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Vision, Missions and Strategies, Corporate Values Financial Highlight Message from the Chairman Message from Chairman of the Executive Board and Chief Executive Officer The Board of Directors Management Team Advisors Committee for Board of Directors and the Executive Board Shareholding and Management Structure Nature of Businesss Operations Overall Construction Industry Outlook and CK’s Future Direction Responsibility towards Environment and Society General Information Good Corporate Governance Risk Factors Connected Transaction Audit Committee’s Report Financial Position and Operational Results Financial Statements

CH.KARNCHANG PUBLIC COMPANY LIMITED


CH.KARNCHANG PUBLIC COMPANY LIMITED Vision

• To be the pre-eminent general contractor in Thailand and the

region. • To be the most comprehensive corporation in developing,

investing, constructing and operating basic infrastructure

locally and internationally. • To deliver excellent work in construction and basic

infrastructure that improves the quality of life of the Thai

people, enhances Thailand’s competitiveness and preserves

the environment. • To value our people as the most indispensable capital

driving our company’s growth. • To strive for a continuous improvement in our organizational

performance and attain long-term and sustainable growth.

Corporate Values

Quality Efficiency Human Capital Teamwork Corporate Governance Service Excellence Social Responsibility

Annual Report 2007

Missions and Strategies

• Achieve the highest quality of work by continuously and

proactively improving our organizational performance, human

capital, business strategies and state-of-the-art technology. • Produce maximum returns for our shareholders by achieving

optimal and sustainable performance and profit margin. • Act in the best interests of our clients and stakeholders by

committing to service excellence and social responsibility. • Provide professional development and incentives to our

people and enable them to realize their full potential while

contributing at the highest levels to the company and society.

: Best Quality works at optimal costs. : In operation and management. : Best people produce the best results. : Teamwork and trusting partnerships with staff and strategic partners. : Regulatory compliance, transparency and ethical practice. : Above and beyond our clients’ needs and expectations. : Contribute to the community, society and the environment. 0


we CREATE...

we CARE...

we’re PROUD...

Strengths of any organizations must always result from various elements and other environmental factors leading towards success.

CH. Karnchang Public company Limited has continuously grown and created the customers’ confidence and commitment for more than 30 years. The company has operated the business and, at the same time, supported the balance of environment, quality of life, economy, society and the country itself as the main elements to enlighten us to be vigorous and dedicated to stability until now. 0

CH.KARNCHANG PUBLIC COMPANY LIMITED


FINANCIAL HIGHLIGHTS

Summary of Financial Information of CH. Karnchang Public Company Limited Total assets Total liabilities Shareholders’ equity Total revenue Gross profit (loss) Net proft (loss) Profit (loss) per share

Items

Unit : Thousand Baht

Amount December 31, 2007 December 31, 2006 December 31, 2005 21,927,530 28,279,828 26,627,858 15,756,393 23,529,610 21,966,676 6,171,137 4,750,218 4,661,182 9,387,994 16,432,840 13,468,308 134,877 1,101,533 1,695,482 659,488 (1,064,816 ) 684,156 0.47 (0.95 ) 0.63

Summary of Financial Information of CH. Karnchang Public Company Limited, Subsidiaries and Joint Ventures Total assets Total liabilities Shareholders’ equity Total revenue Gross profit (loss) Net proft (loss) Profit (loss) per share

Annual Report 2007

Items

Unit : Thousand Baht

Amount December 31, 2007 December 31, 2006 December 31, 2005 24,475,770 30,289,122 29,822,927 18,784,685 25,487,027 24,893,974 5,691,085 4,802,095 4,928,953 14,918,077 21,605,286 14,954,974 1,127,020 1,822,170 1,835,524 14,537 (1,212,844 ) 684,156 0.01 (1.08 ) 0.63

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Message from the Chairman

In 2007, the construction industry in Thailand grew at a slower rate due to both domestic and global economic slow-downs as well as the Thai political conditions. Public and private investment has also been affected negatively from the overall economic stagnancy. Nevertheless, while these negative factors created difficulties in managing CH. Karnchang’s construction business, we were still able to achieve our targeted construction revenue and generate a net profit in the year 2007. In response to external conditions, CH. Karnchang has started to actively explore new construction opportunities in the region to reduce the dependency on the domestic construction market and to invest in prudent infrastructure projects in order to provide long-term revenue streams for the CH. Karnchang Group. These infrastructure investments have now generated stable revenue source to help ease the pressure in the time of slow construction market. Moreover, the management team has adopted

proactive strategies to improve organizational competency and capability. In the area of management, we have been strictly following Corporate Governance guidelines and regulations so that our management is not only efficient and effective but transparent and fair. In the area of organizational structure, we took steps to enhance information technology system and to continuously develop our most valued capital, our employees. In the year 2008, Thailand’s economic growth has been forecasted to pick up and construction business to benefit from many large scale projects that had been long delayed. CH. Karnchang is ready and well prepared to take on these large projects. The challenges of the past year have given CH. Karnchang great opportunity to realize the strong commitment of our management team and all of our employees. We will continue to seek better opportunities and to work towards achieving optimal returns for all of our shareholders.

Aswin Kongsiri Chairman

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CH.KARNCHANG PUBLIC COMPANY LIMITED


Message from Chairman of the Executive Board and Chief Executive Officer

Thailand’s economy grew at the lowest rate in the past several years resulting in a slow growth in construction industry. Political conditions also affected investments in both the public and private sectors. Private investment in 2007 even dipped into a negative growth rate leading to a drastic decrease in construction demand. For the public sector, the long delay in the Mega Projects and other large scale projects has added to a stagnant demand in construction industry. Aside from decreased demand, price fluctuations of raw materials including oil, steel and cement, have created pressure on gross profit margins of construction projects. Despite the aforementioned external factors, CH. Karnchang was able to achieve its targeted performance and was able to generate a net profit in 2007. Total revenue changed from 16,432 million Baht in 2006 to 9,387 million Baht in 2007, with total expenses of 7,895 million baht, total assets of 21,927 million Baht and a net profit of 659 million Baht. While the overall economic conditions have affected the performance of CH. Karnchang in the past year, the management has implemented various strategies to mitigate such negative external impacts. CH. Karnchang has opened up several new markets in neighboring countries to reduce our dependency on the domestic construction market. We have successfully undertaken several projects outside of Thailand, such as the Nam Ngum II Hydroelectric dam in Laos, and the National Highway in Cambodia, with additional prospective projects in Laos, Vietnam and India under negotiations and studies. For all the projects on hand, we used the utmost prudence in project management and cost control during this time of fluctuating raw materials prices in the world market. Moreover, on the investment front, we sold shares in Patum Thani Water Company Limited, resulting in a capital gain in 2007 and we plan to list Thai Tap Water Company Limited on the Stock Exchange of Thailand in 2008. Annual Report 2007

For our internal management, CH. Karnchang has been strictly following Corporate Governance (CG) guidelines and regulations. We also have been continuously improving our company’s infrastructure, technology systems and human capital. In the past year, we have taken initial steps to improve the overall information technology (IT) system to be more efficient and at the international standard. Furthermore, we have also started implementing Corporate Social Responsibility (CSR) and Corporate Social and Environmental Responsibility (CSER) by focusing first on taking care of our employees and on the participatory process of CSR. All of these attempts were aimed to enhance the competency and capability of our people and ultimately of our company. In 2008, the management team is confident that the Thai economy will improve. The construction industry will benefit from large scale construction projects including Mega Projects, which will receive implementation priority from the government. The management teams and CH. Karnchang employees will do our best to assure our readiness and capability to successfully undertake these new projects. On behalf of CH. Karnchang management, I would like to take this opportunity to thank our shareholders, our business partners, our customers in the public and private sectors, the financial institutions that complement our business, and last but not least, all of the employees of CH. Karnchang who have been the driving force of our success. The management is committed to business prudence and management excellence to achieve the optimum and fair returns to our shareholders and for Thai society.

Mr. Plew Trivisvavet Chief Executive Officer 0


The Board of Directors

5

11

3

1

9

2

7

8

1. Mr. Aswin Kongsiri

4. Mr. Don Pramudwinai

2. Mr. Plew Trivisvavet

5. Mr. Thawansak Sukhawun

• Chairman of the Board of Directors • Independent Director

• Executive Chairman • Director • Nomination Committee Member • Remuneration Committee Member • Corporate Governance and Risk Management Committee Member

• Independent Director • Audit Committee Chairman • Nomination Committee Chairman • Remuneration Committee Chairman • Corporate Governance and Risk Management Committee Chairman

3. Mr. Vitoon Tejatussanasoontorn

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4

10

• Independent Director • Audit Committee Member • Corporate Governance and Risk Management Committee Member

• Director • Executive Director 9. Mr. Ratn Santaannop • Director • Executive Director

10. Mr. Prasert Marittanaporn

6. Mr. Pavich Tongroach

• Director • Executive Director

7. Mr. Narong Sangsuriya

• Director

• Independent Director

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8. Mrs. Saikasem Trivisvavet

• Independent Director • Audit Committee Member

6

11. Mr. Sombat Kitjalaksana

• Director • Executive Director • Nomination Committee Member • Remuneration Committee Member

12. Mr. Anukool Tuntimas • Director • Executive Director

CH.KARNCHANG PUBLIC COMPANY LIMITED


Management Team

9

7

5

3

1. Mr. Plew Trivisvavet • Chief Executive Officer

2. Mr. Narong Sangsuriya

1

2

4. Mr. Ratn Santaannop

• Executive Vice President : Construction 1

• Senior Executive Vice President 5. Me. Viboon Mongkolpiyathana : Operation Group • Executive Vice President : Construction 2

3. Mrs. Saikasem Trivisvavet • Executive Vice President 6. Mr. Samai Piboon

: Purchasing

4

6

8

7. Mr. Prasert Marittanaporn

• Executive Vice President : Accounting and Finance

8. Mr. Sombat Kitjalaksana

• Executive Vice President : Business Development

9. Mr. Anukool Tuntimas

• Executive Vice President : Human Resource and General Administration

• Executive Vice President : Engineering

Advisors Committee for Board of Directors and the Executive Board

7

5

3

1

2

1. Pol. General Narong Mahanonda 4. Mr. Prasert Trivisvavet Chairman of the Advisory Committee

2. General Akapol Somroop

Advisory Committee for Executive Board

Senior Executive Advisor

5. Mr. Thep Trivisvavet

Senior Executive Advisor

6. Mr. Yim Trivisvavet

3. Pol. Major General Sawat Vijaranakorn

Annual Report 2007

Advisory Committee for Executive Board

4

6

8

7. Mr. Akadej Bijaphala Advisory Committee for Executive Board

8. Mr. Charn Chongchit Legal Advisor

Advisory Committee for Executive Board

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Shareholding

and Management Structure 1. Shareholders Names of the top ten major shareholders on September 21, 2007, the most recent date of closing the shareholders register book, are as follows : Shareholder name Total shares Percentage of Shareholding (%) 1 Trivisvavet Family 1.1 Mr. Thavorn Trivisvavet 21,277,200 1.47 21,047,620 1.46 1.2 Mr. Plew Trivisvavet 11,600,048 0.80 1.3 Mr. Prasert Trivisvavet 2,990,000 0.21 1.4 Mrs. Saikasem Trivisvavet 1,000 0.00 1.5 Mr. Kamthorn Trivisvavet 1/ 293,784,788 20.32 1.6 Mahasiri Siam Co., Ltd. 2/ 151,707,400 10.49 1.7 CH. Karnchang Holding Co., Ltd. 75,000,000 5.19 1.8 CK. Office Tower Co., Ltd.3/ 4/ 18,935,000 1.31 1.9 Bang Pa-in Land Development Co., Ltd. 92,914,200 6.43 2 TMB Bank Public Company Limited 78,673,800 5.44 3 Thai NVDR Co., Ltd. 56,308,920 3.89 4 Mrs. Pranee Tongkittikul 32,617,700 2.26 5 State Street Bank and Trust Company for London 27,000,000 1.87 6 Mr. Charnarong Wongseenin 22,314,900 1.54 7 SCBS Securities Co., Ltd. 19,023,100 1.32 8 HSBC (Singapore) Nominees Pte Ltd. 15,984,800 1.11 9 Nortrust Nominees Ltd. 13,048,300 0.90 10 Morgan Stanley & Co International Limited (at the par value of Baht 1)

Remark: 1/ 2/ 3/ 4/ 10

The Trivisvavet Family holds shares representing 91.71 percent, with the remainder held by other shareholders,

and all directors of the company are the Trivisvavet Family. The Trivisvavet Family holds shares representing 87.50 percent, with the remainder held by other shareholders,

and all directors of the company are the Trivisvavet Family. The Trivisvavet Family holds shares representing 75.00 percent, with the remainder held by other shareholders. The Trivisvavet Family holds shares representing 41.66 percent, with the remainder held by other shareholders.

CH.KARNCHANG PUBLIC COMPANY LIMITED


2. Management

(1) Management Structure

Organization Chart of CH. Karnchang Public Company Limited Board of Directors Advisor to the Board of Directors

Audit Committee

Advisor to the Executive Board

Nomination Committee

Executive Board

Remuneration Committee

President and Chief Executive Officer

Corporate Governance and Risk Management Committee

Legal Advisor

President: Internal Audit

Senior Executive Vice President: Operation Group

Executive Vice President: Construction 1

Executive Vice President: Construction 2

Annual Report 2007

Executive Vice President: Engineering

Senior Executive Vice President: Administration Group

Executive Vice President: Business Development

Executive Vice President: Purchasing

Executive Vice President: Accounting and Finance

Executive Vice President: Human Resource and General Administration 11


The Company’s management structure consists of a total of six boards or committees, namely, the Board of Directors, the Executive Board, the Audit Committee, the Nomination Committee, the Remuneration Committee, and the Corporate Governance and Risk Management Committee, including the management team. The Board of Directors is comprised of five independent directors having the following qualifications: 1. Holding shares of not exceeding one percent of the paid-up capital of the Company, subsidiaries, affiliated companies,

associated companies, including shares held by related persons; 2. Being non-executive directors of the Company, subsidiaries, affiliated companies, associated companies or major

shareholders of the Company and being neither employee, staff nor advisor receiving regular salary from the Company,

subsidiaries, affiliated companies, associated companies or major shareholders of the Company; 3. Being directors who neither have benefit nor interest, whether directly or indirectly, in both finance and management

of the Company, subsidiaries, affiliated companies or major shareholders of the Company, including neither have

benefit nor interest in such manner within one year prior to their appointment as directors, except where the Board of

Directors of the Company has thoroughly considered and deems that such previous benefit or interest shall not affect

the directors’ independence in the performance of duties and provision of opinions; 4. Being directors who are neither related persons nor close relatives of any executives or major shareholders of the Company; 5. Being directors who are not appointed as representatives for protecting interest of the Company’s directors, major

shareholders or shareholders who are related persons of any major shareholders of the Company; and 6. Being able to independently perform the duties and provide opinions or report the performance of duties as assigned

by the Board of Directors, without being under control of any executives or major shareholders of the Company,

including related persons or close relatives of such persons. A. Board of Directors 1. As at December 31, 2007, the Board of Directors consists of 12 qualified persons, as follows:

• The names of the directors are as follows(1): Name Position 1. Mr. Aswin Kongsiri Chairman of the Board of Directors 2. Mr. Plew Trivisvavet Director 3. Mr. Vitoon Tejatussanasoontorn Audit Committee Chairman 4. Mr. Don Pramudwinai Audit Committee Member 5. Mr. Thawansak Sukhawun Audit Committee Member 6. Mr. Pavich Tongroach Director 7. Mr. Narong Sangsuriya Director 8. Mrs. Saikasem Trivisvavet Director 9. Mr. Ratn Santaannop Director 10. Mr. Prasert Marittanaporn Director 11. Mr. Sombat Kitjalaksana Director 12. Mr. Anukool Tuntimas Director (1) Details are shown in Attachment. Remark:

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CH.KARNCHANG PUBLIC COMPANY LIMITED


2. The Company’s authorized signatory directors are two of the following four directors, namely, Mr. Plew Trivisvavet, Mrs. Saikasem Trivisvavet, Mr. Narong Sangsuriya, Mr. Prasert Marittanaporn, jointly sign and affix the Company seal, or any one of the said four directors and either Mr. Ratn Santaannop or Mr. Sombat Kitjalaksana or Mr. Anukool Tuntimas, totaling two directors, jointly sign and affix the Company seal. 3. Board of Directors’ Authority and Responsibilities • Determining policies and directions of the Company’s operation and supervising the management to comply with the specified policies as well as taking steps to ensure that the Company has efficient and effective internal control system and the intention to continue its business operations; • Performing the duties in compliance with laws, objectives and Articles of Association of the Company, as well as resolutions passed by shareholders meetings, taking into account the integrity and protection of the Company’s interest; • Being responsible for preparation of balance sheet and income statement at the close of the Company’s accounting period to ensure that they contain accurate information and truly and fairly reflect the Company’s status, in compliance with generally accepted accounting standards, and having said financial statements audited by the Company’s auditor so as to submit the same to the Annual Ordinary General Meeting of Shareholders for consideration and approval; • Focusing on the duty to disclose the Company’s information in accordance with the Stock Exchange of Thailand requirements, Re: Rules and Procedures for Disclosure of Information and Acts of Listed Companies, so as to disclose to the public such information which is material and necessary to the decision to invest in securities; • Having the authority to appoint other person to operate the Company’s business subject to the supervision of the Board of Directors or the Managing Director or delegating to such person the authorities as the Board deems appropriate and during a certain period as the Board deems appropriate, provided that the Board of Directors may cancel, revoke or amend such authorities and that said authorization in no way allows such authorized person to approve any transactions in which such authorized person or another person may have conflict, interest or conflicts of interest in other manners with the Company or its subsidiaries. • Considering and granting approval for capital increase, issuance of debentures, for submission to the shareholders meeting for further approval; • Considering and granting approval for operating expenses in excess of the amount authorized to be approved by the Managing Director, for submission to the Board of Directors meeting for further approval. The authority to take the foregoing actions shall not extend to connected transactions and such transactions relating to acquisition or disposition of significant assets of listed companies in accordance with the rules and regulations of the Stock Exchange and the Company shall comply with the Stock Exchange’s rules, regulations and requirements governing those related matters. In addition, the foregoing authority shall not include any other matters needed to be approved by the shareholders meeting in accordance with the Company’s Articles of Association.

B. Executive Board

1. As at December 31, 2007, the Executive Board consists of six executive directors, namely: Name Position 1. Mr. Plew Trivisvavet Executive Board Chairman 2. Mr. Narong Sangsuriya Executive Director 3. Mrs. Saikasem Trivisvavet Executive Director 4. Mr. Ratn Santaannop Executive Director 5. Mr. Prasert Marittanaporn Executive Director 6. Mr. Anukool Tuntimas Executive Director

Annual Report 2007

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2.

1. As at December 31, 2007, the Audit Committee consists of three Audit Committee members, namely: Name Position 1. Mr. Vitoon Tejatussanasoontorn Audit Committee Chairman 2. Mr. Don Pramudwinai Audit Committee Member 3. Mr. Thawansak Sukhawun Audit Committee Member

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Executive Board’s Authority: The Board of Directors authorizes the Executive Board to have the following authority: • Providing policy guidelines, appointing, prescribing powers and duties, supervising, monitoring, coordinating and prescribing powers and duties of special working groups or work management groups, as well as considering and approving various proposals submitted by the management groups or the special working groups; • Approving proposals submitted by various working groups for the purposes of managing work and conducting business in accordance with the Company’s objectives; • Conducting feasibility studies on new projects and having power to consider approving participation in various biddings, including operation of various projects as it deems appropriate, as well as entering into any juristic acts related thereto until completion; • Conducting feasibility studies on investment in new projects and having power to consider granting approval for the Company to invest or jointly invest with other persons, legal entities, groups of persons in various forms for conducting business in compliance with the objectives within the amount of not exceeding Baht 3,000 Million per project, including investment in other manners, such as, purchase of shares, exchange of shares with other legal entities as it deems appropriate, as well as entering into any juristic acts related thereto until completion; • Prescribing, considering, approving regulations, rules, work management and business operation policy guidelines or any actions binding the Company; • Providing advice, consultation and determining policy guidelines and authorities of the Chief Executive Officer and special working groups; • Having power to approve, appoint, employ, remove, impose disciplinary action, determine salary, wages, benefits, bonus, allowances, and other remunerations, including expenses and facilities of the Company’s officers or staff in the position of department directors or higher, including Executive Vice President, Senior Executive Vice President or equivalent or various special working groups for specific operation; • Proceeding with other matters in accordance with the policy as assigned by the Board of Directors; • Having power to appoint any person or group of persons to operate the Company’s business under control of the Executive Board or authorize such person or group of persons to take any action as the Executive Board deems appropriate, and change, amend, repeal and revoke such authority; • Having power to appoint the Chairman of the Advisory Committee or advisors or Advisory Committee for Executive Board as appropriate, and determine remuneration, allowances, benefits, facilities and other expenses of the Chairman of the Advisory Committee or advisors or the Advisory Committee as appropriate; • The Executive Board or the Chairman of the Executive Board has power to convene the Executive Board meetings and/or determine rules and regulations of the meetings as it deems appropriate; • In the case that the Chairman of the Executive Board cannot perform duties, the Chairman of the Executive Board shall appoint a substitute to perform duties on his or her behalf on each occasion, whereby the substitute shall have authorities equal to the Chairman of the Executive Board; • Considering and approving for authorization of executives to operate and manage business in accordance with the relevant rules, regulations and requirements; • Having power to approve and withdraw money from all accounts of the Company, and use credits provided by all banks or financial institutions for the Company, including apply for opening accounts and/or apply for credits in various forms with all banks or financial institutions, as well as place securities of the Company as collateral against such debts, regardless of whether or not it requires registration.

C. Audit Committee

CH.KARNCHANG PUBLIC COMPANY LIMITED


The Audit Committee regularly meets every three months and reports to the Board of Directors. In the year 2007, the Audit Committee convened eight meetings. 2. Audit Committee’s Authority • Reviewing the Company’s financial reports; • Reviewing the Company’s internal control system; • Considering, selecting and submitting for appointment of the Company’s auditor; • Reviewing performance in compliance with the relevant regulations and laws; • Considering disclosure of connected transactions to be accurate and complete; • Preparing reports of the Audit Committee to be included in the Company’s Annual Report; • Performing any other activities as assigned by the Board of Directors of the Company and approved by the Audit Committee.

D. Nomination Committee

E. Remuneration Committee

The Board of Directors appointed the Nomination Committee to support in the consideration and selection of qualified persons to hold the position of the Company’s directors, the Managing Director. As at December 31, 2007, the Nomination Committee consists of three members, namely: Name Position 1. Mr. Vitoon Tejatussanasoontorn Nomination Committee Chairman 2. Mr. Plew Trivisvavet Nomination Committee Member 3. Mr. Narong Sangsuriya Nomination Committee Member With a three-year term of office. Scope of Duties and Responsibilities of the Nomination Committee 1. Considering selecting and proposing qualified persons to hold the position of the Company’s directors to the Board of Directors so as to nominate them to the shareholders meeting, or proposing the nomination to the Board of Directors for appointment; 2. Considering selecting and proposing qualified persons to hold the position of the directors to the Board of Directors for appointment; 3. Proceeding with other matters as assigned by the Board of Directors. The Board of Directors appointed the Remuneration Committee to support in the consideration and determination of criteria for consideration of remuneration and determine remuneration for directors and the Managing Director, and review rates of salary and other remuneration for the Managing Director. As at December 31, 2007, the Remuneration Committee consists of three members, namely: Name Position 1. Mr. Vitoon Tejatussanasoontorn Remuneration Committee Chairman 2. Mr. Plew Trivisvavet Remuneration Committee Member 3. Mr. Narong Sangsuriya Remuneration Committee Member With a three-year term of office.

Annual Report 2007

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Scope of Duties and Responsibilities of the Remuneration Committee 1 Considering determining criteria for consideration of remuneration for directors and the Managing Director; 2. Considering determining remuneration for directors and proposing the same to the shareholders meeting for approval; 3. Considering reviewing rates of salary and other remuneration for directors and proposing the same to the Board of Directors for approval; 4. Proceeding with other matters as assigned by the Board of Directors.

F. Corporate Governance and Risk Management Committee

The Board of Directors appointed the Corporate Governance and Risk Management Committee to supervise and monitor performance of the directors and the management to ensure compliance with the Good Corporate Governance Principles and to oversee and support the risk management to achieve success in the organizational level. As at December 31, 2007, the Corporate Governance and Risk Management Committee consists of three members, namely: Name Position 1. Mr. Vitoon Tejatussanasoontorn Corporate Governance and Risk Management Committee Chairman 2. Mr. Plew Trivisvavet Corporate Governance and Risk Management Committee Member 3. Mr. Thawansak Sukhawun Corporate Governance and Risk Management Committee Member With a three-year term of office. Scope of Duties and Responsibilities of the Corporate Governance and Risk Management Committee Corporate Governance 1. Determining and proposing policies and directions of operations in respect of the good corporate governance of the Company, including the code of business ethics, to the Board of Directors for consideration and approval for further compliance at all levels; 2. Supervising and monitoring the business operation of the Company and performance of the Board of Directors, the management and personnel of the Company to ensure compliance with Clause 1; 3. Evaluating and reviewing policies, directions, code of ethics, and best practices or practical guidelines in respect of the good corporate governance of the Company to ensure compliance with the international practices and recommendations of various institutions, as well as proposing the same to the Board of Directors for further consideration and approval; 4. Following up on movement, tendencies, as well as comparing performance in respect of the good corporate governance of the Company with the practices of other leading companies; 5. Overseeing and supporting performance in compliance with the good corporate governance policies to ensure continual effectiveness and appropriateness to the Company’s business; 6. Giving advice to the Company, the Board of Directors, the management and working groups on the matters relating to the good corporate governance; 7. Reporting on the corporate governance of the Company to the Board of Directors on a regular basis, and immediately reporting to the Board of Directors for consideration in case there is any matters materially affecting the Company, as well as providing opinions on the practices and suggestions for improvement and resolution as appropriate; 8. Disclosing information relating to the good corporate governance of the Company to related parties and in the Annual Report, provided that it shall be always proposed to the Board of Directors for prior approval; 9. Establishing the working groups as it deems appropriate.

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CH.KARNCHANG PUBLIC COMPANY LIMITED


Risk Management 1. Determining policies and scope of risk management operations of the Company, as well as giving advice to the Board of Directors and the management on risk management; 2. Overseeing and supporting the risk management to ensure successful implementation by emphasizing the significance and taking into account risk factors in support of the decision making; 3. Considering the Company’s material risks in line with the Company’s business, e.g., in terms of investment, finance, security, law, rules and regulations, by suggesting measures to prevent and minimize risks to stay at an acceptable level, as well as following up, evaluating and improving the working plans for minimizing risks on a continual basis as appropriate to the condition of the business operation; 4. Reporting risk evaluation results and operations for minimizing risks to the Board of Directors on a regular basis, and promptly reporting to the Board of Directors for consideration in case there is any matters materially affecting the Company; 5. Establishing the working groups as it deems appropriate.

G. Management Team

As at December 31, 2007, the management team(1) of the Company consists of nine persons as listed below: Name Position 1. Mr. Plew Trivisvavet Chief Executive Officer 2. Mr. Narong Sangsuriya Senior Executive Vice President: Operation Group 3. Mrs. Saikasem Trivisvavet Executive Vice President: Purchasing 4. Mr. Ratn Santaannop Executive Vice President: Construction 1 5. Mr. Viboon Mongkolpiyathana Executive Vice President: Construction 2 6. Mr. Samai Paiboon Executive Vice President: Engineering 7. Mr. Sombat Kitjalaksana Executive Vice President: Business Development 8. Mr. Prasert Marittanaporn Executive Vice President: Accounting and Finance 9. Mr. Anukool Tuntimas Executive Vice President: Human Resource and General Administration

Remarks: (1) The management team refers to the definition of “executive” of the Office of the Securities and Exchange Commission (as per details in Attachment).

Scope of Duties and Responsibilities of the Management Team Determining the target of the Company’s operation in compliance with its objectives, policies and plans as assigned by the Executive Board, as well as planning for operation system and procedures, together with solutions to problems which may arise due to such operation.

Annual Report 2007

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(2) Nomination of Directors and Executives

Board of Directors The Nomination Committee shall select qualified and appropriate persons to hold the position of directors and propose the same to the Board of Directors so as to nominate them to the shareholders meeting or to the Board of Directors meeting for appointment. In the case of appointment by shareholders, the criteria and procedures are as follows: • Each shareholder has one vote for one share held. • The group election of all directors to be appointed on such occasion shall be by a single vote or if deemed appropriate by the meeting of shareholders, the election may be on an individual basis, the vote for any candidate by each individual shareholder shall reflect the number of all shares held by such shareholder at the time of the vote in accordance with the concept that each shareholder has one vote for one share held and no shareholder shall apportion a partial vote to any specific candidate. • In case of an election on an individual basis, the candidates with the highest number of votes in descending order shall be elected as directors up to the number of directors to be elected or vacancies at that time. If more than one candidate has equal votes for the final vacancies, the appointment shall be made by drawing of lots. Executives at the level of Executive Vice President or higher are nominated, selected and appointed by the Executive Board. Executive Board The Board of Directors meeting shall appoint the executive directors in accordance with the Company’s Articles of Association which provide that the Company’s directors may assign one or several directors to perform any activity on behalf of the Board of Directors. Audit Committee The Board of Directors meeting shall appoint the Audit Committee, which shall have a term of office of three years. Audit Committee members who retire by rotation may be re-appointed. Nomination Committee The Board of Directors meeting shall appoint the Nomination Committee, which shall have a term of office of three years. Remuneration Committee The Board of Directors meeting shall appoint the Remuneration Committee, which shall have a term of office of three years. Corporate Governance and Risk Management Committee The Board of Directors meeting shall appoint the Corporate Governance and Risk Management Committee, which shall have a term of office of three years.

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CH.KARNCHANG PUBLIC COMPANY LIMITED


(3) Remuneration for Directors and Executives

3.1 Monetary Remuneration for the year ended December 31, 2007 (a) Remuneration for the Board of Directors consists of remuneration and meeting allowance, allowance, bonus. The total remuneration for twelve directors in the year 2007 amounted to Baht 11,990,000. Unit : Baht Remuneration and meeting allowance for the year 2007 Board of Audit Nomination Directors’ Name Position Directors Committee Committee and Remuneration Committee 1. Mr. Aswin Kongsiri Chairman of the 340,000 - - Board of Directors 2. Mr. Plew Trivisvavet Chairman of the 340,000 - - Executive Board 155,000 - 3. Mr. Vitoon Tejatussanasoontorn Audit Committee Chairman 340,000 4. Mr. Don Pramudwinai Audit Committee Member 260,000 80,000 - 5. Mr. Thawansak Sukhawun Audit Committee Member 340,000 140,000 - 6. Mr. Pavich Tongroach Director 20,000 - - (appointed on October 12, 2007) 7. Mr. Narong Sangsuriya Executive Director 340,000 - - 8. Mrs. Saikasem Trivisvavet Executive Director 340,000 - - 9. Mr. Ratn Santaannop Executive Director 340,000 - - 10. Mr. Prasert Marittanaporn Executive Director 400,000 - - 11. Mr. Sombat Kitjalaksana Director 340,000 - - 12. Mr. Anukool Tuntimas Executive Director 340,000 - - Total 3,740,000 375,000 -

Bonus 2006

Total

650,000

990,000

775,000

1,115,000

850,000 850,000 850,000 -

1,345,000 1,190,000 1,330,000 20,000

650,000 650,000 650,000 650,000 650,000 650,000 7,875,000

990,000 990,000 990,000 1,050,000 990,000 990,000 11,990,000

(b) Remuneration for executive directors consists of remuneration, meeting allowance as well as allowance. Remuneration for executives consists of salary and bonus. The total remuneration for six executive directors and three executives in the year 2007 amounted to Baht 42,505,420. 3.2 Other Remuneration - None -

Annual Report 2007

19


Increase or Decrease in Number of Shares Held by Executives in the Year 2007 Balance brought forward Number Changed Executives’ Names as at January 1, 2007 During the Year Mr. Aswin Kongsiri - - Mr. Plew Trivisvavet 17,298,000 3,549,620 Mr. Vitoon Tejatussanasoontorn 500,000 - Mr. Don Pramudwinai 150,000 - Mr. Thawansak Sukhawun - - Mr. Pavich Tongroach - - Mr. Narong Sangsuriya 1,570,000 - Mrs. Saikasem Trivisvavet - 2,990,000 Mr. Ratn Santaannop - - Mr. Prasert Marittanaporn - - Mr. Sombat Kitjalaksana 1,163,000 180,000 Mr. Anukool Tuntimas 4,184,000 300,000 Mr. Viboon Mongkolpiyathana 430,000 430,000 Mr. Samai Paiboon 733,000 633,000

Balance as at December 31, 2007 - 20,847,620 500,000 150,000 - - 1,570,000 2,990,000 - - 983,000 3,884,000 - 100,000

(4) C orporate Governance

The Stock Exchange of Thailand issues and disseminates the best practices for directors in listed companies with an aim to serving as the best guidelines for directors in listed companies and also demonstrating that the boards of directors maintains good management standards so as to build up confidence for shareholders, investors and all parties concerned. The Board of Directors of CH. Karnchang Public Company Limited realizes the significance and benefits of such practices, and therefore adheres to such guidelines in respect of the performance of the Board of Directors. The Board of Directors has been complying with such practices, namely, the performance of duties of the Audit Committee, which helps alleviating the Board of Directors’ burden in the corporate governance, particularly in respect of the internal control and audit systems in conjunction with the auditor and the internal auditor as well as review of financial statements and the relevant financial reports. Report on Compliance with the Good Corporate Governance Principles (1) Corporate Governance Policy The Board of Directors emphasizes the significance of compliance with the Good Corporate Governance Principles to ensure the transparency and responsibility of the Board of Directors and executives and to build up confidence for shareholders, investors and all related parties. In this regard, the policy in support of the good corporate governance has been introduced covering important matters as follows: 1. Shareholders and interested parties shall be equally and fairly treated. 2. The Board of Directors is committed to creating value added to the business on a long-term basis through careful and prudent management, is responsible for performance of the duties to ensure sufficient capacity and efficiency for the optimum benefit to shareholders, and to prevent any conflicts of interest as well as is also responsible for any decisions and arrangements made by the Board of Directors. 3. All activities are undertaken with transparency and are opened for inspection with disclosure of sufficient information to all relevant parties. 4. The business operations always take into account various risks with appropriate risk control and management. 5. The Company also introduces a code of business ethics for guidance of and compliance with by directors and staff.

20

CH.KARNCHANG PUBLIC COMPANY LIMITED


The Board of Directors appointed various committees, namely, the Audit Committee, the Nomination Committee, the Remuneration Committee and the Corporate Governance and Risk Management Committee, to support management of the Company so as to ensure compliance with the corporate governance policy by emphasizing the transparency and preventing any occurrence of interest which may be a result of determination of the relevant policy and decision making. The Company had the policy to promote and support all directors and executives to attend the training by Thai Institute of Directors Association: IOD and other institutes in relevant courses on a continual basis in order to enhance knowledge in various aspects of roles and duties of directors and executives to ensure performance of their duties in compliance with the Good Corporate Governance Principles. (2) Shareholders: Rights and Equality The Company emphasizes the significance of the shareholders and the shareholders’ right to obtain the Company’s information which is correct, complete, sufficient and made available in a timely manner, various rights to attend the shareholders meeting, the right to attend the meeting and vote by proxy, the right to give opinions and make inquiries in the shareholders meeting in order to jointly decide on the Company’s important matters, e.g., election of directors, approval of any important transactions affecting directions of the Company’s business operation, etc. Therefore, in every shareholders meeting, the Company sent to the shareholders the relevant notice of the meeting, together with information in support of each item on the agenda, seven days in advance of the meeting date, and the Board of Directors’ opinion appeared in each item on the agenda. During the meeting, the chairman of the meeting gave equal opportunity to all shareholders to inspect the Company’s operation, make inquiries and give opinions and recommendations, including record important inquiries and opinions in the minutes of the meeting, whereby the Company disclosed such information relating to the minutes of the meeting on the Company’s website for inspection by the shareholders. As for the shareholders who were unable to attend the meeting in person, the Company suggested them authorizing the Audit Committee Chairman to attend the meeting and vote on their behalf. There were 11 shareholders who authorized the Audit Committee Chairman to attend and vote on their behalf in the 2007 Annual Ordinary General Meeting of Shareholders. (3) Rights of Interested Parties The Company realizes the significance of rights of all interested groups, whether inside, such as staff and executives of the Company and the subsidiaries, or outside, such as competitors, creditors, public sector and other relevant authorities. The Company has clearly determined policies and procedures for approval of the connected transactions to prevent conflicts of interest. Shareholders and general investors shall gain equal and appropriate return, including the exercise of their rights to vote or make inquiries in the shareholders meetings. This is because the Company recognizes support from these interested parties which could help building up the Company’s competitiveness and profitability to result in long-term success for the Company. In respect of the past operation, the Company took into account the rights of all interest parties, as follows: Shareholders: - The Company has performed duties with integrity, honesty and fairness, taking into account both major and minor shareholders, and for the benefit of the group of related persons as a whole; - The Company has managed its business to ensure prosperity, stability and good return for the shareholders; - The Company has protected its assets from depreciation or unnecessary loss; - The Company has, regularly and in a timely manner, disclosed the accurate and sufficient information, both financial and non-financial, relating to the Company’s business and the operational results, and representing the Company’s actual operational and financial status; Traders and/or - Every trader and/or creditor/debtor has been equally and fairly treated by the Company, taking into account the Company’s optimum benefit and based on the fair returns for both parties; Creditors/Debtors: - The Company has avoided the situation which causes the conflict of interest, as well as complying with the contractual obligations; - The Company has provided the true information and accurate report. The negotiation for problem resolution is based on the business relation; Annual Report 2007

21


22

Customers:

- The Company maintains the optimism and gives priority to customers, willingly, actively, politely treats customers, keeps customers’ confidential information from misuse for personal gain or others, as well as treating all customers equally without discrimination;

Competitors:

- The Company has free trading policy and believes that competition is a positive factor to encourage the development of service standard and innovations to be offered to customers; - The Company has conducted itself in accordance with the scope of fair competition; - The Company does not destroy the trading competitor’s reputation by negative accusation without actual information; - The Company does not access the competitor’s confidential information by dishonest methods or other inappropriate methods;

Interested parties: - The Company has clearly determined policy and procedures for approval of connected transactions to prevent conflicts of interest which may arise; Staff:

- The Company greatly realizes the significance of its staff, and to meet its objectives, the Company nominates and employs personnel with knowledge, capacities and experiences to perform works, and in line with the Company’s requirements and growth, by organizing the project to continuously improve staff’s knowledge and capacities to ensure high competency; - The Company greatly realizes the significance of personnel development by establishing a clear plan on development of internal personnel, supporting all levels of its staff, from employees to high ranking executives, to be provided with training for improvement of their knowledge and capacities both in theory and practice, so as to build up their efficient performance skills, including fair employment conditions suitable for the market condition and in accordance with labor laws;

Society and Public: - The Company has taken into account the public interest and does not do any acts which may cause damage to the country’s reputation, natural resources, environment and public interest; - The Company has promoted and instilled into staff in all levels the responsibility towards the society; - The Company does not help, support or yield to be an instrument causing the avoidance of compliance with the law; Community: - The Company has considered community as part to be concerned and facilitated. The Company thus focuses on promotion of various activities for improvement of the quality of life and environment as its contribution to society. Environment:

- The Company has developed and improved the environmental management system in all activities of the Company to continuously minimize pollution and impact on the environment, with clear objectives, goals, action plans and evaluation; - The Company has promoted the environment preservation, as well as publicizing the information and news, and cooperated with the staff, customers, government agencies and private entities, including the public, to present the image and have good understanding of the Company’s environmental management; - The Company has rapidly and efficiently responded to any events having an impact on the environment and the community resulting from the Company’s operation.

