Gstel 05 by Brother Roger

Think Steel Think Technology Think G Steel

Annual Report 2005

G Steel Public Company Limited

> CONTENTS

001

014

015

Financial Highlights

Message from Chairman of the Board of Directors

Message from Chairman of the Executive Committee

016

018

020

Audit Committee's Report

Steel Industry and Overview

Report on Operating Results and Key Events in 2005

022

024

026

Safety, Environmental Concern, and Social Activities

Organization Chart

Board of Directors

028

035

036

Information on the Board of Directors and Management Team

Changes in Shareholding by the Board of Directors and Management Team

General Information

037

039

041

Nature of Business

Risk Factors

Management and Corporate Governance

055

056

058

10 Largest Shareholders

Related Transactions

Executive Notes and Analysis

061

062

Board of Directors' Responsibilities with Regards to Financial Reports

Financial Statements

> Financial Highlights

Data from Financial Statement

2005

2004

2003

Total Assets

(Baht Million)

28,356

21,718

14,965

Total Liabilities

(Baht Million)

6,808

2,911

9,364

Total Shareholders' Equity

(Baht Million)

21,548

18,807

5,601

Sales

(Baht Million)

22,202

21,270

12,622

Total Revenues

(Baht Million)

22,297

21,979

13,517

Gross Profit (Loss)

(Baht Million)

3,257

3,059

833

Operating Profit (Loss)

(Baht Million)

2,531

2,599

1,187

Net Profit (Loss)

(Baht Million)

2,741*

8,902*

Retained Earnings (Loss)

(Baht Million)

Financial Ratios

48,005*

11,422

8,682

(233)

2005

2004

2003

Liquidity Ratio

(Times)

3.91

2.65

1.91

Debt to Equity Ratio

(Times)

0.32

0.15

1.67

Gross Profit (Loss) Ratio

(%)

14.67

14.38

6.60

Operating Profit (Loss) Ratio

(%)

11.40

12.22

9.40

Net Profit (Loss) Ratio

(%)

12.29

40.50

355.15

Average Return on Equity

(%)

13.58

72.94

n/m

Average Return on Assets

(%)

10.95

48.54

263.10

Net Earnings (Loss) per Share

(Baht)

0.33

1.36

15.45

Book Value per Share

(Baht)

2.63

2.29

10.18

* Including gain from debt restructuring

28,356

21,548 21,718

18,807

14,965

5,601

Total Assets (Baht Million )

Total Shareholdersâ&#x20AC;&#x2122; Equity (Baht Million )

22,202

21,270

12,622

3,257 3,059 833

Sales (Baht Million )

Gross Profit (Baht Million )

Year

With a firm and strong foundation, G Steel enjoyed satisfactory profit despite steel price fluctuations

2,531 Million Baht Amidst the volatile steel situation worldwide leading to the price reduction of over 30%, several steel producers operated at loss and were forced to reduce their production capacity. However, with its capability in cost, production efficiency and inventory management, G Steel was among very few plants in Southeast Asia to maintain a profit as high as Baht 2,531 million, very close to that of the preceding year.

This reflects the fact that the

company is an organization with a firm and strong foundation, adept to promptly respond to steel price fluctuations in the world market.

Hot Rolled Coil Price in 2005 25,00 0

20,0 0 0

15,0 0 0 Baht/Ton

With the strong financial status, G Steel was well accepted and considered reliable among local and overseas investors

Rating

B+, B1

With the efficient management, strong financial status, low debt ratio in addition to its high profitability, G Steel was rated, according to international standards, B+ and B1 by S&P and Moody's respectively, very good ratings for steel producers in Southeast Asian region. Its reliability was boosted, and the company was more widely accepted by investors worldwide. Consequently, its fund raising for the first time overseas turned out to be very successful. The issuance and offering of USD 100 million bonds, approximately

Baht

4,000

million,

received

overwhelming subscription of almost two times. The fund would be used to expand production capacity and improve product quality as per its plan in order to become even stronger and to increase its competitiveness in the long run.

Debt to Equity Ratio Industryâ&#x20AC;&#x2122;s Average

times

2003

2004

2005

Geared towards a firm with sustaining business success with an adherence to management principles in quality and ethics

No.

The Board of Directors and the management team share common vision that long-term firm and sustaining business success relies on professional management taking into account quality in all processes and at all levels, good corporate governance and management ethics. These became one of the most important policies to which the company has adhered to and developed all along. As such, G Steel recorded consistent growth in sales volumes and profit. In 2005, it was presented with The Prime Minister Industrial Award for an outstanding achievement in the Quality Management. In addition, it was also presented with Outstanding Entrepreneur Award by the Director General of the Department of Primary Industries and Mines which the company was the first and only steel producer in Thailand to receive the awards. It is naturally a proof of its success. The company continued focusing on developing and improving the quality management as such.

Structure of the Board of Directors

21% Directors with Management Authorities

79% Directors without Management Authorities and Independent Directors

Dedicated to continuing technological research and development to increase production efficiency and enhance its competitiveness

>5 m/min Technology is a key factor to business competitiveness. G Steel is determined to continually promote technological research and development. It decided to join hands with JP Steel Plantech Co., Ltd., an affiliation of Japan's largest steel making machine Sumitomo Heavy Industries Ltd., to develop a high speed slab caster concurrently with a project to improve the slab quality. With an investment capital of over USD 10 million or approximately Baht 400 million, the project was expected to increase the current production capacity by 10-15%. This would substitute a huge quantity of steel import. Results of the research and development will be jointly patented worldwide.

R1 R2 Scrap

Crop Shear Pig Iron Fluxes / Ferro Alloys

F1 F2 F3 F4 F5 F6

Attentive to environment issues for the future and a better standard of living of the Thai society

CO G Steel has all along realized an importance and a need to have pleasant environment for the public and society as well as to have development sustaining and balance for industries, communities and environment. With its committed objectives, the company was invited to participate in the Greenhouse Gas Emission Reduction from Industry in Asia and Pacific (GERIAP), organized by United Nations Environment Programme (UNEP) during 2003 - 2005. It had developed and increased an efficient usage of energy in the steel production process, thus reducing greenhouse gas emission as planned. Besides, the programme rendered energy conservation and effective use of resources. It is a pride of G Steel people to represent Thailand to have addressed the world communities' concern by means of clean production technology.

Greenhouse Gas Emission 600 kg. 540 kg.

Before

After

> Message from Chairman of the Board of Directors

In 2005, Thailand’s economy expanded at a decreasing rate in accordance with export, expenditures, and private investment growth rates. This was resulted from numerous negative factors especially increment in oil and goods prices and interest rates, Tsunami aftermaths, and turbulence in the South. Thus, such downstream industries using hot rolled coils as their base materials as automobile and parts, as well as construction industries grew at a slightly decreasing rate. Nevertheless, this did not have much impact on domestic hot rolled coil industry which saw a continuous demand growth in a marked contrast to rapidly reducing price trend especially during the second half of the year. The lowering prices were due to anxiety of China’s production capacity expansion which might have led to supply surplus, apart from the world’s high level of hot rolled coil inventory. The situation was completely contrary to that of Year 2004 even though prices in the world market at the end of the year remained the same or gradually improved in some regions. As for the performance in Year 2005, due to discreet management policy, dedication and concerted cooperation between the management and all staff, the company successfully braved through the crisis of price downfalls without any significant effects and maintained its operating results at approximately equivalent level to that of Year 2004. The sales volumes marked as high as Baht 22,202 million, while the operating profit recorded at Baht 2,531 million, the highest in the country’s steel industry. It registered the return on equity of 12%, a highly satisfactory level, and was one of very few hot rolled coil plants in Southeast Asia to maintain its operating performance at closely equivalent level to the preceding year. Moreover, G Steel succeeded in raising capital by issuing USD 100 million of unsecured bonds to overseas investors. The proceeds were for production capacity expansion and addition of production lines for high quality products to cope with increasing domestic demand for hot rolled coil as per the public investment, mega-projects in particular. This would also enhance G Steel’s competitiveness in the long run. Taking into account that the debt to equity ratio at a low level of 0.3 times after the bond issuance, the company’s capital structure was one of the strongest. Apart from focusing on management to create the highest added value according to the announced mission, the company emphasized on abiding by 15 - clause corporate governance which was served as minimum compliance. It had implemented efficient internal control systems to protect benefits and assets of shareholders and to ensure the maximum utilization of its resources under efficient internal audit systems. On behalf of the Board of Directors, I would like to extend our gratitude to shareholders for their trust, confidence, and continuing support to the company. The board’s commitment is to jointly oversee the business management to be transparent with good governance for confidence and fairness to shareholders, investors, business partners, and all parties concerned. We will dedicate ourselves to our duty with highest efficiency for the company’s sustaining success and shareholders’ worthwhile return on investment.

Mr. Vijit Supinit Chairman of the Board of Directors

> Message from Chairman of the Executive Committee

In Year 2005, G Steel Public Company Limited successfully became Thailand’s leading hot rolled coil producer and was the only hot rolled coil plant registering operating profit from hot rolled coil production and distribution business despite steel price fluctuations worldwide since mid 2005. With the executives’ vision on planning and inventory management as well as their strict cost controlling, the company enjoyed a net operating profit of over Baht 2,500 million from more than 1 million tons of production outputs and distribution. In addition, it did not only maintain domestic and overseas customer bases but also expanded its customer bases in export markets as planned with an export value of over Baht 2,500 million. In a financial management area, the company successfully mobilized capital at a reasonable cost for an investment of its production expansion project by issuing and offering USD 100 million bonds in overseas market last October. With Standard & Poor’s and Moody’s Investors Service rating its business as B+ and B1 respectively, the company was ranked among the most reliables in the industry in Southeast Asia. It has continually developed and researched on steel quality and production. Latest, it joined hands with Japan’s JSP (JP Steel Plantech Co., Ltd.), one of the world’s three largest steel making machine companies, to develop a High Speed Slab Caster technology to reduce production time and improve slab quality. In Year 2006, the company has accelerated production expansions, additions of Skinpass Mill and Pickling and Oiling Line to keep abreast with the country’s economic growth and customers’ demand for all types of hot rolled coils. On behalf of the company’s executives, I would like to thank all shareholders and business partners as well as agents, suppliers, and service providers. We will maintain our performance standard with all our expertise to enable the company to make and distribute high quality hot rolled coils in response to consumers’ demand and keep on creating to our shareholders more added value.

Dr. Somsak Leeswadtrakul Chairman of the Executive Committee

> Audit Committee’s Report

The 2004 annual ordinary shareholders meeting on 9 June 2004 resolved the nomination of the Audit Committee with a 3 - year term starting from 9 June 2004 to 8 June 2007. The committee comprises 3 independent directors with the Internal Audit Manager as a secretary. In 2005, a member of the Audit Committee resigned, and his replacement was appointed as follows: 1.

Prof. Paichitr Roajanavanich

Chairman of the Audit Committee

2. Mr. Preecha Prakobkit

Member of the Audit Committee

3. Mr. Chaipatr Srivisarvacha

Member of the Audit Committee (resigned on 10 November 2005 to work in another capacity in the company)

4. Assoc. Prof. Prapanpong Vejjajiva

Member of the Audit Committee (effective as from 10 November 2005)

5. Ms. Sopit Jaeng-arun

Secretary to the Audit Committee

Scopes of roles and responsibilities of the Audit Committee were stipulated as below: 1.

To examine for the company’s accurate and adequate disclosure of financial report

2. To examine for the company’s efficient and appropriate internal control and audit systems 3. To examine for the company’s compliance with legal requirements on Securities and Stock Exchange, SET regulations or laws relevant to the company’s business 4. To scrutinize, select and nominate the company’s external auditors and propose their remuneration 5. To scrutinize the disclosure of the company’s information concerning inter - related transactions or conflicts of interest items 6. To prepare a report on the Audit Committee’s activities for disclosure in the company’s annual report 7. To execute any assignments by the Board of Directors with an approval from the Audit Committee 8. To report results of their execution, recommendations and any findings to the Board of Directors at least twice a year For the accounting period ending on 31 December 2005, the Audit Committee convened 6 times to comtemplate and examine the company’s operations in the following areas:

1. Having examined the company’s quarterly and 2005 annual financial statements, in cooperation with the independent auditors, reporting on the financial status and 2005 operating results as well as inter-related transactions as appeared in the financial statements together with the management’s remarks before having them submitted to the Board of Directors. It was found out that the company’s financial statements were prepared in accordance with generally accepted accounting practice with adequate disclosure of information. 2. Having examined justifications of inter-related items and transactions with the company’s business alliances. It was observed that transactions between the company and related parties with possible conflict of interest as well as transactions between the company and the business alliances were executed as normal business transactions under general business terms and conditions as necessary to the business for the company’s maximum benefits. 3. Having scrutinized the Internal Audit Department’s annual audit plans and reviewed their audit performance results, suggestions and quarterly implementation progress as per the plans. We opined that the company’s internal audit systems were adequate, appropriate and efficient. 4. Having assessed with the company management team in compliance with the policy on good corporate governance and sufficient internal controlling systems. The good corporate governance was found to further enhance in many areas with sufficient and efficient internal controlling systems. 5. Having examined the company’s compliance with Securities and Exchange laws and other legal requirements related to the company’s business. 6. Having selected and proposed to the Board of Directors for their perusal and requested for the shareholders meeting’s approval to nominate Ms. Rungnapa Lertsuwankul and/or Ms. Sumalee Reewarabandit and/or Ms. Vissuta Jariyatanakorn of Ernst & Young Office Ltd. as the company’s auditors for 2006 accounting period with the remuneration of Baht 1,950,000 auditing service fee.

(Professor Paichitr Roajanavanich) Chairman of the Audit Committee

> Steel Industry and Overview

HOT ROLLED COIL SITUATION IN 2005 During 2005, hot rolled coil (HRC) price situation in the world market drastically fluctuated. Ongoing price increases over almost past 3 years were due to the substantial growth in import of steel products in China as a result of the real consumption and speculations. The rising prices recorded the highest level at USD 600 - 650 per ton. The situation continued until mid-2005 when the Chinese Government signaled a need to slow down domestic investment. Thus, Chinese import and domestic demand for steel products slowed down accordingly. In combination to the high excessive inventory and rapid production capacity expansion in China, there had been supply surplus in some types of steel products, particularly low quality ones which were dumped into the world market. As a result, the HRC prices rapidly reduced to an average of USD 380 - 450 per ton, over 30% decrease, at the end of last year. Nevertheless, such situation led to a significant alignment of worldwide steel producers who initiated coordination among themselves to limit outputs to control supply in the market. Besides, domestic, regional and international merger and acquisition trend had emerged respectively. China itself turned to a policy not promoting steel product export and increased tariff on steel raw materials, reducing competitiveness of their domestic producers. Moreover, the Chinese Governmentâ&#x20AC;&#x2122;s merger and acquisition policy came into effects. The steel market situation worldwide hence became more stable. The current steel prices are normalized, while those in some regions passed the bottom-most situation. Thailandâ&#x20AC;&#x2122;s HRC industry has been inevitably affected by the world steel price volatility. Considering the actual consumption level, however, the HRC industry continued to grow from the previous year in accordance with the economic growth, especially in automobile and parts industry as well as construction. According to the Iron and Steel Institute of Thailand, in 2005, demand for hot rolled flat products amounted to 6.1 million tons, an 8.7% rise over the previous year, whereas a combined outputs of all domestic producers were merely 4.4 million tons. Of this, 0.9 million tons were exported, and a net figure 3.5 million tons were sold domestically, much lower than that of the demand. Thus, as high as 2.6 million tons had to be imported, most of which were high quality hot rolled coil from Japan, as high as 70% of total import. Meanwhile, import from China doubled that of the preceding year and accounted for approximately 12% of the total import.

HOT ROLLED COIL INDUSTRY TREND IN 2006 On the supply side, though the HRC production capacity worldwide, especially in China, sharply rises, most of producers focus more on profit-making and value-added productions rather than on large volume of production as it had been previously. Hence, cooperation among producers as well as merger and acquisition becomes more apparent since producers worldwide identically regard the trend as necessary to the steel industry’s sustenance as a whole. Additionally, this would enable steel prices to be more stable than they had been. On the demand side for HRC in the world, it is anticipated to continuously increase but at slower growing rates as per those of the world economy. Drives from such fast developing countries as China, India, Middle East and the Southeast Asian regions, including Thailand, have fundamentally demand for steel for their economic, industrial and infrastructure development. Most of the demand will be from China which continually imports high quality steel products to cope with its development, automobile industry expansion, construction of infrastructure, stadiums and other buildings for the Olympic Games in 2008. Presently, steel prices in the world market tend to be more stable than it had been during the past 3 years and to gradually rise as steel inventory worldwide has continuously reduced almost to the lowest level. However, afresh purchasing of stockists and users this time will be much more discreet and unlikely to be speculative as it was in the past. As for Thailand’s HRC industry trend in 2006, demand is forecasted to increase, especially high quality grades, in accordance with the industrial sector’s continuing growth. Automobile and parts as well as electrical appliance industries are anticipated also to continuously grow this year. Besides, significant positive factors are demands from real estate business and investment projects in infrastructure development as per the Government’s policy, especially the Baht 1.8 trillion mega project, which is expected to partially start in 2006. The HRC domestic demand is expected to expand at the rates of 8 - 10%, approximately equivalent to that of 2005. However, there will be demand surplus in the market, thus import will be resorted despite the domestic production capacity expansion as actual production outputs are inadequate.

> Report on Operating Results and Key Events in 2005

OPERATING RESULTS AMIDST FLUCTUATION IN STEEL INDUSTRY Year 2005 saw dramatic changes and fluctuations in the steel industry. Despite a continual growth of 9% in the HRC domestic consumption, the cycle of rising prices for nearly past 3 years came to an end in mid - 2005. Since then, prices rapidly declined, by the end of the year prices dropped by over 30%. Bargaining power in the market switched to buyers’ side. Import of low quality steel products from China had flooded in. The business management during the second half of the year was of great difficulties. With cost controlling, continuing production efficiency improvement and the maintenance of appropriate inventory level, G Steel weathered the steel falling price crisis, although its operating results during the second half of the year was inevitably affected. Its sales value and profit during the period were lower than those of the first half by 33% and 60% respectively. However, overall operating results throughout the year remained very satisfactory. It was one of very few mills in the Southeast Asia to maintain the performance results at an equivalent level to the previous year. Its total production volumes last year registered 1.12 million tons, a 1% increase from the preceding year due to the production plan adjustment in accordance with the market slow down. The sales value was Baht 22,202 million, a 4% rise compared to that of the preceding year. The average selling prices in 2005 were slightly higher than those of the preceding year. Most of the incomes were from domestic sales as export prices were lower than the domestic ones. The average gross margin for the year was 15%, close to that of the previous year, with an operating profit amounting to Baht 2,531 million, or Baht 0.31 earning per share.

