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Definition Finansa

(fanaensäe also fi’naensäe)

n. management of money; monetary support

for

enterprise;

the

science of managing money matters, credit, etc.; (in plural) money resources, income, etc. <vt. to provide capital for; to obtain money, credit, capital for... n. capitalist; entrepreneur, vt. apply or use (money) for profit; devote (time, etc.) to an enterprise, buy (something rewarding)

useful n.

or

otherwise

recommendation

on

how to act in matters of money; information;

notice

of

transaction

vt. give advice (to); recommend; inform

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Table of Contents

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Financial Highlights

4

Finansa Group

6

Statement of the Chairman

8

Board of Directors

10

Principal Responsibilities of the Board of Directors and the Audit Committee

11

2006 Operational Highlights

12

Thailand in 2006 : A Perspective

13

Asset Management - 2006 Review and 2007 Outlook

19

Investment Banking and Brokerage - 2006 Review and 2007 Outlook

22

Finance - 2006 Review and 2007 Outlook

25

Finansa Vietnam

26

Finansa Singapore

27

Report on the Board of Directorsâ&#x20AC;&#x2122; Responsibility towards the Financial Statements 2006

28

Report of the Audit Committee 2006

29

Financial Statements and Statutory Information

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Financial Highlights (Consolidated Financial Statements) As at or for the year ended December 31, Operating Performance 2006 1,321 (68) (183) (1.48) (2.0%) (6.2%) 461 2.9 (0.4)

Total Income EBITDA Net Profit Earnings per Share (Baht) Dividends per Share (Baht) Return on Average Total Assets (%) Return on Average Shareholdersâ&#x20AC;&#x2122; Equity (%) No. of Employees Total Income per Employee Net Profit per Employee

2005 1,195 305 102 0.82 0.50 1.1% 3.3% 287 4.2 0.4

(Baht million) 2004 1,647 811 478 3.92 0.50 4.7% 17.5% 274 6.0 1.7

2005 9,573 6,462 3,111 125,010,100 25.2

(Baht million) 2004 9,783 6,683 3,100 125,010,100 24.8

Financial Position 2006 8,945 6,165 2,780 125,010,100 22.5

Total Assets Total Liabilities Total Shareholdersâ&#x20AC;&#x2122; Equity No. of Shares in Issue Book Value Per Share

Revenue Structure Type of Revenue Financial Advisory and Investment Management Businesses Investment Banking Business Securities Business Finance Business Others Total Revenue

Operated by FNS FFM FAM FSL FSL FC

% of shares held by the Company 100 99.99 99.99 99.99 99.97

2006 % Revenue 197 348 45 162 201 271 97 1,321

14.9 26.4 3.4 12.3 15.2 20.5 7.3 100.0

(Baht million) 2005 % Revenue 199 245 34 96 421 154 46 1,195

16.7 20.5 2.8 8.0 35.2 12.9 3.9 100.0

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Finansa Group 99.99%

4

99.97%

99.99%

Finansa Securities Ltd.

Finansa Credit Ltd.

Finansa Asset Management Ltd.

A SEC licensed securities company and full member of the Stock Exchange of Thailand. Finansa Securities is a recognized leader in investment banking in Thailand, offering an extensive range of tailored financial services and solutions, including • Financial Advisory • Project Finance • Brokerage • Private Placement and Public Offerings • Mergers and Acquisitions • Fairness Opinions • Corporate and Financial Restructuring

A licensed finance company regulated by the Bank of Thailand. Finansa Credit has a full set of licenses covering commercial and consumer loans, advisory services and deposit taking. Core activities include: • Deposit Taking Services • Fixed Income Investment • Asset-backed Finance • Structured Finance Products • Private Banking Services • Secured Lending to Individuals • Corporate Advisory Services

Finansa Asset Management engages in all main types of asset management services: • Mutual Funds • Provident Funds • Private Funds • Foreign Invested Funds

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100%

100%

Finansa Hong Kong Ltd.

Finansa Fund Management Ltd. Manages three investment funds for a number of major local and overseas financial institutions. Finansa Fund Management has a particular strength in Private Equity in Thailand and Vietnam. • Siam Investment Fund II, L.P. • Siam Investment Fund III, L.P. • The Vietnam Equity Fund

Representative Office • Hanoi

Representative Office • Ho Chi Minh City

A subsidiary, ADF Management, manages The Asian Debt Fund, a fund investing in distressed debt in Asia Ex-Japan.

66.67% ADF Management Ltd.

50% Finansa Capital Ltd.

100% Finansa Singapore Pte. Ltd.

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Statement of the Chairman 2006 proved a challenging year for the Finansa group. Although the year may have been good for emerging markets globally, and an exceptional year for selected markets in Asia, notably China and Vietnam, the Thai market effectively sat on the sidelines, held back by sustained political unrest and declining domestic investor and consumer confidence. The dependence of the group’s earnings on the trends in the Thai stock market has long been an issue for management. Efforts to broaden Finansa’s business base have included setting up a hedge fund business in Singapore, acquiring and developing a domestic provident and mutual fund business in Thailand to provide a more sustainable revenue base, and the acquisition of a local finance company. While the finance company has struggled to identify and develop a profitable niche business, the other initiatives are progressing well. They remain small, however, in the context of the group’s Thai securities business exposure. Events in the early part of 2006 reinforced management’s determination to explore alternative earnings streams, while repositioning existing businesses to better cope with the challenges ahead. These challenges were not only the poor,

6

prevailing stockmarket situation in Thailand, but the longer term challenge associated with gradual industry liberalization. In the securities industry, commission deregulation has been postponed to reflect the depressed market environment, however it is clear that for the securities industry to prosper, the Thai financial markets have to gain far greater depth and breadth. Part of the responsibility for creating the conditions that will encourage this lies with the Thai financial regulators. We can not, however, be confident that the Thai financial regulators will oversee a smooth transition to a freer and more competitive industry environment. Accepting that financial markets in 2006 would not be supportive to business, and that industry competition will intensify in the longer term, management has focused its efforts on building a more secure and sustainable business platform. Though perhaps not evident on the surface, the securities business has been reorganized to be a generally more cohesive and integrated business, capable of delivering a higher standard of service on price competitive terms. The finance company has been repositioned to focus on retail rather than corporate lending, placing more emphasis on loans to members of provident funds managed by Finansa Asset Management. The provident fund

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customer base has expanded to close to 200,000 during 2006, following the success in winning the mandate for the Government Permanent Employee Provident Fund. Finansa Asset Management, itself, crossed one important milestone in 2006, turning profitable. This is a credit to management’s focus on product innovations and tailoring products that best meet market demands. There has also been a wholesale review of capital allocations within group businesses and a review of valuations of group loans and investments with a view to ensuring that a cautious and necessary level of provisioning has been taken. These provisions have had a significant impact on the 2006 earnings outcome, however they have cleared the way for a sustainable earnings improvement. Finansa’s Investment Banking unit performed well in 2006, despite market conditions, a reflection of the exceptional depth of talent within the team. We can be confident that the team will again do well in 2007, based on its widely acclaimed expertise in power-related financing and the upcoming awards of IPP concessions.

In terms of overseas business development, the hedge fund operation in Singapore has a firm base and 2007 will see a series of fund product launches leveraging the success of The Asian Debt Fund, which has accumulated assets under management of US$275m. Finansa also plans to launch The Finansa Vietnam Fund towards the middle of the year, capitalizing on the immense investor interest in the country and Finansa’s credentials as the longest established foreign fund manager operating in Vietnam. Opportunities are also being explored in the securities space in Vietnam and China. At this stage, one can not be sure that the business environment in 2007 will be an improvement over 2006. However, we can be confident that Finansa is now better placed to succeed.

(Dr. Virabongsa Ramangkura) Chairman

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Board of Directors

Dr. Virabongsa Ramangkura

Mr. Vorasit Pokachaiyapat

Mr. Eugene S. Davis

1. 2. 3. 4.

8

Dr. Virabongsa Ramangkura Mr. Vorasit Pokachaiyapat Mr. Eugene S. Davis Mr. Varah Sucharitakul

Mr. Varah Sucharitakul

Chairman Managing Director Director Director

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Mrs. Kannika Ngamsopee

Mr. Kenneth Lee White

5. 6. 7. 8.

Mr. Kenneth Lee White Mr. Vitthya Vejjajiva Mrs. Kannika Ngamsopee Mr. Chanmanu Sumawong

Mr. Chanmanu Sumawong

Mr. Vitthya Vejjajiva

Director Director, Chairman of the Audit Committee and Independent Director Director, Member of the Audit Committee and Independent Director Director, Member of the Audit Committee and Independent Director

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Principal Responsibilities Principal Responsibilities of the Board of Directors

Principal Responsibilities Committee

• The Board of Directors has the authority and responsibility to review and approve policies for the Company. It must perform these duties in compliance with the governing laws, the objectives of the Company, the Articles of Association of the Company and resolutions of the meetings of Shareholders.

• The Audit Committee is responsible for reviewing the financial reporting process and disclosure of financial information to ensure it is correct and sufficient.

• The Board of Directors supervises the Management Committee, ensuring effective and efficient implementation of prescribed policies. • The Board has the authority to appoint the members of the Audit Committee and appoint authorized signatories. • The Board also has the authority and responsibility to establish credit limits and limits on trading exposures for the group companies.

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of

the

Audit

• The Audit Committee reviews internal control systems and internal audit systems to ensure they are adequate and efficient. • The Audit Committee ensures the Company is in compliance with the regulations of the Securities Exchange Commission, the Stock Exchange of Thailand and the Bank of Thailand. • The Audit Committee recommends the appointment of the External Auditor and the level of fees

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2006 Operational Highlights Overview 2006 proved a challenging year for the Thai financial services industry with the Thai stock market amongst the poorest performing of the world’s emerging markets over the year. Against this background, the Group reported a loss for 2006, due primarily to one time write-offs on investments, additional loan provisioning at Finansa Credit and a material disruption in the brokerage business caused by a major reorganisation in the early part of the year.

Brokerage and Investment Banking In late 2005, Finansa Securities initiated a plan to develop a brokerage sales operation more closely integrated into the Group activities. This involved a significant recruitment and redeployment of sales personnel. In the event, the transition took longer to implement than anticipated, resulting in a significant loss of brokerage market share in 1H 2006. There was, however, a recovery in market share in 2H 2006. Overall, Finansa Securities’ market share in 2006 was 1.1% versus 2.1% in 2005. Market share in 1H 2006 was 0.7% rising to 1.7% in 2H 2006. While the brokerage operation was in transition, Finansa Securities continued to cement its reputation as the leading Investment Bank in Thailand with several major mandates which included Financial Advisor, Joint Domestic Coordinator, Joint Bookrunner and Joint Lead Manager for the Bt27.2bn initial public offering of Rayong Refinery Plc. This deal was the country’s third largest IPO in the history of the Stock Exchange of Thailand after that of Thai Oil and PTT. This transaction underpinned a significant rise in the company’s Fee and Service Income in the face of an otherwise challenging capital market.

Asset Management Assets under management within the group rose from Bt28bn at end 2005 to Bt34bn at end 2006 (US$680m to US$950m in US Dollar terms) due to the success of Finansa Asset Management in attracting funds domestically to both its “Employee’s Choice” provident fund product and its Foreign Invested Fund and the success of ADF Management in attracting new investors to The Asian Debt Fund. Finansa Asset Management was loss-making at the time of its acquisition in January 2004. However, with the growth in funds under management and a higher margin product mix, the company moved into profitability in the second half of 2006. Finansa Fund Management benefited directly from the surge in the Vietnamese stockmarket in 2006 through its investment in the Vietnam Equity Fund. This Fund, managed by Finansa, has produced a 160% return on invested capital since inception in July 2005.

Finance Finansa Credit generated a net loss after taxes of Bt51m versus a loss of Bt34m for the previous year. The unsatisfactory 2006 performance was attributable to adverse market conditions, Bank of Thailand regulatory changes (IAS39) and delays in executing its Business Plan.

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T

hailand in 2006: A Perspective

Thailand in 2006 started out in much the same way as it did in 2005 with the promise of an improving economic and stockmarket performance. And as with 2005, 2006 was to prove more challenging and ultimately more disappointing than anticipated. The early promise of 2006 was supported by an encouraging economic backdrop. High utilisation rates in industry pointed to a resumption of growth in capital expenditure, the government had outlined an ambitious program of investment in infrastructure, the fiscal position was strong, agricultural incomes were buoyant, unemployment low and the balance of payments position was improving. While oil prices remained firm and continued to be the single, most material threat to the economic recovery, inflation was benign and there was a real prospect of interest rates peaking during the course of the year. The stockmarket appeared to share this optimism, rallying confidently from late 2005 through the first quarter of 2006, with notable support from overseas investors. The first sign that perhaps all was not well came before the year had started. The Prime Minster, Thaksin Shinawatra, had always been a contentious figure, attracting widespread popular support from the rural communities, while criticized by sections of the conservative elite in Bangkok for his alleged “populist” politicking and concentration of power and influence in his hands and the hands of his close supporters. However, through late 2005 and early 2006, his critics in Bangkok took their grievances to a new level, organizing large public rallies against the government and the Prime Minister, specifically. The political heat intensified in February and while it appeared to cool when the Prime Minister announced his decision to dissolve parliament and hold new elections, the respite was short-lived. To begin with, the opposition parties boycotted the April election, leading to a wholly lopsided result in favour of the ruling Thai Rak Thai Party. Adamant that the PM should resign, the anti-Government protestors resumed their demonstrations. The Government’s position was meanwhile undermined by a court decision to annul the April election results on technical grounds. This left the Government as an interim administration with no real mandate to do anything. A second election was scheduled for November, however in September, the Thai political situation took yet another turn with the staging of a military coup. Extended political conflict took was to take its toll on both business and consumer confidence, while gumming up the Government machinery for approval and disbursal of public funds. The result was a dampening of economic growth in 2006, and a reversal in expectations that 2006 would see the economy picking up. Since coming to power, the military-appointed government has had a difficult honeymoon period and has yet to re-establish confidence in the business community. The announcement of capital controls in December as a means to stem “excessive” strength in the Thai baht, triggered the steepest fall in the SET Index in 50 years and a sudden, partial reversal of policy by the Bank of Thailand, while the foreign business community has been unnerved by plans to amend the Foreign Business Act.

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Asset Management

2006 Review and 2007 Outlook Combined Asset Management Businesses*

2006

2005

Baht Million

Baht Million

Assets Total current assets Investments Other assets Total assets

354 2,123 63 2,540

297 2,087 41 2,425

Liabilities and Shareholders’ Equity Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity

1,929 611 2,540

1,617 808 2,425

434 145 579 (448) 131 (234) (75) 87 (91) 8 (7) (90)

208 259 467 (308) 159 (66) (37) (8) 48 (1) (16) 31

(3.6%) (12.7%)

1.1% 4.1%

As at or for the year ended 31 December

Balance Sheet

Statement of Income Fee and service income Other operating income Total income Operating expenses Operating income Losses from Forex & impairments of investments Interest expenses Share of profits (losses) from associated companies Income (loss) before tax Income tax Minority interest Net income (loss)

Return on Average Assets Return on Average Equity

* Combining the reports from Finansa Fund Management Ltd. and subsidiaries and Finansa Asset Management Ltd.

109% rise in Fee and Service Income in 2006 There was a substantial 109% increase YoY in Fund Management revenues in 2006, underpinned by both the significant growth in assets under management (see below) and a high level of performance fees, principally from the subsidiary company, ADF Management, which manages The Asian Debt Fund.

Operating Income falls 18% YoY, while one-off losses hit performance at the net level With Other Operating Income lower YoY and a rise in operating costs, as resources were added, primarily in Singapore to support the growth of the regional fund management activities, Operating Income from Fund Management dropped 18% YoY. The performance at the net level suffered from losses incurred in hedging the Thai baht/US Dollar exchange rate and from impairments taken against investments, including the loss realized through the forced liquidation of Siam Investment Fund at values below the carrying cost of this investment. FINANSA PLC. ANNUAL REPORT 2006

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Strong contribution from Vietnam The sharp turnaround in Associates Income reflected the gains recorded on Finansa Fund Management’s investment in The Vietnam Equity Fund. The Vietnam STC Index jumped 145% in 2006 and the Fund was able to more than match this performance. 2006 represents the first year that Finansa has been able to generate a meaningful return on its operations in Vietnam.

Finansa Plc. 100%

100%

Finansa Asset Management Ltd.

Finansa Fund Management Ltd.

50%

67%

Finansa Capital Ltd.

ADF Management Ltd.

50%

33%

Capital Z Investment, L.P.

Finansa Vietnam 100%

Finansa Singapore Pte Ltd.

Japan Asia Investment Corp.

• Finansa Asset Management is a

• Finansa Fund Management (FFM)

Thai licensed mutual and provident fund management company, managing onshore funds.

manages specialist offshore funds, focusing on private equity investment in Thailand and Vietnam. FFM is registered in the Cayman Islands.

• ADF

Management (ADFM) manages offshore funds investing in distressed and high yield debt in Asia ex-Japan. ADFM is registered in the Cayman Islands.

Business Review Group AUM grow 40% from US$680m to US$950m The principal achievement in 2006 was the growth in Group assets under management. At the start of the year, the aggregate assets under management for the Group, calculated in terms of the amounts which determine management fees, totaled Bt28bn. As at end 2006, the total was Bt34bn. In US$ terms, assets under management grew from US$680m to US$950m over the year, a gain of 40% in US$ terms. The principal contributors to asset growth were Finansa Asset Management and ADF Management.

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Funds Under Management

Onshore Funds Finansa Asset Management Onshore Funds l Provident Funds l Mutual Funds l Finansa Global Allocation Fund

Offshore Funds Finansa Fund Management Offshore Funds l Siam Investment Fund l Siam Investment Fund II l Siam Investment Fund III l Vietnam Equity Fund

ADF Management Offshore Funds l The Asian Debt Fund - A, B and C shares l

The Asian Debt Fund - H shares

Fund Type

Provident Mutual Foreign Invested Fund

Thai Equity Thai Private Equity Thai Private Equity Vietnam Equity

Distressed Debt in Asia ex-Japan High Yield debt in Asia ex-Japan

Structure

Open Open Open

Launch

1969 2004 2005

Maturing

Assets Assets % US$m US$m Change

2006

2005

n.a. n.a. n.a.

549 26 33

335 21 15

64% 24% 117%

Sub-Total

608

371

64%

Closed LP

1996 1999

2006 2009

1 30

25 30

(96%) 0%

LP

2005

2015

24

24

0%

Closed

2005

2010

20

19

5%

Sub-Total

75

98

(23%)

Open

2003

n.a.

265

200

33%

Open

2005

n.a.

10

8

25%

Sub-Total

275

208

32%

Onshore Offshore Total

608 350 958

371 306 677

64% 14% 42%

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• Onshore Business: Product innovation spurs investor demand Finansa Asset Management saw assets under management grow substantially following the introduction of the “Employee’s Choice” provident fund product, which provides flexibility to scheme members to alter asset allocations based on their individual profile and requirements. This innovative product has been well received in the market place. Key provident fund account mandates won in 2006 included the Government Permanent Employee Provident Fund and the Citicorp Munkong Provident Fund Progress was also made in building up Finansa’s Foreign Invested Fund, a feeder fund for the UBS Global Allocation Fund. Launched in December 2004, total assets at year end 2006 reached US$33m. FAM turns profitable in 2006 The combination of growth in assets and the introduction of higher added value products has contributed to achieving a key strategic objective of Finansa Asset Management in 2006, namely turning around a business that was loss making at the time of its acquisition (in early 2005) and making it profitable on a consistent basis. Though the company’s cost base has increased in line with the policy of bringing on board professional staff to build the business and implementing system improvements, this investment in staff and resources is now generating encouraging results.

• Offshore Business: A mixed year for Finansa Fund Management Finansa Fund Management had a mixed year with the Thai-related business disappointing, constrained by the weak (and underperforming) Thai capital markets, while the Vietnam Equity Fund produced stellar returns, which while not impacting the company’s fee income, has generated significant unrealized investment gains for the company. Poor market conditions in Thailand resulted in the absence of any portfolio realizations in Siam Investment Fund II, while an EGM held for Siam Investment Fund in February, at the end of its 10 year term, determined that this Fund should be liquidated, rather than the term extended. Since that determination, SIF has sold all but one of its investments, distributing as cash over 90% of the Fund’s assets. Siam Investment Fund III makes first investment The successor fund to Siam Investment Fund II, Siam Investment Fund III, concluded its first private equity investment in July, investing US$1.6m in a controlling interest in SyAqua Ltd, a shrimp breeding business established in Thailand by Pigs Improvement Co. of the UK and put up for sale following the acquisition of the parent company by Genus Plc. SyAqua has spent five years developing families of shrimp with specific economic advantages (such as growth rate and disease resistance) through selective breeding programmes and is currently at the commercialization phase. ADF Management continues strong performance ADF Management delivered another strong performance, despite a more challenging year in terms of generating fund performance in what proved to be difficult markets for distressed debt investors. However The Asian Debt Fund again outperformed rivals and now claims an impressive record of 35 successive months of positive monthly returns and an average return of 16.5% p.a. from inception. This strong performance continued to draw interest from Fund of Fund investors in 2006, contributing to the continued expansion

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in assets under management. ADF Management’s total assets under management have grown from USD 193 million at the end of 2005 to USD 261 million at the end of 2006.

Asset Management: 2007 Outlook Continuing to target an increase in assets and improvement in profitability The key strategic objectives for 2007 remain the same as for 2006, namely: (a) To raise assets under management both onshore and offshore, and (b) To improve overall profitability within the fund management business. We aim to achieve the first of these objectives through a series of specific fund initiatives including the launch of Thailand’s first commodity-based Foreign Invested Fund through Finansa Asset Management, the launch of a new Vietnam fund by Finansa Fund Management and the gradual rolling out of a series of differentiated hedge fund strategies through ADF Management. The emphasis in (b) above will be on generating higher profitability at Finansa Asset Management through the introduction of higher added-value and higher margin products, while all the Finansa asset management businesses should see margin improvement through economies of scale as the asset base expands Finansa Asset Management well positioned to expand AUM Prospects for raising assets under management at Finansa Asset Management are encouraging. Not only has the “Employees Choice” provident fund product been well accepted for its flexibility and suitability for the market, management’s decision to promote a relatively heavy weighting in Foreign Invested Funds as part of its asset allocation decision, has paid off in terms of relative performance against other provident fund managers. For this reason, the marketing teams are well equipped to attract new provident fund clients. Continuing to pursue cross selling opportunities Finansa Asset Management has a long term plan to both leverage sales networks within the Finansa Group and roll out a Best of Breed Investment Solutions product that will capitalize on the company’s positioning as one of the few independent asset management companies in Thailand and the only one promoting independent advice on a range of competing investment products from a range of providers. Progress on both these initiatives is at an early stage, however we expect material progress in the coming year. Launching Thailand’s first Commodity FIF Product innovation is also a key element in the long term strategy of Finansa Asset Management. The company is currently in the process of launching its second Foreign Invested Fund, the Finansa Global Commodities Fund, a feeder fund to the UBS (Luxembourg) Structured Sicav linked to the Rogers International Commodity Index. This is the first commodity fund available to Thai investors and we are confident of a good response as “commodities” is the one asset class that is clearly under-represented in institutional and retail portfolios in Thailand. The initial closing date for this fund was 31 January and as at end February, commitments totaling around Bt500m (US$13.5m) had been received.

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Seeking final closing for Siam Investment Fund III Siam Investment Fund III is seeking to have a second, and final closing in 1H07 and we are awaiting final confirmation of a commitment from the Asian Development Bank. It has proved especially challenging for Finansa to raise money for a Thailand specific private equity initiative and the process has taken longer than planned. Launching a second Vietnam fund The proposed launch of a second Vietnam fund is against the background of the now extraordinary performance of the Vietnam stock market over the past 12 months (with the local Index rising 144% in 2006). By almost any indicator, stock valuations in Vietnam are stretched beyond reason and the severe imbalance between stock supply and demand may yet lead to a period of volatility that may impact our fund raising efforts. Promising outlook for credit markets in Asia ADF Management sees potential for significant growth in credit markets throughout Asia. A low interest rate environment has engendered the rapid development of the Asian high yield market and Asian high yield issuance is expected to surpass USD 100 billion in 2007. The rapid growth of this market, coupled with the implementation of stringent banking regulations prompted by Basel II initiatives, are expected to result in fertile investment grounds for both the Distressed Debt and Credit Long/Short Funds throughout 2007. As one of few incumbent players in the region, TADF is well-placed to benefit from these trends.

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Investment Banking and Brokerage 2006 Review and 2007 Outlook Finansa Securities Limited As at or for the year ended 31 December

2006 Baht Million

2005 Baht Million

351 575 399 1,325

953 303 132 1,388

390 182 572 753 1,325

198 119 317 1,071 1,388

216 162 (17) 36 397 (398) (1) (1) (2)

420 96 (8) 31 539 (353) 186 (56) 130

(0.2%) (0.3%)

8.9% 12.9%

Balance Sheet Assets Cash and cash equivalents Securities business receivables and accrued interest receivables - net Other assets Total assets

Liabilities and Shareholders’ Equity Securities business payables Other liabilities Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity

Statement of Income Brokerage fees Fees and services income Gains (losses) on trading in securities Interest, dividend and other income Total income Total expenses Income (loss) before income tax Income tax Net income (loss) Return on Average Assets Return on Average Equity

Loss incurred in 2006 Finansa Securities’ (FSL) overall revenues fell 26% in 2006 to Bt397m. The setback was the result of a sharp, 49% fall in brokerage revenue which more than offset relatively strong performance in fees and service income, where revenues rose 69% YoY. The fall in brokerage revenues stemmed from a plan initiated in late 2005 to develop a brokerage sales operation more closely integrated into the Group activities. This involved a significant recruitment and redeployment of sales personnel. In the event, the transition took longer to implement than anticipated, resulting to a significant interruption in brokerage market share in the early part of 2006. At the net level, FSL recorded a loss of Bt2m against a profit of Bt130m in 2005. The reversal here was essentially due to losses incurred within the brokerage business.

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Business Review Solid performance in Financial Advisory FSL has continued to cement its reputation as a leading Investment Bank in Thailand with several major mandates in 2006 which included:• Financial Advisor, Joint Domestic Coordinator, Joint Bookrunner and Joint Lead Manager for the Bt 27.2bn initial public offering of Rayong Refinery Plc. This deal was the country’s third largest IPO in the history of the Stock Exchange of Thailand after that of Thai Oil and PTT. • Financial advisor and lead underwriter for the Bt300m initial public offering of S.E.C. Auto Sales and Services Plc. • Financial advisor for the Bt28.0bn rights offering of PTT Chemical Plc. • Financial advisor for the Bt105m rights offering of shares with warrants of L.V. Technology Plc.

FSL was also active in underwriting a number of transactions which included:• Underwriter for the Bt3.6bn initial public offering of Bangkok Metro Plc. • Co-lead underwriter for Bt840m initial public offering of BFIT Securities Plc. • Underwriter for Bt172m initial public offering of Tirathai Company Ltd. Repositioning retail brokerage As indicated above, the brokerage business underwent a significant transformation in 2006 with the departure early in the year of a large group of retail sales staff, who left to join BFIT Securities, and the subsequent recruitment of a team and branch network from Globlex Securities. This upheaval in staffing, though challenging to management and causing an erosion of market share and profitability in 2006, has arguably left the business stronger in the medium to long term as the “new” retail client base is more broadly based than the previous client base, which was dependent on a relatively small number of high volume clients. Market share improves in 2H In the event, Finansa Securities’ market share of stock market turnover fell to 1.1% in 2006 versus 2.1% in 2005. Market share did, however, improve to 1.7% in the second half of the year from 0.7% in the first half. It is important to note that in a difficult year for the stock market (the SET Index fell 5% of over the year and overall trading volume declined from Bt16.5bn per day in 2005 to Bt16.2bn in 2006), brokers dependent on retail volumes, such as Finansa Securities, suffered disproportionately as the share of overall trading attributable to overseas investors rose from 28% in 2005 to 34% in 2006. Institutional brokerage ambitions cut back Finansa Securities ambitions to develop a foreign institutional business proved unproductive and costly. Though the product was well received, and of an exceptional standard for a domestic firm, and the firm hired an internationally recognized salesman to promote the service, the investment in staff and products did not translate into a meaningful commission stream. With our research staff seeing strong interest from international brokerage firms, the decision was taken not to continue to compete aggressively in this segment of the market. This decision also impacted the levels of commission derived from the local institutional market, though we continue to see business from this segment on a selective basis.

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Investment Banking and Brokerage: 2007 Outlook Continued focus on value-added advisory services We remain cautious on the prospects for the IPO market in 2007 and for that reason, the Investment Banking team has been focusing and will continue to focus on securing mandates through promoting its strengths in M&A, structured finance and project finance. Bespoke financing arrangements are seen as a driver of this business in the year ahead. One area looking to yield significant business opportunities in 2007 is the upcoming round of awards for Independent Power Production. Sales team has been integrated successfully The integration of the new retail brokerage team with the existing Finansa sales staff has now been completed successfully and the main Bangkok team installed in new premises. Finansa Securities now boasts a combined retail sales force of 169 housed in 14 branch offices. It is anticipated that there will be further, limited additions to the sales force in 2007, based on current talks with selected, experienced sales staff in the market place who have expressed interest in joining Finansa. Anticipating another challenging year in brokerage Management is not hopeful of a material improvement in the stock market environment in 2007. Continuing uncertainties in the political and economic landscape are not conducive to a recovery in the Thai market, though the market is widely regarded as fundamentally good value after a sustained period of underperformance relative to its Asian peers. Reflecting the cautious outlook, management will be focused on overall productivity within the brokerage business, ensuring that overhead costs in particular are contained and reduced where feasible. Targeting 2% market share in 2007 A market share target for 2007 of 2.0% (against 1.1% in 2006) is viewed as within reach, based on recent performance, and improvements to operating efficiency will allow the brokerage business to achieve its break even point on lower trading volumes than those seen in 2006. Preparing for a more competitive brokerage environment Though the Thai authorities have decided that the minimum commission rate of 0.25% for traditional brokerage trades will remain in place until December 2009, the minimum rate for Internet trades has been reduced to 0.15% from 0.21% w.e.f. January 2007. This reduction creates a commission differential that will likely stimulate a migration of trading to the Internet. In response, Finansa Securities has been refining its Internet trading platform to improve speed and efficiency, with a view to gaining share in this segment.

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Finance

2006 Review and 2007 Outlook Finansa Credit Limited As at or for the year ended 31 December

2006 Baht Million

2005 Baht Million

829 1,294 1,946 114 4,183

1,942 1,109 1,774 250 5,075

3,738 445 4,183

4,600 475 5,075

288 (219) 69 (55) 14 (3) 11 (83) (72) 21 (51)

198 (113) 85 85 (64) 21 (68) (47) 13 (34)

(1.1%) (11.1%) 13.9% 6.5% 51% 139%

(0.8%) (6.7%) 18.7% 5.3% 39% 130%

Balance Sheet Assets Cash and cash equivalents Investments - net Loans, receivables and accrued interest - net Other assets Total assets Liabilities and Shareholders’ Equity Liabilities Shareholders’ equity Total liabilities and shareholders’ equity Statements of Income Interest and dividend income Interest expenses Net interest and dividend income Bad debt and doubtful accounts Net interest and dividend income after bad debt and doubtful accounts Non - interest income Total income Non - interest expenses Income (loss) before income tax Income tax Net income (loss) Return on Average Assets Return on Average Equity Capital Adequacy Non - performing Assets / Total assets Loan Loss Reserve as a % of NPA Loan Loss Reserve as a % of BoT Requirement

2006 proved a challenging year, all round In 2006 the Company generated a net loss after taxes of Bt51m versus a loss of Bt34m for the previous year. The unsatisfactory 2006 performance was attributable to adverse market conditions, Bank of Thailand (BoT) regulatory changes and delays in executing the Business Plan. BoT monetary policy in the first half of the year was restrictive with numerous rate hikes. As a result, margins on deposits decreased and resulted in a negative impact on Net Interest Income of c. Bt20m. Due to the turmoil in the money markets, Finansa aggressively

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increased its liquidity position, however as a consequence carried a negative spread on its excess liquidity. Loan loss provisioning dictated by the BoT’s unexpected application of IAS-39 accounting standards greatly affected the industry’s credit costs for the year. In the case of Finansa Credit, its Loan Loss Provision for the year totaled Bt55m. During 2006 loans totaling Bt12.7m were written off against the Loan Loss Reserve. Finally in the first half of the year, the Company restructured its equity and fixed income portfolios due to the rising interest rate environment. These restructuring costs totaled c.Bt25m.

Asset Quality LLR meet 139% of the BoT requirement As of year-end 2006 Finansa Credit had non-performing assets (NPA) of Bt272m, equal to 6.5% of Total Assets. Against these assets, Finansa Credit had total loan loss reserves of Bt139.5m, an amount equal to 139% of the Bank of Thailand’s provisioning requirements. During the year, progress was achieved by resolving Bt83m of NPAs. However, Bt91m of new NPAs were added as the financial condition of several borrowers deteriorated, caused in part by the deteriorating economic and investment environment. Consequently the NPA ratio to Total Assets increased slightly.

Capital Adequacy CAR of 13.9% exceeds 8.0% regulatory minimum Capital Funds of Finansa Credit totaled Bt446m as of year-end 2006. The CAR (capital funds to risk weighted assets) stood at 13.9%, versus the regulatory minimum of 8.0%. The Ministry of Finance has recently approved the request to inject Bt150m of additional capital funds by the parent company, Finansa Plc. The capital increase will be effected by March 10, 2007. The additional capital will enable Finansa Credit to attain one of the highest CARs in the industry.

Governance and Risk management Upgrading risk management systems and governance Finansa Credit undertook several measures to significantly upgrade its governance and risk management systems. The Company appointed two independent directors to its Board of Directors and formed an Audit Committee and an Executive Committee. Finansa strengthened its risk management capabilities in anticipation of the eventual implementation by the BoT of the Basel II guidelines. It established separate Market Risk (MR) and Credit Risk (CR) management units. The MR unit continued to refine its ValueAt-Risk (VAR) market risk evaluation software. The CR unit concluded the implementation of the Credit Policy Guide, and made appropriate changes to its Risk Rating System.