CH.KARNCHANG PUBLIC COMPANY LIMITED


(4) Meeting of Shareholders In arrangement for the shareholders meeting, the Company has taken into account the convenience of shareholders by choosing the meeting place convenient for traveling and the time suitable for the meeting. In the year 2007, the Company convened two meetings of shareholders, i.e., the 2007 Annual Ordinary General Meeting of Shareholders, held on April 30, 2007, and the Extraordinary General Meeting of Shareholders No. 1/2007, held on October 12, 2007, whereby the Company used the barcode system for registration and voting to ensure the correctness and rapidness. All 11 directors at that time participated in the 2007 Annual Ordinary General Meeting of Shareholders and nine directors, including the Audit Committee Chairman and the Chairman of the Executive Board, participated in the Extraordinary General Meeting of Shareholders No. 1/2007. In this regard, prior to the meeting, the chairman of the meeting would clearly inform the shareholders of the voting method and rights of the shareholders, and would proceed with the meeting in accordance with the agenda as informed in the notice of the meeting, and allowed the shareholders to give opinions and make inquiries in each item on the agenda. In addition, the chairman of the meeting gave equal opportunity to shareholders to inspect the Company’s operation, make inquiries and give opinions and recommendations, including record important inquiries and opinions in the minutes of the meeting. Furthermore, in respect of dividend payment to shareholders, the Company coordinates with Thailand Securities Depository Co., Ltd., by participating in the scheme of dividend remittance to savings accounts of shareholders to facilitate shareholders to receive dividend in a timely manner, and to prevent any problems of damaged or lost cheques or delayed delivery of cheques to shareholders, by transferring their dividends to the respective shareholders’ designated accounts. (5) Leadership and Vision The Board of Directors participates in the following matters to ensure compliance with the good corporate governance: 1. Determining visions, missions, strategies, targets, business plan and budget of the Company; 2. Supervising, monitoring and following up on the results of the performance of the management on a regular basis to ensure compliance with the business plan so as to achieve the specified goal; 3. Ensuring implementation of sufficient internal control system and following up on such matters on a regular basis; 4. Ensuring implementation of appropriate measures to manage risks and following up on such matters on a regular basis for the optimum benefits to the Company. Moreover, the Board of Directors and the high ranking executives have taken account of participation in training and seminars in various courses or development of their knowledge and capacities, whereby most of them have successfully completed the training courses from Thai Institute of Directors Association (IOD). In case of the newly appointed directors, the Company has provided an executive summary to such new directors regarding information relating to the Company, through meetings with some directors, executives and related officers for clarification and answer to inquiries, and also provided the new directors with training in various courses of Thai Institute of Directors Association. (6) Conflicts of Interest To prevent any conflict of interest, the Board of Directors carefully deals with any transaction that might give rise to conflict of interest by implementing policies and measures to ensure that none of the executives and related persons would use the Company’s inside information for personal interest, as follows: 1. Transactions that might give rise to conflict of interest The Company shall comply with the relevant rules, regulations and requirements of the Securities and Exchange Commission. Any transactions that might give rise to conflict of interest shall require approval of the Board of Directors and the Audit Committee must have approved such connected transactions. The Company shall comply with such relevant rules, regulations or requirements whereby the consideration and approval for such connected transactions shall also take into account the optimum benefits to the Company, fairness and justifications of the transactions as well as based on the market prices in the ordinary course of business. In addition, the interested parties or those who might have conflict of interest in such connected transactions shall not be allowed to participate in the consideration and approval of the connected transactions so as to ensure the fairness and the optimum benefits to the Company. As for any connected transactions falling under the criteria as specified by the regulations, notifications, orders, requirements or rules of the Stock Exchange of Thailand, the Company shall comply with the applicable requirements of the Stock Exchange of Thailand.

Annual Report 2007

23


2. Monitoring of inside information usage The Company has and strictly adheres to the policies on management of inside information. Such information shall be made available to only concerned persons. The report or dissemination of such inside information shall be allowed to be made only by authorized persons. All directors and executives of the Company are informed of their obligations and responsibilities for inside information which are strictly not to be used for personal interest or others, as well as for purchase and sale of securities. The Company also establishes the maximum disciplinary actions to be imposed upon any violation or noncompliance. The Company requires all executives to report changes in their holding of securities to the Office of the Securities and Exchange Commission pursuant to Section 59 of the Securities and Exchange Act B.E. 2535 (1992). (7) Business Ethics Since the year 2003 to date, the Company issued the code of business ethics in respect of the Board of Directors, the management and staff, as guidelines for compliance in the performance of their duties in accordance with the Company’s mission, with honesty, integrity and equality as well as responsibility towards the interested parties, shareholders and all parties concerned. The code of ethics also covers disciplinary actions. Furthermore, the Company also supported the high and middle ranking executives to attend training courses relating to the corporate governance on a continual basis every year to enhance their knowledge, understanding, vision, positive attitude towards management in accordance with the Good Corporate Governance Principles in order to develop leadership and succeed to the management position, including performance of their duties and administration of the organization based on morality and ethics. (8) Counterbalancing of Non-Executive Directors The Board of Directors consists of 12 directors, divided into: - Seven executive directors or representing 58.33 percent of the Board of Directors; and - Five independent directors or representing 41.67 percent of the Board of Directors. According to the foregoing structure, it can be seen that the Company has five independent directors out of a total of 12 members of the Board of Directors, representing more than one-third of all members of the Board of Directors. Therefore, the interested persons can rest assured of the directors’ independent performance of their duties in their capacity of representatives of shareholders with appropriate counterbalancing. (9) Combination or Separation of Position The Chairman of the Board of Directors shall be an independent director as defined by the Stock Exchange and shall not have any relationship with the management team nor shall he be the same person as the Managing Director, so as to separate duties between determination of policies, and routine work supervision and management. (10) Remuneration for Directors and Executives 1. Remuneration for Directors The Company establishes clear and transparent policy on remuneration for directors, which is carefully considered by the Remuneration Committee and which would be at the same level as that in the same industry and sufficiently high to retain the qualified directors. 2. Remuneration for Executives Remuneration for executives shall be in accordance with principles and policies determined by the Board of Directors, corresponding to the Company’s operational results and performance of the respective executives. (Please refer to further details in Remuneration for Directors and Executives.) 24

CH.KARNCHANG PUBLIC COMPANY LIMITED


(11) Board of Directors Meeting The Board of Directors regularly meets every three months, with special meetings as necessary. Agenda of the meeting is clearly determined in advance, including consideration and acknowledgment of the Company’s operational results on a regular basis. The Office of the Managing Director, serving as secretary to the Company, will send the notice of meeting, together with agenda of the meeting and relevant documents, at least seven days in advance prior to the meeting date, so as to allow the Board of Directors to have sufficient time to study such information prior to attending each meeting. Each meeting usually takes approximately two hours. The minutes of meeting shall be recorded in writing, to be certifed by the Board of Directors prior to signature by the chairman of the meeting, and available for inspection by the Board of Directors and the relevant parties. In the year 2007, the Board of Directors convened seven meetings, whereby most of the directors attended all the meetings, except where any of them was engaged in any urgent important business. In every meeting, the high ranking executives would attend the meeting for clairfication on information as the persons in charge of the operation. Meeting attendance of each director shall be summarized as follows: Directors’ Names Board of Executive Audit Nomination Remuneration Directors Board Committee Committee Committee 1. Mr. Aswin Kongsiri 1 2. Mr. Plew Trivisvavet 3. Mr. Vitoon Tejatussanasoontorn 4. Mr. Don Pramudwinai 5. Mr. Thawansak Sukhawun 6. Mr. Pavich Tongroach 2 7. Mr. Narong Sangsuriya 8. Mrs. Saikasem Trivisvavet 9. Mr. Ratn Santaannop 3 10. Mr. Prasert Marittanaporn 4 11. Mr. Sombat Kitjalaksana 12. Mr. Anukool Tuntimas 5 Remarkุ

7/7 7/7 7/7 3/7 7/7 1/1 7/7 7/7 7/7 6/7 7/7 7/7

18/18

8/8 3/8 8/8

2/2 2/2

18/18 18/18 7/7 7/7 7/7

Appointed as the Chairman of the Board of Directors on September 3, 2007. Appointed as a director on October 12, 2007. 3 Appointed as an executive director on September 3, 2007. 4 Appointed as an executive director on September 3, 2007. 5 Appointed as an executive director on September 3, 2007. 1

1/1 1/1

2

(12) Subcommittees The Company establishes five subcommittees for following up and overseeing the operation closely for the Board of Directors, namely, the Executive Board, the Audit Committee, the Nomination Committee, the Remuneration Committee and the Corporate Governance and Risk Management Committee, as detailed on pages 13 to 17

Annual Report 2007

25


(13) Internal Control and Audit Systems The Company realizes the significance of the management of its organization structure and good environment, which plays the most important part in the internal control system. The Company’s organization structure designates roles and duties as appropriate and the Company also establishes clear regulations in writing on financial transactions, purchasing and general administration so as to ensure that all departments shall fully comply with the directions set forth by the management. In addition, the Company also establishes the code of ethics for compliance by directors in the management team and staff at all levels as appropriate towards themselves and others. The Company operates the construction business and is therefore exposed to risks which might affect its business operations, particularly large scale construction projects in and outside of Thailand. In this regard, the Company has considered the nature of risks, analyzed the effects of such risks, and determined preventive measures to minimize such potential risks to stay at an appropriate level. The Company clearly sets its targets and compares its performance. The internal audit serves to inspect the operations and evaluation of the internal control, as well as following up on progress on improvement and resolution of defects in the operation. The results of such inspection and following up are regularly reported to high ranking executives and the Audit Committee. (14) Report of the Board of Directors The Board of Directors is responsible for the consolidated financial statements of the Company and its subsidiaries as well as financial information in the Annual Report. Such financial statements have been prepared in accordance with generally accepted accounting standards in Thailand, using appropriate accounting policies which were adhered to on a regular basis, subject to careful discretion and the best projections, including sufficient material information disclosure in the notes to the financial statements. The Board of Directors also makes arrangements to maintain the efficient internal control system to reasonably ensure that the accounting records are accurate, complete and sufficient to maintain assets and to also identify weaknesses to prevent any fraud or unusual transactions in any material aspects. In this regard, the Board of Directors establishes an Audit Committee, comprising non-executive directors, to be responsible for the quality of the financial reports and the internal control system. The Audit Committee’s opinions on these matters are indicated in the Audit Committee’s report which is included in the Annual Report. The Board of Directors is of the opinion that the overall internal control system of the Company is at a satisfactory level, which gives rise to a reasonable confidence in the reliability of the financial statements of the Company and its subsidiaries. (15) Relationships with Investors The Board of Directors realizes the signficance of accurate, complete, transparent and thorough information disclosure, including financial report and general information, as well as material information having impact on the value of securities of the Company. In this regard, various information and news are disseminated to support the decision of investors and related parties through various dissemination channels and media of the Stock Exchange of Thailand, the Office of the Securities and Exchange Commission and the Company’s website. The Company also establishes an Investor Relations unit to provide information and news on activities of the Company to investors, shareholders, analysts and the general public. Investors can contact such unit at telephone number 0-2275-0026 ext. 1617-1619 or www.ch-karnchang.co.th. (16) Secretary to the Company The Board of Directors realizes the significance of the roles and duties of the secretary to the Company to ensure compliance with the best practices for the directors in listed companies of the Office of the Securities and Exchange Commission, the Board of Directors shall thus appoint Company Secretary. At present, the Company appointed Mr. Vorapote Uchupaiboonwong to serve as a Company Secretary directly reporting to the Chief Executive Officer, with the duties as follows: (1) Providing advice to directors as to relevant legal provisions, rules, criteria, and regulations; (2) Ensuring compliance with laws, the Articles of Association, relevant regulations and the Good Corporate Governance Principles by the Company; (3) Arranging for the meetings as specified by law and the Articles of Association, preparing and keeping the minutes of the meetings as well as coordinating to ensure compliance with resolutions of the Board of Directors or resolutions of shareholders meeting; (4) Ensuring disclosure of information and report on information to the regulatory units; (5) Contacting and communicating with shareholders and the related regulatory units; (6) Promoting training in various courses and providing information useful for performing the duties of new directors; and (7) Proceeding with other matters as assigned by the Board of Directors. 26

CH.KARNCHANG PUBLIC COMPANY LIMITED


(5) Control of Inside Information Usage

(6) Policy on Dividend Payment

(7) Internal Control

The Company introduces measures requiring executives to report their securities holding on every purchase/sale/transfer of securities to the Office of the Securities and Exchange Commission. Executives are reminded at every meeting of the Board of Directors of such measures and also required to sign their names in the acknowledgment of such obligations and responsibilities for report on securities holding. The Company also has an information disclosure policy in line with the guidelines set forth by the Stock Exchange of Thailand. In this respect, the Company shall disclose such information necessary to the decision of the public. Such information must be accurate, sufficient and made available in a timely manner. In addition, the Company shall endeavor to ensure that all investors in the Company securities shall equally obtain such information. The Company also maintains good inside information control system. As for information having impact or effect on prices, such information is sensitive or confidential and shall be subject to measures to prevent improper usage of inside information. For example, only high ranking executives would be granted access to such information and disclosure of such information to staff of the Company shall be made on a need to know basis. Staff who has such access shall be informed of the fact that such information is confidential and subject to restrictions on usage as well as prohibition from purchase or sale of the Company securities in reliance upon such information. Should any staff violate or fail to comply with such requirements, the Company shall impose disciplinary actions starting from written warning, wage cut, work suspension without pay or dismissal, depending upon the severity of such violation. The Company has the policy on dividend payment for the shareholders at the rate expected to be paid at least 40 percent of net profit after tax for each year, which shall be payable in the following year should there be no necessary grounds and such dividend payment not materially affect the Company’s normal operations. As for the subsidiaries, joint ventures and associated companies of the Company, the policy on dividend payment has not yet been set out. At each Board of Directors meeting, the internal audit results shall be reported by the Audit Committee appointed by the Board of Directors. The Audit Committee shall regularly meet on a quarterly basis prior to each Board of Directors Meeting. Such internal audit report shall be submitted to the Board of Directors for consideration. The Audit Committee was established to fulfill the purposes as set out by the Securities and Exchange Commission so as to have good governance in accordance with Good Corporate Governance Principles. The Audit Committee also serves to evaluate the sufficiency of the Company’s internal control system as per the evaluation form of the Office of the Securities and Exchange Commission. Furthermore, the Company also has an internal audit division, which is an independent unit directly reporting to the Audit Committee. Such internal audit division has the duties to audit, control, supervise and follow up on the audit and control the Company’s work system to comply with the relevant rules, regulations and laws, including the duties to supervise and audit other matters as assigned by the Audit Committee. The results of its performance of duties shall be reported directly to the Audit Committee. The audit, control and follow up on the Company’s performance shall be conducted on a regular basis. Based on the summary of the results of evaluation of the sufficiency of the internal control system, the Audit Committee is of the opinion that the Company has good internal control system, particularly the preparation of the code of conduct in writing, separation of responsibilities for the purposes of crosscheck, and the Company’s internal audit, by which the internal auditors are allowed to independently perform their duties and submit audit reports in a straightforward manner, including the following up on resolution and improvement of performance of those audited persons. According to the evaluation of the Company’s internal audit system in five areas, namely, organization and environment; risk management; control of performance of the management; information and communications systems; and the following up system, so as to identify the sufficiency of the internal control system as per the evaluation form under the title “Others”, the Audit Committee is of the view that the Company’s internal control is sufficient. The Board of Directors and the Audit Committee have evaluated the internal control system as per the internal control adequacy evaluation form in the Board of Directors Meeting on February 29, 2008, and concluded that the Company’s internal control system was considered adequate and appropriate for it could prevent improper or unauthorized use of the property of the Company and the subsidiaries. Up until now, there has never been any material fault in the internal control system.

Annual Report 2007

27


Nature of Business Operations 1. Summary of Nature of Business Operations of the Company and Subsidiaries CH. Karnchang Public Company Limited was incorporated as a limited company on November 27, 1972 to engage in general construction business. Initially, the Company’s scope of work covered construction of buildings and general civil works and its major clients were government agencies, such as, the Royal Thai Army and the Royal Thai Air Force. The achievements bringing reputation to the Company in the initial period included, for example, various buildings, hospitals and public utilities for the Royal Thai Army and the television station building for the Mass Communication Organization of Thailand (MCOT). Subsequently, the Company realized the need to enlarge the scope of its business operations for long-term prosperity. In this respect, in the year 1981, the Company entered into a joint venture with Tokyu Construction Co., Ltd., one of Japan’s top ten construction contractors, for the purpose of acceptance of technology transfer and business alliance. Since the year 1994, the Company was converted into a public company and listed on the Stock Exchange of Thailand, at which time the Company has been rapidly growing and improving its capabilities and potential by both work management and development of human resources, as well as construction technology development through its joint ventures with foreign companies which possess expertise, to improve the Company’s work potential for more efficiency. This enabled the Company to expand its scope of capabilities to engage in various construction works to the point at which the Company became one of a few construction contractors which were sufficiently well-prepared to carry out sophisticated construction requiring advanced construction technology, such as, large scale infrastructure projects. In addition to the contracts for normal large scale infrastructure projects, the Company also developed its capabilities in terms of both engineering and management, allowing the Company to operate construction projects on a design and construction basis, i.e., the so-called turnkey, including investments in concession projects on a build-transfer-operate (BTO), build-operate-transfer (BOT), build-own-operate (BOO) and acquire-operate-transfer (AOT) basis, as well as other small, medium and large scale projects. Among these outstanding and successful projects were, for example, the Bang Na - Chon Buri Expressway Construction Project; the Development Project for Enhancement of the Capabilities of the Bangkok International Airport; the Park and Ride Building Construction Project for Bangkok Metro Public Company Limited; the Bang Pli - Suksawad (Bang Pli - Bang Khun Thien) Expressway Project; Concession Projects for Water Production and Distribution for the Provincial Waterworks Authority in Nakhon Pathom, Samut Sakhon and Pathum Thani Provinces; the MRTA Initial System Project, Chaloem Ratchamongkhon Line; and the Concession Project for Electricity Generation and Distribution for the Electricity Generating Authority of Thailand.

28

CH.KARNCHANG PUBLIC COMPANY LIMITED


2

Revenue Structure Unit : Million Baht Year 2007 Revenues %

Share holding Year 2005 Year 2006 Products Operated By of the Revenues % Revenues % Company Revenue from CH. Karnchang Plc. - 12,452.29 83.27 13,814.63 63.94 6,973.43 46.74 Construction CH. Karnchang (Lao) Co., Ltd 100.00 3,442.47 15.93 5,350.16 35.86 CH. Karnchang-Tokyu Construction Co., Ltd. 55.00 768.21 5.14 1,134.43 5.25 962.99 6.46 Phrompratharn Construction 68.45 0.46 Limited Partnership Joint Venture CKSL 99.90 9.91 0.06 - - - - Joint Venture CKLX 75.00 - - - - 65.89 0.44 Joint Venture CKNNL (3) 51.89 245.43 1.64 527.19 2.44 19.51 0.13 Total Revenue from Construction 13,475.84 90.11 18,918.72 87.56 13,440.43 90.09 Revenue from Sales of Construction Material Supply Co., Ltd 99.99 62.21 0.42 70.59 0.33 86.16 0.58 59.99 0.40 123.36 0.57 0.34 0.00 Construction Materials(1) Bangkok Concrete Industry Co., Ltd. 49.99 Total Revenue from Sale of Construction Materials 122.20 0.82 193.95 0.90 86.50 0.58 Interest Income 225.56 1.51 361.38 1.67 462.11 3.10 Revenue from Dividend and Profit Sharing from Common Busineses 179.82 1.20 163.64 0.76 125.43 0.84 Other Revenue 951.55 6.36 1,967.59 9.11 803.60 5.39 Total 14,954.97 100.00 21,605.28 100.00 14,918.07 100.00 Remarks: 1) The figures of revenue from the respective companies as indicated in the foregoing table have been net of connected transactions. 2) Other revenue comprises gain on disposal of property, gain on sale of investments, gain on exchange rates, miscellaneous revenue, revenue from reversal of provision for doubtful debts, revenue from reversal of provision for impairment of assets, revenue from reversal of accrued interest payable, miscellaneous revenue, etc. 3 As at December 31, 2005 and 2006, the Company held shares in joint ventures representing 51.32 percent.

3. Summary of Significant Changes over the Previous Year in the Nature of

Business Operations. There is no significant change over the previous year. The industrial trend in the future will continue to slow down due to the overall ongoing

economic problems. Howover, the government has managed to cause the economy to improve gradually and imposed measures providing assistance to those business operators encountering difficulty, which would likely render the construction industry to become more promising.

Annual Report 2007

29


we CREATE...

We have not only created and constructed the qualified projects and big-sized infrastructure projects but we have also generated convenience in order to upgrade the quality of life and economy among Thai people so Thai people, its society, and economy have concurrently and sustainably grown with us.

30

CH.KARNCHANG PUBLIC COMPANY LIMITED


Construction Industry Outlook and CK’s Strategic Direction The Worst Has Passed : Promising Outlook in 2008

In 2007, Thailand’s economy grew at the slowest rate in the past several years due to domestic political conditions and global economic down-turn. Real GDP growth hit the lowest level of 4.3%, compared to 4.5% in 2005 and 5.0% in 2006. Public and private investment was also at the lowest level. Private investment growth decreased from 3.9% in 2006 to a negative growth of -0.2% in 2007 while public investment remained unchanged at a rate of 4.5% in 2006 and 2007 (World Bank, November, 2007). The construction industry also grew at a declining rate, falling from 4.42% in 2006 to a 3.61% projected average over 2007-2011 (Business Monitor International, 2008). The major causes of the construction industry’s sluggish growth were due to the delays in big government projects, lower domestic demand (especially in housing and real estate), lower consumer confidence, and fluctuating oil and raw material prices. Despite an overall slow down, Thailand’s macroeconomic fundamentals have remained strong. Inflation rate declined from 4.7% in 2006 to approximately 2% in 2007. Interest rate remained low with the MLR of most banks hovering around 6.875%. Thailand’s financial indicators in 2007 were also favorable. Current account surplus helped raise international reserve to over US$ 80 billion. On the other hand, public debt has been due to lower public investment and delayed government projects declining - mainly from 46.4% in 2005 to below 40% in 2007. Table 1: Economic Growth in the Region and Public Sector Debt in Thailand 2005 2006 Real GDP Growth (YoY) Emerging E. Asia 7.7 8.3 Developed E. Asia 9.2 9.8 Southeast Asia 5.1 5.4 Indonesia 5.7 5.5 Malaysia 5.0 5.9 Philippines 4.9 5.4 Thailand 4.5 5.0 China 10.4 11.1 Vietnam 8.4 8.2 Korea 4.2 5.0 Japan 1.9 2.2 Public Sector Debt (% of GDP) 2005 2006 Thailand 46.4 40.5 Source: World Bank’s Thailand Economic Monitor, November 2007

Annual Report 2007

2007

2008p

8.4 10.1 5.7 6.3 5.7 6.7 4.3 11.3 8.3 5.4 2.0

8.2 9.7 5.8 6.4 5.9 6.2 4.6 10.8 8.2 5.1 1.8

2007/Q1p 38.1

2007/Q2p 37.7

31


It appears that the worst has already passed with the ending of the year 2007. Having an elected civilian government in place by early 2008 sent a positive signal and has restored confidence for future investments and the overall economy. While a number of analysts and observers have noted that the coalition government might be fragile, many have observed that having an elected government would boost economic growth (Macquarie Research Equities, 2008; Economist, 2008). With the improvement in Thailand’s political condition, together with Thailand’s strong macroeconomic fundamentals, the overall outlook for Thailand in 2008 is promising. The Fiscal Policy Office offers an optimistic view that “the golden years” of Thailand’s economy are anticipated in 2008 and 2009 (Fiscal Policy Office, 2008). Real GDP, which hit the lowest point in 2007, is projected to pick up in 2008, increasing from 4.3% to 4.6%. Investment in both the private and public sector is expected to grow rather significantly in 2008, from a negative growth to 10% in the private sector and from a stagnant 4.5% to 8% in the public sector. It is also anticipated that the non-disbursed public spending in 2007 could add the “carry-over” portion to the 2008 investment budget, adding as much as 2% more to the disposable public investment (World Bank, 2008). Table 2: Changes in Public and Private Investment 2006 2007p 2008p Private Investment 3.9 -0.2 10.0 Public Investment 4.5 4.5 8.0 * * With carry-over from 2007’s non-disbursed budget, 2008 public investment growth is projected to be 10% Source: NESDB and World Bank’s Projection

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CH.KARNCHANG PUBLIC COMPANY LIMITED


On the construction industry’s front, the favorable overall economic conditions promise a positive outlook for the industry in 2008. The long delayed government projects and the carry-over public investment will also benefit construction companies as the government will look to implement projects such as Mega Projects among others. In fact, the new government has recently announced to speed up the process of Mega Projects, specifically the mass transit and rail projects. The low public debt of around 38% of GDP allows room for further government’s borrowing (public debt can be as high as 50% of GDP to be at the sustainable level), assuring financial sources for these large upcoming government projects. As for CH. Karnchang, while we look forward to the golden years of Thailand’s economy and hope to aggressively participate in the upcoming projects, we have also been strategically exploring other regions for construction projects. This strategy has not only allowed CH. Karnchang to minimize the dependency on domestic construction projects but it has also strengthened CH. Karnchang’s capacity, knowledge and know-how to be able to compete at an international level. In the past few years, CH. Karnchang has had the opportunity to undertake projects in neighboring countries such as the National Highway in Cambodia and the Nam Ngum 2 hydro-electric dam in Laos. Also, CH. Karnchang has looked into opportunities in Vietnam, one of the fastest growing emergent economies in Asia as well as India as it has one of the highest demands for basic infrastructure throughout the country. By finding new demands and creating new markets in various regions, CH. Karnchang is confident that we will be ready for future challenges despite any economic fluctuations.

9 Routes of the New Underground Mass Transit System for 311 Kilometres

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we CARE...

The company has continuously improved the country’s competitive advantage, as well as, paid attention to the balance of environment at the same time. This is the pleasant gift that the company plays a role in generating happiness, delight, prosperity, and stability towards the country and society as a whole in order to for them grow with us like an astonishingly beautiful tree. CH.KARNCHANG PUBLIC COMPANY LIMITED 34


Responsibility towards Environment and Society

While Thailand’s industrial potentials have been progressing and the large-sized public utility systems have been distributed throughout the country, the ecosystem and society in Thailand, the land in which we live, must be protected through cooperation of all Thai people so as to achieve concrete results. We, CH. Karnchang Public Company Limited group, treasure and appreciate the value of the natural resources and environment as well as social well-being, which have always been taken into account in our business operations, along with maintaining a quality environment and society with continuous improvements to establish a decent home for our younger generations in the future. Over the past period of our business operations, CH. Karnchang Public Company Limited group has expanded the business potentials to such various fields as concession business, namely, production and distribution of electricity to the Electricity Generating Authority of Thailand; expressways; mass rapid transit system; tap water production to the Provincial Waterworks Authority; wastewater treatment and waste disposal services in the Administrative Center for Public Utilities and Environment in Bang Pa-In Industrial Estate; in addition to our renowned construction business in support of various large-sized construction works requiring advanced construction engineering technology through our skilled personnel and efficient machinery, including our continued developments.

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1)

Concession Business

The concession business operation in respect of basic infrastructure, which is of importance in the Company group’s view, has the objective to improve the state of well-being, quality of living and society to the public, such as, production of clean tap water for sufficient consumption and utilization by various communities, improved health and support to industrial sector expansion in response to the demand in a timely and organized manner. Our significant concession business includes: 1.1) Hydroelectric Power Production Concession Business Currently, electricity demand in Thailand has grown at a high rate and has a tendency to require higher power consumption. Such circumstances urge the relevant agencies to increase the electricity production to meet such demand. At present, the domestic electricity production mainly relies on fuels from natural gas which may give rise to pollution while lignite or nuclear power plants not only cause pollution, but also produce wastes harmful to the environment and local communities. Based on such reasoning, a hydroelectric power plant which is under construction by SouthEast Asia Energy Limited, our subsidiary, namely, the Nam Ngum Dam 2 (NN 2) in Laos for distribution of electricity to the Electricity Generating Authority of Thailand, should therefore help accommodate the increasing demand of electricity in Thailand and also protect the environment through the hydroelectric power production as the most clean source of energy, with measures to sustain the natural environment for this neighboring country, let alone the fact that this would not give rise to more pollution currently caused by other types of power plants which may be constructed or increase the production capacity in Thailand. In respect of the society, the Nam Ngum 2 Dam construction project has creates an interdependent relationship between Thailand and Laos. That is, Laos has an abundance of natural resources and needs country development; SouthEast Asia Energy Limited and CH. Karnchang (Lao) Company Limited, as the Company’s subsidiaries, expanded their investments in Laos which would help support social development in Laos by generating income to local people, along with compliance with international operation standards under the management of the Company group through various measures, for instance, the Company introduces the environmental management measures, people relocation plans and social development plans. Particularly, arrangements have been made for those residents in such areas to be flooded by the dam construction, with participation of several committees from both governmental and private sectors, including other concerned parties, to jointly identify problems and solutions. In this respect, the Company cooperated with the government sector to procure new land and residences, construct new houses, schools and public utilities to the communities, as well as providing the people with sufficient compensation for agricultural produce from their former land. 1.2) Mass Rapid Transit System Concession Business The M.R.T. Project and train operation concession as well as projects for mass rapid transit operation with the metro as carried out by the Company group serve to encourage people to travel without using their personal cars or to minimize the use of personal cars. Traveling by motor vehicles will cause environmental pollution in various aspects, i.e., heat generated by fuel combustion of engines partially causing global warming, noise pollution caused by engines and driving, visual pollution caused by a large number of motor vehicles congested on roads and flyovers which impair the beautiful landscape, including air pollution due to fumes and emission from fuel combustion. In contrast, traveling by a mass rapid transit system like the metro will not cause any such pollution as the train operation produces neither emission nor air and noise pollution, let alone the fact that the entire metro system is constructed and located underground which would in no way hinder any landscape. 1.3) Other Concession Business CH. Karnchang Public Company Limited group has also operated the concession business in respect of tap water production of the Company’s subsidiaries, e.g., Thai Tap Water Supply Public Company Limited, Pathum Thani Water Co., Ltd. and Bang Pa-in Land Development Co., Ltd., in order to ensure distribution of clean tap water to the communities, including better health quality, and to systematically accommodate expansion of the industrial sector. Moreover, Bang Pa-in Land Development Co., Ltd., which is a company in the group, has established the Administrative Center for Public Utilities and Environment to safeguard the

36

CH.KARNCHANG PUBLIC COMPANY LIMITED


environment in the industrial estate and constructed an incinerator of waste from production process of the factories in the industrial estate. This waste incinerator is also capable of disposing at high temperature of toxic-contaminated and infectious wastes to help protect the environment for society. Currently, the waste disposal center offers disposal services covering approximately 2,400 tons each year of toxic and medical wastes as they are solid, toxic-contaminated and infectious wastes which are not acceptable for landfill.

2)

Construction Business

Construction businesses of CH. Karnchang Public Company Limited and the group have been operated along with development of the country and the reputation of CH. Karnchang Public Company Limited in respect of our responsibility towards society and environment over our past projects. In the year 2007, the Company has continued the construction business operation with our commitment to protection of nature and environment as well as maintaining a decent society, such as, the following construction projects: 2.1) Nam Ngum 2 Dam Construction Project in the Lao PDR As to the Nam Ngum 2 Dam construction which is considered a large-sized project, CH. Karnchang Public Company Limited group has emphasized the monitoring of the ecosystem and environment, particularly the state of living of local residents in the vicinity of the construction site. For the dam construction, the subsidiaries designed and delineated the locations for construction of buildings in support of generating electricity of the dam to be adjacent so as to prevent the project areas from scattering in a wide area, which would affect the existing forest areas. In this respect, the Company has established camps along the banks adjacent to the road alignment of the project, as well as preparing areas for dumping topsoil in order not to encroach upon the forest areas. 2.2) Bang Pli - Suksawad Expressway Construction Project In the construction of the Bang Pli - Suksawad Expressway which is considered a large-sized project, CH. Karnchang Public Company Limited was entrusted by the Expressway Authority of Thailand to carry out construction of the project, with due care and responsibility towards the environment and society. In this respect, the Company engaged a consulting company to monitor and inspect the quality of the environment to ensure compliance with such measures to prevent and minimize environmental impacts, e.g., measures and control of air quality in the construction sites by way of water spraying, clearances, vehicle speed limit on a daily basis, use of low-noise machinery with a schedule of machinery service hours during the day rather than the night time, together with measures and control of water quality of the ecosystem by way of removing topsoil and mud from digging to prevent further contamination into watercourse, and monitoring to prevent a landslide which would narrow waterways, avoiding cutting of all kinds of trees, as well as posting signs and notice boards to ensure safety both inside and outside of the construction sites, controlling and disposing of wastes from construction by forming a preliminary health unit and a safety committee, as well as establishing a public center and making public relations on the details of the project. In this regard, the construction plan also actively takes into account protection of important historical sites and tourist attractions. In addition to the Company’s implementation of such measures for supervision of construction works in various aspects, in order to achieve the results of such measures for the communities in terms of society and environment, the Company thus regularly follows up and inspects the environmental quality within the vicinity of the construction sites, by using devices for measuring and monitoring the air and noise qualities, vibration at various locations, totaling seven stations located at various communities, schools, villages, etc. The Company inspected and collected water samples from the ecosystem, totaling ten stations at significant canals. The hydrological conditions and drainage shall be regularly inspected, i.e., two-three times a week, to follow up the results. Besides, meetings are convened from time to time for listening to opinions from local residents from 26 communities to acknowledge various information, brainstorming to set measures to prevent and resolve problems which may arise out of the project development. In respect of society and education, the Company has contributed funds and donations to Wat Khru Nok School, Wat Bang Ya Phraek, Phrapradaeng Police Station, etc.

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2.3) Wastewater Tunnel Construction Project from Makkasan Swamp to the Chao Phraya River Regarding the construction of the Wastewater Tunnel from Makkasan Swamp to the Chao Phraya River which is considered another large-sized project, CH. Karnchang Public Company Limited has realized the significance of supervision and responsibility towards the environment and society. In the year 2007, the project covers various environmental and social activities, by way of preventative and control measures, such as, provision of wastewater drainage from the communities, prevention and avoidance of construction works causing vibration and loud noises affecting the communities, disposal of wastes, clearances of areas nearby and within the project, prevention of dust spreading in the project construction sites by installing devices for measuring and monitoring the quality of air and watercourse in such areas adjacent to the construction sites as another measure to ensure that pollution which might affect the environment shall be controlled and monitored efficiently. Furthermore, the Company coordinated with Bangkok Environmental Office to eliminate mosquitoes and insects in the neighboring communities for the health of local residents. In terms of society, the Wastewater Tunnel Project from Makkasan Swamp to the Chao Phraya River has lent itself to public charitable services for the communities, e.g., construction of a building for use as Chalerm Anusorn Khlong Sansab community office, construction of a conference center for Wat Chong Lom community, construction of footpath along the drainage canal, together with safety rail for Khlong Sansab community, improvement of multipurpose sports playground of Khlong Sansab community, construction of a meeting hall for the Rama IV Road central traffic unit, etc. 2.4) Suvarnabhumi-Phyathai PTT (NGV) Gas Pipeline Construction Project In carrying out the construction of the NGV gas pipeline project, the Company employs such technique for construction of the gas pipeline known as the Horizontal Directional Drilling (HDD) system instead of the existing cut-and-cover method under the construction contract in order to minimize impact on the communities, households and traffic along the construction of the gas pipeline, donated two computers to the communities at the back of Decha hospital, as well as laying down drainage and pumping pipelines at Wat Sangkaracha school; providing funds to the Sor.Pattaya and Ruam Chai Pattana communities for organizing the National Children Day activities; distributing gifts to children in the communities; participating in the National Children Day activities for encouraging youths; paving asphalt on the road to Huamak school; donating construction materials for construction of a multipurpose pavilion for Ruam Chai community; and donating funds for holding an outdoor exhibition to Wat Sangkaracha school, etc. 2.5) National Road No. 67 Construction Project in Cambodia: Chaom-Sangam - Anlong Veng - Siem Reap For the construction of National Road No. 67 in Cambodia, the project made social contributions by spraying mosquito repellent for the neighboring communities once a month, and provided local residents with information on the negative effects of narcotics, whether from taking or trafficking, as well as knowledge and prevention of AIDS to minimize its spreading. These activities represent our social and educational contributions to local residents in our neighboring country, etc. As described in brief above, CH. Karnchang Public Company Limited and other companies in the group have always realized and taken into account the responsibility and contributions to the society, study on nature and environment with awareness of being a Thai-owned company, which result in positive effects on our group and the overall society in various aspects, as follows:

Traffic

At the end of the year 2007, the Company completed the construction of the Bang Pli - Suksawad Expressway and the large-sized cable stayed bridge with the longest span in Thailand, which have been already opened for service. This expressway connects traffic routes between the South and the East of Samut Prakan Province to resolve traffic problems for a more convenient traffic flow.

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CH.KARNCHANG PUBLIC COMPANY LIMITED


Society and Environment

Development of construction engineering technologies of CH. Karnchang Public Company Limited group in various projects is considered a method to minimize and prevent impacts on the environment. In addition, the Company group has developed various measures to control and prevent impacts on the society and environment, including restoration or reforestation to the ecosystem through various projects of the Company group as mentioned above. The Company group conducts various contributions and charitable activities to the society every year. In the year 2007, such contributions include, among others, our participation in plantations and restoration of upstream forests of the 3rd Regional Army; contribution of funds to the 50 Years Maha Vachiralongkorn Hospital Foundation under the project “Jointly Construct the 50 Years Hospital”; donations to the project “Tod Sa Gun Game Helps Southern Teachers”; contribution of funds under the project celebrating the 80th Anniversary of His Majesty the King’s Birthday; donations to the Sai Jai Thai Foundation under the Royal Patronage in the project “Sai Jai Thai Day”; donations to the Universal Foundation for Person with Disabilities in the project “Power of Love to Persons with Disabilities No. 3”; and etc.

Education

CH. Karnchang Public Company Limited group has realized the significance of improvement of Thai youths to play the key role in the national development from generation to generation. This is to ensure that they are knowledgeable and skilled for the national development with the awareness of protecting the environment. Therefore, our educational support represents another charitable activity regularly organized by the Company group. In the year 2007, the Company’s educational contributions include the provision of 50 scholarships to good students of the National University of Laos in the Lao PDR; monetary contributions for learning and teaching equipment to the Maha Chakri Sirindhorn Foundation for the Faculty of Arts, Chulalongkorn University; provision of scholarships for four years to Thai-Nichi Institute of Technology; donations under the project “School I SEE U Matichon 30 Years” to Matichon Public Company Limited; AFEO 2007 academic conference support to the Engineering Institute of Thailand (EIT), etc.

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General Information 1. Company Profile

CH. Karnchang Public Company Limited Head Office : 587 Viriyathavorn Building, Sutthisarn Road, Dindaeng Subdistrict, Dindaeng District, Bangkok 10400 Telephone 66(0)2277-0460, 66(0)2275-0026 Fax 66(0)2275-7029 Business Category : To operate the business of general contract construction for

government agencies, state enterprises and private entities, in the form

of main contractor, subcontractor or joint venture or consortium. Registered Capital : Baht 1,450,000,000 Divided into Ordinary Shares : 1,450,000,000 shares Par Value : Baht 1 per share Paid-up Capital : Baht 1,446,012,169

2. The Company invested in each of its subsidiaries through a shareholding ratio of at least 10 percent of the number of shares sold in each subsidiary as follows:

Company Name Business Category

Total Number Par Value of Shares

Shares Held Shareholding Type of Shares by the Company Ratio

1. Construction Material Supply Co., Ltd. Trading of Construction 300,000 Baht 100 299,992 99.99% Ordinary The head office is located at No. 587 Sutthisarn Road, Materials Shares Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-0026 Fax 66(0)2275-7029 Baht 100 1,584,000 99.00% Ordinary 2. CH. Karnchang Real Estate Co., Ltd. Trading of Land, 1,600,000 The head office is located at No. 587 Sutthisarn Road, Allocation of Land Shares Dindaeng Subdistrict, Dindaeng District, Bangkok and Residential Telephone 66(0)2275-0026 Buildings Fax 66(0)2275-7029 3. CH. Karnchang-Tokyu Construction Co., Ltd. Contract for All Kinds 1,000,000 Baht 100 549,994 55.00% Ordinary The head office is located at No. 587 Sutthisarn Road, of Construction Shares Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-3651-5 Fax 66(0)2275-3657 4. Bangkok Concrete Industries Co., Ltd.* Operation of Factory 2,000,000 Baht 100 999,994 49.99% Ordinary The head office is located at No. 30/1 Moo 4, Business for Shares Tambon Khlong Udom Chonjorn, Amphoe Mueang Manufacturing Chachoengsao, Chachoengsao Province of Post Tensioned Telephone 038-845867-70 Concrete Piles Fax 038-845871 Remark * CH. Karnchang Public Company Limited has sold the whole of 999,994 ordinary shares in Bangkok Concrete Industries Co., Ltd. to Widen

Holding Co., Ltd. on December 25, 2007.