MANAGEMENT AWARDS On 19 May 2005, G Steel received the 2005 Prime Minister Industry Award for an outstanding achievement in Quality Management. The Industrial Ministry selected the winner from domestic industrial producers with qualifications in internal quality management system, development of personnel to handle quality management, continual and efficient development and improvement of production quality as well as management of product quality to satisfy customers’ need. On 4 October 2005, the company was presented with a plaque and certificate for 2005 Outstanding Entrepreneur by the Director General of the Department of Primary Industries and Mines. Consisting of representatives from educational institutions, private sectors and professional institutes in mines and primary industries, the panel selected the winner from a group of companies in iron and steel industry with qualifications in production technology management, safety, hygiene, environment protection and social contributions. The company is the first of its kind and the only mill to receive the award.

PARTICIPATION IN HIGH SPEED SLAB CASTER RESEARCH AND DEVELOPMENT PROJECT On 26 September 2005, the company entered into an agreement with JP Steel Plantech Co., Ltd., Japan’s largest steel machine maker, to develop a high speed slab caster technology and to improve slab casting quality at the investment cost of over USD 10 million or approximately Baht 400 million. In this regard, JP Steel Plantech Co., Ltd. was responsible for the entire budget and would expedite a team of engineers from Japan to jointly undertake research and development with the company’s engineering team. The project was planned to last for approximately 12 months. It was expected to boost the production capacity by 10 - 15% from the current capacity level. Additionally, the research and development results would be patented in countries worldwide under the name of JSP - G STEEL.

JP Steel Plantech Co., Ltd. is a joint venture among Japan’s 4 major heavy machine makers, namely Sumitomo Heavy Industries Ltd., JFE Engineering Corporation, Kawasaki Heavy Industries Ltd. and Hitachi Zosen Corporation. After scrutiny and comparison with other steel mills worldwide, G Steel was selected to join in the research and development project because its production technology is one of the world’s most advanced and its engineering team is of long-standing experience with expertise in steel production technology. Besides, the company has an efficient production management.

ISSUANCE AND OFFERING OF UNSECURED BONDS TO OVERSEAS INVESTORS On 4 October 2005, the company issued and offered senior unsecured bonds to overseas investors, worth USD 100 million or approximately Baht 4,000 million, at the price of 98.116% of face value with an interest rate of 10.5%. Term of bonds is 5 years with an option for the company to prematurely redeem after 3 years of the issuance. UBS AG was appointed as a financial advisor and lead manager. Rated for their reliability as per international standards, the bonds were rated by Standard & Poor’s (S & P) and Moody’s Investor Services (Moody’s) at B+ and B1 respectively. The ratings were considered the best among steel makers in Southest Asia and were at the same level as most of steel makers worldwide. Therefore, the bonds gained more confidence and recognition from worldwide investors. The first fund mobilization overseas was successful with its over-booking almost doubled size of the issuance. The proceeds from the bonds issuance would be for production expansion and product quality improvement projects to strengthen and enhance its competitiveness in the long run. The bonds were listed in Singapore Stock Exchange as well.

APPROVAL OF INITIAL PUBLIC OFFERING AND WARRANTS FOR DIRECTORS AND EMPLOYEES On 19 October 2005, the Securities and Exchange Commission approved the company’s initial public offering of 1,500 million common shares, 750 million shares of which would be offered to overseas investors. The other 750 million shares would be allocated to domestic investors, of this, 210 million shares would be offered to its employees and patrons at Baht 1.60 per share. The company appointed Asia Plus Public Co., Ltd. as its financial advisors and lead underwriting manager and Macquarie Securities (Asia) Pte. Ltd. as its international lead manager. The offering dates were set during 17-20 January 2006. The proceeds would be for production expansion investment. The company also plans to allocate non-negotiable warrants to its Directors and employees for 99,972,200 units without charge. A unit of warrant is entitled to subscribe 1 common share of the company at the exercise price of Baht 1. Term of warrant is 5 years, and the exercise period starts after the company stock has been listed and traded in the SET for 1, 2 and 3 years at the annual proportion of one-third of total allocated amount. The company schedules to allocate the warrants on 12 January 2006.

> Safety, Environmental Concerns, and Social Activities

Concurrently focusing on development and growth of the company’s business, the company has given an equal importance to operational safety, occupational hygiene, environment quality management and social contributions. During 2005, it implemented various activities in the areas, namely: OPERATIONAL SAFETY AND OCCUPATIONAL HYGIENE In 2005 despite no incidents nor damages caused by fire, the safety management team regularly had fire fighting equipment and fire alarm systems both inside factory and office checked for assurance of safety in the company’s personnel and assets. In cooperation with inside and outside organizations, fire evacuation, fire extinguishing drills for staff and sessions to discuss and map out plans in case of emergency were carried out in accordance with the Emergency Plan of the company’s Safety Division. Moreover, annual physical check-up and group health insurance were provided for all staff as their personal welfare. ENVIRONMENT QUALITY MANAGEMENT The company appointed an independent expert in environment to inspect its environment quality and prepare relevant report yearly. The report for Year 2005 found out that pollution degrees of air and already-treated waste water before being drained out to public systems were within official standard limits with no effects on environment quality. Apart from the factory’s environment quality control, the company participated in the Greenhouse Gas Emission Reduction from Industry in Asia and Pacific (GERIAP) as per United Nations Environment Programme (UNEP). It turned out successfully as the company substantially decreased fuel energy consumption, thus reducing greenhouse gas emission. In this regard, the company was presented with a plaque and a certificate by UNEP for its remarkable success as a hot rolled coil plant to control and reduce greenhouse gas emission to atmosphere. Besides, the Department of Primary Industries and Mines, as the authority for a metallurgical business permit and control, also presented the company with a plaque and a certificate as a hot rolled coil outstanding entrepreneur. Notably, the company has been the only steel making factory in the country to receive awards from both organizations.

Certificate presented from UNEP for success in reducing greenhouse gas emission (left and center pictures) Making donation for medical equipment to the Police Hospital Foundation under the Royal Patronage of Her Majesty the Queen (right picture)

SOCIAL CONTRIBUTIONS As a part of the companyâ&#x20AC;&#x2122;s significant roles and responsibilities, the company consistently contributed to social activities throughout 2005. It organized the activities and made donations in forms of funds and necessities to communities, educational institutions, non-governmental organizations and government offices. This included donations for people in the South, donations to Khun Poom Foundation, Handicapped Children Aid and Rehabilitation Foundation and Somdej Chao Phraya Hospital Foundation, to name but a few. The company also subsidized personnel recruitment and employment to assist Rayong Industrial Office in addition to provisions of office equipment and supplies to several local administrative offices. Provisions of sports equipment to local communities, monetary contributions for education-related activities to school children in Ban Khai District were made. The company also provided opportunities for students from many institutions to visit its continuous production lines. Thus, numerous letters came from educational institutions expressing their appreciation for the companyâ&#x20AC;&#x2122;s support.

> Organization Chart of G Steel Public Company Limited

Board of Directors

Executive Committee

Office of the President

Chief Executive Officer Dr. Somsak Leeswadtrakul

Assistant Chief Executive Officer Mr. Ryuzo Ogino

Senior Executive Vice President (Operations) Mr. Jeong Joon Ahn

Vice President

(Operations)

(Expansion Project)

(Accounting and Finance)

Mr. Nopakao Srisuvanon

Mr. Joachim Burgers

Mr. Chalothorn Leelamali

Audit Committee

Internal Audit Department

Assistant Chief Executive Officer Ms. Patama Chiachuabsilp

Senior Executive Vice President (Administration) Mr. Chalothorn Leelamali (Acting)

Vice President

(Corporate Finance)

(Commercial)

(General Administration)

Mr. Nakun Sakunchotikarote

Ms. Kannikar Soykeeree

Ms. Pannee Tanaprateepkul

> Board of Directors

Vijit Supinit

> Chairman of the Board of Directors

Paichitr Roajanavanich

Patama Chiachuabsilp

Prakard Sataman

> Director

Sasiwimon Kasemsri

Singha Saovapap

Somsak Leeswadtrakul

> Director

Chainarong Monthienvichienchai

Chaipatr Srivisarvacha

Choochat Kambhu Na Ayudhya

> Director

Prapanpong Vejjajiva

Preecha Prakobkit

Ryuzo Ogino

> Director

Stephane Benayon

Yanyong Kurovat

> Director

> Information on the Board of Directors and Management Team

Name / Position 1 Mr. Vijit Supinit

Age (Years) Relationship 64

- none -

Education ■

Chairman of the Board

Class 31 National Defense

% of Shares - none -

Course at the National

of Directors

Experience G Steel Public Company Limited 2006 - Present Chairman of the Board of Directors

Defense Academy

Others

(Effective as from

■

M. Econ., Yale University, USA

2003 - Present Chairman of the Board of Directors

8 February 2006)

■

B. Econ. (Honors), Manchester

The Stock Exchange of Thailand

University, England

2003 - Present Chairman of the Board of Directors Asset Management Corporation 1993 - 1996

Chairman of the Board of Directors The Export and Import Bank of Thailand

1990 - 1996

Governor and Chairman The Bank of Thailand

1990 - 1996

Executive Director The Office of the National Economic and Social Development Board

1990 - 1991

Director The Office of the Board of Investment

1987 - 1990

Executive Director Siam City Bank Public Co., Ltd.

2 Mr. Vira Susangkarakan

- none -

■

Chairman of the Board of Directors

(Deceased on

■

24 December 2005)

A Directors Accreditation

- none -

G Steel Public Company Limited

Program (DAP) at the Thai

1995 - 2005

Institute of Directors Association

Others

Honorary Doctorate in Business

2002 - 2005

Administration, Berks

Chairman of the Audit Committee

1993 - 2005

Chairman of the Board of Directors

Phoenix Pulp and Paper Public Co., Ltd.

M. Eng. (Civil Engineering),

Patkol Public Co., Ltd.

University of Illinois, USA ■

1998 - 2005

Class 18 National Defense Course at the National Defense Academy

■

Chairman of the Board of Directors Thai Agro Energy Co., Ltd.

University, United Kingdom ■

Chairman of the Board of Directors

1993 - 2005

B. Eng. (Civil Engineering),

Chairman of the Executive Committee T.S.B. Trading Co., Ltd.

Chulalongkorn University 3 General Singha Saovapap

- none -

■

Vice Chairman of the Board of Directors ■

A Chairman 2000 Program at

0.02%

G Steel Public Company Limited

the Thai Institute of Directors

2003 - Present Vice Chairman of the Board of Directors

Association

Others

Honorary Doctorate in

2003 - Present Chairman of the Board of Directors

Sociology and Anthropology, Ramkhamhaeng University ■

Chairman of the Board of Directors

1993 - Present

Chairman of the Board of Directors

A Principle of Hospital Administration Program

■

Chaopraya Hospital Public Co., Ltd. 1994 - Present

Kanchanaburi Health Center Co., Ltd.

M.D., Chulalongkorn University

Phattanakarn Vechakit Co., Ltd. 1986 - Present

Chairman of the Board of Directors Vibhavadi Hospital Public Co., Ltd.

1986 - Present

Chairman of the Board of Directors Jittiporn Co., Ltd.

1986 - Present

Chairman of the Board of Directors River Kwai Evergreen Hills Resort Co., Ltd.

Name / Position 4 Ms. Patama Chiachuabsilp

Age (Years) Relationship 41

Vice Chairman of the Board of Directors

Wife of

■

Education

% of Shares

Experience

A Chairman 2000 Program at

12.94%

G Steel Public Company Limited

Mr. Somsak

the Thai Institute of Directors

Leeswadtrakul

Association

and Assistant Chief Executive

A Directors Accreditation

Officer

Executive Director

■

Assistant Chief Executive Officer ■

2003 - Present Vice Chairman, Executive Director,

Program (DAP) at the Thai

Others

Institute of Directors Association

2003 - Present Chairman of the Board of Directors

Honorary Doctorate in General

G.E.I. Holding Co., Ltd.

Administration, Ramkhamhaeng

1997 - Present

University ■

Chairman of the Executive Committee

B. Econ., Ramkhamhaeng

Paitoon Hotel and Resort Co., Ltd.

University

1990 - Present

Chairman of the Board of Directors Siam Jetty and Container Co., Ltd.

5 Mr. Somsak Leeswadtrakul Director Chairman of the Executive Committee

Husband of

■

Ms. Patama

A Chairman 2000 Program at the Thai Institute of Directors

Chiachuabsilp

0.09%

G Steel Public Company Limited 1995 - Present

Association ■

Chief Executive Officer ■

A Directors Accreditation

Officer

Program (DAP) at the Thai

Others

Institute of Directors Association

1995 - Present

Siam Integrated Cold Rolled

Industrial Management,

Steel Public Co., Ltd. 1995 - Present

Louisiana, USA

Public Co., Ltd. 1994 - Present

University Honorary Doctorate in General

1994 - Present

Chairman of the Board of Directors Felix River Kwai Resort

University B. Econ., Ramkhamhaeng

Executive Director Paitoon Hotel and Resort Co., Ltd.

Administration, Ramkhamhaeng ■

Director Thai Special Steel Industry

Honorary Doctorate in Administration, Kasetsart

■

Chairman of the Board of Directors

Honorary Doctorate in University of the Americas,

■

Director, Chairman of the Executive Committee, and Chief Executive

(Kanchanaburi) Co., Ltd. 1992 - Present

University

Director First Steel Industry Co., Ltd.

1992 - Present

Director Inter Metal Tube Alliance (Thailand) Co., Ltd.

1992 - Present

Director Siam Ferro Industry Co., Ltd.

1990 - Present

Director Nas Toa (Thailand) Co., Ltd.

1989 - Present

Director Thai Steel Pipe Industry Co., Ltd.

1988 - Present

Director Thailand Iron Works Public Co., Ltd.

Name / Position 6 Mr. Chainarong

Age (Years) Relationship 60

- none -

Education ■

A Directors Accreditation

% of Shares 0.02%

Experience G Steel Public Company Limited

Monthienvichienchai

Program (DAP) at the

2000 - Present Director

Director

Thai Institute of Directors

Others

Association

2002 - Present Chairman of the Board of Directors

■

M.A. (Management), Asian

Paitoon Hotel and Resort Co., Ltd.

Institute of Management ■

1994 - Present

B.A. (Business Administration),

Director Saint John for Education Co., Ltd.

Chulalongkorn University

1991 - Present

Vice Chairman of the Board of Trustees Saint John’s University

1977 - Present

Director General Saint John’s College

7 Mr. Yanyong Kurovat

- none -

■

A Directors Accreditation

- none -

G Steel Public Company Limited

Director

Program (DAP) at the

2004 - Present Director and Executive Director

Executive Director

Thai Institute of Directors

Others

Association

2003 - Present Director

■

Class 5 National Defense Course for Joint Private and

■

G.O. International (Thai) Co., Ltd. 2003 - Present Advisor

Public Sectors at the National

MAN Truck & Bus Concessionaires

Defense Academy

(Thailand) Co., Ltd.

Graduate Diploma in

2003 - Present Chairman of the Election

Government, Chulalongkorn

Commission of Pathumthani

University ■

B.A. (Pol. Sci.), Chulalongkorn

Province 2000 - Present Managing Director

University

Technology Operation Group Co., Ltd. 2000 - Present Chairman of the Board of Directors Academic Network Co., Ltd. 2000 - Present Advisor Boonrawd Brewery Co., Ltd. 2000 - Present Advisor Saha Transportation Thonburi Co., Ltd. 1992 - 2000

Director Bangkok Mass Transit Authority

Name / Position 8 General Choochat

Age (Years) Relationship 61

- none -

Education ■

A Directors Accreditation

% of Shares

Experience

- none -

G Steel Public Company Limited

Kambhu Na Ayudhya

Program (DAP) at the

2004 - Present Director

Director

Thai Institute of Directors

Others

Association

2006 - Present Chairman of the Board of Directors

■

Class 7 National Defense

and the Audit Committee

Course for Joint Private and

Singha Paratech Public Co., Ltd.

Public Sectors at the National

2005 - Present Physician Leader

Defense Academy ■

Medical Bureau to His Majesty

Certificate of the Royal Thai

the King

Army War College ■

2004 - Present Chairman of the Board of Directors

Diploma of General Surgery,

Lucky Music Co., Ltd.

Council of Doctors of Medicine ■

2003 - Present Army Special Expert

Doctor of Medicine, University

Royal Thai Army

of Gottingen, Germany ■

2003 - Present Chairman of the Board of Directors

M.D., University of Munster,

Unity Percussion Co., Ltd.

Germany

2003 - 2004

Advisor, National Defense Studies Institute, Military Supreme Command

2001 - 2003

Director General Royal Thai Army Medical Department

2000 - 2001

Director King Mongkut Medical Administration Center

1998 - 2000

Deputy Director General Royal Thai Army Medical Department

9 Mr. Chaipatr Srivisarvacha

- none -

■

Director

■

A Directors Accreditation

- none -

G Steel Public Company Limited

Program (DAP) at the

2004 - Present Director

Thai Institute of Directors

2004 - 2005

Association

Others

A Chairman 2000 Program at

2004 - Present Director

the Thai Institute of Directors Association ■

■

Payzy (Thailand) Co., Ltd. 2003 - Present Chairman of the Board of Directors

MBA (Finance), Illinois Benedictine College

Ecco Communications Co., Ltd. 2002 - Present Independent Director

Bachelor of Science (Metallurgy) Lehigh University

Audit Committee Member

Kudu Co., Ltd. 2002 - Present Independent Director Brooker Group Public Co., Ltd. 2001 - Present

Independent Director Thanachart Bank Public Co., Ltd.

1999 - Present

Chief Executive Officer Cap Maxx Co., Ltd.

1993 - Present

Executive Director Salon La Prairie (Far East) Co., Ltd.

1992 - Present

Executive Director Faces Co., Ltd.

1992 - Present

Executive Director SVAC Co., Ltd.

Name / Position 10 ML. Sasivimon Kasemsri

Age (Years) Relationship 41

- none -

Education ■

A Directors Accreditation

% of Shares - none -

Experience G Steel Public Company Limited

Director

Program (DAP) at the

2004 - Present Director and Executive Director

Executive Director

Thai Institute of Directors

Others

Association

2003 - Present Director

■

Master of Intellectual Property

The Unified Council Co., Ltd.

(MIP), Franklin Pierre Law, USA ■

2000 - 2003

LL.M. (International Laws), Chulalongkorn University

11 Pol. Lt. General Prakard

- none -

■

LL.B., Chulalongkorn University

■

A Directors Accreditation

Attorney Law and Solicitors Co., Ltd.

1993 - 2000

Attorney Baker and Mckenzie Co., Ltd.

- none -

G Steel Public Company Limited

Sataman

Program (DAP) at the

2004 - Present Director and Executive Director

Director

Thai Institute of Directors

Others

Executive Director

Association

2005 - Present Advisor to the Board of Directors

■

Class 1 Advanced Management

Sirikit National Convention Center

Program at the National

2004 - Present Advisor

Defense Academy ■

Thai Pure Drinks Co., Ltd.

