Annual Report 2010 The Erawan Group Public Company Limited

Transcription

1 Annual Report 2010 The Erawan Group Public Company Limited

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3 VISION 2015 To become the leading hotel investor in Thailand. MISSION To continue growing quality hotel portfolio in Thailand which optimize values to shareholders as well as other stakeholders. 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 care of all stakeholders including community and environment

4 Contents IN REVIEW Financial Highlights Hotel and Resorts Portfolio Chairman Review President and Chief Executive Officer Review CFO s Report Report of the Audit Committee to Shareholder Report of the Board s Responsibility in the Financial Statements ABOUT ERAWAN Corporate Profile Properties in Operation Properties under Development Our Business Strategy Our Capital Structure & Management Shareholding of the Board of Directors and Management BUSINESS OVERVIEW Hotel Industry Rental Property Risk Factors GOOD CORPORATE GOVERNANCE Corporate Governance Policy Remuneration of the Board of Directors and Management Corporate Social Responsibility Internal Control Connected Transactions APPENDICES Audit Report of Certified public Accountant Audit Fee Financial Statements Corporate Information

5 IN REVIEW Ibis Bangkok Riverside / Ibis Samui Bophut / Ibis Phuket Patong

6 Financial Highlights The Erawan Group Public Company Limited (Unit: Thousand Baht) Description Revenues from Operations 3,375,977 3,149,033 3,321,248 Total Revenues 3,412,960 3,191,623 3,364,328 Gross Profit 1,921,298 1,658,132 1,677,912 EBITDA 974, , ,749 Net Profit (Loss) 78,328 (229,411) (275,017) Total Assets 12,630,098 13,288,817 12,950,427 Total Liabilities 8,871,685 9,749,858 9,677,477 Total Shareholders Equity 3,758,413 3,538,959 3,272,950 Equity Attributable to Company s Shareholders 3,657,970 3,406,397 3,130,975 Paid-up Share Capital 2,244,779 2,244,779 2,244,779 Number of Paid-Up Shares (Thousand Shares) 2,244,779 2,244,779 2,244,779 Par Value Per Share (Baht) Earning Per Share (Baht) 0.04 (0.10) (0.12) 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 (%) 56.91% 52.66% 50.52% Net Profit Margin (%) 2.30% n/a n/a Return on Total Assets (%) 0.68% n/a n/a Return to Equity (%) 2.14% n/a n/a Debt to Equity Ratio (Times) Interest Bearing Debts to Equity Ratio (Times) Interest Coverage Ratio (Times)

7 Unit: Baht Million Revenues from Operations 4,000 3,000 3,331 3,376 3,321 3,194 3,149 2,000 1,000 0 EBITDA 1,200 1, ,153 1, Net Profit (229) (275) 005

8 Hotel and Resorts Portfolio The Erawan Group Public Company Limited Grand Hyatt Erawan Bangkok JW Marriott Bangkok Courtyard by Marriott Bangkok ibis Bangkok Nana ibis Bangkok Sathorn ibis Bangkok Riverside Mercure ibis Bangkok Siam* Bangkok ibis Pattaya ibis Hua Hin* Hua Hin Pattaya Holiday Inn Pattaya ibis Phuket Kata Phuket Samui Renaissance Koh Samui Resort and Spa ibis Phuket Patong ibis Samui Bophut Six Senses Sanctuary Phuket * Properties under Development 006

9 SUCCESS WITH INTEGRITY Chairman Review The Erawan Group Public Company Limited The domestic political conflicts in 2010 made it another difficult year for Thailand s hotel business and Thailand s tourism industry. Thanks to our risk management plan and effective collaboration between the management and the Board of Directors as well as supports from all stakeholders including our suppliers, our hotel operators, our staff and financial institutions, we tolerated through the incident and recovered well afterward. Nevertheless, we did suffer a net loss at the bottom line, which was a result of external factors that were beyond our control. With promising demand trend from both foreign tourists and domestic markets, we continue developing and strengthening our fundamentals for long term sustainable growth through expanding a network of our hotels in locations and markets we felt confident. We committed to strengthen our supervision in all aspects of our operation in compliance with good corporate governance principles. It has been our key principle to treat all our stakeholders appropriately. We compel to do our business transparently and to provide sufficient and timely disclosure of information both in the normal situation and at time of crisis. During the political unrest in April and May this year, we took a great care of our customers, suppliers and staff and kept all concerned parties informed of the situation and our actions taken. With such continuous belief and practices, the Erawan Group was voted Excellence in corporate governance by the survey of the Corporate Governance Report of Thai Listed Companies 2553 (2010) conducted by the Institute of Directors (IOD) in We received 100 out of 100 scores for our excellent quality of the 2010 Annual General Meeting of Shareholders. We were also awarded IR Excellence among Group 1 listed companies in the SET with market capitalization of not exceeding Baht 10 billion and we were one of the two companies in the service business sector to be nominated for Corporate Social Responsibility Excellence. We would like to thank everyone for all supports through the difficult time this year. We will continue to operate the business and enhance our organization for the benefit of our shareholders and all stakeholders and be a good member of the society. Excellent CG Report 2009/ Mr. Prakit Pradipasen Chairman of The Board of Directors

