The Erawan Group Public Company Limited

Transcription

1 The Erawan Group Public Company Limited Annual Report 2009

2 12 Destinations of Traditional Thai Market Amphawa Floating Market, Samut Songkhram 2. Bang Phli Old Market, Samut Prakan 3. Sam Chuk 100 Years Old Market, Suphan Buri 4. Jet Samian Market, Ratchaburi 5. Taling Chan Floating Market, Bangkok 6. Ang Sila Old Market, Chon Buri

3 01 The Erawan would like to depict the uniqueness of Thai history and way of life through these 12 markets. Success with Integrity 7. Kadgongta, Lampang 8. Nang Loeng Market, Bangkok 9. China Town, Bangkok 10. Takua Pa Old Town Market, Phang-nga 11. Klong Suan 100 Year Market, Samut Prakan 12. Ban Mai Market, Chachoengsao The Erawan Group Public Company Limited

4 02 Contents IN REVIEW Vision Mission and Core Values 004 Our Business Strategy 005 Financial Highlights 008 Hotel and Resorts Portfolio 010 Chairman Review 011 President and Chief Executive Officer Review 012 CFO s Report 014 Report of the Audit Committee to Shareholder 025 Report of the Board s Responsibility in the Financial Statements 026 ABOUT ERAWAN Corporate Profile 028 Properties in Operation 030 Properties under Development 034 Capital Structure and Management 035 Shareholding of the Board of Directors and Management 043 BUSINESS OVERVIEW Hotel Industry 045 Rental Property 047 Risk Factors 048 GOOD CORPORATE GOVERNANCE Corporate Governance Policy 051 Remuneration of the Board of Directors and Management 060 Corporate Social Responsibility 061 Internal Control 068 Connected Transactions 070 APPENDICES Audit Report of Certified Public Accountant 073 Audit Fee 074 Financial Statements 075 Corporate Information 142 Annual Report 2009

5 03 Success with Integrity IN REVIEW Six Senses Destination Spa Phuket The Erawan Group Public Company Limited

6 00404 VISION To be one of Thailand s leading hotel and resort developers. MISSION To develop a well diversified portfolio of hotels and resorts that fulfills diverse customers needs while continuing to create values to all stakeholders as well as Thailand s tourism as a whole. Core Values SPICE System: Systematic management approach to enhance efficiency as well as to lessen reliance on individuals People: Competent workforce with dedication to further learning and continual improvement Information: Accurate, adequate, and up-to-date database for the purpose of management and decision-making Culture: Sound corporate culture to support sustainable growth Environment: Being a good, responsible corporate citizen by taking part in activities that promote community and environment Annual Report 2009

7 Our Business Strategy Success with Integrity The Erawan operate on three core business strategies as follows: 1. Maximizing value through effective management of current assets. 2. Developing a well-diversified hotel portfolio to meet diverse customers needs which yield diversified risk and returns. 3. Ensuring stability and sustainable growth of our organization through development of systems, core competencies, database, and core corporate culture. Hotels 74% 100% 100% 100% 100% 100% 100% Offices Building and Retail Shops 100% 100% The Erawan Group Public Company Limited

8 06 12 Destinations of Thai Hospitality Bangkok 1. Grand Hyatt Erawan Bangkok Hotel 2. Courtyard by Marriott Bangkok Hotel 3. JW Marriott Bangkok Hotel 4. ibis Bangkok Nana 5. ibis Bangkok Sathorn Pattaya 6. Holiday Inn Pattaya 7. ibis Pattaya Annual Report 2009

9 07 Success with Integrity Samui 8. Renaissance Koh Samui Resort and Spa 9. ibis Samui Bophut Phuket 10. Six Senses Destination Spa Phuket 11. ibis Phuket Patong 12. ibis Phuket Kata The Erawan Group Public Company Limited

10 00808 Financial Highlights (Unit: Thousand Baht) Description Revenues from Operations 3,194,350 3,375,977 3,149,033 Total Revenues 3,391,397 3,412,960 3,191,623 Gross Profit 1,833,994 1,921,298 1,658,132 EBITDA 1,010, , ,401 Net Profit (Loss) 401,921 78, ,411 Total Assets 10,255,349 12,630,098 13,288,817 Total Liabilities 6,504,816 8,871,685 9,749,858 Total Shareholders Equity 3,750,534 3,758,413 3,538,959 Equity Attributable to Company s Shareholders 3,649,392 3,657,970 3,406,397 Paid-up Share Capital 2,214,574 2,244,779 2,244,779 Number of Paid-up Shares (Thousand shares) 2,214,574 2,244,779 2,244,779 Par Value Per Share (Baht) Earning Per Share (Baht) Dividend Per Share (Baht) Book Value Per Share (Baht) Significant Financial Ratio Current Ratio (Times) Quick Ratio (Times) Liquidity Ratio (Cash Flow Basis) (Times) Gross Profit Ratio 57.41% 56.91% 52.66% Net Profit Margin 11.85% 2.30% n/a Return on Total Assets 4.24% 0.68% n/a Return to Equity 12.47% 2.14% n/a Debt to Equity Ratio (Times) Interest Bearing Debts to Equity Ratio (Times) Interest Coverage Ratio (Times) Annual Report 2009

11 Success with Integrity Baht Million Net Profit EBITDA Revenue 4,000 3,500 3,000 2,500 2,000 1,500 1, ,153 1, (229) 78 2,858 3,331 3,194 3,376 3,149 The Erawan Group Public Company Limited

12 010 Hotel and Resorts Portfolio Renaissance Koh Samui Resort and Spa ibis Samui Bophut Grand Hyatt Erawan Bangkok Courtyard by Marriott Bangkok JW Marriott Bangkok ibis Bangkok Nana ibis Bangkok Sathorn ibis Bangkok Riverside* ibis Krabi* ibis Sriracha* Six Senses Destination Spa Phuket ibis Pattaya ibis Phuket Kata ibis Phuket Patong Holiday Inn Pattaya ibis Hua-Hin* * Properties under Development รายงานประจำป Annual Report

13 011 Chairman Review Success with Integrity The world s economic slowdown, Thailand s political uncertainties and the H1N1 influenza undoubtedly led to the adverse effect of the Thai tourism industry in For The Erawan, thanks to our risk management programs implemented since late 2008, we practically managed through the crisis although we did suffer from operating loss. This was certainly a result of an effective collaboration between our management and Board of Directors. More importantly, this would not have been achieved without solid support from all stakeholders including our suppliers, our hotel management partners, our lenders and our employees, and our investors patience and understanding. Despite on-going events, we remain committed to strengthen our fundamental and enhance our development for sustainable growth. Supervision mechanisms were essentially based on the principle of corporate governance. We committed to do our business on a transparency basis as well as to adequately, openly and regularly disclose relevant information on a timely basis. As a result, in 2009, The Erawan received the highest ranking, Excellence, from the survey of the Corporate Governance Report of Thai Listed Companies 2009 as evaluated by the Thai Institute of Directors. We were also one of the three listed companies with market capitalization of no more than Baht 10 billion in Group 1 that was nominated for the IR Excellence Award from the Stock Exchange of Thailand. Last but not least, our annual general meeting of shareholders was rated Excellence in terms of quality assessment. We would like to express our deep appreciation to everyone who has supported us through the difficult times in We intend to continue developing our organization for the benefit of our shareholders and all stakeholders and we strive to be a good corporate citizen of a society we call home. Board of the Year for Distinctive Practices 2006/2007 Excellent CG Report 2009 Mr. Prakit Pradipasen Chairman of the Board of Directors The Erawan Group Public Company Limited

14 012 President and Chief Executive Officer Review 2009 was indeed a year of test the test of strength of Thailand s tourism industry and hotel business. All negative events ranging from the world s economic crisis to political instability started since late 2008 and the H1N1 epidemic influenza inevitably affected our business. For The Erawan Group ( The Erawan ), we opened eight hotels as planned over of the past 18 months starting from mid 2008 as part of our Phase I expansion plan set forth 4 years ago to become Thailand s leading hotel investment group. The said industry downturn led to a 20 percent reduction in revenues from our hotels operating before 2008 while those from newly-opened hotels failed to meet their targets. As a result, we incurred a net loss of Baht 229 million for Nevertheless, this did not cause us financial difficulties as we still registered nearly Baht 800 million of EBITDA which sufficiently cover our fixed obligations for the year. (More details of our financial performances in the CFO s Report) Despite all the said unusual events, we continued to receive strong support from financial institutions in developing our hotels. In 2009, we opened three new hotels including a 200-room ibis Bangkok Nana in Q1; a 367-room Holiday Inn Pattaya and a 258-room ibis Phuket Kata in Q4. We now own 12 hotels with total of 3,089 rooms in Thailand s major destinations which can accommodate a wide range of customers from luxury to economy segment and have become one of the hotel owners with the largest number of rooms offered in Thailand. Our strategy set forth through the Phase I expansion aims not only to generate revenues and assets growth but also to diversify our risk that may incur from a particular market at different time. We experienced that despite difficulties during the past year, our new hotels under the Phase I expansion plan managed to contribute approximately 24 percent incomes to total revenues. As a result, our total revenues declined 7 percent only from the previous year. With regard to project management, we successfully complete all new hotels with brand standards and lower than expected investments. We have so far saved more than Baht 400 million investment budget or approximately 6 percent of the total investment. As a result, our expected return of investment is still more or less closed to the original target we set for the project even though the hotel revenues during their ramp up periods did not reach the expected level. Annual Report 2009

15 013 President and Chief Executive Officer Review Success with Integrity We believe we were able to get through the industry crisis this time and several other incidents in the past because of our well-prepared risk management plans as well as our ability to quickly adjust ourselves to cope with the situation. This included not only a timely investment readjustment of new projects and financial obligations rearranging but also an on-going review of cost reduction in personnel and operation expenses. In addition, it has been our intention to always restore and modernize our existing assets to increase our competitiveness, continue to enhance our corporation by upgrading our operating systems and human resources, build database to better serve decision-making and promote our corporate culture, all of which is for a sustainable growth. We commit to manage our business under the principle of good corporate governance and to raise corporate social responsibility (CSR) awareness to ensure that it is actually implemented among staff of all levels so that our interactions with all stakeholders will be in line with what we have set. (More details in Corporate Social Responsibility) To ascertain the results, we regularly conduct a survey of stakeholders to improve our operations and practices. Such surveys have been applied as one of the important factors to determine annual remunerations of our employees at all levels. We remain confident in Thailand s tourism competitiveness in the long run. Recovery of tourists arrivals since Q3 and particularly in Q4 once again demonstrated the resilience of the country s tourism industry despite internal and external difficulties. Furthermore, Asia Pacific, in particular Southeast Asia, continues to be the region which international tourism organizations expect to see a higher growth rate than any other regions in the world. We therefore strongly believe that all 12 hotels of The Erawan will respond well to the needs of a diverse mix of the customers. This will not only benefit our shareholders and stakeholders but also strengthen the standard of Thailand s hotel industry. Mr. Kasama Punyagupta President and Chief Executive Officer The Erawan Group Public Company Limited

16 014 CFO s Report (A) 2009 Profit & Loss Overview Thailand faced with number of turbulences over the year from internal political conflicts to the effects of the economic downturn which spread through every part of the world since late Knowing that we would face with such a challenging market environment in 2009, we implemented various risk management action plans from operating cost-savings at property level which can be timely adjusted to deal with different market scenarios at different time to an execution of various financial measures at the company level to prepare for the worst including prioritising capital expenditure and rearranging loan repayment which reduce our debt obligation in 2009 to only the interest charges and no long term loan principal repayments with no penalty. As such, repayment amounts for 2009 and 2010 were reduced by almost Baht 1 billion. Key financial covenants were also waived or relaxed to further mitigate financial risks. Having these counter measures put in place since before the end of 2008 allowed us to focus on business strategy for 2009 which is no doubt a challenging year for every industry. On demand side, Thailand tourism industry gradually picked up from its dip in Dec-08 with a rebound of tourist arrivals since January this year. Though not back to normal or near the level our hotels experienced during the good years, an increasing occupancy and revenue per available room ( RevPar ) on a month-on-month ( m-m ) basis during the first three months of this year represented a good sign of recovery and in line with pattern of recovery we experienced through several incidents in the past which demands progressively returned within 4-6 weeks. Such promising demand recovery was however put on the brakes during the second quarter when the internal political conflicts led to violence in mid-april followed by concerns over the spread of H1N1 influenza across many countries in the world in early May which was certainly an unexpected factor. As political situations positively developed and the world learns how to handle H1N1 on everyday life, we saw demand picked up again in the third quarter and continued through the last quarter of the year. International tourist arrivals at Suvarnabhumi International Airport which is the main gate to Thailand started to show year-on-year ( y-y ) growth from September through the year end and Thailand was able to maintain total tourist arrivals at 14 millions level in 2009 despite the aforementioned hiccup and global economic downturn. Business operation wise, our focus has been on maximising top line while cost-savings initiatives remained in tact. The benefits from our hotel diversification strategy set out 4 years ago have become more visible under these market difficulties. In general, our midscale and economy hotels were relatively less affected than the luxury hotels. The strongest growth came from our economy segment. Annual Report 2009