Class 37 National Defense

2000 - Present Member of Disciplinary Committee

Course at the National Defense

Office of the Auditor - General

Academy ■

2000 - 2003

International Police Program,

Commander of the Police Forensic Science, The National Police Office

USA

12 Mr. Stephane Benayon

- none -

■

LL.B., Thammasat University

■

B. Econ., York University

- none -

G Steel Public Company Limited

Director

2003 - Present Director and Executive Director

Executive Director

Others 2002 - Present Director Superior Overseas (Thailand) Co., Ltd. 2001 - Present

Managing Director Distresses Assets Investment

1998 - 2001

Director Prebon Yamane (Hong Kong) Ltd.

13 Mr. Ryuzo Ogino

- none -

■

B. Econ, Keio University

- none -

G Steel Public Company Limited

Director

2005 - Present Director and Executive Director

Executive Director

2004 - Present Assistant Chief Executive Officer

(Effective as from

Others

10 November 2005)

2000 - 2004

Assistant Chief Executive Officer

Director Suncall Corporation

1965 - 2000

Director Itochu Corporation

Name / Position 14 Professor Paichitr

Age (Years) Relationship 77

- none -

Education ■

A Directors Accreditation

% of Shares

Experience

- none -

G Steel Public Company Limited

Roajanavanich

Program (DAP) at the

Director

Thai Institute of Directors

Chairman of the Audit

Association

Others

MGA. (Fiscal Policy),

2005 - Present Vice Chairman of the Board of

Committee

■

2004 - Present Director and Chairman of the Audit Committee

Pennsylvania University, USA ■

Trustees Suranari Technology

Graduate Diploma in

University

Accountancy (Equivalent to

2002 - Present Chairman of the Audit Committee

Master’s Degree), Thammasat

Sicco Securities Public Co., Ltd.

University ■

LL.B., Thammasat University

■

CPA - Thailand

2002 - Present Chairman of the Board of Directors Sicco Advisory Co., Ltd. 2000 - Present Chairman of the Board of Directors Far East Law Office (Thailand) Co., Ltd. 1999 - Present

Chairman of the Audit Committee MBK Development Public Co., Ltd.

1999 - Present

Chairman of the Audit Committee Pathum Rice Mill and Granary Public Co., Ltd.

1999 - Present

Chairman of the Audit Committee Muramoto Electron (Thailand) Public Co., Ltd.

1988 - Present

Chairman of the Board of Directors S.P.R. Leasing Co., Ltd.

1985 - Present

Chairman of the Board of Directors Karnjeon Co., Ltd.

15 Mr. Preecha Prakobkit

- none -

■

Director

A Directors Accreditation Program (DAP) at the Thai

Audit Committee Member

- none -

G Steel Public Company Limited 2003 - Present Director and Audit Committee

Institute of Directors Association ■

Member

A Finance for Non - Finance

Others

Director Program at the Thai

1988 - Present

Institute of Directors Association ■

Executive Leadership Thunderbird, The American Graduate School of International Business

■

Senior Executive Program Sasin Graduate Institute of Business Administration, Chulalongkorn University

■

Mini MBA, Thammasat University

■

Business Administration Roosevelt University, USA

Managing Director Amway (Thailand) Co., Ltd.

2002 - 2005

Director Paitoon Hotel and Resort Co., Ltd.

Name / Position 16 Associate Professor

Age (Years) Relationship 70

- none -

Education ■

A Chairman 2000 Program

% of Shares - none -

Experience G Steel Public Company Limited

Prapanpong Vejjajiva

at the Thai Institute of

2005 - Present Audit Committee Member

Director

Directors Association

2004 - Present Director

A Directors Accreditation

Others

(Effective as from

Program (DAP) at the Thai

2005 - Present Chairman of the Board of Directors

10 November 2005)

Institute of Directors Association

Audit Committee Member

■

C&C International Venture Co., Ltd.

An Audit Committee Program at

2005 - Present Chairman of the Board of Directors

the Thai Institute of Directors

The Master Asset Management Co. Ltd.

Association ■

2001 - Present

Chairman of the Board of Directors

1995 - Present

Director

Class 28 National Defense

Primavest Asset Management Co., Ltd.

Course at the National Defense Academy ■

Dhammaniti Public Co., Ltd.

Certificate in Business

1994 - Present

Administration, Stanford University ■

■

Chairman of the Board of Directors Home Place Group Public Co., Ltd.

1990 - Present

Vice President

Graduate Diploma in Welfare

(Development and Planning)

Administration, Stockholm

Sasin Graduate Institute of Business

University, Sweden

Administration, Chulalongkorn

M.A. in Social Science,

University

Stockholm University, Sweden ■

B.A. (Pol. Sci.) (2nd Class Honors) in Government, Chulalongkorn University

Mr. Jeong Joon Ahn

- none -

Senior Executive Vice

■

M. Econ, Dankuk University

■

B. Eng, Seoul National

President (Operations)

- none -

G Steel Public Company Limited 2004 - Present Senior Executive Vice President

University

(Operations)

(Resigned from

2004 - 2005

Director position on

Others

10 November 2005)

1994 - 1997

Director and Executive Director Vice President Hanbo Steel Co., Ltd., Korea

1989 - 1993

CEO & President Pohang Special Tinplate Co., Ltd., Korea

1985 - 1989

Managing Director POSCO Co., Ltd., Korea

18 Mr. Chalothorn Leelamali

- none -

■

Vice President (Accounting and Finance)

■

MBA., Business Administration,

- none -

G Steel Public Company Limited

NIDA

2003 - Present Vice President (Accounting and Finance)

B. Econ., Chulalongkorn

Others

University

1999 - 2002

Project Financial Controller Metro Resources Public Co., Ltd.

1998 - 1999

Financial Assistant Manager Thainox Steel Co., Ltd.

1996- 1998

Financial Analyst Shinho Paper (Thailand) Co., Ltd.

CHANGES IN SHAREHOLDING BY THE BOARD OF DIRECTORS AND MANAGEMENT TEAM Shareholding (Shares): Par 1 Baht Name

Position

As of 31 Dec. 2004 As of 31 Dec. 2005

Changes

Vice Chairman

1,500,000

3. Ms. Patama Chiachuabsilp

Vice Chairman

1,061,060,793

4. Mr. Somsak Leeswadtrakul

Director

7,154,071

5. Mr. Stephane Benayon

Director

6. Mr. Chainarong Monthienvichienchai

Director

1,500,000

7. Mr. Yanyong Kurovat

Director

8. Mr. Chaipatr Srivisarvacha

Director

9. ML. Sasiwimon Kasemsri

Director

10. General Choochat Kambhu Na Ayudhya

Director

11. Pol. Lt. General Prakard Sataman

Director

12. Mr. Ryuzo Ogino

Director

13. Prof. Paichitr Roajanavanich

Chairman of the Audit Committee

14. Mr. Preecha Prakobkit

Member of the Audit Committee

15. Assoc. Prof. Prapanpong Vejjajiva

Member of the Audit Committee

16. Mr. Jeong Joon Ahn

Senior Executive Vice President

1. Mr. Vira Susangkarakan

Chairman

2. General Singha Saovapap

(Operations) 17. Mr. Chalothorn Leelamali

Vice President (Accounting and Finance)

> General Information

Company’s Name, Location, and Business Type Company’s Name

G Steel Public Company Limited

Symbol

GSTEEL

Registration No.

0107538000746 (formerly PLC 597)

Head Office

18th Fl. SSP Tower 3, 88 Silom Road, Suriyawong, Bangrak, Bangkok 10500, Thailand Tel. 0-2634-2222, Fax. 0-2634-4114

Plant Office

55 Moo 5, SSP Industrial Park, Nonglalog, Bankhai, Rayong 21120, Thailand Tel. 0-3886-9323 Fax. 0-3886-9333

Website

www.g-steel.com

Establishment Date

30 October 1995

Production Commencement Date

1 November 1999

Business Type

Production and Distribution of Hot Rolled Coils

Width

900 - 1,550 mm.

Gauge

1.0 - 13.0 mm.

Production Technology

Melting

- Electric Arc Furnace from Germany

Casting

- Medium Slab Casting Machine from Japan

Rolling

- Hot Strip Mill from Japan

Production Capacity

1,800,000 tons per annum

No. of Employees

718

Registered Capital and Paid-up Capital Registered Capital

12,000,000,000

Baht

Ordinary Shares

12,000,000,000

Par Value

Baht per Share

Paid-up Capital

8,200,000,000

Baht

Paid-up Ordinary Shares

8,200,000,000

Referrals and Their Locations Common Stock Registrar

Thailand Securities Depository Co., Ltd. 4th , 7th Fl. Stock Exchange of Thailand Building 62 Rajadapisek Road, Khlong Toey, Bangkok 10110 Tel. 0-2229-2800 Fax. 0-2359-1259

Bond Registrar

The Hongkong and Shanghai Banking Corporation Limited Level 30, HSBC Main Building, 1 Queen’s Road Central, Hong Kong

Bond Trustee

The Hongkong and Shanghai Banking Corporation Limited Level 30, HSBC Main Building, 1 Queen’s Road Central, Hong Kong

Auditor

Mr. Sophon Permsirivallop

Certified Public Accountant Registration No. 3182

Mr. Narong Pantawong

Certified Public Accountant Registration No. 3315

Ms. Rungnapa Lertsuwankul

Certified Public Accountant Registration No. 3516

Ernst & Young Office Ltd. 193/136-137 33rd Fl. Lake Rajada Building, Rajadapisek Road, Khlong Toey, Bangkok 10110 Tel. 0-2264-0777 Fax. 0-2264-0789-90

> Nature of Business

G Steel Public Company Limited is a hot rolled coil producer and distributor with objectives to substitute import and to serve domestic demand. Its products are used as raw materials for such downstream industries as cold rolled coils, galvanized steel, steel pipes and structural steel products for construction, petroleum containers or LPG cylinders, automobile and parts, electrical appliance, furniture, and so on. The company’s hot rolled coil mill is equipped with the world’s latest state of the art technology and completed infrastructure. With the total investment of over Baht 40,000 million, melting, casting, and rolling processes are integrated into one mill: the Compact Mini Mill, which comprises melting technology in the electric arc furnace, casting technology in the medium slab casting machine, and rolling technology in the hot strip mill. The production process starts from having steel scrap and pig iron melted in an electric arc furnace at about 1,600 C Ì into liquid steel, which is then improved quality with additives to meet customers’ respective requirements. The refined liquid steel is cast into medium sized slab of 80 - 100 mm. and subsequently hot - rolled into a specific required gauge. Being the first in Thailand and among very few of its kind in the world, the mill can make hot rolled coil at the minimum thickness of just 1.0 mm. The entire process is continuous and merely takes 3.5 hours. The company’s hot rolled coil mill was designed with the maximum production capacity of 3.4 million tons. Presently, it runs at 1.8 million ton capacity per annum, and a designated production efficiency for product mixed ratio as per market requirements is 1.5 million tons per annum. In 2005, its outputs amounted to 1.12 million tons, or 75% production efficiency. The company’s hot rolled coil meets international standards, i.e. ASTM, JIS, DIN, BS and Thailand Industrial Standards (TIS) with ISO 9001:2000 certified for its management system. INCOME STRUCTURE The company’s income structure during the past 3 years can be divided as per the nature of business as follows. (Unit: ‘000 Baht) Incomes

Distribution Channels

Sales from Hot Rolled Coils

2003

2004 %

Domestic

11,514,447

91.0

16,435,025

76.8

19,654,894

88.2

Overseas

1,107,716

8.8

4,835,227

22.6

2,546,951

11.4

12,622,163

99.7

21,270,252

99.3

22,201,845

99.6

37,212

0.3

140,018

0.7

95,234

0.4

12,659,375

100.0

21,410,270

100.0

22,297,079

100.0

Total Sales Other Incomes Total Incomes

Amount

2005

Amount

Notes: The company’s other incomes included sales of various scraps from production process, interest income and foreign exchange gain

The company’s main income was from domestic sales due to the high demand from both construction and industrial sectors. While the local production could not meet the local consumption, over 2 million tons had to be imported. Nevertheless, the company has also continued exporting to establish overseas market bases for its business expansion in the future. The fact reflected that quality of the company’s products was well accepted in overseas market as America, Europe, Middle East, and Asia.

Structure of Transactions with Business Alliances In 2005 the company had transactions with its business alliances by means of agents in both buying and selling. These agents had long standing relation with the company and the transactions were normal business with general terms and conditions as necessary to the business execution for the company’s maximum benefits. Average prices as well as terms and conditions were suitable and comparable with those of other business partners the details are as follows:

Sales Transaction with Alliances (Unit: ’000 Baht) Business Alliances

Volume in 2005

Balance at 2005 Year-End

Nara International Co., Ltd.

3,020,936

Federal Steel Industry Co., Ltd.

4,003,050

163,949

2,273,756

422,591

66,129

815,501

273,368

1,057,812

128,793

Advance Metal Fabrications Co., Ltd. Trinity International Co., Ltd. Trinity Freight and Shipping Co., Ltd. Millennium Metal Work Co., Ltd.

570,798

Purchase Transactions with Alliances (Unit: ’000 Baht) Business Alliances

Nara International Co., Ltd. Federal Steel Industry Co., Ltd. Advance Metal Fabrications Co., Ltd.

Volume in 2005

Balance at 2005 Year-End 646,198

58,318

2,187,337

134,648

Trinity International Co., Ltd.

25,508

3,080

Trinity Freight and Shipping Co., Ltd.

597,142

104,757

Millennium Metal Work Co., Ltd.

FUTURE PLAN The company’s plan for a production capacity expansion from 1.8 million tons to 3.4 million tons is to meet domestic demand surplus. The expansion focuses on de-bottlenecking, especially medium slab casting process. Additionally, the high quality production lines under construction and installation are Skinpass Mill to improve the surface and flatness of the steel, and Pickling and Oiling line to clean and eliminate oxide on surface by means of acid washing for surface shining, before corrosion prevention oiling. Upon the completion, the product lines will be more varied, enabling the company to meet customers’ diversified needs, particularly in automobile and parts, electrical appliance and furniture industries. The aforementioned plan has been approved by the Board of Investment, and the construction and machine installation are expected to complete at the end of 2007.

> Risk Factors

MARKETING AND COMPETITION RISK Hot Rolled Coil (HRC) is a commodity with no distinguished differentiation features, especially in a modest quality market. Prices are decisive factor to buyers. Therefore, during business downturn or a slow down in demand, risks in price competition are prevalent, which will have direct impacts on the company’s performance. However, the domestic demand for HRC continues to expand according to the country’s development and growth of industries using it as raw materials, construction and automobile and parts industries in particular. Presently, there are no signs of recession both in short and long run. Taking into account the current market structure, there is an excessive demand, and 2.6 million tons were imported last year. Thus, no factors are believed to lead to a fierce price competition. Besides, the company emphasizes on quality products with reasonable prices and adopts a strategy of quick response to customers’ needs. As such, the company is confident to be competitive despite the business downturn. Furthermore, It has developed distribution channels and also expanded overseas market bases for a more comprehensive export business in the future. Additionally, the company plans to install a Pickling and Oiling line in order to penetrate into a less competitive and high quality market where selling prices are more stable. RAW MATERIAL SUPPLY RISK HRC major raw materials are steel scrap and pig iron with a high proportion of import. 80 - 90% of steel scrap has to be imported due to an inadequate domestic supply, while the latter is entirely imported due to no local production at all. This poses risks on insufficient raw material supply, especially when the company has production expansion plan requiring more consumption of raw materials. However, quantities of the world’s steel scrap and pig iron are sufficient for the company’s current and future production capacities. In addition, it has established long-standing and good relationship with the suppliers who are major distributors with a worldwide network of raw material sources. Therefore, the raw material provisions are of no concerns at all. Because of its policy to maintain 2 - 3 month level of raw material inventory, the company is confident not to be affected by any delay in procurement and shipment processes. PRICE FLUCTUATION RISK The steel price situation in the world market changes up and down in a cycle, during a certain period, risks from price fluctuations can be comparatively high. The situation is completely out of control and directly affects the company’s income and profit, especially during the business downturn or when prices of HRC and raw materials do not change harmoniously. However, the move in prices of HRC and raw materials is generally corresponding. Spread between those prices is not adversely affected. If there is any major price difference, it exists for only a short period of time. To minimize risks from possible inventory depreciation especially during the downturn, the company has a policy to maintain the inventory of raw materials and finished products at appropriate levels. Besides, the domestic HRC industry has been protected by an anti-dumping import duty levied on hot rolled coils from 14 exporting countries. This helps reduce a selling price fluctuation in the country at a certain level.

FOREIGN EXCHANGE RATE FLUCTUATION RISK The company’s expenses for the steel scrap, pig iron and other raw material imports accounted for not less than USD 350 million annually, whereas its debt burden from an issuance of bonds overseas totalled USD 100 million to repay in the next 5 years plus 10.5% interest per annum. Contrarily, most of its incomes are denominated in Thai Baht. Thus, the company is exposed to foreign exchange rate fluctuation risks. Even though its income is mostly denominated in Thai Baht, the company monthly sets selling prices for domestic markets that can adjust the prices in accordance with the prevailing foreign exchange rates. Besides, the timing when payments for raw materials will be made and, when the selling prices are set, are not so far apart. The foreign exchange rate fluctuation risks for the company are thus substantially reduced. With its USD 20 million credit line for forward exchange rate contract at a financial institution, the company can additionally hedge the exchange risk as deemed fit to a prevalent situation. This will also cover the exchange risk on bonds’ interest. Regarding the bonds to redeem in the next 5 years, the company will keep on contemplating appropriate risk protection tools ensuring the minimum impacts of foreign exchange fluctuation in the future.

RISK FROM THE ANTI-DUMPING MEASURES LIFTED At present, Thailand’s HRC industry is protected by the 5 year anti-dumping measure which levies an import duty on hot rolled coils from 14 exporting countries until the year 2008. Afterwards, the Government may not impose such protection to the industry or it may lift or temporarily ease the measures should there be steel supply shortage situation in the country. This will enable producers from overseas to be more competitive, thus intensifying domestic competition. It will naturally have negative impacts on the company’s business, financial positions and operating results in the future. Should the anti-dumping measures be lifted, after which no dumping takes place, the company is unlikely to be effected as domestic HRC prices change according to those in the world market. At the moment, the domestic prices are slightly higher than the world market prices, the gap is closely equivalent to a 5% import duty. Such measures serve as a mechanism to protect domestic producers from unfair competition or price dumping behaviors. The company constantly assesses and develops its competitiveness, improving its production efficiency, controlling production costs at appropriate levels, making products up to international quality and delivering orders with a short lead time. As a local producer, the company has an edge logistically thus enabling buyers to manage their inventory efficiently at comparatively lower costs. Therefore, it is confident to be competitive with producers overseas despite no anti-dumping measures. Nevertheless, the lifting of the measures is not imminent in the near future. However, the lifting is possible to apply to specific overseas producers case by case should they file a petition for review, and there are no proofs of their dumping behaviors.

