Contents Page 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.
Financial Highlights Company General Information Message from Chairman Nature of Business Industry Outlook in 2008 Business Direction in 2008 Future Projects Investment Structure Risk Factors Capital Structure Board of Directors Management Team Managerial Structure Report on Corporate Governance for the year 2007 The Audit Committee Report Operating Results and Financial Conditions Responsibility of the Board of Directors to the Financial Statements Financial Statements
2 3 4 6 14 17 19 21 28 30 33 38 39 47 56 59 63 64
Corporate Culture Dare to change, and pursue sustainability Quality
Customer Satisfaction Fully understand and fulfill customer needs.
Quality Do things right the first time.
Innovation Anticipate trends and develop competitive products.
Teamwork Maintain effective communication, delegation and collaboration.
Agility Act quickly in a rapidly changing environment.
FINANCIAL HIGHLIGHTS Unit: Million Baht Total Assets Total Liabilities Paid-Up Capital Total Shareholders没 Equity Sales Revenues Total Revenues Gross Profit Operating Profit Net Profit Unit : (%) Gross Profit Margin Operating Profit Margin Net Profit/Total Revenues Return On Equity Return On Assets Unit : Baht Earnings Per Share Dividend Per Share Book Value Per Share * Pending approval from shareholders. 43,919
18.59 5.23 4.43 13.25 7.31
18.81 4.91 5.11 16.07 8.21
21.60 9.47 9.98 15.05 11.25
20.84 9.20 6.98 14.37 10.33
18.61 7.53 6.53 16.14 10.61
2.53 1.60* 12.73
1.58 1.30 11.70
1.92 1.20 12.64
1.91 1.60* 12.96
1.76 1.30 12.37
1.92 1.20 12.59
Million Baht Gross Profit vs Gross Profit Margin
Operating Profit vs Operating Profit Margin 2,856 3,000 2,500 2,276 2,156 8.5% 2,000 1,500 5.2% 4.9% 1,000 500 0 2005 2006 2007
ANNUAL REPORT 2007
10 2005 2006 2007 Gross Profit Gross Profit Margin
EPS vs ROE %
Operating Profit Margin
Remark : Based on consolidated financial statements
2005 27,497 12,477 1,188 15,020 43,919 44,711 8,262 2,156 2,285
The Company Only 2007 2006 2005 21,053 21,187 21,090 4,885 5,776 6,128 1,247 1,246 1,188 16,168 15,412 14,962 23,568 31,022 34,212 23,813 31,254 34,979 5,091 6,466 6,368 2,233 2,853 2,575 2,377 2,183 2,285
22.27 8.46 9.09 20.72 12.03
50,000 40,000 30,000 20,000 10,000 0
Consolidated 2007 2006 26,255 26,199 10,379 11,614 1,247 1,246 15,876 14,585 33,766 43,554 34,704 44,292 7,518 8,097 2,856 2,276 3,155 1,962
10 8 6 4 2 0
1.58 16.1% 13.3%
30 25 20 15 10 5 0
COMPANY GENERAL INFORMATION Name Company Registration Number Registered Address Contact Address
Nature of Business Website Registered Share Capital Paid up Capital References
Delta Electronics (Thailand) Public Company Limited 0107537002559 714 Moo 4, Tambon Prakasa, Amphur Muangsamutprakarn, Samutprakarn Province 10280, Thailand 909 Soi 9, Moo 4, E.P.Z., Bangpoo Industrial Estate, Tambon Prakasa, Amphur Muangsamutprakarn, Samutprakarn Province 10280, Thailand Tel. : (662) 709-2800 Fax : (662) 709-3790 Manufacturing and exporting of electronic components www.deltathailand.com 1,259,000,000 ordinary shares at par value of Baht 1 1,247,380,073 ordinary shares at par value of Baht 1 (As of 13 February 2008) 1. Auditor Ernst & Young Office Limited 33rd Floor, Lake Rajada Office Complex, 193/136-137, Rajadapisek Road, Klongtoey, Bangkok 10110, Thailand Tel. : (662) 264-0777, (662) 661-9190 Fax : (662) 264-0789, (662) 661-9192 2. Share Registrar Thailand Securities Depository Co., Ltd. The Stock Exchange of Thailand Building, 62 Ratchadapisek Road, Klongtoey, Bangkok 10110, Thailand Tel. : (662) 229-2800 Fax : (662) 359-1259 3. Legal Advisor Allen & Overy (Thailand) Co., Ltd. 22nd Floor, Sindhorn Tower III, 130-132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand Tel. : (662) 263-7600 Fax : (662) 263-7699
3 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
MESSAGE FROM CHAIRMAN
For over 10 years of hard work and dedications, Delta Electronics (Thailand) Pcl. has been investing in technologies, distribution and sales network, etc. to serve our diverse clientele with state-of-the-art products at their locations in all continents. Technology enhancement for extended applications prompts us for outsourcing opportunities and competition, from IT/PC to Consumer Electronics to Telecommunications to Industrial to Automotive to Medical and Alternative Energy such as Solar Power, etc. During 1995-2000, more IT power supplies products are added to the Companyûs profile around the IT and PC areas such as power supplies for Networking and for game consoles, etc. After the acquisition of Delta Energy Systems group (çDESé) in 2003, Delta Thailand has exposed itself to telecommunications with other top notch power supplies products for various applications. By combining the best of both world, Delta Thailand is the only power supplies company which provides the State-of-the-art European technologies with Asianûs utmost production efficiencies. Eventually, all of our efforts show results with a dramatic improvement in both sales growth and soaring profit margin of all power supply businesses of the Company, not just DES. Though total sales decreased from Baht 43,554 million in 2006 to Baht 33,766 million in 2007, due to vanishing display business and appreciating Baht against US dollar. But, our profits jumped from Baht 1,962 million in 2006 to Baht 3,155 million in 2007. For IT/PC power supplies, main production of this business is still from our Thailand production base though now we are constructing plants in other countries near to the customers area for better service and better logistics. In addition to our US network and to complete our worldwide logistic, we are using DESû technologies and their distribution network, mainly in Europe, Middle East, and Asia (çEMEAé) ex-China and Japan, to serve new customers in these new markets. Sales revenue of our IT/PC Power supplies business may be linear during the next couple of years as the Company will have to invest in more R&D and product development using more of European technologies. But, its profits will continue to swell. Currently, sales from this business contribute about 50% of our total sales revenue, excluding display products sales in 2007. Though it is not the best year for IT/PC industry in general, our business has been impacted by the US sub-prime situation only marginally in our segment of market despite the fact that US is the main market for this business,
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For Telecommunication and high-end IT power supplies, new markets have been established to strengthen Delta没s leading position in worldwide market. India and Eastern Europe are two new areas with tremendous growth where we sell our products directly to the local operators. At the same time, there are more cooperation with our ODM (companies with their own brand names) customers in Europe and US markets. Our relationship with these ODM customers is the critical foundation to the growth of our business. With its complex growth plan, this Telecom and high-end power supplies business will yield good sales as well as profits to the Company at minimum risks. In 2008, the management has strong confidence in the promising opportunity of our telecommunication and high end IT/PC power supplies businesses based on the growing demand in many developing countries. Hiking oil prices are another major factor to boost the demand for more powerful, reliable, and environmental friendly systems. There are needs for replacement or development of new telecommunication and networking systems in many developed countries in order to cope with the necessity of swelling e-business caused by oil price. For other power supplies applications such as industrial, medical, and other applications, this business is very important to our company in the future. The markets for this business are still at premature stage but will be very significant to the Company once ready. Delta is active in search of products for alternative energies and environmental friendly such as Solar Power, and etc. Our agility toward Green Energy results in the tirelessly effort to create a better world for our children thru energy savings, cleaner air and water, as well as many more health conscious products. On this occasion, I would like to extend my sincere congratulations and gratitude to all members of the management including DES, who manage to bring together their skill and patience and unity to make the strongest team for the Company. As they are located almost everywhere in the world, it is as difficult as profound. Finally, we would like to express our appreciation and gratitude to all parties who trust us and render kind supports to us to reach this major mile stone with grace. We believe in the potential of Thailand and the record of our operation performance proves that we are right. Therefore, we would like to thank the sincere support from our business circle, friends and all the officers from the governments.
Ng Kong Meng (James) Chairman of the Board
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 5 -
NATURE OF BUSINESS
Shareholding structure of Delta Electronics (Thailand) (As of 31 December 2007)
Deltron Holding Ltd
ë ë8.9% 5.5%
Delta Electronics Inc
Delta Electronics (Thailand) Plc
Delta International Holding Ltd
According to the above shareholding structure, Deltron Holding Ltd. is the Companyûs major shareholder. They also have invested in Delta Electronics, Inc (DEI) and Delta International Holding Ltd., both of which are engaged in the manufacturing and sale of electronic components with production bases in Taiwan and China. Although some of the products being manufactured by Delta Electronics Inc are of the same type as the Companyûs, the clienteles are not the same as the main target markets of the Companyûs are in Europe, India and South East Asian while those of DEI and its group are in USA and China. Products made in China are mainly targeted for its domestic sales and those made in Taiwan are generally exported to the United States of America. For these reasons, the products manufactured by companies under Delta Electronics Incû s group do not directly compete among themselves. NATURE OF BUSINESS OF THE COMPANY The Company is a manufacturer and exporter of electronics equipment and parts. At present, The Company has 2 main plants in Thailand located in Export Processing Zone of Bangpoo Industrial Estate, Samutprakarn and Wellgrow Industrial Estate, Chachoengsao. The Company has recently expanded its production base into Slovakia and India to facilitate the market expansion into those regions. Main products of the Company can be divided into the following 3 groups. 1. Power supply Product Group 2. DES Product Group 3. Component Product Group
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PRODUCT PROFILES SWITCHING POWER SUPPLY Switching power supply (SPS) is an integrated circuit system which provides stable direct current (DC) power supply from alternate current (AC) voltage to electronic equipment and parts in computer, telecommunication equipment, and household electrical tools. There are many types of switching power supplies with different voltages for different applications. Switching power supply products produced by Delta Thailand include SPS for desktop, SPS for servers, SPS for networking, and SPS for consumer electronics e.g. adapter. Determinations of technology level for SPS products are power density or watt per cubic inch. Higher-end technology power supply generally has a smaller size with higher watt. The main current customers of the power supplies are Cisco, Dell, HP, Arris International, Xerox, Sun Microsystems, Black & Decker, Motorola, Canon, GE, Avaya, Intel, and etc.
DC-DC CONVERTER DC-DC converter is an electronic device mainly used in information technology and telecommunication industries. Its main application is to transform the input DC to different output DC voltages as required by users. Currently the main DC-DC converter produced by the Company is VRM (Voltage Regulated Module) and power module for telecommunication equipment. Its main application is to supply the stable voltage to micro processor that generally generates unstable load (Dynamic Load) while being operated. Main customers of DC-DC Converter in 2007 were Dell, HP, IBM, Sun Microsystems, Ericsson, Motorola, Intel, Alcatel-Lucent etc.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 7 -
DES PRODUCTS AND ITS OPERATIONS DES products are custom designed (CD) and original engineering manufactured (OEM) power systems which are mainly used in information technology, telecommunication, industrial applications, office automation, medical equipment, and solar power system. DES product line comprises all the components used in telecommunication power system i.e. AC/DC rectifiers, DC/DC Converters, DC/AC inverters, power system controllers, shelves, indoor and outdoor power system cabinets and etc. A complete range of the standard and customized power systems and shelves are offered directly from Delta Thailand due to its more competitive production costs. The Company has offered the after sales services to its customers through its worldwide presence in over 50 countries. More than 15 of which are directly managed by DES representations and the other countries are serviced by local partners to maximize customer satisfaction Owing to our possession of ample power supply design experiences for years, DES also offers a complete range of high power density customized power supply for high end server, storage system, and networking to ensure continuous and reliable supply of power for a wide range of applications in IT, office automation, medical, automotive industry, and solar power system. Power systems ranging from 300W to 150kW have been offered to a large number of local and global telecom operators and data communication system producers in Europe, Asia, as well as the ODM customers including Cisco, Motorola, Nokia, Ericsson, Lucent, HPQ, Phoenix, Hitachi, IBM, Avaya, Linde, Sun Microsystems, Perkin Elmer, Google and etc.
COMPONENT PRODUCT COOLING FAN In the electronic world, one of the key requirements of the products is the high speed. But when the speed is attained, it will generate heat in its system. Therefore, cooling fans are designed to help remove such heat from the electronic system. These cooling fans can be categorized into many types such as
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base fan, blower and fan tray. Each fan design has its own characteristics and application that derived solely from the customerรปs specific needs. Most of the cooling fanรปs customers are the reputable world class producers in the electronic industry, such as Intel, Lucent Technologies, Cisco, HPQ, IBM etc. With the strong designing supports from both in-house and global team, the continuous break through of the Companyรปs technology development and quality awareness, it is thus able to extend the applications for, not only to serve the personal computers and internal support to other Delta plants, but also the household appliances, telecommunications and automobile (car seat, audio and navigation system). EMI FILTER EMI filter, Electromagnetic Interference Filter, is an electronics component used in electronics and electrical products. The function of EMI filter is to reduce noise and interference that pass through electronics and electrical products. Deltaรปs EMI filters pass the EMC (Electromagnetic Compatibility) testing and comply with CE Mark for European, Japanese, Australian, New Zealand and American markets. EMI filter has been used in various industries including home appliances, computer, telecommunication system, automation system, machine tools, and air conditioning system. The Company still continues putting its more efforts in R&D in order to enhance the applications of EMI filter for other products such as weaving machine, vending machine, elevator, escalator, AC Motor drive, Robot Arm, Build in Microwave oven and Stove, Induction Stove, hotel and hospital washing machine. Main customers of the Companyรปs EMI filter are Philips, Sony, Apple, Panasonic, Fagor, BSH, Daikin, Otis, Mitsubishi, Hitachi and etc.
SOLENOID VALVE Solenoid valve is one of the electronic components mainly used in terms of automatic controller which electricity are applied to use such as electric valve, electric lock etc. The solenoid valves are also applied in many industries, thus the major customers of this product are varied. For example, automotive industry uses it as a component in safety brake, ABS, electronic injection, and etc. Home appliance industries use solenoid valve to control water in washing machine, automatic ice maker, automatic flushing toilet, etc. Safety industry also uses the beneficial of solenoid valve such as the electronic safety boxes, safety gate, safety cut, etc. Delta Thailand now has a strong capability to produce the wide variety of solenoids to serve customers in various industries.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 9 -
PRODUCTION CAPACITY IN 2007 1. Power Supply Plant 1.1 DC-DC Converter Plant Location : Bangpoo Industrial Estate, Samutprakarn Production area : 4,200 sq.m No. of operators : 695 Production line : 10 lines Production capacity : 3,000,000 units/month Actual production : 83% of production capacity 1.2 Switching Power Supply Plant (for server, PC, notebook) Location : Bangpoo Industrial Estate, Samutprakarn Production area : 9,600 sq.m No. of operators : 2,100 Production line : SPS 12 lines (for server 2 lines, networking 3 lines and consumer electronics 7 lines) Production capacity : SPS for server 280,000 units/month SPS for Networking power 200,000 units/month Adaptor 3,500,000 units/month Actual production : 78% of production capacity 1.3 Switching Power Supply (for networking) : is now using the production facilities of DES Product Group 2. DES Product Plant 2.1 Thailand Plant Location : Bangpoo Industrial Estate, Samutprakarn Production area : 19,500 sq.m No. of operators : 1,790 Production line : DES products 25 lines Production capacity : DES 400,000 units/month Actual production : 75% of production capacity 2.2 Slovakia Plant Location : Dubnica nad Vahom, Slovakia Production area : 13,000 sq. m No. of operators : 484 Production capacity : 50,000 units/month and 2,500 complete systems/month Actual production : 60% of production capacity
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2.3 India Plant 2.3.1 Gurgaon Plant Location
: Plot No. 27, 28, 29, 30, 31 Sector - 34, EHTP, Gurgaon - 122001, Haryana, India Production area : 12,000 sq.m No. of operators : 496 Production line : Telecom Power Systems 10 lines. UPS-10 lines (only inspection lines) Production capacity : 4,750 units/month Actual production : 80% of production capacity 2.3.2 Pondicherry Plant Location : R.S. No. 15/2, 3, 4, 6; 16/1, 2, Thirubhuvanai Village, Mannadipet Commune, Pondicherry - 605107 India Production area : 4,383 sq.m No. of operators : 100 Production line : Telecom Power Systems 3 lines. Production capacity : 1,000 units/month Actual production : 50% of production capacity 3. Component Product Plant 3.1 Magnetic/Solenoid Plant Location : Wellgrow Industrial Estate, Chachoengsao Production area : 5,100 sq.m No. of operators : 400 Production line : 35 lines Production capacity : Magnetic 5,000,000 units /month Solenoid 1,000,000 unit/month Actual production : 65% of production capacity 3.2 EMI Filter Plant Location : Wellgrow Industrial Estate, Chachoengsao Production area : 5,400 sq.m No. of operators : 700 Production line : 35 lines Production capacity : 5,000,000 units/month Actual production : 70% of production capacity 3.3 Cooling Fan Plant Location : Wellgrow Industrial Estate, Chachoengsao Production area : 12,000 sq.m No. of operators : 1,100 Production line : 25 lines Production capacity : 4,800,000 units/month Actual production : 75% of production capacity
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 11 -
REVENUES STRUCTURE Sales revenue structure of the Company and its subsidiaries 2005-2007 Unit : Million Baht
2005 Revenue %
2006 Revenue %
2007 Revenue %
2,381 2,233 158 3,166 5,980 22 13,940
5.42 5.08 0.36 7.21 13.62 0.05 31.74
1,796 2,319 72 3,478 4,617 139 12,422
4.12 5.33 0.17 7.99 10.60 0.32 28.52
1,543 1,703 18 3,042 3,987 202 10,495
4.57 5.04 0.05 9.01 11.81 0.60 31.08
5,871 2,414 5,172 738 14,195
13.37 5.50 11.78 1.68 32.32
5,837 2,669 5,333 83 13,921
13.40 6.13 12.24 0.19 31.96
6,085 2,906 6,830 30 15,851
18.02 8.61 20.23 0.09 46.94
491 1,070 1,642 3,203
1.12 2.44 3.74 7.29
459 1,225 2,558 4,242
1.05 2.81 5.87 9.74
494 1,124 2,350 3,969
1.46 3.33 6.96 11.75
6,484 4,965 978 12,427 152 43,918
14.76 11.31 2.23 28.30 0.35 100.00
11,499 507 12,006 963 43,554
26.40 1.17 27.57 2.21 100.00
3,335 96 3,431 20 33,766
9.88 0.28 10.16 0.06 100.00
PSBG Server Networking Desktop DCDC Adapter Others Total DES Custom Design (CD) OEM Power System Others Total CPBG Magnetic (solenoid, ECU) EMI Cooling Fan Total VDBG LCD TV Monitor PDP TV Total Others Total Sales Revenues
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RESEARCH AND DEVELOPMENT Delta Electronics (Thailand) Public Company Limited continuously improves its research and development capability since its inauguration in 1990 and continues his trend towards higher-end products: ë DC-DC converters ë Network & telecom power supplies ë Telecom power systems ë Industrial applications ë Automotive components ë Renewable energies such as solar power conversion Delta Thailandûs R&D staff comprises over 500 R&D engineers world-wide, and continues to increase, and the proportion of revenue derived from its own R&D continues accordingly. Company provides good opportunity for its Thai R&D staff for overseas training and exchange knowledge with RD staff in other countries. In consolidated results, the R&D expenditure has now increased to 4.9% of total sales. Currently, with 8 major R&D centers for new product development and custom design engineering. Those centers are located in Germany (Soest and Teningen), Switzerland, Romania, USA, Thailand and SOEST, GERMANY BERN, SWITZERLAND 2 new R&D centers have added in India and China. TENINGEN, GERMANY Besides, having its own research team, Delta HANGZHOU, CHINA Electronics (Thailand) had signed the Memoranëëë ë dum of Agreement to cooperate and exchange ë ë ë THAILAND knowledge among parties with The Faculty of TUCSON, USA Engineering, Chulalongkorn University. We believe that this program will remarkably develop the GURGAON, INDIA BUCHAREST, ROMANIA engineering know-how and R&D skills of Thai personnel and also enhance Delta Thailandûs technology which will help support the Company to cope with the worldûs rapid change in technologies. In 2007, Delta Thailand together with its subsidiary, Delta Energy Systems (Arizona), has developed a new power adapter by using planner transformer technology and high efficiency circuit design. It provides 70W power for notebooks and USB chargeable devices with the small size of only 12.88 x 7 x 2.36 cm. Unlike conventional power adapters, it redefines the look and feel of power adaptors. Henry Shieh President of Company (left) and With those attractive Prof. Dr. Direk Lawansiri, the Dean of Engineerfeatures, this new product ing Faculty (right) had signed the Memoranhas won iF 2008 Product dum, Mr. Seksan Ruangwohan, the director of Design Award and been se- Electronics and Electrical Industry, the RepreAdapter mCube 90 lected by the 2008 Interna- sentative of BOI had been honorary witness. tional Consumer Electronics Show (CES®) as an Innovations 2008 Design and Engineering Award honoree in the Portable Power product category. Delta Thailand had the prestigious honor to display this product at the 2008 CES in Las Vegas and plans to commercially launch this product in 2008
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 13 -
INDUSTRY OUTLOOK IN 2008 Global Switching Power Supply Market According to IMS Research, the global power supply market is expected to grow at about 7.5% in 2007-2008. On a whole, the merchant market for AC/DC and DC/DC power supplies will be 17.26 billion USD in the year 2008 and growing to 19.08 billion USD in the year 2010. Geographically, Asia Pacific would emerge as biggest market, followed by Americas and EMEA regions respectively. The 2007-2008 revenue growth in Asia Pacific region will be about 9.9%, followed by Americas at about 4.5% and EMEA region at about 4.0%. The big markets in China and India are leading the Asia Pacific trends and the various infrastructure development projects are directly and indirectly boosting the power supply market growth in Asia Pacific region.
19,083 17,256 18,223
Asia Pacific 9,977
2008 Americas 4,295
5,000 0 2006 2007 2008 2009 2010 Source : IMS Research 2007, in millions of USD
Power Supply Revenues
Source : IMS Research 2007, millions of USD
CAGR 2007-2008 4.5 9.9 EMEA Asia Pacific Americas
4.0 0 2 4 6 8 Source : IMS Research 2007, %
Geographical revenue Growth 2007-2008
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Consumer Fixed Communications Mobile Communications Computer & Office Medical Industrial Military & Aero
CAGR 2007-2008 12.2 8.0 7.7 7 5.7 5.7 4.1
0 3 6 9 Source : IMS Research 2007, values in %
Power Supply Growth by Sector 2007-2008
It is expected that the wider trends in the industry will continue, viz., Market movement towards Asia, in demand for lower prices; Product movement towards device applications rather than modules in distributed power architecture; Technology movement towards digital power technology with higher R&D spending and product development; Industry consolidation in terms of a smaller number of companies. IMS Research expects a continued consolidation towards focused global power supply manufacturers with the ability to source parts in significant volumes and with multi-regional production and design. According the latest study from IMS Research Delta Electronics group lead the worldwide power supply market in 2006 with 14.8% market share, followed by Emerson/Artesyn with 9.8%, Lite-On Technology with 5.9% and TDK Lambda with 3.7% North American market has lost its place to the Asia/Pacific (ASIA) region. North Americaûs market strength is in the higher-end, higher profit margin products and technology development. This is especially true for DC-DC converters and emerging digital power products. Europe remains an important market that recovered in 2007 due to an increased demand and supported by the weakness of the USD. European marketûs diversity of applications is suitable for low/medium-volume businesses. The European market, due to its concentration of telecom and industrial products, is more suitable for profits rather than growth. Asia has emerged as an important region for the future of power supplies. Many North American and European-based equipment manufacturers have moved to Asia (mostly China) and like to buy products from the çlocalé suppliers. Asia is the main region for very high-volume business and the fastest growth. The significant trend in power supply industry shall shift to profitability rather than sales growth as the industry has evolved into two types of companies - high-growth consumer applications such as mobile phones, laptop computers and LCD TVs, which is supported by low-cost manufacturing and pricing will provide growth, &, low-to-medium growth computer/networking applications, such as servers and routers, which has technology to provide a market edge. Over the last five years, the power supply industry is moving from the çlow-tech product to high-teché, supported by increased R&D trends. With worldwide increasing energy cost the importance of efficient and intelligent power supplies will strengthen to save energy and our environment.
