1 Annual financial statements and Audit report of Certified Public Accountant For the years ended 31 December 2005 and 2004
2 DHANA MITR FACTORING COMPANY LIMITED Notes to Financial Statements (Continued) December 31, 2004 and 2003 Audit report of Certified Public Accountant To the shareholders of Dhanamitr Factoring Public Company Limited: I have audited the balance sheet of Dhanamitr Factoring Public Company Limited as at 31 December 2005, and the related statements of income, changes in shareholders equity and cash flows for the year then ended. The Company s management is responsible for the correctness and completeness of information presented in these financial statements. My responsibility is to express an opinion on these financial statements based on my audit. The financial statements of Dhanamitr Factoring Public Company Limited for the year ended 31 December 2004 were audited by another auditor whose report dated 27 January 2005 expressed an unqualified opinion on those financial 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 free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant financial estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dhanamitr Factoring Public Company Limited at 31 December 2005, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. (Narong Luktharn) Certified Public Accountant Registration number 4700 KPMG Phoomchai Audit Ltd. Bangkok 22 February
3 (Formerly : Dhanamitr Factoring Company Limited) Balance sheets As at 31 December 2005 and 2004 Assets Note Current assets Cash and cash equivalents 4 1,414,811 6,023,630 Factoring receivable - net 5 844,896,617 1,119,403,289 Loans receivable 6 11,950,000 12,502,422 Other current assets 662, ,404 Total current assets 858,923,642 1,138,177,745 Non-current assets Equipment - net 7 2,932,930 2,611,735 Deposits and guarantees 510, ,835 Total non-current assets 3,443,723 3,017,570 Total assets 862,367,365 1,141,195,315 The accompanying notes are an integral part of these financial statements 2
4 (Formerly : Dhanamitr Factoring Company Limited) Balance sheets As at 31 December 2005 and 2004 Liabilities and shareholders' equity Note Current liabilities Bank overdrafts and short-term loans from financial institutions 4, 8 687,733, ,543,115 Factoring payables 19,194,324 10,991,016 Retention from factoring 20,765,374 17,268,222 Current portion of liabilities under hire-purchase agreements 4, 9 307, ,913 Other current liabilities 4 6,870,563 7,938,521 Total current liabilities 734,872, ,048,787 Non-current liabilities Liabilities under hire-purchase agreements - net 4, 9 25, ,572 Total non-current liabilities 25, ,572 Total liabilities 734,897, ,382,359 Shareholders' equity Share capital Authorized share capital ,000, ,000,000 Issued and paid-up share capital ,000, ,000,000 Share premium 11 35,844,889 35,844,889 Retained earnings (Deficits) Appropriated Legal reserve 11 2,945,000 2,345,000 Unappropriated (11,320,208) 22,623,067 Total shareholders' equity 127,469, ,812,956 Total liabilities and shareholders' equity 862,367,365 1,141,195,315 The accompanying notes are an integral part of these financial statements 3
5 (Formerly : Dhanamitr Factoring Company Limited) Statements of income Note Revenues Factoring income 73,471,563 49,550,530 Fees and services 16,634,038 14,026,675 Other income 2,115, ,908 Total revenues 92,220,876 63,780,113 Expenses Interest expense 4 29,593,533 14,918,198 Administrative expenses 4 26,423,334 20,174,650 Doubtful accounts 52,094, ,880 Total expenses 108,111,761 35,822,728 Profit (loss) before income tax (15,890,885) 27,957,385 Income tax 7,452,390 8,661,301 Net profit (loss) (23,343,275) 19,296,084 Basic earnings (loss) per share 13 (1.17) 1.10 The accompanying notes are an integral part of these financial statements 4
6 (Formerly : Dhanamitr Factoring Company Limited) Statements of changes in shareholders' equity Retained earnings (Deficits) Issued and paid-up Premium on Appropriated Unappropriated Total Note share capital share capital legal reserve shareholders' equity Balance at 1 January ,000,000 2,000, ,000 14,891,983 97,671,983 Net profit ,296,084 19,296,084 Dividends (10,000,000) (10,000,000) Legal reserve ,565,000 (1,565,000) - Common shares 10, 11 20,000,000 33,844, ,844,889 Balance at 31 December ,000,000 35,844,889 2,345,000 22,623, ,812,956 Net loss (23,343,275) (23,343,275) Dividends (10,000,000) (10,000,000) Legal reserve ,000 (600,000) - Balance at 31 December ,000,000 35,844,889 2,945,000 (11,320,208) 127,469,681 The accompanying notes are an integral part of these financial statements 5