> Management and Corporate Governance

MANAGEMENT STRUCTURE The company’s management structure comprises 3 committees: Board of Directors, Executive Committee and Audit Committee, whose respective roles and responsibilities are summed up as follows.

(1)

BOARD OF DIRECTORS The current Board of Directors was appointed by the 2004 Annual Ordinary Shareholders’ Meeting on 9 June 2004, and in 2005 changes in the Board members were: ■

Resigned

Mr. Jeong Joon Ahn

(effective on 10 November 2005)

■

Newly appointed

Mr. Ryuzo Ogino

(effective on 10 November 2005)

■

Deceased

Mr. Vira Susangkarakan

(on 24 December 2005)

The Board of Directors as at 31 December 2005 hence consisted of 14 members* as listed below. 1. General Singha Saovapap

The first Vice Chairman of the Board of Directors

2. Ms. Patama Chiachuabsilp

The second Vice Chairman of the Board of Directors

3. Mr. Somsak Leeswadtrakul

Director

4. Mr. Chainarong Monthienvichienchai

Director

5. Mr. Yanyong Kurovat

Director

6. ML. Sasivimon Kasemsri

Director

7. Mr. Stephane Benayon

Director

8. Pol. Lt. General Prakard Sataman

Director

9. Mr. Ryuzo Ogino

Director

10. General Choochat Kambhu Na Ayudhya

Independent Director

11. Mr. Chaipatr Srivisarvacha

Independent Director

12. Prof. Paichitr Roajanavanich

Chairman of the Audit Committee and Independent Director

13. Mr. Preecha Prakobkit

Audit Committee Member and Independent Director

14. Assoc. Prof. Prapanpong Vejjajiva

Audit Committee Member and Independent Director

on 31 December 2005, the company did not appoint the new Chairman of the Board to replace Mr.Vira Susangkarakan who deceased on 24 December 2005.

AUTHORIZED SIGNATORY DIRECTORS ON THE COMPANY’S BEHALF are Mr. Somsak Leeswadtrakul or Ms. Patama Chiachuabsilp or Mr. Stephane Benayon or Pol. Lt. General Prakard Sataman co-signs with Mr. Ryuzo Ogino or Mr. Yanyong Kurovat or ML. Sasivimon Kasemsri together with the company’s seal.

THE BOARD’S ROLES AND RESPONSIBILITIES

To manage the company’s business according to legal frameworks, its objectives, rules and regulations as well as shareholders’ meeting resolutions with honesty and discretion on the company’s benefits

To stipulate the company’s policies and business direction and to oversee and supervise an execution of the Management to meet the set policies efficiently and effectively

To be accountable to shareholders at all times and to manage for the maximum benefits of the shareholders as well as to disclose to investors with acceptable standards, the relevant accurate, complete and transparent information.

To appoint and revise the company’s list of authorized signatory directors

To appoint subcommittees to supervise, monitor and control essential management issues, namely, Executive Committee and Audit Committee and so forth

To delegate any person or persons to duly act on behalf of the Board within a duly time frame. The Board may have such a delegation repealed, changed or modified.

To stipulate recruiting, selecting, hiring and appointing any person as deemed appropriate as Chief Executive Officer and stipulate appropriate remuneration and to empower the CEO to transfer, suspend and terminate employment.

To prepare annual Board of Directors’ report and be responsible for the preparation and disclosure of financial statements revealing the company’s financial status and operating results of the preceding year to present to shareholders’ meeting.

To convene at least once every 3 months. Rulings of the Board meeting will be based on a majority vote. Directors with conflicts of interest in any matters shall have no voting rights on the specific issue.

10. To hold the annual shareholders’ ordinary meeting within 4 months after the company’s accounting year-end date.

In any case where any Director or parties with possible conflicts of interest (as per announcements of SEC Office and/or the Stock Exchange of Thailand) may have any conflicts of interest, the Director(s) shall have no authority to approve the matter.

(2) EXECUTIVE COMMITTEE As at 31 December 2005, the company had 7-member Executive Committee* consisting of: 1.

Mr. Somsak Leeswadtrakul

Chief Executive Officer

Mr. Stephane Benayon

Executive Director

Ms. Patama Chiachuabsilp

Executive Director

Mr. Ryuzo Ogino

Executive Director (as from 10 November 2005)

Mr. Yanyong Kurovat

Executive Director

ML. Sasivimon Kasemsri

Executive Director

Pol. Lt. General Prakard Sataman

Executive Director

Mr. Vira Susangkarakan, ex- Executive Director resigned on 4 April 2005 Mr. Jeong Joon Ahn, ex- Executive Director resigned on 10 November 2005

EXECUTIVE COMMITTEE’S ROLES AND RESPONSIBILITIES

To scrutinize the company’s policies, business plan, investment plan and annual budgeting to submit to the Board of Directors for approval

To monitor, supervise and control operations to achieve the set objectives of the plans approved by the Board of Directors or as per its assignment. To report results of the execution to the Board of Director for its information

To approve an execution or payment for any execution which exceed an authority or an authorization amount of the management in accordance with the company’s authorization regulations or as per an annual budget approved by the Board of Directors

To review the organization chart, authorization structure, remuneration policy as well as the company’s salary structure

To scrutinize authorization regulations for managerial and operational levels covering areas of finance, accounting, procurements, investment, borrowings, mortgage, collateral, sales or disposal or transfer of any assets, entering into any agreement or contract and any other execution as deemed fit

To delegate any person or persons to execute on behalf of the Executive Committee as deemed appropriate. They may cancel or repeal, change or revise the authorization conferred

To contemplate and approve openings of varied bank accounts with any commercial banks as deemed appropriate and assign persons to authorize withdrawals or payments from those bank accounts

To execute any other tasks assigned by the Board of Directors

The authorization to the Executive Committee described above shall not cover any authorization enabling them to approve any transactional items that any Executive Director or parties with possible conflicts of interest as per announcements of SEC Office may have conflicts of interest with the company or any subsidiaries (if any). The Executive Committee shall submit the matter to the Board of Directors and/or the Shareholders’ Meeting for perusal and approval of the transactions as per regulations or announcements or pertinent laws.

(3) AUDIT COMMITTEE As at 31 December 2005, the Audit Committee consists of 3 Independent Directors with 3 year service term. They are: 1.

Prof. Paichitr Roajanavanich

Chairman of the Audit Committee

Assoc. Prof. Prapanpong Vejjajiva

Audit Committee Member (as from 10 November 2005*)

Mr. Preecha Prakobkit

Audit Committee Member

* Mr. Chaipatr Srivisarvacha, ex-Audit Committee Member resigned from the position on 10 November 2005 (to serve in the company’s another capacity)

ROLES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE

To examine the company to have accurate financial reports with sufficient disclosure, coordinating with the external auditors and the executive in charge to have quarterly and annual financial reports prepared. The committee may recommend the external auditors to examine or check any items as deemed necessary or essential during the audit.

To examine the company to have appropriate and effective internal control and audit systems in cooperation with the external auditors and internal audit department

To examine the company’s operations in compliance with laws on securities and stock exchange, SEC and SET regulations or any other laws related to the company’s business

To select and propose a nomination of the company’s external auditors and their remuneration, by taking into account their reliability, resource adequacy, existing workload of the particular auditor office and work experience of respective team members assigned to audit the company

To deliberate complete and accurate disclosure of the company’s information in case of inter-related transactions or transactions with possible conflicts of interest

To carry out any other tasks assigned by the Board of Directors with consent of the Audit Committee, i.e. to review financial and risk management policies, management conduct as per business codes and in cooperation with the company’s management to review the key reports as Executive Notes and Analysis to the public as per legal requirements

To prepare the Audit Committee’s report to be included in the annual report and have it signed by the committee’s Chairman. The report shall comprise the following information: ■

Notes on the preparation procedure and disclosure of information in the company’s financial reports in relations with their completeness and reliability

■

Notes on adequacy of the internal audit systems

■

Justifications for nomination of the company’s external auditors for another term

■

Notes on compliance with laws on Securities and Exchange, SEC and SET regulations and any other laws relating to the company’s business

■

Any other reports considered suitable for information of shareholders and general investors under scopes of roles and responsibilities assigned by the Board of Directors

The Audit Committee is accountabe to the Board of Directors as per roles and responsibilities entrusted by the Board of Directors and shall report to it the performance, recommendations and findings at least twice a year.

In any cases where any Audit Committee member or parties with possible conflicts of interest (as per announcements of SEC Office and/or the Stock Exchange of Thailand) may have any conflicts of interest with the company or any subsidiaries (if any), the Audit Committee shall submit the matter to the Board of Directors and/or the shareholders’ meeting for perusal and approval of the transactions as per regulations or announcements or pertinent laws.

MANAGEMENT TEAM As at 31 December 2005, the company’s Management Team comprises: 1.

Mr. Somsak Leeswadtrakul

Chief Executive Officer

Mr. Ryuzo Ogino

Assistant Chief Executive Officer

Ms. Patama Chiachuabsilp

Assistant Chief Executive Officer

Mr. Jeong Joon Ahn

Senior Executive Vice President (Operations)

Mr. Chalothorn Leelamali

Acting Senior Executive Vice President (Administration) Vice President (Accounting and Finance)

ROLES AND RESPONSIBILITIES OF THE CHIEF EXECUTIVE OFFICER

To stipulate business plan, investment plan and annual budgeting to submit to the Executive Committee and/or the Board of Directors for approval

To take responsibility of the overall management and to deliberate the company’s management policies enabling operations to achieve the set objectives under the framework of the policies, business plans and budgets approved by the Board of Directors

To approve an execution or payment for any execution according to the company’s authorization regulations or annual budgets approved by the Board of Directors

To recruit, hire, reshuffle, transfer, suspend or terminate an employment of any executives or employees in all positions and to stipulate scopes of rules and responsibilities as well as appropriate remuneration. An execution of positions equivalent to a Senior Executive Vice President or higher shall be reported to the Executive Committee for their information, while an execution of positions equivalent to the Internal Audit Department management shall be made with the Audit Committee’s considerations.

To appoint respective authorized persons to sign the company’s documents in the areas of accounting, finance, procurement, production, sales, general administration and any other important documents.

To set, change, revise, and cancel any rules, statements, announcements, regulations, punishment measures and internal controlling systems to serve as operational guidelines for all employees and to enable an internal organizational management executed as per the company’s stipulated policies.

To appoint advisors in any fields as necessary to the operation for the company’s benefits. The CEO is empowered to appoint attorney(s) to file a lawsuit or defend any case relating to the company.

To delegate any person to execute any tasks on his behalf as deemed appropriate. He may cancel, repeal, change or revise the authorization conferred.

To report the operating results and development or progress of projects as well as financial status to the Executive Committee and the Board of Directors.

10. To execute any other tasks assigned by the Executive Committee or the Board of Directors.

In any cases where the Chief Executive Officer or persons with possible conflicts of interest may have any conflicts of interest, the CEO shall have no right to approve the execution.

THE SELECTION OF DIRECTORS AND THE CHIEF EXECUTIVE OFFICER Candidates for the company’s Directors and Chief Executive Officer are not selected by the Nominating Committee. The Company assigns the duty to the Board of Directors to recruit knowledgeable and competent candidates with relevant experiences and qualifications as per Clause 68 in the Public Limited Company Act B.E. 2535, pertinent announcements by the Securities and Exchange Commission and the company’s rules and regulations for the benefits of the company’s efficient operations.

REMUNERATIONS FOR THE DIRECTORS AND MANAGEMENT TEAM The 2005 Shareholders’ Ordinary Meeting on 29 April 2005 approved a total remunerations for the Directors for 2005 at the amount of not exceeding Baht 10 million, and the 3/2005 Board Meeting on 20 May 2005 worked out a remuneration structure for the company’s Directors as follows. Positions

Position Remuneration Monthly Remuneration (Baht/Month)

Chairman of the Board of Directors Directors / Executive Directors Chairman of the Audit Committee Audit Committee Members

Meeting Allowance

(Baht/Month)

(Baht/Time)

100,000

30,000

5,000

30,000

5,000

20,000

40,000

5,000

40,000

5,000

Any Director who concurrently holds the company’s managerial positions will receive remuneration in the forms of monthly salary thus will not be entitled to the remuneration listed above. In cases where any Director takes up more than 1 position, he/she will be entitled only to the remuneration of the position offering the highest return.

TOTAL REMUNERATION FOR THE BOARD OF DIRECTORS AND THE MANAGEMENT in 2005 Items

Year 2005 Persons

Amount (Baht Mil.)

Remuneration Details

Board of Directors

5.91

Remuneration, meeting allowance

Management *

32.10

Salary, bonus, other compensations

* Including expatriate executives REMUNERATION FOR INDIVIDUAL BOARD MEMBERS in 2005 Items

Names and Positions

Mr. Vira Susangkarakan

Remuneration

Meeting Allowance

Total Monetary

(Baht)

Remuneration (Baht)

1,040,000

360,000

45,000

405,000

360,000

15,000

375,000

360,000

30,000

390,000

360,000

45,000

405,000

380,000

45,000

425,000

360,000

30,000

390,000

360,000

30,000

390,000

360,000

50,000

410,000

600,000

80,000

680,000

430,000

70,000

500,000

440,000

60,000

500,000

Chairman 2.

General Singha Saovapap

Vice Chairman 3.

Ms. Patama Chiachuabsilp * Vice Chairman and Executive Director

Mr. Somsak Leeswadtrakul * Director and Chairman of the Executive Committee

Mr. Stephane Benayon Director and Executive Director

Mr. Chainarong Monthienvichienchai Director

Mr. Yanyong Kurovat Director and Executive Director

Assoc. Prof. Prapanpong Vejjajiva *** Director and Audit Committee Member

ML. Sasivimon Kasemsri Director and Executive Director

10.

General Choochat Kambhu Na Ayudhya Director

11.

Pol. Lt. General Prakard Sataman Director and Executive Director

12.

Mr. Jeong Joon Ahn ** Director and Executive Director

13.

Mr. Ryuzo Ogino ** Director and Executive Director

14.

Prof. Paichitr Roajanavanich Director and Chairman of the Audit Committee

15.

Mr. Chaipatr Srivisarvacha *** Director and Audit Committee Member

16.

Mr. Preecha Prakobkit Director and Audit Committee Member

Directors who concurrently held managerial positions in the company and received remuneration in the form of monthly salary were not entitled to any other monthly remuneration nor meeting allowance.

Mr. Jeong Joon Ahn resigned from the positions of Director and Executive Director on 10 November 2005, and the Board meeting replaced him with Mr. Ryuzo Ogino in both capacities. Being a Director concurrently holding a managerial position in the company receiving remuneration in the form of monthly salary, he was not entitled to any other monthly remuneration nor meeting allowance.

***

Mr. Chaipatr Srivisarvacha resigned from the position of Audit Committee Member on 10 November 2005, and the Board meeting replaced him with Assoc. Prof. Prapanpong Vejjajiva.

OTHER REMUNERATIONS The 2/2004 Shareholders’ Extraordinary Meeting on 5 October 2004 resolved an issuance and allocation of warrants for 100,000,000 units to the company’s Directors and employees (prior to the company’s initial public offering) as a recognition to their contribution and a motivation for them to continue their intentionally performance with the company in the long run. The details on the matters are as below:

Type of Instrument

Named and Non-Negotiable Certificate of Warrants It will be transferable solely in case of an inheritance or benificiary heir

Offering Size

100,000,000 units

Offering Price

Baht 0 per unit (Zero Baht)

Issuing and Offering Date

12 January 2006

Expiry Date

11 January 2011

Exercise Ratio

1 unit of warrant per 1 ordinary share

Exercise Price

Baht 1 per share

Exercise Period

One year after the date when the company’s shares are traded on the SET until the expiry date of the warrants (24 January 2007 - 11 January 2011). Holders are entitled to exercise at the one-third of total allocated warrants and shall exercise their right for the full portion at one time.

Two years after the date when the company’s shares are traded on the SET until the expiry date of the warrants (24 January 2008 - 11 January 2011). Holders are entitled to exercise at another one-third of total allocated warrants and shall exercise their right for the full portion at one time.

Three years after the date when the company’s shares are traded on the SET until the expiry date of the warrants (24 January 2009 - 11 January 2011). Holders are entitled to exercise at another one-third of total allocated warrants and shall exercise their right for the full portion at one time.

Exercise Dates

The last working day of March, June, September and December until the expiry date of the warrants. The first date to exercise the right is 30 March 2007 and the last date is 11 January 2011.

The Directors will be allocated not over 2,000,000 units each, whereas Directors concurrently serving as the companyâ&#x20AC;&#x2122;s employees will be entitled to an allocation to employees as well. The company carried out the allocation on 12 January 2006 as per guidelines approved by the Board of Directors as follows:

Names

Positions

Quantity (units)

Board of Directors

1. General Singha Saovapap

Vice Chairman

2,000,000

2. Ms. Patama Chiachuabsilp

Vice Chairman

2,000,000

3. Mr. Somsak Leeswadtrakul

Director

2,000,000

4. Mr. Stephane Benayon

Director

2,000,000

5. Mr. Chainarong Monthienvichienchai

Director

2,000,000

6. Mr. Yanyong Kurovat

Director

2,000,000

7. Mr. Chaipatr Srivisarvacha

Director

2,000,000

8. ML. Sasivimon Kasemsri

Director

2,000,000

9. General Choochat Kambhu Na Ayudhya

Director

2,000,000

Director

2,000,000

11. Mr. Ryuzo Ogino

Director

2,000,000

12. Prof. Paichitr Roajanavanich

Chairman of the Audit Committee and

2,000,000

10. Pol. Lt. General Prakard Sataman

Independent Director 13. Assoc. Prof. Prapanpong Vejjajiva

Audit Committee Member and

2,000,000

Independent Director 14. Mr. Preecha Prakobkit

Audit Committee Member and

2,000,000

Independent Director

Management 1. Mr. Somsak Leeswadtrakul

Chief Executive Officer

5,000,000

2. Ms. Patama Chiachuabsilp

Assistant Chief Executive Officer

2,750,000

3. Mr. Ryuzo Ogino

Assistant Chief Executive Officer

2,750,000

4. Mr. Jeong Joon Ahn

Senior Executive Vice President (Operations)

2,000,000

5. Mr. Chalothorn Leelamali

Acting Senior Executive Vice President

2,000,000

(Administration)

Employees 704 employees

57,472,200

Total

99,972,200

CORPORATE GOVERNANCE Understanding their roles and responsibilities to the company and the shareholders, the Board of Directors have studied the 15 item good governance principles and recommendations for directors of listed companies as per guidelines of the Stock Exchange of Thailand. This is to further enhance the company’s transparent operations, business ethics, internal control systems as well as to emphasize an equal importance of shareholders and their benefit protection. During the 6/2004 Board Meeting on 10 September 2004, the Board formulated a corparate governance policy with the following detailed guidelines and implementation results for the preceding year. (1)

CORPORATE GOVERNANCE POLICY Realizing benefits and importance of the good corporate governance for the enhancement of transparent and efficient management and administration which will create confidence among shareholders, investors and all parties concerned, the Board of Directors set a corporate governance policy as the company’s operations standard and procedures. It covers following principles: ■

To treat shareholders and stakeholders equally and fairly

■

To carry out their roles and responsibilities in supervision and management honestly, ethically, prudently and discreetly to achieve the set goals for the maximum benefits of the company and shareholders as well as to prevent possible conflicts of interest

■

To manage the company with transparency under the efficient internal control and audit systems and to disclose adequate information to shareholders and all parties concerned to ensure equal information

(2)

■

To control and manage risks to be at levels appropriate to the company’s business

■

To run the business with honesty under pertinent legal framework and business ethics

RIGHTS AND EQUALITY OF SHAREHOLDERS The Board of Directors shall equally treat and protect rights and benefits of all shareholders, no matter they are majority or minority ones, institute or foreign investors, particularly the rights to access the company’s data and information, to attend shareholders’ meetings, to express their opinions and enquiries in the meetings and to jointly deliberate and vote during the sessions. The Board shall facilitate the shareholders’ meetings in positive manners to encourage equal and transparent treatment for all shareholders.