40

CH.KARNCHANG PUBLIC COMPANY LIMITED


The Company also invested in other companies through a shareholding ratio of at least 10 percent of the number of shares sold in each company as follows:

Company Name Business Category

Total Number Par Value of Shares

Shares Held Shareholding Type of Shares by the Company Ratio

1. Thai Tap Water Supply Public Company Limited Supply and 3,290,000,000 Baht 1 1,549,839,400 47.11% Ordinary The head office is located at Development of Projects Shares No. 30/10 Moo 12, Tambon Rai Khing for Production and Amphoe Sam Phran, Nakhon Pathom Province, Distribution of Telephone 66(0)2811-7526 Tap Water Fax 66(0)2811-7687 Supply and Development 12,000,000 Baht 100 - - Ordinary 2. Pathum Thani Water Co., Ltd.* The head office is located at of Projects for Shares No. 43 Moo 3, Chiang Rak Noi - Bang Sai Road, Production and Tambon Ban Pathum, Amphoe Sam Khok, Distribution of Tap Water Pathumthani Province 12160 under Arrangement with Telephone 66(0)2979-8530-2 the Provincial Fax 66(0)2979-8533 Waterworks Authority 3. SouthEast Asia Energy Limited Operation of Business 880,900,000 Baht 10 251,056,500 28.50% Ordinary The head office is located at of All Types of Power Shares No. 587, 20th Floor, Viriyathavorn Building, Plants and Distribution Sutthisarnvinijchai Road, Dindaeng Subdistrict, of Electricity inside Dindaeng District, Bangkok and outside Thailand Telephone 66(0)2275-4873 Fax 66(0)2691-8307 Baht 1 2,940,999,916 24.61% Ordinary 4. Bangkok Metro Public Company Limited Construction, Operation 11,950,000,000 The head office is located at and Maintenance of Shares No. 189 Rama IX Road, Huai Khwang Subdistrict, Railway System, Train, Huai Khwang District, Bangkok Electric Train System Telephone 66(0)2354-2000 or Other Powered Fax 66(0)2354-2000 Carriage System 5. Bangkok Expressway Public Company Limited Construction and 770,000,000 Baht 10 113,267,750 14.71% Ordinary Shares The head office is located at Operation of the Second Stage Expressway Project No. 238/7 Asoke-Dindaeng Road, Bang Kapi Subdistrict, Huai Khwang District, Bangkok and Various Extensions, Telephone 66(0)2641-4611 including Related Fax 66(0)2641-4610 Businesses Remark * CH. Karnchang Public Company Limited indirectly holds shares in Pathum Thai Water Co., Ltd. via Thai Tap Water Supply Public Company

Limited, namely, currently, CH. Karnchang Public Company Limited holds shares representing 47.11 percent in Thai Tap Water Supply

Public Company Limited and Thai Tap Water Supply Public Company Limited holds shares representing 98.00 percent in Pathum Thani

Water Co., Ltd.

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The Company also invested in the form of joint venture as follows:

Joint Venture Name

Nature of Work

1. Joint Venture CKSL comprising Design, Manufacture, Delivery and Installation CH. Karnchang Public Company Limited and SNC Lavalin Inc. of Trackwork for the Initial System of the The head office is located at No. 587 Sutthisarn Road, Mass Rapid Transit Authority of Thailand Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-0026, Fax 66(0)2275-7029 2. CKAE Consortium comprising Design and Construction of the CH. Karnchang Public Company Limited, 110 Architect Co., Ltd., Development Project for Enhancement Arun Chaiseri Consulting Engineers Co., Ltd., of the Capacities of the Bangkok Environmental Engineering Consultants Co., Ltd. International Airport and Epsilon Co., Ltd. The head office is located at No. 587 Sutthisarn Road, Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-0026, Fax 66(0)2275-7029 Project Operation and Management under the 3. Joint Venture CKET comprising CH. Karnchang Public Company Limited and Expert Transport Co., Ltd. Agreement for Concession for Design, Manufacture, The head office is located at No. 587 Sutthisarn Road, Delivery, Installation, Testing and Commissioning of M&E Equipment and for Operation and Maintenance Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-0026, Fax 66(0)2354-1919 of the MRTA Initial System, Chaloem Ratchamongkhon Line 4. Joint Venture BBCT comprising Construction of the (Bang Pa-in - Pak Kret) CH. Karnchang Public Company Limited, Expressway (Sectors D and C1 A) Bilfinger + Berger Bauaktiengesellschaft, Tokyu Construction Co., Ltd. and CH. Karnchang-Tokyu Construction Co., Ltd. The head office is located at No. 587 Sutthisarn Road, Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-0026, Fax 66(0)2275-7029 Construction of Wat Nakhon Indra Bridge 5. Join Venture CKOBA comprising Obayashi Corporation, CH. Karnchang Public Company Limited and Nantawan Co., Ltd. and Connecting Road The head office is located at No. 161 Ratchadamri Road, Lumpini Subdistrict, Pathumwan District, Bangkok Telephone 66(0)2252-5200, Fax 66(0)2252-5381 Construction of the (Bang Na - Bang Pli - Bang Pakong) 6. Joint Venture BBCD comprising Bilfinger + Berger Bauaktiengesellschaft, Expressway CH. Karnchang Public Company Limited and Dyckerhoff & Widmann AG The head office is located at No. 587 Sutthisarn Road, Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-8414, Fax 66(0)2691-9167 Design and Construction of the 7. Joint Venture BCKT comprising Bilfinger + Berger Bauaktiengesellschaft, CH. Karnchang Public Company Limited, Kumagai Gumi Limited Underground Structure, and Tokyu Construction Co., Ltd. Subway Project, South Section The head office is located at No. 587 Sutthisarn Road, Dindaeng Subdistrict, (Hua Lamphong - Huai Khwang) Dindaeng District, Bangkok Telephone 66(0)2275-0026, Fax 66(0)2275-7029

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Investment Ratio 99.90%

98.00%

80.00%

59.99%

44.00%

35.00%

25.00%

CH.KARNCHANG PUBLIC COMPANY LIMITED


Joint Venture Name Nature of Work Investment Ratio 8. Joint Venture BBC comprising Construction of Tunnels, together with Reservoir 25.00% Bilfinger + Berger (Thai) Construction Co., Ltd., and Conduit, for Underground Cables, Terminal Station in association with Bilfinger + Berger Bauaktiengesellschaft, at Vibhavadi Rangsit Road, Dindaeng Road, International Division, and CH. Karnchang Public Company Limited Ratchawithee Road, Ratchaparop Road, The head office is located at No. 587 Sutthisarn Road, Dindaeng Subdistrict, Mitmaitree Road, Payathai Road Dindaeng District, Bangkok and Soi Choei Puang, Bangkok Telephone 66(0)2245-6400-7, Fax 66(0)2245-7736 9. Joint Venture CKNNL comprising CH. Karnchang Public Company Limited Construction of Buildings, together with Public Utility, 46.00% and Nongnuch Landscape & Garden Design Company Limited and Landscaping for the International The head office is located No. 587 Sutthisarn Road, Horticultural Exposition 2006 Dindaeng Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-0026, Fax 66(0)2275-7029 10. Joint Venture CKLX comprising Construction of the Toll Collection and Traffic Safety 75.00% CH. Karnchang Public Company Limited and Loxley Public Company Limited Control Systems for the Bang Pli - Suksawad Expressway The head office is located No. 587 Sutthisarn Road, Dindaeng and Highway No. 37, Bangkok Outer Ring Road (the Bang Pli-Bang Khun Thien Expressway in Respect Subdistrict, Dindaeng District, Bangkok Telephone 66(0)2275-0026, Fax 66(0)2275-7029 of Suksawad-Bang Khun Thien Section)

3. Reference

Securities Registrar Auditors

Annual Report 2007

: or :

Thailand Securities Depository Co., Ltd. 2/7 Moo 4, Capital Market Academy Building nd The Stock Exchange of Thailand, 2 Floor North Park Project, Vibhavadi Rangsit Road, Km. 27 Thung Song Hong Subdistrict, Lak Si District, Bangkok 10210 Telephone 0-2596-9000, 0-2596-9302-11 Fax 0-2832-4994-6 62 The Stock Exchange of Thailand Building 4th, 7th Floors, Ratchadapisek Road Khlong Toei Subdistrict, Khlong Toei District Bangkok 10110 Telephone 0-2229-2800 Fax 0-2359-1262-3 Miss Siraporn Ouaanunkul, CPA License No. 3844 Mr. Narong Puntawong, CPA License No. 3315 Mr. Supachai Phanyawattano, CPA License No. 3930 Ernst & Young Office Limited 33rd Floor, Lake Rajada Office Complex, 193/136-137 New Ratchadapisek Road, Khlong Toei District, Bangkok 10110 Telephone 0-2264-0777 Fax 0-2264-0789-90

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We are the PARTNERSHIP...

Pleasant relationship must regularly participate in creating new and satisfactory items for the society. We, therefore, pay attention to and create the commitment and confidence for every stakeholder with transparency and fairness in order for the sustainable growth of our company and other parts of the society.

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บริษัท ช.การช่าง จำกัด (มหาชน)


CORPORATE GOVERNANCE POLICY SHAREHOLDERS

The Board of Directors focuses on compliance with good corporate governance so as to improve transparency and responsibility for duties of directors and executives, and build up confidence for shareholder, investors and all parties concerned. In this regard, the policy in support of the good corporate governance has been introduced covering important matters as follows: 1. Shareholders and interested parties shall be equally and fairly treated. 2. The Board of Directors is committed to create value added to the operations in the long term through careful and prudent management, is responsible to perform the duties to ensure sufficient efficiency for the optimum benefit to shareholders, and to prevent any conflicts of interest, as well as is also responsible for any decisions and arrangements made by the Company itself. 3. All activities are undertaken with transparency and are open for inspection with disclosure of sufficient information to all relevant parties. 4. The business operations always take into account various risks with appropriate risk control and management. The Company realizes the shareholders’ right to receive the Company’s information correctly, completely, sufficiently, instantly and equally for decision making in the shareholders meeting. The Company offers opportunity to shareholders to have equal right to scrutinize the Company’s operations, make inquiries and provide comments and suggestions.

PERSONNEL

The Company arranges for continuous human resource development, as the management realizes the significance of development of employees’ capabilities and potentials in management, team building and specific professional learning, including encouraging employees to have knowledge about information technology, foreign languages and business working skill of employees and executives, which the Company intends to develop its personnel, both employees and the management, to catch up with changes in the world of technology and the business nature which constitutes a more intense competition, so as to be in line with the management of the whole organization. The company issues the code of business ethics in respect of the Board of Directors, the management and staff, as guidelines for compliance in the performance of their duties in accordance with the Company’s mission, with honesty, integrity and equality as well as responsibility towards the interested parties, shareholders and all parties concerned, The code of ethics also covers disciplinary actions. The Company is making preparations to disseminate such code of ethics to staff and would then hold training and circulate to staff through the media, e.g., distribution of leaflets, small group meetings in the respective departments.

GOVERNANCE

Due to the national development and industrial sector promotion, the demand for construction in various fields has increased. The Company has been considering the market growth, and developing personnel, machinery and equipment for the works. The construction works in the past projects, as well as the Company’s reputation in respect of construction and work quality, including responsibility towards customers in the operations, has caused the Company to gain trust in the carrying out of a number of construction projects of the government sector. The Company realizes the significance of rights of all interested groups, whether inside, such as staff and executives of the Company and the subsidiaries, or outside, such as competitors, creditors, government sector and other relevant authorities. The Company recognizes support from these interested parties which could help building up the Company’s competitiveness and profitability to result in long term success for the Company.

BUSINESS PARTNERS

The Company engages in the business of contract construction as a primary business activity, for government agencies, state enterprises and private entities, in the form of main contractor or subcontractor, by way of bidding and negotiation through the cooperation with overseas contractors in the form of joint venture, which is a joint investment in the construction projects in which items or volume of works are indivisible among the partners. Each partner shall be responsible for profit or loss in the proportion as mutually agreed upon in respect of all times of the work. The Company also engages in construction in the form of consortium, which is a joint investment in the construction projects in which items or volume of works are divisible among the partners. Each partner shall be independently responsible for profit or loss. The Company has experience and expertise in construction, engineering, namely infrastructure works such as roads, bridges, elevated ways, expressways, construction of buildings and industrial factories, mechanical and electrical system work, such as installation of equipment and machinery for factories.

CUSTOMERS

The Company encourages the policy on team effort and enhancing state of the art technology to ensured the optimum safety and efficiency in the operation to meet the requirements and offer benefits to the customers with satisfaction in quality and services, including strict compliance with the terms of the agreements made with counterparties. The Company also provides care and is responsible to customers, ensures confidentiality for customers, as well as completion of work in a timely manner or earlier than scheduled.

PUBLIC

The Company’s business operation regularly focuses on promotion in activities for improvement of the quality of life and environment, representing our gratitude to society.

รายงานประจำปี 2550

45


we’re PROUD...

We have never stopped the development in every aspect via both improving the company’s competitive advantage, the quality of personnel, and construction technology and joint venture with the multinational companies in order to strengthen the organizational capability, create the commitment and confidence for every stakeholder, offer qualified performance, and promote the flexibility towards the economy. This is the pride of our company regarding the participation in generating the stability and growth to the society and the country as a whole.

46

บริษัท ช.การช่าง จำกัด (มหาชน)


Risk Factors 1.

Risk from Management and Risk from Delays in Projects

2.

Risk from Accounts Receivable in the Form of Compensation for Increased Costs as per Arbitral Award

The Company realized the risks from management and therefore, determined guidelines to prevent any flaws which might occur, by implementing the quality management system of ISO 9001:2000 to maintain the operation standards both in projects and in the Company’s head office, taking into account the continued improvement of quality management system. The Company group also set out guidelines for staff improvement to ensure that staff would have knowledge, skills, ethics and accountability towards the organization, including all interested persons, so as to minimize and prevent damage which might be caused by such risk. The Company obtained the international quality system standard accreditation of ISO 9001:2000 in the year 2002 from two institutions, namely, UKAS and NAC Thailand, in respect of the business of construction work design and management for buildings, roads, bridges, underground structures and tunneling, and piping work and aviation fueling hydrant control system. Generally, risks from delays in various projects might be caused by delays on the part of employers or contractors or by events without any liable party. Delays on the part of employers included, for example, site delivery, review and approval on various matters relating to construction work. These delays might affect the construction period and costs. However, the Company minimized risks from such delays through cooperation and coordination with employers to ensure successful completion of the construction works. Delays on the part of contractors included, for example, shortages of construction materials. The Company prevented such problem by entering into forward agreements for purchase - sale of various materials, as evidenced by the signed agreements for purchase - sale of cements and metals to accommodate the Company’s projects, of which contracts have already been executed. Delays caused by any events without any liable party included, for example, natural perils. In the execution of a contract, there generally is a requirement for the contractor to take out insurance for various construction projects undertaken by the Company. Based on the Company’s past experience, the Company has never encountered any events caused by delays on the part of the Company group, but risks from delays caused by the Company’s contractual party, such as, in the Bang Na - Bang Pli - Bang Pakong Expressway Construction Project, and the Company group rectified such circumstance by requiring the employer to promptly resolve such problems and the Company also accelerated the construction to meet the specified schedule. Joint Venture BBCD (Bilfinger Berger AG, CH. Karnchang Public Company Limited and Dyckerhoff & Widmann AG), in which the Company has 35 percent interest, claimed for increased costs due to changes by the Expressway and Rapid Transit Authority of Thailand (the Employer) in the scope of work, additional work orders, requirements of relevant authorities, delayed design approval, design revision and delay of site handover. The Arbitral Tribunal rendered an award in the dispute on September 20, 2001 requiring the Employer to pay said increased costs to the Joint Venture in the amount of approximately Baht 6,000 Million (the increased costs, together with interest, as calculated until September 30, 2001 amounting to approximately Baht 6,800 Million). Subsequently, the Employer issued a letter dated November 22, 2001, informing the Joint Venture that the Employer deemed it appropriate to comply with the arbitral award. Based on such reason, the Joint Venture then recorded such amount as revenue in the third quarter of the accounting year 2001 since the opportunity of receiving such amount and the relevant figures became certain at that time, which was in accordance with the normal accounting principles. Such increased costs to be paid by the Employer were recorded in the consolidated financial statements for the year 2001 as revenue and assets based on the group’s participation in the Joint Venture, amounting to approximately Baht 2,500 Million (Baht 23.81 per share). Annual Report 2007

47


Subsequently, the Expressway and Rapid Transit Authority of Thailand issued a letter dated December 21, 2001 indicating that it could not comply with the arbitral award due to the argument of the government agency requiring a review of such matter which caused delay of such payment as per the arbitral award. The Company group confirmed the compliance with the procedures as specified by the laws, and therefore, believed that there would be no impact from the news regarding the argument of the government agency. Due to such delay, on May 1, 2002, the Joint Venture therefore filed a lawsuit against the Expressway and Rapid Transit Authority of Thailand with the Civil Court of Southern Bangkok for enforcement of compliance with the arbitral award. On December 30, 2003, the Civil Court of Southern Bangkok adjudged enforcing the compliance with the arbitral award, by requiring the Expressway and Rapid Transit Authority of Thailand (the Employer) to make payment to the Joint Venture as per the arbitral award. Thereafter, in January 2004, the Expressway and Rapid Transit Authority of Thailand filed an appeal in respect of such matter with the Supreme Court. On February 15, 2007, the Supreme Court adjudged in favor of the appeal of the Expressway and Rapid Transit Authority of Thailand and then rendered its judgment reversing the Civil Court of Southern Bangkok’s judgment which enforced the compliance with the arbitral award. However, the said judgment did not prejudice the Joint Venture’s legal right to claim for the increased costs of Baht 6,039.89 Million, together with interest at the rate of 7.50 percent per annum. Subsequently, after the Company’s management had thoroughly reviewed the said judgment by the Supreme Court, it then filed a lawsuit against the Employer with the Civil Court on February 11, 2008 to claim for costs paid by Joint Venture BBCD against the Employer on grounds of undue enrichment, in the total amount, inclusive of interest calculated until the date of the plaint, of approximately Baht 3,400 Million (based on the group’s participation in such Joint Venture). The case is now pending the service of the summons and the plaint upon the Employer.

3.

Risk from Exchange Rate

Given the fact that the Company group earned income and incurred costs in certain projects in foreign currencies, the fluctuation of the foreign currencies against Baht would affect the Company’s costs or performance. The Company has managed the risk from exchange rate by matching cost with construction revenue, i.e., depositing income in foreign currencies in the “FCD” (Foreign Currency Deposit) account. When the project incurs any expenses in foreign currencies, the Company shall use funds in the FCD account to pay such expenses. However, at present, there are only one projects deriving income and incurring costs in foreign currencies, namely, the construction of the Hydroelectric Power Project (Nam Ngum 2). The proportions of revenue and costs denominated in foreign currencies are rather small as compared to the total revenue and costs of the Company group, representing merely 6.3 percent and 14.3 percent of the total revenue and costs as at December 31, 2007. In addition, risk from exchange rate might be caused by foreign currency loan transactions. As at December 31, 2007, Joint Venture BBCD had a burden with its members in the form of foreign currency loans in the total amount of Euro 53.9 Million, at the interest rate of LIBOR plus one percent per annum. The Joint Venture did not arrange for management of the risk from exchange rate which in the future might affect the Company as a shareholder having 35 percent interest in the Joint Venture. However, the Joint Venture is negotiating with its members to arrange for management of such exchange rate risk. As at December 31, 2007, the Company group sustained an unrealized loss on exchange rate in the amount of Baht 112.5 Million in the consolidated financial statements. Details of assets and liabilities denominated in foreign currencies as at December 31, 2007 in the consolidated financial statements can be summarized as follows:

48

CH.KARNCHANG PUBLIC COMPANY LIMITED


EURO

(as at December 31, 2007) YEN

Assets Cash at bank - - Loan receivable - - Trade accounts receivable - - Advance payments for subcontractors 94,207 - Total 94,207 - Liabilities Bank loan - - Trade accounts payable - 17,433,011 Joint Venture accounts payable 60,252,475 - Loans from Joint Venture - - Total 60,252,475 17,433,011 Assets (Liabilities), net (60,158,268) (17,433,011) Assets (Liabilities), net (Baht)* (2,985,065,871) (5,224,952) Remark: * Average exchange rate calculated by The Bank of Thailand at the close of December 31, 2007.

4.

US. DOLLARS 3,885,791 357,461 1,800,000 10,797,774 16,841,026 - 9,647,119 - - 9,647,119 7,193,907 243,765,534

Risk from Construction Material Price and Fluctuation of Oil Price

Costs of construction in the respective projects depended on not only construction material price which fluctuates by the demand and supply circumstances, but also oil price, which is indirect cost towards the operating costs. A projection based on the database over the past 5 years revealed that the oil price on average accounted for 5 percent of all construction costs. The Company group managed said risk through construction contracts in two manners as follows: - In case of a construction contract with construction price adjustment in accordance with an escalation (K) factor, said K factor would vary depending on the changing production costs, such as, prices of construction materials, metals, cements, high speed diesel oil, and there would not be any impact on the construction price. Most customers in this category were government sector, representing 12.9 percent of the remaining project value to be recognized in the future; - In case of a construction contract with fixed costs or lump sum, whereby it does not specify or it is not possible to identify a K factor, which would mostly apply to turnkey projects, provisional sums would also be included to accommodate the case where the construction material costs would be included in the total project value. Most customers in this category were private sector, representing 79.2 percent of the remaining project value to be recognized in the future. Furthermore, the Company also established a subsidiary for the purpose of manufacturing necessary construction materials so as to minimize risk from shortage of materials and unrealistic price increase, as well as to strengthen its bargaining power with major traders of construction materials under high competition.

Annual Report 2007

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5.

Risk from Political Changes

6.

Risk from Investments in Subsidiaries, Associated Companies, Joint Ventures, Related Companies and Other Companies

Given the fact that the Company groups revenue structure in the future from the total value of projects in hand which would be recognized as revenue in the future representing 20.8 percent involves works for the government sector, the Company group’s revenue therefore relates to the national budget spending, which depends on the economic growth rate and investment climate, including the political stability. As for the government projects for which the contracts have already been signed, the Company group did not have any risk from economic and political circumstances since such projects would be supported by the allocated budgets in the form of tied budgets, which represent guarantee of budgets to be spent by the government in said projects. Nevertheless, in respect of the government projects which were awarded to the Company group, but the contracts have not yet been signed, the government may hold a new bidding for said project based on the justifications of each respective project. The Company group reengineered to expand its channel of revenue sources by way of project investment and management. The Company group thus expanded its investments to business activities which would derive more definite revenue, such as, the Company’s investments in Bangkok Expressway Public Company Limited, which manages the expressway projects; Bangkok Metro Public Company Limited, which manages the M.R.T. Chaloem Ratchamongkhon Line; Pathum Thani Water Co., Ltd., which produces tap water for sale to the Provincial Waterworks Authority for distribution to the public in Pathum Thani Province; Thai Tap Water Supply Public Company Limited, which produces tap water for sale to the Provincial Waterworks Authority for distribution to the public in Samut Sakhon Province and Nakhon Pathom Province; and SouthEast Asia Energy Limited, which would generate electricity for distribution to the Electricity Generating Authority of Thailand. These projects are long-term concession projects which would not be affected by political changes.

The Company group’s structure comprises several subsidiaries, associated companies, including joint ventures, related companies and other companies which accorded with the Company group’s nature of business, namely, investment and construction of several projects, which are being implemented by different groups of investors. However, most joint ventures are established with the objectives to carry out a few projects, and would be dissolved upon completion of the projects. In this respect, the number of companies or legal entities in the group would decrease accordingly. Risks that might be caused by investments in subsidiaries, associated companies, joint ventures, related companies and other companies would be limited to the investments in each respective organization. In each investment, the Company would carefully conduct feasibility study of each project or company in addition to the consideration of the rate of return to be derived in the future. The Company might appoint third party advisors or specialists to serve in certain projects prior to submission of such matter to the Executive Board and the Board of Directors. Most of the companies invested by the group have satisfactory performance and derive profits from their business operations. As at December 31, 2007, the Company’s investments in subsidiaries, associated companies, joint ventures, related companies and other companies amounted to a total of Baht 9,698.2 Million, representing 44.2 percent of the total asset value. In the year 2007, the Company changed its accounting policy on investments in subsidiaries, joint ventures and associated companies in the separate financial statements from the equity method to the cost method in accordance with the Notification of the Federation of Accounting Professions No. 26/2549 Re: Thai Accounting Standards No. 44. Moreover, the Company also arranged for a provision for loss from investments in joint ventures in the total amount of Baht 4,082.6 Million, which was a balance of the provision for deficit on investments in joint ventures comprising Joint Venture BBCT and Joint Venture BBCD. As at December 31, 2007, the Company had profit sharing from investments in joint ventures and dividends from investments in subsidiaries, associated companies and related companies in the total amount of Baht 235.5 Million.

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CH.KARNCHANG PUBLIC COMPANY LIMITED


7.

Risk from Loans to Subsidiaries, Associated Companies, Joint Ventures, Related Companies and Other Companies

The Company had risks from loans to subsidiaries, associated companies, related companies and joint ventures, namely, only short-term loans were provided for use as working capital. As at December 31, 2007, the Company had a net balance of loans and accrued interest receivable in respect of subsidiaries, associated companies, related companies and joint ventures in the total amount of Baht 2,579.4 Million, representing 11.8 percent of the total assets. In addition, the Company arranged for a provision for loss from such loans to a subsidiary and a joint venture in the amount of Baht 331.4 Million. Said loans were short-term working capital subject to interest at the minimum lending rate of interest (MLR) plus margin per annum and at a fixed rate of interest per annum, which shall become due for repayment upon demand. Moreover, Joint Venture CKET entered into agreements granting loans to two other companies, in the total amount of Baht 1,408 Million. As at December 31, 2007, such two companies gradually made partial repayment of the loans and interest, therefore, the balance of long-term loans to other companies amounted to Baht 1,263.6 Million (in proportion to the Company’s participation in the Joint Venture) for use as working capital. Such loans are subject to interest at the minimum lending rate of interest (MLR) plus margin per annum and would become due for repayment by the month of June 2007. Thereafter, the borrowers notified to repay the loans to the Joint Venture in the amount of half of the outstanding loans by December 31, 2007 and the remaining loans by June 30, 2008 in full. Subsequently, the borrowers issued a letter requesting an extension of time for loan repayment in the amount of half of the outstanding loans by December 31, 2008 and the remaining loans by June 30, 2009 in full. This was due to economic slowdown in the year 2007, whereby the real estate development projects could not proceed according to plan, thereby causing delay in such repayment. The borrowers expected that in the year 2008, the economic circumstances for real estate business was likely to grow substantially in accordance with the new government’s policy on the national development, rendering the borrowers to expect more and sufficient income for repayment. Therefore, as at December 31, 2007, Joint Venture CKET reclassified the current portion of long-term loans to other companies due within one year in the amount of Baht 631.8 Million (in proportion to the Company’s participation in the Joint Venture) to the “long-term loans to other companies - net of the current portion due within one year” in the balance sheet. The borrowers furnished security to the Joint Venture, namely, certain land with structures in the total value of Baht 1,539.3 Million (in proportion to the Company’s participation in the Joint Venture) as appraised by an independent appraiser in January 2008 and the major shareholders of the borrowers also provided personal guarantee for the repayment of the outstanding loans in full and allowed the Joint Venture to charge additional interest at the rate of 1.25 percent per annum of the loans from the borrowing date until the repayment would be made in full by the borrowers. In addition, as at December 31, 2007, the Company and its subsidiaries provided guarantee for associated companies, related companies and joint ventures in proportion to the Company’s participation for the purposes of applying for credit facilities from banks and financial institutions, issuance of bank guarantees and opening of letters of credit, in the total amount of Baht 1,284 Million. Nevertheless, the Company has policies on management of risks that might occur from loans to subsidiaries and joint ventures, significantly taking into account the necessity and justification of transactions as well as the Company’s benefits. Such policies need to be approved by the Company’s Audit Committee to scrutinize any possible consequences.

Annual Report 2007

51


Connected Transactions 1. Connected Transactions between the Company, Subsidiaries, Associated and Related Companies (Only connected transactions with value of Baht 500,000 or higher are shown)

Company Name/ Relationship Nature of Transaction Interested Party 1. Bangkok Metro Public - This is an associated company. 1.1 The Company Company Limited - The Company holds shares representing. - The Company was hired to manage 24.61 percent and maintain the infrastructure Operation of concession business - Mahasiri Siam Co., Ltd., as a major and public utilities system, with a for mass transit in Bangkok shareholder in the Company, holds shares project value of Baht 85 Million, by the metro representing 2.95 percent. expected to be completed in - A director of the Company, namely, February 2011. Mr. Vitoon Tejatussanasoontorn, serves as director in Bangkok Metro Bangkok Public Company Limited. 1.2 Joint Venture CKET - Three executive directors of the Company, - The Joint Venture was hired to supervise namely, Mr. Plew Trivisvavet, and manage the electric train Mr. Sombat Kitjalaksana construction project and manage the and Mr. Anukool Tuntimas, serve as directors maintenance of the project, with a in Bangkok Metro Public Company Limited. project value of Baht 2,181.7 Million, expected to be completed in December 2008. 1.3 The Company extended a loan in its capacity as a shareholder under the Sponsor Loan Agreement, which requires that shareholders shall arrange for a loan to Bangkok Metro Public Company Limited in the total loan amount of not exceeding Baht 2,000 Million. - Principal at the end of the period - Interest income at the end of the period

52

CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

Necessity/Justification

- This transaction is an ordinary course of business. 12,125,000 - The Company has earned a return at market price at a rate not lower than the rate of return generally received in other projects. - This project is of a nature in which the Company has experience and expertise. - This transaction provides a credit term of 30-45 days.

- This transaction is an ordinary course of business. 28,800,000 - The Company has earned a return at market price at a rate not lower than the rate of return generally received in other projects. - This project requires a team with experience and expertise, and cooperation with all parties concerned so as to achieve the target of the construction. - This transaction provides a credit term of 30-45 days.

- Such loan is extended by the Company at the interest rate of MLR+0.5. - The loan is scheduled to be repaid after Bangkok Metro Public Company Limited has repaid loans to local financial institutions (pursuant to the conditions of the Sponsor Loan Agreement), provided that all loans are scheduled to be repaid to local financial institutions by the year 2017. The Company has a policy to require Bangkok Metro Public Company Limited to repay the loan in full within one year after Bangkok Metro Public Company Limited has repaid loans to financial institutions. - This is in accordance with the agreement of shareholders in Bangkok Metro Public 1,003,090,793 Company Limited with financial institutions providing financial support. 79,694,189

Annual Report 2007

53


Company Name/ Relationship Nature of Transaction Interested Party 2. Pathum Thani Water Co., Ltd. - This is an associated company. 2.1 The Company extended a loan in its - Thai Tap Water Supply Public Company Limited capacity as a shareholder under Operation of business of sole holds shares representing 98.00 percent. the Sponsor Loan Agreement, which concession for water production (The Company holds 47.69 percent of shares requires that shareholders shall arrange and supply in the areas of in Thai Tap Water Supply Public for a loan to Pathum Thani Water Pathum Thani and Rangsit Company Limited.) Co., Ltd. in the total loan amount of Baht 400 Million, at the interest rate between 6.0-7.5 percent. Such interest rate allows the Company to earn margin from the financing cost incurred by the Company. - Principal at the end of the period - Interest income at the end of the period 2.2 The Company - The Company was engaged to supply and carry out construction to improve the capacity of production plant with a value of Baht 125.5 Million and also supply and carry out construction of extension for enhancement of production capacity of production plant with a value of approximately Baht 567.6 Million in the areas of Pathum Thani - Rangsit, scheduled to be completed in 2008. 2.3 Joint Venture TWCK Joint Venture TWCK made payment of profit sharing from the Joint Venture’s operational results. - Profit sharing from the Joint Venture

54

CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

Necessity/Justification

- Such loan is extended by the Company at the interest rate of 6.0-7.5 percent which is not less favorable to the Company. - This is in accordance with the agreement of shareholders in Pathum Thani Water Co., Ltd. with financial institutions providing financial support. - The loan is scheduled to be repaid after Pathum Thani Water Co., Ltd. has repaid loans to local financial institutions (pursuant to the conditions of the Sponsor Loan Agreement), provided that all loans are scheduled to be repaid to local financial institutions by the year 2010. At present, Pathum Thani Water Co., Ltd. is granted approval from financial institutions to reschedule the loan repayment until December 2015. The Company has a policy to require Pathum Thani Water Co., Ltd. to repay the loan in full within three years after Pathum Thani Water Co., Ltd. has repaid loans to financial institutions. In addition, - Pathum Thani Water Co., Ltd. already made payment for the loan in the year 2007 2,506,203

498,227,971 - This transaction is an ordinary course of business. - This project is of a nature in which the Company has experience and expertise. - The Company has earned a return at market price at a rate not lower than the rate of return generally received in other projects.

- This is a profit sharing from the Joint Venture’s operational results as derived by the Company based on its participation in the joint venture, which is an ordinary course of business. 4,830,000

Annual Report 2007

55


Company Name/ Relationship Nature of Transaction Interested Party 3. Thai Tap Water Supply Public - This is an associated company. 3.1 The Company Company Limited - The Company holds shares representing - The Company received dividend from its 47.69 percent. shareholding in Thai Tap Water Supply Operation of concession business - Four executive directors of the Company, Public Company Limited for water production and namely, Mr. Plew Trivisvavet, distribution in Samut Sakhon Mr. Narong Sangsuriya, Province and certain areas of Mr. Prasert Marittanaporn and Nakhon Pathom Province for the Mr. Sombat Kitjalaksana, serve as directors in Thai Tap Water Supply Public Company Limited. Provincial Waterworks Authority 4. Bangkok Expressway Public - This is a related company. 4.1 The Company Company Limited - The Company holds shares representing - The Company received dividend from its 14.71 percent. An executive director of the shareholding in Bangkok Expressway Operation of concession business Company, namely, Mr. Plew Trivisvavet, Public Company Limited. for expressway construction and serves as director in Bangkok Expressway management Public Company Limited. 4.2 The Company - The Company was engaged to carry out construction, repair and improvement of the expressway system. . 4.3 CH. Karnchang-Tokyu Construction Co., Ltd. - The Company received dividend from its shareholding in Bangkok Expressway Public Company Limited.

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CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

Necessity/Justification

77,491,970 - This project is of a nature in which the Company has experience and could be completed within the scheduled period. - This transaction is an ordinary course of business.

113,267,750

- This transaction is an ordinary course of business.

11,680,332 - This transaction is an ordinary course of business. - This project is of a nature in which the Company has experience and could be completed within the scheduled period. - The Company has earned a return at market price at a rate not lower than the rate of return generally received in other projects. - This transaction provides a credit term of 30-45 days

9,551,140 - This transaction is an ordinary course of business. - The Company has earned a return at market price at a rate not lower than the rate of return generally received in other projects.

Annual Report 2007

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Company Name/ Relationship Nature of Transaction Interested Party 5. CK. Office Tower Co., Ltd. - This is a related company. 5.1 The Company - Mahasiri Siam Co., Ltd., as a major - Rental of area and public utilities fees shareholder in the Company, holds Operation of business of lease/ shares representing 25 percent. sale of office building spaces - An executive director of the Company, namely, Mr. Plew Trivisvavet, serves as director in CK. Office Tower Co., Ltd. 5.2 CH. Karnchang-Tokyu Construction Co., Ltd. - Rental of area and public utilities fees 5.3 Construction Material Supply Co., Ltd. - Rental of area and public utilities fees

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CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

Necessity/Justification

- This rental rate is close to market rate, representing an ordinary course of business. 15,680,061 - The Company was registered at the office of CK. Office Tower Co., Ltd. for convenience in management. - This transaction provides a credit term of 30-45 days.

- CH. Karnchang-Tokyu Construction Co., Ltd. took on lease for a total area of 1,243 square meters at the rental rate of Baht 120 per square meter and service fee of Baht 80 per 4,443,845 square meter, with a lease term of three years from March 1, 2003 to February 1, 2006. The new agreement was also made, with a lease term until February 2009. - CH. Karnchang-Tokyu Construction Co., Ltd. took on lease for the area and paid public utilities fees in the amount of approximately Baht 0.4 Million. - This rental rate is close to market rate, representing an ordinary course of business. - The company in the group was registered at the office of CK. Office Tower Co., Ltd. for convenience in management. - This transaction provides a credit term of 30-45 days.

- Construction Material Supply Co., Ltd. took on lease for a total area of 161 square 643,780 meters at the rental rate of Baht 128 per square meter and service fee of Baht 192 per square meter, with a lease term of three years from October 1, 2002 to September 1, 2005. The new agreement was also made, with a lease term until September 2009. - This rental rate is close to market rate, representing an ordinary course of business. - The company in the group was registered at the office of CK. Office Tower Co., Ltd. for convenience in management. - This transaction provides a credit term of 30-45 days.

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Company Name/ Relationship Nature of Transaction Interested Party 6. Expert Transport Co., Ltd. - This is a related company. 6.1 Joint Venture BBCT - Mahasiri Siam Co., Ltd., as a major - Vehicles, such as, trucks, trailers, etc., Operation of business of large shareholder in the Company, holds shares were sold to Expert Transport Co., Ltd. vehicles for transportation representing 90.00 percent. at the replacement cost. - Two executive directors of the Company, namely, Mr. Plew Trivisvavet and Mr. Prasert Marittanaporn, serve as directors in Expert Transport Co., Ltd. 7. Silasaicrete Limited Partnership - This is a related legal entity. 7.1 The Company - CK. Office Tower Co., Ltd. is a partner with - The Company rendered service of Operation of business of sale of limited liability of not exceeding Baht 5 Million. transportation of construction materials. construction materials, such as, - Bang Pa-in Land Development Co., Ltd. stone, sand, etc. is a partner with limited liability of not exceeding Baht 4 Million. 7.2 The Company - The Company purchased raw materials, such as, stone, sand, for use in construction projects.

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CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

Necessity/Justification

- This is a sale of vehicles, which the Joint Venture does not use, at the reasonable 3,369,939 rate not different from sale to the general public. - Trade accounts receivable were accrued for a long period due to the economic crisis during the years of 1997-2000 and a portion of revenue must be used for loan repayment. The company could make periodic repayment to the Joint Venture by the year 2008. - This transaction provides a credit term of 30-45 days.

514,430

- This rate is close to market rate, representing an ordinary course of business. - This transaction provides a credit term of 30-45 days.

801,701 - This price is close to market rate, representing an ordinary course of business. - The Company has a policy to purchase products from companies in the group, provided that the quoted prices are competitive. - This transaction provides a credit term of 30-45 days.

Annual Report 2007

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Company Name/ Relationship Nature of Transaction Interested Party 8. SouthEast Asia Energy Limited - This is an associated company. 8.1 The Company - The Company holds shares representing The Company extended a loan in its 28.50 percent. capacity as a shareholder under the Operation of concession business - Four executive directors of the Company, Shareholders Loan Agreement, which for design, development, namely, Mr. Plew Trivisvavet, requires that shareholders shall construction and management Mr. Narong Sangsuriya, arrange for a loan to SouthEast Asia of the Hydroelectric Power Project Mr. Prasert Marittanaporn and Energy Limited in the total loan (Nam Ngum 2) for the government Mr. Ratn Santaannop, serve as directors amount of Baht 156.25 Million, at the of the Lao People’s Democratic in SouthEast Asia Energy Limited. interest rate of the average MLR of Republic three lender banks of SouthEast Asia Energy Limited, plus one (MLR+1), with the due date of repayment of the principal, together with interest, within 18 months or the date of Financial Closing of the Project, whichever occurs first. - Principal at the end of the period - Interest income at the end of the period 8.2 CH. Karnchang (Lao) Co., Ltd. - SouthEast Asia Energy Limited engaged CH. Karnchang (Lao) Co., Ltd. (in which 100 percent of shares are held by CH. Karnchang Public Company Limited) to carry out construction of the Hydroelectric Power Project (Nam Ngum 2), with a project value of Baht 20,400 Million.

62

CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

-

Necessity/Justification

This is considered a financial support based on the shareholding percentage, and the interest rate equals the loan interest rate of the existing creditors of SouthEast Asia Energy Limited for survey and development of new project which would enhance the capacity of the Nam Ngum 2 Project and which would be beneficial to the Company as a shareholder.

43,750,000 346,932

- CH. Karnchang (Lao) Co., Ltd. is capable to carry out the works properly and is 5,350,157,080 well-prepared to promptly start the works. In addition, the project value is reasonable, representing an ordinary course of business. - This transaction provides a credit term of 30 days.

Annual Report 2007

63


Company Name/ Relationship Nature of Transaction Interested Party 9. Bangkok Concrete Industry - This is a subsidiary. 9.1 The Company Co., Ltd. - The Company holds shares representing - Bangkok Concrete Industry Co., Ltd. 49.99 percent (whereby the Company sold was engaged to repair construction all such shares to other company on equipment in the amount of Operation of business of manufacture, sale of piles and December 25, 2007). Baht 5 Million. pile driving service - Mahasiri Siam Co., Ltd., as a major shareholder in the Company, holds shares representing 38.75 percent (whereby Mahasiri Siam Co. Ltd. sold all such shares to 9.2 The Company other company on December 25, 2007). - The Company rendered transportation - Two directors of the Company, namely, services and other services on a case Mr. Narong Sangsuriya and by case basis Mr. Ratn Santaannop, served as directors in Bangkok Concrete Industry Co., Ltd. and resigned from directorships in Bangkok Concrete Industry Co., Ltd. since March 18, 2008. 9.3 The Company extended a loan for management in the amount of Baht 120 Million. - Principal at the end of the period - Interest income at the end of the period

64

CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

Necessity/Justification

4,467,820 - The price is close to market price, representing an ordinary course of business. - The Company has a policy to purchase products from companies in the group, provided that the quoted prices are competitive. - This transaction provides a credit term of 30-45 days. Trade accounts payable, which were accrued for a long period, were paid by the year 2008.