Global Cooling Components and EMI Products Market Component Industry has benefited from the growth of the emerging markets, such as China, India, South America, and Eastern Europe for the past few years. We expect the component industry will continue to expand with the growing demand of consumer electronics, home appliances, information technologies (IT) products, telecommunication systems (telecom), and automotive vehicles. The healthy business climate will be beneficial to Deltaûs three main component productsﬁ DC fan, EMI filter, and Solenoid. Thanks to the strong demand of IT and consumer electronics products, the annual growth rate of DC fan industry, we expected, will be to be over 20% p.a. from 2008 to 2010. In addition to IT products, DC fans used for telecom and automotive vehicles will become the two major drivers for the market growth. According to our survey on customers, we estimate that the available market of DC fans for telecom equipment is around USD 200M in 2008. Besides, back to three years ago, car industry begins
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 15 -
to open its door for electronic and electrical devices under the trend of digitalization. Therefore, more and more electronic products, such as LED lights and video displays, are designed into the vehicles. Nowadays, a middle-to-high-end car can use up to seven DC fans for its lights, seats, control systems, and batteries. With the reference of global automotive demand, we forecast that the available market of DC fan in cars will grow significantly from USD 60M to USD 200M from 2008 to 2010. EMI filters, used in the flat TV such as LCD and PDP TV, will flourish in the following years. As the era of digital broadcast is approaching, the flat TV is expected to replace the CRT TV around the world within 10 years. In addition, thanks to economy expansion in those emerging markets, the demand of EMI filters in the industrial segment, such as infrastructure and testing equipment, will increase mildly in the coming years. Regarding the major demand of EMI filters in the IT/telecom segment, we expect the shipment will keep growing, while the unit price and margin become tougher and tougher for manufacturers. Solenoids, magnetic switches, are widely used in various industries from agriculture, power tools, security systems, automotive vehicles, home appliances, sanitary appliances to office automation. Solenoid products, with the available market around USD 500M in 2008, will grow stably with CAGR of 12% from 2008 to 2012. Besides, with rising awareness to eco-friendly products, we believe that the demand for solenoids with energy and water saving design will become more and more popular among end applications.
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BUSINESS DIRECTION IN 2008
Following the year of 2007, Delta Thailand will continue to transform itself from a manufacturer to a Design, Manufacturing, and Service (DMS) company. With the capability in design and research (R&D), we will further expand our businesses in telecommunication power systems (telecom power systems), high-end power supply units, and electronic components. At the meantime, we will continue to invest in new potential businesses, such as automotive components, renewable power solutions, standard power systems, and consumer power products. Despite the possible slowdown in US economy in 2008, we still see a strong demand for power systems and electronic components from the emerging markets, such as India, Middle East, Eastern Europe, and South America. Situated at Thailand, Delta Thailand positions itself as a business gateway to and a management center for its global operations in those growing markets. In the past few years, Delta Thailand has captured sizable markets of telecom power systems, the power products that are considered more technology and service intensive than those of IT systems. With strong R&D engineers in Europe, Thailand, and China (starting from 2007), Delta Thailand has provided our customers with high quality power systems. In 2008, we believe that we will continue to gain revenues from telecom power systems, especially in the developing markets. Hence, despite the cost competition from factories in China for low end products, Delta Thailand has gradually become a world leading provider for telecom power systems. Power supply products and electronic components for automotive vehicles, Delta Thailand believes, will become one of the potential stars after telecom power systems. As the oil prices surged greatly in the past year, the awareness of energy conservation becomes the most popular topic at present. Most of leading car vendors are now developing vehicles powered by alternative energy or electricity. According to IEA (2006), the global Hybrid Electric Vehicle (HEV) will grow from 33,000 in 2005 to 2,670,000 cars in 2011, with the compound annual growth rate (CAGR) of over 40%. In late 2007, Delta Thailand embarked on several projects of automotive power inverters and converters for electric sports car and hybrid electric vehicles. This year, we will continue to develop these projects and actively pursue new business opportunities for the growing, green automotive industry. In addition to system products, component business sectors will be prosperous in 2008 as well. As a worldwide leading supplier for DC fans, Delta Thailand will sustain its fan business for IT products and actively develop new projects of DC fans used for telecom equipments and vehicles. Usually DC fans for telecom systems and vehicles require higher quality and reliability. Therefore, the entry barriers to the two applications are quite high. The merit is that once a product is designed into the end application, it is difficult for new comers to replace it. As Delta Thailand has cultivated heavily in the two fields for the past few years, we believe that we are in a good position to compete and win the markets in 2008. Solenoid products will also begin to reap the harvest after years of investment. In 2008, we expect that new products, such as water valves and air valves, will generate good sales revenues for the Company. On the other hand, EMI filters will be benefited by the high demand of the flat TV around the world. Never content with the status quo, Delta Thailand has challenged itself to develop new product lines and new markets. Besides the customized ODM power systems, Delta Thailand is undertaking new series of standard power products for medical equipment and industrial automation machines. With reference to Frost and Sullivan (2007) market data, we forecast DET CAGR of the Din Rail power product is over 10% from 2008 to 2012. By entering in this market, we aim at serving numerous small
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 17 -
to middle-sized customers in the growing markets worldwide. Besides, we will progressively increase our standard power range offerings. Panel mounting power supply products, for instance, will be added this year to meet the high demand in China and India. By selling them through Delta existing power systems, we can further expand the product solution offerings to effectively start competing in this standard product segment in the fastest possible time. Delta Thailand is consisting to be innovative in technology, product design, and business models. One of the best examples is our new consumer power adapter, mCube90. It demonstrates that a power supply product could be no longer a frozen box with cold electronic components. With its innovative breakthrough in slim technology, detachable structure, and appealing design, mCube90 wins 2008 iF Design Award and is selected as a 2008 CES Design and Engineering Award honoree (for further details of this product, please refer to the section of Ă§Research & DevelopmentĂŠ). In 2008, Delta Thailand will make use of all possibilities to create innovation products and develop business with our global channel partners. In terms of geographic expansion, Delta Thailand expects the strong economic growth in developing countries in coming years. Therefore we will expand our business in Russia, Brazil, and Dubai to support the strong domestic and regional demand for power products and electronic components. In addition to product and business development, Delta Thailand considers the development of human resources as one of the major tasks in 2008. People are the most valuable assets for Delta Thailand. As a multinational corporation, Delta Thailand has strived to train our employees with a global perspective. In 2008 and beyond, we will put more efforts on developing global business managers in order to meet our thriving business around the world. Looking forward to the year of 2008, Delta will adopt a holistic approach to grow its existing business and meanwhile proactively enter into the new fields in which we can provide the values for our customers.
- 18 - ANNUAL REPORT 2007
According to the investment plans of the Company that have been made in Slovakia and India during year 2006-2007 by constructing new factories in these two countries, the progress of these two projects can be summarized as follows.
Investment in Slovakia
New factory in Slovakia Its construction is now fully completed and the production started in early 2007.
Construction of the new factory in Slovakia has started around mid of 2006 and is now fully completed. The commercial production started at the beginning of the year 2007. The major products produced in the factory include power supplies used in various industries, i.e, power supplies for Information and technology (IT), telecommunications, medical and industrial applications, solar power, as well as whole telecom power systems. This investment project has been granted with tax privileges by the Slovak government for a period of 10 years. The main customers of Delta Electronics (Slovakia) s.r.o. are the world没s major producers in the above mentioned industries such as IBM, Siemens, Fresenius, Draeger Medical, Tenesol, Cisco, Thales, etc. Most of which are either located or are having their operation in Europe.
Investment in India
Following the fast growing economy of India in recent years, the Company没s subsidiary, Delta Energy Systems (India) Ltd, has remarkably achieved 63% and 55% sales growth in year 2006 and 2007, respectively. The Company, as a consequence, decided to expand the production by constructing a new factory in the north of India in Rudrapur City, Uttarakhand State, 250 Kms east of National Capital, Delhi. Being located in this state, investment promotional privileges, mainly tax exemptions and subsidy for capital investment, are granted to the business for 5-15 years from the date of commencement of commercial production. This new plant is planned to be a green plant with the endeavour to obtain a LEED (Leader in Energy and Environmental Design)* India Platinum rating.
* The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, developed by the U.S. Green Building Council (USGBC), provides a suite of standards for environmentally sustainable construction. The highest rating is Platinum, followed by Gold and Silver.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 19 -
Total investment cost is expected to be approximately USD 12 million (or equivalent to approximately Baht 400 million) including land and construction costs. The project is currently under construction and expected to be fully completed and ready for its commercial production in the second quarter of year 2008. 3 major product groups, Telecom power systems. Uninterrupted power supply (UPS) and Industrial Automation Products, will be produced in this factory. Besides the existing factory in Gurgaon and the new plant in Rudrapur, another factory in Pondicherry, Chennai, south of India, has also been rent to produce telecom power systems and other electronic components to mainly serve the market in the south of India.
Locations of plants in India New Plant under construction located in Rudrapur, Uttarakhand
Existing Plant in Gurgaon ➤
Plant in Pondicherry, Chennai
- 20 - ANNUAL REPORT 2007
INVESTMENT STRUCTURE INVESTMENT STRUCTURE (As of 25 February 2008)
Delta Electronics (Thailand) Plc âž¤
1. 100% DET International Holding LTD
2. 100% Delta Energy Systems (Switzerland) AG
1.1 100% DET Logistics (USA) Corp.
2.1 100% Delta Energy Systems (Czech Republic) spol. s.r.o.
1.2 16.5% Ezonics Corporation
2.2 100% Delta Energy Systems (Finland) OY
1.3 3.8% IP Fund One, L.P.
2.3 100% Delta Energy Systems (Fance) SA
1.4 100% DET Video Technology Ltd.
2.4 100% Delta Energy Systems (Italy) S.r.l.
1.5 100% Delta Energy Systems (Germany) GmbH *
2.5 100% Delta Energy Systems (Spain) SL
1.6 100% Delta Energy Systems (India) Pvt. Ltd. *
2.6 100% Delta Energy Systems (Sweden) AB
1.7 100% Delta Energy Systems (Slovakia) s.r.o. *
2.7 100% Delta Energy Systems (Brasil) S.A.
1.8 100% Delta Electronics Europe Ltd. *
2.7.1 100% Delta Energy Systems (Curitiba)
1.9 100% Delta Electronics (Slovakia) s.r.o.
2.8 51% Delta Energy Systems (Guangzhou) Ltd.
1.10 100% Delta Energy Systems (Romania) S.R.L. *
2.9 100% Delta Energy Systems (Poland) Sp.zo.o.
1.11 100% Delta Energy Systems (Arizona) Inc. *
2.10 100% Delta Energy Systems LLC
1.12 100% Delta Power Solutions (India) Pvt. Ltd. 1.13 100% DET SGP Pte Ltd. 1.13.1 50% Delta Green (Tianjin) Industries Co.,Ltd. 1.14 100% Delta Greentech International Holding Ltd. 1.14.1 100% Delta Greentech SGP Pte Ltd. Remark : * Subsidiaries which were previously owned by Delta Energy Systems (Switzerland) AG
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 21 -
- 22 - ANNUAL REPORT 2007
Type of Business
Type of Product
Type of Stock
Paid up Capital
1. DET International Holding Ltd.
Scotia Centre, 4th Floor, Investment George Town, Grand Cayman, Cayman Islands
Common USD USD Stock 150,000,000 135,675,626
1.1 DET Logistics (USA) Corporation
4405 Cushing Parkway Fremont, Logistic Service in USA CA 94538 USA. Tel: + 1 510 668 5100 Fax:+ 1 510 668 0680 5870 Stoneridge Dr.,te.4, - Manufacturing Pleasanton, CA 94588 USA. - R&D
Common USD Stock 1,000,000
1.2 Ezonics Corporation
Digital Video Camera Common & USD USD Preference 25,000,000 6,988,550 Stock 1.3 IP Fund One, L.P. C/O 7F, 122 Tun Hua N Rd., Investment fund focusing on the Common USD USD Taipei 105 Taiwan investment in innovative software, Stock 260,270,000 225,086,683 Tel: 8862 3518 3999 hardware and services based on Fax: 8862 6606 0021 the internet platform. 1.4 DET Video Technology Ltd. Portcullis, Trust Net, Chambers, Trading LCD TV Common USD USD Po.Box 3444 Road Town, Tortola, Stock 100,000 100,000 Bristish Virgin Island Tel: 284 494 5296 Fax: 284 494 5283 1.5 Delta Energy Systems Coesterweg 45, D-59494 Soest, - Marketing & Sales - Power Systems Common EUR EUR (Germany) GmbH Germany - R&D - Power Supply Stock 2,300,813.45 2,300,813.45 Tel: + 49 2921 987 0 Fax: + 49 2921 987 404 1.6 Delta Energy Systems (India) Plot No. 27, Sector - 34, - Marketing & Sales Power Systems Common INR INR Pvt. Ltd. Phase IV, Udyog Vihar, Gurgaon, - Assembler Stock 44,500,000 40,476,020 India 122001 Tel : +91-124-5169040 Fax: +91-124-5036045
Company 1.7 Delta Energy Systems (Slovakia) s.r.o.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 23 -
Trencianska 19, P.O Box 35 A, SK-018 51 Nova Dubnica, Slovakia Tel: + 421 42 466 1111 Fax:+ 421 42 466 1130 1.8 Delta Electronics Europe Ltd 1 Redwood Court, Peel Park Campus, East Kilbride G74 5PF, UK Tel: + 44 1355 588 888 Fax:+ 44 1355 588 889 1.9 Delta Electronics (Slovakia) Trencianska 19, P.O Box 35 A, s.r.o SK-018 51 Nova Dubnica, Slovakia Tel: + 421 42 445 0511 Fax:+ 421 42 445 0570 1.10 Delta Energy Systems Str.Negru Voda Nr. 2, BI. C4 Sc.A, (Romania) S.R.L. Suite 14-15. Sect 3, RO-70462 Bucharest, Romania Tel: + 40 1 321 3653 Fax:+ 40 1 322 1644 1.11 Delta Energy Systems c/4400 E. Broadway. Suite 803, (Arizona) Inc. Tucson, Arizona, USA 85711 Tel: + 1 520 326 8401 Fax:+ 1 520 326 8366 1.12 Delta Power Solutions (India) Plot No. 28, Sector 34, EHTP, Pvt. Ltd. Gurgaon, India 122001 Tel : +91-124-2399040 Fax: +91-124-6349114
Type of Business
Type of Product
Type of Registered Stock Capital Common SKK Stock 200,000
Paid up Capital SKK 200,000
% Holding 100
- Marketing & Sales - Assembler - Custom Design / OEM
- Marketing & Sales - R&D
- Power Systems - Power Supply - Other electronics products
Common GBP Stock 1,000,000
- Manufacturing - Marketing & Sales - Custom Design / OEM - Customer Service and European Repair Center R&D
- Power Supply - Power Systems - Solar Inverters
Common SKK SKK Stock 421,160,000 421,160,000
Board Mounted Power Common Stock
RON 200 RON 200 (Lei (Lei 2,000,000) 2,000,000)
- Marketing & Sales - Assembler
- Telecom Power Systems - UPS
Common INR INR Stock 620,000,000 620,000,000
- 24 - ANNUAL REPORT 2007
1.13 DET SGP Pte Ltd.
8 Kaki Bukit Road 2, #04-18, Ruby Warehouse Complex, Singapore 417841 Tel: +65 6747 5155 Fax: +65 6744 9228 1.13.1 Delta Green (Tianjin) 168, No.15 Coastal Way, Industries Co., Ltd. Tianjin Port Free Trade Zone, Tianjin P.R. China. Tel: 8622 2576 0371 Fax: 8622 2576 0380 1.14 Delta Greentech International Scotia Centre, 4/F, P.O. Box 2804, Holding Ltd. George Town, Grand Cayman KY1-1112, Cayman Islands 1.14.1 Delta Greentech SGP 8 Kaki Bukit Road 2, #04-18, Pte Ltd. Ruby Warehouse Complex, Singapore 417841 Tel: +65 6747 5155 Fax: +65 6744 9228
Type of Business
Type of Product
Investment, Trading, Marketing, After-Sales-Services, Business Management and consultancy service Manufacturing
Radio frequency components
Type of Registered Paid up % Stock Capital Capital Holding Common USD USD 100 Stock 11,500,000 11,500,000
Common USD USD Stock 20,000,000 20,000,000
Investment aim for Telecom Power Business
Common USD USD Stock 100,000,000 100,000
2. Delta Energy Systems (Switzerland) AG
Freiburgstrasse 251, CH-3018 - Marketing & Sales Bern-B端mpliz, Swizerland - R&D Tel: + 41 31 998 5311 - Sub holding function Fax:+ 41 31 998 5485
Common CHF CHF Stock 20,000,000 20,000,000
2.1 Delta Energy Systems (Czech Republic), spol. sr.o.
Litevska 1174/8, 100 00 Praha 10, Czech Republic Tel: + 420 272 019 330 Fax:+ 420 271 751 799
- Power Systems - Board Mounted Power - Other electronics products
Common CZK Stock 8,000,000
- Marketing & Sales - R&D - Assembler - Custom Design / OEM
Company 2.2 Delta Energy Systems (Finland) OY
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 25 -
2.3 Delta Energy Systems (France) S.A.
2.4 Delta Energy Systems (Italy) s.r.l.
2.5 Delta Energy Systems (Spain) S.L.
2.6 Delta Energy Systems (Sweden) AB
2.7 Delta Energy Systems (Brasil) S/A
Location Juvan Teollisuuskatu 15, FIN-02920 Espoo, Finland Tel: + 358 9 8496 6000 Fax:+ 358 9 8496 6100 Route de Longjumeau, Ctre. dûAffaires de la Vigne aux Loups, F-91380 Chilly-Mazarin, France Tel: + 33 1 69 101 805 Fax:+ 33 1 69 341 019 Via Primo Maggio 6, I-40011 Anzola dellûEmilia, Italy (BO) Tel: + 39 051 733 045 Fax:+ 39 051 731 838 Calle Luis I n 60, Nave 1a, E-28031 Madrid, Spain Tel: + 34 91 223 7420 Fax:+ 34 91 332 9038 Annaävgen 3, P.O. Box 3096, S-350 33 Växjö, Sweden Tel: + 46 470 70 68 00 Fax:+ 46 470 70 68 90 Rua Almirante Alexandrino, 1130-Bairro Afonso Pena CEP 83040-420, Sao José dos Pinhais - PR, Brazil Tel: + 55 41 3283 6363 Fax:+ 55 41 3382 2227
Type of Business
Type of Product
Type of Registered Paid up % Stock Capital Capital Holding Common EUR EUR 100 Stock 285,919.47 134,550.34
- Marketing & Sales - Assembler
Marketing & Sales
Common EUR Stock 1,605,000
- Marketing & Sales - Assembler
- Marketing & Sales - R&D - Assembler - Custom Design / OEM - Marketing & Sales - R&D - Assembler - Custom Design / OEM - Marketing & Sales - Assembler - OEM
- Power Systems - Board Mounted Power - Other electronics products - Power Systems - Board Mounted Power - Other electronics products Power Systems
Common SEK Stock 2,010,000
Common BRL BRL Stock 6,545,368.23 6,545,368.23
- 26 - ANNUAL REPORT 2007
Company 2.7.1 Delta Energy Systems (Curitiba)
2.8 Delta Energy Systems (Guangzhou) Ltd.
2.9 Delta Energy Systems (Poland) Sp.zo.o
2.10 Delta Energy Systems LLC
Currency Exchang Rates (Average). BRL 0.55866/ USD CHF 0.87719/ USD CZK 0.05540/ USD EUR 1.46000/ USD GBP 2.02000/ USD INR 0.02539/ USD
Location Rua Almirante Alexandrino, 1130-Bairro Afonso Pena CEP 83040-420, Sao JosĂŠ dos Pinhais - PR, Brazil 139 Zhongshan Da Dao, Tianhe District, Guangzhou, China 510630 Tel: + 86 20 8568 6003 Fax:+ 86 20 8568 6301 Poleczki 23, Street 02-822 Warsaw, Poland Tel: + 48 22 335 2600 Fax:+ 48 22 335 2601 Pokrovski Boulevard 4/17 Building 4B 101000 Moscow, Russia Tel: + 7095 787 4738-9 Fax:+ 7095 787 4738
PLN RON RUR SEK SKK
0.40486/ USD 0.41322/ USD 0.04068/ USD 0.15432/ USD 0.04361/ USD
Type of Business
Type of Product
Providing Engineering Service to DES Brazil
Type of Registered Stock Capital Common BRL Stock 1,000
Paid up Capital BRL 1,000
% Holding 100
- Marketing & Sales - Assembler - Custom Design / OEM
Common USD Stock 6,000,000
- Marketing & Sales - Assembler
Marketing & Sales
Investment Policy In case of new investments, the Company will still mainly emphasize on the electronic or electronic related industries which can support the core business of the Company such as R&D, or any other business that can enhance the growth or improve the competitiveness of the Company and its subsidiaries. However, the business expansion will focus on the products/services that the Company and its group are specialized in and also emphasize on the energy-saving and environmental friendly products. From the above chart of investment structure shown earlier, all companies in the group are in the electronic or the supporting businesses and divided into two main groups. The first group is under the holding of DET International Holding and the businesses of this group are mainly in the manufacturing and R&D. The second group is led by Delta Energy Systems (Switzerland) and its main businesses are in sales, after sales and other marketing services with premises mostly located in Europe. With the aim to effectively serve clients, all those subsidiaries have been set up to be responsible for several functions but are working towards the same direction and objective in strengthening the group没s business. Even the Company has made investments in numerous subsidiaries, it generally keeps monitoring and following up on the operations of its subsidiaries closely by sending some directors or management to sit on the board to determine the policies and direction of those subsidiaries. In additions, all these members and the Company regularly meet each other to exchange their ideas and opinions in order to improve their knowledge in various areas such as production, marketing, technologies or others. To cope with the Company没s fast expansion, an intensive human resources development for both Thailand and subsidiaries, is now being developed. Managers and staff are required to work more internationally and need to be well prepared for the new challanges.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 27 -
The current risk factors that would affect the Companyûs operations can be summarized as follows. 1. Risks from Product Obsolescence due to the technology changes Most of electronic products encounter rapid changes of technologies and evolving industry standards. The Company, therefore, continuously enhances the capability of its research and development department to develop and deliver high quality and cost effective products on a timely basis, in line with the latest technologies to meet the competitive requirements of the market. In addition, the Company puts efforts to extend its product and market diversification by offering a more variety of new applications to the new products in various industries. After having developed R&D for several years, the Company together with its subsidiaries has set up 8 R&D centers in different locations. Its capability is now not only for cost reduction or design but also aim to develop new products (for further detail, please refer to the section of Research & Development). 2.
