LH Financial Group Public Company Limited and its subsidiaries Report and interim financial statements For the three-month and six-month periods

Transcription

1 LH Financial Group Public Company Limited and its subsidiaries Report and interim financial statements For the three-month and six-month periods ended 30 June 2013

2 Independent Auditor s Report To the Shareholders of LH Financial Group Public Company Limited Report on Audit of the Financial Statements I have audited the accompanying consolidated financial statements of LH Financial Group Public Company Limited and its subsidiaries, which comprise the consolidated statement of financial position as at 30 June 2013, the consolidated statements of comprehensive income, changes in shareholders equity, and cash flows for the six-month period ended 30 June 2013, and a summary of significant accounting policies and other explanatory information, and have also audited the separate financial statements of LH Financial Group Public Company Limited for the same period. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Thai Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Thai Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

3 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LH Financial Group Public Company Limited and its subsidiaries and of LH Financial Group Public Company Limited as at 30 June 2013, their financial performance and cash flows for the six-month period ended 30 June 2013 in accordance with Thai Financial Reporting Standards. Other Matters Statements of financial position as at 31 December 2012 for comparative information The consolidated financial statements of LH Financial Group Public Company Limited and its subsidiaries, and the separate financial statements of LH Financial Group Public Company Limited as at 31 December 2012, presented as comparative information, were audited in accordance with Thai Financial Reporting Standards by another auditor in the same firm as mine, who expressed an unqualified opinion on those financial statements but draw attention to the subsidiary plans to set aside allowance for doubtful debts in the future, under her report dated 21 February

4 The interim financial statements for the six-month period ended 30 June 2012 for comparative information The consolidated statements of comprehensive income, changes in shareholders equity and cash flows of LH Financial Group Public Company Limited and its subsidiaries, and the separate financial statements of LH Financial Group Public Company Limited for the six-month period ended 30 June 2012, as presented for comparative information, were audited in accordance with Thai Financial Reporting Standards by the aforementioned auditor who expressed an unqualified opinion on those financial statements but draw attention to the subsidiary plans to set aside allowance for doubtful debts in the future, under her report dated 24 August Report on Review of the Interim Financial Information I have reviewed the accompanying consolidated statement of comprehensive income of LH Financial Group Public Company Limited and its subsidiaries, and the separate statement of comprehensive income of LH Financial Group Public Company Limited for the three-month period ended 30 June Management is responsible for the preparation and presentation of these interim statements of comprehensive income in accordance with Thai Accounting Standard 34: Interim Financial Reporting. My responsibility is to express a conclusion on these interim statements of comprehensive income based on my review. Scope of review I conducted my review in accordance with Thai Standard on Review Engagements 2410: Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Thai Standards on Auditing and consequently does not enable me to obtain assurance that I would become aware of all significant matters that might be identified in an audit. Accordingly, I do not express an audit opinion on these interim statement of comprehensive income. 3

5 Conclusion Based on my review, nothing has come to my attention that causes me to believe that the interim statement of comprehensive income are not prepared, in all material respects, in accordance with Thai Accounting Standard 34: Interim Financial Reporting. Other Matter The interim financial information for the three-month period ended 30 June 2012 for comparative information The consolidated statement of comprehensive income of LH Financial Group Public Company Limited and its subsidiaries, and the separate statement of comprehensive income of LH Financial Group Public Company Limited for the three-month period ended 30 June 2012, as presented for comparative information, were also reviewed by the aforementioned auditor who concluded, under her report dated 24 August 2012, that nothing had come to her attention that caused her to believe that the interim statement of comprehensive income was not prepared, in all material respects, in accordance with Thai Accounting Standard 34 Interim Financial Reporting, but draw attention to the subsidiary plans to set aside allowance for doubtful debts in the future. Somjai Khunapasut Certified Public Accountant (Thailand) No Ernst & Young Office Limited Bangkok: 26 August

6 LH Financial Group Public Company Limited and its subsidiaries Statements of financial position As at 30 June 2013 Consolidated financial statements Separate financial statements 30 June 31 December 30 June 31 December Note Assets Cash 1,224,419 1,619, Interbank and money market items - net 6 5,209,574 5,031, , ,703 Investments - net 7 31,109,915 29,138, , ,012 Investment in a subsidiary ,499,999 12,499,999 Loans to customers and accrued interest receivables 9 Loans to customers 95,152,928 86,248, Accrued interest receivables 179, , Total loans to customers and accrued interest receivables 95,332,181 86,411, Less : Deferred revenue (262,805) (148,168) - - Allowance for doubtful debts 10 (1,149,836) (914,008) - - Revaluation allowance for debt restructuring 11 (13,043) (14,932) - - Loans to customers and accrued interest receivables - net 93,906,497 85,334, Investment properties ,713 37,778 Properties foreclosed 13 2, Land, premises and equipment - net , , Intangible assets - net , , Deferred tax assets ,566 58, Accrued interest receivables on investments 263, , Accounts receivable on purchase/sale of securities 17 2,157, ,820 - Other assets - net , ,363 2,288 1,780 Total assets 135,000, ,426,879 13,471,563 12,941,276 The accompanying notes are an integral part of the financial statements.

