MC GROUP Public Company Limited – Annual Report 2012
MC GROUP Public Company Limited 448,450 Onnut Road, Prawet, Bangkok 10250 Tel : +66 (0) 2 329 1051-56 Fax : +66 (0) 2 727 7287 www.mcgroupnet.com Photographs by Tada Varich Stylish by Euwadee Sriarun Creative & Design by Ketchup IMC Co., Ltd. www.ketchupimc.com
BEHIND THE JEANS For more than 38 years, a dream of creating quality lifestyle products with the best fitting for Thai physiques has been woven. The first needlework on the indigo denim began in 1975, and led the fine thread to join every piece all together ever since. Every single stitching and every single thread is done with precision, determination, and consistency. Finally, there came the first pair of Thai jeans under the brand Mc. The earlier success ignited the later endless possibilities. Mc has gained the largest market share in jeans industry domestically and has became a leading lifestyle brand. It thus expanded its
portfolio of brands and product assortment to meet all customers demands: McLady, Mc Mini, Mc Pink and Bison and, in 2013, is expected to launch WoWme, an online store and to open Blue Brothers, a retail store carrying various well-known international denim brands. MC GROUP is ready to bring them to become regional brands and businesses in the near future. The story behind the jeans, branching out into lifestyle products to answer the needs of all ages, lies possibilities that we would like to share. Join us in this journey, journey to success.
06
CONTENT
• • • • • • •
Vision & Mission History Branching out Business Distribution Channel AEC Present Message from the Board Report of Audit Committee Financial Summary Management Team CSR Overview of Business Industry Overview and Competition Risk Factors Shareholding Structure and Management Corporate Governance Related Party Transactions Management’s Discussion and Analysis of Financial Condition and Results of Operation Report of The Board of Directors’ Responsibilities to Financial Report Annual Financial Statements and Audit Report of Certified Public Accountant Pro-Forma Consolidated Financial Information and Independent Assurance Report of Certified Public Accountant General Information
009 015 021 025 057 063 067 068 070 074 077 098 104 111 114 117 130 137 142 151 152 194
238
07
VISION & MISSION
010
MINDSET OF THE
FUTURE
011
FORWARD THINKING
To be a leading apparel & lifestyle business in Asia with various brands to serve different lifestyles. We are committed to maximizing stakeholders value and customer delights with our best fit quality products, affordable prices, accessible channels, and passionate services.
012
013
HISTORY
016
BORN
1975 017
STARTED IN 1975 AND NEVER STOP EVERSINCE
With the first meticulous needlework that became a standard for hundreds of thousands stitching later for the level of attention to details, the Thai lifestyle products business has gradually grown and brought the team together to work towards the same goal.
1975
1980
2000
The first pair of jeans under the brand “Mc” was born through the vision of Mr. Pichai Karnjanarporn
P.K.Garment (Import-Export) Co.,Ltd. was established with the registered capital of two million baht to carry on jeans apparel business under the brand “Mc”
P.K.Garment (Import-Export) increased the registered capital to 40 million baht in January and 190 million baht in June to serve the business expansion
May To support the company's future growth, the business was restructured. MC GROUP Plc. was established with the registered capital of one million baht to manage the distribution of the whole group as well as the company’s strategic investments
June Winner Man Co.,Ltd. was established with the registered capital of one million baht to service and manage the salespeople of
July
August
September
MC GROUP increased the
MC GROUP established Mc
MC GROUP restructured
registered capital to 300 million baht and bought 99.99% of common shares of P.K.Garment (Import-Export) and 99.97% of Winner Man from the shareholders
Jeans Manufacturing with the registered capital of one million baht holding 99.97% of shares to serve the expansion of apparel manufacture
business by which P.K. Garment (Import-Export) transferred the distribution of apparel and other products to MC GROUP and transferred some of the production line to Mc Jeans Manufacturing and transferred salesforce to WinnerMan
2012 April MC GROUP appointed
a local distributor in Myanmar
October
December
MC GROUP had a total of
MC GROUP appointed a
100 free standing shops in Thailand
local distributor in Laos
018
MC GROUP
2005
2006
2008
A new brand “McLady” was launched
P.K.Garment (Import-Export) increased the registered capital to 250 million baht
The first full-scale free standing shop at Tesco Lotus at Salaya was opened
January
February
March
MC GROUP established MC INTER LIMITED
MC GROUP established
MC GROUP became a
WoWme Ltd. with the registered capital of one million baht to support the expansion to online business. Moreover, the company also launched a new brand, “Mc Pink”
public company under the name MC GROUP Plc. to prepare for its initial public offering and to be listed in the Stock Exchange of Thailand
2013
registered in Hong Kong, China to support the expansion to international businesses and investments in the future
019
020
BRANCHING
OUT 021
MORE THAN JUST JEANS The attention to detail in everything we do has been the core standard that leads the company to become brands and lifestyle businesses for all target markets with the products and services covering all needs.
Mc Lifestyle brand with cool and, in the same time, classic design that distinctly represents the brand “Mc�. McLady Lifestyle brand with design for ladies who love simplicity with liveliness sense. Mc Pink Lifestyle brand with design for ladies who love fashion and always stay in trend. Mc Mini Lifestyle brand with design for kids (expected to launch around mid - 2013). Bison Lifestyle brand with design for men who are economical shoppers. WoWme Lifestyle business offering both domestic and international brands products at special price online (expected to launch in 2013). Blue Brothers Retail store offering premium quality jeans from well-known foreign brands (expected to open in 2013).
022
023
BUSINESS
ENDLESS POSSIBILITY With a variety of customer personalities, preferences and individuality, MC GROUP expands its product assortment by creating lifestyle brands and business for people of all ages and preferences, and covering all types of lifestyle products which creates endless business opportunities.
026
027
WHAT WE HAVE ACCOMPLISHED
072
10%
23% 8% 27%
12%
10%
073
OUR ACCOMPLISHMENT Summary of Financial Information (in THB millions) Pro Forma Consolidated Financial Consolidated Separate Financial Financial Statements 1/ Statements Statements
Statements of Comprehensive Income Revenue from sales of goods Total income Earnings before interest, taxes, depreciation and amortization Net profit (loss) Statements of Financial Position Total assets Total liabilities Total equity
2012 2/
2010
2011
2012
2012 2/
1,292 1,305
1,804 1,817
2,556 2,564
1,427 1,438
900 1,409
208 105
481 299
780 599
418 318
549 521
940 583 358
1,451 894 557
2,013 1,208 806
2,013 1,198 816
2,637 1,815 821
Pro Forma Consolidated Financial Statements 1/ 2010
Profitability (%) Gross profit margin EBITDA margin Net profit margin Return on total assets Return on total equity
2011
2012
39.94 15.92 8.04 11.16 29.33
47.54 26.50 16.45 25.00 65.37
55.93 30.43 23.37 34.60 87.99
Debt to Equity Ratios (Times) Interest-bearing debt to equity ratio Total debt to equity ratio
0.68 1.63
0.47 1.61
0.68 1.50
Per Share Information 3/ (THB) Book value per share Earnings per share Dividends per share
0.45 0.13 0.06
0.70 0.37 0.13
1.01 0.75 1.01
Note :
1/ 2/ 3/
074
Assume that the company restructuring occured since 1 January 2010 For the period starting from 23 May 2012 (Inception date) to 31 December 2012 Assume total shares outstanding of 800 million with par value of THB 0.50 per share
Revenue From Sales of Goods (in THB millions)
3,000
2,556
2,500 1,804
2,000 1,500
1,292
1,000 500 0 2010
2011
2012
Net Profit (in THB millions)
700
599
600 500 400
299
300 200 100
105
0 2010
2011
2012
2012 Revenue Structure - By Brands
2012 Revenue Structure - By Distribution Channels
(in THB millions)
(in THB millions)
Bison 86 3.4%
Others 1/ 3 0.1%
Mclady 468 18.3%
Free standing shop 729 28.5% Modern trade 1,771 69.3%
Mc 1,999 78.2%
Note :
1/
Other revenue includes sales of raw materials (i.e., accessories) to MC GROUP's third-party manufacturers.
Others 1/ 55 2.2%
Note :
1/
Other distribution channels include sales through agents, distributors or trade shows, etc.
075
076
TEAM EFFORTS
BEHIND
THE JEANS 077
PEOPLE WITH PASSION
078
Mr. Pichai Karnjanarporn
CHAIRMAN OF THE BOARD Mr. Pichai Karnjanarporn Chairman Education • B.A. in Human Resources Management, Texas University • Director Accreditation Program (DAP) Class 98/2012, Thai Institute of Directors Association (IOD) Present • Chairman, MC GROUP Plc. • Director, P.K. Garment (Import-Export) Co.,Ltd. • Director, Mc Jeans Manufacturing Co.,Ltd. • Director, Winner Man Co.,Ltd. • Director, WoWme Limited • Director, Na Yai Am Real Estate Co.,Ltd. • Director, Millenium (1975) Co.,Ltd. Experience • Director, P.K. Asset Plus Co.,Ltd. • Director, P.K. Grand Co.,Ltd.
079
PEOPLE WITH PASSION
080
Mrs. Pratana Mongkolkul
EXECUTIVE
BOARD MEMBER
Mrs. Pratana Mongkolkul Director / Chairperson of the Executive Committee Education • MBA Thammasat University • B.A. Thammasat University • Director Certification Program (DCP) Class 34/2003, Thai Institute of Directors Association (IOD) • Director Diploma Examination, The Australian Institute of Directors Association • Chief Financial Officer Certification Program Class 1 The Institute of Certified Accountants and Auditor of Thailand • Capital Market Academy Program Class 6/2008, Capital Market Academy • Advanced Management Program 180, Harvard Business School • Thai Intelligent Investors Program Class 1/2009, Thai Investor Association Present • Director / Chairperson of the Executive Committee, MC GROUP Plc. • Director, P.K. Garment (Import-Export) Co.,Ltd. • Director, Mc Jeans Manufacturing Co.,Ltd. • Director, Winner Man Co.,Ltd. • Director, WoWme Limited. • Chairperson, Boutique Consulting Group Ltd. • Independent Director, T.K.S. Technology Public Co.,Ltd. • Director, Eutopia Holding Private Co.,Ltd. • Director, R.G.E. (HKG) Limited • Director, MSpa Enterprise Management (Shanghai) Limited • Director, Tanzania Tourism and Hospital Investment • Director, Zanzibar Tourism and Hospital Investment • Director, Panaram Company Limited • Graduate Member, Thai Institute of Directors Association (IOD) • Counselor, Thailand Management Association (TMA) Experience • Director, S&P Syndicate Plc. • Chairperson of the Audit Committee, Thoresen Thai Agencies Plc. • Director, Minor International Plc. • Director, Minor Corporation Plc. • Director, The Minor Food Group Plc. • Director, Rajadamri Hotel Plc. • Director, Minor Hotel Group Ltd. • Director, MSpa International Ltd. • Director, Minor Global Solution Ltd. • Director, THAI EXPRESS CONCEPTS PTE. LTD • Director, The Coffee Club (Thailand) Ltd. • Director, The Coffee Club Holding (Australia) Pty. Ltd. • Director, Amore Pacific Thailand Co.,Ltd. (Thailand) • Director, Sizzler China Pte. Ltd. • Director, Oaks Hotel and Resort Limited 081
PEOPLE WITH PASSION
082
Ms. Sunee Seripanu
EXECUTIVE
BOARD MEMBER
Ms. Sunee Seripanu Director / Chief Executive Officer Education • MBA Assumption University • B.A.,Chulalongkorn University • Director Accreditation Program (DAP) Class 98/2012, Thai Institute of Directors Association (IOD) • Director Certification Program (DCP) Class 172/2013, Thai Institute of Directors Association (IOD) • Capital Market Academy Program Class 15/2013, Capital Market Academy Present • Director / Chief Executive Officer, MC GROUP Plc. • Director, P.K. Garment (Import-Export) Co.,Ltd. • Director, Mc Jeans Manufacturing Co.,Ltd. • Director, Winner Man Co.,Ltd. • Director, WoWme Limited • Director, Na Yai Am Real Estate Co.,Ltd. • Director, Millenium (1975) Co.,Ltd. Experience • Director, SS Challenge Co.,Ltd.
083
PEOPLE WITH PASSION
084
Mr. Virach Seripanu
EXECUTIVE
BOARD MEMBER
Mr. Virach Seripanu Director / Member of Nomination and Compensation Committee / Chief Operating Officer Education • MBA Assumption University • B.S. Pharmacy Chulalongkorn University • Director Certification Program (DCP) Class 155/2012, Thai Institute of Directors Association (IOD) Present • Director / Member of Nomination and Compensation Committee / Chief Operating Officer, MC GROUP Plc. • Director, P.K. Garment (Import-Export) Co.,Ltd. • Director, Mc Jeans Manufacturing Co.,Ltd. • Director, Winner Man Co.,Ltd. • Director, WoWme Limited Experience • Director, P.K. Asset Plus Co.,Ltd.
085
PEOPLE WITH PASSION
086
Mr. Somchai Apiwattanapron
EXECUTIVE
BOARD MEMBER
Mr. Somchai Apiwattanapron Director / Chairman of the Audit Committee / Chairman of Risk Management Committee / Chairman of Nomination and Compensation Committee Education • M.A.Public Affairs Ramkhamhaeng University • B.A.Ramkhamhaeng University • Diploma, National Defence College, The Joint State-Private Sector Course Class 16 Year 2003 National Defence College • Director Certification Program (DCP) Class 74/2006, Thai Institute of Directors Association (IOD) • Director Accreditation Program (DAP) Class 14/2004, Thai Institute of Directors Association (IOD) • Audit Committee Program (ACP) Class 21/2008, Thai Institute of Directors Association (IOD) • Financial Statements for Directors (FSD) Class 17/2012, Thai Institute of Directors Association (IOD) • Capital Market Academy Program Class 5/2009, Capital Market Academy Present • Director / Chairman of the Audit Committee / Chairman of Risk Management Committee / Chairman of Nomination and Compensation Committee, MC GROUP Plc. • Director, P.K. Garment (Import-Export) Co.,Ltd. • Director, Mc Jeans Manufacturing Co.,Ltd. • Director, Winner Man Co.,Ltd. • Director, WoWme Limited • Chairman of the Audit Committee, Robinson Department Store Plc. • Chairman of the Audit Committee, M Link Asia Corporation Plc. • Chairman of the Audit Committee, Synnex (Thailand) Plc. • Chairman of the Board of Director, Thailand Tobacco Monopoly 087
PEOPLE WITH PASSION
088
Mrs. Jamnan Siritan
EXECUTIVE
BOARD MEMBER
Mrs. Jamnan Siritan Director / Member of the Audit Committee / Member of the Risk Management Committee Education • B.A. Dramatic Arts Chulalongkorn University • Director Accreditation Program (DAP) Class SET/2012, Thai Institute of Directors Association (IOD) Present • Director / Member of the Audit Committee / Member of the Risk Management Committee, MC GROUP Plc. • Chairperson of the Executive Board, JSL Global Media Co.,Ltd. • Director, Chuenmongkol Co.,Ltd. • Director, Laipruek Co.,Ltd. • Vice Chairperson, Animation International (Thailand) Co.,Ltd. • Director, ID One Television Co.,Ltd. • President of The Radio - Television Broadcasting Professional Federation • Director, House of Cartoon Co.,Ltd.
089
PEOPLE WITH PASSION
090
Mr. Supasak Chirasavinuprapand
EXECUTIVE
BOARD MEMBER
Mr. Supasak Chirasavinuprapand Director / Member of the Audit Committee / Member of the Risk Management Committee / Member of the Nomination and Compensation Committee Education • LL.M. Arizona State University Tempe, Arizona, U.S.A. • M.C.L. California Western School of Law, San Diego, California, U.S.A • M.S. in Economics Policy and Planning, Northeastern University Boston, Massachusetts, U.S.A. • Barrister at Law • LL.B. Thammasat University • Director Accreditation Program (DAP) Class 10/2004, Thai Institute of Directors Association (IOD) Present • Director / Member of the Audit Committee / Member of the Risk Management Committee / Member of the Nomination and Compensation Committee, MC GROUP Plc. • Independent Director/ Audit Committee / Nomination and Compensation Committee, Aapico HiTech Plc. • Director, Green Spot Co.,Ltd. • Director, Karat Faucet, Co.,Ltd. • Director, Sagawa Express Thai Container Distribution Service Co.,Ltd. • Director, Sagawa Express (Thailand) Co.,Ltd. • Director, Sime Darby Power Co.,Ltd. • Director, Sime Darby Motors Group (Thailand) • Director, Sime Darby LCP Power Ltd. • Director, Sime Darby O & M (Thailand) Ltd. • Director, Sime Morakot Holdings (Thailand) Ltd. • Director, Tokio Marine South East Servicing Co.,Ltd. • Director, Tokio Marine Life Insurance Public (Thailand) Co.,Ltd. • Director, Thaicom Network Co.,Ltd. • Director, Morakot Industries Plc. • Director, Major Hollywood Entertainment Co.,Ltd. • Director, Ranhill Utilities Thai Co.,Ltd. • Director, Incatext Co.,Ltd. • Director, S.P.C. Precious Metal Co.,Ltd. • Director, Royal Advocates International Co.,Ltd.
091
PEOPLE WITH PASSION
Ms. Yupin Luisiri
CHIEF INFORMATION
TECHNOLOGY OFFICER
Ms. Yupin Luisiri Chief Information Technology Officer (CIO) Education • M.A. Dual Majors: Data Management and Business Management, Webster University, Saint Louis, Missouri, U.S.A. • B.Sc. System Data Processing Washington University, Saint Louis, Missouri, U.S.A. • B.BA. Chulalongkorn University Present • Chief Information Technology Officer (CIO), MC GROUP Plc. Experience • First Sr. Vice President Information Technology (CIO), Ocean Life Co.,Ltd. • Managing Director, Dataflo Asia Co.,Ltd. • Division Information Technology Director, Southeast and West Asia Division, Coca-Cola Thailand Limited
092
PEOPLE WITH PASSION
Ms. Kantima Lerlertyuttitham
DEPUTY CHIEF
OPERATING OFFICER
Ms. Kantima Lerlertyuttitham Deputy Chief Operating Officer Education • M.A. Psychology Counseling Service Rider University, New Jersey, U.S.A. Present • Deputy Chief Operating Officer, MC GROUP Plc. Experience • Chief Human Resources Officer, Prudential Life Assuance (Thailand) Plc. • Human Resources Director, Central Watson (Thailand) Co.,Ltd. • Human Resources Director (Regional Resources), Microsoft Corporation • Assistant Vice President (Learning and Development), AIG Consumer Finance Group
093
PEOPLE WITH PASSION
Ms. Sangkae Hanvanich
EXECUTIVE
VICE PRESIDENT
SALES Ms. Sangkae Hanvanich Executive Vice President - Sales
Education • B.Acc. Chulalongkorn University Present • Executive Vice President, Sales, MC GROUP Plc. Experience • Executive Vice President, Sales, P.K. Garment (Import-Export) Co.,Ltd. • Assistant Chairman of the Board, Piyavate Hospital Plc.
094
PEOPLE WITH PASSION
Ms. Peyanuch Prepraemvatana
SENIOR
VICE PRESIDENT
FINANCE AND ACCOUNTING Ms. Peyanuch Prepraemvatana Senior Vice President - Finance and Accounting Education • MBA Thammasat University • MA Thammasat University • BA (Accounting) Assumption University
Present • Senior Vice President - Finance and Accounting, MC GROUP Plc. Experience • Senior Vice President - Finance and Accounting, P.K. Garment (Import-Export) Co., Ltd. • Vice President – Finance and Accounting, Minor Corporation Plc. • Vice President – Finance, Ek-Chai Distribution Co., Ltd.
095
From left to right
1. 2. 3. 4. 5.
096
Ms. Yupin Luisiri Ms. Sangkae Hanvanich Mr. Saengchai Samainukul Mrs. Songvilai Jiraphothong Ms. Pornthip Wanichnopparat
Chief Information Technology OďŹƒcer Executive Vice President, Sales Senior Vice President, Production Senior Vice President, Strategic Planning Senior Vice President, Sales Online
6. 7. 8. 9.
Ms. Kantima Lerlertyuttitham Ms. Peyanuch Prepraemvatana Mr. Weera Sujitranuphap Mrs. Chanchira Hongladarom
10. Mr. Pongsak Tanthanapipat
Deputy Chief Operating OďŹƒcer Senior Vice President, Finance and Accounting Vice President, Network Planning Senior Vice President, Product Design and New Business Development Senior Vice President, Sales Intelligence 097
CSR
TOGETHER WE GO
MC GROUP Public Co.,Ltd. started business with determination to grow every lifestyle brand. The management, with economical, social and environmental balance, will promote strength of all brands in the company and is ready to step forward to the future success under these principles: Economically, the company dedicates to conducting business with the strategy of adding value to the production process and building innovation in the work process to elevate the capability in competition in the new markets, which will make profits to the shareholders and reward the employees appropriately.
The better Balance We manage. The further The brand can go.
Socially, the company conducts business with governance, justly sharing benefits with all employees and respect in human rights. We consistently develop knowledge and skills of employees and open employment opportunities for the underprivileged by continuously promoting work of Mc Jeans Foundation for Thai Society, as well as the policy “Happy Work Placeâ€? in the company. Environmentally, the company sees importance of the development of production and work innovation in order to make use of natural resources most eďŹƒciently. It has recycling management and development of innovation in green technology.
099
FINANCIAL
102
FORESEEN THE
FUTURE
103
Overview Of Business Backgrounds and Important Developments MC GROUP Public Company Limtied (“Company”) was registered as a limited company on May 23, 2012 with the purpose of incorporation to manage ready-to-wear retailing business and related apparels under its own brands and other brands as well as invest in other companies. The Company later on converted into public company on March 18, 2013 with registered capital of 400 million baht and paid-up capital of 300 million baht which can be divided into 600 million common shares with par value of 0.50 baht per share. Our group of companies has started the business since 1975 from manufacturing ready-to-wear jeans by order (OEM) mainly for foreign distributors. Afterwards, the Company began to manufacture ready-to-wear jeans under its own brand “Mc” with the slogan “If You Come To Jeans, We Are Mc”. Mc brand has risen into prominence under the vision and management of Pichai Karnjanarporn and Sunee Seripanu. In 1980, P.K. Garment (Import-Export) Co., Ltd. which is a subsidiary of MC GROUP Plc was officially incorporated with the objectives of laying a solid foundation in manufacturing ready-to-wear clothing emphasizing on its production development and introduction of new brands to respond to demands from various groups of customers. Those new brands include McLady, Mc Pink and Bison. The Company has set its directions based on progressive growth strategies anchored on channel management strong manufacturing base and its extensive free standing shop footprint as the catalyst of its business. (In 2012, our managemenet team has successfully redesigned and transformed overall organization structures of the Company as well as shareholding structure to support the continuous expansion of the business. Under the new structure implemented in September 2012, MC GROUP will be responsible for the design, product development, product sourcing and channel management and sales as well as managing distribution center and warehouses for its group of companies.
Overview of Business Shareholding structure of MC GROUP and its subsidiaraies as of 28 February 2013 is shown below
MC GROUP PLC
99.99%
99.97%
P.K. Garment (Import-Export)
Mc Jeans Manufacturing Co., Ltd.
79.97% WoWme Limited
99.97%
100%
Winner Man Co., Ltd.
MC INTER LIMITED
Co., Ltd.
104
(1)
P.K. Garment (Import-Export) Co., Ltd. manufactures ready-to-wear clothing and owns all the trademarks of MC GROUP Plc. At present, P.K. Garment (Import-Export) Co., Ltd. is an exclusive manufacturer of products of MC GROUP Plc.
(2)
Mc Jeans Manufacturing Co., Ltd. manufactures ready-to-wear clothing for MC GROUP Plc.
(3)
WoWme Limited. distributes and sells branded products and services through online platform domestically and internationally. The company is expected to commercially run from June 2013
(4)
Winner Man Co., Ltd. provides services and manages sales force and warehouse workforce for MC GROUP Plc.
(5)
MC INTER LIMITED is incorporated for the future business and investment abroad. As of 28 February 2013, MC INTER LIMITED has not yet commercially operated.
Sales and Distribution and Channels In 2012, MC GROUP has reorganized its shareholding structure to make MC GROUP Plc take the lead on sales and channel management of all points of sales in the country. As of 31 December 2012, MC GROUP Plc is the sole distributor of all products through its 511 points of sales nationwide to reach all groups of customers. The details of each channel ar as follows
1.
free standing shops
Free standing shops are located mainly in commercial centers or in plaza sections of department stores. Our network of free standing shops consists of -
Shops that sell mostly jeanswear under the brands “Mc”, “McLady” and “Bison”
-
Shops that sell only women fashion wears u nder the brand “Mc Pink”
The Company planned to open its new specific shop formats in the future includes: -
Shops under the brand “Blue Brothers” that sell premium jeanswear for high purchasing power target group both for both brands owned by the Company and other imported brands.
-
Retail store that sells all brands under MC GROUP and offers a vast selection of all sizes and types especially new items at normal prices.
-
Outlets that sell all brands under MC GROUP and offer mostly items previously released at discounted prices.
2.
Modern Trade
This channel consists of points of sales or sales counters in department stores both retain chains and local department stores in upcountry as well as superstores throughout the country such as Central, Robinson, The Mall, Big C and Tesco Lotus.
3.
Alternative Channels
Alternative channels are non-conventional channels that help expand the reach to customers. These channels include exhibition booths in major exhibitions or festivals, mobile units and sales agents in foreign countries. Table representing Number of Point of Sales by Channels from 2010-2012
By Channels Free Standing Shops
2010 Number %
2011 Number %
2012 Number %
53
13.1
74
16.6
117
22.9
Modern Trade
352
86.9
372
83.4
394
77.1
Total
405
100.0
446
100.0
511
100.0
Table representing Number of Point of Sales by Geographies from 2010-2012
By Geographies Upcountry
2010 Number %
2011 Number %
2012 Number %
281
69.4
316
70.9
365
71.4
41
10.1
58
13.0
90
17.6
- Modern Trade
240
59.3
258
57.8
275
53.8
Bangkok and Vicinity
124
30.6
130
29.1
146
28.6
12
3.0
16
3.6
27
5.3
- Free Standing Shops
- Free Standing Shops - Modern Trade
112
27.7
114
25.6
119
23.3
Total
405
100.0
446
100.0
511
100.0
105
The Company commenced its expansion of sales channel to foreign markets by appointing official sales agents in Myanmar who will be responsible for marketing, distribution and sales efforts in the country in April 2012 and sales agent in Laos in December 2012. The Company also aimed to expand to other ASEAN countries under AEC such as Indonesia, Vietnam, and Malaysia in the near future.
Online Channel MC GROUP recognized the importance and growth potential of internet and online platform so the Company planned to premiere its first online shop under the name www.WoWme.co.th in June 2013 to enter the online market and expand its customer reach further. The online shop will be managed by a new subsidiary of MC GROUP, namely WoWme Limited. in which MC GROUP will hold the majority shares of 79.97%. The product offerings through this online shop will not be limited only to brands under MC GROUP but also other fast growing product categories from other manufacturers and brands. The online channel will offer fast and easy access to products that fits the consumers’ changing lifestyles especially of the next generations.
Products and Services MC GROUP Plc manages sales and distribution of products under trademarks and brands owned by the group of companies. Each brand is unique in design and other features aiming to meet market demands of different target groups.
1.
Clothing and related Apparels under the brand “Mc”
Products under Mc brand promote casual and classic style for all occasions with affordatble prices to both men and women under the concept “Affordable Classic Jeans with Style” Since 1980, under the influence of jeans culture from the west, Mc Jeans became widely accepted by customers thanks to its principles of quality focus and unique design that fits local customers’ shapes and bodies. In such a short time, Mc became the market leader with number one sales volume in domestic jeans market for Thai jeans brands (as referred in Jeans Business in Thailand Research Report by Thai Managemenet Association or TMA) and continuosly gained consumers’ appreciation and popularity.
2.
Clothing and related Apparels under the brand “McLady”
McLady aims to serve women with its modern design that perfectly fits women’s shapes under the concept “Lively, Casual and Comfortable”. McLady products are tailored to respond to the lifestyles of modern women who are unique, fashionable, stylish and adventurous. Our target group ranges from female teenangers, college students to first jobbers between 18-25 years old.
3.
Clothing and related Apparels under the brand “Bison”
Bison’s design and marketing are framed under the slogan “Cool, Breaking Rules, Character” with its positioning as casual and all-occasion wear same as Mc brand but with different price proposition targeted customers who look for value for money with good quality and fineness.
4.
Clothing and related Apparels under the brand “Mc Pink”
Mc Pink is our new line of fashionable clothing and other products for women under the concept “Stylish & Fashionable Everday Wear” premiered in February 2013. The target group of Mc Pink is female college students and new graduates with age between 18-25 who love fashion, shopping and socializing with high purchasing power and tendency to buy new clothes frequently.
5.
Clothing and related Apparels under the brand “Mc Mini”
Mc Mini is also our new line of clothing aiming to provide ready-to-wear and related products for kids under the concept “Fun and Joyful”. The Company saw the gap in current market and was not reluctant to serve all groups of customers, so the Company planned to launch Mc Mini during the mid 2013. Mc Mini will offer same quality products as Mc with brighter and fun image responding to the needs of boys around 6-12 years of age.
106
6.
Clothing and related Apparels under Other Brands (not-owned)
In order to extend the reach to all types of customers, the Company aimed to start manage, distribute and sell products of other brands not owned by the Company in 2013. The product range includes ready-towear clothing, apparels, and jeanswear of other known domestic and foreign manufacturers and barmds. These products will be distributed through a network of “Blue Brothers” shops as well as online platform under the website www.WoWme.co.th 6.1 Online: WoWme.co.th WoWme.co.th will offer the customers of all groups a new experience of online shopping through its wide selections of products and services from famous Thai and foreign brands at speicail prices and a new level of convenience in purchashing and payment.The website is expected to launch in 2013 6.2 Premium Shop under the name “Blue Brothers” Targeting jeanswear lovers and collectors, Blue Brothers is dedicated to offer premium quality jeanswear from well-known foreing brands with uniqueness in style, design, pattern and ways of wearing. The Company is also in the process of premiering its own premium brand to be distributed exclusively at Blue Brothers. The shop is expected to open in 2013.
