CONTENTS
001
Financial Highlights
010
Message from Chairman of the Board of Directors
012
Message from Chief Executive Officer
013
Message from Chairman of the Audit Committee
014
Steel Industry and Overview
018
Report on Operating Results and Key Events in 2006
023
Safety and Environmental Concern
024
Social Activities
026
Organization Chart
028
Board of Directors
030
Information on the Board of Directors and Management Team
038
Information of IOD ’s Accreditation and Certification Program
039
Structure of Management
050
Changes in Shareholding by the Board of Directors and Management Team
051
General Information
052
Nature of Business
055
Risk Factors
062
Corporate Governance
072
Structure of Shareholding
073
Related Transactions
078
Notes and Analysis on Financial Status and Performance Results
081
Board of Directors’ Responsibilities with Regards to Financial Reports
082
Report of Independent Auditor and Financial Statements
119
SET Information reference guide under Form 56-2
120
The Principles of Corporate Governance
FINANCIAL HIGHLIGHTS
Data from Financial Statement
2006
2005
2004
Total Assets
(Baht Million)
41,617
28,264
21,718
Total Liabilities
(Baht Million)
15,037
6,716
2,911
Total Shareholders’ Equity
(Baht Million)
26,580
21,548
18,807
Sales
(Baht Million)
18,003
22,202
21,270
Total Revenues
(Baht Million)
19,119
22,297
21,979
Gross Profit (Loss)
(Baht Million)
2,019
3,257
3,059
Operating Profit (Loss)
(Baht Million)
1,655
2,531
2,599
Net Profit (Loss)
(Baht Million)
1,678
2,741
8,902
Retained Earnings(Loss)
(Baht Million)
12,030
11,422
12,712
Financial Ratios
2006
2005
2004
Liquidity Ratio
(Times)
1.52
3.91
2.65
Debt to Equity Ratio
(Times)
0.57
0.31
0.15
Gross Profit (Loss) Ratio
(%)
11.21
14.67
14.38
Operating Profit (Loss) Ratio
(%)
9.14
11.40
12.22
Net Profit (Loss) Ratio
(%)
8.77
12.29
40.50
Average Return on Equity
(%)
6.97
13.58
72.94
Average Return on Assets
(%)
4.80
10.95
48.54
Net Earnings (Loss) per Share
(Baht)
0.17
0.33
1.36
Book Value per Share
(Baht)
2.64
2.63
2.86
010
MESSAGE FROM CHAIRMAN OF THE BOARD OF DIRECTORS
In year 2006, Thailand’s economy grew at a slightly increasing rate over the previous year due to the fact that private investment and expenditures were affected from numerous factors, namely political instability, civil unrest, turbulence in the deep South, oil price fluctuations as well as continuing Baht appreciation. Though this affected such downstream industries using hot rolled coils as their base materials as construction and automobile parts industries, expanded at a slow rate, but it did not have much impact on hot rolled coil industry since the domestic demand increased. Overall, though prices of hot rolled coils in late 2006 rose from the lowest point of late 2005, they had continually fluctuated due to anxiety over China’s production capacity increment and the world’s high stock quantities. The Company has been prepared to cope with these challenges all along with confidence in its current potentiality, vision in the world’s developments and changes, long – standing experience in forecast and operation as well as preparation in line with current and future situations. As for the 2006 performance, due to the management policy with vision and caution in operations, dedication and cooperation between the management and all staff, the Company maintained its performance results at high levels. Its sales volumes registered as high as Baht 19,119 million with an operating profit of Baht 1,678 million or 6.97% return on equities per annum which was at a satisfactory level. It is one of a few factories in the Southeast Asia Region maintaining their performance results at almost the same level as those of the previous year.
In addition, with its long experience in this industry, determination to develop its potentiality at the utmost, management knowledge and capabilities to cope with challenges in the dynamic industrial world, the Company enjoyed a success and was well received by investors in public listing in the Stock Exchange of Thailand (SET). Its securities were traded on the SET for the first time on 25 January 2006 under the security name of “GSTEEL” to gather resort funds from the public for its working capital and business expansion in the future. The Board of Directors determines to supervise the business management to be transparent with good governance and adhere to principles of good business supervision to create confidence and fairness to shareholders, investors, business partners and all parties concerned equally. The board will dedicate itself to perform its duties effectively for the Company’s sustaining success and worthy return for shareholders. For year 2007, the Company has become an alliance with a major hot rolled coil producer and an acceleration in mega projects by the ruling government are likely to enable the hot rolled coil business trend in 2007 more satisfactory. On behalf of the Board of Directors, I would like to express my gratitude to shareholders for their trust, confidence and support to the Company all along.
All shareholders can share very well its pride as an upstream
industry partly being the country’s economic driving force since it has supplied hot rolled coils as raw materials for the country’s mid and downstream industries. As a result, raw material import from overseas has significantly decreased, this was significant in terms of both quantity and quality, also, a substantial amount of foreign exchange has been saved. In addition, the Company’s products are competitive and well accepted by domestic and international markets. Meanwhile, export of its quality products are competitive in the world market and bring in more foreign exchange, thus partly strengthening the country’s overall fiscal position.
Mr. Vijit Supinit Chairman of the Board of Directors
During year 2006, G Steel Public Company Limited successfully became the leader of Thailand’s hot rolled coil producers who, among a few producers, registered profits from the hot rolled coil production and sales in spite of worldwide steel price fluctuations since mid 2006 . With the management’s vision in planning and inventory control as well as strict production cost controlling measures, the Company marked a net operating profit of approximately Baht 1,678 million in 2006.
In regard to management and financial policy, the Company resorted to funding sources at reasonable costs for its production expansion project investment through an initial public offering of 1,500 million shares at the value of Baht 2,400 million in January 2006. In the same month, it was listed in the Stock Exchange of Thailand, and its securities were traded on the SET to mobilize funds from the public for its working capital and business expansion in the future.
In year 2007 , G Steel speeded up its production expansion projects, including the addition of Skinpass Mill and the Pickling and Oiling Line, to respond to customers’ rapidly growing needs for all types of hot rolled products to cope with the country’s sustaining economic growth.
With the experience and expertise in hot rolled coil production, the Company has continually researched and developed steel quality and 012
production. Lately, the Company formed a strategic alliance with Nakorn
013
MESSAGE FROM CHIEF EXECUTIVE OFFICER
thai Strip Mill Public Company Limited (NSM) to jointly develop diversified products to thoroughly cover customers’ demands.
On behalf of the Company’s management and employees, I would like to thank all shareholders, business partners and customers, raw material suppliers as well as service providers for their supports over the year. G Steel will maintain our performance standard with all our knowledge and expertise to enable the Company to produce and distribute high quality hot rolled coils to meet consumers’ demand and create value added to our shareholders.
Dr. Somsak Leeswadtrakul Chief Executive Officer
According to the resolution of the Company’s annual ordinary shareholders’ meeting on the nomination of the Audit Committee with a 3 – year service term starting from 9 June 2004 to 8 June 2007, the Audit Committee, consisting of 3 independent members with the Internal Audit Manager as a secretary, is as follows:
1.
Prof. Paichitr Roajanavanich
Chairman of the Audit Committee
2. Assoc. Prof. Prapanpong Vejjajiva
Member of the Audit Committee
3. Mr. Preecha Prakobkit
Member of the Audit Committee
4. Ms. Sophit Changaroon
Internal Audit Manager / Secretary to the Audit Committee
The Audit Committee is responsible for examining the accuracy of the internal audit and sufficient disclosure of financial statements prior to submission for perusal and approval by the Board of Directors. The committee also coordinates with the internal auditor and authorized external auditors to assure appropriate internal controlling systems, compliance with laws and relevant legal requirements as well as to scrutinize selection and nomination of the Company’s external auditors and propose their remuneration.
For the accounting period ending 31 December 2006, the Audit Committee examined the accuracy, completeness and sufficiency of significant
MESSAGE FROM CHAIRMAN OF THE AUDIT COMMITTEE
contents in accordance with generally accepted accounting practice and examined the internal audit systems, risk prioritization and operations in various aspects in accordance with legal requirements. The examinations were not conducted on every item but on those considered significant as per the Internal Audit Department’s plan.
The Audit Committee found no significant deficiencies in the internal audit systems that would significantly effect the Company’s financial statements and reported the audit results to the Board of Directors’ meeting.
On behalf of the Audit Committee
(Professor Paichitr Roajanavanich) Chairman of the Audit Committee
STEEL INDUSTRY AND OVERIVEW
014
HOT ROLLED COIL INDUSTRY SITUATION IN 2006
015
In 2006 , the hot rolled coil price situaton in the world market slightly fluctuated, when compared to that in 2005. The first quarter of 2006 marked the lowest price of the cycle, thereafter prices rose substantially worldwide. The prices in many regions gradually dropped during midyear, while European prices remained high until the middle of the last quarter of 2006 . Nevertheless, hot rolled coil prices (commercial grade) in the world market at the 2006 year–end ranged between USD 460 – 520 (FOB export prices) varying in different
regions. Despite the decreases from those in the third and fourth quarters of 2005, the prices were at moderately higher levels than those in the first quarter. The situation in the United States was an exception as steel prices were tuning to respective normal levels as a result of demand and supply adjustment, thus, they were slightly lower than those in the first quarter. A major reason was that the economy slowed down, particularly in the construction and real estate sectors.
China still had an impact on the world’s steel market in terms of both demand and supply. According to statistics of the International Iron and Steel Institute (IISI) in 2006, the country produced the highest quantity of crude steel in the world, amounting to 418.8 million tons or one – third of the world’s overall crude steel outputs. Its total output grew by 18.5% over the previous year, whereas the global gross outputs increased by 8.8% from 1,139.6 million tons in 2005 to 1,239.5 million tons in 2006. Therefore, changes in demand and supply in China significantly effected the market and steel prices worldwide.
Thanks to the Chinese government’s policy not to support steel export since 2005 onwards, in 2006 they reduced / abolished tax redemption for many steel export items in addition to
other measures of the previous year. Thus, price competitiveness of Chinese producers decreased, when compared to competitors overseas, as the former were forced to sell at higher prices. China’s steel export volumes subsequently dropped. 016 017
In 2006, regional and international mergers in the steel industry occurred in many countries. Analysts had opinions that such mergers were stemmed from the fact that steel producers were quite scattered. According to IISI data in 2005, it was estimated that in 2006 combined outputs of the world’s top 5 largest steel producers were less than 20% of the world’s total outputs. This could not be comparable with other industries, like automobile, ship building, such metal mining as nickle, tin, copper, zinc, aluminium, iron, coal and so on, the leading producers’ combined outputs made up a much higher proportion. An explicit example was China’s steel industry which was of a very scattering nature, its top 3 largest producers had a combined outputs of less than 18 % of the country’s total outputs. The proportion was relatively low, if compared with those of such major steel – making countries as South Korea (over 80%) and Japan (over 60%). Consequently, a merger trend was high in the future in order to control supply in the market, reduce production costs and support steel price more effectively.
As for Thailand’s hot rolled coil industry, the situation was a similar phenomenon worldwide: there were recovery, expansion and sluggishness periods in 2006 in accordance with domestic and international market mechanism as well as local economic situation. According to the latest reports of the Iron and Steel Institute of Thailand, during January – November 2006, the country’s demand for hot rolled coils totalled 5.25 million tons, or 14.4% drop from that of the same period of the previous year, whereas local producers had a combined outputs of approx. 4.13 million tons, and net steel import volume was 1.12 million tons. The decrease was due to economic slowdown as a result of political instability, construction and real estate sector stagnation for a long period of time and somewhat low government expenditures for country development and relatively low domestic consumption, in spite of higher export volumes.
HOT ROLLED COIL INDUSTRY TREND IN 2007
On the supply side worldwide, a MEPS report anticipated that overall raw steel outputs will further expand by 5.4% to 1,300 million tons with China taking the lead. Cooperation among producers to control supply and business mergers tends to continue and become more significant than earlier since it has been proven worldwide to definitely enable the steel industry as a whole to be stable and profitable. On the demand side worldwide, it is estimated to expand in many country groups/ regions ; China, India, Middle East and Africa, etc. Besides, the world economy is expected to expand at a satisfactory rate despite of a slight decrease from the previous year. It is believed that relaxing oil prices will clearly contribute to a greater economic expansion in many developing countries. Although steel prices in the world market trend become more stable with average prices higher than those of the previous year, they will vary slightly between regions. This is because China has reduced its steel export, and the prices are obviously higher. In addition, major raw material costs keep on rising. Nevertheless, buyers will be willing to pay at higher prices due to the balance between demand and supply in the world market from 2007 onwards. As for Thailand’s hot rolled coil industry trend in 2007, it is anticipated that demand for both hot rolled coils for the construction sector and for high quality grade, will substantially increase. This is in line with recovery in residential and commercial building construction sector, production sector, automobile parts, electronics and electrical appliance industries in particular, which are expected to grow continually from the increased export volumes. Additionally, if the situation turns out as per the interim government’s plan and current implementations, Thailand will have a growing demand for steel from last year for infrastructure development projects. These are parts of mega projects the budget reimbursements of which are accelerated to start the construction in 2007.
REPORT ON OPERATING RESULTS AND KEY EVENTS IN 2006 OPERATING RESULTS AMIDST FLUCTUATIONS IN STEEL INDUSTRY SITUATION
Year 2006 saw significant changes and fluctuations in the steel industry situation. Despite Thailand’s continuing consumption growth for hot rolled coils, a cycle of price upwards for almost 3 years came to an end in late 2005, during which prices rapidly adjusted downwards until the
end of last year, the prices decreased by over 30%. Bargaining power in the market switched to buyers, lower quality steel products were imported from China. The business management during the second half of last year was very difficult. Nevertheless, with production cost controlling and continuing efficiency improvement as well as proper inventory control at appropriate levels, the Company managed to brave through the crisis of steel falling prices. Eventhough the second half of 2006 performance results were unavoidably effected by the low steel prices, the Company’s overall annual performance results were highly satisfactory. It was one of a few steel producers in Southeast Asian region that managed to maintain performance results at the levels close to those of the previous year. Its total annual sales volumes registered at approximately 1 million tons due to a reduction in its production plan in accordance with market situation. Meanwhile, the total sales value amounted to Baht 19,119 million with average selling prices in 2006 slightly lower than those in the preceding year. The majority of incomes were from domestic sales since export prices were lower than the domestic ones. The gross profit rate for the entire year was at 11.21%, close to that of the previous year, and the operating profit amounted to Baht 1,678 million, or Baht 0.17 per share. ISSUANCE OF STOCK OPTIONS FOR DIRECTORS AND EMPLOYEES 018
On 12 January 2006, the Company issued warrant for an amount of 100 million units of its
019
common shares to directors and employees. The warrant with no regulated offering prices would be due in 5 years from the issuance date. One unit of warrant could be exercised to buy 1 common share at the price of Baht 1 per 1 common share. The members of the Board of Directors
and employees could exercise one third of their allocated rights 1 year, 2 years and 3 years respectively after the company’s common shares were traded on the SET with the first stipulated exercise date on 30 March 2007 and the last date on 11 January 2011. LISTING IN THE STOCK EXCHANGE OF THAILAND
The Company was listed in the Stock Exchange of Thailand and its shares were traded on the SET for the first time on 25 January 2006 under the security name of “GSTEEL” to raise funds from general public for its working capital and business expansion in the future. With its
potentiality in many aspects, i.e., the management’s vision and competence, capabilities to continually lower production costs when compared to the market as a whole, further development of high quality products to meet customers’ demands as well as continuing public relations to make its presence felt and accepted by the public, the Company was rated as a strong listed firm in 2006 and was among leaders in Thailand’s hot rolled coil business. ISSUANCE AND OFFERING OF ADDITIONAL USD 70 MILLION BOND TO OVERSEAS INVESTORS
In February 2006, the Company issued and offered additional 70,000 units of bond with a faced value of USD 1,000 per unit, totalling USD 70 million, to overseas investors. The debentures were offered at USD 1,019.78 per unit with the same terms and conditions as the ones previously issued in October 2005.
ENTERING INTO A STRATEGIC ALLIANCE WITH NAKORNTHAI STRIP MILL PUBLIC COMPANY LIMITED (NSM)
On 26 June 2006, the Board of Directors’ meeting resolved the making of an agreement with Oriental Investment Company Limited (which became its subsidiary later on) to buy rights over secured convertible debts as per its business rehabilitation plan for Nakornthai Strip Mill Public Company Limited. from On City Holding Limited and NSM’s creditors for not more than USD 130.12 million with the total amount not more than USD 180 million. Its subsidiaries would invest approximately USD 120 million, whereas the Company would invest about USD 60 million. The management considered that entering into a strategic alliance with NSM would enhance both companies’ potentiality in many areas such as production, competition, cost controlling, market accessibility, business risk reduction as well as turning a competitor into an alliance. Additionally, the board meeting resolved cancellation of proportions to allot 1,750 million common shares to be offered to the public and cancellation of greenshoe option or over allotment of 450 million shares. The meeting also resolved an allotment of remaining additonal shares of not over 2,200 million units to On City Holding Limited and NSM creditors as parts of settled prices. On 2 August 2006, the Company’s Extraordinary Shareholders’ Meeting approved the cancellation of 1,750 million common share allotment proportions to be offered to the public and the cancellation of
greenshoe option allotment of 450 million shares and also approved limited allotment of remaining additional shares of not over 2,200 million units to NSM creditors at not less than Baht 1.40 per 1 common share. NSM creditors would settle for shares with their convertible rights for NSM common shares as per NSM’s business rehabilitation plan (including additions) for not over USD 60 million or NSM’s 2,511,266,071 common shares. In this regard, the meeting assigned the board and/or a taskforce delegated by the board to map out details on increased common share allotment in terms of both price and quantity.
On 12 September 2006, the Company issued 1,400 million additional common shares which were not yet alloted at Baht 1.51 per share, to NSM creditors in exchange with NSM’s 2,511,266,071 common shares resulting from an exercise of the rights over secured convertible debts as per the debt restructuring agreement. The transfer of this lot of shares to the Company had already been completed.
020
On 28 June 2006, Oriental Investment Company Limited (which later on became its subsidiary
021
and had the name changed into Oriental Access Company Limited) entered into a Memorandum of Understanding with On City Holding Limited on behalf of NSM creditors to buy rights over secured convertible debts of Nakornthai Strip Mill Public Company Limited for approximate USD 104.3 million with the regulated FOREX rate at Baht 43.5065 per USD 1 for the common share
conversion as per the business rehabilitation plan at the price of Baht 0.42 per NSM’s new common share. Currently, the Company and Oriental Investment Company Limited had 5,803,673,289 common shares in NSM or 23.51% of NSM paid – up registered capital. ADVANTANGES OF THE ALLIANCE BETWEEN G STEEL AND NSM 1.
Reducing raw material costs. Both firms can pooled their purchases for higher quantities, therefore, they could buy raw materials at the lower prices.
2.
Sharing production know - how and best practice. Becoming an alliance enables G Steel and NSM to share production technology, they could cooperate for optimum of production, thus achieve the maximum benefits of their respective organization.
ISO 14001 AND TIS/OSHAS 18001 CERTIFICATION
The Company had determined and persevered all along to become a firm with standards in all aspects of management systems namely, quality, environment, hygiene and safety. In 2006, it was highly successful to have been certified by TUV NORD for compliance with international standards and requirements. It was of the Company’s great pride as it received certifications of ISO 14001 for environment , TIS 18001 and OSHAS 18001 for occupation health and safety management system.
022 023
SAFETY AND ENVIRONMENTAL CONCERN
The Company has committed to have hot rolled coil produced without any environmental impacts on communities and the society, also taking into consideration safety and occupation health of its employees and contractors. Having complied with requirements of ISO 14001, TIS 18001 and OSHAS 18001 throughout 2006, G Steel aimed at assuring that all operation units administrated, environment, safety and hygiene matters are as per international standards which focused on effective and efficient administration. The aim of environmental administration is to worthily utilize resources, whereas the aim of safety administration is to reduce accidents and minimize wastage rate in year 2007 and succeeding years. The Company regularly held meetings with contractors for better understanding and joint improvements in safety, hygiene and environment implementation. Moreover, it assigned a taskforce to handle emergency in the factory and to coordinate with relevant agencies outside to organize joint emergency exercises. Giving an importance of human resources, G Steel organized compulsory training courses on environment, safety and hygiene to assure that its staff and contractors received adequate and appropriate trainings. Training topics for respective employees varied in accordance with their job positions and responsibilities. Owing to perseverance and determination to abide by international standards and requirements in environment, hygiene and safety, the Company achieved its goal, receiving ISO 14001 certification in environmental administration standard, TIS 18001 certification in hygiene and safety administration together with OSHAS 18001 certification by TUV NORD. The accrediting body for ISO 14001 was TUV Cert and NAC. Also, the Company participated in the Greenhouse Gas Emission Reduction from Industry in Asia and the Pacific (GERIAP) as per United Nations Environment Programme (UNEP). It turned out successfully as the Company substantially decreased fuel energy consumption, thus reducing greenhouse gas emission. In this regard, the Company was presented with a plaque and a certificate by UNEP for its remarkable success as a hot rolled coil plant to control and reduce greenhouse gas emission to atmosphere.