10 President and Chief Executive Officer Review The Erawan Group Public Company Limited Thailand s tourism industry and hotel business was once again challenged in 2010 when the domestic political conflicts led to a prolonged demonstration in April and May. The incident caused business operators in the area including our three hotels and one shopping center to close temporarily. We did our best to protect our customers, our staff and our properties and fully engaged risk management action plans at all time. We also closely collaborated with other business operators in the area including our business competitors and took the lead role to seek for protection and remedy measures from the government. This led to the government s financial aids given to more than 2,000 business owners affected by the protest. Despite negative impacts from the incident, we managed to increase our revenues by 5 percent from the previous year mainly contributed from new hotels opened in recent years as part of our expansion. The business interruption during the political demonstration had adverse impact to both established hotels and the newly-opened hotels from achieving expected incomes. Although the business recovered well as we It can be said that we have been able to survive through various incidents negatively affecting the tourism industry over the past few years on the back of our well-prepared risk management plans approached high seasons in the second half of the year, the lower-than-expected income was not sufficient to accommodate increasing expenses such as depreciation and finance costs from the openings of new hotels. As such, we suffered another year of net loss of approximately Baht 275 million (See more information of the Company s financial performance in a CFO s report of Executive Vice President and Chief Financial Officer). Despite negative impacts from this incident, we continued to receive solid supports from our lenders. Our cash flow remained flexible and we continued the development of our 266-room Ibis Bangkok Riverside for the opening in the fourth quarter as planned. At the end of 2010, we own 13 hotels with total of 3,347 rooms across major tourist destinations of Thailand to capture diverse groups of customers from luxury through economy segments. We are now one of the largest hotel owners in term of number of hotels and rooms in Thailand. Through our implementation of Phase 1 expansion during , we were able to manage the development costs and hotel target openings as planned. We saved more than Baht 400 million in investment costs or 6 percent of the projects total investments. This gives us confidence that we will be able to generate returns as expected from our investments although incomes from the hotel business during the past years were lower than what we originally projected. Towards the end of last year, we announced the five-year business plan for period during with a vision to become a leading hotel developer and investor in Thailand. In brief, we aim to expand the ownership of our hotel network to more 008

11 SUCCESS WITH INTEGRITY than 20 hotels as well as to continue improving the existing hotels to increase our competitiveness with approximately Baht 10 billion investment range. The size of investment will depend very much on investment opportunities to increase a good return to shareholders. In addition, we have also formulated a new strategy to enhance returns to our shareholders by recognizing our property values and by generating profits through sales of properties or through an incorporation of our properties into a property fund or by joint venture with interested party and also through developing residential projects on lands adjacent to our existing properties. We aim to optimize returns to our shareholders for both short and long term. It can be said that we have been able to survive through various incidents negatively affecting the tourism industry over the past few years on the back of our wellprepared risk management plans together with our ability to adapt quickly and timely to any situation based on our pre-formulated plan. This refers to not only our ability and flexibility to adjust the investment plan of new projects but also timely implementing actions towards cost savings and preserving cash flows. In addition, we continued to improve our existing assets to enhance our competitiveness and update or upgrade various systems in the organization including operations, management information system to support decision-making, human capitals and our corporate culture, all of which we view as critical fundamentals to achieve long term sustainable growth. We commit to the good corporate governance principles in doing business to align benefits of all stakeholders. As a platform, we create an awareness of corporate social responsibility to our staff at all levels so that the interactions with our stakeholders in all aspects will be in line with our principles. (See more details in the corporate governance policy section.) We regularly conduct a survey to seek opinions from our stakeholders in all aspects, the result of which is applied to improve our operations and directly reflected in the annual remuneration review of our staff. Overall speaking, we remain confident in the competitiveness of Thailand s tourism in the long run. A strong recovery of tourist arrivals in the fourth quarter of 2010 through early 2011 once again evidenced the strength of the Thai tourism sector despite the impact from neither external nor internal factors. In addition, it is expected that the Asia-Pacific region will remain the highest economic growth region and hence the region s travelling activities are likely to be more active than the rest of the world. Thailand is definitely one of the countries to benefit from a healthy growth of the region. We are confident that our hotels in the group including the 13 hotels in operations and the new hotels in our expansion plan, with the mix of hotel segments from low- to high-end and destinations from business- to leisureoriented, will well respond to demands from various groups of customers, which will not only benefit our shareholders and stakeholders but will also strengthen the standards of the hotel industry in Thailand. Mr. Kasama Punyagupta President and Chief Executive Officer 009 President and Chief Executive Officer Review

