Erawan Annual report 2007 by HI-RES

VISION

Annual Report 2007 The Erawan Group Public Company Limited

To be one of Thailand ’s leading hotel and resort developers.

MISSION To develop a well – diversified portfolio of hotels and resorts That fulfills diverse customer’s various needs while continuing To create values to all stakeholders as well as Thailand’s tourism as a whole.

Contents 2007 IN REVIEW

Annual Report 2007 The Erawan Group Public Company Limited

Financial Highlights

Chairman’s Statement

CEO’s Review

CFO’s Report

Statement from the Audit Committee

Report of the Board’s Responsibility to the Financial Statements

ABOUT ERAWAN 22

Corporate Profile

Our Business Strategy

Our Properties in Operation

Our Properties under Development

Our Capital Structure and Management

BUSINESS OVERVIEW 44

Hotel Industry

Rental Property

Risk Factors

CORPORATE GOVERNANCE 54

Corporate Governance

Connected Transactions

APPENDICES 69

Independent Auditor’s Report

Financial Statements

123 General Information of the Company

2007 IN REVIEW

FINANCIAL HIGHLIGHTS

(Unit : Thousand Baht)

Description

Annual Report 2007 The Erawan Group Public Company Limited

Revenues from operations Total revenues Gross profit EBITDA Net profit (Loss)

2005 (Restated) 2,858,278 2,901,201 1,588,951 897,568 257,789

2006 (Restated) 3,330,922 3,384,964 1,928,751 1,152,938 409,845

2007 3,194,350 3,391,397 1,833,994 1,010,823 401,921

Total Assets Total Liabilities Total Shareholders’ Equity Equity attributable to company’s shareholders Paid - up Share Capital (Baht in Thousand) Number of paid - up shares (Thousand shares) Par value per share (Baht) Earning per share (Baht) Dividend per share (Baht) Book Value per share (Baht)

7,580,848 5,571,086 2,009,762 1,913,097 1,453,048 1,453,048 1 0.18 0.04 1.32

8,720,766 5,814,289 2,906,477 2,797,555 1,959,085 1,959,085 1 0.25 0.05 1.42

10,255,349 6,504,815 3,750,534 3,649,392 2,214,575 2,214,575 1 0.20 0.06 1.65

0.25 0.13 0.36 55.59% 8.88% 3.58% 14.11% 2.77 2.19 5.96

0.44 0.24 0.56 57.90% 12.11% 5.03% 17.40% 2.00 1.58 5.22

0.22 0.10 0.22 57.41% 11.85% 4.24% 12.47% 1.73 1.37 4.64

Significant Financial Ratio Current ratio Quick ratio Liquidity ratio (Cash Flow Basis) Gross profit ratio Net profit margin Return on Total Assets Return to Equity Debt to Equity Ratio Interest Bearing Debts to Equity Ratio Interest Coverage Ratio

(Times) (Times) (Times)

5 - YEAR FINANCIAL HIGHLIGHTS

Million Baht

3,500

3,000 2,500 2,000

1,500

2,858

2,488

2,468

3,331

3,194

1,000 1,010

1,153

500

897

806

714

339

316

402

410

258

2003

2004

2005

2006

2007

Sales EBITDA Net Profit

JW Marriott Hotel Bangkok

Annual Report 2007 The Erawan Group Public Company Limited

Grand Hyatt Erawan Bangkok Hotel

CHAIRMAN’S STATEMENT

The year of 2007 is considered by the current board of directors and management team as an important milestone for us all. It marks the third full year that we have been working together with the single goal in mind, that is, to develop The Erawan Group into one of Thailand’s leading hotel and resort developers. Along the way, roles and responsibilities were clearly and appropriately established for those involved in every facet of this development. With the firm belief in potentials of Thai tourism, we have spent in excess of Baht 4,500 million over the past 2-3 years. This is one part of an aggressive expansion plan, with over Baht 9,000 million in investment budget. The objective is to expand and diversify our hotel and resort portfolio in order to cover all key business and tourist destinations in Thailand. Our shareholders should be able to reap benefits from this plan from late 2007 onwards. Still, we believe that development and improvement must be carried out on a continual basis. The platform is solid with 50% of our board represented by independent directors and key responsibilities appropriately delegated to 4 subcommittees. One important procedure that has allowed us to develop such solid platform is the nomination process. We have been bringing together directors from diversity of background to supervise and monitor the development progress. Among responsibilities delegated are investment and risk management, performance evaluation for top management, and development of succession plan. The “Board of the Year for Distinctive Practices” award given to us during 2007 signifies that we are on the right path. The Erawan Group is one of only 19 recipients of such precious commendation selected by Board of the Year Awards 2006/07 which made up of representatives from Thai Institute of Directors, The Thai Chamber of Commerce, The Federation of Thai Industries, The Thai Bankers’ Association, Listed Companies Association, Federation of Thai Capital Market Organizations, and The Stock Exchange of Thailand. Our shareholders have continued to show strong support with conversion of warrant into common shares during December 2007. More than Baht 500 million was raised in the process to help support the said expansion plan. On behalf of all of us here at The Erawan Group, I would like to thank for the supports from not just our shareholders but our customers, suppliers, lenders, and all stakeholders. This board of directors promises to continue with diligent supervision and monitoring of The Erawan Group, as we have been carried out over the past few years. Our company will certainly achieve sustainable growth, not only in terms of size but also quality, while continuing to be a true citizen to Thai society.

Mr.Luen Krisnakri Chairman of the Board of Directors

Board of the Year for Distinctive Practices 2006/07

CEO’s REVIEW

Annual Report 2007 The Erawan Group Public Company Limited

It has been 3 years since the initial implementation of our plan to develop The Erawan Group into a ‘quality proxy’ for Thai tourism. One of the milestones in this plan has been achieved in 2007, resulting in our ownership of highest market capitalization among companies listed on the Tourism and Leisure Sector. Although our normalized net profit was negatively affected by political factor during 20071, we believe that fundamentals of Thai tourism have not been deterred by this short-term impact. During the year, we acquired 4 more sites for economy hotels under the “Ibis” brand. Consequently, there are now 8 Ibis hotels in development, from the total of 10 planned sites. As for restructuring activities, we decided to sell Amarin Plaza, our very first property. At the time, the leasehold for this property had less than 8 years remaining, making it not financially viable for us to further invest into this property beyond the renovation undertaken back in 2005. This divestment effectively mitigates risks associated with the operation of a building near the end of leasehold period. Additional benefits of this sale is the Baht 172 million gain on sale of investment booked during the year, and cash proceed which was used to support our hotel expansion plan. In the near future, hotel properties are then expected to account for more or less 90% of our revenues and profits. Another milestone achieved during 2007 was the opening of Courtyard by Marriott Bangkok. This completes a conversion of “Parklane Mansion”, 45-room service apartment, into a 4-star hotel with 316 rooms in Soi Mahadlekluang 1 and denotes the beginning of our diversification outside 5-star hotel segment. We plan to open 5 other hotels during 2008 and another 6 in 2009 to complete Phase 1 of our expansion plan. By then, we will own 16 hotels, serving various market segments and covering all key business and tourist destinations in Thailand. That will make us a true representation of Thai tourism. With an aggressive expansion plan, we have always realized the need along the way to improve the standard for internal process within our organization. Among many developments we have made internally are analytical skills for evaluation and monitoring of hotels’ performances, an effective and transparent procurement procedure, resourceful data and knowledge base, and efficient management of construction progress. More importantly, we have developed a 3-layer succession plan from CEO down to Vice President Level. A corporate culture was ultimately re-created with 4 specific mottos to support our goal to achieve success with integrity. These mottos are : “Team spirit”, “Learning and improvement”, “Commit to success”, and “With Integrity”. Additionally, 10 meanings of integrity according to Erawan’s culture were defined, for our employees to use as a guideline on how to conduct themselves responsibly with customers, suppliers, alliance, debtors, other employees, shareholders, society, and environment. As for corporate stakeholder responsibility or SC: social contributions activities, an objective guideline has been established. Each year, we will allocate 0.5% of the net profits as a budget for CSR-related activities. During the past years, projects that we initiated or participated are as follows:

1 CFO’s report

• In conjunction with other members of Ratchaprasong Square Trade Association (RSTA), several CCTV (close-caption television) sets have been installed to provide a security system in the Ratchaprasong intersection area and BTS walkway between Chidlom station and Central World. • Five computers were donated to Ban Konaka School in Phuket and a budget was also given to the school to install ceramic floortiles for the purpose of sanitation. • Landscape at Duangpitak Road was improved where green space was added as part of the project to do good deeds for our Father. • On the auspicious occasion of His Majesty the King’s 80th birthday anniversary, we initiated a “Thai Mural Painting Photographs Project” in an attempt to preserve our nation’s forlorn treasures. More than 400 participants were drawn and generously donated to the severalactivities namely the auction of mural photographs and sales of calendars and booklets. We have raised a total of Baht 3,945,999 and presented the entire proceeds to His Majesty the King, for the royal disbursement on worthy causes. We will continue to develop The Erawan Group into an institution with a good blend of business excellence, integrity, and corporate stakeholder responsibility. In order to achieve this long-term objective, some negative impacts may be perceived along the way. Still, we believe that the strategic plan implemented over the past 3 years and still is in progress, will ultimately create a solid platform for sustainable growth that will benefit our shareholders in the long run.

Mr.Kasama Punyagupta President and Chief Executive Officer

Courtyard by Marriott Bangkok

CFOâ&#x20AC;&#x2122;s REPORT

2007 Profit & Loss

Financially, 2007 was one of the most eventful years in our 25-years history. Operation-wise, it is the year of two halves for our two flagship hotels. In the first 6 months, Grand Hyatt Erawan and JW Marriott suffered from the aftermath of New Year bombs in Bangkok. Events were cancelled and corporate travelers very slowly regained their confidence in terms of safety around Bangkok. Occupancy, however, bounced back nicely in the second half of the year especially the last few months as safety was no longer a concern and political tension started to ease. Thanks to this second half recovery, the two hotels were able to maintain their revenues on par with the year before. As for restructuring activities, we sold Amarin Plaza, our very first property, back to the landlord in March and booked gains of Baht 172 million during the year. Consequently, there has been no income or profit from this property since the second quarter of the year. We also merged the operations of JW Marriott and Ploenchit Center into the parent company. Subsequently a 100%-own subsidiary, Erawan Ploenchit, is in the process of liquidation and a one-time goodwill write-off of Baht 26 million was booked in December.

Annual Report 2007 The Erawan Group Public Company Limited

On the development side, we opened our fourth hotel, Courtyard by Marriott Bangkok, in October. More importantly, this is the first among many to be opened during the on-going plan to expand and diversify our portfolio. During the year, hotel projects in development along with already launched Courtyard combined to have a pre-opening expense of Baht 78 million. At the end, our net profit for 2007, Baht 402 million, remained relatively unchanged from a year ago. In short, gains from Amarin Plaza sale were able to cover for all the negatives that happened during the year namely impacts from New Year bombs; pre-opening expenses from our new hotels; one-time write-off of goodwill; and foregone profits from Amarin Plaza from second quarter onwards. Baht Million Hotelsâ&#x20AC;&#x2122; Operating income Rental and service income Totel Operating Income Operating expenses EBITDA Deperation & amortization Operating Profit Other income Interest expenses Pre-tax Profit Taxes Minority interest Normanlized Net Profit Non recurring items - net* Net Profit E.P.S. * Details are explained in later section of this report

2006

2007

2,711.6 619.3 3,330.9 (2,164.9) 1,166.0 (400.9) 765.1 31.2 (222.7) 573.6 (104.7) (68.8) 400.1 9.8 409.8 0.25

2,748.0 446.4 3,194.4 (2,105.6) 1,088.8 (400.7) 688.0 25.2 (221.3) 491.9 (95.6) (62.4) 333.9 68.0 401.9 0.20

changes +1% -28% -4% -3% -7% -0% -10% -19% -1% -14% -9% -9% -17% +597% -2% -20%

Renaissance Koh Samui Resort and Spa

More excitedly, however, is how our 5-year expansion plan has started to taking shape in our income breakdown. The table below shows changes in our income structure over the past 3 years.

Btm five-star Central Bangkok Hotels five-star Resort four-star Central Bangkok Hotel Income from hotel properties Rent from office space Rent from retail space Rent from Service Apartment Income from rental properties Others (Food Court, Parking, etc.) Gains from sales of onvestment Total

2005

2,329 51 2,380 152 198 8 358 164 2,901

% total 80.3% 1.8% 0.0% 82.0% 5.2% 6.8% 0.3% 12.3% 5.6% 0.0% 100.0%

Btm

2006

2,533 178 2,712 236 244 480 170 23 3,385

2007

% total

Btm

74.8% 5.3% 0.0% 80.1% 7.0% 7.2% 0.0% 14.2% 5.0% 0.7% 100.0%

2,529 188 31 2,748 178 161 339 132 172 3,391

% total 74.6% 5.5% 0.9% 81.0% 5.2% 4.8% 0.0% 10.0% 3.9% 5.1% 100.0%

If gains from sales of investment are excluded, this is how our income looks over the past 3 years. Million Baht 3,500

3,362 16%

3,000

-4%

Other services

3,219

2,901 Retail

2,500

Office

2,000 1,500

4-Star CBD Hotels

1,000

5- Star Resort

Annual Report 2007 The Erawan Group Public Company Limited

500

5- Star CBD Hotels

2005

2006

2007

The diagram above shows two significant changes: Sharp reduction in rental income from office and retail spaces as a result of Amarin Plaza sale and gradual increase in contribution from hotels other than our two five-star CBD properties. During 2007, operating statistics for our hotel properties including recently opened Courtyard by Marriott Bangkok (â&#x20AC;&#x153;CYâ&#x20AC;?) are as follows:

Baht/Room/Night 7,000 6,000 5,000

79% 5,767

73% 6,042

82% 4,876

78%

68% 71%

Occupancy Rate

6,378

Average Room Rate (ARR)

6,339

5,137

4,000

Revenue per available room (Rev Par)

3,000 2,000

4,560

4,411

3,991

4,032

4,317

4,524

52% 2,070

1,000 1,075

2006 2007

Nov-Dec 07

Grand Hyatt Erawan

JW Marriott

Renaissance Koh Samui

Courtyard by Marriott

As explained earlier, our two five-star hotels in Bangkok, Grand Hyatt Erawan Bangkok (“GHEB”) and JW Marriott Bangkok (“JWM”) had a weak first half but a good recovery in the latter part of the year. Raising the average room rates (“ARR”) was not much of an issue as both hotels’ ARR were up 5% from 2006. Business volume, in first 6-7 months in particular, was the main difference between 2006 and 2007. During that period, occupancy rates for the two hotels drastically dropped from a year earlier as travelers in the five-star segment prove to be very sensitive to safety concern and political climate. The situation improved greatly in the second half as embassies stopped issuing travel warnings and political tension started to ease. Also, JWM has exceptionally strong third quarter thanks to strong demand from the Middle East market. At the end, Revenue per available rooms (“RevPar”) for GHEB and JWM remained relatively unchanged from a year ago as the diagram above shows. It is also worthwhile to note that, same as 2006, these 2 hotels outperformed the five-star CBD segment which saw a year-on-year drop in RevPar of 6% in 2007. GHEB and JWM rank 1st and 4th in terms of RevPar among 13 five-star hotels in CBD in 2007. As for CY, our third Bangkok hotel, statistics above only reflect the first two months of operations. We are expecting much bigger things from this property in 2008 and years to come. 2007 was the second full year of operations for our first resort hotel, Renaissance Koh Samui (“RKS”). The strategy of attracting more volume by offering competitive pricing seems to work in 2007. Through increased occupancy rate, the resort was able to achieve a mild 5% year-on-year growth in RevPar to despite a surprisingly weak performance for Koh Samui market. As our hotels’ food & beverage (“F&B”) operations rely more on local customers than hotel guests, low occupancy rates in the first half did not have much impact on this portion of our income. Combined F&B sales for 2007 were Baht 1,122 million, up 3% from 2006. The income breakdowns for our 4 hotels in 2007 are in the diagram below.

Million Baht 1,400

1,349 1,337 97

1,185 1,194

1,200 1,000

From the operations*

116

108

619

635

427

437

633

612

642

649

From food & beverages operations From room sales

800 600 400 200

178

188

40 123

44 129

2006 2007

Nov-Dec 07

Grand Hyatt Erawan

JW Marriott

Renaissance Koh Samui

Courtyard by Marriott

*Excluding rent and service income

RKS again has the highest growth among our hotel properties with 6% increase from 2006. JWM’s and GHEB’s income was relatively unchanged from a year ago, up 1% and down 1% respectively. A more evident change is seen, however, at percentage breakdown structure among our hotels. Even with just 2 months of operations, CY contributed 1% of our total income from hotel operations. GHEB and JWM, or descriptively five-star CBD properties, now accounts for just slightly above 90% of our hotel revenues, compared to 100% just a few years ago. In terms of profitability, CY with only 2 months of operations still has reached not breakeven level in terms of profits. Earnings before Interest, Depreciation, and Amortization (“EBITDA”) and operating profit from GHEB, JWM, and RKS are shown below. Million Baht 550 500

450

510 468

400

EBITDA 464

453

Annual Report 2007 The Erawan Group Public Company Limited

350 300 250 200

412

364

354

324

Operating Profit

150 100 50 38

2006 2007

Grand Hyatt Erawan

JW Marriott

Renaissance Koh Samui

* Standalone basis excluding the effects of eliminations for consolidated accounts and head office expenses

GHEB, JWM, and RKS combined to generate Baht 968 million in EBITDA and Baht 702 million in operating profit, down 4% and 9% from a year ago respectively. Margins for GHEB and JWM dropped despite its ability to generate the same level of revenues as last year. Again, the reason for lower margins is that there are several expense items which increase in line with inflation rather than sales. All staff-related and property maintenance expenses fit in this category. For the same reason, margins for RKS improved approximately 300 basis points from a year ago with its 6% revenue growth.

Six Senses Destination Spa Phuket

For CY in 2007, excluding Baht 40 million pre-opening expenses (booked in “Selling & Administrative expenses” in our P&L), the hotel still managed to generate Baht 2 million in EBITDA despite being in operation for just 2 months. This level of EBITDA was not able to cover for depreciation and interest expenses which came on since the hotel was opened. So, CY posted a net loss of Baht 10 million in 2007 (Baht 50 million net loss if pre-opening expenses are included). For our rental properties, the diagram below shows the average occupancy and rental rates for 2007. Sq.M. Average Receipt (Bt/sqm.month)

45,000 387

40,000 35,000

502

410

Vacancies

517

Occupied space

30,000 25,000 20,000

82%

95%

97%

15,000 10,000

1,293 1,208

5,000

89%

84%

2006 1Q/2007 Amarin Plaza

2006 2007

Ploenchit Center

Erawan Bangkok

The statistics for Amarin Plaza and Tower (“AP”) in 2007 only reflect the first quarter before we sold the property at the end of March. The transaction was made in a form of sale of all outstanding shares of Erawan Ratchaprasong Co., Ltd. (“ERP”), previously a 100%-own subsidiary, to Gaysorn Holding Co., Ltd, who is also the landlord. We cited 3 main reasons for this divestment as follows: 1. Protection for downside operational and financial risks for the last 3 years of leasehold (2012-2014) 2. Relocation of resources (Management time and any future funding requirement) to our core business, hotel development. 3. Neutralizing the effects from non-recurring expenses: Gains from this transaction more than compensated for pre-opening expenses from CY and Six Senses Destination Spa Phuket. Despite starting the year already at 97% occupancy, Ploenchit Center (“PC”) continued to show strong growth throughout 2007. As agreements for office tenants gradually renewed, PC’s average monthly receipt increased to over Baht 430 per square metre compared from Baht 390 at the beginning of the year. As for Erawan Bangkok (“EB”), occupancy rate bottomed out at 78% in May then gradually increased to 85% by year-end. EB’s average monthly rent in 2007 was lower than a year ago as discounts were given to tenants for a few months to help ease the impact slowdown in domestic economy.

Including income from other services such as F&B sales from food courts, utility income, and parking fees, our rental properties generated Baht 420 million in revenues in 2007. A 28% year-on-year decline is, evidently showed in the diagram below, caused by the absence of AP’s contribution in the last 9 months of 2007. Separately, PC’s revenues grew 11% year-on-year while EB’s total income dropped 14% to Baht 46 million in 2007. Million Baht Others

275 250 225

242

234

200 175 150

Annual Report 2007 The Erawan Group Public Company Limited

259

Retail

Office 44

125

107

100

75 50

101

135

149

92 14

69 93

2006 1Q/2007 Amarin Plaza

2006 2007

Ploenchit Center

Erawan Bangkok

EBITDA from rental properties was a combined Baht 214 million, down 12% again due mainly to absence of AP. But with depreciation charges from AP gone, our rental properties were then able to register a 6% growth in operating profit to Baht 113 million. Million Baht 140 130

132

EBITDA

120 110 100

105

90 80

60 50

55 48

40 30 20

Operating Profit

36 29

29 22

10 0

2006 1Q/2007 Amarin Plaza

2006 2007 Ploenchit Center

2006 2007 Erawan Bangkok

* Standalone basis excluding the effects of eliminations for consolidated accounts and head office expenses

The growth is even higher, if AP was to be excluded. Our two remaining rental properties combined to achieve an 11% growth in EBITDA to Baht 178 million and an 18% growth in operating profit to Baht 91 million.

Margins improved for all our rental properties as some of the main cost items either stayed put or increased in line with inflation. These costs are, for instance, rent to landlords, staff-related items, and utilities. Outside financial figures from operations, these are items that have made differences to our 2007 Income Statement. Non recurring items : Included in non recurring items (net) of Baht 68 million for 2007 are 1.

Sale of Amarin Plaza On 30 March 2007, we sold Amarin Plaza to Gaysorn Holding, the landlord, via sale of investment in ERP,a wholly-owned subsidiary. A total of Baht 172 million was booked as “Gains from sale of investment in subsidiary” during the year. Pre-opening expenses These costs consists mainly of salaries and sales & marketing costs which the hotels incur prior to their openings. During 2007, the combined pre-opening expense was Baht 78 million, Baht 40 million from CY (opened in November), Baht 37 million from Six Senses Destination Spa Phuket (to be open in the first half of 2008) and Baht 1 million from Ibis projects (to gradually be opened in the first half of 2008 onwards). These costs are booked in “selling and administrative expenses”. Goodwill write-off At the end of 2007, we merged the operations of JWM and PC into the parent company, The Erawan Group Plc., to complete internal restructuring which had been on-going since 2005. Subsequently, a one-time charge of Baht 26 million was booked in “Depreciation and amortization” to write off all the goodwill from investment in subsidiaries.

In 2006, there were 3 non recurring items (1) Gain from sale of Hattawan Co., Ltd., land bank on Changwattana Road, of Baht 23 million (2) Commission on this share sale of Baht 4 million (booked as “selling and administrative expenses”) and (3) one-time compensation for early retirement of Baht 9 million (Baht 3 million booked in “Cost of sales and direct costs of rental and services”, another Baht 6 million in “selling and administrative expenses”). Depreciation & amortization : Excluding goodwill write-off mentioned, this expense stay unchanged from 2006 at Baht 401 million. Absence of depreciation from Amarin Plaza (since the second quarter) more than offset the additional charges from recent renovations at GHEB and JWM (up Baht 24 million combined) and the opening of CY (Baht 8 million). Interest expense : Baht 221 million in 2007 was 1% lower than last year despite our total interest-bearing debts being increased by 12% to Baht 5,142 million as at 31 December 2007. There are two explanations for this. First, banks’ interest rates declined by 87.5 basis points during the year. Second, and more importantly, approximately 20% of our total debts are project loans whereas interest expenses are capitalized as assets. In 2006, almost all of our loans’ interest went into Income Statements.