Finansa Credit: 2007 Outlook Strategic Plan submitted to BoT Finansa Credit has recently submitted a comprehensive Strategic Business Plan to the Bank of Thailand (BoT) outlining its operating objectives as a finance company. Its key assumptions are predicated on the Company remaining as a licensed finance company with its customer deposits guaranteed by the FIDF.

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Preparing for regulatory changes Finansa Credit will adopt the Basel II regulations that will be fully implemented by the BoT in 2008, along with a proposed deposit insurance scheme whose provisions have not been announced. Consequently, Finansa Credit has modified its future business strategies accordingly. A shift in focus to consumer lending Target markets in the past have focused on affluent individuals and selected domestic corporations. Going forward, Finansa Credit expects to significantly increase its consumer lending products, particularly through hire purchase automobile finance and housing loans. Its distribution channels for these new products will utilize the Group’s overall customer base, including over 200,000 provident fund customers. The sale of deposit and investment products will employ similar channels of distribution. Uncertain economic backdrop necessitates tight risk monitoring Regulatory changes and the uncertainty of interim government monetary, economic and investment policies may adversely affect the overall economic environment. As a consequence, credit risk factors will need to be closely monitored. Anticipating lower interest rates Money market liquidity is expected to improve as the BoT gradually reduces interest rates, while we expect that personal spending will be an important feature driving consumer lending demand. Earnings recovery expected in 2007 Finansa Credit’s financial performance is expected to reflect a steady growth of Net Interest Income from its new consumer lending products. Asset growth will likely be relatively modest despite FC’s very strong capital funds position. Meanwhile we anticipate a recovery of excess loan provisioning costs from prior years, reduction of the NPL portfolio, a more favorable interest rate environment, and the implementation of the Company’s consumer lending strategies. Meanwhile, a less defensive funding strategy will improve deposit margins and reduce the costs of carrying excess liquidity positions. All in all, it is expected that the Company will have a relatively strong earnings recovery in 2007.

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Finansa Vietnam Active in Vietnam since 1991 Finansa has been investing actively in Vietnam since 1991, making it the longest established foreign fund management company in the country. Representative offices were established in Ho Chi Minh City and Hanoi in 1991 and 1994 respectively. In 1994, Finansa launched the Vietnam Frontier Fund, a US$50m direct investment fund. Though the operation of the fund proved challenging, given the difficult investment climate in Vietnam before during and immediately after the 1997 economic crisis, this fund was one of the few funds launched in the early 90â&#x20AC;&#x2122;s that was able to complete its 10 year term.

Currently managing the Vietnam Equity Fund In 2005, Finansa launched a successor Fund, the Vietnam Equity Fund, a private equity fund targeting significant minority stakes in equitised, former State Owned Enterprises. Total commitments were Euros 15.2m to be invested over a three year commitment period. From the experience gained with the Vietnam Frontier Fund, Finansa recognised that this asset group was especially promising. During late 2005 and 2006, the Fund committed Euros 5.2m to this segment and we are please to report that the Fund asset size had grown to Euros 11.5m as at 31 December 2006. The capital appreciation reflects a combination of the surge in equity prices in Vietnam over the period and successful stock selection. The Fundâ&#x20AC;&#x2122;s IRR to 31 December 2006 was a very satisfactory 168% p.a. Proposing to launch a second fund Going forward, a second fund initiative for Vietnam is to be launched in 1Q 2007. The investors in the Vietnam Equity Fund comprised a number of European Development Finance Institutions. The second fund will be targeted at hedge funds investors and Funds - of - Funds.

The Finansa team in Ho Chi Minh City is led by Nguyen Thi ThuThuy and the Finansa team in Hanoi is led by Bui Thi Kim Oanh.

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Finansa Singapore A team of 12 professionals supporting a rapidly expanding Asian hedge fund business Finansa Singapore employs the investment team for The Asian Debt Fund (TADF) and provides the research, compliance and back office support to the Fund. The investment team is comprised of twelve professionals, which includes research analysts, a lawyer, marketing professionals, back office operations and two fund managers. Looking forward, Finansa Singapore will serve as a platform for Finansaâ&#x20AC;&#x2122;s growing hedge fund business, serving as the advisor to at least several new fund initiatives in 2007. New initiatives include a pan Asia focused Distressed Debt private equity fund, a Vietnam-focused macro fund and a commodity fund focused on the oil market. An extensive network of investor contacts As the advisor to TADF, Finansa Singapore has developed relationships with over 1,000 hedge fund investors throughout the world. TADF presently has in excess of 100 investors, sourced exclusively by Finansa Singapore, which include institutional investors such as endowments and pension funds, Fund-of-Funds and high net worth individuals and family offices. Finansa Singapore is expected to leverage these relationships to attract capital to new fund initiatives. Finansa Singapore seeks to increase assets under advisement to USD 1 billion by 2010.

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R

eport on the Board of Directorsâ&#x20AC;&#x2122;Responsibility towards the Financial Statement 2006 The Board of Directors is responsible for the supervision of financial statements preparation of the Company and its subsidiaries have been disclosed to the investor by the time, the accounting data presenting with accurate, transparence and comprehensive. The financial reports of the company and its subsidiaries are prepared in accordance with generally accepted accounting principles in Thailand, by utilizing appropriate accounting policies and applied consistently. Moreover, sufficient important information is disclosed in the footnotes to the financial statements. The Board of Directors has empowered Audit Committee and the Certified Public Accountants to freely review the internal control and the accuracy of the financial reporting. The opinion of the Audit Committee on these matters is contained in the annual report. Based upon on the Companyâ&#x20AC;&#x2122;s internal control system supervised by the Audit Committee and the external auditorâ&#x20AC;&#x2122;s reports, the Board of Directors believes that the consolidated financial statements of the Company and its subsidiaries present completely, in all a material respects, the financial position, the results of operations and cash flows for the year ended 2006 and also in conformity with the generally accepted accounting principles.

(Dr. Virabongsa Ramangkura) Chairman

(Vorasit Pokachaiyapat) Managing Director

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Report of the Audit Committee 2006 The Audit Committee of Finansa Public Company Limited comprises of 3 independent non-executive directors, namely, Mr.Vitthya Vejjajiva as the Chairman of Audit Committee, Mrs.Kannika Ngamsopee and Mr.Chanmanu Sumawong as Audit Committee members. Head of the Internal Audit Department serves as secretary to the committee and reports audit activities directly to the Audit Committee. In the year 2006, the Audit Committees held 5 meetings and all members attended all the meetings. The following major issues were considered in accordance with the scope of duties and responsibilities assigned by the Board of Directors. 1. Reviewed the quarterly financial statements as well as the annual financial statements and consolidated financial statements of the Company and its subsidiaries including the correctness and completeness of information disclosure on the notes to financial statement. 2. Reviewed the internal control systems and the reports on auditing performed by the Internal Audit Department in accordance with the approved annual audit plan. 3. Reviewed the Company’s operations in order to ensure compliance with the securities law, rules & regulations of the SET or any law concerning the company’s business. 4. Considered the Company’s information disclosure about the transactions stipulated by law, connected transactions, related party transactions, including the transactions which may cause conflict of interest. 5. Recommended to the Board of Directors for shareholders’ meeting’s approval of the proposed appointment of Ms.Ratana Jala or Ms. Rungnapa Lertsuwankul or Mr.Narong Pantawong certified public accountants from Ernst & Young Office Limited, as the Company’s auditors for the year 2007. The Audit Committee is of the opinion that the Company has an internal control system which is satisfactory that the Company’s operation is in compliance with relevant laws and regulations, and that the financial statements of the Company were prepared and presented with accurate and sufficient material information in accordance with the generally accepted accounting principles. On behalf of the Audit Committee

(Vitthya Vejjajiva) Chairman of the Audit Committee

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Finansa Public Company Limited and Its Subsidiaries Report and Financial Statements 31 December 2006 and 2005

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Report of Independent Auditor To the Board of Directors and Shareholders of Finansa Public Company Limited I have audited the accompanying consolidated balance sheet of Finansa Public Company Limited and its subsidiaries as at 31 December 2006, the related consolidated statements of income, changes in shareholdersâ&#x20AC;&#x2122; equity and cash flows for the year then ended, and the separate financial statements of Finansa Public Company Limited for the same period. These financial statements are the responsibility of the Companyâ&#x20AC;&#x2122;s management as to their correctness and the completeness of the presentation. My responsibility is to express an opinion on these financial statements based on my audit. The consolidated financial statements of Finansa Public Company Limited and its subsidiaries, and the separate financial statements of Finansa Public Company Limited for the year ended 31 December 2005 were audited by another auditor in the same office as mine, who under his report dated 28 February 2006 expressed an unqualified opinion on those financial statements but drew attention to the matters regarding business combination between the subsidiary engaging in the finance business and another finance company and that the Company and its subsidiaries having transactions with their related parties, the effects of which were reflected in the financial statements on the basis determined by the Company, its subsidiaries and their related parties. I conducted my audit 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 audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Finansa Public Company Limited and its subsidiaries and of Finansa Public Company Limited as at 31 December 2006, the results of their operations and cash flows for the year then ended in accordance with generally accepted accounting principles. Without qualifying my opinion on the aforementioned financial statements, I draw attention to the matters (a) as discussed in Note 1.2 to the financial statements regarding maintaining the status of being a finance company of a subsidiary, (b) as discussed in Note 9.4 to the financial statements relating to allowance for doubtful accounts as recorded by the subsidiary engaging in the finance business. In December 2006 the Bank of Thailand has changed its guidelines in determining provision for non-performing loans, which require a 100% provision on the shortfall of the carrying value of the loans and the present value of future cash expected to be collected from the debtors or from collateral disposal, to be fully recorded in 2006 and 2007. The subsidiary already set aside a full provision for debtors falled under the criteria to recognise in 2006. The amount of provision to be additionally set up in 2007 according to the guidelines cannot be determined at this stage and it may have a significant impact to the financial statements and the capital adequacy of the subsidiary, and (c) as discussed in Note 44 to the financial statements regarding the Company and its subsidiaries having transactions with their related parties, the effects of which were reflected in the financial statements on the basis determined by the Company, its subsidiaries and their related parties.

Ratana Jala Certified Public Accountant (Thailand) No. 3734 Ernst & Young Office Limited Bangkok : 23 February 2007

30

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F

inansa Public Company Limited and Its Subsidiaries Balance Sheets As At 31 December 2006 and 2005

Note

Consolidated 2006 2005 (Restated)

(Unit : Thousand Baht) The Company only 2006 2005 (Restated)

346,984 760,000

669,587 1,870,000

120,000 -

93,244 -

648,244 1,272,367 1,920,611 36,941

548,370 1,045,069 1,593,439 55,918

28,039 121,940 149,979 -

71,923 99,801 171,724 -

2,118,401 116,941 13,314 12,099

1,560,348 317,500 8,035 -

85,365 90,217 -

300,000 111 -

152,636 11,661 164,297 180,926 5,670,514

10,352 16,924 27,276 123,303 6,225,406

701 701 33,822 480,084

193 101 294 15,343 580,716

871 346,512 48,793

20,851 166,282 404,593

871 2,118,484 -

851 2,651,596 -

1,193,203 100,000 169,951 1,463,154

1,037,025 100,000 105,665 1,242,690

98,313 98,313

10,823 98,313 109,136

403,193 45,745 28,225 375,591 322,865 3,609 116,396 71,406 48,359 3,274,719 8,945,233

497,585 32,725 318,058 344,916 144,500 67,520 65,882 41,501 3,347,103 9,572,509

45,745 594,544 193,670 261,961 39,165 56,215 2,374 3,411,342 3,891,426

518,411 131,877 297,101 23,573 65,792 1,070 3,799,407 4,380,123

ASSETS CURRENT ASSETS Cash and cash equivalents 6 Securities purchased under resale agreements 7 Current investments 8 Trading securities Available-for-sale securities Current investments - net Receivable from the Clearing House Loans, receivables and accrued interest receivables finance and securities businesses - current portion 9, 10, 44 Loans to other parties - current portion 11 Short-term loans and advances to related parties 44 Receivables tranferred from another securities company Service income receivables Related parties 44 Other parties Total service income receivables Other current assets 12, 44 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Deposits subject to restrictions 13 Investments accounted for under equity method 14 Long-term investments in related parties 15 Long-term investments 8 Available-for-sale securities Held-to-maturity debt securities General investments Long-term investments - net Loans, receivables and accrued interest receivables - finance and securities businesses - net of current portion 9, 10, 44 Loans to other parties - net of current portion 11, 44 Long-term loans to related party 44 Service income receivable from related party 44 Properties foreclosed - net 16 Premises and equipment - net 17 Goodwill - net 18 Guarantees for derivative contracts 41.1 Deferred income tax assets 19 Intangible assets - net 20 Other non-current assets 40.6 TOTAL NON-CURRENT ASSETS TOTAL ASSETS

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

FINANSA PLC. ANNUAL REPORT 2006

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F

inansa Public Company Limited and Its Subsidiaries Balance Sheets (Continued) As At 31 December 2006 and 2005

Consolidated 2006 2005 (Restated)

(Unit : Thousand Baht) The Company only 2006 2005 (Restated)

24

656,852 25,000 374,452

775,002 25,000 18,597 196,573

725,732 -

824,135 -

25 26 27

4,525 3,363,112 230,000

3,786,605 40,000

230,000

40,000

78,389 27,518 204,190 58,394 368,491 5,022,432

77,301 21,459 24,174 24,436 58,916 206,286 5,048,063

14,206 1,603 3,925 30,961 50,695 1,006,427

16,223 1,558 8,629 42,816 69,226 933,361

25 26, 44 27

12,338 128,317 1,002,520

78,576 1,250,773

120,000

350,000

41.1

1,143,175 6,165,607

84,217 1,413,566 6,461,629

120,000 1,126,427

350,000 1,283,361

Note LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bills of exchange - net Short-term loans Payable to the Clearing House Securities business payables Current portion of liabilities under finance lease agreements Current portion of borrowings and deposits Current portion of long-term loans Other current liabilities Accrued bonus Corporate income tax payable Accrued interest expenses Accrued expenses Others Total other current liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Liabilities under finance lease agreements - net of current portion Borrowings and deposits - net of current portion Long-term loans - net of current portion Provision for loss on revaluation of interest rate swap contracts TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES

22, 44 23

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

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F

inansa Public Company Limited and Its Subsidiaries Balance Sheets (Continued) As At 31 December 2006 and 2005

Note

SHAREHOLDERS’ EQUITY Share capital Registered share capital 300,000,000 ordinary shares of Baht 5 each Issued and paid-up share capital 125,010,100 ordinary shares of Baht 5 each Additional paid-in capital Premium on ordinary shares Revaluation deficit on investments Translation adjustment Retained earnings Appropriated Statutory reserve Treasury stock reserve Unappropriated Treasury stocks (1,490,300 ordinary shares)

30 31 32

EQUITY ATTRIBUTABLE TO THE COMPANY’S SHAREHOLDERS MINORITY INTEREST TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

Consolidated 2006 2005 (Restated)

(Unit : Thousand Baht) The Company only 2006 2005 (Restated)

1,500,000

1,500,000

1,500,000

1,500,000

625,051

625,051

625,051

625,051

1,266,066 (24,393) (145,325)

1,266,066 (76,925) (5,687)

1,266,066 (24,393) (145,325)

1,266,066 (76,925) (5,687)

69,304 25,037 974,296 (25,037)

69,304 25,037 1,218,953 (25,037)

69,304 25,037 974,296 (25,037)

69,304 25,037 1,218,953 (25,037)

2,764,999 14,627 2,779,626 8,945,233

3,096,762 14,118 3,110,880 9,572,509

2,764,999 2,764,999 3,891,426

3,096,762 3,096,762 4,380,123

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

DIRECTORS

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F

inansa Public Company Limited and Its Subsidiaries Statements of Income For the Year Ended 31 December 2006 and 2005

(Unit : Thousand Baht except earnings per share expressed in Baht)

Note INCOME Financial and investment advisory businesses income Finance business income Securities business income Asset management business income Other income Share of income (loss) from investments accounted for under equity method TOTAL INCOME COSTS AND EXPENSES Financial and investment advisory businesses costs and expenses Finance business costs and expenses Securities business costs and expenses Asset management business costs and expenses Servicing and administrative expenses Losses on impairment of investments Goodwill amortisation TOTAL COSTS AND EXPENSES INCOME (LOSS) BEFORE INTEREST EXPENSES, INCOME TAX AND MINORITY INTEREST INTEREST EXPENSES INCOME TAX 19 INCOME (LOSS) BEFORE MINORITY INTEREST NET INCOME ATTRIBUTABLE TO MINORITY SHAREHOLDERS OF SUBSIDIARIES NET INCOME (LOSS) EARNINGS PER SHARE Basic earnings per share (Baht) Net income (loss) Diluted earnings per share (Baht) Net income (loss)

Consolidated 2006 2005

The Company only 2006 2005

545,011 271,397 363,287 45,013 9,382

443,914 123,464 517,308 33,469 54,572

196,653 17,069

198,494 34,330

87,232 1,321,322

(8,325) 1,164,402

(132,258) 81,464

103,861 336,685

256,413 246,850 303,977 31,406 429,883 161,321 22,051 1,451,901

249,058 132,589 259,597 47,526 161,190 60,429 22,051 932,440

74,718 116,406 21,100 212,224

75,646 93,908 169,554

(130,579) (88,828) 43,852 (175,555)

231,962 (72,584) (41,117) 118,261

(130,760) (67,729) 15,592 (182,897)

167,131 (67,723) 3,018 102,426

(7,342) (182,897)

(15,835) 102,426

(182,897)

102,426

(1.48)

0.82

(1.48)

0.82

-

-

-

-

33

33

The accompanying notes are an integral part of the ďŹ nancial statements.

34

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FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:35

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-

44

Fees and services expenses

-

Contributions to the Financial Institutions Development Fund 246,850

15,484

9,741

2,837

18,557

-

200,231

271,397

303,977

-

1,296

39,505

227,484

30,705

4,987

363,287

-

11,567

2,567

(17,273)

161,912

204,514

Securities business

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

256,413

-

Total costs and expenses

-

Taxes and duties

223,429

32,984

-

Premises and equipment expenses

Personnel expenses

44

Borrowings expenses

COSTS AND EXPENSES

Total income

12,318

-

-

Interest on margin loans

Gain (losses) on interest rate swap contracts

545,011

287,969

Interest and dividend

(33,814)

4,924

-

391,057

53,461

44 44

44 44

Finance business

100,493

Gains (losses) on trading in securities / investments

Fees and services income

Brokerage fees

INCOME

Note

Financial and investment advisory businesses

2006

31,406

-

86

3,618

26,751

951

-

45,013

-

-

205

-

44,808

-

Asset Management business

838,646

15,484

11,123

45,960

496,221

64,640

205,218

1,224,708

12,318

11,567

391,234

2,374

602,701

204,514

Total

249,058

-

-

-

128,144

120,914

-

443,914

-

100,518

143,185

200,211

-

Financial and investment advisory businesses

Consolidated

-

132,589

10,127

7,078

2,504

18,400

-

94,480

123,464

(30,396)

-

198,447

(53,294)

8,707

Finance business

For the Years Ended 31 December 2006 and 2005

259,597

-

1,668

21,215

172,887

58,552

5,275

517,308

-

11,310

7,031

(8,262)

95,632

411,597

Securities business

2005

(30,396)

11,310

306,234

81,629

337,781

411,597

Total

47,526

-

67

12,786

33,951

722

-

688,770

10,127

8,813

36,505

353,382

180,188

99,755

33,469 1,118,155

-

-

238

-

33,231

-

Asset Management business

FinansaDetailsPublicof Items Company Limited and Its Subsidiaries in Statements of Income (Unit : Thousand Baht)

74,718

-

-

-

70,556

4,162

-

196,653

-

-

74,869

(19,127)

140,911

-

Financial and investment advisory businesses

2006

75,646

-

-

-

66,393

9,253

-

198,494

-

-

71,742

(23,008)

149,760

-

Financial and investment advisory businesses

2005

The Company only


36

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:36

3/18/07 3:04:27 AM

37

-

Net Income

Dividend paid

Minority interest in respect of minority shareholders of subsidiaries

-

-

-

-

-

625,051 1,266,066

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

Balance as at 31 December 2006

-

-

(24,393)

-

-

-

58,091

(82,484)

(5,559)

625,051 1,266,066

-

(76,925)

-

-

-

Minority interest in respect of minority shareholders of subsidiaries

-

(76,925)

-

-

-

-

-

-

-

-

Net loss

Dividend paid

-

-

-

-

-

625,051 1,266,066

-

Recognised revaluation deficit on investments in statement of income

Translation adjustment

Unrecognised items in statement of income Revaluation deficit on investments

Balance as at 31 December 2005 - after adjustment

Adjustment of retained earnings

36

-

Treasury stocks

625,051 1,266,066

-

Transferred to treasury stocks reserve

-

(76,925)

-

Transferred to statutory reserve

625,051 1,266,066

(15,993) -

-

Translation adjustment

-

(60,932)

Revaluation deficit on investments

-

-

Balance as at 31 December 2005

Premium on ordinary shares

625,051 1,266,066

Revaluation deficit on investments

Unrecognised items in statement of income

Balance as at 31 December 2004

Note

Issued and paid-up share capital

(145,325)

-

-

-

-

(145,325)

(139,638)

-

(5,687)

-

(5,687)

-

-

-

-

-

-

(5,687)

35,827

-

(41,514)

Translation adjustment

69,304

-

-

-

-

69,304

-

-

69,304

-

69,304

-

-

-

-

-

5,121

64,183

-

-

64,183

Appropriated - statutory reserve

25,037

-

-

-

-

25,037

-

-

25,037

-

25,037

-

-

-

-

25,037

-

-

-

-

-

Appropriated - treasury stock reserve

Retained earnings

Consolidated

For the Years Ended 31 December 2006 and 2005

974,296

-

(61,760)

(182,897)

-

1,218,953

-

-

1,218,953

(37,952)

1,256,905

-

(62,505)

102,426

-

(25,037)

(5,121)

1,247,142

-

-

1,247,142

Unappropriated

Finansa Public Company Limited and Its Subsidiaries Statements of Changes inShareholders’ Equity

-

-

-

-

-

-

(25,037)

-

-

-

-

(25,037)

-

-

(25,037)

-

(25,037)

-

-

-

(25,037)

Treasury stocks

14,627

7,342

-

-

-

7,285

(6,833)

-

14,118

-

14,118

(1,729)

-

15,835

-

-

-

12

-

-

12

Minority interest

2,779,626

7,342

(61,760)

(182,897)

58,091

2,958,850

(146,471)

(5,559)

3,110,880

(37,952)

3,148,832

(1,729)

(62,505)

118,261

(25,037)

-

-

3,119,842

35,827

(15,993)

3,100,008

Total

(Unit : Thousand Baht)


FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:37

37

3/18/07 3:04:28 AM

37

-

Net Income

Dividend paid

-

-

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

625,051 1,266,066

-

-

-

(24,393)

-

-

58,091

(82,484)

(5,559)

625,051 1,266,066

-

(76,925)

-

-

Net loss

Balance as at 31 December 2006

-

(76,925)

-

-

-

-

-

-

-

-

-

Dividend paid

-

-

-

625,051 1,266,066

-

Recognised revaluation deficit on investments in statement of income

Translation adjustment

Unrecognised items in statement of income Revaluation deficit on investments

Balance as at 31 December 2005 - after adjustment

Adjustment of retained earnings

36

-

Treasury stocks

-

625,051 1,266,066

-

Transferred to treasury stocks reserve

-

(76,925)

-

Transferred to statutory reserve

625,051 1,266,066

(15,993) -

-

Translation adjustment

-

(60,932)

Revaluation deficit on investments

-

-

Balance as at 31 December 2005

Premium on ordinary shares

625,051 1,266,066

Revaluation deficit on investments

Unrecognised items in statement of income

Balance as at 31 December 2004

Note

Issued and paid-up share capital

(145,325)

-

-

-

(145,325)

(139,638)

-

(5,687)

-

(5,687)

-

-

-

-

-

(5,687)

35,827

-

(41,514)

Translation adjustment

69,304

-

-

-

69,304

-

-

69,304

-

69,304

-

-

-

-

5,121

64,183

-

-

64,183

Appropriated - statutory reserve

25,037

-

-

-

25,037

-

-

25,037

-

25,037

-

-

-

25,037

-

-

-

-

-

Appropriated - treasury stock reserve

Retained earnings

The Company only

For the Years Ended 31 December 2006 and 2005

974,296

(61,760)

(182,897)

-

1,218,953

-

-

1,218,953

(37,952)

1,256,905

(62,505)

102,426

-

(25,037)

(5,121)

1,247,142

-

-

1,247,142

Unappropriated

F inansa Public Company Limited and Its Subsidiaries Statements of Changes inShareholders’ Equity (Continued)

-

-

-

-

-

-

(25,037)

-

-

-

(25,037)

-

-

(25,037)

-

(25,037)

-

-

(25,037)

Treasury stocks

2,764,999

(61,760)

(182,897)

58,091

2,951,565

(139,638)

(5,559)

3,096,762

(37,952)

3,134,714

(62,505)

(102,426)

(25,037)

-

-

3,119,830

35,827

(15,993)

3,099,996

Total

(Unit : Thousand Baht)


F

inansa Public Company Limited and Its Subsidiaries Statements of Cash Flows For the Years Ended 31 December 2006 and 2005 Consolidated 2006 2005

Cash ďŹ&#x201A;ows from operating activities Net income (loss) (182,897) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities : Net income attributable to minority shareholders of subsidiaries 7,342 Share of (income) loss from investments accounted for under equity method (87,232) Goodwill amortisation 22,051 Depreciation and amortisation 70,437 Amortisation of discounts received on investments (17,139) Amortisation of discounts paid on bills of exchange 35,841 Bad debt and allowance for doubtful accounts 52,527 Losses on impairment of investments 161,321 Unrealised (gains) losses on revaluation of investments (24,419) Unrealised (gains) losses on interest rate swap contracts (12,138) (Gains) losses on disposal of ďŹ xed assets (324) Unrealised (gains) losses on exchange (15,484) Increase in deferred income tax assets (48,876) Income (loss) from operating activities before changes in operating assets and liabilities (38,990) (Increase) decrease in operating assets Securities purchased under resale agreements 1,110,000 Current investments (286,691) Receivable from the Clearing House 18,977 Loans, receivables and accrued interest receivables (516,188) Advances to related parties (5,279) Receivables transferred from another securities company (12,099) Service income receivables (137,021) Other current assets (59,604) Properties foreclosed 4,500 Guarantees for derivative contracts 68,812 Other non-current assets (4,946) Increase (decrease) in operating liabilities Payable to the Clearing House (18,597) Securities business payables 177,879 Advances from related parties Other current liabilities 162,946 Net cash from (used in) operating activities 463,699

(Unit : Thousand Baht) The Company only 2006 2005

102,426

(182,897)

102,426

15,835

-

-

8,325 22,051 43,821 (24,488) 47,137 8,063 60,429 10,108 30,000 4,557 1,370 (15,147)

132,258 54,226 (7,097) 38,754 21,100 7,203 347 48 (15,592)

(103,861) 38,514 (10,382) 48,476 (9,980) 3,900 (17,997) (3,018)

314,487

48,350

48,078

(1,330,000) 912,104 (6,187) 63,954 (7,490) 6,141 68,567 4,308 (35,000) (15,472)

367 (106) (62,200) (18,479) (4,909)

31,526 1,690,581 17,585 7,693 88

12,775 (160,693) (3,427) (78,828) (254,761)

(19,048) (56,025)

17,781 1,813,332

The accompanying notes are an integral part of the ďŹ nancial statements.

38

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:38

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F

inansa Public Company Limited and Its Subsidiaries Statements of Cash Flows (Continued) For the Years Ended 31 December 2006 and 2005 Consolidated 2006 2005

Note Cash flows from investing activities Decrease in loans to other parties Increase in short-term loans to related parties (Increase) decrease in deposits subject to restrictions Cash paid for acquisition of a subsidiary 34 Dividend received from a subsidiary (Increase) decrease in investments in associated companies (Increase) decrease in long-term investments in related parties (Increase) decrease in long-term investments Cash paid for acquisition of fixed assets and intangible assets Proceeds from disposal of fixed assets Net cash from (used in) investing activities Cash flows from financing activities Repayment of bills of exchange Decrease in bank overdrafts Repayment of short-term loans Repayment of short-term loans from related parties Installment paid on liabilities under finance lease agreements Increase (decrease) in borrowings and deposits Cash received on long-term loans Repayment of long-term loans Dividends paid to the Company’s shareholders Dividends paid to minority shareholders of the subsidiary Cash paid for treasury stocks Net cash used in financing activities Increase (decrease) in translation adjustment Net increase (decrease) in cash and cash equivalents Add : Cash held by a subsidiary acquired during the year 34 Cash and cash equivalents - beginning of the years Cash and cash equivalents - end of the years Supplemental disclosures of cash flows information : Cash paid during the years for : Interest expense Income tax Non - cash items : Bad debts written off Properties foreclosed written off Purchase of assets under finance lease agreements

(Unit : Thousand Baht) The Company only 2006 2005

161,779 19,980 (92,998) 269,761 (252,634) (117,681) 4,165 (7,628)

520,000 2,502 (108,200) 2,590 (63,262) 271,143 (46,679) 932 579,026

175,855 (166,133) (20) 315,000 (3,148) 10,000 (13,291) 3,435 321,698

470,000 (125,000) (5) (108,200) (10) (75,850) (27,886) 133,049

(153,991) (3,463) (373,752) (40,000) (61,760) (6,070) (639,036) (139,638) (322,603) 669,587 346,984

(1,680,042) (21,330) (159,504) 931,281 911,669 (103,000) (62,505) (1,729) (25,037) (210,197) 35,827 149,895 29,530 510,162 689,587

(137,157) (40,000) (61,760) (238,917) 26,756 93,244 120,000

(1,632,248) (120,000) (103,000) (62,505) (25,037) (1,942,790) 3,591 89,653 93,244

287,463 46,790

160,870 115,695

67,684 908

68,077 1,642

13,857 19,585

36,138 2,354 -

-

-

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

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:39

39

3/18/07 3:04:29 AM


F

inansa Public Company Limited and Its Subsidiaries Notes to Financial Statements For The Years Ended 31 December 2006 and 2005

1. GENERAL INFORMATION 1.1 Information of the Company and significant subsidiaries (a) Finansa Public Company Limited (hereinafter referred to as â&#x20AC;&#x153;the Companyâ&#x20AC;?) was incorporated as a limited company under Thai laws on 7 December 1989, registered the change of its status to a public limited company on 19 June 2002 and listed on the Stock Exchange of Thailand on 25 September 2002. Its registered office is located at 48/29 and 48/32, 16th Floor, Tisco Tower Building, North Sathorn Road, Silom, Bangrak, Bangkok. The Company operates its business in Thailand and its principal activity is to invest in and provide finance and management advisory services to its affiliated and related parties. As at 31 December 2006, the Company has 71 employees (31 December 2005 : 61 employees) and personnel expenses for the year amounted to Baht 70 million (2005 : Baht 66 million). (b) Finansa Credit Limited, which is a 100% owned subsidiary of the Company, was incorporated as a limited company under Thai laws and operates its finance businesses in Thailand. Its registered office is located at 48/21-22, 12A Floor, Tisco Tower Building, North Sathorn Road, Silom, Bangrak, Bangkok. As at 31 December 2006, Finansa Credit Limited has 26 employees (31 December 2005 : 23 employees) and personnel expenses for the year amounted to Baht 19 million (2005 : Baht 18 million). (c) Finansa Securities Limited, which is a 100% owned subsidiary of the Company, was incorporated as a limited company under Thai laws and operates in Thailand. Its principal activities are securities brokerage, securities trading, securities underwriting, and financial and investment advisory services. Its registered office is located at 48/22-23, 48/45-46, 12A and 20th Floor, Tisco Tower Building, North Sathorn Road, Silom, Bangrak, Bangkok. As at 31 December 2006, there are 14 branches in Bangkok and other provinces (31 December 2005 : 3 branches) and the subsidiary has 315 employees (31 December 2005 : 150 employees) and personnel expenses for the year amounted to Baht 227 million (2005 : Baht 173 million). (d) Finansa Asset Management Limited, which is a 100% owned subsidiary of the Company, was incorporated as a limited company under Thai laws. The Company operates its business in Thailand and has been granted licenses to operate 2 types of securities business; private fund management and mutual fund management. Its registered office is located at 48/21 and 48/24, 12A Floor, Tisco Tower Building, North Sathorn Road, Silom, Bangrak, Bangkok. As at 31 December 2006, Finansa Asset Management Limited has 43 employees (31 December 2005 : 45 employees) and personnel expenses for the year amounted to Baht 27 million (2005 : Baht 34 million). (e) Finansa Fund Management Ltd., which is a 100% owned subsidiary of the Company, was incorporated as an exempted company with limited liability in the Cayman Islands. Its principal activity is to provide investment advisory and fund management services. Its registered address is P.O. Box 309, Ugland House, South Church Street, George Tower, Grand Cayman, Cayman Islands, British West Indies. As at 31 December 2006, Finansa Fund Management Ltd. has 6 employees (31 December 2005 : 8 employees) and personnel expenses for the year amounted to Baht 9 million (2005 : Baht 7 million). 1.2 Maintaining the status of being a finance company of a subsidiary On 28 July 2004, Finansa Credit Limited, a subsidiary, submitted an application for establishment of a new commercial bank, with Bangkok First Investment & Trust Public Company Limited to be merged with or acquired by a subsidiary and later the Ministry of Finance notified the subsidiary, in its letter dated 12 April 2005, that the subsidiary does not satisfy certain criteria of the commercial bank application process and therefore the application has not been approved, while a letter from the Bank of Thailand dated 18 April

40

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:40

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2005 stated that the subsidiary still continues to operate as a finance company under the revised Act on the Undertaking of Finance Business, Securities Business and Credit Foncier Business B.E. 2522 and that the holders of certificates of deposits and promissory notes, as issued by the subsidiary in its fund raising activities are still guaranteed for both principal repayments and related interest payments in accordance with regulations of the Financial Institutions Development Fund. The management of the subsidiary expects no impact on its finance business operation following the above approval not being granted and the subsidiary prepared and revised a 3-year business plan covering its operations from 2007 to 2009, which was submitted to the Bank of Thailand for acknowledgement. 2. BASIS OF PREPARATION The financial statements have been prepared in accordance with accounting standards enunciated under the Accounting Profession Act B.E. 2547, except for early adoption of Accounting Standard No. 56 “Accounting for Income Tax” which is in line with International Accounting Standard (IAS) No. 12 “Income Taxes” (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 Note 5 to the financial statements regarding significant accounting policies. 3. BASIS OF CONSOLIDATION 3.1 These consolidated financial statements include the financial statements of Finansa Public Company Limited and the following subsidiaries, which were incorporated in Thailand and overseas :-

Percentage of shareholding as at 31 December 2006

Country of registration

Nature of Business

2005

Total assets as a percentage to the consolidated totals as at 31 December

Total revenue as a percentage to the consolidated totals for the years ended 31 December

2006

2005

2006

2005

Subsidiaries held directly by the Company Finansa Credit Limited

100

100

Thailand

Finance business

46.8

52.9

22.1

13.2

Finansa Securities Limited

100

100

Thailand

Securities business

12.3

7.8

29.1

43.4

Finansa Asset Management Limited

100

100

Thailand

Asset Management business

0.4

0.3

3.6

2.9

Finansa Fund Management Ltd.

