While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards: - PS1: Social and Environmental Assessment and Management Systems - PS2: Labor and Working Conditions - PS3: Pollution Prevention and Abatement; and - PS6: Biodiversity Conservation and Sustainable Natural Resource Management Issues associated with the following PS were not considered material during the assessment of the project: PS4: Community Health Safety and Security. TA2 (foundry) is the only facility where current operations have the potential to directly impact residential communities, but the site is well secured and nature of operations is not considered of sufficient magnitude to invoke PS4. All sites employ unarmed security guards and this is typical of all comparable manufacturing operations in HCMC and as such, their presence and role is considered proportionate. There have been no incidents in the past between security personnel and local communities and the risk is minimal. PS5: Land Acquisition and Involuntary Resettlement. No land has been leased by PMI since IFC’s initial investment. TA holds two leases within the (much larger) HEPZ, signed in 1998 and 2002. The HEPZ development was a government-led initiative, developing land formerly used as a rubber plantation and farm land. The TA2 foundry site has been leased since 1999 from a private company, with prior use as a furniture factory. The TA2 old sawmill site has been leased since 1999 from a state-owned company, with prior use as a furniture factory. The empty lot has been leased since 2002 from the local authority (Peoples’ Committee), with prior use as a light bulb factory. PS7: No Indigenous People are known to have been in the area or affected by the project PS8: No evidence of the presence of or impact to locations associated with Cultural Heritage.

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. Key environmental, health and safety, human resources and social issues that were reviewed included: environmental and social management system occupational health and safety management system labor relations and workplace conditions wood sourcing and sustainability of supply emissions to the environment – air, wastewater and noise solid and hazardous materials management, including options for heat recovery (wood dust), transportation and disposal life and fire safety energy use and efficiency community engagement . PMI has an engaged management team which has presented specific plans to assure adequate E&S oversight and address key issues and gaps to ensure compliance with local regulatory requirements as well as consistency with IFC Performance Standards and applicable environmental, health and safety guidelines. PMI’s E&S performance and progress since IFC’s initial investment has been satisfactory. The original Action Plan has been reviewed, updated and will be integrated into IFC’s financing agreement with PMI. The updated Action Plan is attached to this document.


PS1: Social and Environmental Assessment and Management Systems
The PMI Human Resources (HR) Division is responsible for the management of environmental health and safety at all TA facilities. The HR Division was awarded ISO 9001 certification in December 2004 and it has been maintained since that date (last assessment visit February 2009). The Company works to continually improve the systems for environmental monitoring, workplace health and safety, emergency response, security and human resources management, in compliance with ISO9001 requirements. Information requested during the site visits (e.g. procedures, monitoring data, material safety data sheets, lost time accident records) were all provided promptly to IFC. Regular training activities/drills are scheduled – IFC was provided with examples focusing on fire response and evacuation, health awareness and labor practices. The TA newsletter (‘Family Voice’) also has regular safety, health and environment features and is available in Vietnamese and English versions. A full time Environment, Health & Safety (EHS) Manager reports to the Executive Manager of the Human Resource Division.

The February 2009 quality assessment visit made three observations in relation to health, safety and environment – two related to event analysis/learning and one related to contractor safety. See Labor and Working Conditions section for more details on occupational, health and safety performance and corrective actions.

The company submits HSE summary reports to the local authorities every six months, including raw materials consumed, emissions data, pollution abatement technologies and waste inventories. TA’s last E&S Annual Monitoring Report to IFC was submitted later than the specified date, but was comprehensive in nature.

For details of the management system related to wood sourcing, please see Biodiversity and Sustainable Natural Resource Management section.

The FY2010-11 CAPEX plan has provisions for buying equipment such as sanding machines and for making improvement to treatment of wastewater from TA plant number two. The company is in the process of contracting consultants to look at other aspects of its operations such as the installation of machine sanding facilities, and the CAPEX plan will be adjusted to reflect necessary expenditures based on recommendations by consultants.

PS2: Labor and Working Conditions
The company’s labor practices are formalized through the TA Internal Labor Regulation, which covers corporate mission, employee’s mission and corporate values as well as chapters addressing key labor areas such as contracts, salary and benefits, insurance, working hours and disciplinary action. The Regulation is maintained and implemented by the Human Resources Department.
TA’s overall employee headcount has fallen since IFC’s initial investment, primarily through the closure of the company’s retail business and consolidating manufacturing operations. Expatriate positions have also been reduced significantly. Current headcount is approximately 3,800 staff.