SOCIAL ACTIVITIES
024 025
In 2006, G Steel took part in various social activities such as educational, environmental, religious and other activities as follows. EDUCATION
Realizing the importance of education, the Company intended to take part in educational development which would enable the country to be a learning society leading to sustaining developments. The Company rendered supports to several projects, namely : • Participation in “The Global University Network for Innovation – Asia and the Pacific (GUNI-AP) 2006” in cooperation with Mahidol University during 9 – 11 November 2006 • Supporting the organization of “Thailand Future” on 7 December 2006, in cooperation with Thammasat University Foundation under the Royal Patronage of H. M. the King • Providing learning opportunities for students from various educational institutions to visit its factory premise and production process all year round • Donating educational apparatus to schools in its vicinities in Ban Khai District, Rayong Province • Donating scholarships to Thai Buddhist, Christian, and Muslim youths RELIGION
Realizing an importance of religion as a spiritual refuge and guidance for people to live in harmony, the Company has taken part in fostering religions in the society by donating for the maintenance of many religious buildings such as building of restrooms and other infrastructures of temples in the remote areas of the country and donating for the purchase of necessary equipment to various religious establishments. SOCIAL ACTIVITIES
G Steel has regularly provided supports to foundations and charity organizations to extend aid to the people with less opportunity for better living conditions, apart from assistance to natural disaster - afflicted people. Year 2006 was an auspicious occasion celebrating the 60th Anniversary of H.M. the King’s Accession to the Throne; the Company participated in numerous activities as follow: • Co-sponsorship of the Fireworks Project for the Celebration of the 60th Anniversary of H.M. the King’s Accession to the Throne at Queen Sirikit National Convention Center
• Co-sponsorship of the charity concert, “A Choral Celebration to Celebrate the 60th Anniversary of H.M. the King’s Accession to the Throne” which all proceeds went to the Chaipattana Foundation • Making donation to the Chaipattana Foundation via the Board of Investment (BOI) for H. M. the King’s 80th Birthday Celebration in 2007 • Making donation to Vibhavadi Rangsit Foundation to publish a book entitled “His Royal Visit to the United States in B.E. 2503, Pakistan in B.E. 2505 , and the Malaya Federation in B.E. 2505” written by HRH Princess Vibhavadi Rangsit in honor of H.M. the King. Proceeds from the book will be presented to H.M. the King for charities at his royal disposition • Co-sponsorship of the “Royal Diamond Jubilee Musical Celebration Project” to celebrate the 60th Anniversary of H.M. the King’s Accession to the Throne and to publicize H.M. the King’s musical brilliance to the world and to raise fund to support the development of various musical programs in Thailand • Making donation to the Police General Hospital Foundation under the Royal Patronage of H.M. the Queen • Making donation to flood – afflicted people via His Excellency Prime Minister General Surayudh Julanonda at the Government House • Making donation to flood – afflicted people via the Television Channel 5 • Making donation to Thai Red Cross Society in Rayong Province and participating the annual Thai Red Cross Society Fair at the Amphorn Garden in Bangkok in cooperation with the National Council of Women of Thailand Under the Royal Patronage of H.M. the Queen • Support and sponsorship to the Factory’s surrounding community in a variety of activities such as the National Children’s Day festival, community sports events, and other donation to the Nonglalog Sub-district Administration OTHER ACTIVITIES
In 2006, the Company had continually participated in many events to publicize its business to the public and those interested in the steel industry. It cooperated with the public sector in organizing numerous events, namely, • Sponsorship and participation in the “Bangkok Steel Exhibition & Conference 2006” in cooperation with the Iron and Steel Institute of Thailand (ISIT) during 13 –15 July 2006 at Siam Paragon • Sponsorship and participation in the 3rd “SBB Steel Markets Asia 2006”, the largest steel industry seminar in Southest Asian region during 6 – 7 November 2006 at Grand Hyatt Erawan Hotel Bangkok
ORGANIZATION CHART
Chief Executive Officer Dr. Somsak Leeswadtrakul
Assistant Chief Executive Officer
President Ms. Patama Leeswadtrakul
Ms. Patama Leeswadtrakul
026
Office of the President
Executive Committee
Board of Directors
Remuneration Committee
Nomination Committee
Audit Committee
President Mr. Ryuzo Ogino
Internal Audit Department
Senior Vice President Ms. Kannikar Soykeeree
Vice President - Accounting Ms. Kannikar Soykeeree (Acting)
Vice President - Finance Mr. Chaimongkol Boonchanaphan
Vice President - Commercial Ms. Methikarn Chutipongsiri
Vice President - Corporate Finance Mr. Nakun Sakunchotikarote
Vice President - HR & Administration Mr. Nakun Sakunchotikarote (Acting)
Senior Vice President Operation Mr. Nopakao Srisuvanon
Executive Vice President - Expansion & Engineering Mr. Joachim Burgers
Vice President - Operation Mr. David James Scott
BOARD OF DIRECTORS
028
01
Mr. Vijit Supinit
Chairman of the Board of Directors
02
General Singha Saovapap
Director
03
Ms. Patama Leeswadtrakul
Director
04
Dr. Somsak Leeswadtrakul
Director
05
Professor Paichitr Roajanavanich
Director
06
Assoc. Prof. Prapanpong Vejjajiva
Director
07
Mr. Yanyong Kurovat
Director
08
Pol. Lt. General Prakard Sataman
Director
09
Mr. Ryuzo Ogino
Director
10
General Choochat Kambhu Na Ayudhya
Director
11
Mr. Chainarong Monthienvichienchai
Director
12
Mr. Preecha Prakobkit
Director
13
Mr. Chaipatr Srivisarvacha
Director
14
ML. Sasiwimol Kasemsri
Director
15
Mr. Stephane Benayon
Director
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
INFORMATION ON THE BOARD OF DIRECTORS
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
1. Mr. Vijit Supinit
65 -none-
- Chairman of the Board of
• Class 3 Leadership Program,
-none-
Capital Market Academy
Directors
G Steel Public Company Limited 2006-Present
• Class 31 National Defense
Chairman of the Board of Directors
Others 2003-Present
Course at the National Defense
Chairman of the Board of Directors The Stock Exchange of Thailand
Academy 2003-Present
• M. Econ., Yale University, USA
Chairman of the Board of Directors Asset Management Corporation
• B. Econ. (Honors), 1993-1996
Manchester University,
Chairman of the Board of Directors The Export and Import Bank of
England
Thailand
030
1992-1996
Commissioner Securities and
1990-1996
Governor and Chairman
031
Exchange Commission, Thailand (SEC) The Bank of Thailand 1990-1996
Executive Director The Office of the National Economic and Social Development Board
1990-1991
Director The Office of the Board of Investment
1987- 1990
Executive Director Siam City Bank Public Co., Ltd.
2. General Singha Saovapap - Vice Chairman of the Board of Directors - Chairman of the Nomination Committee
76 -none-
• Honorary Doctorate in
0.01%
G Steel Public Company Limited
Sociology and Anthropology,
2006-Present
Chairman of the Nomination Committee
Ramkhamhaeng University
2003-Present
Vice Chairman of the Board of Directors
• A Principle of Hospital Administration Program
Others 2003-Present
Chairman of the Board of Directors
1994-Present
Chairman of the Board of Directors
• M.D., Chulalongkorn University
Chaopraya Hospital Public Co., Ltd. Kanchanaburi Health Center Co., Ltd. 1993-Present
Chairman of the Board of Directors Phattanakarn Vechakit Co., Ltd.
1986-Present
Chairman of the Board of Directors Vibhavadi Hospital Public Co., Ltd.
1986-Present
Chairman of the Board of Directors Jittiporn Co., Ltd.
1986-Present
Chairman of the Board of Directors River Kwai Evergreen Hills Resort Co., Ltd.
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
Ms. Yanyong Patama Kurovat 7.3. Mr. Leeswadtrakul - Director - Vice Chairman of the - Executive Director Board of Directors -- Nomination Committee Executive Director - Member Assistant Chief Executive
42 Wife of 68 -none-
• Honorary Doctorate in Class 5 National Defense
-none9.70%
General Administration, Course for Joint Private and
2003-Present 2006-Present
Vice Chairman of the Board of Nomination Committee Member
Somsak
Ramkhamhaeng Public Sectors atUniversity the National
2004-Present
Directors, Executive Director, Director and Executive Director
Lee-
• Defense MBA., Academy
Others
Assistant Chief Executive Officer
swad-
Ramkhamhaeng University • Graduate Diploma in
2003-Present
and President Director
trakul
• B. Econ., Government, Chulalongkorn
Others
G.O. International (Thai) Co,. Ltd
Officer
Ramkhamhaeng University University
- President
• B.A. (Pol.Sci.), Chulalongkorn
2003-Present
Leeswadtrakul 8. Pol. Lt. General Prakard - Director Sataman of the - Chairman Executive Committee - Director - Chief Executive Officer - Executive Director - Remuneration Committee Member
54 Husband
• The Program for senior
0.06%
executives in criminal justice • Class 1 Advanced Management -noneadministration class 10. Program at the National • Honorary Doctorate in Leeswad Defense Academy Industrial Management, • Class 37 National Defense trakul University of the Americas, Course at the National Defense Louisiana, USA Academy • Honorary Doctorate in General • International Police Program, Administration, USA Ramkhamhaeng University • LL.B., Thammasat University • Honorary Doctorate in
of Ms. 64 -nonePatama
Administration, Kasetsart University • MBA., Ramkhamhaeng University • B. Econ., Ramkhamhaeng University
Chairman Advisor of the Board of Directors G.E.I. Holding&Co., MAN Trucks BusLtd. Concessionaires
University
4. Dr. Somsak
G Steel Public Company Limited
Dr.
1997-Present
Chairman of the Executive Committee (Thailand) Co., Ltd.
2000-Present
Paitoon Hotel and Resort Co., Ltd. Managing Director
1990-2006
Chairman ofOperation the BoardGroup of Directors Technology Co,. Ltd.
2000-Present
Siam JettyDirector and Container Co., Ltd. Managing
Academic Network Co,. Ltd. G Steel Public Company Limited 1995- Present Director, Chairman of the Executive G Steel Public Company Limited Committee and Chief Executive 2006-Present Remuneration Committee Member Officer 2004-Present Director and Executive Director Others Others 1995-Present Director 2006-Present Advisor to Interior Deputy Minister Thai Special Steel Industry Public 2006-Present Advisor to the Board of Directors Co., Ltd. State Railway of Thailand 1995-Present Director 2005-Present Advisor to the Board of Directors Siam Integrated Cold Rolled Steel Sirikit National Convention Center Public Co., Ltd. 2004-Present Advisor 1994-Present Director Thai Pure Drinks Co., Ltd. Felix River Kwai Resort 2000-2006 Member of Disciplinary Committee Kanchanaburi Co., Ltd. Office of the Auditor - General 1990-Present Director 2000-2003 Commander of the Police Forensic Nas Toa (Thailand) Co,. Ltd. Science, Royal Thai Police 1989-Present Director Thai Steel Pipe Industry Co., Ltd. 1988-Present
Director Thailand Iron Works Public Co., Ltd
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
5. Professor Paichitr
78 -none-
Roajanavanich
• MGA. (Fiscal Policy),
-none-
Pennsylvania University, USA
- Director
G Steel Public Company Limited 2004-Present
• Graduate Diploma in
- Chairman of the Audit Committee
Director and Chairman of the Audit Committee
Accountancy (Equivalent to
Others
Master’s Degree), Thammasat
2002-Present
University
Chairman of the Audit Committee Sicco Securities Public Co., Ltd.
• LL.B., Thammasat University
1999-Present
• CPA-Thailand
Chairman of the Audit Committee MBK Development Public Co., Ltd.
1999-Present
Chairman of the Audit Committee Pathum Rice Mill and Granary Public Co., Ltd.
1999-Present
Chairman of the Audit Committee Muramoto Electron (Thailand)
032
Public Co., Ltd.
033
6. Associate Professor Prapanpong Vejjajiva - Director
71
-none-
• Class 28 National Defense Course at the National Defense
-none-
G Steel Public Company Limited 2006-Present
Chairman of the Remuneration
2005-Present
Audit Committee Member Director
Academy • Certificate in Business
Committee
- Audit Committee Member
Administration, Stanford
2004-Present
- Chairman of the
University
Others
Remuneration Committee
• Graduate Diploma in Welfare
2005-Present
Chairman of the Board of Directors
2005-Present
Chairman of the Board of Directors
Administration, Stockholm University, Sweden
C&C International Venture Co., Ltd.
• M.A. in Social Science, Stockholm University, Sweden
The Master Asset Management Co., Ltd. 2001-Present
Chairman of the Board of Directors
1995-Present
Director
• B.A. (Pol.Sci.)(2nd Class Honors) in Government,
Primavest Asset Management Co., Ltd.
Chulalongkorn University
Dhammaniti Public Co., Ltd. 1994-Present
Chairman of the Board of Directors Home Place Group Public Co., Ltd.
1990-2006
Vice President (Development and Planning) Sasin Graduate Institute of Business Administration, Chulalongkorn University
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
7. Mr. Yanyong Kurovat
68 -none-
- Director - Executive Director - Nomination Committee
• Class 5 National Defense
-none-
2006-Present
Nomination Committee Member
Public Sectors at the National
2004-Present
Director and Executive Director
Defense Academy
Others
• Graduate Diploma in
Member
G Steel Public Company Limited
Course for Joint Private and
2003-Present
Government, Chulalongkorn
Director G.O. International (Thai) Co,. Ltd
University
2003-Present
• B.A. (Pol.Sci.), Chulalongkorn
Advisor MAN Trucks & Bus Concessionaires
University
(Thailand) Co., Ltd. 2000-Present
Managing Director Technology Operation Group Co,. Ltd.
2000-Present
Managing Director Academic Network Co,. Ltd.
8. Pol. Lt. General Prakard
64 -none-
Sataman - Director
• Class 1 Advanced Management
-none-
Program at the National
2006-Present
Remuneration Committee Member
Defense Academy
2004-Present
Director and Executive Director
• Class 37 National Defense
- Executive Director - Remuneration Committee
G Steel Public Company Limited
Others
Course at the National Defense
2006-Present
Academy
2006-Present
• International Police Program,
Member
Advisor to Interior Deputy Minister Advisor to the Board of Directors State Railway of Thailand
USA
2005-Present
• LL.B., Thammasat University
Advisor to the Board of Directors Sirikit National Convention Center
2004-Present
Advisor Thai Pure Drinks Co., Ltd.
2000-2006
Member of Disciplinary Committee Office of the Auditor - General
2000-2003
Commander of the Police Forensic Science, Royal Thai Police
9. Mr. Ryuzo Ogino - Director - Executive Director - President
63 -none-
• B.Econ., Keio University, Japan
-none-
G Steel Public Company Limited 2005-Present
Director and Executive Director
2004-Present
President
Others 2000-2004
Director Suncall Corporation
1965-2000
Director Itochu Corporation
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
10. General Choochat
62 -none-
Kambhu Na Ayudhya - Director - Remuneration
• Class 7 National Defense
-none-
Course for Joint Private and
2006-Present
Remuneration Committee Member
Public Sectors at
2003-Present
Director
the National Defense Academy
Others
• Certificate of the
Committee Member
G Steel Public Company Limited
2006-Present
Chairman of the Board of Directors
2005-Present
Physician Leader
Royal Thai Army War College
Singha Paratech Public Co., Ltd.
• Diploma of General Surgery, Council of Doctors of Medicine
Medical Bureau to His Majesty
• Doctor of Medicine,
the King
University of Gottingen,
2004-Present
Chairman of the Board of Directors
2003-Present
Army Special Expert
Germany
Lucky Music Co., Ltd.
• M.D., University of Munster,
034
Royal Thai Army
Germany
035
2003-Present
Chairman of the Board of Directors Unity Percussion Co., Ltd.
2003-2004
Advisor National Defense Studies Institute, Military Supreme Command
2001-2003
Director General Royal Thai Army Medical Department
2000-2001
Director King Mongkut Medical Administration Center
1998-2000
Deputy Director General Royal Thai Army Medical Department
11. Mr.Chainarong Monthienvichienchai - Director - Nomination Committee
61
-none-
• M.A. (Management),
0.01%
G Steel Public Company Limited
Asian Institute of Management
2006-Present
Nomination Committee Member
• B.A. (Business Administration),
2000-Present
Director
Chulalongkorn University
Others 2002-Present
Member
Director Paitoon Hotel and Resort Co., Ltd.
1994-Present
Director Saint John for Education Co., Ltd.
1991-Present
Vice Chairman of the Board of Trustees Saint John’s University
1977-Present
Director General Saint John’s College
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
12. Mr.Preecha Prakobkit
58 -none-
• Executive Leadership
- Director
Thunderbird,
- Audit Committee Member
The American Graduate
-none-
G Steel Public Company Limited 2003-Present
Director and Audit Committee Member
School of International
Others
• Senior Executive Program
1988-Present
Sasin Graduate Institute of
Managing Director Amway (Thailand) Co., Ltd.
Business Administration, Chulalongkorn University • Mini MBA, Thammasat University • Business Administration, Roosevelt University, USA 13. Mr. Chaipatr Srivisarvacha - Director
48 -none-
• MBA (Finance), IIIinois Benedictine College • Bachelor of Science (Metallurgy) Lehigh University
-none-
G Steel Public Company Limited 2004-Present
Director
2004-2005
Audit Committee Member
Others 2006-Present
Director MRM Mobile Co., Ltd.
2003-Present
Chairman of the Board of Directors Ecco Communications Co., Ltd.
2002-Present
Independent Director Brooker Group Public Co., Ltd.
2001-Present
Independent Director Thanachart Bank Public Co., Ltd.
1999-Present
Chief Executive Officer Cap Maxx Co., Ltd.
1993-Present
Executive Director Salon La Prairie (Far East) Co., Ltd.
1992-Present
Executive Director Faces Co., Ltd.
1992-Present
Executive Director SVAC Co., Ltd.
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
14. ML. Sasiwimol Kasemsri - Director - Executive Director
42 -none-
• Master of Intellectual Property (MIP), Franklin Pierre Law, USA • LL.M. (International Laws), Chulalongkorn University • LL.B., Chulalongkorn University
-none-
15. Mr. Stephane Benayon
39 -none-
• B.Econ., York University
-none- G Steel Public Company Limited
G Steel Public Company Limited 2004-Present Director and Executive Director Others 2003-Present Director The Unified Council Co., Ltd 2000-2003 Attorney LS Horizon Ltd. 1993-2000 Attorney Baker and Mckenzie Co., Ltd.
036 037
- Director
2003-Present
- Executive Director
Others 2002-Present
Director and Executive Director Director Superior Overseas (Thailand) Co., Ltd.
2001-Present
Managing Director Distresses Assets Investment
1998-2001
Director Prebon Yamane (Hong Kong) Ltd.
INFORMATION OF MANAGEMENT TEAM
Name/Position
Age Rela(Years)
Education
tion-
% of
Experience
Shares
ship
1. Mr. Joachim Burgers
56 -none-
- Executive Vice President
• Electrical Engineering and
-none-
Industrial Engineering as Dipl.
Expansion & Engineering
G Steel Public Company Limited Present
Eng., Mercator Technical
Executive Vice President Expansion & Engineering
University, Germany
1995-2000
Vice President Expansion Project & Engineering
2. Ms. Kannikar Soykeeree
33 -none-
- Senior Vice President
• MBA., University of the Thai,
-none-
Chamber of Commerce
- Vice President
• Bachelor of Atrs, Chandrakasem
Accounting (Acting)
G Steel Public Company Limited Present
Senior Vice President
1999-2006
Vice President - Commercial
Rajabhat University
3. Mr. Nopakao Srisuvanon 47 -none-
- Senior Vice President
• Bachelor of Engineering,
-none-
Chulalongkorn University
G Steel Public Company Limited Present
Operation
Executive Vice President Expansion Project & Engineering
1995-2000
Vice President Expansion Project & Engineering
4. Mr. David James Scott
- Vice President Operation
43 -none-
• Bachelor of Engineering,
-none-
G Steel Public Company Limited
Electrical and Electrical
Present
Vice President - Operation
Engineering,
2004-2006
Assistant Vice President
Southbank University, London, England
Expansion Project 2003-2004
Senior Department Manager Support Service
INFORMATION OF IOD’ S ACCREDITATION AND CERTIFICATION PROGRAM
Thailand Institute of Directors : IOD Name Director Director The Role of Audit Committee Finance for Accreditation Certification Chairman Program Non-Finance Program (DAP) Program (DCP) Program (RCP) (ACP) Director (FND) Class/year Class/year Class/year Class/year Class/year
54/2006
_
13/2006
_
_
_
_
10/2004
_
_
3. Ms. Patama Leeswadtrakul
49/2005
_
8/2003
_
_
4. Dr. Somsak Leeswadtrakul
49/2005
_
8/2003
_
_
_
_
_
15/2006
_
49/2005
_
4/2001
11/2006
_
22/2004
_
_
_
_
45/2005
_
_
_
_
_
_
_
_
_
22/2004
_
_
_
_
22/2004
_
_
_
_
23/2004
_
_
11/2006
19/2005
_
34/2003
11/2005
_
_
23/2004
_
_
_
_
_
_
_
_
_
1.
Mr. Vijit Supinit
2. General Singha Saovapap
038
5. Prof. Paichitr Roajanavanich
039 6. Assoc. Prof. Prapanpong
Vejjajiva 7.
Mr. Yanyong Kurovat
8. Pol. Lt. General Prakard
Sataman 9. Mr. Ryuzo Ogino
10. General Choochat Kambhu
Na Ayudhya 11. Mr. Chainarong
Monthienvichienchai 12. Mr. Preecha Prakobkit
13. Mr. Chaipatr Srivisarvacha
14. ML. Sasiwimol Kasemsri
15. Mr. Stephane Benayon
STRUCTURE OF MANAGEMENT MANAGEMENT STRUCTURE The Company’s management structure comprises 5 committees: Board of Directors, Executive Committee, Audit Committee, Nomination Committee and Remuneration Committee.
The respective roles and responsibilities are summed up as follows. (1)
BOARD OF DIRECTORS
As at 31 December 2006, the Company had 15 members in the Board of Directors and during 2006, there was a change in one director and his position. •
New Director 1 person:- Mr. Vijit Supinit, Chairman of the Board of Directors on 8 February 2006 (to replace Mr. Vira Susangkarakan who died in 2005)
The Board of Directors as at 31 December 2006 hence consisted of 15 members as listed below. 1.
Mr. Vijit Supinit
Chairman of the Board of Directors
2.
General Singha Saovapap
Director
3.
Ms. Patama Leeswadtrakul
Director
4.
Dr. Somsak Leeswadtrakul
Director
5.
Professor Paichitr Roajanavanich
Director
6.
Assoc. Professor Prapanpong Vejjajiva
Director
7.
Mr. Yanyong Kurovat
Director
8.
Pol. Lt. General Prakard Sataman
Director
9.
Mr. Ryuzo Ogino
Director
10. General Choochat Kambhu Na Ayudhya
Director
11.
Director
Mr. Chainarong Monthienvichienchai
12. Mr. Preecha Prakobkit
Director
13. Mr. Chaipatr Srivisarvacha
Director
14. ML. Sasiwimol Kasemsri
Director
15. Mr. Stephane Benayon
Director
AUTHORIZED SIGNATORY DIRECTORS ON THE COMPANY’S BEHALF are Dr. Somsak Leeswadtrakul or Ms. Patama Leeswadtrakul or Pol.Lt. General Prakard Sataman or Mr. Stephane Benayon co-signs with Mr. Vijit Supinit or Mr. Ryuzo Ogino or Mr. Yanyong Kurovat or ML. Sasiwimol Kasemsri together with company’s seal. THE BOARD’S ROLES AND RESPONSIBILITIES 1.
To manage the Company’s business according to legal frameworks, its objectives, rules and regulations as well as shareholders’ meeting resolutions with honesty and discretion on the Company’s benefits.
2.
To stipulate the Company’s policies and business direction and to oversee and supervise an execution of the Management to meet the set policies efficiently and effectively.
3. 040
To be accountable to shareholders at all times and to manage for the maximum benefits of the shareholders as well as to disclose to investors with acceptable standards, the relevant accurate, complete and transparent information.
041 4.
To appoint and revise the Company’s list of authorized signatory directors.
5.
To appoint subcommittees to supervise, monitor and control essential management issues, namely, Executive Committee and Audit Committee and so forth.
6.
To delegate any person or persons to duly act on behalf of the Board within a duly time frame. The Board may have such a delegation repealed, changed or modified.
7.
To stipulate recruiting, selecting, hiring and appointing any person as deemed appropriate as Chief Executive Officer and stipulate appropriate remuneration and to empower the CEO to transfer, suspend and terminate employment.
8.
To prepare annual Board of Directors’ report and be responsible for the preparation and disclosure of financial statements revealing the Company’s financial status and operating results of the preceding year to present to shareholders’ meeting.
9.
To convene at least once every 3 months. Rulings of the Board meeting will be based on a majority vote. Directors with conflicts of interest in any matters shall have no voting rights on the specific issue.
10. To hold the Annual Shareholders’ Meeting within 4 months after the Company’s accounting year-end date.
In any case where any director or parties with possible conflicts of interest (as per announcements of SEC office and/or the Stock Exchange of Thailand) may have any conflicts of interest, the director(s) shall have no authority to approve the matter. BOARD OF DIRECTORS CONSISTS OF 5 INDEPENDENT DIRECTORS AS FOLLOWS: 1.
Professor Paichitr Roajanavanich
2.
Assoc. Professor Prapanpong Vejjajiva
3.
Mr. Preecha Prakobkit
4.
General Choochat Kambhu Na Ayudhya
5.
Mr. Chaipatr Srivisarvacha
STRUCTURE OF CRITERIA FOR THE SELECTION OF INDEPENDENT DIRECTORS The Company’ s Board of Directors selectively extends an invitation to persons of recognized capability, experience, vision and with a good understanding of the nature of the Company’s business. The Board deems such appointments as a favorable contribution to the Company’s progress and development. Such persons must also be willing to devote their time adequately to the business of the Company, and they must ensure they meet all regulations and requirements of the goverment agencies concerning the appointment of an independent director of a business entity. (2)
EXECUTIVE COMMITTEE
As at 31 December 2006, the Company had a 7 - member Executive Committee consisting of: 1.
Dr. Somsak Leeswadtrakul
Chief Executive Officer
2.
Ms. Patama Leeswadtrakul
Executive Director
3.
Pol. Lt. General Prakard Sataman
Executive Director
4.
Mr. Yanyong Kurovat
Executive Director
5.
ML. Sasiwimol Kasemsri
Executive Director
6.
Mr. Ryuzo Ogino
Executive Director
7.
Mr. Stephane Benayon
Executive Director
EXECUTIVE COMMITTEE’S ROLES AND RESPONSIBILITIES 1.
To scrutinize the Company’s policies, business plan, investment plan and annual budgeting to the Board of Directors for approval.
2.
To monitor, supervise and control operations to achieve the set objectives of the plans approved by the Board of Directors or as per its assignment. To report results of the execution to the Board of Directors for its information.
3.