Shortage of Labor Though labor cost is not a very significant portion in the Companyûs production cost structure, it is crucial to the Companyûs operations. Shortage of labor or any other labor problem will definitely affect the production process and finally will hurt the operating results of the Company. Moreover, operators should have some skills as well as good knowledge and understanding of the production process. The Company has programs to enhance the skills and knowledge of its operators. Together with the good workplace and also proper compensation scheme being provided to encourage the employeesû work morale, So far, the Company has never had difficulty in managing its labor or productivity improvements or shortage of labor since its inauguration.
Market Competition The markets for electronics products are worldwide and considered high competition resulting in downward pressure on prices and margins, especially low technology or commoditizing products. The Companyûs strategy is to offer the new models with better quality and specifications at more competitive prices. With the stronger design and development capability after having set up 8 R&D centers worldwide, the Company has now been shifting its products into a higher end technology level in order to penetrate new markets both in existing and new industries to help expand its client base. Moreover, the quality and reliable after sales service is another major competition edge that the Company has constantly focused on it and put all its efforts to ensure that the quality of the service can maximize the customer satisfaction.
Foreign Exchange Risks Being an export company, it is inevitable that the fluctuation in foreign exchange will impact the Company, especially when Thai Baht is appreciated against US dollar, the main currency used in the business. It would negatively affect the Companyûs operating results if such risk is not properly managed.
- 28 - ANNUAL REPORT 2007
Thai Baht has continued being appreciated during the past few years. Following the implementation of the proper hedging instruments in 2007, the Company earned a foreign exchange gain of Baht 274 million as compared to a loss of Baht 584 million incurred last year. However, the Company has a policy not to speculate on the foreign exchange or interest rate but only needs to fully hedge USD on its net position in order to mitigate the impact on the currency and interest rate fluctuation. 5.
Risks from the change in policy from the major shareholder Due to the fact that Delta Electronics Inc., (Taiwan), one of the Companyûs major shareholders, and its subsidiaries in China, have produced some overlapping products with those of the Company. This would affect the Companyûs operations if such major shareholder changes its policy. However, main purpose of the policy is to pull together the advantages of each company in the group to enhance the groupûs and individual companiesû competitiveness. Working as a group creates synergy among the group companies in various areas such as research capability, distribution channels, and bargaining power in raw material procurement, and etc. However, each company in the group still has its own autonomy and its operations are independent from one another. Conflicts of interest such as the internal competition would only jeopardize the groupûs ability to grow and compete with its rivals. Up to now, the Company has gained supports from the major shareholder and the group since its inauguration.
Risks from its investments and financial assistance given to its subsidiaries The Company has made some investments both directly and indirectly through its subsidiary. The significant investment was made in year 2003 by acquiring Delta Energy Systems group in Europe. After the acquisition, the Company has realized that there are business opportunities in some of its subsidiaries and needs to expand operations through those subsidiaries to penetrate the markets in some specific regions. The Company, thus, needs to inject money and/or provides financial assistance by giving corporate guarantees to those subsidiaries in order to get sufficient fund and working capital from financial institutions to support their operations. However, cash and treasury management is directly monitored and controlled by the Companyûs treasury team to mitigate the financial risk. The Company also has put its efforts in improving the administration and coordination among its subsidiaries by arranging trainings and meetings from time to time for the executives of those subsidiaries to meet with the Companyûs management in order to work towards the same working process, policy and direction and at the same time improve the cooperation among the group. For general investment policy, Company will focus mainly on the investment within the areas of Delta groupûs core businesses (for further details, please refer to the Companyûs investment policy).
Risks from Tax assessment During the year 2006, the Company received a corporate income tax assessment letter from the Revenue Department covering the years 1997-2000, assessing tax amounting to approximately Baht 740 million (including penalties and surcharges). The Company has submitted a letter appealing the assessment. In view of the independent legal counselor of the Company believes that no significant losses will be incurred by the Company.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 29 -
Registered and paid up share capital (as of 13 February 2008) Type of Equity 1. Registered Share Capital 2. Paid up Capital
No. of Shares 1,259,000,000 1,247,380,073
Par value (Baht) 1 1
Total Value (Baht) 1,259,000,000 1,247,380,073
The Annual General Meeting of the shareholders held on 30 March 2005 approved a resolution to issue up to 59,000,000 warrants for offer to executive directors and other employees of the Company. The warrants can be exercised to subscribe to newly issued ordinary shares in a ratio of 1 warrant per 1 ordinary share, at an exercise price of Baht 1 each. They are a one-time issue and have a life of 5 years, with the exercise period commencing on the last business day of January 2006. The meeting also approved a resolution to increase the Company没s registered share capital by 59,000,000 shares to support the exercise of the warrants, resulting in an increase in the number of ordinary shares comprising the registered share capital from 1,200,000,000 shares to 1,259,000,000 shares. The Company registered the increase in its registered share capital with the Ministry of Commerce on 7 April 2005 and listed its warrants on the stock Exchange of Thailand on 28 December 2005. The Meeting of the Board of Directors of the Company held on 13 February 2007 approved resolutions to pay a dividend to shareholders. As a result the Company adjusted the exercise ratio of the warrants in the manner stated in the prospectus, such that 1 warrant can be exercised to purchase 1.082 ordinary shares at a price of Baht 1 per share, effective from 6 March 2007. During the current year, warrants were exercised to purchase new ordinary shares as follows:
Outstanding as at 31 December 2006 Exercised during January 2007 Exercised during April 2007 Exercised during July 2007 Exercised during October 2007 Outstanding as at 31 December 2007
Number of warrants (Unit) 1,274,250 (1,217,850) (700) (29,652) (20,800) 5,248
Increase in paid up share capital from warrant exercise (Baht) 1,255,601 757 32,082 22,55 1,310,945
Date of registration of additional shares from warrant exercise with the Ministry of Commerce
7 February 2007 14 May 2007 6 August 2007 6 November 2007
As of 31 December 2007 the issued and paid-up share capital of the Company has increased by Baht 1,310,945 as a result of the exercise of the above warrants, to Baht 1,247,378,326 (1,247,378,326 ordinary shares of Baht 1 each) and during January 2008, 1,550 units of warrants were exercised, the issued and paid up share capital of the Company had increased to Baht 1,247,380,073 (1,247,380,073 ordinary share of Baht 1 each) with the outstanding warrants of 3,698 units.
- 30 - ANNUAL REPORT 2007
Top 10 shareholders (As of March 9, 2007) No. Name 1. Citibank Nominees Singapore Pte Ltd-S.A. PBG Clients SG (For Deltron Holding Ltd.) 2. Citibank Nominees Singapore Pte Ltd-S.A. PBG Clients SG (For Others) 3. Citibank Nominees Singapore Pte Ltd-S.A. PBG Clients SG (For Delta International Holding Ltd.) 4. Delta Electronics Inc. 5. Chase Nominees Limited 42 6. HSBC (Singapore) Nominees Pte Ltd. 7. Goldman Sachs International 8. ABN AMRO Bank N.V. Singapore Branch 9. Thai NDVR Co.,Ltd. 10. Mellon Bank, N.A. Major shareholders that are influential the Company没s management policy 1. Citibank Nominees Singapore Pte Ltd-S.A. PBG Clients SG (For Deltron Holding Ltd.) 2. Citibank Nominees Singapore Pte Ltd-S.A. PBG Clients SG (For Delta International Holding Ltd.) 3. Delta Electronics Inc.
191,984,450 69,128,140 53,665,708 35,807,340 20,311,290 17,151,750 13,147,101 12,894,600
15.39 5.54 4.30 2.87 1.63 1.38 1.05 1.03
Dividend Policy The Company has a policy to pay dividend at least 30% of its net profits. However, the dividend payout ratio would be subject to change depending on the investment plan and/or other capital requirements the Company which may have in the future. The dividend payment for the year 2007 is Baht 1.60 per share, representing a payout ratio of 63%. (The dividend paid in 2006 was Baht 1.30 per share, representing a payout ratio of 83%). Dividend payment of the subsidiaries will be determined based on the profitability and reinvestment opportunities of each subsidiary. In addition, the related laws, regulations, tax structure and foreign exchange control of the country where the subsidiary is located at will also be taken into consideration for greatest benefits of the Company and shareholders.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 31 -
Delta Electronics (Thailand) Public Company Limited Organization Chart
Board of Directors
Information Technology (IT)
Human Resources & Admin/PR
Remark : * Delta Energy Systems Group
ANNUAL REPORT 2007
BOARD OF DIRECTORS Mr. Ng Kong Meng (James)
Board of Directors Mr. Ng Kong Meng (James) ë Chairman
Mr. Wang, Ming-Cheng (Stronger) ë Vice Chairman
Mr. Hsieh, Heng-Hsien (Henry) ë Director ë Director
Position ë Chairman of the Board ë Executive Committee Member
Mr. Anusorn Muttaraid
Mr. Chu, Chih-Yuan (Roger)
Ms. Niramol Tantipuntum ë Director
Emeritus Professor Supapun Ruttanaporn ë Independent Director
Professor Lee, Ji-Ren ë Independent Director
Mr. Supat Limpaporn ë Independent Director
Work Experience ë Executive Committee Member (2004-present) ë Chairman of the Board (1990-present) Delta Electronics (Thailand) Plc ë President, Delta Electronics (Thailand) Plc (1990-2006) Education ë M. Sc (Electronic Engineering), University of Southampton, UK ë Bachelor Degree in Electrical Engineering, National Taiwan University, Taiwan ë Director Accreditation Program (DAP), Thai Institute of Directors Association Year 2007 Shareholding in the Company (31 Dec 07) ë 4,000,000 shares (0.32% of paid up capital)
33 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
Mr. Wang, Ming-Cheng (Stronger)
Mr. Hsieh, Heng-Hsien (Henry)
Position ë Vice Chairman of the Board ë Executive Committee Chairman ë Vice President
Position ë Director ë Executive Committee member ë President & DES President
Work Experience ë Executive Committee Chairman (1999-present) ë Vice Chairman of the Board (1990-present) ë Vice President (1990-present) Delta Electronics (Thailand) Plc
Work Experience ë President (2007-present) ë Director of the Board (2006-present) ë Executive Committee Member (2004-present) ë President of Delta Energy Systems (DES) group (2004-present) Delta Electronics (Thailand) Plc ë Vice President Sale & Marketing, Delta Electronics (Thailand) Plc (2003-2006)
Education ë Industrial Engineering (Diploma), National Taipei Institute of Technology, Taiwan Shareholding in the Company (31 Dec 07) ë 4,000,010 shares (0.32% of paid up capital)
Education ë MBA, Pacific Western University, USA ë Electrical Engineering (Diploma), National Taipei University of Technology, Taiwan ë Director Accreditation Program (DAP), Thai Institute of Directors Association, Year 2006 Shareholding in the Company (31 Dec 07) ë 55 shares (0.000004% of paid up capital)
ANNUAL REPORT 2007
Mr. Chu, Chih-Yuan (Roger)
Mr. Anusorn Muttaraid
Position ë Director
Position ë Director ë Executive Committee Member ë Compensation Committee Member ë Human Resources & Administration/ Public Relations Director
Age 61 Work Experience ë Director of the Board, (1988-present) Delta Electronics (Thailand) Plc ë Senior Vice President and Corporate CFO, Delta Electronics, Inc. (Taiwan) (1986-present) ë Chairman of Board of Supervisors, Delta-CIMIC Electronics Co., Ltd (China) (2002-present) Education ë B.A in Economics, Chinese Culture University (Taipei), Taiwan ë Director Accreditation Program (DAP) Thai Institute of Directors Association, Year 2007 Shareholding in the Company (31 Dec 07) ë 2,000,000 shares (0.16% of paid up capital)
Age 54 Work Experience ë Compensation Committee Member (2007-present) ë Executive Committee Member (1999-present) ë Director of the Board (1994-present) ë Human Resources & Administration/ Public Relations Director (1993-present) Delta Electronics (Thailand) Plc ë Chairman of Thailand-India Business Council, Board of Trade of Thailand (2007-present) Education ë B. Sc, Kasetsart University ë Director Certification Program (DCP), Thai Institute of Directors Association, Year 2004 Shareholding in the Company (31 Dec 07) ë 2,000,000 shares (0.16% of paid up capital)
35 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
Ms. Niramol Tantipuntum
Emeritus Professor Supapun Ruttanaporn
Position ë Director ë Executive Committee member ë Accounting Manager
Position ë Independent Director ë Audit Committee Chairperson Age 64 Work Experience Present ë Independent Director / Audit Committee - Delta Electronics (Thailand) Plc (2004-present) - Grow Energy Plc ë President of Thai Accounting Association ë Member of Ethics Committee, Federation of Accounting Profession ë Honorable auditor of Som Dej Pra Thep Rattanasuda Foundation ë Treasurer of Wat Yannasungvararam Foundation ë Pension staff of Chulalongkorn University 1966-2004 ë Teaching accounting and auditing courses as faculty staff of Department of Accountancy, Chulalongkorn University (CU) ë Other positions in CU in the past: : Member of Chulalongkorn University Council : Deputy Dean in charge of administration : Head of Department of Accountancy : Member of Faculty of Commerce & Accountancy Committee : Member of Department of Accountancy Committee ë Honorable auditor of Wat Yannasungvararam Foundation ë Independent Director / Audit Committee, Chiang Mai Frozen Food Plc Education ë M.B.A (Accounting), Michigan State University, USA ë B.A (Accounting) (Hons), Chulalongkorn University ë Director Certification Program (DCP), Thai Institute of Directors Association, Year 2002 Shareholding in the Company (31 Dec 07) -None-
Age 51 Work Experience ë Executive Committee member (1999-present) ë Director of the Board (1994-present) ë Accounting Manager (1991-present) Delta Electronics (Thailand) Plc Education ë MBA, National Institute of Development Administration ë B.A (Accounting), Ramkhamhaeng, University ë Director Accreditation Program (DAP), Thai Institute of Directors Association, Year 2004 Shareholding in the Company (31 Dec 07) ë 2,000,000 shares (0.16% of paid up capital)
ANNUAL REPORT 2007
Professor Lee, Ji-Ren
Position ë Independent Director ë Audit Committee Member ë Compensation Committee Member
Position ë Independent Director ë Audit Committee Member ë Compensation Committee Chairperson
Age 50 Work Experience ë Compensation Committee Member (2007-present) ë Independent Director /Audit Committee Member (2006-present) Delta Electronics (Thailand) Plc ë Director, Ali Technologies Inc. (Taiwan) (2007-present) ë Independent Director, E.SUN Financial Holding Co.,Ltd. (Taiwan) (2006-present) ë Executive Director, EMBA Program, College of Management, National Taiwan University (2005-present) ë Director, A VerMedia Technologies Inc. (Taiwan) (2003-present) ë Professor of Strategy and Management, Department of International Business, College of Management, National Taiwan University (2002-present) Education ë Ph.D., University of Illinois at Urbana-Champaign, Illinois, U.S.A ë M.B.A. National Taiwan University, Taipei, Taiwan ë B.E. National Tsing Hua University, Hsin-Chu, Taiwan
Age 63 Work Experience ë Independent Director / Audit Committee Member (2007-present) ë Compensation Committee Chairperson (2007-present) Delta Electronics (Thailand) Plc ë Performance Agreement Subcommittee, Ministry of Finance (2005-present) ë Committee on Labour Relations, Ministry of Labour (2006) ë Director General of The Industrial Promotion Department, Ministry of Industry (2003) ë Deputy Secretary General of The Board of Investment (2002-2003) ë Senior Executive Advisor, Office of the Board of Investment Ministry of Industry (2001-2002) Education ë M.E Mechanical Engineering, Technical University, Hannover, West Germany ë B.E Mechanical Engineering, Technical University, Hannover, West Germany ë Director Accreditation Program (DAP) Thai Institute of Directors Association, Year 2007
Shareholding in the Company (31 Dec 07) -None-
Shareholding in the Company (31 Dec 07) ë 50,000 shares (0.004% of paid up capital)
37 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
MANAGEMENT TEAM Mr. Hsieh, Heng-Hsien
Ms. Saowanee Kosutarak
Position ë President ë DES President (For futher details, please refer to the profiles of Board of Directors)
Position Chief Information Officer (CIO)
Mr. Wang, Ming-Cheng Position Vice President (For futher details, please refer to the profiles of Board of Directors)
Mr. Anusorn Muttaraid Position Human Resources & Administration/ Public Relations Director (For futher details, please refer to the profiles of Board of Directors)
Age 45 Work Experience ë CIO, (2004-present) Delta Electronics (Thailand) Plc ë IT Senior Manager, Delta Electronics (Thailand) Plc (1997-2004) Education ë MBA, City University, USA ë B. Sc, Kasetsart University Shareholding in the Company (31 Dec 07) ë 38,800 shares (0.003% of paid up capital)
Mr. Yu, Po-Wen
Mr. Boonsin Surawatsatain
Position Chief Financial Officer (CFO)
Position Internal Audit Manager
Work Experience ë Executive Committee Member (1999-present) ë CFO (1991-present) Delta Electronics (Thailand) Plc
Work Experience ë Internal Audit Manager, (2005-present) Delta Electronics (Thailand) Plc ë Internal Audit Vice President, Glow Energy Plc (2005) ë Senior Manager Internal Audit, Aviva Insurance (Thai) Co.,Ltd. (2004) ë Head of Internal Audit Office, Regional Container Lines Plc (2003) Education ë M. Sc (Accounting), Thammasart University ë B.A. (Accounting), Chulalongkorn University ë Certified Internal Auditor (CIA) The Institute of Internal Auditors of Thailand ë Certified Public Accountant
Education ë M.B.A, University of South Australia ë B.A (Accounting), Chinese Culture University (Taipei) Shareholding in the Company (31 Dec 07) ë 10 shares (0.0000008% of paid up capital)
Shareholding in the Company (31 Dec 07) -None-
ANNUAL REPORT 2007
The Companyûs managerial structure consists of board of directors, executive committee and the 2 sub committees including audit committee and compensation committee with details described below. BOARD OF DIRECTORS The Companyûs board of directors is now composed of 9 members, 6 executive directors and 3 independent directors. As reported in the Ministry of Commerceûs certification dated 13 February 2008, list of the members of the board of directors is shown below. Name Position Appointment Date 1. Mr. Ng Kong Meng Chairman Year 1990 2. Mr. Wang, Ming-Cheng Vice Chairman Year 1990 3. Mr. Hsieh, Heng-Hsien Director and President Year 2006 4. Mr. Chu, Chih-Yuan Director Year 1988 5. Mr. Anusorn Muttaraid Director Year 1994 6. Ms. Niramol Tantipuntum Director Year 1994 7. Emeritus Professor Supapun Ruttanaporn Independent Director Year 2004 8. Professor Lee, Ji-Ren Independent Director Year 2006 9. Mr. Supat Limpaporn* Independent Director Year 2007 Secretary to the Board of Directors: Ms. Duangrat Lertvorasirikul Remark: * Being appointed the Companyûs director by the Annual General Meeting of Shareholders No. 1/ 2007 held on March 29, 2007 All the above directors possess qualifications that are not prohibited by the relevant laws such as Public Limited Companies Act, the Securities and Exchange Act and the relevant notifications of the SEC and the SET. Authorized Directors: Authorized directors are (1) Either Mr. Ng Kong Meng or Mr. Wang, Ming-Cheng or Mr. Hsieh, HengHsien, jointly sign totaling two persons with the Companyûs seal being affixed, or (2) Mr. Ng Kong Meng or Mr. Wang, Ming-Cheng or Mr. Hsieh, Heng-Hsien, signs name together with Mr. Anusorn Muttaraid or Ms. Niramol Tantipuntum or Mr. Chu, Chih-Yuan, totaling two persons with the Companyûs seal being affixed. Scope of Responsibilities of the Board of Directors: 1. To manage the business of the Company faithfully and prudently and comply with the laws and the Companyûs objectives, Articles of Association as well as the resolution of the shareholdersû meeting, for the benefits of the Company. 2. To determine policies, business strategy, business plan and budget of the Company, and to supervise that the administration and management including to follow up the result of the operation performed by the executive committee in order to ensure its proper compliance with the plan, policies and budget.
39 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
To review the Companyûs internal control systems and risk management to be correctly and efficiently conducted. To ensure that the Company compiles with the Securities and Exchange Act and other securities and exchange laws e.g. SEC rules and regulations and the SET regulations, for instance, regulations concerning the entry into connected transactions and regulations concerning the substantial acquisition of assets, including any law governing the Companyûs business. To arrange for the preparation and submission of the audited balance sheet and profit and loss statement at the end of each accounting period to the shareholdersû meeting for its consideration and approval. To monitor on the adequacy and timely of the Companyûs disclosure of information. To authorise any other person to perform any action on behalf of the board of directors under the supervision of the board of directors, or granting the power-of-attorney to such person to perform any action as the board of directors may think fit; provided, however, that the board of directors has the sole discretion to revoke or modify such power-of-attorney as the board of directors may think fit.
5. 6. 7.
For this purpose, no authorisation will be enable the grantee under the power-of-attorney to consider and approve the transaction which may cause a conflict of interest between himself or any related person or interested person as the one party and the Company as the other party, unless it is granted following the approved policies and criteria previously set out by the board of directors. Qualifications of Independent Director In accordance with the notifications of the Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET), the board of directors has defined an çIndependent Directoré as follows: 1. Hold not more than 5% of all voting shares in the Company, its affiliates, and joint ventures or is a juristic person that may impose a conflict of interest. 2. Does not participate in the management of the Company, its affiliates, or its joint ventures; is not employee, a regularly paid consultant, or a person who has control over the company, its affiliates, or its joint venture or is a juristic person that may impose a conflict of interest. 3. Is not a close relative-or related in familial or laws or couple of management, major shareholders, person who has control over the business, or person who appointed to manage the Company, its affiliates, and joint ventures. 4. Does not have any business relationship with the Company, its affiliates, and joint ventures or is a juristic person that may impose a conflict of interest that will lead to a lack of independence. 5. Being a director whom is not appointed as a representative to safeguard interests of the Companyûs directors, majority shareholders or shareholders who are related to the Companyûs majority shareholders; 6. Being capable of performing duties, giving opinions or reporting the results of performance of work according to the duties delegated by the board of directors free and clears of the control of the management or the majority shareholders of the Company including related persons or close relatives of said persons.
ANNUAL REPORT 2007
Selection of Directors The board is responsible for the search, selection and nomination of the qualified candidate to be director or member of any committee of the Company as currently the Nominating Committee has yet been appointed for such assignment. The board will consider and approve selecting the candidate by the majority votes of the board meeting. In 2007, the Company has invited the small shareholders to nominate the candidates to be directors of the Company. However, such candidate is required to have some basic qualifications as shown in the Companyรปs website. www.deltathailand.com/pdf/04-12-07-2_E.pdf. After selected, the board shall nominate such candidate to the shareholdersรป meeting for approval. An appointment of director is made through a majority vote of shareholders meeting. One share shall count for one vote and each shareholder shall vote for nominated persons but the votes are indivisible. The person who obtains the highest votes will be elected as a director. In an event that the vote is tied for the last vacant seat, the Chairman of the meeting shall exercise a casting vote. EXECUTIVE COMMITTEE The executive committee of the Company consists of 8 members as follows.
1. 2. 3. 4. 5. 6. 7. 8.