17 015 CFO s Report Success with Integrity On new hotel developments, we opened 3 new hotels as planned in 2009 including our 5 th ibis hotel (2 nd in Bangkok), ibis Bangkok Nana in March, our 2 nd midscale hotel, Holiday Inn Pattaya in October and our 6 th ibis hotel (2 nd in Phuket), ibis Phuket Kata in December. These newly opened hotels added another 825 rooms to our hotel portfolio. We now own 12 hotels, total of 3,089 rooms, from luxury to midscale and to economy segment across Thailand s major tourist destinations. The construction of our 7 th ibis (3 rd in Bangkok) on the riverside of Bangkok s renowned Chaophraya River is on schedule with target opening in the fourth quarter of This ibis Bangkok Riverside will be the largest among our ibis hotels with 267 rooms in total. All in all, the market weakness in 2009 led to 8 percent drop of hotel income despite 295 percent income growth of the 5 hotels opened in 2008 and approximately Baht 120 million additional income generated from the 3 new hotels opened in Our rental properties were not materially impacted and continued to generate income and profit growth to the consolidated performance. Consolidated earnings before interest, tax and depreciation & amortization ( EBITDA ) remained positive at Baht 790 million which was above our finance costs, taxes and non-recurring expenses. However the remaining balance was not sufficient to cover the non-cash item such as depreciation & amortization and hence leading to a net loss for the year of Baht 229 million in Hotels Operating Income 2,986 2,748-8% Rental and Service Income % Total Operating Income 3,376 3,149-7% Operating Expenses (2,299) (2,359) +3% EBITDA 1, % Depreciation & Amortization (505) (628) +24% Operating Profit % Other Income % Interest Expenses (274) (307) +12% Pre-tax Profit (Loss) 327 (102) -131% Taxes (93) (46) -51% Minority Interest (61) (32) -48% Normalized Net Profit (Loss) 173 (180) -204% Non Recurring Items - Net* (94) (50) -47% Net Profit (Loss) 78 (229) -393% E.P.S (0.10) -391% Note: *Details are explained in later section of this report. Baht Million Changes The Erawan Group Public Company Limited

18 CFO s Report 016 Income In line with our diversification strategy, the composition of our total income has changed over the years with the most significant growth from Economy Hotels segment as illustrated in the table below. In Baht Million Baht Million % Total Baht Million % Total Baht Million % Total Luxury Central Bangkok Hotels 2, % 2, % 1, % Luxury Resorts % % % Midscale Hotels % % % Economy Hotels - 0.0% % % Income from Hotel Properties 2, % 2, % 2, % Rent from Office Space % % % Rent from Retail Space % % % Others (food court, parking, etc.) % % % Income from Rental Properties % % % Other Income % % % Gains from Sales of Investment % 9 0.3% 0 0.0% Total Income 3, % 3, % 3, % Remark: No contribution from Amarin Plaza from the first quarter of 2007 onwards. Baht Million Other income Retail Office Economy Hotels (6) Midscale Hotels (2) Luxury Resort (2) Luxury CBD Hotels (2) Numbers of hotels, if more than one, are in parentheses. 3,500 3,000 2,500 2,000 1,500 1, ,220 +6% 3,405-6% 3, Annual Report 2009

19 017 CFO s Report Success with Integrity Operating statistics and analysis on income from all our properties, including 3 new hotels, for 2009 are as follows: Luxury Hotels Our two luxury hotels in Bangkok, Grand Hyatt Erawan Bangkok Hotel ( GHEB ) and JW Marriott Hotel Bangkok ( JWM ), experienced a drop of 9 percent in average occupancy and 14 percent in average room rates ( ARR ). This resulted in a 25 percent decrease of revenue per available rooms ( RevPar ) and the combined room revenues from these two flagships. Nevertheless, GHEB and JWM continued to demonstrate their competitiveness against their peers with GHEB maintaining its No. 1 RevPar ranking in the CBD and JWM s RevPar ranked No. 4 regardless the tough business environment. For resort destinations, Phuket remained stronger than Samui. Our Renaissance Koh Samui Resort and Spa ( RKS ) closed the year with 11 percent lower occupancy and 17 percent lower ARR which resulted in a 31 percent drop of RevPar and room revenues. As for our ultra-luxury Six Senses Destination Spa Phuket ( SSP ), fully opened in Dec-08, its RevPar improved almost double in 2009 which was its first full year of operation with occupancy up by 8 percent y-y as driven by the promotional prices given throughout the year. Average Room Rate (ARR) Revenue per available room (RevPar) Note: Six Senses ARR is based on Spending/Room. Baht/room/night 40,000 36,000 32,000 28,000 24,000 20,000 16,000 12,000 8,000 4,000 0 Occupancy rate 42,345 69% 59% 66% 75% 6,334 66% 55% 5,589 5,304 6,192 4,470 5,163 4,394 3,305 3,955 2,943 4,099 2,835 1,524 2, Grand Hyatt JW Marriott Renaissance Samui Six Senses Destination Erawan Spa Phuket 4% 12% 24,558 In total, income from the four luxury hotels dropped 18 percent from a year ago to Baht 2,203 million in 2009 which mainly caused by a 24 percent decrease of combined room revenues while income from food & beverage ( F&B ) dropped only 9 percent. The lower drop of F&B was mainly due to the fact that our F&B operations at GHEB and JWM normally supported by local customers than hotel guests, thus not much dependent on hotel occupancy. The income breakdowns for our 4 luxury hotels in 2009 are in the diagram as follows: The Erawan Group Public Company Limited

20 CFO s Report 018 From other operations From food & beverages operations From room sales Note: Standalone basis (excluding the effects of eliminations for consolidated accounts). Baht Million 1,400 1,200 1, , , , Grand Hyatt JW Marriott Renaissance Samui Six Senses Destination Erawan Spa Phuket Midscale Hotels We now have 2 hotels under the midscale segment, Courtyard by Marriott Bangkok Hotel ( CYB ) in its second year of operation and the newly opened Holiday Inn Pattaya ( HIP ). As a result of industry softness, CYB recorded 20 percent lower RevPar in 2009 as compared to the same period a year ago. HIP which offered promotional rates during its first three months of operations was able to command 61 percent occupancy. Their statistics in 2009 or since openings are as follows: Baht/room/night 3,500 3,000 Average Room Rate (ARR) Revenue per available room (RevPar) 2,500 2,000 1,500 70% 2,394 65% 2,067 Occupancy rate 61% 1,968 Note: Standalone basis (excluding the effects of eliminations for consolidated accounts). 1, ,686 1, Courtyard by Marriott Bangkok 1,203 Oct-Dec 2009 Holiday Inn Pattaya Annual Report 2009

21 019 CFO s Report Success with Integrity Our midscale hotels recorded total income of Baht 274 million in 2009, a 4 percent increase from last year despite an 18 percent drop of CYB s total income. This was mainly contributed from HIP which had only three months of operation during the fourth quarter of The income breakdowns for our 2 midscale hotels in 2009 are in the diagram below. Baht Million From other operations From food & beverages operations From room sales Note: Standalone basis (excluding the effects of eliminations for consolidated accounts) Oct-Dec 2009 Courtyard by Marriott Bangkok Holiday Inn Pattaya Economy Hotels Our properties under this segment are all under ibis brand. At the end of 2009, we had total of 6 economy hotels which proven to be the most resilient segment providing the highest growth y-y. Our first 4 ibis hotels opened in 2008 including ibis Phuket Patong ( IPK ), ibis Pattaya ( IPT ), ibis Bangkok Sathorn ( IST ) and ibis Samui Bophut ( ISM ) had their occupancy and RevPar grew significantly y-y while the newly opened ibis Bangkok Nana ( INN ) led the pack with highest occupancy (77 percent) and RevPar and ibis Phuket Kata ( IKT ) in its first month of operation achieved 58 percent occupancy with the highest ARR as Phuket moved toward its high season in Dec-09. The diagram below provides their 2009 statistics. The Erawan Group Public Company Limited

22 CFO s Report 020 Average Room Rate (ARR) Revenue per available room (RevPar) Note: Standalone basis (excluding the effects of eliminations for consolidated accounts). Baht/room/night 2,500 2,250 2,000 1,750 1,500 1,250 1, % 64% 1, , May-Dec ibis Phuket Patong Occupancy rate 28% % Jul-Dec ibis Pattaya 39% 1, % Sep-Dec ibis Bangkok Sathorn 12% 1,286 24% 1, Oct-Dec ibis Samui Bophut 77% 1, Mar-Dec 2009 ibis Bangkok Nana 58% 1, Dec 2009 ibis Phuket Kata The six ibis hotels combined to generate Baht 297 million in revenue in 2009, a 411 percent increase y-y. Majority of their revenue came from room sales. Revenue breakdown by property and by type of income are listed below. From other operations From food & beverages operations From room sales Note: Standalone basis (excluding the effects of eliminations for consolidated accounts). Baht Million May-Dec ibis Phuket Patong Jul-Dec 2008 ibis Pattaya Sep-Dec 2009 Oct-Dec 2009 Mar-Dec ibis ibis ibis Bangkok Samui Bangkok Sathorn Bophut Nana Dec 2009 ibis Phuket Kata Annual Report 2009

23 021 CFO s Report Success with Integrity Rental Properties Our 2 rental properties, Ploenchit Center ( PC ) and Erawan Bangkok ( EB ), continued to generate steady income growth to the group with higher rental rates continuously y-y. The statistics are in the table below: PC EB % change % change Occupancy 96.1% 93.5% -2.6% 89.8% 92.7% +2.9% Average Receipt (Baht/sqm/month) % 1,206 1,223 +1% The combined income from rental business (including those from shops in GHEB s arcade) in 2009 was Baht 401 million representing an increase of 3 percent from last year. PC s income grew 4 percent to Baht 289 million and EB s income also increase 3 percent to Baht 98 million as our tenants were renewing rental agreements at higher rates during the year. Breakdown of income from PC and EB over the past 2 years are in the diagram below: Others Retail Office Baht Million Ploenchit Center Erawan Bangkok The Erawan Group Public Company Limited

24 CFO s Report 022 Profit from Operations Our Earnings before Interest, Tax, Depreciation and Amortization ( EBITDA ) excluding other income and non-recurring items was down to Baht 790 million in We also recorded a lower EBITDA margin of 25 percent in 2009 vs. 32 percent in 2008 which was mainly due to revenue contraction of the pre-2008 hotels as the new hotels opened during 2008 and the rental properties all showed both EBITDA and margins improvement from With the addition of 3 new hotels in 2009 and the 5 new hotels opened in 2008 were in their full year of operations in 2009, our Depreciation and Amortization ( D&A ) increased by Baht 123 million or 24 percent from last year to record at Baht 628 million for With the said EBITDA above, our consolidated operating profits stood at Baht 162 million for 2009 or a drop of 72 percent from a year ago. The diagram below shows by-property profits excluding allocation of head-office s selling and administrative expenses: EBITDA Operating Profit * Standalone basis (excluding the effects of eliminations for consolidated accounts and head office expenses). Baht Million Grand Hyatt Erawan JW Marriott Renaissance Koh Samui 6 ibis Ploenchit Center Erawan Bangkok Courtyard by Marriott Bangkok Annual Report 2009

25 023 CFO s Report Success with Integrity Finance Costs Our average cost of funding maintained within the same range of 4 percent as the year before. Total interest expenses increased 12 percent to Baht 307 million in 2009 which was mainly due to the recognition of interest charges on our 3 new hotels opened this year and the effects of full year operations from those opened in The 5 new hotels opened in 2008 which had Baht 36 million of interest payments during 2008 recorded Baht 91 million in 2009 while the 3 new hotels opened in 2009 added another Baht 19 million. Interest charges of the pre-2008 properties in 2009 were actually lower than those in Non Recurring Items Non-recurring items for 2009 were mainly pre-opening expenses from new hotels prior to their openings. The net amount this year is a negative Baht 50 million (mainly from ibis Bangkok Nana opened in Mar-09, Holiday Inn Pattaya opened in Oct-09 and ibis Phuket Kata opened in Dec-09). These costs are booked under Selling and administrative expenses in our P&L. For the year 2008, the net amount in our P&L is a negative Baht 94 million which resulting from a combined pre-opening expense of Baht 103 million and Baht 9 million additional gains from the Sale of Amarin Plaza (although transaction was completed in 2007, gradual completion of due diligence process resulted in this Baht 9 million additional gains in 1Q08 and was booked as Other income in our P&L). (B) Financial Status Capital Expenditure We recorded total assets of Baht 13,289 million as of 31 December 2009, an increase of 5 percent from Baht 12,630 million at the end of This is a result of Baht 1,373 million capital expenditure occurred during the year, majority of which were for the 3 new hotel projects already opened in 2009 and one new project (the ibis Riverside) under construction due to open in Sources of funding to support this capital expenditure were project loans drawn during the year and our cashflow from operation. At the end of 2009, we already completed 10 hotels of our Phase I expansion which initially targeted to add 14 hotels to our investment portfolio to become one of the leading players in Thailand s hospitality business. The remaining 3 ibis hotels in Hua Hin, Krabi, and Sriracha which we have already secured land and project financing remained on hold at the end of The 3 projects are expected to require additional Baht 880 million in total should we decide to resume. The Erawan Group Public Company Limited