7 LH Financial Group Public Company Limited and its subsidiaries Statements of financial position (continued) As at 30 June 2013 Consolidated financial statements Separate financial statements 30 June 31 December 30 June 31 December Note Liabilities and shareholders' equity Deposits 20 94,549,128 84,223, Interbank and money market items 21 21,978,803 21,870, ,000 Liabilities payable on demand 464, , Debts issued and borrowings 22 58, , Interest payables 455, , Accrued expenses 325, , Provisions for employee benefits 23 50,709 39, Deferred tax liabilities 16 23,197 66, Taxes payable 210, , Accounts payable on purchase/sale of securities 17 1,997, ,142-31,842 Other liabilities , , Total liabilities 120,250, ,260, ,561 Shareholders' equity Share capital Registered share capital 13,375,273,610 ordinary shares of Baht 1 each (31 December 2012: 12,399,982,813 shares of Baht 1 each) 25 13,375,274 12,399,983 13,375,274 12,399,983 Issued and paid-up share capital 12,688,925,357 ordinary shares of Baht 1 each (31 December 2012: 11,978,911,286 shares of Baht 1 each) 25 12,688,925 11,978,911 12,688,925 11,978,911 Share premium , , , ,803 Other component of shareholders' equity - Revaluation surplus on investments , ,137 (28,114) - Retained earnings Appropriated - statutory reserve , ,800 61,100 41,100 Unappropriated 1,133,377 1,062, , ,901 Equity attributable to equity holders of the Company 14,749,284 14,166,464 13,470,851 12,808,715 Non-controlling interests Total shareholders' equity 14,749,285 14,166,465 13,470,851 12,808,715 Total liabilities and shareholders' equity 135,000, ,426,879 13,471,563 12,941, The accompanying notes are an integral part of the financial statements. Directors

8 (Unaudited but reviewed) LH Financial Group Public Company Limited and its subsidiaries Statements of comprehensive income For the three-month period ended 30 June 2013 Consolidated financial statements Separate financial statements Note Profit or loss: Interest income 30 1,582,262 1,147,919 1,062 2,732 Interest expenses 31 (886,510) (622,885) (279) - Net interest income 695, , ,732 Fees and service income 32 72,494 37, Fees and service expenses 32 (14,242) (10,763) (3,642) (3,071) Net fees and service income 58,252 26,575 (3,642) (3,071) Gain (loss) on investments 103,375 40,042 (1,642) - Net loss on trading transactions (14,940) - (14,940) - Dividend income 19,306 1,221 5,494 - Other operating income 2, Total operating income (loss) 864, ,808 (13,647) (39) Other operating expenses Employees' expenses 186, , Directors' remuneration 33 2,340 2,130 1,930 1,930 Premises and equipment expenses 125,646 90, Taxes and duties 42,946 28, Advertising and promotion expenses 18,287 14, Amortisation on intangible assets 14,149 10, Other expenses 20,952 21, Total other operating expenses 410, ,561 2,652 3,414 Bad debts, doubtful accounts and impairment loss 34 85,000 60, Profit from operation before income taxes (loss) 368, ,247 (16,299) (3,453) Income taxes 16.2 (74,704) (55,991) - - Profit for the periods (loss) 294, ,256 (16,299) (3,453) Other comprehensive income: Gain (loss) on remeasuring available-for-sale investments 35 (192,150) 6,823 (22,241) - Actuarial gain on post-employee retirement benefit plan Effect of relevant income taxes 35 30,311 (993) - - Other comprehensive income (loss) (160,941) 5,830 (22,241) - Total comprehensive income (loss) 133, ,086 (38,540) (3,453) The accompanying notes are an integral part of the financial statements.

9 (Unaudited but reviewed) LH Financial Group Public Company Limited and its subsidiaries Statements of comprehensive income (continued) For the three-month period ended 30 June 2013 Consolidated financial statements Separate financial statements Note Profit for the period (loss) attributable to Equity holders of the Company 294, ,256 (16,299) (3,453) Non-controlling interests , , Total comprehensive income (loss) attributable to Equity holders of the Company 133, ,086 (38,540) (3,453) Non-controlling interests , , Earnings per share of equity holders of the Company 36 Basic earnings per share (Baht per share) (0.0013) (0.0003) Diluted earnings per share (Baht per share) (0.0013) (0.0003) The accompanying notes are an integral part of the financial statements. Directors

