "Ultra Milk" and "Teh Kotak" brands as fresh, nutritious and healthy products. We engage in a variety of marketing activities to promote the brand recognition of our products. In 2012, we conducted educational programs for the Indonesian public, including primary school students and health professionals, in order to highlight the health and nutritional benefits of milk products. As part of the programs, we conduct in-school visits at primary schools located in major cities in Indonesia to create awareness about milk products. We also promote our products by means of television commercials and through the social media to reach a broad spectrum of consumers. In 2012, we organized the "Thanks to Nature" program with the World Wide Fund to promote our "Teh Kotak" brand as a high quality and delicious natural tea drink. Further, we conducted "Care for Nature" bicycling events, a car free day, tree planting events, "Appreciate Nature" photography and "Back to Nature" travelling programs. We conduct in-store marketing by providing gondolas at various supermarkets and hypermarkets in Indonesia. We also conduct joint marketing with our independent distributors located outside Java. For instance, we typically undertake to place mass media advertisements, such as in television and radio and conduct direct marketing campaigns, such as product demonstrations and sample distributions, at our expense. We also typically provide our distributors with promotional materials such as stickers and mini hangers, at our expense, to promote our products. Our advertising and promotion expenses was Rp.184.2 billion which accounted for 8.8% of our net sales in 2011, Rp.167.6 billion which accounted for 6.0% of our net sales in 2012 and Rp.131.1 billion which accounted for 5.2% of our net sales in the nine months ended September 30, 2013.


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Our business Pricing In setting our pricing policy, we take into account current market trends, production cost, our customers' purchasing power and our competitors' prices. We collect data for setting such prices through research conducted by market research firms as well as our marketing department and sales personnel. Our pricing policy is driven by our strategy to maintain the high quality brand image of our products while simultaneously providing ''value for money'' to our customers. We typically set a suggested pricing structure for our distributors, retailers and wholesalers, and sell our products at a price that will enable the distributors (as well as retailers and wholesalers) to achieve certain margins.

Customers Our customers comprise modern retailers, wholesalers and distributors and certain institutional clients. During 2011 and 2012 and the nine months ended September 30, 2013, our five largest customers together accounted for approximately 20.6%, 21.1% and 21.5% respectively, of our net sales, excluding toll manufactured products and export sales. During the same period, our largest customer accounted for approximately 7.3%, 7.2% and 7.2%, respectively, of our net sales. Depending on the product, we typically provide credit terms of 30 days to distributors. We currently do not sell products on consignment basis.

Expansion Plans We plan to further expand our distribution platform within and outside Java. Within Java, we are focused on increasing our penetration, notably within the traditional retail segment. We plan to continue to increase our penetration into modern retail stores by expanding the size of our sales team on-the-ground, and by continuously investing in training and quality of our sales force. In regions outside of Java, especially in Sumatra and Kalimantan, we plan to work with distributors to extend our product reach. We plan to commence the construction of a new office building in Bandung in 2014. Further, we plan to start building a new distribution center in Greater Jakarta in 2014 to help enhance our distribution efficiency and speed to market notably in the Greater Jakarta area. In addition, to expand our production capacity, we intend to build a new modern and automated production facility which will likely commence operations by 2016, and plans for this new facility will be made in 2014. Further, we also plan to establish a dairy farm in Sumatra with approximately 23,000 dairy cows through USDF, a 50-50 joint venture with Karya Putrajaya. We plan to have approximately 11,800 producing dairy cows at this farm by the end of 2016. For details see "— Joint Ventures — PT Ultra Sumatera Dairy Farm". We also plan to build a new production facility and warehouse in Sumatra once the farm achieves a certain operating capacity to improve our distribution efficiency and reach.

Seasonality We usually experience an increase in sales volumes in the months leading up to Lebaran (the end of the Muslim fasting period) celebrations and the school holiday season between June and July.