- The price is close to market price, representing an ordinary course of business. 1,181,141 Trade accounts receivable were accrued for a long period due to the economic crisis during the years of 1997-2000, and a portion of revenue must be used for repayment of loans from banks. Bangkok Concrete Industry Co., Ltd. expected that the revenue would be gradually increased and it could make periodic repayment to the Company by the year 2008. - This transaction provides a credit term of 30-45 days.

- This is considered a provision of financial support to the subsidiary, whereby the Company extended the loan at the interest rate close to market rate, namely, 6.25 - 7.25 percent per annum. 111,416,742 8,086,047

Annual Report 2007

65


Company Name/ Relationship Nature of Transaction Interested Party 10. Bang Pa-in Land Development - This is a related company. 10.1 The Company Co., Ltd. - CK. Office Tower Co., Ltd., as a major - Revenue from transportation services shareholder in the Company, holds shares and other services, such as, lease of Operation of Bang Pa-in representing 25 percent. water tank trailers, shovels, backhoe. Industrial Estate - Mahasiri Siam Co., Ltd., as a major shareholder in the Company, holds shares representing 25 percent. 10.2 Phrompratharn Construction Limited Partnership - Phrompratharn Construction Limited Partnership was engaged to carry out construction of the tap water production system in Bang Pa-in Industrial Estate, with a project value of Baht 398,582,302, in the year 2007.

66

CH.KARNCHANG PUBLIC COMPANY LIMITED


Transaction Value in 2007

3,367,929

Necessity/Justification - The rate is close to market rate, representing an ordinary course of business - This transaction provides a credit term of 30-45 days.

- 68,455,251 -

Annual Report 2007

This is an ordinary course business. This project is of a nature in which the Company has experience and could be completed within the scheduled period. The Company has earned a return at a rate not lower than the rate of return generally received in other projects. This transaction provides a credit term of 30-45 days.

67


2.

The Opinion of Company Directors and the Audit Committee

4 .

Policy or Trend of Future Connected Transactions

• The Company’s contracts with its related companies to carry out construction on a subcontract basis are undertaken at reasonable prices, whereby the costs of relevant projects under such contracts were reviewed and deemed appropriate by the Company’s engineers and based on an ordinary course of business. • Project management fees are derived from transactions where the Company arranged for personnel to various related companies and joint ventures for the purpose of project management, whereby the Company entered into contracts for management fees with those related companies and joint ventures, and such management fees covered salaries, bonuses, benefits and other management expenses. • Service fees are derived from transactions where the Company leased out to joint ventures and subsidiaries equipment and machinery at the rental rates close to market rates, representing an ordinary course of business. • Costs of goods are derived from transactions where the Company traded goods with related companies at the price close to market price, representing an ordinary course of business. • Accounts receivable in the form of intercompany loans bear interest at an appropriate rate and subject to an ordinary course of business. Connected transactions have been submitted to the meeting of the Board of Directors or the Executive Board, for consideration in respect of their suitability. 3. Measures or Procedures for Approval of Connected Transactions The Company has complied with the relevant rules, regulations and requirements of the Securities and Exchange Commission. As for any transactions that might give rise to conflict of interest and require approval of the Board of Directors and of the Audit Committee, the Company has already complied with such rules, regulations or requirements, whereby the grant of approval for the said connected transactions shall take into account the optimum benefits to the Company, fairness and justifications of the transactions as well as based on market prices in the ordinary course of business. In addition, the interested parties or those who might have conflict of interest in such connected transactions shall not be allowed to participate in the consideration and approval of the connected transactions so as to ensure the fairness and the optimum benefits to the Company. As for any connected transactions falling under the criteria as specified in the regulations, notifications, orders, requirements or rules of the Stock Exchange of Thailand, the Company has complied with the applicable requirements of the Stock Exchange of Thailand. The Company shall comply with the relevant rules, regulations and requirements of the Securities and Exchange Commission. As for any transactions that might give rise to conflict of interest and require approval of the Board of Directors and of the Audit Committee, the Company has already complied with such rules, regulations or requirements, whereby the grant of approval for the said connected transactions shall take into account the optimum benefits to the Company, fairness and justifications of the transactions as well as based on market prices in the ordinary course of business. 68

CH.KARNCHANG PUBLIC COMPANY LIMITED


In addition, the interested parties or those who might have conflict of interest in such connected transactions shall not be allowed to participate in the consideration and approval of the connected transactions so as to ensure the fairness and the optimum benefits to the Company. As for any connected transactions falling under the criteria as specified by the regulations, notifications, orders, requirements or rules of the Stock Exchange of Thailand, the Company shall comply with the applicable requirements of the Stock Exchange of Thailand. Furthermore, the Company’s related businesses have the shareholding structures as follows: (1) Such businesses with shareholding structure in which the Company and its major shareholders jointly hold shares include Bangkok Metro Public Company Limited, etc. The shareholding structure is based on general investment pattern by which the major shareholders may jointly invest with the Company in those businesses in which the Company’s investment might be limited by, among others, the Company’s cash flow, investment policy, etc. The fact that the Company’s major shareholders also hold shares in those businesses would render the Company to be in an advantageous position in regard to the controlling power so as to ensure that the operation of these businesses would be consistent. (2) Such businesses with shareholding structure in which the Company holds shares include Bangkok Expressway Public Company Limited, Thai Tap Water Supply Public Company., SouthEast Asia Energy Limited., etc. (3) Such businesses with shareholding structure in which the Company’s major shareholders hold shares include CK. Office Tower Co., Ltd., Mahasiri Co., Ltd., Expert Transport Co., Ltd., Silasaicrete Limited Partnership, etc. The policy on consideration and approval of connected transactions with related businesses shall comply with the procedures that require consideration by the Board of Directors and of the Audit Committee while those who have interest or might have conflict of interest in connected transactions shall not be allowed to participate in the approval of such connected transactions. The criteria by which the Board of Directors and the Audit Committee use as guidelines in the consideration is that related businesses are required to propose competitive products or services in terms of price and quality. On the contrary, should the Company be to render services to any related businesses, the Company is required to propose price and quality in line with standards or market price without giving any favorable benefit to the related businesses, which may result in transfer of benefits to those who might have conflict of interest with the Company. Future connected transactions in the form of loans tend to be loans among the Company, subsidiaries and joint ventures for the purpose of financial support in business operation so as to help each other, which will be deemed as ordinary course of business. Consideration and approval for such transactions will be mainly based on the optimum benefits of the Company. However, for the loans between the Company, subsidiaries or joint ventures, and related companies in which the Company’s major shareholders, directors or executives hold shares, the Company group has no policy to extend any intercompany loans in the future. However, in the past, the advantage of connected transactions with related businesses is that it gives rise to flexibility in work performance and results in timely delivery of work, which constitute factors material to construction business and continuously support the Company’s operations. As for any future connected transactions, the Company group will strictly comply will the regulations of the Office of the Securities and Exchange Commission and the Stock Exchange of Thailand. Annual Report 2007

69


Audit Committee's Report The Audit Committee of CH. Karnchang Public Company Limited has performed and is responsible for its duties assigned by the Company’s Board of Directors, in accordance with the regulations and guidelines for the best practices of audit committees as set out by the Stock Exchange of Thailand. The Audit Committee has completed performance of the assigned duties with main activities as follows: In the year 2007, the Audit Committee held eight meetings for consideration and approval of the quarterly financial statements and the 2007 annual financial statements of the Company before submission to the Stock Exchange of Thailand and the Company’s Board of Directors for consideration, taking into consideration the clarifications of the management which were sufficiently clear to enable the Audit Committee to form an opinion that the said financial statements are fairly accurate in all material respects and comply with generally accepted accounting standards. Reference is made to the observation that appears on the certified public accountant’s report and in Notes to Financial Statements regarding the Supreme Court’s judgment reversing the Civil Court’s judgment which enforced the arbitral award requiring the Employer to make payments to Joint Venture BBCD. The Joint Venture then recorded provision for doubtful debt for accounts receivable – claim for increased costs in the entire amount as expenses in the income statements for the year 2006, in the amount of approximately Baht 2,500 Million based on the group’s participation in the Joint Venture. Subsequently, after the Company’s management had thoroughly reviewed the said judgment by the Supreme Court, it then filed a lawsuit against the Employer with the Civil Court on February 11, 2008 to claim for costs paid by Joint Venture BBCD against the Employer on grounds of undue enrichment, in the total amount, inclusive of interest calculated until the date of the plaint, of approximately Baht 3,400 Million (based on the group’s participation in such Joint Venture). The case is now pending the service of the summons and the plaint upon the Employer. In addition, the Audit Committee has also considered results of review of the overall internal control system of the Company and is of the view that the Company’s overall internal control system is satisfactory without any material fault, and complies with the relevant regulations and laws. Moreover, the Audit Committee has reviewed the execution of the connected transactions and disclosure in the year 2007 and is of the view that such execution of the connected transactions is reasonable and for the optimum benefit to the Company. The Audit Committee has proposed that the Board of Directors consider appointing Ernst & Young Office Limited as the Company’s auditor for the year 2008, continually as the ninth year, for submission to the Ordinary General Meeting of Shareholders for further approval.

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CH.KARNCHANG PUBLIC COMPANY LIMITED


Financial Position and Operational Results 1.

Overview of Past Operations

2.

Operational Results

The operational results of CH. Karnchang Public Company Limited, its subsidiaries and joint ventures in the year 2007 showed a net profit in the consolidated financial statements amounting to Baht 14.54 Million, representing an increase of 101.20 percent as compared to the loss of Baht 1,212.84 Million in the year 2006. In the year 2007 the Company group’s revenue from construction amounted to Baht 13,440.44 Million, representing a decrease as compared to Baht 18,918.73 Million of the year 2006, or representing a decrease in the total revenue by 28.96 percent. This was mainly due to the fact that in the year 2007, many construction projects delivered the works, particularly the Bang Pli - Suksawad Expressway Project as completed and delivered in October, while new projects were under preparations, the Company therefore could not recognize much revenue from these new projects. Moreover, in the year 2006, the Company recorded a provision for doubtful debt for accounts receivable - claim for increased costs for the Bang Na - Bang Pli - Bang Pakong Expressway Project. In terms of profitability, the Company group’s gross profit ratio from construction, sales of construction materials and services, as compared to the costs of construction, sales of construction materials and services, amounted to Baht 1,127.02 Million, representing a decrease as compared to the gross profit of Baht 1,822.17 Million in the year 2006, or representing a gross margin of 8.31 percent, which decreased from the year 2006 in which the net profit rate amounted to 9.49 percent. This was due to the fact that in the year 2007, all projects were affected by an increase in prices of construction materials, particularly metal and diesel oil, and that the Expressway and Rapid Transit Authority of Thailand, as the employer, reduced the value of construction of certain parts of the Bang Pli - Suksawad Expressway Project. In addition, the construction period was extended due to the employer’s delay in the site delivery in respect of which the employer did not take responsibility for increased labor costs, and as a result, the Company needed to pay for labor costs for the project. In regard to the Company’s net profit in the year 2007 as compared to the year 2006, exclusive of provision for doubtful debts, reversal of accrued interest receivable and revenue from reversal of accrued interest payable for the Bang Na - Bang Pli - Bang Pakong Expressway Project, in the year 2006, the Company would have a net profit of Baht 873.30 Million instead of net loss, while in the year 2007, the Company derived a net profit of Baht 14.55 Million. In this regard, the Company’s net profit decreased since all projects were affected by an increase in prices of construction materials and oil. Furthermore, the Company also employed additional staff for overseas projects and had its longtime machinery repaired and prepared for several projects of the Company group.

Revenue

Total revenue comprises: Primary revenues comprise revenue from construction, sales of construction materials, and project management. In the year 2007, CH. Karnchang Public Company Limited, its subsidiaries and joint ventures derived such primary revenues in the amount of Baht 13,564.60 Million, which decreased from Baht 19,207.63 Million in the year 2006, resulting from the fact that most of such projects signed during the years 2004-2005 delivered the works in the year 2006, e.g., the fuel pipeline installation project in the Suvarnabhumi Airport, the fuel tank construction project in the Suvarnabhumi Airport, the project for construction of the Stock Exchange of Thailand Building at North Park, etc. The final stage of the Bang Pli - Suksawad Expressway Project, which is a largesized project, was completed and delivered to the Expressway and Rapid Transit Authority of Thailand in October 2007. Most of the new projects are under preparations for construction, therefore, the Company has not yet recognized much revenue from such projects. Additionally, most of such new projects were also signed in the name of the Company, and as such, revenue from sales of construction materials and revenue from project management to be derived by the Company decrease accordingly. Other revenues comprise rental receivable, interest income, revenue from dividend, gain on sales of property, plant and equipment, gain on exchange rate, gain on sales of short-term investments, revenue from reversal of accrued interest payable, miscellaneous and other income. In the year 2007, the Company had other income in the consolidated financial statements totaling Annual Report 2007

71


Baht 1,353.48 Million, which decreased from Baht 2,397.66 Million in the year 2006. Such decrease was mainly due to the fact that in the year 2006, the Company derived gain on sales of short-term investments for ordinary shares in Thai Tap Water Supply Public Company Limited in the amount of Baht 1,256.29 Million. Moreover, the Company was also required to record revenue from reversal of accrued interest payable of Joint Venture BBCD. However, in the year 2007, the Company had gain on sales of investments in Pathum Thai Water Co., Ltd. to Thai Tap Water Supply Public Company Limited in the amount of Baht 631.52 Million, the transaction value of which was less than gain on sales of shares in Thai Tap Water Supply Public Company Limited. Costs of Construction, Sales of Construction Materials and Services The Company’s costs of construction, sales of construction materials and services in the year 2007 amounted to Baht 12,437.57 Million, whereby the ratio of costs to revenue from construction, sales of construction materials and project management of the Company in the year 2007 was 83.37 percent, representing an increase from 80.47 percent in the year 2006. This was due to the fact that most of the costs of construction, sales of construction materials and services in the year 2007 were the project costs of the Bang Pli - Suksawad Expressway Project, in respect of which the employer did not take responsibility for increased labor costs, and as a result, the Company needed to pay for labor costs for the project. Moreover, all projects were affected by an increase in prices of oil and construction materials. In the year 2007, the Company derived gross profit from construction, sales of construction materials and services as compared to costs of construction, sales of construction materials and services, amounting to Baht 1,127.02 Million, representing a decrease as compared to Baht 1,882.17 Million in the year 2006, due to the reasons as described above under the overview of profitability. Selling and Administrative Expenses In the year 2007, the Company’s selling and administrative expenses amounted to Baht 1,088.98 Million, representing 7.30 percent of total revenue, which increased from Baht 1,232.43 Million or representing 5.70 percent of total revenue in the year 2006. This was due to the fact that the Company employed additional staff for overseas projects and had its longtime machinery repaired and prepared for various projects of the Company group. Loss Sharing from Investments under the Equity Method In the year 2007, the Company’s loss sharing from investments under the equity method amounted to Baht 237.90 Million, which decreased from that of the year 2006 in which the loss sharing from investments in associated companies amounted to Baht 292.83 Million, due to the internal restructuring of Pathum Thani Water Co., Ltd. which increased its operating expenses, thereby resulting in an operating loss of Baht 83.48 Million. Moreover, according to the accounting standards, in case of SouthEast Asia Energy Limited which has its offices in Thailand and the Lao PDR, the selling and administrative expenses in respect of executives in Thailand could not be treated as project costs. SouthEast Asia Energy Limited thus sustained an operating loss in the amount of Baht 182.14 Million. Besides, Bangkok Metro Public Company Limited also had an operating loss of Baht 356.57 Million in the year 2007 which decreased from Baht 404.31 Million in the year 2006. Interest Expenses In the year 2007, the interest expenses amounted to Baht 939.89 Million or representing 6.30 percent of total revenue as compared to Baht 980.55 Million or representing 4.54 percent of total revenue in the year 2006. The interest expenses as compared to total revenue increased due to the fact that the Company had an increased interest expense from the issuance of debentures. Corporate Income Tax In the year 2007, the Company had corporate income tax of Baht 50.28 Million, which decreased from Baht 387.91 Million 72

CH.KARNCHANG PUBLIC COMPANY LIMITED


in the year 2006, mainly due to the fact that in the year 2006, the Company derived gain on sales of short-term investments for ordinary shares in Thai Tap Water Supply Public Company Limited. Net Profit (Loss) In the year 2007, the Company had a net profit amounting to Baht 14.54 Million, as compared to the year 2006 in which the Company had an operating loss of Baht 1,212.84 Million, or representing an increase of 101.20 percent, mainly due to the reasons as described above in the overview.

3.

Financial Position

Assets In the year 2007, the total assets amounted to Baht 24,475.77 Million, which decreased from Baht 30,289.12 Million at the end of the year 2006, representing a decrease by Baht 5,813.35 Million or 19.19 percent, mainly due to the following: - Cash and cash equivalents in the year 2007 amounted to Baht 3,001.62 Million, which decreased by Baht 142.58 Million or 4.53 percent, as compared to that of the end of the year 2006 in which cash and cash equivalents amounted to Baht 3,144.20 Million, as a result of the construction completion and delivery of the Bang Pli - Suksawad Expressway Project, together with transfer of the loan obligations in respect of the project to the employer, i.e., the Expressway and Rapid Transit Authority of Thailand, in October 2007, to repay the loan repayment instead of the Company, as well as the progress of the Company’s various projects and the Company’s repayment of the loans for the said projects. - Trade accounts receivable for related and non-related businesses in the year 2007 amounted to Baht 1,777.94 Million, which decreased from Baht 6,558.04 Million at the end of the year 2006 by Baht 4,780.10 Million or 72.89 percent, since most of the projects were signed in the Company’s own name, thereby resulting in a decrease in trade accounts receivable for related businesses. However, trade accounts receivable for non-related businesses also decreased due to the Company’s construction progress, particularly, the Bang Pli - Suksawad (Bang Pli - Bang Khun Thien) Expressway Project of the Expressway and Rapid Transit Authority of Thailand. The employer would accept the delivery of the work for the whole project upon expiration of the construction contract, and the Company already delivered such project in October 2007. - Construction in progress in the year 2007 amounted to Baht 2,898.42 Million, which increased from Baht 2,887.49 Million at the end of the year 2006 by Baht 10.93 Million or 0.38 percent, as a result of the Company’s construction progress of the Nam Ngum 2 Dam Construction Project in the Lao PDR, Pathum Thani Expansion Project, Ground Improvement for the 1st Midfield Satellite Aprons and the 3rd Runway Project of New Bangkok International Airport Company Limited, and the B, C, D and E Energy Saving Buildings Construction Project for Energy Complex Co., Ltd., etc. - Loans to subcontractors in the year 2007 amounted to Baht 221.90 Million, which decreased from Baht 601.79 Million at the end of the year 2006 by Baht 379.88 Million or 63.13 percent, and which were lent by CKAE Consortium to subcontractors, comprising Modern Construction Material Company Limited and Best Plan Technology Company Limited, and the subcontractors repaid the loans to the Consortium. - Refundable net input tax in the year 2007 amounted to Baht 131.96 Million, which decreased from Baht 867.50 Million at the end of the year 2006 by Baht 735.55 Million or 84.79 percent, due to the progress of construction of the Bang Pli Suksawad (Bang Pli - Bang Khun Thien) Expressway Project of the Expressway and Rapid Transit Authority of Thailand. Even though the construction of certain parts of such project were carried out and delivered by subcontractor to the Company, the employer would accept the delivery of the work for the whole project upon expiration of the construction contract, at which time, the output tax of such project would be incurred on the date of work acceptance by the employer. In this regard, the Company delivered the work for such project to the employer in October 2007, thereby resulting in a decrease in the refundable net input tax. Annual Report 2007

73


- - - -

Long-term loan to associated companies and accrued interest receivable in the year 2007 amounted to Baht 1,144.85 Million, which decreased from Baht 1,811.41 Million in the year 2006 by Baht 666.56 Million or 36.80 percent, owing to Pathum Thani Water Co., Ltd.’s repayment of the long-term loan in full under the Sponsors Loan Agreement to the Company. Investments in related companies and other companies in the year 2007 amounted to Baht 2,918.22 Million, which decreased from Baht 2,967.35 Million at the end of the year 2006 by Baht 49.13 Million or 1.66 percent, due to the fact that the closing price of ordinary shares in Bangkok Expressway Public Company Limited as at December 31, 2007 was lower than the closing price as at the end of the year 2006. Long-term trade accounts receivable - related businesses in the year 2007 amounted to Baht 313.61 Million as compared to Baht 292.78 Million at the end of the year 2006. This represented trade accounts receivable for construction between the Company and Metro Mall Development Limited, a subsidiary of Bangkok Metro Public Company Limited, which was granted a relaxation for payment of construction costs, namely, such company would make payment of such construction costs in full within four years. In addition, the Company charged interest on such trade accounts receivable. Net property, plant and equipment in the year 2007 amounted to Baht 2,393.47 Million, which increased from Baht 1,596.42 Million at the end of the year 2006 by Baht 797.05 Million or 49.93 percent, resulting from the fact that the Company purchased a condominium for use as its office and purchased additional heavy tools and equipment, particularly for the Nam Ngum 2 Dam Construction Project in the Lao PDR.

Liabilities and Shareholders’ Equity

Total liabilities in the year 2007 amounted to Baht 18,784.69 Million, which decreased from Baht 25,487.03 Million at the end of the year 2006 by Baht 6,702.34 Million or 26.29 percent, mainly resulting from the fact that in the Bang Pli - Suksawad (Bang Pli - Bang Khun Thien) Expressway Project of the Expressway and Rapid Transit Authority of Thailand, payments for the work would be made by the lending banks instead of the employer, and the employer would accept the transfer of obligations from the banks on the date of acceptance of delivery of the whole project. Such project was delivered and the project obligations owed to the banks were transferred to the Expressway and Rapid Transit Authority of Thailand, as the employer, in accordance with the conditions of the construction contract of the project. Moreover, the Company’s project construction progressed and generated proceeds from construction for the Company to repay the loan for the project. The shareholders’ equity in the year 2007 amounted to Baht 5,691.09 Million, which increased from Baht 4,802.10 Million at the end of the year 2006 by Baht 888.99 Million or 18.51 percent, mainly due to the fact that the Company received advance payment of shares from the issuance of warrants due for final exercise on March 30, 2007. In addition, the shareholders passed a resolution for the Company to transfer the legal reserve and the share premium against the accumulated loss. Moreover, the Company group’s operational results in the year 2007 showed a net profit.

Liquidity

In respect of liquidity of CH. Karnchang Public Company Limited, its subsidiaries and joint ventures in the year 2007, the net cash flow decreased, namely, cash and cash equivalents at the end of the period amounted to Baht 2,682.32 Million, representing a decrease as compared to Baht 2,933.26 Million in the year 2006, due to the fact that in the Bang Pli - Suksawad (Bang Pli - Bang Khun Thien) Expressway Project of the Expressway and Rapid Transit Authority of Thailand, payments for the work would be made by the lending banks instead of the employer, and the employer would accept the transfer of obligations from the banks on the date of acceptance of delivery of the whole project. Such project was delivered and the project obligations owed to the banks were transferred to the Expressway and Rapid Transit Authority of Thailand, as the employer, in accordance with the conditions of the construction contract of the project in October 2007. Moreover, the Company’s project construction progressed and generated proceeds from construction for the Company to repay the loan for the project. In the year 2007, the Company’s cash flows used in financing activities amounted to Baht 74

CH.KARNCHANG PUBLIC COMPANY LIMITED


3,501.08 Million, thereby resulting in an improved quick liquidity ratio of the Company from 0.17 in the year 2006 to 0.25 in the year 2007. As a whole, the financial position of CH. Karnchang Public Company Limited, its subsidiaries and joint ventures for the year 2007 improved from the year 2006. The current ratio in the year 2007 was 0.95 times which slightly decreased from 0.97 times in the year 2006. However, the quick liquidity ratio in the year 2007 improved as mentioned in liquidity, and the total liabilities to equity ratio in the year 2007 equaled 3.30 times, which improved from 5.31 times in the year 2006. The Company’s revenue collectibility in the year 2007 equaled 111 days which was faster than 113 days in the year 2006. However, the management of the net liabilities to equity ratio under the specified conditions of the debentures improved. In the year 2007, the net liabilities to equity ratio was 1.47 times which improved from the year 2006 in which the net liabilities to equity ratio equaled 1.85 times. The net liabilities in respect of liabilities bearing interest comprised bank overdraft loans, accounts payable under hire-purchase contracts due within one year, long-term loans due within one year, debentures due within one year, accounts payable and loans with interest from related businesses, accounts payable under hire-purchase contracts-net of those due within one year, long-term loans-net of those due within one year, debentures-net of those due within one year, less cash and cash equivalents, committed cash at bank, short-term investments and trade accounts receivable in respect of government organizations or state enterprises under construction agreements with interest, whereby such trade accounts receivable already issued letters of acceptance of works, i.e., trade accounts receivable for the Bang Pli - Suksawad (Bang Pli - Bang Khun Thien) Expressway Project of the Expressway and Rapid Transit Authority of Thailand. In the year 2007, the Company delivered the work for the Bang Pli - Suksawad (Bang Pli - Bang Khun Thien) Expressway Project of the Expressway and Rapid Transit Authority of Thailand, in respect of which payments for the work would be made by the lending banks instead of the employer, and the employer would accept the transfer of obligations from the banks on the date of acceptance of delivery of the whole project. Such project was delivered and the project obligations owed to the banks were transferred to the Expressway and Rapid Transit Authority of Thailand, as the employer, in accordance with the conditions of the construction contract of the project. Furthermore, in the year 2007, the Company had cash received from issuance of warrants due for exercise in the amount of Baht 877.05 Million which would result in an increase in cash and shareholders’ equity. Sources of Funds Short-Term Loans In the year 2007, CH. Karnchang Public Company Limited, its subsidiaries and joint ventures had bank overdrafts and short-term loans from financial institutions amounting to Baht 2,664.68 Million, which decreased from Baht 3,822.85 Million at the end of the year 2006. The total short-term liabilities in the year 2007 amounted to Baht 12,101.79 Million, which decreased from Baht 18,807.62 Million at the end of the year 2006 by Baht 6,705.83 Million or 35.65 percent. This was due to the Company’s delivery of the work for the Bang Pli - Suksawad (Bang Pli - Bang Khun Thien) Expressway Project of the Expressway and Rapid Transit Authority of Thailand, in respect of which payments for the work would be made by the lending banks instead of the employer, and the employer would accept the transfer of obligations from the banks on the date of acceptance of delivery of the whole project. Such project was delivered and the project obligations owed to the banks were transferred to the Expressway and Rapid Transit Authority of Thailand, as the employer, in accordance with the conditions of the construction contract of the project. Moreover, most of other projects progressed in construction and generated proceeds from the delivery of works for the Company to repay the loans for the projects. Long-Term Loans In the year 2007, CH. Karnchang Public Company Limited, its subsidiaries and joint ventures had bank overdrafts and long-term loans from financial institutions amounting to Baht 6,682.89 Million, which increased from Baht 6,679.40 Million at the end of the year 2006 by Baht 3.49 Million, due to the fact that the Company issued additional debentures and increased its investments in machinery for construction of the Nam Ngum 2 Dam Project by way of execution of hire-purchase contracts. Annual Report 2007

75


Attachment

Details of the Company’s Directors, Executives and Authorized Persons Details of the Company’s Directors, Executives and Authorized Persons are as follows:

Name-Surname/Position

Age (Years)

1. Mr. Aswin Kongsiri Chairman 2. Mr. Plew Trivisvavet Director Chairman of the Executive Board Nomination Committee Member Remuneration Committee Member Corporate Governance and Risk Management Committee Member Authorized Signatory Director 3. Mr. Vitoon Tejatussanasoontorn Director Audit Committee Chairman Nomination Committee Chairman Remuneration Committee Chairman Corporate Governance and Risk Management Committee Chairman 4. Mr. Don Pramudwinai Director Audit Committee Member

62 62 67 57

76

Education

Proportion of Family Shareholding (%) Relationship Among Executives

- B.A. (Hons.) in Philosophy, Politics and Economics, Oxford University, England - Chairman 2000 Course (class 5/2001) Thai Institute of Directors Association - Director Certification Program (DCP 11/2001) Thai Institute of Directors Association - M.Sc. (Electrical Engineering), Osaka University, Japan - B.A. (Electrical Engineering), Osaka University, Japan - Director Certification Program (DCP 50/2004) Thai Institute of Directors Association - Finance for Non-Finance Director (FND) course 2004 Thai Institute of Directors Association - Capital Market Academy Leadership Program, Capital Market Academy (CMA Course), Class 4/2007 - B.A. in Commerce, Thammasat University - Director Certification Program (DCP 2/2000) Thai Institute of Directors Association - IOD Chartered Director, Thai Institute of Directors Association (class 1/2007) - M.A. (International Relations), Tufts University, U.S.A. - M.A. (International Relations), University of California, Los Angeles, U.S.A. - M.A. (Political Science) (Hons.) University of California, Los Angeles, U.S.A.

- 1.44

- None - Mrs. Saikasem’s husband

0.03 0.01

- None - - None -

CH.KARNCHANG PUBLIC COMPANY LIMITED


Period

Experience in the Last Five Years Position

September 2007-Present 2005-Present 2005-Present 2003-Present 2001-Present 1999-Present 1994-Present 1993-Present 1981-Present 2006-2008 1999-2003 December 2007-Present 2006-Present 2004-Present February 2003-Present 1998-Present 1998-Present 1994-Present

Chairman Director and Executive Director Director and Risk Management Committee Chairman and Nomination Committee Chairman Director Director Director and Audit Committee Chairman Independent Director Director, Audit Committee Member and Nomination Committee Member Director and Audit Committee Member and Nomination and Remuneration Committee Member Member of the National Legislative Assembly Director and Executive Director Corporate Governance and Risk Management Committee Member Chairman Director Director Nomination Committee Member and Remuneration Committee Member Chairman of the Board of Directors and Chairman of the Executive Board Director and Chairman of the Executive Board President and Chief Executive Officer

December 2007-Present September 2007-Present 2005-Present 2002-Present 2001-Present 1999-Present 1991-Present 1986-Present February 2003-September 2007 2007-Present 1994-Present 2004-2007 2001-2004 1999-2000

Corporate Governance and Risk Management Committee Chairman Nomination Committee Chairman and Remuneration Committee Chairman Director, Audit Committee Member, Nomination Committee Member and Remuneration Committee Member Advisor of the Federation of Thai Industries of Samutprakarn Province Vice Chairman of Thai Chamber of Commerce of Samutprakarn Province Director and Audit Committee Chairman Deputy Senior Managing Director Director and Executive Director Nomination Committee Member and Remuneration Committee Member Ambassador Director and Audit Committee Member Ambassador Ambassador Director-General of the Department of Information

Annual Report 2007

Organization/Company/Business CH. Karnchang Public Company Limited Krung Thai Bank Public Company Limited Bangkok Aviation Fuel Services Public Company Limited Thai-German Ceramic Industry Public Company Limited Electricity Generating Public Company Limited The Oriental Hotel (Thailand) Public Company Limited CH. Karnchang Public Company Limited Thai Reinsurance Public Company Limited

Padaeng Industry Public Company Limited The National Legislative Assembly Siam Commercial Bank Public Company Limited CH. Karnchang Public Company Limited Thai Tap Water Supply Public Company limited BMCL Network Limited SouthEast Asia Energy Limited CH. Karnchang Public Company Limited Bangkok Metro Public Company Limited Bangkok Expressway Public Company Limited CH. Karnchang Public Company Limited

CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited Bangkok Metro Public Company Limited

CH. Karnchang Public Company Limited Thai Asahi Glass Public Company Limited Sakata-Thai Corporation Limited CH. Karnchang Public Company Limited In The United Nations, New York City CH. Karnchang Public Company Limited In Belgium In The People’s Republic of China Ministry of Foreign Affairs

77


Attachment

Details of the Company’s Directors, Executives and Authorized Persons Details of the Company’s Directors, Executives and Authorized Persons are as follows:

Name-Surname/Position

5. Mr. Thawansak Sukhawun Director Audit Committee Member Corporate Governance and Risk Management Committee Member 6. Mr. Pavich Tongroach Director 7. Mr. Narong Sangsuriya Director Executive Director Nomination Committee Member Remuneration Committee Member Authorized Signatory Director 8. Mrs. Saikasem Trivisvavet Director Executive Director Authorized Signatory Director

78

Age (Years) 70 61 63 62

Education

Proportion of Family Shareholding (%) Relationship Among Executives

- M.A. in Political Science with the Certificate in International Affairs, University of North Carolina at Chapel Hill, NC., U.S.A. - Bachelor of Arts Chulalongkorn University - Certificate of Modern Management, National่ Defence College (NDC) of Thailand - Director Certification Program (DCP 61/2005) Thai Institute of Directors Association - Doctor of Philosophy (Ph.D.) in Pharmacology, (The School of Pharmacy, The University of London, U.K.) - Post-doctoral Research at Faculty of Medicine, University of Tokyo (specialisation : neuronal signaling & learning model) - Master of Science (M.Sc.) in Neurobiology (Bedford & Chelsea Colleges, The University of London, U.K.) - Bachelor of Pharmacy Mahidol University - Director Accreditation Program (DAP) 2004 Thai Institute of Directors Association - Bachelor of Engineering (Civil), Chulalongkorn University - Director Certification Program (DCP 54/2005) Thai Institute of Directors Association - Bachelor of Arts, Chulalongkorn University - Director Certification Program (DCP 43/2004) Thai Institute of Directors Association

-

- None -

-

- None -

0.11 0.21

- None - Mr. Plew’s wife

CH.KARNCHANG PUBLIC COMPANY LIMITED


Period December 2007-Present 2000-Present 1989-1998

Experience in the Last Five Years Position Corporate Governance and Risk Management Committee Member Director and Audit Committee Member Director General Deputy Director General

Organization/Company/Business CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited Thai News Agency Mass Communication Organization of Thailand (M.C.O.T.)

Present Present Present Present Present 2005-2006 2005 2005-September 2006 2005-September 2006 June 2004-September 2006 June 2004-September 2006

President of the Council President President Emeritus President Advisory member, Senate’s Research and Development Committee President President Acting Chairman of the Administrative Board Chairman of Administrative Board Secretary General, Commission on Higher Education Member, Education Council

Nakorn Pathom Rajabhat University The Pharmacy Council Thai Neuroscience Society Mahasarakham University The National Legislative Assembly Nakorn Phanom University Princess of Narathiwat University National Institute of Academic Testing Service Office of Higher Education Financial Reform Ministry of Education

September 2007-Present 2004-Present 2001-Present 2000-Present 1994-Present 1994-2000 2001-Present 1994-Present 1994-2000

Nomination Committee Member and Remuneration Committee Member Director Director and Senior Executive Vice President: Operation Group Director Executive Director Director and Senior Executive Vice President: Construction Group Director and Executive Vice President: Purchasing Executive Director Director and Senior Vice President: Procurement

CH. Karnchang Public Company Limited SouthEast Asia Energy Limited CH. Karnchang Public Company Limited Thai Tap Water Supply Public Company Limited CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited

Annual Report 2007

79


Attachment

Details of the Company’s Directors, Executives and Authorized Persons Details of the Company’s Directors, Executives and Authorized Persons are as follows:

Name-Surname/Position

9. Mr. Ratn Santaannop Director Executive Director Authorized Signatory Director 10. Mr. Prasert Marittanaporn Director Executive Director Authorized Signatory Director 11. Mr. Sombat Kitjalaksana Director Authorized Signatory Director

80

Age (Years) 64 51 50

Education - Bachelor of Engineering (Civil), Chulalongkorn University - Director Certification Program (DCP 88/2007) Thai Institute of Directors Association - Master of Business Administration, Kasetsart University - Bachelor of Accounting Chulalongkorn University - Director Certification Program (DCP 54/2005) Thai Institute of Directors Association - PhD. of Engineering (Civil), University of Innsbruck, Austria - Master of Engineering (Civil), Chulalongkorn University - Bachelor of Engineering (Civil), Chulalongkorn University - Director Accreditation Program (DAP 36/2005) Thai Institute of Directors Association - Director Certification Program (DCP 81/2006) Thai Institute of Directors Association

Proportion of Family Shareholding (%) Relationship Among Executives - - 0.07

- None - - None - - None -

CH.KARNCHANG PUBLIC COMPANY LIMITED


Period

September 2007-Present 2007-Present 2006-Present 2001-Present 2007- March 2008 2005-September 2007 2005-2007 1994-2000 1984-1993 September 2007-Present 2007-Present 2006-Present 2001-Present 2004-Present 2000-Present 2005-September 2007 1994-2000 2006-Present 2005-Present 2004-Present 2001-Present 2000-Present 2005-September 2007 1994-2000

Annual Report 2007

Experience in the Last Five Years Position Executive Director Director Director Executive Vice President: Construction 1 Director Director Director First Senior Vice President: Project Construction Group Senior Vice President: Project Construction Group Executive Director Director Director Executive Vice President : Accounting and Finance Director Director Director Senior Vice President: Accounting and Finance Director Director, Executive Director and Managing Director Director Director Director Executive Vice President: Business Development Director Director Senior Vice President: International Business

Organization/Company/Business CH. Karnchang Public Company Limited BJT Water Co., Ltd. CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited Bangkok Concrete Industries Co., Ltd. Pathum Thani Water Co., Ltd. SouthEast Asia Energy Limited CH. Karnchang Public Company Limited Italian-Thai Development Public Company Limited CH. Karnchang Public Company Limited CH. Karnchang-Tokyu Construction Co., Ltd. CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited SouthEast Asia Energy Limited Thai Tap Water Supply Public Company Limited Pathum Thani Water Co., Ltd. CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited Bangkok Metro Public Company Limited Metro Mall Development Limited BMCL Network Limited Triads Networks Co., Ltd. CH. Karnchang Public Company Limited Thai Tap Water Supply Public Company Limited Pathum Thani Water Co., Ltd. CH. Karnchang Public Company Limited

81


Attachment

Details of the Company’s Directors, Executives and Authorized Persons Details of the Company’s Directors, Executives and Authorized Persons are as follows:

Name-Surname/Position

12. Mr. Anukool Tuntimas Director Executive Director Authorized Signatory Director 13. Mr. Viboon Mongkolpiyathana 14. Mr. Samai Paiboon

82

Age (Years)

Education

Proportion of Family Shareholding (%) Relationship Among Executives

40 57 63

- Doctor of Business Administration, University of South Australia - Master of Law Chulalongkorn University - Master of Business Administration Kasetsart University - Bachelor of Law Chulalongkorn University - Director Certification Program (DCP 43/2004) Thai Institute of Directors Association - Understanding of Fundamental of Financial Statements Thai Institute of Directors Association - Finance for Non - Finance Director Thai Institute of Directors Association - Audit Committee Program Class 20/2007 Thai Institute of Directors Association - Bachelor of Engineering (Civil), Songklanakarin University - Bachelor of Engineering (Civil), Chulalongkorn University

0.27

- None -

- 0.006

- None - - None -

CH.KARNCHANG PUBLIC COMPANY LIMITED


Period

Experience in the Last Five Years Position

Organization/Company/Business

Spetember 2007-Present May 2007-Present 2006-Present 2005-Present 2004-Present 2004-Present 2001-Present 2004-2006 1993-2000

Executive Director Director Director Managing Partner Director and Executive Director Director Director Director Executive Vice President: Human Resource and General Administration Director and Vice President, Academic Affairs First Vice President: Human Resource and Legal

CH. Karnchang Public Company Limited Rungpornchai Co., Ltd. CH. Karnchang Public Company Limited Sanga Equipment Ltd., Part. Bangkok Metro Public Company Limited Metro Mall Development Limited Triads Networks Co., Ltd. Fah-amorn Machinery Company Limited CH. Karnchang Public Company Limited Lawyers Association of Thailand CH. Karnchang Public Company Limited

2001-Present 1997-2000 1994-1996 2001-Present 1994-2000

Executive Vice President: Construction 2 Project Manager Engineering Manager Executive Vice President: Engineering Senior Vice President: Civil Engineering and Architecture

CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited CH. Karnchang-Tokyu Construction Co., Ltd. CH. Karnchang Public Company Limited CH. Karnchang Public Company Limited

Annual Report 2007

83


Financial Statement Report 07 Report of Independent Auditor Report and Consolidated Financial Statements Notes to Consolidated Financial Statements

84

CH.KARNCHANG PUBLIC COMPANY LIMITED


Report of Independent Auditor

To the Shareholders of CH. Karnchang Public Company Limited

I have audited the accompanying consolidated balance sheets of CH. Karnchang Public Company Limited, its subsidiaries and its jointly controlled entities as at 31 December 2007 and 2006, the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended, and the separate financial statements of CH. Karnchang Public Company Limited for the same periods. These financial statements are the responsibility of the management of the Company, its subsidiaries and its jointly controlled entities 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 CH. Karnchang Public Company Limited, its subsidiaries and its jointly controlled entities and of CH. Karnchang 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 financial statements, I draw attention to the followings: a) As discussed in Note 26 to the financial statements, in 2000 Joint Venture BBCD had claimed for payment of additional construction costs from the Expressway and Rapid Transit Authority of Thailand (the employer). The employer’s consulting engineer considered the joint venture’s claims and issued a letter confirming its acceptance of the additional costs. Subsequently, the Arbitral Tribunal issued its award, ruling that the employer was to pay the joint venture for such additional costs and accrued interest. Consequently, the joint venture recorded such amounts as assets and income in the financial statements of 2001. The Group’s proportionate interest in such amounts is approximately Baht 2,500 million. As a result of the delay in the payment, the joint venture filed a lawsuit against the employer with the Civil Court to enforce compliance with the arbitral award. On 30 December 2003, the court ruled in favor of the joint venture, ordering compliance with the arbitral award requiring the Expressway and Rapid Transit Authority of Thailand (the employer) to pay the joint venture in accordance with the arbitral award. Subsequently, in January 2004, the employer appealed the ruling to the Supreme Court of Thailand. On 15 February 2007 the Supreme Court handed down a judgment reversing that of the Civil Court enforcing the arbitral award requiring the employer to make payments to the Joint Venture BBCD. The joint venture therefore recorded allowance for doubtful accounts for the full amount of the account receivable recorded in respect of the claim for additional costs as an expense in the income statement of 2006, with the group’s proportionate interest in such allowance being approximately Baht 2,500 million. Subsequently, after the management of the Company carefully reviewed the details of the Supreme Court’s judgment, on 11 February 2008 a lawsuit was filed against the employer with the Civil Court, to recover costs paid by the Joint Venture BBCD from the employer, on the grounds of undue enrichment. Such costs and accrued interest calculated up to the date of filing of the lawsuit amounted to approximately Baht 3,400 million (per the group’s proportionate interest). Currently, a summons and the claim are in the process of being submitted to the employer. b) 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, jointly controlled entities and associates 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.