10 LH Financial Group Public Company Limited and its subsidiaries Statements of comprehensive income For the six-month period ended 30 June 2013 Consolidated financial statements Separate financial statements Note Profit or loss: Interest income 30 3,072,594 2,182,143 2,271 5,993 Interest expenses 31 (1,740,340) (1,198,703) (1,563) - Net interest income 1,332, , ,993 Fees and service income ,749 60, Fees and service expenses 32 (26,007) (20,086) (5,564) (4,687) Net fees and service income 133,742 39,988 (5,564) (4,687) Gain (loss) on investments 179, ,052 (1,642) - Net loss on trading transactions (10,599) - (12,056) - Dividend income 33,915 1, , ,000 Other operating income 3,433 1, Total operating income 1,671,943 1,126, , ,906 Other operating expenses Employees' expenses 368, , Directors' remuneration 33 4,675 4,125 3,805 3,800 Premises and equipment expenses 243, , Taxes and duties 83,151 57, Advertising and promotion expenses 37,312 24, ,068 Amortisation on intangible assets 28,763 18, Other expenses 40,235 38, Total other operating expenses 806, ,544 5,480 5,773 Bad debts, doubtful accounts and impairment loss ,000 97, Profit from operation before income taxes 629, , , ,133 Income taxes 16.2 (126,125) (106,675) - - Profit for the period 503, , , ,133 Other comprehensive income: Loss on remeasuring available-for-sale investments 35 (259,518) (146,606) (28,114) - Actuarial loss on post-employee retirement benefit plan 35 (7,722) Effect of relevant income taxes 35 44,768 36, Other comprehensive income (loss) (222,472) (109,621) (28,114) - Total comprehensive income 280, , , ,133 The accompanying notes are an integral part of the financial statements.

11 LH Financial Group Public Company Limited and its subsidiaries Statements of comprehensive income (continued) For the six-month period ended 30 June 2013 Consolidated financial statements Separate financial statements Note Profit for the period attributable to Equity holders of the Company 503, , , ,133 Non-controlling interests , , Total comprehensive income attributable to Equity holders of the Company 280, , , ,133 Non-controlling interests , , Earnings per share of equity holders of the Company 36 Basic earnings per share (Baht per share) Diluted earnings per share (Baht per share) The accompanying notes are an integral part of the financial statements. Directors

12 LH Financial Group Public Company Limited and its subsidiaries Statements of changes in shareholders' equity For the six-month period ended 30 June 2013 Other component Equity attributable to equity holders of the Company of shareholders' Total equity Issued and equity - Revaluation Retained earnings attributable to paid-up share surplus Appropriated - equity holders Non-controlling capital Share premium on investments statutory reserve Unappropriated of the Company interests Total Balance as at 1 January ,472, , , ,000 1,016,745 13,312, ,312,204 Issuance of additional ordinary shares as a result of warrant exercises (Note 26) 15, ,367-15,367 Stock dividend payments (Note 28) 382, , (547,415) Cash dividend payments (Note 28) (42,495) (42,495) - (42,495) Total comprehensive income for the period (loss) - - (109,621) - 329, , ,727 Balance as at 30 June ,870, ,803 77, , ,183 13,504, ,504, Balance as at 1 January ,978, , , ,800 1,062,813 14,166, ,166,465 Issuance of additional ordinary shares as a result of warrant exercises (Note 26) 302, , ,892 Issuance of additional ordinary shares (Note 25.2) 407,122 (1,284) , ,838 Cash dividend payments (Note 28) (406,682) (406,682) - (406,682) Appropriated to statutory reserve ,000 (20,000) Total comprehensive income for the period (loss) - - (216,474) - 497, , ,772 Balance as at 30 June ,688, ,519 60, ,800 1,133,377 14,749, ,749, The accompanying notes are an integral part of the financial statements.

13 LH Financial Group Public Company Limited and its subsidiaries Statements of changes in shareholders' equity (continued) For the six-month period ended 30 June 2013 Separate financial statements Other component of shareholders' Issued and equity - Revaluation Retained earnings paid-up share surplus Appropriated - capital Share premium on investments statutory reserve Unappropriated Total Balance as at 1 January ,472, ,196-29, ,145 12,485,437 Issuance of additional ordinary shares as a result of warrant exercises (Note 26) 15, ,367 Stock dividend payments (Note 28) 382, , (547,415) - Cash dividend payments (Note 28) (42,495) (42,495) Total comprehensive income for the period , ,133 Balance as at 30 June ,870, ,803-29, ,368 12,694, Balance as at 1 January ,978, ,803-41, ,901 12,808,715 Issuance of additional ordinary shares as a result of warrant exercises (Note 26) 302, ,892 Issuance of additional ordinary shares (Note 25.2) 407,122 (1,284) ,838 Cash dividend payments (Note 28) (406,682) (406,682) Appropriated to statutory reserve ,000 (20,000) - Total comprehensive income for the period (loss) - - (28,114) - 388, ,088 Balance as at 30 June ,688, ,519 (28,114) 61, ,421 13,470, The accompanying notes are an integral part of the financial statements.