Name Mr. Wang, Ming-Cheng Mr. Ng Kong Meng Mr. Hsieh, Heng-Hsien Mr. Anusorn Muttaraid Mr. Yu, Po-Wen Ms. Niramol Tantipuntum Mr. Vichai Saksuriya Mr. Mana Tangchatsiri
Position Executive Committee Chairman Executive Committee Member Executive Committee Member Executive Committee Member Executive Committee Member Executive Committee Member Executive Committee Member Executive Committee Member
Scope of Responsibilities of Executive Committee: 1. To operate and manage the business of the Company in compliance with Companyรปs objectives, Memorandum of Association, policies, regulations, notifications, orders as well as the resolution of the board of directors and/or shareholdersรป meeting. 2. To establish policies, business plan, directions, strategies, budget and the main organization structure and authority of each department within the Company including the organization chart in order to propose to the board of directors for its consideration and approval as well as to monitor and follow up the result of the operation of the Company to be in accordance with the policies. 3. To be eligible to enter into any contract which is in the Companyรปs normal course of business and/ or any other transactions with banks or other financial institution for a total amount of not exceeding USD 10 million or equivalent in any other currencies per contract and in case there is a need to use any assets of the Company as collateral, approval of the board of director must be obtained. 4. To authorise any one or more persons to perform any action under the supervision of the Executive Committee, or granting the power-of-attorney to such person(s) to perform any action within the specified time as the executive committee may think fit; provided, however, that the executive committee has the sole discretion to revoke or modify such designated person or power-of-attorney as the executive committee may think fit.
41 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
For this purpose, no authorization will be enable a member of the executive committee under the power-of-attorney and/or his sub power-of-attorney to approve the transaction which may cause a conflict of interest between such attorney or any related person (as defined in the SEC Notification) as the one party and the Company or its subsidiary as the other party, unless it is granted in accordance with the Companyรปs normal course of business as clearly identified. To perform any other duties assigned by the board of directors from time to time.
AUDIT COMMITTEE The audit committee of the Company consists of 3 members and all the members are independent directors. List of the members of the audit committee is shown below. Name 1. Emeritus Professor Supapun Ruttanaporn 2. Professor Lee, Ji-Ren 3. Mr. Supat Limpaporn
Position Audit Committee Chairperson Audit Committee member Audit Committee member
Qualifications of Audit Committee Qualifications of the audit committee member are similar to those of the independent director as all the members of such committee are required to be the independent director and should have the appropriate skills and devote their time to fulfilling their roles on the committee. (qualifications of the independent directors are set based on the requirements of the SEC and SET and all of the details have been stated earlier). Scope of Responsibilities of Audit Committee: 1. To review the sufficiency, credibility and objectivity of the Companyรปs financial reporting. 2. To review the adequacy and effectiveness of internal control systems and internal audit functions by coordinating with the external auditors and internal auditors. 3. To review compliance with the Securities and Exchange Acts, regulations of the SET, and any other relevant laws. 4. To consider the external auditorsรป capability and independence and advise the appointment of the external auditors including the audit fee. 5. To consider the appropriated disclosure of all connected transactions and the conflict-of-interests matters in conformity with rules and regulations. 6. To take care of any other matters assigned to it by the board of directors and agreed by audit committee. 7. To report the activities of the audit committee in the Companyรปs annual report, which must be signed by the chairperson of the audit committee. COMPENSATION COMMITTEE The Compensation Committee consists of 3 members, 2 independent directors and 1 executive director in charge of human resources function. This committee has been appointed by the resolution of Board of Directorsรป meeting No. 6/2007 held on November 9, 2007.
ANNUAL REPORT 2007
List of the members of the compensation committee is shown below. 1. 2. 3.
Name Mr. Supat Limpaporn Professor Lee, Ji-Ren Mr. Anusorn Muttaraid
Position Compensation Committee Chairman Compensation Committee Member Compensation Committee Member
Duties and Responsibilities of Compensation Committee 1. To provide suggestions regarding compensation of board of directors, sub committee and some top executives for further proposal to the board of directors and/or the shareholders for consideration 2. To recommend guidelines and policy on compensation payment and how to pay compensations and other benefits to the board of directors, sub committees and some top executives. 3. To review compensation structure and criteria to suit the personรปs duties and responsibilities, Companyรปs operation results and market conditions. 4. To submit report presenting its performances in the past year to the board of directors at least once a year. 5. To do any other tasks as designated by the board of directors. Term of Compensation Committeeรปs office Term of Compensation Committeeรปs office shall be 1 year except the first term which will start on the appointment date and end on the date of the annual general meeting of shareholders in the year 2009. MANAGEMENT TEAM The management team of the Company consists of 6 members as follows. Name Position 1. Mr. Hsieh, Heng-Hsien President and DES* President 2. Mr. Wang, Ming-Cheng Vice President 3. Mr. Anusorn Muttaraid Human Resources & Administration / Public Relations Director 4. Mr. Yu, Po-Wen Chief Financial Officer 5. Ms. Saowanee Kosutarak Chief Information Officer 6. Mr. Boonsin Surawatsatain Internal Audit Manager Remark: * DES means Delta Energy Systems group of companies which are all subsidiary companies mainly located in Europe. Scope of Responsibilities of the President: 1. To manage, control and responsible for the operation of the Company in accordance with the directions set out in the Companyรปs budget as approved by the board of directors and/or the executive committee of the Company including taking care, advising and improving the operation continuously. 2. To propose policies, strategy of the Company and of the business unit of the Company to the board of directors for acknowledgement and approval and to be responsible for applying such strategy with its operation.
43 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
To be jointly responsible with the executive committee for preparation of the annual budget and the operational plan of the Company, reviewing the annual budget quarterly and proposing the amended budget to the board of directors. To report the operational result to the board of directors quarterly. To have the authorization to approve the payment in accordance with the Approval Authorization Instruction of the Company, which had already been copied to all directors for consideration. However, with respect to the matters other than the normal course of business, the president shall have the authorization to approve such payment only upon receipt of the board没s approval To be eligible in appointing and managing any working groups or any persons for benefit of the Company and efficient management, transparency, or empowering to any person or assigning any person to do any specific tasks in such authorization complies must be within the scope of the power-of-attorney and/or regulations, notifications or orders as determined or approved by the Board of Directors and/or the Company. For this purpose, no authorization will be enable the president to approve the transaction which may cause a conflict of interest between himself/his assignee and any related person (as defined in the SEC Notification) as the one party and the Company or its subsidiary as the other party, unless it is granted in accordance with the Company没s normal course of business as clearly identified. To do any acts as assigned by the board of directors.
Board Meeting Meeting attendances of each committee in the year 2007 are shown below. Name Board of Directors Audit Committee No. of total meetings held 6 10 1) N/A Mr. Ng Kong Meng 5/6 Mr. Wang, Ming-Cheng 5/6 N/A 1) Mr. Hsieh, Heng-Hsien 5/6 N/A Mr. Chu, Chih-Yuan 4/6 N/A Mr. Anusorn Muttaraid 5/6 N/A Ms. Niramol Tantipuntum 6/6 N/A Emeritus Prof. Supapun Ruttanaporn 6/6 10/10 1) 3/10 1) Prof. Lee, Ji-Ren 2/6 Mr. Supat Limpaporn * 4/4 2) 6/6 2) Remark:
Unit : Time Compensation Committee 1 N/A N/A N/A N/A 1/1 N/A N/A 0/1 1) 1/1 2)
1) Details of meeting attendance through teleconference of each committee: Board of Director Mr. Ng Kong Meng 1 meeting Mr. Hsieh, Heng-Hsien 1 meeting Professor Lee, Ji-Ren 1 meeting Audit Committee Professor Lee, Ji-Ren 2 meetings Compensation Committee Professor Lee, Ji-Ren 1 meeting 2) Mr. Supat Limpaporn has been appointed director and audit committee member by the AGM on March 29, 200. After such appointment, he had participated in person in all of the board meetings (4 out of total 4 meetings) and all audit committee meetings (6 out of total 6 meetings).
ANNUAL REPORT 2007
Share/warrant holdings of Directors Name of Director
Mr. Ng Kong Meng Mr. Wang, Ming-Cheng Mr. Hsieh, Heng-Hsien Mr. Chu, Chih-Yuan Mr. Anusorn Muttaraid Ms. Niramol Tantipuntum Emeritus Prof. Supapun Ruttanaporn Prof. Lee, Ji-Ren Mr. Supat Limpaporn
DELTA Shares* DELTA Warrants* 2007 2006 Inc (Dec) 2007 2006 Inc (Dec) (31 Dec 07) (31 Dec 06) (31 Dec 07) (31 Dec 06) 4,000,000 4,000,000 - 200,000 (200,000) 4,000,010 4,000,010 - 200,000 (200,000) 55 55 2,000,000 2,000,000 - 200,000 (200,000) 2,000,000 2,000,000 - 400,000 (400,000) 2,000,000 2,000,000 - 200,000 (200,000) 50,000 50,000 -
Remark: * Including shares and warrants held by spouse and minor children
Determination of director and top management remuneration As assigned by the board of directors, the Compensation Committee is responsible for the determination of the remuneration for the directors and management. The consideration will be based upon the scope of responsibilities and performance of each individual director or management, the Company没s overall performance as well as market conditions. However, the remunerations after determined by the Compensation Committee are required to propose to the board of directors for approval and the directors没 remuneration also requires approval from the shareholders没 meeting. Details of remuneration of director, sub committee and management team in year 2007 can be summarized as follows.
45 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
Remuneration 1.1 Remuneration of Directors The remuneration of 9 directors including annual remuneration and meeting attendance fee with details of each director shown below;
Name of Director Mr. Ng Kong Meng Mr. Wang, Ming-Cheng Mr. Hsieh, Heng-Hsien Mr. Chu, Chih-Yuan Mr. Anusorn Muttaraid Ms. Niramol Tantipuntum Emeritus Prof.Supapun Ruttanaporn Prof. Lee, Ji-Ren Mr. Supat Limpaporn Assist Prof. Wattanee Phanachet ** Total
Remuneration 2007 2006 1,500,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 1,100,000 480,000 1,000,000 480,000 1,000,000 580,000 7,000,000 4,420,000
Unit: Baht Meeting fee * Total Amount 2007 2006 2007 2006 40,000 - 1,540,000 480,000 - 480,000 480,000 - 480,000 480,000 - 480,000 480,000 - 480,000 480,000 - 480,000 480,000 170,000 180,000 1,270,000 660,000 50,000 60,000 1,050,000 540,000 110,000 - 1,110,000 60,000** 190,000 60,000** 770,000 430,000 430,000 7,430,000 4,850,000
Remarks: * Meeting attendance fee are for Chairman of the Board and Independent Director for their participation in every committee meeting and Annual General Meeting of Shareholders ** Assist Prof. Wattanee had resigned since Mar 2007 and the above meeting fee was paid during the period of Jan-Mar 2007.
1.2 Remuneration of the Management Remuneration of the 6 members of the management team including salary and bonus in 2007 amounted to Baht 7,275,443 million as compared to that of last year (2006) of Baht 7,076,518 million. 2.
Other remuneration None
- 46 - ANNUAL REPORT 2007
REPORT ON CORPORATE GOVERNANCE FOR THE YEAR 2007
The Board of Directors has been approved and announced the implementation of the new corporate governance policy which has been revised according to the new corporate governance principles proposed by the Stock Exchange of Thailand (SET), on November 9, 2007 with the aim to ensure that the management and employees can act in accordance with the Policy which is classified into 5 major categories as follows. ë Rights of Shareholders ë Equitable Treatment of Shareholders ë Role of Stakeholders ë Disclosure and Transparency ë Responsibilities of the Board (For further details of the Companyûs corporate governance policy in the Companyûs website: www.deltathailand.com) With the continuing implementation of good corporate governance particularly in the arrangement of Annual General Meeting of Shareholders (AGM), the Company as a result achieved the high score of > 90 or equivalent to çExcellenté as rated by Thailandûs SEC with the cooperation of Thai Investors Association and Listed Companies. The Company will put its efforts to further develop its corporate governance. The implementation on the good corporate governance for the year 2007 can be summarized as follows. 1. Rights of Shareholders The Company recognizes the importance of the rights and treats all shareholders equitably according to the relevant laws and notifications issued by the relevant authorities. The Company generally holds an annual general meeting of shareholders (AGM) once a year within four months after each fiscal year ends. In 2007, the Company held the AGM on March 29, 2007. To ensure that the shareholders would have adequate time to review the agenda, the Company had requested TSD (Thailand Securities Depository Co.,Ltd.) who acts as the Companyûs registrar to send out the meeting notice together with other supporting information and documents to all shareholders 14 days prior to the AGM date and all those documents and the notice were also made available to the shareholders through the Companyûs website 30 days in advance. The meeting notice had expressly indicated the matters to be tabled at the meeting, whether for acknowledgement, approval or consideration, including the boardûs opinion on each matter (Please find further details in the Notice of Annual General Meeting of Shareholders No. 1/2007 posted on the Companyûs website www.deltathailand.com/shareholder/share03.html). Moreover, at least three days in advance of the meeting date, the meeting notice had been published in any Thai daily newspaper for at least three consecutive days All information relating to the necessary evidence that the shareholders must present to identify themselves at the meeting was provided to the shareholders together with the notice of meeting. Attendance registration had started approximately 2 hours before the meeting started.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 47 -
2007 Annual General Meeting held on March 29, 2007 In the meeting, there were 8 directors out of 9 attending the meeting including the Chairman of the Board, Chairperson of the Audit Committee and the President together with others like Chief Financial Officer (CFO), external auditor to listen to the shareholdersû opinions or suggestions and also answer the shareholdersû questions. Before the meeting started, the Company had explained regarding the quorum, the voting procedure and vote count method to the meeting. As regards the voting criteria, each share is eligible for one vote and an ordinary resolution requires the majority votes except the voting on a special resolution, the meeting must comply with the Companyûs articles of association or applicable laws and other relevant rules and regulations of the government agencies. At the time of voting, the ballots will be used and will be kept for later inspection. Shareholders who had any interests related to any particular agenda had no right to vote on that matter. Minutes of meeting had been recorded every resolution by expressly indicating the number of approval, objection and abstention votes for each agenda, as well as the questions, answers, opinions and suggestions raised during the meeting and disclosed through the SET and the Companyûs websites within 14 days after the meeting date (Please find further details in the Minutes of Annual General Meeting No. 1/2007 posted on the Companyûs website www.deltathailand.com/ shareholder/share04.html) 2.
Equitable Treatment of Shareholders The Company has a policy to encourage the equitable treatment of shareholders especially the basic rights of the shareholders. If the shareholder is unable to attend the meeting, the shareholder may designate any person or any of the Companyûs nominated independent directors to attend and vote at the meeting on his/her behalf by completing and sending to the Company a proxy form enclosed with the notice of meeting or by downloading the proxy form through the Companyûs website. In order to promote the Equitable Treatment of Shareholders, on December 4, 2007, the announcement has been made to the shareholders through the electronic system of the SET that The Company has offered the shareholders an opportunity to propose additional matters to be tabled at the meeting and nominate the candidates to be directors of the Company. The interested person may study the procedures and other details for the proposal of agenda and director nomination in the Companyûs website www.deltathailand.com/shareholder_main.html
- 48 - ANNUAL REPORT 2007
Inside Information Under the Companyûs policy, the use of insider information is limited to the executives at the intermediate and top levels within the relevant departments or plants. Employees are prohibited to take advantage of the inside information to profit third parties or to obtain personal benefits. Violation is regarded as misconduct. In addition, the Company informs its directors and executives of their duty to disclose the information on the securities holding by themselves, their spouses and minor children to the Office of the Securities and Exchange Commission (the Office of the SEC). Moreover, all those people are also required to report their own holding of the Companyûs securities and their related personsû holding of the same to the Companyûs board on a quarterly basis. Conflict of Interest In making any decision on the Companyûs behalf, the directors and executives must principally take into account the Companyûs ultimate benefit. If there is a conflict of interest, the directors and/ or the executives will submit the matter to the boardûs meeting or the shareholdersû meeting in order for the relevant meeting to review the need for entering into the transaction in question and the effects which the Company may suffer from that transaction. At the time of voting on the connected transaction, the director who has conflict of interest must not vote. In all circumstances, all connected transactions must conform to all applicable regulations and notifications of the SET and the Office of the SEC. Related parties transactions have also been disclosed in the Companyûs financial statements and the annual information disclosure (Form 56-1) Code of Conduct has been approved and disclosed in the Companyûs website (www.deltathailand.com/code.html) with the aim to build up the common understanding and awareness along with being able to reach the same ethical standard of all employees. The Code of Conduct covers the following issues. 1. Compliance with laws and Companyûs regulations 2. The integrity of records 3. Protection of Companyûs assets 4. Gifts and entertainment 5. Conflict of Interest 6. Protection of Companyûs intellectual property rights 7. Inside information 3.
Role of Stakeholders The Company recognises the rights and the important role of all stakeholders, i.e. shareholders, customers, employees, business partners, creditors and the society. The Companyûs stance with regard to this can be described as follows: Shareholders : The Company aims to bring a long-term sustainable growth to its business, thereby enhancing the Companyûs value and ultimately providing favourable returns to its shareholders. Customers : The Company is committed to the customer satisfaction and always provides them with the quality and reliable products and services. Employees : The Company deems human resource its greatest asset. Competitive compensation and equal career opportunities are provided on the basis of their aptitude and capability.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 49 -
Human resource management continues to play an important role in 2007. The human development policies must ensure that the employees are properly trained to cope with the rapid changes This effort has earned us the Outstanding Establishment in the year of 2007 for the achievement on Labour Relations and Welfare Award from the Department of Labour Protection and Welfare, the Ministry of Labour, for the second consecutive year. We are a model for other companies and several of which have adopted our practices. In addition to Thai Labour Standard Certificate - TLS 8001-2003 Certificate at Completion Level granted by the Minister of Labour for both of our plants at Bangpoo Industrial Estate and Wellgrow Industrial Estate, our operation has been EICC (Electronics Industrial Code of Conduct) certified by Electronics Manufacturing Industry Association. EICC is a globally acclaimed standard covering manufacturing and employee welfare. Education wise, we have maximized the choices available to our employees who are now able to continue their education up to the undergraduate level. Arrangements have been made with Thonburi Rajabhat Institute to establish more learning centers in the compound of the Company. Additionally, we still continue working with Huachiew Chalermprakiet University to provide graduate level education to our employees, a number of whom have graduated from this institution as well as other institutions of their choice in the past year. Internal and external seminars and trainings remain a suitable channel through which our employees can be trained for improved knowledge and skills. As well, we make arrangements for our staffs to attend training courses abroad. This is particularly apparent in the case of our research and development staffs who are regularly sent to our own R&D centers in Germany and Delta group没s R&D center in Taiwan. They would return with the potentials to develop various new products for the Company. Given our recent investments into India and Eastern Europe, we have encouraged our employees to improve their language skills and prepare them for culturally diverse working environments. This is to give our employees more opportunities to work with our subsidiaries abroad. High potential employees have been chosen for assignment abroad as a part of the effort to enhance their career. In year 2007, the Company and its subsidiaries had a total number of employees of 11,677 and the total remuneration (including salary, bonus and provident fund) paid to employees in 2007 was Baht 4,562 million. In Thailand, there were a total number of employees of 9,317 (as of 31 December 2007) and the total remuneration (including salary, bonus and provident fund) paid to those employees in 2007 was Baht 1,984 million. Employees in Thailand can be divided into different functions as follows. 1. Operators and employees in production lines can be divided into 3 groups as follows. Business Group No. of Employees 1.1 Power Supply Product Group 2,549 1.2 DES Product Group 1,586 1.3 Component Product Group 4,549 2. Employees in the administration 633
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: The Company always maintains a good relationship with its business partners with whom it works closely to improve the quality of raw materials and products in accordance with mutual requirements. Creditors : The Company strictly abides by its obligations and repays to all creditors as promised. Social & : The Company realizes that the healthy environment is crucial to the wellEnvironmental being of society, and the globe. The Company is therefore committed Responsibility to its social and environment policies and provide constant support to social beneficial activities (Please find further details in the Social & Environmental Policy in the Company没s website www.deltathailand.com/ social_main.html) In the year 2007, the Company and the related companies led by Delta Electronics Inc. from Taiwan have participated in programs titled White Factory, Green Map and Corporate Social Responsibility. Acitivities and progress of the project in the past year can be summarized as follows: White Factory, Green Map and Corporate Social Responsibility White Factory Delta Electronics (Thailand) is concerned about the health of our employees and the well-being of the environment, particularly the impacts caused by air pollution. In addition to environment-related industrial standards with which we comply as evidenced by our ISO 14001 and OHSAS 18001 certifications, we are working with governmental agencies to regularly promote anti-drug campaigns among our employees and vendors. We have had activities called Anti-Drug Week to educate our employees on the dangers posed on their mind and body by drugs as well as relevant legal penalties. Local police officers are also invited to lecture our staffs. Random checks are conducted at intervals to ensure that our employees and those of our vendors such as company drivers are not addicted to drugs. Additionally, all shuttle buses are constantly checked to minimize pollutions to our employees and the environment as caused by exhaust fume and engine noise. Green Map Delta group is seriously concerned about the environment. We have engaged ourselves in a green zone program with an independent organization called Green Map. The program was initiated by the chairman of Delta Electronics, Inc., in Taiwan and subsequently expanded to cover subsidiaries including Delta Electronics (Thailand) Plc. It aims to develop green zones inside the compound of the Company. As well, it seeks to alter the landscape to help address the global warming situation by replacing light bulbs with natural light, conserving other energies, reusing discarded raw materials, and, separating garbage for destruction or sale to recycle companies. Campaigns are carried out every year with new features added each year to continue with ongoing programs and new ideas introduced into the campaigns.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 51 -
Corporate Social Responsibility Since the incorporation of the Company, Delta Electronics (Thailand) has been consistently engaged in corporate social responsibility programs to contribute to the society. Donations in the form of items and money are given to public hospitals, temples and schools in remote areas. As well, assistance is provided to nearby communities through scholarship and learning items. We are also providing research funding to universities including Kasetsart University in order that students would be able to realize research projects and improve their knowledge and skills which will definitely benefit the country in both short term and long term. The Company with the cooperation of the Foundation for Morale Support to Voluntary Border Soldiers and Police under the Patronage of Her Majesty the Queen has continued supporting the project in the three southern provinces of Thailand by hiring youths in those provinces to produce some electronic parts. This has helped those people to generate income for their own living. In addition, the Company has also created another project to extend the help to those youthsû families. All the employeesû uniforms of the Company have been made by those familiesû members. Other companies nearby in Bangpoo Industrial Estate have also been invited to join this project. In order to encourage the participation from those stakeholders, the Company has established communication channels to accept suggestions or complaints from stakeholders. All the complaints must be in writing with sufficient information and also identify the name, surname and contact address of the complainant and sent to the boardûs secretary at the Companyûs office or by e-mail as detailed above. The boardûs secretary will gather and submit the complaints to the executive committee or the audit committee or the board, depending on the relevance of the complaints as follows. 1) Complaints raised by shareholders will be submitted to the audit committee or the board. The shareholder may contact directly to the audit committee chairperson at the address of the Company specified above. 2) Complaints raised by customers, suppliers, employees or the public will be submitted to the management to solve the problem and reported to the board for acknowledgement. 3) Complaints raised by creditors will be submitted to the management or the management may consider submitting the complaint to the board for consideration. 4.
Disclosure and Transparency The Company has the policy to accurately, adequately and timely disclose the important information, both financial and non-financial, regarding the Companyûs business and operating results. Interested persons can access such information through the website of the relevant authorities i.e. the Stock Exchange and SEC and also through the Companyûs website www.deltathailand.com, or telephone or send an email to request for information at firstname.lastname@example.org. The Companyûs investor relations division was established to regularly liaise with and provide shareholders, investors, and securities analysts with the Companyûs information.