7 (Formerly : Dhanamitr Factoring Company Limited) Statements of cash flows Note Cash flows from operating activities Net profit (loss) (23,343,275) 19,296,084 Adjustments for Depreciation 974, ,721 Bad debts and doubtful accounts 52,094, ,880 Gain on sale of equipments - (197,855) Profit provided by operating activities before changes in operating assets and liabilities 29,726,438 20,554,830 Changes in operating assets and liabilities (Increase) decrease in operating assets Factoring receivables 222,411,778 (400,155,140) Loan receivables 552,422 (12,502,422) Other current assets (413,810) (68,978) Deposits and guarantees (104,958) (62,177) Increase (decrease) in operating liabilities Factoring payables 8,203,308 9,999,009 Retention from factoring 3,497,152 9,574,877 Other current liabilities (1,067,958) 3,411,065 Net cash provided by (used in) operating activities 262,804,372 (369,248,936) Cash flows from investing activities Proceeds from sale of equipment - 290,000 Purchase of equipment (1,296,014) (1,536,027) Net cash used in investing activities (1,296,014) (1,246,027) The accompanying notes are an integral part of these financial statements 6
8 (Formerly : Dhanamitr Factoring Company Limited) Statements of cash flows Note Cash flows from financing activities Increase (decrease) in bank overdrafts and short-term loans from financial institutions (255,809,264) 332,543,115 Decrease in liabilities under hire-purchase agreement (307,913) (307,912) Proceeds from issuing share capital - 57,200,000 Expenses for issuing share capital - (3,355,111) Dividends paid (10,000,000) (10,000,000) Net cash (used in) provided by financing activities (266,117,177) 376,080,092 Net increase (decrease) in cash and cash equivalents (4,608,819) 5,585,129 Cash and cash equivalents at beginning of year 6,023, ,501 Cash and cash equivalents at end of year 1,414,811 6,023,630 Supplemental disclosures of cash flow information Cash paid during the years Interest expense 29,194,607 13,861,095 Income tax expense 8,889,329 7,081,294 The accompanying notes are an integral part of these financial statements 7
9 Note Contents 1 General information 2 Basis of preparation of financial statements 3 Significant accounting policies 4 Related party transactions 5 Factoring receivables 6 Loan receivables 7 Equipment 8 Bank overdraft and short-term loans from financial institutions 9 Liabilities under hire-purchase agreements 10 Share capital 11 Reserves and dividends paid 12 Segment information 13 Earnings (loss) per share 14 Financial instruments 15 Commitments 16 Reclassification of accounts
10 These notes form an integral part of the financial statements. The financial statements were authorised for issue by the directors on 22 February General information Dhanamitr Factoring Public Company Limited, (formerly: Dhanamitr Factoring Company Limited) the Company, is a company registered in Thailand on 6 January 1997 and converted to a public company on on 2 March The registered office of the Company is at Olympia Thai Tower, 6 th Floor, Ratchadapisek Road, Samsennok, Huaykwang, Bangkok. The Company was listed on the Market for Alternative Investment (MAI) on 25 August As at 31 December 2005 and 2004, the Company s major shareholder is Jirathiwat family group with 48% of the Company s paid up share capital. The principal activity of the Company is receivable factoring. As at 31 December 2005 and 2004, the Company employs 32 employees and 28 employees, respectively. The employee costs of the Company for the years ended 31 December 2005 and 2004 amounted to Baht million and Baht million, respectively. 2 Basis of preparation of financial statements The financial statements issued for Thai reporting purposes are prepared in the Thai language. This English translation of the financial statements has been prepared for the convenience of readers not conversant with the Thai language. The financial statements are prepared in accordance with Thai Accounting Standards ( TAS ) including related interpretations and guidelines promulgated by the Federation of Accounting Professions ( FAP ) and with generally accepted accounting principles in Thailand. The financial statements are presented in Thai Baht. They are prepared on the historical cost basis except as disclosed. The preparation of financial statements in conformity with TAS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources.