Product Sourcing There are two main sources of products for sales and distributions which are 1) manufacturing factories of its own subsidiaries and 2) outsourced manufacturers. Under the current sourcing policy, all basic jeanswear are manufactured from its own subsidiaries while outsourced suppliers will be commissioned to produce other lines of products including t-shirts, polo shirts, women fashion wears, and accessories such as bags, shoes and belts as well as fashionable jeanswears with a lot details. In the case of overcapacity, the company will seek outsourced services both for the whole production or for a specific production process that current capacity cannot support such as bleaching and dying. The Company also put efforts in searching for other alternatives to best manage costs and promote production efficiency; for example, the possibility of production outsourcing in foreign countries with lower labor costs.
Inventory Management MC GROUP Plc has given priorities to supply chain management in every part of business from sourcing and merchandising, production, inventory management and distributions of finished products. The Company has adopted the state-of-the-art technology in supply chain management in order to increase production, improve production efficiency as well as shorten time to market for the products to reach the designated destinations. Under the inventory management policies, the Company is incessantly improving its Management Information System in order to achieve optimal inventory levels. The new MIS will best assist in collecting data from points of sales such as numbers of units of products by SKU and values of products manufactured including stock and inventory level in an accurate and fast manner. This information will be valuable for the Company to better understand customers’ needs and manage its demand planning more efficiently from product sourcing/ manufacturing to inventory management and logistics of the products to reach all points of sales. At present, the Company operates two warehouses of finished products. The Company planned to build a new warehouse and distribution center and centralize all distributions and inventory management to this center to increase efficiency in logistics and distribution and support the future sales growth.
Environmental Impacts P.K. Garment (Import-Export) Co., Ltd. and Mc Jeans Manufacturing Co., Ltd., the manufacturing arm of the Company have been actively monitoring the production to minimize the negative impacts on environement that can arise from production process; for instance, waste water from washing and bleaching and toxins and fumes from spraying. The Company has strictly followed measures in controlling and preventing environmental
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impacts as follows. 1)
Waste water from washing and bleaching: Waste water from washing and bleaching activities will be stored and treated in waste water treatement pond to maintain appropriate temperature, PH balance, smells and colour complying to the rules and restrictions from the Department of Industy Works before releasing to public water sources or outside environment.
2)
Toxins and fumes from spray painting: Toxins, vapours and fumes from spray painting process will be contained before being exposed outside the factories. Suffecient protection such as rubber gloves, cloaks, boots and masks is mandatory for workers involving in the process.
In addition, these manufacturing subsidiaries will sell the remnants of fabrics from production to outside parties. Since its production commencement, the Company and its subsidiaries have never faced any litigation or legal charges against the Company that is related to environmental impacts nor received warnings from government authorities under the regulating laws, namely Factory Act and Enhancement and Conservation of National Environmental Quality Act BE 2535 (1992).
Revenue Structure of MC GROUP Plc The revenue structure of Mc Group Plc and its subsidiaries from pro forma consolidated financial statements from year 2010-2012 is shown below
1.
revenue structure by Types of Products
Pro Forma Financial Statement
2010 Million Baht %
2011 Million Baht %
2012 Million Baht %
1,066.2
82.5
1,432.0
79.4
1,998.6
78.2
184.3
14.3
323.7
17.9
467.6
18.3
37.9
2.9
39.8
2.2
86.1
3.4
Revenue from sales of ready-to-wear clothing and related apparels 1. Mc 2. McLady 3. Bison 4. Other income
1/
Total Sales Revenue Remark :
2.
1/
3.3
0.3
9.0
0.5
3.3
0.1
1,291.6
100.0
1,804.5
100.0
2,555.6
100.0
The majority of other income is from selling raw materials and accessories to OEM manufacturers.
revenue structure by sales Channels
Pro Forma Financial Statement 1. Revenue from Modern Trade 2. Revenue from Free Standing Shops 3. Revenue from Alternative Channels 1/ Total Sales Revenue
2010 Million Baht %
2011 Million Baht %
2012 Million Baht %
1,046.8
81.0
1,389.9
77.0
1,771.1
69.3
223.7
17.3
395.4
21.9
729.5
28.5
21.1
1.6
19.2
1.1
55.0
2.2
1,291.6
100.0
1,804.5
100.0
2,555.6
100.0
Remark : 1/ Revenue from alternative channels is from sales through agents or exhibit booths.
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Business Objectives MC GROUP Plc aspires to be a leading apparel and lifestyle business in Asia in with vaious brands to seve different lifestyles. The Company’s mission is to maximize stakeholders value and custumer delights via best fit quality products, affordable price, accessible channels and passionale services. According to our business plan, we aimed to achieve our financial goals and revenue targets of the average annual growth rate of 20% from the year 2012-2016 and also to maximize profit through our strategies described below.
1.
extend lines of products to increace ranges and varities and develop new brands to fulfill the needs of customers of all groups and ages.
To meet the increasingly sophisticated demands of customers, MC GROUP Plc is determined to offer new products and designs both basic/classic wears and fashion wears to expand the coverage of our port folios of brands to penerate all segments of customers. For example, we planned to offer new fashion items seasonally considering the consumer trends in that particular period along with raising awareness and popularity of our brands in the eyes of consumers. Furhermore, MC GROUP has plans to develop and launch new brands to extend to new specific target segments. For instance, we has launched our new brand “Mc Pink” to target young urban women under the concept “Stylish & Fashionable Everday Wear” in February 2013 and we expected to introduce Mc Mini as our kids apparel brand to our young customers during mid 2013.
2.
expand sales & distribution channels to reach customers in nationwide.
MC GROUP Plc has set a target to expand the current distribution footprints of both free standing shops and modern trade from 511 points of sales at the end of 2012 to 584, 646, 705, 751 from 2013-2016 respectively. The expansion will emphasize on owned free standing shops given the advantages from direct cash transaction with customers which results in better cash cycle as well as flexibility in manageing stores and inventories. Based on our business plan, we targeted the number of owned free standing shops to increase from 117 shops at the end of 2012 to 153, 188, 222 and 253 for the next 4 years from 2013-2016 respectively. Branch-out strategy relying on owned new shops of MC GROUP will further extend the reach to customers and penetration in the market. Extensive network of shops will promote convenience in buying the products for our customers. The Company will take all relevant aspects into considerations regarding this expansion such as location, population, target group and purchasing power.
3.
expand to online channel
WoWme Ltd. was incorporated as a subsidiary of MC GROUP to focus on online sales under the website www.WoWme.co.th to further stretch out to customers in the wireless world. The coverage of product offerings will be beyond owned brands and apparel items as we will also offer products from other domestic and foreign brands not limited to apparels but all lifestyle products such as cosmetics and telecommunication technology products under “limited time offering” strategy. WoWme Ltd will officially operate from June 2013 onwards.
4.
explore M&A, ventures and other partnership opportunities
MC GROUP Plc aimed to also expand and grow through M&A, ventures and other partnership opportunities concentrating on related businesses with high synergy with MC GROUP’s core business both domestically and internationally especially in AEC community given the proper investment conditions and returns.
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5.
expand sales channels to foreign countries covering Asian economic Community (AeC)
MC GROUP is commited to expand beyond Thailand’s market starting from AEC countries such as Indonesia, Vietnam, Laos, Malaysia and Myanmar. The Company currently appointed qualified sales agents in Mynmar and Laos to take care of the distribution of brands under MC GROUP. Given the specific investment conditions and risk profiles in respective countries, MC GROUP will consider the optimal investment and partnership approaches for each case whether it will be direct investment and fully-owned operation, joint ventures, or through reliable agents.
6.
emphasize on supply chain management to enhance profitability
MC GROUP Plc is in the process of overhauling its supply chain management in every part of business from merchandising, production management and distributions of finished products. The Company adopted the state-of-the-art technology in supply chain management in order to increase production, improve production efficiency as well as shorten time to market for the products to reach the designated destinations.
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indusTry Overview And COMPeTiTiOn 1. Retail Industry in Thailand Retail Industry in Thailand grew constantly for the past 3 years. From 2010-2012, Thailand retail sales index rose at an average rate of 11.1% due to rising demand of products and services under favorable economic growth, increased household income and continuing expansion of modern trade. Medium and large modern trade platforms such as department stores and superstores have been replacing traditional platforms. Despite the higher operating costs from systematic management and high manpower needs, modern trade gains advantages through its easily accessible and spacious locations and varieties of products while consumers appreciate convenience, choices, and modern settings. The Company offers its products through various channels, local and international. For domestic market, owned free standing shop and modern trade are the main channels to distribute products to customers nationwide. Modern trade includes department stores (Central, the Mall and Robinson) and superstores (Big C, Tesco Lotus).
Outlet expansion Plan of Modern Trade
Type of Modern Trade
Number of Outlet (as of 31 Dec 2008)
Number of Outlet (as of 31 Dec 2012)
Outlet Expansion Plan
1. Department Store 23 outlets within 2013 (3 new in upcountry ie. Chiangmai, Ubonratchathani and Hadyai) 1/ 1.1 Central
11
20
30 outlets within 2015 (7 new) 1/ 35 outlets within 2013 (5 new in upcountry ie. Kanchanaburi, Sakonnakorn, Ubonratchathani) 1/
1.2 Robinson
20
30
50 outlets within 2016 (5 new each year) 1/
1.3 The Mall
8
8
10 new outlets within 2022 2/
2.1 Big C
56
112
300 outlets within 2016 (189 new in Bangkok and upcountry) 3/
2.2 Tesco Lotus
79
104
n/a 4/
174
274
2. Superstore
Total CAGR
11.7%
Source of number of outlets : Companies’ annual reports and websites Source of outlet expansion plan :
1/
Corporate Presentations Quarter 3/2012
Interview excerpt of Deputy Chairman, the Mall Group Co., Ltd. (Thai Post, 10 October 2012)
2/
Interview excerpt of Organization Relations Director, Big C Supercenter Plc. (ASTV Manager Online, 17 December 2012
3/
4/
Information not available.
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2. Overview of Garment Industry in Thailand Garment is Thailand’s large and important industry and represents a downstream side of the overall textile and garment industry. According to National Economic and Social Development Board (NESDB), the market value of Thai garment industry stood at 303,009 million baht (by private consumption expenditure data) or made up of 2.9% of GDP or equivalent to 78.5% of overall textile and garment industry in Thailand in 2011. Garment industry also grew hand in hand with in GDP growth in 2011. Garment industry expanded at the annual rate of 5.2% while GDP experienced lesser growth rate at 4.3% per year. Textile industry enjoyed a continuous growth thanks to its high replacement and repurchase rate. Sensitivity to changes in styles, values and technology as well as the less-durable nature of clothing added up to this high replacement and repurchase rate. GDP and Market Value of Thai Textile Industry from 2010-2012
Value (Billion Baht) 2010 2011 2012 GDP
10,105
Market Value of Garment and Textile Industry Market Value of Textile Industry
Growth Rate (%) 2011 2012
10,540
11,363
4.3
7.8
377
386
408
2.6
5.6
288
303
n/a
5.2
n/a
Source: National Economic and Social Development Board National Economic and Social Development Board forecasted that growth rate of Thailand’s GDP in 2012 will be around 4.5-5.5% due mainly to rising foreign demand. Impending favorable economic conditions in the US, China and other Asian countries were expected to bolster the recovery of world economy and subsequently the demand from foreign countries.
Competition in Garment industry in Thailand Garment industry experiences fierce competition in recent years as a result of a supply-led marketing issue. Over 90% of supply in garment industry is OEM-based (Original Equipment Manufacturing) where local and foreign trademark and brand owners outsource production to external manufacturers before distributing locally or exporting to other countries. This nature discourages proactive marketing efforts resulting in low value added creation compared to OBM (Original Brand Manufacturing) which adds more value to the products. Therefore, market players in Thailand are focusing on cost control which hampers skill development, production technology and other value added activities. Moreover, the fact that local consumers tend to appreciate well-known foreign brands more than local quality products and brands contributes to a demand-led marketing issue negatively affecting the development of local brands. Local players had to face 2 competitive threats in different market segments. For middle-income market, competition arose from players from Hong Kong or Singapore who have competitive advantages from designs, quality and popularity. Meanwhile, in the low-income market, competitors from China and Vietnam have the edge from lower labor cost and being the sources of major raw materials such as cotton, silk and man-made fibers.
Competition and market entry from froeign clothing brands High and middle class foreign brands such as Zara, Uniqlo, GAP and H&M have gained prominence in Thailand for the past few years and this intensified the competition in garment industry further. Changing behaviors of Thai consumers to become more self-caring and fashionable together with technology that enables the consumers to be exposed to international fashion and brands led to the surge in apprciation and popularity for these foreing brands.
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With same target groups and sales channels especially modern trade, Thai garment entrepreneurs were directly facing the competitive threats from foreign brands. Foreign competitors have leveraged their new and famous brands, design and production techonoloy, network of factories and lower cost of production to gain an increasing number of customers. Therefore, branding is deemed to be one of significant strategies in rivaling with these international competitors.
3. Overview of AEC Garment and Jeanswear Industry Regional economic integration of ASEAN countries or AEC (ASEAN Economic Community) will be fully implemented in 2015. The participating countries include Thailand, Vietnam, Indonesia, the Philippines, Malaysia, Singapore, Laos, Myanmar, Cambodia and Brunei. The AEC will transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital which will promote trade negotiation power, cooperation and competitiveness of the ASEAN countries. As a result, AEC is expected to further fuel economic growth for ASEAN economy. Under more open policies and lifted regulations mandated by the AEC, overall ASEAN market will become more relevant to businesses not just domestic market. Additionally, market and investment promotion policies and measures will raise consumer purchasing power and expand the ASEAN market further. In 2011, ASEAN countries had a total population of 607.7 million people and a total GDP of 2,112.5 billion US dollars with average growth rate of 7.6% per year (from 1999-2011) while Thailand had a population of 64.3 million people and GDP of 339 billion US dollars with average growth rate of 3.9% per year (from 1999-2011)
ASEAN population and GDP in 2011 GDP
Population
Nominal Country
(Million)
(‘000 Million US Dollar)
Per Capita Growth Rate (%)
(US Dollar)
Average Growth Rate (19992011)
1
Indonesia
240.5
834
6.4
3,469
6.3
2
Thailand
64.3
339
3.5
5,278
3.9
3
Singapore
5.3
267
5.3
50,283
9.7
4
Malaysia
28.7
248
5.2
8,627
6.2
5
Philippines
95.8
216
4.7
2,256
5.7
6
Vietnam
89.3
122
5.8
1,362
6.3
7
Myanmar
62.4
50
5.5
806
20.8
8
Brunei
9
Cambodia
0.4
16
2.8
39,000
6.4
14.4
13
6.7
917
2.4
10
Laos
6.6
8
8.3
1,197
8.3
Total
607.7
2,113
Total Average
7.6
Average (Excluding Thailand)
8.0
Source : International Monetary Fund (IMF)
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risK fACTOrs Risk factors that may signifincantly impact business operations, business performance, financial conditions and business opportunities inlucluding repective risk mitigation plans are summarized as follows:
1. Business Risks 1.1
risk of deviations from business plans
Business plan and growth stratetgies of the Company comprise product diversification, new brand development, channel network expansion, M&A, joint ventures and partnerships, production cost reduction and expansion of production to low-cost locations. The success of these strategies are key to the performance of the Company. The Company’s board and management team has emphasized the importance of these business planning and growth strategies as the main catalyst to achieve the Company’s goals. The Company has taken solid steps in executiting business plans and monintoring the progresses of each initiative and strategy. For example, in February 2013, the Company launched the new brand Mc Pink to offer product varieties to cover more target groups and also continuously expand the current coverage of distribution network nationwide and abroad simultaneously starting from ASEAN market. The Company has put in place direct responsible units and performance management system to monitor and track performances in all growth strategies in order to minimize the risk of deviations from business plans that may occur under fast changing market environments.
1.2
risk of overreliance on a small number of major customers (Buyer concentration risk)
Top ten customers of the Company, mainly big retailers in modern trade have provided a significant business over a long period under good relationships. However, the Company realized the fact that overreliance on these big retailers has put the Company at risks given the low negatitation power. Thus, the Company formulated risk mitigations policies aiming to maintain and develop strong ties with those relailers in one front and reduce reliance on them by focusing on owned free standing shop expansion on another front. Nevertheless, the risk of overreliance on major customers can be considered moderate due to the fact that the top ten customers only accounted for less than half of the total revenue.
1.3
risk of rental Contract renewal
The Company normally rent retaling spaces to build free standing shops for an average of 3 years. The risk arises when there is no guarantee of rental contract extension/renewal after expiration or in case the rental prices and other fees go up after 3 years. However, most lease agreements grant the Company rights to extend the contracts before other parties when expire and some are stated clearly on a specific clause regarding rental fee adjustments. Moreover, the Company has maintained good relationships with the landlords/property owners by strictly comforming to the rental as well as helping attract more customers to those department stores or other properties. As a result, the Company has no track record of contract cancellation or getting rejected from contract renewals and believes to continue keeping that good record in the future.
2. Industry Risk (related to Ready-to-Wear Retailing Business) 2.1
risks from intense competition in ready-to-wear retailing business
Major factors affecting the competition in ready to wear retailing business are new entries of both domestic and foreign players, new brand development, price competition, advertising and PR and expansion of channel network to reach customers. However, given the long and strong presence and experience in the business over the past 38 years, the Company has the edge in quality and cost controls thanks to owned production facilities and tight relationships with suppliers and OEM manufacturers. Plus, the Company also got a solid plan to seek new production bases in foreign countries with lower cost and expand its channel converage both through owned free standing shops and other alternative channels. The channel network expansion will surely grant advantages to the Company in order to compete with other players through easier access to products as well as enhanced brand awareness.
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2.2
risks from changing consumers’ preferences in fashion products
Changing customer tastes, preferences, and lifestyles especially in fashion industry as well as seasonalities have a big impact on the sales of fashion items offered by the Company. The fast changing nature of fashion industry has left the Company vulnerable to risks that new products might not meet the customer needs and interests in a timely manner. The Company took this fact at heart and put efforts on capturing and analyzing customer trends and preferences though extensive surveys and close tracking and observation of fashion and trends both locally and internationally. Futhermore, a close collarboaration of sales and design teams at the Compny will add speeds to our product development to respond to customer needs with new desirable fashion products.
3. Risks related to Product Sourcing 3.1
risks from fluctuations in prices of raw materials
Cotton is the major component of jeans. Generally, market price of jeans has rather low volatility. However, world market price of cotton can also fluctuate and go up unexpectedly which may affect the prices of jeans which is the Company’s major raw material for production. Nevertheless, as the biggest user of jeans, the Company can exert a better negotiation power on raw material pricing with the suppliers. These jeans suppliers are also mostly well-managed and have a good track record of managing the prices of cotton in the past. Moreover, the Company operates its procurement process through an efficient system with proper procurement planning and vendor selection resulting partly in stable gross margins.
3.2
risks from overreliance on a few number of major suppliers (supplier concentration risk)
Top ten suppliers that the Company ordered raw materials and finished goods from made up about 61.3% of the total spending in 2012. In order to reduce the reliance on these major suppliers, the Company initiated and implemented procurement processes that include price comparison and formal bidding processes for volume purchase to enhance the cost advantage of the Company. Besides, the Company frequently updates the vendor lists and continuously seek new vendors and suppliers both locally and internationally while there is an abundance of suppliers of most of the raw materials and finished goods used by the Company.
3.3
risk from reliance on leasing factory and other assets from the majority shareholders
The fact that the Company leased factories and other assets from the majority shareholders to operate the business (details can be found in related party transactions part) gave rises to risks of reliance in business operations. However, leasing provides more flexibility and additional advanctages in moving production base in the future considering the options of expansion of production base through outsourced manufacturers and sourcing base from domestic market to AEC. Thus, this leasing business model allows the Company to gain from higher efficiency in inventory management, better liquidity and likely decreasing costs in case that the Company is able to find lower-cost manufacturers.
4. Legal Risks (related to Laws and other Trade Regulations) 4.1
risks from free trade agreement of AseAn economic Community (AeC)
The union of AEAN Economic Community (AEC) in 2015 will open borders and allow free flows of resources, funds, labour and trades in ASEAN countries. That will result in an intensified competition of products and services from other ASEAN countries to Thailand and in other ASEAN markets as well. With high product quality, affordable prices and fitted designs for asian customers, the Company is confident that our products have the advantages to compete with other foreign brands. Additionally, brand awareness building efforts, sales and distribution expansion to other ASEAN countries together with the in-depth studies the Company is conducting on possibility of moving production base to lower cost countries will further enable the Company to thrive through these competitive threats facing the Company from this free-trade agreement.
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4.2
risks from minimum wage adjustment policy and lack of skilled labour
The recent government policy on adjusting the minimum wage to 300 baht per day made a significant impact on the labour cost of the Company given the fact that textile industry is labour-intensive where labor cost makes up for a big part of the total cost. MC GROUP plc recognized the impacts that the minimum wage policy may have to the business over the short and long run and already tackled the issue by introducing cost-advantage programs such as production efficiency enhancement and lean manufacturing initiative in order to improve efficiency and reduce waste in production. As a result, the labour cost was rising at lower pace than the rate of wage adjustments thanks to the gain in production efficiency.
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sHAreHOLdinG sTruCTure And MAnAGeMenT Security On 18 March 2013, the Company registered as a public company and raised its registered capital. The details of the shareholding structure are: Common share
- Registered Capital
400,000,000
Baht
- Paid-up Capital
300,000,000
Baht
-Common Shares
600,000,000
Shares
- Par Value
0.50
Baht/Share
Dividend Policy The Company shall pay dividend not less than 50% of the net profit in consolidated financial statements after deducting all appropriate reserves and investments in accordance to the applicable laws and the Company’s regulations. However, the dividend payments shall depend on investment plans, necessity, and other rationales. When the Board of Director agrees on the annual dividend payment, the Board must propose to the shareholders meeting for approval with the exception for interim dividend payment. In that case, the Board of Directors can approve the payment and report to the shareholders meeting at the next meeting. As for dividend policies of the subsidiaries, the Company has not fixed a dividend payout ratio but the subsidiaries shall consider the dividend payment policy based on the net after tax profit each year. The dividend payments of subsidiaries shall depend on each company’s investment plans and other rationales and the subsidiaries may pay the interim dividend to the shareholders occasionally.
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Operational Excellence
Production
Chief of Operational Excellence
Nomination and Remuneration Committee
Risk Management Committee
Sales Network Planning
Executive Vice President, Sales
Development
Product Design and New Business
Chief Executive Officer
Management Committee
Board of Directors
Organization Chart of MC GROUP Pcl. as of 20 March 2013:
Brands and Marketing
Chief Information Technology Officer
Human Resource
Strategic Planning
Deputy Chief Operating Officer
Finance and Accounting
Chief Operating Officer
Audit and Risk Management Department
Audit Committee
MAnAGeMenT sTruCTure
MC GROUP Plc’s management structure comprises the Board of Directors who oversees and governs general business operations of the Company and 4 specific subcommittees which are Audit Committee, Executive Committee, Risk Executive Committee and Nomination and Remuneration Committee. The roles and responsibilities of each subcommittee are summarized below:
Board of Directors The Board of Directors is responsible for supervising overall business operations of the Company to be in accordance with the laws, the Company’s objectives, policies and resolutions of the shareholders as well as to comply with rules and regulations of the Stock Exchange of Thailand (SET) and the Securities and Exchanges Commission (SEC). The members of the Board of Directors must exercise good business judgment and act in good faith for the best interests of the Company and all stakeholders including ensure that effective and reliable accounting, financial reporting and audit systems are in place. The 2013 Annual General Meeting reached the resolutions on March 15th 2013 to appoint the Board of Directors and outline its authority, roles and responsibilities. The table below lists the names and positions of appointed members.
Name
Title/Position
1. Mr. Pichai Karnjanarporn
Chairman
2. Mrs .Pratana Mongkolkul
Director/Chairperson of the Executive Committee
3. Ms. Sunee Seripanu
Director/Chief Executive Officer
4. Mr. Virach Seripanu
Director/Chief Operating Officer
5. Mr. Somchai Apiwattanapron
Director/Independent Director/Chairman of the Audit Committee
6. Mrs. Jamnan Siritan
Director/Independent Director/Member of Audit Committee
7. Mr. Supasak Chirasavinuprapand
Director/Independent Director/ Member of Audit Committee
Directors who are authorized to sign on behalf of the Company are Mr. Pichai Karnjanarporn, Ms. Sunee Seripanu, Mr. Virach Seripanu and Mrs. Pratana Mongkolkul. At least 2 of 4 authorized directors must sign off and seal with company’s stamp. The Company currently has 3 independent directors which is in accordance with the corporate governance policies and procedures requiring that at least one third of the Board of Directors be independent (3 out of 7)
roles and responsibilities of the Board of directors 1. Supervise the business so that it is in accordance with the applicable laws, business objectives, company’s rules and regulations, resolutions of the Board of Directors and the shareholders meeting with accountability, prudence, and integrity. 2. Review and approve the Company’s vision, mission, business strategies, business directions, business policies, goals and targets, business models, business plans and budgets of the Company and its subsidiaries as proposed by the Executive Committee and management team. 3. Oversee administration, management and performance of Executive Committee (Chairperson of the Executive Committee/CEO), management team or any person with the same responsibilities to ensure the compliance with policies and procedures that the Board of Directors has set. 4. Continuously monitor business performance of the Company to be in accordance with business plans and budgets. 5. Ensure that appropriate and effective accounting systems are in place as well as internal control and internal audit systems for both the Company and its subsidiaries. 6. Ensure the timely submissions of financial statements at the end of accounting year as well as sign off and propose the financial statements to the Annual General Meeting of Shareholders for approval.
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7. Review the selection and appointment of auditors and appropriate compensations as proposed by the Audit Committee before presenting to the Annual General Meeting of Shareholders for approval. 8. Ensure that official written corporate governance policies are in place and monitor the successful executions of those policies in order to make sure that the Company is accountable for all stakeholders in an equitable manner. 9. Review and approve the appointment of qualified or non-qualified persons under the Public Limited Company Act BE 2535 (1992) (including its amendments), the Securities and Exchange Act BE 2535 (1992) (and its amendments) and announcements, rules and regulations that are related to the appointment of new directors in the case that the position is vacant due to other causes apart from the official resignation. The Board of Directors is also responsible for approving the compensations and remunerations of the directors as proposed by the Nomination and Remuneration Committee. 10. Appoint other subcommittees such as Audit Committee, Executive Committee, Corporate Governance Committee, Nomination and Remuneration Committee, Risk Executive Committee, or any other subcommittees and specify scopes of authorities and responsibilities of those subcommittees to assist them in successfully performing their designated duties. 11. Determine and revise list of directors authorized to sign off on behalf of the Company. 12. Review and appoint executives as defined by the Securities and Exchange Commission or the Capital Market Supervisory Board and the Corporate Secretary as well as determine their remunerations. 13. Seek professional opinions from other organizations to make proper decisions when necessary. 14. Encourage directors and management team to participate in seminar curriculum relating to their roles and responsibilities as provided by Thai Institutes of Directors. In any case, the empowerment of authorities, roles and responsibilities of the Board of Directors shall not allow the authorized person to approve transactions that are prone to conflict of interests (as defined in the Securities and Exchange Commission or the Capital Market Supervisory Board’s announcements) or related parties have vested interests, any benefits or conflict of interests with the Company and its subsidiaries except the approvals that comply with the policies and regulations that were previously approved at the shareholders’ meetings or by the Board of Directors.
Corporate Secretary The Board of Directors has appointed Mrs. Songvilai Jiraphothong, Senior Vice President, Strategic Planning Department as the Corporate Secretary to perform the duties of supervising and preparing meetings of the Board of Directors, subcommittees and shareholders as well as safe keeping related documents and facilitating compliance to corporate governance standards including those in the Securities and Exchange Act.
roles and responsibilities of Corporate secretary 1. Provide basic advices to the directors pertaining to applicable laws governing the Company, The Company’s rules and regulations and ensure strict compliance as well as notify the Board of any significant changes in related laws and regulations. 2. Arrange shareholders meetings and the Board of Directors meetings in accordance with the laws, regulations and related practices. 3. Prepare minutes of the shareholders meetings and the Board of Directors meetings, and monitor that follow-up actions are undertaken in compliance with the resolutions of those meetings. 4. Prepare and keep record of registrations of directors, annual reports of the Company, notices calling shareholders meeting, notices calling directors meeting, minutes of the shareholders meetings and the Board of Directors meetings.
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5. Keep reports of interest filed by directors and executives and submit the copies to the Chairman of the Board of Directors and the Chairperson of the Audit Committee within 7 working days from the date those reports are received. 6. Ensure that corporate information and reports are disclosed to regulatory agencies in accordance with the laws and regulations. 7. Supervise other activities of the Board of Directors and other related matters in accordance with the laws, the announcements of the Capital Market Supervisory Board or as assigned by the Board of Directors.