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In 2007, the Companyûs investor relations (IR) had held 8 meetings with stock analysts and investors (meeting with analysts is generally held twice per quarter). Roadshows were conducted 4 times, two trips to Hong Kong and Singapore and another 2 trips for local funds in Thailand. Moreover, the Company also participated in the project of the Company Visit arranged by the Stock Exchange with the cooperation of Thai Investors Association with the objective in providing an opportunity for the small shareholders/investors to visit the Company and meet with the top executives. The event was arranged on July 19, 2007 with a total 40 participants. During the visit, Mr. Hsieh, Heng-Hsien (Henry), the President of the Company, had made a brief on the Companyûs operations and answered the questions raised by those participants. The other executive also accompanied the participants to the plant visit and lunch.
çCompany Visité to Delta Electronics (Thailand), July 19, 2007 5.
Responsibilities of the Board Board Structure Board of directors is composed of nine directors: six of whom are executives directors, three other are independent directors. Therefore, independent directors account for one-third of the board of directors. This structure allows for optimal balance of power. Qualifications of independent director have been determined in compliance with the SET and SEC regulations. (Qualifications of independent director, list of the Board members, responsibilities of the Board, director profiles and selection of directors are disclosed in the section of Managerial Structure). The Company has a policy to separate the role and responsibilities of the chairman of the board and those of the President and these two positions must be held by different individuals, thereby enhancing the accountability and transparency of management. Therefore, the scope of powers, duties and responsibilities of the Board of Directors and the President must be specified clearly and separately. (Please find scope of responsibilities of the Board of Directors and President in the section of Managerial Structure). Board Meeting The Company requires that a general board meeting must be held at least four times a year or on a quarterly basis and the board may convene an extraordinary meeting if it is deemed appropriate. The general meetings must be tentatively set in advance with the boardûs approval. The Company generally sends the notice of meeting to all directors at least seven days prior to the meeting date, however, shorter notice is allowed in case of emergency. The minutes of each
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 53 -
meeting must be endorsed and kept as evidence at the Companyûs office (please find details of meeting attendance of each member of the Board and sub committee in year 2007 in the section of Managerial Structure) A secretary is appointed to the board of directors to help prepare the agenda, notice of meeting and minutes of meeting, organising the meeting, keeping all supporting documents and records and providing advice to ensure that the proceeding of the board meeting is in compliance with all relevant laws and regulations. Sub Committee In 2007, apart from Audit Committee, the Companyûs Board of Directorsû meeting No. 6/2007 held on November 9, 2007, appointed another sub-committee, Compensation Committee, Details of those two committees which include name list and scope of responsibilities have been shown in the section Managerial Structure. However, the qualifications of the audit committee members have been set according to the SET requirements. Criteria for determination of director remuneration and the management As assigned by the board of directors, the Compensation Committee is responsible for the determination of the remuneration for the directors and management. The consideration will be based upon the scope of responsibilities and performance of each individual director or management, the Companyûs overall performance as well as market conditions. However, the remunerations after determined by the Compensation Committee are required to propose to the board of directors for approval and the directorsû remuneration also requires approval from the shareholdersû meeting. The directorsû remuneration and management are disclosed in the section of Managerial Structure. Board Self-assessment The board will arrange its self assessment once a year to evaluate its overall performance and also to enhance a better understanding and cooperation among all members. Board and Management Training The Company has a policy to encourage all the directors, top executives and the Companyûs secretary to participate in internal and external seminars or trainings regarding corporate governance. The external seminars and trainings include those organised by the SET, the Office of the SEC and the Thai Institute of Directors Association (IOD). In 2007, the Company has appointed Mr. Supat Limpaporn the director. The management had provided a briefing on the basic information of Company which includes the main products and business operations and also accompanied the new director to the plant visits both in Bangpoo and Wellgrow Industrial Estate. In addition, some trainings including çCorporate Governanceé organized by Department of Business Development, the Ministry of Commerce and Director Accreditation Program (DAP) organized by the Thai Institute of Directors Association (IOD). He is now also attending Director Certification Program (DCP) which is organized by the Thai Institute of Directors Association (IOD).
- 54 - ANNUAL REPORT 2007
Internal Control The Company has continuously developed its internal control system with the objective to improve the efficiency of the organization, to safeguard its assets, to have the accurate financial information and to be compliant with the relevant laws and regulations. The Company set up its Internal Audit Department under the supervision of the Audit Committee since 1999 to handle internal audit matters. For the time being, though the Company没s internal control system is up to a satisfactory level, the Audit Committee, the board of directors and the top management still trying to develop it further. Moreover, the Audit Committee has supervised the Company to have a proper risk assessment and risk management in order that the Company can operate well in the long term for the benefit of all stakeholders.
Audit Fee The Company paid the audit fee for the year 2007 to its auditor for a total amount of Baht 5,000,000 including all actual out of pocket expenses (Audit fee in 2006 amounted to Baht 4,878,710 divided to audit fee of Baht 4,200,000 and out of pocket expenses of Baht 678,710). The Company and some of its subsidiaries hire the same international audit firm but different branch offices in various countries as all of the Company没s subsidiaries are abroad. Other subsidiaries (most of which are in Europe) use the services provided by Pricewaterhouse Coopers (PWC) and the rest of them employ other audit firms to provide them with the audit services. Selection criteria of the auditor are principally based upon service quality and charge rate of the auditor.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 55 -
THE AUDIT COMMITTEE REPORT The Audit Committee consists of three independent directors: Emeritus Professor Supapun Ruttanaporn as Chairperson, Professor Lee Ji-Ren and Khun Supat Limpaporn as Committee members with the Internal Audit Department Manager as secretary. During the fiscal year ending 31 December 2007, the Audit Committee held 10 meetings and carried out its duties as specified by the Audit Committee Charter and as assigned by the Board of Directors of which the main points are as follows: 1.
Reviewed the company internal control system with the external and internal auditors. The Audit Committee has made some suggestions as deemed appropriate. 2. Reviewed and evaluated the performance of Internal Audit Department from the audit plans, audit practices, audit reports and the follow - ups. The Audit Committee has also made suggestions on how to improve efficiency of the internal audit. 3. Reviewed the quarterly and year-end financial statements with the external auditor and submitted them to the Board of Directors. 4. Reviewed that the company complied to the related laws and regulations. 5. Reviewed the risks of the company in order that the company could operate successfully and sustainably in the long term. 6. Reviewed that disclosure of related parties or conflicts of interest transactions in the financial statements were adequate. 7. Considered the capability and independence of the external auditor and made suggestion to the Board of Directors including the audit fee. The Audit Committee is of the opinion that the management has put their full efforts to do the best for the shareholders and the stakeholders and has followed the SET guidelines on good corporate governance practices, as can be seen from the setting of the Compensation Committee in order to have appropriate practices on compensations, the declaration of the company Code of Conduct and Social and Environment Responsibility Policy as well as the approval of the Questionnaire for the Board Self Assessment. Moreover, in recent years investments were made in many foreign countries so there are more revenues from these foreign investments in this year. The management realizes the importance of good internal control systems and development on good internal control systems are in process in these foreign subsidiaries. The Audit Committee agrees to reappoint Ernst & Young Office Limited as the company auditor for the accounting period ended 31 December 2008. However, in order to comply with the SEC regulation # 43/2548 date 4 November 2005, Ernst & Young Office Limited will change the auditor to be either Mr. Narong Puntawong, CPA. No. 3315, or Miss Thipawan Nananuwat, CPA. No. 3459, or Miss Siraporn Ouaanunkun, CPA. No. 3844 from Ernst & Young Office Limited. The audit committee will propose them to the board of directors to ask for approval in the 2008 Annual General Shareholders Meeting with the audit fee amounting 4,200,000 Baht plus an amount of out- of pocket expenses.
Emeritus Professor Supapun Ruttanaporn Chairperson On behalf of the Audit Committee Delta Electronics (Thailand) Public Company Limited
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RELATED PARTIES TRANSACTIONS The Company and its subsidiaries have engaged into business transactions with their related companies in Delta group. The major transactions and reasons for having such related party transactions can be summarized as follows. 1.
Sales of goods In order to avoid trade constraints in certain countries for either the Company or its customers e.g. local content requirements, Delta group has established its trade network in local area for better service to customers as well as to enhance its business opportunities in those countries. The transactions are made based on certain trade agreement or with reference to market price, which includes related operating fee.
Sales of raw materials Sales of raw material are normally due to the urgent need of some raw materials from the related companies and the selling prices are based on the market price.
Purchase of goods Currently Delta Thailand has also expanded its trade network through its subsidiaries which are located in the major regions e.g. Europe and India. To offer a full range of products, those subsidiaries may have to purchase some products from related companies to serve their clients. However, the transactions are made based on certain trade agreement which may also include their operating costs, or with reference to market price.
Purchase of raw materials Companies in Delta group have set up material network in order to create bargaining power for better price and availability. For certain suppliers, the Company has to facilitate export facility to them via Delta group network. Price of raw material and handling fee will be charged to the Company in such incidence.
Commissions Since the business structure of electronics supply chain company has to provide services to customers in the area where they are located in. This makes Delta group to establish business network which enables the Company to have customer relations offices worldwide. Thus, these offices are able to contact customers with feedbacks to the Company on new product development to be launched into the market. Based on the exchange of information, we are able to match customers没 requirements for cost saving, quality improvements and product development, etc. In addition, the office has to provide after-sales service in order to gain maximum customer satisfaction.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 57 -
Service fee Currently the operation of the Companyûs subsidiaries, Delta Energy Systems (DES) group, has covered almost through out Europe region. Some related companies, therefore, occasionally request for supports from DES to provide some services such as reworking, tooling service and others. Service fees are generally based on the estimated man hour used for each service.
Financial assistance The Company has no policy to provide financial assistance to the related companies except its subsidiaries. The borrowing/lending between the Company or its subsidiaries and the related companies is sometimes appeared due to the transaction attained from the business operations rather than a real financial assistance. In case of borrowing or lending, the interest rate will be charged with reference to financial marketûs interest rate such as LIBOR.
Remark: Please refer to the notes 6 of the Companyûs audited financial statements for the year ended December 31, 2007 for detailed information. Procedures for related party transactions In case there is a related party transaction between the Company and the person who may have conflicts of interest, the Management shall consider and approve the small related transaction and the transaction that is considered a general normal business transaction. For the medium to large transaction (transaction size is based on the definitions determined by the SET), the Management shall propose it to the Companyûs Board of Directors for consideration. In particular case, the opinion of the Audit Committee may also be required and the Audit Committee may seek for an opinion from the independent professionals or auditor to support their or shareholdersû justification of the transaction. However, the procedures for related party transactions shall comply with the SET rule and regulations concerning the connected transactions. In addition, the Audit Committee generally reviews and discusses about the related party transactions with the Companyûs external auditor in order to help protect conflicts of interest and see if the related party transactions are adequately and properly disclosed. Policy for the related party transactions The Company and its subsidiaries will still need to do the business with the related parties in the future as it is considered normal course of business. Moreover, supports from the groupûs network will help strengthen the Companyûs business and improve its competitiveness in the world market. However, such related transactions shall utmost benefit the Company and comply with the SET rule and regulations concerning the connected transactions and also be properly disclosed in the Companyûs quarterly and annual financial statements.
ANNUAL REPORT 2007
OPERATING RESULTS AND FINANCIAL CONDITIONS
Financial Highlights (Based on Consolidated Financial Statements) 2005 Total Assets Million Baht 27,497 Total Liabilities Million Baht 12,477 Total Shareholders没 Equity Million Baht 15,020 Registered Capital Million Baht 1,259 Paid-up Capital Million Baht 1,188 Financial Ratio Liquidity Ratio Current ratio Times 2.21 Quick ratio Times 1.70 Cash ratio Times 0.69 Receivables turnover Times 4.64 Collection period - average Days 78 Inventory turnover Times 7.52 Inventory turnover period - average Days 48 Payable turnover Times 5.59 Payable turnover period - average Days 64 Cash Conversion Cycle (CCC) Days 61 Profitability Ratio Sales revenues Million Baht 43,919 Gross profit Million Baht 8,262 Gross profit margin (%) 18.81% SG&A Million Baht 6,106 Operating profit margin (%) 4.91% Others income/Total revenues (%) 1.77% Cashflow from operations/Operating profit (%) 287.81% Net profit Million Baht 2,285 Net profit margin (%) 5.20% Net profit/Total revenues (%) 5.11% Return on Equity (%) 16.07% Efficiency Ratio Return on Assets (%) 8.21% Return on Fixed Assets (%) 82.11% Total asset turnover Times 1.61 Financial Policy Ratio Debt to Equity ratio Times 0.83 Net Debt to Equity ratio Times 0.35 Interest coverage ratio Times 45.42 Dividend payout ratio (%) 65.06%
2006 26,199 11,614 14,585 1,259 1,246
2007 26,255 10,379 15,876 1,259 1,247
1.95 1.45 0.31 5.27 68 8.02 45 5.78 62 51
2.21 1.76 0.50 4.48 80 6.55 55 4.73 76 59
43,554 8,097 18.59% 5,821 5.23% 1.67% 131.60% 1,962 4.50% 4.43% 13.25%
33,766 7,518 22.27% 4,662 8.46% 2.70% 172.97% 3,155 9.34% 9.09% 20.72%
7.31% 81.27% 1.65
12.03% 110.69% 1.32
0.80 0.33 21.28 82.66%
0.65 0.08 30.54 63.25%*
* Pending approval from sharelolders.
59 DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED
Operating Results Sales In 2007 Delta Electronics Thailand and its subsidiaries booked a total sales of Baht 33,766 million which were 22.5% dropped from Baht 43,554 million previously. This was mainly owing to the further Baht appreciation and also the adjustment in its strategy to emphasize on the higher end power supplies in DES product group while reducing the focus on the comparatively low margin items like LCD TV and other video display products. DES products没 sales increased around 13.9% in terms of Thai Baht but 22.8% in USD as compared to those of previous year. Sales of video display group reduced around 71.4% while those of switching power supply group declined by 15.5% (only 6.6% off in USD sales). Component products没 sales decreased around 6.4% (but 3.9% increase in USD sales). Contribution of DES sales, as a consequence, has remarkably accelerated from 32% of 2006 total sales to 47% in 2007 and telecom power system was the highest sales growth product item (in USD sales) among DES product group with the growth of 32.9%, followed by 18.9% growth in OEM and 16.3% in Custom Design products. 2007 11.8% 10.1%
47.0% 1% 2006
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Costs and Profit Cost of goods sold in 2007 decreased from 81.4% in 2006 to 77.7% of sales in 2007. The main reason is because of change in sales mix by having sales contribution more from the higher end power supplies in DES product group as mentioned earlier. Overall gross profit margin, as a result, satisfactorily went up from 18.6% in 2006 to 22.3% in 2007. SG&A expenses in 2007 were 19.9% down from Baht 5,821 million previously to Baht 4,662 million. However, SG&A/sales was slightly higher from 13.4% last year to 13.8% in 2007 mainly due to the reduction in sales. Following the very impressively improved gross profit margin arisen from the change in sales mix as mentioned above, operating profit margin in 2007 significantly rose from 5.2% previously to 8.5%. Together with the higher other income which largely included foreign exchange gain of Baht 274 million and net interest income (net of interest expense) of Baht 83 million, net profit was also improved remarkably by 60.9%, from Baht 1,962 million or EPS of Baht 1.58 in 2006 to Baht 3,155 million or EPS of Baht 2.53. Financial Conditions Based on the consolidated balance sheet as of 31 December 2007, the Company had a total assets of 26,255 million, total liabilities of 10,379 million and shareholders没 equity of Baht 15,875 million.
Assets Cash and Current Assets Current assets, the Company没s major group of assets, amounting to Baht 20,340 million as of 31 December 2007, remained almost unchanged as compared to those of last year of Baht 20,292 million. Cash and cash equivalent, accounts receivable (net) and inventory (net) were the major items in this asset group which were accounted for 34.9%, 26.2% and 13.0% of total assets, respectively. Cash balance as of 31 December 2007 significantly increased about 35.1% from Baht 6,798 million to Baht 9,182 million owing to the significantly improved profitability and also the slow down in the sales and production of video display product group which generally requires high working capital, especially accounts receivable and inventory. Hence, accounts receivable (AR) as at 31 December 2007 dropped from Baht 8,200 million in 2006 to Baht 6,872 million and inventory also reduced form Baht 4,597 million to Baht 3,423 million. However, AR average collection and inventory turnover period was lengthen from 68 and 45 days in 2006 to 80 and 55 days in 2007 largely due to the longer credit term granted to some products that contributed significant protion in 2007 sales. Payable turnover period average was lengthened from 62 days to 76 days. Cash Conversion Cycle (CCC) in 2007, because of the longer collection and inventory turnover period as mentioned above, took a longer period, from 51 days in 2006 to 59 days. Non Current Assets As of 31 December 2007, the Company and its subsidiaries posted total non current assets of Baht 5,915 million, compared to Baht 5,907 million in the previous year. The major items were land, building and equipment with net book value of Baht 3,644 million, compared to Baht 3,600 million last year. Intangible assets of Baht 1,248 million, comprising consolidation goodwill of Baht 307 million and patent rights and others of Baht 941 million, marginally decreased by 10.7% from those of last year because of the annual amortization. These intangible assets were caused by the acquisition of Ascom Energy Systems since 2003.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 61 -
Liabilities Total liabilities as of 31 December 2007 slightly dropped by 10.6% from 11,614 million last year to Baht 10,379 million. This was largely owing to the decrease in current liabilities, especially the reduction in accounts receivable while non current liabilities were insignificantly changed. Current Liabilities and Liquidity Current liabilities, which accounted for 88.5% of the total liabilities or 34.9% of total assets as of 31 December 2007, decreased 11.6% from the balance as at 31 December 2006. The main items comprised bank overdraft (OD) and short term loan and accounts payable. Bank OD and short term loan in 2007 slightly rose by 6.8% from Baht 1,841 million as of end of last year to Baht 1,967 million. These loans have been incurred in the subsidiary companies due to their business expansion which need more working capital to support the operations. Accounts payable significantly reduced by 19.6% from Baht 6,153 million last year to Baht 4,950 million because of the reduction in the production of video display products which its main raw material is considered high valued item. As a result of lower current liabilities, current and quick ratio has been improved from 1.95 and 1.45 times in 2006 to 2.21 and 1.76 times in 2007, respectively, representing a high liquidity. Shareholders Equity and Capital Structure Shareholders没 equity as of 31 December 2007 was posted at Baht 15,876 million, 8.8% higher than that of last year of Baht 14,585 million. This was mainly because of the significant growth of 60.9% in 2007 net profit which also resulted in the remarkable increase in return on equity from 13.2% last year to 20.7% in 2007. With the enlarged equity base and lower liabilities, debt to equity (D/E) ratio as of 31 December 2007 was satisfactorily improved from 0.80 times in 2006 to 0.65 times and net debt equity ratio was also lower from 0.33 times to 0.08 times. With such low financial leverage, it means that the Company没s main source of funds were from its capital and retained earnings rather than debts.
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RESPONSIBILITY OF THE BOARD OF DIRECTORS TO THE FINANCIAL STATEMENTS
The Board of Directors of Delta Electronics Public Company Limited is responsible for the financial statements of the Company and its subsidiaries which have been prepared in accordance with Thailand没s generally accepted accounting standards. The appropriate accounting policies are applied consistently with adequate disclosure of material information in the notes to the financial statements. The Board of Directors has assigned the Audit Committee which is composed of all independent directors to review the quality of financial statements and the effectiveness of the internal control system to ensure that accounting records are booked properly and accurately in order to safeguard the Company没s assets. The opinions of the Audit Committee have been reported in the annual report. Furthermore, the Company没s external auditor has also provided their opinions on the financial statements of the Company and its subsidiaries in the auditor没s report which has also been disclosed in the annual report.
Ng Kong Meng (James) Chairman of the Board
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 63 -
FINANCIAL STATEMENTS REPORT OF INDEPENDENT AUDITOR To the Shareholders of Delta Electronics (Thailand) Public Company Limited
I have audited the accompanying consolidated balance sheets of Delta Electronics (Thailand) Public Company Limited and its subsidiaries as at 31 December 2007 and 2006, the related consolidated statements of income, changes in shareholders没 equity and cash flows for the years then ended, and the separate financial statements of Delta Electronics (Thailand) Public Company Limited for the same periods. These financial statements are the responsibility of the management of the Company and its subsidiaries as to their correctness and the completeness of the presentation. My responsibility is to express an opinion on these financial statements based on my audits. The consolidated financial statements of certain overseas subsidiaries and overseas group of subsidiary companies as at 31 December 2007 and 2006 and for the years then ended were audited by the subsidiaries没 auditors, whose reports have been furnished to me. My opinion on the consolidated financial statements, insofar as they relate to the amounts included for these subsidiaries and group of subsidiary companies, are based solely on the reports of those other auditors. These financial statements reflect total assets of those subsidiaries as at 31 December 2007 and 2006 of approximately Baht 5,583 million and Baht 6,711 million respectively, total revenues for the years ended 31 December 2007 and 2006 of approximately Baht 13,339 million and Baht 18,968 million respectively, net income for the year ended 31 December 2007 and 2006 of approximately Baht 633 million and Baht 164 million respectively. 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 and the reports of the other auditors referred to in the first paragraph provide a reasonable basis for my opinion. In my opinion, based on my audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Delta Electronics (Thailand) Public Company Limited and its subsidiaries and of Delta Electronics (Thailand) Public Company Limited as at 31 December 2007 and 2006, and the results of their operations, and cash flows for the years then ended in accordance with generally accepted accounting principles. Without qualifying my opinion on the above financial statements, I draw attention to the matter as discussed in Note 4 to the financial statements whereby, in 2007, the Company changed its accounting policy for recording investments in subsidiaries in the separate financial statements from the equity method to the cost method. The Company has thus restated the separate financial statements as at 31 December 2006 and for the year then ended to reflect this accounting change and Note 30.3.1 to the financial statements regarding the Company没s receipt of notice of a corporate income tax assessment from the Revenue Department covering the years 1997-2000.