14 LH Financial Group Public Company Limited and its subsidiaries Statements of cash flows For the six-month period ended 30 June 2013 Consolidated financial statements Separate financial statements Cash flows from operating activities Profit from operation before income taxes 629, , , ,133 Adjustments to reconcile profit from operation before income taxes to net cash provided by (paid for) operating activities Depreciation and amortisation 82,647 57, Bad debts, doubtful accounts and impairment loss 236,000 97, Provisions for employee benefits 6,027 3, Loss on disposal of equipment (Gain) loss on disposals of available-for-sale investments (179,198) (100,052) 1,642 - Net loss on trading transactions 10,599-12,056 - Amortisation of deferred revenue/expenses - net (7,672) (4,320) - - Amortisation of discount on revaluation of notes receivable to be interest income (35) (35) - - Increase (decrease) in accrued expenses 66,705 44,441 4 (372) Net interest income (1,332,254) (983,440) (708) (5,993) Dividend income (33,915) (1,221) (411,636) (240,000) Cash received on interest income 2,450,374 1,726,277 2,143 6,524 Cash paid on interest expenses (1,580,325) (1,227,484) (1,601) - Cash paid on income taxes (104,585) (84,423) (43) (95) Income (loss) from operations before changes in operating assets and liabilities 243,784 (35,663) (9,832) (3,642) (Increase) decrease in operating assets Interbank and money market items (175,886) 2,241,251 (214,817) 291,650 Trading securities 17,064-15,607 - Loans to customers (8,790,048) (9,839,859) - - Other assets (2,219,236) (57,462) (170,679) (850) Increase (decrease) in operating liabilities Deposits 10,325,620 21,668, Interbank and money market items 108,257 4,476,482 (100,000) - Liabilities payable on demand 230, , Debts issued and borrowings (710,196) (15,722,621) - - Provisions for employee benefits (2,327) (1,384) - - Other liabilities 1,811,380 33,918 (31,815) (31) Net cash provided by (used in) operating activities 839,169 2,866,235 (511,536) 287,127 The accompanying notes are an integral part of the financial statements.

15 LH Financial Group Public Company Limited and its subsidiaries Statements of cash flows (continued) For the six-month period ended 30 June 2013 Consolidated financial statements Separate financial statements Cash flows from investing activities Proceeds from disposal of available-for-sale investments 5,823,751 3,117,606 51,081 - Proceeds from matured debt securities 1,345, , Cash received on interest income on investments 650, , Cash received on dividend income on investments 44,000 1, , ,000 Invested in available-for-sale investments (2,091,898) (1,196,893) (253,580) - Invested in held-to-maturity debt securities (7,177,580) (4,959,317) - - Invested in a subsidiary (500,000) Cash paid for purchases of leasehold improvements and equipment (90,874) (65,813) - - Cash paid for purchases of intangible assets (38,778) (41,375) - - Net cash provided by (used in) investing activities (1,536,255) (2,601,579) 209,487 (260,000) Cash flows from financing activities Dividends paid (406,682) (42,495) (406,682) (42,495) Proceeds from issuance of additional ordinary shares 405, ,838 - Proceeds from warrant exercises 302,892 15, ,892 15,367 Net cash provided by (used in) financing activities 302,048 (27,128) 302,048 (27,128) Net increase (decrease) in cash and cash equivalents (395,038) 237,528 (1) (1) Cash and cash equivalents as at 1 January 1,619, , Cash and cash equivalents as at 30 June 1,224,419 1,060, Supplemental cash flows information Non - cash related items Purchases of assets on credit 20,989 26, Stock dividend issuance - 547, ,415 The accompanying notes are an integral part of the financial statements.

16 LH Financial Group Public Company Limited and its subsidiaries Table of contents for notes to interim financial statements For the three-month and six-month periods ended 30 June 2013 Note Contents Page 1. Corporate information Basis for preparation of the financial statements Application of new accounting standards Summary of significant accounting policies Significant accounting judgments and estimates Interbank and money market items (assets) Investments Investments in subsidiaries Loans to customers and accrued interest receivables Allowance for doubtful debts Revaluation allowance for debt restructuring Investment properties Properties foreclosed Premises and equipment Intangible assets Deferred tax assets / liabilities and income taxes Accounts receivable/payable on purchase/sale of securities Other assets Classification of assets Deposits Interbank and money market items (liabilities) Debts issued and borrowings Provisions for employee benefits Other liabilities Share capital / Share premium Warrants Statutory reserve Dividends paid Capital funds Interest income Interest expenses Fees and service income... 50

17 LH Financial Group Public Company Limited and its subsidiaries Table of contents for notes to interim financial statements (continued) For the three-month and six-month periods ended 30 June 2013 Note Contents Page 33. Directors remuneration Bad debt, doubtful accounts and impairment loss Components of other comprehensive income Earnings per share Provident fund Commitments and contingent liabilities Related party transactions Operating segment Financial instruments Approval of financial statements... 80