26 CFO s Report 024 The breakdown of 2009 capital expenditure is as follows: 20% 1% Holiday Inn Pattaya ibis #1-6 ibis #7 Pre-2008 Hotels Rental properties & Others 5% 47% 27% Leverage Total liabilities of the Company increased 9 percent from Baht 8,872 million as of 31 December 2008 to Baht 9,750 million as of 31 December This is mainly from the project loan drawdown for new projects, since we did not have to pay back long term loan principal in 2009, total existing long term loans remained the same as 2008 while the additional drawn down of project loans led to an increase of total interest-bearing debts increase to Baht 8,570 million at the end of 2009 vs. Baht 7,705 million in Dec-08. On the other hand, total equity was thinner from a net loss incurred in As a result, debt-to-equity ratio (D/E) increased to 2.7 times at the end of this year. Despite this high leverage, we believe that our liquidity is still at a manageable level on several accounts. All project loans have over 2 years grace period and the repayments have been designed to gradually match with the expected cash flow generated by each project especially during its first three year ramp up period. In the next three years ( ), only 25 percent of total loan outstanding will be repaid. Additionally, our interest coverage is still high at 2.4 times while Baht 1,732 million out of total credit lines of Baht 1,939 million short-term loan facility remained unused at end of Kamonwan Wipulakorn Chief Financial Officer Annual Report 2009

27 025 Report of the Audit Committee to Shareholder Success with Integrity To Shareholders of the Erawan Group Public Company Limited, The Audit Committee, consisting of three independent directors with qualifications as announced by the Stock Exchange of Thailand and whose terms are three years each, performed its duties within its scopes of responsibility and as entrusted by the Board. In 2009, the Audit Committee met four times to consider the following: 1. To review the quarterly financial statements and the 2009 financial statements where it exchanged views with the auditor, Executive Vice President, Treasury Department, and the internal auditor to determine that the financial statements of the Company and its subsidiaries were having accurate and complete information deserved to be trusted and were in line with the Generally-Accepted Accounting Principles, the SET s announcements and the SEC s notifications. 2. To evaluate an adequacy of the internal control system to see if the Company had an appropriate internal control system that well responded to its business, as well as a way and mean to take care of its properties and to prevent the Company from suffering damages. The evaluation was conducted through the internal auditor s report, the auditor s report and through inquiries with the management. So far, no material defect has been found. As a result, the Company s internal control system is perceived to be efficient and adequate. 3. To review connected transactions or conflict of interest and to disclose information of these transactions to see if they were normal, reasonable and was for the best interests of the Company while in compliance with the authorities rules and regulations. 4. To give advice and approve the annual auditing plan; to acknowledge and submit an internal auditing result to the Board; to review an annual budget and to supervise and evaluate the Internal Audit Department s performance. The Audit Committee, having reviewed the 2010 auditor and the soundness of the auditing fee, eventually proposed to the Board of Directors to seek the Annual General Meeting s approval to appoint Miss Boonsri Chotpaiboonpun, CPA No and/or Mr. Charoen Phosamritlert, CPA No and/or Miss Vannaporn Jongperadechanon, CPA No of KPMG Phoomchai Audit Ltd. as the Company s auditor. Mr. Sansern Wongcha-um Chairman of the Audit Committee 19 February 2010 The Erawan Group Public Company Limited

28 Report of the Board s Responsibility in the Financial Statements 026 The Board of Directors was responsible for the financial statements of The Erawan Group Public Company Limited and its subsidiaries. The financial statement was done according to the Generally-Accepted Accounting Principles in Thailand where an appropriate accounting policy was chosen and implemented. In addition, discretion was exercised, the best estimates were selected and adequate information was disclosed in Notes to Financial Statement. The Board of Directors appointed the Audit Committee, which consisting of 3 independent directors, to responsible for auditing the company s financial statements and to evaluate the internal control system for efficiency. The Audit Committee s opinion in this matter was in Report of the Audit Committee to Shareholder. In this regard, the Board of Directors is of the opinion that the Company s internal control system is proven satisfactory and contributes to the Company s credibility as of 31 December Mr. Prakit Pradipasen Chairman of the Board of Directors Mr. Kasama Punyagupta President and Chief Executive Officer Annual Report 2009

29 027 Success with Integrity ABOUT ERAWAN Grand Hyatt Erawan Bangkok The Erawan Group Public Company Limited

30 028 Corporate Profile The Erawan Group Public Company Limited: Established on 29 December 1982 and continue to develop various real-estate (Hotels and Rental Properties) over the past 28 years Grand Hyatt Erawan Bangkok 1996 Ploenchit Center 1997 JW Marriott Hotel Bangkok 1985 Amarin Plaza 1988 Company registered on Stock Exchange of Thailand 1991 Grand Hyatt Erawan Bangkok 1994 Converted in to a Public Company 1996 Ploenchit Center 1997 JW Marriott Hotel Bangkok Annual Report 2009

31 029 Corporate Profile Success with Integrity 2008 Six Senses Destination Spa Phuket ibis Hotels 2009 Holiday Inn Pattaya 2004 Erawan Bangkok 2005 Renaissance Koh Samui Resort and Spa 2007 Amarin Plaza Sold Courtyard by Marriott Bangkok 2008 Six Senses Destination Spa Phuket ibis Hotels: - ibis Phuket Patong - ibis Pattaya - ibis Bangkok Sathorn - ibis Samui Bophut 2009 Holiday Inn Pattaya 2 ibis Hotels: - ibis Bangkok Nana - ibis Phuket Kata The Erawan Group Public Company Limited

32 030 Properties in Operation Our main business objective is to invest in and develop hotel properties that are strategically located to cater to demand from diverse consumer segments. We currently have 12 hotels in operations which represent our core assets. We also own and manage 2 rental properties. The details of these properties are as follows: Hotels and Resorts Grand Hyatt Erawan Bangkok Rating : Luxury Hotel Number of rooms : 380 rooms Location : Ratchadamri Road, Bangkok Remaining on the current lease: 32 years JW Marriott Hotel Bangkok Rating : Luxury Hotel Number of rooms : 441 rooms Location : Sukhumvit Soi 2, Bangkok Remaining on the current lease: 35 years Renaissance Koh Samui Resort and Spa Rating : Luxury Hotel Number of rooms : 45 deluxe rooms and 33 pool villas Location : Lamai Beach, Koh Samui, Surat Thani Annual Report 2009

33 031 Properties in Operation Success with Integrity Courtyard by Marriott Bangkok Rating : Midscale Hotel Number of rooms : 316 rooms Location : Soi Mahadlekluang, Ratchadamri Road, Bangkok Remaining on the current lease: 28 years Six Senses Destination Spa Phuket Rating : Luxury Destination Spa Number of rooms : 61 pool villas Location : Koh Naka Yai, Phuket Holiday Inn Pattaya Rating : Midscale Hotel Number of rooms : 367 rooms Location : No. 1 Beach Road Pattaya, Chon Buri ibis Phuket Patong Rating : Economy Hotel Number of rooms : 258 rooms Location : Patong Beach, Phuket The Erawan Group Public Company Limited

34 Properties in Operation ibis Pattaya Rating : Economy Hotel Number of rooms : 259 rooms Location : Second Road, Nhongprue, Bang Lamung, Pattaya, Chon Buri ibis Bangkok Sathorn Rating : Economy Hotel Number of rooms : 213 rooms Location : Soi Ngam Duphli, Rama IV Road, Bangkok Remaining on the current lease: 28 years ibis Samui Bophut Rating : Economy Hotel Number of rooms : 258 rooms Location : Bophut Beach, Koh Samui, Surat Thani ibis Bangkok Nana Rating : Economy Hotel Number of rooms : 200 rooms Location : Sukhumvit Soi 4, Bangkok Remaining on the current lease: 29 years Annual Report

35 033 Properties in Operation Suc c e ss wit h Int e g r i ty ibis Phuket Kata Rating : Economy Hotel Number of rooms : 258 rooms Location : Kata Beach, Phuket Rental Properties Ploenchit Center Office Building : 34,490 sq.m. Location : Sukhumvit Soi 2, Bangkok Remaining on the current lease: 15 years Erawan Bangkok Retail Shops: : 6,680 sq.m. Location : Ploenchit Road/ Ratchadamri Road, Bangkok Remaining on the current lease: 32 years The Erawan Group Public Company Limited

36 034 Properties under Development ibis Bangkok Riverside Rating : Economy Hotel Number of rooms : 267 rooms Location : Charoen Nakhon Road Soi 17, Chaophraya River, Bangkok Target customer : Leisure Remaining on the current lease: 25 years ibis Hua-Hin Rating : Economy Hotel Number of rooms : 200 rooms Location : Khao Takiap, Hua-Hin, Prachuap Khiri Khan Target customer : Leisure ibis Krabi Rating Number of rooms Location Target customer : Economy Hotel : 200 rooms : Plot of Iand on Ao-Nang, Krabi : Leisure Ibis Sriracha Rating : Economy Hotel Number of rooms : 200 rooms Location : Central Commercial of Sriracha, Chon Buri Target customer : Business Annual Report 2009

37 035 Capital Structure & Management Success with Integrity Capital Structure As at 30 December 2009, the company s paid up capital is Baht 2,244,779,001 divided into: 2,244,779,001 ordinary shares at par value Baht 1 per share. Top ten shareholders holding the highest number of shares as of 30 December 2009 are as follows: Shareholder s name Number of shares % of total shares 1. Mr. Sukakarn Wattanavekin 379,185, % 2. City Holding Co., Ltd. 243,481, % 3. Mitr Phol Sugar Co., Ltd. 131,353, % 4. Mrs. Wansamorn Wannamethee 120,683, % 5. SKANDINAVISKA ENSKILDA BANKEN A/S 105,423, % 6. Mr. Isara Vongkusolkit 101,257, % 7. MBK Company Limited 96,605, % 8. STATE STREET BANK AND TRUST COMPANY 78,315, % 9. PAN-ASIA SUGAR FUND LIMITED 73,000, % 10. Mr. Supol Wattanavekin 58,698, % Total top ten shareholders holding 1,388,005, % Investor will be able to see the updated shareholders list from the Company s website at before the Annual General Shareholders Meeting. Detail Groups of Major Shareholders are as follows: Major Shareholders Number of shares % of total shares Vongkusolkit Group 871,077, % Wattanavekin Group 698,966, % Total major shareholders 1,570,043, % Foreign Custodian Accounts Group 271,747, % Local Funds Group 45,585, % Insurance Co. Group 1,409, % Company s executives 20,922, % Others 335,070, % Total 2,244,779, % The Erawan Group Public Company Limited

38 Capital Structure & Management 036 Directors that represent the major shareholders are as follows: Director s Names Groups of Major Shareholders 1. Mr. Vitoon Vongkusolkit Vongkusolkit Group 2. Mr. Chanin Vongkusolkit Vongkusolkit Group 3. Mr. Krisda Monthienvichienchai Vongkusolkit Group 4. Mr. Supol Wattanavekin Wattanavekin Group 5. Mrs. Panida Thepkanjana Wattanavekin Group Management Structure The Board of directors consists of the twelve (12) directors as bellowing, the Board has appointed four different committees in a move to clearly define duties and responsibilities namely: The Audit Committee (AC), The Financial and Risk Management Committee (FRC), The Nominating and Corporate Governance Committee (NCG) and The Management Development and Compensation Committee (MDC). Annual Report 2009 Name Title Education 1. Mr. Prakit Pradipasen Chairman of the Board Master of Business Administration (MBA), and Independent Director Wayne State University, Michigan, U.S.A. 2. Mr. Sansern Wongcha-um Independent Director Master Degree of Business Economics, and Chairman of University of Bridgeport, Connecticut, U.S.A. the Audit Committee 3. Assoc. Prof. Manop Pongsadadt Independent Director Master of Architecture (M.Arch), and Member of Kansas State University, U.S.A. the Audit Committee 4. Mr. Dej Bulsuk Independent Director Bachelor of Business Administration, and Member of Thammasat University the Audit Committee 5. Mr. Banyong Pongpanich Independent Director Master of Business Administration (MBA), Sasin Graduate Institute of Business Administration of Chulalongkorn University 6. Mr. Ekasith Jotikasthira Independent Director Master of Business Administration (MBA), Sasin Graduate Institute of Business Administration of Chulalongkorn University