11 The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. 3 Significant accounting policies 3.1 Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and highly liquid short-term investments. Bank overdrafts that are repayable on demand are a component of financing activities for the purpose of the statement of cash flows. 3.2 Factoring receivables Factoring receivables are shown net of allowance for doubtful accounts and discount on factoring in advance. 3.3 Loans receivable Loans receivable is shown at principal account net of allowance for doubtful accounts. 3.4 Allowance for doubtful accounts Allowance for doubtful accounts is an estimate of those amounts which may prove to be uncollectible, based on a review of the current status of each receivable In case of overdue receivables, the Company sets up the allowance for doubtful accounts as follows: Percentage of net receivables Overdue up to 3 months not over 6 months 20 Overdue up to 6 months 100 The calculation of setting up allowance for doubtful accounts is based on net receivables that are factoring receivables less factoring payables The Company sets up the general allowance for doubtful accounts at 0.25% of total account receivables which is effective in The Company compares the allowance for doubtful accounts based on and and records the higher of allowance for doubtful accounts. 3.5 Equipment Owned assets Equipment is stated at cost net of accumulated depreciation and impairment losses (if any).
12 Leased assets Leases in terms of which the Company substantially assumes all the risk and rewards of ownership are classified as finance leases. Equipment acquired by way of finance leases is capitalised at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation and impairment losses (if any). Depreciation Depreciation is charged to the statement of income on a straight-line basis over the estimated useful lives of each part of an item of equipment. The estimated useful lives are as follows: Computer Furniture and fittings Office equipment Vehicles Communication equipment 3-5 years 5 years 5 years 5 years 5 years 3.6 Impairment Impairment The carrying amounts of the Company s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The impairment loss is recognised in the statement of income unless it reverses a previous revaluation credited to equity, in which case it is charged to equity. Calculation of recoverable amount The recoverable amount of other assets is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cashgenerating unit to which the asset belongs. Reversals of impairment An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
13 3.7 Provisions A provision is recognised in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. 3.8 Revenue Factoring income Discount earned by factoring is recognized in the statement of income by the straight-line method based on the period of debts on factoring. Fees and services Fees and services are recognized in the statement of income on the transfer of right. Other income Other income is recognized in the statement of income on an accrual basis. 3.9 Expenses Expenses are recognized in the statement of income on an accrual basis. Operating leases Payments made under operating leases are recognised in the statement of income on a straight line basis over the term of the lease. Lease incentives received are recognised in the statement of income as an integral part of the total lease payments made. Contingent rentals are charged to the statement of income in the accounting period in which they are incurred. Finance costs Interest expenses and similar costs are charged to the statement of income in the period in which they are incurred Income tax Income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted the balance sheet date, and any adjustment to tax payable in respect of previous years.
14 4 Transactions with related parties Related parties are those parties linked to the Company by common shareholders or directors. Transactions with related parties are conducted at prices based on market prices or at contractually agreed prices where no market prices exist. Transactions for the years ended 31 December 2005 and 2004 with related parties are summarized as follows: Pricing policies Interest expense 10,128,106 6,780,864 Money market rate Examination fees on factoring documents 693, ,815 Price determined by parties Directors remuneration 1,429, ,000 Based on actual expenses Incurred Executives remuneration 6,449,860 5,595,000 Based on actual expenses Incurred Directors remuneration, such as directors bonus and meeting allowance, is based on the actual expense incurred which is approved by the Meetings of Shareholders. Balances as at 31 December 2005 and 2004 with related companies are as follows: Cash and cash equivalents Cash at bank Siam Commercial Bank Public Co., Ltd. 838,826 1,387,524 Bank overdrafts and short-term loans from financial institutions Short-term loans Siam Commercial Bank Public Co., Ltd. (5.22%-5.44% per annum for 2005 and 3.50%-3.72% per annum for 2004) 308,000, ,000,000 SCB Asset management Co.,Ltd. (4.60% per annum 2005 and 3.05% per annum 2004) 100,000, ,000,000 Total 408,000, ,000,000