To approve an execution or payment for any execution which exceed an authority or an authorization amount of the management in accordance with the Company’s authorization regulations or as per an annual budget approved by the Board of Directors.
4.
To review the organization chart, authorization structure, remuneration policy as well as the Company’s salary structure.
5.
To scrutinize authorizations for managerial and operational levels covering areas of finance, accounting, procurements, investment, borrowings, collateral, sales or disposal or transfer of any assets, entering into any agreement or contract and any other execution as deemed fit.
6.
To delegate any person or persons to execute on behalf of the Executive Committee as deemed appropriate. They may cancel or repeal, change or revise the authorization conferred.
7.
To contemplate and approve openings of varied bank accounts with any commercial banks as deemed appropriate and assign persons to authorize withdrawals or payments from those bank accounts.
8.
To execute any other tasks assigned by the Board of Directors.
The authorization to the Executive Committee described above shall not cover any authorization enabling it to approve any transactional items that any Executive Director or parties with possible conflicts of interest as per announcements of SEC office may have conflicts of interest with the Company or any subsidiaries (if any). The Executive Committee shall submit the matter to the Board of Directors and the Shareholders’ Meeting for perusal and approval of the tranasctions as per regulations or announcements or pertinent laws. 042
(3)
AUDIT COMMITTEE As at 31 December 2006, the Audit Committee consists of 3 Independent Directors with 3 year service term. They are: 1.
Professor Paichitr Roajanavanich Chairman of the Audit Committee
2. Associate Professor Prapanpong Vejjajiva
Audit Committee Member 3. Mr. Preecha Prakobkit
Audit Committee Member ROLES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE 1.
To examine the Company to have accurate financial reports with sufficient disclosure, coordinating with the external auditors and the executive in charge to have quarterly and annual financial reports prepared. The Committee may recommend the external auditors to examine or check any items as deemed necessary or essential during the audit.
2.
To examine the Company to have appropriate and effective internal control and audit systems in cooperation with the external auditors and Internal Audit Department.
3.
To examine the Company’s operations in compliance with laws on securities and stock exchange, SEC and SET regulations or any other laws related to the company’s business.
4.
To select and propose a nomination of the Company’s external auditors and their remuneration, by taking into
account their reliability, resource adequacy, existing workload of particular auditor office and work experience of respective team members assigned to audit the Company. 5.
To deliberate complete and accurate disclosure of the Company’s information in case of inter-related transactions or transactions with possible conflicts of interest.
6.
To carry out any other tasks assigned by the Board of Directors with consent of the Audit Committee, i.e. to review financial and risk management policies, management conduct as per business codes and in cooperation with the Company’s management to review the key reports as Executive Notes and Analysis to the public as per legal requirements.
7.
To prepare the Audit Committee’s report to be included in the annual report and have it signed by the committee’s Chairman. The report shall comprise the following information: •
Notes on the preparation procedure and disclosure of information in the Company’s financial reports in relations with their completeness and reliability.
•
Notes on adequacy of the internal audit systems .
•
Justifications for nomination of the Company’s external auditors for another term.
•
Notes on compliance with laws on Securities and Exchange, SEC and SET regulations and any other laws relating to the Company’s business.
•
Any other reports considered suitable for information of shareholders and general investors under scopes of roles and responsibilities assigned by the Board of Directors.
8.
The Audit Committee is accountable to the Board of Directors as per roles and responsibilities entrusted by the Board of Directors and shall report to it the performance, recommendations and findings at least twice a year.
In any cases where any Audit Committee member or parties with possible conflicts of interest (as per announcements of SEC Office and/or the Stock Exchange of Thailand) may have any conflicts of interest with the Company or any subsidiaries (if any), the Audit Committee shall submit the matter to the Board of Directors and/or the shareholders’ meeting for perusal and approval of the transactions as per regulations or announcements or pertinent laws. (4)
NOMINATION COMMITTEE As at 31 December 2006, the Nominaton Committee consists of 3 Directors with 3 year service term. They are: 1.
General Singha Saovapap Chairman of the Nomination Committee
2.
Mr. Yanyong Kurovat Member of the Nomination Committee
3.
Mr. Chainarong Monthienvichienchai Member of the Nomination Committee
ROLES AND RESPONSIBILITIES OF THE NOMINATION COMMITTEE 1.
To set all rules and policies for persons to be nominated as directors of the Board of Directors, members of other committees and Chief Executive Officer.
2.
To consider and nominate appropriate persons to be appointed as directors of the Board of Directors, members of other committees and Chief Executive Officer for the Board of Directors’ and/or the Meeting of the Shareholders’ approval.
3.
To inform and report the Board of Directors as to results of the meeting of the Nomination Committee and other matters that should be informed.
4.
(5)
To perform any other things as may be assigned by the Board of Directors.
REMUNERATION COMMITTEE As at 31 December 2006, the Remuneration Committee consists of 3 Directors with 3 year service term. They are :
044 045
1.
Associate Professor Prapanpong Vejjajiva
Chairman of the Remuneration Committee
2.
Pol. Lt. General Prakard Sataman
Member of the Remuneration Committee
3.
General Choochat Kambhu Na Ayudhya
Member of the Remuneration Committee
ROLES AND RESPONSIBILITIES OF THE REMUNERATION COMMITTEE 1.
To set all rules and policies relating to remuneration payable to the Board of Directors, other committees and Chief Executive Offi cer to be proposed to the Board of Directors and/or the Meeting of the Shareholders, as the case may be, for their approval.
2.
To fix the necessary and appropriate amount of remuneration for the Board of Directors, other committees and Chief Executive Officer in each year.
3.
To inform and report the Board of Directors as to results of the meeting of the Remuneration Committee and other matters that should be informed.
4.
To perform any other thing as may be assigned by the Board of Directors.
MANAGEMENT TEAM As at present the Company’s Management Team comprises: 1.
Dr. Somsak Leeswadtrakul
Chief Executive Officer
2.
Ms. Patama Leeswadtrakul
Assistant Chief Executive Officer and President
3.
Mr. Ryuzo Ogino
President
4.
Mr. Joachim Burgers
Executive Vice President - Expansion & Engineering
5.
Ms. Kannikar Soykeeree
Senior Vice President
6.
Mr. Nopakao Srisuvanon
Senior Vice President - Operation
7.
Mr. David James Scott
Vice President - Operation
ROLES AND RESPONSIBILITIES OF THE CHIEF EXECUTIVE OFFICER 1.
To stipulate business plan, investment plan and annual budgeting to submit to the Executive Committee and/or the Board of Directors for approval.
2.
To take responsibility of the overall management and to deliberate the Company’s management policies enabling operations to achieve the set objectives under the framework of the policies, business plans and budgets approved by the Board of Directors.
3.
To approve an execution or payment for any execution according to the Company’s authorization regulations or annual budgets approved by the Board of Directors.
4.
To recruit, hire, reshuffle, suspend or terminate an employment of any executives or employees in all positions and to stipulate scopes of roles and responsibilities as well as appropriate remuneration. An execution of positions equivalent to a Senior Executive Vice President or higher shall be reported to the Executive Committee for their information, while an execution of positions equivalent to the Internal Audit Department management shall be made with the Audit Committee’s considerations.
5.
To appoint respective authorized persons to sign the Company’s documents in the areas of accounting, finance, procurement, production, sales, general administration and any other important documents.
6.
To set, change, revise, and cancel any rules, statements, announcements, regulations, punishment measures and internal controlling systems to serve as operational guidelines for all employees and to enable an internal organizational management executed as per the Company’s stipulated policies.
7.
To appoint advisors in any fields as necessary to the operation for the Company’s benefits. The CEO is empowered to appoint attorney(s) to file a lawsuit or defend any case relating to the Company.
8.
To delegate any person to execute any tasks on his behalf as deemed appropriate. He may cancel, repeal, change or revise the authorization conferred.
9.
To report the operating results and development or progress of projects as well as financial status to the Executive Committee and the Board of Directors.
10. To execute any other tasks assigned by the Executive Committee or the Board of Directors.
In any cases where the Chief Executive Officer or persons with possible conflicts of interest may have any conflicts of interest, the CEO shall have no right to approve the execution.
THE SELECTION OF DIRECTORS AND THE CHIEF EXECUTIVE OFFICER Candidates for the Company’s Directors and Chief Executive Officer are selected by the Nomination Committee. The Company assigns the duty to the Board of Directors to recruit knowledgeable and competent candidates with relevant experiences and qualifications as per Clause 68 in the Public Limited Company Act B.E. 2535, pertinent announcements by the Securities and Exchange Commission and the Company’s rules and regulations for the benefits of the Company’s efficient operations.
REMUNERATIONS FOR THE DIRECTORS AND MANAGEMENT TEAM The Annual General Shareholders Meeting of Year 2006 on 24 April 2006 approved a total remunerations for the 046 047
Directors for 2006 at the amount of not exceeding Baht 8 million, and the Board of Directors Meeting No. 5/2006 on 10 May 2006 worked out a remuneration structure for the Company’s Directors as follows.
Position
Position
Monthly
Meeting Allowance
Remuneration
Remuneration
(Baht/Time)
(Baht/Month)
(Baht/Month)
100,000
-
- Chairman of the Board of Directors
10,000
-
30,000
5,000
20,000
40,000
5,000
- Audit Committee Members
-
40,000
5,000
- Nomination Committee Members
-
-
5,000
- Remuneration Committee Members
-
-
5,000
- Directors/Executive Directors - Chairman of the Audit Committee
Any director who concurrently holds the Company’s managerial positions will receive remuneration in the forms of monthly salary thus will not be entitled to the remuneration listed above. In cases where any director takes up more than 1 position, he/she will be entitled only to the remuneration of the position offering the highest return. TOTAL REMUNERATION FOR THE BOARD OF DIRECTORS AND THE MANAGEMENT IN 2006 Items
Year 2006 Persons
Amount (Baht Million)
Board of Directors
15
6.28
Management*
6
33.32
Remuneration Details remuneration and meeting allowance salary, bonus and other compensations
* Including expatriate executives
REMUNERATION FOR INDIVIDUAL BOARD MEMBERS IN 2006 Items
Names and Positions
Remuneration (Baht)
Meeting Allowance Total Monetary (Baht)
Remuneration (Baht)
1
Mr. Vijit Supinit
1,100,000
80,000
1,180,000
360,000
45,000
405,000
_
_
_
_
_
_
720,000
75,000
795,000
480,000
80,000
560,000
360,000
50,000
410,000
360,000
55,000
415,000
_
_
_
360,000
50,000
410,000
360,000
20,000
380,000
480,000
70,000
550,000
360,000
35,000
395,000
360,000
25,000
385,000
360,000
40,000
400,000
Chairman of the Board of Directors 2
General Singha Saovapap Vice Chairman of the Board of Directors and Chairman of the Nomination Committee
3
Ms. Patama Leeswadtrakul * Vice Chairman of the Board of Directors, Executive Director, Assistant Chief Executive Officer and President
4
Dr. Somsak Leeswadtrakul * Director, Chairman of the Executive Committee and Chief Executive Officer
5
Professor Paichitr Roajanavanich Director and Chairman of the Audit Committee
6
Assoc. Prof. Prapanpong Vejjajiva Director, Audit Committee Member and Chairman of the Remuneration Committee
7
Mr. Yanyong Kurovat Director, Executive Director and Nomination Committee Member
8
Pol. Lt. General Prakard Sataman Director, Executive Director and Remuneration Committee Member
9
Mr. Ryuzo Ogino * Director, Executive Director and President
10
General Choochat Kambhu Na Ayudhya Director and Remuneration Committee Member
11
Mr. Chainarong Monthienvichienchai Director and Nomination Committee Member
12
Mr. Preecha Prakobkit Director and Audit Committee Member
13
Mr. Chaipatr Srivisarvacha Director
14
ML. Sasiwimol Kasemsri Director and Executive Director
15
Mr. Stephane Benayon Director and Executive Director
* Directors who concurrently held managerial positions in the Company and received remuneration in the form of monthly salary were not entitled to any other monthly remuneration nor meeting allowance.
OTHER REMUNERATIONS
The Shareholders’ Extraordinary Meeting No. 2/2004 on 5 October 2004 resolved an issuance and allocation of warrants for 100,000,000 units to the Company’s directors and employees (prior to the Company’s initial public offering) as a recognition to their contribution and a motivation for them to continue intentionally their performance with the Company in the long run. The details on the matters are as below:
Type of Instrument
Named and Non-Negotiable Certificate of Warrants It will be transferable solely in case of an inheritance or beneficiary heir
Offering Size
100,000,000 units
Offering Price
Baht 0 per unit (Zero Baht)
Issuing and Offering Date
12 January 2006
Expiry Date
11 January 2011
Exercise Ratio
1 unit of warrant per 1 ordinary share
Exercise Price
Baht 1 per share
Exercise Period
One year after the date when the Company’s shares are traded on the SET until the expiry date of the warrants (24 January 2007- 11 January 2011). Holders are entitled to exercise at the one-third of total allocated warrants and shall exercise their right for the full portion at one time.
Two years after the date when the Company’s shares are traded on the SET until the expiry date of the warrants (24 January 2008-11 January 2011). Holders are entitled to exercise at another one-third of total allocated warrants and shall exercise their right 048
for the full portion at one time.
049
Three years after the date when the Company’s shares are traded on the SET until the expiry date of the warrants (24 January 2009-11 January 2011). Holders are entitled to exercise at another one-third of total allocated warrants and shall exercise their right for the full portion at one time.
Exercise Dates
The last working day of March, June, September and December until the expiry date of the warrants. The first date to exercise the right is 30 March 2007 and the last date is 11 January 2011
The directors will be allocated not over 2, 000, 000 units each, whereas the directors concurrently serving as the Company’s employees will be entitled to an allocation to employees as well. The Company carried out the allocation on 12 January 2006 as per guidelines approved by the Board of Directors as follows:
Names
Positions
Quantity (units)
Board of Directors 1.
Mr. Vijit Supinit
Chairman of the Board of Directors
2.
General Singha Saovapap
Vice Chairman of the Board of
_ 2,000,000
Directors 3.
Ms. Patama Leeswadtrakul
Vice Chairman of the Board of
2,000,000
Directors 4.
Dr. Somsak Leeswadtrakul
Director
2,000,000
5.
Professor Paichitr Roajanavanich
Director
2,000,000
6.
Assoc. Prof. Prapanpong Vejjajiva
Director
2,000,000
7.
Mr. Yanyong Kurovat
Director
2,000,000
8.
Pol. Lt. General Prakard Sataman
Director
2,000,000
9.
Mr. Ryuzo Ogino
Director
2,000,000
10. General Choochat Kambhu Na Ayudhya
Director
2,000,000
11.
Director
2,000,000
12. Mr. Preecha Prakobkit
Director
2,000,000
13. Mr. Chaipatr Srivisarvacha
Director
2,000,000
14. ML. Sasiwimol Kasemsri
Director
2,000,000
15. Mr. Stephane Benayon
Director
2,000,000
Mr. Chainarong Monthienvichienchai
Management 1.
Dr. Somsak Leeswadtrakul
Chief Executive Officer
5,000,000
2.
Ms. Patama Leeswadtrakul
Assistant Chief Executive Officer
2,750,000
and President 3.
Mr. Ryuzo Ogino
President
2,750,000
4.
Mr. Joachim Burgers
Executive Vice President
2,000,000
Expansion & Engineering 5.
Ms. Kannikar Soykeeree
Senior Vice President
2,000,000
6.
Mr. Nopakao Srisuvanon
Senior Vice President – Operation
2,000,000
7.
Mr. David James Scott
Vice President - Operation
784,000
Employees 704 employees
54,688,200
Total
99,972,200
CHANGES IN SHAREHOLDING BY THE BOARD OF DIRECTORS
Shareholding (Shares) : Par 1 Baht Names 1.
Mr. Vijit Supinit
Position Chairman of the Board of
As of 31 Dec.
As of 31 Dec.
2005
2006
Changes
_
_
_
1,500,000
1,500,000
_
1,061,060,793
1,077,802,793
16,742,000
Directors 2.
General Singha Saovapap
Vice Chairman of the Board of Directors
3.
Ms. Patama Leeswadtrakul
Vice Chairman of the Board of Directors
4.
Dr. Somsak Leeswadtrakul
Director
7,154,071
7,154,071
_
5.
Professor Paichitr
Director
_
_
_
Director
_
_
_
Roajanavanich
050 051
6.
Assoc. Prof. Prapanpong Vejjajiva
7.
Mr. Yanyong Kurovat
Director
_
_
_
8.
Pol. Lt. General Prakard
Director
_
_
_
Director
_
_
_
Director
_
_
_
Director
1,500,000
1,500,000
_
12. Mr. Preecha Prakobkit
Director
_
_
_
13. Mr. Chaipatr Srivisarvacha
Director
_
_
_
14. ML. Sasiwimol Kasemsri
Director
_
_
_
15. Mr. Stephane Benayon
Director
_
_
_
Sataman 9.
Mr. Ryuzo Ogino
10. General Choochat Kambhu Na Ayudhya 11.
Mr.Chainarong Monthienvichienchai
CHANGES IN SHAREHOLDING BY M MANAGEMENT TEAM 1.
Mr. Joachim Burgers
Executive Vice President Expansion & Engineering
_
_
_
2.
Ms. Kannikar Soykeeree
Senior Vice President
_
_
_
3.
Mr. Nopakao Srisuvanon
Senior Vice President Operation
_
_
_
4.
Mr. David James Scott
Vice President - Operation
_
_
_
General Information
Company Company’ s Name Symbol Registration No. Head Office
Plant Office Website Establishment Date Production Commencement Date Business Type Width Gauge Production Technology
Production Capacity No. of Employees
G STEEL PUBLIC COMPANY LIMITED G STEEL PUBLIC COMPANY LIMITED GSTEEL 0107538000746 18th Fl. SSP Tower 3, 88 Silom Road, Suriyawong, Bangrak, Bangkok 10500, Thailand Tel. 0-2634-2222, Fax. 0-2634-4114 55 Moo 5, SSP Industrial Park, Nonglalog, Bankhai, Rayong 21120, Thailand Tel. 0-3886-9323, Fax. 0-3886-9333
www.gsteel.com 30 October 1995 1 November 1999 Production and Distribution of Hot Rolled Coils 900 - 1,550 mm. 1.0- 13.0 mm. Melting - Electric Arc Furnace from Germany Casting - Medium Slab Casting Machine from Japan Rolling - Hot Strip Mill from Japan 1,800,000 tons per annum 734 persons
Registered Capital and Paid-up Capital Registered Capital Ordinary Shares Par Value Paid-up Capital Paid-up Ordinary Shares
12,000,000,000 12,000,000,000 1 11,100,000,000 11,100,000,000
Baht Baht Baht per Share Baht Baht
Referrals and Their Locations Common Stock Registrar
Thailand Securities Depository Co., Ltd. 4th, 7th Fl., Stock Exchange of Thailand Building 62 Rajadapisek Road, Khlong Toey, Bangkok 10110 Tel. 0-2229-2800 Fax. 0-2359-1259
Bond Trustee
The Hong Kong and Shanghai Banking Corporation Limited Level 30, HSBC Main Building, 1 Queen’s Road Central, Hong Kong
Auditor
Ms. Rungnapa Lertsuwankul Certified Public Accountant Registration No. 3516 Ms. Vissuta Jariyathanakorn Certified Public Accountant Registration No. 3853 Ms. Sumalee Reewarabandith Certified Public Accountant Registration No. 3970 Ernst & Young Office Ltd. 193/136-137 33rd Fl., Lake Rajada Building, Rajadapisek Road, Khlong Toey, Bangkok 10110 Tel. 0-2264-0777 Fax. 0-2264-0789-90
NATURE OF BUSINESS G Steel Public Company Limited is a hot rolled coil producer and distributor with objectives to substitute import and to serve domestic demand. Its products are used as raw materials for such downstream industries as cold rolled coils, galvanized steel, steel pipes and structural steel products for construction, petroleum containers or LPG cylinders, automobile and parts, electrical appliance, furniture, and so on.
The Company’s hot rolled coil mill is equipped with the world’s latest state of the art technology and completed infrastructure. With the total investment of over Baht 40,000 million, melting, casting, and rolling processes are integrated into one mill: the Compact Mini Mill, which comprises melting technology in the electric arc furnace, casting technology in the medium slab casting machine, and rolling technology in the hot strip mill.
The production process starts from having steel scrap and pig iron melted in an electric arc furnace at about 1,600° C into liquid steel, which is then improved quality with additives to meet customers’ respective requirements. The refined liquid steel is cast into medium sized slab of 80 - 100 mm. and subsequently hot - rolled into a specific required gauge. Being the first in Thailand and among very few of its kind in the world, the mill can make hot rolled coil at the minimum thickness of just 1.0 mm. The entire process is continuous and merely takes 3.5 hours.
The Company’s hot rolled coil mill was designed with the maximum production capacity of 3 . 4 million tons. Presently, it runs at 1.8 million ton capacity per annum, and a designated production efficiency for product mixed ratio as per market requirements is 1.5 million tons per annum. The Company’s hot rolled coil meets international 052
standards, i.e. ASTM, JIS, DIN, BS and Thailand Industrial Standards (TIS).
053
In the year 2006 the Company achieved its goal, receiving ISO 14001 certification in environmental administration standard, TIS 18001 certification in hygiene and safety administration together with OSHAS/TIS 18001 and CE Marking certification by TUV NORD.
INCOME STRUCTURE
The Company’s income structure during the past 3 years can be divided as per the nature of business as follows. (Unit : ‘000 Baht) Incomes
Distribution Channels
2004
Amount
2005
2006
%
Amount
%
Amount
%
Sales from Hot
Domestic
16,435,025
76.7
19,654,894
88.2
16,809,293
88.0
Rolled Coils
Overseas
4,835,227
22.6
2,546,951
11.4
1,193,753
6.2
Total Sales
21,270,252
99.3
22,201,845
99.6
18,003,046
94.2
Other Incomes
140,018
0.7
95,234
0.4
1,115,763
5.8
Total Incomes
21,410,270
100
22,297,079
100
19,118,809
100
Notes: The Company’s other incomes included sales of various scrap from production process, interest income and foreign exchange gain.
The Company’s main income was from domestic sales due to the high demand from both construction and industrial sectors. While the local production could not meet the local consumption, over 2 million tons had to be imported. Nevertheless, the Company has also continued exporting to establish overseas market bases for its business expansion in the future. The fact reflected that quality of the Company’s products was well accepted in overseas market as America, Europe, Middle East, and Asia.
FUTURE PLAN
The Company has long – term plans to expand production capacity from 1.8 million tons per annum to 3.4 million tons per annum to meet domestic demand surplus.
Besides, becoming an alliance with Nakornthai Strip Mill Public Company Limited (NSM) – also in the hot rolled coil production business – had continually positive effects on the Company in terms of purchasing, marketing, production and so on. In addition, both companies’ know - how had been exchanged and adapted to develop new products. As a result, the Company will have more diversified products in the future to respond and cover customers’ needs, especially automobile parts, electronics and electrical appliance, furniture and other industries in the future.
054
RISK FACTORS
Business risk factors that may significantly affected return on investment and guidelines to prevent such risks can be summed up as follows:
1.
PRODUCTION RISKS 1.1
RISKS FROM RAW MATERIAL PRICE FLUCTUATIONS
Prices of such major raw materials as scrap and pig iron are of cyclic nature, hence there are price fluctuations: upward and downward trends. The Company has no protection tools for the raw material procurement risks that may expose it to difficulties during the downward cycle. As the Company may have high – priced raw material inventory, its production costs will be high accordingly. This may have impacts on its performance results.
Nevertheless, prices of scrap and pig iron follow the world market mechanism, in which the prices vary with demands for hot rolled coils. i.e. the former to follow the latter’s upward and downward trends. Besides, the fact that the Company has raw material purchasing agreements on consignment basis that is the payment for major raw materials will be made upon an actual usage at the price of the purchasing date enabled it to manage major raw material prices. However, it has to be responsible for interest expenses for the overdue balance from B/L date to the date of payment for scrap and pig iron. As such, it can manage to settle selling prices of hot rolled coils to customers, taking into account costs of major raw materials purchased as major costs to stipulate selling prices of its products. Consequently, it is less exposed to fluctuations of major raw material prices. 1.2
RISKS FROM DEPENDENCY ON MAJOR RAW MATERIALS FROM OLIGOPOLY SOURCES
To produce hot rolled coils, main raw materials required include scrap and smelt iron. The Company has imported a higher quantity of scrap than locally purchased with the proportion of 80:20. As for crude iron, it has to fully import. Generally, producers worldwide will have transactions with only a few vendors in order to continually control quality, terms and conditions. The Company has purchased main raw materials from major distributors overseas such as Stena Metal Inc., Steel Base Trade AG and Cargill International Trading Pte. Ltd., and so forth who have been its trade partners for a long time.