39 037 Capital Structure & Management Success with Integrity Name Title Education 7. Mr. Vitoon Vongkusolkit Director Bachelor of Science, Chulalongkorn University 8. Mr. Supol Wattanavekin Director Master of Business Administration (Executive) (EMBA), Sasin Graduate Institute of Business Administration of Chulalongkorn University 9. Mr. Chanin Vongkusolkit Director Master of Business Administration (Finance), St. Louis University, Missouri, U.S.A. 10. Mrs. Panida Thepkanjana Director Master of Business Administration (MBA), Sasin Graduate Institute of Business Administration of Chulalongkorn University Master of Laws, Chulalongkorn University Barrister-at-Law, The Institute of Thai Bar Association 11. Mr. Krisda Monthienvichienchai Director Master of Business Administration (MBA), Chulalongkorn University 12. Mr. Kasama Punyagupta President and Chief Master of Business Administration Executive Officer (International Business), University of Bridgeport, Connecticut, U.S.A. Company Secretary: Miss Kanokwan Thongsiwarugs Authority to Sign on Behalf of the Company Two of the following four; namely, Mr. Vitoon Vongkusolkit or Mrs. Panida Thepkanjana or Mr. Kasama Punyagupta or Mr. Krisda Monthienvichienchai, shall jointly sign a document together. Dividend Policy Approximately 35 percent of the net profits of the consolidated financial statements after deduction of all kind of reserves as specified by law and the Company. (with additional conditions) The Erawan Group Public Company Limited

40 Capital Structure & Management 038 Roles and Responsibilities of the Board of Directors and the Committee Board of Director s roles and responsibilities are: 1. To manage the Company according to the laws, the Objects in Detail, the Articles of Association and resolutions of the Shareholders Meeting with integrity and prudence for the Company s interests. 2. To determine the company s visions, obligations and business policy. 3. To review the Business and Development plans to increase potential of itself. 4. To consider budgets to maximum the business s economic values and for better returns to shareholders. 5. To formulate the compensation policy and a succession plan of executives. 6. To supervise and develop risk assessment. 7. To supervise and develop the Company s corporate governance compliance. 8. To supervise and set up an internal control and an internal audit system. 9. To take care of interests of both major and minor shareholders so that they can equally exercise and maintain their interests while accessing accurate and complete information with transparence and accountability. 10. To appoint committees in order to determine scopes of work and monitor their performances. 11. To performance evaluation s executives and the HR development policy. Term of Directors 3 years each term. At the Annual General Meeting (AGM), one-third of all directors shall resign by rotation. The resigning directors may be re-elected. The Audit Committee consists of three members as follows: 1. Mr. Sansern Wongcha-um Chairman 2. Assoc. Prof. Manop Pongsadadt Member of the Committee 3. Mr. Dej Bulsuk Member of the Committee Audit Committee s roles and responsibilities are: 1. To review an annual financial statement already audited by auditors and to ensure that it meets the generally-accepted accounting principles; to consider and screen financial information together with the Financial and Risk Management Committee and the auditors before releasing it to the third party. 2. To consider and select, propose for appointment and determine auditor s fees and met four times a year with the auditors. 3. To review material problems and obstacles, the auditor may come across while performing his duty and to settle differences between the auditor and the management. 4. To review the appropriateness and effectiveness of the internal control and internal audit systems are in place according to international standards. 5. To set up a defensive work system for business units in the company to increase operation efficiency and effectiveness. Annual Report 2009

41 039 Capital Structure & Management Success with Integrity 6. To review an annual internal audit plan proposed by the Internal Audit Office. To provide opinion on the consideration of performance, appointment, removal, and remuneration of the Company s internal auditor. 7. To promote and support the development of a financial reporting system that meets the international standards. 8. To control company s compliance with the laws on Securities and Exchange and other legislations relating to its business. 9. To determine fraud prevention measures and review results of a corruption inspection report. 10. To review the accuracy and effectiveness of information technology relating to the internal control system; to offer advice for roles and regular updates. 11. To consider the Company s information disclosure in case of connected transactions or transactions which may involve conflict of interest to ensure that all are correct, sound and carried out in a normal course of business. 12. To prepare the Audit Committee s report to be signed by chairman of the Committee and disclosed it in the Company s annual report. 13. To act otherwise as required by the laws or entrusted by the Board of Directors; when performing along its scopes of work, the Audit Committee shall be empowered to order President and Chief Executive Officer, senior executives, heads of department or related staff to provide their opinions, participate in meeting or submit documents deemed necessary or relevant. Term of Audit Directors: 3 years each term. The Financial and Risk Management Committee consists of six members as follows: 1. Mr. Vitoon Vongkusolkit Chairman 2. Mr. Banyong Pongpanich Member of the Committee 3. Mr. Supol Wattanavekin Member of the Committee 4. Mr. Chanin Vongkusolkit Member of the Committee 5. Mrs. Panida Thepkanjana Member of the Committee 6. Mr. Kasama Punyagupta Member of the Committee Financial and Risk Management Committee s roles and responsibilities are: 1. To supervise financial operations of companies within the group. 2. To supervise, screen, approve and monitor approved investment projects. 3. To assess and formulate a systematic, clear-cut and efficient risk management plan. 4. To supervise and monitor risk assessment tasks as well as to adjust and develop the risk management on a regular basis. The Erawan Group Public Company Limited

42 Capital Structure & Management 040 Term of Financial and Risk Management Directors: 3 years each term. The Nominating and Corporate Governance Committee consists of three members as follows: 1. Mr. Prakit Pradipasen Chairman 2. Mrs. Panida Thepkanjana Member of the Committee 3. Mr. Chanin Vongkusolkit Member of the Committee Nominating and Corporate Governance Committee s roles and responsibilities are: 1. To determine the Board of Directors composition and qualification of its members as well as members of board committees. 2. To nominate candidates for the Board of Directors and member of board committees. 3. To determine the Remuneration of Directors. 4. To propose corporate governance policies and guidelines to the Board of Directors and to review and update such policies and guidelines on ongoing basis. 5. To evaluate the Board of Directors and each committee s performance and to ensure that the Board of Directors and management s operations are being conducted within corporate governance policies and guidelines. 6. To promote knowledge acquisition for the company s nature of business, regulations, and strategies. Term of Nominating and Corporate Governance Directors: 3 years each term. The Management Development and Compensation Committee consists of three members as follows: 1. Mr. Supol Wattanavekin Chairman 2. Mr. Vitoon Vongkusolkit Member of the Committee 3. Mr. Banyong Pongpanich Member of the Committee Management Development and Compensation Committee s roles and responsibilities are: 1. To assess and evaluate performances; to determine annual remunerations and a compensation structure of President and Chief Executive Officer while offering him an advice regarding remunerations of senior executives. 2. To consider a plan to develop skills and competency of President and Chief Executive Officer Nominees (in case of change). 3. To determine significant HR policies i.e. and structure of staff s remunerations for Annual Remunerations and Budgeting, Rewards (bonus), etc. 4. To consider an allocation of the Employees Share Options Program (ESOP) in case such allocation exceeds 5 percent of the program s shares. Annual Report 2009

43 041 Capital Structure & Management Success with Integrity Term of Management Development and Compensation Directors: 3 years each term. Independent Directors, who account for 50 percent of the Company s Board of Directors, consist of: 1. Mr. Prakit Pradipasen Independent Director 2. Mr. Sansern Wongcha-um Independent Director 3. Assoc. Prof. Manop Pongsadadt Independent Director 4. Mr. Dej Bulsuk Independent Director 5. Mr. Banyoung Pongpanich Independent Director 6. Mr. Ekasith Jotikasthira Independent Director The Company s Executives consist of: 1. Mr. Kasama Punyagupta President and Chief Executive Officer 2. Mrs. Kamonwan Wipulakorn Executive Vice President, Chief of Financial Officer 3. Mr. Petch Krainukul Executive Vice President 4. Mrs. Varisara Gerjarusak Executive Vice President 5. Mr. Apichan Mapaisansin Assistant Executive Vice President 6. Mr. Suchai Wuthworachairung Assistant Executive Vice President 7. Mr. Surapon Jaimsuwan Vice President 8. Mr. Viboon Chaisutyakorn Vice President 9. Ms. Pakinee Pramtade Vice President Duties and Authorities of President and Chief Executive Officer 1. To collaborate with the Board to formulate the company s visions and missions. 2. To formulate business plans and both short and long-term strategies to achieve the goals; to formulate risk management plans. 3. To formulate an annual budget and to allocate resources that in line with strategic plans. 4. To manage human resources starting from recruiting to setting salaries, wages, compensations and benefits; to set evaluation methods and to allocate special welfare and benefits; to appoint, remove and transfer staff and to issue rules, regulations and announcements as deemed appropriate. 5. To design the management structure; to determine roles, duties and approval authorities. 6. To build and nurture our corporate culture to support our operations. 7. To develop various systems to ensure effective and efficient operations. 8. To develop skills, knowledges and data bases for the purposes of management and decision making. The Erawan Group Public Company Limited

44 Capital Structure & Management 042 Duties and Responsibilities of Company Secretary The Company Secretary shall have duties and responsibilities that are no fewer than what the Securities and Exchange Act (No. 4) B.E and/or other related laws, rules and regulations have stipulated. This includes: 1. To support the Board to perform its fiduciary duties with integrity and care as a normal person may do in the same situation; to offer advice to directors, the Management and staff to ensure compliances to the laws, rules and regulations of the Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET) and other relevant legislations. 2. To supervise the internal auditing, the internal control system, compliance to the principle of good corporate governance and to be a center in compiling risk management plans. 3. To coordinate matters relating to directors such as changes of qualifications, changes of roles and duties, terms of offices of committees, resignation on rotation, resignation prior to a due term and appointment of new directors. 4. To specify and inform a place where important documents of the firm are kept and to disclose related information based on duties and responsibilities to the SEC. 5. To monitor the Management s performances to ensure good practices. 6. To prepare enough annual reports for distribution to shareholders and related persons. 7. To review invitation letters to the Annual General Meeting of Shareholders and the Extraordinary General Meeting of Shareholders, adequacy of documents, supporting documents and information disclosure to the meeting and minutes of the meeting. 8. To disclose related information under the Secretary s duties and responsibilities to the SET. The Company s Articles of Association of the Nomination of Directors Clause 18 the Shareholders Meeting shall elect directors according to the following rules and procedures: 18.1 Chairman of the Meeting shall propose names and work experiences of nominees submitted by the Board of Directors for approval Each shareholder shall have voting rights equal to the number of shares he holds An election of director may be done by voting either one or several persons as director as the Shareholders Meeting deems appropriate. However, each shareholder must exercise all of his voting rights existed under Clause 18.2 for each director. Dividing votes to a particular nominee is not permitted Those receiving the highest votes in a sequent order shall be elected as directors for an available number of directors. Should those elected in a subsequent order enjoy equal votes which however exceed the number of the existing directors, Chairman of the Meeting shall have a casting vote. Clause 48 A resolution of the Shareholders Meeting shall consist of the following votes: 48.1 In a normal case, majority votes of shareholders who attend the meeting (either by themselves or by proxy) and exercise their votes shall be considered a resolution. Annual Report 2009

45 043 Shareholding of the Board of Directors and Management Success with Integrity Name Title 1. Mr. Prakit Pradipasen Chairman of the Board of Directors 150, , Mr. Sansern Wongcha-um Director Assoc. Prof. Manop Pongsadadt Director 319, , Mr. Dej Bulsuk Director 660,000 1,162,916 (502,916) 5. Mr. Banyong Pongpanich Director 3,001,500 3,001, Mr. Ekasith Jotikasthira Director Mr. Vitoon Vongkusolkit Director 11,457,870 11,457, Mr. Supol Wattanavekin Director 58,698,916 58,698, Mr. Chanin Vongkusolkit Director 5,493,550 5,493, Mrs. Panida Thepkanjana Director 3,693,416 1,278,916 2,414, Mr. Krisda Monthienvichienchai Director Mr. Kasama Punyagupta President and Chief Executive Officer 11,510,211 11,510, Mrs. Kamonwan Wipulakorn Executive Vice President Mr. Petch Krainukul Executive Vice President 839, , Mrs. Varisara Gerjarusak Executive Vice President Mr. Apichan Mapaisansin Assistant Executive Vice President 1,000,000-1,000, Mr. Suchai Wuthworachairung Assistant Executive Vice President 1,825,716 1,825, Mr. Surapon Jaimsuwan Vice President Mr. Viboon Chaisutyakorn Vice President 1,088,697 1,088, Ms. Pakinee Pramtade Vice President Note: From report of securities held by the Company s directors as of 30 December Number of shares As of 31 Dec As of 31 Dec Change +(-) The Erawan Group Public Company Limited