Working Conditions
The Company maintains a detailed and transparent set of human resource policies and procedures for all levels of staff and which comply with the Vietnamese Labor Code. All staff is issued with contracts and no staff are categorized as non-employee workers. Initial contracts are for six months, renewed for twelve months if performance is satisfactory and subsequently renewed as open-ended. Approximately 70% of employees fall into the latter category. Average staff turnover is 10% per year, with elevated rates in the sanding area (the least skilled job within manufacturing). Salaries are competitive in the local market with performance bonuses related to achievement of group targets (no individual piece-work incentives in any operations). All new staff are provided with orientation to the Company’s employment policies and procedures as well as occupational health and safety training. All employees are provided with a wide range of training opportunities to upgrade their skills, improve their performance and obtain advancement within the Company.
TA operates a single, ten hour shift which includes a one hour lunch break. Workers are provided with free food at the TA1 canteen or provided with coupons to spend in local restaurants (TA2).

Employee Relations Council
In April 2008, TA established an Employee Relations Council, to act as ‘a bridge the Management and all employees.. to discuss your concerns and help improve the working environment’. The Council is chaired by the Company President and meets monthly, with minutes circulated in Vietnamese and English. Standing members are elected to the Council by employees for six month terms. A trade union representative is also included as a Standing Member. The Council Chairman has the right to appoint Non-Standing members.

A core objective of the Council is to provide an effective channel for grievances and other forms of feedback (e.g. suggested improvements to operations, policies and practices). Grievances can be submitted in a number of different ways, including use of Grievance/Suggestion boxes (i.e. anonymously) or by talking with Council members. The objective is to discuss and resolve grievances within one cycle of the Council’s work (i.e. a month). Recent (November 2008-March 2009) topics raised to the Council include a concern on odor (maintenance issue – resolved), noise (additional monitoring undertaken) and salary payment dates (clarification provided).

Non Discrimination and Equal Opportunity
Of TA’s workforce, 41% (1,400 persons) are female employees. Within manufacturing areas, some tasks tend to be dominated by men (e.g. carpentry) and other tasks by women (e.g. cutting and placing veneers) but this is based on preference rather than gender. The majority of the manufacturing workforce is recruited locally. TA does not provide worker housing. There is no evidence of child labor or forced labor being deployed.

Labor Relations
In July 2008, employees took strike action due to concern about national inflation and food prices. The strikes lasted two days and were evident at many other manufacturing facilities in HCMC at the time. TA management responded to the strike action by establishing a compensation framework which addressed inflation concerns and provided other financial incentives for meeting production and quality targets. No further strike action has taken place.

There is a worker organization – Theodore Alexander HCM Trade Union - in the workplace and 95 percent of all staff is on its membership. Company management holds monthly meetings with the union. Other than the July 2008 strike action which has been resolved, there have been no reported labor incidents or concerns.

Retrenchment
TA has reduced its total headcount by 2,000 in the 2007-2009 period. A proportion of these losses where through natural attrition, but retrenchment plans were also implemented. Retrenched employees were entitled to receive one month’s salary for each year of service, compensation for outstanding annual leave and payment of a 30-45 day notice period. The retrenchment procedure was developed and implemented by the HR Department, under the auspices of the quality management system, and in compliance with national regulatory requirements. The criteria for selecting those to be retrenched were clear, being based upon a voluntary retrenchment program, and a wish to retain high performers and the most experienced staff. There was a comprehensive consultation process with workers during the retrenchment process.

Occupational Health and Safety
The scope of the TA Quality System includes occupational health and safety, based in part on established Japanese “kaizen” model of quality management. Documentation such as procedures, lost time accident records, accident and incident investigation reports were provided promptly to IFC upon request and these were found to be comprehensive and complete. Accidents in manufacturing areas tend to be minor cuts, scrapes and strains with limited lost time associated with each incident. The most significant lost time incidents are related to accidents coming to or leaving work (e.g. motorcycle crashes).