15 Prepaid interest expense SCB Asset management Co.,Ltd. (1,059,219) (1,456,885) Total 406,940, ,543,115 Movements of short-term loans from related parties during the years are as follows: At 1 January 332,000, ,000,000 Increase 1,910,000,000 3,547,000,000 Decrease (1,834,000,000) (3,561,000,000) At 31 December 408,000, ,000,000 Other current liabilities Accrued examination fees on factoring documents Other related companies Central Department Store Co,Ltd. 22,718 33,004 Robinson Department Store Public Co.,Ltd. 10,371 8,844 Power Buy Co.,Ltd. 28,246 48,318 Total 61,335 90,166 Accrued Interest expense Siam Commercial Bank Public Co., Ltd. 756, ,358 Total 817, ,524 Liabilities under hire-purchase agreements Siam Panich Leasing Public Co., Ltd. 333, ,485 Please see Note 9 to the financial statements
16 5 Factoring receivable As at 31 December 2005 and 2004 this account consisted of: Factoring value 1,068,580,066 1,338,815,736 Accrued interest income 746, ,684 Total 1,069,326,365 1,339,011,420 Less amount repaid to transferor upon settlement (192,742,094) (212,223,050) Factoring receivable 876,584,271 1,126,788,370 Less discount on factoring in advance (6,696,498) (6,568,902) allowance for doubtful accounts (24,991,156) (816,179) Factoring receivable - net 844,896,617 1,119,403,289 As at 31 December 2005 and 2004, the outstanding balance of factoring receivables has been aged by the number of months as follows: Factoring value Current 1,009,579,352 1,306,180,160 Overdue: - Less than 3 months 17,837,344 31,740, months 41,163, ,619 59,000,714 32,635,576 Total 1,068,580,066 1,338,815, Loans receivable As at 31 December 2005 and 2004 this account consisted of: Current 11,950,000 12,502,422 Overdue: 3-6 months 27,351,162 - Total 39,301,162 12,502,422 Less allowance for doubtful accounts (27,351,162) - Net 11,950,000 12,502,422
17 7 Equipment As at 31 December 2005 and 2004 this account consisted of: Computer Furniture and fittings Office equipment Vehicles Communication equipment Total Cost At 1 January ,346, , ,896 1,588, ,570 3,626,424 Additions 524,094 62,128 68, ,000 43,499 1,536,027 Disposals (139,400) - (139,400) At 31 December ,870, , ,202 2,287, ,069 5,023,051 Additions 173, , , ,150 1,296,014 Disposals At 31 December ,044, , ,202 3,116, ,219 6,319,065 Accumulated depreciation At 1 January , ,598 94, , ,828 1,743,143 Depreciation charge for the year 203,176 17,142 32, ,686 27, ,721 Disposals (58,548) - (58,548) At 31 December ,147, , , , ,836 2,411,316 Depreciation charge for the year 246,693 32,281 34, ,068 47, ,819 Disposals At 31 December ,394, , ,919 1,317, ,689 3,386,135 Net book value At 31 December ,417 84, ,207 1,582,747 96,233 2,611,735 At 31 December , ,533 90,283 1,798, ,530 2,932,930 Depreciation for the years ended 31 December 2005 and 2004 amounted to Baht 0.97 million and Baht 0.73 million, respectively. As at 31 December 2005 and 2004, the gross carrying amounts of fully depreciated equipment which is still in use amounted to Baht 1.27 million and 1.12 million, respectively.
18 8 Bank overdrafts and short-term loans from financial institutions As at 31 December 2005 and 2004 this account consisted of: Bank overdrafts -unsecured 793,070 - Promissory notes payable -unsecured 588,000, ,000,000 Bills of exchange -unsecured 100,000, ,000,000 Less prepaid interest expense (1,059,219) (1,456,885) 686,940, ,543,115 Total 687,733, ,543,115 As at 31 December 2005 and 2004, the Company has credit facilities for bank overdrafts and shortterm loans from local financial institutions totaling of Baht 1,345 million. Under credit facilities, the Company has to comply with certain terms and conditions prescribed in the agreements such as financial ratio, etc.. 9 Liabilities under hire-purchase agreements As at 31 December 2005 and 2004 this account consisted of: Hire-purchase liabilities 380, ,300 Less deferred interest expense (46,704) (89,815) Total 333, ,485 Less current portion of hire purchase payable (307,913) (307,913) Total liabilities under hire-purchase agreements-net 25, ,572 The Company entered into vehicle hire-purchase contract with a related company in totaling Baht 1,449,000. The payment shall be made in 48 instalments each of Baht 27,338.32, starting on 1 March 2003.