100

100

Cayman Islands

Investment advisory and investment businesses

24.4

23.6

22.2

18.6

Prospect SPC Company Limited

100

100

Thailand

Investment business

0.1

-

-

-

Finansa (Cambodia) Ltd.

100

100

Cambodia

Investment advisory

-

-

-

-

Finansa Hong Kong Limited

100

100

Hong Kong

Advisory business

-

-

-

-

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:41

41

3/18/07 3:04:30 AM


Percentage of shareholding as at 31 December 2006

Country of registration

Nature of Business

2005

Total assets as a percentage to the consolidated totals as at 31 December

Total revenue as a percentage to the consolidated totals for the years ended 31 December

2006

2005

2006

2005

-

-

Subsidiaries held indirectly by the Company PT Finansa (Indonesia) Holdings Ltd.

100

Finansa Singapore Pte Ltd.

100

Mauritius

Investment business

-

-

100

100

Singapore

Investment advisory

0.1

0.1

-

-

Asian Debt Trading Ltd. (31 December 2006 : excluded from consolidated financial statements)

-

100

Cayman Islands

Investment business

-

-

-

9.5

ADF Management, Ltd.

66.7

66.7

Cayman Islands

Investment advisory

2.6

0.5

19.2

6.9

BLR Management Pte Ltd. (31 December 2005 : excluded from consolidated financial statements)

66.7

66.7

Singapore

Investment business

-

-

3.2

-

3.2 The financial statements of the subsidiaries incorporated overseas are translated into Thai Baht at the exchange rates ruling on the balance sheet dates for assets and liabilities, and at the monthly average exchange rates for revenue and expense items. The resultant differences have been shown under the caption of “Translation adjustments” in shareholders’ equity. 3.3 Material balances and transactions between the Company and its subsidiaries have been eliminated from the consolidated financial statements. 3.4 Investments in the subsidiaries as recorded in the Company’s books of account are eliminated against the shareholders’ equity of the subsidiaries. The resultant difference is amortised over a period of 20 years commencing as from the date of acquisition of the subsidiaries. 3.5 The financial statements of Finansa (Cambodia) Ltd., PT Finansa (Indonesia) Holdings Ltd., Finansa Singapore Pte Ltd. and ADF Management, Ltd. and its subsidiary for the year ended 31 December 2006 as included in the consolidated financial statements, were audited by other auditors. 3.6 The financial statements of Finansa Hong Kong Limited for the year ended 31 December 2006 as included in the consolidated financial statements, were management accounts as prepared by that company’s management and not audited by its statutory auditors. 3.7 In December 2005, ADF Management, Ltd. invested a 100% interest in BLR Management Pte Ltd., which was incorporated in Singapore on 8 November 2005 with the objective of engaging in investment business. However, the consolidated financial statements for the year ended 31 December 2005 excluded the financial statements of BLR Management Pte Ltd. since it had not yet commenced its core business. The revenues and total assets of this subsidiary are immaterial to the consolidated financial statements. However, the consolidated financial statements for the year ended 31 December 2006 have included the financial statements of BLR Management Pte Ltd. 3.8 In March 2006, Finansa Fund Management Ltd. entered into a share sale agreement to sell its shares held in Asian Debt Trading Ltd. to an individual at its book value. The consolidated financial statements for the year ended 31 December 2006 therefore excluded the financial statements of Asian Debt Trading Ltd.

42

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4. ADOPTION OF NEW ACCOUNTING STANDARD

In October 2006, the Federation of Accounting Professions issued Notification No. 26/2006 regarding Accounting Standard No. 44 “Consolidated Financial Statements and Accounting for Investments in Subsidiaries” (Amendment No. 1), under which investments in subsidiaries, jointly controlled entities and associates are to be presented in the separate financial statements under the cost method rather than the equity method. Entities which are not ready to adopt the cost method in 2006 can continue to use the equity method through the end of 2006 and adopt the cost method as from 1 January 2007. In this regard, the Company has elected to adopt the change in 2007. Adoption of the change in 2007 will necessitate the restatement of the Company’s 2006 separate financial statements to be presented for comparative purposes along with the financial statements for 2007. The restatement will have the effect of decreasing net loss in the 2006 separate income statement by approximately Baht 446 million (Baht 3.61 Per share) and decreasing net worth in the balance sheet as at 31 December 2006 by approximately Baht 788 million. (The restatement will have an impact only on the separate financial statements but not the consolidated financial statements). 5. SIGNIFICANT ACCOUNTING POLICIES 5.1 Revenue and expense recognition

(a) Brokerage fees Brokerage fees on security trading are recognised as income on the transaction dates. (b) Fees and service income Fees and service income are recognised as income accrues based on the stage of completion. (c)

Interest on margin loans Interest on margin loans is recognised on an accrual basis, but where there is uncertainty as to the collectability of loans and interest the subsidiary ceases accrual. In the following cases collectability of loans and interest is considered to be uncertain. (1) Loans which are not fully collateralised. (2) Installment loans with repayments scheduled less frequently than every 3 months and for which principal or interest is overdue by more than 3 months. (3) Installment loans with repayments scheduled no less frequently than every 3 months, unless there is a clear evidence and a high degree of certainty that full repayment will be received. (4) Debtors are troubled financial institutions. (5) Other debtors from which interest payment is overdue by 3 months or more. These conditions are based on the guidelines stipulated by the Office of Securities and Exchange Commission in Notification No. Kor Thor. 33/2543 dated 25 August 2000, amended by Notification No. Kor Thor. 5/2544 dated 15 February 2001.

(d) Interest and discounts on loans - Finance business The subsidiary recognises interests and discounts on loans on an accrual basis over the term of the loans, based on the amount of principal outstanding. For loans on which principal or interest payments have been defaulted for more than three months past the due date, the recognition of interest income is ceased, recorded accrued interest is reversed from the subsidiary’s accounts and interest thenceforth recognised as income on a cash basis. FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:43

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The subsidiary generally recognises interest income on restructured loans on the same accrual basis used for loans discussed above, with reference to the interest rates stipulated in the agreements (excluding interest charged and suspended to be payable in the future). However, loans that are subject to monitoring for compliance with restructuring conditions are recognised as income on a cash basis until the debtor is able to comply with the restructuring conditions for a period of not less than three months or three installments, whichever is longer. Interest or discounts which are already included in the face value of notes receivable or loans are deferred and taken up as income evenly over the term of the notes or loans. (e)

Hire-purchase income A subsidiary recognises income under hire-purchase contracts by using the annuity method over the period of the contract.

(f )

Gains (losses) on trading in securities/investments Gains (losses) on trading in securities/investments are recognised as income or expenses on the transaction dates.

(g) Interest and dividend on investments Interest is recognised as interest accrues based on the effective rate method. Dividend income is recognised when the right to receive the dividend is established. (h) Interest on borrowings and deposits Interest on borrowings and deposits is charged as expense on an accrual basis. (i)

Expenses Expenses are recognised on an accrual basis.

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 or pledge commitments.

5.3 Recording and derecording customers’ assets For internal control purposes, cash received from the customers of a subsidiary for securities trading in terms of cash balances is recorded as a liability and when such amounts of money are then deposited with financial institutions, they are recorded as the subsidiary’s assets. Therefore, as at the balance sheet dates, the subsidiary derecords these amounts by offsetting the asset and liability balances so that the financial statements presents only assets of the subsidiary. 5.4 Securities borrowing The subsidiary records its obligations to return borrowed securities which it has sold short as “Securities borrowing payables” in the balance sheets. At the end of the year the balance of securities borrowing payables, which securities have been sold short, is adjusted based on the latest offer price quoted on the Stock Exchange of Thailand. Gains or losses arising from such adjustments are included in statements of income. Cash paid as collateral for securities borrowing is recorded as “Guarantee deposit receivables”, which are an integral part of securities business receivables in the balance sheets. Fees for securities borrowing are recognised as expenses on an accrual basis over the borrowing periods.

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5.5 Securities purchased under resale agreements/securities sold under repurchase agreements Securities purchased under resale agreements or securities sold under repurchase agreements are recorded at cost and as assets or liabilities as appropriate. Interest income from securities purchased under resale agreements and interest expenses from securities sold under repurchase agreements are recognised on an accrual basis over the term of the respective agreements. 5.6 Current and long-term investments The Company and its subsidiaries present the values of investments, which are not investments in subsidiaries and associated companies, according to the following type’s of investments. (a) Investments in securities held for trading are classified as current investments presented at fair value. Gains or losses arising from changes in the carrying amounts of securities are included in statements of income. (b) Investments in available-for-sale securities, both held as current and long-term investments, are determined at fair value. Changes in the carrying amounts of securities are recorded as separate items in shareholders’ equity until the securities are sold, when the changes are then included in statements of income. (c) Investments in debt securities expected to be held to maturity, which are classified as current and long-term investments according to their remaining period to maturity, are recorded at amortised cost. The premium/discount on debt securities is amortised by the effective rate method with the amortised amount presented as an adjustment to the interest income. (d) Investments in non-marketable equity securities, which are treated as general investments, are classified as long-term investments and valued at cost less allowance for impairment loss (if any). (e) Investments in related parties are valued at cost less allowance for impairment loss (if any). The fair value of marketable securities is based on the latest bid price of the last working day of the year as quoted on the Stock Exchange of Thailand. The fair values of government bonds, state enterprise bonds and private sector debt securities are determined based on the yield rates quoted by the Thai Bond Market Association or other financial institutions, as appropriate. The fair value of investment units is determined from their net asset value. The weighted average method is used for computation of the cost of investments. In the event the Company and its subsidiaries reclassifies investments in securities, such investments are adjusted to their fair value as at the reclassification dates. Differences between the carrying amount of the investments and their fair value on those dates are recognized as gains or losses in statements of income or recorded as a revaluation surplus (deficit) on investments in shareholders’ equity, depending on the type of investment which is reclassified. 5.7 Investments in subsidiaries and associated companies Investments in subsidiaries and associated companies, except for investments which the Company and its subsidiaries intend to hold temporarily, are accounted for under the equity method. The excess of loss over cost of investment in subsidiaries and associated companies is presented as liability under the caption of “Provision for loss on investment in subsidiary and associated companies” in the balance sheets. Excess of cost of investments in subsidiaries over their net book values at the acquisition date is amortised on a straight-line basis over a period of 20 years. FINANSA PLC. ANNUAL REPORT 2006

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5.8 Receivable from/payable to the Clearing House Receivable from/payable to the Clearing House comprises the net balance receivable/ payable from Thailand Securities Depository Center (TSD) in respect of securities trading settled through the Clearing House of TSD. 5.9 Securities business receivables and allowance for doubtful accounts Securities business receivables comprise the net receivable balances of cash accounts and margin accounts, as well as other receivables such as overdue cash accounts and securities receivables which are under legal proceedings, are undergoing restructuring or are being settled in installments. Securities business receivables are presented at debt balances, including accrued interest receivables, and deducted with allowance for doubtful accounts. A subsidiary has provided an allowance for doubtful accounts based on a review of the debtor’s ability to make repayment, taking into consideration recovery risk and the value of the collateral. An allowance is set aside for doubtful accounts not fully covered by collateral and/or those which may not be fully collected. The subsidiary classifies its debtors and provides relevant allowance for doubtful accounts in accordance with the following guidelines. (a) Loans and receivables classified as “loss” are to satisfy the following criteria :(1) Loan balances which the subsidiary has already made every effort to collect, but which remain unpaid and which the subsidiary has already written-off in accordance with tax law. (2) Loan balances which the subsidiary has forgiven. (b) Loans and receivables classified as “doubtful” are defined as the uncollateralised portion of the value of a debt which meets the following criteria :(1) General loans, troubled financial institution loans, and other loans for which the collateral value is less than the loan balance. (2) Installment loans with repayments scheduled less frequently than every 3 months and for which principal or interest is overdue by more than 3 months. (3) Installment loans with repayments scheduled no less frequently than every 3 months unless there is a clear evidence and a high degree of certainty that full repayment will be received. (c) Sub-standard debt is defined as the collateralised portion of loans which meets the criteria in (b) above. Loans classified as “loss” will be written-off when identified. Allowance for doubtful accounts will be set aside for loans classified as “doubtful” at not less than 100% of the loan balance. The above guideline is in accordance with Notification No. Kor Thor. 33/2543 of the Office of the Securities and Exchange Commission, dated 25 August 2000, which was amended by Notification No. Kor Thor. 5/2544 dated 15 February 2001. 5.10 Finance business loans and receivables and allowance for doubtful accounts The subsidiary presents loans and receivables at principal balances, excluding accrued interest receivable. Unrecognised deferred income and discounts on loans are deducted from the principal balances. The subsidiary provides allowances for doubtful accounts and loss from debt restructuring in accordance with the Notifications of the Bank of Thailand (“BoT”) and adjusts these by the additional amount which is expected not to be collectible based on an analysis and assessment of the current status of the debtors, taking into consideration the recovery risk and the value of collateral.

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Year 2006 On 21 December 2006, the BoT revised its guidelines in determining allowance for doubtful accounts and the value of collateral to be deducted against the carrying value of the debt balances of non-performing debtors. Under the new guidelines, the finance company is required to set aside a 100% provision on the shortfall of the carrying value of the loans and the present value of expected future cash flows from debt collection or from collateral disposal, whereby the BoT also determines a discount rate of 7% per annum to be used in determining the present value, the period of time of cash expected to be received from collateral disposal for each case, and the following timeline for implementing these provisioning guidelines. (a) During the second half-year period of 2006 provisions are to be made for receivables from debtors for which a court judgment has already been issued, for which a court order is being executed, and against which legal actions have been brought. (b) During the half-year period ended 30 June 2007 provisions are to be made for receivables from debtors that are classified as doubtful of loss and doubtful. (c) During the period ended 31 December 2007 provisions are to be made for receivables from debtors that are classified as substandard. The subsidiary is required to set provision for “pass” loans (including restructured loans) and “special mention” loans, at minimum rates of 1% and 2%, respectively, of the loan balances (excluding accrued interest receivable) net of collateral value, in accordance with the BoTís guidelines. As at 31 December 2006, the subsidiary provided an allowance for doubtful accounts at a 100% of the shortfall of the carrying value of the debt balances and the present value of cash expected to be received from collateral disposal for debtors for which a court judgment has already been issued, for which a court order is being executed, and against which legal actions have been brought as required by the BoTís guidelines. For the remaining non-performing loans classified as “doubtful of loss”, “doubtful” and “substandard”, the subsidiary still provides specific provisions based on the existing guidelines at the rates not lower than 100 %, 50 % and 20 % of the collateral shortfall, respectively.

Year 2005 The subsidiary provided allowance for doubtful debt in accordance with the BoT’s guideline dated 23 August 2004, applying minimum provisioning rates of 1% for “pass” loans, 2% for “special mention” loans, 20% for “substandard” loans, 50% for “doubtful” loans and 100% for “doubtful of loss” loans. The subsidiary was able to deduct the value of collateral against the debt balances before determining provisions. Provision additionally set aside is recognized as an expense in statements of income for each relevant year. Amounts written off as bad debts are deducted from the allowance for doubtful accounts and if recovery is made from bad debts, the recovered amount is added to the allowance for doubtful accounts or taken up as income, as appropriate. 5.11 Troubled debt restructuring A subsidiary records troubled debt restructuring transactions in accordance with accounting Standard No. 34 “Accounting for Troubled Debt Restructuring”.

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If payment of debt is received through the transfer of property, financial instruments, or shares in the debtor company as a result of a debt to equity swap, the subsidiary records the assets received at their fair value less estimated selling expenses (if any), but not exceeding the outstanding balances of principal and accrued interest receivables. Losses arising from differences between the book value of the debt and the value of the transferred assets are recorded in the statements of income, taking into account existing allowance for doubtful accounts. If debt restructuring includes a relaxation of debt repayment conditions, the subsidiary determines the loss arising from the revaluation of the book value of the debtor on the basis of the present value of the future cash flows to be received under the new conditions, using the interest rate for prime customers in discounting. Any amount by which the newly determined book value is lower than the previous book value taking into account existing allowance for doubtful accounts is recorded as â&#x20AC;&#x153;Revaluation allowance as a result of debt restructuringâ&#x20AC;?. If the existing allowance is inadequate, the difference is recorded as an expense in the statements of income for the year in which the debt was restructured. The subsidiary adjusts the revaluation allowance for debt restructuring at the end of every year by re-calculating the net present value of expected cash flows, discounted by the interest rate for prime customer at the end of the year. Losses from troubled debt restructuring arising as a result of reductions of principal and accrued interest receivables taking into account the existing allowance for doubtful accounts are expended in the statements of income. 5.12 Properties foreclosed Properties foreclosed are stated at the lower of cost at the acquisition date or net realisable value, which is the latest appraisal value less estimated selling expenses (if any). Cost of properties foreclosed, at the acquisition date, is stated at fair value less estimated selling expenses, and is not to exceed the outstanding balance of principal and accrued interest receivables. Gains (losses) on disposals of properties foreclosed are recorded as income or expenses in the income statements when the ownership is transferred. Impairment loss is recognised as an expense in the statements of income. 5.13 Premises and equipment/depreciation Premises and equipment are stated at cost less accumulated depreciation. Depreciation of premises and equipment is calculated by reference to their cost on a straight-line basis over the estimated useful lives as follows :Office buildings Office equipment Furniture & fixtures Vehicles

20 3-5 5 5

years years years years

Depreciation is included in statements of income and no depreciation is provided for assets in progress. 5.14 Intangible Assets Intangible assets are stated at cost less accumulated amortisation. Amortisation of intangible assets is calculated by reference to their costs on a straight-line basis over estimated useful lives of 5 and 10 years. Amortisation is included in statements of income.

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5.15 Deferred golf membership fee A subsidiary presents a golf membership fee as a deferred asset awaiting amortisation. The amortisation is made on a straight-line basis over 26 years, starting from 2001. 5.16 Securities business payables Securities business payables are the obligations of the subsidiary in respect of its securities business transacted with outside parties, such as the net payable balances of cash accounts and so on. 5.17 Treasury Stock Treasury stock is stated at cost and presented as a deduction item from shareholdersâ&#x20AC;&#x2122; equity. Gains on any disposal of treasury stock are determined by reference to the carrying amount and are presented as premium on treasury stock. Losses on disposal of treasury stock are determined by reference to the carrying amount and are first recorded as a deduction item against any existing premium on treasury stock. Any losses remaining after elimination of the premium are then deducted from retained earnings. 5.18 Related party transactions Related parties comprise enterprises or individuals that control or are controlled by the Company, whether directly or indirectly, or which are under common control with the Company. In addition, related parties include associated companies and individuals which directly or indirectly own a voting interest in the Company that gives them a significant influence over the Company, key management personnel, and directors and officers with authority in the planning and direction of the Companyâ&#x20AC;&#x2122;s operations, together with close members of the families of such persons and companies which are controlled or influenced by them, whether directly or indirectly. 5.19 Long-term lease agreements Leases of assets which transfer substantially all the risks and rewards of ownership to the leasee are classified as finance leases. Finance leases are capitalised at the lower of the fair value of the leased property or the present value of the minimum lease payments. The outstanding rental obligations, net of finance charges, are recorded as long-term liabilities, while the interest element is charged to the statements of income over the lease periods. The assets acquired under the finance lease are depreciated over the shorter of the useful life of the asset or the lease term. 5.20 Foreign currencies Foreign currency transactions during the year have been translated into Baht at the rates prevailing on the transaction dates. Assets and liabilities in foreign currencies outstanding on the balance sheet dates have been translated into Baht at the rates prevailing on the balance sheet dates. Exchange gains and losses are included in statements of income.

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5.21 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’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the statements of income. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use. 5.22 Employee benefits Salary, wages, bonuses and contributions to the social security fund and provident fund are recognised as expenses when incurred. 5.23 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 of the amount of the obligation can be made. 5.24 Income tax The Company and its subsidiaries adopt a deferred income tax accounting policy, whereby deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 5.25 Use of accounting estimates Preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions in certain circumstances, affecting amounts reported in these financial statements and related notes. Actual results could differ from these estimates. 6. CASH AND CASH EQUIVALENTS As at 31 December 2006, bank deposits of an overseas subsidiary totaling USD 0.25 Million, or approximately Baht 9.2 Million (31 December 2005 : USD 0.16 million, or approximately Baht 6.8 million) are deposited in accounts opened under the names of related parties, directors of the Company, or directors of the related parties. 7. SECURITIES PURCHASED UNDER RESALE AGREEMENTS (Unit: Thousand Baht) Consolidated 31 December 2006 31 December 2005 Government bonds and Bank of Thailand bonds Securities purchased under resale agreements

50

760,000 760,000

1,870,000 1,870,000

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8. INVESTMENTS

8.1 Classified by investment types (Unit: Thousand Baht) Consolidated 31 December 2006

31 December 2005

Cost/

Cost/

Carrying value

Fair value

Carrying value

Fair value

Current investments Trading Securities Government and state enterprise securities

166,667

163,492

-

-

50,000

-

50,000

-

30,601

28,798

61,351

63,190

-

300

9,476

10,060

16,893

11,890

16,893

18,452

394,459

443,764

444,779

456,007

-

-

666

661

658,620

648,244

583,165

548,370

Add : Allowance for revaluation

39,624

-

15,205

-

Less : Allowance for impairment

(50,000)

-

(50,000)

-

Trading securities - net

648,244

648,244

548,370

548,370

185,672

185,631

-

-

972,034

971,624

627,184

621,241

90,000

72,000

358,942

358,421

35,481

30,210

67,229

51,717

49,411

12,902

57,379

13,690

1,332,598

1,272,367

1,110,734

1,045,069

Private sector debt securities Bills of exchange Domestic marketable equity securities Listed securities Warrants Depository receipts Overseas marketable equity securities Investment units Listed securities Total

Available-for-sale securities Government securities Private sector debt securities Debentures Bills of exchange Domestic marketable equity securities Listed securities Overseas marketable equity securities Listed securities Total Less : Allowance for revaluation

(1,599)

-

(65,665)

-

(58,632)

-

-

-

Available-for-sale securities - net

1,272,367

1,272,367

1,045,069

1,045,069

Current investments - net

1,920,611

1,920,611

1,593,439

1,593,439

Less : Allowanace for impairment

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(Unit: Thousand Baht) Consolidated 31 December 2006

31 December 2005

Cost/

Cost/

Carrying value

Fair value

Carrying value

Fair value

Long-term investments Available-for-sale securities Private sector debt securities Debentures

211,455

205,605

-

-

Synthetic collateralized debt obligation

928,969

930,734

948,182

948,182

-

-

11,025

4,879

62,950

56,864

89,078

83,964

1,203,374

1,193,203

1,048,285

1,037,025

Domestic marketable equity securities Listed securities Investment units Total Less : Allowance for revaluation

(10,171)

-

(11,260)

-

Available-for-sale securities - net

1,193,203

1,193,203

1,037,025

1,037,025

Held-to-maturity debt securities Private sector debt securities Promissory notes

100,000

100,000

100,000

100,000

Domestic non-marketable equity securities

98,313

98,313

Overseas non-marketable equity securities

71,638

7,352

169,951

105,665

Long-term investments - net

1,463,154

1,242,690

Investments - net

3,383,765

2,836,129

Held-to-maturity debt securities General investments

General investments

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(Unit: Thousand Baht) The Company only 31 December 2006

31 December 2005

Cost/

Cost/

Carrying value

Fair value

Carrying value

Fair value

Current investments Trading securities Domestic marketable equity securities Listed securities Warrants

29,823

28,039

60,633

61,936

-

-

9,476

9,987

Total

29,823

28,039

70,109

71,923

Add (less): Allowance for revaluation

(1,784)

-

1,814

-

Trading securities - net

28,039

28,039

71,923

71,923

49,940

49,940

-

-

90,000

72,000

99,888

99,801

139,940

121,940

99,888

99,801

Less : Allowance for revaluation

-

-

(87)

-

Less: Allowance for impairment

(18,000)

-

-

-

Available-for-sale securities - net

121,940

121,940

99,801

99,801

Current investments - net

149,979

149,979

171,724

171,724

Investment units

-

-

10,000

10,823

Add : Allowance for revaluation

-

-

823

-

Available-for-sale securities - net

-

-

10,823

10,823

Available-for-sale securities Government and state enterprise securities Private sector debt securities Bills of exchange Total

Long-term investments Available-for-sale securities

General investments Domestic non-marketable equity securities

98,313

98,313

General investments

98,313

98,313

Long-term investments - net

98,313

109,136

248,292

280,860

Investments - net

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(1) As at 31 December 2006 and 2005, the Company had investments in bills of exchange with face values totaling Baht 90 million issued by Picnic Corporation Public Company Limited (“the issuer”). Such bills of exchange matured in November 2005. The Company took legal action against the issuer and on 28 July 2006, the Court of First Instance rendered a judgement that the issuer was to repay the full amount of outstanding principal and interest thereon to the Company. Later, on 22 September 2006, the issuer appealed the judgement rendered by the Court of First Instance with the Appeal Court and filed a petition to stay execution. The Company lodged a statement of objection with the Appeal Court against the petition and filed an application requesting the Court to issue a writ of execution on 13 October 2006. On 17 October 2006, the Appeal Court issued a directive stating that “it is proper that the execution process be suspended and await the order of the Appeal Court regarding the stay of execution requested by the issuer of the bills, therefore, at this stage no writ will be issued appointing an executing officer and the petition is dismissed”. Later, on 17 November 2006, the Company appealed against the order of the Court, while on 13 December 2006 it submitted its case against the issuer’s appeal with the Court. This was accepted on 15 December 2006 and the case is currently being heard by the Appeal Court. The Company has already provided certain allowance for impairment loss on these bills of exchange and the Company’s management believe that the amount to be recouped by the Company will not be significantly lower than the carrying value of the bills. (2) As at 31 December 2006 and 2005, the Company had investments in 3,960,000 preference shares of Thai Telco Holdings Limited (“Thai Telco”) at cost of Baht 10 per share, a total of Baht 39.6 million. This constitutes 9.9% of total issued and paid up share capital of Thai Telco. The Company is not permitted to dispose of such preference shares or create any lien over them, unless it has been granted approval in accordance with the conditions specified in the articles of association of Thai Telco. In addition, on 18 October 2005 the Company entered into a put and call option agreement with another shareholder of Thai Telco whereby the Company has a put option to sell shares to this shareholder and such shareholder has a call option to buy shares from the Company at the pre-determined prices, throughout the 10-year term of the agreement. The agreement can be renewed every 10 years. (3) As at 31 December 2006, Finansa Fund Management Ltd. (a subsidiary) had an investment of Euro 19.5 million or equivalent to Baht 929 million (31 December 2005: Baht 948 million) in Synthetic Collateralized Debt Obligations, an overseas debt security issued by an overseas financial institution, which bears interest at the rate of 3 month-Euribor plus 1.75 and 2.15 percent per annum, payable quarterly. These investments are expected to mature in December 2015. In addition, the subsidiary has pledged such debt securities to secure borrowings from such financial institution, as referred to in Note 27.3 to the financial statements. (4) On 31 March 2006, Finansa Fund Management Ltd. and Finansa Credit Limited (both are subsidiaries) have made an allowance for impairment loss totalling approximately Baht 58 million on investments in marketable equity securities, which have been held as available-for-sale securities, since the economic trend and various factors may not improve to the level that would cause the market value of those equity securities to be significantly higher than that of the current level. Therefore, the management considers such losses as permanent in nature. Later in May 2006, a subsidiary sold those investments at market value.

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(5) In May 2006, Finansa Fund Management Ltd. (a subsidiary) placed investments units which it holds as trading investments to secure loan facilities obtained from an overseas financial institution. The fair value of such investments as at 31 December 2006 amounted to approximately Baht 444 million. 8.2 Classified by remaining period to maturity of debt securities As at 31 December 2006 and 2005, the Company and its subsidiaries have investments in debt securities, except those held as trading securities, classified by remaining periods to maturity as follows :(Unit: Thousand Baht) Consolidated 31 December 2006

31 December 2005

Remaining periods

Remaining periods

Less than 1 year 1 - 5 years

Over 5 years

Less than 1 year

1 - 5 years

185,672

-

-

-

-

- 1,183,489

50,046

466,107

111,031

627,184

Total

Over 5 years

Total

Available-for-sale securities Government and state enterprise securities

185,672

-

-

252,138

931,351

90,000

-

-

90,000

358,942

-

-

358,942

-

-

928,969

928,969

-

-

948,182

948,182

527,810

931,351

928,969 2,388,130

408,988

(873)

(5,428)

1,765

(4,536)

(542)

(6,217)

295

(6,464)

Less : Allowance for impairment

(18,000)

-

-

(18,000)

-

-

-

-

Available-for-sale securities - net

508,937

925,923

930,734 2,365,594

408,446

Promissory notes

-

100,000

-

100,000

-

100,000

-

100,000

Held-to-maturity debt securities

-

100,000

-

100,000

-

100,000

-

100,000

930,734 2,465,594

408,446

Private sector debt securities Debentures Bills of exchange Synthetic collateralized debt obligation Total Add (less): Allowance for revaluation

466,107 1,059,213 1,934,308

459,890 1,059,508 1,927,844

Held-to-maturity debt securities Private sector debt securities

Total investments in debt securities

508,937 1,025,923

559,890 1,059,508 2,027,844

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(Unit: Thousand Baht) The Company only 31 December 2006

31 December 2005

Remaining periods

Remaining periods

Less than 1 year

1 - 5 years

Over 5 years

49,940

-

-

Less than 1 year

1 - 5 years

49,940

-

-

-

-

Total

Over 5 years

Total

Available-for-sale securities Government and state enterprise securities Private sector debt securities Bills of exchange Total

90,000

-

-

90,000

99,888

-

-

99,888

139,940

-

-

139,940

99,888

-

-

99,888

Less : Allowance for revaluation

-

-

-

-

(87)

-

-

(87)

Allowance for impairment

(18,000)

-

-

(18,000)

-

-

-

-

Available-for-sale securities - net

121,940

-

-

121,940

99,801

-

-

99,801

Total investments in debt securities

121,940

-

-

121,940

99,801

-

-

99,801

8.3 Investments in companies having problems relating to financial position and operating results As at 31 December 2006 and 2005, the Company and its subsidiaries have the following investments in companies having problems relating to financial position and operating results. (Unit: Thousand Baht) Consolidated 31 December 2006 No. of companies

Cost

31 December 2005

Carrying value

Allowance for impairment

No. of companies

Cost

Carrying value

Allowance for impairment

Defaulted private sector debt securities

2

140,000

72,000

68,000

2

140,000

90,000

50,000

Total

2

140,000

72,000

68,000

2

140,000

90,000

50,000

(Unit: Thousand Baht) The Company Only 31 December 2006 No. of companies

56

Cost

31 December 2005

Carrying value

Allowance for impairment

No. of companies

Cost

Carrying value

Allowance for impairment

Defaulted private sector debt securities

1

90,000

72,000

18,000

1

90,000

90,000

-

Total

1

90,000

72,000

18,000

1

90,000

90,000

-

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8.4 Investments in equity securities where the Company and its subsidiaries hold 10 percent or more of the investee’s paid-up capital and not classified as investments in subsidiaries and associated companies are as follows :(Unit: Thousand Baht) Consolidated and the Company Only 31 December 2006 Company’s name

Type of business

Percentage of investments

31 December 2005 Percentage of investments

Cost

% Finansa Life Assurance Co., Ltd.

Life insurance

Cost

% 10.0

58,713

Total investments

58,713

58,713

58,713

-

-

58,713

58,713

Less: Allowance for impairment Investments - net

10.0

8.5 The Company and its subsidiaries have the following investments in funds, where they hold more than 10 percent of the fund’s registered and paid-up capital :(Unit: Thousand Baht) Consolidated 31 December 2006 Name of the Fund

Type of fund

Presented as investments in trading securities

Percentage of investments

31 December 2005 Percentage of investments

Book value

%

Book value

%

The Asian Debt Fund, Ltd. - Class A

Debt Securities Fund

5.73

215,713

4.68

239,522

The Asian Debt Fund, Ltd. - Class H

Debt Securities Fund

50.03

178,746

52.13

205,257

Add : Allowance for revaluation

49,305

11,228

443,764

456,007

Presented as investments in available-for-sale securities Finansa SET50 Long-Term Equity Fund

Equity Securities Fund

-

Add : Allowance for revaluation

-

12.54

10,000

-

823

-

10,823

Presented as investments in related parties Siam Investment Fund(1) Less : Allowance for impairment

(1)

Equity Securities Fund

57.48

147,609

49.48

418,364

(147,609)

(61,618)

-

356,746

Being in process of liquidation FINANSA PLC. ANNUAL REPORT 2006

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(Unit: Thousand Baht) The Company Only 31 December 2006 Name of the Fund

Type of fund

Percentage of investment

31 December 2005 Percentage of investment

Book value

%

Book value

%

Presented as investments in available-for-sale securities Finansa SET50 Long-Term Equity Fund

Equity Securities Fund

-

-

Add : Allowance for revaluation

12.54

10,000

-

823

-

10,823

Presented as investments in related parties Siam Investment Fund(1)

Equity Securities Fund

Less : Allowance for impairment

(1)

8.0

2,876

-

-

(2,876)

-

-

-

being in process of liquidation

9. LOANS, RECEIVABLES AND ACCRUED INTEREST RECEIVABLES For the purpose of balance sheet presentation in compliance with the Notification of the Department of Business Development, items due within one year are to be presented as current assets and items due longer than one year are to be presented as non-current assets. The Company and its subsidiaries therefore present â&#x20AC;&#x153;loans, receivables and accrued interest receivablesâ&#x20AC;? as follows :(Unit: Thousand Baht) Consolidated 31 December 2006 Loans and receivables

2,648,193

2,146,827

10,797

9,832

Less : Allowance for doubtful accounts

(137,396)

(98,726)

Loans, receivables and accrued interest receivables - net

2,521,594

Add : Accrued interest receivables

Less: current portion Loans, receivables and accrued interest receivables - net of current portion (1)

58

31 December 2005

(2,118,401) 403,193

2,057,933 (1)

(1,560,348)(1) 497,585

Since the subsidiaries could not allocate allowance for doubtful accounts between that for the current portion of loans, receivables and accrued interest receivables and that for the long-term portion, the whole amount of allowance for doubtful accounts was therefore deducted against current portion of loan, receivables and accrued interest receivables.