12 CFO s Report The Erawan Group Public Company Limited (A) 2010 Profit & Loss Overview The year of 2010 was a difficult year for hotel business and tourism industry of Thailand caused mainly by internal political instability which led to political demonstration in Bangkok during April and May this year. Such incident put a pause on Thailand tourism industry s growth which started the year 2010 with very promising demand in the first quarter with tourist arrivals increasing 27 percent from previous year. The political demonstrations in Bangkok also caused our properties in the area including 3 hotels; Grand Hyatt Erawan Bangkok Hotel ( GHEB ), Courtyard By Marriott Bangkok Hotel ( CYB ) and ibis Bangkok Sathorn and one rental property; Erawan Bangkok ( EB ); to temporarily cease their services to public during the period. Our diversification strategy set out six years ago to expand from Bangkok to other tourist destinations and from luxury hotels to lower segment such as midscale and economy hotels have become more visible under these market difficulties. Our non Bangkok hotels were not only less affected during the disruptions in Bangkok but also quicker resumed to normal business environments. In addition, our risk management policy which can be timely adjusted to deal with different market situations at different time and our effective financial management allowed us to focus on business strategy under the challenging business conditions. To preserve appropriate cash flow and maintain financial flexibility in case of market fluctuation, we rescheduled loan repayment due in 2010 of approximately Baht 347 million through the loan maturity and also reduced total principal repayments during by Baht 415 million. On demand side, the significant growing arrivals in first quarter of 2010 and strong recovery in third quarter of 2010 and four quarter of 2010 led Thailand to set a new record high with total number of tourist arrivals of 15.7 millions for 2010, representing an increase of 11 percent from the previous year regardless of the aforementioned incident in second quarter of Growth was seen across all source markets with highest growth coming from Asia and Middle East markets. Domestic tourists who are less sensitive to internal political conflicts and less affected by global economic slowdown continued growing on the back of Thailand s strong economy. Our hotels in midscale and economy segment fit well with these growing markets, particularly those located in destinations outside of Bangkok. Business strategy wise, on 21 st December 2010, our Board of Directors passed a resolution to set forth business growth plan for the next 5 years ( ) with the key highlights in three areas; (i) hotel growth strategy with the objective to increase revenue and profit from normal operations. We will continue our investment focus in Thailand with aim to be Thailand s leading hotel developer and investor, (ii) enhancing returns strategy in addition to revenue and profit from normal operations by realizing the increasing value of our assets in the portfolio and also commencing residential projects on lands adjacent to our hotels, an (iii) strengthening our Corporate Governances to take care all stakeholders which will be the key factor for long term sustainable growth of ERAWAN. The capital plan to support the expansion will combine both equity and debt financing which can be categorized into 4 major funding sources including internally generated cash flow, proceeds from asset sale, warrants issuance to existing shareholders, and project loans. As part of enhancing returns strategy, the Board of Directors resolved to approve the sale of our office building (Ploenchit Center) to a property fund. The transaction is expected to complete in the second quarter of The Board also resolved and agreed to propose to the Annual General Meeting of shareholders for the year 2011 to 010

13 SUCCESS WITH INTEGRITY approve the issuance of warrants to be given without cost to the existing shareholders and the issuance and offering ordinary shares to employees of the Company. This will support the company growth strategy as it will allow the company to maintain the capital structure at appropriate level and motivate the employees to drive the performance towards the success of the Company s strategic objectives set forth over the next five years. On new hotel development, we opened our 7 th ibis hotel (3 rd in Bangkok), ibis Bangkok Riverside in November 2010 as planned. With this opening, we now have 13 hotels in operations with total of 3,347 room inventory in our portfolio. As part of our hotel growth strategy, our focus will continue on midscale and economy segment hotels which demands continue to be promising. We plan to commence constructions of 3 new hotels in first quarter of 2011 including ibis Hua Hin with target opening in first quarter of 2012 and the Mercure and ibis Siam Bangkok, the first hotel to combine 2 brands (Mercure and ibis) in the same building with target to open in January These three hotels will add approximately 600 new rooms to our hotel portfolio. Our consolidated revenue in 2010 showed the growth of 5 percent year on year regardless the impact from the situation in the second quarter of 2010 and the slow down of hotel industry. Revenue from hotel business increased 7 percent year on year, mainly from additional revenues from new hotels of which the revenues from 3 hotels opened in 2009 increased by 250 percent and the additional income from new hotel opened in Revenues from our rental properties were down slightly by 2 percent, mainly from the temporarily cease of operation of Erawan Bangkok in second quarter of We recorded EBITDA of Baht 770 million, representing 3 percent dropped from the previous year. With higher depreciation and interest expenses from new hotels we recorded a higher loss from last year. Baht Million Changes Hotels Operating Income 2,748 2,930 +7% Rental and Service Income % Total Operating Income 3,149 3,321 +5% Operating Expenses (2,359) (2,551) +8% EBITDA % Depreciation & Amortisation (628) (684) +9% Operating Profi t % Other Income % Interest Expenses (307) (361) +18% Pre-tax Profi t/(loss) (102) (231) -127% Taxes (46) (20) -56% Minority Interest (32) (16) -51% Normalized Net Profi t/(loss) (180) (267) -49% Non Recurring Items - net* (50) (8) -84% Net Profi t/(loss) (229) (275) -20% E.P.S. (0.10) (0.12) -20% * Details are explained in later section of this report 011 CFO s Report