18 LH Financial Group Public Company Limited and its subsidiaries Notes to interim financial statements For the three-month and six-month periods ended 30 June Corporate information On 22 April 2009, LH Financial Group Public Company Limited ( the Company ) was incorporated as a public limited company under Thai laws to engage in investment holding business whereby it has been established to invest in the ordinary shares of Land and Houses Bank Public Company Limited ( LH Bank) at the rate of 99.99% of its issued and paid-up share capital. The Company is a listed company on the Stock Exchange of Thailand. The Company s registered office is located at No. 1, on the 5th floor of Q-House Lumpini Building, South Sathorn Road, Thungmahamek Sub-district, Sathorn District, Bangkok. As at 30 June 2013, the Company has 3 major shareholders, which are Land and Houses Public Company Limited, Quality Houses Public Company Limited and Ms. Piengjai Harnpanich and their shareholding percentages in the Company were 34.39%, 21.59%, and 16.67%, respectively (31 December 2012: the Company had 3 major shareholders, which were Land and Houses Public Company Limited, Quality Houses Public Company Limited and Ms. Piengjai Harnpanich and their shareholding percentages in the Company were 35.40%, 22.23%, and 17.16%, respectively). 2. Basis for preparation of the financial statements 2.1 Basis for preparation of the interim financial statements These interim financial statements have been prepared in accordance with Thai Accounting Standards No. 34 (revised 2009) Interim Financial Reporting, whereby the Company chooses to present the interim financial statements in the full format in which the annual financial statements are presented, and have also been prepared in accordance with accounting standards enunciated under the Accounting Profession Act B.E and reference to the principles stipulated by the Bank of Thailand ( BOT ). The presentation of the financial statements has been made in compliance with the BOT s Notification No. Sor Nor Sor. 11/2553 regarding Preparation and Announcement of Financial Statements of Commercial Banks and Parent Companies of Financial Holding Groups, dated 3 December The interim financial statements have been prepared on a historical cost basis except where otherwise disclosed in accounting policies. 1

19 The interim financial statements in Thai language are the official statutory financial statements of the Company. The interim financial statements in English language have been translated from these interim financial statements in Thai language. 2.2 Basis of preparation of the interim consolidated financial statements (a) The consolidated interim financial statements included the financial statements of LH Financial Group Public Company Limited and its subsidiaries, which have establish and operate business in Thailand, as following: Percentage of holding as at Percentage of assets to the consolidated totals as at Percentage of revenues to the consolidated totals for the six-month periods ended 30 June Nature of 30 June 31 December 30 June 31 December Company s name business Percent Percent Percent Percent Percent Percent Subsidiary directly held by the Company Land and Houses Bank Plc. Banking business Subsidiary indirectly held by the Company (held by its subsidiary) Land and Houses Fund Management Company Limited Fund Management business (b) (c) (d) (e) Subsidiaries are fully consolidated, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using the same significant accounting policies. The significant outstanding balances and intercompany transactions between the Company and its subsidiaries have been eliminated from the consolidated financial statements. The investments in a subsidiary as recorded in the Company s books of accounts have been eliminated against shareholders equity of the subsidiaries. Non-controlling interests represent the portion of profit or loss and net assets of the subsidiaries that is not held by the Company, and are presented separately in the consolidated statement of comprehensive income and within shareholders equity in the consolidated statements of financial position. 2.3 The separate financial statements The separate financial statements, which present investment in a subsidiary under the cost method, have been prepared solely for the benefit of the public. 2

20 3. Application of new accounting standards 3.1 Application of new accounting standards during the period The Federation of Accounting Professions issued the following accounting standards, financial reporting standard, accounting standard interpretations and accounting treatment guidance, all of which are effective for fiscal year beginning on or after 1 January Accounting standards: TAS 12 Income Taxes TAS 20 (revised 2009) Accounting for Government Grants and Disclosure of Government Assistance TAS 21 (revised 2009) The Effects of Changes in Foreign Exchange Rates Financial Reporting Standard: TFRS 8 Operating Segments Accounting Standard Interpretations: TSIC 10 Government Assistance - No Specific Relation to Operating Activities TSIC 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets TSIC 25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders Accounting Treatment Guidance for Transfers of Financial Assets These accounting standards, financial reporting standard, accounting standard interpretations and accounting treatment guidance do not have any significant impact on the financial statements, except for TAS 12 Income Taxes of which the Company and its subsidiaries had early adopted before the effective date. 3