(3)

RIGHTS OF VARIOUS GROUPS OF STAKEHOLDERS All groups of stakeholders shall be treated equally by the Board of Directors, no matter they are shareholders, employees, business partners, customers, competitors, communities in the factory’s vicinity or other stakeholders to ensure that their basic rights and benefits shall be protected and taken care of in accordance with relevant laws and legal requirements with no discrimination towards any particular person or groups just because of personal relationship or benefits.

(4)

SHAREHOLDERS’ MEETINGS The Board of Directors gives an importance to shareholders’ meetings as they are basic rights of the shareholders. The meetings shall be organized and run according to the company’s regulations, Public Limited Company Act B.E. 2535, SEC and SET rules and regulations. The Board shall encourage an equal treatment for all shareholders with transparency and simplified handling procedures and facilitate shareholders to exercise their right to attend meetings and to obtain the company’s data and information prior to the sessions. Equal opportunities and time allocation shall be provided for all shareholders to express their opinions and raise any questions during the meeting as per the proposed

agenda and issues. The minutes shall be recorded accurately for shareholders’ follow up and examination. The Board shall also require the company’s management team members relating to the agenda and its legal advisors to attend the shareholders’ meetings every time to provide information and address shareholders’ questions and enquiries.

In 2005, the company held the shareholders’ ordinary meeting once and the shareholders’ extraordinary meeting once. It has endeavoured to correct shortcomings found in each session and set guidelines to organize the meetings as below. ■

Disclosing adequate information for shareholders’ decision making, disseminating to them in advance information and an invitation letter to the meeting as legally required to give them time to study and contemplate the matters prior to the meeting date.

■

Facilitating shareholders and their proxy to attend the meeting and notification of voting method and vote counting as well as other relevant meeting regulations they should be aware of.

■

Strictly conducting the meeting as per the set agenda and providing a question-answer session for clarification and fairness to shareholders and all parties concerned. Explicitly disclosing voting results of each agenda with details on numbers of voting shares exercised for approval, disapproval or abstention.

■

Having shareholders meeting session tape-recorded, taking main contents of enquiries in the minutes for future references and also to enable absentee shareholders to catch up with the relevant details

■

Overseeing and conducting the shareholders meeting in accordance with the company’s regulations, the Public Limited Company Act B.E. 2535, SEC and SET announcements or regulations.

(5)

VISION AND LEADERSHIP With an aim to establish the company’s business stability and sustaining success in the long run, the Board of Directors together with the Management team reviewed and adapted the vision and mission to suit changing environments. They stipulated goals, business plans and budgeting, taking into account the highest economic value added and long term stability for the company and shareholders. They supervised and monitored managerial execution to carry out effectively and efficiently as per the set business plan. Besides, to enhance good governance in the organizational management, the Board of Directors served as a leader to set guidelines on good corporate governance, code of conduct, standards and procedures to approve inter-related transactions with companies or parties with possible conflicts of interest, a clear division of authority between shareholders and the Board, as well as between the Board and the management and committees for balance of power and independent cross-checks.

(6)

CONFLICTS OF INTEREST The Board of Directors shall contemplate inter-related transactions with possible conflicts of interest among shareholders, Directors, and the management team with discretion, honesty, justifications and independence within an ethical framework. This includes complete disclosure of information for the company’s benefits as a whole in strict conformity with guidelines and methods in SET announcements and regulations. Observations by the Audit Committee on necessity and appropriateness of the transactions shall be included. The Board of Directors regulated measures and procedures to approve inter-related transaction with related companies or parties with possible conflicts of interest, not allowing parties with direct or indirect conflicts of interest to take part in deliberating the transactional item. The Audit Committee was required to jointly contemplate and make

observations on necessity and justifications of the items for the company’s maximum benefits. It was also regulated that the disclosure of the transactional items be included in the Notes to the Financial Statements in the annual report as per the generally accepted accounting practice and an annual information disclosure form (Form 56-1).

(7)

BUSINESS ETHICS The Board of Directors shall monitor and supervise the company’s business operations, and execution of duties by the Directors, management team and employees to conform with business ethics, apart from the company’s rules and regulations and pertinent legal framework. The Board of Directors had the company’s code of conduct for the management and employees to refer to as guidelines in an execution of their duties with consistent and stringent compliance. The code covers business execution with honesty, equal and fair treatment to stakeholders, conflicts of interest, confidentiality, and an abuse of information as well as receipt of gifts and rewards. The Internal Audit Department was assigned to monitor and examine compliance with the stipulated codes. The Board of Directors has a policy for the Executive Directors and employees to avoid or abstain from trading the company’s shares for one month prior to a revelation of the company’s informaion, i.e. financial data and so on, to the public that may have effects on share prices.

(8)

BALANCE OF POWER FOR DIRECTORS WITHOUT MANAGEMENT AUTHORITIES The structure of the Board of Directors should comprise directors without management authorities and independent directors of not less than 60% of the total members. Of this, at lease 3 directors shall be independent directors and audit committee members. As at 31 December 2005, the Board consisted of 14 members as follows: ■

Directors with management authorities

members (or 21%)

■

Directors without management authorities

members (or 43%)

■

Independent Directors

members (or 36%)

The directors without management authorities and independent directors totalled 11 or 79%, more than a half which was enough to balance with directors with management authorities, thus enabling the Board to deliberate independently.

(9)

INTEGRATION OR SEGREGATION OF POSITIONS FOR MANAGERIAL BALANCE OF POWER The Board of Directors clearly divided scopes of roles and responsibilities among Board of Directors, Executive Committee, Audit Committee and the Chief Executive Officer (CEO) with a clear stipulation that the Chairman of the Board shall not be the same person as the Chairman of the Executive Committee or the CEO and shall not have any relationships with any executive or management team. This is to prevent any executive to have unlimited power and to enable managerial balance of power and cross-checking.

(10) REMUNERATIONS FOR DIRECTORS AND THE MANAGEMENT The Board of Directors shall be responsible for regulating criteria on remunerations for Directors in accordance with a resolution of the shareholders’ meeting and have the Executive Committee regulate fair, appropriate and motivating remunerations for the Chief Executive Officer based on his/her performance appraisal and the company’s operating results. The Executive Committee shall also stipulate policies on the company’s salary structure and compensations as well as reveal information on remunerations for the Directors and Management Team in the Annual Report.

The 2005 Shareholders’ Ordinary Meeting on 29 April 2005 regulated the maximum amount of not over Baht 10 million annual remunerations to the Board of Directors and assigned the Board to scrutinize a detailed allocation as deemed appropriate. In this regard, the 3/2005 Board Meeting on 20 May 2005 resolved that any Director with a managerial position who received a monthly remuneration in the form of salary shall not be entitled to any remunerations for Directors.

(11)

BOARD OF DIRECTORS’ MEETINGS The Board of Directors is required to convene at least 4 times a year, and each meeting shall be conducted as per the company’s regulations, the Public Limited Company Act B.E. 2535 as well as SEC and SET regulations. The Chairman of the Board as the chairman of the meeting shall promote prudent discretion and allocate appropriate time for the Management to present any matters and adequate time for Directors to comprehensively discuss on key issues thoroughly and carefully. Minutes of each meeting shall be taken to enable Directors and parties concerned to check. All Directors are required to attend the every meeting except there are sound reasons for their absence. In 2005, the Board of Directors convened 10 times, the meetings were strictly organized and conducted as per the company’s regulations, as well as the Public Limited Company Act. B.E.2535. Agenda and relevant information were disseminated to the Directors for their study and comtemplation approximately 7 days prior to the meetings. During each session, the Board members were given opportunities to comprehensively discuss key issues thoroughly. The secretary to the Board and legal advisors attended the session and took minutes which also included enquiries and the Board’s suggestions for future references of the Board and parties concerned. Details on attendances of the Board at the meetings in 2005 were listed below.

Item

Names and Positions

Numbers of Attendance/

Remarks

Total Numbers of Meeting 1.

Mr. Vira Susangkarakan

6 / 10

General Singha Saovapap

10 / 10

Ms. Patama Chiachuabsilp

8 / 10

Mr. Somsak Leeswadtrakul

10 / 10

Mr. Stephane Benayon

3 / 10

Mr. Chainarong Monthienvichienchai

6 / 10

Mr. Yanyong Kurovat

9 / 10

Assoc. Prof. Prapanpong Vejjajiva

9 / 10

ML. Sasivimon Kasemsri

6 / 10

General Choochat Kambhu Na Ayudhya

7 / 10

11.

Pol. Lt. General Prakard Sataman

10 / 10

12.

Mr. Jeong Joon Ahn

1/9

Resigned on 10 November 2005

13.

Mr. Ryuzo Ogino

1/1

Effective as from 10 November 2005

14.

Prof. Paichitr Roajanavanich

10 / 10

15.

Mr. Chaipatr Srivisarvacha

9 / 10

16.

Mr. Preecha Prakobkit

7 / 10

10.

(12) COMMITTEE The Board of Directors appointed committee(s) to assist it in studying, monitoring and controlling the operations and screening their respective assignments with distinct scopes of roles and responsibilities. Currently, 2 committees have been appointed. 1) The Executive Committee comprising 7 directors 2) The Audit Committee with 3 year service term, comprising 3 members, each of them is an independent director. Criteria on the committee selections are as follows: ■

Holding not over 5% of overall voting shares in the company, subsidiaries, affiliations or any parties with possible conflicts of interest (including related persons as per Clause 258 of the Securities and Exchange Act B.E. 2535).

■

Having no participation in management nor employment, advisors receiving regular monthly salary nor having controlling authorization in the company, subsidiaries, affiliations or any parties with possible conflicts of interest at least for one year.

■

Having no business relationship, direct or indirect stakes in financial and managerial areas in the company, subsidiaries, affiliations or any parties with possible conflicts of interest in manners to lose their independency.

■

Having no close kinship with the management, the major shareholders of the company, subsidiaries, affiliations or any parties with possible conflicts of interest nor being appointed a representative to protect benefits of the major shareholders or Directors.

■

Being competent to perform their duties, to voice out comments or to report results of any tasks assigned by the Board of Directors with independence and not being under control of the management nor the company’s major shareholders or related parties or close kins of the afore-mentioned persons.

(13) INTERNAL CONTROL AND AUDIT SYSTEMS With an emphasis on efficient internal control and audit systems both in management and operational levels, the Board of Directors and the Executive Committee are directly responsible for organizing and maintaining the internal control system and assessing an adequacy of the system in 5 areas, namely, organizational control and environment protection measure; risk management measure; management control activties; information and communication measure; and monitoring. Of this it is included a stipulation of business direction and follow up, development of information and communication system to support decision making, regulation of scopes of roles and authorization amount for each managerial level, provision of distinct standard and procedure manuals for each function, execution of duties in compliance with the code of conduct, controlling measures and procedures for inter-related transactions between the company and parties with possible conflicts of interest, and adoption of generally accepted accounting practice policy in which external auditors have independence to make observations and access to significant data. Apart from having set up an internal audit department to audit in the areas of finance and operations, the company commissioned external legal advisors with expertise in particular areas to supervise compliance with rules, regulations and pertinent legal requirements to ensure that the company’s operations and key activities were efficiently executed in the stipulated direction. To enable the internal auditors to independently perform for an organizational balance, the Board of Directors has the Internal Audit Department to directly report to the Audit Committee and the Board of Directors. In 2005, the Audit Committee convened 6 times to review justifications of inter-related transactions, adequacy of internal control systems. They also met with the external auditors to examine financial statements and deliberate reports on disclosure of financial data in the financial statements and to scrutinize an annual auditing plan as well as to monitor results of the internal audits.

(14) REPORT OF THE BOARD OF DIRECTORS The Board of Directors shall prepare the Board’s annual report to present to the shareholders’ meeting. It shall cover significant issues as per the Annual Report Form (Form 56-2) and shall be as per good governance guidelines for directors of listed companies recommended by the Stock Exchange of Thailand. The report shall include their responsibilities in preparing financial statements under the examination of the Audit Committee to ensure accurate and complete accounting data with adequate disclosure of significant data in notes to the statements as per generally accepted accounting practice.

(15) RELATIONSHIP WITH INVESTORS The Board of Directors shall supervise to ensure the company’s accurate, complete, adequate, timely and transparent disclosure of significant information. In this regard, an investors relations unit was set up to communicate with institute investors, shareholders, investment analysts and government authorities. The company has developed website (www.g-steel.com) as a channel to disseminate data and information such as those on the company, its business and finance and any coverage affecting investment decision and so forth. This will enable investors to monitor information on the company more conveniently. In addition, it organized numerous activities, i.e. meeting with the press, analysts’ meeting, domestic and overseas roadshows, participation in exhibitions of the Stock Exchange of Thailand, the Association of Securities Analysts and other organizations to disseminate information and address to interested investors’ enquiries on the company’s performance. After its listing on the Exchange, the company will also disseminate its data and information via SET Electronic Listed Companies Information Disclosure (ELCID) as an additional channel. Interested parties can search relevant information via SET website (www.set.or.th). This renders an equal opportunity to access data and information on the company.

DIVIDEND POLICY In normal situations where the company does not require any additional investment or business expansion plan and has enough liquidity, it has a policy to pay dividend at approximately 50% of its net earning after tax and legally required reserve. Nevertheless, the Board of Directors may resolve the company to pay dividend differently from the set policy as deemed necessary and appropriate, for instance, in case of economic or market condition changes or any other situations affecting its liquidity.

> 10 Largest Shareholders

Names and proportions of the first 10 major shareholders as at 31 December 2005 are as follows:

Item 1.

Names of Shareholders

Number of Shares

Superior Overseas (Thailand) Co., Ltd. 1 2

1,622,083,795

19.78

1,118,214,864

13.64

Mr. Somsak Leeswadtrakul and Ms. Patama Chiachuabsilp Group 3

Ms. Ladda Jirapongtrakul

250,000,000

3.05

Ms. Chinnicha Wongsawat

204,850,000

2.49

The Thai Military Bank Public Co., Ltd.

166,570,667

2.03

Asset Management Corporation

151,250,000

1.84

Mr. Chanatip Trivuth

50,476,143

0.62

Ms. Suvimada Leeswadtrakul

50,451,778

0.62

50,000,000

0.61

2,013,513,850

24.56

8,200,000,000

100.00

Cosmo Land and House Co., Ltd. Others Total

The shareholding structure of Superior Overseas (Thailand) Co., Ltd. (1) Mr. Ekpet Chunsue

66.00%

(2) Mrs. Chuanpit Pattana

20.00%

(3) Ms. Tanaporn Thongjude

10.00%

(4) Marco Wealth Investment Ltd.

4.00%

The shareholding structure of Ample Vision Group Ltd. (1) Mr. Hamish Gordon Cruden

30.76

Ample Vision Group Ltd.

11.

2,522,588,903

10.

100.00%

Mr. Somsak Leeswadtrakul and Ms. Patama Chiachuabsilp Group consisting of: (1) Ms. Patama Chiachuabsilp

1,061,060,793

(2) Mr. Somsak Leeswadtrakul

7,154,071

(3) Ms. Suthidarat Leeswadtrakul

25,000,000

(4) Ms. Suratiporn Leeswadtrakul

25,000,000

> Related Transactions

Related transactions between the company and the parties with conflicts of interest

Related Parties with

Relationship

Conflicts of Interest Sukhumvit Inter

■

Development Co.,Ltd.

1.26% of shares

Types of

Transactions

Balance at

Transactions

2005

2005 - Year end

■

held directly and

(“SID”)

Raw water

(13,493,745)

Details / Terms & Conditions

(1,126,789)

■

expense

As per an agreement to sell and purchase raw water via SID, an industrial estate park

indirectly by the

developer, at a more competitive price

company’s Director

than direct purchase from the producer.

and shareholder, Mr. Somsak Leeswadtrakul Siam Power

■

28% of shares held

■

Debt

(347,486,901)

■

With prematured debt repayment,

Generation Co., Ltd.

directly and

repayment

the company received Baht 182.2 million

(“SIPCO”)

indirectly by the

under the

debt reduction.

company’s Directors

business

and shareholders:

rehabilitation

Mr. Somsak

plan

Leeswadtrakul and Ms. Patama Chiachuabsilp Paitoon Hotel and

■

Resort Co., Ltd. (“PHR”)

69.4% of shares held

Services

(1,012,280)

(86,787)

■

Service fees for usages of Arnoma Hotel’s facilities for the company’s meetings and

indirectly by the

receptions of foreign guests.

company’s Directors

The hotel is situated in a convenient location

and shareholders:

and charges standard service fees.

Mr. Somsak Leeswadtrakul and Ms. Patama Chiachuabsilp ■

■

directly and

It has common Directors: Mr. Somsak Leeswadtrakul, Ms. Patama Chiachuabsilp and Mr. Chainarong Monthienvichienchai

JUSTIFICATIONS ON INTER-RELATED TRANSACTIONS The Audit Committee observed that the transactions between the company and related parties with possible conflict of interest as well as transactions with their business alliances are normal business transactions with the company’s general terms and conditions as necessary for the business execution, having taken into account its maximum benefits. Besides, average prices of the transactions, terms and conditions were deemed appropriate and comparable to those with other parties in general. APPROVAL PROCEDURES FOR INTER-RELATED TRANSACTIONS

For approvals of any transactions with related companies or parties with possible conflict of interest, the Board of Directors and the Audit Committee regulated clear-cut policies as follows: ■

The Board of Directors shall execute according to the Securities and Stock Exchange laws, rules, regulations, announcements by SEC and SET. It shall also disclose information on inter-related transactions, acquisition or disposal of principal assets of the company or its subsidiaries as per SET regulations and generally accepted accounting practice stipulated by the Accounting Association.