FINANSA PLC. ANNUAL REPORT 2006

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9.1 Classified by loan type (Unit: Thousand Baht) Consolidated 31 December 2006

31 December 2005

2,030,665

1,768,578

Notes receivable

13,501

53,116

Hire-purchase receivables

26,435

36,623

2,070,601

1,858,317

(2,530)

(4,176)

9,663

9,828

Total loans, receivables and accrued interest receivables

2,077,734

1,863,969

Less : Allowance for doubtful accounts

(131,430)

(90,287)

Net finance business loans, receivables and accrued interest receivables

1,946,304

1,773,682

Cash customerâ&#x20AC;&#x2122;s accounts

342,529

116,026

Margin loans

224,955

124,138

6,672

39,504

Finance business loans and receivables Loans

Total loans and receivables Less: Unearned income Add: Accrued interest receivables

Securities business receivables

Guarantee deposit receivable Other receivables

5,966

13,018

580,122

292,686

1,134

4

Total securities business receivables and accrued interest receivables

581,256

292,690

Less : Allowance for doubtful accounts

(5,966)

(8,439)

575,290

284,251

2,521,594

2,057,933

Total securities business receivables Add : Accrued interest receivables

Net securities business receivables and accrued interest receivables Net loans, receivables and accrued interest receivables-finance and securities businesses

9.2 Classified by the remaining period of the contract (Unit: Thousand Baht) Consolidated At call (including defaulted contracts) Not over 1 year Over 1 year Total loans, receivables and accrued interest receivables

31 December 2006

31 December 2005

419,213

375,154

1,836,584

1,283,920

403,193

497,585

2,658,990

2,156,659

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9.3 Classified by type of business and loan classification (Unit : Thousand Baht) Consolidated 31 December 2006 Special mention

Pass

Substandard

Doubtful of loss

Doubtful

Total

Finance business Manufacturing and commerce

1,014,539

-

-

71,229

44,047

1,129,815

Real estate and construction

380,866

-

112,788

-

142,976

636,630

Public utilities and services

177,069

-

-

-

6,140

183,209

9,254

-

-

-

5,946

15,200

Hire purchase receivables

41,300

-

-

-

-

41,300

Others

70,498

-

-

-

1,082

71,580

1,693,526

-

112,788

71,229

200,191

2,077,734

Securities business receivables

575,290

-

-

5,966

-

581,256

Total loans, receivables and accrued interest receivables

2,268,816

-

112,788

77,195

200,191

2,658,990

Housing loans

Total finance business

Securities business

(Unit : Thousand Baht) Consolidated 31 December 2005 Special mention

Pass

Substandard

Doubtful of loss

Doubtful

Total

Finance business Manufacturing and commerce Real estate and construction Public utilities and services

1,214,190

-

-

-

28,333

1,242,523

254,489

38,532

-

122,660

86,466

502,147

-

-

-

15

20,072

20,087

8,894

-

-

-

5,976

14,870

Hire purchase receivables

30,111

-

-

-

-

30,111

Others

53,113

-

-

-

1,118

54,231

1,560,797

38,532

-

122,675

141,965

1,863,969

Securities business receivables

284,251

-

-

8,439

-

292,690

Total loans, receivables and accrued interest receivables

1,845,048

38,532

-

131,114

141,965

2,156,659

Housing loans

Total finance business

Securities business

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9.4 Finance business loans classified in accordance with the Notification of the Bank of Thailand (BoT) As at 31 December 2006 and 2005, allowance for doubtful accounts of finance business loans and receivables classified by debt classification are as follows :(Unit : Thousand Baht) Consolidated 31 December 2006 Allowance for doubtful account Loans and accrued interest receivables

Balance after collateral

The minimum rate of loan loss provisioning per BoT

Minimum amounts required under BoT’s guidelines

Amounts provided in the accounts

% Pass Special-mention Sub-standard Doubtful Doubtful of loss Total

1,693,526

708,153

1

7,082

7,082

-

-

2

-

-

112,788

-

20

-

-

71,229 200,191 2,077,734

30,110

50

15,055

15,055

72,374(1)

100

72,374

72,374

94,511

94,511

810,637

Add : Additional provision that is in excess of the BoT’s minimum requirement for loans which may be not collectible Total allowance for doubtful accounts (1)

36,919 131,430

Value of collateral deducted from debt balances of debtors, for which a court judgement has already been issued or a court order is being executed, and against which legal actions have been brought, is determined in accordance with the BoT’s new guidelines as discussed in Note 5.10 to the financial statements.

In December 2006 the BoT revised its guidelines in determining allowance for doubtful accounts as discussed in Note 5.10 to the financial statements. As at 31 December 2006, the subsidiary engaging in the finance business set up provision at a rate of 100% of the shortfall between the carrying value of debt balances and the present value of cash expected to be received from collateral disposal for debtors which a court judgment has already been issued or a court order is being executed, and against which legal actions have been brought in accordance with the BoT’s new guidelines. For the remaining non-performing loans classified as “doubtful of loss”, “doubtful” and “sub-standard”, the subsidiary still provided provision based on the existing guidelines at the rates not lower than 100%, 50% and 20% of the collateral shortfall, respectively. However, the subsidiary set up a certain amount of additional provision in anticipation of those required in 2007 by new guidelines. The exact effect to the 2007 financial statements from the additional provision to be set up in compliance with the BoT’s new guidelines cannot be determined at this stage.

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(Unit : Thousand Baht) Consolidated 31 December 2005 Allowance for doubtful account Loans and accrued interest receivables

The minimum rate of loan loss provisioning per BoT

Balance after collateral

Minimum amounts required under BoTâ&#x20AC;&#x2122;s guidelines

Amounts provided in the accounts

% Pass

1,560,797

707,805

1

7,078

7,078

38,532

-

2

-

-

-

-

20

-

-

Special-mention Sub-standard Doubtful

122,675

5,221

50

2,610

2,610

Doubtful of loss

141,965

59,788

100

59,881

59,881

1,863,969

772,814

69,569

69,569

Total

Add : Additional provision that is in excess of the BoTâ&#x20AC;&#x2122;s minimum requirement for loans which may be not collectible

20,718

Total allowance for doubtful accounts

90,287

9.5 Securities business receivables classified in accordance with the Notification of the Office of the Securities and Exchange Commission As at 31 December 2006 and 2005, a subsidiary engaging in the securities business had classified securities business receivables and related accrued interest receivables (after eliminating the outstanding balances between related parties) in accordance with the Notification of the Office of the Securities and Exchange Commission regarding accounting for non-performing receivables of securities company as follows :(Unit : Thousand Baht) Consolidated 31 December 2006 Securities business receivables and accrued interest receivables Pass Doubtful Total

Allowance for doubtful accounts set up by the subsidiary

31 December 2005

Net securities business receivables after allowance for doubtful accounts

Securities business receivables and accrued interest receivables

Allowance for doubtful accounts set up by the subsidiary

Net securities business receivables after allowance for doubtful accounts

575,290

-

575,290

284,251

-

284,251

5,966

5,966

-

8,439

8,439

-

581,256

5,966

575,290

292,690

8,439

284,251

As at 31 December 2006, such subsidiary had securities business receivables of approximately Baht 6 million (31 December 2005 : Baht 8.4 million) on which the recognition of income on an accrual basis had been suspended.

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9.6 Unearned income, which is presented net of finance business loans and receivables, is as follows :(Unit: Thousand Baht) Consolidated Unearned income on discounted bills

31 December 2006

31 December 2005

7

275

Unearned hire-purchase income

2,523

3,901

Total

2,530

4,176

9.7 Loans and receivables on which the subsidiaries have ceased recognition of income (Unit: Thousand Baht) Consolidated Finance business loans and receivables (including accrued interest receivables) Securities business receivables Total loans and receivables on which the subsidiaries have ceased recognition of income Percentage of total loans, receivables and accrued interest receivables

31 December 2006

31 December 2005

271,420

264,640

5,966

8,439

277,386

273,079

10

13

9.8 Non-performing loans of finance business (Unit: Thousand Baht) Consolidated Finance business loans and receivables (principal only) Percentage of total finance business loans and receivables

31 December 2006

31 December 2005

376,292

255,718

18

14

As at 31 December 2006 and 2005, the above non-performing loans were presented in accordance with the Notification of the BoT dated 16 January 2003, defining the non-performing loans to be the debts classified as “sub-standard”, “doubtful” and “doubtful of loss” and excluding outstanding loans for which debt restructuring agreements have been made and conditions to upgrade to “pass” class or “special-mention” class in accordance with the Bank of Thailand’s criteria have already been fulfilled.

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9.9 Troubled debt restructuring - the subsidiary engaging in the finance business During the years ended 31 December 2006 and 2005, a subsidiary which is a finance company, entered into troubled debt restructuring contracts, which are summarised below. (Unit : Thousand Baht) Consolidated For the years ended 31 December 2006

2005

Number of debtors

Outstanding balances before restructuring

Number of debtors

Outstanding balances before restructuring

-

-

2

37,981

Restructured debts

Details of debts restructured during the years ended 31 December 2006 and 2005 are as follows :(Unit : Thousand Baht) Consolidated For the year ended 31 December 2006 Number of debtors

Outstanding balances before restructuring

Outstanding balances after restructuring

Type of assets transferred

Fair value of assets transferred

(Gain) losses from debt restructuring

Settlement by cash and assets transferred

-

-

-

-

-

-

Modification of repayment conditions

-

-

-

-

-

-

Combination of various methods

-

-

-

-

-

-

Total debts restructured during the year

-

-

-

-

-

1,298

2,077,734

Type of debt restructuring

Finance business loans and accrued interest receivables as at 31 December 2006

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(Unit : Thousand Baht) Consolidated For the year ended 31 December 2005 Number of debtors

Outstanding balances before restructuring

Outstanding balances after restructuring

Type of assets transferred

Fair value of assets transferred

losses from debt restructuring

Settlement by cash and assets transferred

1

981

-

Cash

1,523

(542)

Modification of repayment conditions

1

37,000

37,000

-

-

-

Combination of various methods

-

-

-

-

-

-

Total debts restructured during the year

2

37,981

37,000

1,523

(542)

Finance business loans and accrued interest receivables as at 31 December 2005

447

1,863,969

Type of debt restructuring

In cases where the troubled debt restructuring involves modification of the terms and the repayment conditions, the fair value of the loans after restructuring is determined based on the net present value of expected future cash flows, discounted by the interest rates charged to prime customers. As at 31 December 2006 and 2005, the subsidiary had no losses from the revaluation of restructured debts. For the year ended 31 December 2006, the subsidiary recognised interest income on restructured debts totaling Baht 2.0 million (2005 : Baht 5.3 million) and collected principal and interest totaling Baht 10.4 million (2005 : Baht 80.7 million). As at 31 December 2006 and 2005, the subsidiary had the following outstanding loans and accrued interest receivables. (Unit : Thousand Baht) Consolidated 31 December 2006 Number of debtors Restructured loans

31 December 2005

Amount

Number of debtors

Amount

2

37,153

2

45,556

Normal loans

1,296

2,040,581

445

1,818,413

Total loans and accrued interest receivables

1,298

2,077,734

447

1,863,969

As at 31 December 2006 and 2005, the subsidiary had no commitment to provide additional loans to its restructured debtors after debt restructuring. FINANSA PLC. ANNUAL REPORT 2006

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9.10 Loans and receivables which have problems with financial position and operating results As at 31 December 2006 and 2005, a finance company subsidiary had the following loans and receivables (including accrued interest receivables) due from companies which have problems with their financial position and operating results. (Unit : Million Baht)

Number of debtors 31 December 2006 Debtors, who have repayment problems or have defaulted

Outstanding balances

31 December 2005

49

31 December 2006

50

Collateral

31 December 2005

384

Allowance for doubtful accounts under BoTĂ­s guidelines as provided in the accounts

31 December 2006

265

31 December 2005

282

200

31 December 2006

31 December 2005

87

63

10. ALLOWANCE FOR DOUBTFUL ACCOUNTS (Unit : Thousand Baht) Consolidated For the year ended 31 December 2006 Specialmention

Pass

Doubtful of loss

Doubtful

Additional provision(1)

Total

Balance - beginning of the year

7,078

-

-

11,049

59,881

20,718

98,726

Bad debt written off

-

-

-

-

(13,857)

-

(13,857)

Increase in bad debt and doubtful accounts during the year

-

-

-

-

-

55,000

55,000

Bad debt recovery

-

-

-

(2,473)

-

-

(2,473)

Increase (decrease) due to changes in debt classification and/or collateral value and/or outstanding balances

4

-

-

12,445

26,350

(38,799)

-

Balance - end of the year

7,082

-

-

21,021

72,374

36,919

137,396

(1)

66

Substandard

Additional provision that is in excess of the minimum requirement of BoT for loans which may not be collectible.

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(Unit : Thousand Baht) Consolidated For the year ended 31 December 2005 Specialmention

Pass Balance - beginning of the year

Substandard

Doubtful of loss

Doubtful

Additional provision(1)

Total

5,921

2

19

401

96,052

24,406

126,801

-

-

-

-

(36,138)

-

(36,138)

Increase (decrease) due to changes in debt classification and/or collateral value and/or outstanding balances

1,157

(2)

(19)

10,648

(33)

(3,688)

8,063

Balance - end of the year

7,078

-

-

11,049

59,881

20,718

98,726

Bad debts written off

(1)

Additional provision that is in excess of the minimum requirement of BoT for loans which may not be collectible.

11. LOANS TO OTHER PARTIES As at 31 December 2006 and 2005, the Company and its subsidiaries had outstanding loans to other parties as follows:(Unit : Thousand Baht) Consolidated 31 December 2006

The Company only

31 December 2005

31 December 2006

31 December 2005

Loans to other parties - Short-term

108,941

17,500

77,365

-

- Long-term

53,745

300,000

53,745

300,000

162,686

317,500

131,110

300,000

(116,941)

(317,500)

(85,365)

(300,000)

45,745

-

45,745

-

Total Less : Current portion Loans to other parties - net of current portion

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12. OTHER CURRENT ASSETS (Unit : Thousand Baht) Consolidated 31 December 2006 Dividend receivables

The Company only

31 December 2005

31 December 2006

31 December 2005

70

114

-

-

28,335

17,420

12,549

10,825

Prepaid expenses

6,512

4,028

1,048

2,091

Refundable value added tax

1,551

2,112

-

-

29,713

12,679

-

-

Other receivables - related parties

14,048

71,708

15,202

-

Maintenance margin deposits derivative markets

81,389

-

1,628

-

19,308

15,242

3,395

2,427

180,926

123,303

33,822

15,343

Accrued interest receivables

Prepaid corporate income tax

Others Total other current assets

13. DEPOSITS SUBJECT TO RESTRICTIONS As at 31 December 2006 and 2005, the Company had pledged bank deposits amounting to Baht 0.9 million to secure bank guarantees issued by the banks on behalf of the Company. As at 31 December 2005, a subsidiary had a deposit of Baht 20 million with a bank, which had been pledged for derivative contracts made with that bank. During 2006, the subsidiary terminated such derivative contracts and collateral was released. As at 31 December 2006, the subsidiary therefore had no deposit subject to restrictions.

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14. INVESTMENTS ACCOUNTED FOR UNDER EQUITY METHOD (Unit: Thousand Baht) Consolidated Investments Companiesâ&#x20AC;&#x2122; names

Nature of Business

Country

Percentage of shareholding 31 December 2006

31 December 2005

%

%

Cost method

Equity method

31 December 2006

31 December 2005

31 December 2006

31 December 2005

Associated companies Siam Investment Partners, L.P.

General Partner of a fund

Cayman Islands

50.00

50.00

11,025

10,333

10,650

11,253

Finansa Capital Ltd.

Investment Advisory

Cayman Islands

50.00

50.00

534

608

232

-

JP-One Asset Co., Ltd.

Providing oil transportation service by pipeline

Thailand

26.83

20.83

163,430

125,000

164,450

125,000

The Vietnam Equity Fund

Fund

Cayman Islands

26.38

26.38

62,928

25,868

145,169

25,868

Siam Investment Fund III , L.P.

Fund

Cayman Islands

41.66

25,847

4,161

15,283

General Partner of a fund

Cayman Islands

50.00

10,858

-

10,728

274,622

165,970

Siam Investment Partners III, L.P.

(1)

(3)

41.66 50.00

(1)

(3)

(2)

4,161

(2)

-

346,512

(2)

(2)

166,282

(1) Determined based on shares held directly as a Limited Partner and indirectly as a General Partner. (2) Equity accounting is made based on rates and formula of profit/loss sharing arrangement as specified in the prospectus. (3) The percentage shown is profit sharing percentage while capital contribution by Finansa Fund Management Ltd. as a Limited Partner is 95% of the capital of the business. (Unit: Thousand Baht) The Company only Investments Companiesâ&#x20AC;&#x2122; names

Nature of Business

Country

Percentage of shareholding 31 December 2006

31 December 2005

%

%

Cost method

Dividends received

Equity method

31 December 2006

31 December 2005

31 December 2006

31 December 2005

For the years ended 31 December

Subsidiaries Finansa Securities Limited

Securities Business

Thailand

100

100

484,709

484,709

874,428

1,201,139

315,000

-

Finance Business

Thailand

100

100

587,231

587,231

582,028

619,589

-

-

Finansa Asset Management Ltd.

Asset Management Business

Thailand

100

100

108,200

108,200

91,870

91,375

-

-

Finansa Fund Management Ltd.

Investment Advisory Business

Cayman Islands

100

100

151,790

151,790

570,158

739,256

-

-

Prospect SPC Co., Ltd.

Investment Business

Thailand

100

100

10

10

-

88

-

-

Finansa (Cambodia) Ltd.

Investment Advisory Business

Cambodia

100

100

204

204

-

-

-

-

Finansa Hong Kong Ltd.

Advisory Business

Hong Kong

100

100

513

513

-

149

-

-

1,332,657

1,332,657

2,118,484

2,651,596

315,000

-

Finansa Credit Limited

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15. LONG-TERM INVESTMENTS IN RELATED PARTIES (Unit: Thousand Baht) Consolidated Companiesâ&#x20AC;&#x2122; names

Nature of Business

Country

Percentage of shareholding 31 December 2006

Siam Investment Fund (2)

Fund

Cayman Islands

Siam Investment Fund II, L.P.

Fund

Cayman Islands

31 December 2005

%

%

57.48

49.48

4.13(1)

4.13(1)

Long-term investments in related parties Less : Allowance for impairment Long-term investments in related parties - net

The Company only

Investments (cost method)

Percentage of shareholding

Investments (cost method)

31 December 2006

31 December 2005

%

%

8.00

31 December 2006

31 December 2005

147,609

418,364

48,793

47,847

-

31 December 2006

31 December 2005

-

2,876

-

-

-

-

196,402

466,211

2,876

(147,609)

(61,618)

(2,876)

-

48,793

404,593

-

-

(1) Determined based on shares held directly as a limited partner and indirectly as a general partner. (2) This fund is in process of being liquidated.

The Company pledged 1,215,250 investment units of Siam Investment Fund to secure long-term loan from a commercial bank, as discussed in Note 27.1 to the financial statements. An overseas fund, in which the Company and a subsidiary invest, resolved not to extend the term of the fund for another two years and is being liquidated. During 2006, the Company and its subsidiary therefore provided an additional allowance of approximately Baht 86 million (the Company only: Baht 2.9 million), estimated based on an expected irrecoverable amount, for impairment loss on such investment. 16. PROPERTIES FORECLOSED Properties foreclosed are the assets seized from debtors with long overdue loan and hire purchase balances or received from restructured debtors in settlement of debts. Properties foreclosed for the year ended 31 December 2006 and 2005 can be summarised as follows :(Unit : Thousand Baht) Consolidated For the year ended 31 December 2006

Beginning balances Immovable properties Less : Allowance for impairment Properties foreclosed - net

70

Additions

Disposals

Ending balances

Obligations with regard to buyback options or first refusal rights

47,871

-

(12,067)

35,804

-

(15,146)

-

7,567

(7,579)

-

32,725

-

(4,500)

28,225

-

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(Unit : Thousand Baht) Consolidated For the year ended 31 December 2005

Beginning balances Immovable properties Less : Allowance for impairment Properties foreclosed - net

Additions

Disposals

Obligations with regard to buyback options or first refusal rights

Ending balances

54,533

-

(6,662)

47,871

-

(17,500)

-

2,354

(15,146)

-

37,033

-

(4,308)

32,725

-

17. PREMISES AND EQUIPMENT (Unit : Thousand Baht) Consolidated Office building

Office equipment

Furniture and fixtures

Vehicles

Assets in progress

Total

Cost 31 December 2005

266,315

109,066

33,778

12,491

5,564

427,214

Acquisition

2,449

53,686

29,495

23,682

8,230

117,542

Transfer in (out)

4,485

5,481

-

-

(9,966)

-

Written-off/disposal

(4,566)

(1,374)

(637)

(866)

-

(7,443)

31 December 2006

268,683

166,859

62,636

35,307

3,828

537,313

31 December 2005

31,328

53,042

17,131

7,655

-

109,156

Depreciation for the year

20,260

24,699

7,132

3,982

-

56,073

Written-off/disposal

(1,784)

(561)

(296)

(866)

-

(3,507)

31 December 2006

49,804

77,180

23,967

10,771

-

161,722

31 December 2005

234,987

56,024

16,647

4,836

5,564

318,058

31 December 2006

218,879

89,679

38,669

24,536

3,828

375,591

Accumulated depreciation

Net book value

Depreciation in the income statements for the years ended 31 December 2005

43,752

31 December 2006

56,073

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(Unit : Thousand Baht) The Company Only Office building

Office equipment

Furniture and fixtures

Vehicles

Assets in progress

Total

Cost 31 December 2005

266,315

90,443

13,463

6,388

5,141

381,750

Acquisition

2,449

961

84

1,780

4,117

9,391

Transfer in (out)

4,485

4,773

-

-

(9,258)

-

Written-off/disposal

(4,566)

(1,288)

(492)

-

-

(6,346)

31 December 2006

268,683

94,889

13,055

8,168

-

384,795

31,328

41,168

8,585

3,569

-

84,650

Depreciation for the year

20,260

17,407

2,034

1,046

-

40,747

Written-off/disposal

(1,784)

(513)

(266)

-

-

(2,563)

31 December 2006

49,804

58,062

10,353

4,615

-

122,834

31 December 2005

234,987

49,275

4,878

2,819

5,142

297,101

31 December 2006

218,879

36,827

2,702

3,553

-

261,961

Accumulated depreciation 31 December 2005

Net book value

Depreciation in the income statements for the years ended 31 December 2005

38,514

31 December 2006

40,747

The Company has mortgaged office condominium units with a total net book value as at 31 December 2006 and 2005 amounting to Baht 111 million and Baht 118 million, respectively as collateral against credit facilities granted by a commercial bank as discussed in Note 27.1 to the financial statements. As at 31 December 2006, a subsidiary has assets with a net book value of Baht 17.5 million under finance lease agreements (31 December 2005 : Nil). As at 31 December 2006 and 2005, the gross carrying amount of the fully depreciated equipment that is still in use is Baht 29 million and Baht 25 million, respectively (the Company only : Baht 13 million and Baht 12 million, respectively).

72

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18. GOODWILL (Unit : Thousand Baht) Consolidated Finansa Securities Limited

Finansa Fund Management Ltd.

Finansa Credit Limited

Finansa Asset Management Ltd.

Total

Goodwill as at acquisition date Cost

234,709

108,000

287,231

108,200

738,140

Book value as at acquisition dates

(49,021)

(44,879)

(114,007)

(89,212)

(297,119)

Goodwill

185,688

63,121

173,224

18,988

441,021

55,554

11,453

28,149

949

96,105

Accumulated amortization of goodwill 31 December 2005 Goodwill amortised during the year

9,285

3,156

8,661

949

22,051

64,839

14,609

36,810

1,898

118,156

31 December 2005

130,134

51,668

145,075

18,039

344,916

31 December 2006

120,849

48,512

136,414

17,090

322,865

31 December 2006 Goodwill - net

Goodwill amortised and charged to the income statements for the years ended 31 December 2005

22,051

31 December 2006

22,051

19. DEFERRED INCOME TAX ASSETS/CORPORATE INCOME TAX (Unit : Thousand Baht) Consolidated 31 December 2006

The Company Only

31 December 2005

31 December 2006

31 December 2005

Deferred income tax assets Occurred from timing differences of :Benefits from carried forward tax losses

77,915

4,419

34,219

-

Allowance for revaluation of investments

21,981

13,749

4,946

(453)

Allowance for doubtful accounts

16,500

61

-

-

Provision for loss on interest rate swap contracts

-

9,000

-

-

Others

-

24,026

-

24,026

116,396

51,255

39,165

23,573

Deferred income tax assets

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(Unit : Thousand Baht) Consolidated

The Company Only

For the year ended 31 December 2006

For the year ended 31 December

2005

2006

2005

Income tax Income tax on taxable income for the years

(4,708)

(56,264)

-

-

(24,026)

5,513

(24,026)

5,513

7,768

(2,979)

5,399

(2,495)

16,438

(51)

-

-

-

9,000

-

-

48,380

4,419

34,219

-

-

(755)

-

-

43,852

(41,117)

15,592

3,018

Recording of tax benefits from : Goodwill amortisation Allowance for revaluation of investments Allowance for doubtful accounts Provision for loss on interest rate swap contracts Benefits from tax losses Less : Write-off of tax losses carried forward longer than 5 years Income tax for the years

Corporate income tax rates 31 December 2006

31 December 2005

%

%

25

25

The Company The domestic subsidiaries

30

30

The overseas subsidiary (Singapore only)

20

20

20. INTANGIBLE ASSETS (Unit : Thousand Baht) Consolidated Remaining periods as at 31 December 2006 Computer software

8 months to 9 years and 5 months

31 December 2005

Addition

Amortisation

31 December 2006

65,882

19,715

(14,191)

71,406

The Company Only Remaining periods as at 31 December 2006 Computer software

74

8 months to 4 years and 9 months

31 December 2005

Addition

Amortisation

31 December 2006

65,793

3,900

(13,478)

56,215

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21. QUALITY OF ASSETS 21.1 Classification of assets in accordance with the Notification of the Bank of Thailand As at 31 December 2006 and 2005, classification of the assets of a subsidiary, which is a finance company, is made in accordance with the Notification of the Bank of Thailand as follows :(Unit : Million Baht) Consolidated Loans, receivables and accrued interest receivables

Investments

Total 31 December 2005

-

-

1,694

1,561

-

-

-

38

-

113

-

1,561

-

-

-

-

38

-

-

-

-

113

-

-

-

-

-

-

Doubtful

31 December 2005

31 December 2006

-

Sub-standard

31 December 2006

31 December 2005

1,694

Special-mention

31 December 2005

Other assets

31 December 2005

Pass

31 December 2006

Properties foreclosed

31 December 2006

31 December 2006

71

123

-

-

-

-

-

-

71

123

200

142

14

35

8

15

-

-

222

192

Total

2,078

1,864

14

35

8

15

-

-

2,100

1,914

Less : Allowance for doubtful accounts

(131)

(90)

1,947

1,774

Doubtful of loss

21.2 Classification of assets in accordance with the Notification of the Office of the Securities and Exchange Commission (SEC) As at 31 December 2006 and 2005, a subsidiary, which is a securities company, classified its securities business receivables, accrued interest receivables and allowances for doubtful accounts (after eliminating the outstanding balances between related parties) as follows :(Unit: Million Baht) Allowance for doubtful accounts set up by the subsidiary

Debt balances 31 December Doubtful Substandard Total

Allowance for doubtful accounts in excess of SEC requirements

31 December

31 December

2006

2005

2006

2005

2006

2005

6.0

8.4

6.0

8.4

-

-

-

-

-

-

-

-

6.0

8.4

6.0

8.4

-

-

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22. BILLS OF EXCHANGE Bills of exchange issued by the Company are charged interest at the rates with reference to the Money Market rate. The outstanding balances as at 31 December 2006 and 2005 can be summarised below. (Unit : Thousand Baht) Consolidated Issued to Related parties

31 December 2006

The Company Only

31 December 2005

31 December 2006

130,000

310,000

Mutual funds

31 December 2005

200,000

360,000

-

10,000

-

10,000

Provident funds

224,000

-

224,000

-

Limited companies

200,000

445,000

200,000

445,000

Individuals

115,669

20,000

115,669

20,000

Total

669,669

785,000

739,669

835,000

Discounts paid

(12,817)

(9,998)

(13,937)

(10,865)

Bills of exchange - net

656,852

775,002

725,732

824,135

23. SHORT-TERM LOANS (Unit : Thousand Baht) Consolidated 31 December 2006

The Company Only

31 December 2005

31 December 2006

31 December 2005

Loans from individuals

25,000

25,000

-

-

Total

25,000

25,000

-

-

As at 31 December 2006 and 2005, Finansa Fund Management Ltd., an overseas subsidiary, had short-term loans from an individual amounting to Baht 25 million which are due at call and subject to interest at the rate of 3.5 percent per annum. 24. SECURITIES BUSINESS PAYABLES (Unit: Thousand Baht) Consolidated 31 December 2006 Securities business payables of securities brokerage business Securities borrowing payables Total

76

The Company Only

31 December 2005

31 December 2006

31 December 2005

369,652

160,823

-

-

4,800

35,750

-

-

374,452

196,573

-

-

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25. LIABILITIES UNDER FINANCE LEASE AGREEMENTS As at 31 December 2006, liabilities under finance lease agreements included the following : (Unit: Thousand Baht) 31 December 2006 Liabilities under finance lease agreements

19,228

Less : Deferred interest under finance lease agreements

(2,365)

Liabilities under finance lease agreements - net

16,863

Installments due within 1 year

4,525

Installments due longer than 1 year

12,338

Liabilities under finance lease agreements - net

16,863

Movement of liabilities under finance lease agreements (excluding interests) for the year ended 31 December 2006 included the following : For the year ended 31 December 2006 Liabilities under finance lease agreements - at beginning of the year

-

Increase during the year

19,585

Installments made during the year

(2,722)

Liabilities under finance lease agreements - at end of the year

16,863

26. BORROWINGS AND DEPOSITS As at 31 December 2006 and 2005, a subsidiary, which operates a finance business, had borrowings and deposit balances as follows :(Unit: Thousand Baht) Consolidated 31 December 2006

31 December 2005

Borrowings and deposits - promissory notes

3,491,429

3,865,181

Current portion of borrowings and deposits

(3,363,112)

(3,786,605)

128,317

78,576

Borrowings and deposits - net of current portion

27. LONG-TERM LOANS (Unit: Thousand Baht) Consolidated

The Company only

31 December 2006

31 December 2005

31 December 2006

31 December 2005

Long-term loans

1,232,520

1,290,773

350,000

390,000

Current portion of long-term loans

(230,000)

(40,000)

(230,000)

(40,000)

Long-term loans - net of current portion

1,002,520

1,250,773

120,000

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27.1

As at 31 December 2006, the outstanding Baht loan of Baht 200 million is subject to interest at the 12-month fixed deposit rate plus 3.5 percent per annum, payable on a monthly basis and has repayment schedule as follows :Year

Repayment

Amount (Baht million)

2007

Quarterly basis at Baht 20 million each

80

2008

Quarterly basis at Baht 30 million each

120 200

This loan is secured by the mortgage of the office condominium units and the investment units held by a subsidiary. The loan covenant requires the Company to maintain an average debt to security ratio of not more than 0.8 during the two weeks before each quarter-end date (calculated on a weekly basis). 27.2 In 2004, the Company obtained a loan from an open-ended fund through the issue of promissory notes amounting to Baht 150 million with a maturity of 3 years, due on 2 April 2007, bearing interest at the rate of 4 percent per annum. Interest payment is to be made semi-annually. 27.3 As at 31 December 2006, Finansa Fund Management Ltd. (the subsidiary) had a loan of Euro 18.5 million or equivalent to Baht 882 million (31 December 2005 : Baht 901 million) from an overseas financial institution. The loan bears interest at the 3 month-Euribor rate per annum, payable quarterly. Such loan is secured by Synthetic Collateralized Debt Obligation, as referred to in Note 8.1 (3) to the financial statements.

28. DEBENTURES On 19 August 2003, the Extraordinary General Meeting of the Companyâ&#x20AC;&#x2122;s shareholdersâ&#x20AC;&#x2122; resolved to approve the issue and offer of secured and/or unsecured debentures, and/or debentures with and/or without trustee, and/or any debentures with a tenor of not more than 10 years in amounts not exceeding Baht 2,000 million. The offerings can be made in a single lot or divided into a series of tranches, and offered to the public and/ or specific investors and/or institutional investors, as referred to in the Notification of the Securities and Exchange Commission. Terms and conditions, including details of the debentures and the offering, shall be further considered by the Board of Directors or by a person assigned by the Board of Directors. As at 31 December 2006 and 2005, the Company has not yet offered and issued these debentures.

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29. WARRANTS On 19 August 2003, the Extraordinary General Meeting of the Company’s shareholders resolved to approve the offer of warrants to the existing shareholders, the details of which are as follows:Name of warrants

:

Type Maturity Quantity Offering method

: : : :

Offering price Exercise ratio Exercise price Exercise date

: : : :

No. of ordinary shares reserved for warrant exercise Secondary market

: :

Warrants to purchase ordinary shares of Finansa Public Company Limited No. 1 (FNS - W1) Transferable and registered 3 years counting from date of issuance 110 million units Offered to shareholders listed in the shareholders’ register on 4 September 2003, in a ratio of 1 warrant to each existing share Baht 0 each 1 warrant to 1 new ordinary share Baht 25 per share Within the last working day of each month, until 3 years after date of issuance 110 million shares The Company listed the warrants on the Stock Exchange of Thailand on 29 October 2003.