Financial Status

As of 31 December 2007, our total assets were Baht 10,255 million, an increase of 18% from Baht 8,721 million at the end of 2006. This is a result of Baht 2,172 million capital expenditure occurred during the year. Most of these are for projects which are parts of our 3-year master plan to become one of the leading player in Thailand’s hospitality business. (See “Our Properties under development” for details of future projects) The breakdown of 2007 capital expenditure is as follows : Hotels in operation

Rental properties & Others 4%

Annual Report 2007 The Erawan Group Public Company Limited

18 Ibis budget hotels

Six Senses Destination

20%

32%

Holiday Inn Pattaya 5%

Spa Phuket

Courtyard by Marriott 31%

Addition to cashflow from operations, Baht 770 million long-term loans drawn during the year and Baht 518 million from warrant conversion were the sources of funding for 2007 capital expenditure. In December, 482,186,599 warrants were converted into 241,098,001 common shares at Baht 2.15 each. Our paid-up capital at year end was then increased to Baht 2,215 million which translated into a debt-to-equity ratio (D/E) of 1.7 times, lower from 2.0 times at the end of 2006. Perhaps a better indicator of our liquidity situation is net debt to EBITDA ratio which stood at 4.9 times. Though relatively high, we considered this a manageable level since our interest coverage is still high at 4.6 times. We also have an unused short-term loan facility of Baht 1,020 million at end of 2007, Baht 680 million of which is committed.

Mr.Poom Osatananda Chief Financial Officer (CFO)

STATEMENT FROM THE AUDIT COMMITTEE

To Shareholders of the Erawan Group Public Company Limited,

The Audit Committee, consisting of three independent directors with qualifications as announced by the Stock Exchange of Thailand and whose terms are two years each, performed its duties within its scopes of responsibility and as entrusted by the Board. In 2007, the Audit Committee met six times to consider the following: 1. To review the quarterly financial statements and the 2007 financial statements where it exchanged views with the auditor, Executive Vice President, Treasury Department, and the internal auditor to determine that the financial statements of the Company and its subsidiaries were having accurate and complete information deserved to be trusted and were in line with the Generally-Accepted Accounting Principles, the SET’s announcements and the SEC’s notifications. 2. To evaluate an adequacy of the internal control system to see if the Company had an appropriate internal control system that well responded to its business, as well as a way and mean to take care of its properties and to prevent the Company from suffering damages. The evaluation was conducted through the internal auditor’s report, the auditor’s report and through inquiries with the management. So far, no material defect has been found. As a result, the Company’s internal control system is perceived to be efficient and adequate. 3. To approve transactions that may cause a possible conflict of interest and to disclose information of these transactions to see if they were normal, reasonable and was for the best interests of the Company while in compliance with the authorities’ rules and regulations. 4. To give advice and approve the annual auditing plan, to acknowledge and submit an internal auditing result to the Board, to review an annual budget and to supervise and evaluate the Internal Audit Department’s performance. The Audit Committee, having reviewed the 2008 auditor and the soundness of the auditing fee, eventually proposed to the Board of Directors to seek the Annual General Meeting’s approval to appoint Ms.Rungnapa Lertsuwankul, CPA No. 3516 and/ or Mr. Sophon Permsirivallop, CPA No. 3182 and/or Ms. Sumalee Reewarabandith, CPA No. 3970 and/or Mrs. Nonglak Pumnoi, CPA No. 4172 of Ernst & Young as the Company’s auditor in 2008.

Mr. Prakit Pradipasen Chairman of the Audit Committee 19 February 2008

REPORT OF THE BOARD’S RESPONSIBILITY TO THE FINANCIAL STATEMENTS

The Board of Directors was responsible for the financial statements of The Erawan Group Public Company Limited and its subsidiaries as well as financial information in the Annual Report. The financial statement was done according to the Generally-Accepted Accounting Principles in Thailand where an appropriate accounting policy was chosen and implemented. In addition, discretion was exercised, the best estimates were selected and adequate information was disclosed in Notes to Financial Statement for transparency and benefits to shareholders and investors.

Annual Report 2007 The Erawan Group Public Company Limited

The Board also set up and maintained an effective and appropriate internal auditing system so that accounting information would be accurate, complete and enough to maintain the Company’s assets and prevent corruption or unusual transactions with material essence. The Board appointed the Audit Committee, which consisted of independent directors, to oversee the quality of the financial statements and the internal control system. The Audit Committee’s opinion in this matter was in statement from the Audit Commitee. The Board is of the opinion that the overall internal auditing system of the Company is satisfying. This has so far contributed to a reasonable belief that the financial statements of the Erawan Group Public Company Limited and its subsidiaries for the year that ended 31 December 2007 are reliable and in compliance with the GenerallyAccepted Accounting Principles and all the laws, rules and regulations.

Mr.Luen Krisnakri

Mr.Kasama Punyagupta

Chairman of The Board of Directors

President and Chief Executive Officer

ABOUT ERAWAN

CORPORATE PROFILE

Annual Report 2007 The Erawan Group Public Company Limited

1991

1996

1997

Grand Hyatt Erawan Bangkok

Ploenchit Center

JW Marriott Bangkok

The Erawan Group Public Co., Ltd. The Erawan Group is proud of our achievements, including: 1985 : Amarin Plaza 1991 : Grand Hyatt Erawan Bangkok 1994 : Company registered on Stock Exchange of Thailand 1996 : Ploenchit Center 1997 : JW Marriott Bangkok 2004 : Erawan Bangkok 2005 : Renaissance Koh Samui Resort and Spa 2007 : Amarin Plaza Sold Courtyard by Marriott Bangkok, Hotel

2004

2005

2007

Erawan Bangkok

Renaissance Koh Samui Resort and Spa

Courtyard by Marriott Bangkok

OUR BUSINESS STRATEGY

At the Erawan Group Plc., we operate on three core business strategies as follows :

1. To maximize the values of our existing assets via proper usage and effective cost management. 2. To focus on developing a well-diversified portfolio of hotel and resort development in terms of income risks while returns are. 3. To create long-term sustainability for our organization by developing systems, core competencies for our staff, database to help decision-making, and corporate cultures.

Annual Report 2007 The Erawan Group Public Company Limited

Hotels 74%

100%

Grand Hyatt Erawan Bangkok

JW Marriott Bangkok

Renaissance Koh Samui Resort and Spa

100%

Courtyard by Marriott Bangkok

Six Senses Destination Spa Phuket *May 2008

Hotels (Under Construction) 100%

100%

Holiday Inn Pattaya

10 Ibis Hotels

*Q3/2009

*2008-2009

Offices/Retail Plaza

*Scheduled openings

100%

Ploenchit Center

Erawan Bangkok

OUR PROPERTIES IN OPERATION

Our main business objective is to invest in and develop hotel properties that are strategically located to cater to demand from diverse consumer segments. We currently have 5 hotels in operations which, for now, represent our core assets. As a non - core business, we also own and manage 2 rental properties. The details of these properties are as follows : Hotels and Resorts

Grand Hyatt Erawan Bangkok

Annual Report 2007 The Erawan Group Public Company Limited

www.bangkok.grand.hyatt.com

• 5 - Star hotel • Located at the heart of Bangkok’s Central Business District on Rajdamri road. • 380 Rooms • 34 years remaining on the current lease

JW Marriott Bangkok Hotel www.marriott.com/bkkdt

• • • •

5 - Star hotel Located in Bangkok’s Central Business District on Sukhumvit road. 441 Rooms 37 years remaining on the current lease

Renaissance Koh Samui Resort and Spa www.marriott.com/usmbr

• 5 - Star Resort • Lamai Beach, Koh Samui • 45 deluxe rooms and 33 pool villas

Courtyard by Marriott Bangkok www.courtyard.com/bkkcy

• • • •

4 - Star hotel (First “courtyard” hotel in Thailand) Located at the heart of Bangkok’s CBD on Rajdamri road. 316 Rooms 30 years lease beginning Jan 2008

Six Senses Destination Spa Phuket www.sixsensesdestinationspas.com

• • • •

5 - Star hotel Located on Koh Naka Yai, Phuket 67 deluxe pool villas and 30 treatment rooms Opening : May 2008

Rental Properties - Office Buildings and Shopping Centers

Ploenchit Center • Located on Sukhumvit Road, adjacent to the JW Marriott Hotel Bangkok • 40,000 sq.m. of rental space company (85% office) • 17 years remaining on the current lease

Erawan Bangkok www.erawanbangkok.com

• Located at Ratchaprasong, adjacent to the Grand Hyatt Erawan Hotel Bangkok • 7,000 sq.m. of commercial rental space. • 34 years left on lease

OUR PROPERTIES UNDER DEVELOPMENT

PATTAYA

Holiday Inn Pattaya

No. of Rooms : 367 rooms 4 - star resort Location : On approximately 6.5 rai plot of land on North Pattayaâ&#x20AC;&#x2122;s 1 Road Target customer : MICE and Leisure Investment : Approx. Bt 1,800 million Scheduled opening : Q3/2009

Ibis Patong Phuket

Annual Report 2007 The Erawan Group Public Company Limited

No. of Rooms : 260 rooms Location : On approximately 4 rai plot of land near Patong Beach. Target customer : Leisure Investment : Approx. Bt 470 million Scheduled opening : May 2008

Ibis Sathorn Bangkok No. of Rooms : 213 rooms Location : On approximately 1.5 rai plot of land on Soi Ngamduplee (5 minutes walk to Lumpini MRT station) 30 - years lease beginning Jan 2008 Target customer : Business & Leisure Investment : Approx. Bt 354 million Scheduled opening : July 2008

Ibis Pattaya No. of Rooms : 259 rooms Location : On approximately 2 rai plot of land on Pattaya sai 2 road. Target customer : MICE and Leisure Investment : Approx. Bt 430 million Scheduled opening : July 2008

Ibis Samui No. of Rooms : 260 rooms Location : On approximately 7 rai plot of land on Bo Phut Beach Target customer : Leisure Investment : Approx. Bt 580 million Scheduled opening : October 2008

Ibis Nana Bangkok No. of Rooms : 205 rooms Location : On approximately 1.5 rai plot of land on North Nana (Sukhumvit soi 4) 30 - years lease beginning Jan 2008 Target customer : Business & Leisure Investment : Approx. Bt 360 million Scheduled opening : Q1 / 2009

Ibis Krabi No. of Rooms : 200 rooms Location : On approximately 4 rai plot of land on Ao Nang Target customer : Leisure Investment : Approx. Bt 350 million Scheduled opening : Q4 / 2009

Ibis Sriracha No. of Rooms : 200 rooms Location : On approximately 4 rai plot of land on Central commercial of Sriracha Target customer : Business Investment : Approx. Bt 330 million Scheduled opening : Q4 / 2009

Ibis Riverside Bangkok No. of Rooms : 250 rooms Location : On approximately 6 rai plot of land on Chaopraya Riverside 26 years remaining lease (expire in 2034) Target customer : Leisure Investment : Approx. Bt 400 million Scheduled opening : Q4 / 2009

Ibis Kata Phuket No. of Rooms : 260 rooms Location : On approximately 4 rai plot of land on Kata Beach Target customer : Leisure Investment : Approx. Bt 500 million Scheduled opening : Q4 / 2009

Ibis Hua-Hin No. of Rooms : 200 rooms Location : On approximately 2 rai Target customer : Leisure Investment : Approx. Bt - 400 million Scheduled opening : Q1 / 2010

Annual Report 2007 The Erawan Group Public Company Limited

Six Senses Destination Spa Phuket

HOTELS AND RESORTS PORTFOLIO by 2010

Grand Hyatt Erawan Bangkok

Ibis Nana Bangkok

Courtyard by Marriott Bangkok

Ibis Sathorn Bangkok

Ibis Riverside Bangkok

JW Marriott Bangkok

BANGKOK

SRIRACHA HUA-HIN Renaissance Koh Samui Resort and Spa

PATTAYA

Ibis Sriracha

Ibis Hua-Hin

SAMUI Ibis Samui

Ibis Pattaya PHUKET

KRABI

Ibis Krabi Six Senses Destination Spa Phuket

Ibis Patong Phuket Ibis Kata Phuket

Holiday Inn Pattaya

OUR CAPITAL STRUCTURE AND MANAGEMENT

As at 28 December 2007, the company ‘s paid up capital is 2,214,574,625 Baht (divided into : 2,214,574,625 ordinary shares at par value 1 Baht/share) Top ten shareholders holding the highest number of shares as of 28 December 2007 are as follows :

Annual Report 2007 The Erawan Group Public Company Limited

1 2 3 4 5 6 7 8 9 10

Shareholder’s name

No. of shareholding

Mr. Sukakarn Wattanavekin** City Holding Co., Ltd.* Mitr Phol Sugar Co., Ltd.* MBK Plc. SOMERS (U.K.) Ltd. Mr. Isara Vongkusolkit* Chodthanawat Co., Ltd.** MP Particle Board Co., Ltd.* HSBC BANK PLC-CLIENTS GENERAL A/C Miss Chintana Kanjanakamnerd*

379,185,716 259,476,918 166,853,314 92,270,838 92,064,000 90,936,777 85,785,687 76,530,614 66,531,700 61,287,954

17.1% 11.7% 7.5% 4.2% 4.2% 4.1% 3.9% 3.5% 3.0% 2.8%

1,370,923,518

61.9%

Total top ten shareholders holding

Note : Investor will be able to see the updated shareholders list from the Company’s website at www.theerawan.com before the Annual General Shareholders’ Meeting.

The whole shareholders can be separated by groups as follows : Major Shareholders’ Groups Vongkusolkit Group* Wattanavekin Group** Total major shareholders’ groups Foreign Custodian Accounts Group Local Funds Group Insurance Co. Group Company’s executives Others Total

No. of shareholding 876,937,794 696,045,599 1,572,983,393 280,600,752 61,648,974 54,857,466 13,254,203 231,229,837 2,214,574,625

% 39.6% 31.4% 71.0% 12.7% 2.8% 2.5% 0.6% 10.4% 100.0%

Note : *and **are the groups of major shareholders whose behavior influences management policy or the Company’s operation significantly.

Management Structure currently consists of five boards and committees which govern each parts of management, namely: The Board of Directors, The Financial and Risk Management Committee, The Audit Committee, The Nominating and Corporate Governance Committee and The Management Development and Compensation Committee.

Board of Directors consists of the following 12 directors:

Name 1. Mr. Luen Krisnakri

Title Chairman of the Board*

2. Mr. Prakit Pradipasen

Director and Chairman of the Audit Committee* 3. Assoc. Prof. Manop Pongsadadt Director and Member of Audit Committee* 4. Mr. Dej Bulsuk Director and Member of Audit Committee* 5. Mr. Banyong Pongpanich Director*

6. Mr. Dolchai Boonyaratavej

Director*

7. Mr. Vitoon Vongkusolkit

Director

8. Mr. Supol Wattanavekin

Director

9. Mr. Chanin Vongkusolkit

Director

10. Mrs. Panida Thepkanjana

Director

11. Mr. Krisda Monthienvichienchai Director 12. Mr. Kasama Punyagupta

President & CEO

Education • Faculty of Engineering • Honorary Doctoral of Engineering Chulalongkorn University • MBA Wayne State University, Michigan, U.S.A. • Master of Architecture (M.Arch). Kansas State University, U.S.A. • Faculty of Commerce & Accountancy Thammasat University • MBA (Finance) Sasin Graduate Institute of Business Administration Chulalongkorn University • MSA (Advertising Design) Syracuse University, New York, U.S.A. • Bachelor of Science Chulalongkorn University • Master of Management Sasin Graduate Institute of Business Administration Chulalongkorn University • MBA (Finance) St. Louis University, Missouri, U.S.A. • MBA Sasin Graduate Institute of Business Administration Chulalongkorn University • Master of Laws Chulalongkorn University • Barrister-at-Law The Institute of Thai Bar Association • MBA Chulalongkorn University • MBA (International Business) University of Bridgeport, Connecticut, U.S.A.

Company Secretary : Mr. Viboon Chaisutyakorn Note: *Independent director according to the rules. Nomination is done by contacting competent and experienced experts. The variety for areas of expertise must be sufficient in order to appropriately formulate direction for business development. At the same time, this group of experts must perform check-and-balance roles with the management. Directors that represent the major shareholders are.

Directors that represent the major shareholders are. Director’s Names

Annual Report 2007 The Erawan Group Public Company Limited

Groups of major shareholders

1. Mr. Vitoon Vongkusolkit 2. Mr. Chanin Vongkusolkit 3. Mr. Krisda Monthienvichienchai

Vongkusolkit Group

4. Mr. Supol Wattanavekin 5. Mrs. Panida Thepkanjana

Wattanavekin Group

The dividend payout ratio is increased from 25 percent, set for 2004-2006, to 35 percent of net profits after reserves that are required by the law or set by the Company. The ratio, nonetheless, depends upon cashflow from operations, funding requirement to support expansion by the Company and its subsidiaries, and any legal limitation and necessity that shall arise. Other important details of Management Structure are summarized as follows: Qualifications of Directors Principles:

The Board of Directors should consist of members with a variety of knowledge and experiences, whether it is in finance, economy, management, business administration, marketing and service, tourism and law. The idea is to ensure that together, they can formulate a right policy for the development of hotel and resort business while having specialized skills, ability to see things in a big picture and enough independence to audit the Management in a balancing manner. The Board of Directors has two significant roles; namely, supporting the Management on the basis of the Good Corporate Governance and formulate a strategy to achieve our business goals. General Qualifications:

1. Director should possess a variety of knowledge and experiences while being a professional with an ethical mind. 2. Director should fully understand his obligations and practices with a commitment to create long-term values to the business and shareholders. 3. Director should have enough time to perform his duties effectively. 4. Director should be able to assess himself and is ready to notify the Board of Directors upon change or if there is anything that prevents him from performing his job effectively. 5. Each director’s term of office is 3 years whereby the Board of Directors may nominate him to shareholders for re-election which however will be assessed from his performance on an annual basis. Specific Qualifications: Chairman

Aside from the duties mentioned above, Chairman will have extra duties; namely, (1) acting as chairman of the Board of Directors’ meeting; (2) exercising a casting vote in case of tie at the Board of Directors’ meeting; (3) calling for the meeting of the Board of Directors; and (4) acting as chairman of the Shareholders’ Meeting. As a result, qualifications of the Chairman will be slightly different from those of other directors as follows.

• Chairman must be Non Executive Director (NED). • Chairman must not be involved in a day-to-day management; nor shall he be employee, staff, advisor receiving monthly salary o a person with controlling power of the company, affiliated company, associated company, auditing company, or be a person who may have conflict of interest without having to have interest or stakes in such manner. Executive Director

• Director who is also Chief Executive Officer (CEO) is advised not to become director in more than three other listed companies. Independent Director

• Independent director shall hold less than 5 per cent of the total shares with voting rights in a company, its affiliated company, associated company or any other person with possible conflicts of interest. • Independent director must not be involved in the management and is currently not being and has never been employee, staff, advisor enjoying monthly income or person with controlling power of the company, its affiliated company, associated company and auditing company; nor shall he be a person with conflict of interest without having to have any interest or stake in such manner for no less than one year. • Independent director must have no direct or indirect business relationship, interest or stake financially and in the management of a company, its affiliated company and associated company; nor shall he be a person with possible conflict of interest in a manner that deprives him of his independence. • Independent director must not be a closed relative of executives or major shareholders of a company or its affiliated company, associated company or any person with possible conflicts of interest; nor shall he be appointed as representative to take care of interest of directors or major shareholders. • Independent director must not be director in company in which senior executives are co-directors. • Independent director must attend at least one of the following courses held by the Thai Institute of Directors (IOD); namely, Directors Certification Program (DCP); or Directors Accreditation Program (DAP); or Audit Committee Program (ACP). Transactions with Possible Effects to Independence

• Being authorized to approve transactions or signing to bind the company. • Being employee, staff, advisor with monthly income or person with controlling power of the company, its affiliated company, associate company, audit company; or being a person with possible conflict of interest. • Attending a meeting or voting in a matter he has an interest or a conflict of interest therein. Board of Director’s roles and responsibilities are:

1. To manage the Company is according to the laws, the Objects in Detail, the Articles of Association and resolutions of the Shareholders’ Meeting with integrity and prudence for the Company’s interests. 2. To determine the company’s visions obligations and business policy. 3. To review the Business Plan and development plans to increase potential of itself. 4. To consider budgets to maximum the business’s economic values and for better returns to shareholders. 5. To formulate the compensation policy and a succession plan of executives. 6. To supervise and develop risk assessment.

7. To supervise and develop the Companyâ&#x20AC;&#x2122;s corporate governance compliance. 8. To supervise and set up an internal control and an internal audit system. 9. To take care of interests of both major and minor shareholders so that they can equally exercise and maintain their interests while accessing accurate and complete information with transparence and accountability. 10. To appoint committees in order to determine scopes of work and monitor their performances. 11. To performance evaluationâ&#x20AC;&#x2122;s executives and the HR development policy. Term of Directors :

At the Annual General Meeting (AGM), one-third of all directors shall resign by rotation. The resigning directors may be re-elected. 3 years each term.

The Financial and Risk Management Committee consists of six members as follows :

Annual Report 2007 The Erawan Group Public Company Limited

1. 2. 3. 4. 5. 6.

Mr. Vitoon Vongkusolkit Mr. Banyong Pongpanich Mr. Supol Wattanavekin Mr. Chanin Vongkusolkit Mrs. Panida Thepkanjana Mr. Kasama Punyagupta

Chairman Member of the Committee* Member of the Committee Member of the Committee Member of the Committee Member of the Committee

Note: *Independent directors Financial and Risk Management Committeeâ&#x20AC;&#x2122;s roles and responsibilities are:

1. 2. 3. 4.

To Supervise financial operations of companies within the Group. To supervise, screen, approve and monitor approved investment projects. To assess and formulate a systematic, clear-cut and efficient risk management plan. To supervise and monitor risk assessment tasks as well as to adjust and develop the risk management on a regular basis.

Term of Financial and Risk Management Director: 2 years each term.

The Audit Committee consists of three members as follows:

1. Mr. Prakit Pradipasen 2. Assoc.Prof. Manop Pongsadadt 3. Mr.Dej Bulsuk Note: *Independent directors

Chairman* Member of the Committee* Member of the Committee*

Audit Committee’s roles and responsibilities are:

1. To review an annual financial statement already audited by auditors and to ensure that it meets the generally-accepted accounting principles; to consider and screen financial information together with the Financial and Risk Management Committee and the auditors before releasing it to the third party. 2. To select, propose for appointment and determine auditor’s fees. 3. To review material problems and obstacles the auditor may come across while performing his duty and to settle differences between the auditor and the management. 4. To supervise and ensure that proper and efficient internal control and internal audit systems are in place according to international standards. 5. To set up a defensive work system for business units in the Company to increase operation efficiency and effectiveness. 6. To review an annual internal audit plan proposed by the Internal Audit Office. 7. To supervise, review and offer opinions towards the Internal Audit Office’s performances, the performances of accounting director and finance director and the coordinate with auditors regarding financial auditing. 8. To promote and support the development of a financial reporting system that meets the international standards. 9. To control company’s compliance with the laws on securities and exchange and other legislations relating to its business. 10. To determine fraud prevention measures and review results of a corruption inspection report. 11. To review the accuracy and effectiveness of information technology relating to the internal control system; to offer advice for regular updates. 12. To consider the Company’s information disclosure in case of connected transactions or transactions which may involve conflict of interest to ensure that all are correct, sound and carried out in a normal course of business. 13. To prepare the Audit Committee’s report to be signed by chairman of the Committee and disclosed it in the Company’s annual report. 14. To act otherwise as required by the laws or entrusted by the Board of Directors; when performing along its scopes of work, the Audit Committee shall be empowered to order President & CEO, senior executives, heads of department or related staff to provide their opinions, participate in meeting or submit documents deemed necessary or relevant. Term of Audit director: 2 years each term.

The Nominating and Corporate Governance Committee consists of three members as follows:

1. Mr. Luen Krisnakri 2. Mrs. Panida Thepkanjana 3. Mr. Chanin Vongkusolkit Note: *Independent directors

Chairman* Member of the Committee Member of the Committee

Nominating and Corporate Governance Committee’s roles and responsibilities are:

1. To determine the Board of Directors’ composition and qualification of its members as well as members of board committees. 2. To nominate candidates for the Board of Directors and member of board committees. 3. To determine the Remuneration of Directors. 4. To propose corporate governance policies and guidelines to the Board of Directors and to review and update such policies and guidelines on ongoing basis. 5. To evaluate the Board of Directors and each committee’s performance and to ensure that the Board of Directors and management’s operations are being conducted within corporate governance policies and guidelines. 6. To promote knowledge acquisition for the company’s nature of business, regulations, and strategy.