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Our business Competition Our products generally face both direct and indirect competition from alternative and traditional food and beverage products. Our products compete generally based on product quality, taste, brand recognition and loyalty, product innovation, price, effectiveness of marketing and promotional activities and the ability to identify and satisfy consumer preferences. The dairy industry in Indonesia is highly competitive, with several domestic and international players allocating significant resources to advertising and promotion. Our primary competitors include PT Frisian Flag Indonesia (the producer of "Susu Bendera" and the Indonesian dairy affiliate of Royal FrieslandCampina NV), PT Nestlé Indonesia (the producer of "Bear Brand" and "Dancow"), PT Danone Dairy Indonesia (the producer of "Nutricia") and PT Indofood CBP Sukses Makmur Tbk (the producer of "Indomilk"). The tea beverages industry in Indonesia is also highly competitive, with domestic and international players allocating significant resources to advertising and promotion. Our primary competitors include PT Sinar Sosro (the producer of "Teh Botol"), PT Coca-Cola Amatil Indonesia (the producer of "Frestea") and PT ABC President Indonesia (the producer of "Nu") and PT Mayora Indah (the producer of "Pucuk Harum").

Research and Product Development One of the factors driving our growth is our strong ability to develop new product varieties to cater to changing consumer tastes. We have a dedicated research and development team that aims to expand our product offering and improve the efficiency of our production process. For instance, our "Ultra Mimi" and "Teh Kotak Less Sugar" products were introduced by our research and development team. We plan to continue to monitor the market for new opportunities for potential product launches, leveraging on our existing product expertise. For example, we will continue to look to develop new flavored milk products as well as functional and value-add products which we believe have significant growth potential in the future. Furthermore, we have also historically considered launching products in UHT yoghurt drinks and pasteurized milk segments and we may look to launch such products in the market at the appropriate time and when we believe that there is a significant market opportunity for such products. We work closely with our suppliers of packaging materials, Tetra Pak and SIG Combibloc, before procuring their aseptic packaging machinery and technology. For instance, we are able to test Tetra Pak and SIG Combibloc machinery at their facilities in Singapore and Bangkok, respectively. This practice helps to optimize the process of acquiring new production lines addition and related maintenance by ensuring that the machinery and knowhow we procure will be suitable to our production processes.


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Our business Technology In order to produce high quality food and beverage products, we endeavor to apply modern processing, packaging, logistical and IT systems available. We have consistently invested in modern technologies. Our processing, packaging, logistical and IT is regularly updated to keep pace with the technological improvements. In addition, we operate a highly automated and computerized inventory management system. For details see "— Inventory Management". In 2012, we implemented an Oracle ERP system, which has improved our operational and analytics capabilities by streamlining our operations. This replaced our SAP ERP system which we had used for a decade. Our inhouse sales and tracking connectivity system and the Oracle ERP system have also been configured to work together, which allows us to monitor daily sales across our distribution network in Java. In addition, we are in the process of implementing a Hyperion business performance management system to improve our enterprise planning and financial reporting capabilities.

Intellectual Property As of September 30, 2013, we held licenses to numerous trademarks, including those for our principal brands "Ultra" and "Teh Kotak".

Awards We have received multiple awards for our brands. The awards we have received for our "Ultra Milk" brand include:

• the "Top Brand Award" in the RTD milk category from Frontier Consulting Group and Marketing Magazine in 2012;

• the "Indonesia Best Brand Gold" award from SWA Magazine and Mars Indonesia from 2009 to 2011; • first place in the "Words of Mouth Marketing Most Recommended Brand" award in the UHT (sterilized) milk category from SWA Magazine and OnBee Indonesia in 2011; and

• the "Best in Achieving Total Customer Satisfaction" Award" in the RTD milk category from Frontier Consulting Group and SWA Magazine in 2011.