However, its major trade partners are long – standing multinational firms with strong financial status. It has also built up relationship with many other raw material distributors, both local and international, who are prepared to support and to have business transactions with the Company. In this regard, it has a policy to split a small quantity of raw material purchases to other distributors in order to maintain business relationship with them. Currently, a number of new local and international distributors have regular transactions with the Company given thus a high bargaining power in prices, payment terms and so on.
2.
MARKETING AND DISTRIBUTION RISKS
They are risks from fluctuations of products’ market prices owing to the business downtrend because some downstream industries using its products as their base materials such as construction industry is also of cyclic nature. As a result, demand and prices of the Company’s products have fluctuated in accordance with the
business cycle. This may affect its performance results in the future during business downtrend. The fluctuations of products’ market prices may have impacts on the Company’s incomes during particular period of time as well as on its business, financial status, performance results and its future.
Moreover, as its products have been in demand for many downstream industries, i.e., hot rolled coil industry for automobile industry, galvanized sheets for many industries. The business downtrend fluctuations of the aforementioned industries will naturally affect its performance. However, recessions in some other downstream industries like construction ones (which mainly use long - sized products) will have less effects on demand and prices of the Company’s products.
Nevertheless, it expects that with its production efficiency and competitiveness at the current level, the Company will be able to gear its production for export should the market demand during the downtrend heavily fall. Presently, it has developed overseas market bases. The fluctuations of products’ prices, however, do not have much impact on its performance results as raw material prices 056
and product prices normally vary with each other. Hence, its profit slightly fluctuated.
3.
FINANCIAL RISKS
The Company is exposed to risks on foreign exchange fluctuations as a majority of the income are in Baht denomination whereas such raw material as scrap and crude iron are purchased from overseas. Additionally, it issued and offered USD 170 million worth debentures to overseas investors during 2005 – 2006 which will be due in 2010 with a 10.5 interest rate. Its subsidiary has borrowed USD 120 million short-term loans from financial institutions in 2006 . Thus, the Company bears a great deal of expenses in USD denomination. It does not have any FOREX risk prevention contracts with commercial banks.
Therefore, FOREX fluctuations may jack up its costs,
subsequently its profitability, and may have effects on its liquidity, financial status, performance results and its future.
However, the Company anticipated that the impacts on its business are limited because the stipulation of its selling prices has been referred to selling prices in the world market which directly involved USD denomination. Such matunal hedge makes FOREX fluctuation directly vary with the stipulation of its selling prices.
4.
ENVIRONMENTAL AND PERSONNEL RISKS 4.1
RISKS FROM POSSIBLE POLLUTION - CAUSING PRODUCTION
The Company’s business is to produce hot rolled coils involving melting, casting and rolling. The process may cause such pollution as airborne particles, heavy metal contaminating water and temperature of water in the process as well as over – limit noise pollution. The Company has installed pollution controlling systems in line with current laws and regulations on environment. However, it is still exposed to risks as it may not detect some certain environment – affecting pollution. In such cases, it will have to absorb a higher cost to improve the affected environment. It may also have to install more pollution monitoring and controlling systems in accordance with more stringent laws or regulations. This will increase its expenses, including those incurred by legal disputes should the Company fail to reduce such pollution. The situation has impacts on its business, financial status, performance results and future.
In 2006, the Company had complied with environmental standards and regulations and was certified ISO 14001 by TUV NORD. Besides, it commissioned an environment expert firm to carry out regular audits in its factory for every 6 months and regularly present the findings to the Ministry of Industry. The Company is, therefore, confident not to face the aforementioned situation.
4.2
RISKS FROM OPERATIONS WITH POSSIBLE HAZARD TO EMPLOYEES
The Company’s business is a heavy industrial one; its employees may be affected by hazard from melting, rolling and handling of very heavy materials. Such cases will incur the Company increased expenses from compensation for inflicted persons as well as expenses from penalty. This will naturally affect its business, financial status, performance results and future.
Nevertheless, the Company has an emergency plan and safety measures which meet standards and accepted by government agencies and relevant private parties. It received OSHAS / TIS 18001 certifications for accident prevention or risk rate reduction
during work. According to past records, it was found out that since its establishment, its accident rate was very low, and there was no claims from employees for any damages.
5.
RISKS RELATED TO GOVERNMENT POLICIES AND RELEVANT RULES AND REGULATIONS 5.1
RISKS FROM FREE TRADE AGREEMENTS (FTA) WHICH COVER HOT ROLLED COIL PRODUCTS
At present, Thailand is under the Free Trade Agreement negotiation process. The FTA forum relating to the steel industry is Thai – Japanese free trade negotiation. During the latest round, Japan would like Thailand to reduce its import duty for hot rolled coils to 0% with immediate effect, while Thailand preferred to maintain the import duty at 5% for the next 10 years and gradually reduce it from year 11 to year 15 to 0%. If the talk results turned out in favor of Japanese side, some Thai producers will be affected. There will also be quota limit. In this regard, the Company will be affected by competition from Japanese hot rolled coil makers. This, in turn, will affect its performance results in the future. In addition, should the government carry on its FTA negotiation with other countries, having hot rolled coil products included in negotiation topics, the Company will have impacts from higher competition.
However, the Company anticipated that if conclusion of Thai – Japanese FTA negotiation turned out as per Japanese proposals, it may not receive much effect because most producers in Japan are currently levied for anti – dumping taxes. If such tax is no more levied or lenient, the Company will remain competitive since it has continually improved its product quality, pricing and production efficiency to be competitive in the world arena.
5.2
RISKS FROM PRICE CONTROLLING MEASURES BY GOVERNMENT AGENCIES
058
According to an announcement of the Commerce Ministry, steel sheets are controlled goods with regulated
059
maximum selling price ceiling for each producer. To increase prices above the regulated ceiling, each producer is required to submit to the government agency for price increment approval, and within 7 days, if the agency does not turn down the request for the rise, the producer may increase its product prices. However, it may face risks from not having granted permission from the government agency for the increment, or it may not be able to increase their prices in line with growing costs. The government price control may produce negative effects on business, financial status, performance results and business future.
In the past, the Company managed to adjust its selling prices to cope with higher costs; it absorbed merely a small portion of increase. Moreover, it successfully exported at the world market prices. Such prices reflected real costs, and there is no need to solely depend on domestic sales if prices for the latter market are not in line with real cost burdens.
5.3
RISKS FROM GOVERNMENT POLICIES AFFECTING ITS OPERATIONS AND PERFORMANCE RESULTS
The Company’s business is in heavy industry the performance results of which may be affected by government policies.
Currently, the Company received promotional privileges from the Board of
Investment (BOI) and received protection under the Anti – Dumping Act. Hence, its business is exposed to risks from changes in such policies.
Nevertheless, it anticipated that BOI – relevant policy changes will not affect the Company as it has already been granted promotional privileges for the ongoing business and its production expansion. Changes in government policies will have no retroactive effects on already – approved projects. Meanwhile, cancellation of anti – dumping measures by the government in the future may have some impacts on it in terms of competition from overseas. However, it expected that with its advanced production technology and capabilities to make products on par with competitors in the world market, the cancellation of such measures was likely to slightly affect its performance results.
6.
RISKS FROM A LEGAL DISPUTE
In the past, it was sued by minority shareholders, two of which jointly filed a complaint against the Company. The complaint claimed that an agreement between the Company and its affiliated creditor (Siam Power Generation Co., Ltd.) made on 24 November 2001 was a legal accord made with dishonest exercise of rights. This caused damages to creditors as well as plaintiffs who were the Company’s shareholders. They asked the court to void the agreement and claimed for Baht 54,450,000 from the Company for the damages.
On 25 July 2005, the court dismissed the case after which the plaintiff shareholders appealed to the appeal court. The court had an order not to accept the appeal. The plaintiff shareholders later on submitted their appeal against the court order; the appeal court again dismissed the complaint.
Presently, the plaintiff shareholders appealed the verdict of the appeal court, and the Company submitted its justifications. The case is under the perusal of the Supreme Court. Should the Supreme Court uphold the appeal court verdict; the case shall be considered completely ceased. Should the verdict turn out against the previous one; the case will proceed to trial procedures again. This exposes the Company to risks from the legal dispute.
7.
INVESTMENT RISKS FOR INVESTORS
It is a risk from stock options offered to members of the Board of Directors, management and employees at a special price. The 2/2004 Shareholders’ Ordinary Meeting on 5 October 2004 had a resolution to allot 100 million units of the Company’s stock options to its directors, management and employees at a right – exercising price of Baht 1 per share. The right was regulated to be exercised 1 year, 2 years and 3 years after the stock was traded on SET respectively at the quantity of one – thirds of the stock options allocated. Each year, the right shall be exercised on the last working day of March, June, September and December. Investors hence had risks for having comparatively higher costs than the holders of the stock options. Additionally, they were exposed to a risk of declining stock prices if this group of stock option holders sold out their shares upon an exercise of their rights. The investors would face dilution effect as well.
However, there were merely 100 million units of the stock options offered to directors, management and employees. Should they all exercise their right, the stock options would be converted into 100 million common shares or 0.90% of total shares (11,100 million shares), a very small proportion. The situation shall not affect share prices and ownership.
8.
GENERAL RISKS RISKS FROM NOT BEING ABLE TO OPERATE BUSINESS DUE TO FACTORS BEYOND CONTROL
The Company has risks from many factors beyond control, namely, natural disasters, industrial accidents, 060
arson, terrorism, technical mistakes and problems as well as labor protest. As its entire production
0 61
processes are located in the same area, it is exposed to a high risk to business stoppage should any serious situation or disasters occur. The fact that the Company bought machines and equipment from a few vendors and its production process is highly complicated and endanger from very high temperature, it faced production risks caused by machinery defects or numerous industrial accidents. The aforementioned factors may produce negative effects on the Company’s business, financial status, performance results and its future.
However, its machinery and equipment were made by leading producers with technology accepted worldwide. The quality of the machines and production process made it unlikely to face serious production disruptions leading to significant loss of incomes. Besides, the Company hired responsible employees from overseas who had expertise in steel production. Continuous production trainings for staff were organized. This reduced chances for losses from extended production stoppage as employee errors were minimal.
As for a situation where production could not be implemented due to other factors such as sabotage, natural disasters and strikes, the Company has security systems. It hires outside security firm as well as in – house security department staff to strictly monitor entries and exits around the clock. Moreover, the factory is adequately equipped with standard fire extinguishing tools and systems to cope with all possible fire accidents. Fire extinguishing exercises and evacuation were drilled in accordance with standards of relevant government agencies. The Company also holds insurance policy to protect its assets for possible damages.
CORPORATE GOVERNANCE
Understanding its roles and responsibilities to the Company and the shareholders, the Board of Directors has studied the 15 - item good governance principles and recommendations for directors of listed companies as per guidelines of the Stock Exchange of Thailand. This is to further enhance the Company’s transparent operations, business ethics, and internal control systems as well as to emphasize an equal importance of shareholders and their benefit protection. The Board formulated a corporate governance policy with the following detailed guidelines and implementation results for the preceding year.
(1)
CORPORATE GOVERNANCE POLICY
Realizing benefits and importance of the good corporate governance for the enhancement of transparent and efficient management and administration which will create confidence among shareholders, investors and all parties concerned, the Board of Directors set a corporate governance policy as the Company’s operations standard and procedures. It covers following principles: • To treat shareholders and stakeholders equally and fairly. • To carry out its roles and responsibilities in supervision and management honestly, ethically, prudently and discreetly to achieve the set goals for the maximum benefits of the Company and shareholders as well as to prevent possible conflicts of interest.
062
• To manage the Company with transparency under the efficient internal control and audit systems and to
063
disclose adequate information to shareholders and all parties concerned to ensure equal information. • To control and manage risks to be at levels appropriate to the Company’s business. • To run the business with honesty under pertinent legal framework and business ethics.
(2)
RIGHTS AND EQUALITY OF SHAREHOLDERS
The Board of Directors shall equally treat and project rights and benefits of all shareholders, no matter they are majority or minority ones, institute or foreign investors, particularly the rights to access the Company’s data and information which are published on the Company’s website, www.gsteel.com to attend shareholders’ meetings, to express their opinions and enquiries in the meetings and to jointly deliberate and vote during the sessions. The Board shall facilitate the shareholders’ meetings in positive manners to encourage equal and transparent treatment for all shareholders.
(3)
RIGHTS OF VARIOUS GROUPS OF STAKEHOLDERS
All groups of stakeholders shall be treated equally by the Board of Directors, no matter they are shareholders, employees, business partners, customers, competitors, communities in the factory’s vicinity or other stakeholders to ensure that their basic rights and benefits shall be protected and taken care of in accordance with relevant laws and legal requirements with no discrimination towards any particular person or groups just because of personal relationship or benefits.
(4)
SHAREHOLDERS’ MEETINGS
The Board of Directors gives an importance to shareholders’ meetings as they are basic rights of the shareholders. The meetings shall be organized and run according to the Company’s regulations, Public Limited Company Act B.E. 2535 and SET rules and regulations. The Board shall encourage an equal treatment for all
shareholders with transparency and simplified handing procedures and facilitate shareholders to exercise their rights to attend meetings and to obtain the Company’s data and information prior to the sessions. Equal opportunities and time allocation shall be provided for all shareholders to express their opinions and raise any questions during the meeting as per the proposed agenda and issues. The minutes shall be recorded accurately for shareholders’ follow - up and examination. The Board shall also require the Company’s management team members relating to the agenda and its legal advisors to attend the shareholders’ meetings every time to provide information and address shareholders’ questions and enquiries.
In 2006, the Company held the Annual General Meeting of Shareholders once and the Extraordinary General Meeting of the Shareholders once. The Company has developed the arrangement formality of each Annual General Shareholders’ Meeting (AGM) in order to set standard for an AGM and to comply with the AGM Checklist which is evaluated by the SEC and an independent appraiser. The checklist has the follow details: • Disclosing adequate information for shareholders’ decision making, disseminating to them in advance information and an invitation letter to the meeting as legally required giving them time. Also, the meeting information is published in advance on www.gsteel.com for the shareholders to study before the meeting. • Facilitating shareholders and their proxy who attend the meeting by using barcode system in the registration and voting counting processes and notification of voting method and vote counting as well as other relevant meeting regulations they should be aware of. The voting forms are distributed to the shareholders before the meeting. • Strictly conducting the meeting as per the set agenda and providing a question-answer session for clarification and fairness to shareholders and all parties concerned. Explicitly disclosing voting results of each agenda with details on number of persons and number of voting shares exercised for approval, disapproval or abstention. • Having shareholders meeting session tape-recorded, taking main contents of enquiries in the minutes for future references and also to enable absentee shareholders to catch up with the relevant details. • Overseeing and conducting the shareholders meeting in accordance with the Company’s regulations, the Public Limited Company Act B.E. 2535, SEC and SET announcements or regulations.
(5)
VISION AND LEADERSHIP
With an aim to establish the Company’s business stability and sustaining success in the long run, the Board of Directors together with the management team reviewed and adapted the vision and mission to suit changing environments. They stipulated goals, business plans and budgeting, taking into account the highest economic value added and long term stability for the Company and shareholders. They supervised and monitored managerial execution to carry out effectively and efficiently as per the set business plan.
Besides, to enhance good governance in the organizational management, the Board of Directors served as a leader to set guidelines on good corporate governance, code of conduct, standards and procedures to approve inter-related transactions with companies or parties with possible conflicts of interest, a clear division of authority between shareholders and the Board, as well as between the Board and the management and committees for balance of power and independent cross-checks.
(6)
CONFLICTS OF INTEREST
The Board of Directors shall contemplate inter-related transactions with possible conflicts of interest among shareholders, directors, and the management team with discretion, honesty, justifications and independence within an ethical framework. This includes complete disclosure of information for the Company’s benefits as a whole in strict conformity with guidelines and methods in SET announcements and regulations. Observations by the Audit Committee on necessity and appropriateness of the transactions shall be included.
064 065
The Board of Directors regulated measures and procedures to approve inter-related transaction with related companies or parties with possible conflicts of interest, not allowing parties with direct or indirect conflicts of interest to take part in deliberating the transactional item. The Audit Committee was required to jointly contemplate and make observations on necessity and justifications of the items for the Company’s maximum benefits. It was also regulated that the disclosure of the transactional items be included in the Notes to the Financial Statements in the annual report as per the generally accepted accounting practice as per the information disclosure form (Form 56-1) and Annual Report (Form 56-2).
(7)
BUSINESS ETHICS
The Board of Directors shall monitor and supervise the Company’s business operations, and execution of duties by the directors, management team and employees to conform with business ethics, apart from the Company’s rules and regulations and pertinent legal framework.
The Board of Directors had the Company’s code of conduct for the management and employees to refer to as guidelines in an execution of its duties with consistent and stringent compliance. The code covers business execution with honesty, equal and fair treatment to stakeholders, conflicts of interest, confidentiality, and an abuse of information as well as receipt of gifts and rewards. The Internal Audit Department was assigned to monitor and examine compliance with the stipulated codes.
The Board of the Directors has a policy for the executive directors and employees to avoid or abstain from trading the Company’s shares for one month prior to a revelation of the Company’s information, i.e. financial data and so on, to the public that may have effects on share prices.
(8)
BALANCE OF POWER FOR DIRECTORS WITHOUT MANAGEMENT AUTHORITIES
The structure of the Board of Directors should comprise directors without management authorities and independent directors of not less than 60% of the total members. Of this, at least 3 directors shall be independent directors and Audit Committee members. As at 31 December 2006, the Board consisted of 15 members as follows: • Directors with management authorities
3
members
(or 20%)
• Directors without management authorities
7
members
(or 47%)
• Independent Directors
5
members
(or 33%)
The directors without management authorities and independent directors totaled 12 or 80%, more than a half which was enough to balance with directors with management authorities, thus enabling the Board to deliberate independently.
(9)
INTEGRATION OR SEGREGATION OF POSITIONS FOR MANAGERIAL BALANCE OF POWER
The Board of Directors clearly divided scopes of roles and responsibilities among the Board of Directors, Executive Committee, Audit Committee and the Chief Executive Officer (CEO) with a clear stipulation that the Chairman of the Board shall not be the same person as the Chairman of the Executive Committee or the CEO and shall not have any relationships with any executive or management team. This is to prevent any executive to have unlimited power and to enable managerial balance of power and cross-checking.
(10)
REMUNERATIONS FOR DIRECTORS AND THE MANAGEMENT
The Board of Directors shall be responsible for regulating criteria on remunerations for directors in accordance with a resolution of the shareholders’ meeting and have the Executive Committee regulate fair, appropriate and motivating remunerations for the Chief Executive Officer based on his/her performance appraisal and the Company’s operating results. The Executive Committee shall also stipulate policies on the Company’s salary structure and compensations as well as reveal information on remunerations for the directors and management team in the Annual Report. In 2006, the Annual General Meeting of Shareholders of the year 2006 on 24 April 2006 regulated the maximum amount of not over Baht 8 million annual remunerations to the Board of Directors and assigned the Board to scrutinize a detailed allocation as deemed appropriate. In this regard, the 3/2005 Board Meeting on 20 May 2005 resolved that any director with a managerial position who received a monthly remuneration in the form of salary shall not be entitled to any remunerations for directors.
(11)
BOARD OF DIRECTORS’ MEETING
The Board of Directors is required to convene at least 4 times a year, and each meeting shall be conducted as per the Company’s regulations, The Public Limited Company Act B.E. 2535 as well as SEC and SET regulations. The Chairman of the Board as the chairman of the meeting shall promote prudent discretion and allocate appropriate time for the management to present any matter and adequate time for directors to comprehensively discuss on key issues thoroughly and carefully. Minutes of each meeting shall be taken to enable directors and parties concerned to check. All directors are required to attend every meeting except there are sound reasons for their absence. In 2006, the Board of Directors convened 10 times, the meetings were strictly organized and conducted as per the Company’s regulations, as well as the Public Limited Company Act B.E. 2535. Agenda and relevant information were disseminated to the directors for their study and contemplation approximately 7 days prior
to the meetings. During each session, the Board members were given opportunities to comprehensively discuss key issues thoroughly. The secretary to the Board and legal advisors attended the session and took minutes which also included enquires and the Board’s suggestions for future references of the Board and parties concerned. Details on attendances of the Board at the meetings in 2006 are listed below. Item
Names and Positions
Numbers of
Remarks
Attendance/ Total Numbers of Meeting Mr. Vijit Supinit
8/8
2.
General Singha Saovapap
9/10
3.
Ms. Patama Leeswadtrakul
10/10
4.
Dr. Somsak Leeswadtrakul
10/10
5.
Prof. Paichitr Roajanavanich
9/10
6.
Assoc. Prof. Prapanpong Vejjajiva
9/10
7.
Mr. Yanyong Kurovat
10/10
8.
Pol. Lt. General Prakard Sataman
10/10
9.
Mr. Ryuzo Ogino
9/10
10.
General Choochat Kambhu Na Ayudhya
9/10
11.
Mr. Chainarong Monthienvichienchai
4/10
12.
Mr. Preecha Prakobkit
10/10
13.
Mr. Chaipatr Srivisarvacha
7/10
14.
ML.Sasiwimol Kasemsri
5/10
15.
Mr. Stephane Benayon
8/10
1.
066 067
(12)
First meeting: Meeting 3/2006
COMMITTEE
The Board of Directors appointed committee(s) to assist it in studying, monitoring and controlling the operations and screening its respective assignments with distinct scopes of roles and responsibilities. Currently, 4 committees have been appointed. 1)
The Executive Committee comprising 7 directors.
2)
The Audit Committee with 3 year service term, comprising 3 members, each of them is an independent director. Criteria on the committee selections is as follows: • Holding not over 5% of overall voting shares in the Company, subsidiaries, affiliations or any parties with possible conflicts of interest (including related persons as per Clause 258 of the Securities and Exchange Act B.E. 2535). • Having no participation in management nor employment, advisors receiving regular monthly salary nor having controlling authorization in the Company, subsidiaries, affiliations or any parties with possible conflicts of interest at least for one year. • Having no business relationship, direct or indirect stakes in financial and managerial areas in the Company, subsidiaries, affiliations or any parties with possible conflicts of interest in manners to lose their independence. • Having no close kinship with the management, the major shareholders of the Company, subsidiaries, affiliations or any parties with possible conflicts of interest nor being appointed a representative to protect benefits of the major shareholders or directors.
• Being competent to perform its duties, to voice out comments or to report results of any tasks assigned by the Board of Directors with independence and not being under control of the management nor the Company’s major shareholders or related parties or close relatives of the aforementioned persons. 3)
The Nomination Committee with 3 year service term, comprising 3 members
4)
The Remuneration Committee with 3 year service term, comprising 3 members
(13)
INTERNAL CONTROL AND AUDIT SYSTEMS
With an emphasis on efficient internal control and audit systems both in management and operational levels, the Board of Directors and the Executive Committee are directly responsible for organizing and maintaining the internal control system and assessing an adequacy of the system in 5 areas, namely, organizational control and environment protection measure; risk management measure; management control activities; information and communication measure; and monitoring. Of this it is included a stipulation of business direction and follow up, development of information and communication system to support decision making, regulation of scopes of roles and authorization amount for each managerial level, provision of distinct standard and procedure for inter-related transactions between the Company and parties with possible conflicts of interest, and adoption of generally accepted accounting practice policy in which external auditors have independence to make observations and access to significant data.