Annual Report 2007 The Erawan Group Public Company Limited

Term of Nominating and Corporate Governance Director: 2 years each term.

The Management Development and Compensation Committee consist s of three members as follows:

1. Mr. Supol Wattanavekin 2. Mr. Vitoon Vongkusolkit 3. Mr. Banyong Pongpanich

Chairman Member of the Committee Member of the Committee*

Note: *Independent directors Management Development and Compensation Committee’s roles and responsibilities are:

1. To assess and evaluate performances; to determine annual remunerations and a compensation structure of President & CEO while offering him an advice regarding remunerations of senior executives. 2. To consider a plan to develop skills and competency of President & CEO nominees. (in case of change) 3. To determine significant HR policies i.e. and structure of staff’s remunerations for Annual Remunerations and Budgeting, Rewards (bonus) etc. 4. To consider an allocation of the Employees Share Options Program (ESOP) in case such allocation exceeds 5 per cent of the program’s shares. Term of Management Development and Compensation Director: 2 years each term.

Executives

The company’s executives consist of 6 members as follows: 1. Mr. Kasama Punyagupta President and Chief Executive Officer 2. Mr. Poom Osatananda Executive Vice President, Chief of Financial Officer 3 Mr. Anuphong Wangphongsawasd Executive Vice President, Business Development 4. Mr. Petch Krainukul Assistant Executive Vice President, Hotel Business 5. Mr. Suchai Wuthworachairung Assistant Executive Vice President, Human Resources 6. Mr. Surapon Jaimsuwan Vice President, Office Buildings & Shopping Centers Duties and Responsibilities of the President & CEO

(1) To formulate a long-term plan (four years) and a year plan as well as strategies to support the long-term plan to achieve its objectives. (2) Managing the organization structure with authority to do the following: • To determine an organization structure. • Issue rules and regulations, orders, circulars, line of command and organizational chart. • Determine approval authority. • Determine job descriptions and job specifications. (3) Developing operation systems as follows: • Information Technology system for management. • Administration and assessment system based on balance score card procedures. (4) Human resources management with authority to do the following: • Hiring, determining salaries and wage, bonuses, remunerations of staff, positions from vice president and lower. • Appointing, removing and transferring between departments. • Considering welfare based on policies approved by the Board of Directors. • Promoting corporate culture. • Strengthening skills and expertise by supporting the Company’s strategies. (5) Budgeting and managing business within the budget, work plan, projects and principles approved by the Board of Directors. Nomination of directors and executives

• The Company has a nomination process of its appointed directors and top executives through the Nominating and Corporate Governance Committee. • Rights of retail investors to appoint director.

Annual Report 2007 The Erawan Group Public Company Limited

Clause 19 of the Company’s Articles of Association provides details about director’s appointment. Clause 49.1 determines shareholder’s votes as follows. Clause 19 The Shareholders’ Meeting shall elect directors according to the following rules and procedures: 19.1 Chairman of the Meeting shall propose names and work experiences of nominees submitted by the Board of Directors for approval. 19.2 Each shareholder shall have voting rights equal to the number of shares he holds. 19.3 An election of director may be done by voting either one or several persons as director as the Shareholders’ Meeting deems appropriate. However, each shareholder must exercise all of his voting rights existed under Clause 21.2 for each director. Dividing votes to a particular nominee is not permitted. 19.4 Those receiving the highest votes in a sequent order shall be elected as directors for an available number of directors. Should those elected in a subsequent order enjoy equal votes which however exceed the number of the existing directors, Chairman of the Meeting shall have a casting vote. Clause 49 A resolution of the Shareholders’ Meeting shall consist of the following votes: 49.1 In a normal case, majority votes of shareholders who attend the meeting (either by themselves or by proxy) and exercise their votes shall be considered a resolution. Remunerations of the directors and Executives Monetary remunerations

1. Remunerations of directors of the Company’s Board of Directors and Committees in 2007 are shown in the Good Corporate Governance section. 2. Remunerations, which are total wages in 2007 of the 6 executives (their positions as shown in the above table) paid by the Company and its subsidiaries to six executives, totaled Baht 28,228,166. (Including with the remuneration of a former executive who resigned during the year) Other remunerations

Other remunerations are provident fund of the executives under item 2 above, totaling Baht 788,508.

Erawan Bangkok

Shareholding of Directors and Executives in the Erawan Group Public Company Limited

Name 1. Mr. Luen Krisnakri 2. Mr. Prakit Pradipasen

Title

Chairman of the Board Chairman of the Audit Committee 3. Assoc. Prof. Manop Pongsadadt Audit Director 4. Mr. Dej Bulsuk Audit Director 5. Mr. Vitoon Vongkusolkit Director 6. Mrs. Panida Thepkanjana Director 7. Mr. Chanin Vongkusolkit Director 8. Mr. Supol Wattanavekin Director 9. Mr. Banyong Pongpanich Director 10. Mr. Krisda Monthienvichienchai Director 11. Mr. Dolchai Boonyaratavej Director 12. Mr. Kasama Punyagupta President & CEO 13. Mr. Poom Osatananda Executive Vice President 14. Mr. Anuphong Wangphongsawasd Executive Vice President 15. Mr. Petch Krainukul Assistant Executive Vice President 16. Mr. Suchai Wuthworachairung Assistant Executive Vice President 17. Mr. Surapon Jaimsuwan Vice President 18. Ms. Pakinee Pramtade Vice President 19. Mr. Viboon Chaisutyakorn Vice President

Number of shares As of 31 Dec. 07 As of 31 Dec. 06

Change Increase (Decline)

1,069,972 150,058

666,829 -

403,143 150,058

319,729 959,187 11,138,141 959,187 5,493,550 58,379,187 3,001,500 570,000 36,600 2,508,053 699,624

639,458 639,458 3,554,258 99,597 51,040,000 2,668,000 70,000 36,600 269,930 336,597

(319,729) 319,729 7,583,883 959,187 5,393,953 7,339,187 333,500 500,000 2,238,123 363,027

1,201,054

949,054

252,000

1,193,150 1,221,443

290,000 233,389

903,150 988,054

Executives’ ESOP And Exercising their rights by 31 December 2007

Name

Annual Report 2007 The Erawan Group Public Company Limited

1. Mr. Kasama Punyagupta 2. Mr. Poom Osatananda 3. Mr. Anuphong Wangphongsawasd 4. Mr. Petch Krainukul 5. Mr. Suchai Wuthworachairung 6. Mr. Surapon Jaimsuwan 7. Mr. Viboon Chaisutyakorn 8. Mr. Prajak Anekritmongkol 9. Mr. Apichan Mapaisansin 10. Ms. Nattaporn Chevamongkol 11. Mr. Prayat Vajiratanakorn

Title President & CEO Executive Vice President Executive Vice President Assistant Executive Vice President Assistant Executive Vice President Vice President Vice President Vice President Vice President Assistant Vice President Assistant Vice President

ESOP allocation (shares)

Exercise by 31 Dec. 07

11,510,276 6,948,325 8,464,327 1,209,187 4,476,216 4,046,386 4,232,162 4,859,892 4,859,892 1,139,458 1,220,342

2,600,000 3,988,109 569,729 1,919,054 2,990,511 1,994,054 2,429,946 350,000 650,000 900,613

Note: For the information of the Directors’ ESOP is summarized in the section “Good Corporate Governance”

Ploenchit Center

BUSINESS OVERVIEW

HOTEL INDUSTRY

Overview of Tourism Industry Trend In 2007, Thailand tourism industry still showed a strong growth despite the negative factor such as political uncertainty and Bangkok bomb in late 2006. The number of tourist is expected to be 14.5 million in 2007 compared to 13.8 million in 2006 or a 5% increase. The main growth came from a high growth in Andaman provinces such as Phuket which had a strong growth of 21% in 2007.

Annual Report 2007 The Erawan Group Public Company Limited

The Tourism Authority of Thailand (TAT) expects a sustainable growth of number of tourist to be 15.7 million in 2008 or an 8% increase. The key factors that will support the growth are a stable political situation after an election and competitive advantage of the country compared to those in the region. In 2007, World Tourism Organization showed the world tourism growth of 4.5% and expected to increase by at least 4% in 2008. In Thailand, the number of tourist arrival from East Asia continued to grow with an average of 6.5% per annum. The other new markets that show a high growth rate are countries in Eastern Europe, Far East and Russian. MICE business is also support the growth of tourism industry. In addition, new tourist destination, booming in low cost carriers, opening of Suvarnabhumi Airport and various government activities are also key factors to support a sustainable growth for Thailand tourism industry.

Thailand Total Arrivals Arrival (Millions)

Growth

30%

Coup

20%

Tsunami

12 9/11

SARS

Asian Crisis

10%

6 0%

4 2

-10%

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F

Arrivals

Source : TAT

Growth

Bangkok

In 2007, Bangkok tourism industry had a direct effect from negative factors occurred within the country resulting in a decline in arrivals of foreign tourists. Nonetheless, TAT forecasts the number of foreign tourist arrivals through Bangkok in 2008 will reach 10.3 millions, an increase of 9.4% from 2007. Bangkok Total Arrivals Arrival (Millions)

Growth

40%

30%

Coup

Tsunami

20%

SARS

10% 6 0%

4 2

-10%

-20% 2001

2002

2003

2004

2005

2006

2007

2008F

Arrivals

Source: TAT and Companyâ&#x20AC;&#x2122;s database

Growth

The political uncertainty and Bangkok bomb in 2006 caused a drop in tourist arrival in Bangkok mainly from business and MICE segments. This results in a decrease in occupancy rate of the hotel in Bangkok by 3% from 2006. In terms of competition for five star hotels in 2007, there is no major change as just only 2 new five stars hotels opened in the second half of 2007 (a 326 rooms Millennium Asoke and a 430 rooms Pullman King Power). This marks the total of 20 five star hotels which consists of 8,600 rooms (10% increase from 2006). However, number of occupied rooms of five star hotels in 2007 decreased by 5%. In 2007, Bangkok hotel industry saw a decrease in corporate and meeting segment due to the bomb effect in Bangkok at the end of 2006 together with ongoing unstable political issue. These above key factors were the main contributors to a decrease in Bangkok hotel occupancy rate by 3% from 2006. The competition in 5 stars hotel market in 2008 did not change much because of only 2 opening of 5-stars hotel; The Millennium Asoke (326 rooms) and Pullman King Power (430 rooms). The addition of these 2 hotels increased total supply of 5 star markets to 20 hotels with approximately 8,600 rooms. (An increase of 10% YoY)

Occupancy Rate Grand Hyatt and JW Marriott Five Star River hotels Five Star CBD Total Source: Company’s database

Annual Report 2007 The Erawan Group Public Company Limited

No of rooms

2006

2007

+/-

2006

2007

+/-

80.6% 71.8% 70.6% 70.6%

75.9% 67.3% 66.1% 67.3%

-5% -5% -4% -5%

821 2,845 3,751 7,417

821 2,845 4,507 8,173

0% 20% 10%

For the competition in Central Business District (“CBD”) four star hotels in Bangkok, there are more than 7,000 rooms in the segment. However, less than 40% are international chain hotels. In 2007, only 1 international chain hotel was opened which is 316 rooms Courtyard by Marriott Bangkok hotel. Negative factors in 2007 did not have any major effect on the four star hotel segment as the market mainly targets the leisure travelers and they can maintain high occupancy rate of over 80% in 2007. The new hotel supply in Bangkok over the next 3 years will be concentrated in five star hotel segment and will help accommodate the projected increase of tourist arrivals based on positive factors already mentioned earlier.

Table below shows list of Bangkok hotels to open in the next 1 - 3 years

Hotel’s name Le Meridien Surawongse Sofitel Sukhumvit Renaissance Suites Crowne Plaza Sukhumvit Banyan Tree Extension The Regent Sukhumvit Siam Kempinski St. Regis W Hotel

Location

Estimated rooms

Expected Year of Service

Surawongse Rd. Sukhumvit Soi 13 Ploenchit Sukhumvit Soi 27 Sathorn Sukhumvit Soi 13 Rama 1 Rajdamri Sathorn

542 rooms 350 rooms 300 rooms 342 rooms 216 rooms 327 rooms 300 rooms 200 rooms 400 rooms

1H/2008 2H/2008 1H/2009 1H/2009 1H/2009 2H/2009 2009/2010 1H/2010 1H/2011

Koh Samui

Koh Samui tourism industry has seen a rapid growth over the last 10 years particularly after the Tsunami incident in late 2004 which hit Adaman provinces. The event has resulted in a shift of leisure travelers to the Gulf of Thailand as their destination instead. However, the Samui saw a decrease in tourist arrivals of 1.5% in 2007 due to the strong recovery of destinations in the Andaman provinces as well as the limitation of Samui airport. Nonetheless, TAT forecasts that Samui is expected to grow over 10% in 2008 because of the new flight of THAI Airway which started to operate flight to and from Samui in mid February 2008 as well as an increase in direct flight from international countries. Furthermore, Suratthani Airport, which is an alternative route to Samui for budget travelers, is also seeing an increase in number of flights operated by low cost carriers such as Air Asia and One-Two-Go. The above key factors together with strong interest from tourist for Samui are expected to help boost number of tourist arrivals in the future. Samui Total Arrivals

Arrival (Millions)

Growth

1.5 20%

15% 1.0 10%

5% 0.5 0%

-5%

0.0 2001

2002

2003

2004

2005

2006

2007

2008F

Arrivals

Source: TAT and Companyâ&#x20AC;&#x2122;s database

Growth

Competition among five star international chain hotels in 2007 remained relatively low due to limited supply in this segment. Nonetheless, the shift of tourist to the Andaman Sea destinations effected the demand in Samui and occupancy rate slightly decreased 1% from 2006 (69% in 2007 and 70% in 2006). As Samuiâ&#x20AC;&#x2122;s tourism industry will continue to grow, it is expected that there will be more five star international chain hotels to accommodate growing demand of tourists to Samui.

Phuket

Phuket tourism industry is fully recovered from Tsunami impact in late 2004. It is estimated that Phuket tourist arrivals in 2007 will reach 5.5 million, a 22% increase from 2007, particularly from the European and Asian market together with continuous growth in the emerging market countries such as Indian and Russian market. 2007 tourist arrivals will be the highest arrivals figures the island has ever recorded. The increases in numbers of flight to Phuket by low cost carriers particularly with direct flight from international countries, has resulted in an anticipated expansion plan for Phuket International Airport. The capacity is expected to increase from current 6 million passengers to 10 million passengers by 2012. Phuket Total Arrivals 48

Annual Report 2007 The Erawan Group Public Company Limited

Arrival (Millions)

Growth

100%

80% 60%

40%

Tsunami

20% 3 0% 2

-20%

-40% -60%

0 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008F

Arrivals

Source: TAT and Companyâ&#x20AC;&#x2122;s database

Growth

Pattaya

In 2007, it is estimated that Pattayaâ&#x20AC;&#x2122;s tourist arrival will reach 6.1 million. The opening of Suvannabhumi airport has a positive effect to Pattaya in terms of ease of accessibility, which is expected to give the city additional 1 million visitors per year. Pattaya tourism industry will also benefit from the expansion of PEACE Convention Center, which will be able to facilitate MICE customers from 5,800 people to 8,000 people by 2008. Furthermore, another key growth factor for Pattaya is the 18 golfing facilities within its vicinity, where it is reported to have an average of 300% increase in number of golfers per year. The opening of new International chain hotels in Pattaya in the next few years will also boost tourist arrivals due to their strong distribution network and client base. In 2008, Pattaya tourists arrivals are expected to reach 6.5 million arrivals, an increase of 6% from 2007.

Pattaya Total Arrivals Arrival (Millions)

Growth

25%

6 20% 5 15%

4 3

10%

2 5% 1 0%

0 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008F

Arrivals

Source: TAT and Companyâ&#x20AC;&#x2122;s database

JW Marriott Hotel Bangkok

Growth

RENTAL PROPERTY OFFICE AND COMMERCIAL SPACES

Trend and Competition within the Industry Office Space

Bangkok overall rental office supply at the end of 2007 was at 7.55 million square meter, a small growth compared to 7.46 million square meter available last year based on CB Richard Ellis’s database. Of the total 7.55 million square meter, 3.72 million square meter is located within Bangkok Central Business District (CBD), with a total take-up of 88.7%, or 3.30 million sq.m.

Annual Report 2007 The Erawan Group Public Company Limited

Rental rates of Bangkok office spaces in the third quarter to the fourth quarter 2007 did not show a strong growth. The average rate for the office rental space in the fourth quarter for Grade A buildings is at 739 Baht per square meter, which is in line with last year. For Grade B office in the CBD, rental rate is at 567 Baht per square meter, an increase of 3.46% from last year. The demand for office space in both A and B grade buildings remain flat, while the supply is limited due to unstable political situations. Please note that the company’s office rental building is classified as Grade B building. Despite relatively static supply level, the fourth quarter 2007 occupancy rates had fallen below that of the fourth quarter 2006 level, due to a slowdown in investments from international companies caused by Thailand’s political uncertainties. Meanwhile, rates are able to remain at the same levels in the third and the fourth quarter 2007, especially for A grade properties. Grade B buildings with access to mass transportation were able to command a higher rate, as there is strong demand for such product. Looking forward, we expect political situations to stabilize within the first quarter 2008. On the supply side, office space should increase by 226,000 square meter by the end of 2008, and another 241,300 square meter by the end of 2009. Demand is expected to gain momentum towards the end of the first quarter 2008, and fully recover by the second quarter, once investor confidence is regained. Investments which had been put on hold in the previous year should return, and we should see an increase in rental activities, especially for Grade A and B buildings in CBD. Commercial Space

Total Bangkok commercial space supply at the end of 2007 was 4.75 million square meter, a 10.5% growth from last year. Most of the supply growth was in the Greater Bangkok area rather than CBD. Rates did not show a radical change from previous year, with Grade A, ground floor rate ranging 2,200-2,800 Baht per square meter and from 2,000 Baht down to 1,000 for higher floor. Rates for Grade B, ground floor commercial spaces, average between 900 – 1,300 Baht per square meter. There is a general slowdown in commercial activities, despite increased sales efforts and promotion. Consumer confidence and purchasing power were greatly affected by the uncertainty in economical and political situations. Nevertheless, positive outlook in 2008 will help boost consumer confidence and, as a result, increase consumer spending.

RISK FACTORS

Our board of directors has appointed some of its members to Financial and Risk Management Committee (“FRC”). The responsibilities of this subcommittee are to supervise and evaluate the risk management strategies to ensure that they are systematic, clear, and effective. The highest ranked officer of each department is the “risk owner”. Their responsibilities are then to analyze and formulate with the strategies to manage or mitigate the risks. Risks associated with our operations are: 1. Management risk: Dependence of third-party hotel management

We have no policy to manage our hotels. International hoteliers are hired to utilize their reputation, experiences and expertise in managing and administering the hotels we have invested and developed. These hotel operators are Hyatt International, Marriott International, Accor Hospitality, Six Senses Resorts and Spas, and IHG InterContinental Hotels Group. The management agreements are long-term thereby exposed to the risk that the brand reputation and the operator’s capability to compete may decline. Performances of our hotels may not reach the level desired. Nonetheless, the operators we have selected are among the worlds largest with proven track record, tested systems, reputations, and strong financial position. We then believe that the chance of such deterioration of performances is minimal. The diversifications in terms of hotel operators also help mitigate this risk. In addition, if the situation prolongs, each of the agreements has exit clause in case the hotel operator needs to be changed. 2. Exchange risk

Prior to December 2006, our hotel business, particularly room revenue, had been exposed to exchange risk. That is because the agreed room rates were quoted in US dollar. Settlements, in Baht, were being made by using spot rate on the payment date. Baht strengthening against US dollar could then result in lower average room rate or room revenue than earlier anticipated. Nonetheless, all of our hotels have switched the room rate quotation into Baht since December 2006 to reduce the impact of exchange rate fluctuation. Recent Baht strengthening has resulted in higher room rate in US dollar term, thereby reducing competitiveness of Thai hotels compared to regional peers. Travelling to Thailand, however, still cost much less overall, room plus other expenses, if compared to regional competitors such as Singapore and Hong Kong. The strategy to diversify our portfolio into 4-star and budget hotels will also help mitigate this risk as well as creating more choices for budget-conscious customers. 3. Risk from increasing construction costs of new hotels

Investment in new hotels may be faced with increasing costs of construction materials. However, before starting a new project, the Company will do a feasibility study to ensure that the project will yield an expected return. In addition, when estimating costs of each project, the Company also estimates contingency costs for possible cost increase. As a result, it can be assured that the risk is kept minimal. 4. Risk from increasing supplies

The hotel business grows ceaselessly, meaning more competitions to come in the future. This is especially the case if a pricecutting strategy is implemented to increase market shares. This may affect incomes and operating profits from both the hotel business and the office and shopping mall business. However, since our hotel business has been managed by Hyatt International Corp. and Marriott International Inc., two well-recognized and highly-experienced hotel management groups, it has a lot of advantages and is in good hands amid fierce competition. Regarding the office buildings and shopping centers business, although the competition is intense, demands for space remain quite strong especially for that in the CBD area and the shopping

district, which are exactly where the Company’s projects are located. The risk is therefore minimal and manageable. 5. External risk

External risk factors such as terrorism, political unrest, environment impact or natural disaster that may affect and retail building are inevitable and unpredictable. However, apart from implementing securities and other preventive measures based on international standard practice to reduce these risks, we also take an all-risk, terrorism and business interruption insurances to cover the aforesaid risks if it occurs directly to our properties, However, in the case that the event does not occur directly with assets of our properties, which will not be covered under the above insurance, or epidemic impact, which insurance cannot be obtained, we also have various action plan in place to manage operating costs in order to reduce overall impact. Based on the past experience, it has already been proven that these factors have only a short term impact to our business. 6. Interest rate risk

Annual Report 2007 The Erawan Group Public Company Limited

Interest rate risk, which is a result of changes of market rates in the future, will affect the Company’s operating results and cash flow. As of 31 December 2006, the Company had Baht 4.256 billion floating-rate loans, which accounted for 93.4 per cent of all its loans. So far, there has been no risk prevention measures against them as the Company is of the opinion that hedging expenses at present remain at a level that will make the Company’s overall lending cost quite high. However, the Company will continue to vigilantly monitor market conditions and will arrange risk prevention measures to defer the risk when related expenses fall to a proper level. 7. Human Risk

Loss of executive management or key personnel of the company is also considered a risk for the company. However, human resources development and management is one of the key priorities of the company. Over the past three years, we have been changed and recruited employees and managements in key growth departments and provide continuous training and development. More importantly, we develop a 3-layer succession plan from President & CEO down to Vice president level which supervised by Management Development and Compensation Committee (“MDC”) and Executive Vice President of each department respectively. In addition, with a professional run structure, we operate under efficient system and do not rely on capability or decision of single person. We also decentralize authority to various levels under the supervision of the Board of Directors. These structures of management will help reduce risk from loss of key personnel. In addition, our key corporate cultures including “Team spirit” and “With integrity”, will also draw a capable professional with integrity to join our company. Lastly, our competitive compensation and benefits, bonus scheme which links to corporate strategy map as well as long term stock option plan for executive management also create commitment and loyalty to our employees which will help them work more efficiently. This structure will also help to retain quality employee with the company.

CORPORATE GOVERNANCE

Good Corporate Governance The Board of Directors, having recognized the importance of good corporate governance in the management, strived to collect information about the subject from both leading local and international corporations before adapting it to fit its needs. So far, since there has been no practice considered the best, the Board is compelled to review it at least once a year or even more if appropriate. Aside from practicing the good corporate governance according to the Stock Exchange of Thailand (SET)’s guidelines, the Board also appointed the Nominating and Corporate Governance Committee (NCG), whose main tasks are to review the Board’s structure, determine qualifications of board members, nominate competent candidates to the Board and make sure that directors, the management and employees recognize the importance of the good corporate governance and implement it in a way that corresponds to our corporate culture.