Supachai Phanyawattano Certified Public Accountant (Thailand) No. 3930 Ernst & Young Office Limited Bangkok: 15 February 2008
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BALANCE SHEETS DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES
As 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 Investments in available - for - sale securities Trade accounts receivable Related parties Unrelated parties Less : Allowance for doubtful accounts Trade accounts receivable - net Short-term loan to and amounts due from related parties Inventories - net Other current assets Input tax refundable Advance payments Forward contracts receivable Prepaid expenses Prepaid tax Other accounts receivable Others TOTAL CURRENT ASSETS NON - CURRENT ASSETS Deposits at bank with restrictions Investments in subsidiary companies - net Investment in associated company Investments in other parties - net Property, plant and equipment - net Intangible assets Consolidation goodwill Other intangible assets Other non - current assets TOTAL NON - CURRENT ASSETS TOTAL ASSETS
9,181,580,042 6,798,019,213 6,542,961,639 4,632,876,588 7 79,876,068 89,372,360 6
302,754,418 284,931,092 1,385,744,065 3,088,096,270 6,617,949,480 8,019,870,977 3,689,398,887 3,488,946,684 (48,537,093) (104,330,083) (23,347,363) (16,099,075) 8 6,872,166,805 8,200,471,986 5,051,795,589 6,560,943,879 6 43,045,411 22,808,019 41,678,550 9 3,423,255,044 4,597,231,295 1,335,310,372 1,882,159,082 223,400,029 245,590,402 71,415,008 50,301,247 143,971,955 48,869,418 16,582,703 30,408,825 31 29,215,226 4,106,703 24,055,600 3,660,000 57,493,043 108,226,752 10,405,403 15,056,449 194,677,766 82,605,827 1,814,318 843,195 46,209,310 25,074,273 45,029,037 69,216,168 10,160,409 23,060,281 20,339,919,736 20,291,592,416 13,106,179,591 13,199,309,546 10 265,687,580 225,766,783 11 - 5,450,535,255 4,932,645,255 12 505,632,220 421,514,207 13 185,436,978 220,053,515 14 3,643,647,017 3,600,423,845 2,494,617,971 3,053,417,397 15 16
307,490,107 332,865,887 940,776,557 1,064,472,658 66,125,629 42,122,748 2,050,903 2,034,608 5,914,796,088 5,907,219,643 7,947,204,129 7,988,097,260 26,254,715,824 26,198,812,059 21,053,383,720 21,187,406,806
The accompanying notes are an integral part of the financial statements.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 65 -
BALANCE SHEETS (Continued) DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES
As at 31 December 2007 and 2006 (Unit : Baht) Consolidated financial statements Separate financial statements Note 2007 2006 2007 2006 (Restated) LIABILITIES AND SHAREHOLDERS没 EQUITY CURRENT LIABILITIES Bank overdrafts and short - term loans from financial institutions Trade accounts payable Related parties Unrelated parties Total trade accounts payable Amounts due to related parties Other current liabilities Accrued expenses Advance received Other accounts payable VAT payable Corporate income tax payable Provisions Others TOTAL CURRENT LIABILITIES NON - CURRENT LIABILITIES Provisions Other non - current liabilities TOTAL NON - CURRENT LIABILITIES TOTAL LIABILITIES
17 1,966,830,061 1,840,669,942
419,492,099 171,041,115 27,493,104 68,874,643 4,530,635,189 5,981,917,679 3,644,967,831 4,317,583,901 4,950,127,288 6,152,958,794 3,672,460,935 4,386,458,544 6 56,370,040 62,922,846 246,000,896 148,946,393 18 1,331,183,360 1,328,733,617 583,934,782 732,595,042 161,454,504 216,878,348 119,406,993 154,757,827 151,239,308 223,277,357 129,638,100 203,698,925 42,632,252 76,602,801 205,032,804 42,607,439 19 198,895,453 293,924,627 35,426,342 65,064,491 119,339,186 148,500,033 54,890,704 82,683,031 9,183,104,256 10,387,075,804 4,841,758,752 5,774,204,253 19 1,188,946,251 1,196,356,859 42,443,350 7,158,636 30,306,884 1,075,000 1,611,000 1,196,104,887 1,226,663,743 43,518,350 1,611,000 10,379,209,143 11,613,739,547 4,885,277,102 5,775,815,253
The accompanying notes are an integral part of the financial statements.
- 66 - ANNUAL REPORT 2007
BALANCE SHEETS (Continued) DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES
As at 31 December 2007 and 2006 (Unit : Baht) Consolidated financial statements Separate financial statements Note 2007 2006 2007 2006 (Restated) SHAREHOLDERS没 EQUITY Share capital Registered 1,259 million ordinary shares of Baht 1 each 20 Issued and fully paid 1,247.38 million ordinary shares of Baht 1 each (2006 : 1,246.07 million ordinary shares of Baht 1 each) Additional paid-in capital Premium on share capital Unrealised gain (loss) on investments in available - for - sale securities Translation adjustment Retained earnings Appropriated - Statutory reserve 21 Unappropriated EQUITY ATTRIBUTABLE TO THE COMPANY没S SHAREHOLDERS MINORITY INTEREST - equity attributable to minority shareholders of subsidiary TOTAL SHAREHOLDERS没 EQUITY TOTAL LIABILITIES AND SHAREHOLDERS没 EQUITY
1,259,000,000 1,259,000,000 1,259,000,000 1,259,000,000
1,247,378,396 1,246,067,451 1,247,378,396 1,246,067,451 1,491,912,500 1,491,912,500 1,491,912,500 1,491,912,500 (4,833,983) 5,344,092 (1,121,618,967) (887,053,299)
125,900,000 125,900,000 125,900,000 125,900,000 14,081,620,220 12,547,711,602 13,302,915,722 12,547,711,602 15,820,358,166 14,529,882,346 16,168,106,618 15,411,591,553 55,148,515 55,190,166 15,875,506,681 14,585,072,512 16,168,106,618 15,411,591,553 26,254,715,824 26,198,812,059 21,053,383,720 21,187,406,806
The accompanying notes are an integral part of the financial statements.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 67 -
INCOME STATEMENTS DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES For the years ended 31 December 2007 and 2006
(Unit : Baht) Consolidated financial statements Separate financial statements Note 2007 2006 2007 2006 (Restated) REVENUES Sales and services income Other income Interest income Dividend income Gain on exchange rate 24 Compensation income from cancellation order Others Share of income from investments in associated companies TOTAL REVENUES EXPENSES Cost of sales and services Selling and administrative expenses Loss on exchange rate 24 Loss on disposal of perperty, plant and equipment Amortisation of intangible assets Restructuring expenses Loss on impairment of assets TOTAL EXPENSES INCOME BEFORE INTEREST EXPENSES AND CORPORATE INCOME TAX INTEREST EXPENSES CORPORATE INCOME TAX INCOME AFTER CORPORATE INCOME TAX NET (INCOME) LOSS ATTRIBUTABLE TO MINORITY INTEREST NET INCOME FOR THE YEAR EARNINGS PER SHARE 26 Basic earnings per share Net income Diluted earnings per share Net income
33,766,024,521 43,554,074,950 23,567,880,908 31,021,747,621 255,817,556 47,784,110 274,063,735 186,487,802 96,331,285
152,017,561 26,720,164 66,718,991
77,232,357 37,108,946 34,703,741,366 44,292,257,406 23,813,337,624 31,254,146,801 26,247,690,894 35,457,445,341 18,477,114,125 24,555,328,896 4,662,053,226 5,820,813,057 2,857,624,745 3,613,581,865 - 584,369,633 - 877,092,322 61,465,248 13,296,736 56,015,045 10,651,978 82,121,908 103,829,157 99,819,991 151,913,096 45,871,467 45,871,467 31,199,022,734 42,131,667,020 21,436,625,382 29,056,655,061 3,504,718,632 2,160,590,386 2,376,712,242 2,197,491,740 (173,205,713) (150,065,587) - (14,100,354) (176,301,013) (48,638,900) 3,155,211,906 1,961,885,899 2,376,712,242 2,183,391,386 204,834 (175,583) 3,155,416,740 1,961,710,316 2,376,712,242 2,183,391,386
The accompanying notes are an integral part of the financial statements.
- 68 - ANNUAL REPORT 2007
250,463,224 22,482,426 428,127,860
STATEMENTS OF CHANGES IN SHAREHOLDERS没 EQUITY DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES For the years ended 31 December 2007 and 2006
(Unit : Baht) Consolidated financial statements
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 69 -
Unrealised gain (loss) on Issued and investments in paid - up Premium on available-for-sale share capital share capital securities 1,188,116,740 1,491,912,500 (13,122,460)
Balance as at 31 December 2005 Unrealised gain on investments in available - for - sale securities Translation adjustment Unrealised items in income statements Net income for the year Dividend paid (Note 22) Dividend return Increase share capital (Note 20) 57,950,711 Minority interest - equity attributable to minority shareholders of subsidiary Balance as at 31 December 2006 1,246,067,451 1,491,912,500 Balance as at 31 December 2006 1,246,067,451 1,491,912,500 Unrealised gain on investments in available - for - sale securities Translation adjustment Unrealised items in income statements Net income for the year Dividend paid (Note 22) Dividend return Increase share capital (Note 20) 1,310,945 Minority interest - equity attributable to minority shareholders of subsidiary Balance as at 31 December 2007 1,247,378,396 1,491,912,500 The accompanying notes are an integral part of the financial statements.
Minority interest-equity attributable to minority Translation Retained earnings shareholders adjustment Appropriated Unappropriated of subsidiary Total 97,195,102 125,900,000 12,072,101,008 58,269,739 15,020,372,629
18,466,552 - (984,248,401) 18,466,552 (984,248,401) -
- 1,961,710,316 - (1,486,302,528) 202,806 -
5,344,092 (887,053,299) 125,900,000 12,547,711,602 5,344,092 (887,053,299) 125,900,000 12,547,711,602 (10,178,075) - (234,565,668) (10,178,075) (234,565,668) -
- 3,155,416,740 - (1,621,519,968) 11,846 -
(4,833,983) (1,121,618,967) 125,900,000 14,081,620,220
18,466,552 (984,248,401) (965,781,849) 1,961,710,316 (1,486,302,528) 202,806 57,950,711
(3,079,573) (3,079,573) 55,190,166 14,585,072,512 55,190,166 14,585,072,512 -
(10,178,075) (234,565,668) (244,743,743) 3,155,416,740 (1,621,519,968) 11,846 1,310,945
(41,651) (41,651) 55,148,515 15,875,506,681
- 70 - ANNUAL REPORT 2007
STATEMENTS OF CHANGES IN SHAREHOLDERS没 EQUITY (Continued) DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES For the years ended 31 December 2007 and 2006
Balance as at 31 December 2005 - as previously reported Cummulative effect of the change in accounting policy for investments in subsidiary companies (Note 4) Balance as at 31 December 2005 - as restated Net income for the year (restated) Dividend paid (Note 22) Dividend return Increase share capital (Note 20) Balance as at 31 December 2006 - as restated Balance as at 31 December 2006 - as previously reported Cummulative effect of the change in accounting policy for investments in subsidiary companies (Note 4) Balance as at 31 December 2006 - as restated Net income for the year Dividend paid (Note 22) Dividend return Increase share capital (Note 20) Balance as at 31 December 2007 The accompanying notes are an integral part of the financial statements.
(Unit : Baht)
Separate financial statements Unrealised gain (loss) on Issued and investments in paid - up Premium on available-for-sale Translation Retained earnings share capital share capital securities adjustment Appropriated Unappropriated Total (Restated) (Restated) (Restated) (Restated) 1,188,116,740 1,491,912,500 (13,122,460) 97,195,102 125,900,000 12,072,101,008 14,962,102,890 1,188,116,740 1,491,912,500 57,950,711 1,246,067,451 1,491,912,500 1,246,067,451 1,491,912,500
13,122,460 (97,195,102) - (221,681,070) (305,753,712) - 125,900,000 11,850,419,938 14,656,349,178 - 2,183,391,386 2,183,391,386 - (1,486,302,528) (1,486,302,528) 202,806 202,806 - 57,950,711 - 125,900,000 12,547,711,602 15,411,591,553 5,344,092 (887,053,299) 125,900,000 12,547,711,602 14,529,882,346
1,246,067,451 1,491,912,500 1,310,945 1,247,378,396 1,491,912,500
(5,344,092) 887,053,299 -
- 881,709,207 125,900,000 12,547,711,602 15,411,591,553 - 2,376,712,242 2,376,712,242 - (1,621,519,968) (1,621,519,968) 11,846 11,846 1,310,945 125,900,000 13,302,915,722 16,168,106,618
CASH FLOW STATEMENTS DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES 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 operating activities : Net income Adjustments to reconcile net income to net cash provided by (paid from) operating activities : Depreciation Amortisation in premium/discount of forward contracts Amortisation of goodwill Amortisation of other intangible assets Allowance for doubtful accounts (reversal) Allowance for diminution in value of inventory (reversal) Accrual of provisions Loss from disposal of investments in available - for - sale securities Loss from disposal of investment in subsidiary company Gain from disposal of investment in associated company Loss from disposal of property, plant and equipment Allowance for impairment loss of assets Share of income from investments in associated companies Allowance for diminution in value of investments in other parties Unrealised (gain) loss on exchange rate (Note 24) Net income (loss) attributable to minority interest Income from operating activities before changes in operating assets and liabilities Decrease (increase) in operating assets : Trade accounts receivable Amounts due from related parties Inventories Other current assets Other non - current assets Increase (decrease) in operating liabilities : Trade accounts payable Amounts due to related parties Other current liabilities Provisions Other non-current liabilities Net cash flows from operating activities
3,155,416,740 1,961,710,316 2,376,712,242 2,183,391,386 853,899,041 1,043,340,344
5,957,613 2,898,155 25,363,900 29,895,916 56,758,008 73,933,241 (55,792,990) (258,729,136) (101,061,473) (270,850,689) 198,609,765 86,477,290
5,957,613 7,248,288 15,766,576 61,086,358
8,324 (245,596,161) (7,248,605) 698,996
(1,944,397) 13,296,736 -
8,271,277 (167,493,651) (204,834)
4,009,827,754 3,218,410,739 3,101,206,312 3,264,876,218 1,501,137,864 240,231,174 1,618,939,695 1,155,691,327 (43,045,411) 38,763,555 (41,678,550) 1,275,037,724 (97,409,722) 531,082,134 1,257,148 (127,891,619) (191,828,068) 12,551,239 (30,258,582) (24,002,881) 10,548,600 (16,295) 162,823 (1,232,234,520) 89,300,738 (743,400,623) (459,015,055) (6,232,903) (12,724,584) 97,374,406 21,391,165 (37,961,202) 106,287,240 (298,107,267) 247,757,797 (350,844,673) (409,977,427) (44,835,268) (64,145,696) (23,148,248) 3,432,008 (536,000) 4,940,641,885 2,995,034,253 4,232,579,783 4,137,717,145
The accompanying notes are an integral part of the financial statements.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 71 -
CASH FLOW STATEMENTS (Continued) DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES For the years ended 31 December 2007 annd 2006
(Unit : Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 (Restated) Cash flows from investing activities : (Increase) decrease in deposits at bank with restrictions Proceeds from disposal of investments in available-for-sale securit (Increase) decrease in short-term loans to related parties Net proceeds from disposal of investment subsidiary company Increase in investment in subsidiary company Decrease in consolidation goodwill (Note 15) Increase in other intangible assets Share dividend received from investment in available-for-sale securities Proceeds from return fund of investment in subsidiary company Dividend received from investment in associated company Proceeds from liquidation of associated company Net proceeds from return fund of investment in other party Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash flows used in investing activities Cash flows from financing activities : Increase in bank overdrafts and short-term loan from financial institutions Decrease in short-term loan from related parties Repayment in long-term loan from financial institutions Dividend paid Returned dividend Proceeds from increase in share capital Net cash flows used in financing activities Decrease in translation adjustment Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (Note 28) Supplemental cash flows information : Cash paid during the year for Interest Corporate income tax
- 161,226,234 10,933,365 - 100,176,153 12,355,365 6,066,720 (1,086,168,181) (946,268,818) (292,269,160) (495,409,979) 108,781,967 63,557,941 54,071,034 2,603,384 (977,144,750) (135,228,944) (756,088,126) (2,912,261,541)
126,160,119 (1,621,519,968) 11,846 1,310,945 (1,494,037,058) (139,720,123) 2,329,739,954 6,798,019,213 9,127,759,167
1,624,357,579 (34,502,222) (2,136,087,200) (1,486,302,528) 202,806 57,950,711 (1,974,380,854) (759,318,528) 126,105,927 7,145,819,576 7,271,925,503
(1,621,519,968) 11,846 1,310,945 (1,620,197,177) 1,856,294,480 4,632,876,588 6,489,171,068
(1,486,302,528) 202,806 57,950,711 (1,428,149,011) (202,693,407) 5,309,825,378 5,107,131,971
The accompanying notes are an integral part of the financial statements.
- 72 - ANNUAL REPORT 2007
3,933,778 - (517,890,000) (2,580,681,180) 622,173,570 (12,272,867) -
Notes to Consolidated Financial Statements DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES For the years ended 31 December 2007 and 2006
CORPORATE INFORMATION Delta Electronics (Thailand) Public Company Limited (çThe Companyé) is a public company incorporated and domiciled in Thailand. Its major shareholder is Deltron Holding Limited, which is incorporated in the Channel Islands. The Company is principally engaged in the manufacture and distribution of electronic products and its registered address is 714 Moo 4, Tambon Prakasa, Amphur Muangsamutprakarn, Samutprakarn.
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, except for the early adoption of Accounting Standard No. 56 çAccounting for Income Taxé which is in line with International Accounting Standard (IAS) No. 12 çIncome Taxesé (revised 1996). 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 2.2.1 The consolidated financial statements include the financial statements of the Company and the following subsidiary companies (çthe Groupé):
Nature of business
Country of incorporation
Percentage of shareholding 2007 2006 Percent Percent
DET International Holding Holding business The Cayman 100 Limited Islands Trading, research Switzerland 100 Delta Energy Systems and development (Switzerland) AG of electronic products
Assets as a Revenues as a percentage percentage to the to the consolidated consolidated total assets total revenues as at for the year ended 31 December 31 December 2007 2006 2007 2006 Percent Percent Percent Percent
34.56 40.46 35.14 45.31 9.09
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 73 -
Nature of business
Percentage of Country of indirect incorporation shareholding 2007 2006 Percent Percent
The subsidiary companies owned by DET International Holding Limited DET Logistics (USA) Corporation DET Video Technology Limited
Trading of electronic products Trading of electronic products
Delta Energy Systems (Slovakia) s.r.o.
Manufacture and trading of electronic products Delta Electronics (Slovakia) s.r.o. Manufacture and trading of electronic products Delta Energy Systems (Germany) GmbH. Research, development and trading of electronic products Delta Energy Systems (India) Private Limited Manufacture and trading of electronic products Delta Power Solutions India Private Limited Manufacture and trading of electronic products Delta Energy Systems (Romania) S.R.L. Research and development of (DET International Holding Limited and electronic products DET Video Technology Limited having shareholdings of 95 percent and 5 percent respectively) Delta Energy Systems (Arizona) Inc. Research and development of electronic products Delta Electronics Europe Limited Trading of electronic products DET SGP Pte. Ltd. Holding business and marketing and after sales services Delta Greentech International Holding Limited Holding business Delta Greentech SGP Pte. Ltd. Holding business (owned by Delta Greentech International Holding Limited)
USA The British Virgin Islands Slovakia
The Cayman Islands Singapore
Czech Republic Spain France Italy Sweden Finland Brazil Brazil
100 100 100 100 100 100 100 100
100 100 100 100 100 100 100 100
China USA Poland Russia
51 100 100
51 100 100 100
The subsidiary companies owned by Delta Energy Systems (Switzerland) AG Delta Energy Systems (Czech republic) spol.s.r.o. Trading of electronic products Delta Energy Systems (Spain) S.L. Trading of electronic products Delta Energy Systems (France) S.A. Trading of electronic products Delta Energy Systems (Italy) s.r.l. Trading of electronic products Delta Energy Systems (Sweden) AB. Trading of electronic products Delta Energy Systems (Finland) Oy. Trading of electronic products Delta Energy Systems (Brazil) S.A. Trading of electronic products Delta Systems Energia (Curitiba) Limited Engineering (owned by Delta Energy Systems (Brazil) S.A.) Delta Energy Systems (Guangzhou) Limited Trading of electronic products Delta Energy Systems (USA) Inc. Liquidation completed Delta Energy Systems (Poland) Sp.zo.o Trading of electronic products Delta Energy Systems LLC. Trading of electronic products
- 74 - ANNUAL REPORT 2007
2.2.2 The financial statements of overseas subsidiary companies are translated into Thai Baht at the closing exchange rates as to assets and liabilities, and at monthly average exchange rates as to revenues and expenses. The resultant differences have been shown under the caption of çTranslation adjustmenté in shareholdersû equity. 2.2.3 Material balances and transactions between the Company and its subsidiary companies have been eliminated from the consolidated financial statements. 2.2.4 Investments in the subsidiary companies as recorded in the Companyûs books of account are eliminated against the equity of the subsidiary companies. The resultant differences are amortised over a period of 20 years commencing from the date of acquisition of the investment. 2.2.5 The meeting of the Companyûs Board of Directors held on 9 March 2007 approved a resolution to increase its investment in DET International Holding Limited by approximately of USD 3 million, in order to fund investment in a new subsidiary in India, causing its investment in this subsidiary to increase from USD 121 million to USD 124 million. The Company paid the above amount on 11 April 2007. There is no impact on the composition of the Group. 2.2.6 As at 9 April 2007, the Company incorporated the new subsidiary in India, çDelta Power Solutions India Private Limitedé, with a registered capital of INR 225,000,000 (22,500,000 ordinary shares of INR 10 each). The subsidiaryûs shareholder is DET International Holding Limited, with shareholdings of 100 percent. The subsidiary called up share capital of INR 135,000,000 (13,500,000 ordinary shares of INR 10 each) and received payment in this year. 2.2.7 The meeting of the Companyûs Board of Directors held on 8 August 2007 approved a resolution to increase the Companyûs investment in DET International Holding Limited by approximately USD 12 million, in order for these funds to be invested in Delta Power Solutions India Private Limited for use in acquisition of plant and equipment, and as working capital. As a result the Companyûs investment in DET International Holding Limited increased from USD 124 million to USD 136 million. The Company paid the amount on 30 August 2007. There is no impact on the composition of the Group. 2.2.8 As at 10 September 2007, Delta Power Solutions India Private Limited registered an increase in its share capital from INR 225,000,000 (22,500,000 ordinary shares of INR 10 each) to INR 620,000,000 (62,000,000 ordinary shares of INR 10 each) in line with additional investment made by a shareholders, DET International Holding Limited. The additional share capital was paid up on 4 September 2007. There is no impact on the composition of the Group.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 75 -
2.2.9 The meeting of the Companyûs Board of Directors held on 9 November 2007 approved resolutions to incorporate 7 subsidiary companies in Thailand and overseas in order to support the expansion of the Companyûs Power System Business. Each subsidiary company will have a registered capital of USD 100,000. During the current year, the Company incorporated two of the new subsidiary companies, with çDelta Greentech International Holding Limitedé being incorporated in the Cayman Islands on 16 November 2007 with DET International Holding Limited having a shareholding of 100 percent, and çDelta Greentech SGP Pte. Ltd.é being incorporated in Singapore on 22 November 2007, with Delta Greentech International Holding Limited having a shareholding of 100 percent. The meeting of the Companyûs Board of Directors held on the same date approved resolutions to incorporate a new subsidiary company, çDET SGP Pte. Ltd.é, in Singapore. This new subsidiary company already incorporated on 12 November 2007, with a registered capital of USD 11,500,000, 100 percent held by DET International Holding Limited, in order to support the restructuring of the shareholding of an associated company, Delta Green (Tianjin) Industries Company Limited. The share capital of this associated company, which was previously held by DET International Holding Limited, is now held by DET SGP Pte. Ltd. 2.3
The separate financial statements, which present investments in subsidiary companies presented under the cost method, have been prepared solely for the benefit of the public.
ADOPTION OF NEW ACCOUNTING STANDARDS The Federation of Accounting Professions (FAP) has issued Notifications No. 9/2550, 38/2550 and 62/2550 regarding Accounting Standards. The notifications mandate the use of the following new Accounting Standards. a) Accounting Standards which are effective for the current year TAS 44 (revised 2007) Consolidated Financial Statements and Separate Financial Statements TAS 45 (revised 2007) Investments in Associates TAS 46 (revised 2007) Interests in Joint Ventures These accounting standards become effective for the financial statements for fiscal years beginning on or after 1 January 2007. During the current year, 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. b) Accounting Standards which are not effective for the current year TAS 25 (revised 2007) Cash Flow Statements TAS 29 (revised 2007) Leases TAS 31 (revised 2007) Inventories TAS 33 (revised 2007) Borrowing Costs TAS 35 (revised 2007) Presentation of Financial Statements TAS 39 (revised 2007) Accounting Policies, Changes in Accounting Estimates and Errors
- 76 - ANNUAL REPORT 2007
TAS 41 (revised 2007) TAS 43 (revised 2007) TAS 49 (revised 2007) TAS 51
Interim Financial Reporting Business Combinations Construction Contracts 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, except for the following accounting standards. TAS 43 (revised 2007) çBusiness Combinationsé TAS 43 (revised 2007) does not require the Company to amortise goodwill acquired in a business combination. Such goodwill is instead to be tested for impairment, and measured at cost less impairment losses. This accounting standard applies to goodwill arising from business combinations for which the agreement date is on or after 1 January 2008. Previously recognised goodwill can be accounted for prospectively, with the Company discontinuing the amotisation of the goodwill and instead testing for impairment, as from the beginning of the first fiscal year starting on or after 1 January 2008.