14 Income In line with our diversification strategy, the composition of our total income has changed over the years with Midscale Hotels and Economy Hotels segment contributed more income to the group as illustrated in the table below. In Baht Million Baht Million % Total Baht Million % Total Baht Million % Total Luxury Central Bangkok Hotels 2, % 1, % 1, % Luxury Resorts % % % Midscale Hotels % % % Economy Hotels % % % Income from Hotel Properties 2, % 2, % 2, % Rent from Offi ce 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% - 0.0% Total Income 3, % 3, % 3, % Baht Million 3,500 3,000 3,404-6% +5% 3,192 3,364 อ นๆ ร านค า สำน กงาน โรงแรม Economy (7) โรงแรม Midscale (2) ร สอร ท Luxury (2) โรงแรม Luxury กร งเทพฯ (2) 2,500 2,000 1,500 1, Other income Retail Office Economy Hotels (7) Midscale Hotels (2) Luxury Resort (2) Luxury CBD Hotels (2) Note: Exclude gain from sales of investment 012 CFO s Report

15 SUCCESS WITH INTEGRITY Operating statistics and analysis on income from all our properties for 2010 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 3 percent in average occupancy and 8 percent in average room rates ( ARR ). This resulted in a 12 percent decrease of revenue per available rooms ( RevPar ) and the combined room revenues from these two flagships. This was mainly from the impact of the political turmoil in the second quarter as mentioned earlier. Recovery was seen in the second half of the year. Our luxury resort had shown the good improvement this year. Our Renaissance Koh Samui Resort and Spa ( RKS ) closed with 1 percent higher occupancy but 5 percent lower ARR which resulted in a 3 percent drop of RevPar and room revenues. As for our ultra-luxury Six Senses Sanctuary Phuket ( SSP ), its RevPar improved significantly this year with occupancy up by 7 percent year on year even the spending per room dropped by 7 percent. Baht/room/night 25,000 20,000 15,000 10,000 Occupancy rate Revenue Par available room (RevPar) Average Room Rate (ARR) 12% 24,545 18% 22,838 5, % 60% 55% 56% 4,958 4,572 5,163 4,889 3,110 2,754 2,835 2,735 2,832 4, Luxury BKK Renaissance Koh Samui Six Senses Note: Six Senses ARR is based on Spending/Room 013 CFO s Report

16 Income from food & beverage ( F&B ) which mainly came from the two luxury hotels in Bangkok was in line with last year despite the business interruption in Bangkok during April and May. The F&B operations at GHEB and JWM have been strongly supported by local consumptions hence less dependent on hotel occupancy. The strong economic growth of Thailand not only helps expanding our local customer base but also enhancing their spending power. In total, income from our four luxury hotels dropped 6 percent from previous year to Baht 2,055 million in 2010 which mainly caused by a 9 percent decrease of combined room revenues. Midscale Hotels We now have 2 hotels under the midscale segment, Courtyard by Marriott Bangkok ( CYB ) opened in November 2007 and Holiday Inn Pattaya ( HIP ) opened in Octerber CYB gradually recovered after a 2 month of operational interruption during the political demonstration in second quarter of 2010 and recorded lower performances as compared to the same period last year. HIP which was in its first full year operation showed good ramp up progress and achieved strong growth from both occupancy and ARR in Their statistics in 2010 and 2009 are as follows: Baht/room/night 3,500 3,000 2,500 2,000 1,500 1, % 59% Occupancy rate 2,046 2,111 Average Room Rate (ARR) 1, , Revenue Par available room (RevPar) Our midscale hotels recorded total income of Baht 447 million in 2009, a 64 percent increase from last year, this was mainly contributed from HIP. 014 CFO s Report