Annual Report 2007 The Erawan Group Public Company Limited

We make sure that our policy, vision, business strategies, the principles of good corporate governance and business ethics are communicated to the management and employees at all levels. Our President and CEO, who are communicating the messages through the Management Committee (MC), are to organize at least two town hall meetings once a year aside from small group meetings between employees and their highest-level supervisors. Corporate Governance Policy and Corporate Social Responsibility “CSR” Our business is run by the executives and staff under the CEO’s leadership. Shareholders have appointed a 12-member Board of Directors from experts in finance, business administration, economics, management, marketing, service, tourism and law. The Board supervises the management to ensure the creation of long-term values to our shareholders, by taking into consideration the Company’s Corporate Social Responsibility (CSR)1 and by equally treating everyone from shareholders to customers, trading partners, creditors, staff, community and the society. All is given a fair and equal access to information. Related parties can directly contact the Board of Directors, the Audit Committee and the Nominating and Corporate Governance Committee (NCG) for advice and for value creation at our head office, 2 Ploenchit Center, 6th Floor, Sukhumvit Road, Klongtoey, Bangkok, or you may contact the Office of Corporate Governance at GCG@theerawan.com. All information will be treated confidential and sent directly to the Board. http://www.theerawan.com/Files/2007/Code-of-Conduct_E.pdf or Code of Conduct page 7-11 1

Board of the Year for Distinctive Practices 2006/07

Business Ethics

Our business ethics policy is based on the principles of good corporate governance adapted to correspond to our corporate strategy. A manual of business ethics has been distributed to our management, executives and employees. The same information can be accessed from our website. The Management Committee (MC) is promoting business ethics through the four values of team spirit, working with integrity, promoting learning and improving the organization and committing to success. The Erawan Group Plc. believes that business ethics is a mechanism to make each and everyone of us realize that we are also responsible to our stakeholders, our community, our society and the environment. As our motto is to achieve the “success with integrity,” to do so, here are the ten qualities that take us to the path of business ethics: 1. Ethics: This refers to commitment to integrity, legal compliance and ethical practices. Action that may cause any moral or ethical conflict is to be avoided by all means. 2. Transparency: Transparency while working includes reporting any irregularities if found, ready for any inspection and enthusiastic for self-improvement. 3. Honesty: This refers to a zero conflict of interest where staff will not use their title or corporate information for their business or anyone’s business directly or indirectly. Honesty also includes denying or avoiding benefits that he may receive from someone else because of his job. 4. Trust: In essence, this refers to speaking the truth and keeping one’s promise by trying the best to achieve what is said earlier. 5. Confidential: As corporate information is the Company’s valuable asset, it must be well-protected and carefully implemented to avoid negative effect to others. 6. Courage: This refers to courage to do the right thing, to accept the fact and to report if something unusual is found. 7. Accountability: Accountability is working with a responsible mind for any mistake resulted from his decisions and actions This includes admitting what’s wrong, explaining a reason if something wrong happens and fixing it, not blaming someone else and not resenting if someone reports such a mistake. 8. Judgment: This refers to a decision made on the basis of accurate and adequate information where all risks and effects are taken into consideration while personal preferences are excluded.

Very Good CG 2006

9. Respect: Treating others politely, honoring other people’s opinions and providing constructive criticism are what the respect is. 10. Social responsibility: A company can be a responsible member of the society by taking into consideration social and environmental impacts when doing business and by contributing to the society within its means. To assure the management that any decision relating to the Company’s business is ethically made for the best interests of the Company, the Erawan Group Plc. has formulated the Executive Ethic Standards, which are stricter than those of the Stock Exchange of Thailand (SET). Violation or any intentional misconduct of the following ten will be subject to severe punishment. Executives Ethic Standards

Annual Report 2007 The Erawan Group Public Company Limited

1. Keep confidential information secret and refrain from disclosing any information considered confidential to the third party without proper authorization. 2. Those directly involved with financial information and/or other information which may affect the Company’s securities price are prohibited to trade the Company’s securities during a 30-day period prior to the disclosing date of the Company’s operation or the reporting date of its business to the Stock Exchange of Thailand and the Securities and Exchange Commission. 3. Refrain or avoid expressing any opinion to the third party or the press in any matter related to the Company without proper authorization. 4. Avoid using one’s position and/or information acquired as a result of duty to seek interests for oneself or others. 5. Refrain from doing anything or participating in any action or covering anything that might lead to a conflict of interest or that prevents one from performing his duty with fairness or refrain from participating in any illegal cover-up operation. 6. Refrain from doing anything deemed as demanding for or receiving an object, gift, souvenir or entertainment service worth more than Five thousand Baht a year. In case the request can’t be denied, the person receiving such gift must reveal and turn over the gift to the Good Corporate Governance Center. 7. Those involving in negotiating a business deal worth more than One Hundred Thousand Baht are required to reveal his personal relationship and a couple and closed relatives according to the personal relationship disclosure form before submitting it to the Good Corporate Governance Center as an expression of opinion to the President & CEO. 8. Mobile phone shall be avoided when negotiating a business deal worth more than One Hundred Thousand Baht and at least one employee shall be present in such negotiation. 9. Any negotiation relating to the bidding shall be discussed at the Company’s premise only unless it is necessary where the Good Corporate Governance Center shall be notified in advance and at least one representative from the Bidding Committee shall attend such negotiation. 10. Avoid using or giving any information or indicating any detail about the operation which may prompt any one or several bidder or bidding party to be more advantageous when submitting the tender.

Board of the Year for Distinctive Practices 2006/07

Components and Roles of the Board of Directors and the Executive Management

Qualifications of members of our Board of Directors are corresponding to and not lower than those required by the Stock Exchange of Thailand. Each director shall remain in the office for three years each term. Their scopes of work are clear with power being properly balanced among one another.2 Half of the Board is independent directors. The 12-member Board consists of one executive management, who is President and CEO; six independent directors and five directors having interests in the Company. Chairman of the Board is an independent director and is not President and CEO for the purpose of transparency and effective balance of power. The Board has appointed four committees3 to perform various jobs to create the right balance of power and to promote a division of labor. The term of each committee is two years. Members of the committee will be rotated on an appropriate occasion. Chairman of the committee will submit policies already approved by his committee to the Board. Each sub-committee will appoint a secretary to coordinate and monitor directors and the management for policy compliance and to record the Minute of Meeting in writing. The Board has also appointed the Corporate Secretariat who has a good grasp of the Company’s business fundamentals, rules and regulations, the public limited company law and the Securities and Exchange Commission (SEC)’s rules and regulations. The Corporate Secretariat is also competent in communicating and coordinating with directors, the Management and internal and external parties. The Corporate Secretariat has a duty to record the minutes in writing where the essence of each agenda item, directors’ opinions and the Meeting’s resolutions must be recorded in an accurate and adequate manner. Nomination and Appointment of Directors

The Board has designated the Nominating and the Corporate Governance Committee (NCG) to determine a clear policy and process on director nomination. This includes reviewing the qualifications of would-be directors, courting them and nominating to the Annual General Meeting of Shareholders. Directors should be experts from various fields with enough experiences to guide the Company’s business. Each director will stay in the office for three years each term. At every Annual General Meeting of Shareholders, one-third of directors shall retire in rotation according to the Company’s Articles of Association. If the retiring director is nominated once again, the NCG must present an evaluation report of the director, his/her record of meeting attendance, commitment and contributions to the Company as part of the consideration. Evaluating the Board

The Board of Directors is subject to a performance evaluation at least once a year. Twelve directors have a chance to self evaluate and to freely evaluate the entire board. Results of the evaluation are sent to the NCG and used as a guideline to improve its performances under the guidelines of the Stock Exchange of Thailand and Thailand’s Institute of Directors (IOD). In 2007, we introduced a new evaluation form designed on the basis of the SET’s guidelines. The evaluation form was also in line with the Board’s structure and covered work of various committee. http://www.theerawan.com/corporate_board.asp http://www.theerawan.com/corporate_governance.asp

2 3

Very Good CG 2006

More than 90 per cent of the respondents of the new evaluation form stated that the structure and components of the Board of Directors were appropriate and there were enough independent directors to balance the power. The Board was also perceived as understanding its roles, having freedom to make decision without no one dominating it, having a good relationship with the management and able to talk frankly with the President and CEO. The only exception was the internal audit where the Company was asked to increase the number of executive directors to become more flexible in its management. The following chart shows all the evaluation results.

Overall

Annual Report 2007 The Erawan Group Public Company Limited

6. Directors’ Improvement and Management Development 5. Relations with Executive Management 4. Director Fiduciary Duty 3. BOD’s meeting

2. Rule, duties and Responsibitity 1. BOD Structure and Componant 0%

10%

20%

Strongly Disagree

30%

40%

50%

Disagree

60%

Neither Agree or Disagree

70%

80%

90%

Agree

100%

Strongly Agree

Board of Directors’ Meetings

The Company announces the number of times the Board must convene in advance where directors and related parties were informed in advance throughout the year. In 2007, the Erawan Group held eight Board of Directors’ Meeting (six ordinary and two extraordinary meetings); eight meetings of the Finance and Risk Management Committee, six meetings of the Audit Committee (four ordinary, two extraordinary), three meetings of the Nominating and Corporate Governance and two meetings of the Management Development and Compensation Committee. Minutes of the meetings were recorded in writing and kept at the Secretariat Office and on a data server for easy access to relevant parties. Details are in copy of meeting attendance by directors in 2007.

Board of the Year for Distinctive Practices 2006/07

Very Good CG 2006

Director Director Director Director Director Director Director Director Director Director President and CEO

2. Mr.Prakit Pradipasen

3. Assoc.Prof. Manop Pongsadadt

4. Mr.Dej Bulsuk

5. Mr.Banyong Pongpanich

6. Mr.Dolchai Boonyaratavej

7. Mr.Vitoon Vongkusolkit

8. Mr.Supol Wattanavekin

9. Mr.Chanin Vongkusolkit

10. Mrs.Panida Thepkanjana

11. Mr.Krisda Monthienvichienchai

12. Mr.Kasama Punyagupta

Apr. 2005 - 2008

Apr. 2007 - 2010

Apr. 2005 - 2008

Apr. 2007 - 2010

Apr. 2005 - 2008

Apr. 2007 - 2010

Apr. 2006 - 2009

Term

per cent of directorsâ&#x20AC;&#x2122; attended

Chairman

Title

1. Mr.Luen Krisnakri

Name

Times of attendance 2007

83.33%

8/8

6/8

7/8

8/8

3/8

5/8

8/8

7/8

8/8

Board of Directors

83.33%

8/8

7/8

6/8

8/8

4/8

Financial and Risk Management Committee

100.00%

6/6

Audit Committee

100.00%

3/3

Nominating and Corporate Governance Committee

Times of attendance/Number of Total attendance

100.00%

2/2

Management Development and Compensation Committee

Remunerations of Directors, Executive and Staff

The Board of Directors designates the following committees to determine a policy of remuneration payment to directors, the management and staff as follows.

Annual Report 2007 The Erawan Group Public Company Limited

The Nominating and Corporate Governance Committee (NCG) has a duty to formulate a policy for reasonable payment to directors, which was subject to an annual review. This however is in line with the Board’s scopes of responsibility and the Company’s financial status as compared to performances of other companies within the group and those earning the same level of incomes. Two types of payment are made: meeting allowance and bonus. Directors appointed as members of other committees receive additional payment based on their increasing responsibilities. The Annual General Meeting of Shareholders (AGM) approves payment every year. Remunerations directors received from the Company and its subsidiaries are disclosed in a table showing remunerations of the Board and each committee, on a committee-by-committee and an individual basis. The Management Development and Compensation Committee (MDC) has a duty to evaluate President and CEO’s performances, determine his annual payment and formulate the structure of his remunerations based on four goals, which are financial performances, customer’s satisfactions, internal process and human resources and corporate development. In addition, the Committee together with President and CEO also determine a guideline to pay the executives and staff. President and CEO review annual payments to each department executive based on the two evaluations; namely, evaluation on the basis of the Balance Score Card (BSC) and evaluation based on Competency Skill Behavior (CSB). The BSC evaluation looks into the department’s strategy in relation to the corporation’s strategy to determine how strategies in the three levels; namely, organization, department and units, are crucial and complementing to each other. The CSB evaluation assesses each manager on an individual basis and an immediate supervisor is the evaluating person. Some of the evaluation topics are based on the Company’s policy while others are determined by supervisors. The evaluation is 360 degrees, meaning that the supervisor evaluates his supervisees and vice versa before each evaluates himself. Results of these two types of evolution are a basis for the Company to allocate its incomes down to each department, division and section.

Board of the Year for Distinctive Practices 2006/07

Very Good CG 2006

390,000 4,780,000

Director Director Director Director Director Director Director Director Director President and CEO Total

3. Assoc.Prof. Manop Pongsadadt

4. Mr.Dej Bulsuk

5. Mr.Banyong Pongpanich

6. Mr.Dolchai Boonyaratavej

7. Mr.Vitoon Vongkusolkit

8. Mr.Supol Wattanavekin

9. Mr.Chanin Vongkusolkit

10. Mrs.Panida Thepkanjana

11. Mr.Krisda Monthienvichienchai

12. Mr.Kasama Punyagupta

390,000

Director

2. Mr.Prakit Pradipasen

490,000

Board of Directors

Chairman

Title

1. Mr.Luen Krisnakri

Name

1,140,000

180,000

240,000

180,000

Financial and Risk Management Committee

390,000

120,000

150,000

112,500

33,750

45,000

Nominating and Audit Corporate Committee Governance Committee

Compensation in cash for the Committee

75,000

30,000

22,500

1,139,458

1,278,916

1,139,458

1,278,916

1,209,187

1,139,458

6,497,500 25,090,249

570,000 11,510,276

390,000

603,750

600,000

652,500

390,000

592,500

510,000

540,000

535,000

7,065,664

700,000

959,187

819,729

959,187

889,458

819,729

Exercises at the year ended

Stock Ownership Program (ESOP)

Total Management Development (Baht/year) and Allocation Compensation Committee

Remunerations for the Board of Directors and the committees in 2007

Roles of the Board and the Management

The Board determines policies and practices for the management, which include important tasks of an executive both as a corporate leader and as a supervisee. In addition, the Board also allows the management to formulate a management policy based on the Company’s objectives and missions, which will be subject to the Board’s approval. To ensure management continuity and for the best interests of the Company, the Board had entrusted the Management Development and Compensation Committee to formulate a CEO’s succession plan by working with President and CEO to determine qualifications and to appoint the CEO. Rights of Shareholders

Annual Report 2007 The Erawan Group Public Company Limited

The Board respects the rights and treats all shareholders equally, whether they are executive, non-executive, local or foreign shareholders. That’s why directors and executives are to comply with the Executive Ethics Standard. In 2008, the Company will allow small shareholders to propose meeting agendas at the AGM in advance4. Shareholder’s Meetings

The Company submits agenda items needed to be discussed according to the laws, the regulations of the Stock Exchange of Thailand and its Articles of Association for shareholders’ approval. In addition, the Company prepares the Meeting, organizes it and sends out an invitation to attend the Meeting together with supporting documents to shareholders no fewer than 14 days in advance. Shareholders are allowed to also access the same materials at www.theerawan.com at least 30 days so that they receive enough information above the required standards. In addition, shareholders may choose to exercise their rights by themselves or appoint any of the six independent directors attending the Meeting to vote on their behalf. During the Meeting, the Company treats every procedure equally. No agendas are shortened, deleted or alternated. This is especially the case of an agenda to appoint directors where shareholders are entitled to vote for directors individually upon enough information. All ballots featuring yes, no and abstention votes are duly kept as evidence. At the 2007 Annual General Meeting of Shareholders (AGM), all 12 directors attended the Meeting. Chairman of the Board allowed shareholders to ask enough questions while successfully ending the Meeting at an appropriate hour. In addition, shareholders’ inquiries, the Meeting’s resolutions and votes received in each agenda item were recorded in writing in the Minutes of the Meeting. The resolutions were reported to the Stock Exchange of Thailand (SET) within the following business day. The Minutes of the Meeting was also posted at the Company’s website within 14 days from the AGM. http://www.theerawan.com/Files/2007/Proposal-form-Rules-of-AGM_TH.pdf http://www.theerawan.com/Files/2007/Proposal-form-Rules-of-AGM_ENG.pdf

Board of the Year for Distinctive Practices 2006/07

Investor Relations

The Erawan Group Plc. sets up the Investor Relations (IR) Department as a center to provide complete company information to retail and institutional investors, shareholders, analysts and the public sector. Contacts can be made directly at the Company’s office or go to http://www.theerawan.com/investor.inf.asp. Inquiries can also be made through IR@theerawan.com. In addition, we also do an IR survey at least once a year. In 2007, 35 responded in the survey. 69 per cent of the respondents said they found the information adequate; 14 percent asked that date, time and place of meeting was notified in advance; 9 per cent had no opinion as they attended the Meeting for the first time and because of other personal reasons and 9 per cent wanted to receive information through other channels (2 wanted to receive it by email and one wanted to ask questions by phone if necessary). The Company would use this information as a basis to improve its IR service. Internal Control and Internal Auditing

The Audit Committee’s direct responsibility is to supervise the Internal Audit Department, propose and appoint the Company’s auditor, review the Company’s financial statements and make sure that the Company has enough and adequate internal audit system in place while enable to improve it to avoid damage and boost transparency. The Audit Committee designates the Office of Corporate Governance to collect information and monitor the management’s operations in compliance with the policy and the Board’s resolutions. Meanwhile, we conducted a survey over the satisfaction of those bidding the Company’s projects to which 59 responded. Of this, 90 per cent said the bidding process was fair and transparent and the process was quick and precise. Only one respondent said the decision was not based on the quality of one’s goods or services but rather of executive management’s decisions. Five respondents felt the procedures were too complicated and the working committee spent too much time making a decision. The management would accept all of these opinions to improve the process. Transactions with Possible Conflict of Interest

The Erawan Group Plc. requires an approval from either the Audit Committee or the Board, as the case may be, when conducting a transaction that may cause a possible conflict of interest. In addition, details of transactions with possible conflict of interest during the past year and their values are disclosed while explanations and reasons for the transactions are clearly stated in the Annual Report. The Company requires its executive directors involving in the transaction to disclose the information and/or types of relationship not only of his own, but also of his spouse, closed relatives as well as personal relationship with any bidder for transparency purpose to the Office of the Corporate Governance. In addition, director shall abstain from voting and/or not be part of the decision-making process. So far, the disclosure of connected transactions has showed that the transactions were reasonable within a normal course of business. There was no special transaction. All transactions were for the Company’s best interest and conducted within an arm’s length basis. The transactions were carried out according to the Company’s rules and regulations and those of the Securities and Exchange Commission. They were also in line with the accounting standards on disclosure of information of connected persons or businesses.

Very Good CG 2006

The Erawan for the Society and the Environment The Erawan Group Plc. formulates a clear-cut policy for social, community and environmental causes. It plans to implement “the Erawan for the Society and the Environment,” project, to which the Board has already approved to allocate 0.5 per cent of its annual net profit as a social contribution. Of the entire budget, 50 per cent will be spent for the benefits of communities closed to the Company’s properties whereas the other 50 per cent will be spent for the benefit of the society in general.5 In 2007, we initiated the following projects:

Annual Report 2007 The Erawan Group Public Company Limited

1. “The Erawan Loves Elephant Project,” a sequel of our Elephant Photography Exhibition by the Erawan Gallery project held in 2006 where winning photos of elephants were printed as calendar and sold. Baht 100,000 proceeds from the sale was donated to the Thai Animal Guardians Association to continue helping strayed elephants while the other Baht 100,000 was given to the Forest Industry Organization’s National Elephant Institute under the patronage of Her Royal Highness Princess Galayani Vadhana.

2. The Royal Passages, A Charity Auction of Thai Mural Painting Photographs Project where proceeds from the project were given to His Majesty the King’s 80th birthday anniversary. In this project, the Company had 12 mural paintings having themes related to Lord Buddha’s life and Buddhism-related fables from nine temples all over the country taken by Mr. Nitikorn Kraivixian, having Assoc. Prof. Sone Simatrang giving brief information about the mural. The photos were made into the 2008 calendar and coffee-table book. In addition, the 12 photos were also auctioned, at which Baht 3,945,999 was raised and donated to HM the King on his 80th Birthday Anniversary on December 5, 2007. 5

http://www.theerawan.com/corporate_governance.asp

3. Social, environmental and community projects to those in closed proximity of the Erawan Group Plc’s properties • A CCTV was installed in Phase 1 of the “Shopping Street safety project” at Ratchaprasong area to boost confidence to Thai and foreign shoppers as initiated by the Ratchaprasong Square Trade Association (RSTA), which represents businesses in the Ratchaprasong shopping district. • Five computers were donated to Ban Konaka School in Phuket and a budget was also given to the school to install ceramic floor tiles for the purpose of sanitation. • Landscape at Duangpitak Road was improved where green space was added as part of the project to do good deeds for our Father.

In addition, to ensure the safety of our property and to lessen impacts to the environment, the Company has so far formulated a series of building management plans for its office building, shopping center and hotels. The plan calls for changes of air conditioners that meet environmental standards and changes from electrical-based or bunker oil-based hot water to the hot water Heat Pump system. In addition, the Company requires all of its current and future hotels to save energy at a time oil prices were hiking and striving to become a green hotel by avoiding to release emissions. Besides, the systems of its buildings ranging from security to engineering, fire protection and wastewater treatment systems have been upgraded to meet public building standards.

Description

Mr. Vitoon Vongkusolkit, director, is director of IAG Insurance (Thailand) Co., Ltd

Nature of relationship:

non-life insurance

3. IAG Insurance (Thailand) Co., Ltd. Type of business:

• Mr. Vitoon Vongkusolkit and Mr. Chanin Vongkusolkit, the Company’s directors, are authorized director and director of Mitr Phol Sugar Co., Ltd. • (The Vongkusolkit Family holds 39.6 per cent in the Company’s shares.)

Nature of relationship:

sugar factories

2. Mitr Phol Sugar Group of Companies Type of business:

a 99.99-per cent subsidiary of the Erawan Group Plc.

Nature of relationship:

Real estate: Renting, selling, buying, operating

Non-life insurance agreement fort the building and the hotel business between the Company and its subsidiaries • Insurance premiums • Insurance premiums paid in advance

Lease agreement of space on the 3rd, 25th Floor of Ploenchit Center : • Incomes of rent and services • Receivables at end of period • Payables of rent deposits

Co., Ltd. (subsidiary) from Erawan Ratchaprasong Co., Ltd. (subsidiary) • Purchase Ordinary share

1. Erawan Ratchaprasong Co., Ltd The Company acquired shares of Erawan Ploenchit Type of business:

Person/entity with possible conflict of interest and nature of relationship

5,386,021.07

5,395,951.40

7,209,792.23 25,067.70

829,464.29

438,920.47

9,628,116.84 -

24,337,179.32

325,000,006.50

25,104,666.15

Transaction value 2006 2007

• Normal transaction • Insurance term: 1 year (01/01/07-31/12/07)

Selected on the basis of the service provider’s potential and in compliance with the Company’s regulations.

A major tenant; the agreed price was fair and not lower than the average price agreed with other tenants based on the business standards.

The transaction was part of the Company’s internal management restructuring based on its business plan and was considered for the best interest of its management.

The transaction was to restructure an internal shareholding structure between the Company and its subsidiaries and had no effect to the management structure.

• Normal transaction • Lease term: 3 years (3rd Fl. 01/07/05-30/06/08) (25th Fl. 15/10/05-14/10/08)

Pricing policyand the Audit Committee’s opinions

Reasons for the transaction

In 2007, the Company and its subsidiaries had connected transactions with those that may have possible conflict of interest. The auditor stated the following in the Notes to Financial Statements:

CONNECTED TRANSACTIONS

Annual Report 2007 The Erawan Group Public Company Limited

176,311.80

1,499,728.00

Mr. Dolchai Boonyaratavej, director, is an authorized partner of Brandity Limited Partnership.

Nature of relationship:

Other recreational activities.