21 3.2 New accounting standards issued and not yet effective The Federation of Accounting Professions has issued notifications, which have been published in the Royal Gazette during the current period, mandating the use of financial reporting standard, accounting standard interpretation and financial reporting standard interpretations as follows. Effective date Financial Reporting Standard: TFRS 4 Insurance Contracts 1 January 2016 Accounting Standard Interpretation: TSIC 29 Service Concession Arrangements: Disclosures 1 January 2014 Financial Reporting Standard Interpretations: TFRIC 1 Changes in Existing Decommissioning, 1 January 2014 Restoration and Similar Liabilities TFRIC 4 Determining whether an Arrangement contains 1 January 2014 a Lease TFRIC 5 Rights to Interests arising from 1 January 2014 Decommissioning, Restoration and Environmental Rehabilitation Funds TFRIC 7 Applying the Restatement Approach under TAS 1 January Financial Reporting in Hyperinflationary Economies TFRIC 10 Interim Financial Reporting and Impairment 1 January 2014 TFRIC 12 Service Concession Arrangements 1 January 2014 TFRIC 13 Customer Loyalty Programmes 1 January 2014 The Company and its subsidiaries management have assessed the effect of this financial reporting standard, accounting standard interpretation and financial reporting standard interpretations that they will not have any significant impact on the financial statements when they are initially adopted. 4

22 4. Summary of significant accounting policies 4.1 Revenue recognition (a) Interest and discount on loans to customers The subsidiary, which engages in banking business, recognises interest and discounts on loans to customers as revenue on an accrual basis, based on the amount of principal outstanding. For (a) loans on which principal or interest payments have been defaulted for more than three months from the due date; (b) loans on which principal or interest payments have been defaulted for not more than three months but are classified as sub-standard, doubtful or doubtful of loss; and (c) factoring loans which have been defaulted from the due dates, the subsidiary ceases accrual of interest income and instead recognises interest income on a cash basis and reverses any interest previously accrued as revenue, in accordance with the BOT s Notification. Interest is then recognised as income on cash basis until settlement of such overdue balance has been received from the debtors. Interest income from hire purchase is recognised as revenue over the period of the contracts, using the effective interest rate method. If hire purchase receivables default on installments and are overdue more than three months past the due dates, the subsidiary ceases accrual of revenue and reverses the revenue previously recorded from its accounts. The subsidiary recognises interest income on restructured loans as revenue on the same accrual basis as applied on loans to customers discussed above, with the exception of restructured loans that are subject to monitoring for compliance with restructuring conditions. On those loans, the subsidiary recognises interest income on cash basis until the borrower has been able to comply with the restructuring conditions for a period of not less than three consecutive months or three consecutive installments, whichever is longer. Interest or discounts which are already included in the face value of notes receivable or loans are recorded as deferred interest, which will be amortised to income evenly throughout the term of the notes or loans. The Company recognised interest income as revenue on accrual basis. 5

23 (b) Interest and dividends on investments Interest on investments is recognised as revenue on an accrual basis. Dividends from investments are recognised as revenue when the right to receive the dividends is established. (c) Gain (loss) on investments Gain (loss) on investments is recognised as revenue/expenses on the transaction dates. (d) Fees and service income Fees and service income are recognised as revenue on an accrual basis, which taking into account the stage of completion. Management and registrar fees are recognised as income on an accrual basis, calculated base on percentages of the net asset value of the funds or at rates stipulated in agreements. 4.2 Expense recognition (a) Interest expenses Interest expenses are recognised on an accrual basis. Interest on notes payable included in the face value is recorded as deferred interest expense, which will be amortised to expenses evenly throughout the term of the notes. (b) Commission and direct expenses charged on hire purchase Initial direct expenses at the inception of a hire purchase contract i.e. commission expenses, are to be deferred and amortised using the effective interest method. Unearned income on hire purchase is presented net of commission expenses and initial direct cost on the inception of the contracts. (c) Other expenses The Company and its subsidiaries adopt an accrual basis on expense recognition. 4.3 Cash and cash equivalents Cash and cash equivalents are the amounts included in the statements of financial position under the caption of Cash, which consists of cash on hand and cheques in transit. 6

24 4.4 Securities purchased under resale agreements/securities sold under repurchase agreements The subsidiary enters into agreements to purchase securities or to sell securities that include agreements to sell or purchase the securities back at certain dates in the future at fixed prices. Amounts paid for securities purchased subject to a resale commitment are presented as assets under the caption of Interbank and money market items in the statements of financial position, and the underlying securities are treated as collateral to such receivables, while securities sold subject to repurchase commitments are presented as liabilities under the caption of Interbank and money market items in the statements of financial position at the amounts received from the sale of those securities, and the underlying securities are treated as collateral. The differences between the purchase and sale considerations are recognised as interest income or expenses over the transaction periods. 4.5 Investments Investments in securities held for trading are stated at fair value. Changes in the fair value of these investments are recorded in profit or loss in the statements of comprehensive income. Available-for-sale investments are stated at fair value. Changes in the fair value of these investments are recorded in other comprehensive income and will be recorded in profit or loss in the statements of comprehensive income when the securities are sold. Investments in held-to-maturity debt securities are presented at amortised costs less allowance for impairment (if any). The premium/discount on debt securities is amortised by the effective interest rate method with the amortised amount presented as an adjustment to the interest income. Investments in non-marketable equity securities which are classified as general investments are valued at cost less allowance for impairment (if any). Investment in a subsidiary is accounted for in the separate financial statements using the cost method net of allowance for impairment (if any). The fair value of marketable securities is based on the last bid price quoted on the last working day of the reporting period on the Stock Exchange of Thailand. The fair value of debt securities is based on the yield rates quoted by the Thai Bond Market Association. The fair value of unit trusts is determined based on their net asset value as of the end of the reporting period. 7