46 044 BUSINESS OVERVIEW Annual Report 2009 Holiday Inn Pattaya

47 045 Hotel Industry Success with Integrity Outlook of the Tourism Industry In 2009, it was an extremely challenging year for Thai tourism due to the world economic slowdown, after effect of the airport closure in late 2008, political unrest during Songkran Day and the H1N1 influenza epidemic in Q2 to which the World Health Organization (WHO) elevated the situation to Level 5 at that time. The average occupancy rate of hotels all over the country recorded low at 48 percent in 1H09, which was even lower than the rate in 1H03 when there was a SARS epidemic. The number of international tourist arrivals decreased to 6.6 million in 1H09, or -16 percent compared to the same period last year. However, during the second half of 2009, both tourist arrivals and hotel occupancy rate slightly increased. In the last quarter, the number of tourists arrivals was closed to the same period of 2007, which was a year before the crisis. As a result, the number of tourist arrival recorded at 14.1 million in 2009 full year, which decreased only 3 percent from Based on the Tourism Authority of Thailand (TAT), the number of international passengers in the last quarter of 2009 increased 31 percent from the previous year. There was a growth in demand from domestic market due to campaigns initiated by the TAT and public sectors through various projects such as the Thais-Travel-Thailand campaign, the Traveling-Thailand-Joyfully campaign, the Thais-Travel-Thailand for Economic Stimulus campaign and the 12 Months-Seven Stars-Nine Suns campaign. In addition, government agencies were urged to organize seminars locally. As a result, the TAT expected the Thais to hit 87 million trips as targeted. Millions International tourist statistics Percent change Number of tourist arrival Remark: Tourism Authority of Thailand, Ministry of Tourism and Sports SARS Tsunami Coup Politics H1N E 2010F 25% 20% 15% 10% 5% 0% -5% -10% The Erawan Group Public Company Limited

48 Hotel Industry 046 In 2010, Thai tourism industry is expected a growth from various factors ranging from the better world economic outlook, consumer price index that continues to rise, positive sign of Thai and overseas tourists arrivals from late last year and tourism promoting policies from both public and private sectors. The TAT estimates that the number of tourist arrivals will be million or the expected revenue of Baht 600 billion in The TAT will continue focusing on its Amazing Thailand, Amazing Value campaign, bringing roadshows to newly-emerging markets and developing other markets based on their specific interests. Other factors that help promoting tourisms are economic growth in Asia, which will attract Asian tourists especially from China and India to come to Thailand. In addition, low-cost airlines also expand their strategic alliance, making the cost of travelling in the region even lower. However, negative effects that may hinder the 2010 tourism industry are political instability, risk from the H1N1 influenza and cost of fuel that may increase. Regarding domestic market, the TAT plans to launch more marketing campaigns to promote local tourism, in order to meet the target of 97 million trips. This expects to generate at least Baht 430 billion. As for marketing activities to promote local tourism, the TAT will do through the Thais-Travel-Thailand campaign, the Two Wonders of Southern Coast campaign, the Amazing I-San Fair campaign and the One Night One Price campaign. Supply of hotel rooms in 2010 is not to increase much from the previous year as various hotel projects in Bangkok and the provinces are stalled or postponed due to economic crisis during the past year. It is expected to take a long time before these hotels could open and operate, making the already-opening hotels reap more profit from the delay of new supply coming into the market. Yet, pricing competition is expected to remain intense. We expect to see a better prospect for the Thai tourism industry in 2010 from various supporting factors and Thailand s competitive advantage over other countries due to good reputation in Thai hospitality, the diversity of tourism attractions and value for money. We strongly believe that, in the long term, Thai tourism will be able to grow strongly in a sustainable manner. Domestic tourist statistics Number of domestic tourism Remark: Tourism Authority of Thailand, Ministry of Tourism and Sports Times SARS Tsunami Coup Politics H1N E 2010F Annual Report 2009

49 047 Rental Property Success with Integrity Industrial Outlook and Business Competition During Q1 and Q2 of 2009, local political condition and the world s economic slowdown still continued to make renting of office space quite sensitive. Based on CB Richard Ellis (Thailand) Co., Ltd. s marketing report, tenants preferred to renew the spaces in order to streamline their costs rather than moving out to new premises. In addition, rents in Grade A and Grade B buildings also fell from the previous year. In Q3, the situation remained unchanged without any significant improvement. Demands hardly rose to an expected direction while supply in the market remained limited. For Q4, the current worldwide economic situation in general started to recover, many projects initiated by the Thai government to stimulate the local economy turned to be in a concrete manner, which has boosted a certain level of investment confidence. Office Buildings The availability of total office space for rent during the last quarter of 2009 was 7.98 million square meters compared to 7.66 million square meters from the year before. From overall space available above, 3.9 million square meters were in the Central Business District (CBD) areas where 3.39 million square meters had been rented, which accounted for 86.7 percent. Another 0.52 million square meters or 13.3 percent remained vacant. Rental Rates of office building from the last two quarters of 2009 continued to slide from the same period a year before. An average rate of Grade A office buildings fell from Baht 744 per square meter to Baht 685 per square meter accounted for 7.9 percent. For Grade B buildings (to which our office building belongs) in the CBD area, an average rent per square meter fell as much as 14 percent to Baht 503 from Baht 585 a year earlier. The important factor that drove the rental rate to fall in comparison to the previous year was less demands according to local political and economic climate that did not allow for expansion. Tenants either downsized their spaces or negotiated to lower their rents to minimize costs which affected directly to landlords. In late Q4 of 2009, there has been 1.19 million square meters remaining supply of office space on delayed or postponed projects and another 79,464 square meters of increasing space in 2010, all of which are in CBD area. As the world s economy seemed to pick up, the currently stalled investment plans will be moving ahead which should further support the overall economy and expected that rental demand for office space will improve in Yet local political condition remains a very important factor for foreign investors to invest in Thailand. Shopping Centers At the end of 2009, the total supply of shopping center space is 5.38 million square meters, increasing 0.34 million square meters which accounted for 6.7 percent from the previous year. Of all the increased space, 36.1 percent is in the CBD area while the rest is around the heart of the city and Bangkok parameters. Moreover, the commercial spaces have been developed to Community Malls offering products and services to specific groups. Rental rates on ground floor of Grade A shopping centers start from Baht 1,200 to Baht 3,200 per square meter. As for Grade B, an average ground floor rental rates per square meter are around Baht 1,000 to Baht 2,500. Throughout 2009 retail market was impacted because of the overall economic downturn and the local political uncertainties. As a result, consumers were more cautious on spending. In the last quarter, as the worldwide economic situation started to recover, this would send a signal to retailers to decide whether to expand or invest appropriately in new business. And it is expected that demands of space renting will gradually increase in The Erawan Group Public Company Limited

50 048 Risk Factors Our board of directors has appointed some of its members to the Financial and Risk Management Committee ( FRC ). The responsibilities of this subcommittee are to supervise and evaluate the risk management strategies to ensure that they are systematic, clear, and effective. The highest ranked officer of each department is the risk owner. Their responsibilities are then to analyze and formulate with the strategies to manage or mitigate the risks. Risks associated with our operations are: 1. Risk Management: Dependence of Third-party Hotel Management We have no policy to manage hotels by ourselves. International hoteliers are hired to utilize their reputations, experiences and expertise in managing and administering the hotels we have invested and developed. These hotel operators are Hyatt International, Marriott International, Accor Hospitality, Six Senses Resorts and Spas, and IHG InterContinental Hotels Group. The management agreements are long-term thereby exposed to the risk that the brand reputation and the operator s capability to compete may decline. Performances of our hotels may not reach the level desired. Nonetheless, the operators we have selected are among the worlds largest with proven track record, tested systems, reputations, and strong financial positions. We then believe that the chance of such deterioration of performances is minimal. The diversifications in terms of hotel operators also help mitigate this risk. In addition, if the situation prolongs, each of the agreements has exit clause in case the hotel operator needs to be changed. 2. Risk from Increasing Supplies The unbalanced of supply and demand will cause a high competition in the market which may affect incomes and operating profits. However, our hotel business has been managed by well-recognized and highly-experienced hotel management groups which can provide competitive advantage such as, wide-range of customer base to ensure certain level of demand, proactive crisis management under unpredictable situation, etc. In addition, we also have a strategy to diversify our investment portfolio in luxury, mid-scale and economy hotel in various tourist destinations. Regarding the office building and shopping center business, although the competition is intense, demands for space remain quite strong especially for that in the CBD area and the shopping district, which are exactly where the Company s premises are located. The risk is therefore minimal and manageable. 3. Risk from External Factors Effected Property Damage and Business Management Risk from external factors such as terrorism, political unrest, environment impact or natural disaster that may affect retail building are inevitable and unpredictable. However, apart from implementing securities and other preventive measures based on international standard practice to reduce these risks, we also take all-risk, terrorism and business interruption insurances to cover the aforesaid risks if it occurs directly to our properties. Annual Report 2009

51 049 Risk Factors Success with Integrity 4. External Risk Factors Affecting Hotel Business Performance External factors affecting Hotel Business performance, such as political unrest or epidemic, are beyond our control and prevention. Abnormal circumstances such as these lead to sudden drop in number of foreign tourist arrival, and in turn directly impact on company s earnings. Nevertheless, historical evidences proved that these impacts are short term (3-9 months). Our risk management strategy is flexibility and responsiveness of our systems. Sales and Marketing structures allow for fast reaction to market condition, while proactive cost management policies allow the company to be resilient in difficult periods. 5. Interest Rate Risk Interest rate risk, which is a result of changes of market rates in the future, will affect our operating results and cash flow. As of 31 December 2009, approximately 97 percent of our long term loans were subject to a floating interest rate, most of which apply a Minimum Lending Rate (MLR) minus percent and the remaining apply 6-month Fixed Deposit Rate plus 2.0 percent. We have a policy to reduce the interest rate risk by converting a portion of float rate to fix rate. However, the hedging expenses remain at uneconomical level. We continue to vigilantly monitor market conditions and will arrange risk prevention measures to defer the risk when related expenses fall to a proper level. 6. Human Risk Loss of executive management or key personnel of the company is also considered a risk for the company. However, human resources development and management is one of the key priorities of the company. Over the past years, we have changed and recruited employees and managements in key departments and provide continuous training and development. More importantly, we develop a 3-layer succession plan from President and Chief Executive Officer down to Vice President level which supervised by the Management Development and Compensation Committee ( MDC ) and Executive Vice President of each department respectively. In addition, with a professional run structure, we operate under efficient system and do not rely on capability or decision of single person. We also decentralize authority to various levels under the supervision of the Board of Directors. These structures of management will help reduce risk from loss of key personnel. In addition, our key corporate cultures including Team spirit and With integrity, will also draw a capable professional persons with integrity to join our company. Lastly, our competitive compensation and benefits, bonus scheme which links to corporate strategy map as well as long term stock option plan for executive management also create commitment and loyalty to our employees which will help them work more efficiently. This structure will also help to retain quality employee with the company. The Erawan Group Public Company Limited

52 050 GOOD CORPORATE GOVERNANCE Annual Report 2009 Six Senses Destination Spa Phuket

53 051 Corporate Governance Policy Success with Integrity The Erawan is managed on the principle of good corporate governance. The business is run in compliance with the laws and on the basis of the Business Code of Conduct where information is disclosed in a transparent and straightforward manner. We have also put in place efficient auditing mechanisms. We operate our business by taking into consideration our responsibility in every aspects to shareholders and stakeholders, the structure of our Board of Directors, supervision mechanisms and efficient management responsibility. Aside from complying with the OCED s best practices, we also implement other best practices normally practiced overseas; for example, the Erawan have set up four sub-committees to help supervising each task or the fact that our board consists of as much as 50 percent of independent directors out of the entire board. With regard to corporate governance, the Erawan has set up the Nominating and Corporate Governance Committee (NCG) to regularly review and update corporate governance policies and practices so the company will continue to have up-to-date criteria that it can be actually implemented. To comply with the policy, the President and Chief Executive Officer (President and CEO) has been directed to promote corporate governance among staff at all levels. The President and CEO requires the Code of Conduct be made for employees of all levels to be a clear guideline for practices under the corporate governance policy. Two Town Hall meetings a year are held to promote understanding in this subject matter. Besides, we also aim to do our work with integrity, which is one of the four values set as our corporate culture. We also ensure that staff understands the concept of Social Corporate Responsibility (CSR) where business is run by properly taking into consideration the interest of all stakeholders whether they are customers, suppliers, shareholders, creditors, employees, the society or the environment. The Erawan regularly conducts an opinion survey of stakeholders. Results of the survey are used to improve business efficiency and to be one of the factors evaluating our staff performances annually. The Erawan s corporate governance activities can be divided into nine areas as follows: 1. Code of Conduct We have announced a policy to conduct our business based on the principles of good corporate governance. In 2005, we combined the best practices and the Code of Conduct, which not only were in line with our corporate strategy, but were also practicable, into our Code of Conduct manual. The manual was updated in 2008, which was indeed a significant move based on our motto of Success with Integrity. The updated Code of Conduct has been distributed to executive officers and staff for implementation to ensure our success with integrity and also to promote our corporate culture and ethical performances. Our Code of Conduct is now posted in our website at a mechanism to ensure that our executive officers and staff commit to their responsibilities to all stakeholders, communities, society and environment. The Erawan Group Public Company Limited