6. Brandity Limited Partnership Type of business:

1,557,240.16

5,595.03

1,612,764.87

335,648.51

3,711,320.66

Agreement to rent Erawan Bangkok’s space on the third floor, Retail Sale of bock, newspaper, Suite # 302, 306, 307 stationery, ready-to-wear, • Rent and service cosmetics and spare parts incomes Nature of relationship: • Receivables at end of Mr. Prakit Pradipasen, director, period is director of Minor Corporation Plc. • Payables of rent deposit

5. Minor Corporation Plc. Type of business:

Hired to design and produce a calendar and a coffee-table book for the Charity of Thai Mural Project to honor HM the King on the auspicious occasion of HM the King’s 80th Birthday Anniversary • Services fees

352,552.12

631,862.06

4. Chai Talay Hotel Co., Ltd. (Hyatt Regency Hua Hin Hotel) Type of business: 1,408,547.60

Transaction value 2006 2007

1,239,600.00

Description

Agreement to lease office space and the service agreement with The Erawan Hotel Plc. hotels • Rent and service Nature of relationship: incomes • Mrs. Panida Thepkanjana, • Receivables at end of director, is a closed relative to period Mrs. Chansamorn Wattanavekin, an authorized director of Chai Talay Co., Ltd. • (The Wattanavekin Family holds 31.4 per cent of the Company’s shares.)

Person/entity with possible conflict of interest and nature of relationship

Price agreed was fair; the Company had asked for four price quotations and this was based on the Company’s regulations.

Price agreed was a market price compared to space in nearby areas and not lower than the price offered to other tenants or service users compared to the standard of hotel business.

• Normal transaction • Lease term: 3 years (01/08/07-31/07/10)

One-time special event

Price agreed was a market price compared to space in nearby areas and not lower than the price offered to other tenants or service users compared to the standard of hotel business.

Pricing policy and the Audit Committee’s opinions

• Normal transaction • Lease term: 1 year (01/01/07-31/12/07)

Reasons for the transaction

รายงานประจำป 2550 บริษัท ดิ เอราวัณ กรุป จำกัด (มหาชน)

Annual Report 2007 The Erawan Group Public Company Limited

APPENDICES

INDEPENDENT AUDITORâ&#x20AC;&#x2122;S REPORT

To The Shareholders of The Erawan Group Public Company Limited I have audited the accompanying consolidated balance sheets of The Erawan Group Public Company Limited and its subsidiaries as at 31 December 2007 and 2006, the related consolidated statements of income, changes in shareholdersâ&#x20AC;&#x2122; equity and cash flows for the years then ended, and the separate financial statements of The Erawan Group Public Company Limited for the same years. These financial statements are the responsibility of the management of the Company and its subsidiaries as to their correctness and the completeness of the presentation. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Erawan Group Public Company Limited and its subsidiaries and of The Erawan Group Public Company Limited as at 31 December 2007 and 2006, the results of their operations, and cash flows for the years then ended, in accordance with generally accepted accounting principles. Without qualifying my opinion on the above financial statements, I draw attention to the matter as discussed in Note 4 to the financial statements whereby, effective 1 January 2007, the Company changed its accounting policy for recording investments in subsidiaries in the separate financial statements from the equity method to the cost method. The Company has thus restated the separate financial statements as at 31 December 2006 and for the year then ended to reflect this accounting change.

Mr.Sophon Permsirivallop Certified Public Accountant (Thailand) No. 3182

Ernst & Young Office Limited Bangkok: 26 February 2008

AUDIT FEE

In 2007, the audit fee paid to the external auditor of Ernst & Young Office Limited was Baht 3,630,000 • The Erawan Group Plc. Baht 950,000 • The Company’s subsidiary Bath 2,680,000 The Company did not pay any non audit fee to the auditor, the auditor’s office and person or company related to the auditor and the auditor’s office. • The fee was excluding the out of pocket expenses.

Annual Report 2007 The Erawan Group Public Company Limited

Hotels and Resorts

BALANCE SHEETS THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2007 AND 2006 (Unit: Baht)

Consolidated financial statements Note ASSETS Current assets Cash and cash equivalents Current investment Trade accounts receivable - net Trade accounts receivable - related parties Inventories Other current assets Prepaid expenses Prepaid expenses - related parties Withholding tax deducted at source - refundable within one year Advances Input tax refundable Deposits for purchase of land Others

2006

2007

2006 (Restated)

167,379,414 168,621,276 1,335,914 42,154,569

116,229,025 36,166,639 143,224,331 3,480,090 43,770,723

3,923,811 8,435,026 129,990 -

2,031,909 418,247 84,000 -

14,060,056 5,485,068

20,325,043 5,460,000

483,187 25,068

401,349 925,810

19,913,932 123,519,907 161,286,024 15,000,000 32,725,371

12,076,441 98,996,482 38,562,669 18,070,881

102,646,428 58,350,557 15,000,000 10,112,340

1,356,277 11,976,133 800,695

751,481,531

536,362,324

199,106,407

17,994,420

8 9 10

544,477 4,072,033

234,125 544,477 5,341,080

3,784,999,913 544,477 3,052,365

3,656,318,445 2,967,267

7 11 12 13

7,389,852,153 48,052,528 1,832,182,397

6,972,715,856 61,666,617 877,733,841

399,506,120 1,589,469,292 15,038,175 340,969,649

998,217,602 1,010,527,680 18,251,738 38,520,781

208,269,450

205,796,962

21,032,486

37,310,858

16,945,926 3,948,833

38,586,111 21,784,414

6,317,727 -

6,694,082 -

6 7

7 14

Total current assets

Non-current assets Restricted bank deposits Investments in subsidiaries - net Investments in associates Investments in related company Long-term loans to and interest receivable from subsidiaries Property, plant and equipment - net Intangible assets - net Leasehold rights to land and buildings - net Other non-current assets Deposits for lease of land, building and equipment Withholding tax deducted at source - net of refundable within one year Others

2007

Separate financial statements

Total non-current assets TOTAL ASSETS The accompanying notes are an integral part of the financial statements.

9,503,867,797 8,184,403,483 6,160,930,204 5,768,808,453 10,255,349,328 8,720,765,807 6,360,036,611 5,786,802,873

BALANCE SHEETS (Continued) THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2007 AND 2006 (Unit: Baht)

Consolidated financial statements Note

2007

2006

Separate financial statements 2007

2006 (Restated)

LIABILITIES AND SHAREHOLDERS没 EQUITY Current liabilities 15 Short-term loans from financial institutions 420,450,000 312,400,000 375,450,000 296,700,000 Accounts payable - trade and construction 11,639,491 497,119,316 211,069,628 138,526,599 7 Trade accounts payable - subsidiary companies 742,319 441,208 Current portion of liabilities under 16 finance lease agreements 10,288,150 10,288,150 Current portion of hire purchase payable 1,596,249 1,187,107 1,596,249 1,187,107 17 1,803,750,000 330,943,030 Current portion of long-term loans 40,000,000 40,000,000 18 Unsecured debentures 300,000,000 300,000,000 Short-term loans from and interest payable to a subsidiary 7 86,672,167 1,229,467 7 Other payable - subsidiary company 22,813,157 43,399,989 378,176,638 354,628,589 19 Other current liabilities Total current liabilities 3,410,971,211 1,220,925,646 899,004,903 461,392,850 Non-current liabilities Liabilities under finance lease agreements - net of current portion Hire purchase payable - net of current portion Long-term loans - net of current portion Unsecured debentures Accounts payable for leasehold rights Deposits from lessees Deferred income - net

16 17 18 31.3 20

Total non-current liabilities Total liabilities The accompanying notes are an integral part of the financial statements.

25,573,044 32,971,485 734,158 884,828 2,580,457,587 3,614,488,293 300,000,000 360,000,000 360,000,000 103,315,720 194,165,124 23,763,782 90,853,284

734,158 541,950,000 43,180,678 -

884,828 520,000,000 300,000,000 10,239,427 -

3,093,844,291 4,593,363,014 585,864,836 831,124,255 6,504,815,502 5,814,288,660 1,484,869,739 1,292,517,105

BALANCE SHEETS (Continued) THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES AS AT 31 DECEMBER 2007 AND 2006 (Unit: Baht)

Consolidated financial statements Note Shareholders没 equity Share capital Registered 2,281,143,099 ordinary shares of Baht 1 each

Separate financial statements 2006

2006

2007

2,281,143,099

2,214,574,625

1,959,084,768

2,214,574,625

1,959,084,768

323,542,015 786,681

30,069,567 1,677,005

323,542,015 625,068

30,069,567 983,799

79,300,000 1,031,188,388

83,162,577 723,560,678

66,890,000 2,269,535,164

66,890,000 2,437,257,634

3,649,391,709

2,797,554,595

4,875,166,872

4,494,285,768

101,142,117

108,922,552

2007

(Restated)

Issued and fully paid up 2,214,574,625 ordinary shares of Baht 1 each (2006: 1,959,084,768 ordinary shares of Baht 1 each) Additional paid-in capital Premium on ordinary shares Unrealised gain on changes in the value of investments Retained earnings Appropriated - statutory reserve 23 Unappropriated Equity attributable to company没s shareholders Minority interest - equity attributable to minority shareholders of subsidiaries Total shareholders没 equity Total liabilities and shareholders没 equity The accompanying notes are an integral part of the financial statements.

3,750,533,826 2,906,477,147 4,875,166,872 4,494,285,768 10,255,349,328 8,720,765,807 6,360,036,611 5,786,802,873

INCOME STATEMENTS THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht)

Consolidated financial statements Separate financial statements Note

2007

2006

2007

2006 (Restated)

Revenues

Annual Report 2007 The Erawan Group Public Company Limited

Revenues from hotel operations 2,747,993,350 2,711,608,606 Rental of units in buildings and related services income 446,356,676 619,313,491 Other income Gain on exchange 6,375,492 303,253 Dividend income 593,453 Interest income 1,245,625 777,508 Gain from cancellation of leasehold right 13 Gain from sale of investment in subsidiary 22,865,273 2.2 171,886,893 Others 23,555,946 23,486,222

70,146,243

22,523,778

185,437,449 27,728,140 56,267,934 4,644,234

150,366,564 77,251,318 22,865,273 956,048

3,391,397,355 3,384,964,433

344,224,000

273,962,981

1,360,356,451 1,402,170,619 823,170,618 775,813,852 2.2 -

32,136,085 93,964,923 188,826,007

16,629,122 98,739,205 -

400,927,279

11,999,995 35,641,870

13,028,943

2,610,225,965 2,578,911,750

362,568,880

128,397,270

Total revenues Expenses Cost of sales and direct cost of rental and services Selling and administrative expenses Loss from sale of investment in subsidiary Provision for loss on impairment of investments in subsidiaries Depreciation and amortisation

Total expenses Income (loss) before interest expenses and corporate income tax Interest expenses Corporate income tax 25 Income (loss) after corporate income tax

426,698,896

781,171,390 806,052,683 (221,318,189) (222,682,555) (95,570,755) (104,739,166)

(18,344,880) 145,565,711 (51,222,106) (61,019,149) -

464,282,446

478,630,962

(69,566,986)

84,546,562

Net income attributable to minority interest

(62,361,829)

(68,786,441)

Net income (loss) for the year

401,920,617

409,844,521

(69,566,986)

84,546,562

0.20

0.25

(0.04)

0.05

1,977.9

1,624.7

1,977.9

1,624.7

0.19 2,102.5

0.24 1,728.8

(0.04) 1,977.9

0.05 1,728.8

Earnings per share Basic earnings per share Net income (loss)

Weighted average number of ordinary shares (million shares) Diluted earnings per share Net income (loss) Weighted average number of ordinary shares (million shares) The accompanying notes are an integral part of the financial statements.

83,162,577

30,069,567

1,677,005

1,959,084,768

Increase in minority interest

Balance as at 31 December 2006

Legal reserve (Note 23)

20,500,000

Ordinary share capital increase (Note 21)

26,069,567

Dividend paid (Note 29) 506,036,760

Net income for the year

Changes in the value of investments

62,662,577

638,853

1,038,152

4,000,000

Appropriated

723,560,678

(20,500,000)

(58,131,920)

409,844,521

392,348,077

Unappropriated

Retained earnings (deficit)

1,453,048,008

Unrealised gain on changes in the value of investments

Premium on ordinary shares

Consolidated financial statements

Unrealised items in income statements

Balance as at 1 January 2006

Issued and paid-up share capital

THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

STATEMENTS OF CHANGES IN SHAREHOLDERSâ&#x20AC;&#x2122; EQUITY

108,922,552

12,257,744

96,664,808

Minority interest

2,906,477,147

12,257,744

532,106,327

(58,131,920)

409,844,521

638,853

2,009,761,622

Total

(Unit: Baht)

323,542,015

2,214,574,625

Decrease in minority interest

Balance as at 31 December 2007

The accompanying notes are an integral part of the financial statements.

786,681

retained earnings - unappropriated

Transfer legal reserve of a subsidiary to

(Note 21)

Ordinary share capital increased due to conversion -

79,300,000

(3,862,577)

Dividend paid (Note 29) 293,472,448

Net income for the year

255,489,857

Changes in the value of investments

(890,324)

83,162,577

1,677,005

30,069,567

1,959,084,768

Appropriated

1,031,188,388

3,862,577

(98,155,484)

401,920,617

723,560,678

Unappropriated

Retained earnings (deficit)

Unrealised items in income statements

Balance as at 1 January 2007

Premium on ordinary shares

Issued and paid-up share capital

Consolidated financial statements Unrealised gain on changes in the value of investments

THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

STATEMENTS OF CHANGES IN SHAREHOLDERSâ&#x20AC;&#x2122; EQUITY (Continued)

Annual Report 2007 The Erawan Group Public Company Limited

101,142,117

(7,780,435)

108,922,552

Minority interest

3,750,533,826

(7,780,435)

548,962,305

(98,155,484)

401,920,617

(890,324)

2,906,477,147

Total

(Unit: Baht)

Balance as at 31 December 2006 - as restated

Legal reserve (Note 23)

1,959,084,768

30,069,567

20,500,000 66,890,000

983,799

Ordinary share capital increased (Note 21)

26,069,567

Dividend paid (Note 29) 506,036,760

Changes in the value of investments (Restated)

Net income for the year (Restated)

46,390,000

628,758

(409,394)

355,041

4,000,000

46,390,000

1,453,048,008

1,038,152

4,000,000

1,453,048,008

Appropriated

2,437,257,634

(20,500,000)

(58,131,920)

84,546,562

2,431,342,992

2,022,722,338

408,620,654

Unappropriated

Retained earnings (deficit)

Unrealised items in income statements

Balance as at 1 January 2006 - as restated

recognition of investments in subsidiary companies (Note 4)

Cumulative effect of the change in accounting policy for the

Balance as at 1 January 2006 - as previously reported

Unrealised gain on changes in the value of investments

Premium on ordinary shares

Separate financial statements Issued and paid-up share capital

THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

STATEMENTS OF CHANGES IN SHAREHOLDERSâ&#x20AC;&#x2122; EQUITY

4,494,285,768

532,106,327

(58,131,920)

84,546,562

355,041

3,935,409,758

2,022,312,944

1,913,096,814

Total

(Unit: Baht)

The accompanying notes are an integral part of the financial statements.

Balance as at 31 December 2007

2,214,574,625

255,489,857

Dividend paid (Note 29)

Ordinary share capital increased due to conversion (Note 21)

1,959,084,768

Net loss for the year

Changes in the value of investments

Unrealised items in income statements

Balance as at 1 January 2007 - as restated

recognition of investments in subsidiary companies (Note 4)

Cumulative effect of the change in accounting policy for the

Balance as at 1 January 2007 - as previously reported

Issued and paid-up share capital

323,542,015

293,472,448

30,069,567

Premium on ordinary shares

THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

66,890,000

625,068

66,890,000

983,799

(358,731)

66,890,000

1,677,005

(693,206)

Appropriated

2,269,535,164

(98,155,484)

(69,566,986)

2,437,257,634

1,697,424,379

739,833,255

Unappropriated

Retained earnings (deficit)

Unrealised gain on changes in the value of investments

Separate financial statements

STATEMENTS OF CHANGES IN SHAREHOLDERSâ&#x20AC;&#x2122; EQUITY (Continued)

Annual Report 2007 The Erawan Group Public Company Limited

4,875,166,872

548,962,305

(98,155,484)

(69,566,986)

(358,731)

4,494,285,768

1,696,731,173

2,797,554,595

Total

(Unit: Baht)

CASH FLOW STATEMENTS THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht)

Consolidated financial statements

Separate financial statements 2006

2007

2006

401,920,617

409,844,521

(69,566,986)

84,546,562

62,361,829 (171,886,893) (160,862) (1,469,798) (1,959,119) 3,446,551

68,786,441 (22,865,273) (3,037,273) 2,122,177 -

188,826,007 11,999,995 (20,835) (56,267,934) (367,188) 2,212,613 -

(22,865,273) 13,636 50,545 -

4,297,223 426,698,896

5,518,451 400,927,279

3,611,520 35,641,870

3,771,225 13,028,943

(3,889,247)

(11,920,307)

(662,581)

(3,824)

(8,447,978)

(15,109,719)

Income from operating activities before changes in operating assets and liabilities

710,911,219

834,266,297

115,406,481

78,541,814

Decrease (increase) in operating assets Trade accounts receivable Trade accounts receivable - related parties Inventories Advances Prepaid expenses - related parties Other current assets Other non-current assets

(38,290,001) 2,144,176 (1,830,397) (24,523,425) (25,068) (139,948,022) 1,758,494

(35,217,897) 1,641,499 6,118,118 (98,450,916) 6,049,660 88,351,337 (2,480,932)

(13,792,597) (45,990) (101,290,151) 900,742 (62,336,890) 13,043,207

(334,133) (84,000) (11,528,569) 1,824,587

2007

(Restated)

Cash flows from operating activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (paid from) operating activities: Net income attributable to minority interest Loss (gain) from sale of investment in subsidiary Provision for loss on impairment of investments in subsidiaries Gain from sales of investment in related company Gain from cancellation of leasehold right Loss (gain) on sales of property, plant and equipment Allowance for doubtful accounts (reversal) Allowance for obsolete inventories Allowance for non-refundable withholding tax deducted at source Depreciation and amortisation Rental deposits and leasehold rights received from lessees applied as income Deferred income and advance received from customers applied as income

The accompanying notes are an integral part of the financial statements.

CASH FLOW STATEMENTS (Continued) THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht)

Consolidated financial statements 2007

2006

Separate financial statements 2007

2006 (Restated)

Increase (decrease) in operating liabilities

Annual Report 2007 The Erawan Group Public Company Limited

Trade accounts payable Trade accounts payable - subsidiaries Other payable - subsidiaries Advances from customers and deferred income Income tax payable Other current liabilities Deposits from lessees

7,356,723 (7,197,954) (12,146,554) 27,942,374 (26,137,610)

26,637,539 7,632,431 (3,980,979) 51,431,747 15,083,926

4,269,814 (301,111) (1,229,467) 10,194 1,236,035 37,167,037

3,847,450 240,361 (1,798,727) 10,765,927 (10,418,001)

Net cash flows from (used in) operating activities

500,013,955

897,081,830

(6,962,696)

71,056,709

36,166,639 -

8,849,652 -

Cash flows from investing activities Decrease in current investment Decrease in short-term loans to a subsidiary Decrease in long-term loans to and interest receivable from subsidiaries Increase in investments in subsidiary companies Proceed from sale of investment in subsidiary (Note 2.2) Increase in investments in associated companies Increase in investments in related company Proceeds from sales of investments in related company Acquisition of property, plant and equipment and leasehold rights to land and buildings Proceeds from sales of property, plant and equipment and leasehold rights Increase in accounts payable - construction and retention Decrease (increase) in restricted bank deposits Net cash flows used in investing activities

(3,250,000) 370,604,176 142,293

18,792,507

598,711,482 (640,679,863)

235,493,109 (210,000,000)

194,503,133 -

311,172,393 (544,477) (507,741)

194,503,133 -

84,747

(2,171,919,943) (1,709,646,839)

(814,791,272)

(1,017,562,298)

337,758,978

7,245,916

79,132,197

19,728

57,843,962 234,125

11,707,265 (6,125)

13,083,790 -

6,256,813 -

(1,372,419,770) (1,487,346,998)

(454,338,744)

(772,497,008)

The accompanying notes are an integral part of the financial statements.

CASH FLOW STATEMENTS (Continued) THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht)

Consolidated financial statements 2007 Cash flows from financing activities Increase in short-term loans from financial institutions Decrease in liabilities under finance lease agreements and hire purchase payable Decrease in short-term loans from related parties Cash receipt from long-term loans Repayment of long-term loans Proceeds from increase in share capital Dividend paid Dividend paid to minority interest

2006

Separate financial statements 2007

2006 (Restated)

108,050,000

163,300,000

78,750,000

244,000,000

(6,876,753) 769,759,294 (330,983,030) 548,962,305 (98,155,484) (67,200,128)

(12,359,945) (130,339,959) 1,351,861,960 (1,174,687,447) 532,106,327 (58,131,920) (54,573,823)

(1,641,312) (86,672,167) 61,950,000 (40,000,000) 548,962,305 (98,155,484) -

(1,790,502) (43,667,792) 70,000,000 (40,000,000) 532,106,327 (58,131,920) -

Net cash flows from financing activities

923,556,204

617,175,193

463,193,342

702,516,113

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year

51,150,389 116,229,025

26,910,025 89,319,000

1,891,902 2,031,909

1,075,814 956,095

Cash and cash equivalents at end of year

167,379,414

116,229,025

3,923,811

2,031,909

262,144,928 120,885,081

227,658,613 107,010,515

61,874,750 3,235,165

62,955,594 1,255,751

4,324,014

4,777,563

3,563,205

213,867

Supplemental cash flows information Cash paid during the year for: Interest expenses (consist of interest payment for operation and interest payment for project cost) Corporate income tax Non-cash transactions: Settlement of rental deposit received from lessees with accounts receivable Vehicles purchased under finance lease agreements and hire purchase agreements Acquisition of fixed assets for which payment has yet to be made Transfer of deposits for purchases of land to property, plant and equipment Transfer of land awaiting development to property, plant and equipment Settlement of deposit received with cash received from sale of investment in subsidiary The accompanying notes are an integral part of the financial statements.

1,081,500

301,419,799

30,854,612

121,692,891

112,000,000

13,911,944

21,611,459

1,249,800

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE ERAWAN GROUP PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

1. GENERAL INFORMATION

1.1 Corporate information The Erawan Group Public Company Limited (“The Company”) is a public company incorporated and domiciled in Thailand. The Company is principally engaged as a holding company with investments in various companies, whose businesses are described in Note 2.2 to the financial statements, in the building rental business, and in hotel business and its registered address is 2 Sukhumvit Road, Klong Toey, Klong Toey, Bangkok, branch no. 1 is located at 494 Ploenchit Road, Lumpini, Pathumwan, Bangkok and branch no. 2 is located at JW Marriott Hotel Bangkok, 4 Sukhumvit Road, Klong Toey, Klong Toey, Bangkok. 1.2 Fundamental accounting assumptions

Annual Report 2007 The Erawan Group Public Company Limited

As of 31 December 2007, certain subsidiaries have incurred losses from their operations and have significant deficits. Although these conditions raise substantial doubt about the subsidiaries’ ability to continue as a going concern, the subsidiaries’ management plan improvements to the subsidiaries’ and they believe that they will be able to resolve these problems. For this reason, the financial statements of the subsidiaries as included in the consolidated financial statements have been prepared on a going concern basis and hence do not include any of the adjustments that might result should the subsidiaries be unable to continue as a going concern. 2. BASIS OF PREPARATION

2.1 The financial statements have been prepared in accordance with accounting standards enunciated under the Accounting Profession Act B.E. 2547. The presentation of the financial statements has been made in compliance with the stipulations of the Notification of the Department of Business Development dated 14 September 2001, issued under the Accounting Act B.E. 2543. The financial statements have been prepared on a historical cost basis except where otherwise disclosed in the accounting policies. 2.2 Basis of consolidation a) The consolidated financial statements include the financial statements of The Erawan Group Public Company Limited and the following subsidiaries which have all their operations in Thailand: -

Company没s name

Nature of business shareholding

Percentage of shareholding

Revenues as a Assets as a percentage to percentage the consolidated total to the consolidated revenues for total assets as the years ended at 31 December 31 December

2007

2006

2007

2006

2007

2006

percent

73.64

17.60

20.94

39.85

40.95

99.99

8.59

2.92

9.86

Erawan Hotel Public Company Limited

Hotel

Erawan Ratchaprasong Company Limited

Office and retail building rental

Erawan Ploenchit Company Limited

Hotel/Office and retail building rental

99.99

99.75

32.16

39.48

43.35

42.36

Erawan Rajdamri Company Limited

Hotel

99.99

10.64

4.92

0.91

Ploenchit Real Estate Company Limited

Dissolution

99.99

Erawan Naka Company Limited (2006: 99.99% held by Erawan Ratchaprasong Co., Ltd.)