Â&#x; Audit Committee The Company has appointed the Audit Committee which consists of 3 independent directors. Each member is fully qualified according to the requirements stipulated by the Securities and Exchange Commission and the Capital Market Supervisory Board. As of 15 March, 2013, there are 3 independent directors as follows:
Name
Title/Position
1. Mr. Somchai Apiwattanapron
Chairman of the Audit Committee
2. Mrs. Jamnan Siritan
Audit Committee Member
3. Mr. Supasak Chirasavinuprapand
Audit Committee Member
Mr. Somchai Apiwattanapron, the Chairperson, has adequate knowledge and experience in accounting to audit the credibility of MC GROUP’s financial statements. The appointed Secretary to the Audit Committee is Mrs. Songvilai Jiraphothong
Qualifications of Member of the Audit Committee 1. Holding not more than 1 percent of the Company’s shares with voting rights, or that of any subsidiary, affiliated company, major shareholder or controlling person of the Company, which shall be inclusive of the shares held by any related person of such an independent director; 2. Neither being nor having been an executive director, an employee, a staff member, an adviser who receives a regular salary, or a controlling person of the Company, subsidiary, affiliated company at the same level, major shareholder or controlling person of the Company unless the status has ceased for more than 2 years. 3. Not being a person related by blood or registration under law, such as father, mother, spouse, sibling, or child, including the spouse of the child, of other director, any executive, major shareholder, controlling person or person to be nominated as a director, an executive or a controlling person of the Company or subsidiary company; 4. Neither holding nor having held a business relationship with the Company, subsidiary, affiliated company, majority or controlling shareholder in a manner which may interfere with his/her independent judgment, and neither being nor having been a majority or controlling shareholder or any person having a business relationship with the Company, subsidiary, affiliated company, majority or controlling shareholder unless the relationship has ceased for more than 2 years. 5. Neither being nor having been an auditor of the Company, subsidiary, affiliated company, majority or controlling shareholder, and not being a significant shareholder, controlling person, or partner of an audit firm which employs auditors of the Company, subsidiary, affiliated company, major shareholder or controlling person unless the relationship has ceased for more than 2 years;
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6. Neither being nor having been any professional adviser including legal adviser or financial adviser who receives an annual service fee exceeding Baht 2 million from the Company, subsidiary, affiliated company, major shareholder or controlling person, and not being a substantial shareholder, controlling person, or partner of the professional adviser, unless the foregoing relationship has ended for more than 2 years; 7. Not being a director who has been appointed a representative of the Company’s director, major shareholder, or shareholder related to the major shareholder; 8. Not undertaking any business of the nature which is the same as that of the Company or subsidiary company and which, in any material respect, compete with business of the Company or subsidiary company or not being a substantial partner in the partnership, a director who is involved in management, an employee, a staff member, an adviser who receives a regular salary, or a shareholder holding more than 1 percent of shares with voting rights of a company undertaking any business the nature of which is the same as that of the Company or subsidiary and which, in any material respect, compete with business of the Company or subsidiary; 9. Not having any characteristics that prohibit the expression of independent opinion towards the Company’s business undertakings. 10. Neither being a director whom the Board of Directors has delegated to make decisions on behalf of the Company, subsidiary, affiliated company, major shareholder or controlling person and neither being a director of other public companies, either parental company, subsidiary, affiliated company. 11. Undertake the roles and responsibilities specified in the announcements from the Stock Exchange of Thailand pertaining the qualifications and scope of responsibilities of the Audit Committee. 12. Have sufficient knowledge and experience to perform the duties as a member of Audit Committee.
roles and responsibilities of the Audit Committee 1. Review and audit financial statements on a regular basis in compliance with accounting standards, laws and standards. 2. Review and ensure the effectiveness and appropriateness of the internal control system and internal audit system and review the independence of internal audit function and concur in the appointment, transfer and dismissal of the Internal Audit head or other functions responsible for internal audit. 3. Review the Company’s operations so they are in compliance with the laws related to securities and exchange, the Stock Exchange of Thailand regulations and other applicable laws governing the Company’s business undertakings. 4. Review, select and nominate independent person to be the Company’s auditors and propose their compensations as well as participate in meetings with auditors without the presence of management team at least once a year. 5. Evaluate related party transactions, or transactions with possible conflict of interest in relation to compliance with the laws and regulatory requirements of the Stock Exchange in order to ensure reasonableness of those transactions and the best interests of the Company. 6. Review the effectiveness and appropriateness of risk management processes. 7. Review and propose any amendments to scopes of authority, roles and responsibilities of the Audit Committee according to changing circumstances. 8. Inspect and propose appropriate actions to related parties under the roles and responsibilities of the Audit Committee and may hire experts on specific fields to assist in auditing activities and other related functions.
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9. Prepare the annual Audit Committee Report and disclose in the Company’s annual report signed by the Chairman of the Audit Committee. The report must consist of the following information: 1) Opinions regarding accuracy, completeness and credibility of the financial statements. 2) Opinions regarding adequacy of internal control system of the Company. 3) Opinions regarding compliance to laws and regulations pertaining securities and exchange or other applicable laws governing the Company’s business. 4) Opinions regarding eligibility of the auditor. 5) Opinions regarding transactions with possibility of conflict of interests. 6) Number of meetings conducted by the Audit Committee and the attendance of each director. 7) Opinions or overall observations regarding the Audit Committee’s duties as specified in the Audit Committee’s Charter. 8) Other information that shareholders or investors should be informed of under the Audit Committee’s duties as assigned by the Board of Directors. 10. Report the Board of Directors of any suspicion on the following transactions or actions that may significantly impact financial position and performance of the Company to ensure timely responses as advised by the Audit Committee: 1) Transactions with potential conflict of interests 2) Corruption, abnormality or any significant flaw of the internal control system 3) Violation of laws pertaining securities and exchanges, Stock Exchange’s principles or applicable laws governing the Company’s business. In case that the Board of Directors or executives fails to take appropriate actions in timely manner, one of the members of the Audit Committee may report that transaction or action with potential conflict of interests to the Office of Securities and Exchange Commission or the Stock Exchange. 11. Perform any duties as assigned by the Board of Directors and agreed by the Audit Committee.
The same level as “Roles and Responsibilities of the Audit Committee” The Audit Committee shall report directly to the Board of Directors and the member shall hold office for a term of 3 years from the appointed date. The retiring member of the Audit Committee may be re-appointed.
Executive Committee The Board of Directors shall appoint a number of Directors as deemed appropriate to become members of the Executive Committee supervising the Company’s business as assigned by the Board of Directors. Out of these members, one shall be appointed Chairperson of the Executive Committee. As of 20 March 2013, the Executive Committee comprises of 3 members, namely:
Name
Title/Position
1. Mrs. Pratana Mongkolkul
Chairperson of the Executive Committee
2. Ms. Sunee Seripanu
Executive Committee Member
3. Mr. Virach Seripanu
Executive Committee Member
roles and responsibilities of the executive Committee 1. Formulate overall policies, strategies and management structures in order to undertake the Company’s business properly under economic environment and competition facing the business and propose to the Board of Directors for approval. 2. Approve business plans, budgets and scopes and levels of authorities of the Company and propose to the Board of Directors for approval. 3. Examine and monitor performance of the Company so it is in accordance with the approved polices and business plans and undertaken with efficiency and effectiveness.
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4. Review and approve any contract and transaction entering related to usual business operations (ie. trading, investments, joint ventures in order to carry normal business transactions and to achieve the business’ objectives) within the limit of 50,000,000 (fifty million) baht or equivalent per transaction. 5. Review and approve borrowings, credit/loan applications from financial institutions including lending, pledge, mortgage or being a guarantor by the Company or its subsidiaries under the limit of 50,000,000 (fifty million) baht or equivalent per transaction. 6. Review and approve the Company’s projects and initiatives and report to the Board of Directors of projects’ progress. 7. Manage overall risk of the Company, evaluate risks and design risk management structure of the Company. 8. Authorize a person or a group of persons to undertake specific duties under the monitoring of the Executive Committee or delegate person or group of persons with authorities as deemed appropriate and within the time period agreed by the Executive Committee. The Executive Committee shall cancel, revoke, change or withdraw that authorized person or that authorization as deemed appropriate. 9. Review and approve contacts, affairs and register with government agencies on behalf of the Company to achieve business’ objectives of the Company. 10. Review and approve salary adjustments, annual bonus and other compensations and benefits for the employees (except Executive Committee members). 11. Undertake any duties or tasks assigned by the Board of Directors.
Risk Management Committee As of 20 March 2013, Risk Management Committee comprises 3 members as follows
Name
Title/Position
1. Mr. Somchai Apiwattanapron
Chairman of the Risk Executive Committee
2. Mrs. Jamnan Siritan
Risk Executive Committee Member
3. Mr. Supasak Chirasavinuprapand
Risk Executive Committee Member
Mrs. Songvilai Jiraphothong was appointed as the Secretary to the Risk Executive Committee.
roles and responsibilities of the risk executive Committee 1. Formulate policies related to risk management covering all different kinds of risks in undertaking and managing business of the Company. 2. Review and approve risk management plans. 3. Ensure that necessary risk management team is in place and support risk management team on its manpower, budget and other resources necessary to undertake their duties within their scope of responsibilities. 4. Monitor and follow up all risk management activities from risk identification and evaluation, risk analysis, to evaluation of risk management and ensure systematic risk management monitoring and reporting. 5. Encourage and support the Company to have proper risk management processes in all business units including continuously assess risk management activities. 6. Report the Board of Directors of significant risks and risk management activities on a regular basis.
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Same level as “Roles and Responsibilities of the Risk Management Committee” The Risk Executive Committee shall report directly to the Board of Directors and the member of the Risk Executive Committee shall hold office for a term of 3 years from the appointment date. The retiring member can also be re-appointed.
Nomination and Remuneration Committee As of 20 March 2013, Nomination and Remuneration Committee consists of 3 members as appointed by the Board of Directors, namely:
Name 1. Mr. Somchai Apiwattanapron
Title/Position Chairman of the Nomination and Remuneration Committee
2. Mr. Supasak Chirasavinuprapand
Nomination and Remuneration Committee Member
3. Mr. Virach Seripanu
Nomination and Remuneration Committee Member
Mrs. Songvilai Jiraphothong was appointed as the Secretary to the Nomination and Remuneration Committee.
roles and responsibilities of the nomination and remuneration Committee 1. Review and select qualified candidates to be appointed as directors of the Company. 2. Verify backgrounds and other information of selected persons with the considerations of their knowledge, skills, experience and expertise from various professions and ensure that all the qualifications must be in line with applicable laws and the Company’s rules or principles. 3. Set procedures, guidelines of selection and provide opinions or suggestions related to selection process. 4. Nominate suitable candidates to be appointed as directors of the Company. 5. Recommend proper adjustments and improvements to Nomination Committee Charter and propose to the Board of Directors for approval. 6. Propose policies and principles related to remunerations of directors and top management. 7. Evaluate the performance of the Company’s directors annually 8. Review and determine remunerations of the Company’s directors (with respect to the Company’s performance and industry benchmark), other compensations as approved at shareholders meetings and expenditure related to these remunerations in the previous year and propose to the Board of Directors and shareholder meetings. 9. Review and allocate remunerations to the members of the Board of Directors and other subcommittee members individually with respect to their roles and responsibilities within the amounts approved by shareholders. 10. Recommend proper adjustments and improvements to Remuneration Committee Charter and propose to the Board of Directors for approval. 11. Undertake duties as assigned by the Board of Directors.
Same level as “Roles Responsibilities” The Nomination and Remuneration Committee shall report directly to the Board of Directors and the member of the Nomination and Remuneration Committee shall hold office for a term of 3 years starting from the appointment date. The retiring member can also be re appointed.
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executives As of 20 March 2013, MC GROUP Plc consists of 7 executives as follows:
Name
Title/Position
1. Mr. Pichai Karnjanarporn 1/
Chairman
2. Ms. Sunee Seripanu
Chief Executive Officer Chief of Operational Excellence (Acting)
3. Mr. Virach Seripanu
Chief Operating Officer
4. Ms. Kantima Lerlertyuttitham
Deputy Chief Operating Officer
5. Ms. Yupin Luisiri
Chief Information Technology Officer
6. Ms. Sangkae Hanvanich
Executive Vice President, Sales
7. Ms. Peyanuch Prepraemvatana
Senior Vice President, Finance and Accounting
Note
.Even though Mr.Pichai Karnjanarporn is holding the Chairman position, he participates in day-to-day business operations and management as other executives and is paid monthly salaries. Thus, the Company includes him as one of the executives.
1/
roles and responsibilities of the Chief executive Officer (CeO) The Board of Directors meeting No.1 /2556 reached the resolutions on the scopes of authority, roles and responsibilities of the Chief Executive Officer (CEO) as follows: 1. Supervise, manage, operate business and perform regular duties required to undertake business for the best interest of the Company and in accordance with the Company’s polices, vision, goals, business plans and budgets as designated by the Board of Directors meetings and/or as assigned by the Executive Committee. 2. Manage the Company’s business so that it is in line with its mission as defined by the Executive Committee and corresponds to business plans, budgets and related business strategies as designated by the Board of Directors and/or the Executive Committee. 3. Supervise overall finance, marketing, human resources and other functions according to policies and plans as designated by Board of Directors and/or the Executive Committee. 4. Entitled to hire, appoint, transfer, remove or terminate employees and approve wages and compensations in case of employees ranking lower than executive level as well as delegate any person to perform specific duties. 5. Approve rewards, salary adjustments, compensation, special bonus apart from salary and annual bonus under the approval of the Executive Committee. 6. Negotiate and enter contracts, agreements or transactions related to the usual business of the Company (eg. investments in shop opening, new machines and other asset purchases according to the budget approved by the Board of Directors including procurements and sales etc.). The authorized amount shall comply with the Board’s approved authorized levels but within the limit amount of 30,000,000 (thirty million) baht per transaction. 7. Review and approve borrowings/loans between the Company and its subsidiaries. 8. Issue orders, practices, announcements and records of the Company to ensure that the Company is operating in accordance with its policies and its best interest as well as proper code of conducts of the Company. 9. Perform other duties as assigned by the Board of Directors and/or the Executive Committee and entitled to undertake necessary actions related to those duties.
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In any case, the designation of the authorities, duties and responsibilities of the CEO must not allow the authorities to approve actions or transactions that the CEO or other related parties have vested interests or conflicts of interests with the Company and/or its subsidiaries. On that matter, the CEO is not authorized and must propose to the Board of Directors’ meetings and/or shareholders’ meetings (depending on the case) except the approvals of transactions complying with usual business doings and trade conditions.
Nomination of Directors and Executives According to the Company’s rules, at each Annual General Meeting of Shareholders, one-third of the directors-or the number nearest to one-third if the number is not a multiple of three-must retire from office. The directors who have been in office the longest shall retire first. Retiring directors may be re-appointed. The Board of Directors established the Nomination and Remuneration Committee to select and review qualified candidates nominated to the position of director conforming to regulatory statutes of the Company and agreed by the Board of Directors before proposing to the Shareholders’ Meetings for approval.
nomination of directors must be in line with the following rules: -
A Director may or may not be a shareholder.
-
The Company shall appoint not less than 5 directors; not fewer than half of all directors shall reside in the Kingdom of Thailand.
The Company also specified the structure of the Board of Director in conformity with good corporate governance policies ie. the Board of Directors shall consist of independent directors at least one third of the number of the directors in the Board of Directors.
The Board of directors The Nomination and Remuneration Committee is responsible for searching and nominating suitable persons to hold director position. The Nomination and Remuneration Committee must review the qualifications of the candidates with respect to the Company’s strategies and in conformity with structure and component of the Board as specified by the Board of Directors. The candidate must be qualified in terms of knowledge and skills, experience, expertise, devotion and must have other qualifications complying with Public Limited Company Act 1992 (and its amendments), Securities and Exchange Act 1992 (and its amendments), related announcements from the Securities and Exchange Commission and the Capital Market Supervisory Board. In any case, appointment of the directors must be approved Board of Directors meetings and/or shareholders meetings (depending on the case).
Audit Committee For the selection and nomination of the Audit Committee member, the suitable candidate have good qualifications in conformity with the definition of Independent Directors according to the rules and principles set by the Securities and Exchange Commission and the Stock Exchange.
Qualifications of independent directors Number of independent directors must be at least one third of the total number of directors of the Company and not less than three and must have qualifications conforming to these requirements: 1. Holding not more than 1 percent of the Company’s shares with voting rights, or that of any subsidiary, affiliated company, major shareholder or controlling person of the Company, which shall be inclusive of the shares held by any related person of such an independent director;
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2. Neither being nor having been an executive director, an employee, a staff member, an adviser who receives a regular salary, or a controlling person of the Company, subsidiary company, associated company, subsidiary company at the same level, major shareholder or controlling person of the Company unless the foregoing status has ended for more than 2 years except the case that the independent director used to work for or be an advisor to an government agency who is the majority shareholder or the controlling person of the Company; 3. Not being a person related by blood or registration under law, such as father, mother, spouse, sibling, or child, including the spouse of a child, of other director, any executive, major shareholder, controlling person or person to be nominated as a director, an executive or a controlling person of the Company or subsidiary company; 4. Neither holding nor having held a business relationship with the Company, subsidiary company, associated company, major shareholder or controlling person in a manner which may interfere with his/her independent judgment, and neither being nor having been a substantial shareholder or a controlling person of any person having a business relationship with the Company, subsidiary, affiliated company, major shareholder or controlling person unless the foregoing relationship has ended for more than 2 years. 5. Neither being nor having been an auditor of the Company, subsidiary company, associated company, major shareholder or controlling person, and not being a substantial shareholder, controlling person, or partner of an audit firm which employs auditors of the Company, subsidiary company, associated company, major shareholder or controlling person unless the foregoing relationship has ended for more than 2 years; 6. Neither being nor having been any professional adviser including legal adviser or financial adviser who receives an annual service fee exceeding Baht 2 million from the Company, subsidiary company, associated company, major shareholder or controlling person, and not being a substantial shareholder, controlling person, or partner of the professional adviser, unless the foregoing relationship has ended for more than 2 years; 7. Not being a director who has been appointed as a representative of the Company’s director, major shareholder, or shareholder related to the major shareholder; 8. Not undertaking any business the nature of which is the same as that of the Company or subsidiary company and which, in any material respect, compete with business of the Company or subsidiary company or not being a substantial partner in the partnership, a director who is involved in management, an employee, a staff member, an adviser who receives a regular salary, or a shareholder holding more than 1 percent of shares with voting rights of a company undertaking any business the nature of which is the same as that of the Company or subsidiary company and which, in any material respect, compete with business of the Company or subsidiary; 9. Not having any characteristics that prohibit the expression of independent opinion towards the Company’s business undertakings.
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129
Ms. Sunee Seripanu
Mr. Virach Seripanu
Mrs. Pratana Mongkolkul
Mr. Somchai Apiwattanapron
Mrs. Jamnan Siritan
Mr. Supasak Chirasavinuprapand
2.
3.
4.
5.
6.
7.
Position
Total
Nomination and Remuneration Committee
Management Committee/Member of the
the Audit Committee/Member of the Risk
Director/Independent Director/Member of
Management Committee
the Audit Committee/Member of the Risk
Director/Independent Director/Member of
Committee
of the Nomination and Remuneration
Risk Management Committee/Chairperson
of the Audit Committee/Chairperson of the
Director/Independent Director/Chairman
Committee
Director/Chairperson of the Management
Remuneration Committee
Committee/Member of the Nomination and
Director/Member of the Management
Committee
Director/Member of the Management
Chairman of the Board of Directors
Board of Directors 6 Meetings
3/6
3/6
2/6
5/6
6/6
6/6
6/6
MC GROUP Pcl.
1/1
1/1
1/1
x
x
x
x
Audit Committee and Risk Management Committee 1 Meeting
x
x
x
x
x
x
x
Normination and Remuneration Committee 0 Meeting
Meeting Attendance (Meeting)
In 2012, the Company paid remuneration of totally Bath 49.9 million, including salaries bonuses, and allownces
Remuneration of Executives
Mr. Pichai Karnjanarporn
1.
Directors’s name
Board of Meeting Attendance and Remuneration of Directors
560,000
70,000
70,000
70,000
70,000
70,000
70,000
140,000
Board of Directors
140,000
40,000
40,000
60,000
x
x
x
x
Audit Committee and Risk Management Committee
x
x
x
x
x
x
x
Normination and Remuneration Committee
700,000
110,000
110,000
130,000
70,000
70,000
70,000
140,000
Total of Monthly Fee
Director Remuneration (Bath)
1,340,000
170,000
170,000
130,000
150,000
200,000
200,000
320,000
Total of Meeting Fee
Total
2,040,000
280,000
280,000
260,000
220,000
270,000
270,000
460,000
CORPORATE GOVERNANCE The Company’s Corporate Governance The Company recognized the importance of good corporate governance in conducting its business. Hence, the Company follows the guideline of the the Code of Best Practices for Directors of Listed Company set by the Stock Exchange of Thailand with respect to suitability and practicality to the Company. Moreover, the Company applies the Principles of Good Corporate Governance For Listed Companies (2006) in establishing internal rules deployed in developing policies that includes rights of shareholders, fair treatment of shareholders, roles of stakeholders, information disclosure and transparency, responsibilities of the Board of Directors as follows.
1. Rights of Shareholders The Company recognized the importance of the Rights of Shareholders and shall not act in a manner that violates or diminishes any right of shareholders. The Company advocates exercising of basic Shareholder rights such as the purchase, sell or transfer of shares, the dividend policy, adequate pass-through of Company’s information, participation in shareholders’ meeting (for removal of directors), the appointment of auditors, and any matter that will impact the Company such as dividend payouts, rules and regulations setting and revision, Memorandum of Association, increase or decrease of share capital and other special approvals. The Company shall act in its capacity to best encourage its shareholders to exercise their rights including but not limited to: -
The Company shall send out meeting notice shareholders meeting and supporting documents 7 days before the scheduled meeting (or any duration in accordance with the law). The notice will detail meeting agenda and pertinent documents including comments of the Board of Directors, the proxy form (per Ministry of Commerce’s designation) and names of independent member of Board of Directors represented in order for the shareholders to delegate their representation in the Shareholder Meeting The notice shall include maps and direction to the meeting’s venue. The meeting notice shall provide the list of documents that shareholders are required to present on the meeting day in order to exercise the right as shareholder in attending and voting in the Shareholder Meeting according to the protocol of Shareholder Meeting procedures. Furthermore, shareholders may find additional information relating to rules and regulation about the Shareholder Meeting at www.mcgroupnet.com
-
In the event that shareholders are not able to attend the Shareholder Meeting, the Company allows shareholders to delegate their rights to the independent member or any other persons whom the shareholder might wish to appoint as proxy to cast their votes on their behalf.
-
Each Shareholder Meeting, the Chairman of the meeting will inform attendees of the rules to be observed in the meeting including the process of voting and allocation of time for the meeting.
-
During the Shareholder Meeting, the Chairman will assume equal rights to each shareholder in asking questions, voice opinions or recommendations. The Board of Directors and relevant members of the Management will be present in the meeting in order to respond to any query or recommendations that shareholders may have and will consider the actions to take forward as appropriate. After the meeting, the Company will prepare a comprehensive Shareholder Meeting report within 14 days after the meeting day and will submit the Shareholder Meeting report to the relevant department and make the report available to the public by releasing the report in the company’s website for shareholders and stakeholders for revision.
2. Equitable Treatment of Shareholders The Company will act impartially to all shareholders including shareholders who are management, non-management, foreign and minority with the following guidelines
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-
Conduct Shareholder Meeting as in accordance with the agenda in the notice of Shareholder Meeting and will not deviate from the agenda without notifying shareholders in advance especially on the important matter that would require significant time to assess the information prior to rendering decisions.
-
Allow minority shareholders to nominate directors by submitting the nominee’s information and consent letter to the Chairman of Board of Directors in advance within the terms set by the Company.
-
Encourage shareholders to use the ballots in each and every agenda item in which the ballots will be collected in the meeting for the vote counting before the announcement of the meeting’s resolution. For transparency, the Company shall safe keep the ballots by shareholders and their proxies for audit purpose.
-
Prepare meeting’s minutes that is complete and accurate and submit it to The Stock Exchange of Thailand within 14 days after the meeting date and make the minutes available to the public via the Company’s website.
-
Recognize the importance of making the material and significant information about the company available to the shareholder in a complete, accurate and timely and transparent manner. This information disclosure will be conducted on an on-going basis.
-
The Company’s policy and procedure (for directors and the management of the Company) in preventing private corporate information from personal use are: 1. Regularly inform directors and members of the Management team about their responsibilities to disclose/declare their ownerships of securities themselves their spouses, minor children to the Office of Securities and Exchange Commission according to Section 59 and penalty according to Section 275 of the Stock Exchange of Thailand Act BE 2535 (1992) (and its amendments). Moreover, they must report every change in their holding of those securities, i.e. by any purchase, sale, transfer, or obtaining the transfer of securities and stock futuresas required by Section 246 and penalty according to Section 298 of the Stock Exchange of Thailand Act BC 2535 (1992) (and its amendments) 2. Require directors and executives including their spouses and minor children to disclose/declare ownerships of assets and report any changes in ownerships of the Company’s security to the Office of Securities and Exchange Commission according to Section 59 and penalty according Section 275 of the Stock Exchange of Thailand Act BE 2535 (and its amendments) and present a copy of the report to the Company on the same day of submission to to the Office of Securities and Exchange Commission. 3. Directors, executives, employees and workers of the Company and its subsidiaries who obtained inside information that can influence the Company’s stock price must be prudent in acting on those information in relation to the sales and purchase of the Company shares particularly during one month before the release of the official financial statement or any other inside information which is expected to be made public and within twenty four hours after the release of those information to the public, the individual who obtain insider information must not act on those information until they have been provided to the Stock Exchange of Thailand. Any person who did not comply will be in violation of the Company’s rule and appropriate disciplinary measures will be taken including verbal warning, official warning letter, suspension or termination of employment. 4. Directors, management, regular employees of the Company are not allowed to act on inside information which can influence Company’s stock price including direct purchase or sales of stock or induce others to do so in any manner regardless of who is the beneficiary of the transactions.
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3. Roles of Stakeholders The Company recognizes the importance of all stakeholders and will do its best to serve all parties
Shareholders The Company is determined to protect shareholder’s interest in managing long term equity value of the company with consistent return and maintain integrity and transparency.
Employees Human resource is a crucial element for success of the Company, hence, we have nurtured a culture and supporting environment which encourage team work and while respecting individuality. The Company treats employment, appointment and transfer on a fair basis in order to maximize the use of human resource for the best interests of the Company. Furthermore, the Company takes health and safely in the workplace very seriously and ensures that all business units comply strictly with the labor law. Furthermore, the Company respects employees’ privacy in that it will not share information such as salary, medical record and family history to any irrelevant person unless required by law.
Customers With its quality products at competitive pricing, the Company aim to achieving highest level of satisfaction and confidence from its customers. -
Products and services: the Company aims to continuously improve its standards and declare to its customers of any development or change in products and services in an accurate, complete and honest manner.
-
Directors, executives, employees and workers will not share customer’s information without prior approval from the customer or authorized person unless required by law.
Business Partners and/or Creditors or Debtors In conducting business, the Company believes in long term value of good reputation which is built on the foundation of mutual partnerships which we believe is a key factor in maximizing values with customers. The Company stands firm on its commitments to its creditors and will honor its obligations of repayment of principals, interests and others.
Competitors The Company encourages free markets with fairness and is against obtaining unfair advantage which is in conflict with the laws and ethical standards.
Community As a Thai Company, we are accountable to our community in which we benefit from and support the development of the local communities in which the Company conducts business activities. The Company supports environmentally responsible products and services and act according to the relevant environmental law. The company supports activities that encourage preservation of nature and conservation of energy and actively engages in supporting environmentally responsible products. Moreover, stakeholders may seek more information, file complaints or report suspicious dealings, correctness of financial statements, erroneous internal control or unethical business conduct via independent directors or Audit Committee. The complaints and reports will be protected and kept confidential. The directors or member of the Audit Committee will take charges in investigating, proposing actions to rectify and report to the Board of Directors as necessary.
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4. Information Disclosure and Transparency The Company recognized the importance of disclosure of accurate, transparent corporate information in a timely matter and has adopted the standard provided by the Stock Exchange of Thailand or the Securities and Exchange Commission including financial reporting and other information disclosure that can influence the Company’s stock price, decision of investors and other stakeholders. All relevant individuals are treated fairly in terms of information dissemination whereby the Company will release the information through the Stock Exchange of Thailand and via the Company website at www.mcgroupnet.com The Board of Directors recognized the responsibilities to prepare the consolidated financial statement including reporting financial performance to shareholder at the Annual General Shareholder Meeting and maintain quality of financial reporting to be in line with the Generally Accepted Accounting Principles with review from reputable Auditor and have flexibility in applying accounting standards. Directors also manage consolidated financial performance in terms of correctness and completeness. Furthermore, the Board of Directors has appointed the Audit Committee to review and audit financial reports for completeness and transparency as specified by the guidelines for the Listed Company and ensure adequate internal control and reporting in relation to conflict of interests, appropriateness and reasonableness before presenting to the Board of Directors for consideration and approval. The Company has also formed an investor relations unit to manage various corporate information for interested parties namely shareholders, analysts and investors.
5. Responsibility of Board of Directors 1 Structure of the Board The Board of Directors comprises individuals with knowledge, expertise and experience in the conducting the business and is able to provide recommendations on matters relating to management of the Company such as policies, vision, strategies, targets, duties, business plans, budgets and management appraisal. This is to ensure that the management is able to effectively conduct its business within the scope of the law, objectives, and resolution of shareholders with integrity, prudence in order to maximize shareholder value. The Board of Directors consisted of 7 directors and 3 independent directors who are qualified as members according to the announcements of Capital Market Supervisory Board and the Stock Exchange of Thailand. Directors shall not hold the same position for more than 5 listed companies. In event that the director holds the same position for more than 5 listed companies, the Board of Directors will evaluate the effectiveness of his or her capacity in order to maintain his or her role for the Company. The Board of Director shall have specified terms of services according to the Company’s rules and procedures. At each Annual General Meeting of Shareholders, one-third of the directors-or the number nearest to one-third if the number is not a multiple of three-must retire from office.
2 Subcommittees and Corporate Secretary The Company shall, from time to time, set up additional subcommittees as deemed appropriate with specific objectives to assess certain aspects of business more effectively. This will be approved by the Board of Directors. The subcommittee will report the progress and achievements to the Board of Directors in the specified period. Additionally, the Board of Directors will appointed Corporate Secretary as required by the Stock Exchange Act BE 2551 (2008). Currently, the Company has appointed the following subcomittees: 1. Audit Committee - comprising Independent directors not less than 3 and at least 1 person, have strong knowledge in accounting and finance. 2. Nomination and Remuneration Committee-comprising at least 2 independent directors (with the ratio of independent directors of no less than 2/3 of total number of directors and with an independent director as the Chairman of the Committee).