At the time of IFC’s original investment, it was noted that worker exposure to dust in the sanding areas was likely to exceed IFC limits and compromised worker comfort and health. An internal audit was included in IFC’s Action Plan to address this issue. While the audit was undertaken, consolidation and reconfiguration of the factory changed some of the physical aspects of the problem and management continued to experiment with ways to reduce dust levels, including prototype models for bottom capture (suction at floor level). To date, none of the proposed changes has been evaluated as either effective or feasible when scaled up to operational level (5000m2). TA is now planning to address the issue by greater use of machine sanding (in enclosed booths with dedicated extraction) and less ‘open sanding’ with electrical sanders. Four new enclosed sanding machines are currently being tested and if successful, this will allow TA to reconfigure the sanding floor to machine sand and hand sand areas only.

IFC’s original appraisal also identified potential worker exposure to noise (improvements subsequently made to baffling/screening) and chemical hazards, particularly lacquers solvents containing volatile organic compounds in the painting/finishing and antiquing areas. Strong fume is still evident in these areas, including areas close to booths with water curtains. During the last site visit, it was also observed that significant quantities (1m3) of solvent and lacquer was being stored in the production areas – a volume greater than that required for daily use. Use of Personal Protective Equipment (PPE) was also inconsistent – with some staff not using PPE correctly (e.g. safety glasses removed) or others issued with inappropriate PPE (e.g. cloth masks in high VOC areas). Lock Out, Tag Out procedures for machine and electrical safety were evaluated as inconsistently applied. The revised Action Plan therefore requires TA to undertake a formal workplace risk analysis (at all sites with operational activity), using experts to establish baseline conditions, identify key risks and prioritize corrective actions to ensure practices with the greatest risk to worker health and safety are addressed first.

Fire and Life Safety
The Company continues to maintain high standards of life and fire safety across all operations. Adequate numbers and types of fire-fighting equipment are placed and clearly demarcated throughout all facilities. Water storage is also maintained at each facility for fire-fighting purposes. Equipment is maintained and checked on a frequent and regular basis by dedicated staff within the HR Division. Fire exits are clearly marked and egress is unobstructed. HR has developed a comprehensive set of procedures and staff training for fire fighting and managing accidents involving hazardous materials, which are consistent with international standards. Spark detection and sprinkler units have been fitted to the dust collection ducting served by the ‘bag house’ (this was a Action Plan requirement from IFC’s initial investment). Increased frequency of maintenance and testing of the system was requested by IFC during the most recent visit. The system log records two incidents of automated spark detection/shut down in the past 12 months.

TA has two major and exclusive suppliers and a number of smaller, non-exclusive suppliers. The Company has quality assurance staff frequently visiting or being stationed at the premises of the two major suppliers. It has found both suppliers to be in compliance with national labor requirements.


PS3: Pollution Prevention and Abatement
TA operations generate noise, wood dust (20mt/month), wastewater (sanitary and from manufacturing, including water curtains and etching), solid wastes (e.g. 4-6mt/month of spent rags) and emissions to air. Electrical consumption for TA1 and TA2 operations is 800,000kWh/month, with energy also provided by the boiler serving the foundry (27,000l heavy cashew oil/month used for melting brass at the foundry) and the boiler serving TA1 (1t wood dust/month). The estimated annual total Greenhouse gas emission in 2009 is 4,785 tons CO2 equivalent, arising from grid electricity and fuel consumption.

Water consumption is 10,000m3/month (from municipal supplies).

TA1 operations are required to conform to pollution parameters defined by the HEPZ. These primarily relate to wastewater quality and set at less demanding levels than the Vietnamese national limits, as the HEPZ provides additional treatment (to Vietnamese standards) for the entire industrial estate. TA provides six monthly reports to HEPZ summarizing raw materials consumed, emissions data, pollution abatement technologies and waste inventories. For TA2, a similar report is submitted directly to the local authority.

The principal air emissions abatement at TA1 is dust control, which is provided via bag-houses. Dust control and bag-house maintenance appeared adequate, but requires validation through provision of monitoring data and details of the performance guarantees of the units. TA1 wastewater is served by a dedicated treatment unit, installed and maintained by an outside specialist contractor and with 50m3/day capacity. The performance guarantee for the unit and the available monitoring data indicate wastewater quality in compliance with Vietnamese limits. It will be noted that TA1 site discharge is subsequently treated by HEPZ. An accredited third-party testing report dated June 1, 2009 indicates that wastewater discharge levels (post-industrial-zone treatment) were compliant with IFC guideline values.