19 10 Share capital Par Number/Baht value Number Baht Number Baht Authorised and issued and paid-up share capital At 1 January - ordinary shares 10 8,000,000 80,000,000 - ordinary shares 5 20,000, ,000,000 Reduction in par value - from Baht 10 to Baht ,000,000 - Creation of new share capital ,000,000 20,000,000 At 31 December - ordinary shares 5 20,000, ,000,000 20,000, ,000,000 On 25 February 2004, the Extraordinary Meeting of shareholders passed a resolution to change the par value of the Company s ordinary shares from Baht 10 per share to Baht 5 per share and increase the Company s authorized share capital by Baht 20 million, to Baht 100 million, divided into 20 million ordinary shares at Baht 5 par value, The Company registered the increase in share capital with the Ministry of Commerce on 2 March Reserves and dividends paid Share premium The share premium account is set up under the provisions of Section 51 of the Public Companies Act B.E. 2535, which requires companies to set aside share subscription monies received in excess of the par value of the shares issued to a reserve account ( share premium ). The account is not available for dividend distribution. The 4 million new common shares of the Company were issued to the public in 2004 at Baht per share. The Company has received the total proceeds of Baht million (Share capital of Baht 20 million and premium on share capital of Baht million) in full. Transaction costs from issue of shares amounting to Baht 3.35 million were deducted from the premium on issue of the shares, resulting in a net increase in the premium on share capital for 2004 of Baht million. Legal reserve The legal reserve is set up under the provisions of Section 116 of the Public Companies Act B.E Section 116 requires that a company shall allocate not less than 5% of its annual net profit, less any accumulated losses brought forward, to a reserve account ( legal reserve ), until this account reaches an amount not less than 10% of the registered authorised capital. The legal reserve is not available for dividend distribution. On March 24, 2004, the Ordinary General Meeting of Shareholders unanimously approved the payment of a dividend to the shareholders of 16 million shares at Baht per share, totaling Baht 10 million, and approved the appropriation of the legal reserve in the amount of Baht 0.60
20 million. On December 31, 2004, the Company appropriated legal reserve from the annual net profit of Baht 0.97 million. Thus, the Company appropriated legal reserve in 2004 totaling Baht 1.57 million. On April 5, 2005, the Ordinary General Meeting of Shareholders unanimously approved the payment of a dividend to the shareholders of 20 million shares at Baht 0.50 per share, totaling Baht 10 million, which was paid on 19 April 2005, and approved the appropriation of the legal reserve in the amount of Baht 1.57 million. In 2005, the Company appropriated additional legal reserve of Baht 0.60 million. 12 Segment information The financial statements for each of the years ended December 31, 2005 and 2004, do not present business segment information because the Company operates principally in one industry segment in factoring. The Company s activities are all carried out in Thailand. 13 Earning (loss) per share Basic earnings (loss) per share Basic earnings (loss) per share for the years ended 31 December 2005 and 2004 is calculated by dividing the net profit for the year attributable to common shareholders by the weighted average number of common shares issued during the year. Net profit (loss) attributable to common shareholders (Baht) (23,343,275) 19,296,084 Weighted average number of issued and paid-up common shares (Shares) 20,000,000 17,479,452 Basic earnings (loss) per share (Baht) (1.17) Financial instruments Financial risk management policies The Company is exposed to normal business risks from changes in market interest rates and currency exchange rates and from non-performance of contractual obligations by counterparties. The Company does not issue derivative financial instruments for speculative or trading purposes. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligation resulting in a financial loss to the Company. To reduce exposure to credit risk, the Company has adopted the policy to protect credit risk by analyzing credit from details of customers and following up customers under the rule of credit practice. In the case of recognized financial assets, the carrying amount of the assets recorded in the balance sheet is net of allowances made for doubtful accounts. In addition, the Company has concentrated on factoring the debts of the suppliers of large sized department stores with good credit ratings. As at 31 December 2005, the credit facility ratio given to the said group of receivables is 71% of the total debt.
21 Interest rate risk Interest rate risk arises from the potential for a change in market interest rate, which may affect the interest earnings and expenses in the present and in future years. Interest rate risk arises from the structure and characteristics of financial assets and financial liabilities. The Company s operations are not significantly exposed to interest rate risk. Liquidity risk The Company monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Company s operations and to mitigate the effects of fluctuations in cash flows. Fair values Financial assets shown in the balance sheets consist of cash and cash equivalents, factoring receivables and loans receivable promissory notes. Financial liabilities shown in the balance sheets consist of bank overdrafts and short-term loans from financial institutions, retention from factoring and hire-purchase payable. The book values of financial assets and liabilities are close to their estimated fair values. The management believes that the fair values of those financial assets and financial liabilities do not materially differ from their carrying amounts. 15 Commitments As at 31 December 2005 and 2004, the Company has commitments under of various office lease agreements, for periods of 6 months to 2 years, ending on 31 January Monthly Space rental and common services fees are amounting to Baht 128,948 for 2005, and Baht 89,750 for Reclassification of accounts Certain accounts in the 2004 financial statements have been reclassified to conform with the presentation in the 2005 financial statements.