17 SUCCESS WITH INTEGRITY Economy Hotels Our hotel properties under this segment are all under ibis brand. At the end of 2010, we had total of 7 economy hotels with total of 1,704 rooms. 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 ). We opened 2 new ibis hotels in 2009 namely ibis Bangkok Nana ( INN ) and ibis Phuket Kata ( IKT ) and our 7 th ibis, ibis Bangkok Riverside ( IRS ) in November This segment has proven to be the most resilient segment under the challenging market conditions. The segment also fit well with requirements of customers from growing mass markets such as China, India and Russia. This segment grew occupancy by 3 percent resulting in a 12 percent growth in Revpar from the same period last year. The diagram below provides their 2010 and 2009 statistics. Baht/room/night 1,250 1, % % Occupancy rate 1, Average Room Rate (ARR) Revenue Par available room (RevPar) Our seven ibis hotels combined to generate Baht 428 million of revenues in 2010, a 44 percent increase year on year. Revenue from 4 hotels located outside Bangkok continued growing while the additional income from IRS which started operation in the fourth quarter this year helped the three ibis hotels in Bangkok to generate 13 percent growth regardless the impact from the demonstration in the second quarter. Majority of their revenues came from room sales. 015 CFO s Report

18 Revenue breakdown by type of income in 2009 and 2010 are listed below. Baht Million 3,500 3,000 2,500 2,000 1,500 1, ,092 1, ,170 1,600 0 From other operations From food & beverages operations From room sales We recorded total revenues from hotel operations of Baht 2,930 million for 2010, an increase of 7 percent from Growth came mainly from midscale and economy hotels which major source of income was from room rather than food and beverage. Room revenues which generated approximately 55 percent to total revenue increased by 8 percent from last year. Food and beverage revenues which contributed 40 percent to total revenue grew 7 percent from CFO s Report

19 SUCCESS WITH INTEGRITY Revenue breakdown by destinations in 2009 and 2010 are listed below. Baht Million 2,400 2,000 1,800 1,600 1,400 1,200 1, Bangkok Pattaya Phuket Samui Income from hotel located in Bangkok declined in 2010 from the impact of political situation in the second quarter as aforementioned. Other destinations outside Bangkok still generated strong growth especially Pattaya which our revenues from this destination grew by 211 percent which helped alleviate the decline from Bangkok hotels. Rental Properties Our 2 rental properties, Ploenchit Center ( PC ) and Erawan Bangkok ( EB ), experienced slightly lower income this year. We achieved the growth in rental yield for both properties but the occupancy of EB was lower as some leases expired and pending for new tenants. The statistics are in the table below: Occupancy 93.5% 95.9% +2.3% 92.7% 85.9% -6.8% Average Receipt (Baht/sq.m./month) % 1,223 1, % PC % ch % ch EB 017 CFO s Report

20 The combined income from rental business (including those from shops in GHEB s arcade) in 2010 was Baht 391 million representing a decrease of 2 percent from last year. EB s income dropped 3 percent to Baht 85 million as some leases expired and the impact from the demonstration in the second quarter. The political unrest during April and May caused this shopping complex to temporarily close down during such period. To support our tenants which income very much dependent upon their services to public customers, we offered a waiver on monthly rental during such period. This waiver was partially subsidized by the government measures to help alleviate the impact to rental operator. PC s income grew 3 percent to Baht 297 million on the back of higher occupancy from new tenants and higher rental yield from new tenants and contract renewal. Breakdown of income from rental properties are in the diagram below: Baht Million Others Retail Office Profit from Operations Our Earnings before Interest, Tax, Depreciation and Amortisation ( EBITDA ) excluding other income and nonrecurring items recorded at 770 million in 2010, 3 percent lower than last year. We also recorded a lower EBITDA margin of 23 percent in 2010 amd 25 percent in This was mainly due to revenue contraction of the hotels and rental property located in Bangkok in the second quarter although hotel located outside Bangkok showed EBITDA and EBITDA margin improvement in With the addition of 1 new hotel in 2010 and the 3 new hotels opened in 2009 were in their full year of operations in 2010, our Depreciation and Amortisation ( D&A ) increased by Baht 56 million or 9 percent from last year to record at Baht 684 million for With the said EBITDA above, our Earning before Interest and Tax ( EBIT ) stood at Baht 86 million for 2010 or a drop of 47 percent from a year ago. 018 CFO s Report