Land owner

99.99

0.14

0.16

Erawan Chaophraya Company Limited (99.99% held by Erawan Rajdamri Co., Ltd.)

Real estate development

0.41

0.65

Hotel

10.69

3.85

Hotel

99.99

7.16

8.85

5.56

5.46

Erawan Phuket Company Limited (99.99% held by Erawan Ploenchit Co.,Ltd.) Erawan Samui Company Limited

During the current year, the Company sold all investment in Erawan Ratchaprasong Co., Ltd. to the third party as discussed in Note 8.

On 30 March 2007, the net asset value of Erawan Ratchaprasong Co., Ltd. was as follows: (Unit: Thousand Baht)

Consolidated financial statements

Annual Report 2007 The Erawan Group Public Company Limited

Cash and deposits at financial institutions Trade accounts receivable - net Other current assets Building and equipment - net Leasehold right - net Other non-current assets Total assets Trade accounts payable Short-term loans from related parties Other current liabilities Deposits received Deferred income - net Total liabilities Net asset value Unrealised gain on related transactions Total Net asset value - equity attributable to Companyûs shareholders Less: Sales proceeds Additional share subscription in accordance with amendment memorandum of sales agreement Gain from sale of investment in subsidiary Sales proceeds Add: Additional share subscription in accordance with amendment memorandum of sales agreement Less: Cash and deposits at financial institutions of subsidiary Add: Cash receipt from repayment of long-term loans Net cash received from sale of investment in subsidiary

44,752 10,528 4,937 334,733 91,361 31,549 517,860 9,836 104,184 43,444 56,498 59,067 273,029 244,831 (105,545) 139,286 139,286 (298,300) (12,872) 171,886 298,300 12,872 (44,752) 104,184 370,604 (Unit: Thousand Baht)

Separate financial statements Cost of investment Less: Sales proceeds Additional share subscription in accordance with amendment memorandum of sales agreement Loss from sale of investment in subsidiary

499,998 (298,300) (12,872) 188,826

b) Material balances and transactions between the Company and its subsidiaries have been eliminated from the consolidated financial statements. c) Investments in the subsidiaries as recorded in the Company’s books of account are eliminated against the equity of the subsidiaries. Most of the resultant differences are recognised on fair value of identified assets and the remaining are amortised over a period of 10 years commencing as from the date of acquisition of the investment. However, the goodwill was fully amortised in 2007.

2.3 The separate financial statements, which present investments in subsidiaries and associates presented under the cost method, have been prepared solely for the benefit of the public. 3. ADOPTION OF NEW ACCOUNTING STANDARDS

The Federation of Accounting Professions (FAP) has issued Notifications No. 9/2550, 38/2550 and 62/2550 regarding Accounting Standards. The notifications mandate the use of the following new Accounting Standards. a) Accounting Standards which are effective for the current year TAS 44 (revised 2007)

Consolidated Financial Statements and Separate Financial Statements

TAS 45 (revised 2007)

Investments in Associates

TAS 46 (revised 2007)

Interests in Joint Ventures

These accounting standards become effective for the financial statements for fiscal years beginning on or after 1 January 2007. During the first quarter of the current year, the Company changed its accounting policy for recording investments in subsidiaries in the separate financial statements in order to comply with the revised Thai Accounting Standards No. 44 as discussed in Note 4. b) Accounting Standards which are not effective for the current year TAS 25 (revised 2007)

Cash Flow Statements

TAS 29 (revised 2007)

Leases

TAS 31 (revised 2007)

Inventories

TAS 33 (revised 2007)

Borrowing Costs

TAS 35 (revised 2007)

Presentation of Financial Statements

TAS 39 (revised 2007)

Accounting Policies, Changes in Accounting Estimates and Errors

TAS 41 (revised 2007)

Interim Financial Reporting

TAS 43 (revised 2007)

Business Combinations

TAS 49 (revised 2007)

Construction Contracts

TAS 51

Intangible Assets

These accounting standards will become effective for the financial statements for fiscal years beginning on or after 1 January 2008. The management has assessed the effect of these revised accounting standards and believes that they will not have any significant impact on the financial statements for the year in which they are initially applied. 4. CHANGE IN ACCOUNTING POLICY FOR RECORDING INVESTMENTS IN SUBSIDIARIES IN THE SEPARATE FINANCIAL STATEMENTS

During the first quarter of the current year, the Company changed its accounting policy for recording investments in subsidiaries in the separate financial statements from the equity method to the cost method, in compliance with Accounting Standard No. 44 (Revised 2007) regarding â&#x20AC;&#x153;Consolidated Financial Statements and Separate Financial Statementsâ&#x20AC;?, under which investments in subsidiaries, jointly controlled entities and associates are to be presented in the separate financial statements under the cost method.

In this regard, the Company has restated the previous year’s separate financial statements as though the investments in the subsidiaries had originally been recorded using the cost method. The change has the effect of decreasing net income in the separate income statements for the years ended 31 December 2007 and 2006 by Baht 471.5 million (Baht 0.24 per share) and Baht 325.3 million (Baht 0.20 per share), respectively. The cumulative effect of the change in accounting policy has been presented under the heading of “Cumulative effect of the change in accounting policy for investments in subsidiary companies” in the separate statements of changes in shareholders’ equity. Such change in accounting policy affects only the accounts related to investments in subsidiaries in the Company’s separate financial statements, with no effect to the consolidated financial statements. 5. SIGNIFICANT ACCOUNTING POLICIES

Annual Report 2007 The Erawan Group Public Company Limited

5.1 Revenue recognition Revenue from hotel and restaurant operations : Revenue from hotel and restaurant operations mainly comprises room sales, food and beverage sales and revenues from auxiliary activities, and represents the invoiced value (excluding value added tax) of goods supplied and services rendered after deducting discounts and adding service charges. Rental and services income : Rental and related services income from units in office buildings and shopping center are recognised on an accrual basis. Interest income : Interest income is recognised on an accrual basis based on the effective interest rate. Dividends : Dividends are recognised when the right to receive the dividends is established. 5.2 Cash and cash equivalents Cash and cash equivalents consist of cash in hand, cash at banks, and all highly liquid investments with an original maturity of three months or less and not subject to withdrawal restrictions. 5.3 Trade accounts receivable Trade accounts receivable are stated at the net realisable value. Allowance for doubtful accounts is provided for the estimated losses that may be incurred in collection of receivables. The allowance is generally based on collection experiences and analysis of debtor aging. 5.4 Inventories Inventories for the hotel business are valued at the lower of cost (the average method) and net realisable value.

5.5 Investments a) Investments in securities held for trading are stated at fair value. Gains or losses arising from changes in the carrying amounts of securities are included in determining income. b) Investments in available-for-sale securities are stated at fair value. Changes in the carrying amounts of securities are recorded as separate items in shareholdersâ&#x20AC;&#x2122; equity until the securities are sold, when the changes are then included in determining income. c) Investment s in associates are accounted for in the consolidated financial statements using the equity method. d) Investments in subsidiaries and associates are accounted for in the separate financial statements using the cost method. The fair value of unit trusts is determined from their net asset value. The weighted average method is used for computation of the cost of investments. 5.6 Property, plant and equipment and depreciation Land is stated at cost. Buildings and equipment are stated at cost less accumulated depreciation and allowance for loss on impairment of assets (if any). Depreciation of buildings and equipment is calculated by reference to their costs on the straight-line basis over the following estimated useful lives: Buildings and improvements

5 - 40 years

Hotel equipment

5 - 10 years

Furniture fixture and equipment

5 - 10 years

Motor vehicles

5 years

Depreciation is included in determining income. No depreciation is provided on land and assets under construction. The cost of linen, crockery, glass, silver and kitchen utensils purchased to meet the normal requirements of the hotel operations have been regarded as a base stock and subsequent purchases are expended when incurred. 5.7 Intangible assets and amortisation Intangible assets are stated at cost less accumulated amortisation. Amortisation is calculated by reference to cost on a straight-line basis over the expected future period, for which the assets are expected to generate economic benefit, as follows: Copyrights The amortisation is included in determining income.

5 - 10 years

5.8 Leasehold rights to land and buildings and amortisation Leasehold rights to land and buildings are stated at cost less accumulated amortisation. Amortisation of leasehold rights is calculated by reference to their costs on a straight-line basis over the shorter of the estimated useful lives and the lease period, as follows: Leasehold rights to land and buildings

10 - 40 years

The amortisation is included in determining income. 5.9 Related party transactions Related parties comprise enterprises and individuals that control, or are controlled by, the Company, whether directly or indirectly, or which are under common control with the Company.

They also include associated companies and individuals which directly or indirectly own a voting interest in the Company that gives them significant influence over the Company, key management personnel, directors and officers with authority in the planning and direction of the Companyâ&#x20AC;&#x2122;s operations.

Annual Report 2007 The Erawan Group Public Company Limited

5.10 Long-term lease Leases of motor vehicles which transfer substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lower of the fair value of the leased assets and the present value of the minimum lease payments. The outstanding rental obligations, net of finance charges, are included in other long-term payables, while the interest element is calculated by using the effective interest rate and charged to the income statements over the lease period. The asset acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease period. 5.11 Foreign currencies Foreign currency transactions are translated into Baht at the exchange rates ruling on the transaction dates. Assets and liabilities denominated in foreign currencies outstanding at the balance sheet date are translated into Baht at the exchange rates ruling on the balance sheet date. Gains and losses on exchange are included in determining income. 5.12 Impairment of assets The Company and its subsidiaries assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Company and its subsidiaries make an estimate of the assetâ&#x20AC;&#x2122;s recoverable amount. Where the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement. An assetâ&#x20AC;&#x2122;s recoverable amount is the higher of fair value less costs to sell and value in use. 5.13 Employee benefits Salaries, wages, bonuses and contributions to the social security fund and provident fund are recognised as expenses when incurred. 5.14 Provisions Provisions are recognised when the Company and its subsidiaries have a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

5.15 Income tax Income tax is provided for in the accounts based on the taxable profits determined in accordance with tax legislation. 5.16 Capitalisation of interest costs Interest costs on borrowings for use in projects construction are capitalised as part of the cost of the relevant assets. Capitalisation will cease when projects are completed or when construction is suspended, until active development resumes. 5.17 Use of accounting estimates Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances, affecting amounts reported in these financial statements and related notes. Actual results could differ from these estimates. 6. TRADE ACCOUNTS RECEIVABLE

The outstanding balances of trade accounts receivable as at 31 December 2007 and 2006 are classified by aging as follows: (Unit: Baht)

Consolidated financial statements

Separate financial statements 2006

2007

2006

2007

163,997,018 4,356,599 1,541,151 3,846,727

130,588,247 10,766,052 6,086,105 2,863,265

5,415,706 1,586,276 1,100,895 3,035,724

242,426 69,459 420,546 176,778

Total Less: Allowance for doubtful accounts

173,741,495 (5,120,219)

150,303,669 (7,079,338)

11,138,601 (2,703,575)

909,209 (490,962)

Trade accounts receivable - net

168,621,276

143,224,331

8,435,026

418,247

Age of receivables Less than 3 months 3 - 6 months 6 - 12 months Over 12 months

(Restated)

The trade accounts receivable classified by types of business are as follows: (Unit: Baht)

Consolidated financial statements

Separate financial statements 2006

2007

2006

2007

Accounts receivable - Hotel Accounts receivable - Rental

151,131,967 22,609,528

104,114,164 46,189,505

11,138,601

909,209

Total Less: Allowance for doubtful accounts

173,741,495 (5,120,219)

150,303,669 (7,079,338)

11,138,601 (2,703,575)

909,209 (490,962)

Trade accounts receivable - net

168,621,276

143,224,331

8,435,026

418,247

(Restated)

7. RELATED PARTY TRANSACTIONS

During the years, the Company and its subsidiaries had significant business transactions with related parties, which have been concluded on commercial terms and bases agreed upon in the ordinary course of business between the Company and those companies. Below is a summary of those transactions. (Unit: Million Baht)

Consolidated financial statements

Annual Report 2007 The Erawan Group Public Company Limited

2007

2006

Transactions with related companies: Rental and services income

Utilities income Land rental Insurance expenses Management fee

4 11 7 1

63 9 11 10 1 -

Other service expenses

Transfer pricing policy

Baht 300-450 per square meter per month depending on location Cost method Baht 11 million per annum Fair price under the best conditions At cost - allocated in proportion to shareholding Fair price under the best conditions (Unit: Million Baht)

Separate financial statements

Transactions with subsidiary companies: (eliminated from the consolidated financial statements) Interest income

Dividend income Utilities income Rental and service expenses Utilities expenses Interest expenses

Gain from cancellation of leasehold rights Transactions with related parties: Interest expenses Management fee Other service expenses

2007

2006

185

150

2 17 3

11 1 1

6 -

Transfer pricing policy

At the rates of 5.00 - 6.22% per annum (2006: at the rates of 5.18 - 6.22% per annum) Baht 3.20 per share (2006: Baht 2.60 per share) Cost method Baht 250 - 330 per square meter per month Cost method At the rates of 5.00 - 6.50% per annum (2006: at the rates of 5.66 - 6.64% per annum) Agreed upon basis At the rates of 4.15 - 5.50% per annum At cost - allocated in proportion to shareholding Fair price under the best conditions

The balances of the accounts as at 31 December 2007 and 2006 between the Company and those related companies are as follows: (Unit: Baht)

Consolidated financial statements Separate financial statements

Trade accounts receivable - related parties: Subsidiaries Erawan Hotel Plc. Erawan Ratchaprasong Co., Ltd. Related companies Kiatnakin Bank Plc. Minor Corporation Plc. Armin Systems Ltd. Mitr Phol Sugar Co., Ltd. Chai Talay Hotel Co., Ltd. Esmido Fashions Co., Ltd. Other companies Prepaid expenses - related parties: Subsidiary Erawan Ratchaprasong Co., Ltd. Related companies The Syndicate of Thai Hotels & Tourists Enterprises Ltd. IAG Insurance (Thailand) Ltd. Long-term loans to and interest receivable from subsidiaries: Erawan Ratchaprasong Co., Ltd. Erawan Ploenchit Co., Ltd. Erawan Rajdamri Co., Ltd. Erawan Samui Co., Ltd. Erawan Naka Co., Ltd.

2006

124,395 -

34,240 49,760

5,595 441,706 352,552 536,061 1,335,914

377,653 753,067 199,996 424,735 631,862 659,703 433,074 3,480,090

5,595 129,990

84,000

5,460,000 25,068 5,485,068 -

5,460,000 5,460,000 -

2007

2006 (Restated)

2007

925,810

25,068 25,068

925,810

186,791,027 153,610,598 42,462,934 16,641,561 399,506,120

698,882,417 178,489,411 115,550,365 5,295,409 998,217,602

During 2007, movements of short-term/long-term loans to and interest receivable from subsidiaries were as follows: (Unit: Baht)

Balance as at Separate financial statements Balance as at During the year 1 January 31 December 2007 2007 Increase Decrease Short-term loans to and interest receivable from subsidiary: Erawan Hotel Plc.

Annual Report 2007 The Erawan Group Public Company Limited

Long-term loans to and interest receivable from subsidiaries: Erawan Ratchaprasong Co., Ltd. 698,882,417 Erawan Ploenchit Co., Ltd. 178,489,411 Erawan Rajdamri Co., Ltd. 115,550,365 Erawan Samui Co., Ltd. 5,295,409 Erawan Naka Co., Ltd. 998,217,602

183,348,357

(183,348,357)

106,145,922 (805,028,339) 336,979,155 (328,677,539) 186,791,027 383,162,503 (345,102,270) 153,610,598 74,585,343 (37,417,818) 42,462,934 18,691,504 (2,049,943) 16,641,561 919,564,427 (1,518,275,909) 399,506,120 (Unit: Baht)

Consolidated financial statements Separate financial statements 2006

2007

2006

2007

Other payable - subsidiary company: Erawan Ratchaprasong Co., Ltd.

1,229,467

Short-term loans from and interest payable to a subsidiary: Erawan Hotel Plc.

86,672,167

Trade accounts payable - subsidiary companies: Erawan Ratchaprasong Co., Ltd. Erawan Ploenchit Co., Ltd. Erawan Rajdamri Co., Ltd. Erawan Hotel Plc.

6,750 434,458 441,208

(Restated)

614,954 76,502 50,863 742,319

During 2007, movements of short-term loans from subsidiaries were as follows: (Unit: Baht)

Balance as at 1 January 2007 Short-term loans from subsidiaries: Erawan Hotel Plc. Erawan Ploenchit Co., Ltd. Erawan Samui Co., Ltd.

86,672,167 86,672,167

Separate financial statements During the year Increase

Decrease

Balance as at 31 December 2007

173,370,401 4,747,632 4,088,018 182,206,051

(260,042,568) (4,747,632) (4,088,018) (268,878,218)

Directors and managementâ&#x20AC;&#x2122;s remuneration In 2007 the Company and its subsidiaries paid salaries, meeting allowances and gratuities to their directors and management totaling Baht 35.3 million (Separate financial statements: Baht 30.7 million) (2006: Baht 33.7 million, Separate financial statements: Baht 28.7 million). In addition, in 2006 the Company had allocated 14,820,879 warrants to its directors without charge. The details of the warrants are presented in Note 21 c) to the financial statements. Guarantee obligations with its subsidiaries The Company has outstanding guarantee obligations with its subsidiaries, as described in Note 30.3 to the financial statements.

Erawan Ploenchit Co., Ltd. Erawan Hotel Plc. Erawan Rajdamri Co., Ltd. Erawan Ratchaprasong Co., Ltd. Ploenchit Real Estate Co., Ltd. Erawan Samui Co., Ltd. Erawan Naka Co., Ltd. Total Less: Impairment loss Net

Company没s Name

2,011.69 119.50 450.00 690.00 330.00 7.50

2,011.69 119.50 160.00 500.00 690.00 330.00 -

2006 (Million Baht)

2007

Paid-up capital

(Million Baht)

8. INVESTMENTS IN SUBSIDIARIES

99.99 99.99 99.99

99.99 73.64 99.99

Percent

2007 99.75 73.64 99.99 99.99 99.99 99.99 -

Percent

2006

Percentage owned by the Company

2,136,841,002 819,709,948 451,291,348 1,180,499,528 376,857,633 299,982 4,965,499,441 (1,180,499,528) 3,784,999,913

2007

Separate financial statements

Annual Report 2007 The Erawan Group Public Company Limited

2006 (Restated)

1,798,461,117 819,709,948 161,291,348 499,998,400 1,168,499,533 376,857,633 4,824,817,979 (1,168,499,534) 3,656,318,445

Cost

185,066,541 185,066,541

2007

150,366,564 150,366,564

2006

Dividend received for the years ended 31 December

(Unit: Baht)

In January to March 2007, the Company purchased 50.0 million ordinary shares, 1.6 million ordinary shares, and 0.5 million ordinary shares of Erawan Ploenchit Co., Ltd. from Erawan Ratchaprasong Co., Ltd., Erawan Rajdamri Co., Ltd., and other company, respectively, at a price of Baht 6.50 per share, paying a total of Baht 338.4 million. The execution of these transactions changed the Company’s indirect equity interest of 99.75% in Erawan Ploenchit Co., Ltd. to a direct equity interest of 99.99%. On 1 March 2007, the Company purchased 99,994 ordinary shares of Erawan Naka Co., Ltd. from Erawan Ratchaprasong Co., Ltd., at a price of Baht 3 per share, paying a total of Baht 0.3 million. The execution of this transaction changed the Company’s indirect equity interest of 99.99% in this company to a direct equity interest of 99.99%. On 14 March 2007, the Company entered into an agreement to sell 4,999,984 ordinary shares of Erawan Ratchaprasong Co., Ltd. at a price of Baht 59.66 per share, or a total of Baht 298.3 million. The value of the shares was calculated on the basis of the fair value of the business, using the discounted cash flow method over the remaining term of the lease, after adjusting by reflect net working capital and deducting liabilities. The Company transferred these shares to the purchaser. Moreover, on 10 July 2007, the Company entered into an amendment memorandum to the agreement, whereby the purchaser was to make additional net payment of Baht 12.9 million to the Company for the shares. The Company has already received the above additional share subscription. However, the sale and purchase agreement places certain obligations on the Company, such as that it is responsible for liabilities of Erawan Ratchaprasong Co., Ltd. that may arise. On 4 April 2007, the Annual General Meeting of shareholders of Erawan Hotel Plc. approved the payment of a dividend of Baht 3.20 per share to shareholders of 79,666,667 shares, or a total of Baht 254.9 million (The Company’s proportion was Baht 185.1 million), in respect of the 2006 earnings of the subsidiary. The dividend was paid on 10 April 2007. On 27 July 2007, a meeting of the Board of Directors of the Company approved the purchase and transfer of the entire business of Erawan Ploenchit Co., Ltd. The transfer of business includes the transfer of all assets, employees and liabilities of the subsidiary as at 30 September 2007 or other date fixed by the President & CEO and/or the Chairman of Board. The Company holds a 99.99% interest in the equity of such subsidiary. Since there are a lot of steps involved in the transfer of an entire business, the Company postponed the date of transfer to 1 January 2008, and executed the acquisition on that date. Pursuant to the above resolution, the Company notified the Revenue Department of the transfer in order to request the tax privileges available for the transfer of an entire business. The subsidiary registered its dissolution with the Ministry of Commerce on 3 January 2008 and is now in the process of liquidation. On 26 October 2007, a resolution of the Extraordinary General Meeting of the shareholders of Erawan Rajdamri Co., Ltd. authorised a plan to increase that subsidiary’s share capital from Baht 160 million to Baht 450 million through the issue of 2.9 million additional ordinary shares, with a par value of Baht 100 each. The Company purchased all of the additional shares, to maintain its existing shareholding. On 31 October 2007, a resolution of a meeting of the Board of Directors of the Company authorised a plan to return to Ploenchit Real Estate Co., Ltd. a portion of Baht 0.8 per share, or a total of Baht 12.0 million, of the amount that the Company received in advance, without waiting for the completion of the liquidation process. This is because the subsidiary is in the process of liquidation and has added tax liabilities as a result of the examinations of withholding tax and dissolution conducted by the Revenue Department. The Company paid such amount in November 2007 and recorded it as an investment and recorded impairment loss for the full amount in the income statement.

9. INVESTMENTS IN ASSOCIATED COMPANIES

9.1 Details of associates (Unit: Baht)

Company没s name

Annual Report 2007 The Erawan Group Public Company Limited

Nature of business

Type of relation

Consolidated financial statements Percentage owned Net book value from Cost by the Company equity method 2007

2006

(Percent)

2007

2006

2007

2006

25.00

Held by the Company (2006: held by Erawan Ratchaprasong Co., Ltd.) Tourianse Overseas (Thailand) Ltd. Restaurant Common shareholders Rajprasong Square Co., Ltd. Service

Common shareholders

23.29

206,206 340,000 206,206 206,206

Rajprasong Development Co., Ltd.

Common shareholders and common directors

48.00

338,271 480,000 338,271 338,271

Service

544,477 820,000 544,477 544,477 During the year, the Company did not record its shares in the operating result of investments in associated companies in the consolidated financial statements because it found that the amount was immaterial. (Unit: Baht)

Company没s name

Nature of business

Rajprasong Square Co., Ltd. Service Rajprasong Development Co., Ltd. Service

Type of relation

Common shareholders Common shareholders and common directors

Separate financial statements Percentage owned Cost by the Company 2007

2006

(Percent)

23.29 48.00

2007

2006

206,206

338,271

544,477

On 29 March 2007, the Company purchased 34,000 ordinary shares of Rajprasong Square Co., Ltd. for Baht 0.2 million and 4,800 ordinary shares of Rajprasong Development Co., Ltd. for Baht 0.3 million from Erawan Ratchaprasong Co., Ltd. As a result of these transactions, the Company’s indirect equity interest of 23.29% and 48.00% in the latter company has changed to a direct equity interest of 23.29% and 48.00%, respectively. 9.2 Summarised financial information of associates (Unit: Million Baht)

Companyûs name

Rajprasong Square Co., Ltd. Rajprasong Development Co., Ltd.