On 28 February 2006, the Company’s Board of Directors’ meeting passed a resolution on the dividend payment of Baht 0.50 per share, distributed from the 2005 net income, which exceeded 30% of the net income. Therefore, the Company made adjustments of the exercise ratio and exercise price of warrant (FNSW1) according to the formula specified in the Prospectus from “one warrant has the right to purchase one share at a price of Baht 25 per share” to “one warrant has the right to purchase 1.01740 share at a price of Baht 24.572 per share”. The adjustment becomes effective from 31 March 2006 onwards. During the year 2006, no warrants were exercised, and such warrants expired in October 2006. 30. STATUTORY RESERVE Pursuant to Section 116 of the Public Limited Companies Act B.E. 2535, the Company is required to set aside a statutory reserve at least 5 percent of its net income after deducting accumulated deficit brought forward (if any) until the reserve reaches 10 percent of the registered capital. The statutory reserve is not available for dividend distribution. 31. TREASURY STOCK RESERVE Under the Notification of the Office of Securities and Exchange Commission No. Gor Lor Tor. Chor Sor. (Wor) 2/2548 and the Notification of the Federation of Accounting Professions No. Sor. Sor Wor Bor Chor. 016/2548, public companies buying back their own shares (treasury shares) must have retained earnings in an amount of not less than the outstanding balance of the treasury shares. If retained earnings are appropriated for dividend payment, the balance of retained earnings after such appropriation must not less than the balance of the treasury shares. The Company proceeded in accordance with these guidelines and appropriated an amount equivalent to the amount paid to acquire the shares from its retained earnings to the treasury stock reserve. FINANSA PLC. ANNUAL REPORT 2006

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32. TREASURY STOCKS On 12 May 2005, the Board of Directors of the Company approved a program to buy back its own shares up to 12,501,000 shares (par value of Baht 5 each), or 10 percent of the total number of shares in issue, with a budget of Baht 300 million, for liquidity surplus management purposes. The shares are to be bought back on the Stock Exchange of Thailand during 30 May 2005 to 30 November 2005, and can be resold after 6 months from the date of treasury share buy back completion but within 3 years. In the event that the Company does not or is unable to dispose of the repurchased shares within such period, the Company will reduce its capital by cancelling the remaining unsold shares. As at 31 December 2006, the Company has bought back its 1,490,300 ordinary shares totaling Baht 25.04 million, representing 1.19 percent of total issued shares. 33. BASIC EARNINGS PER SHARE/DILUTED EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of ordinary shares held by outside shareholders in issue during the year. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of ordinary shares held by outside shareholders in issue during the year plus the weighted average number of ordinary shares which would need to be issued to convert all dilutive potential ordinary shares into ordinary shares. The calculation assumes that the conversion took place either at the beginning of the year or on the date the potential ordinary shares were issued. Reconciliation between basic earnings per share and diluted earnings per share is presented below. Consolidated and the Company only Weighted average number of ordinary shares

Net income

Earnings per share

2006

2005

2006

2005

2006

2005

Thousand Baht

Thousand Baht

Thousand shares

Thousand shares

Baht

Baht

Basic earnings per share Net income (loss)

(182,897)

102,426

-

-

(182,897)

102,426

123,520

124,618

(1.48)

0.82

Effect of dilutive potential ordinary shares Exercise of warrants Diluted earnings per share Net income (loss) of ordinary shareholders, assuming the conversion of warrants to ordinary shares

Since the conversion to ordinary shares of the above warrants would decrease loss per share for the year ended 31 December 2006 and increase earnings per share for the year ended 31 December 2005, the Company has therefore not assumed conversion of the warrants in the calculation of diluted earnings per share.

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34. NUMBER OF EMPLOYEES AND RELATED COSTS Consolidated 2006 Number of employees at end of years Employee costs for the years (Thousand baht)

The Company only

2005

2006

2005

473

293

71

61

496,221

353,382

70,556

66,393

35. PROVIDENT FUND The Company, its subsidiaries and employees have jointly established provident funds in accordance with the Provident Fund Act B.E. 2530. The Company, its subsidiaries and employees contributed to the funds monthly at the rate of 5 - 7 percent of basic salary. The funds, which are managed by Finansa Asset Management Limited and Thai Life Insurance Company Limited, will be paid to employees upon termination in accordance with the funds rules. For 2006 and 2005, the Company and its subsidiaries contributed Baht 9.9 Million and Baht 7.7 million, respectively (the Company only : Baht 2.6 Million and Baht 2 million, respectively). 36. DIVIDENDS PAID (Unit : Baht) Approved by

Dividends paid

Dividend per share

Dividend for 2004 which was declared in 2005

Annual General Meeting of the shareholders on 25 April 2005

62,505,050

0.50

Dividend for 2005 which was declared in 2006

Annual General Meeting of the shareholders on 24 April 2006

61,759,900

0.50

37. ADJUSTMENT OF RETAINED EARNINGS On 3 May 2006, a Government Authority, which regulates financial institutions informed in its letter to a subsidiary that the subsidiary has 4 interest rate swap contracts, which do not qualify as hedging transactions and thus the subsidiary is required to classify them as trading transactions and measure them at fair value whereby additional losses resulting from measuring those transactions would be made against deficit of the subsidiary. Therefore, the subsidiary recognised additional losses of approximately Baht 38 million (net of related deferred tax) against deficit brought forward at the beginning of the year. 38. INFORMATION OF ACQUISITION OF A SUBSIDIARY In January 2005, the Company purchased ordinary shares in Krungdhep Thanathon Asset Management Company Limited, which was later changed its name to â&#x20AC;&#x153;Finansa Asset Management Limitedâ&#x20AC;?. The net asset value of that subsidiary as of the purchase date was as follows :-

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(Unit : Thousand Baht) Cash and cash equivalent

29,530

Current investments - net

48,979

Fee and service income receivables

2,797

Equipment - net

4,232

Other current assets

401

Other non-current assets

8,167

Total assets

94,106

Accrued expenses

4,182

Other current liabilities

712

Total liabilities

4,894

Net assets

89,212

Purchase price

108,200

Less : Cash held by the subsidiary

(29,530)

Net cash payment for purchase of the subsidiary

78,670

An excess of cost of investment over the net book value of the subsidiary at the acquisition date is amortised on a straight-line basis over a period of 20 years. 39. CAPITAL FUNDS As at 31 December 2006 and 2005, the capital funds maintained by a subsidiary in accordance with the resolution of the Section 4 of the Act on the Undertaking of Finance Business, Securities Business and Credit Foncier Business B.E. 2522, were as follows :(Unit : Thousand Baht) 31 December 2006

2005

Tier 1 capital Paid-up share capital

451,000

451,000

Premium on share capital

124,000

124,000

4,700

4,700

(122,230)

(33,193)

Deferred tax assets

(50,968)

(13,419)

Total Tier 1 capital

406,502

533,088

7,082

7,078

Total Tier 1 and Tier 2 capital

413,584

540,166

Less : Revaluation deficit on investment in equity securities

(11,406)

(27,664)

Total capital fund

402,178

512,502

Statutory reserve Deficit

Tier 2 capital Provision for assets classified as “Pass”

Capital funds as discussed above are calculated based on the Bank of Thailand’s guidelines.

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40. ENCUMBRANCE OF ASSETS 40.1 As at 31 December 2006 and 2005, the Company had pledged bank deposits amounting to Baht 0.9 million with a bank to secure bank guarantees issued by the bank on behalf of the Company. 40.2 As at 31 December 2005, a subsidiary had a deposit of Baht 20 million with a bank, which has been pledged for derivative contracts made with that bank. During 2006, such subsidiary terminated such derivative contracts and such collateral was released. As at 31 December 2006, the subsidiary had therefore no deposit subject to restrictions. 40.3 The Company has mortgaged office condominium units and pledged investments units in Siam Investment Fund to secure long-term loans, as discussed in Note 27.1 to the financial statements. 40.4 As at 31 December 2006 and 2005, the Company had an investment in preference shares of a company with a book value of Baht 39.6 million, which is subject to restrictions as discussed in Note 8.1(2) to the financial statements. 40.5 As at 31 December 2006 and 2005, a subsidiary has pledged investments of Euro 19.5 million in Synthetic Collateralized Debt Obligation as collateral for a loan, as discussed in Note 27.3 to the financial statements. 40.6 A subsidiary has placed investments, having a book value of USD 12.3 million or equivalent to Baht 444 million as at 31 December 2006, in The Asian Debt Fund, Ltd. as collateral against a loan facility obtained from an overseas financial institution, as discussed in Note 8.1 (5) to the financial statements. 40.7 As at 31 December 2006, ADF Management, Ltd., a subsidiary of Finansa Fund Management Ltd., had investment in The Asian Debt Fund, Ltd. amounting to USD 0.55 million, or equivalent to Baht 19.9 million (31 December 2005 : USD 0.09 million, or equivalent to Baht 3.6 million) which it has a commitment to transfer to the Investment Team of The Asian Debt Fund, Ltd. and is subject to a two-year lock-up period. Such investment was recorded as an integral part of other non-current assets.

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41. COMMITMENTS 41.1 Off-balance sheet commitments As at 31 December 2006 and 2005, the Company and its subsidiaries had significant off-balance sheet commitments as follows :(Unit: Million Baht) Consolidated 31 December 2006 Foreign Currency

Baht Loan guarantees

31 December 2005 Total

Foreign Currency

Baht

Total

50

-

50

40

-

40

1,800

-

1,800

1,800

-

1,800

Fixed rate payer

-

-

-

200

-

200

Floating rate payer

-

-

-

880

-

880

Fixed rate payee

-

-

-

915

-

915

Floating rate payee

-

-

-

200

-

200

-

198

198

-

422

422

-

722

722

-

-

-

1,850

920

2,770

4,035

422

4,457

Other commitments Interest rate cap Floating rate payee Interest rate swap contracts

Forward exchange contracts Bought Credit default swap contract Sold Total

(Unit: Million Baht) The Company only 31 December 2006 Baht

Foreign Currency

31 December 2005 Total

Foreign Currency

Baht

Total

Interest rate cap Floating rate payee

900

-

900

-

-

-

A subsidiary engaging in finance business had entered into various interest rate swap contracts with commercial banks and some of which required the subsidiary and its counterparty bank to exchange notional amounts on the amounts and dates as specified in the contracts, whereby the subsidiary was required to pay at the beginning of the contracts and during the term of contracts whilst its counterparty bank was to repay the whole notional amounts at the end of the contracts. The amounts paid by the Company over the contract period was treated as guarantees. Subsequently in March 2006, amendment was made whereby the subsidiary was required to pay an agreed notional amount on the contract amendment date instead of paying series of cash flows over the remaining term and thus the counterparty bank would repay the whole notional amounts at the end of the contracts. The subsidiary received interest on all those guarantees at the rate of THBFIX 6-month less 0-0.1 percent per annum. However, later in July 2006 the subsidiary terminated all those

84

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interest rate swap contracts and redeemed the guarantees in full. As a result of termination of the contracts, the subsidiary incurred a realised loss of approximately Baht 72 million. However, the subsidiary already recorded a loss of Baht 84 million accumulated upto 31 December 2005 (after adjustment), thus it had a gain of Baht 12 million in the statement of income for the year ended 31 December 2006 from such termination. Furthermore, on 17 January 2006, an overseas subsidiary, as a protection seller, entered into a credit default swap contract on a 5-year Kingdom of Thailand bond with notional amount of USD 20 million with an overseas financial institution whereby it will receive a return at a fixed rate as specified in the contract per annum based on the notional amount, payable quarterly. The contract will mature on 20 March 2011. It is required to pay an initial margin of USD 100,000 and the excess of market value loss of the credit default swap contract and the initial margin (if any) as a guarantee to the contract. As at 31 December 2006, the subsidiary has an initial margin of USD 100,000 or equivalent to Baht 3.6 million shown as a part of “guarantees for derivative contracts” in the balance sheet. 41.2 Commitments in respect of guarantee As at 31 December 2005, the Company had guaranteed credit facilities of a subsidiary, including derivative products of Baht 500 million, and overdrafts of Baht 20 million. During 2006, those credit facilities were cancelled. As at 31 December 2006 the Company therefore had no commitments in respect of guarantees to the subsidiary. 41.3 Commitment under lease agreement As at 31 December 2006 and 2005, the Company and its subsidiaries had commitments in respect of office rental and related service contracts, for which the future rental and service fees are payable as follows:(Unit: Million Baht) Consolidated

The Company only

31 December 2006

31 December 2005

31 December 2006

31 December 2005

33

8

-

-

Within 1 year Over 1 year

37

4

-

-

Total

70

12

-

-

41.4 Commitments under guarantee agreement The Company and an overseas subsidiary have commitments to pay fees under the guarantee agreement made with an overseas financial institution, as detailed in Note 43 to the financial statements. 41.5 Other commitments (1) A subsidiary is required to pay the Stock Exchange of Thailand a monthly securities trading fee of Baht 50,000 and at a rate of 0.005 percent of the trading volume. (2) A subsidiary is required to pay service fees to the Thailand Securities Depository Company Limited for rendering securities operation services on behalf of this subsidiary. The monthly service fee is Baht 40,000 and at the rates according to each type of services. (3) A subsidiary which engages in securities business is required to pay fees to the Office of the Securities and Exchange Commission (“SEC”) for its business operations as licensed whereby this subsidiary is charged a fee at a rate of 1 percent of the totals of brokerage fees plus fee and service FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:85

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(4)

(5) (6) (7) (8)

income and another subsidiary which is an asset management company is required to pay fees to the SEC for its business operations as licensed whereby this subsidiary is charged a fee at a rate of 1 percent of total fee and service income. Such fees shall not be less than Baht 500,000 per annum and not more than Baht 5,000,000 per annum. A subsidiary is required to pay contributions to the Compensation Fund for Clearing and Settlement, which is overseen by the Thailand Securities Depository Company Limited, on a monthly basis, at the rate of 0.008, 0.012 or 0.016 percent of its net settlement value each month and the monthly contributions shall not be less than Baht 1,000 per month. A subsidiary is required to pay contributions to the Securities Investor Protection Fund, which is overseen by the Stock Exchange of Thailand on a monthly basis, at a rate of 0.0005 percent. A subsidiary is required to pay a fee to the Financial Institutions Development Fund at the rate of 0.4 percent per annum on the outstanding balance of deposits taken from the public. As at 31 December 2006, a subsidiary has a commitment under an on-line information service agreement totaling USD 2,550. As at 31 December 2006, a subsidiary has the following commitment for minimum lease payment to be payable in each year under non-cancellable finance lease agreements with the lease term of longer than one year. (Unit: Million Baht) Year

Amount

2007

5.7

2008

5.7

2009

5.7

2010

2.1 19.2

42. BANK GUARANTEES As at 31 December 2006 and 2005, there were outstanding bank guarantees of Baht 0.9 million issued by banks on behalf of the Company in the normal course of business of the Company. 43. GUARANTEE AGREEMENT On 14 December 2004, the Company and an overseas subsidiary entered into the Master Guarantee Agreement with an overseas financial institution whereby the overseas financial institution agrees to guarantee debt instruments issued by the Company in an amount not exceeding Baht 1,000 million. The guarantee period is from 15 January 2005 to 15 January 2010, and extendable for a further 2 years ending 15 January 2012. The Company and its subsidiary have commitments to pay the following fees over the guarantee period. (a) Guarantee fee at the rate of 2 percent per annum of the utilised portion of the facility and, whenever the credit rating of the Company is lower than that on the agreement date, an additional 15 basis points will be charged for each notch it has fallen, (b) Monitoring fee of EUR 10,000 per annum, (c) If the Company does not utilise the full amount of the facility, the Company and its subsidiary have to pay a commitment fee at the rate of 1 percent of the unutilised portion per annum, and (d) If the Company does not utilise the full amount of the facility and cancel the remaining facility, the Company and its subsidiary have to pay a cancellation fee at the rate of 1 percent of the cancelled amount.

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In addition, the Company has to comply with certain financial covenants as specified in the agreement, commencing from 15 January 2005. As at 31 December 2006, the Company and its subsidiary already utilised facility credit of Baht 200 million (31 December 2005: utilised guarantee facility credit of Baht 210 million). 44. RELATED PARTY TRANSACTIONS 44.1 Significant business transactions incurred during the years During the years, the Company had significant business transactions with its related parties which have been concluded on commercial terms and bases agreed upon in the ordinary courses of businesses between the Company and those parties. Below is a summary of those transactions. 44.1.1 Amounts of related party transactions incurred during the years ended 31 December 2006 and 2005 were as follows :(Unit : Thousand Baht) Consolidated

The Company only

For the years ended 31 December

For the years ended 31 December

2006

2005

2006

Pricing policies

2005

Purchase of debt securities/ derivatives Finansa Securities Limited Finansa Credit Limited

Market price/At the agreed price -

-

49,919

-

-

-

5,400

155,604

-

-

55,319

155,604

Purchase of equity securities Siam Investment Fund

Par value/At the price close to book value 38,430

125,000

-

-

38,430

125,000

-

-

Purchase of rceivables/ claims over receivables Finasa Credit Limited Siam Investment Fund

-

-

57,823

-

At carrying value

7,530

-

-

-

At the agreed price

7,530

-

57,823

-

Income from financial and investment advisory businessess Service income Bangkok First Investment & Trust Plc.

As specified in the contract -

10,000

-

10,000

-

10,000

-

10,000

FINANSA PLC. ANNUAL REPORT 2006

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(Unit : Thousand Baht) Consolidated

The Company only

For the years ended 31 December 2006

Pricing policies

For the years ended 31 December

2005

2006

2005

Management fee Finansa Fund Management Ltd.

-

-

69,000

62,000

Finansa Securities Limited

-

-

44,000

44,000

Finansa Credit Limited

-

-

18,000

15,000

Finansa Asset Management Limited

-

-

7,000

3,000

Finansa Singapore Pte Ltd.

-

-

800

400

Finansa (Cambodia) Ltd.

-

-

140

120

140

120

-

-

140

120

238,314

105,099

-

-

See Note 44.1.4

22,003

33,354

-

-

See Note 44.1.4

4,742

20,143

-

-

See Note 44.1.4

14,463

16,615

-

-

See Note 44.1.4

279,522

175,211

139,220

124,760

Finansa Credit Limited

-

-

2,606

6,589

Same rates the subsidiary pays to general depositors

Finansa Securities Limited

-

-

171

303

5.0 % per annum (2005 : 3.5% per annum)

Finansa Fund Management Ltd.

-

-

46,687

29,684

6-month Libor + 2.75%, Average MLR - 1%

BFIT Securities Plc.

-

13,750

-

13,750

5.5% per annum

-

13,750

49,464

50,326

Finansa Hong Kong Limited PT Finansa (Indonesia) Holdings Ltd. The Asian Debt Fund, Ltd. Finansa Capital Ltd. Siam Investment Fund The Vietnam Equity Fund

On the price/rate agreed by both parties, which is determined based on estimated time spent and cost incurred for each company plus margin

Interest income

Dividend income

88

Siam Investment Fund

-

49,835

-

-

Siam Investment Fund II, L.P.

-

2,195

-

-

-

52,030

-

-

As paid by the funds and/or in accordance with the terms of the fund agreements

FINANSA PLC. ANNUAL REPORT 2006

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(Unit : Thousand Baht) Consolidated

The Company only

For the years ended 31 December

For the years ended 31 December

2006

2005

2006

Pricing policies

2005

Other income

Market prices

Rental income Finansa Credit Limited

-

-

3,361

963

Finansa Securities Limited

-

-

9,343

9,524

Finansa Asset Management Limited

-

-

4,333

1,251

-

-

17,037

11,738

33

429

-

-

198

-

-

-

1,916

1,746

-

-

2,147

2,175

-

-

Income from securities business Brokerage fees Siam Investment Fund

Fianncial Life Assurance Co., Ltd. Directors of the Company and its related companies, including persons with close relationships to these directors

Same rate the subsidiary charges to general customers

Income from asset management business Interest income

Same rate the related company pays to general depositors

-

167

-

-

Finansa Securities Limited

-

-

6,708

1,434

4.25% - 5.25% per annum (2005 : 3.5% per annum)

Finansa Asset Management Limited

-

-

2,393

1,339

3.6% - 6.0% per annum (2005 : 4.3% per annum)

Prospect SPC Co., Ltd.

-

-

520

-

5.9% per annum

11,993

-

11,993

-

4.8% - 6.5% per annum

3,320

1,193

3,320

1,193

Bangkok First Investment & Trust Plc. Interest expenses

Pacific Assets Plc. Finansa Life Assurance Co., Ltd.

5.0% - 6.0% per annum (2005 : 3.3 - 5.3% per annum)

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(Unit : Thousand Baht) Consolidated

The Company only

For the years ended 31 December 2006 Directors of the Company and its related parties, including persons having close relationship with these directors

Pricing policies

For the years ended 31 December

2005

2006

2005

1,720

245

-

-

17,033

1,438

24,934

3,966

Same rates the subsidiary pays to general depositors

44.1.2 The Company, its subsidiaries and related parties have securities trading transactions via a subsidiary engaging in the securities business. The amounts of brokerage fees paid to that subsidiary for the years ended 31 December 2006 and 2005 are as follows :(Unit : Million Baht) For the year ended 31 December 2006

2005

The Company, subsidiaries and related parties

13.5

10.2

The Company only

10.9

7.8

Brokerage fee paid to a subsidiary engaging in securities business

44.1.3 The Company has entered into service agreements with 8 subsidiaries. These contracts require the Company to provide services, including management, marketing, and other business operation support, to the subsidiaries. The contracts expire on 31 December each year. The Company charged service fees for each subsidiary for the years ended 31 December 2006 and 2005 as follows :(Unit: Thousand Baht) Company Name

90

Period of contract

Annual Fee

Period of contract

Annual Fee

Finansa Fund Management Ltd.

1 January - 31 December 2006

69,000

1 January - 31 December 2005

62,000

Finansa Securities Limited

1 January - 31 December 2006

44,000

1 January - 31 December 2005

44,000

Finansa Credit Limited

1 January - 31 December 2006

18,000

1 January - 31 December 2005

15,000

Finansa Asset 1 January - 31 December Management Limited 2006

7,000

1 January - 31 December 2005

3,000

Finansa Singapore Pte Ltd.

1 January - 31 December 2006

800

1 January - 31 December 2005

400

Finansa (Cambodia) Ltd.

1 January - 31 December 2006

140

1 January - 31 December 2005

120

Finansa Hong Kong Limited

1 January - 31 December 2006

140

1 January - 31 December 2005

120

PT Finansa (Indonesia) Holdings Ltd.

1 January - 31 December 2006

140

1 January - 31 December 2005

120

FINANSA PLC. ANNUAL REPORT 2006

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44.1.4 Overseas subsidiaries have entered into service agreements with their related parties as follows :(a) Finansa Fund Management Ltd (“FFM”) entered into a service agreement with Finansa Capital Ltd. (“FCL”), an associated company, FFM agrees to provide the personnel, services and facilities required by FCL and FCL agrees to pay an annual fee equal to the sum of (i) direct or attributable costs and deductions, and (ii) indirect costs and deductions with respect to the services provided to the Funds by FCL. The fee is to be determined on the basis of FCL’s operating budget. (b) FFM entered into an investment advisory agreement with Siam Investment Fund, FFM will receive an annual fee equal to the sum of (i) monthly advisory fees in an amount equal to 2 percent per annum of the contributed capital of the respective funds, and (ii) performance fees of 20 percent of the amount by which distributions to shareholders exceed the rate of return as specified in the agreement. (c) FFM entered into an investment advisory agreement with The Vietnam Equity Fund (VEF), VEF pays to FFM an advisory fee, payable monthly in advance, in an amount equal to: (i) (ii)

During the commitment period (15 July 2005 to 15 July 2008), 2% per annum of the committed capital, and Thereafter, 2% per annum of (a) the amount of the remaining committed capital less (b) amounts written off by VEF with the approval of the Board of Directors.

In addition, FFM is also entitled to receive a performance fee of 20% of the amount by which distributions to shareholders exceed the rate of return as specified in the agreement. (d) ADF Management, Ltd. (ADFM) entered into an advisory agreement with The Asian Debt Fund, Ltd. (TADF). TADF pays a monthly advisory fee to ADFM in an amount equal to 1.5% of the net asset value of TADF. 44.1.5 On 31 March 2006, the Company entered into an agreement to be assigned rights over receivables due from a debtor of a subsidiary engaging in finance business. The transfer price is equal to the outstanding balance on the assignment date of approximately Baht 57 million. The outstanding balance due from that debtor as at 31 December 2006 amounted to approximately Baht 54 million, which is presented under the caption of “Loans to other parties” in the balance sheets. The repayment will be made on a monthly basis until 2011. There is no provision set up because this debtor has no overdue status and the management expects no loss will be incurred. 44.1.6 During the year 2006, a subsidiary had the following transactions with a related party which is the fund being in the process of liquidation. (a) Purchased 360,000 ordinary shares of a company, which are non-marketable equity securities for Baht 38.43 million. (b) Being transferred of claims over receivables by court’s judgement to settle the amounts of Baht 7.53 million due to the subsidiary by that fund.

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44.2 The outstanding balances at the balance sheet dates The outstanding balances of transactions between the Company, its subsidiaries and related parties as at 31 December 2006 and 2005 can be summarised as follows :(Unit : Thousand Baht) Consolidated Relationship

The Company only

31 December 31 December 31 December 31 December 2006 2005 2006 2005

Loans, receivables and accrued interest receivables - finance and securities businesses Directors of the Company and its related parties, including persons having close relationship to these directors

9,355

-

-

-

9,355

-

-

-

Short-term loans and advances to related parties Finansa Securities Limited

Subsidiary

-

-

90,000

-

Finansa (Cambodia) Ltd.

Subsidiary

-

-

176

111

Finansa Hong Kong Ltd.

-

-

41

-

Associated company

2,853

2,218

-

-

The Vietnam Equity Fund

Related by way of shareholding

1,249

-

-

-

Siam Investment Fund III, L.P.

Related by way of shareholding

9,189

5,406

-

-

Finansa Capital Ltd.

Subsidiary

Directors of the Company and its related parties, including persons having close relationship to these directors

23

411

-

-

13,314

8,035

90,217

111

Service income receivables - presented as current assets Finansa (Cambodia) Ltd.

Subsidiary

-

-

374

193

Finansa Hong Kong Limited

Subsidiary

-

-

75

-

Finansa Singapore Ltd.

Subsidiary

-

-

215

-

PT finansa (Indonesia) Holdings Ltd

Subsidiary

-

-

37

-

152,636

10,352

-

-

152,636

10,352

701

193

The Asian Debt Fund, Ltd.

Related by way of shareholding

Other current assets Accrued interest receivables

92

Finansa Securities Ltd.

Subsidiary

-

-

75

-

Finansa Fund Management Ltd.

Subsidiary

-

-

12,153

8,790

-

-

12,228

8,790

FINANSA PLC. ANNUAL REPORT 2006

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(Unit : Thousand Baht) Consolidated Relationship

The Company only

31 December 31 December 31 December 31 December 2006 2005 2006 2005

Other receivables Finansa Securities Limited

Subsidiary

-

-

15,202

-

The Vietnam Frontier Fund

Related by way of shareholding and having common director

14,048

47,910

-

-

The Asian Debt Fund, Ltd.

Related by way of shareholding

-

23,798

-

-

14,048

71,708

15,202

-

14,048

71,708

27,430

8,790

-

-

193,670

131,877

-

-

193,670

131,877

-

-

594,544

518,411

-

-

594,544

518,411

Service income receivables - presented as non-current assets Finansa Fund Management Ltd.

Subsidiary

Long-term loans to related parties Finansa Fund Management Ltd.

Subsidiary

Bills of exchange Finansa Asset Management Limited

Subsidiary

-

-

49,399

49,123

Prospect SPC Co., Ltd.

Subsidiary

-

-

19,480

-

Related by way of shareholding

29,809

64,434

29,809

64,434

A subsidiary of the Companyâ&#x20AC;&#x2122;s shareholder

99,921

244,185

99,921

244,185

129,730

308,619

198,609

357,742

449

5,237

-

-

449

5,237

-

-

45,000

-

-

-

20,517

13,567

-

-

65,517

13,567

-

-

Finansa Life Assurance Co., Ltd. Pacific Assets Plc.

Securities business payables Directors of the Company and its related parties, including persons having close relationship with these directors Borrowings and deposits JP-One Asset Co., Ltd. Directors of the Company and its related parties, including persons having close relationship with these directors

Associated company

FINANSA PLC. ANNUAL REPORT 2006

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(Unit : Thousand Baht) Consolidated

The Company only

31 December 31 December 31 December 31 December 2006 2005 2006 2005

Relationship Other current liabilities Account payable from purchase of securities Finansa Securities Limited

Subsidiary

-

-

-

17,488

Subsidiary

-

-

27

11

-

-

27

17,499

Share subscription payables Finansa (Cambodia) Ltd.

Even though loans to and service income fee receivables from Finansa Fund Management Ltd., a subsidiary, are payable at call, the Company intends not to call within 1 year counting from the balance sheet date. The Company therefore presented loans to and service income fee receivables from such subsidiary as noncurrent assets in the balance sheet. 44.3

Movements of intercompany loans 44.3.1 Short-term loans and advances to related parties

During the year ended 31 December 2006, the Company and its subsidiaries had movements of short-term loans and advances to related parties as follows :(Unit: Thousand Baht) Consolidated For the year ended 31 December 2006 31 December 2005 Finansa Capital Ltd.

Increase

Effect from exchange rate

Decrease

31 December 2006

2,218

2,745

(1,949)

(161)

2,853

-

1,249

-

-

1,249

Siam Investment Fund III, L.P.

5,406

4,439

-

(656)

9,189

Directors of the Company and its related parties, including persons having close relationship with these directors

411

23

(411)

-

23

8,035

8,456

(2,360)

(817)

13,314

The Vietnam Equity Fund

(Unit: Thousand Baht) The Company only For the year ended 31 December 2006 31 December 2005

Effect from exchange rate

Decrease

31 December 2006

Finansa Credit Limited

-

1,794,000

(1,794,000)

-

-

Finansa Securities Limited

-

230,000

(140,000)

-

90,000

111

81

(16)

-

176

Finansa (Cambodia) Ltd. Finansa Hong Kong Ltd.

94

Increase

-

41

-

-

41

111

2,024,122

(1,934,016)

-

90,217

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44.3.2 Long-term loans to related parties During the year ended 31 December 2006, the Company and its subsidiaries had movements of long-term loans to related parties as follows :(Unit: Thousand Baht) The Company Only For the year ended 31 December 2006 31 December 2005 Finansa Fund Management Ltd.

Increase

Decrease

Effect from exchange rate

31 December 2006

518,411

385,780

(309,647)

-

594,544

518,411

385,780

(309,647)

-

594,544

44.3.3 Borrowings During the year ended 31 December 2006, the Company and its subsidiaries had movements of borrowings from related parties as follows :(Unit: Thousand Baht) Consolidated For the year ended 31 December 2006 31 December 2005

Increase

Decrease

Amortisation of premium/ discount

31 December 2006

Bills of exchange Finansa Life Assurance Co., Ltd. Pacific Assets Plc.

64,434

192,055

(230,000)

3,320

29,809

244,185

713,740

(870,000)

11,996

99,921

308,619

905,795

(1,100,000)

15,316

129,730

13,567

48,659

(41,709)

-

20,517

Borrowings and deposits Directors of the Company and its related parties, including persons having close relationship with these directors

(Unit: Thousand Baht) The Company only For the year ended 31 December 2006 31 December 2005

Increase

Decrease

Amortisation of premium/ discount

31 December 2006

Bills of exchange Finansa Asset Management Limited Prospect SPC Co., Ltd. Finansa Life Assurance Co., Ltd. Pacific Assets Plc.

49,123

47,883

(50,000)

2,393

49,399

-

69,958

(50,998)

520

19,480

64,434

192,055

(230,000)

3,320

29,809

244,185

713,740

(870,000)

11,996

99,921

357,742

1,023,636

(1,200,998)

18,229

198,609

FINANSA PLC. ANNUAL REPORT 2006

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45. FINANCIAL INFORMATION BY SEGMENT The Company and its subsidiaries have been operating in four principal business segments ; (a) Financial and investment advisory businesses, (b) Finance business (c) Securities business and (d) Asset management business, which are organised and managed separately and carried out in various geographical areas. Although its subsidiaries are registered and incorporated in various countries, their ultimate assets and investments are mainly in Thailand. Therefore, no geographical segment information is presented. The financial information of the Company and its subsidiaries for the years ended 31 December 2006 and 2005 were presented by business segment as below. (Unit : Thousand Baht) For the year ended 31 December 2006 Financial and investment advisory businesses

Finance business

Securities business

Asset management business

Elimination of intersegment revenues

Consolidation

Revenue from external customers

545,011

271,397

363,287

45,013

-

1,224,708

Inter segment revenues

178,881

(398)

33,852

2,383

(214,718)

-

Total revenues

723,892

270,999

397,139

47,396

(214,718)

1,224,708

Segment income (loss)

393,649

4,319

83,451

11,658

(107,015)

386,062

Unallocated income and expenses : Other income

(429,883)

Loss on impairment of investments

(161,321)

Goodwill amortisation

(22,051)

Share of profit in associated companies Interest expenses Income tax Minority interest Net loss

96

9,382

Servicing and administrative expenses

87,232 (88,828) 43,852 (7,342) (182,897)

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:96

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(Unit : Thousand Baht) For the year ended 31 December 2005 Financial and investment advisory businesses

Finance business

Securities business

Asset management business

Elimination of intersegment revenues

Consolidation

Revenue from external customers

443,914

153,860

517,308

33,469

-

1,148,551

Inter segment revenues

153,565

(117)

20,843

1,713

(176,004)

-

Total revenues

597,479

153,743

538,151

35,182

(176,004)

1,148,551

Segment income

282,081

(28,028)

268,863

(13,595)

(79,936)

429,385

Unallocated income and expenses : Other income Servicing and administrative expenses

54,572 (161,190)

Loss on impairment of investments

(60,429)

Goodwill amortisation

(22,051)

Share of loss in associated companies

(8,325)

Interest expenses

(72,584)

Income tax

(41,117)

Minority interest

(15,835)

Net income

102,426

Transfer prices between the Company and its subsidiaries are set out in Note 44 to the financial statements. The following tables present certain asset and liability information of the Company and its subsidiaries as at 31 December 2006 and 2005 by business segment.