133
3. Risk Management Committee - comprising at least 3 independent directors and with an independent director as the Chairman of the Committee. 4. Corporate Secretary - appointed by the Board of Directors to foresee secretariat duties as specified by the law. The Chairman of the Board of Directors shall not undertake the Chief Executive Officer (CEO) role in order to maintain balance and control and facilitate in effective management assessment. The Company has stipulated roles and responsibilities of the Chairman and the CEO and maintained clear distinction of duties. The company has appointed the Corporate Secretary with stipulated roles and responsibilities as follows:
3. Roles and Responsibility of Directors The roles and responsibilities of the Board of Directors are to conduct business as approved by shareholders and according to the laws and resolutions of the Shareholders and Board of Directors Meetings. However, the Board of Directors must exercise judgments in business decision making and act prudently and with integrity to for the best interests of the Company.
Corporate Governance Polices The Company has written policies on its business conduct in which the Board of Directors reviews and monitor annually. After the Company is listed in the Stock Exchange, the Company shall uphold the rules and regulations set by the Capital Market Supervisory Board, the Securities and Exchange Commission and the Stock Exchange of Thailand and will report its business activities in its annual report and 56-1 form.
Business Ethics The Company (the Board of Directors, Executives and employees) shall uphold the highest standard of ethics such as protecting of Company’s private information, performing assigned duties with honesty and respect to the laws, honoring other rights, and protecting the assets of the Company and the environment.
Conflict of Interests The Company has set policy to mitigate conflict of interests in order for the business to focus only on maximizing the Company’s value in which any person who appears to be benefiting on another’s disadvantages will be assessed and those who are involved in the potential conflict of interest will have no involvement in the consideration in approving any business dealings. Any transactions that result in conflict of interests relating to trade conditions not conforming general practices, must be presented to the Board of Directors for considerations and approvals. The Board of Directors shall review appropriateness carefully before bringing the matter to be discussed at the Board meeting and/ or shareholder meeting (on case by case basis). The Company must always act according to the rules and regulations set by the Capital Market Supervisory Board, the Securities and Exchanges Commission and/or the Stock Exchange of Thailand (whichever applicable).
Internal Control and Internal Audit The Board of Directors has established internal control in various business aspects to facilitate the Company in meeting its goals within the frameworks and has set up an audit mechanism to protect the capital of shareholders and asset of the Company. The Board has also set approving authorities and outline responsibilities of executives and employees clearly in writing. Internal control department was formed to examine and monitor all business units’ operations to comply with rules and regulations. The Audit Committee role is to continuously monitor business dealings to ensure effectiveness of internal control and credible financial reporting system. The Audit Committee is also responsible for reporting the audit results and review internal control of the Company.
134
Report of the Board of Directors The Audit Committee shall review financial reports and present the financial reports to the Board of Directors every quarter. The Board of Directors is accountable for the financial statements of the Company and must ensure the preparation of the financial report is in compliance with the GAAP (Thai) and reviewed by the qualified auditors. The Board shall also choose appropriate policies and practices in the financial accounting and maintain standards in disclosing information in both the main financial statements and the footnotes to the financial statements.
Board of Directors Meetings The Company stipulated that the Board conduct meetings at least once every quarter with additional meeting as necessary and send out meeting notice to the Board members to review 7 days prior to the scheduled meeting date except in any urgent matter that may significantly impacts the Company. Each meeting will have clear agenda with supporting documents, which are comprehensive and submitted to the Board in advance. During the meeting, each director shall be allocated sufficient time for discussion and allowed to freely expressing their opinions. Pertinent executives of the Company shall be invited to attend the meeting to provide related information and to directly acknowledge related policies. The Company shall ensure that the Board receives adequate information in a timely manner prior to the scheduled meeting. However, the Board may contact the Corporate Secretary to provide consultation on the matter or for any additional information.
Development program for Directors and Executives of the Company The Board of Director encourages and facilitates training and other programs related to good corporate governance of the Company for pertinent persons such as directors, members of the Audit Committee, executives to ensure continuous improvements. Once there is any change in directors, the Corporate Secretary shall prepare documents that will be useful to the new director including provisions of the overview of the business.
Supervision of the Use of Inside Information The Company has the following policies and procedures to protect against unduly uses of inside information that is not yet disclosed to the public for personal benefits as follows: 1. Regularly inform directors and members of the management team about their responsibilities to disclose/declare their ownerships of securities themselves their spouses, minor children to the Office of Securities and Exchange Commission according to Section 59 and penalty according to Section 275 of the Stock Exchange of Thailand Act BE 2535 (1992) (and its amendments). Moreover, they must report every change in their holding of those securities, i.e. by any purchase, sale, transfer, or obtaining the transfer of securities and stock futures as required by Section 246 and penalty according to Section 298 of the Stock Exchange of Thailand Act BC 2535 (1992) (and its amendments) 2. Require directors and executives including their spouses and minor children to disclose/declare ownerships of assets and report any changes in ownerships of the Company’s security to the Office of Securities and Exchange Commission according to Section 59 and penalty according Section 275 of the Stock Exchange of Thailand Act BE 2535 (and its amendments) and present a copy of the report to the Company on the same day of submission to the Office of Securities and Exchange Commission.
135
3. Directors, executives, employees and workers of the Company and its subsidiaries who obtained inside information that can influence the Company’s stock price must be prudent in acting on those information in relation to the sales and purchase of the Company shares particularly during one month before the release of the official financial statement or any other inside information which is expected to be made public and within twenty four hours after the release of those information to the public, the individual who obtain insider information must not act on those information until they have been provided to the Stock Exchange of Thailand. Any person who did not comply will be in violation of the Company’s rule and appropriate disciplinary measures will be taken including verbal warning, official warning letter, suspension or termination of employment. 4. Directors, management, regular employees of the Company are not allowed to act on inside information which can influence Company’s stock price including direct purchase or sales of stock or induce others to do so in any manner regardless of who is the beneficiary of the transactions.
Internal Control System At the meeing of the Audit Committee No.1/2556 on 20 March 2013 with the presence of all 3 members of the Audit Committee, the Audit Committee has reviewed the adequacy and effectiveness of the internal control system of the Company based on the internal control adequacy evaluation form of the Office of Securitites and Exchange Commission in 5 components as follows: 1. Organization and Work Environment : The Company encouraged good work environment by setting proper management structure suitable with the Company’s size and business. The Company must ensure that all units comply with best practices of good corporate governance and written policies and Code of Conduct for employees and management team are in place. 2. Risk Management : The Company ensured the sufficiency and effectiveness of its risk management in all business units and processes. Risk analyses, evaluations and monitoring were peformed regularly under the guidelines of the Company in order to prepare risk management and mitigation measures necessary to the Company’s business. 3. Supervisoin of Management Team : The Company specified scopes of roles, authorities and approval limits of management team at each level in written documents. Roles related to approvals, record keeping and asset management are separated. 4. Information System and Communication : The Company recognized the importance of accuracy, credibility and timeliness of information. Hence, continuous development in information system including finance operation and compliance is deemed to be necessary for better decision making. 5. Monitoring System : The Company ensured an adequate monitoring system at all levels of operations. Grant Thornton Specialist Advisory Services Co., Ltd. (“Grant Thornton”) was appointed as its auditor to work alongside with internal audit department of the Company. The auditor reported the audit result to the Audit Committee quarterly and submitted summarized reports to the Board of Directors for timely corrective actions. The Audit Committee has reviewed the Company on the adequacy and effectiveness as well as continuous improvements of the internal control system focusing on operational evaluations and reported the results to the Board of Directors. The Audit Committee reached to a conclusion that the Company’s internal control system is adequate, suitable and in accordance with relevant laws and other corporate governance practices and procedures. With regard to the auditor’s findings, KPMG Phoomchai Audit Ltd. as the Company’s external auditor, audited and evaluated the effectiveness of the Company’s internal control system and found no significant issues related to the Company’s internal control system.
136
directors.
Relationships: shareholders and
Mr. Virach Seripanu
Ms. Sunee Seripanu
1. Mr. Pichai Karnjanarporn
Related Party
Related Party Transactions
The Company acquired assets from Ms. Sunee Seripanu
99.97%
- Mc Jeans Manufacturing Co., Lt.d
- P.K. Garment (Import-Export) Co., Ltd. 99.99%
6.20
1.00
250.00
agreed that it was fair and reasonable.
and based on market prices. The Audit Committee reviewed and
The transaction was for the Company’s usual business undertakings
Manufacturing Co., Ltd. as its subsidiaries.
and establish P.K. Garment (Import-Export) Co., Ltd. and Mc Jeans
follows:
Rationale The investments were to support the restructuring of the Company
Value as of 2012 (Million Baht)
The Company invested in shares from previous shareholders as
Type of Transactions
For the accounting year ending 31 December 2012, the Company has disclosed its related party transactions under announcements of Stock Exchange of Thailand regarding rules, principles, conditions and methods on disclosure of related party transaction of public companies. The details are summarized below.
The Company and its subsidiaries agreed to enter transactions with related parties. Those transactions are usual business undertakings of the Company and its subsidiaries under general trade conditions confirming to rules and principles set by Securities and Exchange Act BE 2551 (Vol.4) Section 89/12 (1). The Board of Directors approved in principle on 28 February 2013 to empower management team to execute related party transactions under general trade conditions. The management team can enter into those transactions under the conditions that they have the same terms and conditions as general contract parties will do in same circumstances and without exercising power as a director, management or related person to influence the negotiation.
RELATED PARTY TRANSACTIONS
137
138
directors
Ms. Sunee Seripanu as majority shareholders and
- Leased cars (from January-August 2012)
and public utility (from January-September 2012)
- Leased land and office building at Siphraya including office supplies
following transactions with Millennium Co., Ltd.
Relationships: Mr. Pichai Karnjanarporn,
P.K. Garment (Import-Export) Co., Ltd., a subsidiary, entered into the
(previously Mc Co., Ltd.)
of PK2 factory to PK Grand Co., Ltd.
- P.K. Garment, Co., Ltd., a subsidiary, sold land and factory building
- Lands for commercial billboards in Singburi and Ratchaburi.
August 2012)
- Land and a factory building from PK Bangpakong (from January-
0.42
3.98
46.30
0.35
0.24
of prices from independent professional valuers after the restructuring.
The Audit Committee reviewed the transaction and suggested the use
restructuring.
the use of prices from independent professional valuers after the
ing. The Audit Committee reviewed the transaction and suggested
ness undertakings. Lease fees were as agreed before the restructur-
The lease agreements of sales office and cars were for usual busi-
fair and reasonable.
The Audit Committee reviewed and agreed that the transaction was
were based of those performed by independent professional valuers.
This sales agreement was to support the restructuring. Selling prices
transactions were fair and reasonable.
independent valuers and the Audit Committee deemed that the
restructuring, lease prices were based on prices performed by
informed of these transactions before the restructuring. After the
changing the shareholding structure. The Audit Committee was
at contractual agreed prices from January to August 2012 before
for commercial billboards in order to undertake normal business
following assets
Rationale The factory building was used for production and the lands were
Value as of 2012 (Million Baht)
P.K. Garment (Import-Export) Co., Ltd., a subsidiary, leased the
Type of Transactions
4. Millennium (1975)
shareholder
Relationships: Mr. Pichai Karnjanarporn as a majority
3. P.K. Grand Co., Ltd.
Relationships: shareholder and director
2. Mr. Pichai Karnjanarporn
Related Party
139
paid during the year)
shareholder.
September to December 2012)
subsidiary leased lands factory building from P.K. Bangpakong (from
0.14
tions were fair and reasonable.
- P.K. Garment (Import-Export) Co., Lt.d., a
pendent valuers and the Audit Committee deemed that the transac-
September-December 2012)
After the restructuring, lease prices are based on prices from inde-
building from PK3 (from
- Mc Jeans Manufacturing, a subsidiary, leased land and factory
Audit Committee reviewed the transaction and suggested the use of
January to August 2012 before restructuring at agreed prices. The
commercial billboards in order to undertake normal business from
The factory buildings were used for production and the land was for
prices from independent professional valuers after the restructuring. 2.59
4.33
After the Restructuring.
ings from PK3 (from January and August 2012)
Relationships: Mr. Pichai Karnjanarporn as a majority
P.K. Garment (Import-Export) Co., Ltd. leased land and factory build-
(previously Mc Asset Plus Co., Ltd.)
tee reviewed and agreed that it was fair and reasonable
5. P.K. Asset Plus
fees based on independent profession valuers and the Audit Commit0.26
through Millennium (1975) Co., Ltd., from October to December 2012
The Company entered the lease agreement for sales office with the
0.45
October to December 2012) and paid for public utilities as charged
The Company leased land and office building in Siphraya (from
Asset purchase was undertaken at market price to substitute previous
and interests were paid during 2012.
The loan was a short-term loan with interest rate of 5%. All principals
Rationale
lease agreements.
3.04
1.68
Value as of 2012 (Million Baht)
(1975) Co., Ltd.
The Company purchased office supplies and cars from Millennium
After the Restructuring
- Paid interests from the loan made during the year (the loan were all
(previously Mc Co., Ltd.)
Type of Transactions
4. Millennium (1975)
Related Party
140
shareholder and director
Relationships: Mrs. Pratana Mongkolkul as a
8. Boutique Consulting Group Co., Ltd.
of Mr. Pichai Karnjanarporn
Relationships: shareholders and directors as siblings
7. Sin Chai Hua Industry Co., Ltd.
directors as siblings of Mr. Pichai Karnjanarporn
Relationships: shareholders and
6. Unique Garment Import-Export Co., Ltd.
Related Party
Company.
and its internal system
were fair, reasonable and for the best interests of the Company.
businesses and the Audit Committee reviewed that all transactions
improvement initiatives. Market prices were charged as other normal
Company contracted consulting services to support the restructuring
(Import-Export) Co., Ltd.
To become listed as a public company, the
to the Company and its subsidiary, namely P.K. Garment
- Boutique Consulting Group Co., Ltd. provided consulting services
all transactions were fair, reasonable and for the best interests of the
as other normal businesses and the Audit Committee reviewed that
an overcapacity in its own production. Market prices were charged
entered washing and bleaching service agreements when there was
Sin Chai Hua Industry Co., Ltd. is long known as a quality washing
Company.
transactions were fair, reasonable and for the best interests of the
other normal businesses and the Audit Committee reviewed that all
accessories and finished products. Market prices were charged as
resulted in these sales and purchase transactions of raw materials,
Unique Garment Import Export Co., Ltd. in case of overcapacity. This
and bleaching services provider. The Company and its subsidiaries
6.00
Rationale P.K. Garment (Import-Export) Co., Ltd. outsourced its production to
services from Sin Chai Hua Industry Co., Ltd.
12.92
44.77
2.41
0.16
Value as of 2012 (Million Baht)
Manufacturing Co., Ltd., subsidiaries, used washing and bleaching
- P.K. Garment (Import-Export) Co., Ltd. and Mc Jeans
finished products from Unique Garment Import Export Co., Ltd.
- P.K. Garment (Import-Export) Co., Ltd., a subsidiary, purchased
materials (fabrics) from Unique Garment Import Export Co., Ltd.
- P.K. Garment (Import-Export) Co., Ltd., a subsidiary, purchased raw
sories to Unique Garment Import Export Co., Ltd.
-P.K. Garment (Import-Export) Co., Ltd., a subsidiary, sold acces-
Type of Transactions
Related party transactions undertaken between the Company, its subsidiaries and affiliated companies are transactions that support the Company’s usual business operations and were approved by the Board of Directors or the Executive Committee under proper approval process and in complete accordance with the rules and procedures of the Company.
Policies and Trend of Related Party Transactions in the Future Related party transactions of the Company in the future shall be the same transactions that support usual business operations. None of the transactions shall relocate interests between the Company, its subsidiaries and related persons. Besides, the transfer pricing between the Company, its subsidiaries and related persons shall be in line with the normal pricing given to unrelated companies or persons. All prices for products and raw materials sold and purchased by related parties shall be as agreed in the contracts or based on market prices of those products and raw materials. The Audit Committee, the auditor or the independent expert shall review, audit and provide opinions on the appropriateness of the prices and the reasonableness of the transactions and disclose types and values of respective transactions including rationales behind those transaction in the annual report and present the results at the shareholders meeting. In addition, the Board of Directors must conform to the laws on Securities and Exchange and any rules, announcement, orders or principles set by the Stock Exchange of Thailand including the disclosure of related party transactions and the acquisitions or sales of important assets of the Company or its subsidiaries under accounting standard set by the Federation of Accounting Professions. In any case, if the related party transaction is involved with related persons or subject to possible conflict of interests in the future, the Audit Committee shall provide opinions regarding the necessity and reasonableness of that transaction. In case that the Audit Committee does not have the expertise to review the transaction, the Company shall ask the opinions from independent experts or the auditor of the Company on the matter. The Company shall disclose related party transactions in the audited footnotes to the financial statements.
141
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENTS OF FINANCIAL POSITION As at 31 December 2010, 2011 and 2012
(In million baht)
Pro-forma consolidated financial statements 1/ 2010 2011 2012
Consolidated 2012
Separate financial statements 2012
Assets Current assets Cash and cash equivalent Shert-term investment Trade accounts and notes receivable Other receivables - related parties Inventories Other current assets Total current assets
126.7
118.8
153.0
153.0
72.3
0.4
19.5
4.8
4.8
-
348.4
495.6
637.6
637.6
589.3
47.7
49.0
0.0
0.0
4.5
233.0
541.2
779.4
779.4
989.7
4.3
5.4
55.1
55.1
578.5
760.6
1,229.5
1,629.8
1,629.8
2,234.3
128.1
153.2
231.9
231.9
80.9
Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets
3.1
6.9
4.3
4.3
4.1
35.2
38.7
107.4
107.4
46.4
13.4
22.4
39.9
39.9
270.9
179.7
221.2
383.5
383.5
402.3
940.4
1,450.7
2,013.3
2,013.3
2,636.7
Short-term loans from financial institutions
240.9
262.6
250.0
250.0
-
Trade accounts payable
192.2
358.0
288.0
288.0
1,243.3
27.6
45.3
66.4
56.4
101.2
Total non-current assets Total assets Liabilities and equity Current liabilities
Other payables Current portion of finance lease liabilities Income tax payable Other current liabilities Total current liabilities
142
1.3
0.6
-
-
-
30.3
101.9
107.7
107.7
62.6
61.2
96.8
153.7
153.7
83.0
553.5
865.0
865.8
855.8
1,490.0
(In million baht)
Pro-forma consolidated financial statements 1/ 2010 2011 2012
Consolidated 2012
Separate financial statements 2012
300.0
300.0
Non-current liabilities Long-term loans from financial institutions Finance lease liabilities Employee benefit obligations
-
-
300.0
0.6
-
-
-
-
27.2
27.5
38.9
38.9
25.1
Other non-current liabilities
1.3
1.6
2.8
2.8
-
Total non-current liabilities
29.1
29.1
341.8
341.8
325.1
582.7
894.2
1,207.6
1,197.6
1,815.2
300.0
300.0
300.0
300.0
300.0
Total liabilities Equity Issued and paid-up share capital Retained earnings Appropriated Legal reserve Unappropriated Other component of equity Equity attributable to owners of the company Non-controlling interests
10.0
25.0
25.0
25.0
-
47.7
231.6
480.7
490.7
521.5
815.7
821.5
0.0
-
-
357.7
556.6
805.7
-
0.0
0.0
0.0
0.0
-
Total equity
357.7
556.6
805.7
815.7
821.5
Total liabilities and equity
940.4
1,450.7
2,013.3
2,013.3
2,636.7
Note : 1/ Assume that the company restructuring occured since 1 January 2010
143
STATEMENTS OF COMPREHENSIVE INCOME For the years ended 31 December 2010, 2011 and 2012
Pro-forma consolidated financial statements 1/ 2010 2011 2012
(In million baht) Revenue from sale of goods Investment income
1,291.6
1,804.5
2,555.6
Consolidated 2/ 2012
Separate financial statements 2/ 2012
1,427.0
900.4 501.3
0.5
0.1
0.1
0.1
13.2
11.9
8.5
10.8
7.5
1,305.3
1,816.5
2,564.3
1,437.9
1,409.2
Cost of sale of goods
775.7
946.5
1,126.3
636.5
564.2
Selling expenses
222.4
268.4
431.9
251.8
172.4
Administrative expenses
Other income Total income
144.1
162.6
280.3
160.3
129.5
Finance costs
13.0
11.6
18.8
11.9
5.4
Total expenses
1,155.2
1,389.2
1,857.3
1,060.5
871.5
150.1
427.4
707.0
377.4
537.7
income tax expense
45.2
128.5
107.7
59.1
16.2
Profit for the year / period
104.9
298.8
599.3
318.3
521.5
0.0
(0.0)
-
-
Defined benefit plan actuarial losses
-
-
(3.9)
-
-
Income tax on other comprehensive income
-
-
0.7
-
-
Other comprehensive income for the year, net of tax
0.0
(0.0)
(3.2)
-
-
104.9
298.8
596.2
318.3
521.5
Owners of the Company
104.9
298.8
599.3
318.3
521.5
Non-controlling interests
0.0
0.0
0.0
0.0
-
104.9
298.8
599.3
318.3
521.5
0.13
0.37
0.75
0.40
0.65
Profit before income tax expense
Net change in fair value of available-for-sale investments
Total comprehensive income for the year/ period Profit attributable to:
Profit for the year / period Earning per share - Diluted 3/ Note :
144
1/
Assume that the company restructuring occured since 1 January 2010
2/
For the period starting from 23 Msay 2012 (Inception date) to 31 December 2012
3/
Assume total shares outstanding of 800 million with par value of THB 0.50 per share
STATEMENTS OF CASH FLOWS For the years ended 31 December 2010, 2011 and 2012
(In million baht)
Pro-forma consolidated financial statements 1/ 2010 2011 2012
Consolidated 2/ 2012
Separate financial statements 2/ 2012 521.5
Cash flows from operating activities Profit for the year / period Depreciation Amortisation of intangible assets Impairment losses on other intangible assets
104.9
298.8
599.3
318.3
43.8
41.4
52.5
27.8
5.5
0.8
1.0
2.1
1.0
0.5
-
-
4.7
4.7
4.7
Investment income
(0.5)
(0.1)
(0.1)
(0.1)
(501.3)
Finance cost
14.6
11.6
18.8
11.9
5.4
-
(3.5)
(2.1)
(0.9)
-
Gain from sales of investment Allowance for doubtful accounts Provision for sales return (Reversal) (Gain) / Loss on damaged goods from fire Loss from physical inventory count
0.1
2.9
2.2
5.2
-
(10.7)
1.6
-
(20.1)
(20.1)
1.1
(0.7)
(1.7)
0.4
-
-
4.9
-
-
-
Provision for inventory obsolescence (Reversal)
11.6
(1.4)
34.3
47.0
42.0
Reversal (Provision) of stock for sales return
10.7
0.8
(1.5)
35.6
35.6
-
(0.0)
0.0
-
-
Unrealized (gain) loss on short-term investments Gain from sales of property, plant, equipment
(1.2)
(0.4)
(1.8)
(7.2)
0.0
Income tax expense
45.2
128.5
107.7
59.1
16.2
(38.1)
(151.6)
(144.3)
(207.0)
(601.2)
(2.1)
(1.4)
49.1
(0.0)
(4.5)
(25.8)
(311.8)
(269.3)
(39.8)
(1,011.7)
3.1
(1.1)
(49.7)
(44.4)
(45.6)
Changes in operating assets and liabilities Trade accounts receivable Other receivables Inventories Other current assets Other non-current assets
(5.1)
(9.1)
(17.5)
(15.3)
(18.9)
Trade accounts payable
(32.7)
165.8
(69.9)
(105.0)
1,243.3
-
-
-
(347.0)
-
Dividend payables Other payables
27.6
17.6
21.2
56.0
24.2
Other current liabilities
28.0
35.5
56.7
80.1
82.8
Employee benefit obligations Other non-current liabilities Cash used in operating activities Income tax paid Net cash used in operating activities
6.0
0.3
7.5
3.8
1.5
(0.0)
0.3
1.2
1.0
-
181.4
230.0
399.3
(134.8)
(220.1)
(33.7)
(60.4)
(169.8)
(67.8)
(0.0)
147.7
169.6
229.5
(202.7)
(220.1)
145
Pro-forma consolidated financial statements 1/ 2010 2011 2012
(In million baht)
Consolidated 2/ 2012
Separate financial statements 2/ 2012
0.1
1.4
Cash flows from investing activities Interest received Dividends received
0.5
0.1
0.1
-
0.0
0.0
-
-
(0.4)
(15.5)
16.8
(3.2)
-
Dividends paid
(50.0)
(100.0)
(347.0)
-
-
Purchase of property, plant and equipment
(46.9)
(67.9)
(132.2)
(70.8)
(86.6)
Purchase of intangible assets
(2.7)
(4.8)
(4.1)
(4.0)
(9.4)
Sale of property, plant, and equipment
44.3
1.7
2.8
46.5
0.2
-
-
-
-
(32.9)
(Increase) decrease short-term investments
Short-term loans to related parties Net cash outflow on acquisition of subsidiaries
-
-
-
(139.6)
-
Cash outflow on shares in subsidiaries
-
-
-
-
(252.0)
(55.4)
(186.3)
(463.6)
(171.1)
(379.4)
Interest paid
(14.6)
(11.6)
(18.5)
(13.0)
(5.3)
Increase (decrease) bank overdrafts and short-term loans from financial institutions
(21.3)
21.7
(12.6)
-
-
-
-
77.0
Net cash used in investing activities Cash flows from financing activities
Proceeds from short-term loans from related parties Proceeds from long-term loans from financial institutions Repayment of short-term loans Finance lease payments Proceeds from issue of ordinary shares Net cash from financing activities
-
-
300.0
300.0
300.0
(16.0)
-
-
(60.0)
-
(2.5)
(1.3)
(0.6)
(0.2)
-
-
-
-
300.0
300.0
(54.4)
8.8
268.3
526.7
671.7
Net increase in cash and cash equivalents
37.9
(8.0)
34.2
153.0
72.3
Cash and cash equivalents at beginning of the period 3/
88.8
126.7
118.8
-
-
126.7
118.8
153.0
153.0
72.3
Cash and cash equivalents at 31 December Note :
1/
Assume that the company restructuring occured since 1 January 2010
2/
For the period starting from 23 May 2012 (Inception date) to 31 December 2012
For 2012 consolidated and separate financial statements, beginning of the period is May 23, 2012 which represents MC GROUP’s inception date.
3/
146
Previously the group of companies operated as a manufacturer and distributor of ready-to-wear clothing and related products under P.K.Garment (Import-Export) Co., Ltd. However, with strong growth from policies focusing on expanding retail business and increasing ranges of products, excutives of the group of companies recognized the needs to undertake organization restructuring to fuel the growth and respond to new business direction and further expansion of the group of companies. The strategy is anchored on the expansion of distribution network both for domestic and international markets and enhancement of efficiency in managing costs and inventories. As a result, MC GROUP Public Company Limited was founded on 23 May 2012 to operate as a conglomerate managing sales and distribution, sourcing products, executing marketing activities and managing distribution center and investing in other companies. Therefore, MC GROUP Plc has prepared its Pro Forma consolidated financial statements as if the Company were to adopt the new structure since 1 January 2010 to reflect the business performance under new shareholding structure and to be comparable to the new structure in 2012.
Analysis of Business Performance based on Pro Forma Financial Statements of MC GROUP PLC Overall Past Performance From 2010-2012, the group of companies enjoyed continous surges in sales revenue and achieved a compound annual growth rate (CAGR) of 40.7%. Profitability also gained momentum as gross profit margin rose from 39.9% in 2010 to 47.5% and 55.9% in 2011 and 2012 respectively resulting from the nationwide expansion of sales channels and ability to manage and control costs. Moreover, net profit of the group of companies soared from 104.9 million bath in 2010 to 298.8 million baht in 2011 and to 599.3 in 2012 while net profit margin also grew from 8.0% in 2010 to 16.5% in 2011 and to 23.4% in 2012.
Performance Sales Revenue MC GROUP Plc saw a significant growth in sales revenue from 1,291.6 million baht in 2010 to 1,804.5 million baht in 2011 and to 2,555.6 million baht in 2012 or equivalent to growth rate of 39.7% and 41.6% in 2011 and 2012 respectively. The hike in sales revenue was derived mainly from the ability to manage sales channels. Number of point of sales increased from 405 in 2010 to 446 in 2011 and to 511 in 2012 or equivalent to growth rate of 10.1% in 2011 and 14.6% in 2012. All sales channels experienced a constant growth in revenue. In addition, strategy underlining extension of range of products to cover all types of clothing as well as constumer-centric policy on designs for each target group are key factors to the Company’s revenue growth.
Gross Profit Gross profit margin stood at 39.9%, 47.5% and 55.9% of total sales revenue in 2010, 2011 and 2012 respectively. Cost control success and rising utilization rate from economies of scale contributed to this surge in gross profit margin. Utilization rate constantly improved from 72.2% in 2010 to 83.3% and 95.7% in 2011 and 2012 respectively thanks to improvements in production efficiency namely the implementation of Lean System in 2012 and production loss reduction program that significantly brought down the production cost.
Selling Expenses Selling expenses from 2010 to 2012 were 222.4, 268.4 and 431.9 million baht consecutively and equivalent to 17.2%, 14.9% and 16.9% of total sales revenue. The majority of selling expenses is expenses related to PC sales which were shooting up due to the expansion of free standing shops. However, the ratios of selling expenses to sales revenue were smaller resulting from higher effectiveness of sales force. Rental and service fees which mainly comprise rental fees from free standing shops were increasing. Marketing policies in expanding sales channels are accounted for the increase in this expense.
147
Administrative Expenses Administrative expenses in 2010, 2011, and 2012 amounted to 144.1, 162.6 and 280.3 million baht respectively or about 11.2%, 9.0% and 11.0% of sales revenue respectively. The major expense was personnel which soared significantly from deployments of new teams to support the business expansion in the future. In addition, other important expenses were advertising and public relations, provisions for lost and obsolete inventories and professional fees. The surge in professional fees arose from the expenses related to the restructuring of the group of companies in 2012 which was a one-time expense.
Net Profit The Company saw net profit of 104.9, 298.8 and 599.3 million baht in 2010-2012 respectively and net profit margin of 8.0%, 16.5% and 23.4% consecutively. The increase in net profit was a result of high gross profit in 2011 and 2012 and a lower effective tax rate from 30.1% in 2011 to 15.2% in 2012. The effective tax rate diminished significantly from the fact that the net profit of one of the subsidiaries was exempted from income tax under investment promotions from BOI.