In addition, we achieved first place in the "Words of Mouth Marketing Most Recommended Brand" Award in the "tea box" category from SWA Magazine and OnBee Indonesia for our "Teh Kotak" brand in 2011.


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Our business Environmental Matters Protecting the environment is one of our long-term corporate social responsibility goals as a food and beverage producer. We are subject to various environmental regulations and certain undertakings that we have provided to the Government under the terms of various licenses that we hold. We believe that our operations are compliant in all material aspects with applicable environmental regulations and we have obtained all necessary licenses with respect to environmental regulations. We equip our manufacturing facility with the necessary waste processing equipment and employ personnel to monitor compliance with prescribed environmental standards. Our waste management activities principally involve the monitoring and disposal of solid waste (such as manure, rejected raw materials and paper and plastic waste) and liquid waste (such as rejected raw materials and waste water). We have also entered into an agreement with KUI in July 2009, pursuant to which we agreed to purchase cheese waste from KUI. We plan to improve our manufacturing facility by investing in a recycling system of waste water for the generation of electricity. We hold various environmental licenses. We also have obtained UKL-UPL documents approved by the applicable regional governmental agency. Most of the environmental licenses are issued by the Regional Environmental Management Board under the regional government of each area. Such licenses are valid so long as we carry out our business. However, we are required to submit a periodic report to the relevant authorities regarding the implementation of impact monitoring and management on the environment.

Halal Designation All of our products have received halal certification from the Indonesian Council of Ulama, which is required for consumption by Muslims in accordance with Islamic practices. These halal certificates issued by the Indonesian Council of Ulama are valid until February 12, 2015.

BPOM Approvals All of our products have obtained approvals of registration (persetujuan pendaftaran) from the Indonesian Food and Drugs Supervisory Agency (Badan Pengawas Obat dan Makanan, or "BPOM"). Such approvals are required in respect of the trading of food products in retail packaging.

Product Labeling All of our products are labeled according to applicable laws and regulations in Indonesia, including the Government Regulation No. 69 of 1999 on Food Labels and Advertisement.


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Our business Occupational Health and Safety We place great importance on workplace safety in all of our operations and implement Indonesian standards for industrial health and safety. We seek to minimize the risk of accidents, injuries and illness to our employees by monitoring and improving our health and safety standards and formulating policies designed to create a safe work environment. We operate a health and safety department consisting two persons who are responsible for formulating, enhancing and implementing safety procedures and ensuring that safety procedures are complied with. Our health and safety department closely monitors and audits our production operations regularly to monitor implementation of our safety procedures. We have not experienced any material issue in relation to occupational health and safety in the past three years.

Licenses In conducting our business activities, we are required to hold various licenses and permits, including an industrial business license in accordance with Government Regulation No. 13 of 1995 on Industrial Business Licenses. We are also required to register our food products pursuant to MOH Regulation No. 382 of 1989 on Food Registration.

Employees As of September 30, 2013, we had 1,297 permanent employees. We also rely on outsourced labor for security and cleaning services. The following table sets forth our employees by division as of the dates indicated. As of December 31, 2011 Directors, Commissioners and Corporate Secretary Marketing, sales and distribution Manufacturing

As of September 30,

2012

2012

2013

7

7

7

7

142

117

119

132

1,017

946

937

964

Human resources department and General affairs

93

81

85

83

Finance & Accounting

41

46

43

45

Information technology

19

19

19

17

Engineering

101

60

57

31

Internal audit

17

17

14

18

1,437

1,293

1,281

1,297

Total

In accordance with regulations in Indonesia, all of our employees are entitled to participate in a state pension scheme under the Manpower Social Security Program (Jaminan Sosial Tenaga Kerja). The program requires a contribution of 6.24% of employees' gross salary, of which 2% comes directly from the employees. Other than our contribution of 4.24% of employees' gross salary, we have no obligations to provide payments to our employees under this program. Most of our employees are members of the Ultrajaya chapters of the Cigarette Tobacco, Food and Beverage Workers Union or the All-Indonesia Workers Union. We believe we have good relations with these labor unions. Pursuant to a mutual work agreement between us and the Ultrajaya chapters of the Cigarette Tobacco, Food and Beverage Workers Union and the All-Indonesia Workers Union dated May 3, 2013, we have implemented an employment conduct guideline. This guideline governs our labor relations and clarifies the rights and obligations of our workers. PT ULTRAJAYA MILK INDUSTRY & TRADING COMPANY Tbk.