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:97

97

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(Unit : Thousand Baht) As at 31 December 2006 Financial and investment advisory businesses

Finance business

Securities business

Asset management business

Eliminations

Consolidation

-

-

2,521,594

Assets Loans, receivables and accrued interest receivables - finance and securities businesses, net Loans to other parties

-

1,946,304

575,290

162,686

-

-

-

-

162,686

4,446,214

1,294,241

176,589

49,399

(2,187,373)

3,779,070

270,578

5,934

90,739

8,340

-

375,591

56,214

2,500

12,274

418

-

71,406

1,437,679

934,351

470,458

24,313

(831,915)

2,034,886

Total assets

6,373,371

4,183,330

1,325,350

82,470

(3,019,288)

8,945,233

Total liabilities

3,072,958

3,737,716

571,771

7,690

(1,224,528)

6,165,607

Investments - net Premises and equipment - net Intangible assets Other assets

(Unit: Thousand Baht) As at 31 December 2005 Financial and investment advisory businesses

Finance business

Securities business

Asset management business

Eliminations

Consolidation

-

(18,597)

2,057,933

Assets Loans, receivables and accrued interest receivables - finance and securities businesses, net Loans to other parties Investments - net Premises and equipment - net Intangible assets

-

1,773,682

302,848

317,500

-

-

-

-

317,500

5,065,975

1,109,429

29,146

49,133

(2,833,900)

3,419,783

300,769

5,558

3,104

8,627

-

383,940

65,791

-

-

91

-

65,882

1,075,379

2,169,771

1,052,589

22,150

(942,801)

3,377,088

Total assets

6,825,414

5,058,440

1,387,687

80,001

(3,795,298)

9,556,244

Total liabilities

2,893,893

4,545,975

316,682

6,665

(1,355,803)

6,407,412

Other assets

46. PROMOTIONAL PRIVILEGES By virtue of the provisions of the Board of Investment Promotion (“BOI”) Act B.E. 2520, under the promotion certificate No. 1394(2)/2545 dated 25 June 2002, the Company was granted certain promotional privileges for its investment in its regional headquarters. Significant privileges granted to the Company are as follows :-

98

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:98

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(a) Corporate income tax exemption for profits derived from the BOI-promoted activities in an amount not exceeding the sum invested (excluding the value of land and working capital) for a period of 5 years, starting from the date of first earning income from the promoted activities. Since the Company commenced its provision of such services in the fourth quarter of the year 2002, the tax exemption period expires in the year 2007. (b) If the Company incurs losses during the tax exemption period, it is permitted to carry forward such loss to offset against future taxable profit for a period of 5 years after the tax exemption period. It may deduct such loss against the profit of any one or more fiscal years. (c) Dividend received from profits generated by the BOI-promoted activities is exempted from income tax during the tax exemption period. (d) The Company is permitted to remit or repatriate foreign currency abroad. The Company must strictly comply with the conditions stipulated in the promotional certificate. Total service income of the Company for the years ended 31 December 2006 and 2005 by the Board of Investment (â&#x20AC;&#x153;BoIâ&#x20AC;?) promoted and non-promoted activities can be summarised as follows : (Unit : Thousand Baht) The Company Only For the year ended 31 December 2006 Domestic Income from BoI promoted activities Income from BoI non-promoted activities

Overseas

Total

For the year ended 31 December 2005 Domestic

Overseas

Total

69,000

70,220

139,220

62,000

62,760

124,760

1,691

-

1,691

25,000

-

25,000

70,691

70,220

140,911

87,000

62,760

149,760

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:99

99

3/18/07 3:04:54 AM


47. FINANCIAL INSTRUMENTS 47.1 Financial risk management The Company’s financial instruments, as defined under Thai Accounting Standard No. 48 “Financial Instruments: Disclosure and Presentations”, principally comprise cash and cash equivalents, securities purchased under resale agreements, investments, loans and receivables-finance and securities businesses, loan to other parties, bills of exchange, short-term/long-term loans and advances to related parties, receivables transferred from another securities company, service income receivables, deposits subject to restrictions, guarantee for derivative contracts, securities business payables, liabilities under finance lease agreements, short-term and long-term loans and borrowings. The financial risks associated with these financial instruments and how they are managed is described below.

Credit risk The Company and its subsidiaries are exposed to credit risk with respect to (a) lending, (b) investment in debt securities and (c) credit terms given to customers. The Company therefore manages and control the risk by having in place the loan and investment policies, credit control procedures and credit term policy. The Company and its subsidiaries therefore expect such risk will be at the manageable level. The maximum exposure to credit risk is limited to the carrying amounts of the outstanding balances of those transactions as stated in the balance sheet. However, the subsidiary engaging in the finance business has loan concentration risk as most of the loans are granted to customers in (a) the Manufacturing and Commerce industry and (b) Real Estate and Construction industry as discussed in Note 9.3 to the financial statements. In addition, a subsidiary had the credit - related risk, which relates to off-balance sheet commitments incurred as a result of loan guarantees and other guarantees. As at 31 December 2006, a subsidiary had commitments from loan guarantees of Baht 50 million (31 December 2005 : Baht 40 million).

Interest rate risk The Company and its subsidiaries expose to interest rate risk primarily with respect to deposits with financial institutions, investments in debt securities, loans and receivables, bills of exchange, liabilities under finance lease agreements, borrowings and deposits and so on. Although most of the Company’s financial assets and liabilities bear fixed interest rates but those financial assets and liabilities have remaining periods to repricing dates and/or maturity dates within one year, thus the interest rate risk is expected to be low. As at 31 December 2006 and 2005, financial assets and liabilities classified by interest rate types, are as follows :-

100

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:100

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(Unit : Million Baht) Consolidated Outstanding balances of financial instruments as at 31 December 2006 Floating interest rate

Fixed interest rate

Non-interest bearing

Total

Financial assets Cash and cash equivalents

39

4

304

347

-

760

-

760

1,293

1,235

1,507

4,035

-

-

37

37

638

1,662

349

2,649

54

109

-

163

Short-term loans and advances to related parties

-

-

13

13

Receivables transferred from another securities company

-

12

-

12

Service income receivables

-

-

164

164

Deposits subject to restrictions

-

1

-

1

Guarantees for derivative contracts

4

-

-

4

Bills of exchange

-

657

-

657

Short-term loans

-

25

-

25

Securities purchased under resale agreements Investments

(1)

Receivables from the Clearing House Loans and receivables - finance and securities businesses (2) Loans to other parties

Financial liabilities

Securities business payables

-

-

374

374

Liabilities under finance lease agreements

-

17

-

17

Borrowings and deposits

-

3,491

-

3,491

1,083

150

-

1,233

1,800

-

-

1,800

Forward exchange contracts - Bought

-

-

198

198

Credit default swap contracts - Sold

-

722

-

722

Long-term loans Financial derivatives Interest rate cap (3) Floating rate payee

(1) (2) (3)

Of investments bearing no interest, the Company and its subsidiaries already set aside allowance for impairment of Baht 256 million. Of the loans and receivables totals of Baht 123 million carrying interest at floating rates and Baht 141 million with fixed interest rates are loans and receivables from which the subsidiary has ceased recognition of income. Amounts shown are notional amounts used as a base in calculating interest. There is no settlement of notional amount.

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:101

101

3/18/07 3:04:55 AM


(Unit : Million Baht) Consolidated Outstanding balances of financial instruments as at 31 December 2005 Floating interest rate

Fixed interest rate

Non-interest bearing

Total

Financial assets Cash and cash equivalents Securities purchased under resale agreements Investments

(1)

Receivables from the Clearing House Loans and receivables - finance and securities businesses (2)

191

213

266

670

-

1,870

-

1,870

1,138

890

1,429

3,457

-

-

56

56

731

1,260

156

2,147

Loans to other parties

-

318

-

318

Short-term loans and advances to related parties

-

-

8

8

Service income receivables

-

-

27

27

20

1

-

21

145

-

-

145

-

775

-

775

Short-term loans

-

25

-

25

Payable to the Clearing House

-

-

19

19

Securities business payables

-

-

197

197

Borrowings and deposits

-

3,865

-

3,865

1,141

150

-

1,291

1,800

-

-

1,800

-

200

-

200

880

-

-

880

Deposits subject to restrictions Guarantees for derivative contracts Financial liabilities Bills of exchange

Long-term loans Financial derivatives Interest rate cap(3) Floating rate payee Interest rate swap contracts

(3)

Fixed rate payer Floating rate payer Fixed rate payee Floating rate payee Forward exchange contracts-Bought (1) (2) (3)

102

-

915

-

915

200

-

-

200

-

-

422

422

Baht 50 million of investments bearing no interest represent investments in debt securities where the issuer has defaulted on payment of principal, for which a subsidiary has already set aside full allowance for impairment. Of the loans and receivables totals of Baht 229 million carrying interest at floating rates and Baht 27 million with fixed interest rates are loans and receivables from which the subsidiary has ceased recognition of income. Amounts shown are notional amounts used as a base in calculating interest. There is no settlement of notional amount.

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:102

3/18/07 3:04:55 AM


(Unit : Million Baht) The Company only Outstanding balances of financial instruments as at 31 December 2006 Floating interest rate

Fixed interest rate

Non-interest bearing

Total

Financial assets Cash and cash equivalents Investments

(1)

Loans to other parties Short-term loans and advances to related parties Long-term loans to related party

7

-

113

120

-

50

2,338

2,388

-

90

-

90

54

77

-

131

595

-

-

595

Service income receivables from related party

-

-

194

194

Deposits subject to restrictions

-

1

-

1

Bills of exchange

-

726

-

726

Long-term loans

200

150

-

350

900

-

-

900

Financial liabilities

Financial derivatives Interest rate cap(2) Floating rate payee (1) (2)

Baht 90 million of investments bearing no interest represent investments in debt securities where the issuer has defaulted on payment of principal for which the Company sets aside allowance for impairment loss of Baht 18 million. Amounts shown are national amounts used us a base in calculating interest. There is no settlement of notional amount. (Unit : Million Baht) The Company only Outstanding balances of financial instruments as at 31 December 2005 Floating interest rate

Fixed interest rate

Non-interest bearing

Total

Financial assets Cash and cash equivalents

22

-

71

93

Investments

-

100

2,870

2,970

Loans to other parties

-

300

-

300

Long-term loans to related party

518

-

-

518

Service income receivables from related party

-

-

132

132

Deposits subject to restrictions

-

1

-

1

Bills of exchange

-

824

-

824

Long-term loans

240

150

-

390

Financial liabilities

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:103

103

3/18/07 3:04:56 AM


As at 31 December 2006 and 2005 the fixed interest rate financial instruments which have new repricing dates or maturity dates (whichever are sooner) after the balance sheet dates, are as follows:(Unit: Million Baht) Consolidated As at 31 December 2006 Remaining periods to repricing dates or maturity dates Less than 1 year

At call

1 - 5 years

Over 5 years

No maturity

Total

Interest rate

Financial assets

%

Cash and cash equivalents

4

-

-

-

-

4

3.25

Securities purchased under resale agreements

-

760

-

-

-

760

4.9

Investments

-

406

582

247

-

1,235

1.2-11.0

323

1,317

22

-

-

1,662

4.0-21.0

Loans to other parties

18

91

-

-

-

109

5.0-9.5

Receivables transferred from another securities company

12

-

-

-

-

12

6.0

-

1

-

-

-

1

0.5

Bills of exchange

-

657

-

-

-

657

5.1-6.5

Short-term loans

25

-

-

-

-

25

3.5

Borrowings and deposits

371

2,992

128

-

-

3,491

Liabilities under finance lease agreements

-

5

12

-

-

17

8.0

Long-term loans

-

150

-

-

-

150

4.0

Loans and receivables finance and securities businesses (1)

Deposits subject to restrictions Financial liabilities

(1)

104

2.5-5.7

Of the loans and receivables totals of Baht 91 million and Baht 50 million for which the new repricing date or maturity date (whichever is sooner) are under “at call” and “less than 1 year”, respectively, are loans and receivables from which the subsidiary has ceased recognition of income.

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:104

3/18/07 3:04:56 AM


(Unit: Million Baht) Consolidated As at 31 December 2005 Remaining periods to repricing dates or maturity dates Less than 1 year

At call

1 - 5 years

Over 5 years

No maturity

Total

Interest rate

Financial assets Cash and cash equivalents

% 213

-

Securities purchased under resale agreements

-

1,870

Investments

-

399

Loans and receivables finance and securities businesses(1)

164

966

Loans to other parties

318

-

-

213

-

-

-

1,870

440

51

-

890

1.2 - 6.4

130

-

-

1,260

2.8 - 21.0

-

-

-

-

318

5.0 - 5.5

-

1

-

-

-

1

Bills of exchange

-

775

-

-

-

775

3.0 - 5.2

Short-term loans

25

-

-

-

-

25

3.5

Borrowings and deposits

184

3,602

79

-

-

3,865

Long-term loans

-

-

150

-

-

150

4.0

Fixed rate payer

-

-

200

-

-

200

5.5

Fixed rate payee

-

-

915

-

-

915

5.3 - 6.5

Deposits subject to restrictions

-

2.0 - 3.9

3.9

0.5

Financial liabilities

1.5 - 5.2

Financial derivatives Interest rate swap contracts(2)

(1) (2)

Of the loans and receivables totals of Baht 27 million for which the new repricing date or maturity date (whichever is sooner) are at call, are loans and receivables from which the subsidiary has ceased recognition of income. Amounts shown are notional amounts used as a base in calculating interest. There is no settlement of notional amount.

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:105

105

3/18/07 3:04:56 AM


(Unit: Million Baht) The Company only As at 31 December 2006 Remaining periods to repricing dates or maturity dates At call

Less than 1 year

1 - 5 years

Over 5 years

No maturity

Total

Financial assets

Interest rate %

Investments

-

50

-

-

-

50

4.9

Short-term loans and advances to related parties

-

77

-

-

-

77

9.4 - 9.5

90

-

-

-

-

90

5.0

-

1

-

-

-

1

0.5

Bills of exchange

-

726

-

-

-

726

5.1 - 6.5

Long-term loans

-

150

-

-

-

150

4.0

Loans to other parties Deposits subject to restrictions Financial liabilities

(Unit: Million Baht) The Company only As at 31 December 2005 Remaining periods to repricing dates or maturity dates At call

Less than 1 year

1 - 5 years

Over 5 years

No maturity

Total

Financial assets

Interest rate %

Investments

-

100

-

-

-

100

2.5 - 4.25

Loans to other parties

-

300

-

-

-

300

5.5

Deposits subject to restrictions

-

1

-

-

-

1

0.5

Bills of exchange

-

824

-

-

-

824

3.0 - 5.25

Long-term loans

-

-

150

-

-

150

4.0

Financial liabilities

In addition, the average balances of the financial assets and liabilities of a subsidiary engaging in finance business which generate revenues and incur expenses, calculated based on the average balances outstanding during the years, and the average interest and dividend rate for the years ended 31 December 2006 and 2005, are as follows :-

106

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:106

3/18/07 3:04:57 AM


(Unit: Million Baht) 2006 Average outstanding balance

Interest and dividend

2005 Average rate (Percent)

Average outstanding balance

Interest and dividend

Average rate (Percent)

Performing financial assets Cash and cash equivalents

98

-

0.3

92

-

-

Loans to financial institutions

95

5

5.1

444

12

2.6

Securities purchased under resale agreements

1,280

63

4.9

1,344

45

3.3

Investments

1,204

69

5.7

1,468

62

4.3

Loans and receivables

1,990

151

7.6

1,527

80

5.2

86

5

5.5

122

3

2.7

4,206

192

4.6

4,376

98

2.2

Guarantees for derivative contracts Performing financial liabilities Borrowings and deposits

Liquidity risk Liquidity risk is the risk that the Company and its subsidiaries will be unable to liquidate financial assets and/or procure sufficient funds to discharge obligations in a timely manner, resulting in a financial loss. The periods to the maturity dates of financial instruments held as of 31 December 2006 and 2005, counting from the balance sheet date, are as follows :(Unit : Million Baht) Consolidated As at 31 December 2006 At call

Within 1 year

1 - 5 years

Over 5 years

No maturity

347

-

-

-

-

347

-

760

-

-

-

760

785

467

1,106

1,263

414

-

37

-

-

-

Total

Financial assets Cash and cash equivalents Securities purchased under resale agreements Investments

(1)

Receivables from the Clearing House Loans and receivables 単 finance and securities businesses (2)

37 2,649 412

1,835

297

105

-

Loans to other parties

18

99

46

-

-

Short-term loans and advances to related parties

13

-

-

-

-

Receivables transferred from another securities company

12

-

-

-

-

5

-

-

-

1

-

Service income receivables

4,035

163 13 12

159

Deposits subject to restrictions

-

Guarantees for derivative contracts

-

-

4

164

-

-

1

-

-

4 FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:107

107

3/18/07 3:04:57 AM


Consolidated As at 31 December 2006 At call

Within 1 year

1 - 5 years

Over 5 years

No maturity

Total

Financial liabilities Bills of exchange

-

657

-

-

-

657

Short-term loans

25

-

-

-

-

25

Securities business payables

-

374

-

-

-

374

Liabilities under finance lease agreements Borrowings and deposits Long-term loans (1) (2)

371 -

5

12

-

-

17

2,992

128

-

-

3,491

230

120

883

-

1,233

Of the investment at call, the Company and its subsidiaries set aside allowance for impairment of Baht 256 million. Of the loans and receivables which mature at call and in 1-5 years of Baht 173 million and Baht 50 million, respectively, represent default loans from which a subsidiary has ceased recognition of income. Therefore, the term of loan repayment depends upon the results of debt restructuring. (Unit : Million Baht) Consolidated As at 31 December 2005 At call

Within 1 year

1 - 5 years

Over 5 years

No maturity

670

-

-

-

-

670

-

1,870

-

-

-

1,870 3,457

Total

Financial assets Cash and cash equivalents Securities purchased under resale agreements Investments

(1)

283

409

1,057

1,059

649

Receivables from the Clearing House

-

56

-

-

-

56

Loans and receivables - finance and securities businesses(2)

367

1,283

18

300

Loans to other parties Short-term loans and advances to related parties

8

-

425

72

-

2,147

-

-

-

318

-

-

-

8

Service income receivables

-

27

-

-

-

27

Deposits subject to restrictions

20

1

-

-

-

21

Guarantees for derivative contracts

-

-

145

-

-

145

Financial liabilities Bills of exchange

-

775

-

-

-

775

Short-term loans

25

-

-

-

-

25

Payable to the Clearing House

-

19

-

-

-

19

197

-

-

-

197

-

-

3,865

901

-

1,291

Securities business payables Borrowings and deposits Long-term loans (1) (2)

108

184 -

3,602

79

40

350

Baht 50 million of the investment classified as â&#x20AC;&#x153;at callâ&#x20AC;? are investments in debt securities where the issuer has defaulted on payment of principal, for which a subsidiary has already set up full allowance for impairment. Of the loans and receivables which mature at call and in 1-5 years of Baht 190 million and Baht 66 million, respectively, represent default loans from which a subsidiary has ceased recognition of income. Therefore, the term of loan repayment depends upon the results of debt restructuring.

FINANSA PLC. ANNUAL REPORT 2006

029-113_ENG.indd Sec1:108

3/18/07 3:04:58 AM


(Unit : Million Baht) The Company only As at 31 December 2006 At call

Within 1 year

1 - 5 years

Over 5 years

No maturity

120

-

-

-

-

93

50

-

-

2,245

Loans to other parties

90

-

-

-

-

90

Short-term loans and advances to related parties

-

85

46

-

-

131

Long-term loans to related parties from related parties

-

-

-

-

595

595

Service income receivables

-

-

-

-

194

194

Deposits subject to restrictions

-

1

-

-

-

1

Bills of exchange

-

726

-

-

-

726

Long-term loans

-

230

120

-

-

350

Total

Financial assets Cash and cash equivalents Investments

(1)

120 2,388

Financial liabilities

(1)

Baht 90 million of the investment classified as â&#x20AC;&#x153;at callâ&#x20AC;? are investment in debt securities where the issuer has defaulted on payment of principal, for which the Company sets aside allowance for impairment loss of Baht 18 million. (Unit : Million Baht) The Company only

As at 31 December 2005 At call

Within 1 year

1 - 5 years

Over 5 years

No maturity

Cash and cash equivalents

93

-

-

-

-

Investments

72

100

-

-

2,798

2,970

Loans to other parties

-

300

-

-

-

300

Long-term loans and advances to related party

-

-

-

-

518

518

Service income receivables from related party

-

-

-

-

132

132

Deposits subject to restrictions

-

1

-

-

-

1

Bills of exchange

-

824

-

-

-

824

Long-term loans

-

40

350

-

-

390

Total

Financial assets 93

Financial liabilities

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Foreign exchange risk Foreign exchange risk is the risk that changes in foreign exchange rates may result in changes in the value of financial instruments, and fluctuations in revenues or the value of financial assets and liabilities. As at 31 December 2006 and 2005, the Company and its subsidiaries had foreign currency-denominated assets and liabilities, which had not been hedged against foreign exchange risk, as follow :(Unit: in Thousand unit) Consolidated

The Company only

31 December 2006

31 December 2005

31 December 2006

31 December 2005

US dollars

29,273

15,966

14,513

9,622

Euros

21,315

20,036

-

-

Australian dollars

1,898

1,917

-

-

Vietnamese Dong

943,203

2,843,501

-

-

5,681

311

-

-

18,671

18,525

-

-

Assets

Liabilities US dollars Euros

As at 31 December 2006 and 2005, average foreign exchange rates are summarised below :31 December 2006

31 December 2005

Baht/US dollar

36.0932

41.0786

Baht/Euro

47.4592

48.6935

Baht/Australian dollar

28.5499

30.1176

Baht/Vietnamese Dong

0.0023

0.0026

As at 31 December 2006, a subsidiary has entered into forward exchange contracts with maturities of less than one year to purchase USD 5 million at an average buying rate of 39.56 Baht per 1 US dollar (31 December 2005 : maturities of less than one year to purchase USD 10 million at an average buying rate of 42.17 Baht per 1 US dollar). Equity position risk Equity position risk is the risk that changes in the market prices of equity securities may result in changes in the value of investments, and fluctuations in revenues and/or the value of investments in equity securities. The Company and its subsidiaries have the equity position risk, occurs from the investments in domestic and overseas marketable equity securities, which the Company and its subsidiaries recognised those investments at fair value in the balance sheet dates. The maximum amount of exposure to such risk is the carrying value of those investments as at the balance sheet date. 47.2 Fair value of financial instruments Fair value represents the amount for which an asset could be exchanged or a liability settled between knowledgeable and willing parties in an armâ&#x20AC;&#x2122;s length transaction. The Company and its subsidiaries have estimated the fair value of financial instruments as follows :-

110

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Cash and cash equivalents The fair value of cash and cash equivalents are estimated equal to the amount stated in the balance sheets. Securities purchased under resale agreements/securities sold under repurchase agreements The fair values of the securities purchased under resale agreements/the securities sold under repurchase agreements are considered to approximate the amount stated in the balance sheets since the interest rates approximate the market interest rates and the maturity dates are within one month. Investments The fair values of the investments calculated, based on criteria as described in Note 5.6 to the financial statements, except that the fair value of the held-to-maturity debt securities, estimated to be the present value of cash to be received by the Company and its subsidiaries, discounted by the market interest rate. Loans, receivables and accrued interest receivables - finance business The fair values of loans, receivables and accrued interest receivables are considered to approximate their respective carrying values of loans, receivables and accrued interest receivables as described in Note 5.10 and Note 5.11 to the financial statements. Securities business receivables/receivables transferred from another securities company/ receivables from the Clearing House The fair values of securities business receivables, receivables transferred from another securities company and receivables from the Clearing House are considered to approximate their respective carrying values since they have short maturities and/or their interest rates are approximate to the market interest rates. Payables to the Clearing House/Securities business payables The fair values of payables to the Clearing House and securities business payables are considered to approximate their respective carrying values since they have short maturities. Bills of exchange/borrowings and deposits The fair values of bills of exchange and borrowings and deposits are considered to approximate their respective carrying values since their interest rates approximate the current market interest rates and/or their maturities are short. Liabilities under finance lease agreements The fair values of liabilities under finance lease agreements are considered to approximate their respective carrying values since their interest rates approximates the market interest rates. The Company and its subsidiaries estimated fair value of financial instruments as at 31 December 2006, in comparison with the related amounts carried in the balance sheet, is as follows: FINANSA PLC. ANNUAL REPORT 2006

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(Unit : Million Baht) 31 December 2006 Consolidated Carrying amount

The Company only

Fair value

Carrying amount

Fair value

Financial assets Cash and cash equivalents Securities purchased under resale agreements

347

347

120

120

760

760

-

-

4,035

4,031

2,388

2,388

37

37

-

-

2,649

2,649

-

-

163

163

131

131

Short-term loans and advances to related parties

13

13

90

90

Receivables transferred from another Securities company

12

12

-

-

Investments Receivables from the Clearing House Loans and receivables - finance and securities businesses Loans to other parties

Service income receivables

164

164

194

194

Deposits subject to restrictions

1

1

1

1

Long-term loans to related party

-

-

595

595

Guarantees for derivative contracts

4

4

-

-

657

657

726

726

Financial liabilities Bills of exchange Short-term loans Securities business payables Liabilities under finance lease agreements

25

25

-

-

374

374

-

-

17

17

-

-

Borrowings and deposits

3,491

3,491

-

-

Long-term loans

1,233

1,233

350

350

47.3 Financial derivatives The Company and its subsidiaries entered into financial derivative contracts in the normal course of their businesses to manage the risks of the Company and its subsidiaries. As at 31 December 2006 and 2005, financial derivatives of the Company and its subsidiaries as classified by their maturities can be summarized as follows :-

112

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(Unit : Million Baht) Consolidated 31 December 2006

31 December 2005

Less than 1 year

Over 1 year

Total

Less than 1 year

Over 1 year

Total

-

1,800

1,800

-

1,800

1,800

- Fixed rate payer

-

-

-

-

200

200

- Floating rate payer

-

-

-

-

880

880

Interest rate cap - Floating rate payee Interest rate swap contracts

(1)

- Fixed rate payee

-

-

-

-

915

915

- Floating rate payee

-

-

-

-

200

200

198

-

198

422

-

422

722

722

-

-

-

Forward exchange contracts - Bought Credit default swap contract - Sold (1)

-

As discussed in Note 41.1 to the financial statements, a subsidiary terminated all of its interest rate swap contracts before their maturity dates, thus as at 31 December 2006, a subsidiary does not have any off-balance sheet commitments relating to interest rate swap contracts. (Unit : Million Baht) The Company Only 31 December 2006

31 December 2005

Less than 1 year

Over 1 year

Total

Less than 1 year

Over 1 year

Total

-

900

900

-

-

-

Interest rate cap - Floating rate payee

48. SUBSEQUENT EVENTS On 27 November 2006, the Extraordinary General Meeting of the finance business subsidiary’s shareholders approved the increase of the subsidiary’s registered capital from Baht 451 million (9.02 million ordinary shares of Baht 50 each) to Baht 481 million (9.62 million ordinary shares of Baht 50 each), through the issuance of 600,000 additional ordinary shares with a par value of Baht 50 each, to existing shareholders of the subsidiary at Baht 250 per share. On 10 January 2007, the Ministry of Finance approved such capital increasing whereby the subsidiary has to complete capital increasing and calling up the capital within 60 days counting from the approval date. 49. RECLASSIFICATION Certain amounts in the financial statements, as presented herein for comparative purposes, have been reclassified to conform to the current period classification, with no effect on the previously reported net income or shareholders’ equity, except for the effect from adjustment to retained earnings as discussed in Note 37 to the financial statements. 50. APPROVAL OF FINANCIAL STATEMENTS These financial statements have been approved for issue by the Company’s Board of Directors on 23 February 2007. FINANSA PLC. ANNUAL REPORT 2006

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Table of Contents 115

Index of Abbreviations

116

Overview of Business Operations

120

Subsidiaries and Associated Companies

122

Management Report 2006

126

Related Party Transactions for 2006

131

Board of Investment Privileges

132

Shareholder Structure and Management

137

Biographies of Directors and Management

143

The Good Corporate Governance Compliance Report of 2006

149

Administration of Insider Information

149

Internal Controls

149

Remuneration of Auditor

150

Risk Factors General Information

114

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Index of Abbreviations “ADF”

means

ADF Management, Limited

“ADT”

means

Asian Debt Trading Limited

“BLR”

means

BLR Management Pte. Ltd.

“Company” or “FNS”

means

Finansa Public Company Limited

“FAM”

means

Finansa Asset Management Limited

“FC”

means

Finansa Credit Limited

“FCAM”

means

Finansa (Cambodia) Limited

“FCL”

means

Finansa Capital Limited

“FFM”

means

Finansa Fund Management Limited

“FHK”

means

Finansa Hong Kong Limited

“FIA”

means

Finansa Investment Advisors Limited

“Finansa Group”

means

The Company, its affiliates and subsidiaries

“FINDO-H”

means

PT Finansa (Indonesia) Holdings Limited

“FS”

means

Finansa Singapore Pte Limited

“FSL”

means

Finansa Securities Limited

“PSPC”

means

Prospect SPC Limited

“SEC”

means

Office of the Securities and Exchange Commission

“SET”

means

The Stock Exchange of Thailand

“SIF”

means

Siam Investment Fund

“SIF II”

means

Siam Investment Fund II, L.P.

“SIF III”

means

Siam Investment Fund III, L.P.

“SIP”

means

Siam Investment Partners, L.P.

“SIP III”

means

Siam Investment Partners III, L.P.

“TADF”

means

The Asian Debt Fund, Ltd.

“VEF”

means

The Vietnam Equity Fund

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Overview of Business Operations Finansa Plc. and its subsidiaries provide a comprehensive range of financial services in the areas of investment advisory and management, investment banking, securities brokerage, underwriting and trading and corporate finance to selected corporate, institutional and individual customers in Thailand and other countries in Southeast Asia. As the parent company, the Company provides support to its affiliates and subsidiaries in many respects including organizational administration, business and market planning, management and development of information technology and human resources, as well as research into investment opportunities and analysis of economic conditions. Such business activities of the Company, as regional headquarters of the group, are exempt from income taxes as per privileges granted by the Board of Investment. The activities of the Finansa Group can be divided into the following four main areas:

Investment Banking

Investment Advisory and Management

The following table summarizes the overall business operations of the Finansa Group:

Providing services to Finansa-sponsored foreign funds engaged in direct investments, private equity investments and investment in debt instruments in Thailand and the region. In addition, providing services to Thai provident funds, mutual funds and private funds launched by the Group.

Business Group Investment Advisory & Management* Investment Banking Securities Finance

* **

116

Providing financial advisory services including fund raising, business and debt restructuring, business alliance negotiations, business acquisitions, and project financing. Currently, these types of operations are carried out in Thailand.

Securities Providing securities related services such as brokerage, underwriting and trading. Currently, these areas of operation are carried out in Thailand.

Finance Providing a wide range of loans covering commercial and consumer loans, deposit taking and proprietary fixed income and equity portfolios services. This business area is aimed at supporting and extending the groupâ&#x20AC;&#x2122;s range of businesses and is carried out in Thailand.

Local Operations

Overseas Operations

FNS, FAM FSL FSL FC

FFM**, FCL**, ADF** FHK, FS

Excluding SIP and SIP III as they are not major providers of investment advisory and management business. Providing services to SIF II, SIF III, TADF and VEF

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The Finansa Group consists of 14 companies and 2 representative offices (in Hanoi and Ho Chi Minh City in Vietnam). The 14 companies comprise 3 local operating companies, 8 overseas operating companies and 3 non-operating companies. As the regional headquarters of the group, the Company determines management and investment policies and supports, controls, supervises and advises companies in the group in relation to business planning and management. The aim is to create overall coherence for the groupâ&#x20AC;&#x2122;s various operations in investment advisory and management, securities, investment banking and finance. Following the groupâ&#x20AC;&#x2122;s restructuring and the purchase of the finance company, the Finansa Group now consists of the following affiliates and subsidiaries:

Finansa Public Company Limited (Thailand)

99.99%

99.97%

Finansa Securities Limited (Thailand)

99.99%

Finansa Credit Limited (Thailand)

66.67%

ADF Management, Ltd. (Cayman)

99.40%

Finansa Asset Management Limited (Thailand)

50%

Siam Investment Partner, L.P. (Cayman)

100%

Prospect SPC Limited (Thailand)

50%

Siam Investment Partner III, L.P. (Cayman)

100%

Finansa Fund Management Ltd. (Cayman)

50%

Finansa Capital Ltd. (Cayman)

100%

Finansa Hong Kong Ltd. (Hong Kong)

100%

Pt Finansa (Indonesia) Holdings Ltd. (Mauritius)

Finansa (Cambodia) Ltd. (Cambodia)

100%

Finansa Singapore Pte. Ltd. (Singapore)

100%

BLR Management Pte. Ltd. (Singapore)

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The following shows the subsidiaries of the Company, divided into operating companies and non-operating companies

Companies Operating in Thailand

Companies Operating Overseas

(1) FSL has securities license no. (2) 476/2536 issued by the Ministry of Finance to conduct all types of securities business, namely: (1) acting as securities broker, (2) securities trading, (3) acting as investment advisor, and (4) securities offering and underwriting. In addition, FSL is a financial advisory company authorized by the SEC. It is Broker No. 33 with a paid-up capital, as of 31 December 2006, of Baht450 million.

(1) FFM is a company incorporated in the Cayman Islands with paid-up capital of US$20,000 as of 31 December 2006. It operates the business of investment and fund management for Finansasponsored foreign funds that wish to invest in Thailand and other countries in Southeast Asia.