21 SUCCESS WITH INTEGRITY Finance Costs Total interest expenses increased 18 percent to Baht 361 million in 2010 which was mainly from two main reasons; the recognition of interest charges on our new hotel opened this year and the effects of full year operations from those opened in 2009 and the increasing interest rates over Our banks minimum lending rates were increased approximately percent in For the purpose of financial risk mitigation in light of interest uptrend, we converted approximately 30 percent of long term loans outstanding from floating rates into fixed rates for 4 year terms. This transaction incurred additional finance cost of Baht 7 million for Our average cost of funding (on combined short term and long term loans) increased from 4.1 percent last year to 4.3 percent for Non recurring items Non-recurring items for 2009 and 2010 were pre-opening expenses from new hotels prior to their openings. The net amount for 2009 was Baht 50 million (mainly from ibis Bangkok Nana, Holiday Inn Pattaya and ibis Phuket Kata). These costs are booked under Selling and administrative expenses in our Profil & Loss For 2010 we recorded Baht 8 million for the pre-opening expenses of Ibis Bangkok Riverside. (B) Financial Status Capital Expenditure We recorded total assets of Baht 12,950 million as of 31 st December 2010, slightly lower from Baht 13,289 million at the end of This is a result of more utilization of VAT receivables resulting in lower current assets. Baht 653 million of capital expenditure occurred during the year, declined from Baht 1,373 million in 2009 mainly due to the lower capital expenditure of new hotel development. We developed 3 new hotel projects in 2009 while in 2010 we had only 1 hotel, ibis Bangkok Riverside, which opened in November For future project, we entered the land lease agreement for Mercure and ibis Siam project which will start the construction in Capital expenditure for normal maintenance for hotel and rental properties increased from the same period last year. We spend higher capital expenditure for the office building this year to enhance its competitiveness. Sources of funding to support this capital expenditure were our cash flow from operations and project loans. 019 CFO s Report

22 The breakdown of 2010 capital expenditure by asset type are as follows: 20% Others Hotels 6% Ibis Phuket Kata 9% Rental properties & Others 40% Ibis Bangkok Riverside 25% Mercure & Ibis Bangkok Siam Leverage Total liabilities of the Company decreased slightly from Baht 9,750 million as of 31 st December 2009 to Baht 9,677 million as of 31 st December 2010 due to lower current liabilities. Total interest-bearing debts increased from Baht 8,570 million at the end of last year to Baht 8,599 million as of 31 st December 2010 from additional loan drawdown for the ibis Bangkok Riverside project and working capital requirements. With the net loss incurred this year, total equities decreased from Baht 3,539 million at the end of 2009 to Baht 3,273 million. Our liquidity was still manageable although we faced with the challenge market conditions during the year. Our cash flow from operations for this year remained higher than the same period last year while cash outflow for capital expenditure decreased. Cash inflow from financing activities was lower since we repaid loans from financial institutions this year while we did not have any obligations in 2009 and lower loan drawdown for the new project. Combined with cash at the beginning of the year, we recorded ending cash as at 31 st December 2010 of Baht 220 million vs. Baht 277 million at the end of 31 st December Mrs. Kamonwan Wipulakorn Executive Vice President and Chief Financial Officer 020 CFO s Report

23 SUCCESS WITH INTEGRITY Report of the Audit Committee to Shareholder The Erawan Group Public Company Limited 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 of Directors. In 2010, the Audit Committee met four times to consider the following: 1. To review the quarterly financial statements and the 2010 financial statements where it exchanged views with the auditor, Executive Vice President and Chief Financial Officer 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 benefits to 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 of Directors; to review an annual budget and to supervise and evaluate the Internal Audit Department s performance. The Audit Committee, having reviewed the 2011 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 Mr.Charoen Phosamritlert, CPA No and/or Miss Vannaporn Jongperadechanon, CPA No and/or Mr. Vichien Thamtrakul, CPA No of KPMG Phoomchai Audit Ltd. as the Company s auditor. Mr. Sansern Wongcha-um Chairman of the Audit Committee 21 February

24 Report of the Board s Responsibility in the Financial Statements The Erawan Group Public Company Limited 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 st December Mr. Prakit Pradipasen Chairman of The Board of Directors Mr. Kasama Punyagupta President and Chief Executive Officer 022

25 SUCCESS WITH INTEGRITY ABOUT ERAWAN Renaissance Koh Samui Resort and Spa 023

26 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 29 years Grand Hyatt Erawan Bangkok Hotel 1985 Amarin Plaza 1988 Company registered on Stock Exchange of Thailand 1991 Grand Hyatt Erawan Bangkok Hotel 1994 Converted in to a Public Company 1996 Ploenchit Center 1997 JW Marriott Hotel Bangkok 2004 Erawan Bangkok 2005 Renaissance Koh Samui Resort and Spa 2007 Amarin Plaza Sold Courtyard by Marriott Bangkok Hotel 2008 Six Senses Sanctuary Phuket 4 Ibis Hotels: Ibis Phuket Patong, Ibis Pattaya, Ibis Bangkok Sathorn and Ibis Samui Bophut 2009 Holiday Inn Pattaya 2 Ibis Hotels: Ibis Bangkok Nana and Ibis Phuket Kata 2010 Ibis Bangkok Riverside 1996 Ploenchit Center 024