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Our business Employees (continued) We believe we maintain good relationships with our employees and have not experienced any material strikes, labor disputes or industrial action that had a material effect on our business.

Corporate Social Responsibility and Community Development Our corporate social responsibility and community development initiatives include our operation of the UPBS dairy farm as a model dairy farm and our active support for various charitable causes and local community projects.

UPBS Model Dairy Farm We work closely with local dairy farmers through the model dairy farm operated by UPBS in order to improve their quality of raw milk by providing such farmers training in dairy farming best practices. Through UPBS, we provide guidance, continued education, technical and managerial training, farming equipment, financing programs and delivery trucks to local dairy farmers. We believe the model dairy farm operated by UPBS helps to improve the livelihoods of such dairy farmers while also ensuring that we are able to source high quality raw materials.

Other Initiatives In addition, we actively support various charitable causes. For instance, in 2012, we donated ambulances to two villages near Padalarang, West Bandung, and medical tools to ten local clinics located at these villages. We also provided computer systems for two local village offices. In 2012, we also built water reservoirs in various neighborhoods and water pipes to various mosques and schools. In additional, we provided funds to build and renovate mosques located around our Padalarang, West Bandung, premises and support various scholarship and educational assistance programs.

Insurance Our significant insurance policies include an all risks policy in respect of physical loss, destruction or damage to real and personal property including buildings, machinery, plant, inventory, moveable equipment, tools, spare parts, office equipment, pipelines including stock within pipelines and materials in trade. We believe that our insurance coverage is adequate for our business needs and operations and we will continue to review to ensure adequate insurance coverage is maintained.

Legal Proceedings We are not currently involved in any legal proceedings that we believe could, if determined against us, have a material adverse impact on us.


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Section 4

Our strategies

Our principal long term goals are to further strengthen our market position across all our key product areas whilst maintaining our best in class product quality…


Our strategies

1

Further improve our distribution platform and invest in our sales and distribution systems

We plan to continue to improve our product penetration both within Java and outside of Java. Within Java, we are focused on increasing our penetration, in particular within the traditional retail segment. We plan to continue to increase our penetration of modern retail stores by expanding the size of our sales team on-the-ground, and by continuously investing in training and improving the quality of our sales force. In addition, we plan to increase our level of sales efficiency through our distribution network by investing in IT and technology to increase the level of sales automation and monitoring. For example, we introduced an Oracle ERP system in 2012 to replace our then existing ERP system which we had used for a decade. Furthermore, we have developed a proprietary IT system which we apply group-wide and which is linked to our Oracle system to allow us to monitor daily sales across our distribution network in Java. In other regions outside of Java, we plan to work with distributors to extend our product reach. Key geographic areas that we are currently focusing on include Sumatra and Kalimantan. Furthermore, so as to ensure that our distributors are able to grow with our volume and sales growth, we plan to work with distributors and financial institutions to ensure that they are able to secure the necessary financing to sell more of our products and we are currently undergoing a trial for a financing scheme with select distributors and two banks. In addition, we plan to achieve IT connectivity with all of our distributors to improve visibility of our sales and inventory and to have a deeper understanding of underlying customer trends.