(2) FC, formerly Primus Finance Co., Ltd, was purchased on 1 October 2002 from Ford Credit International Inc. FC is a licensed financial institution regulated by the Bank of Thailand. Its public deposits are guaranteed by the FIDF, a government deposit insurance organization. FC operates with a full compliment of finance licenses, covering commercial and consumer loans, deposit taking, and corporate advisory services. As of 31 December 2006, FC had paid up capital of Baht451 million. (3) FAM, formerly known as Krungdhep Thanathon Asset Management Co., Ltd. Finansa acquired 9,999,993 of FAM shares or 99.99% of total paid-up capital from BFIT Securities Plc. in January 2005. FAM has mutual fund and private fund licenses and is primarily involved in managing domestic provident funds. At year-end 2006, FAM had paid up capital of Baht100 million.

118

(2 FCL is a special purpose limited liability company established to manage the investments of SIF II and SIF III. It is incorporated in the Cayman Islands with paid-up capital of US$1,000 as of 31 December 2006. Shareholders consist of Capital Z Investment, L.P., a US$2.25 billion private equity fund which holds 50% of FCLâ&#x20AC;&#x2122;s shares and FFM, a subsidiary of the Company, which holds the remaining 50% of the shares. (3) SIP is a special purpose vehicle established solely to manage the investments of SIF II. It is a limited partnership incorporated in the Cayman Islands with a capital contribution of US$590,110 as of 31 December 2006. Capital Z Investment, L.P. holds 50% of the total interest in the limited partnership and FFM holds the remaining 50%. (4) SIP III is a special purpose vehicle established solely to manage the investments of SIF III. It is a limited partnership incorporated in the Cayman Islands, of which Capital Z Investment, L.P. holds 50% of the total interest in the limited partnership and FFM holds the remaining 50%.

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(5) FS is a company incorporated in Singapore with paid-up capital of S$250,000 as of 31 December 2006. FFM holds 100% of the total shares of the company. It operates in the business of distressed debt trading in the region. (6) ADF is a company incorporated in the Cayman Islands on 30 December 2003. ADF is a fund manager of TADF, of which FFM holds 66.67% of the total shares. As of 31 December 2006 the company had a total registered capital of US$50,000 with a paid-up capital of US$900. (7 FHK is a company incorporated in Hong Kong on 13 December 2004 with the objective to conduct advisory business. As of 31 December 2006, the company had a total registered and paid-up capital of HK$100,000. (8) BLR is a company incorporated in Singapore on 8 November 2005 with the objective to conduct general trade and investment businesses. As of 31 December 2006, the company which is owned 100% by ADF had a total registered and paid-up capital of S$100,000.

Non-Operating Companies (1) FCAM is a company incorporated in Cambodia with the objective to analyze and manage investments in Cambodia. As of 31 December 2006, the paid-up capital is 20 million Riel, or approximately US$8,000, with FNS holding 100% of the shares in the company. (2) FINDO-H is a company incorporated in Mauritius, with a registered capital of US$100,000 and paid-up capital of US$10,000, as of 31 December 2006, with FFM as the sole shareholder of the company. The business of the company involves acquiring and holding shares in other companies. (3) PSPC is a company incorporated in Thailand on 23 September 2005 with the objective to conduct investment business. As of 31 December 2006, the company had a total registered and paid-up capital of Baht10,000.

In March 2006, FFM sold its 100% stake in ADT to new investor at ADTâ&#x20AC;&#x2122;s book value of US$1.

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Subsidiaries and Associated Companies Type of business

Type of shares

No. of shares issued

% of share holding

Securities

Ordinary

45 million shares

99.99%

Offshore fund investment advisory

Ordinary

20,000 shares

100%

3. Finansa Credit Ltd. 48/21-22 TISCO Tower Floor 12A North Sathorn Road, Silom, Bangrak, Bangkok 10500 Tel. (662) 352-4200 Fax (662) 352-4299

Finance

Ordinary

9,020,000 shares

99.97%

4. Finansa Asset Management Ltd. 48/21, 48/24 TISCO Tower Floor 12A North Sathorn Road, Silom, Bangrak, Bangkok 10500 Tel. (662) 352-4000 Fax (662) 352-4099

Fund management

Ordinary

9,999,993 shares

99.99%

5. Finansa (Cambodia) Ltd. House No.13, Street 306, Phnom Penh, Kingdom of Cambodia

Investment advisory

Ordinary

100 shares

100%

6. ADF Management Ltd. P.O. Box 309 Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies

Financial advisory and investment management

Ordinary

7,500,000 shares

66.67%

Company 1. Finansa Securities Ltd. 48/22-23 Floor 12A and 48/45-46 Floor 20, TISCO Tower, North Sathorn Road, Silom, Bangrak, Bangkok 10500 Tel. (662) 697-3800 Fax (662) 638-0300 2. Finansa Fund Management Ltd. P.O. Box 309 Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies

120

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Type of business

Type of shares

No. of shares issued

% of share holding

Financial advisory and investment management

Ordinary

1,000 shares

50%

Investment banking

Ordinary

250 shares

100%

9. Finansa Hong Kong Ltd. 805 Capitol Centre, 5-19 Jardineâ&#x20AC;&#x2122;s Bazaar, Causeway Bay, Hong Kong

Advisory

Ordinary

100,000 shares

100%

10. Siam Investment Partners, L.P. P.O. Box 309 Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies

General partner of a fund

-

-

50%

11. PT Finansa (Indonesia) Holdings Ltd. Suite G12, St. James Court, St. Denis Street, Port Louise, Mauritius

Investment

Ordinary

1,000 shares

100%

12. Prospect SPC Co., Ltd. 48/29, 48/32 TISCO Tower Floor 16 North Sathorn Road, Silom, Bangrak, Bangkok 10500

Investment

Ordinary

1,000 shares

99.40%

13. Siam Investment Partners III, L.P. P.O. Box 309 Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies

General partner of a fund

-

-

50%

14. BLR Management Pte. Ltd. 50 Raffles Place, 10-02 Singapore Land Tower, Singapore 048623

Investment

Ordinary

100,000 shares

100%

Company 7. Finansa Capital Ltd. P.O. Box 309 Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies 8. Finansa Singapore Pte. Ltd. 50 Raffles Place, 10-02 Singapore Land Tower, Singapore 048623

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Management Report 2006 The Company’s consolidated statement of earnings for 2006 shows a net loss of Bt182.9m or loss per share of Bt1.48, compared with a net profit of Bt102.4m recorded in 2005, a drop of Bt285.3m. Total income of the Company and its subsidiaries totaled Bt1,321.3m, an increase of Bt156.9m or 13% from last year supported by a rise in finance business income of Bt147.9m, a rise in financial and investment advisory businesses income of Bt101.1m, and rises in asset management business income of Bt11.5m and other income of Bt50.4m. Meanwhile securities business income dropped Bt154.0m. Total expenses in the consolidated statements amounted to Bt1,540.7m, an increase of Bt535.7m or 53%, in large part due to an allowance for an impairment loss on a long term investment in an overseas fund which is under liquidation process and an allowance for impairment losses on available-for-sale investments in both local and foreign securities totaling Bt161.3m or a Bt100.9m increase from last year. The remaining causes of the increase were a rise in financial and investment advisory business costs and expenses of Bt7.4m, a rise in finance business costs and expenses of Bt114.3m and rises in securities business costs and expenses of Bt44.4m and interest expenses of Bt16.2m; while asset management business costs and expenses and income tax dropped Bt16.1m and Bt85.0m, respectively. A rise of Bt268.7m in the servicing and administrative expenses came mainly from expenses of a subsidiary newly set up in 2006, expenses incurred from offshore fund management services of Bt102.0m and a rise in premises and equipment expenses of Bt17.9m from last year. In this regards, the Company and its subsidiaries recorded income from this new subsidiary and from the fund. The Company also incurred a foreign exchange loss of Bt70.9m as a result of the Baht appreciating from last year, while booking a gain on foreign exchange of Bt14.8m the previous year, representing a change of Bt85.7m. In addition, the Company set up bad debt and doubtful accounts based on new guidelines of the Bank of Thailand totaling Bt52.3m, representing an increase of Bt44.2m. The 2006 operational performance of the Company and its subsidiaries is summarised below. 1. Finansa recorded total income from financial and investment advisory businesses of Bt545.0m, representing 41% of total earnings of the Group and marking a rise of Bt101.1m or 23% from 2005. Such increase resulted from a Bt190.8m rise in fees and services income following an increase in assets under management within the Group. Gains on trading in securities/investments dropped by Bt89.7m. Finansa’s costs and expenses of its financial and investment advisory businesses amounted to Bt256.4m, Bt7.3m or 3% higher than in 2005 due mainly to an increase in personnel expenses of Bt95.3m whilst fees and services expenses decreased by Bt87.9m. Therefore, gross income earned from the financial and investment advisory businesses was Bt288.6m, Bt93.7m or 48% higher than that in 2005. 2. The finance business generated total income of Bt271.4m or 21% of the Group’s income, representing an increase of Bt147.9m or 120% from 2005. Such rise was mainly due to an increase in interest and dividend income of Bt89.5m following an increase in the lending portfolio as well as an increase in interest rates in the market, a drop in loss on trading in securities/investment of Bt19.5m and a gain from interest rate swap contracts of Bt12.3m compared with a loss of Bt30.4m recorded in 2005. The finance business’ costs and expenses totaled Bt246.9m, a rise of Bt114.3m or 86% from 2005 because of an increase in borrowing expenses totaling Bt105.8m following an increase in interest rates in the market. Therefore, Finansa’s finance business reported a gross profit of Bt24.5m. However, after deducting Bt.55m of bad debts and doubtful accounts set up following the BoT’s new guidelines, the Company and subsidiaries reported a net loss of Bt30.5m from the finance business.

122

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3. Income from the securities business was Bt363.3m, representing 27% of total earnings of the Group. The amount reported was lower than that of 2005 by Bt154.0m or 30% due to a decrease in brokerage fees of Bt207.1m, in turn a result of a departure of sales staff thus a drop in its brokerage market share especially in the first half of the year. Brokerage market share declined from an average of 2.1% in 2005 to an average of 1.1% in 2006. Fees and services income from investment banking surged by Bt66.3m . Costs and expenses of the securities business amounted to Bt304.0m, an increase of Bt44.4m or 17% from last year. Such rise came from an increase in personnel expenses of Bt54.6m due to an additional 150+ new marketing staff coming in during the second half of the year. Premises and equipment expenses rose Bt18.3m from the expansion of the branch network from 3 branches in 2005 to 14 branches at year-end 2006. Fees and services expenses dropped Bt27.8m as FSL’s trading volume fell. As a result, Finansa recorded gross earnings from the securities business at Bt59.3m, representing a decrease of Bt198.4m or 77%. 4. The asset management business generated total income of Bt45.0m, or 3% of the Group’s income, consisting of fees and service income of Bt44.8m and other income of Bt0.2m. Costs and expenses of the asset management business totaled Bt31.4m, consisting of personnel expenses, premises and equipment expenses and other expenses of Bt26.8m, Bt3.6m and Bt1.0m, respectively. As a result, Finansa reported a gross profit from the asset management business of Bt13.6m compared to a loss of Bt14.1m recorded in 2005.

Profitability Ratios In 2006, Finansa recorded a net loss of Bt182.9m or basic loss per share of Bt1.48, compared with a net profit of Bt102.4m or basic earnings per share of Bt0.82 in 2005. Net profit to total income of the group was (13.8%) compared with 8.6% in 2005. This resulted mainly from a larger increase in expenses compared to the increase in total income. In addition, the return on average assets and return on average equity were (2.0%) and (6.2%), respectively. Financial Position

31 Dec 2006

31 Dec 2005

Total Assets

8,945.2

Liabilities and shareholder’s equity • Total liabilities • Total shareholders’ equity Total Liabilities and Shareholders’ equity

Change Amount

%

9,572.5

(627.3)

(7%)

6,165.6 2,779.6

6,461.6 3,110.9

(296.0) (331.3)

(5%) (11%)

8,945.2

9,572.5

(627.3)

(7%)

As of 31 December 2006, the Company and its subsidiaries had total assets of Bt8,945.2m, a drop of Bt627.3m or 7% from year-end 2005. The main components of the assets were Bt5,670.5m of current assets and Bt3,274.7m of non-current assets representing 63% and 37% of total assets, respectively. The items having significant changes are as follows. FINANSA PLC. ANNUAL REPORT 2006

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• • •

The securities purchased under resale agreements, all of which were government bonds and BoT bonds, amounted to Bt760.0m, a drop of Bt1,110.0m or 59% from the end of 2005. Loans, receivables and accrued interest receivables – finance and securities businesses rose by Bt463.7m or 23% from last year, due to the expansion of the finance business loans, cash customer’s account and margin loans. Net investments stood at Bt3,779.1m, increasing by Bt372.1m or 11% from year-end 2005, due mainly to an increase in investments by the Company and subsidiaries. The breakdown of investments was Bt1,920.6m of current investment (+Bt327.2m or a 21% rise), Bt395.3m of investments in associated companies and funds (-Bt175.6m or a 31% drop) and Bt1,463.2m of long-term investments (+Bt220.0m or a 18% rise). Cash and cash equivalents were Bt347.0m, down by Bt322.6m or 48% from year-end 2005.

Liquidity Cash and cash equivalents of the Company and its subsidiaries as of year-end 2006 totaled Bt347.0m, representing a drop of Bt322.6m from year-end 2005 due to the following activities. • Net cash from operating activities totaled Bt463.7m resulting from changes in key operating assets and liabilities. Securities purchased under resale agreements decreased by Bt1,110.0m while loans, receivables and accrued interest receivables, current investments and securities business payables rose by Bt516.2m, Bt286.7m and Bt177.9m, respectively. • Net cash used in investing activities totaled Bt7.6m, coming mainly from cash received from a fall of Bt269.8m in investments in related parties and a fall of Bt161.8m in loans to other parties whilst cash paid out included Bt252.6m for the acquisition of other long-term investments, Bt117.7m for the purchase of fixed assets and intangible assets and Bt93.0m for investments in associated companies. • Net cash used in the financing activities totaled Bt639.0m, resulting from a decrease in borrowings and deposits of Bt373.8m, a repayment of the Company’s bills of exchange and loans of Bt194.0m, and a dividend payment of Bt67.8m. The current and quick ratios of the group as of 31 December 2006 were 1.13 and 1.05 times respectively, declining from 1.23 and 1.19, respectively, as of year-end 2005. This was due to drops in liquidity securities which are Government bonds and the Bank of Thailand bonds. The Company management has placed a strong emphasis on risk and liquidity management. FSL, which is a subsidiary of FNS, has to maintain its liquidity ratio in accordance with SEC regulations. As of 31 December 2006, FSL’s liquidity ratio was satisfactory. The net capital rule (NCR) percentage was 101.9%, which is significantly higher than the minimum 7% requirement set by the SEC. Under Bank of Thailand regulations, FC has to maintain its capital adequacy ratio of at least 8% of total assets. In addition, Tier 1 capital has to be more than 4% of total assets. As of 31 December 2006, the capital adequacy ratio of FC was 13.9%.

124

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Sources of Funds Liabilities As of 31 December 2006, the total liabilities of the group were Bt6,165.6m, a decrease of Bt296.0m, or 5% from year-end 2005. Current liabilities were Bt5,022.4m, representing 81% of total liabilities while the remaining 19% were non-current liabilities of Bt1,143.2m. The items having significant changes are as follows. • Bills of exchange were Bt656.9m, dropping by Bt118.2m or 15% from the end of 2005 following redemptions. • Borrowings and deposits stood at Bt3,491.4m, decreasing by Bt373.8m or 10%. • Securities business payables and payable to the Clearing House stood at Bt374.5m, rising by Bt159.3 or 74%. • There was no provision for loss on revaluation of interest rate swap contracts compared with Bt.84.2m booked last year.

Shareholders’ Equity At year-end 2006, shareholders’ equity was Bt2,779.6m, a decrease of Bt331.3m or 11% from 2005. This was due mainly to a drop in retained earnings of Bt244.7m which was derived from the net loss of Bt182.9m in 2006, the dividend payment of Bt62.0m and a rise in translation adjustment of Bt139.6m less a drop of Bt52.5m in revaluation deficit on investments. In 2005, the Board of Directors of the Company approved a program to buy back its own shares for liquidity surplus management purposes. At year-end 2006, Finansa had bought back 1.49 million shares for a total consideration of Bt25.0m. In this regards, the Company has already appropriated its retained earnings in the same amount. As a result, the book value at year-end 2006 was Bt22.5 per share compared to Bt25.2 per share a year earlier.

Capital Structure As of 31 December 2006, the Group’s capital structure comprised Bt6,165.6m in liabilities and Bt2,779.6m in shareholders’ equity, resulting in a debt to equity ratio of 2.2 times comparing to a ratio of 2.1 times the previous year. The major source of funds on the liabilities side was borrowings and deposits while the major uses of funds were loans, loans and receivables and investments in liquid assets. As for FC and FSL, they have maintained their capital adequacy ratios above the level required by regulations.

Credit Rating In January 2007, Fitch Ratings (Thailand) Limited affirmed a long-term and short-term credit ratings for FNS of BBB(tha) and F3(tha), respectively, with negative outlook. Major Factors Which May Affect Future Operation and Financial Position Major factors which may affect the future operation and financial position of the Group are already mentioned in the section on “Risk Factors”.

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Related Party Transactions for 2006 The related transactions occurring in 2006 as shown in the audited financial statements as of 31 December 2006 are as follows:

1. Outstanding Items Description/Names of Related Parties (Relationship) (1) Loan, receivables and accrued interest receivables - securities business • Directors of the company and its related parties, including persons having close relationship to these directors (2) Advance to related parties • Finansa Capital Ltd.

The outstanding balances of securities purchased

Term of payment : T+3 days

9.35

Advance to FCL

Professional fee expenses from FFM to FCL Organizational expenses from FFM to SIF III Operating expenses from FFM to VEF Advance to directors from FFM

2.85

Fund management fee receivables

TADF management fee from ADF

152.64

Receivables from VFF liquidation

Payable every six months ended in Sep 2006

14.05

Purchased B/E issued by FNS Purchased B/E issued by FNS

6% interest rate, due February 2007 5.75% interest rate, due January 2007

29.81

The outstanding balances of securities sold

Term of payment : T+3 days

0.45

Deposit of FC from directors/related persons

The same condition as other customers

45.00 20.52

• Siam Investment Fund III, L.P.

Advance to SIF III

• The Vietnam Equity Fund

Advance to VEF

• Directors of the Company and its related parties

Advance to directors

(3) Service income receivables • The Asian Debt Fund Ltd. (TADF) (4) Other receivables • The Vietnam Frontier Fund

(5) Bills of exchange • Finansa Life Assurance Co., Ltd. • Pacific Assets Plc.

(6) Securities business payable • Directors of the company and its related parties, including persons having close relationship with these directors (7) Borrowings and deposits • JP-One Asset Co., Ltd. • Directors of the company and its related parties

126

Conditions

Outstanding as of 31 Dec 2006 (Bt. million)

Nature of Transactions and Reasons

9.19 1.25 0.02

99.92

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2. Investment in Subsidiaries

Description/Names of Investee Companies

Nature of Transactions and Reasons

Investment Value as of 31 Dec 2006 (Bt. million)

Pricing pursuant to equity method as of 31 Dec 2006 (Bt. million)

(1) Investment in Subsidiaries/FSL

FNS holds 99.99% of the total capital in FSL (FSL paid dividend totalling Baht315million to FNS in 1st and 3rd quarters of 2006.)

484.71

874.43

(2) Investment in Subsidiaries/FFM

FNS holds 100% of the total capital in FFM as it wishes to conduct offshore fund investment advisory business.

151.79

570.16

(3) Investment in Subsidiaries/FC

FNS holds 99.97% of the total capital in FC as it wishes to conduct ďŹ nance business.

587.23

582.03

(4) Investment in Subsidiaries/FCAM

FNS holds 100% of the total capital in FCAM as it wishes to conduct investment advisory business in Cambodia.

0.20

-

(5) Investment in Subsidiaries/FHK

FNS holds 100% of the total capital in FHK as it wishes to conduct advisory business in Hong Kong.

0.51

-

(6) Investment in Subsidiaries/FAM (Formerly Krungthep Thanathon Asset Management Co., Ltd.)

FNS holds 99.99% of the total capital in FAM as it wishes to conduct asset management business.

108.20

91.87

(7) Investment in Subsidiaries/PSPC

FNS holds 100% of the total capital in PSPC as it wishes to conduct investment business.

0.01

-

Investment Value as of 31 Dec 2006 (Bt. million)

Pricing pursuant to equity method as of 31 Dec 2006 (Bt. million)

3. Investment in associated companies

Description/Names of Investee Companies

Nature of Transactions and Reasons

(1) Investment in associates/Siam Investment Partners, L.P.

FFM holds 50%

11.03

10.65

(2) Investment in associates/Finansa Capital Ltd.

FFM holds 50%

0.53

0.23

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Investment Value as of 31 Dec 2006 (Bt. million)

Pricing pursuant to equity method as of 31 Dec 2006 (Bt. million)

FFM holds 26.83% (December 2005 = 20.83%)

163.43

164.45

(4) Investment in associates / The Vietnam Equity Fund

FFM holds 26.38%

62.93

145.17

(5) Investment in associates / Siam Investment Fund III, L.P.

FFM holds 41.66%

25.85

15.28

(6) Investment in associates / Siam Investment Partners III, L.P.

FFM invests in SIP III as it is a General Partner of SIF III

10.86

10.73

Description/Names of Investee Companies

Nature of Transactions and Reasons

(3) Investment in associates / JP-One Assets Co., Ltd.

4. Other Investments Description/Names of Investee Companies

Nature of Transactions and Reasons

Investment Value as of 31 Dec 2006 (Bt. million)

(1) Long-term investment/SIF

FFM and FNS have a 57.48% stake in SIF as part of a diversiďŹ ed long term investment strategy (December 2005 = 49.48%)

(Cost 147.61, impairment 147.61)

(2) Long-term investment/SIF II

FFM has a 4.13% stake in SIF II as part of a diversiďŹ ed long term investment strategy

48.79

5. Revenues and Expenses

Description/Names of Nature of Transactions and Related Parties (Relationship) Reasons

128

Conditions

For the Year ended 31 Dec 2006 (Bt. million)

(1) Service income/TADF (Fund under management)

ADF has received a management fee from TADF

Pursuant to the terms of the services agreement.

238.31

(2) Service income/FCL (Associated company)

FFM has received service fees from FCL for SIF II and SIF III management.

Pursuant to the terms of the services agreement.

22.00

(3) Service Income/SIF (Fund under management)

FFM has received a management fee from SIF.

Pursuant to the terms of the services agreement.

4.74

(4) Service Income/VEF (Fund under management)

FFM has received a management fee from VEF.

Pursuant to the terms of the services agreement. (Beginning Q2/2005).

14.46

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Description/Names of Nature of Transactions and Related Parties (Relationship) Reasons (5) Brokerage fee • Siam Investment Fund • Directors of the company and its related parties, including persons having close relationship with these directors • Finansa Life Assurance Co., Ltd. (6) Interest expense • Pacific Assets Plc.

FSL has received brokerage fee for trading transactions.

Conditions

For the Year ended 31 Dec 2006 (Bt. million)

As the same rate charges to general customers

0.03 1.92

0.20 Interest expenses of B/E

• Finansa Life Assurance Co., Ltd.

Interest expenses of B/E

• Directors of the company and its related parties, including persons having close relationship with these directors

Interest expense of promissory notes issued by FC

Interest rate range of 4.8%-6.5% p.a. Interest rate range of 5.0%-6.0% p.a. As the same rate pays to general customers

11.99 3.30 1.72

6. Purchase/Sale of Investment Description/Names of Nature of Transactions and Related Parties (Relationship) Reasons (1) Purchase/sale of investment • Siam Investment Fund a. Purchase of equity security b. Purchase of claims over receivables

Conditions

For the Year ended 31 Dec 2006 (Bt. million)

Normal investment by FFM At the price close to book value At the agreed price

38.43 7.53

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Related Transaction Policy for 2006 Related party transactions are transactions that occur in the ordinary course of business.

Necessity and reasonability of the related transactions Related party transactions are necessary and reasonably conducted in the best interest of the Company. The board of directors and audit committee of the Company were of the opinion that: 1. transactions between the Company and its wholly owned subsidiaries (more than 99% holding) were done in the ordinary course of business and at armâ&#x20AC;&#x2122;s length prices. 2. transactions between the Company, its subsidiaries (less than 99% holding) and its related parties were done in the ordinary course of business and at armâ&#x20AC;&#x2122;s length prices.

Related Transaction Policy The Company has set policies on related transactions based on the rules and regulations set forth by the Stock Exchange of Thailand concerning related transactions of listed companies and transfers of assets by listed companies. In the case that there is a conflict of interest with the Company or subsidiaries, the directors involved shall not have voting rights on such conflicting matters.

Future Related Transactions It is the Audit Committee duty to consider and ensure the accuracy and completeness of information disclosure on related transactions or transactions which may cause conflicts of interest. Additional responsibilities are to review and ensure the Company adopts proper and effective internal control and internal audit systems; and complies with the laws on securities exchange, the SETâ&#x20AC;&#x2122;s regulations, or other laws relating to its business.

130

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Board of Investment Privileges The Company has been granted privileges from the Board of Investment effective 1 May 2002. The investment promotion certificate No. 1394 (2)/2002 was received on 25 June 2002 in relation to the promotional activity of type 7.9: Regional Headquarters. The Company is the first finance and investment company in Thailand that has received such promotional privileges. These privileges, and associated conditions, are summarized below.

Important Privileges • Exemption from corporate income taxes on the net revenue from promoted operations up to the total of invested funds (excluding investments for land and working capital) for a period of 5 years from the commencement of earnings from the businesses under promotional privilege. The Company began such services within the 4th quarter of 2002, resulting in tax exemption being effective until 2007. • Exemption from taxes imposed on dividends received from investments granted investment promotion to be included as part of the income tax throughout the exemption period of the corporate income tax. • Permission to take out or remit foreign currencies out of Thailand.

Important Conditions • Revenues from services provided to branches or subsidiaries onshore and offshore will be exempted from tax. • At least half of the annual revenues must come from overseas. • Thai nationals must hold not less than 51% of the total shares. • The regional headquarters activity must have its branches or subsidiaries situated in not less than 5 countries. There must also be a training and development center for human resources. • The annual operating expenses must not be lower than Baht 50 million. • The promotional activity must invest at least Baht 40 million in real estate within 2 years from the issuance date of the investment promotion certificate. • The promotional activity must proceed to obtain an ISO 9000 certificate within 2 years from the commencement date of its operations, otherwise the exemption from corporate income tax will be revoked for a period of 1 year. In this regard, the company has been awarded an ISO9001:2000 Certified in December 2006. Note: Tax exemption is only for the revenue from providing support to affiliates and subsidiaries in the areas of organizational administration, business and market planning, research in investment opportunities and analysis of the economy for investment, management and development in informational technology, human resources development and training, as well as providing advice and suggestions for various business operations.

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Shareholder Structure and Management Shareholder Structure Shareholders As of 31 December 2006, the registered and paid up capital of the Company was Baht 1,500 million, divided into 300 million ordinary shares with a par value of Baht 5 per share; paid up capital was Baht 625,050,500. The list of major shareholders as of 4 April 2006 is as follows:

Name 1. Morgan Stanley & Co. International Limited* 2. Natural Park Plc. 3. Mr. Vorasit Pokachaiyapat p 4. UBS AG Singapore, Branch-PB Securities Client Custody 5. M.L.Sudhiman Pokachaiyapat 6. The Viriyah Insurance Co., Ltd. 7. Mr. Aat Atthakraweesunthorn 8. Miss Nareekarn Bangor 9. BFIT Securities Plc. 10.Mr. Tiam Setsawad Total

Number of shares

% of paid up capital

24,882,250

19.90

22,500,000 6,880,000

18.00 5.50

6,249,900 4,500,000 4,090,000 1,876,800 1,795,000 1,600,500 1,495,800

5.00 3.60 3.27 1.50 1.44 1.28 1.20

75,870,250

60.69

*Holding 17,250,000 shares in the name of Finansa Investment Advisors Limited (FIA) in which Mr. Eugene S. Davis and Mr. Vorasit Pokachaiyapat are major shareholders.

Dividend payment policy The Company and its subsidiaries have a policy to pay dividends at 30% of the net profit after taxes, or as it may deem appropriate, except in cases where there are other necessities and such payments would signiďŹ cantly aďŹ&#x20AC;ect the normal operations of the Company. Shareholders who receive dividend payments from activities under the investment promotional privilege will be exempt from income tax payments on such dividends.

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Management Structure As of 31 December 2006, the three bodies of committees are: i) the Board of Directors, ii) the Executive Committee, and iii) the Audit Committee with the following details:

Board of Directors The Board of Directors consisted of the following 8 members: 1. Dr. Virabongsa Ramangkura Chairman 2. Mr. Vorasit Pokachaiyapat Managing Director 3. Mr. Eugene S. Davis Director 4. Mr. Varah Sucharitakul Director 5. Mr. Kenneth Lee White Director 6. Mr. Vitthya Vejjajiva Director, Chairman of the Audit Committee and Independent Director 7. Mrs. Kannika Ngamsopee Director, Member of the Audit Committee and Independent Director 8. Mr. Chanmanu Sumawong Director, Member of the Audit Committee and Independent Director

Scope of Duties of the Board of Directors The Board of Directors has the responsibility of managing the Company in compliance with relevant laws, the business objectives, the Articles of Association and the resolutions of shareholdersâ&#x20AC;&#x2122; meetings. The responsibilities also include the formulation of policies and operating directions, financial management, risk management, and providing guidance and supervision to the management to operate efficiently and effectively and in accordance with the relevant policies. The interests of the shareholders will be taken into account in managing the Company. The Board of Directors also has the power to appoint a certain number of directors to be members of the executive committee to perform one or several tasks. The Board of Directors has empowered the directors authorized to sign for and bind the Company to independently conduct various matters. However, the matters set forth below require a prior resolution from the meeting of the shareholders. In the case that there is a conflict of interest with the Company or subsidiaries, the directors involved shall not have voting rights on such conflicting matters: (a) when resolution of the meeting of shareholders is required by law; and (b) matters in which directors may have an interest and a resolution of the meeting of shareholders is required by law or by the regulations of the Stock Exchange of Thailand. The matters specified below require a resolution of the Board of Directors and of the meeting of shareholders passed by a vote of not less than three-fourths of the total number of shareholders present at the meeting and entitled to vote; (a) the sale or transfer of whole or important parts of a business of the Company to other persons; (b) the purchase or acceptance of transfer of businesses of other companies or private companies to the Company;

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(c) the making, amending or canceling of contracts relating to the leasing out of the business of the Company, whole or certain important parts, the assignment to any other persons to manage the business of the Company or the amalgamation of the business with other persons with an objective towards profit and loss sharing; (d) the amendment of the Memorandum of Association or the Articles of Association of the Company; (e) the increase or decrease in registered capital of the Company; (f ) the merger or liquidation of the Company; and (g) other matters specified by law.

Executive Committee The Executive Committee consisted of the following 4 members: 1. Mr. Vorasit Pokachaiyapat Managing Director 2. Mr. Eugene S. Davis Executive Director 3. Mr. Varah Sucharitakul Executive Director 4. Mr. Kenneth Lee White Executive Director

Scope of Duties of the Executive Committee The Executive Committee has the following powers and responsibilities: (a) to consider and approve any loan or credit application in the ordinary course of business of the Company, e.g., expenses for investments or for any activity with a value not exceeding Baht 500 million or in an equivalent amount or in an amount authorized by the Board of Directors; (b) to establish organizational, management, and executive committee structures, which include all the details of the recruitment, training, employment and termination of the employees in the Company whose position is not higher than the managing director; (c) to appoint or remove any officers of the Company; (d) to prepare, recommend, and prescribe business policies and strategies to the Board of Directors for consideration and approval; (e) to formulate business plans, prescribe management authority, approve annual expenditure budgets and conduct the business pursuant to the business plan and strategy which are to be in line with the policies and directions approved by the Board of Directors; and (f ) to perform any other duties as, from time to time, assigned by the Board of Directors.

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Audit Committee The Audit Committee consisted of the following 3 members: 1. Mr. Vitthya Vejjajiva 2. Mrs. Kannika Ngamsopee 3. Mr. Chanmanu Sumawong

Audit Committee Chairman Audit Committee member Audit Committee member

Scope of Duties of the Audit Committee The Audit Committee has the following duties and responsibilities which are in accordance with the rules and regulations of the Securities and Exchange Commission and the Stock Exchange of Thailand. The Audit Committee shall report directly to the Board of Directors. (a) to ensure that the Company maintains accurate and sufficient financial statements; (b) to ensure that there is sufficient and efficient internal control and internal audit; (c) to ensure that the Company performs in accordance with the securities and exchange laws, regulations of the Stock Exchange of Thailand, and laws concerning the business of the Company; (d) to consider, select, and appoint the auditor and fix their remuneration; (e) to consider the disclosure of information of the Company for matters that may constitute a connected transaction or have any conflict of interest to be full and accurate; (f ) to prepare the report of the Audit Committee to be disclosed in the annual report of the Company which shall be signed by the Chairman of the Audit Committee.

Management Team of Finansa Plc. As of 31 December 2006, the management team consisted of the following 13 executives: 1. 2. 3. 4. 5. 6. 7. 8.