Financial Position Assets As of 31 December 2010, 2011 and 2012, the group of companies held a total asset of 940.4, 1,450.7 and 2,013.3 million baht respectively or equivalent to growth rates of 54.3% and 38.8% in 2011 and 2012. The increase in assets stemmed from the expansion of buinesss which is in line with a constant growth in sales revenue that added up trade accounts recievable and inventories. However, non-current assets did not experience any significant growth despite the significant rise in turnover. Possible explanation is that management team sourced the additional products from both external manufacturers and increased production capacity from efficiency improvements in its own existing factories. That represented most of the increase in non-current assets namely from machineries and equipments used in factories which stood at 23.5 million baht in 2010 and shot up to 81.8 million baht in 2012.
Trade Accounts Receivable The Company’s trade accounts receivable stood at 348.4 million baht at the end of 2010 and rose to 495.6 and 637.6 million baht at the end of 2011 and 2012 respectively. Average collection period was shortened from 97.1 days to 84.5 and 80.4 days from 2010 to 2011 and 2012 respectively which was in harmony with the Company’s policy on credit term that set the acceptable credit term of 30-120 days. The better collection period was a result of higher proportion of sales from free standing shop from 17.3% of total turnover in 2010 to 28.5% in 2012. Since products sold through free standing shops are paid directly in cash by consumers, the Company enjoyed shortened collection period for the past 3 years.
Inventories Another important financial figure is inventories especially for trading business. As of the end of acconting period of 2010 to 2012, the Compnay’s inventory amounted to 233.0, 541.2 and 779.4 million baht respectively or equivalent to 24.8%, 37.3% and 38.7% of total assets. The significant majority of the inventories was finished products which accounted for 83.5%, 64.8 % and 84.6% of total inventories in 2010, 2011 and 2012 repectively. High inventory level resulted from the attempt to better serve customers with sufficient product offerings at all points of sales in terms of types, colors and sizes for each collection. Apart from that, the increase number of points of sales from 405 in 2010 to 511 in 2012 also led to this surge in inventories. As of 31 December 2010, 2011 and 2012, the Company’s sales turnover ratio stood at 91, 104 and 162 days repectively which was in parallel with the increased safety stocking of products for sales in retail shops. The sales turnover ratio was at its highest at the end of 2012 as a result of all the mentioned factors.
148
Property, Plant and Equipment For accounting period ending in 2012, the Company had property, plant and equipment amounting to 231.9 million baht, increased by 78.7 million baht from 2011 and 103.8 million baht from 2010. This came from the facts that the Company succeeded in expanding its sales cahannels and consumers’ demand was still growing. The Company continuously expanded its production capacity from 2010 to 2012 resulting in purchases of machines and equipments used in factories. Consequently, proportion of machinery and equipment to total property, plant and equipment rose from 18.3% in 2010 to 33.1% in 2011 and to 35.3% in 2012. Furthermore, the Company invested in furnitures and fixures for its free standing shops around 7.9 million baht in 2010 and 17.1 and 26.3 million baht in 2011 and 2012 respectively. These investments were to support the expansion of its free standing shops from 53 shops in 2010 to 117 shops in 2012.
Liabilities As of 31 December 2012, the Company had total liabilities of 582.7 million baht and the amount increased to 894.2 and 1,207.6 million baht in 2011 and 2012 repectively. The majority of the liabilities was current liabilities used in day-to-day business operations which represented 95.0%, 96.7% and 71.7% of total liabilities in 2010, 2011 and 2012 respectively. Important liabilities consist of Bank’s overdrafts and short-term loans: most of this item was in the form of promisory notes for day-to-day business operations such as raw material procurement or production outsourcing. Trade accounts payable: the Company’s trade accounts payable totaled 192.2, 358.0 and 288.0 million baht in 2010, 2011 and 2012 respectively. The surge in 2011 was due to the expansion of business that required more product offerings. However, management noticed this cost of inventory issue and took steps in overhauling procurement system to synche with sales plan resulting in a decrease in trade accounts payable in 2012. As of 31 Decemeber 2012, the Company secured a long-term loan contract with a local financial institution with the amount of 300 million baht in order to support the organization restructuring and its rapid growth in 2012.
Shareholders’ Equity As appeared in pro forma financial statements as of 31 Decemeber 2012, shareholders’ equity of the Comapany stood at 805.7 million baht comparing to in 2011 of 556.6 million baht and in 2010 of 357.6 million baht. This represented an increase of 249.2 million baht in 2012 and 198.8 million baht in 2011 due mainly to growth of net profit of the previous years. As of 31 December 2012, the Company had paid-up capital of 300 million baht, legal reserve of 25.0 million baht and unappropriated retained earnings of 480.7 million baht. The Company paid out 100 million baht of dividends to common shareholders in 2011 and another 347 million baht in 2012.
Liquidy and Important Ratios Cash Flows The Company saw a constant rise in cash flows from operations before changes in assets and liabilities from 220.5 million baht in 2010 to 485.4 and 814.3 million baht in 2011 and 2012. This trend was in line with revenue growth and business expansion in the past 3 years and resulted in a jump in net cash from operating activities from 147.7 million baht in 2010 to 169.6 and 229.5 million baht in 2011 and 2012. Net cash used in investing activities from 2010-2012 totaled 55.4, 186.43 and 463.6 million baht respectively. Dividend payments, machine and equipment investments and furnitures and fixtures purchases under production and channel expansion contributed to this increase in net cash used in investing activities. In 2012, the Company had net cash used in financing activities of 268.3 million baht from its 300 million baht long-term loan secured to finance its expansion and organization restructuring initiative.
149
Liquidity Ratio For accounting periods ending on 2010 and 2011, liquidity ratio of the Company was quite stable at 1.4 times and 1.9 times respectively due to the fact that current assets to current liabilities ratio was moving in the same direction. However, liquidity ratio increased significantly from business growth which resulted in a spike in current assets in 2012 of 400.3 million baht from 2011. In addition, the Company succeeded in matching its procurement with sales plans which left the amount of current liabilities unchanged. The numbers reflected that the Company had sufficient working capital to operate its business.
Efficiency Ratio In 2010, 2011 and 2012, return on assets (ROA) of the Company stood at 11.2%, 25.0% and 34.6% respectively while total assets turnover was 1.4, 1.5 and 1.X times respectively. Rapid growth in business and subsequent increase in revenue and net profit were accounted for this increase in ROA and total assets turnover.
Important Financial Ratios Important Financial Ratios from Financial Statements of MC GROUP Plc. Accounting Peirod ending 31 December 2010 2011 2012 Liquidity Ratio
times
1.37
1.42
1.88
Quick Ratio
times
0.95
0.79
0.92
Gross Profit Margin
%
39.94
47.54
55.93
Operating Profit Margin 1/
%
12.63
24.33
28.40
Net Profit Margin
%
8.04
16.45
23.37
Return of Equity (ROE)
%
29.33
65.37
87.99
Return on Assets (ROA)
%
11.16
25.00
34.60
Debt to Equity Ratio
times
1.63
1.61
1.50
Interest Bearing Debt to Equity Ratio 2/
times
0.68
0.47
0.68
Interest Coverage Ratio
times
15.83
26.68
18.98
Debt Service Coverage Ratio 3/
times
3.93
37.29
24.44
Remark :
150
1/
Profit before finance costs and income tax devided by sales revenue
2/
Interest bearing debt comprises of bank’s overdrafts and short-term loans from financial institutions, long-term loans from financial institutions and debt from financing leases
3/
Earning before interests, income tax, depreciation and amortization (EBITDA) divided by debt payments including finance costs.
REPORT OF THE BOARD OF DIRECTORS’ RESPONSIBILITIES TO FINANCIAL REPORT The Board of Directors is responsible for the separate financial statements of the Company and the consolidated financial statements of the Company and its subsidiaries as well as the financial information stated in the Company’s Annual Report. These financial statements are prepared in accordance with Thai Accounting Standards and generally accepted accounting principles in Thailand. Appropriate accounting policies are chosen and consistently applied, estimates and underlying assumptions are prudently made, and significant information is adequately disclosed in the Notes to the financial statements to ensure that the financial statements are reliable and benefit to shareholders and investors. The Board of Directors has established and maintained an internal control system in order to provide a reasonable assurance that accounting records are accurate, complete and adequate for protection of assets of the Company, prevention of frauds and materially irregular transactions. The Audit Committee, whose members are independent directors, was designated by the Board to review the quality of the financial reporting and the effectiveness of internal control system and report the review result to the Board. In this regard, the Board has the opinion that the overall internal control system of the Company is satisfactorily effective and can provide reasonable assurance of the reliability of the separate financial statements of the Company and the consolidated financial statements of the Company and its subsidiaries for the year ended December 31,2012
(Mr.Pichai Karnjanarporn)
(Ms.Sunee Seripanu)
Chairman
Chief Executive Officer
151
Independent AudItor’s report to the shareholders of Mc Group Ltd. and its subsidiaries. I have audited the accompanying consolidated and separate financial statements of Mc Group Ltd. and its subsidiaries, and of Mc Group Ltd., respectively, which comprise the consolidated and separate statement of financial position as at 31 December 2012, the consolidated and separate statements of comprehensive income, changes in equity and cash flows for the period from 23 May 2012 (Inception date) to 31 December 2012, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Consolidated and Separate Financial Statements Management is responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with Thai Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility My responsibility is to express an opinion on these consolidated and separate financial statements based on my audit. I conducted my audit in accordance with Thai Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the consolidated and separate financial statements referred to above present fairly, in all material respects, the financial position as at 31 December 2012 and the financial performance and cash flows for the period from 23 May 2012 (Inception date) to 31 December 2012 of Mc Group Ltd. and its subsidiaries, and of Mc Group Ltd., respectively, in accordance with Thai Financial Reporting Standards.
(Vichien Thamtrakul) Certified Public Accountant Registration No. 3183 KPMG Phoomchai Audit Ltd. Bangkok 28 February 2013
152
stAtements of fInAncIAL posItIon Mc Group Ltd. and its Subsidiaries As at 31 december 2012 Note
Consolidated financial statements
Separate financial statements
(in Baht) Assets Current assets Cash and cash equivalents
6
Short-term investments
152,959,109
72,269,317
4,765,240
-
Trade accounts receivable
7
637,599,472
589,293,814
Other receivables - related parties
5
30,309
4,503,861
Short-term loans to related parties
5
-
32,947,397
Dividend receivable
33
-
499,994,000
Inventories
8
779,363,026
989,728,834
Other current assets
9
Total current assets
55,123,978
45,588,084
1,629,841,134
2,234,325,307
Non-current assets Investments in subsidiaries
-
251,996,400
Property, plant and equipment
11
231,876,008
80,903,916
Intangible assets
12
4,291,420
4,135,411
Deferred tax assets
13
107,367,305
46,401,025
Other non-current assets
14
39,929,303
18,893,741
383,464,036
402,330,493
2,013,305,170
2,636,655,800
Total non-current assets Total assets
5,10
The accompanying notes are an integral part of these financial statements.
153
stAtements of fInAncIAL posItIon Mc Group Ltd. and its Subsidiaries As at 31 december 2012 Note
Consolidated financial statements
Separate financial statements
(in Baht) Liabilities and equity Current liabilities Short-term loans from financial institutions
15
250,000,000
-
Trade accounts payable
16
288,033,826
1,243,281,002
Short-term loans from related parties
5
-
77,000,000
Other payables
17
56,430,888
24,214,294
107,672,712
62,570,205
153,703,073
82,951,534
855,840,499
1,490,017,035
Income tax payable Other current liabilities
18
Total current liabilities Non-current liabilities Long-term loans from financial institutions
15
299,997,000
299,997,000
Employee benefit obligations
19
38,948,410
25,145,641
2,806,000
-
341,751,410
325,142,641
1,197,591,909
1,815,159,676
Authorised share capital
300,000,000
300,000,000
Issued and paid-up share capital
300,000,000
300,000,000
-
-
Other non-current liabilities Total non-current liabilities Total liabilities Equity Share capital
20
Retained earnings Appropriated Legal reserve Unappropriated Equity attributable to owners of the Company Non-controlling interests Total equity Total liabilities and equity
21
25,000,000
-
490,698,698
521,496,124
815,698,698
821,496,124
14,563
-
815,713,261
821,496,124
2,013,305,170
2,636,655,800
The accompanying notes are an integral part of these financial statements.
154
stAtements of comprehensIve Income Mc Group Ltd. and its Subsidiaries for the period starting from 23 may 2012 (Inception date) to 31 december 2012 Note
Consolidated financial statements
Separate financial statements
(in Baht) Income
5
Revenue from sale of goods
1,427,043,782
900,368,362
Investment income
23
78,086
501,344,584
Other income
24
10,805,408
7,492,077
1,437,927,276
1,409,205,023
Total income Expenses
5
Cost of sale of goods
8
636,488,814
564,192,169
Selling expenses
25
251,772,817
172,414,107
Administrative expenses
26
160,325,627
129,495,579
Finance costs
29
11,925,982
5,437,281
1,060,513,240
871,539,136
377,414,036
537,665,887
(59,136,295)
(16,169,763)
318,277,741
521,496,124
-
-
318,277,741
521,496,124
Owners of the Company
318,260,778
521,496,124
Non-controlling interests
16,963
-
318,277,741
521,496,124
318,260,778
521,496,124
Total expenses Profit before income tax expense Income tax expense
30
Profit for the period Other comprehensive income Total comprehensive income for the period Profit attributable to:
Profit for the period Total comprehensive income attributable to: Owners of the Company Non-controlling interests Total comprehensive income for the period Basic earnings per share
31
16,963
-
318,277,741
521,496,124
10.61
17.38
The accompanying notes are an integral part of these financial statements.
155
156
300,000,000
25,000,000
-
-
-
-
33 -
25,000,000
-
-
-
300,000,000
299,000,000
-
Legal reserve
4
20
1,000,000
The accompanying notes are an integral part of these financial statements.
Balance at 31 December 2012
Total comprehensive income for the period
Profit
Comprehensive income for the period
Dividend
Business restructuring
Total contributions by and distributions to owners of the Company
Issue of ordinary shares
Contributions by and distributions to owners of the Company
Transactions with owners, recorded directly in equity
Balance at 23 May 2012
For the period 23 May 2012 (Inception date) to 31 December 2012
Note
Issued and paid-up share capital
-
-
-
(172,437,920)
172,437,920
-
-
-
-
-
-
-
490,698,698
318,260,778
318,260,778
172,437,920
(in Baht)
In subsidiaries before a business restructure Unappropriated
Retained earnings
815,698,698
318,260,778
318,260,778
-
197,437,920
300,000,000
299,000,000
1,000,000
Equity attributable to owners of the Company
Consolidated financial statements
stAtements of chAnges In equIty
14,563
16,963
16,963
(6,000)
3,600
-
-
-
Non-controlling interests
815,713,261
318,277,741
318,277,741
(6,000)
197,441,520
300,000,000
299,000,000
1,000,000
Total equity
stAtements of chAnges In equIty Mc Group Ltd. and its Subsidiaries Separate financial statements Retained earnings
Note
Issued and paid-up share capital
Unappropriated
Total equity
(in Baht) For the period 23 May 2012 (Inception date) to 31 December 2012 Balance at 23 May 2012
1,000,000
-
1,000,000
299,000,000
-
299,000,000
300,000,000
-
300,000,000
Comprehensive income for the period Profit
-
521,496,124
521,496,124
Total comprehensive income for the period
-
521,496,124
521,496,124
300,000,000
521,496,124
821,496,124
Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the Company Issue of ordinary shares Total contributions by and distributions to owners of the Company
Balance at 31 December 2012
20
The accompanying notes are an integral part of these financial statements.
157
stAtements of cAsh fLows Mc Group Ltd. and its Subsidiaries for the period starting from 23 may 2012 (Inception date) to 31 december 2012 Note
Consolidated Separate financial statements financial statements (in Baht)
Cash flows from operating activities Profit for the period
318,277,741
521,496,124
27,777,862
5,526,010
Adjustments for Depreciation Amortisation of intangible assets Impairment losses on other intangible assets Investment income Finance cost Gain from sales of investment Provision for sales return Allowance for doubtful accounts
969,740
525,168
4,701,849
4,701,849
(78,086)
(501,344,584)
11,925,982
5,437,280
(856,898)
-
35,562,915
35,562,915
5,231,788
-
Loss on damaged goods from fire
383,461
-
Allowance for obsolete inventories
46,965,519
42,039,023
(Gain) and loss from sales of property, plant, equipment
(7,163,160)
913
Income tax expense
59,136,295
16,169,763
502,835,008
130,114,461
(206,978,807)
(601,233,776)
Changes in operating assets and liabilities Trade accounts receivable Other receivables - related parties
(30,309)
(4,503,861)
Inventories
(59,853,100)
(1,031,767,856)
Other current assets
(44,442,409)
(45,588,085)
Other non-current assets
(15,333,350)
(18,893,740)
Trade accounts payable
(104,960,045)
1,243,281,002
Dividend payables
(347,000,000)
-
Other payables
55,984,538
24,214,294
Other current liabilities
80,141,930
82,770,716
33
Other non-current liabilities
1,015,000
-
Employee benefit obligations
3,814,031
1,522,687
(134,807,513)
(220,084,158)
(67,847,799)
(584)
(202,655,312)
(220,084,742)
Cash used in operating activities Income tax paid Net cash used in operating activities
The accompanying notes are an integral part of these financial statements.
158
stAtements of cAsh fLows Mc Group Ltd. and its Subsidiaries for the period starting from 23 may 2012 (Inception date) to 31 december 2012 Note
Consolidated Separate financial statements financial statements (in Baht)
Cash flows from investing activities Interest received
78,086
1,350,584
(70,843,137)
(86,588,031)
(4,025,938)
(9,362,428)
Sale of property, plant, and equipment
46,452,016
157,191
Short-term investment
(3,171,312)
-
-
(32,947,397)
(139,612,811)
-
Purchase of property, plant and equipment Purchase of intangible assets
Short-term loans to related parties Net cash outflow on acquisition of subsidiaries
4
Cash outflow on shares in subsidiaries
-
(251,996,400)
Net cash used in investing activities
(171,123,096)
(379,386,481)
Interest paid
(13,027,908)
(5,256,460)
Repayment of short-term loans from financial institutions
(60,000,000)
-
(232,175)
-
Cash flows from financing activities
Finance lease payments
-
77,000,000
Proceeds from long-term loans from financial institutions
Proceeds from short-term loans from related parties
299,997,000
299,997,000
Proceeds from issue of ordinary shares
300,000,600
300,000,000
Net cash from financing activities
526,737,517
671,740,540
Net increase in cash and cash equivalents
152,959,109
72,269,317
-
-
152,959,109
72,269,317
Cash and cash equivalents at 23 May Cash and cash equivalents at 31 December
The accompanying notes are an integral part of these financial statements.
159
notes to the fInAncIAL stAtements Mc Group Ltd. and its Subsidiaries Note
Contents
1
General information
2
Basis of preparation of the financial statements
3
Significant accounting policies
4
Business restructuring
5
Related parties
6
Cash and cash equivalents
7
Trade accounts receivable
8
Inventories
9
Other current assets
10
Investments in subsidiaries
11
Property, plant and equipment
12
Intangible assets
13
Deferred tax
14
Other non-current assets
15
Interest-bearing liabilities
16
Trade accounts payable
17
Other payables
18
Other current liabilities
19
Employee benefit obligations
20
Share capital
21
Reserves
22
Segment information
23
Investment income
24
Other income
25
Selling expenses
26
Administrative expenses
27
Employee benefit expenses
28
Expenses by nature
29
Finance costs
30
Income tax expense
31
Basic earnings per share
32
Promotional privileges
33
Dividends
34
Financial instruments
35
Commitments with non-related parties
36
Events after the reporting period
37
Thai Financial Reporting Standards (TFRS) not yet adopted
160
These notes form an integral part of the financial statements. The financial statements issued for Thai statutory and regulatory reporting purposes are prepared in the Thai language. These English language financial statements have been prepared from the Thai language statutory financial statements, and were approved and authorised for issue by the Board of Directors on 28 February 2013.
1
General information Mc Group Ltd., the “Company”, was incorporated in Thailand on 23 May 2012 and has its registered office at 448, 450, Onnuch Road, Kwang Pravet, Khet Pravet, Bangkok, Thailand. The principal business of the Company is the distribution management of clothing and accessories which was mainly supported by the company’s subsidiaries to manufacturing of products. Details of the Company’s subsidiaries as at 31 December 2012 are given in notes 5 and 10 and are as follows:
Type of business
Country of incorporation
Percentage of ownership interest
P.K.Garment (Import-Export) Co., Ltd.
(1)
Thailand
99.99
Mc Jeans Manufacturing Co., Ltd.
(1)
Thailand
99.97
Winner Man Co., Ltd.
(2)
Thailand
99.97
Name of entities Direct subsidiaries
Type of business (1) manufacturing of clothing (2) staff personnel services to the Group
2
Basis of preparation of the financial statements
(a)
Statement of compliance The financial statements are prepared in accordance with Thai Financial Reporting Standards (TFRS); guidelines promulgated by the Federation of Accounting Professions (“FAP”); applicable rules and regulations of the Thai Securities and Exchange Commission. At 31 December 2012, the FAP has issued a number of new and revised TFRS which are expected to be effective for financial statements beginning on or after 1 January 2013 and have not been adopted in the preparation of these financial statements. These new and revised TFRS are disclosed in note 37.
(b)
Basis of measurement The financial statements have been prepared on the historical cost basis. Unless otherwise stated.
(c)
Presentation currency The financial statements are prepared and presented in Thai Baht.
(d)
Use of estimates and judgements The preparation of financial statements in conformity with TFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which estimates are revised and in any future periods affected.
161
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements is included in the following notes: Note 3 (r) Note 19
3
Current and deferred taxation Measurement of defined benefit obligations
Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
(a)
Basis of consolidation The consolidated financial statements relate to the Company and its subsidiaries (together referred to as the “Group�). Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group. Losses applicable to non-controlling interests in a subsidiary are allocated to non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
(b)
Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to Thai Baht at the foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Thai Baht at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities measured at cost in foreign currencies are translated to Thai Baht using the foreign exchange rates ruling at the dates of the transactions.
162
(c)
Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and highly liquid short-term investments. Bank overdrafts that are repayable on demand are a component of financing activities for the purpose of the statement of cash flows.
(d)
Trade and other accounts receivable Trade and other accounts receivable are stated at their invoice value less allowance for doubtful accounts. The allowance for doubtful accounts is assessed primarily on analysis of payment histories and future expectations of customer payments. Bad debts are written off when incurred.
(e)
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost principle and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to complete and to make the sale. An allowance is made for all deteriorated, damaged, obsolete and slow-moving inventories.
(f)
Investments Investments in subsidiaries Investments in subsidiaries in the separate financial statements of the Company are accounted for using the cost method less any impairment losses. Disposal of investments If the Company disposes of part of its holding of a particular investment, the deemed cost of the part sold is determined using the weighted average method applied to the carrying value of the total holding of the investment.
(g)
Property, plant and equipment Recognition and measurement Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income or expense in profit or loss.
163
Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Depreciation Depreciation is calculated based on the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is charged to the profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. The estimated useful lives are as follows: Buildings and factory
20 and 5
years
Leasehold improvements
3
years
Machines and factory equipment
5
years
3 and 5
years
5
years
Fixtures and office equipment Motor vehicles
No depreciation is provided on land and assets under construction and installation. Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (h)
Intangible assets Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and impairment losses. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. Amortisation Amortisation is based on the cost of the asset, or other amount substituted for cost, less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Computer program
5 years
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (i)
Leasehold right Leasehold right is stated at cost less accumulated amortisation and impairment losses. Amortisation is recognised in profit or loss on a straight-line basis over the leased term.
164
(j)
Impairment The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. For intangible assets that have indefinite useful lives or are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The impairment loss is recognised in profit or loss. Calculation of recoverable amount The recoverable amount of non-financial assets is the greater of the assets’ value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment Impairment losses recognised in prior periods in respect of non-financial assets are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(k)
Interest-bearing liabilities Interest-bearing liabilities are recognised initially at cost.
(l)
Trade and other accounts payable Trade and other accounts payable are stated at cost.
(m) Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method.
165
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The Group recognises all actuarial gains and losses arising from defined benefit plans in other comprehensive income and all expenses related to defined benefit plans in profit or loss. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or other benefits if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (n)
Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.
(o)
Revenue Revenue excludes value added taxes and is arrived at after deduction of trade and special discounts. Sale of goods and services rendered Revenue is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there is continuing management involvement with the goods or there are significant uncertainties regarding recovery of the consideration due, associated costs or the probable return of goods. Service income is recognised as services are provided. Investments Revenue from investments comprises dividend and interest income from investments and bank deposits. Dividend income Dividend income is recognised in statement of income on the date the Group’s right to receive payments is established. Interest income Interest income is recognised in statement of income as it accrues.
(p)
Finance costs Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and contingent consideration, impairment losses recognised on financial assets (other than trade receivables). Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.
(q)
Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.
166
Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate. (r)
Income tax Income tax expense for the year comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.
167
(s)
Earnings per share The Group Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.
4
Business restructuring The Company initially incorporated on 23 May 2012 for the purpose of distributing garments, costumes and other products of the Group. At 4 July 2012, the Company acquired equity interest in P.K.Garment (Import-Export) Co., Ltd. (“P.K.Garment�) from their major shareholder amounting to 249,997 shares of Baht 1,000 per share for a consideration of Baht 249.99 million. At acquisition date, the subsidiary company has cash and cash equivalents in amount of Baht 110.4 million therefore net cash outflow on acquisition of subsidiary was Baht 139.6 million. At 4 July 2012, the Company acquired a 99.97% equity interest in Winner Man Co, Ltd. from their major shareholder at a cost of Baht 1 million. The subsidiary commenced operations in June 2012. At 1 August 2012, the Company established Mc Jeans Manufacturing Co., Ltd., which has an authorised share capital of Baht 1 million. The subsidiary commenced operations in August 2012.
5
Related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control or joint control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Relationships with related parties were as follows:
Name of entities
Country of incorporation / nationality
Nature of relationships
P.K.Garment (Import-Export) Co., Ltd.
Thailand
Subsidiary, 99.99% shareholding, some common directors
Mc Jeans Manufacturing Co., Ltd.
Thailand
Subsidiary, 99.97% shareholding, some common directors
Winner Man Co., Ltd.
Thailand
S u b s i d i a r y, 9 9 . 9 7 % s h a r e h o l d i n g , some common directors
Unique Garment Import-Export Co., Ltd.
Thailand
Related party, close family of major shareholder are directors and shareholders
Millenium (1975) Co., Ltd.
Thailand
Related party, some common directors
Sinchaihua Industry Co., Ltd.
Thailand
Related party, close family of major shareholder are directors and shareholders
Boutique Consulting Group Co., Ltd.
Thailand
Related party, some common shareholders and directors
P.K.Grand Co., Ltd.
Thailand
Related party, some common shareholders
P.K.Asset Plus Co., Ltd.
Thailand
Related party, some common shareholders
S.S.Challenge Co., Ltd.
Thailand
Related party, some common shareholders
The pricing policies for particular types of transactions are explained further below:
168
Transactions
Pricing policies
Sales of goods
Contractual price
Rendering of services
Contractual price
Purchase of goods/raw materials/services
Contractual price
Interest on loan
Average cost of fund
Significant transactions for the periods from 23 May 2012 (Inception date) to 31 December 2012 with related parties was as follows:
Consolidated financial statements
Separate financial statements
(in Baht) Major Shareholder Other expenses Purchase equipment
170,000
-
6,200,000
6,200,000
Subsidiaries Sales of goods or rendering of services
-
1,495,998,390
Other income
-
7,180,800
Dividend income
-
499,994,000
Interest income
-
1,292,194
Staff outsourcing services fees
-
67,562,561
Other expenses
-
4,726,028
Interest expense
-
467,194
Sales property, plant, equipment
-
155,622
Purchase property, plant and equipment and software
-
47,378,268
Other related parties Sales of goods or rendering of services
55,746
-
Purchases of goods or receiving of services
25,773,448
10,480,148
Other expenses
10,914,237
2,973,533
Purchase property, plant, equipment and software Sales property, plant, equipment
2,781,000
2,781,000
46,300,000
-
21,093,600
15,470,400
1,347,262
1,028,623
527,400
399,600
Key management personnel Key management personnel compensation Wages and salaries Post-employment benefits Pension costs - defined benefit plans Others Total key management personnel compensation
12,000
8,000
22,980,262
16,906,623
Balances as at 31 December 2012 with related parties were as follows:
169
Trade accounts receivable - related parties
Consolidated Separate financial statements financial statements (in Baht)
Subsidiaries P.K.Garment (Import-Export) Co., Ltd.
-
26,359,843
Mc Jeans Manufacturing Co., Ltd.
-
3,586,854
Winner Man Co., Ltd.
2,157,853 32,104,550
Less allowance for doubtful accounts
-
-
Net
-
32,104,550
Bad and doubtful debts expense for the period
-
-
Other accounts receivable - related parties
Consolidated Separate financial statements financial statements (in Baht)
Subsidiaries P.K.Garment (Import-Export) Co., Ltd.
-
4,503,861
30,309
-
30,309
4,503,861
-
-
30,309
4,503,861
-
-
Other related parties Unique Garment Import-Export Co., Ltd. Less allowance for doubtful accounts Net Bad and doubtful debts expense for the period
Loans to related parties Interest rate
Consolidated financial statements
Separate financial statements
(in Baht) Short-term loans
(% per annum)
Subsidiaries Winner Man Co., Ltd.
4.00
-
32,947,397
-
32,947,397
Less allowance for doubtful accounts
-
-
Short-term loans to related parties, net
-
32,947,397
-
32,947,397
Summary of loans to related parties Short-term loans
-
32,947,397
Less allowance for doubtful accounts
-
-
Total loans to related parties, net
-
32,947,397
Movements during the period 23 May 2012 to 31 December 2012 of loans to related parties were
170
as follows:
Loans to related parties
Consolidated financial statements
Separate financial statements
(in Baht) Short-term loans Subsidiaries At 23 May 2012
-
-
Increase
-
377,497,000
Decrease
-
(344,549,603)
At 31 December 2012
-
32,947,397
Consolidated Separate financial statements financial statements (in Baht) Dividend receivable Subsidiaries P.K.Garment (Import-Export) Co., Ltd.