CHANGE IN ACCOUNTING POLICY FOR RECORDING INVESTMENTS IN SUBSIDIARIES, JOINTLY CONTROLLED ENTITIES AND ASSOCIATES IN THE SEPARATE FINANCIAL STATEMENTS During the current year, the Company changed its accounting policy for recording investments in subsidiaries in the separate financial statements from the equity method to the cost method, in compliance with Accounting Standard No. 44 (Revised 2007) regarding çConsolidated Financial Statements and Separate Financial Statementsé, 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 periodûs separate financial statements as though the investments in the subsidiaries had originally been recorded using the cost method. The change has the effect of decreasing net income in the separate income statements for the year ended 31 December 2007 by Baht 779 million (Baht 0.62 per share) and increasing net income in the separate income statements for the year ended 31 December 2006 by Baht 222 million (Baht 0.18 per share). The cumulative effect of the change in accounting policy has been presented under the heading of çCumulative effect of the change in accounting policy for investments in subsidiary companiesé in the separate statements of changes in shareholdersû equity. Such change in accounting policy affects only the accounts related to investments in subsidiary companies in the Companyûs separate financial statements, with no effect to the consolidated financial statements.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 77 -
SIGNIFICANT ACCOUNTING POLICIES 5.1 Revenue Recognition Sales of goods Sales of goods are recognised 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. Rendering of services Service revenue is recognised when services have been rendered taking into account the stage of completion. Interest income Interest income is recognised on an accrual basis based on the effective interest rate. 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.
Inventories Finished goods and work in process are valued at the lower of standard cost (which approximates actual cost) and net realisable value. Standard cost includes all production costs and attributable factory overheads. Raw materials are valued at the lower of standard cost (which approximates actual cost) and net realisable value and are charged to production costs whenever consumed.
Investments a) Investments in available-for-sale securities are stated at fair value. 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. Changes in the carrying amounts of securities are recorded as separate items in shareholders没 equity until the securities are sold, when the changes are then included in determining income. b) Investments in associated companies are accounted for in the consolidated financial statements using the equity method. c) Investments in subsidiary companies are accounted for in the separated financial statements using the cost method.
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Investments in the ordinary and preference shares of other companies, which the Company classifies as other investments, are stated at cost net of allowance for loss on impairment (if any).
Property, plant and equipment/Depreciation Land is stated at cost, plant and equipment are stated at cost less accumulated depreciation and less allowance for loss on impairment of property, plant and equipment (if any). Depreciation of plant and equipment is calculated by reference to their costs on a straight-line basis over the following estimated useful lives : Building 20 - 50 years Land improvement 10 -20 years Machinery and equipment 5 - 20 years Molds and toolings 2 - 5 years Installation 5 - 20 years Furniture, fixtures and office equipment 3 - 20 years Computer 3 years Motor vehicles 5 years Depreciation is included in determining income. No depreciation is provided on land and construction in progress.
Intangible assets/Amortisation Intangible assets are stated at cost less accumulated amortisation. Amortisation is calculated by reference to their costs on a straight-line basis over a period of 20 years. The amortisation is included in determining income.
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没s operations.
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 rate are included in determining income.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 79 -
5.10 Impairment of assets The Company and its subsidiaries assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Company and its subsidiaries make an estimate of the asset没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没s recoverable amount is the higher of fair value less costs to sell and value in use. 5.11 Employee benefits Salaries, wages, bonuses and contributions to the social security fund and provident fund are recognised as expenses when incurred. The Company and its subsidiaries recognise pension plan benefits as liabilities in their financial statements in accordance with the bases and conditions stipulated in the regulations of these companies. 5.12 Provisions Provisions are recognised when the Company and its subsidiaries have a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. 5.13 Corporate income tax Current tax Income tax is provided for in the accounts based on the taxable profits determined in accordance with tax legislation. Overseas subsidiary companies calculate corporate income tax in accordance with tax rates mandated under the tax law of those countries. Deferred tax Deferred income tax is calculated based on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts, by using the enacted tax rate at the balance sheet date. The Company and its subsidiaries recognise deferred tax liabilities for taxable temporary differences and recognise deferred tax assets for deductible temporary differences and tax losses carried forward. The Company and its subsidiaries recognise deferred tax assets to the extent that it is probable that future taxable profit will be available against which such deductible temporary differences and tax losses carried forward can be utilized. At each balance sheet date, the Company and its subsidiaries review and reduce the carrying amount of deferred tax assets to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised.
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5.14 Derivatives Forward exchange contracts Receivables and payables arising from forward exchange contracts are translated into Baht at the rates of exchange ruling on the balance sheet date. Gains and losses from the translation are included in determining income. Premiums or discounts on forward exchange contracts are amortised on a straight-line basis over the contract periods. Interest rate swap contracts The net amount of interest to be received from or paid to the counterparty under the interest rate swap contracts is recognised as income or expenses on an accrual basis. 5.15 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.
RELATED PARTY TRANSACTIONS During the years, the Company and its subsidiaries had significant business transactions with related parties, which have been concluded on commercial terms and bases agreed upon in the ordinary course of business between the Company and those companies. Below is a summary of those transactions. (Unit : Million Baht) Consolidated Separate financial statements financial statements 2007 2006 2007 2006
Transfer Pricing policy
Transactions with subsidiary companies (eliminated from the consolidated financial statements) Sales of goods and raw materials - 5,628 10,338 With reference to market price 44 113 With reference to market price Purchase of raw materials Commission paid - 451 903 Contract price - 116 - Contract price Marketing fee - 652 - Contract price Design and engineering fee Transactions with associated company Sales of goods 4 8 4 8 With reference to market price Transactions with related parties Sales of goods and raw materials 1,104 1,187 1,093 1,175 With reference to market price 248 529 89 220 With reference to market price Purchase of goods and raw materials 252 647 252 625 Contract price Commission paid Commission received 83 14 - Contract price 76 - Contract price Inspection received 53 88 - Agreed upon basis Services income Sales of investment in subsidiary company 38 - Contract price Lending (Average balance of loans outstanding during year) 11 44 - Interest at a rate reference to LIBOR+1% Borrowing (Average balance of loans outstanding during year) 13 - Interest at a rate reference to LIBOR+1%
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 81 -
The Company has entered into agreements with the subsidiaries and with the related parties, whereby the subsidiaries and the related parties will provide sales services, marketing services, management services, technical information services and after-sales services. Under the agreements, the Company is obliged to pay commission to its subsidiaries and related companies at rates ranging from 0.25 to 5 percent of sales and at total service cost plus the mark up of 5%. The Company also entered into other agreements with the subsidiaries and with the related parties, whereby they will provide raw material purchasing services and the Company is obliged to pay them at the rates not more than 3 percent of the purchasing price. These agreements are not for an identified period but are cancellable. The balances of the accounts as at 31 December 2007 and 2006 between the Company and these related companies are as follows : (Unit : Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Trade accounts receivable, related parties Subsidiary companies DET Logistics (USA) Corporation Delta Energy Systems (Switzerland) AG Delta Energy Systems (Germany) GmbH. Delta Energy Systems (India) Private Limited Delta Energy Systems (Brazil) S.A. Delta Energy Systems (Slovakia) s.r.o. Delta Electronics (Slovakia) s.r.o. DET Video Technology Limited Delta Power Solutions India Private Limited Other
- 798,224,811 1,583,311,331 - 101,810,397 100,399,487 10,310,170 9,193,672 - 181,517,913 65,630,595 2,323,077 5,516,096 8,485,617 - 1,073,660,278 13,046,379 763,180 168,271 - 1,114,158,467 2,840,202,807
Associated company Delta Green (Tianjin) Industries Company Limited
Other related parties Delta Electronics Inc. Delta Electronics (Japan) Inc. Delta Products Corporation Limited Delta Electronics International Limited Delta Network International Limited Delta Electronics (Jiangsu) Limited Addtron Technology (Japan) Limited Deltronics (Netherland) BV Delta Electronics (Hong Kong) Limited Other Total trade accounts receivable, related parties
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28,664,499 3,964,661 169,956,913 35,296,230 14,890,412 35,125,096 6,504,336 4,310,422 2,072,560 300,785,129 302,754,418
25,772,944 12,463,872 5,821,648 15,253,961 3,964,661 15,253,961 162,103,457 169,609,470 162,029,795 11,640,688 31,963,517 11,573,942 10,236,770 14,890,412 10,236,770 30,420,700 35,005,740 29,063,723 5,765,259 5,765,259 4,855,898 6,637,670 8,562,125 1,718,637 4,466,745 281,249,472 269,616,309 244,211,843 284,931,092 1,385,744,065 3,088,096,270
(Unit : Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 Short-term loans to and amounts due from related parties Delta Products Corporation Limited Deltronics (Netherland) BV Others Total short-term loans to and amounts due from related parties Trade accounts payable, related parties Subsidiary companies Delta Energy Systems (Germany) GmbH. Delta Electronics (Slovakia) s.r.o. Delta Energy Systems (Slovakia) s.r.o. Others
Other related parties Delta Electronics Inc. Delta Electronics (Japan) Inc. Delta Products Corporation Limited Delta Electronics International Limited Delta Video Technology Limited Others Total trade accounts payable, related parties Amounts due to related parties Subsidiary companies DET Logistics (USA) Corporation Delta Energy Systems (Germany) GmbH. Delta Energy Systems (Switzerland) AG Delta Energy System (India) Private Limited Delta Energy Systems (Arizona) Inc. Delta Electronics Europe Limited Others
Other related parties Delta Electronics Inc. Delta Electronics (Japan) Inc. Delta Electronics (Scotland) Limited Delta Products Corporation Limited Others Total amounts due to related parties
41,678,550 1,366,861 43,045,411
22,058,020 749,999 22,808,019
7,783,469 2,544,791 83,224 10,411,484
22,117,114 821,201 1,795,476 24,733,791
17,459,732 4,659,640 4,755,000 384,639,985 145,413 7,832,329 419,492,099 419,492,099
68,649,016 8,027,524 5,298,524 26,522,048 60,000,228 2,543,775 171,041,115 171,041,115
1,150,352 4,659,640 2,865,864 6,552,157 1,853,607 17,081,620 27,493,104
12,102,767 8,027,524 4,905,717 17,509,643 1,595,201 44,140,852 68,874,643
13,487,254 150,068,564 6,660,043 7,093,488 16,011,916 4,916,866 884,841 199,122,972
16,064,188 42,287,044 19,881,264 14,405,246 899 92,638,641
14,069,966 7,921,134 28,254,922 6,124,018 56,370,040 56,370,040
25,403 8,489,846 860,699 47,441,542 6,105,356 69,922,846 62,922,846
8,688,135 7,921,134 28,254,922 2,013,733 46,877,924 246,000,896
25,403 8,489,846 47,441,542 350,961 56,307,752 148,946,393
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 83 -
Directors and management没s remuneration In 2007 the Company paid salaries, bonuses, meeting allowances and gratuities to its directors and management totaling approximately Baht 15 million (2006: approximately Baht 16 million). Guarantee obligations with related parties The Company has outstanding guarantee obligations with its related parties, as described in Note 30.2.2 to the financial statements.
INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES (Unit : Baht) 2007
Available-for-sale securities a) Cyntec Company Limited b) Loyalty Founder Enterprise Company Limited Total Unrealised gain (loss) on investments in available-for-sale securities Translation adjustment Net investments in available-for-sale securities
Cost/ Book value 47,363,716 59,083,034 106,446,750
2006 Fair value
Cost/ Book value
65,406,489 36,206,278 101,612,767
41,581,590 59,083,034 100,664,624
55,610,735 50,397,981 106,008,716
(4,833,983) (21,736,699) 79,876,068
5,344,092 (16,636,356) 89,372,360
TRADE ACCOUNTS RECEIVABLE The outstanding balances of trade accounts as at 31 December 2007 and 2006 are aged as follows : (Unit : Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006
Trade accounts receivable, related parties Current Past due 1 - 3 months Past due 3 - 6 months Past due 6 - 12 months Past due over 12 months Total Trade accounts receivable, unrelated parties Current Past due 1 - 3 months Past due 3 - 6 months Past due 6 - 12 months Past due over 12 months Total Total trade accounts receivable Less : Allowance for doubtful accounts Trade accounts receivable - net
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290,407,384 7,586,991 1,732,265 1,106,167 1,921,611 302,754,418 5,712,049,652 765,272,546 93,162,982 29,447,288 18,017,012 6,617,949,480 6,920,703,898 (48,537,093) 6,872,166,805
235,792,240 1,341,804,144 2,727,803,240 42,589,149 22,788,847 320,110,065 1,135,662 2,546,746 21,487,475 4,717,819 6,296,756 15,571,512 696,222 12,307,572 3,123,978 284,931,092 1,385,744,065 3,088,096,270 6,879,268,036 962,929,956 76,391,985 46,134,511 55,146,489 8,019,870,977 8,304,802,069 (104,330,083) 8,200,471,986
3,170,381,594 413,185,513 73,186,036 26,194,303 6,451,441 3,689,398,887 5,075,142,952 (23,347,363) 5,051,795,589
2,939,664,294 489,150,613 36,358,155 14,659,917 9,113,705 3,488,946,684 6,577,042,954 (16,099,075) 6,560,943,879
Finished goods Work in process Raw materials Goods intransit Total Less : Allowance for diminution in value of inventory Inventories - net
Consolidated financial statements 2007 2006 1,114,238,902 1,507,699,388 420,718,259 413,181,303 2,144,376,112 2,547,110,717 416,205,438 902,585,027 4,095,538,711 5,370,576,435 (672,283,667) (773,345,140) 3,423,255,044 4,597,231,295
(Unit : Baht) Separate financial statements 2007 2006 370,427,782 455,867,849 268,984,291 218,869,957 886,136,622 1,264,156,771 66,213,945 183,950,197 1,591,762,640 2,122,844,774 (256,452,268) (240,685,692) 1,335,310,372 1,882,159,082
10. DEPOSITS AT BANK WITH RESTRICTIONS The balance as at 31 December 2007 mainly represented bank deposits of approximately RMB 26 million (2006 : approximately RMB 26 million) of a subsidiary in the Republic of China which are subject to restrictions under the laws of the Republic of China, and bank deposits of approximately EUR 1.6 million (2006: approximately EUR 1.8 million) of a subsidiary in Germany which are subject to pension fund restrictions. 11. INVESTMENTS IN SUBSIDIARY COMPANIES (Unit : Baht)
Separate financial statements Shareholding Issued and paid up capital percentage Foreign 2007 2006 2007 2006 currency % %
Subsidiary companies DET International Holding Limited USD 135,675,626 120,675,626 100 Delta Energy Systems (Switzerland) AG CHF 20,000,000 20,000,000 100 Subtotal Less :Loss on impairment of investments in subsidiary companies Net investments in subsidiary companies
100 5,231,621,326 4,713,731,326 100 2,414,917,694 2,414,917,694 7,646,539,020 7,128,649,020 (2,196,003,765) (2,196,003,765) 5,450,535,255 4,932,645,255
No dividend was received from the subsidiary companies for the year ended 31 December 2007 and 2006. Assets, liabilities and the operating results of the subsidiaries of the Company, DET SGP Pte. Ltd., Delta Greetech International Holding Limited, Delta Greentech SGP Pte. Ltd., Delta Energy Systems (Romania) S.R.L., and Delta Energy Systems (Arizona) Inc., which are included in the Company没s consolidated financial statements based on figures prepared by the managements of those subsidiaries which have not yet been audited by their auditors. However, the figures for the assets, liabilities and the operating results of those subsidiaries are immaterial to the consolidated financial statements.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 85 -
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12. INVESTMENT IN ASSOCIATED COMPANY 12.1 Details of investments in associated companies : (Unit : Baht) Consolidated financial statements
Shareholding Country of percentage Nature of business incorporation 2007 2006 % %
Associated companies Huada Holding Company Limited Holding business The Cayman (Liquidated in 2006) Islands Delta Green (Tianjin) Industries Company Limited Manufacturing and China (As at 31 December 2007, trading of electronic owned by DET SGP PTe. Ltd. products and as at 31 Decembr 2006, owned by DET International Holding Limited) Translation adjustment Total investment accounted for under equity method - associated company
Share of income from investments in associates during the year 2007 2006
Carying amounts based on equity method 2007 2006
394,383,470 394,383,470 529,568,950 463,805,170
- (23,936,730) (42,290,963) 394,383,470 394,383,470 505,632,220 421,514,207
During 2007, DET International Holding Limited received dividend amounting to USD 0.3 million from Delta Green (Tianjin) Industries Company Limited (2006: Nil). 12.2 Summarised financial information of associated company :
Delta Green (Tianjin) Industries Company Limited
Paid-up capital as at 31 December 2007 2006
Total assets as at 31 December 2007 2006
(Unit : Million RMB) Total liabilities Total revenues for the Net income for the as at 31 December year ended 31 December year ended 31 December 2007 2006 2007 2006 2007 2006
Share of income/loss from investments in associated company accounted for under equity method is based on the financial statements as prepared by the management of such associated company which have not yet been reviewed by its auditor.
13. INVESTMENTS IN OTHER PARTIES These represent investments in ordinary shares and preference shares of the following companies : (Unit : Baht) Shareholding percentage 2007 2006 % % IP Fund One, L.P. (owned by DET International Holding Limited) Ezonics Corporation Company Limited (owned by DET International Holding Limited) Total investments in other parties Less : Allowance for diminution in value of investments in other parties Translation adjustment Investments in other parties - net
Consolidated financial statements 2007 2006
(143,107,900) (135,027,026) (56,579,143) (42,398,846) 185,436,978 220,053,515
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 87 -
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14. PROPERTY, PLANT AND EQUIPMENT - NET (Unit : Baht)
Machinery and equuiment
Consolidated financial statements Construction Mold Installation in progress
Cost : 31 December 2006 Purchase/transfer in Disposal/write-off/transfer out Translation adjustment 31 December 2007 Accumulated depreciation : 31 December 2006 Depreciation for the year Depreciation - disposal/write-off Translation adjustment 31 December 2007 Allowance for impairment loss : 31 December 2006 Increasing during the year Decreasing during the year 31 December 2007 Net book value : As at 31 December 2006 As at 31 December 2007
313,407,545 1,232,248,965 5,266,822,890 1,056,801,591 945,977,236 298,825,975 781,980,138 147,816,457 620,973,673 342,536,537 90,495,834 33,355,847 59,365,162 74,021,812 - (608,524,402) (349,810,251) (85,189,075) (363,953,562) (109,652,756) 56,038 1,961,158 59,135,285 2,993,348 7,228,916 21,336,923 13,358,790 461,280,040 1,855,183,796 5,059,970,310 800,480,522 901,372,924 15,574,498 759,707,984 -
240,976,896 3,959,870,252 911,623,011 560,644,677 34,000,317 539,829,097 105,589,087 67,308,826 - (524,747,527) (316,190,804) (83,432,667) 1,138,944 54,719,474 2,954,194 6,547,670 276,116,157 4,029,671,296 703,975,488 551,068,506 38,756,892 38,756,892
349,620,402 10,245,684,742 351,412,904 1,719,978,226 (360,539,925) (1,877,669,971) 9,800,978 115,871,436 350,294,359 10,203,864,433
685,240,869 286,905,192 6,645,260,897 75,590,163 31,581,551 853,899,041 (95,689,503) (52,070,610) (1,072,131,111) 13,463,999 8,492,841 87,317,122 678,605,528 274,908,974 6,514,345,949
41,571,199 (41,571,199) -
27,270,340 (27,270,340) -
6,315,780 (176,838) 6,138,942
2,948,381 (2,912,533) 35,848
1,216,281 118,078,873 (276,496) (72,207,406) 939,785 45,871,467
313,407,545 991,272,069 1,306,952,638 461,280,040 1,540,310,747 1,030,299,014
62,715,210 3,600,423,845 74,445,600 3,643,647,017
Depreciation charge (included in income statement) : Year 2006 (Baht 843 million include in manufacturing cost, and the balance in selling and administrative expenses) Year 2007 (Baht 685 million include in manufacturing cost, and the balance in selling and administrative expenses)
14. PROPERTY, PLANT AND EQUIPMENT - NET (Continued) (Unit : Baht)
Machinery and equuiment
Separate financial statements Construction Mold Installation in progress
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 89 -
31 December 2006 Purchase/transfer in Disposal/write-off/transfer out 31 December 2007 Accumulated depreciation : 31 December 2006 Depreciation for the year Depreciation - disposal/write-off 31 December 2007 Allowance for impairment loss : 31 December 2006 Increasing during the year Decreasing during the year 31 December 2007 Net book value : As at 31 December 2006 As at 31 December 2007
312,646,818 1,205,626,049 4,086,332,244 996,449,394 806,107,794 - 164,339,036 82,517,299 14,752,112 - (481,973,254) (318,025,974) (21,074,069) 312,646,818 1,205,626,049 3,768,698,026 760,940,719 799,785,837 312,646,818 312,646,818
232,915,845 2,909,002,681 859,140,843 440,531,893 24,073,270 462,559,762 99,981,132 59,406,446 - (407,136,968) (287,967,733) (18,875,812) 256,989,115 2,964,425,475 671,154,242 481,062,527 38,756,892 38,756,892
3,696,503 282,928,523 101,346,846 7,795,134,171 13,458,813 20,767,082 319,252,296 615,086,638 (14,921,682) (35,564,838) (320,252,637) (1,191,812,454) 2,233,634 268,130,767 100,346,505 7,218,408,355 -
222,619,783 40,000,533 (32,171,298) 230,449,018
77,505,729 9,089,897 (12,757,086) 73,838,540
4,741,716,774 695,111,040 (758,908,897) 4,677,918,917
41,571,199 (41,571,199) -
27,270,340 (27,270,340) -
6,315,780 (176,838) 6,138,942
2,948,381 (2,912,533) 35,848
1,216,281 118,078,873 (276,496) (72,207,406) 939,785 45,871,467
972,710,204 1,177,329,563 909,880,042 804,272,551
23,841,117 3,053,417,397 25,568,180 2,494,617,971
Depreciation charge (included in income statement) : Year 2006 (Baht 713 million include in manufacturing cost, and the balance in selling and administrative expenses) Year 2007 (Baht 604 million include in manufacturing cost, and the balance in selling and administrative expenses)
As at 31 December 2007, certain machinery and equipment items of the Company had been fully depreciated but were still in use. The original cost of those assets amounted to approximately Baht 2,497 million (2006: Baht 2,113 million). During the year 2007, the Company recorded allowance for loss on impairment of assets amounting to approximately Baht 118 million, for plant and equipment related to video display production, since the Company had decided to reduce its production volume of video display in line with its long-term business strategy of not manufacturing products which generated low profit margins. Production of video displays generated net sales for the year ended 31 December 2007 amounting to approximately of Baht 1,885 million and had a profit margin of approximately 10.24 percent (for the year ended 31 December 2006: sales of approximately baht 8,078 million and gross profit margin at approximately of 13.62 percent). However, the Company reversed its allowance for loss on impairment of assets by approximately Baht 72 million since some machinery and equipment for which allowance for loss on impairment had previously been set aside was disposed of during the year.