2

Invest in new facilities to expand our production and warehousing capacity

We plan to continue to increase production capacity at our existing production facility at Padalarang, West Bandung, through ongoing investment in new packaging lines. However, in order to support longer term growth and expansion, we are also evaluating options for the construction of new production facilities and warehouses. We plan to start construction of a new distribution center within the Greater Jakarta area in 2014 to help enhance our distribution efficiency and speed to market time. In addition, we are considering the expansion of our production capacity by building a new modern and automated production facility which will likely be fully operational by 2016 and plans for this new facility will be made in 2014. Both our new distribution center and new production facility will be highly automated and we plan to invest in the latest technology to ensure that we continue to operate at the highest standards of efficiency and productivity.


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Our strategies

3

Continued focus on improving our existing product portfolio as well as new product development, notably in RTD tea

We plan to selectively grow our product portfolio with a continued focus on UHT processing to leverage our core competencies, and develop products in line with our brand positioning of fresh, healthy and high quality products. Notably, we believe that there are significant future growth opportunities within the RTD tea segment for us to develop new products. To this end we recently entered into two joint ventures with Ito En Asia. We believe Ito En has significant production expertise and know-how in the RTD tea segment which we can leverage and combine with our onthe-ground capabilities, market knowledge, strong marketing organization and extensive sales and distribution network. Based on data from Nielsen, the RTD tea segment in Indonesia continues to demonstrate significant growth. Notably, we believe that there is significant potential to develop RTD tea products in PET bottles which was the fastest growing segment in the RTD tea segment, in the eight months ended August 31, 2013, according to Nielsen. We believe our joint venture with Ito En Asia gives us the production expertise and marketing capabilities to enter this product segment and potentially venture into new product segments such as RTD milk tea products. We plan to initially outsource production of products to be sold through our joint ventures with the view to start producing them in-house as demand for them reach adequate scale. See "Our business — Joint Ventures".

We recently entered into two joint ventures with Ito En to develop new products

We will also continue to develop new products in the dairy segment to drive new avenues of growth. We continue to monitor the market for new opportunities for potential product launches, leveraging on our existing product expertise. For example, we will continue to look to develop new flavored UHT milk variants as well as functional and valueadded dairy products which we believe have significant future growth potential. In the past, we have considered options for launching products in UHT yoghurt drinks and pasteurized milk segments and we would look to launch such products in the market at the appropriate time and when we believe that there is a significant market opportunity for such products.


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Our strategies

4

Expansion of our dairy farming operations and further collaboration with local dairy farmers' cooperatives to improve vertical integration of our business and expansion of our presence to Sumatra

We plan to establish a dairy farm in Sumatra and expect this farm to commence operations in 2015

5

We believe one of our key competitive advantages is our collaboration with local dairy farmers' cooperatives such as KPBS as well as the model dairy farm operated by UPBS. We continue to look for ways to work together with dairy farmers and cooperatives in Indonesia and to invest in our supply chain to improve the quality and consistency of our raw milk supply. We aim to procure a large proportion of our raw milk requirements from our own farms in the future. Furthermore, we also plan to establish a dairy farm in Sumatra with approximately 23,000 dairy cows through USDF, a 50-50 joint venture with Karya Putrajaya. We plan to have approximately 11,800 producing dairy cows at this farm by the end of 2016. We expect USDF's dairy farm to be built and designed by international consultants and will incorporate the best available technology and equipment. Furthermore, we expect USDF will significantly enhance our ability to supply products outside of Java, notably in Sumatra. In conjunction with USDF and our strategy to expand our presence in the region, we also plan to build a new production facility and warehouse once USDF's dairy farm is fully operational for greater distribution efficiency and reach.

Continue to invest in equipment modernization and new technology to further improve our operational efficiency

We believe that investing in new technology and equipment ensures that we continue to produce high quality and safe products for our customers as well as continue to improve our operational efficiency and profitability. Accordingly, we intend to continue with our modernization efforts, which include: Production Waste Management Quality Control

• investing in new and more advanced production machinery and equipment for faster and more efficient production and packaging of our products;

• improving our waste management processes such as recycling of waste water; and

• improving the efficiency and effectiveness of our quality control processes to further improve the quality and safety of our products and to reduce costs.