Apart from having set up an Internal Audit Department to audit in the areas of finance and operation, the Company commissioned external legal advisors with expertise in particular areas to supervise compliance with rules, regulations and pertinent legal requirements to ensure that the Company’s operations and key activities were efficiently executed in the stipulated direction. To enable the internal auditors to independently perform for an organizational balance, the Board of Directors has the Internal Audit Department to directly report to the Audit Committee and the Board of Directors. In 2006, the Audit Committee convened 6 times to review justifications of inter-related transactions,
adequacy of internal control systems. They also met with the external auditors to examine financial statements and deliberate reports on disclosure of financial data in the financial statements and to scrutinize an annual auditing plan as well as to monitor results of the internal audits.
(14)
REPORT OF THE BOARD OF DIRECTORS
The Board of Directors shall prepare the Board’s annual report to present to the shareholders’ meeting. It shall cover significant issues as per the Annual Report Form (Form 56-2) and shall be as per good governance guidelines for directors of listed companies recommended by the Stock Exchange of Thailand. The report shall include its responsibilities in preparing financial statements under the examination of the Audit Committee to ensure accurate and complete accounting data with adequate disclosure of significant data in notes to the statements as per generally accepted accounting practice. 068 069
(15)
RELATIONSHIP WITH INVESTORS
The Board of Directors shall supervise to ensure the Company’s accurate, complete, adequate, timely and transparent disclosure of significant information. In this regard, an investor relations unit was set up to communicate with institute investors, shareholders, investment analysts and government authorities. The Company also publishes all the information on the website www.gsteel.com as a channel to disseminate data and information such as those on the Company, its business and finance and any coverage affecting investment decision and so forth such as announcement to SET, the Company’s activity news, and AGM information. This will enable investors to monitor information on the Company more conveniently. In addition, it organized numerous activities, i.e. meeting with the press, analysts’ meeting, domestic and overseas road shows, participation in exhibitions of the Stock Exchange of Thailand, the Association of Securities Analysts and other organizations to disseminate information and address to interested investors’ enquiries on the Company’s performance.
INTERNAL INFORMATION CONTROL
It is a policy of the Company that all of its directors and/or executive members are prohibited from using any material internal information, which has not yet been disclosed to the public, for their own or any other person’s interest including for their or any other person’s trading of the Company’s securities. Procedures for controlling the Company’s management people in respect of their use of the Company’s internal information are as follows: 1.
To inform executive members of the Company’s departments or sections as to their duties to give report in respect of the Company’s securities held by them and their spouses and non-sui juris children, including the report of any changes thereof pursuant to Section 59 and penalty provisions specified in Section 275 of the Securities and Exchange Act B.E.2535 (A.D. 1992).
2.
To circulate letters to executive members of the Company informing them that any executive members, who receive or are aware of any of the Company’s material internal information and financial statements where such information may affect the price of the properties, should avoid or cease trading the Company’s
securities for a period of 1 month and that they are prohibited from disclosing such material information to other persons prior to the disclosure of such material internal information and financial statements to the public. In this connection, the Company has imposed penalties in the Company’s regulations for the persons who use such internal information in breach of the regulations for their own interests starting from orally warning up to dismissal.
LABOR DISPUTES
At present, there is no any labor dispute.
EMPLOYEE IMPROVEMENT POLICY
It is a Company’s policy that the Company’s employees must be regularly trained in order to improve their skill and knowledge. Such training is rendered on learning by doing basis and advice and recommendation from the experts in each particular area of works are also given to the employees. Furthermore, the Company provides support to its employees by way of having them constantly attend training and seminar courses conducted by other organizations. Payment of appropriate remuneration as an incentive to the Company’s employees is another policy of the Company such that the Company may maintain its employees for a long period of time.
DIVIDEND POLICY
In normal situations where the Company does not require any additional investment or business expansion plan and has enough liquidity, it has a policy to pay dividend at approximately 50% of its net earning after tax and legally required reserve. Nevertheless, the Board of Directors may resolve the Company to pay dividend differently from the set policy as deemed necessary and appropriate, for instance, in case of economic or market condition changes or any other situations affecting its liquidity.
INTERNAL CONTROL
According to the Company’s Board of Directors Meeting No. 7 / 2004 held on 7 October 2004 in which the Company’s Audit Committee participated, an evaluation in respect of the Company’s internal control was made by the Board of Directors by way of inquiring for information from and distributing questionnaires to the Company’s management members regarding the adequacy of the Company’s internal control system in 5 areas, i.e. organization and environment, risk management, control over management’s practice, information technology and communication systems and following-up system. The Board of Directors was of the view that the Company’s internal control was at a certain satisfactory level and the internal control in respect of the Company’s transaction made or engaged in with the Company’s major shareholders, directors, management members or 070
related persons was sufficient. Moreover, the Board of
Directors
encouraged
the
Company’s
management members to develop and improve internal control system of the Company on a continuing basis in order to strengthen the Company’s Good Corporate Governance. The Company’s Board of Directors have evaluated the sufficiency of the Company’s internal control for 2006 as follows:
1. Organization and Environment
The Company’s production target is, in its business operation, always set by high level of management. Checking or following - up on operational results is rendered via meeting among executives or management members of each of the Company’s departments at least once a month. Such production target and operational results will then be informally reported and presented to the Company’s Board of Directors meeting. Appropriate remuneration to employees in the relevant departments is also arranged for the appropriate consideration. Moreover, the Company’s management has set up a code of conduct in which the prohibition of the
Company’s executives or management members and employees from doing anything that may create a conflict of interest in respect of the Company and the Company’s customers and the penalty for violation of such code of conduct are included. The Company also has manuals for its procurement practices in line with those of ISO standard in relation to financial matters. With respect to general management of the Company, operational plan is prepared in a form of flow chart. 2. Risk Management
The Company has always been attentive to the internal and external risks which may have significant effects to the Company’s business. The Company always analyzes various risk related incidents such as the world’s steel market situation, the trend in domestic demand for steel, the economy and social issues. The Company also has procedures for implementation by setting up the Audit Committee to make policy and monitor all risks management of the Company. 3. Control over Management’s Practice
An internal control system is established to ensure that such stipulated internal control procedures has been followed. In regard of connected transactions, each of the Company’s directors and executive members should be required to give report or to disclose to the Company’s Board of Directors as to the conflict of interest that such person has or may have and there should also be mechanisms or procedures to follow up and monitor such persons in order for such persons to comply with those stipulated procedures and approval required. Such tasks could be rendered by the Company’s internal control department. In the event of a transaction involving or may involve a connected person where a long term commitment is to be engaged by the Company, procedures to follow up or monitor the Company’s obligations agreed hereunder through out such period should be set up. 4. Information Technology and Communication Systems
The Company has been giving full attention to the information technology and communication systems. The Board of Directors has been provided with sufficient and accurate information to be considered in each meeting. The Board of Directors would receive the meeting agenda and details at least 7 days in advance. The minutes of the meeting included details of the directors’ questions, opinions and comments and any differ in opinion from any member of the Board of Directors should be recorded such that the shareholders or any related persons will be able to review the directors’ performances. With respect to accounting policy, the Audit Committee has been providing opinion regarding the accounting policy to the Company’s Board of Directors for consideration and approval. 5. Following - up System
Operational results have been reported to the Company’s Board of Directors by management on a quarterly year basis. In this connection, comparisons between the current and the previous period of operational results and informal production target and operational result were also given to the Board of Directors. Furthermore, weekly executives’ meetings in order to analyze the problems and solutions thereof have been made. Finally, the Company has just recruited a manager of internal control department including certain officers to work therein for the Company’s internal control works while these people are to give reports in respect of results of internal control to the Audit Committee directly Recommendations: Reports in respect of comparisons between the Company’s actual operational results and the targets and the following-up results should, in case of difference, be given to the Company’s Board of Directors formally and regularly. In addition, there should be systemized mechanisms for preparing and giving reports to the Audit Committee and the Board of Directors in respect of audited results, audited result following-up, any material errors, fraudulences and doubtful fraudulences.
STRUCTURE OF SHAREHOLDING
Names and proportions of the first 10 major sharehodlers as at 31 December 2006 are as follows: Item
072 073
Names of Shareholders
1
Superior Overseas (Thailand) Co., Ltd. 1
2
Number of Shares 2,522,588,903
22.73
Ample Vision Group Ltd. 2
1,622,083,795
14.61
3
Dr. Somsak and Ms. Patama Leeswadtrakul Group 3
1,134,956,864
10.22
4
Rochelle Finance Limited
505,582,531
4.55
5
Morgan Stanley & Co International Limited
410,726,800
3.70
6
Mr. Nirum Ngamchumnanrit
295,200,000
2.66
7
Great Western Limited
271,241,066
2.44
8
Bethleham International Limited
223,733,651
2.02
9
Eastgate Limited
179,910,635
1.62
10
Newhaven Limited
177,733,373
1.60
11
Others
3,756,242,382
33.85
11,100,000,000
100.00
Total
1
The shareholding structure of Superior Overseas (Thailand) Co., Ltd. (1)
Ms. Patama Leeswadtrakul
29.42%
(2)
Mr. Eakphet Chansue
19.80%
(3)
Ms. Chunpit Phattana
15.38%
(4)
Marcow Wealth Investment Co., Ltd.
10.00%
(5)
Others
25.40%
2
The shareholding structure of Ample Vision Group Ltd.
(1)
3
%
Mr. Hamish Gordon Cruden
100.00%
Dr. Somsak and Ms. Patama Leeswadtrakul Group consisting of:
(1)
Ms. Patama Leeswadtrakul
9.70%
( 1,077,802,793 shares )
(2)
Dr. Somsak Leeswadtrakul
0.06%
(
7,154,071 shares )
(3)
Ms. Suthidarat Leeswadtrakul
0.22%
(
25,000,000 shares )
(4)
Ms. Suratiporn Leeswadtrakul
0.22%
(
25,000,000 shares )
INTER-RELATED TRANSACTIONS WITH PARTIES WITH CONFLICT OF INTEREST
In 2006, the Company had inter – related transactions with parties with conflict of interest as follows: Parties with Conflict Of Interest Sukhumvit Inter
Relationships
- 1.26% of shares held
Types of Transactions • Raw water
Transactions Value in 2006 14,709,884
Balance at 2006 Year-end 1,286,340
Details / Terms & Conditions • As per a contract to buy and sell raw water via
expense
Development Co.,Ltd.
directly and indirectly
(“SID”)
by the Company’s
SID, an industrial estate
director and
park management, at a
Nature of Business
shareholder, G Steel’s
- Real Estate Development
ex – director serving as
(Office building,
a member of SID’s
industrial estate and
Board of Directors
more competitive price than direct purchase from the producer.
others) Paitoon Hotel and
- 69.4% of shares held
• service fees
1,920,155
272,973
• For service fees for
directly and indirectly
usages of Arnoma
by the Company’s
Hotel’s facilities for the
Nature of Business
directors and
Company’s meetings
- Hotel
shareholders, and have
Resort Co., Ltd. (“PHR”)
and receptions of foreign guests. The
common members of
hotel is situated in a
Board of Directors
convenient location and charges standard service fees. Oriental Access Co., Ltd.
- 99.92% of shares held
• service fees
105,978,836
105,978,836
Service fees for
indirectly via Siam
consultation rendered
Nature of Business
Professional Holding
to OA on business and
- Business Consulting
Co., Ltd.
production process
(“OA”)
management.
INTER – RELATED TRANSACTIONS WITH MAJOR BUSINESS ALLIANCES
Business Alliances
Relationships
Types of Transactions Transactions Value in 2006 662,716,008
Balance at 2006 Year-end
Details / Terms & Conditions
98,150,628 • Expenses for other raw material and
- The Company’s
• Expenses
directors and
for other
consumable supplies for the
shareholders formerly
raw materials
production, a proportion of not
Nature of Business
served as directors in
and
more than 3% of production costs.
- Steel Wholesaler and
Nara and held Nara’s
consumable
Prices are based on costs plus
shares directly and
supplies
standard margin under normal
Nara International Co., Ltd. (“Nara”)
Retailer - Producer of other industrial products
indirectly. However,
business terms and conditions.
they quitted from both capacities since September 2004
• Expense for
3,038,635,348
403,028,358 • Expenses for the selling of hot rolled
the selling of
coils at market prices under normal
goods
business terms and conditions like other customers with good financial status and punctual payment records as per the Company’s terms and conditions.
• Expense for
3,601,670
_
• Expenses for the selling of scrap
the selling of
from production process, Selling
scrap
prices are based on costs plus
074
standard margin under normal
075
business terms and conditions like other customers . Advance Metal Fabrication Co., Ltd. (“Advance”)
- The Company’s directors and
• Sales of
2,989,004,338
200,235,008 • Expenses for scraps for production
scrap
process. Prices are based on costs
shareholders formerly
plus standard margin under normal
Nature of Business
served as directors in
business terms and conditions and
- Wholesaler and retailer of
Advance and held the
not higher than those purchased
latter’s shares directly
from other suppliers.
steel and scrap
and indirectly, however, they relinguished since September 2004
• Expense for
1,304,805,704
341,816,850 • Expenses for the selling of hot
the selling of
rolled coils at market prices under
goods
normal business terms and conditions like other customers with good financial status and punctual payment records as per the Company’s terms and conditions.
• Expense for
11,959,482
_
• Expenses for the selling of scrap
the selling of
the selling prices are based on
scrap and
costs plus standard margin under
raw steel
normal business terms and conditions like other customers.
Business Alliances
Relationships
Types of Transactions Transactions Value in 2006
Federal Steel Industry Co., Ltd. (“Federal”)
- Its directors were
• Expense for
2,028,079,940
Balance at 2006 Year-end
Details / Terms & Conditions
361,276,533 • Expenses for the selling of hot
formerly the
the selling
rolled coils at market prices under
Company’s directors
of goods
normal business terms and
Nature of Business
and shareholders, they
conditions like other customers
- Steel wholesaler and
quitted since October
with good financial status and
2004
punctual payment records as per
retailer
the Company’s terms and conditions.
Trinity Freight and Shipping Co., Ltd.
- The Company’s business alliance
(“Trinity Freight”)
• Freight
758,737,692
54,941,569 • Expenses for transporting scrap
forwarding
from ports to the factory,
service fees
transporting hot rolled coils from the factory to customers’ premises
Nature of Business
and ports for overseas markets.
- Freight forwarding
Service charges were based on
service provider
weight and approximately the
- Steel wholesaler and
same rate as other service
retailer
providers.
• Expense for
41,419,538
24,044,869 • Expenses for the selling of hot
the selling
rolled coils at market prices under
of goods
normal business terms and conditions like other customers with good financial status and punctual payment records as per the Company’s terms and conditions.
Trinity International Co., Ltd. (“Trinity Inter”)
- The Company’s
• Service fees
21,614,185
2,550,247 • Service fees for customs clearance
directors, shareholders
for hot rolled coil import and
and executives were
export. The fees were at market
Nature of Business
formerly Trinity Inter’s
prices in general.
- Wholesaler
directors and
- Customs clearance service
shareholders, but they
provider - Steel wholesaler and retailer
relinguished since early 2002 and 2003 respectively
Business Alliances
Relationships
Types of Transactions Transactions Value in 2006
Millennium Metal Work Co., Ltd. - An ex – major share (“Millenium”)
Expense for
500,034,738
Balance at 2006 Year-end 137,056,621
Details / Terms & Conditions Expenses for the selling of hot
holder of Superior
the selling
rolled coils at market prices under
Overseas (Thailand)
of goods
normal business terms and
Nature of Business
formerly served as
conditions like other customers
- Steel wholesaler and
Millennium’s directors,
with good financial status and
but quitted from the
punctual payment records as per
position since 2003.
the Company’s terms and
retailer
conditions.
STANDARD AND PROCEDURES TO APPROVE INTER – RELATED TRANSACTIONS WITH RELATED FIRMS OR PARTIES WITH CONFLICT OF INTEREST
The Company has a policy to protect benefits of all shareholders with strict standards and procedures to control inter – related transactions with related firms or parties with conflict of interest as follows: -
In approving any transactions with related firms or parties with conflict of interest and business alliances (to be referred altogether as “parties with conflict of interest”), the Board of Directors and the Audit Committee shall contemplate and stipulate a clear cut policy as follows: • The Board of Directors shall execute according to the Securities and Stock Exchange laws, rules, regulations, announcement by SEC and SET. It shall also disclose information on inter-
076
related transactions, acquisition or disposal of principal assets of the Company or its
077
subsidiaries as per SET regulations and generally accepted accounting practice stipulated by the Accounting Association. • Clear-cut guidelines on and scopes of management roles and authorization of each managerial level have been set. - In case where the Chief Executive Officer (CEO) or parties with possible conflict of interest may have conflicts of interest with the Company, affiliated companies or parties with conflicts of interest, the CEO cannot approve the transaction. - In case where any Executive Directors or parties with possible conflict of interest may have conflicts of interest with the Company, affiliated companies or parties with conflicts of interest, the Executive Committee has to submit the matter to the Board of Directors for its perusal and approval of the transaction. - In case where any Director or parties with possible conflict of interest may have conflicts of interest with the Company, affiliated companies or parties with conflicts of interest, the Director cannot approve the transaction. - Any shareholder with possible conflict of interest on specific matter, he/she cannot approve the transaction.
-
For normal business transactions with related companies or parties with possible conflict of interest and with business alliances, i.e., purchase of raw materials or services and selling of goods. • The Internal Audit Department shall monthly audit itemized transactions to examine prices in reference to prevailing market prices and normal business terms and conditions, comparable to those applied with non-related business parties for the Company’ s maximum benefits. The transactions are to quarterly report to the Audit Committee for its further perusals. • The Audit Committee shall contemplate and opine on necessity and justification of the reported transactions for the Company’ s maximum benefits, taking into account prices and business terms and conditions, compared to transactions with non-related business parties for the same or similar products. Should the Audit Committee find out that any execution is not carried out as per the stipulated policies, the Audit Committee shall report the matter to the Board of Directors or the Chief Executive Officer for their information and remedies.
-
For other transactions such as borrowings, acquisitions or disposals of principal assets or entering into any agreement or contracts, the Company requires comments from the Audit Committee for necessity and justification of the transaction. In case where the Audit Committee has no expertise to contemplate the inter-related transactions, the Company shall nominate an independent expert or the external auditors to provide notes on the transactions for decisions to be made by the Board of Directors or shareholders, whichever cases.
POLICY FOR INTER-RELATED TRANSACTIONS IN THE FUTURE
Having a policy on inter-related transactions in the future, the Company shall stipulate terms and conditions as per standard practices at the market price, comparable to prices and conditions applied to other business partners or vendors for the Company’s maximum benefits. It has no policy to extend financial assistance to or guarantee any related firms or parties with conflict of interest in the future. In making such inter-related transactions in the future with the parties with conflict of interest, it shall assign the Audit Committee or the internal auditors or independent experts as deemed fit to contemplate and make observation on appropriateness of prices and transaction justification. Such transactions shall be executed according to the standard or procedures on inter – related transactions as per an announcement of the SET and regulations of the Office of SEC.
NOTES AND ANALYSIS ON FINANCIAL STATUS AND PERFORMANCE RESULTS IN 2006
078 079
OVERALL PERFORMANCE RESULTS
Thailand’s steel industry situation in 2006 had fluctuated all year – long due to unusual political situation and economic slow down, however, fluctuations were less than the situation in 2005. Average steel prices in year 2006 decreased from the previous year since demand in the world market, China in particular, declined, and demand in Thailand dropped by 14% from the previous year. Consequently, relevant entrepreneurs were forced to adapt to the situation, reducing their production outputs in line with the market situation to support prices and to prevent supply and inventory surpluses. In 2006, average steel prices continually reduced. Nevertheless, speculations and hoardings alleviated, prices hence became more stable.
In 2006, G Steel’s total hot rolled coil outputs amounted to 0.97 million tons, a 13% decrease from that of the preceding year with the production efficiency of 65%. Its total sales volumes recorded at Baht 18,003 million, because of its prime objective to maintain its domestic market shares. Focusing on domestic sales at a proportion of 93% of its overall outputs, versus 7% for export sales, the Company aimed at maintaining balance between its production and selling prices as well as maintaining relationship with overseas customers.
The Company’s profitability in 2006 declined, compared to that of 2005 primarily due to a decrease in sales volumes and increase in costs of goods sold, selling and administrative and interest expenses. However, the performance results were at satisfactory level as the Company’s financial ratios were higher than an overall average figure of the industry. The selling gross margin marked at Baht 2,019 million or 11.2%, though it was lower than the previous year but much higher than the industry’s overall average. This was due to effective management of sales and production costs. The
Company enjoyed a net profit of Baht 1,678 million, including the profit from the business rehabilitation, or 8.8% net margin and 7.0% return on equities.
SELLING AND OTHER INCOMES
In 2006, G Steel and its subsidiaries marked a total income of Baht 19,119 million, its main income was from the selling of goods of Baht 18,003 million or 94.2% of the total income, an 18.9% reduction from the previous year due to market stagnation during the first and third quarters as well as reducing steel prices in line with an overall market demand decline throughout the year. Additionally, other incomes of 5.8% were from services provided at Baht 115 million, an interest income of Baht 176 million, a profit of Baht 761 million from foreign exchange and other incomes of Baht 63 million.
SELLING, ADMINISTRATIVE AND INTEREST EXPENSES
In 2006, the Company and its subsidiaries had selling and administrative expenses of Baht 831 million. Of this, Baht 558 million, or 3.1% of selling incomes, was for the Company’s expenses including transportation, wages and salary, professional fees for legal and financial advisors, expenses for an issuance of additional debentures and other expenses invariable to production activities.
The Company and its subsidiaries bore interest expenses of Baht 606 million, mainly incurred from an issuance of USD 170 million Bond, purchases and maintenance of raw materials, iron scrap and smelt iron and other interest expenses.
OPERATING PROFIT AND NET PROFIT
The Company and its subsidiaries registered an operating profit of Baht 1,655 million, or 9.1% operating profit rate. When combined with business rehabilitation profit, the net profit accounted for Baht 1,678 million or 8.8% rate, compared to 38.8% of the previous year. The net earning per share was Baht 0.17, a 50% reduction from the previous year, while the return on equities ratio was 7.0%, a 48.7% reduction from the previous year. Nevertheless, in 2006, the Company had an accumulated profit of Baht 12,712 million, an 11.3% rise from the previous year.
ASSETS AND LIQUIDITY
The Company and its subsidiaries had total assets of Baht 41,617 million, Baht 12,562 million of which were current, whereas Baht 29,055 million were non – current. The liquidity ratio was 1.5 times, and the current liquidity ratio was 0.7 times, which was on average of the industry. In 2006, the Company invested in shares of Oriental Access Company
Limited and Nakonthai Strip Mill Public Company Limited at the book value of equity method of Baht 2,103 million, or the stock values of Baht 2,145 million. At 2006 year-end, an investment in rights over secured convertible debts amounted to Baht 3,989 million.
The fixed assets including land, property and equipment at 2006 year-end had Baht 19,899 million of book value, an increase of Baht 2,575 million or 14.9% over the previous year.
LIABILITIES 080
At 2006 year-end, the Company and its subsidiaries had a total liabilities of Baht 15,037 million, an increase of
081
Baht 8,321 million or 1.2 times increase over the preceding year. Of this, Baht 8,272 million were current liabilities, while Baht 6,765 million were non-current ones.
In August 2006, the subsidiary companies borrowed from foreign financial institutions USD 115.3 million, equivalent to Baht 4,348 million, with one year repayment period.
The Company issued and offered bond with the faced value of USD 70 million to overseas investors in February 2006 and received a debenture value surplus of USD 1.4 million, adding up to USD 71.4 million. Taking into account,
conversion into Baht, foreign exchange conversion and deduction of expenses for the issuance of debentures, the net book value was Baht 2,541 million. When combined with the net book value of the other debenture faced values of USD 100 million issued and offered to investors in October 2005, the total bond value at 2006 year – end amounted to
Baht 6,024 million. Of this, USD 170 million will be due in October 2010.
FINANCIAL STATUS
The Company has a firm financial structure since its risks are relatively low, compared to the industry average. At 2006 year – end, its liabilities to capital was merely 0.57 times, its interest and debt coverage are satisfactory. Its non-current liabilities to earnings before interest, tax and depreciation were 2.3 times, which was considered low, while its interest coverage rate was 3.7 times, a low risk on interest delinquency.