54 Corporate Governance Policy 052 Board of the Year for Distinctive Practices 2006/ Qualifications, Structure, Duties and Responsibilities of the Board and the Management Not only qualifications of our directors are in line with the SET s requirements but they are also much more intensive. Director s term of office is three years each term with clear scopes of work and with power being balanced between non-executive directors. Half of the Board s entire members are independent non-executive directors. The Board consists of Chairman of the Board, who is an independent director and different person from the President and Chief Executive Officer where their roles, authority and responsibilities are clearly separated to maintain balance between managing and supervising the company. In addition, there are five other independent directors, five non-executive directors and President and Chief Executive Officer. The total number is 12. The Board has appointed four different committees in a move to clearly define duties and responsibilities. The Board also has a policy to promote rotation among directors to sit at different committees for appropriate timeframe and on appropriate occasions. Chairman of a committee has a duty to submit a clear-cut policy of his committee to the Board. Every committee must appoint a secretary, who will coordinate with directors and the Management to ensure that the policy is translated into action. In addition, the secretary must also record minutes of meeting in writing. The committees include the following: The Audit Committee (AC) The entire Audit Committee consists of independent directors and at least three members, whom must have adequate accounting knowledge to be responsible for auditing the company s financial statements and its internal control system and to monitor the company s risk management practices on a regular basis. In addition, the Audit Committee will also review the independence of the company s Internal Audit Unit; approve appointment, transfer or termination of supervisor who works as its secretary; review legal compliance; select, appoint and propose an auditor and auditor s fees and review the auditing and disclose information about connected transactions to meet the criteria in an accurate and transparent manner. The Financial and Risk Management Committee (FRC) This Committee consists of no fewer than six directors and is responsible for supervising and managing policies, plans and investment projects approved by the Board. The Committee also ensures that the firm has a systematic, distinct and effective risk management system. The Nominating and Corporate Governance Committee (NCG) This Committee consists of no fewer than three members. Its chairman shall be an independent non-executive director while the remaining two members are non-executive directors. The Committee is responsible for reviewing the structure of the Board, setting qualifications of a particular position, reviewing and recruiting experts to become our directors as well as assessing the Board s performances and other committees appointed by the Board. The Nominating and Corporate Governance Committee also sees that directors, executive officers and staff of all levels comply with the Good Corporate Governance practices and Code of Conduct. The Management Development and Compensation Committee (MDC) The Committee, consisting of no fewer than three non-executive directors, is responsible for proposing development policies, assessing knowledge and skills of and compensations to new President and Chief Executive Officer, writing a senior management succession plan and reviewing the company s HR development policy. The Board also appoints the company s Secretary to perform duties as stipulated by the Securities and Exchange Act, No. 4, B.E and/or other relevant legislations. The Secretary also monitors and coordinates with the Board, the Management and related internal and external parties. Annual Report 2009

55 053 Corporate Governance Policy Success with Integrity Excellent CG Report Qualification of Directors Principles The Board of Directors should consist of members with a variety of knowledge and experiences, whether it is in finance, economy, management, business administration, marketing and service, tourism and law. The idea is to ensure that together, they can formulate a right policy for the development of hotel and resort business while having specialized skills, ability to see things in a big picture and enough independence to audit the Management in a balancing manner. The Board of Directors has two significant roles; namely, supporting the Management on the basis of the Good Corporate Governance and formulate a strategy to achieve our business goals. General Qualifications 1. Director should possess a variety of knowledge and experiences while being a professional with an ethical mind. 2. Director should fully understand his obligations and practices with a commitment to create long-term values to the business and shareholders. 3. Director should have enough time to perform his duties effectively. 4. Director should be able to assess himself and is ready to notify the Board of Directors upon change or if there is anything that prevents him from performing his job effectively. Director s Term of Office and Retirement Criteria 1. Director shall be in office three years each term. The Board may nominate a director for shareholders to re-elect him/her after his term ends by reviewing his performances on an annual basis. The term of a committee s member is also three years each term. 2. Director shall retire when he/she is fully 75 years old effective from the day following the Annual General Meeting of Shareholders. The calculation will start after the day the director is fully 75 years old. Specific Qualifications Chairman of the Board of Directors aside from the duties mentioned above, Chairman will have extra duties; namely, (1) acting as chairman of the Board of Directors meeting; (2) exercising a casting vote in case of tie at the Board of Directors meeting; (3) calling for the meeting of the Board of Directors; and (4) acting as chairman of the Shareholders Meeting. As a result, qualifications of the Chairman will be slightly different from those of other directors as follows: Chairman must be Non-Executive Director (NED). Chairman must not be involved in a day-to-day management, Auditor, or of other professions such as being a legal consultant nor shall he be employee, staff, advisor receiving monthly salary or a person with controlling power of the company, affiliated company, associated company, auditing company, or be a person who may have conflict of interest without having to have interest or stakes in such manner. The Erawan Group Public Company Limited

56 Corporate Governance Policy 054 Board of the Year for Distinctive Practices 2006/2007 Executive director Director who is also Chief Executive Officer (CEO) is advised not to become director in more than three other listed companies. Independent director Independent director shall hold less than 1 percent of the total shares with voting rights in a company, its affiliated company, associated company or any other person with possible conflicts of interest (To be count on related person). Independent director must not be involved in the management and is currently not being and has never been employee, staff, advisor enjoying monthly income or person with controlling power of the company, its affiliated company, associated company and auditing company; nor shall he be a person with conflict of interest without having to have any interest or stake in such manner for no less than two years. An independent director shall have neither blood nor registered relationship as a father, mother, spouse, sibling and children including spouse of children of executive officers, major shareholders, persons with controlling authority or anyone to be nominated as an executive officer or a person with controlling power of the company or its subsidiary. An independent director shall have no business relationship with the company during the previous two years. Details are as follows: No relationship as a provider of professional service including being an auditor (in any case), or of other professions such as being a legal consultant, a financial advisor or an asset appraiser with an annual transaction value exceeding Baht 2 million. A business and trade relationship including normal transactions, renting or leasing of property, transactions relating to assets and services and giving or getting financial assistance with a transaction value from Baht 20 million or 3 percent of the company s NTA, whichever is lower. This however shall include values of all retroactive transactions during at least the six previous months prior to the latest transaction. An independent director shall possess no other characteristic that prevents him/her from expressing his opinion independently. Independent director must attend at least one of the following courses held by the Thai Institute of Directors (IOD); namely, Directors Certification Program (DCP); or Directors Accreditation Program (DAP); or Audit Committee Program (ACP) Annual Report 2009

57 055 Corporate Governance Policy Success with Integrity Excellent CG Report 2009 Member of the Audit Committee He/she shall be an independent director appointed by the Board or shareholders. He/she shall not be a director entrusted by the Board to make any decision with regard to a business of the company, its parent company, subsidiary, affiliate, subsidiary of the same level or other entities that may have a conflict of interest. His duties must not be fewer than what is stipulated by the SET. Transactions with Possible Effects to Independence Being authorized to approve transactions or signing to bind the company, to exempt collective decision. Attending a meeting or voting in a matter he has an interest or a conflict of interest therein. Prohibited Characteristics Directors and executive officers must possess no qualifications that are conflicting with the company s requirements and announcements made by the SEC and the SET. Additional information can be read in the company s website. 4. Rules and Responsibility of the Board of Directors and the Management The Board of Directors determines policies and practices for the management, which include important tasks of an executive. In addition, the Board also allows the management to formulate a management policy based on the Company s objectives and missions, which will be subject to the Board s approval. The Board of Directors also sets to have its Independent Directors meeting every year so that all directors have met Executive officers lower is President and Chief Executive Officer s duty. 5. Board of Directors Meeting The company sets the number of both the Board s meetings and the meetings of its committees by scheduling them and letting directors and relevant parties know about them in advance throughout the year. The Company also sets to have agendas Board of Directors Meeting every year so that all directors (11) not within President and Chief Executive Officer, Management s duty and Company Secretary. In 2009, the company organized 6 Board of Directors meeting, 4 Audit Committee s meetings, 6 Financial and Risk Management Committee s meetings, 3 Nominating and Corporate Governance Committee s meetings and 2 Management Development and Compensation Committee s meetings (two ordinary meetings and one extraordinary meeting). Minutes of meeting were recorded in writing at each and every meeting and kept at the Office of Secretary and on a data server so that officers can conveniently access the database. Details of meeting attendance of directors are in the following table: The Erawan Group Public Company Limited

58 Corporate Governance Policy 056 Board of the Year for Distinctive Practices 2006/2007 Times of Attendance 2009 Name Title Term Times of attendance/number of total attendance Board of Directors Audit Committee Financial and Risk Management Committee Nominating and Corporate Governance Committee Management Development and Compensation Committee 1. Mr. Luen Krisnakri Chairman Apr / /2-2. Mr. Prakit Pradipasen Chairman Apr /6 1/1-1/1-3. Mr. Sansern Wongcha-um Independent Director Apr /6 3/ Assoc. Prof. Manop Pongsadadt Independent Director Apr /6 4/ Mr. Dej Bulsuk Independent Director Apr /6 4/ Mr. Banyong Pongpanich Independent Director Apr /6-4/6-2/2 7. Mr. Ekasith Jotikasthira Independent Director Apr / Mr. Vitoon Vongkusolkit Director Apr /6-6/6-2/2 9. Mr. Supol Wattanavekin Director Apr /6-6/6-2/2 10. Mr. Chanin Vongkusolkit Director Apr /6-6/6 3/3-11. Mrs. Panida Thepkanjana Director Apr /6-6/6 3/3-12. Mr. Krisda Monthienvichienchai Director Apr / Mr. Kasama Punyagupta President Apr /6-6/6 - - and Chief Executive Officer Percent of directors attended 94.44% 100% 94.44% 100% 100% Note: On 29 April 2009, Mr. Luen Krisnakri, Independent Director resigned from the Chairman of the Board. The Board appointed Mr. Prakit Pradipasen as the Chairman effective on 29 April 2009 and appointed Mr. Ekasith Jotikasthira as the Independent Director effective on 29 April Annual Report 2009

59 057 Corporate Governance Policy Success with Integrity Excellent CG Report Evaluation of the Board s Performances We evaluate performances of our Board annually. Twelve directors conduct a self-evaluation and an evaluation of the entire board independently before sending evaluation results to the Nominating and Corporate Governance Committee for further assessment. Evaluation results are used to improve and develop directors and work processes according to the guidelines recommended by the SET and Institute of Thai Directors. Based on such evaluation, more than 94 percent of assessors agreed that the structure and components of directors were appropriate and that there were enough independent directors to achieve a balanced power. 90 percent agreeing with the Board understood its independence in making decisions without being influenced by anyone. Meanwhile, 91 percent agreed that matter regarding the number of meetings, 93 percent acknowledgement when the meeting would be held and the getting of documents in advance was getting much better than before. 95 percent agreed that there was a good relationship with the Management Team and directors could directly discuss with the President and Chief Executive Officer. 90 percent agreed that better self-development among directors, better understanding about business and their duties and responsibilities. Details are in the following: Avg. (%) BOD Structure & Componant Rule, Duties & Responsibility BOD s Meeting Director Fiduciary Duty Relations with Executive Management Directors Improvement & Management The Erawan Group Public Company Limited

60 Corporate Governance Policy 058 Board of the Year for Distinctive Practices 2006/ Nomination of Directors and Executives The Board entrusts the Nominating and Corporate Governance Committee to draft a clear nomination policy and process for directors. This refers to a process to initially check a nominee s qualifications to ensure that his are in compliance with director s qualifications; a selection and courting process of a nominee to be our director; a nomination process to the Board or shareholders and a reviewing process of director being re-nominated. An individual evaluation of a director s performances while in the office will be used to support the consideration. In 2009, our directors nominated a total of 6 nominees to the Nominating and Corporate Governance Committee in order to replace independent directors and to fill vacancies due to resignations. The selection was independently conducted without being subject to anyone s influence. Nominees were submitted to the Board s meeting on 28 April 2009, which unanimously agreed to appoint Mr. Ekasith Jotikasthira as our independent director (11 votes from 11 directors). The Management conducted a two-hour orientation session for him and arranged for management team to meet the new director so that he learned about the company, got access to corporate information, business directions and strategic plans. The Board designated the Management Development and Compensation Committee to recruit and formulate a succession plan of executives; namely, President and Chief Executive Officer, to ensure continued performances and to avoid business disruption. 8. Remunerations of the Board of Directors and Management The Board entrusts several committees to formulate a compensation plan for directors, executives and staff as follows: The Nominating and Corporate Governance Committee has a duty to formulate a compensation policy of directors where it is to review the soundness of compensations being paid on an annual basis on the basis of directors scopes of duties as well as their roles and responsibilities and the company s financial status and operation results vis-æ -vis others in a similar business enjoying the same amount of revenues. Compensations will be paid in two types: meeting allowances (retainer fees or attendance fees) and bonuses. Director entrusted as a committee s member shall receive additional compensations based on his additional responsibilities and this will be submitted to the Annual General Meeting of Shareholders to seek its approval on an annual basis. Annual Report 2009