Such improvements will lead to improved operational efficiency and profitability.


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Section 5



Our risks and challenges This section summarizes some of the key risks that may affect our future performance. This is not an exhaustive list of the relevant risks. If any of the following risks materialize, our business, cash flows, operational results, financial condition and prospects are likely to be adversely impacted. Additional risks not presently known to us or, if known, that are not presently considered material, may also have an adverse impact.

Exposure to fluctuations in cost and availability of raw materials

Our business is significantly affected by the availability, supply, cost and quality of the materials which expose us to market demand and supply fluctuations. Our principal raw materials are raw milk, tea leaves, sugar, skimmed milk powder and packaging materials, but we also require other materials, such as flavorings, vitamins and mineral supplements. The prices and supply of these and other materials depend on factors beyond our control, including economic conditions, competition, consumer demand, production levels, transportation costs and import duties. The availability and price of our raw materials may also vary due to external conditions, such as climate and environmental conditions, commodity price fluctuations, currency fluctuations, and changes in governmental and agricultural programs. Price changes to our raw materials may result in unexpected increases in production, packaging and distribution costs, and we may be unable to increase the prices of our products to offset these increased costs and therefore may suffer a reduction to our profit margins and profitability. We depend on a limited number of third-parties for the supply of the majority of our raw materials, including raw milk and tea leaves and any shortage of raw milk or tea leaves or decline in their quality could adversely affect our production and sales.

Key supplier risk

Lack of formal longer-term supply agreements

We cannot guarantee that our suppliers of raw materials will be able to maintain a consistent supply and quality to accommodate our present or expanding future needs. With respect to our raw milk supply, we cannot assure you that we will be able to identify new milk collection centers, individual dairy farmers and dairy farms. The security of our raw milk supply is also limited by the ability of the individual dairy farmers and dairy farms to provide raw milk of a sufficient quality to meet both our own quality control guidelines as well as those imposed by local and international regulations. We have a limited number of formal arrangements in place with the suppliers of certain of our key raw materials, in particular raw milk and tea leaves. As a matter of policy we do not typically enter into written long-term supply contracts with such suppliers, and instead rely on spot purchases based on our long-standing business relationships. If our key suppliers of raw milk or tea leaves decided to cease deliveries without sufficient notice, this could result in reduced production and decline in our sales, or in increased supply cost from higher priced alternative supply sources that may have to be established at short notice. Any major outbreak of illness or disease relating to the dairy industry or other public concerns about dairy products may result in a serious loss of consumer confidence in, and decrease in demand for, dairy products, which may affect our business, cash flows, operational results, financial condition and prospects.

Risks of diseases or illnesses in the dairy In addition, a major outbreak of mad cow disease, bovine tuberculosis or other industry

serious disease in the regions supplying our raw milk could also lead to significant shortfalls in the supply of raw milk.