INCURRING OF DEBT
Any new incurred debt will happen when the Leverage Ratio is lower than 4.50 to 1.00 if the debt incurring date is before 1 January 2008, or the leverage ratio is lower than 4.00 to 1.00 if the debt incurring date is before 1 January 2008, or 4.00 to 1.00 if the debt incurring date is before or after 1 January 2008.
G Steel’s Board of Directors is directly responsible for the Company’s financial reports as appeared in the annual report. The reports comprise the balance sheet, profit and loss statement, statement of changes in shareholders’ equity, statements of cash flow and notes on financial statements, prepared by the Company’s management according to the generally accepted accounting practices with the selection of and consistent compliance with appropriate accounting policies. Discretion and estimation had been exercised at their best in the preparation of the report with sufficient disclosure of significant information in the notes on the financial statement for the benefits of shareholders and general investors.
The Board of Directors established and maintained the appropriate and efficient internal control and audit systems to ensure that the accounting data were complete, accurate and adequate to uphold the Company’s assets and not to allow any corruption or significant unusual practices to occur.
Moreover, the Board of Directors appointed the Audit Committee to examine the accounting policies and quality of the financial reports, to examine the internal control systems as risk management system.
BOARD OF DIRECTORS’ RESPONSIBILITIES WITH REGARDS TO FINANCIAL REPORTS
The Audit Committee’s remarks on the matters appeared in their report, already included in the annual report. The Company’s certified auditors, nominated by the Board of Directors, had sufficient independence to audit the financial reports and also to attach their notes on the financial status, performance results and the Company’s cash flow in the financial report.
Dr. Somsak Leeswadtrakul
Mr. Ryuzo Ogino
Chief Executive Officer
President
To the Board of Directors and Shareholders of G Steel Public Company Limited I have audited the accompanying consolidated balance sheet of G Steel Public Company Limited and its subsidiaries as at 31 December 2006, the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended and the separate financial statements of G Steel Public Company Limited for the same year. These financial statements are the responsibility of the Company’s management as to their correctness and the completeness of the presentation. My responsibility is to express an opinion on these financial statements based on my audit. The separate financial statements of G Steel Public Company Limited for the year ended 31 December 2005, as presented herein for comparative purposes, were audited by another auditor of our firm under his report dated 24 February 2006 expressed an unqualified audit opinion on those statements. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are 082
free of material misstatement. An audit includes examining, on a test
REPORT OF INDEPENDENT AUDITOR
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of G Steel Public Company Limited and its subsidiaries, the separate financial statements of G Steel Public Company Limited as at 31 December 2006, and the results of their operations and cash flows for the year then ended in accordance with generally accepted accounting principles. Without qualifying my opinion on the above financial statements, I draw attention to Note 6 to the financial statements regarding the investments of the Company and its subsidiary company in ordinary shares and rights of secured convertible debts.
Rungnapa Lertsuwankul Ernst & Young Office Limited Bangkok: 26 February 2007
Certified Public Accountant (Thailand) No. 3516
BALANCE SHEETS
G STEEL PUBLIC COMPANY LIMITED
(Unit: Baht)
AND ITS SUBSIDIARIES
CONSOLIDATED
AS AT 31 DECEMBER 2006 AND 2005
Note
THE COMPANY ONLY
2006
2006
2005
1,616,101,861
1,598,585,692
1,621,834,060
2,122,768,748
2,122,768,748
2,225,655,011
ASSETS
Current assets Cash and cash equivalents Trade accounts receivable
7, 17
Trade accounts receivable - related party
18
20,114,078
_
_
Amount due from related parties
18
479,862,051
514,749,613
_
Current portion of loans to and
18
_
12,748,056
_
8
7,118,502,998
7,118,502,998
3,602,905,841
9, 17
1,204,523,593
1,201,669,257
414,014,471
12,561,873,329
12,569,024,364
7,864,409,383
interest receivable from related parties Inventories - net Other current assets Total current assets
Non-current assets Restricted deposits at ďŹ nancial institutions
10
757,755,673
757,755,673
433,772,798
Investments
11
2,102,918,156
1,428,999,300
_
Investment in rights over secured
12
3,989,311,444
_
_
Loans to related parties
18
_
10,786,650
_
Property, plant and equipment - net
13
19,898,769,070
19,898,769,070
17,323,570,435
Intangible assets - computer software
14
45,788,483
45,788,483
46,888,924
Other non-current assets
15
2,260,481,655
2,260,481,655
2,594,951,851
29,055,024,481
24,402,580,831
20,399,184,008
41,616,897,810
36,971,605,195
28,263,593,391
convertible debts
Total non-current assets TOTAL ASSETS
The accompanying notes are an integral part of the financial statements.
BALANCE SHEETS (Continued)
G STEEL PUBLIC COMPANY LIMITED
(Unit: Baht)
AND ITS SUBSIDIARIES
CONSOLIDATED
AS AT 31 DECEMBER 2006 AND 2005
Note
THE COMPANY ONLY
2006
2006
2005
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
084 085
Short-term loan from financial institution
16
4,347,696,000
_
_
Trade accounts payable
17
2,277,484,657
2,277,484,657
1,111,668,960
Trade accounts payable - related party
18
205,133,059
205,133,059
_
Others payable
17
527,490,215
527,489,715
273,292,560
Payable on purchase of investment
326,077,200
_
_
Advance received from customers
267,818,967
267,818,967
241,775,836
19
11,826,077
11,826,077
76,191,866
20
3,000,000
_
_
17, 18
111,284,155
99,874,358
151,270,169
194,269,225
176,793,869
157,398,562
8,272,079,555
3,566,420,702
2,011,597,953
19
740,358,732
740,358,732
752,225,756
22
6,024,315,243
6,024,315,243
3,952,104,687
6,764,673,975
6,764,673,975
4,704,330,443
15,036,753,530
10,331,094,677
6,715,928,396
Current portion of liabilities which were included under the former rehabilitation plan Other short-term loan Accrued expenses Accrued interest
21
Total current liabilities
Non-current liabilities Liabilities which were included under the former rehabilitation plan Bonds Total non-current liabilities Total liabilities
The accompanying notes are an integral part of the financial statements.
BALANCE SHEETS (Continued)
G STEEL PUBLIC COMPANY LIMITED
(Unit: Baht)
AND ITS SUBSIDIARIES
CONSOLIDATED
AS AT 31 DECEMBER 2006 AND 2005
Note
THE COMPANY ONLY
2006
2006
2005
12,000,000,000
12,000,000,000
12,000,000,000
11,100,000,000
11,100,000,000
8,200,000,000
2,561,677,530
2,561,677,530
1,719,140,000
24
206,307,094
206,307,094
206,307,094
25
681,974,286
681,974,286
595,058,886
12,030,307,683
12,090,551,608
10,827,159,015
26,580,266,593
26,640,510,518
21,547,664,995
(122,313)
_
_
26,580,144,280
26,640,510,518
21,547,664,995
41,616,897,810
36,971,605,195
28,263,593,391
Shareholders’ equity Share capital Registered share capital
23
12,000,000,000 ordinary shares of Baht 1 each Issued and paid up share capital 11,100,000,000 ordinary shares of Baht 1 each (2005: 8,200,000,000 ordinary shares of Baht 1 each) Other surplus Share premium Premium on capital reduction Retained earnings Appropriated - statutory reserve Unappropriated Equity attributable to Company’s shareholders Minority interest - equity attributable to minority shareholders of subsidiary Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
The accompanying notes are an integral part of the financial statements.
INCOME STATEMENTS
G STEEL PUBLIC COMPANY LIMITED
(Unit: Baht)
AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005
CONSOLIDATED
Note
THE COMPANY ONLY
2006
2006
2005
Revenues Sales
17
18,003,046,540
18,003,046,540
22,201,844,756
Service income
18
115,059,265
106,789,579
_
761,237,010
464,528,960
31,083,813
176,224,827
102,350,184
21,377,732
63,241,458
63,241,458
42,772,256
19,118,809,100
18,739,956,721
22,297,078,557
15,984,535,025
15,984,535,025
18,945,164,232
831,374,477
557,679,934
466,940,749
42,010,000
_
_
Total expenses
16,857,919,502
16,542,214,959
19,412,104,981
Income before interest expense
2,260,889,598
2,197,741,762
2,884,973,576
Gain on exchange rate Interest income 086 087
18
Other income Total revenues
Expenses Cost of sales Selling and administrative expenses
17, 18 17
Share of loss from investment in associated company
Interest expense
(605,794,633)
(482,220,559)
(353,736,948)
1,655,094,965
1,715,521,203
2,531,236,628
182,313
_
_
1,655,277,278
1,715,521,203
2,531,236,628
27
22,786,790
22,786,790
209,396,414
31
1,678,064,068
1,738,307,993
2,740,633,042
Income before minority interest Loss of minority interest Income from ordinary activity Extraordinary items Gain from rehabilitation Net income for the year
The accompanying notes are an integral part of the financial statements.
INCOME STATEMENTS
G STEEL PUBLIC COMPANY LIMITED
(Unit: Baht)
AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005
Earnings per share
CONSOLIDATED
Note
THE COMPANY ONLY
2006
2006
2005
0.17
0.17
0.31
_
_
0.02
0.17
0.17
0.33
10,047,671
10,047,671
8,200,000
0.17
0.17
_
_
_
_
0.17
0.17
_
10,066,365
10,066,365
_
28
Basic earnings per share Income from ordinary activity Extraordinary item Net income
Weighted average number of ordinary shares (thousand shares)
Diluted earnings per share Income from ordinary activity Extraordinary item Net income
Weighted average number of ordinary shares (thousand shares)
The accompanying notes are an integral part of the financial statements.
CASH FLOWS STATEMENTS
G STEEL PUBLIC COMPANY LIMITED
(Unit: Baht)
AND ITS SUBSIDIARIES FOR THE YEARS ENDED
CONSOLIDATED
31 DECEMBER 2006 AND 2005
THE COMPANY ONLY
2006
2006
2005
1,678,064,068
1,738,307,993
2,740,633,042
Depreciation and amortisation
596,221,251
596,221,251
572,976,550
Amortisation of deferred bond arrangement fees
29,029,867
29,029,867
4,846,764
Amortisation expenses
95,055,641
95,055,641
70,143,363
3,166,800
3,166,800
(3,856,147)
128,168
128,168
4,303,481
(671,971,569)
(517,091,246)
(16,905,376)
42,010,000
_
_
(122,313)
_
_
1,771,581,913
1,944,818,474
3,372,141,677
63,239,913
63,239,913
(983,766,400)
(499,976,129)
(514,749,613)
_
(3,515,725,325)
(3,515,725,325)
(1,441,208,010)
(820,048,315)
(817,193,979)
209,185,751
(890,361)
(890,361)
(86,402,203)
(74,164,760)
(74,164,760)
(91,589,945)
1,201,850,934
1,201,850,934
(85,950,786)
Amounts due to related companies
205,133,059
205,133,059
_
Other payable
601,096,355
254,197,155
(56,867,663)
Cash flows from operating activities Net income for the year Adjustments to reconcile net income to net cash provided (paid) from operating activities: -
Amortisation of premiums (discounts) of bonds 088 089
Allowance for diminution in value of inventories Unrealised gain on exchange Share of loss from investment in associated company Minority interest in subsidiaries Income from operating before changes in operating assets and operating liabilities Decrease (increase) in operating assets Trade accounts receivable Amount due from related parties Inventories Other current assets Intangible assets Other non-current assets Increase (decrease) in operating liabilities Trade accounts payable
Advance received from customers
(1,264,318)
(1,264,318)
207,852,814
Accrued interest payable
41,082,718
22,195,689
157,300,636
(38,257,192)
(49,666,989)
57,494,191
(1,066,341,508)
(1,282,220,121)
1,258,190,062
(22,786,790)
(22,786,790)
(209,396,414)
(1,089,128,298)
(1,305,006,911)
1,048,793,648
Accrued expenses Net cash flows from (provided in) operating activities before extraordinary items Extraordinary items Net cash flows from (provided in) operating activities
The accompanying notes are an integral part of the financial statements.
CASH FLOWS STATEMENTS
G STEEL PUBLIC COMPANY LIMITED
(Unit: Baht)
AND ITS SUBSIDIARIES FOR THE YEARS ENDED
CONSOLIDATED
31 DECEMBER 2006 AND 2005
THE COMPANY ONLY
2006
2006
2005
(323,982,875)
(323,982,875)
(432,772,798)
_
(999,300)
_
182,844,262
182,844,262
(1,288,835,502)
_
(24,565,856)
_
Net increase in property, plant and equipment
(3,169,429,084)
Acquisition of rights over secured convertible debts
(4,706,239,600)
(3,169,429,084) _
(1,767,440,860) _
(8,016,807,297)
(3,336,132,853)
(3,489,049,160)
4,479,312,000
_
_
2,400,000,000
2,400,000,000
_
3,000,000
_
_
(85,462,470)
(85,462,470)
_
2,800,888,996
2,800,888,996
4,024,163,722
(56,089,107)
(56,089,107)
(96,935,283)
Cash flows from investing activities Increase in restricted deposits at financial institutions Cash paid for acquisition of subsidiary Decrease (increase) in deposits for purchases of assets Loan to related parties
Net cash flows used in investing activities Cash flows from financing activities Cash received from short-term loan from financial institution Cash received from increase in share capital Other short-term loan Payment of expenses related to increase in share capital Cash received from the subscription of bonds Payment of bonds arrangement fee Payment of liabilities which were included under the former rehabilitation plan Dividend paid Net cash flows from financing activities
(53,446,023)
(53,446,023)
(388,000,000)
(388,000,000)
(218,540,883) _
9,100,203,396
4,617,891,396
3,708,687,556
(5,732,199)
(23,248,368)
1,268,432,044
1,621,834,060
1,621,834,060
353,402,016
1,616,101,861
1,598,585,692
1,621,834,060
_
_
1,990,058,070
1,428,000,000
1,428,000,000
_
716,928,156
_
_
651,757,871
545,659,153
196,338,386
407,906,460
407,906,460
22,965,707
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental cash flows information Non-cash items Trade accounts receivable decreased by offsetting with trade accounts payable Issue ordinary shares in exchange of investment in associated company Convert investment in rights over secured convertible debts to ordinary shares of associated company Cash paid during the year for: Interest expense Interest capitalised in assets
The accompanying notes are an integral part of the financial statements.
29
Dividend paid
The acompanying notes are an integral part of the financial statements.
Balance - as of 31 December 2006
Net loss of minority interest
Increase in minority interest
25
Appropriated statutory reserve
Net income for the year
Unrealised transaction in income statements
share capital
Expenses concerning the increased 23
_ _ _
_ _ _
2,561,677,530
_
_
11,100,000,000
842,537,530 _
(85,462,470)
928,000,000
1,719,140,000
1,719,140,000 _
Share premium
Other Surplus
2,900,000,000 _
_
2,900,000,000
Issue increased share capital 23
8,200,000,000
Balance as of 31 December 2005
Net income for the year
8,200,000,000 _
Note
Issued and paid-up share capital
09 1
Balance as of 1 January 2005
31 DECEMBER 2006 AND 2005
FOR THE YEARS ENDED
AND ITS SUBSIDIARIES
G STEEL PUBLIC COMPANY LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
090 _
_
206,307,094
_
_
_
_
(388,000,000) _
(86,915,400)
1,678,064,068
_
_
681,974,286 12,030,307,683
_
_
86,915,400 _
_
_
_
_
10,827,159,015 _
2,603,601,390
137,031,652 595,058,886 _
8,223,557,625
458,027,234
Retained earnings Appropriated Unappropriated
_
206,307,094 _
206,307,094 _
Premium capital reduction
CONSOLIDATED
18,807,031,953
Total
_
_
_
_
_
60,000 (182,313) (122,313) 26,580,144,280
(182,313)
(388,000,000)
1,678,064,068 _
3,742,537,530
(85,462,470)
2,740,633,042 _ 21,547,664,995 _ 3,828,000,000
_
_
60,000
Minority interest
(Unit: Baht)
Dividend paid
The acompanying notes are an integral part of the financial statements.
Balance - as of 31 December 2006
25 29
Appropriated statutory reserve
Net income for the year
Unrealised transaction in income statements
share capital
Expenses concerning the increased
_
_
2,561,677,530
_
_
11,100,000,000
842,537,530 _
(85,462,470)
2,900,000,000 _
_
Issue increased share capital 23
2,900,000,000
Balance as of 31 December 2005 928,000,000
1,719,140,000
8,200,000,000
Net income for the year
1,719,140,000 _
23
capital
Retained earnings
_
_
206,307,094
_
681,974,286
86,915,400 _
_
_
_ _
595,058,886 _
137,031,652
458,027,234
2,740,633,042
18,807,031,953
Total
(Unit: Baht)
12,090,551,608
(388,000,000)
(86,915,400)
1,738,307,993
_
_
26,640,510,518
(388,000,000)
1,738,307,993 _
3,742,537,530
(85,462,470)
10,827,159,015 21,547,664,995 _ 3,828,000,000
2,603,601,390
8,223,557,625
Appropriated Unappropriated
_
206,307,094 _
206,307,094 _
reduction
paid-up share capital Share premium 8,200,000,000 _
Note
Premium
THE COMPANY ONLY Issued and
Other surplus
Balance as of 1 January 2005
31 DECEMBER 2006 AND 2005
FOR THE YEARS ENDED
AND ITS SUBSIDIARIES
G STEEL PUBLIC COMPANY LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G STEEL PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005
1.
GENERAL INFORMATION
a)
G Steel Public Company Limited is a public company incorporated and domiciled in Thailand. The Company is principally engaged in the manufacture and distribution of hot rolled coils and its registered address is 88, SSP Tower 3, 18th Floor, Silom Road, Suriyawong, Bangrak, Bangkok.
On 25 January 2006, the Stock Exchange of Thailand approved the trading of the Company’s securities on
b)
the Stock Exchange of Thailand. 092
2.
093
BASIS OF PREPARATION
The financial statements have been prepared in accordance with accounting standards enunciated under the Accounting Act B.E. 2547. The presentation of the financial statements has been made in compliance with the stipulations of the Notification of the Department of Business Development dated 14 September 2001, issued under the Accounting Act B.E. 2543. The financial statements have been prepared on a historical cost basis except where otherwise disclosed in the accounting policies. 3.
BASIS OF CONSOLIDATION 3.1
The consolidated financial statements were presented for the first time as a result of the acquisition of subsidiaries during the period ended 30 September 2006.
3.2
The consolidated financial statements include the financial statements for the year ended 31 December 2006 of G Steel Public Company Limited and the following subsidiary companies:
Nature Company’s name
of business
Assets as a percentage to the consolidated total assets as at 31 December
Revenue as percentage to the consolidated total revenue for the year ended 31 December
2006
2006
2006
Percent
Percent
Percent
10.2
0.1
Percentage of
Country of
shareholding incorporation
Held by the Company Siam Professional Holdings Co., Ltd.
Holding company
99.93
Thailand
Percentage of Company’s name
Country of
Nature of business indirect shareholding incorporation 2006
Percent Held by subsidiary company Oriental Access Co., Ltd.
Consulting service
99.92
Thailand
(100% held by Siam Professional Holdings Co., Ltd.)
3.3
Material balances and transactions between the Company and its subsidiary companies have been eliminated from the consolidated financial statements.
4.
ADOPTION OF NEW ACCOUNTING STANDARDS
In October 2006, the Federation of Accounting Professions issued Notification No. 26/2006 regarding Accounting Standard No. 44 “Consolidated Financial Statements and Accounting for Investments in Subsidiaries” (Amendment No. 1), under which investments in subsidiaries, jointly controlled entities and associates are to be presented in the separate financial statements under the cost method rather than the equity method. Entities which are not ready to adopt the cost method in 2006 can continue to use the equity method through the end of 2006 and adopt the cost method as from 1 January 2007. In addition, in November 2006, the Federation of Accounting Professions issued Notification No. 32/2006 stated that investment in associated company has to be recognised in the separate financial statements under the cost method in accordance with the Notification No. 26/2006. In this regard, the Company has elected to adopt the above accounting policy in the third quarter of 2006 as a result of an acquisition in the subsidiaries and associate for the first time in that period. 5.
SIGNIFICANT ACCOUNTING POLICIES 5.1
Revenue recognition Sales of goods
Sales of goods are recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Sales are the invoiced value, excluding value added tax, of goods supplied after deducting discount and allowance. Rendering of services
Service revenue is recognised when services have been rendered taking into account the stage of completion. Interest income
Interest income is recognised as interest accrues based on the effective rate method. 5.2
Cash and cash equivalents Cash and cash equivalents consist of cash in hand, cash at financial institutions and all highly liquid investments with an original maturity of three months or less and not subject to withdrawal restrictions.
5.3
Trade accounts receivable and allowance for doubtful accounts Trade accounts receivable are stated at the net realisable value. Allowance for doubtful accounts is provided for the estimated losses that may be incurred in collection of receivables. The allowance is generally based on collection experiences and analysis of debtor aging.
5.4
Inventories Finished goods are valued at the lower of cost (moving average method) and net realisable value. Raw materials and other consumable are valued at the moving average cost and constitute part of production costs whenever consumed. Office supplies, which useful life over 1 year, are recorded as other assets and amortised over the estimated useful life over 2 years. The associated company records finished goods using specific method, raw materials using FIFO method. The effect of the difference in accounting policy is immaterial to the calculation of share profit (loss) from investment in associated company and the book value of investment in the consolidated financial statements.
5.5
Investments Investments in subsidiary and associated companies in the separate financial statements are accounted for under the cost method. Investments in associated company in the consolidated financial statements are accounted for under the equity method. Under this method, the investment is recorded at cost and for each subsequent year adjusted to incorporate the Company and its associated company’s proportionate share of the operating
094
results of the associated company.
095
The difference of cost of investment lower than the net book value of the investment in associated company recognised as income on a systematic basis over the remaining weighted average useful life of the identifiable depreciable assets. 5.6
Property, plant and equipment/Depreciation Land is stated as cost. Building and equipment are valued at cost less accumulated depreciation and allowance for loss on impairment of assets. Depreciation of plant and equipment is calculated by reference to their costs on the straight-line basis except for depreciation of machinery which calculated on productive-output method over the following estimated useful lives: 20
years
5 and 30
years
Office equipment
5
years
Furniture and fixtures
5
years
Leasehold improvement
5
years
Motor vehicles
5
years
Buildings Machinery and plant equipment
Depreciation is included in determining income. No depreciation is provided for land and factory under construction. 5.7
Intangible assets Computer software is stated at cost less accumulated amortisation. Amortisation of computer software is calculated by reference to its cost on the straight-line basis over the expected future period, for which the assets are expected to generate economic future, of 10 years. The amortisation is included in determining income.
5.8
Deferred bond arrangement fees / Discounts or premiums on bonds Bond arrangement fees are recorded as deferred expenses and to be amortised on an effective interest rate method over the period of bonds. Discounts or premiums on the issuance of bonds were amortised on an effective interest rate method over the period of bonds. The amortisation of deferred bond arrangement fees and discount or premiums on bonds are included in determining income.
5.9
Related party transactions Related parties comprise enterprises and individuals that control, or are controlled by, the Company, whether directly or indirectly, or which are under common control with the Company. They also include associated companies and individuals which directly or indirectly own a voting interest in the Company that gives them significant influence over the Company, key management personnel, directors and officers with authority in the planning and direction of the Company’s operations.
5.10 Capitalisation of interest cost
Interest cost on borrowings for purchases of machinery and construction of factory are capitalised as part of the cost of related assets and will be ceased when these assets are completed. 5.11
Foreign currencies Foreign currency transactions are translated into Baht at the exchange rates ruling on the transaction dates. Assets and liabilities denominated in foreign currencies outstanding at the balance sheet date are translated into Baht at the exchange rates ruling by the Bank of Thailand at the balance sheet date. Gains and losses on exchange are included in determining income.