■

Clear-cut guidelines on and scopes of management roles and authorization of each managerial level have been set.

In case where the Chief Executive Officer (CEO) or parties with possible conflict of interest may have conflicts of interest with the company, affiliated companies or parties with conflicts of interest, the CEO cannot approve the transaction.

In case where any Executive Director or parties with possible conflict of interest may have conflicts of interest with the company, affiliated companies or parties with conflicts of interest, the Executive Committee has to submit the matter to the Board of Directors for their perusal and approval of the transaction.

In case where any Director or parties with possible conflict of interest may have conflicts of interest with the company, affiliated companies or parties with conflicts of interest, the Director cannot approve the transaction.

Any shareholder with possible conflict of interest on specific matter, he/she cannot approve the transaction.

2. For normal business transactions with related companies or parties with possible conflict of interest and with business alliances, i. e., purchases of raw materials or services and selling of goods ■

The Internal Audit Department shall monthly audit itemized transactions to examine prices in reference to prevailing market prices and normal business terms and conditions, comparable to those applied with non-related business parties for the company’s maximum benefits. The transactions are to quarterly report to the Audit Committee for their further perusals.

■

The Audit Committee shall contemplate and opine on necessity and justification of the reported transactions for the company’s maximum benefits, taking into account prices and business terms and conditions, compared to transactions with non-related business parties for the same or similar products. Should the Audit Committee find out that any execution is not carried out as per the stipulated policies, the Audit Committee shall report the matter to the Board of Directors or the Chief Executive Officer for their information and remedies.

3. For other transactions such as borrowings, acquisitions or disposals of principal assets or entering into any agreement or contracts, the company requires comments from the Audit Committee for necessity and justification of the transaction. In cases where the Audit Committee has no expertise to contemplate the inter-related transactions, the company shall nominate an independent expert or the external auditors to provide notes on the transactions for decisions to be made by the Board of Directors or shareholders, whichever cases.

> Executive Notes and Analysis

OVERALL OPERATING RESULTS In 2005, the situation of steel prices was intensely volatile especially during the second half of the year when domestic HRC prices rapidly declined continually. Prices in the world market during the year end decreased by over 30%. This effected the companyâ&#x20AC;&#x2122;s operating results during the second half of the year. Its sales value and profit during the period were lower than those of the first half by 33% and 60% respectively. Nevertheless, the overall operating results for the entire year were considered very satisfactory, even though the growth was not as rapid as the previous 2 years. Total production outputs of 1.12 million tons, closely equivalent to that of the previous year, represented 75% production efficiency. The sales volumes totalled Baht 22,202 million, a 4% rise over the preceding year, with an average selling price at USD 500 per ton in 2005. The average price was slightly higher than that of the previous year despite the fact that an average price during the year end was lower to merely USD 430 per ton. Most of the income was from domestic sales, or 80% of the total sales volumes, because domestic demand for HRC continuously grew. The company gave an emphasis on expanding its domestic market bases and increasing market shares, as a result, domestic sales values rose by 20%. Meanwhile, it reduced export volumes and, instead, focused on export markets in Asian region that enjoyed the highest growth, particularly in such fast developing countries as China, India, Vietnam and Indonesia. The companyâ&#x20AC;&#x2122;s profitability registered at satisfactory level due to its cost controlling and maintenance of appropriate inventory level. Therefore, price volatility in the market did not have much severe impact on it. In 2005, the company had an average gross margin at 15%, close to that of 2004, whereas its operating profit was Baht 2,531 million, or 11% of the sales value, slightly lower than that of the previous year. The net profit, including business rehabilitation profit, equaled to Baht 2,741 million, with the return on equity (ROE) of as high as 14% (if the business rehabilitation profit was excluded, the ROE was 12%). This was much better than the industry average. Regarding the progress of the production capacity expansion project and the addition of high quality product lines, an implementation has been carried out: an installation of machines and major equipment in the Skinpass Mill is almost completed and expected to start in the second quarter of 2006. Besdies, construction and installation of Pickling & Oiling Line have been scheduded and most of machines and equipments including the internal transportation and handling equipments are being imported from Japan. A part of the investment capital was from the internal cash flow, the other was from the issuance of the 5-year senior unsecured bonds, worth USD 100 million to overseas investors during the last quarter of 2005. It was offered at 98.116% of the face value with an interest rate of 10.5%. Moreover, the company plans to raise additional funds through an initial public offering of its new shares and considers additional loan sources to subsidize its production capacity expansion projects and additions of high quality product lines. SALES AND OTHER INCOMES In 2005, the company had total revenues of Baht 22,297 million, a figure close to that of 2004. Of this was Baht 19,655 million worth domestic sales value, a 20% growth from the previous year; export value accounted for Baht 2,547 million, or a 47% reduction. Due to the policy to expand and increase its domestic market shares while export prices were comparatively lower, the domestic sales proportion was increased to 89%, and the export one was reduced to 11%. Other incomes from the sales of scraps and by products totalled Baht 43 million, and an interest income was Baht 21 million. An unrealized gain from foreign exchange was Baht 17 million, while the realized one amounted to Baht 14 million.

COST OF GOODS SOLD The companyâ&#x20AC;&#x2122;s cost of goods sold consists of 70% raw material costs, 27% conversion cost and 3% depreciation cost. In 2005, raw material and conversion costs slightly rose, whereas the posting of depreciation costs grew by as high as 30% due to an adjustment higher of asset value based on the reappraisal prices at the 2004 year end. Such increases did not have much impact on the total production costs. Its total production costs amounted to Baht 18,945 million, a merely 4% increase which grew cohesively with that of the sales values. The gross profit marked at Baht 3,352 million or 15% of sales, quite close to that of 2004. SELLING AND ADMINISTRATIVE EXPENSES The selling and administrative expenses consisted of transportation, salary and other expenses invariable to production activities. In 2005, its selling and administrative expenses were Baht 461 million or 2% of sales, a 10% increase over the preceding year. This was because in 2005 it had expenses on the issuance and offering of bonds, preparation expenses for the initial public offering and expenses on such professional fees for financial and legal advisors, public relations and advertising. The company also increased a reserve for allowance for slow-moving inventory depreciation. Consequently, the administrative expenses grew relatively high. INTEREST EXPENSE The company had interest expenses of Baht 354 million, an increase of Baht 233 million or a 192%. The interest expenses of Bath 269 million were incurred from purchases and inventory maintenance of steel scrap and pig iron, the proprietary rights of which belong to suppliers until payment is made. Formerly, the company posted expenses only after interest was paid, in cash basis. Later on, in 2005, it changed the method to an accrual basis. Hence, additional expenses were posted in accordance with quantity of unsettled stocks. The other Baht 85 million interest expenses were incurred from the issuance of USD 100 million bonds in October 2005. GAIN FROM REHABILITATION In 2005, the company had gain from rehabilitation of Baht 209 million due to partial debt write-offs by 2 creditors in accordance with their conditions for the company to prematurely repay them. OPERATING PROFIT & NET PROFIT In 2005, the company recorded Baht 2,531 million operating profit, a mere 3% reduction from the preceding year or accounted for 11% of sales. This was due to comparatively higher administrative and interest expenses. Therefore, its operating profit slightly dropped from the previous year, despite the higher gross profit. Taking into account an extraordinary gain from rehabilitation, its net profit totalled Baht 2,741 million or equivalent to Baht 0.33 per share, a sharp decrease when compared to an extraordinary gain from rehabilitation of Baht 2,294 million in 2004. FINANCIAL STATUS Taking into account its capital structure at the end of 2005, the company was considered to be financially strong with a comparative low risk. Its debt to equity ratio is merely 0.3 times, lower than that of the industry average of approximately 1.4 times. Besides, its non current liabilities to Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) was 1.4 times which was considered a high ability to service debts with low risk level. Regarding the current asset management, an account receivable cycle was 30 day-sale on average and an inventory turnover ratio was satisfactorily 6 times.

ASSETS As at 2005 year end, the company’s total assets amounted to Baht 28,356 million, an increase of Baht 6,637 million over the previous year end. Of this, current assets, accounting for 27% of the total assets, were Baht 7,864 million, an increase of Baht 3,475 million; fixed assets, accounting for 62%, were Baht 17,370 million, an increase of Baht 1,196 million; other assets, accounting for 11%, were Baht 3,121 million, an increase of Baht 1,966 million. The current assets are mostly cash on hand, account receivables and inventory. Its cash on hand at the 2005 year end was relatively high due to the proceeds from the issuance of the bonds during the end of the year, which was in a process for further investment. The account receivables were approximately 30 days on average, close to the industry average, whereas the inventory level was lower than the industry average with its high turnover ratio of 6 times. The increase in the long term assets was due to the production expansion projects and the additions of high quality product lines. The installation of the Skinpass Mill was almost completed. Upon receipt of funds from the issuance of the bonds, the company would start construction and installation of the Pickling & Oiling Line. Relevant machines and equipment including the internal transportation and handling equipments are being imported from Japan. In addition, it bought an additional 31.465 Rai plot of land to cope with growing quantity of raw materials in accordance with the increased production capacity. LIABILITIES As at the end of 2005, the company’s total liabilities were Baht 6,808 million, an increase of Baht 3,897 million over the previous year. Of this, the current liabilities, accounting for 30% of the total liabilities, valued Baht 2,012 million, whereas the long-term liabilities, accounting for 70%, valued Baht 4,796 million. The liabilities growth was due to an increase in long-term liabilities from the issuance of Baht 4,044 million bonds bearing an interest rate of 10.5% of the face value with the maturity date in October 2010. Meanwhile, debts under the business rehabilitation reduced by Baht 428 million as Baht 219 million debts were duly settled and some were prematurely repaid. Besides, it received a Baht 209 million debt write-off. The debts thus reduced to Baht 828 million, Baht 64 million of which will be prematurely repaid by 2006 as per an agreement. The remaining was interest-free debts to be repaid during 2006 - 2017 Baht 12 million each year, while the balance of Baht 787 million will be repaid in 2018. EQUITIES At the 2005 year-end, the company’s equities marked Baht 21,548 million, a growth of Baht 2,741 million over that of 2004 year-end. The issued and paid-up capital was Baht 8,200 million, premium on shares were Baht 1,925 million, and retained earnings were Baht 11,422 million. As a result, the company’s equities were much higher than the liabilities, and its book value was Baht 2.63 per share. CASH FLOW The company had operating cash inflows of Baht 1,049 million, an increase of Baht 575 million when compared to that of 2004, while cash outflows from investing activities amounted to Baht 3,489 million. Most of them were investment for the projects of production capacity expansion and additions of high quality product lines. The cash inflows from financing activities totalled Baht 3,709 million through the issuance and offering of the bonds overseas. REMUNERATIONS FOR AUDITORS The company paid for the auditing fee to Ernst & Young Office Ltd. for the 2005 accounting period at the amount of Baht 1,400,000.

Board of Directors’ Responsibilities with Regards to Financial Reports

G Steel’s Board of Directors is directly responsible for the company’s financial reports as appeared in the annual report. The reports comprise the balance sheet, profit and loss statement, statement of changes in shareholders’ equity, statements of cash flow and notes on financial statements, prepared by the company’s management according to the generally accepted accounting practices with the selection of and consistent compliance with appropriate accounting policies. Discretion and estimation had been exercised at their best in the preparation of the reports with sufficient disclosure of significant information in the notes on the financial statements for the benefits of shareholders and general investors. The Board of Directors established and maintained the appropriate and efficient internal control and audit systems to ensure that the accounting data were complete, accurate and adequate to uphold the company’s assets and not to allow any corruption or significant unusual practices to occur. Moreover, the Board of Directors appointed the Audit Committee to examine the accounting policies and quality of the financial reports, to examine the internal control systems as well as risk management system. The Audit Committee’s remarks on the matters appeared in their report, already included in the annual report. The company’s certified auditors, nominated by the Board of Directors, had sufficient independence to audit the financial reports and also to attach their notes on the financial status, performance results and the company’s cash flow in the financial reports.

General Singha Saovapap

Dr. Somsak Leeswadtrakul

Vice Chairman of the Board of Directors

Chairman of the Executive Committee

> Financial Statements

> Report of Independent Auditor

To the Board of Directors and Shareholders of G Steel Public Company Limited I have audited the balance sheets of G Steel Public Company Limited as at 31 December 2005 and 2004, and the related statements of earnings, changes in shareholdersâ&#x20AC;&#x2122; equity and cash flows for the years then ended. 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 audits. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of G Steel Public Company Limited as at 31 December 2005 and 2004, and the results of its operations and cash flows for the years then ended in accordance with generally accepted accounting principles.

Ernst & Young Office Limited

Sophon Permsirivallop

Bangkok: 24 February 2006

Certified Public Accountant (Thailand) No. 3182

> Balance Sheets As at 31 December 2005 and 2004 (Unit : Baht)

2005

2004

1,621,834,060

353,402,016

3, 15

2,225,655,011

1,241,888,611

3,602,905,841

2,166,001,312

5, 15

49,164,440

31,903,364

270,418,384

118,114,176

134,000,477

196,243,634

198,462,800

18,588,857

24,760,832

414,014,471

627,642,493

7,864,409,383

4,388,934,432

Note ASSETS CURRENT ASSETS Cash and cash equivalents Trade accounts receivable Inventories - net Other current assets Other receivable Refundable value added tax Value added tax suspense Prepayment to vendors Others Total other current assets TOTAL CURRENT ASSETS

Â NON-CURRENT ASSETS Restricted deposits at financial institutions

433,772,798

1,000,000

Property, plant and equipment - net

17,323,570,435

16,129,106,125

8.1

46,888,924

45,582,224

8.2

82,090,184

67,138,043

92,088,519

1,048,755,030

973,248,674

1,288,835,502

170,429,906

110,429,906

4,841,229

2,866,255

2,604,950,186

1,086,544,835

TOTAL NON-CURRENT ASSETS

20,491,272,527

17,329,371,227

TOTAL ASSETS

28,355,681,910

21,718,305,659

Intangible assets Computer software installation Deferred supply costs Other non-current assets Deferred bond management fees - net Deposits for purchases of raw materials Deposits for purchases of assets Deposits for use of energy Other deposits Total other non-current assets

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

> Balance Sheets (Continued) As at 31 December 2005 and 2004 (Unit: Baht)

Note

2005

2004

Other payables

1,111,668,960

1,198,131,726

Trade accounts payable

273,292,560

330,122,271

14, 15

241,775,836

32,888,812

76,191,866

15, 16

151,270,169

93,775,978

157,398,562

2,011,597,953

1,654,918,787

752,225,756

1,256,354,919

4,044,193,206

TOTAL NON-CURRENT LIABILITIES

4,796,418,962

1,256,354,919

TOTAL LIABILITIES

6,808,016,915

2,911,273,706

12,000,000,000 ordinary shares of Baht 1 each

12,000,000,000

8,200,000,000 ordinary shares of Baht 1 each

8,200,000,000

1,719,140,000

206,307,094

595,058,886

458,027,234

10,827,159,015

8,223,557,625

TOTAL SHAREHOLDERS’ EQUITY

21,547,664,995

18,807,031,953

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

28,355,681,910

21,718,305,659

LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES

Advance received from customers Current portion of liabilities which were included under the former rehabilitation plan Accrued expenses Accrued interest TOTAL CURRENT LIABILITIES

NON-CURRENT LIABILITIES Liabilities which were included under the former rehabilitation plan Bonds

SHAREHOLDERS’ EQUITY Share capital Registered share capital

Other surplus Share premium Premium on capital reduction Retained earnings Appropriated - legal reserve Unappropriated

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

> Statements of Earnings For the Years ended 31 December 2005 and 2004 (Unit: Baht)

Note

2005

2004

22,201,844,756

21,270,252,071

16, 21

568,360,000

15, 22

95,233,801

140,239,928

22,297,078,557

21,978,851,999

REVENUES Sales Reversal of allowance for breach of contract with a related company Other income TOTAL REVENUES

EXPENSES Cost of sales

18,945,164,232

18,211,316,404

Selling and administrative expenses

461,060,749

417,263,909

58,107,583

5,880,000

4,200,000

19,412,104,981

18,690,887,896

2,884,973,576

3,287,964,103

Loss on exchange Directorsâ&#x20AC;&#x2122; remuneration

TOTAL EXPENSES EARNINGS BEFORE INTEREST EXPENSE Interest expense

(353,736,948)

EARNINGS FROM OPERATING ACTIVITY Reversal of allowance for assets impairment

EARNINGS FROM ORDINARY ACTIVITY

(120,997,469)

2,531,236,628

3,166,966,634

3,441,440,639

2,531,236,628

6,608,407,273

EXTRAORDINARY ITEMS Gain from rehabilitation

209,396,414

2,293,731,812

NET EARNINGS FOR THE YEAR

2,740,633,042

8,902,139,085

0.31

1.01

Extraordinary item

0.02

0.35

Net earnings

0.33

1.36

8,200,000,000

6,574,863,388

BASIC EARNINGS PER SHARE Earnings from ordinary activity

Weighted average number of ordinary shares (shares)

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

> Statements of Cash Flows For the Years ended 31 December 2005 and 2004 (Unit: Baht)

2005

2004

2,740,633,042

8,902,139,085

572,976,550

439,093,516

Cash flows from operating activities Net earnings for the year Adjustments to reconcile net earnings to net cash provided (paid) from operating activities: Depreciation Expenses of negotiation with creditors

(196,300,000)

Reversal of allowance for compensation for breach of contract

(568,360,000)

Amortisation

71,133,980

32,125,445

Allowance for slow-moving inventories

4,303,481

Gain from disposal of assets

(222,069)

Reversal of allowance for assets impairment

(3,441,440,639)

Unrealised loss (gain) on exchange Earnings from operating before changes in operating assets and operating liabilities

(16,905,376)

28,643,825

3,372,141,677

5,195,679,163

Trade accounts receivable

(983,766,400)

(5,211,343,172)

Inventories

(1,441,208,010)

(1,023,696,108)

Other receivable

(49,164,440)

(51,515,303)

Refundable value added tax

238,515,020

Decrease (increase) in operating assets

Prepayment to vendors Other current assets

(2,223,105)

(245,362,668) 2,005,006

22,058,276

(71,257,508)

(86,402,203)

(81,425,811)

(91,589,945)

(869,086,347)

Trade accounts payable

(85,950,786)

5,196,046,601

Other payable

(56,867,663)

Advance received from customers

207,852,814

Accrued interest payable

157,300,636

Intangible assets Other non-current assets

Increase (decrease) in operating liabilities

Accrued expenses

57,494,191

(59,180,243) (12,111,188) (1,819,896)

Net cash flows from operating activities before extraordinary items

1,258,190,062

2,766,932,526

Extraordinary items

(209,396,414)

(2,293,731,812)