61 059 Corporate Governance Policy Success with Integrity Excellent CG Report 2009 The Management Development and Compensation Committee evaluates performances of President and Chief Executive Officer based on four aspects; namely, finance, customer satisfaction, internal process and HR and corporate development, as part of a review of his compensation and annual compensation. Together with President and Chief Executive Officer, the Committee formulates a policy to pay executives and Staffs based on the nature of their work. The President and Chief Executive Officer reviews annual compensations of executives based on a formulated policy through two evaluation processes; namely, (1) Balance Score Card (BSC) evaluation, which reviews strategic significances of each department vis-à -vis corporate strategy through a linkage that will eventually trigger corporatelevel strategies to lower levels; namely, from corporate strategy, to departmental and section strategies; and (2) Competency Skill Behavior (CSB) evaluation, where behaviors that support corporate culture will be evaluated. Supervisors will evaluate each individual. Some of the evaluation will be based upon the company s policies; others upon something else, depending on criteria set by department supervisors. To ensure effective evaluation and to access information from co-workers of various levels, the assessment is conducted from every direction. In this regard, supervisors will evaluate their supervisees and vice versa. In addition, staff of all levels is encouraged to conduct a self-evaluation. Results of both BSC and CSB evaluations are used to allocate the company s overall returns to departments, sections and units. Remunerations in cash for the year ending 31 December Remunerations of directors of the Company s Board of Directors and Committees, totaled Baht 4,347, Remunerations of directors of the Company s subsidiary, totaled Baht 2,0850, Remunerations, which are total wages of the nine (9) executives paid by the Company and its subsidiaries, totaled Baht 29,122, Provident fund of the executives under item 3 above, totaled Baht 922, The Erawan Group Public Company Limited

62 060 Remuneration of the Board of Directors and Management Remunerations for the Board of Directors and the Committees in the Year Ending 31 December 2009 Name Title 1. Mr. Luen Krisnakri Chairman 100, , , Mr. Prakit Pradipasen Chairman 280,000 25,000-15, , Mr. Sansern Wongcha-um Independent Director 240,000 75, , Assoc. Prof. Manop Pongsadadt Independent Director 240,000 80, , Mr. Dej Bulsuk Independent Director 240,000 80, , Mr. Banyong Pongpanich Independent Director 240, ,000-22, , Mr. Ekasith Jotikasthira Independent Director 160, , Mr. Vitoon Vongkusolkit Director 240, ,000-22, , Mr. Supol Wattanavekin Director 240, ,000-30, , Mr. Chanin Vongkusolkit Director 240, ,000 33, , Mrs. Panida Thepkanjana Director 240, ,000 33, , Mr. Krisda Monthienvichienchai Director 240, , Mr. Kasama Punyagupta President 240,000 - Do not get ,000 and Chief Executive Officer Compensation in cash for member of the Committee Board of Directors Audit Committee Financial and Risk Management Committee Nominating and Corporate Governance Committee Management Development and Compensation Committee Total (Baht/year) Total 2,940, , , ,500 75,000 4,347,500 paid as Executive Note: On 29 April 2009, Mr. Luen Krisnakri, Independent Director resigned from the Chairman of the Board. The Board appointed Mr. Prakit Pradipasen as the Chairman effective on 29 April 2009 and appointed Mr. Ekasith Jotikasthira as the Independent Director effective on 29 April Annual Report 2009

63 061 Corporate Social Responsibility Success with Integrity 9. Corporate Social Responsibility (CSR) Corporate Social Responsibility, shortly called CSR, is one of the Erawan Plc s major business strategies. We truly believe that CSR will guide our business while let us be accountable to shareholders, staff, suppliers, creditors, the society, the environment and neighboring communities where our properties are located. To ensure that everyone here understands the same thing, we have determined CSR guidelines and principles for those involved as follows. Duties and Responsibilities of the Board to Shareholders The Board of Directors takes into consideration shareholders rights without limiting only to their fundamental rights as stipulated by laws. This refers to their rights to trade or transfer shares, to share the company s profits, to adequately receive the company s information, to attend meetings to vote at shareholders meeting in order to either appoint or remove directors and to appoint auditors and discuss important matters affecting the company. In this regards, important matters can range from allocating dividends to formulating or amending rules and regulations and the Memorandum of Association, increasing or reducing capital and approving special transactions. The Board of Directors also supervises to ensure that meeting s time, date, place and meeting agendas are given to shareholders; that relevant documents and information required for making decisions at a meeting are available to shareholders, that shareholders are notified of applicable rules at the meeting, that voting procedures are not too complicated and that a meeting location is convenient and not expensive for shareholders to attend the meeting. The Board of Directors has allowed shareholders to propose agendas of the Annual General Meeting of Shareholders in advance prior to the meeting date. Clear rules and regulations in doing so have been posted in the company s website to facilitate shareholders. Shareholders may submit a document to propose potential meeting agendas by 31 January of every year. The Board encourages shareholders to use Proxy Form B so that shareholders can determine a voting direction as there are names and information of six independent directors who can be alternative proxy for shareholders. In addition, the information must be posted in the company s website at least 30 days prior to the meeting. Documents must also be sent to shareholders in advance enough for them to study prior to the meeting. During the Meeting, the Company treats every procedure equally. No agendas are shortened, deleted or alternated. This is especially the case of an agenda to appoint directors where shareholders are entitled to vote for directors individually upon enough information. All ballots featuring yes, no and abstention votes are duly kept as evidence. At every the shareholders meeting, Chairman of the Board, Chairman of the Committees, directors, President and Chief Executive Officer (President and CEO) and Chief of Financial Officer (CFO), attend the meeting to allow shareholders to express their views and ask questions about relevant matters to the meeting. During the past three years ( ), the entire Board attended the meeting to allow shareholders to ask questions in an adequate fashion, which however did not delay the meeting. In addition, Q&A sessions, resolutions adopted at the meeting and votes received at each agenda were properly recorded in writing in the company s minutes of meeting and posted at the company s website within 14 days from the shareholders meeting date. The Erawan Group Public Company Limited

64 Corporate Social Responsibility 062 Board of the Year for Distinctive Practices 2006/2007 Aside from the Board s responsibilities to shareholders as mentioned above, the Board also formulates a Corporate Social Responsibility policy, which includes responsibilities to shareholders as follows: Responsibilities to Shareholders 1. To manage the Company in a way that will turn it into a quality corporation committed to integrity while creating sustainable strength and growth for shareholders in the long run. 2. To perform our job with thorough care and competency as a business may do under the same situation. 3. To perform our duty with integrity and to fairly treat both major and minor shareholders for the benefit of all relevant parties. 4. To manage the Company s properties in a manner that avoids their depreciation. 5. To report the Company s status and operation results regularly, accurately and completely based on existing facts. 6. To prevent the Company s confidential information from being improperly disclosed to the third party. 7. To avoid doing anything that may lead to a conflict of interest against the Company without any advanced notice. 8. To respect the rights and to equally treat all shareholders, whether they are executive or non-executive shareholders, and foreign shareholders. Responsibility to Investor Relations The Erawan sets up the Investor Relations (IR) Department as a center to provide complete company information to retail and institutional investors, shareholders, analysts and the public sector. Contacts can be made directly at the Company s office or go to Inquiries can also be made through IR@TheErawan.com. We conduct an Investor Relations IR Survey to gauge satisfaction in relation to our information disclosure at least once a year. In 2009, we conducted the survey by distributing questionnaires to analysts at the Quarterly Meeting held in November 2009, which was a quarterly analyst s meeting and also the last meeting of the year. All respondents were within a target group. 54 percent of the respondents had monitored our information for no less than 3 years. 99 percent of the respondents said they were satisfied with the information. In 2009, we were nominated by the Stock Exchange of Thailand (SET) as one of the three listed companies of which market capitalization was not over Baht 10 billion under Group 1 for the IR Excellence Awards, among other SET Awards we achieved in Responsibility of the Right to Access Information of Stakeholders We give all stakeholders an access to information. We also determine guidelines and practices for our executive officers and staff to encourage their fair and equal interactions with all stakeholders. We also allow stakeholders to directly contact the Board, the Audit Committee and the Nominating and Corporate Governance Committee for their valuable suggestions that will not only benefit but also add more values to our management at Annual Report 2009

65 063 Corporate Social Responsibility Success with Integrity Excellent CG Report 2009 our office, No. 2, Ploenchit Center Building, 6 th Floor, Sukhumvit Road, Klongtoey District, Bangkok; or at Office of Corporate Governance, GCG@TheErawan.com. All information is treated confidential and will be directly forwarded to the Board. Responsibilities to Employees 1. To determine an appropriate structure of remunerations in line with market rates, staff s competency and responsibilities and their work performances through three levels of strategic assessments; namely, corporate strategy, department strategy and division strategy. The Competency Skill Behavior Assessment will be carried out in a 360-degree manner where supervisor will assess supervisees and vice versa and where everyone will have a self-evaluation at all levels. 2. To provide appropriate welfare and other benefits such as accident insurance to staff and executives working out of the office, health insurance and allowances for healthcare services as an out-patient, annual health check-up and coffee & tea corner for staff. 3. To ensure staff s understanding about their professional roles and responsibilities as well as their career goals, to provide an opportunity for staff to grow professionally and to acknowledge and recognize staff s work. 4. Award and punishment will be conducted based on the concept of right and wrong and with integrity. 5. To ensure workplace safety, health and sanitation. 6. To have a clear and efficient working system that allows staff to exercise their knowledge and competency while supporting their knowledge enhancement and recognizing their participation role. 7. To promote the Code of Conduct to staff to help them duly understand and fully comply with the Code. 8. To comply with all the rules and regulations relating to labor laws and staff welfare. 9. To avoid action considered unfair and illegitimate that may affect staff s advancement and job security while respecting an individual s rights. Responsibilities to Customers 1. To set up a pricing policy considered fair and appropriate. 2. To treat all business deals equally without treating anyone more favorably where every deal is considered conducted on an arm s length basis. 3. To procure and improve the procurement process considered appropriate and meeting business conditions. 4. To execute a fair contract with customers. (without depriving a customer of his benefits) 5. To disclose related and beneficial information accurately, completely and in time without any distortion. 6. To keep customer s confidential information secret as if it is the Company s own information and not using it for the Company s own benefit. 7. Not demanding, receiving from or not giving any illicit profit to customers. The Erawan Group Public Company Limited

66 Corporate Social Responsibility 064 Board of the Year for Distinctive Practices 2006/2007 Responsibilities to Suppliers and Creditors 1. To offer a fair competition environment where the procurement and hiring process of goods and services is carried out properly, transparently and efficiently. This will include finalizing price negotiations, making quotations, bidding methods, special methods and procurement methods for government agencies and state enterprises. Questionnaire will be regularly issued to ask for opinions about the Company s bid participation in order to regularly improve its procurement and hiring process of goods and services. 2. Avoid specify a particular product or choosing a particular product intentionally unless otherwise there is an enough reason to do so. In case of change of products or specifications of the product, suppliers must be informed. If necessary, a new price quotation must be submitted. An original supplier must be given an opportunity to equally offer his quotation. 3. Choose a quality supplier who is really interested in doing the job. Avoid inviting suppliers just to have enough participating suppliers as stated in a regulation. All bidders are to receive the same written details, information and conditions. If notified verbally, they shall receive a written confirmation later. 4. Executives or staff involving in the procurement or hiring process must disclose information and/or their personal relationship as well as that of their spouses or closed relatives or a personal relationship with a particular bidder that may directly result in an opaqueness of their job. They shall also exercise their responsibility by not attending a decision-making process when a particular supplier is chosen. 5. Not demanding and receiving gifts, favors or treats unless otherwise on appropriate occasions; refrain from having a special relationship with suppliers so much so that others may believe it may lead to an unfair treatment especially if it makes other suppliers misunderstand, refuse to participate in quoting prices or spread ill words that damages the Company s reputation. 6. To prepare a fair contract and to comply with an agreement executed with suppliers and creditors. In case the Company is unable to comply with its contract, negotiate with suppliers/creditors without delay to find a solution and to prevent further damage. 7. To refrain from doing anything that will prevent suppliers from paying tax to the state. 8. To disclose related and beneficial information accurately, completely and in time without distortion. Annual Report 2009