-
499,994,000
Consolidated Separate financial statements financial statements (in Baht) Investments in subsidiaries
Other non-current assets - related parties
-
251,996,400
Consolidated Separate financial statements financial statements (in Baht)
Other related parties P.K.Asset Plus Co., Ltd.
683,143
-
P.K.Grand Co., Ltd.
309,015
-
Total
992,158
-
171
Trade accounts payable - related parties
Consolidated financial statements
Separate financial statements
(in Baht) Subsidiaries P.K.Garment (Import-Export) Co., Ltd.
-
1,053,287,447
Mc Jeans Manufacturing Co., Ltd.
-
66,594,086
Winner Man Co., Ltd.
-
29,890,995
9,308,444
9,211,849
Other related parties Unique Garment Import-Export Co., Ltd. Sinchaihua Industry Co., Ltd. Total
Other accounts payable - related parties
1,931,853
-
11,240,297
1,158,984,377
Consolidated financial statements
Separate financial statements
(in Baht) Major Shareholder
117,000
117,000
P.K.Garment (Import-Export) Co., Ltd.
-
289,373
Mc Jeans Manufacturing Co., Ltd.
-
500,314
Subsidiaries
Other related parties 85,500
85,500
Boutique Consulting group Co., Ltd.
Directors
520,000
520,000
Total
722,500
1,512,187
Loans from related parties
Interest rate
Consolidated Separate financial statements financial statements
(% per annum)
(in Baht)
Short-term loans Subsidiary P.K.Garment (Import-Export) Co., Ltd. Total loans from related parties
172
4.00
-
77,000,000
-
77,000,000
Movements during the period 23 May 2012 to 31 December 2012 of loans from related parties were as follows:
Loans from related party
Consolidated Separate financial statements financial statements (in Baht)
Short-term loans Subsidiary At 23 May 2012
-
-
Increase
-
77,000,000
At 31 December 2012
-
77,000,000
Significant agreements with related parties As at 31 December 2012, the Group/Company has significant agreements with related parties as follows: Land and office rental Agreements At 1 September 2012, two subsidiaries have entered into land and building rental agreements with three related in the total rental rate of Baht 7.3 million per year. The agreements have duration of 10 years and are renewable with the rental rate and conditions as stipulated in the renew agreements. At 1 November 2012, the Company has entered into office rental agreement with a related company in the total rental rate of Baht 1.8 million per year. The term of these agreements have a period of 10 years and is renewable with the rental rate and conditions as stipulated in the renew agreement. Service Agreement At 1 September 2012, a subsidiary has entered into service agreement for its utilities and facilities with two related companies to pay rental fee totalling Baht 4.7 million per year. The term of these agreements have a period of 10 years and is renewable with the rental rate and conditions as stipulated in the renew agreement.
6
Cash and cash equivalents Consolidated Separate financial statements financial statements 2012 2012 (in Baht) Cash on hand Cash at banks – current accounts Cash at banks – savings accounts Total
6,637,367
6,507,367
144,945,498
65,761,950
1,376,244
-
152,959,109
72,269,317
Cash and cash equivalents of the Group and the Company as at 31 December 2012 were denominated entirely in Thai Baht.
173
7
Trade accounts receivable
Note
Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Related parties Other parties Less provision for sales return
-
32,104,550
678,394,175
592,752,179
678,394,175
624,856,729
(35,562,915)
(35,562,915)
(5,231,788)
-
637,599,472
589,293,814
2,196,863
-
5
allowance for doubtful accounts Net Bad and doubtful debts expense for the period 23 May 2012 to 31 December 2012 Aging analyses for trade accounts receivable were as follows:
Consolidated Separate financial statements financial statements 2012 2012 (in Baht) Related parties
-
32,104,550
Within credit terms
-
32,104,550
Less allowance for doubtful accounts
-
-
Net
-
32,104,550
561,604,920
514,003,350
108,880,379
78,747,834
3 - 6 months
5,342,495
995
6 - 12 months
1,648,142
-
Other parties Within credit terms Overdue: Less than 3 months
Over 12 months Less provision for sales return allowance for doubtful accounts
918,239
-
678,394,175
592,752,179
(35,562,915)
(35,562,915)
(5,231,788)
-
Net
637,599,472
557,189,264
Total
637,599,472
589,293,814
The normal credit term granted by the Group/Company ranges from 30 days to 120 days. Trade accounts receivable of the Group and the Company as at 31 December 2012 were denominated entirely in Thai Baht.
174
8
Inventories Consolidated Separate financial statements financial statements 2012 2012 (in Baht) Finished goods Work in progress
659,677,505
1,031,127,450
59,510,940
-
107,140,100
640,407
826,328,545
1,031,767,857
Less allowance for obsolete inventories
(46,965,519)
(42,039,023)
Net
779,363,026
989,728,834
Raw materials and supplies
The cost of inventories which is recognised as an expense and included in cost of sale of goods in the consolidated and separate financial statements for the period ended 31 December 2012 amounted to Baht 636 million and Baht 564 million, respectively.
9
Other non-current assets Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Other Receivables-Revenue Department
39,491,045
37,795,684
Input VAT suspense
1,792,901
807,618
Advance to vendors
1,077,311
898,811
Advance to employees
3,910,089
2,371,833
Prepaid expenses
4,654,295
3,592,383
Others
4,198,337
121,755
55,123,978
45,588,084
Total
10 Investments in subsidiaries Separate financial statements (in Baht) Subsidiaries At 23 May 2012
-
Acquisitions
251,996,400
At 31 December 2012
251,996,400
175
176 99.97
Manufacturing clothing
Staff personnel services to the Group
Mc Jeans Manufacturing Co., Ltd.
Winner Man Co., Ltd.
Total
99.97
Manufacturing clothing
99.99
(%)
P.K.Garment (Import-Export) Co., Ltd.
Subsidiaries
Type of Business
1,000,000
1,000,000
250,000,000
Ownership Interest Paid-up capital 31 December 31 December 2012 2012
251,996,400
999,700
999,700
249,997,000
Cost 31 December 2012
-
-
-
-
251,996,400
999,700
999,700
249,997,000
Cost – net of impairment 31 December 2012
(in Baht)
Impairment 31 December 2012
Investments in subsidiaries as at 31 December 2012 and dividend income from those investments for the period 23 May 2012 to 31 December 2012 were as follows:
499,994,000
-
-
499,994,000
Dividend income for the period 23 May 2012 to 31 December 2012
177
(19,165,555)
Disposals
-
-
-
Depreciation charge for the period
Disposals
At 31 December 2012
At 31 December 2012
17,032,422
-
Acquisition from business restructuring
Net book value
-
At 23 May 2012
Accumulated depreciation
17,032,422
-
Transfers
At 31 December 2012
-
36,197,977
-
Additions
Acquisition from business restructuring
At 23 May 2012
Cost
Land and improvements
11 Property, plant and equipment
41,893,759
179,088,355
(15,044,255)
7,457,600
186,675,010
-
220,982,114
(34,570,646)
13,532,193
1,330,000
240,690,567
-
Building factory and improvements
81,762,460
180,227,408
-
10,508,113
169,719,295
-
261,989,868
-
9,672,158
10,594,012
241,723,698
-
-
45,997,066
58,727,210
(203)
7,511,521
51,215,892
-
104,724,276
(2,685)
5,687,165
11,985,612
87,054,184
(in Baht)
Machines and Fixtures and factory equipment office equipment
38,040,576
26,690,017
(5,378)
2,300,628
24,394,767
-
64,730,593
-
12,413,759
13,002,739
39,314,095
-
Motor vehicles
Consolidated financial statements
7,149,725
-
-
-
-
-
7,149,725
(543,730)
(41,305,275)
33,874,697
15,124,033
-
Assets Under installation
-
231,876,008
444,732,990
(15,049,836)
27,777,862
432,004,964
-
676,608,998
(54,282,616)
-
70,787,060
660,104,554
Total
178
At 31 December 2012
Net book value
At 31 December 2012
Disposals
Depreciation charge for the period
At 23 May 2012
Accumulated depreciation
14,091,953
1,495,355
-
1,495,355
-
15,587,308
-
Disposals
At 31 December 2012
15,587,308
-
Additions
At 23 May 2012
Cost
Building factory and improvements
1,415,753
89,597
-
89,597
-
1,505,350
-
1,505,350
-
Machines and factory equipment
25,750,454
2,205,417
(203)
2,205,620
-
27,955,871
(2,686)
27,958,557
-
(in Baht)
Fixtures and office equipment
38,197,145
1,730,060
(5,378)
1,735,438
-
39,927,205
(161,000)
40,088,205
-
Motor vehicles
Separate financial statements
1,448,611
-
-
-
-
1,448,611
-
1,448,611
-
Assets Under installation
-
80,903,916
5,520,429
(5,581)
5,526,010
-
86,424,345
(163,686)
86,588,031
Total
12 Intangible assets Consolidated financial statements Computer software
Leasehold Rights
Total
(in Baht) Cost At 23 May 2012
-
-
-
Acquisition from business restructuring
9,984,555
688,187
10,672,742
Additions
4,025,938
-
4,025,938
(4,701,849)
-
(4,701,849)
9,308,644
688,187
9,996,831
Impairment losses At 31 December 2012 Accumulated amortization At 23 May 2012 Acquisition from business restructuring Amortization charge for the period At 31 December 2012
-
-
-
(4,445,859)
(289,812)
(4,735,671)
(931,221)
(38,519)
(969,740)
(5,337,080)
(328,331)
(5,705,411)
-
-
-
3,931,564
359,856
4,291,420
Net book value At 23 May 2012 At 31 December 2012
Separate financial statements Computer software
Leasehold Rights
Total
(in Baht) Cost At 23 May 2012 Additions Impairment losses At 31 December 2012
-
-
-
8,977,032
385,396
9,362,428
(4,701,849)
-
(4,701,849)
4,275,183
385,396
4,660,579
Accumulated amortization At 23 May 2012
-
-
-
Amortization charge for the period
(499,628)
(25,540)
(525,168)
At 31 December 2012
(499,628)
(25,540)
(525,168)
-
-
-
3,775,555
359,856
4,135,411
Net book value At 23 May 2012 At 31 December 2012
179
13 Deferred tax Deferred tax assets and liabilities as at 31 December were as follows:
Consolidated financial statements Assets 2012
Liabilities 2012 (in Baht)
Total
107,367,305
-
-
-
107,367,305
-
Set off of tax Net Deferred tax assets
Separate financial statements Assets 2012
Liabilities 2012 (in Baht)
Total Set off of tax Net Deferred tax assets
180
46,401,025
-
-
-
46,401,025
-
181
-
-
-
-
-
-
Trade accounts receivable
Inventories
Consignment
Employee benefit
Others
Total
8,080,907
43,864,927
1,380,892
10,318,980
-
-
-
-
Total
-
Inventories
Employee benefit
-
Trade accounts receivable
-
-
Intangible assets
Consignment
-
46,401,025
5,029,128
28,927,481
4,391,463
7,112,583
940,370
-
(in Baht)
-
-
-
-
-
-
-
-
Other comprehensive income
(in Baht)
-
-
-
-
-
-
-
Other comprehensive income
Separate financial statements Charged / (Credited to)
54,493,203
14,520,121
(291,225)
(14,148,246)
54,229,300
(2,160,040)
940,370
1,402,923
Profit or loss
Profit or loss
52,874,102
(10,771,604)
Property, plant and equipment
Deferred tax assets
-
Intangible assets
At 23 May 2012
-
Property, plant and equipment
Deferred tax assets
At 23 May 2012
Acquisition from business restructuring
Consolidated financial statements Charged / (Credited to)
Movements in total deferred tax assets and liabilities during the year were as follows:
Equity
-
-
-
-
-
-
-
Equity
-
-
-
-
-
-
-
-
46,401,025
5,029,128
28,927,481
4,391,463
7,112,583
940,370
-
At 31 December 2012
107,367,305
3,748,517
7,789,682
29,716,681
55,610,192
8,158,940
940,370
1,402,923
At 31 December 2012
14 Other non-current assets Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Rental deposit
32,146,924
12,904,423
Prepaid space booking rental
4,280,864
4,280,864
Others
3,501,515
1,708,454
39,929,303
18,893,741
Total
15 Interest-bearing liabilities Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Current Short-term loans from financial institutions Secured
250,000,000
-
Total current interest-bearing liabilities
250,000,000
-
Long-term loans from financial institutions Secured
299,997,000
299,997,000
Total non-current interest-bearing liabilities
299,997,000
299,997,000
Non-current
Subsidiary has short-term loan from a local financial institution amounted to Baht 250 million with bearing interest at the Minimum Loan Rate (MLR) minus fixed rate per annum. Principal repayments are Baht 175 million on 11 February 2013 and Baht 75 million on 26 March 2013. Such loan was secured by land and building. At 14 September 2012, the Company entered into loan-term loan with a local financial institution for the total Baht 300 million. This loan bears interest at the Minimum Loan Rate (MLR) minus specified rate in the agreement. The loan has repayment term within one month from the initial public offering date. In case of the initial public offering process has taken more than 12 months, the Company agrees to repayment by monthly basis in the total of 9 installments starting from last working date of January 2014 and ending within September 2014. The Company has to comply with conditions and covenants as stipulated in the loan agreement such as maintaining debt to equity ratio and assigning P.K.Garment (Import-Export) Co., Ltd. as guarantor. The Company has utilised this loan amounted to Baht 299.99 million. Interest-bearing liabilities of the Group as at 31 December 2012 were denominated entirely in Thai Baht.
182
16 Trade accounts payable
Note
Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) 11,240,297
1,158,984,377
Other parties
Related parties
276,793,529
84,296,625
Total
288,033,826
1,243,281,002
5
17 Other payables
Note
Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Related parties
5
722,500
1,512,187
Other parties
55,708,388
22,702,107
Total
56,430,888
24,214,294
18 Other current liabilities
Note
Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Accrued bonus
5
59,692,893
9,377,526
Accrued shop rental expense
12,045,280
11,809,909 13,317,506
Accrued commission
13,344,050
Accrued rebate expense
37,885,671
35,241,278
Other parties
30,735,179
13,205,315
153,703,073
82,951,534
Total
183
19 Employee benefit obligations Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Statement of financial position Statement of financial position obligations for: Post-employment benefits
38,948,410
25,145,641
3,841,031
1,522,687
For the period 23 May 2012 to 31 December 2012 Statements of comprehensive income (Recognised in profit and loss) Post-employment benefits
The Group operates a defined benefit pension plan based on the requirement of Thai Labour Protection Act B.E 2541 (1998) to provide retirement benefits to employees based on pensionable remuneration and length of service. Movement in the present value of the defined benefit obligations:
Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) For the period 23 May 2012 to 31 December 2012 Defined benefit obligations at 23 May 2012 Received from acquisition of business Received from transfer of the subsidiaries’ employees Current service costs and interest Defined benefit obligations at 31 December 2012
-
-
35,134,379
-
-
23,622,954
3,814,031
1,522,687
38,948,410
25,145,641
Expense recognised in profit or loss
Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) For the period 23 May 2012 to 31 December 2012
3,241,741
1,272,510
Interest on obligation
572,290
250,177
3,814,031
1,522,687
Total
184
-
Current service costs
Principal actuarial assumptions at the reporting date (expressed as weighted averages):
Consolidated financial statements 2012
Separate financial statements 2012
(%) Discount rate Future salary increases
3.6414
3.6414
5.00
5.00
Assumptions regarding future mortality are based on published statistics and mortality tables.
20 Share capital Par value per share (Baht)
Number
Amount
(Shares / Baht)
Authorised At 23 May 2012
100
10,000
1,000,000
30 July 2012 - Change par value from Baht 100 to Baht 10
10
100,000
1,000,000
- Increase of new shares
10
29,900,000
299,000,000
30,000,000
300,000,000
At 31 December 2012 ordinary shares Issued and paid-up At 23 May 2012
100
10,000
1,000,000
30 July 2012 - Change par value from Baht 100 to Baht 10
10
100,000
1,000,000
- Increase of new shares
10
At 31 December 2012 ordinary shares
29,900,000
299,000,000
30,000,000
300,000,000
The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. Expenses for issuing new ordinary share The directly attributable expenses of issuing new ordinary shares are accounted for a deduction from the premium on those ordinary shares.
21 Reserves Reserve comprises: Appropriations of profit and/or retained earnings Legal reserve Legal reserve is set up under the provision of the Civil and Commercial Code, which requires that a company shall allocate not less than 5% of its net profit to a reserve account (“legal reserve�) upon each dividend distribution, until this account reaches an amount not less than 10% of the registered authorised capital. The legal reserve is not available for dividend distribution.
185
22 Segment information Business segments Management considers that the Group operates in a single line of business, namely the distribution management of clothing and accessories which was mainly support the manufacturing of products by the company’s subsidiaries, and has, therefore, only one major business segment. Geographical segments Management considers that the Group operates in a single geographical area, namely in Thailand, and has, therefore, only one major geographical segment.
23 Investment income
Note
Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Dividend income Subsidiaries
5
-
499,994,000
Interest revenue Subsidiaries
5
-
1,292,194
Other parties
78,086
58,390
Total
78,086
501,344,584
In 2012, the Company’s subsidiary has proposed interim dividends of Baht 500 million which was included unappropriated retained earnings before the business restructuring in amounting to Baht 172.4 million.
24 Other income Consolidated financial statements 2012
Separate financial statements 2012
(%) Gain on disposal of assets
7,163,160
-
Rental income
1,549,000
660,800
Gain on disposal of investments Service income Others Total
186
856,898
-
-
6,520,000
1,236,350
311,277
10,805,408
7,492,077
25 Selling expenses Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Personnel
126,534,311
84,159,985
Advertising and public relations
16,174,936
13,186,798
Rental and services
68,288,182
48,573,846
Others
40,775,388
26,493,478
251,772,817
172,414,107
Total
26 Administrative expenses Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Personnel
77,280,685
50,768,459
Provision for inventory obsolescence and stock loss
11,261,889
32,519,442
Professional fees
19,102,330
11,253,966
Others Total
52,680,723
34,953,712
160,325,627
129,495,579
27 Employee benefit expenses Consolidated financial statements 2012
Separate financial statements 2012
(in Baht) Managements Wages and salaries Defined benefit plans Defined contribution plans Others Other employees
21,093,600
15,470,400
1,347,262
1,028,623
527,400
399,600
12,000
8,000
22,980,262
16,906,623
238,542,572
32,201,002
Wages and salaries
2,466,769
494,065
Defined benefit plans
1,079,618
539,166
78,182,082
17,072,856
Others
Defined contribution plans
320,271,041
50,307,089
Total employee benefit expenses
343,251,303
67,213,712
187
Defined benefit plans The defined contribution plans comprise provident funds established by the Group for its employees. Membership to the funds is on a voluntary basis. Contributions are made monthly by the employees at rates 3% of their basic salaries and by the Group at rates 3% of the employees’ basic salaries. The provident funds are registered with the Ministry of Finance as juristic entities and are managed by a licensed Fund Manager.
28 Expenses by nature The statements of income include an analysis of expenses by function. Expenses by nature disclosed in accordance with the requirements of various TFRS were as follows:
Consolidated financial statements 2012
Separate financial statements 2012
(Baht) Changes in inventories of finished goods and work in progress
47,782,724
564,192,169
Raw materials and consumables used
366,093,626
-
Employee benefit expenses
343,251,303
67,213,712
-
67,562,561
Staff outsourcing services fees
Personnel services fee
34,691,695
-
Advertising costs
28,133,782
18,129,808
Provision for inventory obsolescence and stock loss
14,179,085
40,083,340
Professional fees
23,017,504
13,704,383
Rental and services
73,053,630
52,119,568
Depreciation and amortisation
28,747,602
6,051,178
4,701,848
4,701,848
84,934,459
32,343,288
1,048,587,258
866,101,855
Impairment Others Total cost of sales of goods, selling expenses, administrative expenses
29 Finance costs
Note
Consolidated financial statements 2012
Separate financial statements 2012
(Baht) Interest expenses Related parties Other parties Total
188
5
-
467,194
11,925,982
4,970,087
11,925,982
5,437,281
30 Income tax expense The current tax expense in the consolidated statements of comprehensive income is less than the amount determined by applying the Thai corporation tax rate to the accounting profit for the period principally because: (a) A significant portion of the Group’s profit was derived from promoted activities for which are not subject to tax. (b) Of the different treatment for accounting and taxation purposes. (c) Taxable income was included revenue from consignment sales. The current tax expense in the separate statements of comprehensive income is less than the amount determined by applying the Thai corporation tax rate to the accounting profit for the period principally because of the different treatment for accounting and taxation purposes of certain items of income; in particular dividend income. However, taxable income was included revenue from consignment sales.
31 Basic earnings per share Basic earnings per share The calculations of basic earnings per share for the period 23 May 2012 to 30 December 2012 were based on the profit for the periods attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares outstanding during the period as follows:
Consolidated financial statements
Separate financial statements
(in Baht / shares) For the period 23 May 2012 to 31 December 2012 Profit attributable to ordinary shareholders of the Company Number of ordinary shares issued and paid up Earnings per share (basic) (in Baht)
318,260,778
521,496,124
30,000,000
30,000,000
10.61
17.38
32 Promotional privileges A subsidiary has been granted privileges by the Board of Investment related to manufacturing garments 2 promotional certificates as follows: 1.
For manufacturing garments in promotional certificate no. 2135(5)/2554 dated on 16 September 2011. The significant privileges consisted of exemption from payment of import duty on machinery which will be imported during period specified by the certificate and exemption from payment of income tax for certain operation for a period of eight years from the date on which the income is first derived which was 27 June 2011.
2.
For manufacturing costumes in promotional certificate no. 1673(5)/2555 dated on 30 May 2012. The significant privileges consisted of exemption from payment of import duty on machinery which will be imported during period specified by the certificate and exemption from payment of income tax for certain operation for a period of eight years from the date on which the income is first derived which was 30 December 2011.
189
For the period 23 May 2012 to 31 December 2012, summary of revenue from promoted and non-promoted businesses are as follows:
Separate financial statements For the period 23 May 2012 to 31 December 2012 (in Baht) Revenue from sale of goods Promoted business Non-promoted business Total Less Eliminations Total
675,522,981 2,323,867,009 2,999,389,990 (1,572,346,208) 1,427,043,782
33 Dividends At the Board of Directors of subsidiary company meeting held on 27 June 2012, the board approved the appropriation of interim dividends of Baht 1,388 per share, amounting to Baht 347 million, which has paid to the shareholders in July 2012. At the Board of Directors of subsidiary company meeting held on 20 December 2012, the board approved the appropriation of interim dividends of Baht 2,000 per share, amounting to Baht 500 million, which the subsidiary will pay to the shareholders in 2013 The dividend was included the distribution from retained earnings before the business restructuring in, amounting to Baht 172.4 million.
34 Financial instruments Financial risk management policies The Group is exposed to normal business risks from changes in market interest rates and currency exchange rates and from non-performance of contractual obligations by counterparties. The Group does not hold or issue derivative financial instruments for speculative or trading purposes. Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Group’s risk management process to ensure that an appropriate balance between risk and control is achieved. Capital management The Board of Directors’ policy is to maintain a strong capital base so as to maintain investors, creditors and market confidence and to sustain future development of the business. The Board monitors the return on capital, which the Group defines as result from operating activities divided by total shareholders’ equity, excluding non-controlling interests and also monitors the level of dividends to ordinary shareholders. Interest rate risk Interest rate risk is the risk that future movements in market interest rates will affect the results of the Group’s operations and its cash flows. The management believes that the Group has low interest rate risk because it has borrowing interest rate is the market rate. The effective interest rates of interest-bearing financial liabilities as at 31 December and the periods in which those liabilities mature or re-price were as follows:
190
Consolidated financial statements Effective interest rate
After 1 year but within 5 years
Within 1 year
(% per annum)
Total
(in Baht)
2012 Current Short-term loans from financial institutions
4.0
250,000,000
-
250,000,000
5.5
-
299,997,000
299,997,000
250,000,000
299,997,000
549,997,000
Non-current Long-term loans from financial institutions Total
Separate financial statements Effective interest rate
Within 1 year
(% per annum)
After 1 year but within 5 years
Total
(in Baht)
2012 Non-current Long-term loans from financial institutions Total
5.5
-
299,997,000
299,997,000
-
299,997,000
299,997,000
Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Group as and when they fall due. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the reporting date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. However, due to the large number of parties comprising the Group’s customer base, Management does not anticipate material losses from its debt collection. Liquidity risk The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows.
191
Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. The fair value of trade and other short-term receivables is taken to approximate the carrying value. The carrying amounts of borrowings with variable interest rates approximate their fair values. The carrying amounts of other accounts with fixed interest rates are immaterial.
35 Commitments with non-related parties Consolidated financial statements 2012
Separate financial statements 2012
Non-cancellable operating lease commitments Within one year
125,866,261
125,866,261
After one year but within five years
191,898,950
191,898,950
Total
317,765,211
317,765,211
Bank guarantees
11,511,500
-
Total
11,511,500
-
Other commitments
36 Events after the reporting period On 11 January 2013, the Company has acquired 100% shares of MC INTER LIMITED a company incorporated in Hong Kong. This company has registered share capital of 10,000 shares at HKD 1 per share. Currently, the company has paid-up capital of 1 share. The company’s principal business is to expand business overseas. On 4 February 2013, the Company has acquired 79.9% in WoWme Limited. This company has registered share capital of 10,000 shares at Baht 100 per share. The company’s principal business is to operate a business through internet to sale its consumer products such as clothes, accessories and etc. The company has paid up shares amounting of Baht 799,700.
37 Thai Financial Reporting Standards (TFRS) not yet adopted The Group has not adopted the following new and revised TFRS which related with the group that have been issued as of the reporting date but are not yet effective. The new and revised TFRS are expected to become effective for annual financial periods beginning on or after 1 January in the year indicated in the following table. TFRS
192
Topic
Year effective
TAS 21 (revised 2009)
The Effects of Changes in Foreign Exchange Rates
2013
TFRS 8
Operating Segments
2013
Management expects to adopt and apply these new TFRS in accordance with the FAP’s announcement and has made a preliminary assessment of the potential initial impact on the consolidated and separate financial statements of those new standards assessed to have the greatest potential impact on the financial statements in the period of initial application. These standards are as follows: TAS 21 (revised 2009) - The effects of changes in foreign exchange rates The principal change introduced by TAS 21 is the introduction of the concept of functional currency, which is defined as the currency of the primary economic environment in which the entity operates. TAS 21 requires the entity to determine its functional currency and translate foreign currency items into its functional currency, reporting the effects of such translation in accordance with the provisions of TAS 21. Foreign currencies are defined by TAS 21 as all currencies other than the entity’s functional currency. Management has determined that the functional currency of the Company is Thai Baht. Accordingly, the adoption of TAS 21 from 1 January 2013 is not expected to have a significant impact on the Group’s reported assets, liabilities or retained earnings. TFRS 8 - Operating segments The principal change introduced by TFRS 8 is the introduction of the concept of presenting operating segments based on the information that internally is provided to the Group’s chief operating decision maker. Since the change in accounting policy only impacts disclosure aspects, there is no impact on the Group’s financial statements.
193
Independent AssurAnce report of certIfIed publIc AccountAnt To the Board of Directors of Mc Group Limited I report on the accompanying pro forma consolidated statements of financial position as at 31 December 2012, the related pro forma consolidated statements of comprehensive income, the pro forma consolidated statements of changes in equity and the pro forma consolidated statements of cash flows for the years then ended of Mc Group Limited (“Mc Group” or “the Company”) and its subsidiaries, which has been prepared by the Company’s Management, for illustrative purposes only, to provide information as if the restructuring between Mc Group Limited and its subsidiaries had occurred on 1 January 2010. The pro forma consolidated financial information which is based on financial statements under Thai Financial Reporting Standards is prepared on the basis of preparation in note 2 and assumptions in note 3. The key information to prepare the pro forma consolidated financial information is as follows:
The consolidated statement of financial position as at 31 December 2012, the consolidated statement of comprehensive income, the consolidated statement of shareholders’ equity, the consolidated statement of cash flows, and respective notes to financial statements for the period from 23 May 2012 (Inception date) to 31 December 2012 of Mc Group in which I have audited expressing unqualified opinion dated 28 February 2013.
The statement of financial position as at 31 December 2012, the statement of comprehensive income, the statement of shareholders’ equity, the statement of cash flows, and respective notes to financial statements for the year ended 31 December 2012 of P.K. Garment in which another auditor in my office has audited expressing unqualified opinion dated 28 February 2013.
The statement of financial position as at 31 December 2011, the statement of income, the statement of shareholders’ equity, and respective notes to financial statements for the year ended 31 December 2011 of P.K. Garment which were audited by another auditor who expressed qualified opinion dated 26 April 2012.
The accounting entries in note 4 to adjust and present the consolidated financial positions, consolidated financial results and cash flows in accordance with the basis of preparation in note 2 and assumptions in note 3
The accounting entries in note 4 to adjust and present the consolidated pro forma financial information to be in line with the accounting policy of Mc Group which is based on Thai Financial Reporting Standards as described in note 5.
Respective responsibilities of the Company’s Management The Company’s Management is responsible for the compilation of the pro forma consolidated financial information which is based on Thai Financial Reporting Standards in accordance with the basis of preparation in note 2 and assumptions in note 3.
Respective responsibilities of the Certified Public Accountant My responsibility is to express an opinion as to whether the pro forma consolidated financial information which is based on Thai Financial Reporting Standards has been properly compiled by the Company’s Management in accordance with the basis of preparation in note 2 and assumptions in note 3. I am not responsible for updating or reissuing any reports or opinions given by us on any historical financial information used in compiling the pro forma financial information, nor have I, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.