Net cash flows from operating activities

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

1,048,793,648

473,200,714

> Statements of Cash Flows (Continued) For the Years ended 31 December 2005 and 2004 (Unit: Baht)

2005

2004

Cash flows from investing activities Increase in restricted deposits at financial institutions Cash received from sale of equipment

(432,772,798) -

(1,000,000) 270,093

Increase in deposits for purchases of assets

(1,288,835,502)

Net increase in property, plant and equipment

(1,767,440,860)

(391,500,085)

(3,489,049,160)

(392,229,992)

Net cash flows used in investing activities

Cash flows from financing activities Cash received from increase in share capital

Payment of expenses related to increase in share capital

Cash received from the subscription of bond Deferred bond management fees Payment of liabilities which were included under the former rehabilitation plan Decrease in advance from director

4,024,163,722 (96,935,283) (218,540,883) -

4,366,975,320 (62,940,000) (4,072,364,392) (170,952)

Net cash flows from financing activities

3,708,687,556

231,499,976

Net increase in cash and cash equivalents

1,268,432,044

312,470,698

353,402,016

40,931,318

1,621,834,060

353,402,016

1,990,058,070

4,490,746,656

196,338,386

120,997,469

22,965,707

Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (Note 26)

Supplemental cash flows information Non-cash items Trade accounts receivable decreased by offsetting with trade accounts payable Cash paid during the year for:Interest expense Interest capitalised in assets

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

8,200,000,000

7,650,000,000

550,000,000

(547,024,680)

547,024,680

received in advance

share capital

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

Balance - as of 31 December 2005

Net earnings for the year

Balance - as of 31 December 2004

Net earnings for the year

share capital (Note 18)

Expenses concerning the increased

(Note 18)

Issue increased share capital

Balance as of 1 January 2004

Shares subscription

Issued and paid-up

For the Years ended 31 December 2005 and 2004

> Statements of Changes in Shareholdersâ&#x20AC;&#x2122; Equity

1,719,140,000

(62,940,000)

1,620,000,000

162,080,000

206,307,094

(4,356,000,000)

4,562,307,094

Share premium capital reduction

Premium on

Other surplus

595,058,886

137,031,652

458,027,234

445,106,954

12,920,280

Appropriated

10,827,159,015

2,603,601,390

8,223,557,625

8,457,032,131

(233,474,506)

Unappropriated

Retained earnings

21,547,664,995

2,740,633,042

18,807,031,953

8,902,139,085

(62,940,000)

4,366,975,320

5,600,857,548

Total

(Unit: Baht)

> Notes to Financial Statements For the Years ended 31 December 2005 and 2004

GENERAL INFORMATION a) G Steel Public Company Limited was incorporated as a limited company under Thai laws and then was registered as a Public Company Limited. The Company operates its business in Thailand and its principal activity is the manufacture of hot rolled coils. The Company registered its change in the Company’s name from “Siam Strip Mill Public Company Limited” to “G Steel Public Company Limited” with the Ministry of Commerce on 26 March 2004. Its registered address was located on 88, SSP Tower 3, 18th Floor, Silom Road, Suriyawong, Bangrak, Bangkok. b) The financial statements of the Company were authorised for issue by the Authorised Directors on 24 February 2006. c) On 25 January 2006, the Stock Exchange of Thailand approved the trading of the Company’s securities on the Stock Exchange of Thailand.

2. SUMMARY SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting standards enunciated under the Accounting Act B.E. 2547. Significant accounting policies adopted by the Company are summarised below.

2.1

Revenues Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Sales are the invoiced value of goods supplied, excluding value added tax, after deducting discount and goods return.

2.2 Trade accounts receivable and allowance for doubtful accounts Trade accounts receivable is carried at its net realisable value. Allowance for doubtful accounts is provided for the estimated collection losses that may be incurred in the collection of receivables. The allowance is based on collection experience and current status of receivables outstanding at the balance sheet date.

2.3 Inventories Finished goods are valued at lower of cost (first in - first out method) and net realisable value. Raw materials and others consumable are valued at cost (moving average method) and charged to cost of production whenever issued. Allowance for diminution of inventories is provided by determining the slow-moving and damaged inventories.

2.4 Property, plant and equipment and depreciation Property, plant and equipment are stated at revaluation made by an independent appraiser. As a policy, assets revaluation by an independent appraiser will be made every 3 years. The Company recognised the carrying value, of which decreased as a result of revaluation as an expense in the earnings statement. Depreciation of plant and equipment is calculated by reference to their cost or reappraised value on a straight-line basis except for depreciation of machinery which calculated on productive-output method over the estimated useful lives as follows: Buildings

years

5, 30

years

Office equipment

years

Furniture and fixtures

years

Machinery and plant equipment

Leasehold improvement

years

Motor vehicles

years

No depreciation is provided for land and factory under construction.

2.5 Allowance for assets impairment The Company reviews the impairment of assets whenever events indicate that the carrying value of an asset exceeds its realisable value. Realisable value is the higher of an assetâ&#x20AC;&#x2122;s net selling price and its value in use. The value in use is arrived at based on the management estimates. The Company recognises an impairment loss in the earnings statements whenever the carrying value of an asset exceeds its realisable value. The Company will reverse the impairment loss when there are indications that the value of the asset is no longer impaired or the amount of impairment has decreased.

2.6 Intangible assets and amortisation Computer software is stated at cost less accumulated amortisation. The Company amortised computer software on a straight line basis over the period of 5 years. No amortisation on computer software installation. Deferred supply costs are stated at cost less accumulated amortisation. The Company amortised deferred supply costs on a straight line basis over the period of 2 years.

2.7 Deferred bond arrangement fees The Company recorded bond arrangement expenses as deferred expenses, amortising them on a straight line basis over the term of the bond.

2.8 Discount or premiums on bonds Discount or premiums on bonds were amortised on a straight line basis over the term of the bonds as a result of the repayment of principal is made at the end of the period of bond.

2.9 Capitalisation of interest cost Interest cost on borrowings for purchases of machinery and construction of factory are capitalised as part of the cost of related assets and will be ceased when these assets are completed.

2.10 Foreign currencies Foreign currency transactions during the year have been translated into Baht on the rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currency outstanding on the balance sheet date have been translated into Baht at the rates ruling by the Bank of Thailand at the balance sheet date. Exchange gains and losses are included in determining earnings.

2.11 Cash and cash equivalents Cash and cash equivalents in the preparation of statements of cash flows included cash in hand, deposits at financial institutions with an original maturity of 3 months or less and without commitments.

2.12 Financial instruments The Company has no policy to speculate in or engage in the trading of any financial derivative instruments. Financial instruments carried in the balance sheet include cash and cash equivalents, trade accounts receivable, trade accounts payable, liabilities which were included under the former rehabilitation plan and bonds. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

2.13 Provident fund The Company and its employees have jointly established a provident fund scheme in accordance with the Provident Fund Act B.E. 2530. Such fund is monthly contributed by the Company and its employees at the rate of 2 percent of their basic salaries. The fund is managed by Kasikorn Assets Management Company Limited, and will be paid to the employees upon termination in accordance with the rules of fund.

2.14 Use of accounting estimate Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates for certain accounting transactions, affecting reported amounts in the financial statements and notes related thereto. Subsequent actual results may differ from these estimates.

2.15 Basic earnings per share Basic earnings per share is determined by dividing the net earnings for the year by the weighted average number of ordinary shares outstanding during the year.

3. TRADE ACCOUNTS RECEIVABLE The balances of trade accounts receivable as at 31 December are classified by aging as follows: (Unit: Baht)

Not yet due

2005

2004

641,575,199

1,017,289,130

1,582,256,771

221,533,002

1,823,041

2,844,622

221,857

2,225,655,011

1,241,888,611

Overdue Less than 3 months 3 - 6 months Over 6 months

4. INVENTORIES (Unit: Baht)

2005

2004

Raw materials

1,833,835,240

902,435,004

Finished goods

705,659,699

421,174,233

Spare parts

564,547,300

331,343,325

Supplied cost

291,560,650

248,181,259

216,774,215

268,035,273

3,612,377,104

2,171,169,094

Others Total inventories Less: Allowance for slow-moving inventories Inventories - net

(9,471,263) 3,602,905,841

(5,167,782) 2,166,001,312

5. OTHER RECEIVABLE The balance of Baht 17 million represents credit notes issued by the Company’s suppliers for the price reduction after the payment. The Company will use these credit notes to deduct in the next payment.

6. RESTRICTED DEPOSITS AT FINANCIAL INSTITUTIONS As of 31 December 2005, Baht 1 million of saving deposit has been pledged with a bank to secure for a related company in respect of purchase of goods. In addition, Baht 432.8 million of saving deposit was restricted for the guarantee of the repayment bond interest.

PROPERTY, PLANT AND EQUIPMENT (Unit: Baht)

Land

Building and improvement

Machinery and equipment

Office equipment

Furniture and fixture

Motor vehicles

Assets under construction

Total

701,401,193

2,003,101,357

17,576,515,810

98,155,164

19,912,243

5,231,832

319,785,110

20,724,102,709

Cost: 31 December 2004 Acquisition

33,447,440

11,598,794

265,476,155

14,232,060

1,701,305

1,083,982

1,439,901,124

1,767,440,860

734,848,633

2,014,700,151

17,841,991,965

112,387,224

21,613,548

6,315,814

1,759,686,234

22,491,543,569

31 December 2004

537,874,909

1,634,824,312

43,997,887

16,299,116

816,688

2,233,812,912

Depreciation for the year

66,275,620

489,318,347

15,198,231

985,652

1,198,700

572,976,550

31 December 2005

604,150,529

2,124,142,659

59,196,118

17,284,768

2,015,388

2,806,789,462

31 December 2005

Accumulated depreciation:

Allowance for impairment : 31 December 2004

305,901,193

538,176,254

1,511,491,498

4,366,325

1,248,402

2,361,183,672

31 December 2005

305,901,193

538,176,254

1,511,491,498

4,366,325

1,248,402

2,361,183,672

31 December 2004

395,500,000

927,050,194

14,430,200,000

49,790,952

2,364,725

4,415,144

319,785,110

16,129,106,125

31 December 2005

428,947,440

872,373,368

14,206,357,808

48,824,781

3,080,378

4,300,426

1,759,686,234

17,323,570,435

Net book value:

Depreciation for the years: 2004

439,093,516

2005

572,976,550

On 30 December 2004, the Company had its land, plant and machinery reappraised by an independent appraiser; The Valuation & Consultants Company Limited, using the market value approach. The appraiser reported that the market value of the land amounted to Baht 395 million (compared to a carrying value as of 31 December 2004 of Baht 220 million), the market value of plant amounted to Baht 910 million (compared to a carrying value of Baht 1,448 million) and the machinery had a market value of Baht 14,430 million (compared to a carrying value of Baht 10,626 million). The Company reversed allowance for land and machinery amounting to Baht 3,979 million previously recorded and recorded additional allowance for impairment of plant amounted to Baht 538 million in the statement of earnings, presenting net amount as “Reversal of allowance for assets impairment” in the 2004 statement of earnings.

As of 31 December 2005, certain assets of the Company have been fully depreciated but are still in use. The original cost, before deducting accumulated depreciation, of these assets amounted to Baht 127.1 million (2004: Baht 112.4 million). Depreciation for 2005 amounting to Baht 566 million (2004: Baht 436 million) has been charged to cost of sales and the remaining Baht 7 million (2004: Baht 3 million) has been charged to selling and administrative expenses. The title deeds of land and construction thereon with a net book value as of 31 December 2005 amounting to Baht 25 million are pledged as collateral for the electricity usage.

8. INTANGIBLE ASSETS

8.1

Computer software installation (Unit: Baht)

Balance - beginning of the year Addition Balance - end of the year

2005

2004

45,582,224

40,991,898

1,306,700

4,590,326

46,888,924

45,582,224

8.2 Deferred supply costs (Unit: Baht)

2005

2004

67,138,043

22,428,003

Addition

85,095,503

76,835,485

Amortisation

(70,143,362)

(32,125,445)

Balance - end of the year

82,090,184

67,138,043

Balance - beginning of the year

9. DEFERRED BOND MANAGEMENT FEES (Unit: Baht)

2005

2004

Addition

96,935,283

Amortisation

(4,846,764)

Balance - end of the year

92,088,519

Balance - beginning of the year

10. DEPOSITS FOR PURCHASES OF RAW MATERIALS The outstanding balance mainly represents advance payments made to overseas suppliers to guarantee purchases of raw materials. These deposits will be returned when the Company has not purchased any raw materials from those suppliers.

11. DEPOSITS FOR ENERGY USE The outstanding balance represents deposits amounting to Baht 237.8 million for electricity which the Company has to pay to PEA in accordance with an agreement and its amendment and deposits for gas use amounting to Baht 24 million. The Company paid the deposits on an installment basis.

12. LIABILITIES WHICH WERE INCLUDED UNDER THE FORMER REHABILITATION PLAN (Unit: Baht)

2005

2004

Balance - beginning of the year

1,256,354,919

7,765,721,790

Repayment during the year

(218,540,883)

(3,996,152,723)

Debts forgiven by financial creditors after the rehabilitation plan Trade and financial creditors forgiven debts after the rehabilitation plan Balance - end of the year Less: Current portion of liabilities included under the former rehabilitation plan Total liabilities which were included under the former rehabilitation plan

(209,396,414) 828,417,622 (76,191,866) 752,225,756

(2,477,869,500) (35,344,648) 1,256,354,919 1,256,354,919

13. GAIN FROM REHABILITATION (Unit: Baht)

2005

2004

27,599,139

12,162,312

182,195,223

2,477,869,500

209,794,362

2,490,031,812

Gain from rehabilitation forgiven by trade payable as a result of the repayment prior to maturity Gain from rehabilitation plan forgiven by a related company as a result of the repayment prior to maturity Gain from forgiveness of debt by financial creditors Total gain from rehabilitation Less: Expenses of negotiations concerning debt forgiveness with overseas financial creditors Adjustment of suspense value added tax of forgiven debts

(397,948) 209,396,414

(196,300,000) 2,293,731,812

The Company negotiated with trade accounts payable and other payable under the rehabilitation plan that the Company will pay the debts prior to the maturity and all creditors would agree to reduce the partial of indebtedness. Most of creditors agreed with the Companyâ&#x20AC;&#x2122;s negotiation and therefore the Company recorded the portions of indebtedness forgiven under gain from rehabilitation in the statement of earnings.

During the first quarter of 2004, the Company appointed a related company and another company as consultants to negotiate with overseas financial institution creditors to execute agreement to repay indebtedness prior to maturity. On 15 March 2004, the Company repaid indebtedness amounting to US dollars 85 million (approximately Baht 3,360 million) to overseas financial institution creditors and the creditors released all the remaining debts of approximately Baht 2,190 million to the Company. The Company recorded the debt forgiven by the creditors under gain from rehabilitation plan. Expenses incurred in negotiations with the overseas financial institution creditors consist of expenses of US dollars 3.5 million, or Baht 137.41 million (exchange rate as at contract date was Baht 39.26 per USD 1) payable to the above related company under a consultancy service contract dated 9 January 2004, and US dollars 1.5 million, or Baht 58.89 million (exchange rate as at contract date was Baht 39.26 per USD 1) payable to the other company under a consultancy memorandum dated 1 February 2004, which the Company has already paid these expenses. Expenses incurred in negotiations with these consultants are presented as a deduction from the gain from rehabilitation in statement of earnings.

Subsequently on 14 June 2004, the Company executed an agreement with a domestic financial institution to pay the outstanding debts under the rehabilitation plan prior to maturity. The outstanding balance as of the contracted date was Baht 958.3 million, the Company had to repay Baht 671 million of indebtedness and that financial institution released Baht 287.3 million of debts to the Company, released all assets which pledged against the loan to the Company. The Company repaid the debts in 2004 and recorded liabilities forgiven by the financial institution as gain from rehabilitation plan in the earnings statement.

In 2005, the Company entered into an agreement with a trade payable to repay liabilities under the business rehabilitation plan as of 31 December 2004 amounting to Baht 133.3 million before maturity, in accordance with a memorandum of understanding on debt repayment dated 6 December 2005. Under this MOU, the Company is to pay Baht 80.0 million of debt and the trade payable agrees to cancel Baht 53.3 million of debt for the Company. The Company agreed to repay such debt on an installment basis, within July 2006 and as of the balance sheet date, had repaid Baht 41.4 million and recorded a Baht 27.6 million gain from business rehabilitation, in proportion to the payment made, presented as an extraordinary item in earnings statement. In addition, the Company paid Baht 165.3 million of liabilities under the rehabilitation plan to a related company, and that related company, which agreed to cancel Baht 182.2 million of debt for the Company because repayment was made prior to the maturity date, in accordance with the proposals to pay indebtedness prior to maturity dated 28 October 2005 and 31 October 2005. The Company recorded the indebtedness of Baht 209.8 million forgiven by the related company, upon extraordinary item in the 2005 earnings statement.

14. ADVANCE RECEIVED FROM CUSTOMERS Under an agreement with overseas customers, for purchases of goods under the conditions of the Red Clause Letter of Credit, 80 percent of the value of the order is to be paid to the Company in advance, before the goods are delivered (2004: 50 percent).

15. TRANSACTIONS WITH BUSINESS ALLIANCES The Company had significant business transactions with its business alliances in respect of sales, purchases and other services. The transactions with these business alliances, which the Company formerly had shareholders or directors in common or had the directors who have relationships with the Company’s directors, are summarised below: -

(Unit: Million Baht)

2005

2004

Sales of goods

11,237

9,195

Purchases of goods

2,832

2,586

Purchases of raw water

Commission paid

Pricing policy Normal selling price Cost plus margin As stipulated in agreement As stipulated in each agreement but not exceed USD 3 per tonne (2004: USD 3 per tonne)

Transportation expenses and other services Other income

623

723

Agree-upon basis and contractual price

760

Cost plus margin

Sales amounting to Baht 186 million made with 2 business alliances are “Bill and Hold Sales”, transactions of which the goods have not been delivered but the customers signed as acceptance on their invoices.

The outstanding balances of transactions have been shown as follows: (Unit: Baht)

2005

2004

Nara International Co., Ltd.

570,797,604

130,563,249

Advance Metal Fabrications Co., Ltd.

422,591,095

80,573,413

Federal Steel Industry Co., Ltd.

163,948,558

232,758,296

Millennium Metal Work Co., Ltd.

128,793,459

140,091,810

Trinity Freight and Shipping Co., Ltd.

273,367,527

110,273,372

21,147,098

1,559,498,243

715,407,238

58,317,772

53,387,157

134,548,355

140,965,441

192,866,127

194,352,598

Trade accounts receivable

Trinity International Co., Ltd.

Trade accounts payable Nara International Co., Ltd. Advance Metal Fabrications Co., Ltd.