5.12 Impairment of assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Company makes an estimate of the asset’s recoverable amount. Where the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement. An asset’s recoverable amount is the higher of fair value less costs to sell and value in use. 5.13 Employee benefits
Salary, wages, bonuses and contributions to the social security fund and provident fund are recognised as expenses when incurred. The Company issued warrants to purchase the ordinary shares to directors and employees of the Company. The transaction will be recorded in the financial statements when the warrants are exercised. 5.14 Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. 5.15 Income tax
Income tax is provided for in the accounts based on the taxable profits determined in accordance with tax legislation. 5.16 Derivatives
Forward exchange contracts Receivables and payables arising from forward exchange contracts are translated into Baht at the rates
of exchange ruling on the balance sheet. Unrealised gains and losses from the translation are included in determining income. Premiums or discounts on forward exchange contracts are amortised on a straight-line basis over the contract periods. Interest rate swap contracts The net amount of interest to be received from or paid to the counterparty under the interest rate swap contracts is recognised as income or expenses on an accrual basis. 5.17 Use of accounting estimate
Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstance, affecting the amounts reported in the financial statements and related notes. Actual results could differ from these estimates. 6.
INVESTMENT OF THE COMPANY AND ITS SUBSIDIARY COMPANY THE COMPANY
On 26 June 2006, the meeting of the Board of Directors of the Company passed a resolution to approve Oriental Investment Co., Ltd.’s (subsequently is the Company’s subsidiary) acquisition of rights of claim over secured convertible debt to equity in accordance with the business rehabilitation plan of Nakornthai Strip Mill Public Company Limited (“NSM”), amounting to not more than USD 130.12 million from On City Holdings Limited and the existing creditors of NSM at a price of not more than USD 180 million. The subsidiary was to invest USD 120 million and the Company was to invest USD 60 million. The Company’s management considered this strategic alliance with NSM to be an enhancement in the capacity of both the Company and NSM in various aspects such as production, competition, cost controlling, market entering, business risk reduction and changing the competitor to the business alliance. In addition, the meeting of the Board of Directors of the Company approved 096 097
the Company’s cancellation of 1,750 million of shares allocated to the initial public offering and the 450 million shares of the over allotment/Greenshoe option. In addition, the Board of Directors also approved the allocation of not more than 2,200 million shares to On City Holdings Limited and the existing creditors of NSM as the part of the consideration for the transfer of the above-mentioned rights of claims. On 2 August 2006, an Extraordinary General Meeting of the Company approved the Company’s cancellation of 1,750 million of shares allocated to the initial public offering and the 450 million shares of the over allotment/
Greenshoe Option. In addition, the meeting approved the allocation of not more than 2,200 million shares to the existing creditors of NSM, by way of private placement at an offering price of not less than Baht 1.40 per share. Creditors of NSM is to make payment for the shares by transfer of the rights of claim over debts to be converted to the ordinary shares of NSM, according to the business rehabilitation plan of NSM (including the amendment to be made) in the amount not exceeding USD 60 million, or equivalent to 2,511,266,071 shares. In this regard, the Board of Directors and/or any persons assigned by the Board are granted the authority to determine any details in respect of the allocation of the additional shares and offer price. On 12 September 2006, the Company issued the 1,400 million unallocated additional shares at an allocation price of Baht 1.51 per share (the market price of the Company’s shares as of the date of exchange was Baht 1.02 per share) to six creditors under the Master Restructuring Agreement of NSM in exchange of 2,511,266,071 ordinary shares in NSM, resulting from the conversion of rights in secured convertible debt. The Company allocated the additional shares to the group of creditors under the restructuring plan as follows: 1. Rochelle Finance Limited
505,582,531
shares
2. Eastgate Limited
179,910,635
shares
3. Great Western Limited
271,241,066
shares
4. Newhaven Limited
177,733,373
shares
5. Bethleham International Limited
223,733,651
shares
41,798,744
shares
6. On City Holdings Limited
The Company received the transfer of 2,511,266,071 shares in NSM on 19 September 2006 and the Company registered the change in paid-up shares capital with the Ministry of Commerce on 12 September 2006. THE SUBSIDIARY COMPANY
On 28 June 2006, Oriental Investment Co., Ltd. (subsequently is the Company’s subsidiary and changed its name to Oriental Access Co., Ltd.) entered into a Memorandum Of Understanding with On City Holdings Limited, on behalf of the representation of NSM, as to acquire rights of claim in secured debt amounting to USD 104.3 million to be converted to equity in Nakornthai Strip Mill Plc., (“NSM”) at Baht 0.42 per share, applying the fixed exchange rate of Baht 43.5065 per USD 1, at a price of USD 122 million. The subsidiary company paid USD 113 million on 13 September 2006 in order to settle such purchase and outstanding unpaid balance as of the ending year was USD 9 million. The subsidiary received the transfer of 1,456,519,267 shares of NSM, of which converted from USD 14.1 million of principal debt, at a conversion price of Baht 0 . 42 per share on 22 September 2006. The remaining debt amounting to USD 90.2 million, represents rights of
claim in secured debt which is to be converted to equity within 18 months. As of 30 September 2006, the Company and its subsidiary had received a total of 3,967,785,338 shares of NSM with an average cost of investment to the Company at Baht 0.51 per share and the subsidiary at Baht 0.44 per share. The Company determined the consideration using Adjusted Net Book Value at Baht 0.68 per share discounting by 25 percent due to the business characteristic of NSM which required a highly investment and could hardly be estimated. The steel business also significant fluctuates with the change in the world market. In addition, NSM operated its full capacity in 2005, and this was used as the base year to prepare financial forecasting. Therefore, it is possible that actual operating result in the future may significant differ from the estimation. The market price of ordinary shares of Nakornthai Strip Mill Plc. as of the transaction date was Baht 0.38 per share. In addition, the Company hired an independent financial advisor (Sage Capital Limited) to study the reasonableness and benefit of this investment. That financial advisor has already reported the result of the study to the Board of Directors. 7.
TRADE ACCOUNTS RECEIVABLE
The outstanding balances of trade accounts receivable as at 31 December 2006 and 2005, are aged based on due date, is as follows: (Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
2005
Age of receivable Not yet due
939,201,404
641,575,199
1,159,548,071
1,582,256,771
24,019,273
1,823,041
2,122,768,748
2,225,655,011
Past due Less than 3 months 3 - 6 months
8.
INVENTORIES (Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
2005
5,572,394,768
1,833,835,240
Finished goods
805,710,582
705,659,699
Spare parts
395,023,703
564,547,300
Consumable
263,775,407
291,560,650
91,196,969
216,774,215
7,128,101,429
3,612,377,104
Raw materials
Others Total inventories
(9,598,431)
Less: Allowance for slow-moving inventories Inventories - net
9.
7,118,502,998
(9,471,263) 3,602,905,841
OTHER CURRENT ASSETS (Unit: Baht) CONSOLIDATED 2006
098 099
THE COMPANY ONLY 2006
2005
Other receivables
219,469,298
219,469,298
49,164,440
Deposit for purchase of investment
326,077,200
326,077,200
_
Refundable value added tax
172,454,686
172,454,686
31,903,364
53,775,222
53,775,222
118,114,176
Advance for purchases of goods and service
397,462,134
397,462,134
196,243,634
Interest receivable
20,975,056
20,975,056
_
14,309,997
11,455,661
18,588,857
1,204,523,593
1,201,669,257
414,014,471
Suspense value added tax
Others
The outstanding balance of other receivables in the consolidated and the separate financial statements of the Company as of 31 December 2006 represents Baht 177 million of credit notes issued by the Company’s suppliers in order to reduce the price after payment had been made (2005: Baht 17 million) and Baht 326 million of deposit for investment which On City Holdings Limited will refund to the Company. 10.
RESTRICTED DEPOSITS AT FINANCIAL INSTITUTIONS
The outstanding balance was deposits at financial institutions which the Company pledged with a bank as a guarantee of interest payment on bonds and bank guarantees issued by bank as described in Note 35.4.
11.
INVESTMENTS THE COMPANY ONLY
These represent investments in ordinary shares in the following subsidiaries and associated companies. (Unit: Million Baht) THE COMPANY ONLY As at 31 December 2006
Name of incorporation
Paid-up
Shareholding
capital
percentage
Subsidiary companies Siam Professional Holdings Co., Ltd.
Cost
% 1.0
99.93
1.0
6.0
99.92
_
23,279.5
12.08
1,428.0
Oriental Access Co., Ltd. (Held by Siam Professional Holdings Co., Ltd.) Associated company Nakornthai Strip Mill Plc. Total investments
1,429.0
Siam Professional Holdings Co., Ltd. was incorporated as a company under the Civil and Commercial Code on 22 August 2006, with a registered share capital of Baht 1 million, consisting of 10,000 ordinary shares with a par value of Baht 100 each. The Company purchased these shares on 22 August 2006. On 26 June 2006 , a Board of Directors meeting of the Company passed a resolution approving the Company’s acquisition of a 94 percent interest in Oriental Access Co., Ltd. (formerly known as “Oriental Investment Co., Ltd.”), comprising 94 ordinary shares with a par value of Baht 10,000 each. The Company acquired the shares on 30 June 2006. On 24 June 2006, an Extraordinary General Meeting of the shareholders of Oriental Access Co., Ltd. passed a resolution approving a Baht 5 million increase in that company’s registered share capital through the issue of an additional 500 ordinary shares with a par value of Baht 10,000 each. The Company purchased all of the additional shares at par value. On 24 August 2006, the Company executed an agreement to sell 594 ordinary shares of Oriental Access Co., Ltd., at Baht 10,000 per share, to Siam Professional Holdings Co., Ltd., the subsidiary company which 99.93 percent of interest held by the Company. The Company thus indirectly holds 99.92 percent of Oriental
Access Co., Ltd accordingly. As described in Note 6, on 12 September 2006, the Company issued 1,400 million unallocated shares at an allocation price of Baht 1.51 per share to six creditors under the business rehabilitation plan in exchange of 2,511,266,071 ordinary shares of Nakornthai Strip Mill Plc. (“NSM”). The market price of the Company at the date of exchange is Baht 1.02 per share. Consequently, the Company recorded cost of investment in NSM at the fair value of 1,400 million additional issued shares of the Company.
CONSOLIDATED
These represent investments in ordinary shares in the following associated company. (Unit: Million Baht) CONSOLIDATED As at 31 December 2006 Name of incorporation
Shareholding percentage
Carrying amounts based on equity method
Cost
%
Investments in Nakornthai Strip Mill Plc. held by G Steel Public Company Limited Oriental Access Co., Ltd.
12.08
1,428.0
1,402.1
7.92
716.9
700.8
2,144.9
2,102.9
On 22 September 2006, Oriental Access Co., Ltd., the subsidiary company which 99.92 percent of interest indirectly held by the Company received 1,456,519,267 shares of NSM resulting from the conversion of rights of claim over secured convertible debt to equity of USD 14.1 million from the total rights of claim USD 104.3 million. The valuation of investment as of the conversion date was Baht 634.3 million. Subsequently on 12 December 2006, the subsidiary company converted the rights of claim over convertible debt of USD 1.8 million or equivalent to Baht 82.6 million to 189,684,342 million of ordinary shares in accordance with the condition stipulated in rehabilitation plan of NSM. As a result, investments in NSM held by the subsidiary
100
increased from Baht 634.3 million to Baht 716.9 million and the shareholding percentage in NSM of the Company
101
and its subsidiary therefore increase from 19.09% to 20.0%. During the year, the Company and its subsidiary recognised Baht 52.7 million of share loss of NSM and Baht 10.7 million of negative goodwill as income, including as part of share loss from investment in associated company in the income statement. As a stipulated condition in the short-term loan agreement of the subsidiary company with the ďŹ nancial institutions, the subsidiary company had to pledge existing shares held in NSM and shares to be converted in the future as the security for loan. However, the subsidiary company had not yet pledged its existing shares in NSM since the NSM shares are subject to 6 months lock-up period after the Stock Exchange of Thailand approves the additional ordinary shares as listed securities under the business rehabilitation plan of NSM and therefore their trading, transfer and pledge are prohibited. As of 31 December 2006, the market price of ordinary shares of NSM was Baht 0.34 per share or equivalent to the valuation of investment Baht 1,413.5 million. 12.
RIGHTS OF CLAIM OVER SECURED CONVERTIBLE DEBT
As described in Note 6, on 28 June 2006 Oriental Access Co., Ltd., (subsequently is a subsidiary of the Company) executed a Memorandum Of Understanding with On City Holdings Limited; a company incorporated in the British Virgin Islands, to purchase rights of claim over secured convertible debt amounting to USD 104.3 million from On City Holdings Limited and existing creditors under the debt restructuring plan, at USD 122 million. The subsidiary company paid USD 113 million on 13 September 2006 to settle such purchase and exercise rights
of claim in secured convertible debt amounting to USD 14.1 million to equity (as described in Note 11). The remaining of rights of claim over secured convertible debt amounting to USD 90.2 million, as equivalent to Baht 4,071.9 million is the rights can be converted to equity within 18 months (within 6 January 2008). If the subsidiary company exercises that conversion right of USD 90.2 million, the subsidiary company will receive 9,349,915,246 shares of Nakornthai Strip Mill Plc. (Unit: Million) CONSOLIDATED USD
Baht
Shares
_
_
_
Add: Acquisition during the year
104.3
4,706.2
9,349.9
Less: Convert to ordinary shares during the year
(15.9)
Rights over secured convertible debt - end of year
88.4
Rights over secured convertible debt beginning of year
(716.9)
(1,646.2)
3,989.3
7,703.7
Under the rehabilitation plan of Nakornthai Strip Mill Plc., the subsidiary company will receive interest charged at MLR on USD 63 million of principal until the principal is converted to equity. Interest on the above secured convertible debt is to be received in full within the period of 10 years, commencing from the date the rehabilitation plan is effective, and was to be received on a quarterly basis starting from October 2006. As of the balance sheet date, the subsidiary has not received interest on this secured convertible debt. As of 31 December 2006, the subsidiary company assigned rights and interest on rights of claim over secured convertible debt of the subsidiary as security against short-term loan from financial institution. 13.
PROPERTY, PLANT AND EQUIPMENT (Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY Office equipment, Building and Machinery and Land
improvement
equipment
furniture and fixture
Assets under Vehicle
construction
Total
Cost: 31 December 2005
734,848,633 2,014,700,151
17,841,991,965
134,000,772
6,315,814
9,033,976
397,922,451
4,174,503
3,540,000
734,848,633 2,023,734,127
18,239,914,416
138,175,275
9,855,814
2,124,142,659
76,480,886
2,015,388
_
2,806,789,462
1,340,026
_
594,230,448 3,401,019,910
_
Acquisition 31 December 2006
1,759,686,234 22,491,543,569 2,754,758,153
3,169,429,083
4,514,444,387 25,660,972,652
Accumulated depreciation: 31 December 2005
_
Depreciation for the year
_
31 December 2006
_ 670,973,974
604,150,529 66,823,445
509,574,839
16,492,138
2,633,717,498
92,973,024
3,355,414
_
1,511,491,498
5,614,727
_
_
2,361,183,672
1,511,491,498
5,614,727
_
_
2,361,183,672
17,323,570,435
Allowance for impairment: 305,901,193
31 December 2005 31 December 2006
305,901,193
538,176,254 538,176,254
Net book value: 31 December 2005
428,947,440
872,373,368 14,206,357,808
51,905,159
4,300,426
1,759,686,234
31 December 2006
428,947,440
814,583,899 14,094,705,420
39,587,524
6,500,400
4,514,444,387 19,898,769,070
Depreciation for the year: 2005 (Baht 566 million included in cost of production, the remaining included in determining income)
572,976,550
2006 (Baht 586 million included in cost of production, the remaining included in determining income)
594,230,448
As of 31 December 2006, certain assets of the Company have been fully depreciated but are still in use. The original cost, before deducting accumulated depreciation, of these assets amounted to Baht 140.7 million (2005: Baht 127.1 million).
14.
INTANGIBLE ASSETS - COMPUTER SOFTWARE (Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
Beginning balance Acquisition/Transfer in Amortisation for the year Net
15.
2005
46,888,924
45,582,224
890,361
1,306,700 _
(1,990,802) 45,788,483
46,888,924
OTHER NON-CURRENT ASSETS (Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
2005
102
Deferred supply cost
199,052,652
82,090,184
103
Deposits for purchases of raw materials
923,446,553
1,048,755,030
Deposits for purchases of assets
1,105,991,240
1,288,835,502
_
170,429,906
31,991,210
4,841,229
2,260,481,655
2,594,951,851
Deposits for used of energy Other deposits
16.
SHORT-TERM LOAN FROM FINANCIAL INSTITUTIONS
On 30 August 2006, Oriental Access Co., Ltd. (“the subsidiary company”) executed a syndicated credit facility agreement of USD 120 million with overseas financial institutions and received USD 115.3 million of such amount on 13 September 2006 for the payment of rights of claim over secured convertible debt of USD 113 million as described in Note 12. The loan carry interest at the percentage of SIBOR + margin per annum, with such interest is to be repaid on every three-month, commencing from December 2006 and the principal repayment is to be made within one year.
On 30 August 2006, the subsidiary company executed a number of agreements with the lenders in order to provide collateral for the above credit facility agreement. These agreements are summarised below. 1.
An agreement pledging shares of Nakornthai Strip Mill Plc. converted from existing claims, including any additional shares received in the future resulting as a result of a share split, change in par value, transfer of shares or if for any other reasons the number of shares increases.
2.
Assignmen t of the operation services agreement made with Nakornthai Strip Mill Plc., assigning present and future rights, and interest received from Nakornthai Strip Mill Plc. under the above agreement.
3.
Assignment of rights and interest on rights of claim over secured convertible debt of the subsidiary company. Under this assignment agreement, the subsidiary company agreed to notify the assignee and security trustee of any changes in the rights or any conversion of convertible debts, in writing.
4.
Assignment of rights in deposit accounts and interest on such deposits, including any other existing or future rights or benefits generated.
In addition, on 30 August 2006 the Company executed a guaranteed agreement to guarantee an existing and future loans of the subsidiary company.
17.
TRANSACTIONS WITH BUSINESS ALLIANCES
During the years, the Company had significant business transactions with its business alliances, which the Company formerly had shareholders or directors in common or had the directors who have relationships with the Company’s directors, The business transactions have been concluded on commercial terms and bases agreed upon in the ordinary course of business between the Company and those companies. Below is a summary of those transactions.
(Unit: Million Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
Pricing policy
2005
Sales of goods
6,913
11,237
Normal selling price
Purchases of raw materials
3,652
2,832
Cost plus margin
Purchases of raw water
_
1
As stipulated in agreement
Commission paid
_
3
As stipulated in each agreement but not exceed USD 3 per tonne
Transportation expenses and other services
780
623
Agree-upon basis and contractual price
Other income
16
12
Cost plus margin
Sales for 2006 amounting to Baht 214 million (2005: Baht 186 million) are “Bill and Hold Sales” transactions of which the goods have not been delivered but the customers signed as acceptance on their invoices. The above sales of Baht 27 million was made with a business alliance (2005: Baht 186 million was made with two business alliances). The outstanding balances of transactions as of 31 December 2006 and 2005 have been shown as follows:
(Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
2005
Trade accounts receivable Nara International Co., Ltd.
403,028,358
570,797,604
Advance Metal Fabrication Co., Ltd.
341,816,850
422,591,095
Federal Steel Industry Co., Ltd.
361,276,533
163,948,558
Millennium Metal Work Co., Ltd.
137,056,621
128,793,459
Trinity Freight and Shipping Co., Ltd.
24,044,869
273,367,527
1,267,223,231
1,559,498,243
1,861,333
9,225,698
Nara International Co., Ltd.
_
1,201,954
Advance Metal Fabrication Co., Ltd.
_
547,433
1,861,333
10,975,085
98,150,628
58,317,772
200,235,008
134,548,355
298,385,636
192,866,127
54,941,569
_
2,550,247
898,495
57,491,816
898,495
_
100,000
5,283,936
2,181,233
43,783,672
104,757,153
49,067,608
107,038,386
Other current assets - other receivables Trinity Freight and Shipping Co., Ltd.
Trade accounts payable Nara International Co., Ltd. Advance Metal Fabrication Co., Ltd.
104 105
Other payables Trinity Freight and Shipping Co., Ltd. Trinity International Co., Ltd.
Accrued expenses Advance Metal Fabrication Co., Ltd. Trinity International Co., Ltd. Trinity Freight and Shipping Co., Ltd.
18.
RELATED PARTY TRANSACTIONS
During the years, the Company had signiďŹ cant business transactions with their related parties. These transactions, which have been concluded on the commercial terms and bases agreed upon in the ordinary course of businesses between the Company and those companies. Below is a summary of those transactions.
(Unit: Million Baht) CONSOLIDATED 2006
THE COMPANY ONLY 2006
Pricing policy
2005
Transactions with subsidiary companies Operating service income
_
107
_
_
1
_
Interest income
7% p.a.
904
904
_
Normal selling price
115
_
_
Fixed rate and percentage on net
Fixed rate and percentage on net sales at stipulated in agreement
Transactions with associated company Sales of raw materials Operating service income
sales at stipulated in agreement 187
187
_
Normal selling price
74
_
_
MLR p.a.
Purchases of raw water
15
15
13
Contractual price
Gain from rehabilitation
_
_
182
Agree-upon basis
Purchases of raw materials Interest on investments in rights over secured convertible debts Transactions with related companies
The outstanding balances of the above transactions as at 31 December 2006 and 2005 are consist of the following: (Unit: Baht) CONSOLIDATED 2006
THE COMPANY ONLY 2006
2005
Trade accounts receivable - related party Associated company Nakornthai Strip Mill Plc.
20,114,078
_
_
_
109,311,042
_
479,862,051
405,438,571
_
479,862,051
514,749,613
_
Amount due from related parties Subsidiary company Oriental Access Co., Ltd. Associated company Nakornthai Strip Mill Plc. Total amount due from related parties
The Company recorded receivable from sales of raw materials to an associated company as amount due from related parties rather than trade accounts receivable - related party because raw materials sold to that associated company was purchased from outside for sales. (Unit: Baht) CONSOLIDATED
THE COMPANY ONLY
2006
2006
2005
Loans to and interest receivable from related parties Subsidiary companies Oriental Access Co., Ltd.
_
18,422,514
_
Siam Professional Holdings Co., Ltd.
_
5,112,192
_
_
23,534,706
_
_
(12,748,056)
_
_
10,786,650
_
Total loans to and interest receivable from related parties Less: Current portion
Loans to 2 subsidiaries of USD 0.5 million and Baht 5 million carried interest at 7 percent p.a. and have maturity date on annually basis, commencing from December 2006 to 2010, and on demand respectively. (Unit: Baht) CONSOLIDATED 2006 106 107
THE COMPANY ONLY 2006
2005
Trade accounts payable - related party Associated company Nakornthai Strip Mill Plc.
205,133,059
205,133,059
_
1,286,340
1,286,340
1,126,789
Accrued expenses Related company (Related by way of the same group company) Sukhumvit Inter Development Co., Ltd.
During 2006, movements of loans to and interest receivable from related parties were as follow: (Unit: Baht) During the year
Balance as at 1 January 2006
Increase
Balance as at 31 December 2006
Decrease
Loans to and interest receivable from related parties
Subsidiaries Siam Professional Holdings
_
5,112,192
_
5,112,192
_
18,422,514
_
18,422,514
Co., Ltd. Oriental Access Co., Ltd.
_
23,534,706
Directors and management’s remuneration In 2006 the Company and its subsidiaries paid salaries, meeting allowances and gratuities to their directors and management totaling Baht 39.6 million. In 2006, the Company allocated approximately 100 million warrants to purchase of the Company’s ordinary shares to the directors and employees, without charge. The details of warrants were stated in Note 26 to financial statements.
Guarantee obligations with related parties The Company has outstanding guarantee obligations with its related parties, as described in Note 34.4 to the financial statements.
19.
LIABILITIES WHICH WERE INCLUDED UNDER THE FORMER REHABILITATION PLAN (Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
2005
Balance - beginning of the year
828,417,622
1,256,354,919
Repayment during the year
(53,446,023)
(218,540,883)
(22,786,790)
(209,396,414)
752,184,809
828,417,622
Trade and financial creditors forgiven debts after the rehabilitation plan Balance - end of the year Less: Current portion of liabilities included under the former rehabilitation plan
(11,826,077)
(76,191,866)
Total liabilities which were included under the former rehabilitation plan
740,358,732
752,225,756
20. OTHER SHORT-TERM LOAN
The outstanding represents short-term loan which the subsidiary obtained from a former shareholder of the subsidiary. This loan has no interest charged and the repayment period is on demand.