Ernst & Young Office Limited Bangkok: 29 February 2008 Annual Report 2007

Siraporn Ouaanunkun

Certified Public Accountant (Thailand) No. 3844

85


BALANCE SHEETS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities At 31 December 2007 And 2006 (Unit: Baht) Consolidated financial statements Separate financial statements Note 2007 2006 2007 2006

(Restated) ASSETS CURRENT ASSETS Cash and cash equivalents 2,682,318,568 2,933,261,986 1,174,064,530 2,160,964,901 Current investments 7, 15 319,300,076 210,935,090 319,300,076 210,935,090 Trade accounts receivable Related parties, net 6, 8 549,898,082 1,068,592,273 304,059,664 412,322,210 Unrelated parties, net 8 1,228,038,218 5,489,451,112 1,046,084,481 5,178,876,284 Accounts receivable and loans to related parties, net 6 329,218,824 458,294,651 736,616,968 3,472,656,319 Construction contracts in progress 9 2,898,424,408 2,887,491,937 2,818,126,867 2,735,224,339 Inventories and supplies for construction, net 10 627,829,607 309,032,294 168,636,920 224,138,805 Advance payment to subcontractors, net 1,048,342,271 1,361,401,287 233,413,325 406,211,664 Advance for construction of subsidiary’s project 5,481,102 10,190,805 5,481,102 10,190,805 Loans to subcontractors 12 221,903,456 601,785,153 - - Current portion of long-term loans to other companies 12 631,771,738 1,264,210,593 - - Other current assets Prepaid expenses 32,338,869 58,974,210 24,712,632 53,588,858 Accrued income 112,768,212 114,698,198 117,768,182 114,698,198 Interest receivable 212,704,462 347,125,642 - 600,075 Refundable input tax, net 131,956,078 867,502,808 79,821,667 794,691,926 Unbilled input tax 72,525,282 110,560,295 31,839,469 69,926,952 Withholding tax deducted at source 335,532,652 173,761,989 312,271,118 156,565,761 Others 17,212,250 57,899,714 5,233,989 45,632,150 TOTAL CURRENT ASSETS 11,457,564,155 18,325,170,037 7,377,430,990 16,047,224,337 NON-CURRENT ASSETS Restricted bank deposits 11 301,100,770 283,412,583 211,816,900 196,468,882 Long-term loans to jointly controlled entities and interest receivable 6 226,013,898 - 1,256,940,869 - Long-term loans to associated companies and interest receivable 6 1,144,847,301 1,811,410,502 1,144,847,301 1,811,410,502 Long-term loans to other companies, net of current portion 12 631,771,739 - - - Investments in subsidiaries, net 13 - - 266,476,501 266,476,501 Investments in jointly controlled entities 14 - - - 2,090,000 Investments in associated companies, net 15 4,549,027,861 4,674,348,485 6,747,300,603 5,980,450,705 Investments in related and other companies, net 16 2,918,223,737 2,967,351,294 2,689,581,719 2,734,888,820 Long-term accounts receivable - related party 6 313,611,611 292,775,016 313,611,611 292,775,016 Property, plant and equipment, net 17 2,393,464,626 1,596,415,626 1,543,424,517 779,687,288 Investments in land, net 18 281,888,858 281,888,858 140,511,922 140,511,922 Accounts receivable - claims for additional costs 26 - 2,515,620,262 - - Less: Allowance for doubtful accounts 26 - (2,515,620,262) - - Accounts receivable - claims for additional costs, net - - - - Other non-current assets Withholding tax deducted at source 172,658,070 20,419,240 156,565,761 - Deposits 26,159,539 25,468,264 20,348,300 21,914,315 Others 59,438,117 10,462,083 58,672,678 5,929,704 TOTAL NON-CURRENT ASSETS 13,018,206,127 11,963,951,951 14,550,098,682 12,232,603,655 TOTAL ASSETS 24,475,770,282 30,289,121,988 21,927,529,672 28,279,827,992 The accompanying notes are an integral part of the financial statements.

86

CH.KARNCHANG PUBLIC COMPANY LIMITED


BALANCE SHEETS (Continued) CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities At 31 December 2007 And 2006 (Unit: Baht) Consolidated financial statements Separate financial statements Note 2007 2006 2007 2006

(Restated)

LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bank overdrafts and short-term loans from financial institutions 19 2,664,677,389 3,822,851,994 1,051,364,559 3,189,358,774 Trade accounts payable Related parties 6 402,099,565 445,588,984 38,120,136 7,886,614 Unrelated parties 1,439,683,521 2,151,752,189 759,436,330 1,537,455,936 Current portion of hire purchase creditors 20 184,848,226 114,148,284 179,683,044 110,548,039 Current portion of long-term loans 21 655,736,824 3,897,043,604 200,000,000 3,482,215,904 Current portion of debentures 22 1,700,000,000 2,200,000,000 1,700,000,000 2,200,000,000 Accounts payable and loans from related parties 6 2,965,567,226 2,575,855,955 - - Advances received from employers and deferred construction revenue 6, 9 1,285,483,330 1,552,290,432 809,422,235 695,196,755 Retention for construction 6 199,046,702 550,656,558 106,654,277 485,266,951 Financing fee received in advance - 20,954,083 - 20,954,083 Other current liabilities Accrued interest 287,671,756 305,214,821 145,597,165 120,184,940 Corporate income tax payable 3,624,261 3,977,370 - - Accrued expenses 105,181,567 121,519,535 61,961,046 107,007,858 Unbilled output tax 151,241,561 985,864,486 137,291,675 969,897,920 Other payables 15,618,446 11,903,422 11,538,085 11,097,175 Others 41,313,038 48,002,035 21,129,973 37,284,751 TOTAL CURRENT LIABILITIES 12,101,793,412 18,807,623,752 5,222,198,525 12,974,355,700 NON-CURRENT LIABILITIES Hire purchase creditors, net of current portion 20 115,554,578 92,999,484 107,588,603 91,427,534 Long-term loans, net of current portion 21 250,000,000 450,000,000 250,000,000 450,000,000 Debentures, net of current portion 22 6,094,016,438 5,800,000,000 6,094,016,438 5,800,000,000 Provision for loss on doubtful accounts from subsidiaries and jointly controlled entities 223,320,946 223,320,946 - - Provision for loss on investments in jointly controlled entities 14 - - 4,082,589,509 4,213,827,183 Provision for loss on investments in associated company 15 - 113,082,902 - - TOTAL NON-CURRENT LIABILITIES 6,682,891,962 6,679,403,332 " 10,534,194,550 10,555,254,717 TOTAL LIABILITIES 18,784,685,374 25,487,027,084 15,756,393,075 23,529,610,417

The accompanying notes are an integral part of the financial statements. Annual Report 2007

87


BALANCE SHEETS (Continued) CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities At 31 December 2007 And 2006 (Unit: Baht) Consolidated financial statements Separate financial statements Note 2007 2006 2007 2006

(Restated)

SHAREHOLDERS’ EQUITY Share capital Registered 1,450,000,000 ordinary shares of Baht 1 each 1,450,000,000 1,450,000,000 1,450,000,000 1,450,000,000 Issued and paid up 1,446,012,169 ordinary shares of Baht 1 each

(2006: 1,247,191,570 ordinary shares of Baht 1 each) 23, 24 1,446,012,169 1,247,191,570 1,446,012,169 1,247,191,570 Share premium 25 3,972,882,594 3,965,010,495 3,972,882,594 3,965,010,495 Share subscription received in advance 24 - 17,646,525 - 17,646,525 Retained earnings Appropriated - statutory reserve 25 29,884,121 135,345,770 24,384,121 129,845,770 Unappropriated (Deficit) (87,931,244) (823,629,169) 390,997,686 (989,651,637) Unrealized gain on changes in value of investments 384,117,665 429,533,741 336,860,027 380,174,852 Difference on reorganization of business of group companies 15 (277,067,462) (386,251,713) - - EQUITY ATTRIBUTABLE TO THE COMPANY’S SHAREHOLDERS 5,467,897,843 4,584,847,219 6,171,136,597 4,750,217,575

MINORITY INTEREST - equity attributable to minority shareholders of subsidiaries TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

223,187,065 5,691,084,908 24,475,770,282

217,247,685 4,802,094,904 30,289,121,988

- 6,171,136,597 4,750,217,575 21,927,529,672 28,279,827,992

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

88

CH.KARNCHANG PUBLIC COMPANY LIMITED


INCOME STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht) Consolidated financial statements Separate financial statements Note 2007 2006 2007 2006

(Restated) REVENUES Revenues from construction services 13,440,434,502 18,918,727,915 7,075,788,789 14,060,905,073 Sales of construction materials 86,496,757 193,958,791 - - Project management income 37,663,461 94,939,115 99,586,761 209,289,751 Rental income 12,247,766 16,635,856 241,113,875 133,454,594 Transportation income 13,267,623 28,153,378 16,976,462 32,306,697 Other income Interest income 462,110,892 361,376,426 381,805,180 375,357,696 Dividends income and profit sharing from jointly controlled entities 6 125,430,365 163,644,319 235,545,210 289,343,130 Gain on sales of property, plant and equipment 21,287,950 16,073,325 18,891,277 740,717 Gain on exchange 27 - 36,350,587 - - Gain on sales of current investments 15 5,882,113 1,256,288,400 5,882,113 1,256,288,400 Gain on sales of investments in associated company 15 631,515,276 - 1,089,252,771 - Reversal of allowance for loss on diminution of investments in associated company and jointly controlled entity - - 118,889,997 - Revenue from reversal of accrued interest 6 - 442,839,502 - - Miscellaneous income 71,390,528 54,495,228 104,261,821 75,153,912 Others 10,349,977 21,803,203 - - TOTAL REVENUES 14,918,077,210 21,605,286,045 9,387,994,256 16,432,839,970 EXPENSES Cost of construction services, sales of construction materials and services 12,437,574,272 17,385,455,492 7,040,498,913 13,168,661,665 Selling and administrative expenses 1,088,981,134 1,232,428,998 805,297,133 931,725,756 Allowance for doubtful accounts for accounts receivable - claims for additional costs 26 - 2,515,620,262 - - Reversal of interest receivable 6 - 13,364,147 - 20,560,226 Allowance for investments in subsidiaries and jointly controlled entities - - 41,985,970 2,193,268,077 Share of loss from investments in associated companies 15 237,894,602 292,832,451 - - Loss on exchange 27 130,013,857 - 7,941,583 28,884,480 TOTAL EXPENSES 13,894,463,865 21,439,701,350 7,895,723,599 16,343,100,204

INCOME BEFORE INTEREST EXPENSES AND CORPORATE INCOME TAX 1,023,613,345 165,584,695 1,492,270,657 89,739,766 INTEREST EXPENSES (939,889,728) (980,552,510) (832,782,375) (802,895,268) CORPORATE INCOME TAX 29 (50,278,145) (387,914,436) - (351,660,441) INCOME (LOSS) AFTER CORPORATE INCOME TAX 33,445,472 (1,202,882,251) 659,488,282 (1,064,815,943) NET INCOME ATTRIBUTABLE TO MINORITY INTEREST (18,908,588) (9,961,743) - - NET INCOME (LOSS) FOR THE YEAR 14,536,884 (1,212,843,994) 659,488,282 (1,064,815,943) EARNINGS PER SHARE 30 BASIC EARNINGS PER SHARE Net income (loss) 0.01 (1.08) 0.47 (0.95) Weighted average number of ordinary shares (shares) 1,400,097,821 1,119,768,931 1,400,097,821 1,119,768,931 DILUTED EARNINGS PER SHARE Net income 0.01 - 0.44 - Weighted average number of ordinary shares (shares) 1,484,359,500 - 1,484,359,500 -

The accompanying notes are an integral part of the financial statements. Annual Report 2007 89


STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

Consolidated financial statements Issued and Share subscription paid-up received share capital Share premium in advance Balance as at 31 December 2005 1,081,159,320 2,545,057,620 35,164,800 Transfer share subscription received in advance to issued and paid up share capital (Note 24) 7,814,400 27,350,400 (35,164,800) Issuance of additional ordinary shares (Note 23) 134,000,000 1,307,840,000 - Increase in share capital from exercise of warrants (Note 24) 24,217,850 84,762,475 - Share subscription received in advance from exercise of warrants (Note 24) - - 17,646,525 Unrealized gain on changes in value of investments - - - Net loss for the year - - - Dividend payment (Note 33) - - - Difference on reorganization of business of group companies (Note 15) - - - Minority interest - equity attributable to minority shareholders of subsidiaries - - - Balance as at 31 December 2006 1,247,191,570 3,965,010,495 17,646,525

Balance as at 31 December 2006 1,247,191,570 3,965,010,495 17,646,525 Transfer share subscription received in advance to issued and paid up share capital (Note 24) 3,921,450 13,725,075 (17,646,525) Increase in share capital from exercise of warrants (Note 24) 194,899,149 682,147,024 - Transfer statutory reserve and share premium to offset deficit (Note 25) - (688,000,000) - Unrealized loss on changes in value of investments - - - Net income for the year - - - Appropriated to statutory reserve (Note 25) - - - Dividend payment (Note 33) - - - Difference on reorganization of business of group companies (Note 15) - - - Minority interest - equity attributable to minority shareholders of subsidiaries - - - Balance as at 31 December 2007 1,446,012,169 3,972,882,594 -

Separate financial statements 1,081,159,320 2,545,057,620 35,164,800 Balance as at 31 December 2005 - as previously reported Cumulative effect of the change in accounting policy for investments in subsidiaries, jointly controlled entities and associates (Note 4) - - -

Balance as at 31 December 2005 - as restated 1,081,159,320 Transfer share subscription received in advance to issued and paid up share capital (Note 24) 7,814,400 Issuance of additional ordinary shares (Note 23) 134,000,000 Increase in share capital from exercise of warrants (Note 24) 24,217,850 Share subscription received in advance from exercise of warrants (Note 24) - Unrealized gain on changes in value of investments (Restated) - Net loss for the year (Restated) - Dividend payment (Note 33) - Balance as at 31 December 2006 - as restated 1,247,191,570 Balance as at 31 December 2006 - as previously reported 1,247,191,570

Cumulative effect of the change in accounting policy for investments in - subsidiaries, jointly controlled entities and associates (Note 4) Balance as at 31 December 2006 - as restated 1,247,191,570 Transfer share subscription received in advance to issued and paid up share capital (Note 24) 3,921,450 Increase in share capital from exercise of warrants (Note 24) 194,899,149 Transfer statutory reserve and share premium to offset deficit (Note 25) - Unrealized loss on changes in value of investments - Net income for the year - Appropriated to statutory reserve (Note 25) - Dividend payment (Note 33)) - Balance as at 31 December 2007 1,446,012,169

The accompanying notes are an integral part of the financial statements. 90

2,545,057,620 27,350,400 1,307,840,000 84,762,475 - - - - 3,965,010,495

35,164,800 (35,164,800) - - 17,646,525 - - - 17,646,525

3,965,010,495

17,646,525

- - 3,965,010,495 17,646,525 13,725,075 (17,646,525) 682,147,024 - (688,000,000) - - - - - - - - - 3,972,882,594 -

CH.KARNCHANG PUBLIC COMPANY LIMITED


(Unit: Baht) Unrealized gain Difference on Minority interest - Retained earnings (loss) on changes reorganization equity attributable to Unappropriated in value of business of minority shareholders Appropriated (Deficit) of investments group companies of subsidiaries Total

135,345,770 778,631,325 85,823,198 - 267,771,091 4,928,953,124 - - - - - - - - - - - 1,441,840,000 - - - - - 108,980,325 - - - - - 17,646,525 - - 343,710,543 - - 343,710,543 - (1,212,843,994) - - - (1,212,843,994) - (389,416,500) - - - (389,416,500) - - - (386,251,713) - (386,251,713) - - - - (50,523,406) (50,523,406) 135,345,770 (823,629,169) 429,533,741 (386,251,713) 217,247,685 4,802,094,904 135,345,770 (823,629,169) 429,533,741 (386,251,713) 217,247,685 4,802,094,904 - - - - - - - - - - - 877,046,173 (129,845,770) 817,845,770 - - - - - - (45,416,076) - - (45,416,076) - 14,536,884 - - - 14,536,884 24,384,121 (24,384,121) - - - - - (72,300,608) - - - (72,300,608) - - - 109,184,251 - 109,184,251 - - - - 5,939,380 5,939,380 29,884,121 (87,931,244) 384,117,665 (277,067,462) 223,187,065 5,691,084,908

Total

129,845,770

784,131,325

85,823,198

- 129,845,770 - - - - - - - 129,845,770

(319,550,519) 464,580,806 - - - - - (1,064,815,943) (389,416,500) (989,651,637)

(34,124,821) 51,698,377 - - - - 328,476,475 - - 380,174,852

129,845,770

(818,129,169)

429,533,741

(386,251,713)

4,584,847,219

- 129,845,770 - - (129,845,770) - - 24,384,121 - 24,384,121

(171,522,468) (49,358,889) (989,651,637) 380,174,852 - - - - 817,845,770 - - (43,314,825) 659,488,282 - (24,384,121) - (72,300,608) - 390,997,686 336,860,027

386,251,713 - - - - - - - - -

165,370,356 4,750,217,575 - 877,046,173 - (43,314,825) 659,488,282 - (72,300,608) 6,171,136,597

Annual Report 2007

-

4,661,182,033

- (353,675,340) - 4,307,506,693 - - - 1,441,840,000 - 108,980,325 - 17,646,525 - 328,476,475 - (1,064,815,943) - (389,416,500) - 4,750,217,575

91


CASH FLOW STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006

Cash flows from operating activities

(Restated)

Net income (loss) for the year 14,536,884 (1,212,843,994) 659,488,282 (1,064,815,943) Adjustments to reconcile net income (loss) to net cash provided by (paid from) operating activities: Depreciation 413,406,731 268,273,778 225,133,569 168,555,961 Amortisation of prepaid expenses and other assets 2,858,029 1,135,365 838,461 - Withholding tax deducted at source written off 1,815 25,234,643 - 11,336,413 Dividends income and profit sharing from jointly controlled entities (125,430,365) (163,644,319) (235,545,210) (289,343,130) Gain on sales of current investments (5,943,010) (1,256,288,400) (5,943,011) (1,256,288,400) Gain on sales of investments in associated company (631,515,277) - (1,089,252,771) - Amortisation of deferred debenture issuing cost 1,016,438 - 1,016,438 - Allowance for doubtful accounts for accounts receivable - claims for additional costs - 2,515,620,262 - - Provision for doubtful debts 6,572,355 16,837,073 - 527,750 Reversal of interest receivable - 13,364,147 - 20,560,226 Revenue from reversal of accrued interest - (442,839,502) - - Gain on sales of property, plant and equipment (21,287,950) (16,073,325) (18,891,277) (740,717) Transfer cost of construction service to equipment (80,621,602) - (80,621,602) - Allowance for loss on diminution in value of finished goods 8,979,436 1,498,182 - - Unrealized loss (gain) on exchange 112,510,546 (50,035,408) (7,510,309) 17,942,982 Allowance for loss on investments in subsidiaries and jointly controlled entities - - 41,985,970 2,193,268,077 Reversal of allowance for loss on investments in associated company - - - (117,639,997) Reversal of allowance for loss on investments in jointly controlled entity - - (1,250,000) - Unrealized gain on changes in value of investments in marketable securities (429,700) (413,050) (429,700) (413,050) Loss from equipment written off 1,799,753 1,111,050 959,227 - Share of loss from investments in associated companies 237,894,602 292,832,451 - - Net income attributable to minority interest 18,908,585 9,961,745 - - Income (loss) from operating activities before changes in operating assets and liabilities (46,742,730) 3,730,698 (627,661,930) (199,409,831) Decrease (increase) in operating assets Trade accounts receivable 4,760,813,202 (1,452,802,965) 4,228,332,822 (575,674,565) Accounts receivable - related parties (1,493,144) 207,302,654 356,815,555 (155,516,835) Construction contracts in progress (10,932,470) (1,182,438,019) (82,902,528) (1,062,644,519) Inventories and supplies for construction (327,776,749) 145,957,361 55,501,885 (167,528,500) Advance payment to subcontractors 306,606,828 416,408,681 172,798,338 1,265,559,099 Advance for construction of subsidiary’s project 4,709,703 177,031,240 - 177,031,240 Withholding tax deducted at source (314,011,308) (113,455,352) (156,565,760) 35,053,136 Other current assets 1,124,178,520 (742,636,853) 813,804,207 (706,921,548) Other non-current assets (49,701,293) 23,107,072 (46,466,796) 14,976,888 Increase (decrease) in operating liabilities Trade accounts payable (710,939,372) 384,525,364 (777,260,788) (75,101,631) Accounts payable - related parties (277,614,055) (59,335,961) 29,718,946 (56,369,585) (266,807,102) (1,079,247,023) 114,225,480 (1,880,452,628) Advances received from employers and deferred construction revenue Retention for construction (351,040,151) 173,518,963 (378,612,674) 121,766,740 Financing fee and project management fee received in advance (20,954,083) (144,306,421) (20,954,083) (144,306,421) Other current liabilities (871,831,040) 327,639,397 (867,954,697) 329,394,067 Net cash flows from (used in) operating activities 2,946,464,756 (2,915,001,164) 2,812,817,977 (3,080,144,893) The accompanying notes are an integral part of the financial statements. CH.KARNCHANG PUBLIC COMPANY LIMITED 92


CASH FLOW STATEMENTS (Continued) CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006

(Restated)

Cash flows from investing activities Increase in restricted bank deposits (17,688,187) (228,827,615) (15,348,018) (157,223,915) Cash payment for purchase of current investments (499,939,103) (770,494,500) (500,000,000) (770,494,500) Cash received from sale of current investments 400,000,000 4,436,368,000 400,000,000 4,436,368,000 Decrease (increase) in loans to related parties (95,444,927) (20,044,970) 949,059,283 (632,932,707) Decrease in loans to associated companies 516,816,157 271,961,035 516,815,857 271,961,035 Decrease in loans to subcontractors 379,881,697 - - - Decrease in long-term loans to other companies 667,116 - - - Dividend received from subsidiary - - 13,750,000 5,500,000 Cash received from profit sharing from jointly controlled entities - - 30,916,015 7,500,000 Dividends received from associated and related companies 200,430,335 285,894,270 190,879,195 276,343,130 Purchase of investments in subsidiary and jointly controlled entities - - - (19,843,034) Cash received from sale of investments in subsidiary - 104,000,000 - 104,000,000 Cash received from sales of investments in associated company 1,892,905,460 353,700,000 1,892,905,460 353,700,000 Cash received from increase in share capital from minority interest - 7,750,225 - - Cash received from return of investments in jointly controlled entities - - 3,340,000 - Increase in investments in associated companies (1,452,923,484) (1,852,095,486) (1,452,863,050) (1,852,095,486) Increase in property, plant and equipment (1,057,820,535) (724,732,975) (844,035,643) (181,308,144) Increase in investments in land - (123,436,979) - (5,073,979) Proceeds from disposals of property, plant and equipment 40,729,640 27,139,602 38,176,110 7,664,962 Net cash flows from investing activities 307,614,169 1,767,180,607 1,223,595,209 1,844,065,362 Cash flows from financing activities Decrease in bank overdrafts and short-term loans from financial institutions (1,158,635,815) (1,686,582,319) (2,138,455,425) (1,634,141,775) Increase (decrease) in loans from related parties 512,362,804 84,914,136 - (185,024,098) Increase (decrease) in long-term loans (3,441,306,780) 981,562,394 (3,482,215,904) 994,424,894 Cash received from issuance of debentures 1,993,000,000 2,000,000,000 1,993,000,000 2,000,000,000 Repayment of debentures (2,200,000,000) -- (2,200,000,000) - Cash received from issuance of additional ordinary shares - 1,441,840,000 - 1,441,840,000 Cash received from exercise of warrants 877,046,171 126,626,850 877,046,171 126,626,850 Dividend payment (72,300,608) (389,416,500) (72,300,608) (389,416,500) Dividend payment of subsidiary (11,250,000) (4,500,000) - - Net cash flows from (used in) financing activities (3,501,084,228) 2,554,444,561 (5,022,925,766) 2,354,309,371 Effect of exchange rate changes on cash and cash equivalents (3,938,115) (13,654,510) (387,791) (1,086,648) Net increase (decrease) in cash and cash equivalents (250,943,418) 1,392,969,494 (986,900,371) 1,117,143,192 Cash and cash equivalents at beginning of year 2,933,261,986 1,542,692,787 2,160,964,901 1,043,821,709 Less: Cash and cash equivalents at beginning of year of subsidiary which excluded in the consolidated financial statement of year - (2,400,295) - - Cash and cash equivalents at end of year 2,682,318,568 2,933,261,986 1,174,064,530 2,160,964,901

The accompanying notes are an integral part of the financial statements. Annual Report 2007

93


CASH FLOW STATEMENTS (Continued) CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006

(Restated)

Supplemental disclosures of cash flows information Cash paid during the years for Interest expenses 785,775,090 721,266,351 617,182,688 706,865,109 Corporate income tax and withholding tax deducted at source 386,282,635 692,917,861 312,271,118 637,199,342 Non-cash transactions Increase in property, plant and equipment from hire purchase 93,255,037 202,692,506 85,296,074 197,776,963

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

94

CH.KARNCHANG PUBLIC COMPANY LIMITED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

1.

GENERAL INFORMATION

CH. Karnchang Public Company Limited (“The Company”) is a public company incorporated and domiciled in Thailand. The major shareholder of the Company is Mahasiri Siam Company Limited, which was also incorporated in Thailand. The Company is principally engaged in the provision of construction services and its registered address is 587 Suthisarn Road, Khwaeng Dindaeng, Khet Dindaeng, Bangkok.

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 CH. Karnchang Public Company Limited, its subsidiaries and its jointly controlled entities (applying the proportionate consolidation method) as follows: Assets as a percentage Revenues as a percentage to the consolidated total to the consolidated total Country of Percentage of total assets as at revenues for the year Name of entity Nature of business incorporation shareholding 31 December ended 31 December 2007 2006 2007 2006 2007 2006 Percent Percent Percent Percent Percent Percent

Investments in subsidiaries (held by the Company) Construction Material Supply Company Limited Manufacturer and Thailand 99.99 99.99 distributor of construction materials CH. Karnchang Realestate Company Limited Investment company Thailand 99.00 99.00 (included equity interest in Prompratarn Construction Limited Partnership and Prasertwit Construction Limited Partnership) CH. Karnchang-Tokyu Construction Company Limited Construction Thailand 55.00 55.00 (included equity interest in Joint Ventures CKCT) Bangkok Concrete Industries Company Limited Manufacturer and Thailand 49.99 49.99 (under the Company’s control) distributor of construction materials CH. Karnchang (Lao) Company Limited Construction The Lao People’s 100.00 100.00 Democratic Republic

Annual Report 2007

0.57

0.24

0.58

0.33

0.87

0.62

0.47

0.01

3.13

2.41

6.57

5.33

0.53

0.60

0.01

0.59

12.35

8.92

35.89 15.89

95


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

Assets as a percentage Revenues as a percentage to the consolidated total to the consolidated total Country of Percentage of total assets as at revenues for the year Name of entity Nature of business incorporation shareholding 31 December ended 31 December 2007 2006 2007 2006 2007 2006 Percent Percent Percent Percent Percent Percent Equity interest in jointly controlled entities (proportionate consolidation)

Joint Venture CH. Karnchang Public Company Limited, Construction Tokyu Construction Company Limited in joint venture (No trading with CH. Karnchang-Tokyu Construction Company activities during Limited (hereinafter called “Joint Venture CKCT”) the years 2006 - Highway Project and 2007) Thailand - Expressway Project Thailand Joint Venture CH. Karnchang Public Company Limited, Construction Bilfinger Berger AG, Tokyu Construction Company Limited and CH. Karnchang-Tokyu Construction Company Limited (hereinafter called “Joint Venture BBCT”) - Second Stage Expressway Project Sector B Thailand Route Phayathai - Bangkhlo - Second Stage Expressway Project Sector C+ Thailand Route Chaeng Wattana - Bang Phun & Bang Sai - Second Stage Expressway Project Sector D Thailand Route Asoke - Srinakarin - Second Stage Expressway Project Sector C1A Thailand Route Ngam Wong Wan - Chaeng Wattana The TWCK (Thames Water International Construction Thailand (Thailand) Limited and CH. Karnchang Public and project Company Limited) Joint Venture management (hereinafter called “The TWCK Joint Venture”) Joint Venture BCKT (Bilfinger Berger AG, Construction Thailand CH. Karnchang Public Company Limited, Kumagai Gumi Company Limited and Tokyu Construction Company Limited) (hereinafter called “Joint Venture BCKT”) Joint Venture BBCD (Bilfinger Berger AG, Construction Thailand CH. Karnchang Public Company Limited and Dyckerhoff & Widmann AG) (hereinafter called “Joint Venture BBCD”) Joint Venture CKSL (CH. Karnchang Public Construction Thailand Company Limited and SNC - Lavalin Inc.) (hereinafter called “Joint Venture CKSL”) Joint Venture CKAE Consortium Construction Thailand Joint Venture CKET Project management Thailand CKOBA Joint Venture Construction Thailand Joint Venture BBC (Bilfinger Berger (Thai) Construction Construction Thailand Company Limited, Bilfinger Berger AG, International Division and CH. Karnchang Public Company Limited) (hereinafter called “Joint Venture BBC”) Joint Venture CKNNL Construction Thailand CKLX Joint Venture Construction Thailand

96

60.00 40.00

60.00 40.00

- -

- -

- -

- -

53.20

53.20

0.02

0.02

-

-

59.99

59.99

0.02

0.05

-

0.02

59.99

59.99

0.78

0.61

0.01

-

59.99

59.99

0.01

0.02

-

-

50.00

50.00

0.02

0.03

-

-

25.00

25.00

0.10

0.09

-

-

35.00

35.00

0.12

0.12

0.01

2.48

99.90

99.90

0.03

0.02

-

0.01

98.00 80.00 44.00 25.00

98.00 80.00 44.00 25.00

1.43 6.30 - -

2.68 5.26 0.03 -

0.78 1.30 - 0.01

0.20 0.67 - -

51.89 75.00

51.32 -

0.03 0.94

0.55 -

0.13 0.44

2.44 -

CH.KARNCHANG PUBLIC COMPANY LIMITED


Country of Name of entity Nature of business incorporation

Percentage of indirect shareholding 2007 2006 Percent Percent

Investments in subsidiaries (held by subsidiary company) Prompratarn Construction Limited Partnership Construction and Thailand 98.01 98.01 (99 percent held by CH. Karnchang Realestate construction equipment Company Limited) rental service Construction and Thailand 98.01 98.01 Prasertwit Construction Limited Partnership (99 percent held by CH. Karnchang Realestate construction equipment Company Limited rental service b) Material balances and transactions between the Company, its subsidiaries and its jointly controlled entities have been eliminated from the consolidated financial statements. c) Investments in the subsidiaries and the jointly controlled entities as recorded in the Company’s books of account are eliminated against the equity of the subsidiaries and jointly controlled entities’ equity. d) In September 2007, CKLX Joint Venture signed an engagement contract for the construction project of the toll collection and traffic safety control systems for the Bang Pli - Suksawad Expressway and Highway No. 37, Bangkok Outer Ring Road (Bang Pli - Bang Khun Thien Expressway, Suksawad - Bang Khun Thien Section) with the Expressway and Rapid Transit Authority of Thailand. The CKLX Joint Venture comprises a joint investment between the Company and Loxley Public Company Limited, with the Company’s interest in the venture being 75 percent. The Company therefore included the financial statements of the jointly controlled entity (applying the proportionate consolidation method) in the consolidated financial statements for the year ended 31 December 2007. 2.3 The separate financial statements, which present investments in the subsidiaries, jointly controlled entities 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. 3.1 Thai Accounting Standards which are effective for 2007 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 year 2007, the Company changed its accounting policy for recording investments in subsidiaries, jointly controlled entities and associates in the separate financial statements in order to comply with the revised Thai Accounting Standards No. 44, 45 and 46 as discussed in Note 4. 3.2 Thai Accounting Standards which are not effective for 2007

Annual Report 2007

97


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

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, JOINTLY CONTROLLED ENTITIES AND ASSOCIATES IN THE SEPARATE FINANCIAL STATEMENTS

98

CH.KARNCHANG PUBLIC COMPANY LIMITED

During the first quarter of 2007, the Company changed its accounting policy for recording investments in subsidiaries, jointly controlled entities and associates in the separate financial statements from the equity method to the cost method, in compliance with Accounting Standard No. 44 (Revised 2007) regarding “Consolidated Financial Statements and Separate Financial Statements”, 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 period’s separate financial statements as though the investments in the subsidiaries, jointly controlled entities and associates had originally been recorded using the cost method. The change has the effect of increasing net income and net loss in the separate income statements for the year ended 31 December 2007 and 2006 as following. Separate financial statements 2007 2006 Increase (decrease) income (Million Baht) 644.95 - Net Net loss (Million Baht) - (148.03) earnings per share (Baht per share) Basic 0.46 - Basic loss per share (Baht per share) - (0.13) Diluted earnings per share (Baht per share) 0.43 - 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 subsidiaries, jointly controlled entities and associates” in the separate statements of changes in shareholders’ equity. Such change in accounting policy affects only the accounts related to investments in subsidiaries, jointly controlled entities and associates in the Company’s separate financial statements, with no effect to the consolidated financial statements.


5.

SIGNIFICANT ACCOUNTING POLICIES

5.1 Revenues and expenses recognition a) Revenues from construction services The Company, its subsidiaries and its jointly controlled entities recognized revenues from construction on a percentage of completion basis. The percentage of completion is measured based on comparison of actual construction costs incurred up to the end of the period and total anticipated construction costs to be incurred to completion. Revenues from additional work and other contracted work for which the working period does not exceed one year are recognized on the basis of work done and billed to the customer. Revenues from moving infrastructure, additional work and other contracted work are recognized on the basis of work done and billed to the customer. b) Sales of construction materials Sales of construction materials are recognized when the significant risks and rewards of ownership of the goods have passed to the buyer. Sales are the invoiced value, excluding value added tax, of goods supplied after deducting discounts and allowances. c) Interest income Interest income is recognized as interest accrues based on the effective rate method. d) Dividends Dividends are recognized when the right to receive the dividends is established. e) Other revenues and expenses Other revenues and expenses are recognized on an accrual basis. Provision for anticipated losses on construction projects is made in the accounts in full when the possibility of loss is ascertained. 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 Construction contracts in progress The cost of construction contracts in progress comprises the costs of materials and labor, subcontractor charges, services and overheads plus the attributable net gains or losses less the amounts already billed to customers.

Annual Report 2007

99


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

The excess of the value of a construction contract in progress over the amount billed to the customer is presented as current assets. The excess of the amount billed to a customer over the value of the construction contract in progress is presented as “Deferred construction revenue” under current liabilities. 5.5 Inventories and supplies for construction Inventories and supplies for construction are valued at the lower of cost (first-in, first-out) and net realisable value. Supplies in process for installation and construction in progress are valued at cost. Work in process and construction in progress comprise the costs of materials and labor, subcontractor charges, cost of service and overheads of projects for which contracts are in the process of being executed. 5.6 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 shareholders’ equity until the securities are sold, when the changes are then included in determining income. c) Investments in non-marketable equity securities, which the Company classifies as other investments, are stated at cost net of allowance for loss on diminution in value (if any). d) Investments in associates are accounted for in the consolidated financial statements using the equity method. e) Investments in subsidiaries, jointly controlled entities and associates are accounted for in the separate financial statements using the cost method. The fair value of marketable securities is based on the latest bid price of the last working day of the year as quoted on the Stock Exchange of Thailand. The fair value of unit trusts is determined from their net asset value. 5.7 Property, plant and equipment and depreciation Land is stated at cost. Building and equipment are stated at cost less accumulated depreciation and allowance for loss on impairment of assets (if any). Depreciation of building and equipment is calculated by reference to their costs on the straight-line basis over the following estimated useful lives: Condominium building 35 years Buildings 20 years Land improvement 5 years Machinery and equipment 5 years Future, fixtures and office equipment 5 years Motor vehicles 5 years Leasehold improvement 10 years

100

CH.KARNCHANG PUBLIC COMPANY LIMITED


Depreciation is included in determining income. No depreciation is provided on land and construction in progress. 5.8 Investments in land Investments in land are recorded at cost. If the fair value of the land declines to significantly less than its cost, the land is stated at cost net of provision for impairment loss. 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 Company’s operations. 5.10 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. 5.11 Impairment of assets The Company, its subsidiaries and its jointly controlled entities assess at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, an estimate is made of the asset’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 asset’s recoverable amount is the higher of fair value less costs to sell and value in use. 5.12 Employee benefits Salarys, wages, bonuses and contributions to the social security fund and provident fund are recognised as expenses when incurred. 5.13 Income tax Income tax is provided for in the accounts based on the taxable profits determined in accordance with tax legislation. 5.14 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.

Annual Report 2007

101


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

6.