194
Basis of opinion I conducted my work in accordance with Thai Standard of Assurance Engagements 3000, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. My work consisted primarily of comparing the unadjusted underlying financial information with source documents as noted in the second paragraph, considering the evidence, recomputing certain information supporting the pro forma adjustments, discussing with the Company’s Management for the appropriateness of assumptions applied in the preparation of the pro forma consolidated financial information, and examining adjusting entries as described in note 4. I planned and performed my work so as to obtain the information and explanations I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the pro forma consolidated financial information which is based on Thai Financial Reporting Standards has been properly compiled by the Company’s Management in accordance with the basis of preparation in note 2 and assumptions in note 3. The pro forma consolidated financial information is for illustrative purposes only, based on the judgements and assumptions of the Company’s Management, and because of its hypothetical nature and assumptions as described in notes 2 and 3, does not provide any assurance or indication that any event will take place in the future and does not provide any assurance that the actual performance of restructuring for the periods since 1 January 2010 would have been as presented.
Opinion In my opinion, the pro forma consolidated financial information which is based on Thai Financial Reporting Standards is compiled by the Company’s Management in accordance with basis of preparation in note 2 and assumptions in note 3.
Other matters This report is intended solely for internal use by the Company’s Management as information to prepare the offering documents. As such, this report should not be used for any other purposes.
(Vichien Thamtrakul) Certified Public Accountant Registration No. 3183 KPMG Phoomchai Audit Ltd. Bangkok 20 March 2013
195
pro formA consolIdAted stAtements of fInAncIAl posItIon Mc Group Limited and its Subsidiaries As at 31 december 2011 and 2012 Note
2012
2011 (in Baht)
Assets Current assets Cash and cash equivalents
152,959,109
118,759,761
Short-term investments
7
4,765,240
19,457,933
Trade accounts receivable
8
637,599,472
495,592,678
Other receivables
6, 9
30,309
49,036,884
Inventories
10
779,363,026
541,231,204
Other current assets
11
55,123,978
5,416,467
1,629,841,134
1,229,494,927
Total current assets Non-current assets Property, plant and equipment
12
231,876,008
153,160,138
Intangible assets
13
4,291,420
6,933,280
14
107,367,305
38,713,943
6, 15
39,929,303
22,416,663
383,464,036
221,224,024
2,013,305,170
1,450,718,951
Deferred tax assets Other non-current assets Total non-current assets Total assets
The accompanying notes are an integral part of these pro forma financial information.
196
pro formA consolIdAted stAtements of fInAncIAl posItIon Mc Group Limited and its Subsidiaries As at 31 december 2011 and 2012 Note
2012
2011 (in Baht)
Current liabilities Short-term loans from financial institutions
16
250,000,000
262,577,747
Trade accounts payable
6,17
288,033,826
357,972,377
Other payables
6,18
66,419,568
45,251,408
Current portion of finance lease liabilities
16
Income tax payable Other current liabilities
19
Total current liabilities
-
592,865
107,672,712
101,872,689
153,703,073
96,774,690
865,829,179
865,041,776
Non-current liabilities Long-term loans from financial institutions
16
299,997,000
-
Employee benefit obligations
20
38,948,410
27,534,242
2,806,000
1,578,500
Other non-current liabilities Total non-current liabilities
341,751,410
29,112,742
1,207,580,589
894,154,518
Authorised share capital
300,000,000
300,000,000
Issued and paid-up share capital
300,000,000
300,000,000
Total liabilities Equity Share capital
21
Retained earnings Appropriated Legal reserve
25,000,000
25,000,000
Unappropriated
480,704,728
231,558,127
805,704,728
556,558,127
Equity attributable to owners of the Company Non-controlling interests Total equity Total liabilities and equity
19,853
6,306
805,724,581
556,564,433
2,013,305,170
1,450,718,951
The accompanying notes are an integral part of these pro forma financial information.
197
pro formA consolIdAted stAtements of comprehensIve Income Mc Group Limited and its Subsidiaries for the years ended 31 december 2011 and 2012 Note
2012
2011 (in Baht)
Income Revenue from sale of goods Investment income Other income
2,555,604,991 24 6, 25
Total income Expenses
1,804,470,660
138,280
126,612
8,531,022
11,924,807
2,564,274,293
1,816,522,079
1,126,348,636
946,549,462
6
Cost of sale of goods Selling expenses
26
431,874,859
268,371,013
Administrative expenses
27
280,281,601
162,636,099
Finance costs
30
Total expenses Profit before income tax expense
18,757,377
11,607,192
1,857,262,473
1,389,163,766
707,011,820
427,358,313
107,692,960
128,517,174
599,318,860
298,841,139
-
(1,373)
(3,899,581)
-
746,869
-
Other comprehensive income for the year, net of income tax
(3,152,712)
(1,373)
Total comprehensive income for the year
596,166,148
298,839,766
Owners of the Company
599,299,275
298,838,638
Non-controlling interests
19,585
2,501
599,318,860
298,841,139
Owners of the Company
596,146,601
298,837,265
Non-controlling interests
19,547
2,501
596,166,148
298,839,766
19.98
9.96
Income tax expense
31
Profit for the year Other comprehensive income Net change in fair value of available-for-sale investments Defined benefit plan actuarial losses Income tax on other comprehensive income
Profit attributable to:
Profit for the year Total comprehensive income attributable to:
Total comprehensive income for the year Earnings per share Basic earnings per share (in Baht)
32
The accompanying notes are an integral part of these pro forma financial information.
198
199
33
33
Note
300,000,000
25,000,000
15,000,000
-
-
-
-
-
-
10,000,000
Legal reserve
-
-
-
300,000,000
Issued and paid-up share capital
The accompanying notes are an integral part of these pro forma financial information.
Balance at 31 December 2011
Transfer to legal reserve
Total comprehensive income for the year
Other comprehensive income
Profit
Comprehensive income for the year
Total distributions to owners of the Company
Dividends to owners of the Company
Distributions to owners of the Company
Transactions with owners, recorded directly in equity
Balance at 1 January 2011
For the year ended 31 December 2011
Mc Group Limited and its Subsidiaries Other components of equity
-
-
-
-
-
-
-
-
231,558,127
(15,000,000)
298,838,638
-
298,838,638
(100,000,000)
(100,000,000)
47,719,489
-
-
(1,373)
(1,373)
-
-
-
1,373
556,558,127
-
298,837,265
(1,373)
298,838,638
(100,000,000)
(100,000,000)
357,720,862
6,306
-
2,501
-
2,501
-
-
3,805
556,564,433
-
298,839,766
(1,373)
298,841,139
(100,000,000)
(100,000,000)
357,724,667
In subsidiaries Fair value Equity before changes in attributable to Nonrestructure available-for-sale owners of controlling business Unappropriated investments the Company interests Total equity (in Baht)
Retained earnings
pro formA consolIdAted stAtements of chAnges In equIty
200
Note
-
300,000,000
25,000,000
-
-
-
-
-
25,000,000
Legal reserve
The accompanying notes are an integral part of these pro forma financial information.
Balance at 31 December 2012
Total comprehensive income for the year
-
-
Profit
33
300,000,000
Issued and paid-up share capital
Other comprehensive income
Comprehensive income for the year
Total distributions to owners of the Company
Dividends to owners of the Company
Distributions to owners of the Company
Transactions with owners, recorded directly in equity
Balance at 1 January 2012
For the year ended 31 December 2012
Mc Group Limited and its Subsidiaries Other components of equity
-
-
-
-
-
-
-
480,704,728
596,146,601
(3,152,674)
599,299,275
(347,000,000)
(347,000,000)
231,558,127
(in Baht)
-
-
-
-
-
-
-
805,704,728
596,146,601
(3,152,674)
599,299,275
(347,000,000)
(347,000,000)
556,558,127
19,853
19,547
(38)
19,585
(6,000)
(6,000)
6,306
805,724,581
596,166,148
(3,152,712)
599,318,860
(347,006,000)
(347,006,000)
556,564,433
In subsidiaries Fair value Equity before changes in attributable to Nonrestructure available-for-sale owners of controlling business Unappropriated investments the Company interests Total equity
Retained earnings
pro formA consolIdAted stAtements of chAnges In equIty
pro formA consolIdAted stAtements of cAsh flows Mc Group Limited and its Subsidiaries for the years ended 31 december 2011 and 2012 2012
2011 (in Baht)
Cash flows from operating activities Profit for the year
599,318,860
298,841,139
Adjustments for Depreciation
52,538,415
41,385,273
Amortisation of intangible assets
2,083,949
1,044,773
Impairment losses on intangible assets
4,701,849
-
Investment income
(138,280)
(126,612)
Finance costs
18,757,377
11,607,192
Gain from sales of investment
(2,116,132)
(3,471,640)
2,196,863
2,894,019
Allowance for doubtful accounts Provision for sales return
-
1,637,474
(1,694,644)
(690,864)
-
4,922,183
(Reversal) provision for inventory obsolescence
34,346,848
(1,430,391)
Reversal (provision) of stock for sales return
(1,500,083)
766,056
Unrealized (gain) loss on short-term investments
1,203
(46,467)
Gain from sales of property, plant and equipment and intangible assets
(1,849,188)
(442,365)
107,692,960
128,517,174
814,339,997
485,406,944
(144,294,456)
(151,639,389)
49,097,374
(1,388,282)
(269,283,943)
(311,796,836)
Other current assets
(49,707,511)
(1,083,150)
Other non-current assets
(17,512,639)
(9,051,326)
Trade accounts payable
(69,938,551)
165,811,948
Other payables
21,168,160
17,632,623
Other current liabilities
Gain on fire damaged goods Loss from physical inventory count
Income tax expense Changes in operating assets and liabilities Trade accounts receivable Other receivables Inventories
56,693,472
35,534,332
Employee benefit obligations
7,514,587
293,195
Other non-current liabilities
1,227,500
279,000
Cash generated from operating activities Income tax paid Net cash from operating activities
399,303,990
229,999,059
(169,799,430)
(60,431,621)
229,504,560
169,567,438
The accompanying notes are an integral part of these pro forma financial information.
201
pro formA consolIdAted stAtements of cAsh flows Mc Group Limited and its Subsidiaries for the years ended 31 december 2011 and 2012 2012
2011 (in Baht)
Cash flows from investing activities Interest received Dividends received (Increase) decrease short-term investments
114,555
89,112
23,725
37,500
16,807,622
(15,498,667)
Dividends paid
(347,006,000)
(100,000,000)
Purchase of property, plant and equipment
(132,209,432)
(67,914,372)
(4,143,938)
(4,790,800)
Purchase of intangible assets Sale of property, plant and equipment and intangible assets
2,804,335
1,747,664
(463,609,133)
(186,329,563)
Interest paid
(18,522,466)
(11,587,160)
Increase (decrease) bank overdrafts and short-term loans from financial institutions
(12,577,747)
21,677,483
Proceeds from long-term borrowings from financial institutions
299,997,000
-
(592,866)
(1,302,176)
268,303,921
8,788,147
Net cash used in investing activities Cash flows from financing activities
Finance lease payments Net cash from financing activities
34,199,348
(7,973,978)
Cash and cash equivalents at beginning of year
Net increase (decrease) in cash and cash equivalents
118,759,761
126,733,739
Cash and cash equivalents at end of year
152,959,109
118,759,761
The accompanying notes are an integral part of these pro forma financial information.
202
notes to the pro formA consolIdAted fInAcIAl InformAtIon Mc Group Limited and its Subsidiaries Note
Contents
1
General information
2
Basis of preparation of the Pro Forma Consolidated Financial Information
3
Key assumptions in the preparation of the Pro Forma Consolidated Financial Information
4
Summary of adjustments
5
Significant accounting policies
6
Related parties
7
Short-term investments
8
Trade accounts receivable
9
Other receivables
10
Inventories
11
Other current assets
12
Property, plant and equipment
13
Intangible assets
14
Deferred tax
15
Other non-current assets
16
Interest-bearing liabilities
17
Trade accounts payable
18
Other payables
19
Other current liabilities
20
Employee benefit obligations
21
Share capital
22
Reserves
23
Segment information
24
Investment income
25
Other income
26
Selling expenses
27
Administrative expenses
28
Employee benefit expenses
29
Expenses by nature
30
Finance costs
31
Income tax expense
32
Basic earnings per share
33
Dividends
34
Promotional privileges
35
Financial instruments
36
Commitments with non-related parties
37
Events after the reporting period
38
Thai Financial Reporting Standards (TFRS) not yet adopted
203
These notes to the pro forma consolidated financial information form an integral part of these pro forma consolidated financial information. The Pro Forma Consolidated Financial Information was approved by the Management of Mc Group Limited on 20 March 2013.
1
General information The Pro Forma Consolidated Financial Information has been prepared to provide relevant financial information of Mc Group Limited as if the restructuring had occurred on 1 January 2010. Mc Group Limited (“Mc Group” or “the Company”) was incorporated in Thailand on 23 May 2012 and has its registered office at 448,450 Onnuch Road, Kwang Pravet, Khet Pravet, Bangkok. The principal business of the Company is to manage and distribute garments and accessories products of the Group whereby subsidiaries provide supports on the manufacturing activities of the Group. Details of the Company’s subsidiaries are as follows:
Name of entities
Country of Type of business incorporation
Percentage of ownership interest
P.K. Garment (Import-Export) Co., Ltd. (“P.K. Garment”)
(1)
Thailand
99.99
Mc Jeans Manufacturing Co., Ltd. (“Mc Jeans”)
(1)
Thailand
99.97
Winner Man Co., Ltd. (“Winner Man”)
(2)
Thailand
99.97
Type of business (1) manufacturing of garments (2) personnel services to the Group
2
Basis of preparation of the Pro Forma Consolidated Financial Information The Pro Forma Consolidated Financial Information has been prepared to provide information of the pro forma consolidated statements of financial position as at 31 December 2012, the pro forma consolidated statements of comprehensive income, the pro forma consolidated statements of changes in equity and the pro forma consolidated statements of cash flows for the year ended with the assumption that P.K. Garment, Mc Jeans and Winner Man have been under the control of Mc Group from 1 January 2010. The Pro Forma Consolidated Financial Information has been prepared in accordance with Thai Financial Reporting Standards promulgated by Federations of Accounting Profession (“FAP”) and in accordance with assumptions as described in note 3 The information included in the Pro Forma Consolidated Financial Information is based on the following:
204
The consolidated statement of financial position as at 31 December 2012, the consolidated statement of comprehensive income, the consolidated statement of shareholders’ equity, the consolidated statement of cash flows, and respective notes to financial statements for the period from 23 May 2012 (Inception date) to 31 December 2012 of Mc Group which were audited by an auditor who expressed unqualified opinion dated 28 February 2013.
The statement of financial position as at 31 December 2012, the statement of comprehensive income, the statement of shareholders’ equity, the statement of cash flows, and respective notes to financial statements for the year ended 31 December 2012 of P.K. Garment which were audited by an auditor who expressed unqualified opinion dated 28 February 2013.
The Pro Forma Consolidated Financial Information is not necessarily indicative of the results of operations or related effects on financial position that would have occurred had the transactions actually happened earlier because the preparation of the Pro Forma Consolidated Financial Information includes certain assumptions. The user should be careful and take into consideration that the Pro Forma Consolidated Financial Information may not be appropriate to be used for any other purposes. The Pro Forma Consolidated Financial Information are prepared and presented in Thai Baht and has been rounded in the notes to the pro forma consolidated financial information to the nearest thousand unless otherwise stated. In the preparation of the Pro Forma Consolidated Financial Information the following TFRS have been early adopted as at 1 January 2010:
TFRS
Topic
TAS 12
Income Taxes
TAS 19
Employee Benefits
TAS 24 (revised 2009)
Related Parties Disclosure
TAS 27 (revised 2009)
Consolidated and Separate Financial Statements
TAS 36 (revised 2009)
Impairment of Assets
TFRS 3 (revised 2009)
Business Combinations
The early adoption before the effective date of the above TFRS has been applied for reducing the impact of the different version of TFRS being applied if the restructuring occurs after 2010. Key assumptions for the preparation of the Pro Forma Consolidated Financial Information are summarized in note 3.
3
Key assumptions in the preparation of the Pro Forma Consolidated Financial Information Key assumptions in the preparation of the Pro Forma Consolidated Financial Information are summarized as follows:
(a)
Mc Group was incorporated on 23 May 2012 whereby the Company’s principal business is to manage and distribute garment and accessories products of the Group. The Pro Forma Consolidated Financial Information is prepared on the assumption that Mc Group has been incorporated since 1 January 2010. Mc Group issued ordinary shares in amount of Baht 299 million on 30 July 2012. The Pro Forma Consolidated Financial Information is prepared on the assumption that the ordinary shares had been issued since 1 January 2010.
(b)
On 4 July 2012, Mc Group paid Baht 249.99 million to acquire 249,997 shares of Baht 1,000 per share of P.K. Garment. The Pro Forma Consolidated Financial Information is prepared on the assumption that the share acquisition had occurred since 1 January 2010.
(c)
According to the Annual General Meeting of Shareholders of P.K. Garment held on 14 October 2010, the shareholders approved the appropriation of retained earnings to legal reserve in amount of Baht 10 million, and approved the dividend payment of Baht 200 per share, in total amount of Baht 50 million whereby the dividend payment was made on 19 October 2010. The Pro Forma Consolidated Financial Information is prepared on the assumption that P.K. Garment had appropriated retained earnings to legal reserve and distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders.
205
(d)
According to the Board of Directors Meeting of P.K. Garment held on 7 March 2011, the Board approved the appropriation of retained earnings to legal reserve in amount of Baht 15 million, and approved interim dividend payment of Baht 280 per share in amount of Baht 70 million, whereby the dividend payment was made on 28 March 2011. The Pro Forma Consolidated Financial Information is prepared on the assumption that P.K. Garment had appropriated retained earnings to legal reserve and distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders.
(e)
According to the Board of Directors Meeting of P.K. Garment held on 18 October 2011, the Board approved the interim dividend payment of Baht 120 per share in amount of Baht 30 million, whereby the dividend payment was made on 2 November 2011. The Pro Forma Consolidated Financial Information is prepared on the assumption that P.K. Garment had distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders.
(f)
According to the Board of Directors Meeting of P.K. Garment held on 27 June 2012, the Board approved the interim dividend payment of Baht 1,388 per share in amount of Baht 347 million, whereby the dividend payment was made on 3 July 2012. The Pro Forma Consolidated Financial Information is prepared on the assumption that P.K. Garment had distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders.
(g)
On 4 July 2012, Mc Group paid Baht 1 million to acquire 99.97% shares of Winner Man Co., Ltd., a newly set up company, from its major shareholder. The subsidiary commenced operations in June 2012. The Pro Forma Consolidated Financial Information is prepared on the assumption that the acquisition incurred on 1 January 2010.
(h)
On 1 August 2012, Mc Group established Mc Jeans Manufacturing Co. Ltd., a newly set up company, a newly set up company, with an authorised share capital of Baht 1 million. The subsidiary commenced operations in August 2012. The Pro Forma Consolidated Financial Information is prepared on the assumption this company is established on 1 January 2010.
(i)
During the year 2012, P.K. Garment sold land, land improvements, building, and building improvements to a related party. The Pro Forma Consolidated Financial Information is prepared on the assumption that this transaction had incurred before 1 January 2010.
(j)
During the year 2012, Mc Jeans Manufacturing Co. Ltd., has entered into lease agreement of land and land improvements, building and building improvements with a related party. The Pro Forma Consolidated Financial Information is prepared on the assumption that this leases agreements had been incurred on 1 January 2010.
4
Summary of adjustments
(1)
To adjust the allowance for obsolescence stock and slow moving of P.K. Garment to comply with the Group’s accounting policies.
(2)
To adjust the allowance for doubtful accounts of P.K. Garment to comply with the Group’s accounting policies.
(3)
To adjust the allowance for sales return of P.K. Garment to comply with the Group’s accounting policies.
(4)
To adjust the consignment sale of P.K. Garment to comply with the Group’s accounting policies.
(5)
To adjust the sales of land and land improvements, building and building improvements to P.K. Grand Co., Ltd. The depreciation of relevant assets is included on the assumption that the transaction had incurred before 1 January 2010.
206
(6)
To record land rental fee and land improvements, building and building improvements from P.K. Grand Co., Ltd., on the assumption that the rental agreement had incurred on 1 January 2010.
(7)
To record deferred tax assets and income taxes on the adoption of TAS 12 Income Taxes starting from 1 January 2010.
(8)
To adjust inventory deficit/surplus from products and raw materials reports which incurred from P.K. Garment’s inventory count.
(9)
To record the paid up share capital on the establishment of Mc Group, Mc Jeans, and Winner Man on the assumption that these transactions incurred on 1 January 2010.
(10) To record the investment in subsidiaries. (11) To adjust the eliminating entries of parent and subsidiaries. (12) To reclassify some transactions in the statement of financial position to be consistent with current financial statements. (13) To reclassify some transactions in the statement of comprehensive income to be consistent with current financial statements.
Summary of adjustments for pro forma consolidated statement of financial position As at 31 December 2012
Adjustments Mc Group Assets
Debit
Credit
Pro Forma
(in Baht)
Current assets Cash and cash equivalents Short-term investments Trade accounts receivable Other receivables Inventories Other current assets Total current assets
152,959,109
-
-
152,959,109
4,765,240
-
-
4,765,240
637,599,472
-
-
637,599,472
30,309
-
-
30,309
779,363,026
-
-
779,363,026
55,123,978
-
-
55,123,978
1,629,841,134
-
-
1,629,841,134
231,876,008
-
-
231,876,008
Non-current assets Property, plant and equipment Intangible assets
4,291,420
-
-
4,291,420
107,367,305
-
-
107,367,305
Other non-current assets
39,929,303
-
-
39,929,303
Total non-current assets
383,464,036
-
-
383,464,036
2,013,305,170
-
-
2,013,305,170
Deferred tax assets
Total assets
207
Adjustments Debit Credit
Mc Group
Pro Forma
(in Baht) Liabilities and equity Current liabilities Short-term loans from financial institutions
250,000,000
Trade accounts payable
288,033,826
-
56,430,888
-
Other payables
-
6
-
250,000,000
-
288,033,826
9,988,680
66,419,568
Income tax payable
107,672,712
-
-
107,672,712
Other current liabilities
153,703,073
-
-
153,703,073
Total current liabilities
855,840,499
-
9,988,680
865,829,179
299,997,000
-
-
299,997,000
38,948,410
-
-
38,948,410
Non-current liabilities Long-term loans from financial institutions Employee benefit obligations Other non-current liabilities Total non-current liabilities Total liabilities
2,806,000
-
-
2,806,000
341,751,410
-
-
341,751,410
1,197,591,909
-
9,988,680
1,207,580,589
Equity Share capital Authorised share capital
300,000,000
Issued and paid-up share capital
300,000,000
-
-
300,000,000 300,000,000
25,000,000
-
-
25,000,000 480,704,728
Retained earnings Appropriated Legal reserve Unappropriated Equity attributable to owners of the Company Non-controlling interests Total equity Total liabilities and equity
208
490,698,698
6
7,426,762
5
5,900,319
PL
8,472,385
11
4,858
815,698,698 14,563 PL
15,899,147 852
11
5,905,177
805,704,728
6,142
19,853
815,713,261
15,899,999
5,911,319
805,724,581
2,013,305,170
15,899,999
15,899,999
2,013,305,170
209
1,437,927,277
Total income
Total comprehensive income for the year
Other comprehensive income for the year, net of income tax
318,277,741
-
-
Income tax on other comprehensive income
869,785,747
(3,152,712)
746,869
(3,899,581)
872,938,459
318,277,741
-
129,769,185
1,002,707,644
2,041,111,601
14,720,772
157,011,381
261,991,303
1,607,388,145
3,043,819,245
27,020,872
-
3,016,798,373
(583,424,104)
-
-
-
(583,424,104)
(81,209,235)
(664,633,339)
(1,245,365,621)
(7,889,377)
(43,058,805)
(75,381,180)
(1,119,036,259)
(1,909,998,960)
(21,761,796)
-
(1,888,237,164)
P.K. Garment P.K. Garment For the period from For the year ended 4 July 2012 to 31 December 2012 31 December 2012
59,136,295
377,414,036
1,060,513,241
Defined benefit plan actuarial losses
Other comprehensive income
Profit for the year
Income tax expense
Profit before income tax expense
Total expenses
11,925,982
160,325,627
Administrative expenses
Finance costs
636,488,814
251,772,818
Cost of sale of goods
Selling expenses
Expenses
10,805,409
78,086
1,427,043,782
Mc Group For the period from 23 May 2012 to 31 December 2012
Other income
Investment income
Revenue from sale of goods
Income
For the year ended 31 December 2012
Total
604,639,384
(3,152,712)
746,869
(3,899,581)
607,792,096
107,696,245
715,488,341
1,856,259,221
18,757,377
274,278,203
438,382,941
1,124,840,700
2,571,747,562
16,064,485
78,086
2,555,604,991
(in Baht)
Summary of adjustments for pro forma consolidated statements of comprehensive income
-
16,098,779
-
-
-
16,098,779
-
16,098,779
8,565,316
-
14,285 5,989,113
11
-
2,561,918
13
6
579,163 7,533,463
6,954,300
5
13
Debit
-
11
7,625,543
-
-
-
7,625,543
3,285
7,622,258
7,562,064
-
-
-
1,053,982 6,508,082
5
60,194
-
-
60,194
Credit
13
13
Adjustments
596,166,148
(3,152,712)
746,869
(3,899,581)
599,318,860
107,692,960
707,011,820
1,857,262,473
18,757,377
280,281,601
431,874,859
1,126,348,636
2,564,274,293
8,531,022
138,280
2,555,604,991
Pro Forma
Summary of adjustments for pro forma consolidated statements of financial position As at 31 December 2011
Adjustments P.K. Garment
Debit
Pro Forma
Credit (in Baht)
Assets Current assets Cash and cash equivalents Short-term investments Trade accounts receivable
Other receivables Inventories
Other current assets Total current assets
41,051,314
9
302,000,000
12
27,704,847
10
251,996,400
118,759,761
-
19,457,933
-
-
19,457,933
716,132,919
-
2
2,944,127
495,592,678
-
3
35,562,915
-
4
182,033,199
472,219,129
5
45,646,246
-
12
3,390,638
-
3
18,581,623
1
12,618,671
4
66,572,315
8
19,309,754
8
15,786,562
8,807,105
-
1,257,668,400
479,682,231
49,036,884 541,231,204
12
3,390,638
5,416,467
507,855,704
1,229,494,927
Non-current assets Investment in subsidiaries Property, plant and equipment Intangible assets Prepaid rent Deferred tax assets
- 10
251,996,400
11
251,996,400
-
5
13,990,274
5
53,736,201
153,160,138
6,496,805 12
436,475
-
6,933,280
436,475
-
192,906,065 436,475
7
12
38,713,943
-
38,713,943
Other non-current assets
22,416,663
-
-
22,416,663
Total non-current assets
222,256,008
305,137,092
306,169,076
221,224,024
1,479,924,408
784,819,323
814,024,780
1,450,718,951
Total assets
210
-
-
Summary of adjustments for pro forma consolidated statements of financial position As at 31 December 2011
Adjustments P.K. Garment
Debit
Credit
Pro Forma
(in Baht) Liabilities and equity Current liabilities Short-term loans from financial institutions
262,577,747
Trade accounts payable
368,092,176 12
Other payables Current portion of finance lease liabilities Income tax payable Other current liabilities Total current liabilities
-
-
-
262,577,747
10,119,799
-
357,972,377 45,251,408
-
6
7,426,762
-
12
37,824,646
592,865
-
-
592,865
101,872,689
-
-
101,872,689
8
95,375,698
-
1,398,992
96,774,690
828,511,175
10,119,799
46,650,400
865,041,776
27,534,242
-
-
27,534,242
1,578,500
-
-
1,578,500
29,112,742
-
-
29,112,742
857,623,917
10,119,799
46,650,400
894,154,518
Non-current liabilities Employee benefit obligations Other non-current liabilities Total non-current liabilities Total liabilities Equity Share capital Authorised share capital
250,000,000
Issued and paid-up share capital
300,000,000
250,000,000 11
252,000,000
9
302,000,000
300,000,000
Retained earnings Appropriated Legal reserve
25,000,000
Unappropriated
347,300,491
Equity attributable to owners of the Company Non-controlling interests Total equity Total liabilities and equity
-
25,000,000
1
14,049,062
5
4,272,654
231,558,127
2
140,906
7
35,249,803
3
14,577,762
-
4
97,251,235
-
6
3,658,504
-
11
4,098
-
PL
25,583,254
-
407,264,821
341,522,457
622,300,491 - PL
1,392
11
556,558,127
7,698
6,306
622,300,491
407,266,213
341,530,155
556,564,433
1,479,924,408
417,386,012
388,180,555
1,450,718,951
211
Summary of adjustments for pro forma consolidated statements of comprehensive income For the year ended December 2011
Adjustments Debit Credit
P.K. Garment Income Revenue from sale of goods Investment income Other income Total income
Pro Forma
(in Baht) 3
1,637,474
-
4
38,133,237
126,612
126,612
12,051,419 13
126,612
-
11,924,807
39,897,323
126,612
1,816,522,079
946,549,462
1,844,241,371
- 13
1,856,292,790
1,804,470,660
Expenses 3
766,056
4
19,923,588
6
3,768,258
5
1,627,665
Selling expenses
239,645,313 13
28,725,700
-
268,371,013
Administrative expenses
185,066,785
2
2,803,221
1
1,430,391
162,636,099
8
4,922,184 13
28,725,700
Cost of sale of goods
Finance costs Total expenses
963,566,401
11,607,192
-
-
11,607,192
1,399,885,691
40,985,419
51,707,344
1,389,163,766
Profit before income tax expense
456,407,099
80,882,742
51,833,956
427,358,313
Income tax expense
131,981,314
-
3,464,140
128,517,174
Profit for the year
324,425,785
80,882,742
55,298,096
298,841,139
(1,373)
-
-
(1,373)
-
-
-
-
Other comprehensive income for the year, net of income tax
(1,373)
-
-
(1,373)
Total comprehensive income for the year
324,424,412
80,882,742
55,298,096
298,839,766
7
Other comprehensive income Net change in fair value of available-for-sale investments Income tax on other comprehensive income
5
Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in the pro forma consolidated financial statements.