21.
ACCRUED INTEREST (Unit: Baht) CONSOLIDATED 2006
THE COMPANY ONLY 2006
2005
Bonds
154,494,169
154,494,169
104,233,782
Consigned inventories
22,299,700
22,299,700
53,164,780
17,475,356
_
_
194,269,225
176,793,869
157,398,562
Financial institution
22. BONDS
On 2 September 2005, an extraordinary general meeting of the Company’s shareholders passed a resolution to approve the issue of bonds in an amount not exceeding USD 250 million or the equivalent in other currency and the offer of such bonds on the Singapore Stock of Exchange. On 4 October 2005, the Company offered its bonds to foreign investors, with the following terms and conditions: -
Form
Unsecured bonds
-
Maturity period
5 years
-
Issue date
4 October 2005
-
Maturity date
4 October 2010
-
Offering value
USD 100 million
-
Offering amount
100,000 units
-
Face value
USD 1,000 per unit
-
Offering price
USD 981.16 per unit
-
Interest
10.5 percent per annum, with semi-annual payment on 4 April and 4 October
of each year -
Redemption at the option of the Company
Full or partial redemption on or after 4 October 2008 at a price of 105.25 percent of principal in 2008, 102.625 percent in 2009 and 100 percent in 2010 plus accrued interest up to the period of redemption
-
Redemption at the option of the bondholders
108
Redemption at a price of 101 percent of principal plus accrued interest at any time until maturity if there is a significant change in the Company’s
109
shareholding structural -
Covenants
1)
A reserve is to be set aside as security for interest payment
2)
If the Company creates additional long-term debt, it must maintain certain financial ratios
3)
No dividend may be declared or paid if the Company is in defaulted on interest payment
4)
Fund received from bond issuance are not to be used for other than the stipulated purposes
In addition, on 16 February 2006, the Company issued and offerred 70,000 units of bonds to the foreign investors. The bonds have face value at USD 1,000 each, or totalling USD 70 million. The offering price was USD 1,019.78 per unit and the term and conditions were the same as the above issued bonds.
(Unit: ‘000 Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
2005
USD 100 million
USD 70 million
USD 100 million
bonds
bonds
Fair value of bonds Effect of exchange rate Premiums (discounts) on face value
4,093,574 (470,494)
2,746,562 (210,406)
Total 6,840,136 (680,900)
bonds 4,093,574 23,886
(61,623)
45,850
(15,773)
(73,267)
(78,394)
(40,754)
(119,148)
(92,089)
Amortisation of deferred bonds arrangement fees Book value of bonds
23.
3,483,063
2,541,252
6,024,315
3,952,104
SHARE CAPITAL
In January 2006, the Company issued 1,500 million new shares with a par value of Baht 1 each and sold them through an initial public offering at a price of Baht 1.60 per share, or for a total of Baht 2,400 million. The Company recorded the expenses of Baht 85.5 million associated with the increase in share capital as a deduction against premium on ordinary shares. The Company registered the increases in its share capital from Baht 8,200 million to Baht 9,700 million, comprising 9,700 million of ordinary shares of Baht 1 each, with the Commerce Ministry on 20 January 2006. The Stock Exchange of Thailand has granted a listing of the Company’s ordinary shares and permitted trading on 25 January 2006. As described in Note 6, the Company issued 1,400 million ordinary shares at Baht 1.51 to swap the ordinary shares in Nakornthai Strip Mill Plc. totalling 2,511 million shares. The market price of the Company at the transaction date was Baht 1.02 per share. The Company recorded shares issued for the exchange with the ordinary shares of Nakornthai Strip Mill Plc. at the market price of the transaction date, the paid-up share capital of the Company therefore increased from Baht 9,700 million to Baht 11,100 million, comprised of 11,100 million or ordinary shares with a par value of Baht 1 each. The share premium increased by Baht 28 million. The Company registered its issued and paid up share capital of Baht 11,100 million with the Commerce Ministry on 12 September 2006. The Stock Exchange of Thailand approved the additional ordinary shares of the Company as listed securities on 3 October 2006.
24. PREMIUM ON CAPITAL REDUCTION
In order to comply with the capital restructuring process stipulated in the rehabilitation plan, in 2004 the Company reduced its paid-up share capital from Baht 5,000 million (500 million ordinary shares with a par value of Baht 10) to Baht 50 million (5 million ordinary shares with a par value of Baht 10) to eliminate its deficit. The capital reduction of Baht 4,950 million compared to a deficit the Baht 387.7 million as at 31 July 2003, and the excess of the capital reduction over the deficit was presented as “Other surplus” in the balance sheet. The Company offset premium on capital reduction amounting to Baht 4,356 million (4,400 million of increased ordinary shares with par value of Baht 1 each at Baht 0.01 each) against the share discount as a result of the capital reduction.
25.
STATUTORY RESERVE
Pursuant to Section 116 of the Public Company Limited Act B.E. 2535, the Company is required to set aside to a statutory reserve at least 5 percent of its net income, after deducting accumulated deficit brought forward (if any), until the reserve reaches 10 percent of its registered share capital. The statutory reserve can not be used for dividend payment.
26.
WARRANTS
On 12 January 2006, the Company issued approximately 100 million warrants to subscribe the Company’s ordinary shares to directors and employees of the Company (ESOP), without charge. The warrants are exercisable for a period of 5 years from the issue date, in a ratio of 1 warrant to 1 ordinary share. The exercise price is Baht 1 per share. The directors and employees could be able to exercise each of the one-third of all allocated warrants after the Company’s shares have been traded on the Stock Exchange of Thailand for 1 year, 2 years and 3 years, respectively. The first date of exercise is on 30 March 2007 and the last date is on 11 January 2011.
27.
GAIN FROM REHABILITATION (Unit: Baht) CONSOLIDATED AND THE COMPANY ONLY 2006
2005
Gain from rehabilitation forgiven by trade payable as a results of the 110 111
repayment prior to maturity
25,889,107
27,599,139
_
182,195,223
25,889,107
209,794,362
Gain from rehabilitation plan forgiven by a related company as a result of the repayment prior to maturity Total gain from rehabilitation Less: Adjustment of suspense value added tax of forgiven debts
(3,102,317) 22,786,790
(397,948) 209,396,414
The Company negotiated with its trade accounts payable and other payable under the rehabilitation plan that the Company will pay the debts prior to the maturity and all creditors would agree to reduce the partial of indebtedness. Most of creditors agreed with the Company’s negotiation and therefore the Company recorded the portions of indebtedness forgiven under gain from rehabilitation in the income statements.
In 2005, the Company entered into an agreement with a trade payable to repay liabilities under the business rehabilitation plan as of 31 December 2004 amounting to Baht 133.3 million before maturity, in accordance with a memorandum of understanding on debt repayment dated 6 December 2005. Under this MOU, the Company is to pay Baht 80.0 million of debt and the trade payable agrees to cancel Baht 53.3 million of debt for the Company. The Company agreed to repay such debt on an installment basis, within July 2006 and as of 31 December 2005, had repaid Baht 41.4 million and recorded a Baht 27.6 million gain from business rehabilitation,
in proportion to the payment made, presented as an extraordinary item in income statement. In addition, the Company paid Baht 165.3 million of liabilities under the rehabilitation plan to a related company, and that related company, which agreed to cancel Baht 182.2 million of debt for the Company because of repayment was made prior to the maturity date, in accordance with the proposals to pay indebtedness prior to maturity dated 28 October 2005 and 31 October 2005. The Company recorded the indebtedness of Baht 209.8 million forgiven
by the related company, upon extraordinary item in the 2005 income statement.
28. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net income for the year by the weighted average number of ordinary shares in issue during the year.
Diluted earnings per share is calculated by dividing the net income for the year by the weighted average number of ordinary shares in issue during the year plus the weighted average number of ordinary shares which would need to be issued to convert all dilutive potential ordinary shares into ordinary shares. The calculation assumes that the conversion took place either at the beginning of the year or on the date the potential ordinary shares were issued.
Reconciliation between basic earnings per share and diluted earning per share is presented below.
CONSOLIDATED For the year ended 31 December 2006 Weighted average number of ordinary
Earnings
Net income
shares
per share
(Thousand Baht)
(Thousand shares)
(Baht)
Basic earnings per share Net income
1,678,064
10,047,671
_
18,694
1,678,064
10,066,365
0.17
Effect of dilutive potential ordinary shares ESOP Diluted earnings per share Net income of ordinary shareholders assuming the conversion of warrants to ordinary shares
0.17
THE COMPANY ONLY For the year ended 31 December 2006 Weighted average number of ordinary
Earnings
Net income
shares
per share
(Thousand Baht)
(Thousand shares)
(Baht)
Basic earnings per share Net income
1,738,308
10,047,671
_
18,694
1,738,308
10,066,365
0.17
Effect of dilutive potential ordinary shares ESOP Diluted earnings per share Net income of ordinary shareholders assuming the conversion of warrants to ordinary shares
0.17
No presentation of diluted earnings per share in the 2005 ďŹ nancial statements because the Company issued warrants to purchase the ordinary shares to the directors and employees of the Company in 2006.
29.
DIVIDEND PAID
Dividend Approved by
Dividend from net earnings of 2005
Total dividend
per share
(Million Baht)
(Baht)
Annual General Meeting of shareholders on 24 April 2006
Total for 2006
30.
388.0
0.04
388.0
0.04
NUMBER OF EMPLOYEES AND RELATED COSTS
CONSOLIDATED AND THE COMPANY ONLY 2006
Number of employees at end of year Employee costs for the year (Thousand Baht)
31.
2005 729
718
339,465
338,685
PROMOTIONAL PRIVILEGES
The Company has received promotional privileges from the Board of Investment for the manufacture of hot 112
rolled coils, pursuant to the promotion certiďŹ cate No. 1047/2539. Subject to certain imposed condition, the
113
privileges include an exemption from corporate income tax for a period of 8 years from the date the promoted operations commenced generating revenues and a 50% reduction of corporate income tax on income derived from the promoted operations for a period of 5 years after the tax-exemption period end.
The Company’s revenues from sales for the years are below shown divided according to promoted and nonpromoted businesses. (Unit: Baht) Promoted business 2006
2005
Non-promoted business 2006
2005
Total 2006
2005
Revenues from sales Domestic sales Export sales Total
_
_ 16,809,293,349 19,654,893,575
2,546,951,181
_
_
1,193,753,191
2,546,951,181
22,201,844,756
_
_ 18,003,046,540
22,201,844,756
16,809,293,349 19,654,893,575 1,193,753,191 18,003,046,540
The Company is not liable to corporate income tax for the years due to tax loss brought forward.
32.
FINANCIAL INFORMATION BY SEGMENT
The Company and its subsidiaries’ business operations involve 3 principal segments: manufacture and sold of Hot Rolled Coils, consulting services and holding company. These operations are mainly carried on in Thailand. Below is the consolidated financial information for the year ended 31 December 2006 of the Company and its subsidiaries by segment. (Unit: Million Baht) Manufacture and
Revenue from external – Domestic
sold of Hot
Consulting
Rolled Coils
services
Holding company _
Total
16,809.3
115.1
16,924.4
1,193.7
_
_
1,193.7
115.1
_
18,118.1
115.1
_
1,833.5
sales - Export sales
18,003.0
Segment income
1,718.4
Unallocated income and expenses Interest income
176.3
Other income
824.4
Administrative expenses
(229.3)
Share of loss from investment in associated company
(42.0)
Interest and financial expenses
(907.6)
Income before extraordinary item
1,655.3
Extraordinary item - gain from repayment in prior period stipulated rehabilitation
22.8
Net income Property, plant and equipment Unallocated assets
1,678.1 19,898.8
_
_
19,898.8
21,718.1
_
_
21,718.1
Total assets
41,616.9
In 2005, the operations of the Company is in a single industry segment in manufacturing of hot rolled coils and is carried on in the single geographical area in Thailand. As a result, all of revenue, operating profits and assets as reflected in these financial statements pertain to the aforementioned industry segment and geographic area. Export sales for the year 2005 was amounted to Baht 2,547 million.
33.
PROVIDENT FUND
The Company and its employees have jointly established a provident fund as approved by the Ministry of Finance in accordance with the Provident Fund Act B.E. 2530. The fund is monthly contributed to by employees, at the rate of 2 percent of their basic salaries, and by the Company at the same rate, and will be paid to employees upon termination in accordance with the rules of the fund. The fund is managed by Kasikorn Assets Management Co., Ltd. During the year 2006, the Company contributed Baht 3 million (2005: Baht 2 million) to the provident fund.
34.
COMMITMENTS AND CONTINGENT LIABILITIES 34.1
Long-term services commitments The Company has entered into agreements of providing raw materials, raw water, water supply management and dock service fee. The Company is to pay service fees related to raw materials management, raw water, water supply management and dock fees based on the quantity used. The Company has entered into the purchase of gas with 2 companies and is to pay service fees under this agreement at the variable rate based on the quantity of gas used and the fixed rate as follows:(Unit: Million Baht) Amount 2007
25.2
2008 - 2009
50.5
The Company had agreements to purchase raw materials with overseas suppliers for 40,169 tonne of unreleased raw materials, which the ownership is belong to the sellers. In addition, the Company had to pay interest at rate LIBOR + 1 to 1.75 percent on the unrealised raw materials. 34.2
Operating leases commitments The Company has entered into several lease agreements in respect of the lease of office building space. Future minimum rentals payable under these leases as at 31 December 2006 are as follows: (Unit: Million Baht) Amount 2007 2008 - 2013
114
34.3
115
5.5 33.7
Other agreements commitments The Company has commitments to pay financial advisory fees, other advisory and service fees totalling Baht 15.7 million. In addition, the Company has commitment to pay consulting fee, machine installation based on working hours and the fixed rate totalling USD 0.5 million, machinery and construction of factory under the expansion project totalling USD 26.8 million and Baht 192.1 million.
34.4
Guarantees The Company has guaranteed bank credit facilities of its subsidiary company amounting to USD 120 million. As of 31 December 2006, the Company had Baht 441 million (2005: Baht 31 million) of letter guarantees issued by banks on behalf of the Company in respect of certain performance bonds as required in the normal course of business.
34.5
Litigation The Company was sued by 2 minority shareholders with a combined shareholding of 5.5 million shares, claiming compensation for damage amounting to Baht 54.5 million suffered as a result of the Company entering into the business rehabilitation process and restructuring its capital. On 25 July 2006, the Court of First Instance ordered the suit dismissed. The shareholders, as the plaintiff, subsequently requested leave to appeal but the Court First Instance refused to hear the appeal, finalizing the hearing of the case by the court. However, the shareholders appealed the order of the court refusing leave to appeal. The Appeals Court ordered the suit dismissed. As at the balance sheet date, the shareholders have petitioned against the order of the Appeals Court with the Supreme Court and the Company has submitted its case against the appeal. The litigation is therefore being heard by the Supreme Court and if the Supreme Court uphold the order of the Appeals Court, the outcome of the case is considered final. However, if the Supreme Court cancels the existing order, the case will need to be reheard.
35.
FINANCIAL INSTRUMENTS Financial risk management policies The Company and its subsidiaries are exposed to risks from changes in interest rates and currency exchange rates and risks from nonperformance of contractual obligations by counterparties. The Company and its subsidiaries uses derivatives, as and when it considers appropriate, to manage such risks. In addition, the Company and its subsidiaries have policies to enter into contracts with creditworthy counterparties. Therefore, the Company and its subsidiaries do not expect any material financial losses to arise as a result of counterparties failing to discharge their obligations as stipulated in the financial instruments. The accounting policies for derivatives are disclosed in the notes to financial statements regarding significant accounting policies. The Company and its subsidiaries have no policies to hold or issue derivatives for speculative or trading purposes. Interest rate risk Interest rate risk is the risk that future fluctuations in market interest rates will affect the operating results and cash flows of the Company and its subsidiaries. The Company and its subsidiaries’ exposure to interest rate risk relates primarily to its cash at banks, loans, investments in rights of claims over convertible debts, borrowings from financial institutions debentures and liabilities under the former rehabilitation which are subject to interest. As of 31 December 2006, the Company has Interest Rate Swap Transaction Agreement with a bank for principal totaling USD 120 million. The contract is for a period of 3 years, commencing from 4 April 2006 and maturing in April 2009. The Company has to pay interest on semi-annual, at each of 4 April and 4 October, to the bank at
a fixed rate of 8.8 percent and the bank is required to pay interest to the Company at a rate depended upon the rate of return of the securities as stipulated in the agreement. As at 31 December 2006, the significant financial assets and liabilities classified by type of interest rate and, for those financial assets and liabilities carrying interest at fixed rates, by the contractual repricing or maturity date (whichever is earlier) are as follows: (Unit: Million Baht) CONSOLIDATED Fixed interest rates Within 1 year
1-5 years
Non-
Over 5 years
Floating interest rate
interest bearing
Total
Effective interest rate (% p.a.)
Financial assets - Cash and cash equivalents - Trade accounts receivable - Trade accounts receivable - related party - Amount due from related parties - Deposits at financial institutions with restriction - Investments in rights of claims over secured convertible debts Financial liabilities - Short-term loan from financial institution - Trade accounts payable - Trade accounts payable - related party - Other payables - Other short-term loan - Liabilities under the former rehabilitation plan - Bonds
_
_
_
1,616.1
_
_
1,615.7 _
0.4
_
2,122.8
2,122.8
0.5 - 1.0 _
_
_
_
_
20.1
20.1
_
_
_
_
_
479.9
479.9
_
78.5
_
_
679.3
_
757.8
0.5 - 3.0
_
_
_
3,989.3
_
3,989.3
MLR
78.5
_
_
6,284.3
2,623.2
8,986.0
_
_
_
4,347.7
_
_
4,347.7 _
_
_
2,277.5
2,277.5
SIBOR _
_
_
_
_
205.1
205.1
_
_
_
_
_
853.6
853.6
_
_
_
_
_
3.0
3.0
_
_
_
_
_
_
6,024.3
_
_
752.1 _
752.1
_
6,024.3
10.5
_
6,024.3
_
4,347.7
4,091.3
14,463.3
(Unit: Million Baht) THE COMPANY ONLY Fixed interest rates Within 1 year
1-5 years
Non-
Over 5 years
Floating interest rate
interest bearing
Total
Effective interest rate (% p.a.)
Financial assets - Cash and cash equivalents - Trade accounts receivable - Trade accounts receivable - related parties - Deposits at financial institutions with restriction - Loan to related parties Financial liabilities - Trade accounts payable - Trade accounts payable - related party - Other payables - Liabilities under the former rehabilitation plan - Bonds
_
_
_
_
_
1,598.2 _
0.4 _
1,598.6
_
2,122.8
0.5 - 1.0 _
_
_
_
_
514.7
514.7
_
78.5
_
_
757.8
0.5 - 3.0
12.7
10.8
679.3 _
_
_
_
23.5
7.0
91.2
10.8
_
2,277.5
2,637.9
5,017.4
_
_
_
_
2,277.5
2,277.5
_
_
_
_
_
205.1
205.1
_
_
_
_
_
527.5
527.5
_
_
_
_
_
_
6,024.3
_
_
752.1 _
752.1
_
6,024.3
10.5
_
6,024.3
_
_
3,762.2
9,786.5
Foreign currency risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in 116
foreign exchange rates.
117
The Company and its subsidiaries are exposed to significant foreign currency risk in respect of purchase/ sales transactions and borrowing denominated in foreign currencies. However, the Company has entered into forward contracts with maturities of less than one year to mitigate the foreign currency risk.
Foreign currency assets/ liabilities As at 31 December 2006, the outstanding balances of the Company and its subsidiaries’ financial assets and liabilities denominated in foreign currencies are as follow:
CONSOLIDATED Financial
Financial
Average exchange rate
assets
liabilities
As at 31 December 2006
(Million)
(Million)
(Baht per 1 foreign currency unit)
USD
122
338
36.0932
EUR
2
_
47.4592
JPY
25
14
0.3035
Foreign currency
THE COMPANY ONLY Financial
Financial
Average exchange rate
assets
liabilities
As at 31 December 2006
(Million)
(Million)
(Baht per 1 foreign currency unit)
USD
125
208
36.0932
EUR
2
_
47.4592
JPY
25
14
0.3035
Foreign currency
As at 31 December 2006, the Company and its subsidiaries had the following outstanding forward contracts:
CONSOLIDATED AND THE COMPANY ONLY Contractual exchange rate Foreign currency
USD
Bought amount
Sold amount
(Million)
(Million)
12
_
Bought
Sold
(Baht per 1 foreign currency unit) 35.1950 - 38.4700
_
Credit Risk Credit risk refers to the risk that counterparty will default on its contractual obligations, resulting in a financial loss to the Company.
The Company is exposed to credit risk primarily with respect to trade accounts receivable and other receivable. The Company’s management manages such risk by establishing credit limits for customers and counterparties and analysing their financial position on an ongoing basis. As a result, the Company does not expect to incur material financial losses. However, the Company is exposed to concentrations of credit risk with respect to trade receivables because it has a few major customers who are in the same industry. The maximum exposure to credit risk is limited to the carrying amounts of receivables as stated in the balance sheet.
Fair value Fair value represents the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction.
Since major financial assets and financial liabilities are short-term in nature, and loans to and loans from carry interest at rates which approximate market rates, the fair values of financial assets and financial liabilities are estimated to be close to the amounts presented in the balance sheet.
The Company estimated fair value of bonds using discounted cash flow based on the current interest rate. The fair value of bonds are insignificantly different from the aggregate carrying value.
36. RECLASSIFICATION Certain amounts in the financial statements for the year ended 31 December 2005 have been reclassified to conform to the current year’s classifications, with no effect on previously reported net income or shareholders’ equity.
37.
SUBSEQUENT EVENT On 12 February 2007 , Oriental Access Co., Ltd. the subsidiary of the Company received the transfer of additional 1,646, 203,609 shares converted from rights over secured convertible debt in accordance with the business rehabilitation plan or equivalent to approximately 6.67 percent of registered and paid-up share
118
capital of NSM. The number of these shares and the existing shares made the Company and its subsidiary
119
held 5, 803,673, 289 shares, or approximately 23.51% of registered and paid-up shares capital of NSM.
38.
APPROVAL OF FINANCIAL STATEMENTS These financial statements were authorised for issue by the Company’s Board of Directors on 26 February 2007.
SET INFORMATION REFERENCE GUIDE UNDER FORM 56-2
No. 1
Topic
Page
GENERAL INFORMATION The Company and all details
51
Other reference persons
2
SUMMARY OF FINANCIAL INFORMATION Financial Highlights
3
1
TYPE OF BUSINESS Nature of Business, Income Structure and Structure of Transactions
52
with Business Alliances 4
RISK FACTORS
5
SHAREHOLDER’S STRUCTURE AND MANAGEMENT
55
•
Shareholder List of 10 Major shareholders
72
•
Management, Management’ s Structure and Nomination of Directors
39
and Management Team •
Remuneration for the Management, Remuneration by Cash and
45
remuneration by other
6
•
Good Corporate Governance
62
•
The Policy of Internal Information Using Protection
68
•
Internal Control
69
COMMON INTERESTED PERSONS AND CONNECTED TRANSACTIONS •
Related transactions between the company and the parties with
73
conflicts of interest •
Related transactions between the company and with business alliances.
•
Approval procedures for inter-related transactions
74
76
7
MANAGEMENT DISCUSSION AND ANALYSIS
78
8
FINANCIAL STATEMENTS
82
THE PRINCIPLES OF CORPORATE GOVERNANCE
120
No.
Topic
Page
1
Policy on Corporate Governance
62
2
Shareholders : Rights and Equitable Treatment
62
3
Various Group of Stakeholders
62
4
Shareholders’ Meetings
63
5
Leadership and Vision
64
6
Conflict of Interest
64
7
Business Ethics
64
8
Balance of Power for Non-Executive Directors
65
9
Aggregation or Segregation of Positions
65
10
Remuneration for Directors and the Management
65
11
Board of Directors’ Meetings
65
12
Committee
66
13
Controlling System and Internal Audit
67
14
Directors’ Reporting
68
15
Relations with Investors
68
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