27 SUCCESS WITH INTEGRITY 1997 JW Marriott Hotel Bangkok Ibis Hotels 2008 Six Senses Sanctuary Phuket 2009 Holiday Inn Pattaya 025 Corporate Profile

28 Properties in Operation The Erawan Group Public Company Limited 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 13 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 JW Marriott Hotel Bangkok Rating: Luxury Hotel Number of rooms: 441 rooms Location: Sukhumvit Soi 2, Bangkok Remaining on the current lease: 34 years Grand Hyatt Erawan Bangkok Rating: Luxury Hotel Number of rooms: 380 rooms Location: Rajdamri Road, Bangkok Remaining on the current lease: 31 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 026

29 SUCCESS WITH INTEGRITY Courtyard by Marriott Bangkok Rating: Midscale Hotel Number of rooms: 316 rooms Location: Soi Mahadlekluang, Rajdamri Road, Bangkok Remaining on the current lease: 27 years Holiday Inn Pattaya Rating: Midscale Hotel Number of rooms: 367 rooms Location: Pattaya Sai 1 Road, Nongprue, Banglamung, Chon Buri Six Senses Sanctuary Phuket (Formerly Six Senses Destination Spa Phuket ) 027 Rating: Luxury hotel and holistic spa Number of rooms: 61 Pool Villas Location: Koh Naka Yai, Phuket Properties in Operation Ibis Phuket Patong Rating: Economy Hotel Number of rooms: 258 rooms Location: Patong Beach, Phuket

30 Ibis Pattaya Rating: Economy Hotel Number of rooms: 259 rooms Location: Pattaya Sai 2 Road, Nongprue, Bang lamung, Chon Buri Ibis Samui Bophut Rating: Economy Hotel Number of rooms: 250 rooms Location: Bophut Beach, Koh Samui, Surat Thani 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 Bangkok Nana Rating: Economy Hotel Number of rooms: 200 rooms Location: Sukhumvit Soi 4, Bangkok Remaining on the current lease: 28 years Properties in Operation

31 SUCCESS WITH INTEGRITY Rental Properties Ibis Phuket Kata Rating: Economy Hotel Number of rooms: 258 rooms Location: Kata Beach, Phuket Ploenchit Center Office Building: 42,590 sq.m. Location: Sukhumvit Road Soi 2, Bangkok Remaining on the current lease: 14 years Ibis Bangkok Riverside 029 Rating: Economy Hotel Number of rooms: 266 rooms Location: Charoennakorn Road Soi 17, Chaophraya River, Bangkok Remaining on the current lease: 24 years Properties in Operation Erawan Bangkok Retail Shops (up scale): 6,849 sq.m. Location: Ploenchit Road/Rajdamri Road, Bangkok Remaining on the current lease: 31 years

32 Properties Under Development The Erawan Group Public Company Limited Ibis Hua Hin Rating: Economy Hotel Number of rooms: 200 rooms Location: Khao Takiap, Hua Hin, Prachuap Khiri Khan Target customer: Leisure Mercure Ibis Bangkok Siam Rating: Midscale and Economy Hotel Number of rooms: 380 rooms Location: Opposite MBK, next to BTS National Stadium Station, Bangkok Target customer: Business and Leisure Remaining on the current lease: 32 years 030

33 SUCCESS WITH INTEGRITY Our Business Strategy The Erawan Group Public Company Limited 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% 031

34 Our Capital Structure & Management The Erawan Group Public Company Limited Capital Structure As at 31 st December 2010, the company s paid up capital is Baht 2,244,779,001 divided into 2,244,779,001 ordinary shares at par value 1 Baht per share. Top ten shareholders holding the highest number of shares as of 31 st December 2010 are as follows: Shareholder s name Number of shares % of total shares 1. Mr. Sukakarn Wattanavekin 379,185, % 2. City Holding Co., Ltd. 228,481, % 3. Mitr Phol Sugar Co., Ltd. 131,353, % 4. Mrs. Wansamorn Wannamethee 120,683, % 5. MBK Company Limited 108,418, % 6. Mr. Isara Vongkusolkit 101,257, % 7. SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) 96,715, % 8. Miss Jintana Kanjanakumnerd 73,588, % 9. PAN-ASIA SUGAR FUND LIMITED 73,000, % 10. Mr. Supol Wattanavekin 58,698, % Total top ten shareholders holding 1,371,383, % 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 878,910, % Wattanavekin Group 698,970, % Total major shareholders 1,577,880, % Foreign Institution Investor 254,177, % MBK Company Limited Group 118,894, % Institution Investor 90,251, % Company s executives 20,922, % Others 182,657, % Total 2,244,779, % 032