RELATED PARTY TRANSACTIONS

During the years, the Company, its subsidiaries and its jointly controlled entities 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 parties. Below is a summary of those transactions. (Unit: Million Baht) Consolidated Separate financial statements financial statements 2007 2006 2007 2006 Transfer Pricing Policy (Restated) Transactions with subsidiaries (eliminated from the consolidated financial statements) Project management income - - 85.3 142.4 Cost plus margin Rental and transportation income - - 232.5 124.5 Close to service fee charged to third parties Space rental and service income - - 1.0 - Based on contracts Interest income - - 30.5 62.9 Interest rates of 6.25% to 8.25% MLR + 0.25% and LIBOR + 4% Dividend income - - 13.8 5.5 As declared Other income - - 34.4 27.7 Based on contracts Cost of construction materials and construction work - - 158.4 33.0 Close to prices charged by third parties Selling and administrative expenses - - 4.6 1.7 ŕš€Agreed between the parties Interest expenses - - - 4.5 Interest rate of MOR + 0.75% Transactions with jointly controlled entities Revenues from construction services 84.7 243.3 138.4 479.9 Based on construction contracts Sales of construction materials - 1.4 - - Close to selling price charged to third parties Project management income 2.1 3.1 6.9 9.8 Based on contracts Space rental and service income 0.1 - 0.1 - Based on contracts Interest income 28.6 22.6 203.7 129.6 Interest rates of 8.0% to 10.0% MLR + 0.25%, MLR + 1%, MLR + 2% and MOR + 0.75% 2006: MLR and MLR + 0.25%) Profit sharing from jointly controlled entities - - 30.9 7.5 As declared Other income - 11.1 - 0.8 Based on contracts Cost of construction materials and construction work 0.1 - 0.2 4.2 Close to prices charged by third parties Selling and administrative expenses - 1.8 - - Agreed between the parties Reversal of interest receivable - 13.4 - 20.6 Based on memorandum of agreement Transactions with associated companies Revenues from construction services 5,890.0 3,421.1 510.4 10.8 Based on construction contracts Project management income 31.2 39.6 2.4 5.2 Based on contracts Space rental and service income 0.4 - 0.4 - Based on contracts Interest income 82.5 146.6 82.5 146.6 Interest rates of MLR - 0.5% , MLR + 0.5% and MLR + 1% (2006: MLR - 0.5% and MLR + 0.5%) Dividend income 2.5 40.5 77.5 162.7 As declared Other income 0.7 0.9 0.2 0.9 Based on contracts Cost of construction materials and construction work 2.4 - 0.3 - Close to prices charged by third parties

102

CH.KARNCHANG PUBLIC COMPANY LIMITED


(Unit: Million Baht) C onsolidated Separate financial statements financial statements 2007 2006 2007 2006 Transfer Pricing Policy (Restated) Sales of investments in associated company 1,892.9 - 1,892.9 - Based on contracts Transactions with related parties Revenues from construction services 11.7 181.1 11.7 177.5 Based on construction contracts Sales of construction materials 0.2 - - - Close to selling price charged to third parties Project management income 2.3 1.7 2.3 1.4 Based on contracts Rental and transportation income 3.8 3.2 3.2 3.2 Close to service fee charged to third parties Space rental and service income 1.9 - 1.9 - Based on contracts Interest income 20.8 20.8 20.8 20.8 Interest rate of MLR + 1% Dividend income 122.8 122.8 113.3 113.3 As declared - 442.8 - - Based on memorandum of agreement Revenue from reversal of accrued interest Other income 2.1 0.4 0.9 0.3 Based on contracts Cost of construction materials and construction work 26.6 241.4 1.4 3.3 Close to prices charged by third parties Selling and administrative expenses 28.2 36.0 22.1 27.6 Agreed between the parties Interest expenses - 100.5 - - Interest rates of 6.25% and LIBOR + 1% Purchase of investments in associated - 48.4 - 48.4 Agreed between the parties company Sales of investments in associated company - 796.4 - 796.4 Based on contracts

The balances of the accounts as at 31 December 2007 and 2006 between the Company and those related parties are as follows: (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Trade accounts receivable - related parties Construction contract receivables Jointly controlled entities - Joint Venture BBCD - Joint Venture CKET - Joint Venture CKNNL - CKLX Joint Venture Associated companies - Bangkok Metro Public Company Limited - Pathum Thani Water Company Limited - SouthEast Asia Energy Limited Related companies - Bangkok Expressway Public Company Limited - Bangpa-in Land Company Limited - Other related companies Total construction contract receivables Less: Allowance for doubtful accounts Construction contract receivables, net Annual Report 2007

164,682,865 29,940,826 - 15,529,918 210,153,609

164,682,865 29,935,476 33,907,354 - 228,525,695

253,358,255 149,677,378 - 62,119,670 465,155,303

253,358,255 149,677,378 69,653,561 - 472,689,194

3,343,750 23,861,681 398,807,940 426,013,371

2,942,500 115,239,000 811,460,659 929,642,159

3,343,750 23,861,681 - 27,205,431

2,942,500 115,239,000 - 118,181,500

10,352,139 57,613,889 382,223 68,348,251 704,515,231 (164,682,865) 539,832,366

6,389,302 53,434,730 - 59,824,032 1,217,991,886 (164,682,865) 1,053,309,012

10,352,139 44,639,330 - 54,991,469 547,352,203 (253,358,255) 293,993,948

6,389,302 53,434,730 - 59,824,032 650,694,726 (253,358,255) 397,336,471

103


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

( Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Retention as per contracts Associated company - Pathum Thani Water Company Limited 1,251,169 - 1,251,169 - 1,251,169 - 1,251,169 - Related companies - Bangkok Expressway Public Company Limited 7,406,628 13,875,333 7,406,628 13,577,820 - Northern Bangkok Expressway Company Limited 1,407,919 1,407,919 1,407,919 1,407,919 8,814,547 15,283,252 8,814,547 14,985,739 retention as per contracts Total 10,065,716 15,283,252 10,065,716 14,985,739 Trade accounts receivable - related parties, net 549,898,082 1,068,592,273 304,059,664 412,322,210

As at 31 December 2007 and 2006, a provision for doubtful debts amounting to Baht 253 million was set up in the separate financial statements of the Company for trade accounts receivable from a jointly controlled entity of which overdue for more than 12 months. (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Long-term trade accounts receivable - related party Related company - Metro Mall Development Limited 313,611,611 292,775,016 313,611,611 292,775,016 Total long-term trade accounts receivable related party 313,611,611 292,775,016 313,611,611 292,775,016 During the first quarter of 2007, Metro Mall Development Limited issued a letter requesting that the Company grant a grace period for repayment of construction costs, whereby that company would pay all construction costs within 4 years (within the year 2010), and the Company issued a letter agreeing to such request. The Company has reclassified the trade accounts receivable from that company to non-current assets under the caption “Long-term trade accounts receivable - related party� in the balance sheet since 31 March 2007 and also reclassified the trade accounts receivable as at 31 December 2006 for comparative purposes. The Company charged interest on the outstanding balance of construction costs at the Minimum Loan Rate plus 1 percent (MLR + 1%) per annum. (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 (Restated) Accounts receivables and loans to related parties Receivables from sales of construction materials and others Subsidiaries - Construction Material Supply Company Limited - - 3,898,013 2,141,841 - Bangkok Concrete Industries Company Limited - - 66,394,218 66,021,127 - Prompratarn Construction Limited Partnership - - 1,137,148 467,332 - CH. Karnchang (Lao) Company Limited - - 221,965,399 635,246,110 - Other subsidiaries - - 606,668 74,200 - - 294,001,446 703,950,610

104

CH.KARNCHANG PUBLIC COMPANY LIMITED


(Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 (Restated) Jointly controlled entities - Joint Venture BBCT 9,856,316 9,841,629 24,612,536 24,597,849 - Joint Venture BBCD 248,883,776 248,868,022 382,889,635 382,873,880 - Joint Venture BCKT 68,600,196 68,667,809 91,466,928 91,545,241 - The TWCK Joint Venture - 226,305 - 452,610 - Joint Venture CKAE Consortium 5,706 5,706 285,291 285,291 - Joint Venture CKET 24,894,097 23,542,007 124,443,736 117,710,036 - Joint Venture CKNNL 83,549 100,769 83,549 207,003 - CKLX Joint Venture 1,169,127 - 4,676,507 - 353,492,767 351,252,247 628,458,182 617,671,910 Associated company - SouthEast Asia Energy Limited 460,643 197,950 460,643 197,950 460,643 197,950 460,643 197,950 Related parties - Siam Wire Industry Company Limited 18,439,214 19,465,232 18,041,165 19,309,529 - Bangpa-in Land Company Limited 810,652 1,141,068 810,652 1,141,068 - Mahasiri Company Limited 63,500 - 63,500 - - Expert Transport Company Limited 3,844,837 3,379,415 465,423 - - WaterFlow Company Limited - 260,000 - 260,000 - Sirasaicrete Limited Partnership 520,232 - 520,232 - - Other related companies and related parties 677,705 1,120,870 918,300 10,001 24,356,140 25,366,585 20,819,272 20,720,598 Venturers in jointly controlled entities - Bilfinger Berger AG 104,103 1,243,426 - - - Bilfinger Berger (Thai) Construction Company Limited 2,392,464 1,252,765 - - 2,496,567 2,496,191 - - Total receivables from sales of construction materials and others 380,806,117 379,312,973 943,739,543 1,342,541,068 Less: Allowance for doubtful accounts (250,056,035) (250,056,035) (384,701,593) (384,701,593) Receivables from sales of construction materials and others, net 130,750,082 129,256,938 559,037,950 957,839,475 Loans to related parties and interest receivable Subsidiaries - Bangkok Concrete Industries Company Limited - - 122,334,998 114,248,952 - Construction Material Supply Company Limited - - 97,273,324 91,139,897 - CH. Karnchang (Lao) Company Limited - - - 478,840,468 - Prasertwit Construction Limited Partnership - - 8,247,147 - - - 227,855,469 684,229,317 Jointly controlled entities - Joint Venture BBCD 154,041,988 68,737,500 236,987,674 105,750,000 - Joint Venture CKAE Consortium 329,822 13,155,545 - 642,251,629 - Joint Venture CKET - 247,144,668 - 1,235,723,341 154,371,810 329,037,713 236,987,674 1,983,724,970 Associated company - SouthEast Asia Energy Limited 44,096,932 - 44,096,932 - 44,096,932 - 44,096,932 - Total loans to related parties and interest receivable 198,468,742 329,037,713 508,940,075 2,667,954,287 Less: Allowance for doubtful accounts - - (331,361,057) (153,137,443) Annual Report 2007

105


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

(Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 (Restated) Total loans to related parties and interest receivable, net 198,468,742 329,037,713 177,579,018 2,514,816,844 Total accounts receivables and loans to related parties, net 329,218,824 458,294,651 736,616,968 3,472,656,319 Long-term loans to jointly controlled entities and interest receivable Jointly controlled entities - Joint Venture CKAE Consortium 2,819,364 - 140,968,197 - - Joint Venture CKET 223,194,534 - 1,115,972,672 - Total long-term loans to jointly controlled entities and interest receivable 226,013,898 - 1,256,940,869 -

During the year 2007, movements of loans to related parties and interest receivable were as follow:

(Unit: Baht) Consolidated financial statements Balance as at During the year Reclassified to Balance as at 1 January 2007 Increase Decrease long-term loans 31 December 2007 Loans to related parties and interest receivable Jointly controlled entities - Joint Venture BBCD 68,737,500 85,304,488 - - 154,041,988 - Joint Venture CKAE Consortium 13,155,545 1,664,345 (11,670,704) (2,819,364) 329,822 - Joint Venture CKET 247,144,668 30,746,851 (54,696,985) (223,194,534) - - The TWCK Joint Venture - 1,465,404 (1,465,404) - - 329,037,713 119,181,088 (67,833,093) (226,013,898) 154,371,810 Associated company - SouthEast Asia Energy Limited - 44,096,932 - - 44,096,932 - 44,096,932 - - 44,096,932 329,037,713 163,278,020 (67,833,093) (226,013,898) 198,468,742

106

CH.KARNCHANG PUBLIC COMPANY LIMITED


(Unit: Baht) Separate financial statements Balance as at During the year Reclassified to Balance as at 1 January 2007 Increase Decrease long-term loans 31 December 2007 Loans to related parties and interest receivable Subsidiaries - Bangkok Concrete Industries 114,248,952 8,086,046 - - 122,334,998 Company Limited - Construction Material Supply Company Limited 91,139,897 6,133,427 - - 97,273,324 - CH. Karnchang (Lao) Company Limited 478,840,468 41,110,315 (519,950,783) - - - Prasertwit Construction Limited Partnership - 8,247,147 - - 8,247,147 684,229,317 63,576,935 (519,950,783) - 227,855,469 Jointly controlled entities - Joint Venture BBCD 105,750,000 131,237,674 - - 236,987,674 - Joint Venture CKAE Consortium 642,251,629 82,251,793 (583,535,225) (140,968,197) - - Joint Venture CKET 1,235,723,341 153,734,257 (273,484,926) (1,115,972,672) - - The TWCK Joint Venture - 2,930,808 (2,930,808) - - 1,983,724,970 370,154,532 (859,950,959) (1,256,940,869) 236,987,674 Associated company - 44,096,932 - - 44,096,932 - SouthEast Asia Energy Limited - 44,096,932 - - 44,096,932 2,667,954,287 477,828,399 (1,379,901,742) (1,256,940,869) 508,940,075

Loans to related parties are subject to interest at the Minimum Loan Rate plus a stipulated margin (MLR + margin) per annum, the inter bank rate plus 4 percent (LIBOR + 4%) per annum and certain fixed rates per annum and due for repayment at call. On 16 February 2007, Bilfinger Berger AG and the Company, which are venturers in Joint Venture BBCD, agreed to waive the entire amount of interest accrued up to the agreed date on the loan from the venturers, but they retain the right to claim such interest if the joint venture receives compensation for additional costs from the Expressway and Rapid Transit Authority of Thailand. Therefore, the Company reversed interest receivable from the joint venture amounting to Baht 13.4 million (Separate financial statements: Baht 20.6 million) as a separate item in the income statement for the year 2006. Loans to Joint Venture CKAE Consortium were previously subject to interest at fixed rates of 6.25 to 8.25 percent per annum and the Minimum Loan Rate plus 0.25 percent (MLR + 0.25%) per annum. Loans to Joint Venture CKET were previously subject to interest at the Minimum Loan Rate (MLR) per annum. These loans to joint ventures were due for repayment at call. Subsequently, on 21 January 2008, the joint ventures entered into memorandums of agreement with the Company, whereby the Joint Venture CKAE Consortium agreed to pay an additional interest charge of 1.75 percent per annum from the borrowing date until the date on which repayment is made and agreed to make repayment in full within 31 March 2009, and the Joint Venture CKET agreed to pay an additional interest charge of 1 percent per annum from the borrowing date until the date on which repayment is made and agreed to make repayment in full within 30 September 2009. The Company recorded the additional interest charges for all loans made in the past up to the earlier of the repayment date or 31 December 2007, amounting to approximately Baht 11.7 million (Separate financial statements: Baht 96.4 million), as part of interest income in the income statement for the year 2007 and reclassified the loans to these two joint ventures and related interest receivable as long-term loans, under the caption of “Long-term loans to jointly controlled entities and interest receivable� in the balance sheet as at 31 December 2007. Annual Report 2007

107


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

On 4 September 2007, the Company and two shareholders of SouthEast Asia Energy Limited entered into the Shareholders’ Loan Agreement with SouthEast Asia Energy Limited, granting a facility of Baht 250 million, with the Company agreeing to provide a portion of the loans as stipulated in the agreement, amounting to Baht 156.25 million, in order to fund a feasibility study and the development of the Nam Bak 1-2 Hydroelectric Power Project. The loan carries interest at MLR plus 1 percent (MLR + 1%) per annum, and principal and interest are to be paid in full on the earlier of (a) the Financial Closing of the Project and (b) the date eighteen months after the agreement is signed. (Unit: Baht) Consolidated and Separate financial statements 2007 2006 Transfer Pricing Policy Long-term loans to associated companies and interest receivable Loans: - Pathum Thani Water Company Limited - 516,815,857 MLR - 0.5% per annum - Bangkok Metro Public Company Limited 1,003,090,793 1,003,090,793 MLR + 0.5% per annum Total loans 1,003,090,793 1,519,906,650 Interest receivable: - Pathum Thani Water Company Limited - 229,441,533 - Bangkok Metro Public Company Limited 141,756,508 62,062,319 141,756,508 291,503,852 Total interest receivable 1,144,847,301 1,811,410,502 During the year 2007, the movements of long-term loans to associated companies and related interest receivable were as follows: (Unit: Baht) Consolidated and Separate financial statements Balance During the year Balance as at as at 1 January 2007 Increase Decrease 31 December 2007 Loans: - Pathum Thani Water Company Limited 516,815,857 - (516,815,857) - - Bangkok Metro Public Company Limited 1,003,090,793 - - 1,003,090,793 Total loans 1,519,906,650 - (516,815,857) 1,003,090,793 Interest receivable: 229,441,533 2,506,203 (231,947,736) - - Pathum Thani Water Company Limited 62,062,319 79,694,189 - 141,756,508 - Bangkok Metro Public Company Limited Total interest receivable 291,503,852 82,200,392 (231,947,736) 141,756,508 1,811,410,502 82,200,392 (748,763,593) 1,144,847,301

108

CH.KARNCHANG PUBLIC COMPANY LIMITED


Pathum Thani Water Company Limited

The outstanding balances as at 31 December 2006 represented a loan to Pathum Thani Water Company Limited and related interest receivable under the Sponsors Loan Agreement. The loan, without security, carried interest at the Minimum Loan Rate minus 0.5 percent (MLR - 0.5%) per annum. The principal and interest were to be paid after Pathum Thani Water Company Limited paid indebtedness under its long-term loan agreement. In January 2007, the Company received full settlement of this loan and interest receivable from the associated company.

Bangkok Metro Public Company Limited

The outstanding balances represent loans to Bangkok Metro Public Company Limited under the Subordinated Loan Agreement that the Company entered into with Bangkok Metro Public Company Limited and a group of lenders of such company, under which the Company granted long-term loan facilities totaling Baht 1,403 million. The loans carry interest at the Minimum Loan Rate plus 0.5 percent (MLR + 0.5%) per annum, and principal and interest are to be paid after Bangkok Metro Public Company Limited has paid all indebtedness under the Onshore Facilities Agreement or when the associated company has excess cash. (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Trade accounts payable - related parties Subsidiaries - Construction Material Supply Company Limited - - 29,522,352 1,611,104 - Bangkok Concrete Industries Company Limited - - 1,451 1,451 - CH. Karnchang-Tokyu Construction Company Limited - - 5,983,333 218,389 - Prompratarn Construction Limited Partnership - - 1,883,492 2,206,971 - - 37,390,628 4,037,915 Jointly controlled entities - Joint Venture BBCT - 1,244,507 - 3,110,490 - Joint Venture BCKT 17,549 36,969 23,399 43,977 - Joint Venture CKAE Consortium 2,730 2,740 136,479 137,012 - Other jointly controlled entities 321 46,722 1,605 95,979 20,600 1,330,938 161,483 3,387,458 Assosiated companies - SouthEast Asia Energy Limited - 183,883 - 183,883 - Pathum Thani Water Company Limited 15,888 - 15,888 - 15,888 183,883 15,888 183,883 Related companies - Siam Wire Industry Company Limited 108,622 1,718,184 66,972 66,972 - Silasaicrete Limited Partnership 187,131 70,417 187,131 12,748 - CH. Karnchang Holding Company Limited 40,504,086 40,264,086 20,000 20,000 - Mahasiri Company Limited 1,271,524 - - - - Expert Transport Company Limited 251,561 - 251,561 - - Other related companies and related parties 175,728 411,718 26,473 177,638 42,498,652 42,464,405 552,137 277,358 Venturers in jointly controlled entities - Bilfinger Berger AG 356,564,925 348,040,377 - - - Bilfinger Berger (Thai) Construction Company Limited 2,999,500 - - - - Nong Nooch Landscape & Garden Design Company Limited - 53,569,381 - - 359,564,425 401,609,758 - - Total trade accounts payable - related parties 402,099,565 445,588,984 38,120,136 7,886,614 Annual Report 2007

109


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

( Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Accounts payable and loans from related party Other payable Venturer in jointly controlled entity - Loxley Public Company Limited 174,327 - - - 174,327 - - - Total other payable Loans from related party and accrued interest Venturer in jointly controlled entity - Bilfinger Berger AG 2,965,392,899 2,575,855,955 - - Total loans from related party and accrued interest 2,965,392,899 2,575,855,955 - - Total accounts payable and loans from related party 2,965,567,226 2,575,855,955 - - During the year 2007, movements of loans from related party and accrued interest were as follow: (Unit: Baht) Consolidated financial statements During the year Balance Unrealised Balance as at loss on as at 1 January 2007 Increase Decrease exchange 31 December 2007 Loan from related party and accrued interest Venturer in jointly controlled entity - Bilfinger Berger AG 2,575,855,955 289,775,982 - 99,760,962 2,965,392,899 2,575,855,955 289,775,982 - 99,760,962 2,965,392,899 As at 31 December 2007, Joint Venture BBCD had foreign currency loans from a venturer (Bilfinger Berger AG) of 53.9 million euros (in proportion to the Company’s interest in the joint venture) (2006: 53.9 million euros). The loans were scheduled for repayment in the year 2004 and subsequently rescheduled to June 2006. On 1 July 2006, the Joint Venture BBCD entered into agreements to extend the terms of loans, under which repayments of the loans were rescheduled to be made within June 2007. The loans carried interest at the inter bank rate plus 1 percent (LIBOR + 1%) per annum and subsequently, on 16 February 2007, Bilfinger Berger AG and the Company, which are venturers in the Joint Venture BBCD, agreed to waive the entire amount of interest accrued up to the agreed date on the loan from the venturers, but they retain the right to claim such interest if the joint venture receives compensation for additional costs from the Expressway and Rapid Transit Authority of Thailand. Therefore, the Joint Venture BBCD reversed accrued interest amounting to Baht 442.8 million (in proportion to the Company’s interest in the joint venture) to income in the consolidated income statement for the year 2006. At present, the Joint Venture BBCD is in the process of negotiating with Bilfinger Berger AG for an extension of the term of loan repayment to within June 2008.

110

CH.KARNCHANG PUBLIC COMPANY LIMITED


On 27 April 2007, the Joint Venture BBCD entered into new loan agreements with Bilfinger Berger AG granting new loans amounting to Baht 289.8 million (in proportion to the Company’s interest in the joint venture) in order to repay short-term loans from bank of the joint venture. These loans carry interest at the inter bank rate plus 1 percent (BIBOR + 1%) per annum and interest is waived under the same condition as apply to the loans discussed in the preceding paragraph. These loans are repayable in full within April 2008 and can be rescheduled with the mutual consent of the borrower and the lender. (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Advances received from employers - related parties Jointly Controlled Entity - CKLX Joint Venture 8,763,456 - 35,053,822 - 8,763,456 - 35,053,822 - Associated company - Pathum Thani Water Company Limited 42,592,517 - 42,592,517 - 42,592,517 - 42,592,517 - Related companies - Bangkok Expressway Public Company Limited 15,389,594 6,528,944 15,389,594 6,528,944 - Bangpa-in Land Company Limited 11,850,000 - - - 27,239,594 6,528,944 15,389,594 6,528,944 Total advances received from employers - related parties 78,595,567 6,528,944 93,035,933 6,528,944 Retention for construction - related party Subsidiary - CH. Karnchang-Tokyu Construction Company Limited - - 6,090,306 2,136,698 Total - - 6,090,306 2,136,698 retention for construction - related party Directors and management’s remuneration In 2007 the Company and its subsidiaries paid salaries, bonus and meeting allowances to their directors and management totaling Baht 62 million (Separate financial statements: Baht 55 million) (2006: Baht 72 million, Separate financial statements: Baht 46 million). Guarantee obligations with related parties The Company has outstanding guarantee obligations with its related parties, as described in Note 34.4 to the financial statements.

Annual Report 2007

111


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

7.

CURRENT INVESTMENTS

(Unit: Baht) Consolidated and separate financial statements 2007 2006

Investments in trading securities Maketable equity securities - Fair value Invetments in available for sale securities Unit trust in fixed income open - ended fund Add: Unrealised gain on changes in value of investments Other investments - related company Thai Tap Water Public Company Limited Total current investments

8.

3,061,550 3,061,550

2,631,850 2,631,850

205,882,113 2,053,173 207,935,286

100,000,000 - 100,000,000

108,303,240 108,303,240 319,300,076

108,303,240 108,303,240 210,935,090

TRADE ACCOUNTS RECEIVABLE

The outstanding balances of trade accounts receivable as at 31 December 2007 and 2006 are aged, based on due date, as follows: (Unit: Baht)

Consolidated financial statements Related parties Unrelated parties

Total

Total

2007 2006 2007 2006 2007 2006 Construction contract receivables Not yet due 435,378,780 877,836,734 734,827,881 3,936,895,993 1,170,206,661 4,814,732,727 Overdue - Less than 3 months 16,521,998 162,693,790 117,373,161 204,290,909 133,895,159 366,984,699 - 3 - 6 months 13,216,905 4,556,284 734,873 714,433 13,951,778 5,270,717 - 6 - 12 months - 77,354,378 378,866 97,343,486 378,866 174,697,864 - Over 12 months 239,397,548 388,325,716 185,793,627 89,194,898 425,191,175 477,520,614 704,515,231 1,510,766,902 1,039,108,408 4,328,439,719 1,743,623,639 5,839,206,621 Less: Allowance for doubtful accounts (164,682,865) (164,682,865) (21,719,121) (15,146,767) (186,401,986) (179,829,632) Construction contract receivables, net 539,832,366 1,346,084,037 1,017,389,287 4,313,292,952 1,557,221,653 5,659,376,989 Retention as per contracts 10,065,716 15,283,252 210,648,931 1,176,158,160 220,714,647 1,191,441,412 Total 549,898,082 1,361,367,289 1,228,038,218 5,489,451,112 1,777,936,300 6,850,818,401 (Unit: Baht)

Separate financial statements Related parties Unrelated parties

Construction contract receivables Not yet due Overdue - Less than 3 months - 3 - 6 months - 6 - 12 months - Over 12 months Less: Allowance for doubtful accounts Construction contract receivables, net Retention as per contracts Total 112

2007

83,155,242 16,521,998 - - 447,674,963 547,352,203 (253,358,255) 293,993,948 10,065,716 304,059,664

2006

102,122,282

2007

2006

581,144,750 3,807,412,902

162,693,790 103,882,256 4,556,284 - 77,354,378 - 596,743,008 161,792,203 943,469,742 846,819,209 (253,358,255) - 690,111,487 846,819,209 14,985,739 199,265,272 705,097,226 1,046,084,481

70,972,754 - 90,176,642 70,620,000 4,039,182,298 - 4,039,182,298 1,139,693,986 5,178,876,284

2007

2006

664,299,992 3,909,535,184 120,404,254 - - 609,467,166 1,394,171,412 (253,358,255) 1,140,813,157 209,330,988 1,350,144,145

233,666,544 4,556,284 167,531,020 667,363,008 4,982,652,040 (253,358,255) 4,729,293,785 1,154,679,725 5,883,973,510

CH.KARNCHANG PUBLIC COMPANY LIMITED


9.

CONSTRUCTION CONTRACTS IN PROGRESS/ADVANCES RECEIVED FROM EMPLOYERS AND DEFERRED CONSTRUCTION REVENUE

(Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Construction contracts in progress Contract value 30,684,976,285 29,131,174,135 28,769,673,855 27,879,201,222 Construction contracts in progress 24,746,505,967 23,292,265,856 24,575,770,992 22,295,448,909 Less: Progressive billings (21,848,081,559) (20,404,773,919) (21,757,644,125) (19,560,224,570) Construction contracts in progress 2,898,424,408 2,887,491,937 2,818,126,867 2,735,224,339 Retentions as per contracts 220,714,647 1,191,441,412 209,330,988 1,154,679,725 Advances received from employers and deferred construction revenue Contract value 23,908,372,045 22,085,783,801 3,185,273,182 1,716,462,264 Progressive billings 11,939,072,187 6,238,431,248 2,502,407,451 1,676,250,846 Less: Construction contracts in progress (11,298,338,188) (5,280,814,155) (2,158,824,736) (1,562,108,685) Deferred construction revenue 640,733,999 957,617,093 343,582,715 114,142,161 Advances received from employers 644,749,331 594,673,339 465,839,520 581,054,594 Total 1,285,483,330 1,552,290,432 809,422,235 695,196,755 10. INVENTORIES AND SUPPLIES FOR CONSTRUCTION

(Unit: Baht)

Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Supplies for construction 292,091,011 92,707,832 73,627,593 24,122,077 Construction in progress and work in process 332,464,754 201,720,573 95,009,327 200,016,728 Finished goods 18,144,792 21,835,875 - - Total 642,700,557 316,264,280 168,636,920 224,138,805 Less: Allowance for loss on diminution in value of finished goods (14,870,950) (7,231,986) - - Inventories and supplies for construction, net 627,829,607 309,032,294 168,636,920 224,138,805

11. RESTRICTED BANK DEPOSITS

The outstanding balances represent bank deposit accounts which have been pledged with banks to secure the issuance of bank guarantees for electricity utilisation, bidding, issuance of other bank guarantees, letter of credit of an associated company and the bank overdraft of a subsidiary.

12. LOANS TO SUBCONTRACTORS/ LONG-TERM LOANS TO OTHER COMPANIES

LOANS TO SUBCONTRACTORS The balance of loans to subcontractors as at 31 December 2007 represented loans to the former subcontractors of Joint Venture CKAE Consortium, Modern Construction Material Company Limited and Best Plan Technology Company Limited in the form of promissory notes totaling Baht 221.9 million (in proportion to the Company’s interest in the joint venture). These loans are subject Annual Report 2007

113


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

to interest at fixed rates per annum which were tied to the Minimum Loan Rate plus 0.25 percent (MLR + 0.25%) as at borrowing dates and repayable within 31 December 2007. In January 2007, the borrowers issued letters confirming that they would make loan repayments amounting to Baht 20 million to the Joint Venture no later than 30 April 2007 (the borrowers paid such accrued interest amount of Baht 20 million in April 2007) and the borrowers agreed to pay an additional charge of interest of 2.25 percent per annum from the borrowing date until the date on which repayment is made in full. In addition, the major shareholders of the borrowers have provided personal guarantees for the full amount of the loans. The loans are also secured by the share certificates of a company listed on the Stock Exchange of Thailand, worth approximately Baht 35.4 million (Baht 34.7 million in proportion to the Company’s interest in the joint venture) as at 31 December 2007, which are owned by the borrower and have been endorsed to transfer them to the joint venture. Therefore, the joint venture recorded the additional interest of 2.25 percent per annum for all loans made in the past up to the earlier of the repayment date or 31 March 2007, amounting to approximately Baht 74.6 million (in proportion to the Company’s interest in the joint venture) as part of interest income in the consolidated income statement for the first quarter of 2007, and will recognise interest on the basis of this new rate until the joint venture receives full settlement from the borrowers. In November 2007, the borrowers issued letters requesting an extension of the period for loan repayment, whereby from repayment being due in full by no later than 31 December 2007, repayment would be due in full by no later than 31 December 2008, on the grounds that they had been affected by higher construction material prices and a considerable decrease in the number of construction projects in the year 2007. In addition, the borrower placed the title deeds to plots of land with independently appraised values (appraised in June 2007) totaling approximately Baht 236.9 million (Baht 232.2 million in proportion to the Company’s interest in the joint venture) with the joint venture as security for these loans. CURRENT PORTION OF LONG-TERM LOANS TO OTHER COMPANIES The current portion of long-term loans to other companies represents loans to two other companies, Rayong Real Estate Company Limited and Private Inter Construction Company Limited. Joint Venture CKET entered into long-term loan agreements with these companies granting facilities totaling Baht 1,263.5 million (in proportion to the Company’s interest in the joint venture) during 2003, with the loans subject to interest at the Minimum Loan Rate plus 0.25 percent (MLR + 0.25%) per annum and to be repaid within June 2005. Subsequently, the repayment term was extended such that payment was to be made within June 2006. The borrowers placed the title deeds to plots of land and construction thereon with independently appraised values (appraised in January 2008) totaling approximately Baht 1,924.1 million (Baht 1,539.3 million in proportion to the Company’s interest in the joint venture) to the joint venture as security for these loans. In addition, the borrowers allowed the Company to use part of the land and construction thereon as security for bank guarantee facilities of Baht 500 million provided to the Company by a bank, and provided guarantees for the Company’s bank loans. On 1 July 2006, the Joint Venture CKET entered into an addendum to these agreements with two other companies, whereby the repayment term was extended until June 2007. Subsequently, in March 2007, the borrowers issued letters confirming that they would repay a half of the loan balances no later than 31 December 2007, and that the remaining debts would repaid in full by 30 June 2008, and the borrowers agreed to pay an additional interest charge of 1.25 percent per annum from the borrowing date until the date on which the repayment is made in full. In addition, a major shareholder of both of the borrowers entered into an agreement to provide a personal guarantee of settlement of the full amount of the outstanding debt to the joint venture. Therefore, the joint venture recorded the additional interest of 1.25 percent per annum for all loans, which made in the past up to the earlier of repayment date or 31 March 2007, amounting to approximately Baht 53.7 million (in proportion to the Company’s interest in the joint venture) as part of interest income in the consolidated income statement for the first quarter of 2007, and will recognise interest on the basis of this new rate until the joint venture receives full settlement from the borrowers. In November 2007, the borrowers issued letters requesting an extension of the period for loan repayment, whereby from half of the loan balances being due no later than 31 December 2007 and full settlement of the remaining debts due by 30 June 2008, half of the loan balance would be due no later than 31 December 2008 and full settlement of the remaining debts due by 30 June 2009. 114

CH.KARNCHANG PUBLIC COMPANY LIMITED


The reason for this was that the economic slowdown in the year 2007 meant that property development projects were unable to proceed as planned, resulting in delayed settlement of debt. However, the borrowers expect that in the year 2008, there is a chance that the real property business sector will grow materially due to the new government’s policy on the national development and that as a result their revenues will increase sufficiently to enable them to settle debt. As at 31 December 2007, the Joint Venture CKET reclassified Baht 631.8 million (in proportion to the Company’s interest in the joint venture) from current portion of long-term loans to “long-term loans to other companies, net of current portion” in the balance sheet.

13. INVESTMENTS IN SUBSIDIARIES

(Unit: Baht) Separate financial statements Shareholding Dividend received for the year Company’s name Paid-up capital percentage Cost ended 31 December 2007 2006 2007 2006 2007 2006 2007 2006 (%) (%) (Restated) Construction Material Supply 15,000,000 15,000,000 99.99 99.99 14,999,600 14,999,600 - - Company Limited CH. 160,000,000 160,000,000 99.00 99.00 158,400,000 158,400,000 - - Karnchang Realestate Company Limited CH. 54,999,600 54,999,600 13,750,000 5,500,000 Karnchang-Tokyu Construction 100,000,000 100,000,000 55.00 55.00 Company Limited Bangkok Concrete Industries 200,000,000 200,000,000 - 49.99 - 109,272,867 - - Company Limited Karnchang (Lao) CH. 39,636,203 39,636,203 100.00 100.00 39,636,203 39,636,203 - - Company Limited (paid-up share capital of USD 1,000,000) Total 268,035,403 377,308,270 13,750,000 5,500,000 Less: Allowance for loss on investments in subsidiaries (1,558,902) (110,831,769) Total investments in subsidiaries, net 266,476,501 266,476,501

CH. Karnchang (Lao) Company Limited

During the second quarter of 2006, CH. Karnchang (Lao) Company Limited increased its registered share capital from USD 500,000 to USD 1,000,000 complying with a condition in credit facilities agreements. The Company therefore invested an additional USD 500,000, or equivalent to Baht 19.1 million, in ordinary shares of that company. In addition, CH. Karnchang (Lao) Company Limited entered into a construction contract (Engineering, Procurement and Construction Contract) for the Nam Ngum 2 Hydroelectric Power Project with an associated company, with a total value of approximately Baht 20,400 million. In May 2006, CH. Karnchang (Lao) Company Limited entered into credit facilities agreements totaling Baht 6,096.3 million with a local commercial bank to obtain the following 6 types of credit facilities for the Nam Ngum 2 Hydroelectric Power Project: 1) Promissory note facility of Baht 1,000 million for use as working capital in the construction of the project, carrying interest at the Minimum Overdraft Rate (MOR) per annum. 2) Bank guarantee facility of Baht 3,576.3 million to provide guarantees for the project under the construction contract. 3) Bank guarantee facility of Baht 400 million to provide guarantees for purchases of construction material and utilities. 4) Letter of credit, trust receipt, and domestic letter of credit facilities totaling Baht 600 million for ordering machinery and equipment. 5) Bank overdraft facility of Baht 20 million for use as working capital. 6) Forward contract facility of Baht 500 million to hedge exchange risk. Annual Report 2007

115


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

The collateral for these credit facilities comprises the transfer of the rights to make collection on construction payments for the Nam Ngum 2 Hydroelectric Power Project, the transfer of bank guarantees provided by subcontractors, the transfer of the rights over savings deposits of the subsidiary, and the provision of a guarantee by CH. Karnchang Public Company Limited, as discussed in Note 34.4.

Bangkok Concrete Industries Company Limited

On 25 December 2007, the Company sold all of the 999,994 ordinary shares that the Company held in Bangkok Concrete Industries Company Limited to Widen Holding Company Limited at a price of Baht 5 per share, or for a total of approximately Baht 5 million. The Company received cash from the sale of these shares in January 2008. The Company has not recorded a gain on the sale of these shares, but recorded the transaction as allowance for doubtful accounts for loans to such company, since the Company remains the major source of financial support of Bangkok Concrete Industries Company Limited. The Company therefore continued to include the financial statements of such company in the consolidated financial statements for the year ended 31 December 2007.

14. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES/PROVISION FOR LOSS ON INVESTMENTS IN JOINTLY CONTROLLED ENTITIES

14.1 Details of investments in jointly controlled entities:

(Unit: Baht) Separate financial statements Jointly controlled Nature of Shareholding Allowance Carrying amounts based on entities’ name business percentage Cost for loss on investments cost method - net 2007 2006 2007 2006 2007 2006 2007 2006 (%) (%) (Restated) Joint Venture BBCT Construction - Second Stage Expressway 53.20 53.20 - - - - - - Project Sector B Route Phayathai - Bangkhlo - Second Stage Expressway 59.99 59.99 - - - - - - Project Sector C+ Route Chaeng Wattana - Bang Phun & Bang Sai - Second Stage Expresswa 59.99 59.99 - - - - - - Project Sector D Route Asoke - Srinakarin - Second Stage Expressway 59.99 59.99 - - (18,019,822) (18,019,822) (18,019,822) (18,019,822) Project Sector C1A Route Ngam Wong Wan - Chaeng Wattana The TWCK Joint Venture Construction 50.00 50.00 - 770,000 - - - 770,000 and project management Joint Venture BCKT Construction 25.00 25.00 - - - - - - Joint Venture BBCD Construction 35.00 35.00 26,250,000 26,250,000 (4,090,819,687) (4,222,057,361) (4,064,569,687) (4,195,807,361) Joint Venture CKSL Construction 99.90 99.90 - - - - - - Joint Venture CKAE Consortium Construction 98.00 98.00 - - - - - - Joint Venture CKET Project 80.00 80.00 - - - - - - management CKOBA Joint Venture Construction 44.00 44.00 - 1,320,000 - - - 1,320,000 Joint Venture BBC Construction 25.00 25.00 9,927,260 11,177,260 (9,927,260) (11,177,260) - -

116

CH.KARNCHANG PUBLIC COMPANY LIMITED


(Unit: Baht) Separate financial statements Jointly controlled Nature of Shareholding Allowance Carrying amounts based on entities’ name business percentage Cost for loss on investments cost method - net 2007 2006 2007 2006 2007 2006 2007 2006 (%) (%) (Restated) Joint Venture CKNNL Construction 51.89 51.32 - - - - - - CKLX Joint Venture Construction 75.00 - - - - - - - Total 36,177,260 39,517,260 (4,118,766,769) (4,251,254,443) (4,082,589,509) (4,211,737,183) Presented as: Investments in jointly controlled entities - 2,090,000 Provision for loss on investments in jointly controlled entities (4,082,589,509) (4,213,827,183)

The outstanding balances of provision for loss on investments in jointly controlled entities comprise of provision for loss in excess of investments in Joint Venture BBCT and Joint Venture BBCD. (Unit: Baht) Separate financial statements Profit sharing from jointly controlled Jointly controlled entities’ name entities during the year 2007 2006 Joint Venture BBCT - Second Stage Expressway Project Sector C+ Route Chaeng Wattana - Bang Phun&Bang Sai 6,597,800 - - Second Stage Expressway Project Sector D Route Asoke - Srinakarin 2,999,000 - The TWCK Joint Venture 4,830,000 - Joint Venture BCKT 2,500,000 7,500,000 CKOBA Joint Venture 6,380,120 - Joint Venture CKNNL 7,609,095 - Total 30,916,015 7,500,000

Annual Report 2007

117


118

(Unit: Million Baht) As at 31 December Joint Venture CKAE Joint Venture BBCT Joint Venture BBCD Consortium Joint Venture CKET Joint Venture CKNNL CKLX Joint Venture 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Current assets 204.6 214.8 29.7 37.2 350.7 812.0 1,465.5 1,520.8 6.6 165.2 257.0 - Non-current assets 0.3 0.4 0.2 0.3 - - 75.9 74.8 0.1 1.1 - - 204.9 215.2 29.9 37.5 350.7 812.0 1,541.4 1,595.6 6.7 166.3 257.0 - Current liabilities (18.1) (18.0) (4,507.0) (4,341.4) (156.0) (647.1) (1,125.6) (1,218.2) (0.2) (212.9) (256.6) - Non-current liabilities - - - - - - - - - - - - Net assets (liabilities) 186.8 197.2 (4,477.1) (4,303.9) 194.7 164.9 415.8 377.4 6.5 (46.6) 0.4 - (Unit: Million Baht) For the year ended 31 December Joint Venture CKAE Joint Venture BBCT Joint Venture BBCD Consortium Joint Venture CKET Joint Venture CKNNL CKLX Joint Venture 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Total revenues 0.9 4.9 1.4 543.4 116.4 43.6 193.1 149.7 19.7 528.9 65.9 - Total expenses (1.7) (0.7) (174.6) (2,687.3) (86.6) (42.6) (154.8) (126.3) (26.4) (514.9) (65.5) - Net income (loss) (0.8) 4.2 (173.2) (2,143.9) 29.8 1.0 38.3 23.4 (6.7) 14.0 0.4 -

14.2 Summarised financial information of significant jointly controlled entities The Company’s proportionate shares of the assets, liabilities, revenue and expenses of significant jointly controlled entities are as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

CH.KARNCHANG PUBLIC COMPANY LIMITED


Annual Report 2007

119

(Unit: Baht)

Chaloem Ratchamongkhon Line and Commercial development Thailand 24.61 24.61 3,593,304,884 Thai Tap Water Supply Public Production and sale Company Limited and its of treated water to subsidiaries the Provincial Waterworks Authority Thailand 45.59 46.15 2,672,849,491 SouthEast Asia Energy Limited Generating and sale of electricity Thailand 28.50 28.50 1,015,811,200 Total 7,282,803,475

7,103,576,019

370,499,950

2,672,849,491

3,593,304,884

-

-

(535,502,872) (1,123,125,314)

-

(652,304,968)

-

(534,664,972)

1,015,811,200

6,747,300,603

2,672,849,491

3,058,639,912

370,499,950

5,980,450,705

2,672,849,491

2,940,999,916

Country of Shareholding Carrying amounts based on Company’s name Nature of business incorporation percentage Cost equity method 2007 2006 2007 2006 2007 2006 (%) (%) Construction Qatar 49.00 49.00 837,900 837,900 - - CH. Karnchang (Qatar) Contracting Company Pathum Thani Water Company Limited and its subsidiary Production and sale of treated (2007: 98 percent held by Thai Tap Water Supply water to the Provincial Thailand - 42.58 - 466,083,794 - (113,082,902) Public Company Limited) Waterworks Authority 24.61 24.61 3,593,304,884 3,593,304,884 1,535,547,402 1,892,120,925 Bangkok Metro Public Company Limited and its subsidiaries Operation of the MRTA Intitial Thailand System Project - Chaloem Ratchamongkhon Line and Commercial development Production and sale of treated Thailand 45.59 46.15 2,672,849,491 2,672,849,491 2,356,478,950 2,588,393,207 Thai Tap Water Supply Public Company Limited and its subsidiaries water to the Provincial Waterworks Authority Generating and sale of electricity Thailand 28.50 28.50 1,015,811,200 370,499,950 657,001,509 193,834,353 SouthEast Asia Energy Limited Total 7,282,803,475 7,103,576,019 4,549,027,861 4,561,265,583 Present as: Investments in associated companies 4,549,027,861 4,674,348,485 Provision for loss on investments in associated company - (113,082,902) (Unit: Baht) Separate financial statements Nature Country of Shareholding Carrying amounts based Company’s name of business incorporation percentage Cost Allowance for loss on investments on cost method - net 2007 2006 2007 2006 2007 2006 2007 2006 (%) (%) (Restated) CH. Karnchang (Qatar) Contracting Company Construction Qatar 49.00 49.00 837,900 837,900 (837,900) (837,900) - - Pathum Thani Water Company Limited Production and sale and its subsidiary (2007: 98 percent of treated water to held by Thai Tap Water Supply the Provincial Public Company Limited) Waterworks Authority Thailand - 42.58 - 466,083,794 - (469,982,446) - (3,898,652) Bangkok Metro Public Company Operation of the MRTA Limited and its subsidiaries Intitial System Project -

15.1 Details of associated companies: Consolidated financial statements

15. CURRENT INVESTMENTS/INVESTMENTS IN ASSOCIATED COMPANIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

(Unit: Baht) Consolidated financial statements Separate financial statements Share of income (loss) from investments in associated Company’s name companies during the year Dividend received during the year 2007 2006 2007 2006 CH. Karnchang (Qatar) Contracting Company - - - - Pathum Thani Water Company Limited and its subsidiary (83,477,750) - - - Bangkok Metro Public Company Limited and its subsidiaries (356,573,523) (404,305,927) - - 384,300,765 255,540,421 77,491,970 122,249,951 Thai Tap Water Supply Public Company Limited and its subsidiaries SouthEast Asia Energy Limited (182,144,094) (144,066,945) - - Total (237,894,602) (292,832,451) 77,491,970 122,249,951 15.2 Fair values of investments in associated company which is a listed company in the Stock Exchange of Thailand (Unit: Million Baht) Company’s name Fair values as at 31 December 2007 2006 Bangkok Metro Public Company Limited 3,058.6 3,323.3 Total 3,058.6 3,323.3 15.3 Summarised financial information of associated companies (Unit: Million Baht) Total revenues for Net income (loss) Paid-up capital as Total assets as Total liabilities as the year ended for the year ended Company’s name at 31 December at 31 December at 31 December 31 December 31 December 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Pathum Thani Water Company Limited and 1,200.0 1,102.0 4,818.9 4,381.5 3,851.4 4,864.2 1,231.3 1,460.0 42.9 546.1 its subsidiary Bangkok Metro Public Company Limited 11,950.0 11,950.0 19,705.3 21,241.7 12,737.4 12,802.3 1,445.8 1,398.9 (1,475.4) (1,669.4) its subsidiaries Thai and Tap Water Supply Public Company Limited and its subsidiaries 3,290.0 3,250.0 18,681.1 10,681.9 13,966.4 6,792.0 2,623.2 1,722.2 920.0 674.4 SouthEast Asia Energy Limited 3,564.3 1,300.0 11,796.4 5,482.1 8,372.8 4,278.7 0.2 0.4 (44.0) (57.4)

Pathum Thani Water Company Limited

It is stipulated in the Sponsors Loan Agreement between the Company and Pathum Thani Water Company Limited that if the associated company has a cash shortage, it may call for additional funds from its shareholders in an amount equal to the cash shortfall, either in the form of a share capital increase or subordinated loans, but that the aggregate amount should not exceed Baht 300 million. The Company has a commitment to provide such funding in proportion as stipulated in the agreement, equal to approximately Baht 113.1 million. For prudent reasons, the Company set aside a provision for loss on investment in that associated company in the consolidated financial statements equal to the amount of additional funds the Company is committed to provide. During the second quarter of the year 2007, the Company reversed the provision for loss on investment in the associated company, since it sold its investment in Pathum Thani Water Company Limited and no longer has commitments under the Sponsors Loan Agreement. 120

CH.KARNCHANG PUBLIC COMPANY LIMITED


In June 2006 and October 2006, the Company purchased 826,500 ordinary shares and 659,000 ordinary shares in Pathum Thani Water Company Limited from an existing corporate shareholder and a major shareholder of the Company, respectively, at prices of Baht 73.5 per share (the share values appraised by an independent financial advisor were Baht 170.44 and Baht 212.3, respectively), or a total of Baht 60.75 million and Baht 48.44 million, respectively. As a result of the share acquisitions the Company’s shareholding in Pathum Thani Water Company Limited increased to 42.58 percent. Since these purchases of shares were made for the purpose of restructuring the organization of the group companies, the Company reflected the results of the share purchase in the year 2006 and recorded the difference between the acquisition cost of the investment and the attributable net book value of the associated company, totaling Baht 109.19 million, as a separate item in shareholders’ equity under the caption “Differences on reorganization of business of group companies” in the consolidated financial statements as at 31 December 2006. During the second quarter of the year 2007, the Company sold its investment in Pathum Thani Water Company Limited, and as a result has no outstanding balance of such account in the consolidated balance sheet as at 31 December 2007. On 4 and 26 December 2006, extraordinary general meetings of the shareholders of Pathum Thani Water Company Limited passed resolutions relating to the restructuring of that company and these were approved by a meeting of the Company’s Board of Directors on 25 December 2006. During the first quarter of the year 2007, Pathum Thani Water Company Limited proceeded with the above restructuring, as detailed below. 1. Pathum Thani Water Company Limited increased its registered share capital by Baht 1,650 million, from Baht 1,102 million to Baht 2,752 million. In this respect, in January 2007, the Company exercised its rights to subscribe to 7,025,700, new shares of Pathum Thani Water Company Limited with a par value of Baht 100 per share, or a total of Baht 702.6 million, in order to maintain the Company’s shareholding of 42.58 percent, and alaso subscribed to 1,049,818 shares for which other shareholders had waived their subscription rights, or a total of Baht 105 million. The total number of subscribed shares was thus 8,075,518 shares, or a total of Baht 807.6 million (the acquisition of additonal shares for which existing shareholders did not exercise their subscription rights was an exercise of rights in proportion to the shareholding of each shareholder, and no shareholders exercised more than their proportionate rights or waived their rights to subscribe to shares of shareholders who did not exercise their rights). The Company paid the Baht 807.6 million for these additional shares in January 2007, and as a result held 12,767,838 shares in Pathum Thani Water Company Limited, representing 46.39 percent of the total of 27,520,000 shares. 2. Pathum Thani Water Company Limited terminated the Operation and Maintenance Agreement with Pathum Thani Operations Company Limited and will pay early termination fees in the amount of Baht 385 million to that company. Payment is scheduled in quarterly installments, with all fees to be paid within 30 April 2008. Pathum Thani Water Company Limited paid fees of Baht 314 million during the year 2007 (Pathum Thani Water Company Limited appointed an independent financial advisor to evaluate the compensation to be paid for the early termination of the service agreement with Pathum Thani Operations Company Limited). 3. In order to minimize the operating risk of Pathum Thani Water Company Limited, it acquired all shares of BJT Water Company Limited, which had been hired by Pathum Thani Operations Company Limited to perform operations and maintenance, from existing shareholders at a price of Baht 610 per share (the share value appraised by an independent financial advisor was between Baht 939.40 and Baht 994.62 per share). A total of 500,000 shares were acquired, from Rayong Real Estate Company Limited, Capital Cereals Company Limited and other individual shareholders (formerly these 450,439 shares had been held by a related company but had already been sold), and the total price to be paid for the acquisition was thus Baht 305 million. Pathum Thani Water Company Limited has included the financial statements of BJT Water Company Limited in its consolidated financial statements since February 2007. However, since this purchase of the shares was made for the purpose of restructuring the organization of the group companies, Pathum Thani Water Company Limited reflected the result of the share purchase in the consolidated financial statements and recorded the difference between the acquisition cost of the investment and the attributable net book value of the subsidiary, amounting to Baht 243.3 million, as a separate item in shareholders’equity under the caption “Difference on reorganization of business of group companies”, while the Company recorded the effect of this transaction in proportion to the Company’s shareholding in Pathum Thani Water Company Limited, amounting to Baht 112.9 million, in shareholders’ equity under the caption “Differences on reorganization of business of group companies” in the consolidated financial statements as at 31 March 2007. During the second quarter of the year 2007, the Company sold its investment in Pathum Thani Water Company Limited, and as a result has no outstanding balance of such account in the consolidated balance sheet as at 31 December 2007. 4. Pathum Thani Water Company Limited entered into a new Operation and Maintenance Agreement directly with BJT Water Company Limited. Annual Report 2007

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

On 26 January 2007, a meeting of the Board of Directors of Pathum Thani Water Company Limited passed a resolution to reduce of that company’s registered share capital by Baht 1,552 million, from Baht 2,752 million to Baht 1,200 million (comprising 12,000,000 ordinary shares of Baht 100 each) by cancelling 15,520,000 shares. The capital reduction will be made by reducing each shareholder’s existing holding proportionately and will be deducted against deficit. Subsequently, a meet ing of the Company’s Board of Directors held on 5 February 2007 and the extraordinary general meetings of the shareholders of Pathum Thani Water Company Limited held on 6 and 21 February 2007 passed resolutions approving the reduction of registered share capital. On 11 June 2007, Pathum Thani Water Company Limited registered the reduction of its share capital to Baht 1,200 million with the Ministry of Commerce. On 30 April 2007, the Annual General Meeting of the Company’s shareholders passed a resolution approving the sale of not more than 5,567,371 ordinary shares of Pathum Thani Water Company Limited (the number of shares after Pathum Thani Water Company Limited decreased its registered capital), representing not more than 46.39 percent of the reduced registered capital of that company, at a price not lower than Baht 332 per share, or for a total of not less than Baht 1,848,367,172, to Thai Tap Water Supply Public Company Limited and/or persons and/or legal entities having no connection with the Company. In this respect, the Board of Directors of the Company were authorised to consider and approve the details, selling price, number of shares, period of time and other conditions. On 25 June 2007, a meeting of the Company’s Board of Directors approved the sales of all 5,567,371 ordinary shares of Pathum Thani Water Company Limited at a price of Baht 340 per share (the share price is close to the value appraised by an independent financial advisor) to Thai Tap Water Supply Public Company Limited, whereby the Company is to enter into a share sale and purchase agreement and initially transferred 5,067,371 shares, or a total of Baht 1,722.9 million, while the remaining 500,000 shares, or a total of Baht 170 million, are to be transferred and paid for at a later date, provided that the transfer takes place before the date that the ordinary shares of Thai Tap Water Supply Public Company Limited are listed as securities on the Stock Exchange of Thailand. On 25 June 2007, the group of existing shareholders of Pathum Thani Water Company Limited, comprised of the Company, two shareholders of the Company and another company, entered into a share sale and purchase agreement for the shares of Pathum Thani Water Company Limited with Thai Tap Water Supply Public Company Limited, whereby they sold 10,313,865 ordinary shares of Pathum Thani Water Company Limited at a price of Baht 340 per share, for a total of Baht 3,506.7 million. The Company’s portion in these shares sold amounted to 5,067,371 shares, for a total of Baht 1,722.9 million. The Company received cash from the sale of these shares of Baht 1,722.9 million on 29 June 2007. As a result, the Company recorded gains on the sale of investments in associated company amounting to Baht 574.8 million (after the reversal of provision for loss on investments in such associated company and the elimination of profit between parties) in the consolidated income statement, and amounting to Baht 1,033.9 million (after the reversal of an allowance for loss on diminution of investments in such associated company) in the separate income statement for the second quarter of the year 2007. The Company holds a remaining 500,000 ordinary shares in Pathum Thani Water Company Limited, or equivalent to 4.17 percent of the paid-up capital of such company. Subsequently, on 14 December 2007, the Company entered into a share sale and purchase agreement for the shares of Pathum Thani Water Company Limited with Thai Tap Water Supply Public Company Limited, whereby it sold 499,998 ordinary shares of Pathum Thani Water Company Limited at a price of Baht 340 per share, for a total of Baht 170.0 million. The Company received cash from the sale of these shares on 18 December 2007. As a result, the Company recorded gains on the sale of investments in associated company for the year 2007, amounting to Baht 56.7 million (after the reversal of provision for loss on investment in such associated company and the elimination of profit between parties) in the consolidated income statement and Baht 55.4 million in the separate income statement. In addition, the Company (as contractor for the expansion of a treated water production project for Pathum Thani Water Company Limited) entered into a Sponsor Support Agreement with Pathum Thani Water Company Limited and a group of lenders of that company, whereby the Company agreed to provide cash support to such company.

Bangkok Metro Public Company Limited

In September 2006, the Stock Exchange of Thailand (“SET”) approved the listing of the ordinary shares of Bangkok Metro Public Company Limited. This company launched an IPO of 2,756.4 million ordinary shares, consisting of 1,315.8 million new ordinary shares and 1,440.6 million existing ordinary shares, at a price of Baht 1.31 per share. The Company sold 270 million ordinary shares of Bangkok Metro Public Company Limited to the public at the public offering price (Baht 1.31 per share), or a total of Baht 353.7 million, in order to ensure that Bangkok Metro Public Company Limited would be qualified in accordance with the rules of the SET. As a result the Company’s equity interest fell from 28.23 percent to 21.07 percent. However, the Company did not recognize the gain 122

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from the sale of these shares since the Company wishes to purchase ordinary shares in that company through the Stock Exchange of Thailand and maintain a holding of no more than its former interest (28.23 percent of registered capital). Following the listing of the shares of Bangkok Metro Public Company Limited, a 3-year silent period was imposed on the 1,888,312,416 shares held by the Company, as from the initial trading date of the shares on the SET, although the Company may gradually allocate the shares for sale beginning one year after the initial trading date. In addition, Bangkok Metro Public Company Limited issued 2,987.5 million ordinary shares with a par value of Baht 1 each to Mass Rapid Transit Authority of Thailand (MRTA). As a result, the Company’s shareholdings in that company decreased from 21.07 percent to 15.8 percent. During the dates 21 to 29 September 2006, the Company purchased 723.78 million ordinary shares in Bangkok Metro Public Company Limited on the Stock Exchange of Thailand at an average prices of Baht 1.29 per share, a total of Baht 937.1 million, and paid for these shares in September and October 2006. As a result, the shareholding of the Company in such company has increased from 15.8 percent to 21.86 percent. Subsequently, in October 2006, the Company purchased 328.9 million ordinary shares in Bangkok Metro Public Company Limited on the Stock Exchange of Thailand at an average prices of Baht 1.31 per share, a total of Baht 431.1 million, and paid for these shares in October and November 2006. As a result, the shareholding of the Company in such company has increased from 21.86 percent to 24.61 percent. The Company has pledged part of its share certificates of investment in Bangkok Metro Public Company Limited with a group of banks to secure parts of the long-term loans obtained from that group of banks by the associated company.

Thai Tap Water Supply Public Company Limited

a) In January 2005, the Company exercised its option to purchase ordinary shares of Thai Tap Water Supply Company Limited, at a total cost of Baht 320 million, increasing its interest in that company to 49.99 percent of equity. The Company classified the outstanding balance of this investment as an investment in associated company since the Company has influence over that company but does not have control, and the value of investment is presented under the equity method in the consolidated financial statements. b) On 22 June 2005, the Extraordinary General Meeting of the Company’s shareholders passed the following resolutions in respect of investment in Thai Tap Water Supply Company Limited. 1) Approving the Company’s purchase of 15 million ordinary shares of Thai Tap Water Supply Company Limited with a par value of Baht 100 per share from its existing shareholders, representing 50 percent of the registered and paid-up capital, at a total price of not more than Baht 3,600 million (or not more than Baht 240 per share). 2) Approving the sale and/or transfer of some of the Company’s options to purchase ordinary shares of Thai Tap Water Supply Company Limited to persons and/or juristic persons, so that they can jointly invest in that company, but with the group companies to maintain a majority shareholder of not less than 51 percent of the registered capital. The meeting authorised the Executive Board to determine the details, price and various conditions of such offering at a later date. On 2 August 2005, the Company had purchased 15 million ordinary shares of Thai Tap Water Supply Company Limited from its existing shareholders at total purchase price of Baht 3,311,275,840 (including related expenses), or equivalent to 50 percent of the registered and paid-up capital of that company. However, since the Company intends to hold the shares under b) as a temporary investment and sell them to other investors within one year, the investment is not treated as an investment in associated company and the Company does not treated Thai Tap Water Supply Company Limited as a subsidiary. Instead it separately presents investment under b) as current assets under the caption of “Current investments” in the balance sheet, under the cost method. The Company’s shareholders have already approved the sale of some of these shares (as discussed above). On 15 August 2005, a meeting of the Board of Directors of Thai Tap Water Supply Company Limited approved the payment of an interim dividend of Baht 3.50 per share to its shareholders from the earnings for 1 January 2005 to 30 June 2005. The Company recorded the dividend received from Thai Tap Water Supply Company Limited as a deduction item from the investment balances since the dividend on investment under a) must be recorded under the equity method in the consolidated financial statements and the dividend on the investment under b) was declared from the earnings occurred before shares were purchased by the Company. On 10 January 2006, an Extraordinary General Meeting of shareholders of Thai Tap Water Supply Company Limited passed resolutions in respect of the following: 1) Approved a purchase of ordinary shares of WaterFlow Company Limited from its existing shareholder equal to 100 percent of the registered share capital of that company (these shares had formerly been held by related companies but had already Annual Report 2007

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been sold). The agreed purchase price was not over Baht 7,000 per share, or total of not more than Baht 700 million. This price is approximated to the value appraised by an independent financial advisor. 2) Approved an increase in the registered share capital from Baht 3,000 million to Baht 3,250 million, through the issuance of 2.5 million ordinary shares with a par value of Baht 100 each to its existing shareholders, in proportion to their shareholding, at an offer price of Baht 290 per share, totaling of Baht 725 million. On 23 January 2006, a meeting of the Board of Directors of Thai Tap Water Supply Company Limited resolved to approve the payment of an interim dividend of Baht 3.15 per share from the earnings for the period as from 1 July 2005 to 31 December 2005, or a total of Baht 94.5 million, to shareholders listed in the share register as at 31 December 2005. Thai Tap Water Supply Company Limited paid such interim dividend in May 2006. The Company recorded the dividend received of Baht 47.2 million as a deduction from investment in associated company in the consolidated financial statements, since such dividend was paid on investment under a), which was recorded under the equity method, and Baht 38.0 million of dividend was recorded as other income in the consolidated income statement since it was the dividend on the investment under b), which was recorded as current investments (Separate income statement: Baht 85.2 million). On 27 February 2006, the Company invested a total of Baht 670.5 million (2,312,050 ordinary shares at a price of Baht 290 per share) in the additional ordinary shares of Thai Tap Water Supply Company Limited offered to existing shareholders, both in the Company’s proportion of shareholding and that of another shareholder who waived the subscription rights. Thai Tap Water Supply Company Limited registered the increase in its registered share capital to Baht 3,250 million with the Ministry of Commerce on 27 February 2006. However, since the Company intends to hold these shares as a temporary investment and sell them to other investors within one year, the investment is not treated as investment in associated company, and is instead separately presented as current assets under the caption of “Current investments” in the balance sheet. As a result the Company’s equity interest in this company, which was recorded as investment in associated company, decreased from 49.99 percent to 46.15 percent during the first quarter of the year 2006. On 27 February 2006, a meeting of the Company’s Board of Directors resolved to approve the sale of approximately 14.7 million of the ordinary shares of Thai Tap Water Supply Company Limited held by the Company, or equivalent to 45.16 percent of the registered share capital of that company, to persons and/or juristic persons who are not related parties of the Company and/or to persons related to the Company, provided that the Company follows the regulations of the Stock Exchange of Thailand. The selling price of these shares was set at not less than Baht 290 per share, or a total of Baht 4,256.1 million. In February 2006, Thai Tap Water Supply Company Limited purchased 100,000 ordinary shares of WaterFlow Company Limited from its then shareholders, representing 100 percent of the share capital of that company (these shares had formerly been held by related companies but had already been sold) at a price of Baht 7,000 per share (the share value is close to the value appraised by an independent financial advisor), or for a total of Baht 700 million and the financial statements of this subsidiary have been included in the consolidated financial statements of Thai Tap Water Supply Company Limited since March 2006. However, since this purchase of the shares was made for the purpose of restructuring the organization of the group companies, Thai Tap Water Supply Company Limited reflected the result of the share purchase in the consolidated financial statements and recorded the difference between the acquisition cost of the investment and the attributable net book value of the subsidiary, amounting to Baht 600.36 million, as a separate item in shareholders’equity under the caption “Difference on reorganization of business of group companies” while the Company recorded the effect of this transaction in proportion to the Company’s shareholding in Thai Tap Water Supply Company Limited, amounting to Baht 277.07 million, in shareholders’ equity under the caption “Difference on reorganization of business of group companies” in the consolidated financial statements. On 28 February 2006, the Company entered into a share purchase and sale agreement with Mitsui Water Holdings (Thailand) Company Limited in order to sell 11,375,000 ordinary shares of Thai Tap Water Supply Company Limited, or equivalent to 35 percent of its registered and paid-up capital, at a price of Baht 320 per share, for a total of Baht 3,640 million. The gain of Baht 1,000.58 million on this sale was recorded by the Company in the income statement of the first quarter of the year 2006. On 28 April 2006, the Annual General Meeting of the Company’s shareholders passed resolutions to acknowledge and approve as well as ratify the reduction in the Company’s shareholding in Thai Tap Water Supply Company Limited, from a holding of not less than 51 percent to a holding of not more than 49 percent of the registered share capital of that company. On 28 April 2006, the Company entered into a share purchase and sale agreement with Bangkok Expressway Public Company Limited in order to sell 1,676,150 ordinary shares of Thai Tap Water Supply Company Limited, or equivalent to 5.16 percent of its registered and paid-up capital, at a price of Baht 320 per share, for a total of Baht 536.37 million. The gain of Baht 172.22 million on this sale was recorded by the Company in the income statement of the second quarter of the year 2006. 124

CH.KARNCHANG PUBLIC COMPANY LIMITED


On 6 July 2006, Thai Tap Water Supply Company Limited registered the change of its status to a public company limited and the change in the par value of the ordinary shares as a result of the split of 32.5 million ordinary shares of Baht 100 each into 3,250 million ordinary shares of Baht 1 each. This share split resulted in an increase in the number of shares held by the Company to 1,631 million shares of Baht 1 each, with its percentage shareholding maintained. On 24 July 2006, the Company entered into a share purchase and sale agreement with Bangkok Expressway Public Company Limited in order to sell 81,250,000 ordinary shares of Thai Tap Water Supply Public Company Limited, or equivalent to 2.5 percent of its registered and paid-up capital, at a price of Baht 3.2 per share, for a total of Baht 260 million. The gain of Baht 83.48 million on this sale was recorded by the Company in the income statement of the third quarter of the year 2006. The total gain on the sales of investments in Thai Tap Water Supply Public Company Limited, amounting to Baht 1,256.28 million, was recorded in the income statement of the year 2006. On 18 August 2006, a meeting of the Board of Directors of Thai Tap Water Supply Public Company Limited resolved to approve the payment of an interim dividend of Baht 0.05 per share from the earnings of the promoted operations for the period as from 1 January 2006 to 30 June 2006, or a total of Baht 162.5 million, to shareholders listed in the share register as at 22 August 2006. Thai Tap Water Supply Public Company Limited paid such interim dividend in September 2006. The Company recorded dividend received of Baht 75 million as a deduction from investment in associated company in the consolidated financial statements, since such dividend was paid on investment under a), which was recorded under the equity method, while dividend of Baht 2.5 million was recorded as other income in the consolidated income statement since it was the dividend on the investment under b), which was recorded as current investments (Separate income statement: Baht 77.5 million). On 26 September 2006, an Extraordinary General Meeting of the shareholders of Thai Tap Water Supply Public Company Limited passed a resolution approving the increase of the registered share capital of Thai Tap Water Supply Public Company Limited from Baht 3,250 million to Baht 3,990 million through the issuance of 740 million new ordinary shares with a par value of Baht 1 each. The allocation of the additional ordinary shares is to be as follows: 1) 40 million ordinary shares are to be allocated and offered, in whole or in part, to directors, management, and employees of Thai Tap Water Supply Public Company Limited and employees of WaterFlow Company Limited at a price equivalent to book value as at the latest fiscal year-end (Baht 1.2 per share). These may be offered on one or several occasions. Any ordinary shares remaining after the allocation are to be allocated by means of public offerings. These offers may be in Thailand and/or abroad and made on one or several occasions, in whole or in part. In this regard, the Executive Board or any persons assigned by the Executive Board of Thai Tap Water Supply Public Company Limited is granted the authority to determine the allocation of offering rights, and all details and conditions in respect of the number of ordinary shares to be offered on each occasion, the offer period, the payment of the share price and the offer price, including the allocation of any ordinary shares remaining after the offering rights and the listing of the ordinary shares of Thai Tap Water Supply Public Company Limited as securities on the Stock Exchange of Thailand. 2) 700 million ordinary shares are to be allocated and offered, in whole or in part, to the public. These may be offered on one or several occasions. Any shares remaining after this allocation are to be allocated, in whole or in part, by means of private placement and/or to institutional investors, in accordance with the relevant Notifications of the Securities and Exchange Commission, on one or several occasions. In this regard, the Executive Board or any persons assigned by the Executive Board of Thai Tap Water Supply Public Company Limited are granted the authority to arrange all significant matters in relation to the issuance and offer of these shares, including the determination of the number of ordinary shares to be offered on each occasion, the offer period, the payment of the share price and the offer price, together with the listing of the ordinary shares of Thai Tap Water Supply Public Company Limited as securities on the Stock Exchange of Thailand. On 24 October 2006, Thai Tap Water Supply Public Company Limited registered an increase in its share capital to Baht 3,990 million, comprising 3,990 million ordinary shares of Baht 1 each, with the Ministry of Commerce. On 5 October 2007, an Extraordinary General Meeting of the shareholders of Thai Tap Water Supply Public Company Limited passed a resolution confirming the allotment of the additional ordinary shares as mentioned in 1) and 2). Subsequently, on 3 December 2007, Thai Tap Water Supply Public Company Limited issued 40 million new ordinary shares with a par value of Baht 1 each, which it offered to directors, management, and employees of such company and employees of WaterFlow Company Limited at an offer price of Baht 1.2 per share, or a total of Baht 48 million. Thai Tap Water Supply Public Company Limited received payment for the additional shares in December 2007 and registered the increase in its paid-up share capital with the Ministry of Commerce on 18 December 2007. As a result, the shareholding of the Company in such company has decreased from 46.15 percent to 45.59 percent. Currently, Thai Tap Water Supply Public Company Limited has yet to allot the shares as mentioned in 2). Annual Report 2007

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

On 10 April 2007, the 2007 Annual General Meeting of the shareholders of Thai Tap Water Supply Public Company Limited resolved to approve the payment of dividend of Baht 0.05 per share from the earnings of the promoted operations for the period as from 1 July 2006 to 31 December 2006, or a total of Baht 162.5 million, to shareholders listed in the share register as at 19 March 2007. Thai Tap Water Supply Public Company Limited paid such dividend in May 2007. The Company recorded dividend received of Baht 75 million as a deduction from investment in associated company in the consolidated financial statements, since such dividend was paid on investment under a), which was recorded under the equity method, while dividend of Baht 2.5 million was recorded as other income in the consolidated income statement since it was the dividend on the investment under b), which was recorded as current investments (Separate income statement: Baht 77.5 million). On 30 April 2007, the Annual General Meeting of the Company’s shareholders passed a resolution approving Thai Tap Water Supply Public Company Limited’s purchase of ordinary shares in Pathum Thani Water Company Limited from existing shareholders (except the Provincial Waterworks Authority) wishing to sell their shares, at prices ranging from Baht 332 to Baht 365 per share, in order to restructure the shareholding of Thai Tap Water Supply Public Company Limited before the initial public offering for the purpose of listing on the Stock Exchange of Thailand. In this respect, the Board of Directors of Thai Tap Water Supply Public Company Limited are authorised to consider and approve the details, selling price, number of shares, period of time and other conditions. On 25 June 2007, an Extraordinary General Meeting of the shareholders of Thai Tap Water Supply Public Company Limited passed a resolution approving the purchase of ordinary shares of Pathum Thani Water Company Limited from its existing shareholders, comprised of the Company and other shareholders, at a price of Baht 340 per share (the share price is close to the value appraised by an independent financial advisor), with the acquisition to comprise an aggregate number of shares not higher than 98 percent of the paid-up capital of Pathum Thani Water Company Limited. On 25 and 27 June 2007, Thai Tap Water Supply Public Company Limited entered into share sale and purchase agreements for the shares of Pathum Thani Water Company Limited with the existing shareholders, whereby it purchased 10,698,283 ordinary shares of Pathum Thani Water Company Limited, or equivalent to 89.15 percent of the paid-up capital of that company, at a price of Baht 340 per share, for a total of Baht 3,637.4 million and paid for these ordinary shares on 29 June 2007. As a result, Thai Tap Water Supply Public Company Limited has included the financial statements of Pathum Thani Water Company Limited and its subsidiary (BJT Water Company Limited) in the consolidated financial statements since 30 June 2007, and included the operating results of these subsidiaries as from 1 July 2007 in the consolidated financial statements for the year ended 31 December 2007. In addition, on 25 June 2007, a meeting of the Company’s Board of Directors passed a resolution approving the Company entering into an Undertaking Agreement with a group lenders of Thai Tap Water Supply Public Company Limited since such company entered into a credit facility agreement with the lenders for the amount of Baht 4,000 million, divided into two tranches, Baht 3,000 million as a short-term loan due for repayment within one year and Baht 1,000 million as a long-term loan due for repayment within six years, which would be utilized to pay for shares in Pathum Thani Water Company Limited. In this respect, on 29 June 2007, the Company, Mitsui Company Limited and the major shareholder of the Company, as Sponsors, entered into the Undertaking Agreement in respect of the Baht 3,000 million short-term loan facility, with the condition in the event that Thai Tap Water Supply Public Company Limited can not be listed on the Stock Exchange of Thailand within one year from the drawdown date or the proceeds derived from the initial public offering of its shares on the Stock Exchange of Thailand are less than Baht 3,000 million. The Company, Mitsui Company Limited and the major shareholder of the Company will make repayment to the lenders, which may be in the form of additional capital shares of Thai Tap Water Supply Public Company Limited or a subordinated loan, or by other means. In this connection, the Company will be liable for 50.1 percent of such Baht 3,000 million, or equivalent to Baht 1,503 million. Subsequently, on 14 December 2007, Thai Tap Water Supply Public Company Limited entered into share sale and purchase agreements for the shares of Pathum Thani Water Company Limited with the existing shareholders, whereby it purchased 1,061,452 ordinary shares of Pathum Thani Water Company Limited, or equivalent to 8.85 percent of the paid-up capital of that company, at a price of Baht 340 per share, for a total of Baht 360.9 million, and paid for these ordinary shares on 18 December 2007. As a result Thai Tap Water Supply Public Company Limited holds a 98 percent interest in Pathum Thani Water Company Limited. The Company has pledged part of share certificates for its investment in Thai Tap Water Supply Public Company Limited with a group of banks to guarantee a loan facility granted to that company by the group of banks.

SouthEast Asia Energy Limited

In January 2006, SouthEast Asia Energy Limited called up an additional 25 percent of the value of the 15.75 million ordinary shares held by the Company which were not fully paid (par value of Baht 10 each), a total of Baht 39.38 million. The Company made payment of the share price in February 2006. 126

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On 14 March 2006, SouthEast Asia Energy Limited registered a branch office under the laws of the Lao People’s Democratic Republic, in order to develop the Nam Ngum 2 Hydroelectric Power Project in the Lao People’s Democratic Republic. In addition, that company entered into “Nam Ngum 2 Hydroelectric Power Project Concession Agreement” with the Government of the Lao People’s Democratic Republic on a BOOT basis (Build-Own-Operate and Transfer) whereby it is to design, develop, construct and operate the Nam Ngum 2 Hydroelectric Power Project for a period of 25 years commencing from the Commercial Operation Date and to transfer the Nam Ngum 2 Hydroelectric Power Project to the Government of the Lao People’s Democratic Republic at the end of the concession period. However, that company has the right to extend the contract period under such terms and conditions as may then be agreed by the parties. Under the Concession Agreement, the company is obliged to pay royalties and taxes to the Government of the Lao People’s Democratic Republic for a certain period and at rates as specified under such agreement. On 21 April 2006, SouthEast Asia Energy Limited established Nam Ngum 2 Power Company Limited, a limited company under the Lao People’s Democratic Republic laws so as to assume rights and benefits as stipulated in the Concession Agreement, the Power Purchase Agreement and the long-term loan agreements in the future periods. SouthEast Asia Energy Limited holds 100 percent share in that company. In April 2006, SouthEast Asia Energy Limited called up an additional 50 percent of the value of the 15.75 million ordinary shares held by the Company which were not fully paid (par value of Baht 10 each), a total of Baht 78.75 million. The Company made payment of the share price in April 2006. During the second quarter of the year 2006, the Company sold 10,400,000 of the ordinary shares it held in this subsidiary, at a price of Baht 10 per share. As a result its shareholding in SouthEast Asia Energy Limited decreased from 54.5 percent to 28.5 percent. The Company has classified its investment in SouthEast Asia Energy Limited as an investment in an associated company and excluded its financial statements from the consolidated financial statements since the second quarter of the year 2006. On 10 May 2006, the Extraordinary General Meeting of the shareholders of SouthEast Asia Energy Limited approved the increase of its registered share capital from Baht 400 million to Baht 4,000 million, with the new ordinary shares to be offered to its existing shareholders and 25 percent of the share price to be called up. The Company exercised its proportionally-granted subscription right to acquire 28.5 percent of the shares, or a total of Baht 256.5 million, in June 2006. On 26 May 2006, the Company entered into an Equity Contribution Agreement with SouthEast Asia Energy Limited and Nam Ngum 2 Power Company Limited (co-borrower), other shareholders and lenders of SouthEast Asia Energy Limited. Under the agreement, the Company agreed to provide equity contributions to SouthEast Asia Energy Limited in the proportion stipulated in the agreement (62.5 percent), or in total not more than Baht 2,469 million, in the following 3 cases: 1) Equity contribution of not more than Baht 781 million for tax liabilities which may arise if such company fails to be granted tax exemption under the double taxation treaty between Thailand and the Lao People’s Democratic Republic. 2) Equity contribution of not more than Baht 1,219 million for income tax liabilities which may arise if such company fails to obtain the BOI Promotion Certificate from the Board of Investment. 3) Equity contribution of not more than Baht 469 million for any revenue shortfall in the event that the construction of the Nam Ngum 3 Hydropower plant negatively impacts on the energy production of the above company, causing such company to be unable to comply with its obligations under the Financing Documents. In addition, the Company agrees to provide additional equity contributions of not more than USD 12.5 million to SouthEast Asia Energy Limited in the event of any budget cost overruns in the Nam Ngum 2 Hydroelectric Power Project, and additional equity contributions of not more than Baht 313 million if the co-borrower of that company defaults on loan payment or is unable to comply with its obligations under the Financing Documents. On 11 April 2007, SouthEast Asia Energy Limited entered into the Memorandum of Understanding with the Lao People’s Democratic Republic for exclusive rights to carry out the a feasibility study and the development of the Nam Bak 1-2 Hydroelectric Power Project within 18 months after the signing date. During the first and the second quarters of the year 2007, SouthEast Asia Energy Limited called up an additional 16 percent and an additional 13.5 percent, respectively, of the value of the 102.6 million ordinary shares held by the Company which were not fully paid (par value of Baht 10 each), or totals of Baht 164.16 million and Baht 138.5 million, respectively. The Company made payment of the share prices in the first and the second quarter of the year 2007. On 8 June 2007, an Extraordinary General Meeting of the shareholders of SouthEast Asia Energy Limited approved the increase of its registered share capital from Baht 4,000 million to Baht 8,809 million through the issuance of 480.9 million new ordinary shares with a par value of Baht 10 each to its existing shareholders and called up 25 percent of the value of the new ordinary shares, Annual Report 2007

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

or a total of Baht 1,202.3 million. SouthEast Asia Energy Limited called for share payment within 2 July 2007. The Company exercised its rights to subscribe to 137,056,500 new shares of SouthEast Asia Energy Limited in order to maintain the Company’s shareholding of 28.5 percent of its registered share capital and paid the Baht 342.6 million for these additional shares on 2 July 2007. SouthEast Asia Energy Limited registered the increase in its registered share capital with the Ministry of Commerce on 2 July 2007. On 19 September 2007, an Extraordinary General Meeting of the shareholders of SouthEast Asia Energy Limited Company’s No. 3/2007 approved a Baht 2,202.25 million reduction in such company’s registered share capital, from Baht 8,809 million to Baht 6,606.75 million (660.675 million ordinary shares of Baht 10 each). Such reduction was made in order to remove the 25 percent of shares held by the Electricite du Laos, or 220.225 million shares of Baht 10 each, and to transfer them to Nam Ngum 2 Power Company Limited (the subsidiary of SouthEast Asia Energy Limited) as share capital in accordance with SouthEast Asia Energy Limited’s obligations under the Concession Agreement and under the long-term loan agreements, whereby it is to transfer all of its rights and obligations under the Project Documents to the subsidiary. Upon completion of the capital reduction, SouthEast Asia Energy Limited and Electricite du Laos will own 75 percent and 25 percent of the shares of the subsidiary, respectively. SouthEast Asia Energy Limited registered the reduction of its registered share capital to Baht 6,606.75 million with the Ministry of Commerce on 2 January 2008. In January 2008, the branch of SouthEast Asia Energy Limited entered into agreements with Nam Ngum 2 Power Company Limited to transfer rights and obligations of the Nam Ngum 2 Hydroelectric Power Project, as approved by the Board of Directors Meeting of SouthEast Asia Energy Limited No. 4/2007, and SouthEast Asia Energy Limited transferred its rights and obligations under the Project Documents to Nam Ngum 2 Power Company Limited, in accordance with its obligations under the Concession Agreement, in the same month. The Company has pledged share certificates for its investment in SouthEast Asia Energy Limited with a group of banks to guarantee a loan facility granted to that company by the group of banks.

16. INVESTMENTS IN RELATED AND OTHER COMPANIES

(Unit: Baht) Consolidated financial statement Separate financial statements Shareholding Investments Shareholding Investments percentage 2007 2006 percentage 2007 2006 % % Investments in available for sale related company Bangkok Expressway Public Company Limited 15.95 2,490,016,962 2,490,016,962 14.71 2,349,577,923 2,349,577,923 Add: Unrealised gain on changes in value of investments 420,790,731 469,918,288 334,867,752 380,174,853 2,910,807,693 2,959,935,250 2,684,445,675 2,729,752,776 Investments - other companies Other Finance and Securities Public Company Limited Nava - 27,291,095 27,291,095 - 27,291,095 27,291,095 Bangkok Tokyu Department Store Company Limited 19.00 2,280,000 2,280,000 - - - Kruasakul Company Limited 10.14 43,750,000 43,750,000 10.14 43,750,000 43,750,000 The 0.57 3,000,000 3,000,000 0.57 3,000,000 3,000,000 Bangkok Club Company Limited Chanthaburi Country Club Company Limited 0.25 2,000,000 2,000,000 0.25 2,000,000 2,000,000 Related jointly controlled entities 136,044 136,044 136,044 136,044 78,457,139 78,457,139 76,177,139 76,177,139 Less: Provision for loss on diminutionin value of investments (71,041,095) (71,041,095) (71,041,095) (71,041,095) 7,416,044 7,416,044 5,136,044 5,136,044 Investments in related and other companies, net 2,918,223,737 2,967,351,294 2,689,581,719 2,734,888,820

The Company has pledged part of the share certificates for its investment in Bangkok Expressway Public Company Limited with banks to secure its long-term loans from banks.