Total revenues for Net income (loss) Paid-up capital Total assets Total liabilities the years ended for the years ended as at 31 December as at 31 December as at 31 December 31 December 31 December 2007

2006

2007

2006

2007

2006

2007

2006

2007

2006

1.5 1.0

0.8 1.2

0.8 0.9

0.1

1.3

1.2

(0.2)

10. INVESTMENTS IN RELATED COMPANY (Unit: Baht)

Equity interest

Related company The Asia Recovery 2 Fund Add: allowance for change in value

Consolidated financial statements

2007

2006

(Percent)

0.2

Total

2007

2006

3,285,339 786,694

3,570,241 1,770,839

4,072,033

5,341,080 (Unit: Baht)

Equity interest

Related company The Asia Recovery 2 Fund Add: allowance for change in value Total

Separate financial statements

2007

2006

(Percent)

0.1

2007

2006

2,427,297 625,068

1,983,467 983,800

3,052,365

2,967,267

11. PROPERTY, PLANT AND EQUIPMENT (Unit: Baht)

Consolidated financial statements Land and Building and Equipment, Assets Motor land building furniture under vehicles improvements improvements and fixture construction

Annual Report 2007 The Erawan Group Public Company Limited

Cost 31 December 2006 Additions Transfer in (out) Transfer to leasehold rights to buildings Disposals Adjustment Capitalised interest Disposals of subsidiary during the year* 31 December 2007 Accumulated depreciation 31 December 2006 Depreciation for the year Depreciation on disposals Adjustment Disposals of subsidiary during the year* 31 December 2007 Net book value 31 December 2006 Eliminated 31 December 2007 Eliminated Depreciation for the year 2006 Eliminated 2007 Eliminated

1,250,788,252 6,519,687,653 1,248,194,860 38,760,858 87,626,019 150,710,180 28,696,684 51,669,728 -

(359,504,793) -

(28,706,204) 18,181 -

(891,303,108)

(19,736,963)

1,289,549,110 5,385,202,455 1,402,149,782

Total

64,187,423 418,400,762 9,501,258,950 3,409,663 1,813,664,726 2,094,171,446 1,468,630 (100,600,754) (18,765,712) (754,577,754) (754,577,754) (1,288,000) (389,498,997) 18,181 52,102,554 52,102,554 -

(911,040,071)

67,777,716 1,428,989,534 9,573,668,597

2,099,624,793 813,487,029 19,885,441 226,573,245 96,991,995 13,070,528 (90,941,546) (25,854,604) (1,287,999) 11,961 (7,455) 205

2,932,997,263 336,635,768 (118,084,149) 4,711

(562,156,336) (14,150,263) 1,673,112,117 870,466,702 31,668,175

(576,306,599) 2,575,246,994

1,250,788,252 4,420,062,860

434,707,831

44,301,982

418,400,762 6,568,261,687 404,454,169 6,972,715,856

1,289,549,110 3,712,090,338

531,683,080

36,109,541 1,428,989,534 6,998,421,603 391,430,550 7,389,852,153 352,236,394 13,023,617 365,260,011 336,635,768 13,023,618 349,659,386

* Assets were transferred out as a result of the sale of investment in Erawan Ratchaprasong Co., Ltd., as mentioned in Note 2.2.

Most of the above eliminate entries are recognised the identified assets of the subsidiaries, which the Company purchased, to be fair value. (Unit: Baht)

Land

Building and building improvements

Separate financial statements Equipment, Motor furniture vehicles and fixture

Assets under construction

Total

Cost 31 December 2006 Additions Disposals Adjustment Capitalised interest

947,484,113 38,760,858 -

12,184,427 52,609,203 (3,290,749) -

24,116,249 4,551,026 (3,101,259) 18,181 -

10,365,000 1,442,000 (1,288,000) -

44,324,995 486,435,461 11,130,703

1,038,474,784 583,798,548 (7,680,008) 18,181 11,130,703

31 December 2007

986,244,971

61,502,881

25,584,197

10,519,000

541,891,159

1,625,742,208

6,085,638 9,770,943 (2,516,821)

16,065,197 3,551,436 (3,081,963)

5,796,269 1,890,216 (1,287,999)

27,947,104 15,212,595 (6,886,783)

13,339,760

16,534,670

6,398,486

36,272,916

Net book value 31 December 2006

947,484,113

6,098,789

8,051,052

4,568,731

44,324,995

1,010,527,680

31 December 2007

986,244,971

48,163,121

9,049,527

4,120,514

541,891,159

1,589,469,292

Accumulated depreciation 31 December 2006 Depreciation for the year Depreciation on disposals 31 December 2007

Depreciation for the year 2006 2007

7,446,142 15,212,595

As at 31 December 2007, certain plant and equipment items of the Company and its subsidiaries have been fully depreciated but are still in use. The original cost of those assets amounted to approximately Baht 601.0 million (2006: Baht 652.1 million) (Separate financial statements: Baht 7.2 million, 2006: Baht 10.6 million). Motor vehicles of the Company and Erawan Ploenchit Co., Ltd. of which are under hire purchase and finance lease agreements. Their net book value as at 31 December 2007 is Baht 32.9 million (2006: Baht 44.2 million) (Separate financial statements: Baht 4.0 million, 2006: Baht 4.6 million).

100

The Company and its subsidiaries have mortgaged their assets amounting to approximately Baht 4,888.0 million (2006: Baht 5,038.3 million) (Separate financial statements: Baht 947.5 million, 2006: Baht 947.5 million) as collateral against credit facilities received from financial institutions and transferred the related beneficiary rights under insurance policies to the bank to secure the loans. The insurance benefits on the leased building of Erawan Rajdamri Co., Ltd. are assigned to the lessor.

Annual Report 2007 The Erawan Group Public Company Limited

12. INTANGIBLE ASSETS (Unit: Baht)

Copyrights

Consolidated financial statements Negative Goodwill goodwill

Cost 31 December 2006 Additions Transfer in Disposals Adjustment Disposals of subsidiary during the year 31 December 2007

61,687,920 3,115,825 18,765,712 (120,562) 8,073 (427,374) 83,029,594

108,748,989 308,457 109,057,446

(98,317,407) (98,317,407)

72,119,502 3,424,282 18,765,712 (120,562) 8,073 (427,374) 93,769,633

Accumulated amortisation 31 December 2006 Amortisation for the year Amortisation on disposals Disposals of subsidiary during the year 31 December 2007

26,889,349 8,430,991 (119,232) (224,042) 34,977,066

40,385,420 68,672,026 109,057,446

(56,821,884) (41,495,523) (98,317,407)

10,452,885 35,607,494 (119,232) (224,042) 45,717,105

Net book value 31 December 2006 31 December 2007

34,798,571 48,052,528

68,363,569 -

(41,495,523) -

61,666,617 48,052,528

Amortisation expenses included in income statements for the year 2006 2007

Total

8,001,776 35,607,494

(Unit: Baht)

Separate financial statements Copyrights Cost 31 December 2006 Additions Disposals Adjustment 31 December 2007

29,619,320 1,325,600 (120,562) 8,073 30,832,431

Accumulated amortisation 31 December 2006 Amortisation for the year Amortisation on disposals 31 December 2007

11,367,582 4,545,907 (119,233) 15,794,256

Net book value 31 December 2006 31 December 2007

18,251,738 15,038,175

Amortisation expenses included in income statements for the year 2006 2007

3,922,142 4,545,907

13. LEASEHOLD RIGHTS TO LAND AND BUILDINGS (Unit: Baht)

Consolidated financial statements Leasehold rights to land

Annual Report 2007 The Erawan Group Public Company Limited

102

Cost 31 December 2006 Additions Transfer in Disposals Disposals of subsidiary during the year 31 December 2007 Accumulated amortisation 31 December 2006 Amortisation for the year Amortisation on disposals Adjustment Disposals of subsidiary during the year 31 December 2007 Net book value 31 December 2006 Eliminated 31 December 2007 Eliminated Amortisation expenses included in income statements for the year 2006 Eliminated 2007 Eliminated

Leasehold rights to buildings

Total

1,016,528,083 329,160,351 1,345,688,434 53,000,000 257,459,666 310,459,666 754,577,754 754,577,754 (48,613,238) (48,613,238) (79,240,000) (74,976,453) (154,216,453) 990,288,083 1,217,608,080 2,207,896,163 281,919,145 23,895,763 6,014 (54,210,604) 251,610,318

134,679,114 19,086,232 (26,910,698) (8,644,391) 118,210,257

734,608,938

194,481,237

416,598,259 42,981,995 (26,910,698) 6,014 (62,854,995) 369,820,575

929,090,175 (51,356,334) 877,733,841 738,677,765 1,099,397,823 1,838,075,588 (5,893,191) 1,832,182,397 31,272,867 (3,607,375) 27,665,492 42,981,995 (1,549,979) 41,432,016

(Unit: Baht)

Separate financial statements Leasehold rights to buildings

Total

25,000,000 53,000,000 78,000,000

39,744,375 287,034,756 (48,298,011) 278,481,120

64,744,375 340,034,756 (48,298,011) 356,481,120

26,223,594 15,883,368 (26,595,491) 15,511,471

25,000,000 78,000,000

13,520,781 262,969,649

38,520,781 340,969,649

Leasehold rights to land Cost 31 December 2006 Additions Disposals 31 December 2007 Accumulated amortisation 31 December 2006 Amortisation for the year Amortisation on disposals 31 December 2007 Net book value 31 December 2006 31 December 2007 Amortisation expenses included in income statements for the year 2006 2007

1,660,659 15,883,368

On 1 January 2007, the Company entered into a memorandum of understanding to cancel Amarin Plaza building lease agreements with Erawan Ratchaprasong Co., Ltd., and to transfer to such company rights and obligations under space rental, equipment rental, service and other related agreements which the Company had made with third parties. The Company received a total of Baht 98.6 million on 5 January 2007, comprising returned deposits and compensation for the cancellation of the leased areas, and recognised a gain from the cancellation of leasehold rights amounting to Baht 50.3 million. On 13 March 2007, the Company entered into agreements with Erawan Ratchaprasong Co., Ltd. to purchase and sell assets in ErawanBangkok valued at Baht 334.5 million. Under the terms of the agreements, the Company was to purchase assets outstanding as at 29 March 2007 and assume rights and obligations under lease and service agreements. The Company has recorded these transactions. On 1 November 2007, Erawan Hotel Plc. asked the Company to cancel the lease of part of the areas, and paid compensation totaling Baht 14.2 million. As a result, the Company had a gain of Baht 6.0 million from the cancellation of the leasehold rights. The Company and its subsidiaries have mortgaged most of their leasehold land, which have a net book value as at 31 December 2007 of Baht 657.3 million (2006: Baht 654.2 million) (Separate financial statements: Baht 25 million), with banks to secure the loans.

14. WITHHOLDING TAX DEDUCTED AT SOURCE

As at 31 December 2007 and 2006, the Company and its subsidiaries have the following amounts of withholding tax deducted at source in each year: (Unit: Million Baht)

Consolidated financial statements

Separate financial statements

Year 2003 2004 2005 2006 2007

Annual Report 2007 The Erawan Group Public Company Limited

104

Total Less: Refundable within one year Net

2007

2006

2007

2006

11.48 2.29 10.01 13.08 36.86 (19.91) 16.95

11.48 6.35 14.37 18.47 50.67 (12.08) 38.59

0.07 1.75 1.26 3.24 6.32 6.32

0.07 3.61 1.75 1.26 6.69 6.69

The Company and its subsidiaries regard withholding tax deducted at source as an asset since they have the right to claim a tax refund. In 2007 and 2006, two subsidiaries received a tax refund amounting to Baht 12.08 million and Baht 11.40 million, respectively. Moreover, a subsidiary received a tax refund amounting to Baht 19.91 million in February 2008. 15. SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS

As at 31 December 2007, short-term loans of the Company and its subsidiary consisted of Baht 420.5 million in loans from a local bank which were payable in January 2008 and carried interest at rates of 3.70 - 3.75% per annum. As at 31 December 2006, short-term loans of the Company and its subsidiary comprised Baht 312.4 million in loans from a local bank which carried interest at the rate of 5.40% per annum and matured in January 2007. The Company and its subsidiaries have mortgaged most of their freehold and leasehold land, and the constructions thereon, with banks to secure bank overdrafts and short-term loans of the Company and its subsidiaries. 16. LIABILITIES UNDER FINANCE LEASE AGREEMENTS (Unit: Baht)

Consolidated financial statements

Liabilities under finance lease agreements Less: Deferred interest expenses Less: Portion due within one year Liabilities under finance lease agreements - net

2007

2006

39,575,303 (3,714,109) 35,861,194 (10,288,150) 25,573,044

49,866,328 (6,606,693) 43,259,635 (10,288,150) 32,971,485

Erawan Ploenchit Co., Ltd. had entered into finance lease agreements with leasing companies to lease motor vehicles for operation and committed to pay rental fee on a monthly basis for a period of 4 years.

17. LONG-TERM LOANS (Unit: Baht)

rate Loan Interest (% p.a.) 1

2 3 4 5

MLR-1.5

MLR-1.5* MLR-1.5* MLR-1.5* 3.5

MLR-2**

3.5

Consolidated financial statements

Separate financial statements

Repayment schedule Repayable in semi-annual installments of Baht 20 million per installment. The remaining amount of the loan is then to be repaid within December 2010. Repayable in quarterly installments from November 2009 to August 2016. Repayable in quarterly installments from August 2009 to May 2016. Repayable in quarterly installments from September 2009 to June 2016. Principal and interest are repayable in monthly installments of Baht 0.85 million per month from October 2003 to December 2006. The remaining amount of the loan is then to be repaid within January 2007. Repayable in semi-annual installments of not less than Baht 50 million per installment from June 2007 for the first to sixth installment, not less than Baht 75 million per installment for the seventh to tenth installment and not less than Baht 100 million for the eleventh to fourteenth installment with the remainder of the loan then to be repaid in the last installment. Principal and interest are repayable in monthly installments of Baht 0.40 million per month from October 2003 to December 2006. The remaining amount of the loan is then to be repaid within January 2007.

2007

2006

2007

2006

520,000,000

560,000,000

520,000,000

560,000,000

38,950,000

7,000,000

16,000,000

642,461

1,000,000,000

300,569

900,000,000

(Unit: Baht)

Loan 8

Interest rate (% p.a.) 3.5***

MLR-1.5****

106

Annual Report 2007 The Erawan Group Public Company Limited

MLR-1.5****

MLR-1.5*

Total Less: Current portion Long-term loans - net

Consolidated financial statements Separate financial statements Repayment schedule 2007 Repayable in semi-annual installments of Baht 70 - 80 million, from March 2005 to March 2008, with the remainder of the loan to be repaid within September 2008. Repayable in quarterly installments from March 2006 until December 2012. Repayable in quarterly installments from March 2006 until December 2012. Repayable in quarterly installments from March 2006 until December 2012. Repayable in quarterly installations from March 2006 to December 2012. Repayable in quarterly installations from March 2006 to December 2012. Repayable in quarterly installments from December 2008 to July 2016. Repayable in quarterly installments from January 2009 to September 2016.

2006

1,580,000,000 1,720,000,000

2007

2006

230,222,300

261,333,400

27,922,300

32,033,400

28,777,700

32,666,600

14,760,000

16,800,000

64,384,751

73,273,651

563,190,536

248,381,242

393,000,000 4,384,207,587 3,945,431,323 (1,803,750,000) (330,943,030) 2,580,457,587 3,614,488,293

581,950,000 (40,000,000) 541,950,000

560,000,000 (40,000,000) 520,000,000

Note * Interest at the rate of MLR minus 1.5 percent per annum for the first year to the seventh year and after that at the rate of MLR per annum. ** Interest at the rate of MLR minus 2.0 percent per annum for the first year, MLR minus 1.75 percent per annum for the second to the third year and MLR minus 1.5 percent per annum for the fourth to the seventh year. *** Interest at the rate of 3.5 percent per annum until September 2006 and after that at the lower of the average 12-month fixed deposit rate plus 2.5 percent per annum or the average MLR minus 1.5 percent per annum. **** Interest at the rate of one-year fixed deposit rate plus 3 percent per annum until March 2006 and after that at the rate of MLR minus 1.5 percent per annum.

The long-term loans are secured by the mortgage of land, leasehold rights and buildings thereon belonging to the Company and its subsidiaries and the subsidiariesâ&#x20AC;&#x2122; assignment of rights and benefits under insurance policies to the lenders. Part of the balance is also secured by a guarantee provided by the Company and the pledging of all shares of Erawan Rajdamri Co., Ltd. In addition, all shares of Erawan Ploenchit Co., Ltd. were additionally pledged by the Company in January 2008 to secure loans. Most loan agreements contain certain covenants and restrictions imposed by the lenders regarding, among other things, the proportion of shareholding of the major shareholders, changes in management, guarantees to loans or aval to promissory notes of any other persons or other companies, dividend payments, merger or consolidation with any other companies, and maintenance of certain financial ratios. As at 31 December 2007, the long-term credit facilities of the Company and its subsidiaries which have not yet been drawn down amounted to Baht 2,931.9 million. 18. UNSECURED DEBENTURES

On 9 May 2005, the Company issued 0.3 million unsubordinated, unsecured, unregistered debentures, with a debentureholdersâ&#x20AC;&#x2122; representative. The debentures, which have a face value of Baht 1,000 each, are to be offered by private placement to no more than 10 investors, at an offer price of Baht 1,000 per unit, or a total of Baht 300 million. They have a tenor of 2 years and 320 days from the issue date, maturing on 25 March 2008, and the coupon rate is fixed at 5.2 percent per annum until December 2006 and after that the coupon rate is fixed at 5.7 percent per annum. The debentures impose certain restrictions on the Company relating to, among other things, the reduction of paid-up share capital, dividend payment, and the maintenance of certain financial ratios. 19. OTHER CURRENT LIABILITIES (Unit: Baht)

Consolidated financial statements

Separate financial statements

2007

2006

2007

2006

Management, royalty, marketing and other fees payable - hotel business Retention Advances from customers Value added tax payable Accrued expenses Income tax payable Deposits received - hotel business Others

33,160,176 87,046,300 16,553,927 13,669,324 111,221,685 46,560,796 32,385,075 37,579,355

36,643,651 29,703,041 24,204,935 15,488,677 114,721,455 58,707,350 37,219,708 37,939,772

19,578,124 36,000 19,180,462 4,605,403

237,521 25,806 19,329,906 3,219,924

Total

378,176,638

354,628,589

43,399,989

22,813,157

20. DEFERRED INCOME (Unit: Baht)

Consolidated financial statements 2007

2006

Leasehold rights - building, service and equipment - third parties Less: Accumulated amortisation

56,720,484 (32,956,702)

299,934,484 (209,081,200)

Net book value

23,763,782

90,853,284

8,021,927

11,033,905

Amortised to income for the year

Annual Report 2007 The Erawan Group Public Company Limited

108

As mentioned in Note 13, the Company and Erawan Ratchaprasong Co., Ltd. entered into a memorandum of understanding to cancel agreements Amarin Plaza leasing building space and to transfer to Erawan Ratchaprasong Co., Ltd. all rights and obligations of the Company with third parties. In addition, the Company sold its investment in such company, as discussed in Note 8. As a result, the deferred income of such company is no longer included in consolidated financial statements. 21. SHARE CAPITAL

On 25 April 2006, the Annual General Meeting of the shareholders of the Company passed resolutions approving the following: a) The reduction of share capital from Baht 1,519.70 million to Baht 1,454.25 million, through the cancellation of 65.45 million ordinary shares with a par value of Baht 1 each. The Company registered the capital reduction with the Ministryof Commerce on 2 May 2006. b) The issue and offer of no more than 495.46 million shares to existing shareholders in a ratio of one new share for every 3 existing ordinary shares held, at a price of Baht 1 per share. c) The issue of up to 495.46 million warrants free of charge to the shareholders subscribing to the above shares. These warrants are exercisable at a price of Baht 2.15 per share in a ratio of 2 warrants to 1 new ordinary share for a period of 1 year from the issue date. These warrants can be exercised on a final exercised date. d) The issue of up to 247.73 million ordinary shares to support the exercise of the above warrants. e) The issue of up to 18.26 million additional shares with a par value of Baht 1 each to support the adjustment of the rights under the employee stock option plan. f) The increase of the registered share capital from Baht 1,454.25 million to Baht 2,281.14 million by issuing 826.90 million ordinary shares with a par value of Baht 1 each to be allocated as follows:

â&#x20AC;˘

Up to Baht 65.45 million, or 65.45 million ordinary shares, to support the exercise of the stock options of the directors and employees of the Company and/or its subsidiaries.

â&#x20AC;˘

Up to Baht 495.46 million, or 495.46 million ordinary shares, to be offered to the shareholders in proportion to their existing holdings, as discussed in item b).

• Up to Baht 247.73 million, or 247.73 million ordinary shares, to support the exercise of the warrants which are to be granted to the existing shareholders.

• Up to Baht 18.26 million, or 18.26 million ordinary shares, to support the adjustment of rights under the employee stock option plan.

The Company registered the increase in its share capital with the Ministry of Commerce on 3 May 2006. Therefore, the Company’s registered share capital is Baht 2,281.14 million. On 28 July 2006, the Securities and Exchange Commission granted approval for the offer of the warrants, as discussed in item c). In August and September 2006, the Company received additional share capital totalling Baht 487.76 million as a result of the increase in the number of its shares as discussed in item b), from the offer of 487.76 million shares at Baht 1 each. In addition, the Company issued 487.76 million warrants free of charge to shareholders who subscribed to these shares, in a ratio of 1 warrant to 1 subscribed ordinary share. The details of warrants are disclosed in item c) and the warrants are exercisable on 17 December 2007. The Company registered the increase in its paid-up share capital to Baht 1,951.06 million with the Ministry of Commerce on 13 September 2006. The Stock Exchange of Thailand approved the additional ordinary shares and warrants as listed securities on 18 September 2006 and 25 September 2006, respectively. In addition, in 2006 the Company received payment of additional share capital totaling Baht 44.34 million as a result of the exercise of share options by the directors and employees under the ESOP scheme to purchase total of 18,272,791 ordinary shares. The Company registered the increase in its paid-up share capital to Baht 1,959.08 million with the Ministry of Commerce on 8 December 2006. The Stock Exchange of Thailand approved the additional ordinary shares as listed securities on 15 December 2006. During the current year, the Company received payment of additional share capital totalling Baht 30.60 million as a result of the exercise of share options by the directors and employees under the ESOP scheme to purchase total of 14,391,856 ordinary shares. The Company registered the increase in its paid-up share capital to Baht 1,973.48 million with the Ministry of Commerce on 7 September 2007. The Stock Exchange of Thailand approved the additional ordinary shares as listed securities on 14 September 2007. In December 2007, the Company received payment of additional share capital totaling Baht 518.36 million as a result of further exercise of 482.20 million warrants as disclosed in item c), to purchase 241.10 million shares at Baht 2.15 per share. The Company registered the increase in its paid-up share capital to Baht 2,214.57 million with the Ministry of Commerce on 21 December 2007. The Stock Exchange of Thailand approved the additional ordinary shares as listed securities on 28 December 2007.

During the current year, movements in the number of the warrants are as follows: Unit Number of warrants at the beginning of year Less: Exercised during the year Less: Number of warrants expired during the year

487,763,969 (482,196,113) (5,567,856)

Number of warrants at the end of year

Reconciliation of number of ordinary shares (Unit: Shares)

For the years ended 31 December 2007

2006

Registered share capital Number of ordinary shares at the beginning of year Increase Decrease

2,281,143,099 -

1,519,700,408 826,895,091 (65,452,400)

Number of ordinary shares at the end of year

2,281,143,099

Issued and fully paid up share capital Number of ordinary shares at the beginning of year Increase from the additional shares Increase from the exercise of share options Increase from the exercise of warrants

1,959,084,768 14,391,856 241,098,001

1,453,048,008 487,763,969 18,272,791 -

Number of ordinary shares at the end of year

2,214,574,625

1,959,084,768

Annual Report 2007 The Erawan Group Public Company Limited

110

22. EMPLOYEE STOCK OPTION PLAN (ESOP)

On 4 November 2004, the Extraordinary Meeting of shareholders No. 1/2547 approved the employee stock option plan. Under the plan, the Company is to offer 66,652,400 ordinary shares with a par value of Baht 1 each, equivalent to 4.59% of the total paid-up shares, to its directors and its employees and/or its subsidiariesâ&#x20AC;&#x2122;. The plan is to cover a period of not more than 5 years from the date it is approved by the Securities and Exchange Commission (SEC). Directors and employees who are granted options under can exercise one-quarter of the total options granted during each of four exercise periods. Following the final exercise period, any remaining options will be deemed to have expired and no further exercise will be possible.