25 Losses on impairment (if any) of investments are recognised in profit or loss in the statements of comprehensive income. In cases where there is reclassification of investment type from one type to another, such investments will be readjusted to their fair value as at the reclassification date. The difference between the carrying amount and the fair value on the date of reclassification are recorded in profit or loss or other comprehensive income in the statements of comprehensive income, depending on the type of investment that is reclassified. On disposal of an investment, the difference between net disposal proceeds and the carrying amount of the investment is recognised in profit or loss in the statements of comprehensive income. The Company and its subsidiaries using weighted average method for computation of the cost of investments when sold. 4.6 Loans to customers Loans to customers are presented at the principal balances, excluding accrued interest receivables, except for overdrafts which are presented at the principal balances plus accrued interest receivables. Deferred revenue and unearned discounts on loans to customers are deducted from the loans to customers balances. Hire purchase receivables are stated at the outstanding balances under the agreements less the balance of unearned income, which is presented net of deferred commission expenses and initial direct costs. 4.7 Allowance for doubtful debts The subsidiary that operates banking business provides allowance for doubtful accounts in accordance with BOT guidelines, using the minimum rates stipulated by the BOT, and making further adjustments to reflect additional amounts that are not expected to be collectible from debtors, based on evaluation of the current status of the debtors, taking into accounts the subsidiary s experience of debtor s repayment capability, credit risk and the value of collateral. For loans classified as pass (including restructured loans) and special-mention, the subsidiary sets provision at the rates of 1% and 2%, respectively, of the loan balances (excluding accrued interest receivables) after deducting collateral value in accordance with criteria stipulated by the BOT. 8

26 For non-performing loans, which classified as sub-standard, doubtful and doubtful of loss, the subsidiary sets provision at a rate of 100% of the excess of the loan balance over the present value of expected future cash flows from debt collection or from collateral disposal for loans, in accordance with criteria stipulated by the BOT. The discount rate and expected time required to dispose collateral used in determining the present value is in accordance with criteria stipulated by the BOT. For hire purchase receivables, the subsidiary sets provision at percentages of the amount of principal outstanding net of deferred income, using the minimum rates stipulated by the BOT, and exclude the collateral value to be considered. Allowance for doubtful debts additionally set up is recognised as expense for the periods. Amounts written off as bad debts are deducted from the allowance for doubtful debts and in case of recovery being made from bad debts, the recovered amount is recognised as revenue in the years it is recovered. Allowance for doubtful accounts of the subsidiary, which operates a fund management business, is provided for the estimated losses that may be incurred in collection of receivables. The allowance is generally based on collection experience and analysis of debt aging. 4.8 Troubled debt restructuring and losses from debt restructuring The subsidiary records troubled debt restructuring transactions with reference to criteria stipulated by BOT. In cases where the troubled debt restructuring involves modification of the repayment conditions, the subsidiary will determine the present value of expected future cash flows to be received in accordance with the new restructuring agreements, discounted by the loan s original interest rates. And in cases where the debt restructuring has been processed through the courts, the subsidiary will calculate discounted cash flows from the disposal of collateral or expected future cash flows from repayment using the original contract rate. The excess of the recorded outstanding loans and receivables balance over the determined present value of future cash flows is accounted for as revaluation allowance for debt restructuring and is recognised as expenses in part of profit or loss in the statements of comprehensive income on the debt restructuring date (only if the determined revaluation allowance for debt restructuring exceeds the allowance for doubtful debts already provided for such loans and receivables). 9