The principal point source air emissions from TA2 (foundry) are from the boiler stack, which since IFC’s initial investment has been fitted with a basic wet cyclone to reduce particulate emissions. Performance against IFC applicable guideline parameters requires validation. Polishing operations are served by local exhaust ventilation systems served by bag-houses. Dust control and bag-house maintenance appeared adequate, but requires validation through provision of monitoring data and details of the performance guarantees of the units. Wastewater generated primarily through etching operations is treated by neutralization, gravity separation and a sludge press. Effluent is subsequently discharged to municipal sewer, whilst sludge (which due to high toxic metal content is considered hazardous) is collected and disposed by a licensed contractor. The performance of the wastewater treatment against applicable IFC guidelines and the treatment and disposal routes used by the (sludge) waste contractor require further validation.

Dedicated chemical storage areas (including specific areas for inflammable materials) were present at both TA1 and TA2 (foundry) sites and were appropriately signed and maintained. Employee emergency response training and drills include scenarios appropriate for the chemicals being stored on site.


PS6: Biodiversity Conservation and Sustainable Natural Resource Management
Current TA operations require approximately 250m3 of wood per week (13,000m3/year), comprising:
Solid lumber (60% by volume)
MDF (25% by volume)
Veneers (15% by volume).

Solid wood comprises Cherry, Tulipwood, Oak and Maple sourced from the USA, Pine from New Zealand and Acacia, Kaia (a proxy wood for Mahogany) and Rubber Wood from Vietnam. A number of other woods are sourced in small quantities. The most significant volume is provided by Kaia, which is plantation grown and subject to formal cutting regimes by the Forestry Ministry. These solid wood volumes are procured through four key suppliers. A number of suppliers have been dropped since IFC’s initial investment due to concerns regarding the stated origin and legality of certain species.

MDF is sourced primarily from Australia. Over 100 types of veneer are purchased by the company from origins worldwide.

Since IFC’s initial investment, the Company sold its Vietnamese plantation assets in 2007.

Wood procurement is overseen by the Purchasing Executive Manager. The company has purchasing procedures in place to verify legal origin, but does not currently subscribe to any internationally recognized system. TA plans, however, to apply for Forest Stewardship Council (FSC) Chain of Custody (CoC) certification for the TA1 plant (lumber and MDF) and to secure FSC Controlled Wood certification for veneer purchases to ensure verified legal origin. The target date for certification is the first half of 2010, which is within the March 2011 deadline specified by IFC at the time of its initial investment. CoC pre-assessments were undertaken in 2005 and 2006. TA is planning to undertake a third pre-assessment by the end of 2009, using the findings to identify remaining procedural gaps prior to entering the formal certification process.

As TA does not directly manage any forestry assets, the planned CoC and Controlled Wood certifications are adequate to comply with the requirements of Performance Standard 6. TA does not currently source any wood which is FSC-Forest Management (or equivalent) certified, due to the price premium and lack of customer demand. To use the proposed CoC certification at the TA1 site, some FSC-FM (or equivalent) will need to be sourced and depending on the overall percentage, the Company will have options in terms of FSC labeling at the product level. TA will endeavor to identify sources of FSC-FM (or equivalent) timber which is more competitively priced, as the longer term goal of both IFC and the Company is to push the market toward such sourcing as standard practice.

Due to TA1’s situation in an Export Processing Zone, there is no immediate community to engage. TA2 (foundry) operations are in proximity to residential areas. A limited number of complaints have been received, primarily related to sooty residues in rainwater runoff leaving the site. The installation of the wet cyclone appears to have remedied the situation. The company supports a number of local charitable causes, including donations to assist flood victims in central Vietnam (2008). The company has also supported fund raising to support employee families, including hospital care for a sick child and donations to bereaved families.

The Company will post this Environmental & Social Review Summary, and the E&S Action Plan on its company website and have copies made available at the Foundry and the front entrance of the Company premise. For further information, please contact the following person: Jess Ruelokke Chief Financial Officer Theodore Alexander Limited Linh Trung II EPZ, Block 50-57 Thu Duc District HCMC