212
(a)
Basis of consolidation The pro forma consolidated financial information relates to the Company and its subsidiaries (together referred to as the “Group�). Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the pro forma consolidated financial information from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group. Losses applicable to non-controlling interests in a subsidiary are allocated to non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the pro forma consolidated financial information.
(b)
Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to Thai Baht at the foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Thai Baht at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities measured at cost in foreign currencies are translated to Thai Baht using the foreign exchange rates ruling at the dates of the transactions.
(c)
Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and highly liquid short-term investments. Bank overdrafts that are repayable on demand are a component of financing activities for the purpose of the statement of cash flows.
(d)
Trade and other accounts receivable Trade and other accounts receivable are stated at their invoice value less allowance for doubtful accounts. The allowance for doubtful accounts is assessed primarily on analysis of payment histories and future expectations of customer payments. Bad debts are written off when incurred.
213
(e)
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost principle and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to complete and to make the sale. An allowance is made for all deteriorated, damaged, obsolete and slow-moving inventories.
(f)
Property, plant and equipment Recognition and measurement Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss. Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Depreciation Depreciation is calculated based on the depreciable amount, which is the cost of building and equipment, or other amount substituted for cost, less its residual value. Depreciation is charged to the profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. The estimated useful lives are as follows: Buildings and factory
3
years
Machine and factory equipment
5
years
3 and 5
years
5
years
Furniture, fixture and office equipment Motor vehicles No depreciation is provided on land and assets under construction.
214
20 and 5 years
Leasehold improvements
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (g)
Intangible assets Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and impairment losses. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. Amortisation Amortisation is based on the cost of the asset, or other amount substituted for cost, less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Computer program
5
years
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. (h)
Leasehold right Leasehold right is stated at cost less accumulated amortisation and impairment losses. Amortisation is recognised in profit or loss on a straight-line basis over the leased term.
(i)
Impairment The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. For intangible assets that have indefinite useful lives or are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The impairment loss is recognised in profit or loss. Calculation of recoverable amount The recoverable amount of non-financial assets is the greater of the assets’ value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment Impairment losses recognised in prior periods in respect of non-financial assets are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
215
(j)
Interest-bearing liabilities
Interest-bearing liabilities are recognised initially at cost. (k)
Trade and other accounts payable Trade and other accounts payable are stated at cost.
(l)
Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The Group recognises all actuarial gains and losses arising from defined benefit plans in other comprehensive income and all expenses related to defined benefit plans in profit or loss. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or other benefits if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
(m) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. (n)
Revenue Revenue excludes value added taxes and is arrived at after deduction of trade and special discounts.
216
Sale of goods and services rendered Revenue is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there is continuing management involvement with the goods or there are significant uncertainties regarding recovery of the consideration due, associated costs or the probable return of goods. Service income is recognised as services are provided. Investments Revenue from investments comprises dividend and interest income from investments and bank deposits. Dividend income Dividend income is recognised in statement of comprehensive income on the date the Group’s right to receive payments is established. Interest income Interest income is recognised in statement of comprehensive income as it accrues. (o)
Finance costs Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and contingent consideration, impairment losses recognised on financial assets (other than trade receivables). Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.
(p)
Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate.
(q)
Income tax Income tax expense for the year comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
217
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised. (r)
Earnings per share The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.
6
Related parties For the purposes of the pro forma consolidated financial information, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control or joint control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.
218
7
Short-term investments 2012
2011
(in thousand Baht) Short-term investments Equity securities held for trading
899
636
Mutual fund units held for trading
3,866
18,822
Total
4,765
19,458
2012 Cost
Unrealised gain/(loss)
2011 Fair value
Unrealised gain Fair value
Cost
(in thousand Baht) Equity securities held for trading
912
(13)
899
624
12
636
Mutual fund units held for trading
3,854
12
3,866
18,788
34
18,822
Total
4,766
(1)
4,765
19,412
46
19,458
8
Trade accounts receivable 2012
2011
(in thousand Baht) Other parties
678,394
534,100
Less provision for sales return
(35,563)
(35,563)
Less allowance for doubtful accounts Net Bad and doubtful debts expense for the year
(5,232)
(2,944)
637,599
495,593
2,288
3,117
Aging analyses for trade accounts receivable were as follows:
2012
2011
(in thousand Baht) Other parties Within credit terms
561,644
412,115
Overdue: Less than 3 months
108,841
243,473
3 - 6 months
5,343
46,283
6 - 12 months
1,648
13,701
918
561
678,394
716,133
Over 12 months Less consignment receivables Less provision for sales return Less allowance for doubtful accounts Net
-
(182,033)
678,394
534,100
(35,563)
(35,563)
(5,232)
(2,944)
637,599
495,593
221
The normal credit term granted by the Group/Company ranges from 30 days to 120 days. Trade accounts receivable of the Group as at 31 December 2012 and 2011 were denominated entirely in Thai Baht.
9
Other receivables Note
2012
2011
(in thousand Baht) Related parties
6
30
45,760
-
3,277
30
49,037
Other parties Total
10 Inventories 2012
2011
(in thousand Baht) Finished goods Work in progress
659,678
350,736
59,511
41,496
Raw materials and supplies
107,140
161,618
826,329
553,850
Less allowance for inventory obsolescence
(46,966)
(12,619)
Net
779,363
541,231
11 Other current assets 2012
2011
(in thousand Baht) Revenue department receivable
39,491
-
Input VAT suspense
1,793
1,865
Advance to vendors
1,077
-
Advance to employees
3,910
1,166
Prepaid expenses
4,654
1,753
Others Total
222
4,199
632
55,124
5,416
223
-
Disposals
-
Disposals
17,032
-
Transfers
At 31 December 2012
-
Additions
17,032
-
Transfers
At 31 December 2011 and 1 January 2012
-
17,032
Land and land improvements
Additions
At 1 January 2011
Cost
12 Property, plant and equipment
220,983
(235)
19,819
1,941
199,458
-
-
5,819
193,639
Building and building improvements
261,990
-
22,508
27,593
211,889
(189)
-
38,948
173,130
Machine and factory equipment
104,724
(299)
6,865
19,437
78,721
(48)
(171)
17,106
61,834
(in thousand Baht)
Furniture fixture and office equipment
64,730
(1,638)
15,070
13,003
38,295
(4,421)
-
4,324
38,392
Motor vehicles
7,150
(553)
(64,262)
70,236
1,729
-
-
1,717
12
Assets under construction and installation
676,609
(2,725)
-
132,210
547,124
(4,658)
(171)
67,914
484,039
Total
224 -
Transfers
Disposals
At 31 December 2011 and 1 January 2012
Depreciation charge for the year
Transfers
Disposals
At 31 December 2012
Assets under finance leases
Owned assets
At 31 December 2012
Assets under finance leases
Owned assets
41,894
-
17,032
41,894
33,924
17,032
17,032
-
33,924
179,089
(112)
-
13,667
165,534
-
-
12,002
153,532
Building and building improvements
-
17,032
-
Depreciation charge for the year
At 31 December 2011
-
At 1 January 2011
Accumulated depreciation
Land and land improvements
81,763
-
81,763
50,695
-
50,695
180,227
-
-
19,033
161,194
(189)
-
11,704
149,679
Machine and factory equipment
45,997
-
45,997
34,335
-
34,335
58,727
(255)
-
14,596
44,386
(14)
(37)
12,043
32,394
(in thousand Baht)
Furniture fixture and office equipment
38,040
-
38,040
15,445
2,718
12,727
26,690
(1,403)
-
5,243
22,850
(3,150)
-
5,636
20,364
Motor vehicles
7,150
-
7,150
1,729
-
1,729
-
-
-
-
-
-
-
-
-
Assets under construction and installation
231,876
-
231,876
153,160
2,718
150,442
444,733
(1,770)
-
52,539
393,964
(3,353)
(37)
41,385
355,969
Total
13 Intangible assets Computer software
Leasehold rights
Total
(in thousand Baht) Cost At 1 January 2011
4,904
688
5,592
Additions
4,791
-
4,791
Transfers
171
-
171
At 31 December 2011 and 1 January 2012
9,866
688
10,554
Additions
4,144
-
4,144
Transfers
-
-
-
14,010
688
14,698
2,364
175
2,539
968
77
1,045
At 31 December 2012 Accumulated amortisation and impairment losses At 1 January 2011 Amortisation charge for the year Impairment losses Transfers
-
-
-
37
-
37
At 31 December 2011 and 1 January 2012
3,369
252
3,621
Amortisation charge for the year
2,008
76
2,084
Impairment losses
4,702
-
4,702
Transfers
-
-
-
10,079
328
10,407
At 31 December 2011
6,497
436
6,933
At 31 December 2012
3,931
360
4,921
At 31 December 2012 Net book value
14 Deferred tax Deferred tax assets and liabilities as at 31 December 2012 and 2011 were as follows:
Assets 2012
Liabilities 2011
2012
2011
(in thousand Baht) Total Set off of tax Net deferred tax assets (liabilities)
107,367
38,714
-
-
-
-
-
-
107,367
38,714
-
-
225
Movements in total deferred tax assets and liabilities during the year ended were as follows
(Charged) / Credited to At 1 January 2012
Profit or loss
Other comprehensive At 31 income December 2012
(in thousand Baht) Deferred tax assets Trade accounts receivable Inventories
681
185
-
866
2,830
57,408
-
60,238
Property, plant and equipment
-
1,403
-
1,403
Intangible assets
-
940
-
940
25,063
5,121
-
30,184
3,809
481
-
4,290
Consignment Provisions for sales return Employee benefit obligations Total
6,331
2,368
747
9,446
38,714
67,906
747
107,367
(Charged) / Credited to At 1 January 2012
Profit or loss
Other comprehensive At 31 income December 2012
(in thousand Baht) Deferred tax assets Trade accounts receivable
32
649
-
681
3,231
(401)
-
2,830
22,368
2,695
-
25,063
Provisions for sales return
3,353
456
-
3,809
Employee benefit
6,266
65
-
6,331
35,250
3,464
-
38,714
Inventories Consignment
Total
15 Other non-current assets 2012
2011
(in thousand Baht) Rental deposit Prepaid space booking rental Others Total
226
32,147
14,766
4,281
5,286
3,501
2,365
39,929
22,417
16 Interest-bearing liabilities 2012
2011
(in thousand Baht) Current Short-term loans from financial institutions Promissory notes Secured
250,000
260,000
-
2,578
250,000
262,578
Trust receipts Secured Short-term loans from financial institutions Current portion of finance lease liabilities
-
593
250,000
263,171
Long-term loans from financial institutions
299,997
-
Total non-current interest-bearing liabilities
299,997
-
Total current interest-bearing liabilities
Non-current
As at 31 December 2012, a subsidiary has short-term loan from a local financial institution amounted to Baht 250 million with bearing interest at the Minimum Loan Rate (MLR) minus fixed rate per annum. Principal repayments are Baht 175 million on 11 February 2013 and Baht 75 million on 26 March 2013. Such loan was secured by land and building. At 14 September 2012, the Company entered into loan-term loan with a local financial institution for the total Baht 300 million. This loan bears interest at the Minimum Loan Rate (MLR) minus specified rate in the agreement. The loan has repayment term within one month from the initial public offering date. In case of the initial public offering process has taken more than 12 months, the Company agree to repayment by monthly basis in the total of 9 installments starting from last working date of January 2014 and ending within September 2014. The Company has to comply with conditions and covenants as stipulated in the loan agreement such as maintaining debt to equity ratio and assigning P.K. Garment (Import-Export) Co., Ltd., as guarantor. The Company has utilised this loan amounted to Baht 299.99 million. Interest-bearing liabilities of the Group as at 31 December 2012 and 2011 were denominated entirely in Thai Baht.
227
Finance lease liabilities Finance lease liabilities as at 31 December were payable as follows:
2012 Future minimum lease payments
Interest
2011 Present value of minimum lease payments
Future minimum lease payments
Present value of minimum lease payments
Interest
(in million Baht) Within one year
-
-
-
After one year but within five years
607
14
593
-
-
-
-
-
-
Total
-
-
-
607
14
593
17 Trade accounts payable Note
2012
2011
(in thousand Baht) Related parties
11,240
10,299
Other parties
276,794
347,673
Total
288,034
357,972
6
18 Other payables Note
2012
2011
(in thousand Baht) Related parties
10,711
7,427
Other parties
55,709
37,824
Total
66,420
45,251
6
19 Other current liabilities 2012
2011
(in thousand Baht) Accrued bonus
31,142
Accrued shop rental expense
12,045
6,529
Accrued commission
13,344
11,006
Accrued rebate expense
37,886
27,605
30,735
20,493
153,703
96,775
Others Total
228
59,693
20 Employee benefit obligations 2012
2011
(in thousand Baht) Statement of financial position Statement of financial position obligations for: Post-employment benefits
38,948
27,534
7,514
5,627
3,900
-
For the year ended 31 December Statement of comprehensive income Post-employment benefits Recognised in other comprehensive income Actuarial losses recognised in the year
The Group operate a defined benefit pension plan based on the requirement of Thai Labour Protection Act B.E 2541 (1998) to provide retirement benefits to employees based on pensionable remuneration and length of service. Movement in the present value of the defined benefit obligations
2012
2011
(in thousand Baht) Defined benefit obligations at 1 January
27,534
27,241
-
(5,334)
Current service costs and interest
Benefits paid by the plan
7,514
5,627
Actuarial losses in other comprehensive income
3,900
-
38,948
27,534
Defined benefit obligations at 31 December Expense recognised in profit or loss
2012
2011
(in thousand Baht) For the year ended 31 December Current service costs
6,370
4,662
Interest on obligation
1,144
965
Total
7,514
5,627
Principal actuarial assumptions at the reporting date (expressed as weighted averages):
2012
2011 (%)
Discount rate Future salary increases
3.6414
3.7905
5.00
5.00
Assumptions regarding future mortality are based on published statistics and mortality tables.
229
Actuarial losses recognised in other comprehensive income:
2012
2011
(in thousand Baht) Included in retained earnings: At 1 January
-
-
Recognised during the year
3,900
-
At 31 December
3,900
-
21 Share capital 2012
2011
Par value per share (in Baht)
Number
10
30,000
300,000
30,000
300,000
-
-
-
-
30,000
300,000
30,000
300,000
30,000
300,000
30,000
300,000
-
-
-
-
30,000
300,000
30,000
300,000
Amount
Number
Amount
(thousand shares / thousand Baht)
Authorised At 1 January - Increase of new shares At 31 December ordinary shares Issued and paid-up At 1 January - Increase of new shares At 31 December ordinary shares
10
The Company increases share capital for Baht 299 million on 30 July 2012. The Pro Forma Consolidated Financial Information is prepared on the assumption that this increase in share capital had incurred on 1 January 2010.
22 Reserves Legal reserve Legal reserve is set up under the provision of the Civil and Commercial Code, which requires that a company shall allocate not less than 5% of its net profit to a reserve account (“legal reserve�) upon each dividend distribution, until this account reaches an amount not less than 10% of the registered authorised capital. The legal reserve is not available for dividend distribution.
23 Segment information Business segments Management considers that the Group operates in a single line of business, namely the distribution management of clothing and accessories which has mainly support the manufacturing of products by the company’s subsidiaries, and has, therefore, only one major business segment. Geographical segments Management considers that the Group operates in a single geographical area, namely in Thailand, and has, therefore, only one major geographical segment.
230
24 Investment income 2012
2011
(in thousand Baht) Dividend income Other parties
24
38
Interest revenue Other parties Total
114
89
138
127
25 Other income 2012
2011
(in thousand Baht) Rental income
3,073
Gain from sales of investments
2,116
3,472
-
3,506
Income from sewing Gain from sales of assets
1,572
374
349
Others
2,968
3,026
Total
8,531
11,925
26 Selling expenses 2012
2011
(in thousand Baht) Personnel
223,592
155,620
Rental and services
116,959
63,483
Others Total
91,324
49,268
431,875
268,371
27 Administrative expenses 2012
2011
(in thousand Baht) Personnel
135,975
88,372
Advertising and public relations
19,350
20,221
Provision for inventory obsolescence and stock loss
24,604
3,492
Professional fees
29,228
2,809
Others
71,125
47,742
280,282
162,636
Total
231
28 Employee benefit expenses 2012
2011
(in thousand Baht) Management Wages and salaries
44,722
19,666
4,123
1,330
849
-
18
-
49,712
20,996
409,365
241,150
Defined benefit plans
3,391
4,297
Defined contribution plans
1,895
-
Defined benefit plans Defined contribution plans Others Other employees Wages and salaries
Others
Total employee benefit expense
139,423
98,595
554,074
344,042
603,786
365,038
Defined contribution plans The defined contribution plan comprise provident fund established by the Group for its employees. Membership to the funds is on a voluntary basis. Contributions are made monthly by the employees at rates 3% of their basic salaries and by the Group at rates 3% of the employees’ basic salaries. The provident funds are registered with the Ministry of Finance as juristic entities and are managed by a licensed Fund Manager.
29 Expenses by nature 2012
2011
(in thousand Baht) Changes in inventories of finished goods and work in progress
(325,457)
(194,788)
Raw materials and consumables used
1,051,580
902,895
603,786
365,038
61,272
25,087
Employee benefit expenses Outsourced fees Depreciation and amortisation
59,324
42,430
129,370
79,968
Advertising and public relations
48,866
27,572
Repair and maintenance
27,682
29,340
Professional fees
33,174
3,038
Provision for inventory obsolescence and stock losses
27,929
3,492
120,979
93,485
1,838,505
1,377,557
Rental and services
Others Total cost of sales of goods, selling expenses and administrative expenses
232
30 Finance costs Note
2012
2011
(in thousand Baht) Interest expenses Related parties
6
Other parties Total
1,685
2,438
17,072
9,169
18,757
11,607
31 Income tax expense 2012
2011
(in thousand Baht) Current tax expense Current year
175,599
131,981
Movements in temporary differences
(67,906)
(3,464)
Total
107,693
128,517
Deferred tax expense
32 Basic earnings per share The calculations of basic earnings per share for the years ended 31 December 2012 and 2011 were based on the profit for the years attributable to ordinary shareholders of the Company and the number of ordinary outstanding during the years as follows:
2012
2011
(in thousand Baht / thousand shares) For the year ended 31 December Profit attributable to ordinary shareholders of the Company
599,297
298,839
Number of ordinary shares outstanding
30,000
30,000
Earnings per share (basic) (in Baht)
19.98
9.96
33 Dividends According to the Board of Directors Meeting of P.K. Garment held on 7 March 2011, the Board approved the appropriation of retained earnings to legal reserve in amount of Baht 15 million, and approved interim dividend payment of Baht 280 per share in amount of Baht 70 million, whereby the dividend payment was made on 28 March 2011. The Pro Forma Consolidated Financial Information is prepared on the assumption that P.K. Garment had appropriated retained earnings to legal reserve and distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders. According to the Board of Directors Meeting of P.K. Garment held on 18 October 2011, the Board approved the interim dividend payment of Baht 120 per share in amount of Baht 30 million, whereby the dividend payment was made on 2 November 2011. The Pro Forma Consolidated Financial Information is prepared on the assumption that P.K. Garment had distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders.
233
According to the Board of Directors Meeting of P.K. Garment held on 27 June 2012, the Board approved the interim dividend payment of Baht 1,388 per share in amount of Baht 347 million, whereby the dividend payment was made on 3 July 2012. The Pro Forma Consolidated Financial Information is prepared on the assumption that P.K. Garment had distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders. According to the Board of Directors Meeting of P.K. Garment held on 20 December 2012, the Board approved the interim dividend payment of Baht 2,000 per share, in amount of Baht 500 million, whereby P.K. Garment paid this dividend to shareholders in 2013. The Pro Forma Consolidated Financial Information was prepared on the assumption that the appropriation of retained earnings to legal reserve in amount Baht 15 million had been made and P.K. Garment had distributed dividends to the parent company, and subsequently the parent company had paid such dividends to its shareholders.
34 Promotional privileges A subsidiary has been granted privileges by the Board of Investment related to manufacturing garments 2 promotional certificates as follows: 1.
For manufacturing garments in promotional certificate no. 2135(5)/2554 dated on 16 September 2011. The significant privileges consisted of exemption from payment of import duty on machinery which will be imported during period specified by the certificate and exemption from payment of income tax for certain operation for a period of eight years from the date on which the income is first derived which was 27 June 2011.
2.
For manufacturing costumes in promotional certificate no. 1673(5)/2555 dated on 30 May 2012. The significant privileges consisted of exemption from payment of import duty on machinery which will be imported during period specified by the certificate and exemption from payment of income tax for certain operation for a period of eight years from the date on which the income is first derived. The Company has initially derived income for this certificate on 30 December 2011. For the years ended 31 December 2012 and 2011, summary of revenue from promoted and non-promoted businesses
2012
2011
(in thousand Baht) Revenue from sale of goods Promoted business
1,067,193
45,710
Non-promoted business
3,060,758
1,758,761
Less eliminations Total
4,127,951
1,804,471
(1,572,346)
-
2,555,605
1,804,471
35 Financial instruments Financial risk management policies The Group is exposed to normal business risks from changes in market interest rates and currency exchange rates and from non-performance of contractual obligations by counterparties. The Group does not hold or issue derivative financial instruments for speculative or trading purposes. Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Group’s risk management process to ensure that an appropriate balance between risk and control is achieved.
234
Capital management The Board of Directors’ policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the return on capital, which the Group defines as result from operating activities divided by total shareholders’ equity, excluding non-controlling interests and also monitors the level of dividends to ordinary shareholders. Interest rate risk Interest rate risk is the risk that future movements in market interest rates will affect the results of the Group’s operations and its cash flows. The management believes that the Group has low interest rate risk because it has borrowing interest rate is the market rate. The effective interest rates of interest-bearing financial liabilities as at 31 December and the periods in which those liabilities mature or re-price were as follows:
Effective interest rate (% per annum)
Within 1 year
After 1 year but within 5 years
Total
(in thousand Baht)
2012 Current Short-term loans from financial institutions
4.0 - 4.8
250,000
-
250,000
Non-current Long-term loans from financial institutions
5.5 - 5.6
Total
Effective interest rate (% per annum)
-
299,997
299,997
250,000
299,997
549,997
Within 1 year
After 1 year but within 5 years
Total
(in thousand Baht)
2011 Current Short-term loans from financial institutions
3.1 - 4.8
Finance lease liabilities
4.7 - 6.7
Total
262,578
-
262,578
593
-
593
263,171
-
263,171
Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Group as and when they fall due. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the reporting date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. However, due to the large number of parties comprising the Group’s customer base, Management does not anticipate material losses from its debt collection.
235
Liquidity risk The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows. Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. The fair value of trade and other short-term receivables is taken to approximate the carrying value. The fair value of assets and other financial liabilities is taken to approximate the carrying value.
36 Commitments with non-related parties 2012
2011
(In thousand Baht) Non-cancellable operating lease commitments Within one year
125,866
14,460
After one year but within five years
191,899
88,713
Total
317,765
103,173
Bank guarantees
11,512
10,478
Total
11,512
10,478
Other commitments
37 Events after the reporting period On 11 January 2013, the Company has acquired 100% shares of MC INTER LIMITED a company incorporated in Hong Kong. This company has registered share capital of 10,000 shares at HKD 1 per share. Currently, the company has paid-up capital of 1 share. The company’s principal business is to expand overseas business. On 4 February 2013, the Company has acquired 79.97% of WoWme Limited. This company has registered share capital of 10,000 shares at Baht 100 per share. The company’s principal business is to operate online business through internet to sell its consumer products such as cloths and accessories. The Company has paid up shares in amount Baht 799,700. On 18 March 2013, the Company registered with the Ministry of Commerce to change the Company’s status to become a public company limited and change the Company’s name from “MC GROUP Limited” to “MC GROUP PUBLIC COMPANY LIMITED” with the registered share capital of 800 million shares in total amount of Baht 400 million.
236
Relationships with related parties were as follows:
Name of entities
Country of incorporation /nationality
P.K. Garment (Import-Export) Co., Ltd.
Thailand
Subsidiary, 99.99% shareholding, some common directors
Mc Jeans Manufacturing Co., Ltd.
Thailand
Subsidiary, 99.97% shareholding, some common directors
Winner Man Co., Ltd.
Thailand
Subsidiary, 99.97% shareholding, some common directors
Unique Garment Import-Export Co., Ltd.
Thailand
Related party, close family of major shareholder are directors and shareholders
Sinchaihua Industry Co., Ltd.
Thailand
Related party, close family of major shareholder are directors and shareholders
Millenium (1975) Co., Ltd.
Thailand
Related party, some common directors
Boutique Consulting Group Co., Ltd.
Thailand
Related party, some common shareholders and
P.K. Grand Co., Ltd.
Thailand
Related party, some common major shareholders
P.K. Asset Plus Co., Ltd.
Thailand
Related party, some common major shareholders
SS Challenge Co., Ltd.
Thailand
Related party, some common major shareholders
Nature of relationships
directors
The pricing policies for particular types of transactions are explained further below:
Transactions
Pricing policies
Sales of goods
Contractual price
Rendering of services
Contractual price
Purchase of goods/raw materials/services
Contractual price
Interest on loan
Average cost of fund
Significant transactions for the years ended 31 December 2012 and 2011 with related parties was as follows:
2012
2011
(in thousand Baht) Major Shareholders Rental and services Purchase of equipment
590
795
6,200
-
158
3,075
Other related parties Sales of goods or rendering of services
654
-
Purchases of goods or receiving of services
Sales of equipment
60,179
61,344
Rental and services
15,970
15,751
Other expenses
6,262
-
Purchase of equipment
2,781
-
Interest expense
1,685
2,438
219
2012
2011
(in thousand Baht) Key management personnel Short-term employee benefits Post-employment benefits Total key management personnel compensation
45,589
19,666
4,123
1,330
49,712
20,996
Balances as at 31 December 2012 and 2011 with related parties were as follows:
Other receivables - related parties
2012
2011
(in thousand Baht) Other related parties P.K. Grand Co., Ltd.
-
45,646
Unique Garment Import-Export Co., Ltd.
30
114
Total
30
45,760
Other non-current assets - related parties
2012
2011
(in thousand Baht) Major Shareholders
8
80
Other related parties P.K. Grand Co., Ltd.
309
-
P.K. Asset Plus Co., Ltd.
683
542
1,000
622
Total
Trade accounts payable - related parties
2012
2011
(in thousand Baht) Other related parties Unique Garment Import-Export Co., Ltd.
9,308
8,992
Sinchaihua Industry Co., Ltd.
1,932
1,307
11,240
10,299
Total
Other payables - related parties
2012
2011
(in thousand Baht) Major Shareholders
117
-
9,989
7,427
520
-
Other related parties P.K. Grand Co., Ltd. Boutigue Consultin Group Co., Ltd. Committees Total
220
85
-
10,711
7,427
38 Thai Financial Reporting Standards (TFRS) not yet adopted The Group has not adopted the following new and revised TFRS which related with the group that have been issued as of the reporting date but are not yet effective. The new and revised TFRS are expected to become effective for annual financial periods beginning on or after 1 January in the year indicated in the following table.
TFRS
Topic
Year effective
TAS 21 (revised 2009)
The Effects of Changes in Foreign Exchange Rates
2013
TFRS 8
Operating Segments
2013
Management expects to adopt and apply these new TFRS in accordance with the FAP’s announcement and has made a preliminary assessment of the potential initial impact on the consolidated and separate financial statements of those new standards assessed to have the greatest potential impact on the financial statements in the period of initial application. These standards are as follows: TAS 21 - The effects of changes in foreign exchange rates The principal change introduced by TAS 21 is the introduction of the concept of functional currency, which is defined as the currency of the primary economic environment in which the entity operates. TAS 21 requires the entity to determine its functional currency and translate foreign currency items into its functional currency, reporting the effects of such translation in accordance with the provisions of TAS 21. Foreign currencies are defined by TAS 21 as all currencies other than the entity’s functional currency. Management has determined that the functional currency of the Company is Thai Baht. Accordingly, the adoption of TAS 21 from 1 January 2013 is not expected to have a significant impact on the Group’s reported assets, liabilities or retained earnings. TFRS 8 - Operating segments The principal change introduced by TFRS 8 is the introduction of the concept of presenting operating segments based on the information that internally is provided to the Group’s chief operating decision maker. Since the change in accounting policy only impacts disclosure aspects, there is no impact on the Group’s financial statements.
237
General InformatIon Company Name
-
MC GROUP Public Company Limited
Registration No.
-
0107556000230
Type of Business
-
MC GROUP Public Company Limited’s core business is managing sales and distributions of ready-to-wear clothing and apparels
Registered Capital
-
400,000,000 Baht
Paid-up Capital
-
300,000,000 Baht (made up of 600,000,000 common shares)
Par Value
-
0.50 Baht
Head Office Address
-
448, 450 Onnut Road, Prawet, Prawet, Bangkok 10250 Telephone : +66 (0)2 329 1051-6 Fax : +66 (0)2 727 7287 Website : www.mcgroupnet.com
Auditor
-
KPMG Phoomchai Audit Limited Floor 50th-51st, Empire Tower, 195 South Sathorn Road, Yannawa, Sathorn, Bangkok 10210 Telephone : +66 (0)2 677 2000 Fax : +66 (0)2 677 2222 By Mr.Vichien Thamtrakul and/or Miss Bongkot Amsageam and/or Miss Orawan Sirirattanawong, Certified Public Accountant No. 3183, 3684 and 3757 respectively.
-
Legal Advisor
-
-
238
Weerawong Chinnavat & Peangpanor Limited. Floor 22nd Mercury Tower, 540, Ploenchit Road, Lumpini, Pathumwan, Bangkok, 10330 Telephone: +66 (0)2 264 8000 Fax: +66 (0)2 657 2222
MC GROUP Public Company Limited – Annual Report 2012
MC GROUP Public Company Limited 448,450 Onnut Road, Prawet, Bangkok 10250 Tel : +66 (0) 2 329 1051-56 Fax : +66 (0) 2 727 7287 www.mcgroupnet.com Photographs by Tada Varich Stylish by Euwadee Sriarun Creative & Design by Ketchup IMC Co., Ltd. www.ketchupimc.com