15. CONSOLIDATION GOODWILL
Balance - beginning of year Decrease during year Amortisation Translation adjustment Balance - end of year Remaining useful lives
(Unit : Baht) Consolidation goodwill 2007 2006 332,865,887 1,055,292,092 - (692,314,569) (25,363,900) (29,895,916) (11,880) (215,720) 307,490,107 332,865,887 15 years 15 years 6 months 6 months
Baht 25 million of amortisation has been included in the income statements for the year ended 31 December 2007 (2006: Baht 30 milllion). Consolidation goodwill decreased by approximately Baht 692 million during 2006 because of the following : A) During the year 2006 an adjustment entry was made in relation to past acquisitions, requiring consolidation goodwill arising from the acquisition of 4 subsidiary companies to be adjusted. The 4 subsidiary companies comprise of Delta Energy Systems (Germany) GmbH., Delta Energy Systems (Arizona) Inc., Delta Energy Systems (Guangzhou) Limited and Delta Energy Systems (Czech Republic) spol.s.r.o.. As a result, consolidation goodwill decreased by approximately Baht 461 million. B)
During the year 2006 the Company received a cash refund of approximately CHF 5.1 million, or approximately Baht 161 million, from the seller of the Company没s investment in Delta Energy Systems (Switzerland) AG Group, based on the conditions stipulated in the Share Purchase Agreement related to the acquisition. The effect to consolidation goodwill was approximately Baht 161 million.
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During the year 2006 DET International Holding Limited sold all of the ordinary shares comprising its investment in Newton Power Limited to a related company, Delta International Holding Limited. The effect to consolidation goodwill was approximately Baht 70 million.
During 2007, the Company estimated impairment of its consolidation goodwill by hiring an independent appraiser to value consolidation goodwill, based on projected cash flows prepared in accordance with assumptions and operation plans developed by the Company没s management. Based on the report of the independent appraiser, the fair value was greater than the net book value of consolidation goodwill.
16. OTHER INTANGIBLE ASSETS (Unit : Baht)
Balance - beginning of year Increase during year Amortisation Translation adjustment Balance - end of year Remaining useful lives
Patent rights 2007 2006 1,062,987,491 1,277,221,989 101,825 (56,739,396) (62,241,075) (67,192,680) (151,993,423) 939,157,240 1,062,987,491 16 years 17 years 11 months 11 months
2007 2006 2007 2006 1,485,167 915,926 1,064,472,658 1,278,137,915 - 12,272,867 101,825 12,272,867 (18,612) (11,692,166) (56,758,008) (73,933,241) 152,762 (11,460) (67,039,918) (152,004,883) 1,619,317 1,485,167 940,776,557 1,064,472,658 1 years 2 years 4 months 4 months
Baht 57 million of the current year没s amortisation (2006: Baht 74 million) has been included in the income statements for the year. During 2007, the Company estimated impairment of a subsidiary没s patent rights by hiring an independent appraiser to value patent rights, based on projected cash flows prepared in accordance with assumptions and operation plans developed by the Company没s management. Based on the report of the independent appraiser, the fair value was greater than the net book value of those patent rights.
17. BANK OVERDRAFTS AND SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS
Bank overdrafts Short-term loans from financial institutions Total
(Unit: Baht) interest rate Consolidated financial statements (percent per annum) 2007 2006 9.75 - 11.00 310,164,216 191,251,081 5.05 - 9.50 1,656,665,845 1,649,418,861 1,966,830,061 1,840,669,942
Bank overdrafts and short-term loans from financial institutions of the subsidiaries are guaranteed by the Company
18. ACCRUED EXPENSES The balances as at 31 December 2007 mainly represent accrued expenses and provisions, totaling approximately Baht 1,116 million relating to employee costs, product sales of the Company and its subsidiaries and claims (the Company only: Baht 483 million). The management of the Company and its subsidiaries believe that actual expenditures will be close to the amounts estimated and accrued in the records of the Company and its subsidiaries.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 91 -
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19. PROVISIONS These comprise the following:
Pension Balance as at 31 December 2006 Add : Recognition during year Less : Decrease during year Less : Reversal during year Translation adjustment/ unrealized gain on exchange rate Balance as at 31 December 2007 Current liabilities Non-current liabilities Balance as at 31 December 2006 Current liabilities Non-current liabilities Balance as at 31 December 2007
Consolidated financial statements Restructuring Other cost Warranty provisions
(Unit : Baht) Separate financial statements Total
920,648,930 175,102,905 233,177,119 161,352,532 1,490,281,486 105,121,143 111,224,761 236,982,452 26,329,064 479,657,420 (55,349,083) (126,402,955) (56,739,511) (112,353,124) (350,844,673) (643,199) (62,903,432) (195,499,439) (22,001,585) (281,047,655) 34,546,477 1,004,324,268 3,885,786 916,763,144 920,648,930 4,937,722 999,386,546 1,004,324,268
7,142,706 104,163,985 172,651,193 2,451,712 175,102,905 96,863,688 7,300,297 104,163,985
3,429,187 221,349,808 76,443,790 156,733,329 233,177,119 46,800,854 174,548,954 221,349,808
4,676,756 58,003,643 40,943,858 120,408,674 161,352,532 50,293,189 7,710,454 58,003,643
49,795,126 1,387,841,704 293,924,627 1,196,356,859 1,490,281,486 198,895,453 1,188,946,251 1,387,841,704
65,064,491 53,700,324 (44,835,268) (35,057,316)
65,064,491 96,143,674 (44,835,268) (35,057,316)
42,443,350 42,443,350 42,443,350
(3,445,889) 35,426,342 65,064,491 65,064,491 35,426,342 35,426,342
(3,445,889) 77,869,692 65,064,491 65,064,491 35,426,342 42,443,350 77,869,692
20. SHARE CAPITAL/WARRANTS The Annual General Meeting of the shareholders held on 30 March 2005 approved a resolution to issue up to 59,000,000 warrants for offer to executive directors and other employees of the Company. The warrants can be exercised to subscribe to newly issued ordinary shares in a ratio of 1 warrant per 1 ordinary share, at an exercise price of Baht 1 each. They are a one-time issue and have a life of 5 years, with the exercise period commencing on the last business day of January 2006. The meeting also approved a resolution to increase the Company没s registered share capital by 59,000,000 shares to support the exercise of the warrants, resulting in an increase in the number of ordinary shares comprising the registered share capital from 1,200,000,000 shares to 1,259,000,000 shares. The Company registered the increase in its registered share capital with the Ministry of Commerce on 7 April 2005 and listed its warrants on the stock Exchange of Thailand on 28 December 2005. The Meeting of the Board of Directors of the Company held on 13 February 2007 approved resolutions to pay a dividend to shareholders. As a result the Company adjusted the exercise ratio of the warrants in the manner stated in the prospectus, such that 1 warrant can be exercised to purchase 1.082 ordinary shares at a price of Baht 1 per share, effective from 6 March 2007. During the current year, warrants were exercised to purchase new ordinary shares as follows :
Outstanding as at 31 December 2006 Exercised during January 2007 Exercised during April 2007 Exercised during July 2007 Exercised during October 2007 Outstanding as at 31 December 2007
Increase in paid up Date of registration share capital of additional shares Number of from warrant from warrant exercise warrants exercise with the Ministry of Commerce (Unit) (Baht) 1,274,250 57,950,711 (1,217,850) 1,255,601 7 February 2007 (700) 757 14 May 2007 (29,652) 32,082 6 August 2007 (20,800) 22,505 6 November 2007 5,248 59,261,656
As of 31 December 2007 the issued and paid-up share capital of the Company had increased by Baht 1,310,945 as a result of the exercise of the above warrants, to Baht 1,247,378,396 (1,247,378,396 ordinary shares of Baht 1 each).
21. 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.
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 93 -
22. DIVIDEND PAYMENT Dividends declared in 2007 and 2006 consisted of the following : Dividends Final dividend for year 2006 Final dividend for year 2005
Approved by Annual General Meeting of the shareholders on 29 March 2007 Annual General Meeting of the shareholders on 30 March 2006
(Unit : Baht) Total Dividends Dividends per share 1,621,519,968
23. EMPLOYEES AND RELATED COSTS
Number of employees at the end of year (persons) Employee costs for the year (million Baht)
Consolidated financial statements Saparate financial statements 2007 2006 2007 2006 11,677 12,585 9,317 11,413 4,562 4,378 1,984 2,003
24. GAIN (LOSS) ON EXCHANGE RATE (Unit : Baht)
Realised gain (loss) on exchange rate Unrealised gain (loss) on exchange rate Gain (loss) on exchange rate
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For the year ended 31 December Consolidated financial statements Saparate financial statements 2007 2006 2007 2006 106,570,084 (68,469,622) (135,842,153) (378,939,980) 167,493,651 (515,900,011) 162,562,317 (498,152,342) 274,063,735 (584,369,633) 26,720,164 (877,092,322)
25. PROMOTIONAL PRIVILEGES The Company has been granted promotional privileges by the Board of Investment under the Investment Promotion Act B.E. 2520 subject to certain significant conditions. Significant privileges of the Company are as follows : Details 1. Certificate No. 2. Promotional privileges for
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 95 -
7030(1)/ 7008(2)/ 1776(4)/2547 1777(4)/2547 1571(2)/2549 1710(2)/2549 Aor. Yor./2544 Yor./ 2545 Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing of Manufacturing Manufacturing of of DC FAN of EMI FILTER of DC FAN of EMI FILTER of monitors electro-magnetic monitors electro-magnetic and televisions products and televisions products
3. The significant privileges are 3.1 Exemption from corporate income tax for 7 years 7 years net income from the promoted operations and exemption from income tax on dividends paid from the income of the operations throughout the period in which the corporate income tax is exempted. 3.2 Exemption from import duty on machinery Granted Granted as approved by the board. 3.3 Exemption from import duty on raw materials Granted Granted and significant supplies used in export production. 3.4 Allowance to additionally deduct 5% of any Non - granted Granted increment in export income over the preceding year for a p of ten years, providing that the export income of that year is not lower than the average export earnings of the three preceding years, except during the first two years. 4. Date of first earning operating income Applying for to 7 January commence 2004 operation approval
Non - granted Non - granted Non - granted Non - granted
Non - granted Non - granted Non - granted Non - granted Non - granted Non - granted
7 February 2002
17 July 2002
23 May 2005
Applying for to commence operation approval
Waiting for approval to commence operation
Waiting for approval to commence operation
The Company没s operating revenues for the years are below shown divided according to promoted and non-promoted operations. (Unit : Baht) Promoted operations 2007 2006 Separate financial statements Sales and services income Domestic sales Export sales Services income Total
Non-promoted operations 2007 2006
709,295,353 851,747,734 22,727,637,567 29,741,964,282 23,436,932,920 30,593,712,016
123,771,342 7,176,646 130,947,988
- 709,295,353 851,747,734 424,533,666 22,851,408,909 30,166,497,948 3,501,939 7,176,646 3,501,939 428,035,605 23,567,880,908 31,021,747,621
26. EARNINGS PER SHARE Basic 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. 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 that the potential ordinary shares were issued. Reconciliation between basic earnings per share and diluted earnings per share is presented below: Consolidated financial statements For the year ended 31 December Weighted average number Net income of ordinary shares Earnings per share 2007 (Baht) 2006 (Baht) 2007 (Shares) 2006 (Shares) 2007 (Baht) 2006 (Baht) Basic earnings per share Net income Effect of dilutive potential ordinary shares Warrants Diluted earnings per share Net income of ordinary shareholders assuming the conversion of warrants to ordinary shares
3,155,416,740 1,961,710,316 1,247,234,129 1,238,470,106 -
3,155,416,740 1,961,710,316 1,247,381,410 1,247,020,393
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Separate financial statements For the year ended 31 December Weighted average number Net income of ordinary shares Earnings per share 2007 (Baht) 2006 (Baht) 2007 (Shares) 2006 (Shares) 2007 (Baht) 2006 (Baht) (Restated) (Restated) Basic earnings per share Net income Effect of dilutive potential ordinary shares Warrants Diluted earnings per share Net income of ordinary shareholders assuming the conversion of warrants to ordinary shares
2,376,712,242 2,183,391,386 1,247,234,129 1,238,470,106 -
2,376,712,242 2,183,391,386 1,247,381,410 1,247,020,393
27. FINANCIAL INFORMATION BY SEGMENT The businesses of the Company and its subsidiaries mainly involve the single industry segment of the manufacture, distribution and servicing of electronic products and are carried on both in Thailand and overseas. Financial information of the Company and its subsidiaries by geographical segment, as at 31 December 2007 and 2006, and for the years then ended, is as follows :
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 97 -
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Thailand 2007 2006 Revenue from external customers Inter-segment revenues Total revenues Segment income (loss) Unallocated income and expenses : Other income Compensation income from cancellation order Share of income from investments in associated companies Amortisation of intangible assets Gain from disposal of investment in associated company Loss from diminution value of investment in other parties Loss on impairment of assets Loss on disposal of property, plant and equipment Interest expenses Corporate income tax Net income
17,933 20,684 5,635 10,337 23,568 31,021 2,407 1,976
Thailand 2007 2006 Property, plant and equipment - net Other assets Total assets
Asia 2007 2,538 5 2,543 396
America 2007 2006
1,778 1 1,779 38
6,846 14,412 6,449 6,680 33,766 43,554 - 33,766 43,554 994 5,851 5,691 5,266 12,325 21,455 (12,325) (21,455) 7,840 20,263 12,140 11,946 46,091 65,009 (12,325) (21,455) 33,766 43,554 98 (48) (35) (365) 2,866 1,601 3,044 1,540
Asia 2007 165
(Unit : Million Baht) Consolidated Eliminated financial statements 2007 2006 2007 2006
America 2007 2006 11
Europe 2007 2006
Europe 2007 2006 987
Total 2007 2006
Total 2007 2006 3,658
Transfer prices between business segments are as set out in Note 6 to the financial statements.
394 186 77
(46) (61) (173) (176) 3,155
(13) (150) (49) 1,962
(Unit : Million Baht) Consolidated Eliminated financial statements 2007 2006 2007 2006 (14)
3,644 3,600 22,611 22,599 26,255 26,199
28. CASH FLOW STATEMENTS Cash and cash equivalents as reflected in the statements of cash flows consist of the following :
Cash and cash equivalents Unrealised (gain) loss on exchange rate Cash and cash equivalents in the statements of cash flows
(Unit : Baht) Consolidated financial statements Separate financial statements 2007 2006 2007 2006 9,181,580,042 6,798,019,213 6,542,961,639 4,632,876,588 (53,820,875) 473,906,290 (53,790,571) 474,255,383 9,127,759,167 7,271,925,503 6,489,171,068 5,107,131,971
29. PROVIDENT FUND The Company and its employees have jointly established a provident fund in accordance with the Provident Fund Act B.E. 2530. Both employees and the Company contribute to the fund monthly, at rates of 5 percent of basic salary. The fund, which is managed by Thai Military Bank Public Company Limited, will be paid to employees upon termination or when employees are promoted to a manager post, in accordance with the fund rules. During the year 2007, the Company has contributed Baht 21,337,704 (2006: Baht 24,463,259) to the fund. 30. COMMITMENTS AND CONTINGENT LIABILITIES 30.1 Capital commitments and operating lease commitments 30.1.1 As at 31 December 2007, the Company and its subsidiaries had capital commitments amounting to Baht 74 million, INR 179 million, and EUR 0.2 million in respect of the purchase of machinery and equipment. 30.1.2 As at 31 December 2007, the subsidiaries had operating lease commitments amounting to CHF 1 million, GBP 0.3 million, EUR 8 million and INR 115 million. 30.2 Letters of guarantee As at 31 December 2007 the Company and its subsidiary companies had the following outstanding letters of guarantee required in the ordinary course of their businesses : 30.2.1 Outstanding letters of guarantee totalling approximately Baht 776 million have been issued by banks to meet requirements of the Company (including a letter of guarantee for approximately Baht 740 million issued by a bank to meet obligations of the Company to the Revenue Department in relation to the tax assessment mentioned in note 30.3.1 to the financial statements), and outstanding letters of guarantee for totals of approximately INR 261 million, EUR 0.4 million, USD 0.4 million, and SKK 20 million have been issued by banks to meet requirements of the subsidiary companies. 30.2.2 Outstanding letters of guarantee totalling approximately SKK 450 million and USD 58 million issued by the Company to meet requirements of its subsidiary companies. 30.2.3 Outstanding letters of guarantee issued by the subsidiary companies to meet requirements of other subsidiaries in the Group for total of approximately EUR 0.3 million
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 99 -
30.3 Tax assessment 30.3.1 During the year 2006, the Company received a corporate income tax assessment letter from the Revenue Department covering the years 1997-2000, assessing tax amounting to approximately Baht 740 million (including penalties and surcharges). The Company has submitted a letter appealing the assessment. In view of the independent legal counselor of the Company believes that no significant losses will be incurred by the Company. The Company therefore has not recorded provision for this tax assessment. 30.3.2 During the year 2006, an overseas subsidiary was subject to a duty inspection by the Customs Department in relation to an export permit. The legal counselor of the subsidiary estimated the maximum assessment at not more than EURO 3.57 million. However, the Company has not recorded a provision since there is still uncertainty as to such assessment of duty. 30.3.3 During the year 2006, corporate income tax assessment of approximately INR 27.6 million was made against an overseas subsidiary in relation to transfer pricing, covering the years 2004-2005. The subsidiary has submitted a letter appealing the assessment and the management of the Company and the subsidiary believe that no significant losses will be incurred. 30.4 Litigation As at 31 December 2007, a lawsuit had been filed against an overseas subsidiary company, claiming a total of INR 2 million. The case is currently being heard by the Court. However, the management of the Company and the subsidiary believe that no significant damage will be suffered by the Company and its subsidiary and no provision for the contingent liability has therefore been set aside in such accounts.
31. FINANCIAL INSTRUMENTS 31.1 Financial risk management The Company and its subsidiariesĂť financial instruments, as defined under Thai Accounting Standard No. 48 Ă§Financial Instruments: Disclosure and PresentationsĂŠ, principally comprise cash and cash equivalents, trade accounts receivable, loans, other accounts receivable, investments, short-term loans, accounts payable and other accounts payable. The financial risks associated with these financial instruments and how they are managed are described below. Credit Risk The Company and its subsidiaries are exposed to credit risk primarily with respect to trade accounts receivable, loans and other receivable. The Company and its subsidiaries manage the risk by adopting appropriate credit control policies and procedures and therefore do not expect to incur material financial losses. In addition, the Company and its subsidiaries do not have high concentration of credit risk since they have a large customer base. The maximum exposure to credit risk is limited to the carrying amounts of trade accounts receivable, loans and other accounts receivable as stated in the balance sheet.
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Interest rate risk The Company and its subsidiaries are exposured to interest rate risk relating primarily to their cash at banks, lending, bank overdrafts, and short-term borrowings. However, since most of the Company and its subsidiaries没 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. Consolidated financial statements Fixed interest rates Within Over Floating Non-intereat 1 year 1-5 years 5 years Intereat rate bearing Total (Million baht) Financial Assets Cash and cash equivalents Trade accounts receivable Amounts due from related parties Other accounts receivable Deposits at bank with restrictions Total Financial liabilities Bank overdraft and short term loans from financial institutions Trade accounts payable Amount due to related parties Other accounts payable Total
182 27 209
8,825 238 9,063
175 6,872 43 46 7,136
4,950 56 151 5,157
9,182 6,872 43 46 266 16,409
Interest rate (% p.a.) 0 - 4.76 0 - 4.76
1,967 5.05 - 11 4,950 56 151 7,124
Separate financial statements Fixed interest rates Within Over Floating Non-intereat 1 year 1-5 years 5 years Intereat rate bearing Total (Million baht) Financial Assets Cash and cash equivalents Trade accounts receivable Amount due from related parties Total Financial liabilities Trade accounts payable Amount due to related parties Other accounts payable Total
5,052 42 5,094
3,672 246 130 4,048
Interest rate (% p.a.)
6,543 0.02 - 4.5 5,052 42 11,637 3,672 246 130 4,048
DELTA ELECTRONICS (THAILAND) PUBLIC COMPANY LIMITED - 101 -
A subsidiary of the Company entered into an interest rate swap contract with an overseas financial institution on a principal balance of USD 28 million, maturing in December 2007, from 25 September 2005 the subsidiary is required to pay interest to the financial institution every quarter, at a rate of 3.25 percent per annum if the 3-month LIBOR is less than 4 percent per annum or at a rate of 2.50 percent per annum if the 3-month LIBOR is more than 4 percent per annum. The financial institution is in turn required to pay interest to the subsidiary at a rate referenced to the 3-month LIBOR. However, on 5 July 2007 the subsidiary terminated this agreement and paid termination fees of approximately USD 2.4 million to that financial institution as a result. Foreign currency risk The Company and its subsidiaries have significant foreign currency risk in respect of the purchase and sales transactions, lending and borrowing, and investments in foreign companies. As at 31 December 2007, outstanding balances of the Company and its subsidiariesû financial assets and liabilities denominated in foreign currencies are as follows: Foreign currency
US dollar Japanese yen EURO New Taiwan dollar Czech koruna Chinese yuan
Financial assets (Million) 158 53 23 94 44 26
Financial liabilities (Million) 61 302 8 1 -
Average Exchange Rate as at 31 December 2007 (Baht per foreign currency) 33.7673 0.2974 49.3305 1.0367 1.8305 4.6190
The Company and its subsidiaries manage their exposure to foreign currency risk by using derivatives where considered appropriate (except for the foreign currency risk arising from investments in foreign countries, which the Company and its subsidiaries consider to have an insignificant effect to the financial statements). As at 31 December 2007, the outstanding derivatives are as follows : 1. Forward contracts Amount Forward contracts to çSellé USD/THB EUR/USD EUR/CHF USD/CHF Forward contracts to çBuyé SKK/EUR USD/INR
USD 124 million EUR 3 million EUR 2 million USD 1 million
33.5320 - 34.1200 1.4418 - 1.4700 1.6609 1.1550
THB/USD USD/EUR CHF/EUR CHF/USD
January - March 2008 January - February 2008 January 2008 January 2008
33.6000 39.5000 - 39.7000
January 2008 January 2008
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1 million 2 million
Option contracts A subsidiary of the Company has entered into a buy/sell çCall/Put special-condition optioné agreement with an overseas financial institution. The amount of foreign currency to be bought or sold under this contract depend on conditions stipulated in the contracts, with the maximum amount being EUR 2 million at the contractual exchange rate of 1.4720 USD/EUR. This agreement will mature within February 2008.
31.2 Fair values of financial instruments Since the majority of the Company and its subsidiariesû financial instruments are short-term in nature or bear floating interest rates, their fair values are not expected to be materially different 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 armûs 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.
32. SUBSEQUENT EVENTS During January 2008, 1,550 warrants were exercised to purchase 1,677 new ordinary shares, leaving 3,698 warrants unexercised. 33. RECLASSIFICATION In addition to the change in accounting policy as mentioned in Note 4, which affects the previously reported net income and shareholderûs equity, certain other amounts in the financial statements for the year ended 31 December 2006 have been reclassified to conform to the current yearûs classification but with no effect to previously reported net income or shareholdersû equity other than from the change in accounting policy. 34. APPROVAL OF FINANCIAL STATEMENTS These financial statements were authorized for issue by the Companyûs Board of Directors on 15 February 2008.
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