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Competition risk

Reputational and brand image risks

Distribution and logistics risk

We operate in an intensely competitive environment in Indonesia. We compete against a number of domestic and multinational producers and marketers of UHT milk and RTD tea products, some of which are larger and have substantially greater resources than us, including the ability to spend more on advertising and marketing. We also face competition from new entrants who may have more flexibility in responding to changing business and economic conditions than us. Competition in our industry is based on pricing of products, innovation, perceived value, brand recognition, promotional activities, advertising, substitutability, new product introductions and other activities. Increased levels of competition on the basis of any of the aforementioned parameters might lead to lower prices and revenues, higher expenditures for marketing, promotion or new product development, and therefore may result in a decline in our growth or profitability. Our success depends on our ability to maintain reputation and brand image for our existing products, extend our brands to new platforms, and expand our brand image with new product offerings. Reliance on brands such as "Ultra Milk" and "Teh Kotak" makes us vulnerable to brand damage in a variety of ways. For example, if we become victim of product tampering or contamination, brand dilution by people who use any of our brands without permission or other factors, negative publicity may affect our sales results. Any event that has a negative impact on our reputation and brand image may affect our business, cash flows, operational results, financial condition and prospects. We are dependent on our supply and distribution chain, including distributors, independent agents, wholesalers, retailers and third party services providers to distribute and sell our products to our customers. This entails the transportation of our products from our production facility in Padalarang, West Bandung, to retailers across Indonesia from whom our end customers purchase our products. Transportation, warehousing, inventory management and logistics coordination, amongst others, are critical challenges that may impact the availability of our products to consumers. We rely on one of our subsidiaries for distribution of our products within Java. Outside Java, we use third-party transportation providers for the distribution of our products. Transportation costs have historically been increasing significantly, and in addition extreme weather conditions, strikes, inadequacies in the road infrastructure or other events could impair our procurement of raw materials, especially raw milk which is procured on a daily basis, and our ability to supply our products to our customers. Contamination of the products we produce or the raw materials we use, product liability claims and/or product recalls could harm our reputation, business, financial condition and results of operations.

Contamination and product liability risk

Our business could be harmed in the event of actual or alleged contamination or deterioration of our products and raw materials. A risk of contamination or deterioration exists at each stage of the production cycle, including the production and delivery of raw milk, the processing and packaging of our products, the stocking and delivery of our products to distributors and retailers, and the storage and shelving of products at the points of final sale. We also face inherent business risks of exposure to product liability or recall claims in the event that our products fail to meet required quality standards, or are alleged to result in harm to customers. A product recall or a product liability claim may adversely affect our reputation and brand image, as well as entail significant costs in excess of our available insurance coverage.


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Our risks and challenges Operational and production risk

Our facilities are subject to operational risks, such as the breakdown or failure of equipment, power supply or processes, performance below expected levels of output or efficiency, obsolescence, unavailability of packaging materials and spare parts, labor disputes, natural disasters, breakout of fires, industrial accidents and the need to comply with relevant government regulations. The occurrence of any of these risks could significantly affect our results of operations. We plan to pursue a growth strategy that includes expanding our primary UHT milk products and tea drinks production business into new geographic areas within Indonesia, the introduction of new RTD tea products by the joint venture companies we have established with Ito En, setting up of a new dairy farm in Sumatra and several other growth initiatives. Such growth strategies may include organic growth through the construction of new facilities, as well as establishment of additional joint venture companies with third parties. Risks relating to our growth strategy include the following:

• we may face competition to acquire land for expansion opportunities, which may lead to higher acquisition prices as we compete for valuable investments;

• we may be required to fund these developments through significant capital expenditure by utilizing internal cash flows or by incurring additional indebtedness;

• we may face risks associated with entering into partnerships/joint ventures with Risks to growth strategy

third parties. For instance, we may require consent of our partners to conduct certain business activities. In addition, there may be disagreements between us and our partners with respect to our respective business and operations that could prevent or delay certain corporate actions from being effected on the terms sought by us;

• we may face increased costs, supply difficulties and competition in obtaining raw materials for our operations;

• we may not be able to hire and retain workers necessary for our expanded

operations or may have to pay higher wages for these workers than we expect;

• we may not be able to integrate new operations, whether organically grown or acquired, with our existing operations; and

• unforeseen circumstances and problems relating to our expansion projects may distract our management from focusing on our existing operations.

We cannot assure you that we will be able to identify, acquire, or profitably manage additional businesses without incurring substantial costs, delays or other operational or financial difficulties.


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Our risks and challenges We are exposed to fluctuations in the value of the Rupiah as a significant proportion of our raw materials and capital expenditures are denominated in, or linked to, the U.S. dollar while substantially all of our revenues are denominated in Rupiah. Such U.S. dollar denominated or linking raw materials and capital expenditures include, with respect to our raw materials, sugar, skimmed milk powder, packaging lines and packaging materials with respect to our capital expenditures.