(Unit: Baht)

2005

2004

9,225,698

4,937,088

1,201,954

547,433

10,975,085

4,937,088

43,872,878

898,495

8,179,390

898,495

52,052,268

20,789,066

Advance Metal Fabrications Co., Ltd.

100,000

Trinity International Co., Ltd.

2,181,233

872,785

104,757,153

57,509,534

143,724

107,038,386

58,626,043

Other receivables Trinity Freight and Shipping Co., Ltd. Nara International Co., Ltd. Advance Metal Fabrications Co., Ltd.

Other payables Trinity Freight and Shipping Co., Ltd. Trinity International Co., Ltd.

Advance received from customers Nara International Co., Ltd.

Accrued expenses

Trinity Freight and Shipping Co., Ltd. Nara International Co., Ltd.

16. RELATED PARTY TRANSACTIONS The Company had significant business transactions with its related company (related by ways of common directors and/or common shareholders and the same group of companies). These transactions are summarised below: -

(Unit: Million Baht)

2005

2004

Pricing policy

Transactions with related companies: Purchases of raw water

Contractual price

Office rental and service fees

Contractual price

Expense of negotiation concerning debt forgiveness

137

Contractual price

568

Contractual price

182

Agree-upon basis

Reversal of compensation from breach of contract Gain from rehabilitation

The outstanding balances of transactions have been separately shown in the balance sheets as follows: (Unit: Baht)

Relationship

2005

2004

Group company

1,126,789

1,304,250

Accrued expenses Sukhumvit Inter Development Co., Ltd.

17. BONDS On 2 September 2005, an extraordinary general meeting of the Companyâ&#x20AC;&#x2122;s shareholders passed a resolution to approve the issue of bonds in an amount not exceeding USD 250 million or the equivalent in other currency and the list of such bonds on the Singapore Stock of Exchange. On 4 October 2005, the Company offered its bonds to foreign investors, with the following terms and conditions: -

Form

Unsecured bonds

Maturity period

5 years

Issue date

4 October 2005

Maturity date

4 October 2010

Offering value

USD 100 million

Offering amount

100,000 units

Face value

USD 1,000 per unit

Offering price

USD 981.16 per unit

Interest

10.5 percent per annum, with semi-annual payment on 4 April and 4 October of each year

Redemption at the option

Full or partial redemption on or after 4 October 2008 at a price of 105.25 percent of

of the Company

principal in 2008, 102.625 percent in 2009 and 100 percent in 2010 plus accrued interest up to the period of redemption

Redemption at the option

Redemption at a price of 101 percent of principal plus accrued interest at any time until

of the bondholders

maturity if there is a significant change in the Companyâ&#x20AC;&#x2122;s shareholding structural

Covenants

1) 2)

A reserve is to be set aside as security for interest payment If the Company creates additional long-term debt, it must maintain certain financial ratios

3) 4)

No dividend may be declared or paid if the Company is in defaulted on interest payment Fund received from bond issuance are not to be used for other than the stipulated purposes

(Unit: Baht)

Par value of bond Discount on bond Book value of bond

2005

2004

4,117,460,000

(73,266,794) 4,044,193,206

18. SHARE CAPITAL On 16 March 2004, an extraordinary general meeting of the shareholders of the Company no.1/2004 passed a resolution approving the change in the par value of the Company’s shares from Baht 10 to Baht 1 each. The number of ordinary shares therefore increased to 1,100 million shares with a par value of Baht 1 each. In addition, the meeting approved a resolution to increase the Company’s share capital by Baht 7,100 million, through the issuance of 7,100 million shares at par value of Baht 1 each, with allocation to the shareholders as follows: -

1. Allocation of 4,400 million ordinary shares to the existing shareholders in a ratio of 1 existing share : 4 new shares at a price of Baht 0.01 per share. In case of any shares remaining unsubscribed after the allocation were to be offered to interested existing shareholders, in proportion to their shareholdings.

2. Allocation of 2,700 million new ordinary shares to 34 specific and/or institutional investors at a price of Baht 1.6 per share.

The Company has recorded the expenses concerning the increased share capital of Baht 62.94 million as deduction in “Share premium”. The Company registered the increases in its share capital from Baht 1,100 million to Baht 5,500 million and then to Baht 8,200 million, or 8,200 million shares with a par value of Baht 1 each, with the Commerce Ministry on 23 March 2004 and 24 March 2004, respectively.

Subsequent on 5 October 2004, an extraordinary general meeting of the shareholders of the Company passed the resolution to approve of Baht 3,800 million increase in the registered share capital, from Baht 8,200 million to Baht 12,000 million, through the issue of 3,800 million ordinary shares with a par value of Baht 1 each. Of these shares not more than 100 million are to be reserved for the exercise of the warrants issued to the directors and employees and not more than 3,700 million are to be reserved for an Initial Public Offering (IPO). The Company registered its increase in registered share capital with the Ministry of Commerce in October 2004.

19. PREMIUM ON CAPITAL REDUCTION In order to comply with the capital restructuring process stipulated in the rehabilitation plan, the Company reduced its paid-up share capital from Baht 5,000 million (500 million ordinary shares with a par value of Baht 10) to Baht 50 million (5 million ordinary shares with a par value of Baht 10) to eliminate its deficit. The capital reduction of Baht 4,950 million compared to a deficit the Baht 387.7 million as at 31 July 2003, and the excess of the capital reduction over the deficit was presented as “Other surplus” in the balance sheet. The Company offset premium on capital reduction amounting to Baht 4,356 million (4,400 million of increased ordinary shares with par value of Baht 1 each at Baht 0.01 each) against the share discount as a result of the capital reduction.

20. LEGAL RESERVE Under the Public Company Limited Act B.E. 2535, the Company is required to set aside to a statutory reserve at least 5 percent of its net profit, after deducting accumulated deficit brought forward (if any), until the reserve reaches 10 percent of its registered share capital. The statutory reserve can not be used for dividend payment.

21. ALLOWANCE FOR COMPENSATION FOR BREACH OF CONTRACT WITH RELATED COMPANY (REVERSAL) On 4 February 2004, the Company entered into an amendment to the agreement to pay compensation for the damages amounting to Baht 568.36 million to a related company as a result of the lack of the privileges granting from imports of machinery and equipment under the Board of Investment, whereby compensation is to be paid in annual installments, at each year-end, at the rate of 1 percent of the whole compensation for a period 15 years. The remaining compensation is to be paid in the final period, and no later than 15 December 2019.

In 2004, Siam Power Generation Co., Ltd. informed the Company that the Board of Investment approved an extension of the privileges granting from imports of machinery and equipment until November 2006 that caused an obligation of the Company for the compensation breach of contract was completed as stipulated in the agreement dated 26 December 2003. On 31 May 2004, the Company entered into an agreement to cancel that agreement and its amendment of agreement dated 4 February 2004 and reversed the compensation for breach of contract amounting to Baht 568.36 million included in earnings statement for 2004.

22. OTHER INCOME (Unit: Baht)

Gain on exchange rate

2005

2004

31,083,813

222,069

2,790,791

121,332,822

21,377,732

471,975

39,981,465

18,213,062

95,233,801

140,239,928

Gain from disposal of assets Gain from sale of raw materials Interest income Others

23. DIRECTORS’ REMUNERATION Directors’ remuneration represents the benefits paid to the Company’s directors in accordance with Section 90 of the Public Limited Companies Act B.E. 2535, exclusive of salaries and related benefits payable to executive directors.

24. PROMOTIONAL PRIVILEGES The Company was granted privileges by the BOI for the manufacture of hot-rolled coils under the Investment Promotion Act B.E. 2520, under BOI certificate No. 1047/2539 issued on 15 November 1995. Moreover, on 29 June 2005, the Company was granted privileges by the Board of Investment for investment in a hot rolled coil and skinpass project under BOI certificate No. 1579(2)/2548. Subject to certain imposed conditions, the privileges include: -

a) Exemption of 75 percent from import duty on raw materials used in the manufacturing.

b) Exemption from payment of corporate income tax on profits for a total period of 8 years commencing as from the date of first earning operating income.

c) Exemption from income tax on dividends paid from the profit of the operation within the tax exemption period.

d) A 50 percent reduction in the corporate income tax rate on income earned from the promoted investor for a period of 5 years commencing as from the expiration date of period of exemption from corporate income tax.

e) An allowance of double the amount of actual expenditure on transportation, electricity and water, deductible from taxable income for a period of 10 years commencing as from the date of first earning operation income.

f) An allowance of 25 percent of any investment in installation or construction of facilities, deductible from taxable income in addition to normal depreciation.

g) Exemption from import tax on imported raw materials for 5 years commencing as from the first date of import.

h) Exemption from import tax on raw materials which are imported for re-export for a period of 5 years commencing from the first date of import.

Currently, the Company has not utilised the privileges under BOI No. 1579(2)/2548.

The operating results for the year 2005 and 2004 of the Company classified under promoted and non-promoted business are as follows: (Unit: Baht)

For the years ended 31 December Promoted business 2005

Non-promoted business

2004

2005

Total

2004

2005

2004

REVENUES Sales Interest income

22,201,844,756

21,270,252,071

22,201,844,756

21,270,252,071

21,377,732

471,975

21,377,732

471,975

568,360,000

71,065,278

31,311,407

2,790,791

108,456,546

73,856,069

139,767,953

22,272,910,034

21,301,563,478

24,168,523

677,288,521

22,297,078,557

21,978,851,999

18,945,164,232

18,211,316,404

18,945,164,232

18,211,316,404

466,940,749

479,571,492

466,940,749

479,571,492

353,736,948

120,997,469

353,736,948

120,997,469

19,765,841,929

18,811,885,365

19,765,841,929

18,811,885,365

3,441,440,639

209,396,414

2,293,731,812

2,740,633,042

8,902,139,085

Reversal of allowance for breach of contract Other income TOTAL REVENUES EXPENSES Cost of sales Selling and Admin expenses Interest expense TOTAL EXPENSES Reversal of allowance for assets impairment EXTRAORDINARY ITEMS Gain from rehabilitation plan NET EARNINGS

25. NUMBER OF EMPLOYEES AND RELATED COSTS 2005

2004

718

693

338,685

298,133

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

During 2005, the Company contributed Baht 2 million (2004: Baht 2 million) to the provident fund.

26. STATEMENTS OF CASH FLOWS (Unit: Baht)

2005

2004

125,466

227,562

2,055,481,392

354,174,454

2,055,606,858

354,402,016

Less: Term deposits and restricted deposits

(433,772,798)

(1,000,000)

Cash and cash equivalent in statements of cash flows

1,621,834,060

353,402,016

Cash Deposits at financial institutions Cash and cash equivalent

27.

COMMITMENTS As at 31 December 2005, the Company had the following outstanding commitments: -

27.1

Commitments in respect of raw material management and service fees monthly paid to raw materials manager based on raw materials usage (2004: based on the raw materials usage and fixed rate at USD 49.2 million from 2005 to 2013).

27.2 Commitments to pay financial advisory fees totalling Baht 2 million and fixed rate at USD 0.1 million per year (2004: Baht 2 million).

27.3 Commitments to pay a total of Baht 6.3 million for water supply management (2004: Baht 16.2 million).

27.4 Commitment to pay for raw water under the agreement based on the quantity used (2004: fixed rate at Baht 1.2 million and on quantity used).

27.5 Commitment to pay dock service fee based on the quantity loaded.

27.6 Commitments to pay consulting fee, machine installation based on working hours and the fixed rate of USD 0.5 million, machinery and construction of factory under the expansion project amounting to USD 28.5 million and Baht 32.7 million (2004: based on working hours and the fixed rate at USD 3.2 million).

27.7 The building lease and service agreement the Company was committed to pay the following office rental and service fees: (Unit: Million Baht)

Amount 2006

4.8

2007 - 2009

39.2

27.8 The Company had the following payment commitments for the use of gas under an agreement: (Unit: Million Baht)

Amount 2006

21.6

2007 - 2009

75.7

27.9 Commitments of Baht 1.5 million for car rental (2004: Baht 0.3 million).

27.10 Commitments of Baht 5.9 million for other service and marketing advisory fees.

27.11 Commitments of Baht 89.8 million under 2 agreements for electricity usage deposit (2004: Baht 149.8 million).

27.12 The Company had agreements to purchase raw materials with overseas suppliers for 319,663 tonne of unreleased raw materials, which the ownership belongs to the sellers. In addition, the Company had to pay interest at rate LIBOR + 1 to 1.75 percent on the unrealised raw materials.

28. GUARANTEE AND CONTINGENT LIABILITIES 28.1 The title deeds of land with a net book value as at 31 December 2005 amounting to Baht 25 million are pledged as collateral for the electricity usage.

28.2 As of 31 December 2005, the Company had Baht 31.3 million of letter guarantees issued by banks in the name of Company in respect of the normal course of the business of the Company.

28.3 As of 31 December 2005, forward exchange contracts outstanding are USD 2,212,412.39 of which forward rate for amount bought are 41.05 - 41.22 Bath per 1 USD.

28.4 The Company was sued by 2 minority shareholders with a combined shareholding of 5.5 million shares, claiming compensation for damage amounting to Baht 54.5 million suffered as a result of the Company entering into the business rehabilitation process and restructuring its capital. On 25 July 2005, the Court First Instance ordered the suit dismissed, but the plaintiff requested to leave to appeal. As at the balance sheet date, the Appeals Court has rejected the appeal of the plaintiff and the lawyer of the Company believes that with the courtâ&#x20AC;&#x2122;s rejection of the plaintiffâ&#x20AC;&#x2122;s appeal the case is legally complete.

29. FINANCIAL INFORMATION BY SEGMENT The operations of the Company is in a single industry segment in manufacturing of hot rolled coils and is carried on in the single geographical area in Thailand. As a result, all of revenue, operating profits and assets as reflected in these financial statements pertain to the aforementioned industry segment and geographic area. Export sales for the year 2005 was amounted to Baht 2,547 million (2004: Baht 4,835 million).

30. FINANCIAL INSTRUMENTS

30.1 Credit risk The Company is exposed to credit risk primarily with respect to trade accounts receivable since the majority of sales are supplied to a limited number of customers. However, due to the Company had a strict policy to provide credit term and the repayment, the Company does not anticipate material losses from its debt collection.

30.2 Interest rate risk The interest rate risk is the risk that future movements in market interest rates will affect the Companyâ&#x20AC;&#x2122;s operations and its cash flows. The Company exposure to interest rate risk relates primarily to its cash and deposits with banks, trade accounts receivable, trade accounts payable, liabilities under the rehabilitation process and bonds. The Company does not use derivative financial instruments to hedge such risk. (Unit: Million Baht)

As at 31 December 2005

Floating interest rate

Fixed interest rate

Non-interest

Total

Cash and cash equivalents

470.4

1,151.4

1,621.8

Trade accounts receivable

2,225.6

433.8

Trade accounts payable

1,111.7

Other payables

273.3

Advance received from customer

241.8

Liabilities from rehabilitation plan

828.4

Bonds

4,044.2

Financial assets

Restricted deposits at financial institutions

Financial liabilities

30.3 Foreign currency risk The Companyâ&#x20AC;&#x2122;s exposure to foreign currency risk relates primarily to its deposits paid to creditors, and trade creditors which are denominated in foreign currencies. The Company did not primarily utilises forward exchange contracts.

Below is the summary of the Companyâ&#x20AC;&#x2122;s significant foreign currency-denominated assets and liabilities as at 31 December 2005 which were unhedged by any derivative financial instruments.

Assets

Liabilities Exchange rate

Currencies US Dollars

Amount

for translation

Exchange rate Amount

for translation

98,505,552.00

40.9826

124,794,494.00

41.1746

1,881,069.08

48.4372

422,613.59

48.9498

1,540.00

5.0374

54,330,845.00

0.3468

21,467,856.00

0.3511

Singapore Dollars

17,825.00

24.8344

Malaysian Ringgit

145.00

10.625

14,441.60

70.5164

Euro Yuan Renmimbi Japanese Yen

GB Pound

30.4 Fair value Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an armâ&#x20AC;&#x2122;s length transaction. Fair values are obtained from quoted market prices, discounted cash flow models or net asset value as appropriate.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments.

Cash on hand and at banks, accounts receivable and accounts payable - the carrying values approximate their fair values due to the relatively short-term maturity of these financial instruments.

Liabilities under the rehabilitation plan bear no interest, bonds has fixed interest rate which the rate is equivalent to the current market rate.

As at 31 December 2005, there are no material differences between the net book value of financial instruments and their fair value.

31.

SUBSEQUENT EVENTS On 12 January 2006, the Company issued 100 million warrants to subscribe the Companyâ&#x20AC;&#x2122;s ordinary shares to directors and employees of the Company (ESOP), without charge. The warrants are exercisable for a period of 5 years from the issue date, in a ratio of 1 warrant to 1 ordinary share. The exercise price is Baht 1 per share. The directors and employers could begin to exercise each of the one-thirds of the allocated warrants after the companyâ&#x20AC;&#x2122;s shares have been traded on the stock Exchange of Thailand for 1 year, 2 years, and 3 years, respectively.

In January 2006, the Company received additional subscription of 1,500 million ordinary shares from the public offering of ordinary shares and registered the increase in paid-up capital to Baht 9,700 million with the Ministry of Commerce on 20 January 2006. Total share-proceeds were Baht 2,400 million.

On 9 February 2006, the Company executed an agreement to issue bonds amounting to USD 70 million, bearing interest at a rate of 10.5 percent p.a. and mature in 2010. The issuance of the bonds was made in accordance with the resolution of the Extraordinary General Meeting of shareholders held on 2 September 2005 as part of the facility of USD 250 million. The term and conditions of the bonds are the same as those of the previously issued bonds.

32. PRESENTATION The presentation of the financial statements had been made in compliance with the Notification of the Department of Business Development dated 14 September 2001, issued under the Accounting Act B.E. 2543.

The Company reclassified the financial statements presented herein to conform with the current year classification with no effect to net earnings previously reported.

Designed by : Pink Blue Black & Orange Co., Ltd. Tel. +66 (0) 2300-5124-7 Fax. +66 (0) 2300-5123 http://www.colorparty.com

MISSION

To be the leader of integrated steel producers in Thailand, by supplying internationally high quality products to meet customers' requirements, establishing trustworthiness, and maximizing our customers' satisfaction

To continually support and develop our human resources in order to be an integral and important asset of the company at present and in the future and to improve our employees' quality of life

To develop the industry with the least impact to the environment. Also to contribute to local communities to strengthen their quality of social development

G Steel Public Company Limited Head Office: SSP Tower 3, 18th Floor, 88 Silom Rd., Suriyawong, Bangrak, Bangkok 10500, Thailand

Factory: 55 Moo 5, SSP Industrial Park, Nonglalog, Bankhai, Rayong 21120, Thailand

Tel: (66) 0-2634-2222 Fax: (66) 0-2634-4114

Tel: (66) 0-3886-9323 Fax: (66) 0-3886-9333

E-mail: info@g-steel.com http://www.g-steel.com