As discussed in Note 21 item f), the Annual General Meeting of the shareholders of the Company on 25 April 2006 approved the issue of not more than 18.26 million additional shares to support the adjustment of rights under the ESOP, as a result of the increase in the number of shares and the corresponding issue of warrants. The new exercise price and the number of shares after adjustment are as follow: -

Period

Exercise periods

Number of shares after adjustment

Formerly exercise prices

New exercise prices

1 2 3 4

29 September 2006 - 30 December 2008 29 September 2006 - 30 December 2008 1 June 2007 - 30 December 2008 1 June 2008 - 30 December 2008

11,277,627 shares 18,242,747 shares 21,310,743 shares 21,310,743 shares

2.67 Baht per share 2.71 Baht per share 2.75 Baht per share 2.79 Baht per share

2.09 Baht per share 2.12 Baht per share 2.15 Baht per share 2.18 Baht per share

The directors and employees of the Company and its subsidiaries exercised their rights to purchase totals of 14,391,856 ordinary shares and 18,272,791 ordinary shares, in 2007 and 2006, respectively. As at 31 December 2007 and 2006, 43,326,525 units and 57,718,381 units, respectively, of ESOP warrants remained unexercised. In addition, on 1 February 2008, the Company received payment of additional share capital totalling Baht 0.86 million as a result of further exercise of share options by the directors and employees under the ESOP scheme, to purchase 400,000 shares at Baht 2.15 per share. The Company registered the increase in its paid-up share capital to Baht 2,214.97 million with the Ministry of Commerce on 8 February 2008. The Stock Exchange of Thailand approved the additional ordinary shares as listed securities on 14 February 2008. 23. STATUTORY RESERVE

Pursuant to Section 116 of the Public Limited Companies Act B.E. 2535, the Company and its subsidiary company are required to set aside a statutory reserve at least 5 percent of its net income after deducting accumulated deficit brought forward (if any), until the reserve reaches 10 percent of the registered capital. The statutory reserve is not available for dividend distribution. 24. NUMBER OF EMPLOYEES AND RELATED COSTS

Consolidated financial statements

Number of employees at the end of year (persons) Employee costs for the year (Thousand Baht)

Separate financial statements

2007

2006

2007

2006

2,011 616,546

1,821 575,246

53 63,672

48 59,736

25. CORPORATE INCOME TAX

The Company is not liable to corporate income tax for the year 2006 due to tax loss brought forward. 26. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income for the year by the weighted average number of ordinary shares in issue during the year.

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Diluted earnings per share is calculated by dividing the net income for the year by the weighted average number of ordinary shares in issue during the year plus the weighted average number of ordinary shares which would need to be issued to convert all dilutive potential ordinary shares into ordinary shares. The calculation assumes that the conversion took place either at the beginning of the year or on the date the potential ordinary shares were issued. Reconciliation between basic earnings per share and diluted earnings per share is presented below. Consolidated financial statements For the years ended 31 December Net income ordinary shares

Basic earnings per share Net income Effect of dilutive potential ordinary shares - Warrant - ESOP Diluted earnings per share Net income of ordinary shareholders assuming the conversion of warrants to ordinary shares

Weighted average number of share

Earnings per

2007

2006

2007

2006

2007 2006

(Baht)

(Shares)

(Baht)

401,920,617

(Baht)

409,844,521 1,977,896,003 1,624,726,247 0.20 0.25

103,082,079 21,560,737

82,184,888 21,864,932

409,844,521 2,102,538,819 1,728,776,067 0.19 0.24

Separate financial statements For the years ended 31 December Net income (loss)

Weighted average number of ordinary shares

Earnings (loss) pre share

2007

2006

2007

2006

2007

(Baht)

(Shares)

(Baht)

(Restated)

Basic earnings (loss) per share Net income (loss) Effect of dilutive potential ordinary shares - Warrant - ESOP Diluted earnings (loss) per share Net income (loss) of ordinary shareholders assuming the conversion of warrants to ordinary shares

(69,566,986)

84,546,562

(69,566,986)

84,546,562

2006 (Baht) (Restated)

1,977,896,003 1,624,726,247 103,082,079 21,560,737

(0.04)

0.05

(0.03)

0.05

82,184,888 21,864,932

2,102,538,819 1,728,776,067

There is no disclosure of diluted earnings per share in the separate financial statements for the year ended 31 December 2007 since the effect of diluted earnings per share is antidilutive.

27. SEGMENT INFORMATION

The Company and its subsidiariesâ&#x20AC;&#x2122; business operations involve two principal segments: building rental business and hotel business. These operations are mainly carried on in Thailand. Below is the consolidated financial information for the years ended 31 December 2007 and 2006 of the Company and its subsidiaries by segment. (Unit: Million Baht)

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114

Revenues from external customers Inter-segment revenues

Building rental Business 2007 2006 446 619 25 28

For the years ended 31 December Hotel Eliminate Business 2007 2006 2007 2006 2,748 2,712 (25) (28)

2007 3,194 -

2006 3,331 -

Total

Total revenues

471

647

2,748

2,712

(25)

(28)

3,194

3,331

Segment income Unallocated income and expenses: Gain from sale of investment in subsidiary Other income Selling and administrative expenses Depreciation and amortisation Interest expenses Corporate income tax Minority interest

143

138

638

745

(38)

(10)

743

873

172 25 (146) (13) (221) (96) (62)

23 31 (107) (13) (223) (105) (69)

402

410

Net income

(Unit: Million Baht)

As at 31 December Building rental Business 2007 2006 Inventories Property, plant and equipment - net Leasehold rights to land and buildings - net Unallocated assets

838 408

1,506 212

Hotel Business 2007 2006

2007

2006

2007

2006

42 6,160 1,527

391 (103)

404 (51)

42 7,390 1,832 991

44 6,973 878 826

10,255

8,721

44 5,063 717

Eliminate

Total assets Transfer prices between business segments are as set out in Note 7 to the financial statements.

Total

28. PROVIDENT FUND

The Company and its subsidiaries and their employees have jointly established a provident fund in accordance with the Provident Fund Act B.E. 2530. Both employees and the Company and its subsidiaries contributed to the fund monthly at rates of 3 - 10 percent of basic salary. The fund, which is managed by Finansa Asset Management Limited, will be paid to employees upon termination in accordance with the fund rules. During the year 2007, the Company and its subsidiaries contributed Baht 15.7 million (Separate financial statements: Baht 1.4 million) (2006: Baht 15.0 million, Separate financial statements: Baht 1.4 million) to the fund. 29. DIVIDENDS (Unit: Baht)

Dividends Final dividends for 2005 Final dividends for 2006

Approved by

Total dividends

Dividend per share

Annual General Meeting of the shareholders on 25 April 2006

58,131,920

0.04

Annual General Meeting of the shareholders on 24 April 2007

98,155,484

0.05

30. COMMITMENTS AND CONTINGENT LIABILITIES

30.1 Capital commitments

â&#x20AC;˘ As at 31 December 2007, the Company and its subsidiaries have capital commitments of approximately Baht 859.1 million and USD 0.3 million, relating to the purchase and sell of land, interior design agreements, the renovation, SPA service, and the purchase of hotel equipment.

â&#x20AC;˘ The Company had commitments of Baht 130 million in respect of the purchase and sell of land agreement dated 18 January 2008.

30.2 Operating commitments Commitments with related parties As at 31 December 2007, the Company has outstanding commitments of Baht 2.5 million in respect of uncalled portion of investments in Erawan Naka Co., Ltd. Commitments with third parties The Company and its subsidiaries have commitments in respect of lease of equipment and related services agreements with third parties. As at 31 December 2007, the Company and its subsidiaries have commitments payable within one year amounting to Baht 11.2 million (Separate financial statements: Baht 5.4 million) in respect of such agreements.

30.3 Guarantees

â&#x20AC;˘

As at 31 December 2007, the Company has guaranteed bank credit facilities of Erawan Rajdamri Co., Ltd. amounting to Baht 750 million.

â&#x20AC;˘

As at 31 December 2007, there were outstanding bank guarantees of approximately Baht 40.4 million issued by the banks on behalf of the Company and its subsidiaries in respect of certain performance bonds required in the normal course of business.

30.4 Litigation

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116

In 2006, Erawan Ratchaprasong Co., Ltd. was sued for compensation of approximately Baht 1.3 million by a company which is a customer of its building rental business, for breach of the agreement relating to dilapidated rental areas. The court of first instance has ordered the company to pay damages to the plaintiff. However, the legal department of the company believes that it has a chance of winning the case in a higher court and the company is in the process of lodging an appeal. However, if the eventual outcome of the case does require the company to pay damages, it could charge any losses back to the Company, in accordance with the sale and purchase agreement mentioned in Note 8. 31. LONG-TERM AGREEMENTS

The Company and its subsidiaries have entered into the following long-term lease agreements and other agreements with third parties, local companies, overseas companies, and Government organisations: 31.1 Erawan Rajdamri Co., Ltd. entered into a building lease agreement with a Government organisation covering a term of thirty years, commencing 1 July 1987, whereby the subsidiary has to pay monthly rental at the rate for each year specified in the agreement. However, on 9 January 2006 the subsidiary entered into the Building Renovation and Land and Renovated Building Lease Agreement. Under the terms of this agreement, the subsidiary is to pay remuneration of Baht 70 million, which had already been paid to the lessor, and monthly rental at the rate stipulated for each year, for a term of thirty years commencing 1 January 2008. 31.2 Erawan Hotel Plc. has an agreement with a related company to lease land for a term of thirty years up to the year 2022, renewable for another twenty years. The subsidiary is to pay land rental charges of Baht 10.9 million per annum, and the land rental charge may be adjusted every ten years. Upon the expiration of the agreement, the ownership of buildings and building improvements on the leased land, including equipment, furniture and tools necessary for hotel operations, will be transferred to the lessor.

31.3 Erawan Ploenchit Co., Ltd. entered into two lease agreements for the leasehold rights to land on which its hotel building and office building are situated from the lessor. Ownership of all structures constructed on the leased land, including that of equipment, furniture and tools which are vital to the project’s operation, will be transferred to the lessor upon the termination of the agreements. The subsidiary is to pay land rental charges of Baht 14.6 million per year and the land rental charge may be adjusted every ten years. The term of the leases is a period of 30 years up to the year 2025. Under the terms of the lease agreements,the subsidiary shall assume obligation to pay the following leasehold rights and deposits for rental. 1. Leasehold rights amounting to Baht 360 million. The subsidiary will pay this amount within the 30th year of the lease and is recorded as part of “Accounts payable for leasehold rights” in the consolidated balance sheets. 2. Deposits for rental amounting to Baht 180 million. The subsidiary has made the full payment of the deposits, which will be refunded in the 30th year and are presented as part of “Other assets” in the consolidated balance sheets. As at 24 December 2002, the subsidiary entered into an agreement to lease part of the land on which the hotel building is located for extend the period of agreement which allows the lessee to extend the term of the lease upon expiration of the agreement. The subsidiary was granted an extension of the term of the lease by 20 years as from 24 January 2025 to 23 January 2045 and is to pay rental of Baht 216.1 million, which had already been paid to the lessor. In addition to the above mentioned rental, the subsidiary also has a commitment to make the following rental payments: • Rental from 2025 to 2034 at the greater of Baht 44.7 million per annum or an amount determined based on an average of the consumer price index of Thailand. • Rental from 2035 to 2045 at the greater of Baht 89.4 million per annum or an amount determined based on an average of the consumer price index of Thailand. On 1 January 2008, the subsidiary has transferred all commitments according to these agreements to the Company, as mentioned in Note 8. 31.4 On 24 February 1988, Erawan Hotel Plc. entered into agreements with various companies in the Hyatt International Corporation Limited Group (HYATT) whereby HYATT will provide necessary hotel construction and management services to the subsidiary. Under the terms of the agreements, the subsidiary is committed to pay a management fee, license fee, and a share of marketing expenses to HYATT, at the rates indicated in the agreements. The term of the management agreement is for twenty years, counting from commencement of hotel operations, to be extended for a year of at least 10 years, dependent upon certain conditions specific in the agreement. 31.5 On 3 February 1994, Erawan Ploenchit Co., Ltd. entered into an agreement with Marriott Worldwide Corporation Group (Marriott) to appoint the Marriott as management of the subsidiary’s hotel. The subsidiary also made agreements with Marriott relating to the hotel operations. Under the terms of the agreements, the subsidiary is committed to pay remuneration to Marriott at the rates, terms and basis specified in the agreements. The term of the hotel management agreement is for twenty years, counting from commencement of hotel operations, to be extended for a year of at least 10 years, dependent upon certain conditions specified in the agreement. On 1 January 2008, the subsidiary transferred all commitments under these agreements to the Company, as mentioned in Note 8.

31.6 On 1 April 2002, Erawan Ploenchit Co., Ltd. entered into a land lease agreement with third party for periods of 22 years and 10 months up to the year 2025. Under the agreement, the subsidiary agrees to pay rental totaling Baht 32.8 million, in three installments. The subsidiary had already paid the first and second installments of Baht 23.2 million and the remaining Baht 9.6 million will be repaid in 2025. In addition, the subsidiary is to pay a land rental charge of Baht 0.8 million per annum for the first four years, and such charge is then to be adjusted every ten years. Upon the expiration of the agreement, the ownership of all structures erected on the leased land, together with equipment, furniture and tools which are vital to the operation, are to be transferred to the lessor. On 1 January 2008, the subsidiary has transferred all commitments according to this agreement to the Company, as mentioned in Note 8.

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31.7 Erawan Chaophraya Co., Ltd. entered into an agreement to lease land from a foundation for the purpose of land development and building construction. Under the terms of the agreement, the subsidiary is to pay rental charges of Baht 100,000 per month commencing 1 November 2004, and the rental charge may be adjusted every 10 years. The term of the lease is a period of 30 years up to the year 2034. The agreement is renewable upon its termination. In this regard, the subsidiary will have to give notice of its intention in writing to the lessor at least 1 year, and not more than 2 years in advance. Ownership of buildings and all structures constructed on the leased land will be transferred to the lessor upon the termination of the agreement. 31.8 On 4 July 2005, Erawan Rajdamri Co., Ltd. and Erawan Samui Co., Ltd. entered into management agreements with Marriott Group (Marriott), to appoint the Marriott to manage the subsidiariesâ&#x20AC;&#x2122; hotel as a standardised Courtyard by Marriott and Renaissance by Marriott hotel. Under the terms of the agreements, the subsidiaries are committed to pay remuneration to Marriott in accordance with the rates, terms and basis specified in the agreements. The terms of the hotel management agreements is to be for 30 years, counting from commencement of hotel operations, and is to be extendible for a further period of at least 10 years, dependent upon the fulfillment of certain conditions specified in the agreements. 31.9 In June 2006, Erawan Phuket Co., Ltd. entered into agreements with Sarppasamphat Ltd. (Sarppasamphat) where by Sarppasamphat will provide resort management services to the subsidiary. Under the terms of the agreements, the subsidiary is committed to pay management fees at the rates indicated in the agreements. The term of the agreements is for 30 years, commencing from the resort operations, with an option to extend for further period, dependent upon certain conditions specified in the agreements. 31.10 On 28 September 2006, the Company entered into a land lease agreement with an unrelated party for a period of 30 years up to the year 2038. Under the terms of this agreement, the Company is to pay lease remuneration of Baht 25 million. The Company had already paid this remuneration. In addition, the Company is to pay a land rental charge of Baht 1.2 million per annum for the first three years, and such charge is then to be adjusted every 3 years. Upon the expiration of the agreement, the ownership of all constructures erected on the leased land, together with equipment which are unremovable, are to be transferred to the lessor.

32. FINANCIAL INSTRUMENTS

32.1 Financial risk management The Company and its subsidiariesâ&#x20AC;&#x2122; financial instruments, as defined under Thai Accounting Standard No. 48 â&#x20AC;&#x153;Financial Instruments: Disclosure and Presentationsâ&#x20AC;?, principally comprise cash and cash equivalents, trade accounts receivable, loans, investments, and short-term and long-term loans. The financial risks associated with these financial instruments and how they are managed is described below. Credit risk The Company and its subsidiaries are exposed to credit risk primarily with respect to trade accounts receivable and loans. The Company and its subsidiaries manage the risk by adopting appropriate credit control policies and procedures and therefore do not expect to incur material financial losses. In addition, the Company and its subsidiaries do not have high concentration of credit risk since it has a large customer base. The maximum exposure to credit risk is limited to the carrying amounts of receivables and loans as stated in the balance sheet. Interest rate risk The Company and its subsidiaries exposure to interest rate risk relates primarily to its cash at banks, short-term loans, debentures and long-term borrowings. However, since most of the Company and its subsidiaries financial assets and liabilities bear floating interest rates or fixed interest rates which are close to the market rate, the interest rate risk is expected to be minimal.

Significant financial assets and liabilities as at 31 December 2007 classified by type of interest rates are summarized in the table below, with those financial assets and liabilities that carry fixed interest rates further classified based on the maturity date, or the repricing date if this occurs before the maturity date. (Unit: Million Baht)

Consolidated financial statements Fixed interest rates

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120

Financial assets Cash and cash equivalents Trade accounts receivable - net Financial liabilities Short-term loans from financial institutions Accounts payable - trade and construction Unsecured debentures Long-term loans

Floating interest rate

Noninterest bearing

Total

Interest rate

Within 1 year

1-5 year

162.6 162.6

4.8 168.6 173.4

167.4 168.6 336.0

0.5 -

420.5

3.7 - 3.75

300.0 -

4,384.2

497.1 -

497.1 300.0 4,384.2

720.5

4,384.2

497.1

5,601.8

(% p.a.)

5.7 MLR-1.5, MLR-1.75 and at the lower of the average 12-month fixed deposit rate + 2.5 or MLR-1.5

(Unit: Million Baht)

Separate financial statements Fixed interest rates

Financial assets Cash and cash equivalents Trade accounts receivable - net Long-term loans to and interest receivable from subsidiaries Financial liabilities Short-term loans from financial institutions Accounts payable - trade and construction Unsecured debentures Long-term loans

Floating interest rate

Noninterest bearing

3.9 -

8.4

Within 1 year

1-5 year

399.5

375.5 300.0 675.5

Total

Interest rate (% p.a.)

3.9 8.4

0.5 -

399.5

5.0

3.9

8.4

411.8

582.0

138.5 -

375.5 138.5 300.0 582.0

582.0

138.5

1,396.0

3.7 5.7 MLR-1.5

32.2 Fair values of financial instruments For financial assets and liabilities which have short-term maturity and long-term loans which carrying interest approximate to the market rate, their carrying amounts in the balance sheet approximate their fair value. The Company and its subsidiaries do not consider the fair value of financial assets and liabilities which have fixed interest rate over 1 year. A fair value is the amount for which an asset can be exchanged or a liability settled between knowledgeable, willing parties in an armâ&#x20AC;&#x2122;s length transaction. The fair value is determined by reference to the market price of the financial instrument or by using an appropriate valuation technique, depending on the nature of the instrument.

33. SUBSEQUENT EVENT

On 26 February 2008, the meeting of the Board of Directors passed a resolution to propose a dividend payment for the year 2007 of Baht 0.06 per share to the Annual General Meeting of the Company’s shareholders for their approval. The payment of the dividend is dependent on an approval being granted by the shareholders. 34. RECLASSIFICATION

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122

In addition to the changes in accounting policies as mentioned in Note 4, which affects the previously reported net income and shareholders’ equity, certain other amounts in the financial statements for the year ended 31 December 2006 have been reclassified to conform to the current year’s classification, but with no effect to previously reported net income or shareholders’ equity other than from the change in accounting policy. 35. APPROVAL OF FINANCIAL STATEMENTS

These financial statements were authorised for issue by the Company’s Board of Directors on 26 February 2008.

GENERAL INFORMATION OF THE COMPANY

The Erawan Group Public Company Limited

Registration No. Head Office Telephone No. Fax. Branch 1 Telephone Fax. Branch 2 Telephone Fax. Home page Type of Business

: 0107537001943 : 6th Floor, Ploenchit Center, 2 Sukhumvit Road, Kwang Klongtoey, Khet Klongtoey, Bangkok 10110 : 66 (0) 2257 4588 : 66 (0) 2257 4577 : Erawan Bangkok, 494 Ploenchit Road, Kwang Lumpini, Khet Phathumwan, Bangkok 10330 : 66 (0) 2250 7777 : 66 (0) 2250 7788 : JW Marriott Hotel, 4 Sukhumvit Road, Kwang Klongtoey, Khet Klongtoey, Bangkok 10110 : 66 (0) 2656 7700 : 66 (0) 2656 9831 : www.TheErawan.com : Invest and develop hotel properties strategically located to match travelers’ different demand.

Company’s Capital as at 31 December 2007 Registered Capital : 2,281,143,099 Baht : 2,281,143,099 ordinary shares at par value 1 Baht/share. Paid-Up Capital : 2,214,574,625 Baht : 2,214,574,625 ordinary shares at par value 1 Baht/share. Other References 1. Registrar of Ordinary Shares: Thailand Securities Depository Co., Ltd. No. 62 Rachadapisek Road, Klongtoey, Bangkok 10110 Tel. 66 (0) 2359 1200-02 Fax: 66 (0) 2359 1259 2. Auditor: Ernst & Young Office Limited by Mr. Sophon Permsiriwanlop Certified Public Accountant (Thailand) No.3182 Ms. Sumaree Veevarabhandit Certified Public Accountant (Thailand) No.3970 Ms. Vissuta Jariyatanakorn Certified Public Accountant (Thailand) No.3853 Mrs. Nongluk Phumnoias Certified Public Accountant (Thailand) No.4172 Ernst & Young Office Limited 33rd Floor, Lake Rajada Office Complex, No.193/136-137 New Rajadapisek Road, Bangkok 10110 Tel: 66 (0) 2264 0777 Fax: 66 (0) 2264 0789-90

HEAD OFFICE

THE ERAWAN GROUP PUBLIC COMPANY LIMITED 6th Floor, Ploenchit Center 2 Sukhumvit Road, Klongtoey, Bangkok 10110 Thailand. Phone : 66 (0) 2257 4588 Fax : 66 (0) 2257 4577 www.TheErawan.com Hotels and Resorts

Grand Hyatt Erawan Bangkok 494 Ploenchit Road, Pathumwan, Bangkok, 10330 Thailand. Tel : 66 (0) 2254 1234 Fax : 66 (0) 2254 6267 www.bangkok.grand.hyatt.com

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JW Marriott Bangkok 4 Sukhumvit Road, Klongtoey, Bangkok, 10110 Thailand. Phone : 66 (0) 2656 7700 Fax : 66 (0) 2656 7711 www.marriott.com/bkkdt Renaissance Koh Samui Resort & Spa 208/1 Moo 4, T. Maret, Laem Nan Beach Koh Samui, Surat Thani 84310 Thailand. Phone : 66 (0)77 429 300 Fax : 66 (0)77 429 333 www.marroitt.com/usmbr Courtyard By Marriott Bangkok 155/1 Soi Mahadlekluang 1, Rajdamri Road, Bangkok, 10330 Thailand. Phone : 66 (0) 2690 1888 Fax : 66 (0) 2690 1899 www.courtyard.com/bkkcy Rental Properties

Ploenchit Center 2 Sukhumvit Road, Klongtoey, Bangkok 10110 Thailand. Phone : 66 (0) 2656 8600 - 4 Fax : 66 (0) 2656 9899 Erawan Bangkok 494 Ploenchit Road, Pathumwan, Bangkok 10330 Thailand. Tel : 66 (0) 2250 7777 Fax : 66 (0) 2250 7788 www.erawanbangkok.com