Foreign exchange risk

For the years ended December 31, 2011, 2012 and the nine months ended September 30, 2013, 43.3%, 41.8% and 52.4%, respectively, of our raw materials and capital expenditures were denominated in, or linked to, the U.S. dollar. Such U.S. dollar costs are translated into the Rupiah at the applicable exchange rate for inclusion in our consolidated financial statements. Any significant appreciation of the U.S. dollar against the Rupiah could have a material adverse impact on our business, cash flows, operational results, financial condition and prospects since the amount of U.S. dollar outflows may increase as a percentage of our Rupiah denominated revenues. During 2013, the Indonesian Rupiah depreciated against the U.S. dollar and many other currencies, and on December 16, 2013 the middle exchange rate by Bank Indonesia was Rp.12,105 = US$1.00. We are incorporated in Indonesia and all of our assets and operations are located in Indonesia. As a result, future political, economic, legal and social conditions in Indonesia, as well as certain actions and policies that the Government of Indonesia may, or may not, take or adopt in addition to events such as earthquakes and floods which affect Indonesia may have a material adverse effect on our business, cash flows, operational results, financial condition and prospects. Our customer demand and sales are dependent to a considerable extent on the macroeconomic environment in Indonesia, including GDP growth, GDP per capita, inflation, monetary policy, interest rates, fiscal policy, household spending, foreign exchange rates etc.

Indonesia country risks

Laws and regulations which facilitate the forming of labor unions, combined with weak economic conditions, have in the past resulted, and may continue to result, in labor unrest and activism in Indonesia. In 2000, the Indonesian parliament enacted Law No. 21 of 2000 on Labor Unions (the “Labor Union Law”). The Labor Union Law, which took effect in August 2000, permits employees to form unions without employer intervention. Labor Law No. 13 of 2003 (the "Labor Law") increased the amount of mandatory severance, services and compensation payments payable to terminate employees. The Labor Law requires implementation of regulations that may substantially affect labor regulations in Indonesia. Under the Labor Law, employees who voluntarily resign are entitled to payments for unclaimed annual leave, relocation expenses (if any), housing expenses, medical expenses, services payments, severance payment and other expenses as specified by the employment agreements, company policies or collective labor agreements. The Labor Law requires a company to form a bipartite forum consisting of both employers and employees and the participation of more than half of such company's employees in negotiating collective labor agreements. The Labor Law also allows more permissive procedures for staging strikes. Although several labor unions challenged the Labor Law on constitutional grounds, the Indonesian Constitutional Court declared it valid, except for certain provisions, such as the procedures for terminating the employment of an employee who commits a serious mistake and criminal sanctions against an employee who instigates or participates


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Our risks and challenges in an illegal labor strike. As a result, we may not be able to rely on certain provisions of the Labor Law.

Indonesia country risks (continued)

Labor unrest and activism in Indonesia could disrupt our operations and could have a material adverse effect on the financial condition of Indonesian companies in general, which in turn could adversely affect prices of Indonesian securities on the IDX and the value of the Rupiah relative to other currencies. Such events could have a material adverse effect on our business, cash flows, operational results, financial condition or prospects. In addition, general inflationary pressures or changes in applicable laws and regulations could increase labor costs, which could have a material adverse effect on our business, cash flows, operational results, financial condition and prospects. The Labor Law provides that an employer is not allowed to pay an employee wages below the minimum wage stipulated annually by the provincial or regional/city government. The minimum wage is set in accordance with the need for a decent standard of living and taking into consideration the productivity and growth of economy. However, as there are no specific provisions on how to determine the amount of a minimum wage increase, minimum wage increases can be unpredictable. Minimum wage increases in Indonesia could have a material adverse effect on our business, cash flows, operational results, financial condition and prospects.


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