128

CH.KARNCHANG PUBLIC COMPANY LIMITED


Annual Report 2007

129

(Unit: Baht) Consolidated financial statements Furniture, Land and Machinery fixtures Construction land Condominium Building and Leasehold and and office Motor in improvement building construction improvement equipment equipment vehicles progress Total Cost 31 December 2006 277,519,824 - 198,294,170 324,565,103 2,519,331,238 201,787,959 371,499,547 1,348,520 3,894,346,361 Additions 8,164,600 631,756,243 - - 386,282,151 18,228,961 104,416,995 2,226,621 1,151,075,571 Disposals/write off - - - - (39,311,222) (14,878,908) (92,899,605) - (147,089,735) Reclassification/transfer in (out) 163,295 - - - 82,999,628 (40,683) (88,131) (3,575,141) 79,458,968 31 December 2007 285,847,719 631,756,243 198,294,170 324,565,103 2,949,301,795 205,097,329 382,928,806 - 4,977,791,165 Accumulated depreciation 31 December 2006 6,759,570 - 123,753,300 319,159,830 1,410,185,568 138,158,576 214,766,368 - 2,212,783,212 Depreciation for the year 1,453,033 2,469,456 9,140,028 998,440 320,679,555 20,404,621 58,261,598 - 413,406,731 Depreciation on disposals/write off - - - - (26,178,836) (13,269,778) (87,238,140) - (126,686,754) Reclassification/transfer in (out) - - - - (210,819) (25,226) (88,128) - (324,173) 31 December 2007 8,212,603 2,469,456 132,893,328 320,158,270 1,704,475,468 145,268,193 185,701,698 - 2,499,179,016 Allowance for impairment loss 31 December 2006 85,147,523 - - - - - - - 85,147,523 31 December 2007 85,147,523 - - - - - - - 85,147,523 Net book value 31 December 2006 185,612,731 - 74,540,870 5,405,273 1,109,145,670 63,629,383 156,733,179 1,348,520 1,596,415,626 31 December 2007 192,487,593 629,286,787 65,400,842 4,406,833 1,244,826,327 59,829,136 197,227,108 - 2,393,464,626 Depreciation for the year 2006 (Baht 245 million included in cost of construction services, sales of construction materials and services, and the balance in selling and administrative expenses) 268,273,778 2007 (Baht 353 million included in cost of construction services, sales of construction materials and services, and the balance in selling and administrative expenses) 413,406,731

17. PROPERTY, PLANT AND EQUIPMENT


(Unit: Baht) Separate financial statements Furniture, Land and Machinery fixtures land Condominium Building and Leasehold and and office Motor improvement building construction improvement equipment equipment vehicles Total Cost 31 December 2006 171,165,218 - 76,222,295 9,984,396 1,372,836,385 118,789,641 290,671,340 2,039,669,275 Additions 8,164,600 631,756,243 - - 179,956,146 8,404,149 101,050,579 929,331,717 Disposals/write off - - - - (26,932,171) (13,266,322) (90,146,735) (130,345,228) Reclassification/transfer in (out) - - - - 79,587,782 (40,683) (88,131) 79,458,968 31 December 2007 179,329,818 631,756,243 76,222,295 9,984,396 1,605,448,142 113,886,785 301,487,053 2,918,114,732 Accumulated depreciation 31 December 2006 5,074,743 - 51,120,422 4,579,145 863,873,133 84,226,138 177,248,638 1,186,122,219 Depreciation for the year 961,538 2,469,456 3,811,115 998,439 157,140,795 12,334,159 47,418,067 225,133,569 Depreciation on disposals/write off - - - - (13,924,619) (11,691,277) (84,485,272) (110,101,168) Reclassification/transfer in (out) - - - - (210,819) (25,226) (88,128) (324,173) 31 December 2007 6,036,281 2,469,456 54,931,537 5,577,584 1,006,878,490 84,843,794 140,093,305 1,300,830,447 Provision for loss on impairment 31 December 2006 73,859,768 - - - - - - 73,859,768 31 December 2007 73,859,768 - - - - - - 73,859,768 Net book value 31 December 2006 92,230,707 - 25,101,873 5,405,251 508,963,252 34,563,503 113,422,702 779,687,288 31 December 2007 99,433,769 629,286,787 21,290,758 4,406,812 598,569,652 29,042,991 161,393,748 1,543,424,517 Depreciation for the years 2006 (Baht 159 million included in cost of construction services, sales of construction materials and services, and the balance in selling and administrative expenses) 168,555,961 2007 (Baht 192 million included in cost of construction services, sales of construction materials and services, and the balance in selling and administrative expenses) 225,133,569

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

130

CH.KARNCHANG PUBLIC COMPANY LIMITED


On 12 October 2007, an Extraordinary General Meeting of the Company’s shareholders approved an acquisition from CK. Office Tower Company Limited (a related company) of a 23-storeyed office building and a 6-storeyed parking building, which are registered as an office-condominium named Viriyathavorn Building, together with two vacant land plots, for a total Baht 625 million (the value appraised by an independent appraiser was Baht 674.6 million). The purpose of the acquisition is to use the office condominium units for the business operations of the Company and the group companies. The Company entered into a sale and purchase agreement in respect of these assets and paid for such purchase in November 2007. As at 31 December 2007, in the consolidated financial statements the net book value of fixed assets which are no longer used in the operations and are awaiting sale amounted to approximately Baht 0.3 million (2006: Baht 0.6 million). As at 31 December 2007, certain plant and equipment items have been fully depreciated but are still in use. The original cost of those assets amounted to approximately Baht 1,626 million (2006: Baht 1,692 million) (Separate financial statements: Baht 777 million, 2006: Baht 840 million). A subsidiary has mortgaged part of its plots of land, building and construction thereon and machinery with a total net book value as at 31 December 2007 of Baht 126.5 million as collateral for bank overdraft and short-term loan granted by a bank.

18. INVESTMENTS IN LAND (Unit: Baht)

Consolidated financial statements Separate financial statements 2007 2006 2007 2006 341,737,495 341,737,495 182,346,124 182,346,124 Cost (59,848,637) (59,848,637) (41,834,202) (41,834,202) Less: Provision for decline in value of investments in land Investments in land, net 281,888,858 281,888,858 140,511,922 140,511,922 The Company and its subsidiaries appraised the value of investments in land and adjusted them to fair value, which is equivalent to the price appraised by the Land Department.

19. BANK OVERDRAFTS AND SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS

Bank overdrafts and short-term loans from financial institutions as at 31 December 2007 and 2006 are comprise of: (Unit: Baht) Consolidated financial statements Separate financial statements Interest rate 2007 2006 2007 2006 (% p.a.) Bank overdrafts 8.25 to 15.5, 65,826,615 100,529,974 12,804,559 1,400,254 MLR + 1 and MOR Short-term loans from banks 7.875, MLR - 1.5 2,048,850,774 1,147,322,020 488,560,000 612,958,520 to MLR and MOR Bills of exchange 3.8 to 4.3 550,000,000 2,575,000,000 550,000,000 2,575,000,000 2,664,677,389 3,822,851,994 1,051,364,559 3,189,358,774 Total Short-term loans from a bank of Joint Venture BBCD, with an outstanding balance as at 31 December 2007 of approximately Baht 239 million (in proportion to the Company’s interest in the joint venture), were originally repayable within June 2007. However, at present, Joint Venture BBCD is in the process of negotiating with the bank to restructure the loans repayment schedule to 16 semi-annual installments, with the first of these due in June 2008 and the last due in December 2015. The loans are subject to interest at the Minimum Loan Rate (MLR) per annum. However, since July 2007, the Joint Venture BBCD has been Annual Report 2007

131


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

required to pay interest at the Minimum Loan Rate minus a stipulated margin (MLR - margin) per annum, and if the joint venture complies with the repayment conditions and other conditions, the bank will waive the difference in interest. The accrued interest as at 31 December 2007, amounting to approximately Baht 64 million (in proportion to the Company’s interest in the joint venture), is to be paid in 2 installments, within June and December 2015, respectively. The Joint Venture BBCD therefore presented these loans as short-term loans from financial institution as at 31 December 2007. However, if the joint venture receives compensation for damages or other payment of claims from the Expressway and Rapid Transit Authority of Thailand, the joint venture will repay debt to the bank in proportion to the indebtness of the joint venture to that to other banks and financial institutions. The outstanding balances of bills of exchange represent bills of exchange issued to commercial banks and open-end funds, which carry interest at rates between 3.8 and 4.3 percent per annum, and mature within 1 year. Part of the bank overdrafts and short-term loans from financial institutions of the Company are secured by the transfer of rights over collection of revenues from construction projects and guaranteed by the Company’s directors. Bank overdrafts and short-term loans from financial institutions of subsidiaries are secured by certain bank deposits of the Company, the transfer of the rights over saving deposits of a subsidiary, the transfer of rights over receipt of payment under construction contracts of subsidiaries, the transfer of bank guarantees provided by subcontractors, the mortgage of part of land, building and construction thereon and machinery of a subsidiary and are guaranteed by the Company and subsidiaries’ shareholders. The bank overdrafts of two limited partnerships, which were invested in by a subsidiary, are secured by the mortgage of the securities of a related company and are guaranteed by the partners of these partnerships and the Company’s directors.

20. HIRE PURCHASE CREDITORS

(Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Liabilities under hire purchase 331,671,473 232,552,262 317,347,705 226,766,529 Less: Deferred interest expenses (31,268,669) (25,404,494) (30,076,058) (24,790,956) Less: Portion due within one year (184,848,226) (114,148,284) (179,683,044) (110,548,039) Liabilities under hire purchase, net of current portion 115,554,578 92,999,484 107,588,603 91,427,534 The Company and its subsidiary have entered into hire purchase agreements with terms of 3 years to 5 years to lease equipment and motor vehicles for use in their operations and are committed to pay rental fees on a monthly basis.

21. LONG-TERM LOANS

The outstanding balances as at 31 December 2007 and 2006 comprise of long-term loans of the Company and its jointly controlled entity (in proportion to the Company’s interest in the joint venture) as follows: (Unit: Baht) Consolidated financial statements Separate financial statements Loans Repayment schedule 2007 2006 2007 2006 The Company 1 2 3

132

Quarterly installments as from 31 March 2006 to 30 December 2008. Quarterly installments as from 18 August 2006 to 18 May 2011. Quarterly installments as from 31 December 2005 to 31 December 2007.

100,000,000

150,000,000

100,000,000

150,000,000

350,000,000

450,000,000

350,000,000

450,000,00

-

98,117,835

-

98,117,835

CH.KARNCHANG PUBLIC COMPANY LIMITED


( Unit: Baht) Consolidated financial statements Separate financial statements Loans Repayment schedule 2007 2006 2007 2006 The Company 4 Quarterly installments as from 1 June 2005 - 44,753,325 - 44,753,325 to 23 January 2008. 5 Bills of exchange due on 29 August 2007. - 130,000,000 - 130,000,000 6 Paid in full on the date the employer pays the - 3,059,344,744 - 3,059,344,744 Company for the construction as stipulated in the agreement. Joint Venture BBCD 7 Paid in full in June 2006.The scheduled 240,800,000 240,800,000 - - repayment term for the loan has been extended to 30 June 2007. 8 Quarterly installments as from March 2006 to 214,936,824 174,027,700 - - December 2011. However, the joint venture has to repay all outstanding debt as soon as the result of the litigation involving the Expressway and Rapid Transit Authority of Thailand is finalised. Total 905,736,824 4,347,043,604 450,000,000 3,932,215,904 Less: Current portion (655,736,824) (3,897,043,604) (200,000,000) (3,482,215,904) Long-term loans, net 250,000,000 450,000,000 250,000,000 450,000,000

The long-term loans of the Company carry interest rates between the Minimum Loan Rate minus stipulated margins (MLR margin) per annum and Minimum Loan Rate (MLR) per annum. Long-term loans of Joint Venture BBCD, as presented in the above details No. 7 represented loans from a local commercial bank that were originally repayable within June 2007. However, at present, Joint Venture BBCD is in the process of negotiating with the bank to restructure the loan repayment schedule to 16 semi-annual installments, with the first of these due in June 2008 and the last due in December 2015. The loan was subject to interest at a fixed rate of 7.5 percent per annum for the period as from 21 to 30 June 2007 and the Minimum Loan Rate (MLR) per annum from 1 July 2007 onwards. However, from 1 July 2007 to 30 December 2015 the Joint Venture BBCD is now required to pay interest at the Minimum Loan Rate minus a stipulated margin (MLR - margin) per annum and if the joint venture complies with the repayment conditions and other conditions, the bank will waive the difference in interest. The accrued interest as at 31 December 2007, amounting to approximately Baht 77 million (in proportion to the Company’s interest in the joint venture), is to be paid within 30 December 2015. The Joint Venture BBCD therefore presented these loans as current portion of long-term loans as at 31 December 2007. However, if the joint venture receives compensation for additional costs from the Expressway and Rapid Transit Authority of Thailand, it will repay all remaining principal and outstanding interest to the bank. Long-term loans of Joint Venture BBCD, as presented in the above details No. 8 represented loans from a local commercial bank that were originally repayable within June 2007. However, at present, Joint Venture BBCD is in the process of negotiating with the bank to restructure the loans, whereby the joint venture agreed to have the bank convert accrued interest as at 8 October 2007, amounting to approximately Baht 61.2 million (in proportion to the Company’s interest in the joint venture), to loan principal. The joint venture has already recorded such interest as loan principal and the repayment schedule has been restructured such that it is to be made in 13 semi-annual installments, with the first due in March 2008 and the last due in March 2014. The loans have been subject to interest at a fixed rate of 5.75 percent per annum since 8 October 2007. The Joint Venture BBCD therefore presented these loans as current portion of long-term loans as at 31 December 2007. However, if the joint venture receives compensation for additional costs from the Expressway and Rapid Transit Authority of Thailand, it is to repay all remaining principal and outstanding interest to the bank. The loans are guaranteed by the Company.

Annual Report 2007

133


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

Long-term loans of the Company and its jointly controlled entity were secured by the pledge of parts of share certificates of investments in associated and related companies, the transfer of part of the rights over receipt of payment under construction contracts, the transfer of parts of the rights to receive deposits in bank accounts, the mortgage of land and construction thereon of other company (as discussed in Note 12) and the guarantee of the Company’s directors, the venturers in certain joint ventures, certain related companies and other companies. The loan agreements contain covenants that, among other things, require the Company to maintain certain debt to equity ratio. 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 112.5 million.

22. DEBENTURES

(Unit: Baht)

Consolidated and Separate financial statements Debentures Life Date of issue Maturity date Interest rate 2007 2006 (% p.a.) 1 3 years 18 October 2004 18 October 2007 4.7 - 2,000,000,000 5 years 18 October 2004 18 October 2009 5.45 120,000,000 120,000,000 2 3 5 years 18 October 2004 18 October 2009 MLR - 0.75 880,000,000 880,000,000 4 4 years, 7 months and 12 days July 2005 26 February 2010 5.2 1,100,000,000 1,100,000,000 5 1 year, 8 months and 13 days July 2005 27 March 2007 4.25 - 200,000,000 6 3 years October 2005 13 October 2008 6.25 610,000,000 610,000,000 7 3 years October 2005 28 October 2008 6.5 1,090,000,000 1,090,000,000 8 3 years September 2006 20 September 2009 6.5 2,000,000,000 2,000,000,000 9 3 years July 2007 26 July 2010 5.25 1,994,016,438 - 7,794,016,438 8,000,000,000 Total Less: Current portion of debentures (1,700,000,000) (2,200,000,000) Debentures, net of current portion 6,094,016,438 5,800,000,000 All debentures of the Company are unsecured, registered, senior debentures with trustees and with a par value of Baht 1,000 each. The interest is payable every 6 months throughout the life of the debentures. On 2 September 2004, a meeting of the Company’s Board of Directors approved the issue of 3,000,000 debentures or a total of Baht 3,000 million. The Company classified the debentures into 3 types and scheduled the issue on 18 October 2004, as presented in the above details No. 1 to 3. On 10 June 2005, a meeting of the Company’s Executive Board approved the issue of 1,300,000 debentures or a total of Baht 1,300 million (Debentures No. 1/2005). The Company classified the debentures into 2 types and scheduled the issue in July 2005, as presented in the above details No. 4 to 5. On 5 October 2005, a meeting of the Company’s Executive Board approved the issue of Debentures No. 2/2005 and N0. 3/ 2005 totaling 1,700,000 debentures or a total of Baht 1,700 million, as presented in the above details No. 6 to 7. On 28 April 2006, the Annual General Meeting of the Company’s shareholders passed resolutions to approve the issue and offering, in whole or in part, of a new issue of up to Baht 3,000 million in baht-denominated debentures by means of a public offering and/or private placement and/or offering to institutional investors, as stipulated in the relevant Notifications of the Securities and Exchange Commission. The debentures will be unsubordinated and registered, may be secured or unsecured, and have or not have a debenture holders’ representative. They may also be offered in one or several tranches. The Executive Board and/or the Chief Executive Officer are granted authority to subsequently determine all other details of the issue, including type, collateral, amount, maturity, par value, offer price, coupon rate, redemption rights, offer method, issuance and offer period, as the circumstances may allow and as per the period deemed appropriate. On 14 September 2006, a meeting of the Company’s Executive Board approved the issue of 2,000,000 debentures or a total of Baht 2,000 million (Debenture No. 1/2006). These were scheduled to be issue in September 2006, as presented in the above details No. 8. 134

CH.KARNCHANG PUBLIC COMPANY LIMITED


On 27 March 2007, the Company redeemed of Baht 200 million under Tranche 2 of Debenture No. 1/2005, as presented in the above details No. 5. On 30 April 2007, the Annual General Meeting of the Company’s shareholders passed a resolution approving the issue and offer, in whole or in part, of up to Baht 3,000 million of debentures, to raise funds to be used for repayment of loans, as working capital and for the expansion of the Company’s business. The issue is to be by means of a public offering and/or private placement and/or offering to institutional investors, as stipulated in the relevant Notifications of the Securities and Exchange Commission. These will be senior, registered debentures and may be secured or unsecured and with or without a debenture holders’ representative. The offering of the debentures may be made on one or several occasions. Combined with the debentures approved in prior periods, totaling Baht 9,000 million, the Company now has a debenture credit line of Baht 12,000 million. The Company can issue new debentures when existing debentures mature, but the outstanding balance of all debentures is not at any time to exceed the line of Baht 12,000 million. The Executive Board and/or the Chief Executive Officer are granted authority to subsequently determine all other details of the issue, including type, collateral, amount, maturity, face value, offer price, interest rate, redemption rights, offering method, issuance and offer period, as the circumstances may allow and to the schedule deemed appropriate. On 23 July 2007, a meeting of the Company’s Executive Board approved the issue of 2,000,000 debentures or a total of Baht 2,000 million (Debentures No. 1/2007). The Company scheduled the issue on 26 July 2007. The balance of the debentures presented net of deferred debenture issuing costs, as presented in the above details No. 9. On 18 October 2007, the Company redeemed of Baht 2,000 million under Tranche 1 of Debenture No. 1/2004, as presented in the above details No. 1. The conditions of the debentures include covenants that, among other things, require the Company to maintain certain debt to equity ratio.

23. SHARE CAPITAL

On 23 November 2006, a meeting of the Company’s Executive Board approved the offer and sale of 134,000,000 ordinary shares to increase capital, through a private placement with institutional investors at a price of Baht 10.76 per share. Such share price was determined using the book building method and is not lower than the market price calculated from the weighted average closing price of the Company’s shares on the Stock Exchange of Thailand for the 15 previous consecutive business days. The Company received additional share capital of approximately Baht 1,441.8 million from the institutional investors on 28 November 2006 and registered the increase in paid up share capital to Baht 1,247.2 million from this sale with the Ministry of Commerce on 29 November 2006.

24. WARRANTS/SHARE CAPITAL/SHARE SUBSCRIPTION RECEIVED IN ADVANCE

On 1 April 2004, the Company issued 262,400,649 warrants (“CK-W1”) to be allotted to its existing shareholders and its directors and employees at no cost. These are 3-year warrants, exercisable in a ratio of 1 warrant to 1 new ordinary share at an exercise price of Baht 4.50 per share. Presented below is a summary of warrant activity:

Date of registration of additional shares Paid-up share Cash receipt from warrant capital after Number of from warrant exercise with the warrant warrants exercise Ministry of Commerce exercise (Unit)) (Thousand Baht) (Thousand Baht) Number of warrants issued 262,400,649 Exercised during 2004 (20,407,500) 91,834 During 2004 and 1,070,408 10 January 2005 Outstanding as at 31 December 2004 241,993,149 Exercised during 2005 (18,566,220) 83,549 During 2005 and 1,088,974 10 January 2006 Annual Report 2007 135


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

Date of registration of additional shares Paid-up share Cash receipt from warrant capital after Number of from warrant exercise with the warrant warrants exercise Ministry of Commerce exercise (Unit)) (Thousand Baht) (Thousand Baht) Outstanding as at 31 December 2005 223,426,929 Exercised during March 2006 (23,644,850) 106,402 7 April 2006 1,112,619 Exercised during June 2006 (418,900) 1,885 17 July 2006 1,113,037 (154,100) 694 5 October 2006 1,113,192 Exercised during September 2006 Exercised during December 2006 (3,921,450) 17,647 9 January 2007 1,251,113 195,287,629 Outstanding as at 31 December 2006 (194,899,149) 877,046 10 April 2007 1,446,012 Exercised during March 2007 Outstanding as at 31 March 2007 388,480 The Company recorded the share subscription received from the exercise of CK-W1 warrants of Baht 17,646,525 as “Share subscription received in advance” in the balance sheet as at 31 December 2006. The final exercise date of the CK-W1 warrants was 30 March 2007, and as a result the 388,480 unexercised CK-W1 warrants still outstanding lost their status as securities listed on the Stock Exchange of Thailand, effective from 31 March 2007, and can no longer be exercised.

25. SHARE PREMIUM/STATUTORY RESERVE

Pursuant to Section 116 of the Public Limited Companies Act B.E. 2535, the Company is required to set aside to 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. On 30 April 2007, the Annual General Meeting of the Company’s shareholders passed a resolution approving the transfer of Baht 129,845,770 of the statutory reserve and the transfer of share premium of Baht 688,000,000 to offset the Company’s deficit. The Company implemented these transfers during the second quarter of the year 2007 and as a result, share premium stands at Baht 3,972.9 million as at 31 December 2007.

26. ACCOUNTS RECEIVABLE - CLAIMS FOR ADDITIONAL COSTS

In 2000, Joint Venture BBCD had claimed for payment of additional construction costs from the Expressway and Rapid Transit Authority of Thailand (the employer). The employer’s consulting engineer considered the Joint Venture’s claims and issued a letter confirming its acceptance of the additional costs. Subsequently, the Arbitral Tribunal issued its award, ruling that the employer was to pay the joint venture for such additional costs and accrued interest. Later the employer sent a letter to the joint venture informing that, after consideration, the employer had decided to comply with the arbitral award. Consequently, the joint venture had recorded such amounts as asset and income in the financial statements of 2001. The Group’s proportionate interest in such amounts is approximately Baht 2,500 million. As a result of the delay in the payment, the joint venture filed a lawsuit against the employer with a Civil Court to ordering compliance with the arbitral award. On 30 December 2003, the court ruled in favor of the joint venture, ordering compliance with the arbitral award requiring the Expressway and Rapid Transit Authority of Thailand (the employer) to pay the joint venture in accordance with the arbitral award. Subsequently, in January 2004, the employer appealed the ruling to the Supreme Court of Thailand. On 15 February 2007, the Supreme Court handed down a judgment reversing that of the Civil Court enforcing the arbitral award requiring the employer to make payments to the Joint Venture BBCD. The joint venture therefore recorded allowance for doubtful accounts for the full amount of the accounts receivable recorded in respect of the claim for additional costs as a expense in the income statement of 2006, with the group’s proportionate interest in such allowance being approximately Baht 2,500 million. 136

CH.KARNCHANG PUBLIC COMPANY LIMITED


Subsequently, after the management of the Company carefully reviewed the details of the Supreme Court’s judgment, on 11 February 2008 a lawsuit was filed against the employer with the Civil Court, to recover costs paid by the Joint Venture BBCD from the employer, on the grounds of undue enrichment. Such costs and accrued interest calculated up to the date of filing of the lawsuit amounted to approximately Baht 3,400 million (per the group’s proportionate interest). Currently, a summons and the claim are in the process of being submitted to the employer.

27. GAIN (LOSS) ON EXCHANGE

The Company, its subsidiaries and its jointly controlled entities recorded the following gain (loss) on exchange for the years ended 31 December 2007 and 2006. (Unit: Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Gain (loss) on exchange (17,503,311) (13,684,821) (15,451,892) (10,941,498) - Realised - Unrealised (112,510,546) 50,035,408 7,510,309 (17,942,982) Total (130,013,857) 36,350,587 (7,941,583) (28,884,480)

28. NUMBER OF EMPLOYEES AND RELATED COSTS Consolidated financial statements Separate financial statements 2007 2006 2007 2006 4,375 5,061 1,604 2,278 Number of employees at end of year (persons) Employee costs for the year (Thousand Baht) 1,137,013 1,021,467 595,995 668,006 29. CORPORATE INCOME TAX Corporate income tax of the Company for the years ended 31 December 2007 and 2006 have been calculated on net income (loss) before income tax after adding back certain expenses and deducting income which are disallowable for tax computation purposes, using rates of 30 percent on earnings for the year 2007 and 25 percent on earnings not more than Baht 300 million, and 30 percent on earnings over Baht 300 million for the year 2006.

30. EARNINGS PER SHARE

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

Annual Report 2007

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

Consolidated financial statements For the years ended 31 December Weighted average Earnings (loss) Net income (loss) Number of ordinary shares per share 2007 2006 2007 2006 2007 2006

(Thousand Baht)

(Thousand Baht)

(Thousand shares)

(Thousand shares)

(Baht))

(Thousand Baht)

(Thousand Baht)

(Thousand shares)

(Thousand shares)

(Baht))

(Baht)

Basic earnings per share Net income (loss) 14,537 (1,212,844) 1,400,098 1,119,769 0.01 (1.08) of dilutive potential ordinary shares Effect CK-W1 Warrants - 84,262 Diluted earnings per share Net income of ordinary shareholders assuming the conversion of warrants 14,537 1,484,360 0.01 to ordinary shares Separate financial statements For the years ended 31 December Weighted average Earnings (loss) Net income (loss) Number of ordinary shares per share 2007 2006 2007 2006 2007 2006 earnings per share Basic Net income (loss) of dilutive potential ordinary shares Effect CK-W1 Warrants Diluted earnings per share Net income of ordinary shareholders assuming the conversion of warrants to ordinary shares

659,488

(1,064,816)

1,400,098

-

84,262

659,488

1,119,769

0.47

1,484,360

0.44

(Baht)

(0.95)

Since the conversion to ordinary shares of the above warrants would decrease loss per share for the year 2006. Therefore the Company has not assumed conversion of the warrants in the calculation of diluted earnings per share.

31. SEGMENT INFORMATION

The Company, its subsidiaries and its jointly controlled entities’ operations involve principally a single industry segment, construction service, and are carried on in two geographic areas in Thailand and in the Lao People’s Democratic Republic, as operated by a subsidiary. The subsidiary commenced its operations during the second quarter of the year 2006. The financial information of the Company, its subsidiaries and its jointly controlled entities by geographical segment, for the year ended 31 December 2007 and 2006 are as follows:

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(Unit: Million Baht) The Lao People’s Elimination of Democratic inter-segment Consolidated Thailand Republic revenues financial statements 2007 2006 2007 2006 2007 2006 2007 2006 Revenue from external customers 8,240 15,810 5,350 3,442 - - 13,590 19,252 Inter-segment revenues 370 371 - - (370) (371) - - revenues Total 8,610 16,181 5,350 3,442 (370) (371) 13,590 19,252 Segment operating profit (loss) (536) 346 470 325 - - (66) 671 Other income 1,328 2,309 Allowance for doubtful debt of accounts receivable - claims for additional costs - (2,508) Reversal of interest receivable - (13) Share of loss from investments in associated companies (238) (293) Interest expenses (940) (981) Corporate income tax (50) (388) Minority interests (19) (10) Net income (loss) 15 (1,213) Trade 1,708 6,039 399 812 (15) - 2,092 6,851 accounts receivable, net Construction contracts in progress 2,898 2,887 - - - - 2,898 2,887 Advance payment to subcontractors, net 334 521 714 840 - - 1,048 1,361 Property, plant and equipment, net 1,720 961 674 635 - - 2,394 1,596 Unallocated assets 15,030 18,360 1,236 416 (222) (1,182) 16,044 17,594 assets 24,476 30,289 Total

Transfer prices between business segments are as set out in Note 6 to the financial statements.

32. PROVIDENT FUND

The Company, the subsidiaries and their employees have jointly established provident funds in accordance with the Provident Fund Act B.E. 2530. The Company, the subsidiaries and their employees contribute to the funds monthly at the rate of 5 percent of basic salary. The funds, which are managed by TMB Asset Management Company Limited and TISCO Asset Management Company Limited (Separate financial statements: TMB Asset Management Company Limited) will be paid to employees upon termination in accordance with the fund rules. During the years 2007 and 2006, the Company and the subsidiaries contributed Baht 16.3 million and Baht 15.6 million, respectively (Separate financial statements: Baht 12.8 million and Baht 12.1 million, respectively) to the funds.

33. DIVIDENDS

Dividends Approved by Total dividends Annual General Meeting of the shareholders 389,416,500 Final dividends for 2005 on 28 April 2006 Board of Directors’ meeting on 3 September 2007 72,300,608 Interim dividends for 2007

Annual Report 2007

(Unit: Baht) Dividend per share 0.35 0.05

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

34. COMMITMENTS AND CONTINGENT LIABILITIES

34.1 Capital commitments As at 31 December 2007, the Company had capital commitment of approximately Baht 9 million, relating to the acquisition of machinery and equipment. 34.2 Operating lease commitments A subsidiary has entered into several lease agreements in respect of office building space. Future minimum rentals payable under these leases as at 31 December 2007 are as follows: (Unit: US dollar) Payable within: Consolidated financial statements 1 year 24,000 2 to 5 years 48,000 34.3 Service commitments and other commitments As at 31 December 2007, the Company, its subsidiaries and its jointly controlled entities had the following service commitments and other commitments: a) The Company, its subsidiaries and its jointly controlled entities have commitments totaling Baht 11,067 million (Separate financial statements: Baht 2,296 million) in respect of project construction costs and services, which the Company, its subsidiaries and its jointly controlled entities had already entered into agreements. b) The Company has commitment in respect of uncalled portion of investments in a subsidiary and an associated company of approximately Baht 1,509.8 million (2006: Baht 784.5 million). c) The Company has commitments of Baht 112.5 million in respect of the Shareholders’ Loan Agreement to provide funding to SouthEast Asia Energy Limited, as stipulated in the agreement (as discussed in Note 6). d) The Company has commitments of up to Baht 2,782 million and USD 12.5 million in respect of its undertaking to provide equity contributions to SouthEast Asia Energy Limited as stipulated in the agreement (as discussed in Note 15). e) The Company has commitments in respect of its undertaking to provide financial support to Pathum Thani Water Company Limited as stipulated in the Sponsor Support Agreement (as discussed in Note 15). f) The Company has commitments of Baht 1,503 million in respect of its undertaking to provide financial support to Thai Tap Water Supply Public Company Limited as stipulated in the Undertaking Agreement (as discussed in Note 15). 34.4 Related party guarantees As at 31 December 2007, there are related party guarantees as follows: a) The Company has provided guarantees for bank credit facilities totaling Baht 1,284 million (2006: Baht 1,284 million) on behalf of a jointly controlled entity. b) The Company has provided guarantees totaling Baht 6,096.3 million for credit facilities on behalf of a subsidiary, as discussed in Note 13. 34.5 Bank guarantees As at 31 December 2007 and 2006, there were outstanding bank guarantees of approximately Baht 6,807.9 million and Baht 8,561.9 million, respectively (Separate financial statements: Baht 5,171.9 million and Baht 6,709.2 million, respectively) issued by banks on behalf of the Company, its subsidiaries and its jointly controlled entities (in proportionate of the Company’s interest in joint ventures) in respect of certain performance bonds as required in the normal course of business of the Company, its subsidiaries and its jointly controlled entities. The details of bank guarantees are as follows:

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(Unit: Million Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Guarantee of construction contract, 4,352.1 5,305.7 3,258.6 3,922.0 bidding and debt repayment Guarantee of advance payment bond and retention 2,226.2 3,100.0 1,740.6 2,683.0 Other guarantees 229.6 156.2 172.7 104.2 6,807.9 8,561.9 5,171.9 6,709.2 34.6 Contingent liability In 2007, the Central Tax Court issued a judgement ordering the Joint Venture BBCD to pay additional customs duties on construction equipment imports amounting to approximately Baht 109 million (in proportion to the Company’s interest in the joint venture). The joint venture filed an appeal against the judgement with the Supreme Court and the case is currently before the Supreme Court. However, since the management of the Joint Venture BBCD believes that the joint venture is not liable for additional customs duties it has not set aside provision for loss for the customs duty assessment in the accounts.

35. FINANCIAL INSTRUMENTS

35.1 Financial risk management The Company’s, its subsidiaries’ and its jointly controlled entities’ financial instruments, as defined under Thai Accounting Standard No. 48 “Financial Instruments: Disclosure and Presentations”, principally comprise the following: Financial assets Financial liabilities - Cash and cash equivalents - Bank overdrafts and short-term loans from - Trade accounts receivable financial institutions - Accounts receivable and loans to - Trade accounts payable related parties - Hire purchase creditors - Advance payment to subcontractors - Accounts payable and loans from related parties - Loan to subcontractors - Advances received from employers and - Long-term loans to other companies deferred construction revenue - Restricted bank deposits - Retention for construction - Long-term loans to jointly - Long-term loans controlled entities and interest receivable - Debentures - Long-term loans to associated companies and interest receivable The financial risks associated with these financial instruments and how they are managed is described below. a) Credit risk The Company, its subsidiaries and its jointly controlled entities are exposed to credit risk primarily with respect to construction receivables and loans. However, since the majority of the Company’s, its subsidiaries’ and jointly controlled entities’ construction contracts are made with government agencies and other creditworthy customers, they do not anticipate material losses from their debt collection outside those for which provision has already been set aside.

Annual Report 2007

141


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

b) Interest rate risk The Company’s, its subsidiaries’ and its jointly controlled entities’ exposure to interest rate risk relates primarily to its cash at banks, lendings, bank overdrafts and short-term loans, hire purchase creditors, long-term borrowings and debentures. However, since most of these 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 Non- Within Over Floating interest Effective 1 year 1-5 years 5 years interest rate Bearing Total interest rate (% p.a.) Financial assets Cash and cash equivalents 289 - - 2,211 182 2,682 0.75 to 3.125 Trade accounts receivable, net - - - 314 1,778 2,092 MLR + 1 Accounts receivable and loans to - - - 44 285 329 MLR + 1 and related parties, net MOR + 0.75 Advance payment to subcontractors, net - - - - 1,048 1,048 - Loans to subcontractors 222 - - - - 222 9.5 Long-term loans to other companies - - - 1,264 - 1,264 MLR + 1.5 Restricted bank deposits 226 - - 75 - 301 2.25 to 4.75 Long-term loans to jointly controlled - 3 - 223 - 226 8 to 10, MLR + 1 entities and interest receivable and MLR + 2 Long-term loans to associated companies and interest receivable - - - 1,145 - 1,145 MLR + 0.5 737 3 - 5,276 3,293 9,309 Financial liabilities Bank overdrafts and short-term loans 562 - - 2,103 - 2,665 3.8 to 15.5, MLR - from financial institutions 1.5 to MLR + 1 and MOR Trade accounts payable - - - - 1,842 1,842 - Hire purchase creditors 185 115 - - - 300 2.4 to 4.25 Accounts payable and loans from related parties - - - - 2,966 2,966 - Advances received from employers and deferred construction revenue - - - - 1,285 1,285 - Retention for construction - - - - 199 199 - Long-term loans 215 - - 691 - 906 5.75, MLR - margin to MLR Debentures 1,700 5,214 - 880 - 7,794 5.2 to 6.5 and MLR - 0.75 2,447 5,329 - 3,889 6,292 17,957

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CH.KARNCHANG PUBLIC COMPANY LIMITED


(Unit: Million Baht) Separate financial statements Non- Fixed interest rates Within Over Floating interest Effective 1 year 1-5 years 5 years interest rate Bearing Total interest rate (% p.a.) Financial assets Cash and cash equivalents 101 - -- 1,029 44 1,174 0.75 to 2.8 Trade accounts receivable, net - - - 314 1,350 1,664 MLR + 1 126 - - 52 559 737 6.25 to 8.25, Accounts receivable and loans to MLR + 0.25 related parties, net and MLR + 1 - - - - 233 233 - Advance payment to subcontractors, net Restricted bank deposits 211 - - 1 - 212 2.25 to 4.75 Long-term loans to jointly controlled - 126 - 1,131 - 1,257 8 to 10, MLR + 1 entities and interest receivable and MLR + 2 Long-term loans to associated companies and interest receivable - - - 1,145 - 1,145 MLR + 0.5 438 126 - 3,672 2,186 6,422 Financial liabilities 550 - - 501 - 1,051 3.8 to 4.3, MLR - 1.5 Bank overdrafts and short-term loans from financial institutions to MLR - 0.5 and MOR Trade accounts payable - - - - 798 798 - Hire purchase creditors 180 107 - - - 287 2.4 to 4.25 Advances received from employers and deferred construction revenue - - - - 809 809 - Retention for construction - - - - 107 107 - - - - 450 - 450 MLR - margin to MLR Long-term loans 1,700 5,214 - 880 - 7,794 5.2 to 6.5 and Debentures MLR - 0.75 2,430 5,321 - 1,831 1,714 11,296 c) Foreign currency risk The Company’s, its subsidiaries’ and its jointly controlled entities’ exposure to foreign currency risk arises mainly from construction contracts, purchasing transactions, advances received from employers and borrowings that are denominated in foreign currencies. The balances of financial assets and liabilities denominated in foreign currencies as at 31 December 2007 are summarised below. Consolidatedfinancial statements Separate financial statements Financial Financial Financial Financial Average exchange rate as Foreign currency assets liabilities assets liabilities at 31 December 2007 (Million) (Million) (Million) (Million) (Bath per 1 foreign currency unit) US dollar 17.0 9.9 0.7 0.2 33.7673 Euro 0.1 60.3 - - 49.3305 Japanese yen - 17.4 - - 0.2974 Annual Report 2007

143


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CH. Karnchang Public Company Limited, Its Subsidiaries And Its Jointly Controlled Entities FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

The Company, its subsidiaries and its jointly controlled entities do not utilise forward exchange contracts to hedge foreign exchange rate risk. 35.2 Fair values of financial instruments Since the majority of the Company’s, its subsidiaries’ and its jointly controlled entities’ financial instruments are short-term in nature, and the significant financial assets and liabilities comprise loans to, loans from and debentures which bear interests at rates close to market rates, the fair values of these financial assets and liabilities are not expected to differ materially from the amounts presented in the balance sheets. A fair value is the amount for which an asset can be exchanged or a liability settled between knowledgeable, willing parties in an arm’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.

36. SUBSEQUENT EVENT

On 29 February 2008, a Meeting of the Company’s Board of Directors passed resolutions approving the appropriation of 5 percent of the 2007 net income, or Baht 24.4 million, to the statutory reserve and the payment of a dividend of Baht 0.15 per share for the operations of July to December 2007. Together with the payment of an interim dividend of Baht 0.05 per share for the operations of January to June 2007, total dividends for the year 2007 amount to Baht 0.20 per share, or a total of Baht 289.2 million. This resolution will be proposed for approval by the Annual General Meeting of the Company’s shareholders for the year 2008.

37. RECLASSIFICATION

In addition to the change in accounting policy as mentioned in Note 4, which affects the previously reported net loss and shareholder’s equity, certain other amounts in the financial statements for the year ended 31 December 2006 have been reclassified to conform to the year 2007 classification but with no effect to previously reported net loss or shareholders’ equity other than from the change in accounting policy.

38. APPROVAL OF FINANCIAL STATEMENTS

These financial statements were authorised for issue by the Company’s Board of Directors on 29 February 2008.

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CH.KARNCHANG PUBLIC COMPANY LIMITED



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