27 In cases where the troubled debt restructuring involves debts/assets swap and/or debts/equity swap, the subsidiary recognises a gain/loss from debt restructuring in profit or loss from operation equal to the excess of the recorded outstanding loan and receivable balances with the fair value of assets and/or equity received in settlement of debts (after deducting the estimated selling expense). However, the value of assets being transferred to the subsidiary will be recorded at the amount not exceeding the sum of the book value of loans and receivables and non-accrued interest income to which the subsidiary is entitled legally. In cases where the troubled debt restructuring involves reduction of principal and/or interest accrued, the subsidiary recognises it as expenses. 4.9 Investment properties Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and allowance for impairment (if any). Depreciation of investment properties is calculated by reference to their costs on the straight-line basis over estimated useful lives of 20 years. Depreciation of the investment properties is included in part of profit or loss from operation Property foreclosed Property foreclosed is stated at the lower of cost (with fair value, but this does not exceed the legally claimable amount of debt) or net realisable value, which is determined with reference to the latest appraisal value less estimated selling expenses, adjusts these in accordance with the BOT s guideline and taking into consideration the type and the nature of the assets. Gain on disposal of property foreclosed are recognised as income in part of profit or loss in the statements of comprehensive income on the disposal date. Loss on disposal and impairment loss are recognised as expenses in part of profit or loss in the statement of comprehensive income Land, premises and equipment/depreciation Land is stated at cost less allowance for impairment (if any). Buildings, leasehold improvements and equipment are stated at cost less accumulated depreciation and allowance for impairment (if any). Depreciation is calculated by reference to their costs on the straight-line basis (except for computers of the subsidiary which have been acquired before July 2011 are depreciated using the sum-of-the-years digit method) over the following estimated useful lives. 10

28 Buildings - 20 years Leasehold improvements - 5 years Furniture and fixtures - 5 years Office equipment years Vehicles - 5 years Depreciation is recognised as expense in part of profit or loss from operation. No depreciation is provided on land and leasehold improvements under construction. An item of land, premises and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on disposal of an asset is included in part of profit or loss in the statements of comprehensive income when the asset is derecognised Intangible assets/amortisation Intangible assets are measured at cost upon initial recognition and subsequently measured at cost less any accumulated amortisation and allowance for impairment losses (if any). Intangible assets with finite lives are amortised on a systematic basis over their economic useful life and tested for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and method for such intangible assets are reviewed at least of each year end. The amortisation and allowance for impairment are recognised as expenses in part of profit or loss in the statements of comprehensive income. Intangible assets with finite useful lives of the subsidiaries are computer software and deferred license fee, which have an estimated useful life of 5 and 10 years, respectively. And no amortisation is provided on computer software under development Impairment of assets At the end of each reporting period, the Company and its subsidiaries perform impairment reviews in respect of assets whenever events or changes in circumstances indicate that an asset may be impaired. The Company and its subsidiaries recognise loss on impairment when the recoverable amount of asset, which is the higher of the asset s fair value less costs to sell and its value in use, is less than the carrying amount. 11

29 In determining 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. In determining fair value less costs to sell, the calculations are corroborated by a valuation model that based on information available, reflects the amount that they could obtain from the disposal of the asset in an arm s length transaction between knowledgeable, willing parties, after deducting the costs of disposal. An impairment loss is recognised as expenses in part of profit or loss in the statements of comprehensive income Employee benefits (a) Short-term employment benefits Salary, wages, bonuses and contributions to the social security fund are recognised as expenses when incurred. (b) Post-employment benefits Defined contribution plan The subsidiaries and the employees have jointly established a provident fund. The fund is monthly contributed by employees and by the subsidiaries. The fund s assets are held in a separate trust fund and the subsidiaries contributions are recognised as expenses when incurred. Defined benefit plan The subsidiaries have obligations in respect of the severance payments they must make to employees upon retirement under labor law. Such payments are considered a defined benefit plan for their employees. The subsidiaries obligation under the defined benefit plan is determined by a professionally qualified independent actuary, using the Projected Unit Credit Method, or their management based on actuarial techniques. Actuarial gains or losses arising from the defined benefit plan are recognised in other comprehensive income. 12

30 4.15 Income taxes Income taxes represent the sum of income taxes currently payable and deferred taxes. Current taxes Current taxes are provided in the accounts at the amount expected to be paid to the taxation authorities, based on taxable profits determined in accordance with tax legislation. Deferred taxes Deferred taxes are provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts at the end of each reporting period, using the tax rates enacted at the end of the reporting periods. The Company and its subsidiaries recognise deferred tax liabilities for all taxable temporary differences while they recognise deferred tax assets for all deductible temporary differences and tax losses carried forward to the extent that it is probable that future taxable profit will be available against which such deductible temporary differences and tax losses carried forward can be utilised. At each reporting date, the Company and its subsidiaries review and reduce the carrying amount of deferred tax assets to the extent that they are no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. The Company and its subsidiaries record deferred taxes directly to shareholders' equity if the taxes relate to items that are recorded directly to shareholders' equity Long-term leases When the lease contracts entered into by the subsidiaries as the lessees and they classify them as operating lease contracts, payments made under such lease contracts are recognised as expenses over the lease periods Related party transactions Related parties comprise enterprises and individuals that control, or are controlled by the Company and its subsidiaries, whether directly or indirectly, or which are under common control with the Company and its subsidiaries. They also include individuals which directly or indirectly own a voting interest in the Company and its subsidiaries that give them significant influence over the Company and its subsidiaries, key management personnel, directors and officers with authority in the planning and direction of the Company s and its subsidiaries operations, together with closed family members of such persons and companies which are controlled or influenced by them, whether directly or indirectly. 13