67 065 Corporate Social Responsibility Success with Integrity Excellent CG Report 2009 Responsibilities to Social and Environment The Erawan formulates a clear-cut policy for social, community and environmental causes. It plans to implement the Erawan for the Society and the Environment, project, to which the Board has already approved to allocate 0.5 percent of its annual net profit as a social contribution. Of the entire budget, 50 percent will be spent for the benefits of communities closed to the Company s properties whereas the other 50 percent will be spent for the benefit of the society in general. We support corporate social activities to allow executive officers and employees to be a good citizen of our society. We continue to initiate projects that focus at sustainable development in our neighboring communities and that allow us to work with public and private counterparts. These are our main missions and we continued to do the following in 2009: Love Charity Project - the company and our staff donated necessary items and provided financial support to the lunch fund of the Foundation for Slum Child Care (FSCC) under the Royal patronage of HRH Princess Galayani Vadhana every 3 months. We have a plan to extend this activity to other foundations. Welcome Guide to Thailand Project where activity was held every 3 months. The aim of the project is to promote tourism in Thailand by enhancing language skills to taxi and tuk-tuk drivers, who are major forces behind the local tourism industry, in order to create a good impression among our visitors. Blood Donation Project - together with the JW Marriot Hotel, which provided a location for our blood drive, we coordinated with the blood center of the Rajavithi Hospital every 3 months. The Erawan Group Public Company Limited

68 Corporate Social Responsibility 066 Board of the Year for Distinctive Practices 2006/2007 Redeeming Garbage Project - wastes with chicken s eggs Project - organized every 2 months, the project allowed employees and the interested public to bring in their waste or any stuff they no longer used to exchange for eggs. The idea of the project is to promote waste separation and ensure that waste is re-used in a proper manner to help reduce the global warming. The Let s Green Project through which we published leaflets and brochures for tenants of the Ploenchit Center Building to reduce their energy use. Keep our Surrounding Nice and Neat Project - designed to raise awareness in keeping our home clean, we collected waste around our office from areas stretching from Ploenchit Center to around Duangpitak Road and Sukhumvit Soi 4. The event was participated by our employees, staff from our subsidiaries and our suppliers. Keep Our Neighbor Nice and Neat Project aimed to support communities where we also have our business. Through this project, we gave 30 waste bins to Ao Por Beach in Phuket Province as part of the Keep Ao Por Beach Clean Project. We also donated 50 waste bins to the Big Cleaning Day organized by Phuket s Patong Municipality. Annual Report 2009

69 067 Corporate Social Responsibility Success with Integrity Excellent CG Report 2009 The Erawan Loves Elephant Project, which is an annual project held since 2005, aims to conserve the Thai elephants. Events were organized to raise funds, which were subsequently donated to various elephant foundations such as the National Elephant Institute, the Thai Elephant Conservation Center under the patronage of HRH Princess Galayani Vadhana, the Thai Animal Guardians Association and the Friends of the Asian Elephant Foundation. The Education Support for Thai Children Project was designed to help our children by donating stationary and improving school environment to keep it clean and sanitary for children. Other projects such as a project to promote Thai culture through annual desk calendar. In addition, we also supported other social projects such as a project to build floating buoy at Ban Koh Naka Pier in Phuket Province to facilitate transportation of local produce of farmers and fishermen in the community. Currently, there are two projects we plan to do in the future; namely, the improvement of pedestrian s footpath beneath the Chalerm Maha Nakhon Expressway (Sukhumvit), which we will collaborate with the Expressway Authority of Thailand and the Pathumwan District, and the beautifying of traffic islands in the middle of Nana-Ploenchit Road. The Erawan, to ensure the safety of our property and to lessen impacts to the environment, the Company has so far formulated a series of building management plans for its office building, shopping center and hotels. The plan calls for changes of air conditioners that meet environmental standards and changes from electrical-based or bunker oil-based hot water to the hot water Heat Pump system. In addition, the Company requires all of its current and future hotels to save energy at a time oil prices were hiking and striving to become a green hotel by avoiding to release emissions. Besides, the systems of its buildings ranging from security to engineering, fire protection and wastewater treatment systems have been upgraded to meet public building standards. (More detail in The Erawan Group Public Company Limited

70 068 Internal Control In 2009, the Board of Directors convened 6 times at which the Audit Committee attended every time to give opinions about an adequacy and soundness of the internal control system. The Audit Committee summarized and reported internal audit activities in 2009 to the Board of Directors on 23 February 2010 and the Board of Directors expressed the same opinions as the Audit Committee in this matter, which can be summarized as follows: 1. Internal Control System and Internal Auditing The Audit Committee has direct responsibilities to supervise the company s internal control system in every aspect, whether it is finance and accounting, legal compliance and compliance to relevant rules and regulations. The Audit Committee formulates auditing mechanisms to ensure effective balance of power. There is also the Internal Audit Department to audit performances of all departments based on a risk-based auditing plan and to offer advice on how to set up a good internal control system. The Audit Committee has duties to review auditing plans; to control and supervise the Internal Auditing Department s independence; to approve appointment, transfer and termination of the Internal Auditing Department s supervisor and to ensure that the Internal Auditing Department remains independent. The Committee must also make sure that the Department can perform its auditing functions and balance the existing power according to the prevailing standards. The Department is to directly report its auditing work to the Audit Committee at least once each quarter to ensure that the company s internal control and internal auditing work is conducted in a thorough manner and will not damage shareholders. 2. Protection of Information One of our priorities is focused at the use of our internal information and the prevention of our directors and executives from using internal information for their benefit or the so-called abusing self-dealing. This applies specifically to internal information not yet disclosed to the public or information that may affect our corporate strategy, business, trade negotiations and share prices, which, if abused, not only means that our shareholders are taken advantage of but it can damage shareholders in general. That s why we have set our Executives Ethic Standards as a practice with heavy penalties in case of violations or intended violation of the 10 practices stated in the Code of Conduct under the topic of Executives Ethical Standards. We also allow different levels of staff to get access to different types of internal information based mainly on their responsibilities and duties. Disciplinary actions are stated in our Work Regulations under the topic of Disciplinary Actions and Penalties. For example, Clause 3.2 Re: Disciplines with regard to confidentiality and corporate profits prohibits employees to seek inappropriate benefit from the company or others relating to the company. Employees are prohibited to conduct personal business or to work for others in an identical or similar business as the company s although the work may be performed outside the company s office hours. With regard to disciplinary actions and punishment, the company will normally appoint a disciplinary action committee to conduct an investigation and to ensure fairness to accused staff. Annual Report 2009

71 069 Internal Control Success with Integrity 3. Connected Transactions The Erawan requires an approval from either the Audit Committee or the Board, as the case may be, when conducting a transaction that may cause a possible conflict of interest. In addition, details of transactions with possible conflict of interest during the past year and their values are disclosed while explanations and reasons for the transactions are clearly stated in the Annual Report. The Erawan requires its executive directors involving in the transaction to disclose the information and/or types of relationship not only of his own, but also of his spouse, closed relatives as well as personal relationship with any bidder for transparency purpose to the Office of the Corporate Governance. In addition, director shall abstain from voting and/or not be part of the decision-making process. Connected transactions are shown in the Notes to Financial Statements and connected transactions table. All transactions were reasonable and were considered normal transactions. They were conducted for the company s ultimate benefit. Connected transaction had already been reviewed by the Audit Committee and/or the Board on an arm s length basis that they were in compliance with our requirements and rules and regulations of the SEC and the SET and that they were not against accounting standards Re: Disclosure of information in relation to connected persons or transactions. In 2009 the Erawan has the other connected transaction in addition to the items mentioned above as follows. All transactions were reasonable and were normal transactions. Mitr Phol Sugar Group of Companies Revenue from Hotel Operation Baht 2,610, Receivables at end of period Baht 797, Banpu Plc. Group of Companies Revenue from Hotel Operation Baht 629, Receivables at end of period Baht 332, The Erawan Group Public Company Limited

72 070 Connected Transactions Connected transactions between businesses with the following relationships were executed: Person/entity with possible conflict of interest and nature of relationship Description Transaction value (Baht) Mitr Phol Sugar Group of Companies Type of business: sugar factories Nature of relationship: Mr. Vitoon Vongkusolkit and Mr. Chanin Vongkusolkit, the Company s directors, are authorized director and director of Mitr Phol Sugar Co., Ltd. The Vongkusolkit Family holds percent in the Company s shares. Agreement to rent Ploenchit Center s space, 3-year lease agreement. Rental and services incomes Receivables at end of period Payables of rent deposits 29,462, ,880, , , ,122, ,036, IAG Insurance (Thailand) Co., Ltd. Type of business: non-life insurance Nature of relationship: Mr. Vitoon Vongkusolkit, director, is director of IAG Insurance (Thailand) Co., Ltd. Non-life insurance agreement fort the building and the hotel business between the Company and its subsidiaries Insurance expenses Insurance expenses paid in advance 979, ,632, Chai Talay Hotel Co., Ltd. (Hyatt Regency Hua Hin Hotel) Type of business: hotels Nature of relationship: Mrs. Panida Thepkanjana, director, is a closed relative to Mrs. Wansamorn Wannamethee and Khunying Natthika Wattanavekin, are authorized director of Chai Talay Co., Ltd. The Wattanavekin Family holds percent of the Company s shares. Agreement to lease office space and the service agreement with The Erawan Hotel Public Company Limited Rental and service incomes Receivables at end of period 2,578, ,826, , , Pricing policy and the Audit Committee s opinions A major tenant, the agreed price was not lower than the average price agreed with other tenants based on the business standards. Selected on the basis of the service provider s potential and in compliance with the Company s regulations. Price agreed was a market price compared to space in nearby areas and not lower than the price offered to other tenants or service users compared to the standard of hotel business. Annual Report 2009

73 071 Connected Transactions Success with Integrity Person/entity with possible conflict of interest and nature of relationship Description Transaction value (Baht) Pricing policy and the Audit Committee s opinions 4. Minor Corporation Public Company Limited Type of business: Retail Sale of book, newspaper, stationery, ready-to-wear, cosmetics and spare parts Nature of relationship: Mr. Prakit Pradipasen, director, is director of Minor Corporation Public Company Limited Agreement to rent Erawan Bangkok s space, 3-year lease agreement. Rental and service incomes Receivables at end of period Payables of rent deposit 672, , , , , , Price agreed was a market price compared to space in nearby areas and not lower than the price offered to other tenants base of the business standard. 5. Bualuang Securities Public Company Limited Type of business: Other financial intermediation Nature of relationship: Mr. Sansern Wongcha-um, director, is Chairman of the Board of Bualuang Securities Public Company Limited Agreement to rent Ploenchit Center s space, 3-year lease agreement. Rental and service incomes Receivables at end of period Payables of rent deposits 476, ,099, , , , , Price agreed was a market price compared to space in nearby areas and not lower than the price offered to other tenants base of the business standard. Necessity and Soundness of Connected Transactions In case the Company signs an agreement or conducts a connected transaction with a subsidiary company, affiliate, related company and/or the third party, the Erawan will consider the necessity and soundness of such contract based mainly on the Erawan s interests. Approval Measures or Procedures of Connected Transactions If the Company is to execute a contract or if there is any connected transaction between itself and its subsidiary, affiliate, related company, the third party and/or anyone with possible conflicts of interest, the Board of Directors requires the Erawan for the purpose of its benefits, to comply with the rules stated in the Stock Exchange of Thailand s (SET) Announcement Re: Information disclosure and practices of listed companies in connected transactions. Meanwhile, prices and other conditions shall be as if the transaction is at an arm s length where directors or staff having an interest in such transaction must not participate in any approval process. Policy or Outlook for Future Connected Transactions -None- The Erawan Group Public Company Limited

74 072 APPENDICES Annual Report 2009 ibis Samui

75 073 Audit Report of Certified Public Accountant Success with Integrity To the Shareholders of The Erawan Group Public Company Limited I have audited the accompanying consolidated and separate balance sheets as at 31 December 2009, and the related statements of income, changes in equity and cash flows for the year then ended of The Erawan Group Public Company Limited and its subsidiaries, and of The Erawan Group Public Company Limited, respectively. 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 audits. The consolidated and separate financial statements of The Erawan Group Public Company Limited and its subsidiaries, and of The Erawan Group Public Company Limited, respectively, for the year ended 31 December 2008 were audited by another auditor whose report dated 20 February 2009 expressed an unqualified 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 free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the consolidated and separate financial statements referred to above present fairly, in all material respects, the financial positions as at 31 December 2009 and the results of operations and cash flows for the year then ended of The Erawan Group Public Company Limited and its subsidiaries, and of The Erawan Group Public Company Limited, respectively, in accordance with generally accepted accounting principles. KPMG Phoomchai Audit Ltd. Bangkok 23 February 2010 (Boonsri Chotpaiboonpun) Certffiied Public Accountant Registration No The Erawan Group Public Company Limited

76 074 Audit Fee In 2009, the audit fee paid to the external auditor of KPMG Phoomchai Audit Limited was Baht 3,600,000. (The Erawan Group Plc. Baht 2,145,000 and the Company s subsidiary Baht 1,455,000). The Company did not pay any non audit fee to the auditor, the auditor s office, and person or company related to the auditor and the auditor s office. The fee was excluding the out of pocket expenses. Six Senses Destination Spa Phuket Annual Report 2009