Mr. Vorasit Pokachaiyapat Mr. Eugene S. Davis Mr. Varah Sucharitakul Mr. Kenneth Lee White Mr. James Marshall Mr. Jonathan Bradley Truslow Mrs. Phaisri Kraiboon Mrs. Pornnipa Hachaiyaphum

9. Mr. Teerath Pratumsuwan 10.Ms. Rachanee Mahatdetkul 11.Ms. Keiko Sebata 12.Mr. Vikrom Leenabanchong 13.Mr. Bancha Phanthajarunithi

Managing Director Executive Director Executive Director Executive Director Chief Investment Officer Chief Operating Officer Assistant Managing Director Group Finance and Accounting Manager (Supervises finance and accounting areas) Vice President of Direct Investment Department Vice President of Direct Investment Department Vice President of Direct Investment Department Assistant Managing Director Assistant Managing Director

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Selection of Directors and Executives At present, the Company is in the process of setting up a nominating committee; therefore, the selection of the persons who are to hold the positions of directors of the Company is not yet undertaken through the procedures of a nominating committee. However, the Board of Directors does select the directors of the Company in accordance with the qualifications specified in Section 68 of the Public Company Act, B.E. 2535 and in related notifications of the SEC. In addition, experience, knowledge and ability are also taken into consideration. The selected candidates will then be nominated in a shareholders’ meeting for appointment. As of 31 December 2006, from the total number of 8 directors, the Company had 2 directors from the group of major shareholders, namely Mr. Eugene S. Davis and Mr. Vorasit Pokachaiyapat. The election of the members of the Board of Directors is made at shareholders’ meetings pursuant to the following procedures: • One shareholder has one vote for one share held by he/she. • Each shareholder may cast all of his/her votes to select one or more candidates, but the number of votes given to each candidate cannot be greater nor lesser than the number of votes given to the other(s). • The persons receiving the highest successive number of votes will be elected as directors until the permissible number of directors in the particular election is reached. In the case of an equal number of votes given to more than one candidate, which causes the number of directors to be greater than the permissible number, the chairman shall cast the deciding vote. In terms of the selection process of independent directors, when the independent directors are due to retire from their term of office or when there is a need to nominate more independent directors, the current members of the Board of Directors will consult with one another to select qualified persons who have experience, knowledge and expertise suitable and beneficial to the Company and also meet the minimum qualifications set forth below. Nominees will be proposed to the Board of Directors’ Meeting or the Shareholders’ Meeting for consideration pursuant to the Company’s Articles of Association. Qualifications of independent director are as follows: (a) Holding shares representing not more than 5 percent of all voting rights of the Company, parent company, subsidiary company, associated company or any juristic person who may have a conflict of interest. (b) Not being an employee, staff member, advisor who receives a regular salary from the Company, or controlling person of the Company, parent company, subsidiary company, associated company or any juristic person who may have a conflict of interest. (c)

Not being a connected person, by virtue of a blood relationship or legal marriage in the form of fatherhood, motherhood, spouse, brother, sister, son and daughter, including spouse of son or daughter, of the executives, major shareholder, controlling person or persons who are about to be nominated as executives or controlling persons of the Company or its subsidiary.

(d) Having no business relation with the Company, parent company, subsidiary company, associated company or any juristic person who may have a conflict of interest in a way that may interrupt the exercise of independent discretion as well as the giving of independent opinion on the Company’s operations.

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B iographies of Directors and Management Name Dr. Virabongsa Ramangkura

Age

% Holding in FNS

63

-

Education •

Chairman •

Doctor of Law

Experience present

• Chairman, Finansa Plc.

(Honorary), Webster

• President, Bangkok Expressway Plc.

University, U.S.A

• Chairman of the Executive Board,

Ph.D. (Economics),

Advance Agro Plc.

University of

• Advisor of the Board of the

Pennsylvania, U.S.A •

Bangkok Bank Plc.

M.A. (Economics),

• Director, Thailand Development

University of •

Research Institute Foundation

Pennsylvania, U.S.A

• Director, Polyplex (Thailand) Plc.

First Class Honors,

• Director, IRPC Plc.

B.A. (Political Science), Chulalongkorn University, Thailand •

Directors Certification, Thai Institute of Directors Association (IOD)

Mr. Vorasit Pokachaiyapat

44

9.10%

M.S. Computer

present

• Managing Director, Finansa Plc.

Managing Director

Information Systems,

Authorized Director

Bentley College, U.S.A

2002 - present Director, Finansa Securities Ltd.

B.S. Managerial

2002 - 2004

Director, Finansa Credit Ltd.

Economics and

1990 - 1991

Associate, Chase Manhattan

Executive Director

• Director, SE-Education Plc.

Industrial Management, Carnegie-Mellon •

(Thailand) Ltd. 1988 - 1990

Head of Securities Research, Thai

University, U.S.A

Investment and Securities Public

Directors Certification,

Co., Ltd.

Thai Institute of Directors Association (IOD) Mr. Eugene S. Davis

51

-

MBA in Finance and

present

• Executive Director, Finansa Plc.

Authorized Director

International Business,

Executive Director

New York University,

2000 - present Director, Finansa Securities Ltd.

U.S.A

2004 - 2005

Director, Finansa Credit Ltd.

B.A. International

1989 - 1991

Managing Director, Chase

• Director, Pranda Jewelry Plc.

Relations/ French, University of Virginia,

Manhattan (Thailand) Ltd. 1987 - 1989

Charlottesville, U.S.A

Chairman, Asian Primary Dealers Committee of U.S. Fixed Income Securities

1984 - 1989

Director of Fixed Income Trading, The First Boston Corp., Japan

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Name Mr. Varah Sucharitakul

Age

% Holding in FNS

43

-

Education •

Master of Business

Authorized Director

Administration,

Executive Director

University of New •

Experience 2006 - present Executive Director, Finansa Securities Ltd. 2001 - 2006

Hampshire, U.S.A

Securities Ltd.

B.Eng. (Mechanical

2001 - present Executive Director, Finansa Plc.

Engineering),

2002 - 2004

Director, Finansa Credit Ltd.

Chulalongkorn

1998 - 2000

Executive Director, The Cogeneration Plc.

University, Thailand •

Managing Director, Finansa

Directors Certification,

1997 - 2000

Directors Association

Executive Vice President of Finance, Sithe Pacific Development L.L.C

Thai Institute of 1994 - 1997

Senior Vice President-Head of Project Finance, Finance One Plc.

(IOD) 1990 - 1994

Second Vice President, Chase Manhattan Bank, Thailand

MBA in International

present

Authorized Director

Business, University of

2005 - present Audit Committee Member,

Executive Director

Puget Sound, Tacoma,

Mr. Kenneth Lee White

61

-

Washington, U.S.A •

Goodyear (Thailand) Plc. 2004 - present Director, Finansa Asset

B.A. in International Business, Netherlands

Management Ltd. 2003 - present Director, Finansa Life Assurance

School of Business, Breukelen, The

Co.,Ltd. 2002 - present • Executive Director, Finansa Plc.

Netherlands •

Directors Certification,

• Director, Loxbit Plc. 1998 - present Director and Chairman of

Thai Institute of

the Audit Committee, Minor

Directors Association (IOD) •

International Plc. 2004 - 2006

Governor, The American Chamber

1998 - 2005

Director and Chairman of

Fellow Membership, Thai Institute of Directors

Executive Director, Finansa Credit Ltd.

of Commerce in Thailand

Association (IOD)

the Audit Committee, Minor Corporation Plc. 2001 - 2003

Director, The Thai Institute of

1986 - 1992

General Manager, The Chase

Directors Association (IOD) Manhattan Bank, Thailand

138

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Name Mr. Vitthya Vejjajiva

Age

% Holding in FNS

71

-

Education

Experience

Harvard Law School,

2002 - present Chairman of the Audit Committee,

Director

Harvard University

Chairman of the Audit

(LL.M.) •

Committee

Chairman of the Audit Committee, TA Plc.

Gonville and Caius College, Cambridge

Independent Director

Finansa Plc. present present

Member of the National Legislative Assembly

(M.A., LL.B.) • •

Barrister-at-Law, Gray’s

Chairman:-

Inn

“K” Line (Thailand) Ltd.

Thailand’s Chapter of the

and affiliates

Chairman 2000, Thai Institute of Directors

Centre for Security

Association (IOD)

Co-operation in Asia and the Pacific (CSCAP) 1991 - 1992

Permanent Secretary of Foreign Affairs, Ministry of Foreign Affairs

1988

Ambassador to the United States

1984

Ambassador to Belgium and European Community

Mrs. Kannika Ngamsopee

51

-

M.S. (Accounting),

Director

Thammasat University,

Audit Committee

Thailand

Member

Independent Director

2002 - present Audit Committee Member, Finansa Plc. present

Chief Audit and Compliance Officer,

Sasin Graduate

1999 - 2000

Director, The Cogeneration Plc.

Institute of Business

1998 - 2000

Chief Financial Officer, Sithe

1995 - 1997

Assistant Managing Director,

1994 - 1995

General Manager, Peregrine &

Master of Management,

Siam Commercial Bank Plc.

Administration of Chulalongkorn

Pacific Development LLC.

University, Thailand •

B.B.A (Accounting) 2nd

Finance One Plc.

Class Honors, Thammasat

Nithi Finance and Securities Co.,

University, Thailand

Ltd.

LL.B (Law), Thammasat

1993 - 1994

Senior Vice President -Finance,

1982 - 1992

Vice President, Chase Manhattan

Bangkok Transit System Corp., Ltd.

University, Thailand •

Directors Certification, Thai Institute of Directors

Bank

Association (IOD)

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Name

Age

% Holding in FNS

Mr. Chanmanu

50

-

Sumawong •

Director

Education

Experience

Thai Barrister at Law,

2004 - present Audit Committee Member, Finansa Plc.

Thailand

1999 - present Partner, Hunton & Williams

LL.M., George

Audit Committee

Washington University,

Member

U.S.A •

Independent Director

M.C.L., American

(Thailand) Ltd. 1998 - 1999

Williams (Thailand) Ltd. 1996 - 1997

Partner, International Legal

1989 - 1996

Legal Counselor, International

1982 - 1989

• Secretary of the Central

Practice, George Washington University,

Counselors Thailand Ltd.

U.S.A •

LL.B., 2nd Class Honors,

Legal Counselor, Hunton &

Legal Counselors Thailand Ltd. Labour Court

Thammasat University,

• Judge, Thailand Ministry of

Thailand

Justice, Nakorn Ratchasima Privincial Court; Nakorn Ratchasima Juvenile Court; Surin Municipal Court

Mr. James Marshall

52

0.0002%

Chief Investment Officer

Member of the Securities

2004 - present Chief Investment Officer, Finansa Plc.

and Investment Institute

1999 - 2004

Director of Research, Finansa

1992 - 1997

Head of Research, Nomura

of the U.K

Group International Ltd./India/ Bangkok

Mr. Jonathan Bradley

46

-

Truslow

MA. (Mathematics),

present

Chief Operating Office, Finansa Plc.

Magdalen College,

2001 - 2005

Executive Vice President, Asia Bank

2000 - 2001

Senior Manager, Deloitte

Oxford, U.K

Chief Operating Officer •

BA. (Mathematics), Magdalen College,

Plc. Consulting Ltd.

Oxford, U.K •

Directors Certification, Thai Institute of Directors Association (IOD)

140

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% Name

Age

Holding

Education

Experience

in FNS Mrs. Phaisri Kraiboon

59

0.04%

Assistant Managing Director

MBA, Chulalongkorn

2004 - present Assistant Managing Director, Finansa Plc.

University, Thailand •

B.A. in Political

2003 - present Director, Finansa Securities Ltd.

Science - Public

2001 - 2003

nd

Operations, Finansa Securities Ltd.

Finance (2

Class Honors),

Executive Vice President -

1992 - 2001

Vice President - Operations, Chase Manhattan Bank

Chulalongkorn University, Thailand Mrs. Pornnipa

43

-

MS. in Finance,

Hachaiyaphum

Chulalongkorn

Group Finance and

University, Thailand •

Accounting Manager

present

Ltd. 2004 - 2006

• Group Finance and Accounting Manager, Finansa Plc.

BBA Accounting,

• Director, Finansa Credit Ltd.

Thammasat University, Thailand

Executive Director, Finansa Credit

2002 - 2004

Chief Operations Manager, Finansa Credit Ltd.

1988 - 2002

Assistant Vice President - Policy and Planning, IFCT

Mr. Teerath Pratumsuwan

39

0.06%

MBA, Finance, The

Vice President of Direct

City University of

Investment Department

New York (Baruch

present

Investment, Finansa Plc. 1995 - 2006

B.A. in Accounting,

1994 - 1995

41

0.006%

Investment Department

University, Thailand

1988 - 1992

MBA, Santa Clara

present

B.A. in Business

1994 - 2006

Senior Vice President of Direct Vice President of Direct Investment, Finansa Plc.

Administration, Assumption

Accountant, Siam Cement Plc.

Investment, Finansa Plc.

University, U.S.A

Vice President of Direct

Assistant Treasury, Siam Cement Plc.

Chulalongkorn

Ms. Rachanee Mahatdetkul

Vice President of Direct Investment, Finansa Plc.

College), U.S.A •

Senior Vice President of Direct

1993 - 1994

Financial Analyst, American Appraisal (Thailand) Co., Ltd.

University, Thailand 1989 - 1989

Internal Audit Assistance, Diethelm & Co.

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% Name

Age

Holding

Education

Experience

in FNS Mrs. Keiko Sebata

43

-

BSc. in Business

Senior Vice President

Administration,

of Direct Investment

Sophia University,

Department

Japan

present

Senior Vice President of Direct Investment, Finansa Plc.

1993 - 2006

Vice President of Direct Investment, Finansa Plc.

1987 - 1993

• Market Strategist, James Capel Pacific, Tokyo • Security Analyst, County NatWest Securities, Tokyo

Mr. Vikrom Leenabanchong

38

0.0008%

MBA, Operations,

Assistant Managing Director

Research, California

(Head of Investment

State University,

Banking)

Hayward, U.S.A •

2006 - present Assistant Managing Director (Head of Investment Banking), Finansa Plc. 2005 - 2006

Investment, Finansa Plc.

Bachelor degree of Engineering,

2003 - 2005

Vice President Investment Banking, Finansa Credit Ltd.

(Civil Engineering), Kasetsart University,

Vice President of Direct

2000 - 2003

Vice President Investment Banking, Finansa Securities Ltd.

Thailand 1999 - 2000

Assistant Vice President-Corpoarte Finance Department, Thai Investment and Securities Public Co., Ltd.

Mr. Bancha Phanthajarunithi

39

-

Thai Barrister at Law, Thailand

(Group Internal Audit & Legal),

Master of Law,

Finansa Plc.

Assistant Managing Director

Chulalongkorn

2006 – present Assistant Managing Director

2003 - 2006

University, Thailand •

LL.B., 2nd Class Honors,

Ltd. 2000 - 2003

Head of Compliance, Finansa Securities Limited

Chulalongkorn University, Thailand

Assistant Managing Director (Compliance), Finansa Securities

1997 - 2000

Legal and Compliance Manager, Merrill Lynch Phatra Securities Co., Ltd.

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T he Good Corporate Governance Compliance Report of 2006 1. Policy on Corporate Governance The Board of Directors has emphasized the importance of practicing good corporate governance while growing and operating its business in order to achieve the target of sustaining growth, stability and confidence in the Company to maximize the interests of all stakeholders and to increase long-term value of the Company. The key principles of the Company’s corporate governance are business ethics, efficiency, transparency, proper control and management of risk exposure. In addition, the Company gives emphasis to the internal control system, the preparation of the financial statements, treatment of all shareholders and stakeholders on an equal and fair basis as well as disclosure of adequate information to all stakeholders. 2. Shareholders : Rights and Equitable Treatment The Company has a policy to treat all shareholders on an equal and fair basis. Shareholders’ meetings will be set to facilitate shareholders and will not involve difficult or complicated procedures or incur any cost to shareholders that could lessen the attendance of shareholders. The meetings’ venues are set at easy places for shareholders to attend. In addition, the Company helps shareholders who intend to assign their rights to others or to the Chairman of the Audit Committee by preparing a form of proxy as required by law and enclosing it in the invitation letter. The invitation letter, which details the agenda and information accompanying the agenda, is sent to shareholders at least 7 days prior to the meeting. Opinions of the directors will be provided for each agenda item. The minutes of meetings will be prepared for shareholders’ review as well. The Company has stipulated that the shareholders’ meetings should follow the generally acceptable standard of arrangement of public company’s shareholders’ meetings, including related laws and regulations as well as the policy of the Securities and Exchange Commission on organizing shareholders’ meeting of listed company. 3. Rights of Various Groups of Stakeholders The Company realizes the importance of protection of rights of all stakeholders following the requirements of the law and business code of conduct as follows: l Shareholders: ensures every shareholder has an equal right to vote except for shareholders who have conflicts of interest in which they will have the right to vote only for the election of directors, but not on that particular matter. l Customers: focuses on providing high quality services, treating customers’ information as confidential and ensuring that the process and procedure on customers’ complaints is clearly and fairly stated, and that responsible persons are assigned to deal with any such complaints. l Employees: treats all employees with care and fairness and provides reasonable remuneration including welfare as required by the Labor Law. l Business partners: treats its business partners fairly, based on agreements between both parties. l Competitors: follows the rule of fairness in competing with others and avoids any wrongdoing toward its competitors.

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4. Shareholders’ Meetings In 2006, the Company held one General Meeting of Shareholders on 24 April 2006 to consider matters that required resolution at the meeting. The Company sent out a notice to all shareholders at least 14 days in advance and published the meeting notice in a newspaper 3 days prior to the scheduled meeting of shareholders. Attached to the notice was sufficient information of the meeting including the meeting venue, date, time, agenda and issues which were to be presented to the meeting. The Company conducted the meeting with transparency following the shareholders’ meeting standards suggested by the Stock Exchange of Thailand as well as relevant laws. The Directors, the Chairman of the Audit Committee and the Company’s auditors were present at all meetings and welcomed questions and comments from the shareholders and clearly answered all queries. The chairman of the meeting allocated time appropriate for each agenda item and encouraged equal opportunities for shareholders to express their opinions and raise any questions at the meeting, according to the agenda and the issues presented to the meeting. 5. Leadership and Vision At the strategic level of the Company, the Board of Directors has taken part in developing the vision, the mission, the strategy, the business plan and the budget of the Company in cooperation with the executives. Furthermore, the Board of Directors will direct the executives to follow the business plan, the strategy, and the target efficiently including disclosing adequate information as required by relevant laws and regulations. The Board of Directors has also given a high degree of emphasis to the internal control, internal audit and risk management systems, and follows up on the conformity to the policy regularly. 6. Conflicts of Interest The Board of Directors places importance on the consideration of transactions with possible conflicts of interest, connected transactions, related parties transactions as well as administration of insider information. The Board of Directors and the Audit Committee have a stated policy relating to transactions that may cause conflicts of interest and connected transactions. All such transactions have to be informed to the Board and prudently considered to evaluate the reasonableness of entering into such transactions. The regulations of the Stock Exchange of Thailand must also be followed. Prices and conditions have to be set on an arm’s length basis. In addition, should any directors have conflicts of interest, the conflicted directors have to disclose relevant information to the meeting and do not have the right to vote on that particular matter. The details of transactions, transaction value, related parties, reason and necessity are disclosed in form 56-1 and the annual report. As for the supervisory procedure against inside information exploitation, the Company has a policy to prohibit the directors and executives from using inside information relating to the financial and operational performance of the Company, which has not yet been disclosed to public, for their personal benefits. The Company also reports to the Office of Securities and Exchange Commission on each person’s securities holding and the holding of securities by his or her spouse and minor children of securities in the Company, including changes in such holdings, pursuant to Section 59 of Securities and Exchange Act B.E. 2535.

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7. Business Ethics The Board of Directors has prepared a code of business conduct and operational manual and disseminated these to the executives and employees of the Company and its affiliates. This is to ensure the accuracy, transparency and fairness of business conduct to related parties and customers, which is in accordance with good corporate governance. The practice of such code of conduct and manual has been followed up consistently and also disciplinary penalties have been stated. 8. Balance of Power for Non-Executive Directors To achieve the balance of power within the Company and proper check of management, the Board of Directors comprises 8 directors with 4 non-executives directors, representing half of the total number of directors on the Board. Non-executive directors are not authorized to sign on behalf of the Company or any of its subsidiaries. Furthermore, the Audit Committee comprised 3 independent directors, representing more than 1/3 of all members of the Board of Directors. This Board composition can assure that the directors will perform their duties as representatives of the shareholders fairly and independently with a proper check and balance. 9. Aggregation or Segregation of Positions The Chairman of the Board is an independent director and not an executive director or employee. The Chairman of the board is not the Managing Director. 10. Remuneration of Directors and Executives The Company has clearly and transparently determined the remuneration provided to the directors, which is similar to that paid in the same industry. Such remuneration has to obtain prior approval from the shareholdersâ&#x20AC;&#x2122; meeting. In 2006, remuneration of directors is set at the same level as in 2005 as follows: Remuneration of Directors 2005/2006 2005 1. Chairman 2. Directors 3. Chairman of the Audit Committee 4. Audit Committee members

2006

Meeting fee 50,000 Baht 25,000 Baht

Annual fee 800,000 Baht 280,000 Baht

Meeting fee 50,000 Baht 25,000 Baht

Annual fee 800,000 Baht 280,000 Baht

25,000 Baht

100,000 Baht

25,000 Baht

100,000 Baht

25,000 Baht

70,000 Baht

25,000 Baht

70,000 Baht

The Executive Directors waived the rights to the above mentioned meeting fee and annual fee. The Company has determined the remuneration provided to executives in accordance with the principles and policies set by the Board, which is also consistent with the performance of the Company and each of the executives.

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In 2006, the remuneration of Baht 30,299,500 was provided by the Company to the directors and executives, consisting of 17 persons, including meeting fees, salaries and bonuses. Details are as follow. 1. Directors 2006 / Unit : Baht Cash remuneration

Directors (8 persons)

Non-executive Directors (4 persons) Executive Directors (4 persons)

Audit Committee

Audit Committee Members (3 persons)

Meeting fees

Annual fee

Remuneration as executive

Non-cash remuneration

825,000

1,640,000

none

none

2,465,000

waived

waived

4,800,000

none

4,800,000

375,000

240,000

none

none

615,000

Total

Total

7,880,000

2. Executives 2006 / Unit : Baht Type of Remuneration

Person

Amount

Salaries

9

15,074,000

Bonuses

7

7,345,500

Total

22,419,500

11. Board of Directors’ Meetings The Company sets out meeting schedules for the Audit Committee and the Board of Directors to consider financial statements of each quarter for the next year in advance. In 2006, there were 6 Board of Directors’ meetings and 5 Audit Committee’s meetings. In each meeting, the meeting agenda items were clearly identified prior to the meeting. The invitation letters were sent to the Board of Directors and the Audit Committee members at least 7 days prior to the meeting date. Supporting documents were also provided with the invitation letter for the Board’s prior review. Attendance records of each directors are as follow. Board of Directors Meeting

Audit Committee Meeting

Attendance/Total Meetings

Attendance/Total Meetings

6/6

-

4/6 (Missed two meetings - the 2nd and 6th meetings due to important business missions abroad)

-

3. Mr. Vorasit Pokachaiyapat

6/6

-

4. Mr. Varah Sucharitakul

6/6

-

5. Mr. Kenneth Lee White

6/6

-

6. Mr. Vitthaya Vejjajiva

6/6

5/5

Name 1. Dr. Virabongsa Ramangkura 2. Mr. Eugene S. Davis

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Board of Directors Meeting

Audit Committee Meeting

Attendance/Total Meetings

Attendance/Total Meetings

7. Mrs. Kannika Ngamsopee

5/6 (Missed one meeting - the 2nd meeting due to important business mission)

5/5

8. Mr. Chanmanu Sumawong

6/6

5/5

Name

In addition, in every meeting of the Audit Committee and Board of Directors, the minutes of meetings were prepared and all relevant documents were retained and are available to be reviewed by relevant parties. 12. Committees The Company has nominated the committees which include the Audit Committee, the Executive Committee, the Group Investment Committee and the Group Risk Management Committee for administering specific issues in detail. Each committee is composed of members with duties and responsibilities as follows: (1) The Audit Committee is comprised of 3 members responsible for considering and reviewing the Companyâ&#x20AC;&#x2122;s financial statements, information disclosure and internal control system, as well as examining and evaluating the Companyâ&#x20AC;&#x2122;s risk. (2) The Executive Committee is comprised of 4 members responsible for supervising relevant business operations assigned by the Board of Directors. (3) The Group Investment Committee is comprised of 7 directors from each company in the group responsible for setting business policies and supervising investment of the Company and its affiliates. (4) The Group Risk Management Committee is comprised of 5 directors from each company in the group responsible for setting risk management guidelines and policies of the Company and its affiliates. 13. Controlling System and Internal Audit The Company maintains its control and internal audit system with the following procedures: (1) The Company has consistently evaluated significant business risk affecting the Company and has pursued a follow-up and risk mitigation process. (2) In controlling working operations of executives, the Company has stated, in a written document, the scope of duties and budget approval power for each level of those executives and has allocated responsibility for cross-auditing. (3) The Company has stated and pursued an accounting policy which is consistent with the Thai accounting standards and considered most appropriate for the business. All documents accompanying accounting records are categorized and maintained. (4) The internal audit unit has true independence in its work in reviewing that all main business and financial operations are in compliance with relevant laws and regulations and performed with efficiency. The unit is under the supervision of, and reports to, the Audit Committee in considering the adequacy of the internal control system and supervising business operations to comply with relevant laws and regulations. In addition, the Company also assigns Ernst & Young Office Limited to review the internal control system and to give any suggestions for an improvement of the system. FINANSA PLC. ANNUAL REPORT 2006

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The internal audit report and the report of the auditor show that there are no significant areas of concern and the Company has an internal control system which is sufficient to safeguard against any use of the Company’s assets by the executives and employees for personal interest. 14. Director’s Reporting Report on the Board of Directors’ Responsibility towards the Financial Statements The Board of Directors takes responsibility in supervising the preparation of the financial report showing the financial status and the operating results of the Company and its subsidiaries in accordance with the generally accepted accounting principles as well as ensuring that there be timely disclosure of sufficient significant information in the Notes to the financial statements. The Audit Committee and the authorized auditor have been entrusted by the Board of Directors with full authority and freedom to audit the internal control system and the accuracy of the financial reporting. The views of the Audit Committee on such matters are contained in the Committee’s Report as included in the Annual Report. Based on the internal control system under the supervision and review of the Audit Committee as well as the audit results of the authorized auditor, the Board of Directors believes that the financial statements of the Company and its subsidiaries as of 31 December 2006 have presented the financial status, the operating results and cash flow accurately and essentially in accordance with the generally accepted accounting principles. 15. Relations with Investors The Board of Directors realizes that financial and non-financial information about the Company affect the decisions of the Company’s investors and stakeholders. Therefore, the Company has assigned its executives to ensure that the Company discloses important information correctly, promptly and reliably in compliance with procedures and regulations required by law. The Company has continually held and pursued this disclosure policy. For investors, shareholders and analysts who would like to obtain updated information of the Company, the Board has assigned Mr. Saravut Panya to communicate with investors and shareholders. The contact number is 66-2697-3700 or through our website at http://www.finansa.com.

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Administration of Insider Information The Company has a policy of prohibiting its directors and executives from using insider information (in relation to the Company’s financial condition and performance) which has yet to be disclosed to the public, in order to gain personal benefits (including in the trading of securities). The Company has informed its executives in all departments of their responsibility to report securities held by themselves, their companies, spouses and underage children, as well as changes in those holdings of securities, to the SEC in accordance with Section 59 and the penal provision in Section 275 of the Securities and Exchange Act, B.E. 2535.

Internal Control Five audit committee meetings were held in 2006, which every member of the audit committee attended. In the second Board of Directors’ meeting no. 2/2007 on 23 February 2007, in which all of the three Audit Committee members were in attendance, the Board of Directors evaluated the internal control systems in five different areas, namely organization and environment, risk management, executives’ performance control, information technology systems and monitoring systems. The Board is of the opinion that the Company has an internal control system in place which is sufficient and satisfactory to monitor the activities of the Company and its affiliates and which will prevent their assets from being used improperly or without due authorization by the executives.

Remuneration of Auditor In 2006, the remuneration for external auditors comprised: 1. Audit Fee The Company and its subsidiaries have paid audit fees to: • Certified auditors of the Group in the past accounting year totaling Baht4,120,000. • The respective audit company or its independent, contracted auditors, including individuals or business entities related to the auditors and their respective audit companies totaling Baht -0- for the past accounting year, and will have to pay Baht -0- in the future for unfinished services in the previous year. 2. Non-audit Fee The Company and its subsidiaries have paid non-auditing fees for special purpose audit engagement and compliance audit engagement to: • Certified auditors of the Group for the past accounting year totaling Baht -0-, and will have to pay Baht300,000 in the future for unfinished services in the previous year. • The respective audit company or its independent, contracted auditors, including individuals or business entities related to the auditors and their respective audit companies totaling Baht -0- for the past accounting year, and will have to pay Baht -0- in the future for unfinished services in the previous year. FINANSA PLC. ANNUAL REPORT 2006

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Risk Factors Personnel The Finansa Group’s business operations rely primarily on its people. Executive management has pursued a policy of recruiting, training and promoting lower-level executives as well as hiring experienced teams of personnel. This policy has contributed to the development of the business and has provided flexibility in allocating resources. This has reduced the potential adverse impact of a potential shortfall in personnel resources in any one area. Moreover, importance is placed on human resources by providing training in order to develop the knowledge and skills of the group’s personnel, both at the executive and at the operational levels. In addition, employee compensation is based upon relevant ability and performance and is set at a motivating level in accordance with market standards, which should help reduce the risk of turnover of personnel.

Risks from Market Conditions The Finansa Group’s businesses and revenues are closely related to economic conditions and financial markets in Thailand and foreign countries, as well as changes in foreign exchange rates. Any severe change in economic conditions may result in risks to the Finansa Group’s business operations, which could directly affect its performance and its financial status. However, such effects may be reduced since an economic downturn may create opportunities for the Company from other types of advisory services, such as financial advisory services for debt restructuring. The Finansa Group’s operations not only concentrate on operations in Thailand, but also in other countries, which helps to reduce the risk attributable to market conditions in one country. Moreover, the group has diversified into related businesses such as finance, securities brokerage and debt instrument and proprietary trading which may help reduce the risk from fluctuations in revenues and earnings.

Foreign Exchange Risk The Finansa Group consists of several subsidiaries that are registered and incorporated in foreign countries and therefore has foreign currency-denominated assets and liabilities. As of 31 December 2006, the Company and subsidiaries had significant foreign currency-denominated assets and liabilities which had not been hedged against foreign exchange rate risk as shown below.

US dollars Euros

(Thousand unit) Assets Liabilities 29,273 5,681 21,315 18,671

At year-end 2006, Finansa had foreign long-term loans totalling Euro18.5m, secured by Synthetic Collateralized Debt Obligation amounted to Euro19.5m and other foreign short-term loans totalling USD5.9m. These loans accounted for 18% of total liabilities of the Group. To keep the risk at a low level, the management, on occasion, will manage the currency risk through forward transactions in the foreign exchange market. As of 31 December 2006, the Group has entered into forward exchange contracts to purchase USD5m to hedge against foreign exchange risk.

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Investment Risks As the Company has a policy to invest in short-term and long-term investments, fluctuations in the securities market and uncertain economic conditions may cause the value of these securities investments to decrease in accordance with the market environment. This may affect the investment portfolio and operational performance. In order to reduce such risks, the Company has formed an investment committee to establish and monitor investment policies for securities available for sale. Investment is conducted in a fashion that spreads the risks by investing in a variety of securities. Investments are focused on companies with sound fundamentals, high liquidity, and strong financial performance. In addition, the Company has created measures to implement stop loss limits as well as reserves for impairment losses. For long term investments in funds, the risks can be reduced through the specific, internal policies of the various funds. Examples include investing in companies with stable cash flows, strong growth potential, as well as undervalued companies. The Company also places an emphasis on investments that will grant a board seat so that Finansa can add value to the company in providing advice in the areas of financial management and corporate governance with a view to both improving profitability and lowering investment risk. As of 31 December 2006, the Company and its subsidiaries registered net investment in securities of Bt3,779.1m. Classified by investment objective, they consisted of current investments of Bt1,920.6m (51%), investments in associated companies and funds of Bt395.3m (10%) and long-term investments of Bt1,463.2m (39%). Investments classified by type of securities comprised debt instruments of Bt2,629.1m (70%) and equity instruments of Bt1,150.0m (30%).

Risks from Arrangement and Underwriting of Sales of Securities The uncertainty of the securities market environment may affect investorsâ&#x20AC;&#x2122; decisions in subscribing to securities to which affiliates of the Company act as underwriter. This may result in the risk of having unsold securities in the investment portfolio of the Company, and losses may be incurred after such securities are traded on the SET. In 2006, FSL had acted as underwriter for various securities with an approximate aggregate value of Baht 7.5 billion. The underwriting fees received accounted for 11% of the total revenues earned of the Group. However, such risks may increase if this business grows in the future. To mitigate the risk from each underwriting, preliminary information on the companies offering the securities will be examined and analyzed and a valuation will be conducted to derive a suitable price. The demand for the securities will also be assessed to help determine the underwriting amount and efforts made to obtain a definitive confirmation of subscription from investors. Moreover, the Company can further reduce risk by seeking other financial institutions that are interested to become co-underwriters for the securities.

Competition in the Securities Business The Securities and Exchange Commission Board approved a temporary extension of the current minimum securities brokerage fees whish are 0.15% for internet trading and 0.25% for normal trading for another three years starting from 1 January 2007. During the following two years, the fee will be changed to a sliding scale, and then the fees will be fully negotiable. This is expected to increase competition in providing internet trading service during the next three years. In 2006, Finansa has invested in developing internet trading system to be more effective than the existing system. In addition, to reduce the impact from competition, the operation of the securities business will focus on competing on the basis of the quality of work provided, instead of the price, a determining target client groups with potential and further expansion in the branch network to better serve large number of individual clients and to diversify risk. FINANSA PLC. ANNUAL REPORT 2006

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Termination or Amendment of an Advisory Services Agreement The Finansa Groupâ&#x20AC;&#x2122;s business and financial performance may be affected and may be different from expectations if revenue from the investment advisory and investment management services is impacted as a result of the termination of or change in the compensation terms. Therefore, the Finansa Group is exposed to the risk of a termination of an Agreement or a reduction in the compensation terms. Nevertheless, the past performance of the advisory and the investment management services provided to the Funds has in most cases generated high returns for shareholders in these funds. For this reason, the executives believe that such performance will help reduce the risk of termination or change. (Note: These foreign funds under the management of Finansa Group are not under the supervision of the Securities and Exchange Act and the Securities and Exchange Commission.)

Management Policies Influenced by Major Shareholders The major shareholders of the Company are Mr. Eugene Davis and Mr. Vorasit Pokachaiyapat who together own approximately 30% of the total outstanding shares of the Company. This enables them to exert significant influence over the resolutions of shareholdersĂ­ meetings, except for specific important matters such as changing certain regulations and increasing or decreasing registered capital, for which the law requires three-fourths (3/4) of the votes. To monitor and balance the management control of the major shareholders, all of the other shareholders with the right to vote and attend the relevant meetings may jointly vote for the examination of certain matters. This is additional to the monitoring done by the Audit Committee, which works on behalf of the minority shareholders.

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