35 SUCCESS WITH INTEGRITY 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 belowing, 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). Name Title Education 1. Mr. Prakit Pradipasen Chairman of the Board Master of Business Administration (MBA) and Independent Director Wayne State University, Michigan, USA 2. Mr. Sansern Wongcha-um Independent Director Master Degree of Business Economics and Chairman of University of Bridgeport, Connecticut, the Audit Committee USA 3. Assoc. Prof. Manop Bongsadadt Independent Director Master of Architecture (M.Arch), and Member of Kansas State University, USA 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 033 Our Capital Structure & Management

36 Name Title Education 6. Mr. Ekasith Jotikasthira Independent Director Master of Business Administration (MBA) Sasin Graduate Institute of Business Administration of Chulalongkorn University 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, USA 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 Master of Business Administration Chief Executive Officer (International Business) University of Bridgeport, Connecticut, USA Company Secretary: Miss Kanokwan Thongsiwarugs Authority to Sign on behalf of the Company Two of the following four directors 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). 034 Our Capital Structure & Management

37 SUCCESS WITH INTEGRITY 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 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 Bongsadadt 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 system and internal audit systems are in place according to international standards. 035 Our Capital Structure & Management

38 5. To set up a defensive work system for business units in the company to increase operation efficiency and effectiveness. 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. Term of Financial and Risk Management Directors: 3 years each term. 036 Our Capital Structure & Management

39 SUCCESS WITH INTEGRITY 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 strategy. Term of Nominating and Corporate Governance Director: 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. Term of Management Development and Compensation Directors: 3 years each term. 037 Our Capital Structure & Management

40 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 Bongsadadt 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 and 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. Miss Pakinee Pramtade Senior Vice President 8. Mr. Surapon Jaimsuwan Vice President 9. Mr. Viboon Chaisutyakorn 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 databases for the purposes of management and decision making. 038 Our Capital Structure & Management

41 SUCCESS WITH INTEGRITY 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 Clause18 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. 039 Our Capital Structure & Management

42 Shareholding of the Board of Directors and Management The Erawan Group Public Company Limited Name Title 1. Mr. Prakit Pradipasen Chairman of 150, ,058 - the Board of Directors 2. Mr. Sansern Wongcha-um Director Assoc. Prof. Manop Bongsadadt Director 319, , Mr. Dej Bulsuk Director 660, , 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 3,797,416 3,693, , Mr. Krisda Monthienvichienchai Director Mr. Kasama Punyagupta President and 11,510,211 11,510,211 - Chief Executive Officer 13. Mrs. Kamonwan Wipulakorn Executive Vice President Mr. Petch Krainukul Executive Vice President 839, , Mrs. Varisara Gerjarusak Executive Vice President Mr. Apichan Mapaisansin Assistant Executive 1,000,000 1,000,000 - Vice President 17. Mr. Suchai Wuthworachairung Assistant Executive 1,825,716 1,825,716 - Vice President 18. Miss Pakinee Pramtade Senior Vice President Mr. Surapon Jaimsuwan Vice President Mr. Viboon Chaisutyakorn Vice President 1,088,697 1,088,697 - Note: From report of securities held by the Company s directors as of 31 st December 2010 Ordinary Share (Units) 31 Dec Dec (-) 040

43 SUCCESS WITH INTEGRITY BUSINESS OVERVIEW Holiday Inn Pattaya 041

44 Hotel Industry The Erawan Group Public Company Limited Trend of the Tourism Industry In 2010, it was the year that greatly showed the strength of Thailand tourism industry. Throughout the year, 15.7 million international tourist arrivals visited Thailand or an increase by 11 percent from the year before. Likewise, the domestic tourism sector expects to have 91 million trips or a rise of 5 percent from last year although the tourism industry did affect from various incidents last year ranging from the political unrest, natural disasters, an appreciation of Thai Baht and the Economic crisis in Europe. The first quarter of 2010 witnessed the highest increase of foreign visitors coming to Thailand as the number rose 27 percent compared to the year before due largely to recovery of global economy. This was especially true with Chinese, Russian and Indian tourists, who registered a very high increasing rate compared to same period last year. However, the country suffered the political unrest in the second quarter, which halted the flow of foreign tourists into Thailand. After normally resumed, foreign visitors gained confidence once again to come back to the country. The number of tourists gradually improved and grew by the same period last year. Although the slower recovery in Bangkok due to continued political protests, there still was a very strong growth contributed by major tourist destinations like Phuket, Pattaya, and Chiang Mai which were supported by both Thai and foreign traveller. This applied especially to foreign tourists who chartered flights directly to these destinations while various airlines also increased their direct flights. To conclude, for the whole year, there were total 15.7 millions foreign tourists, growing by 11 percent which was higher than the original estimated of Tourism Authority of Thailand (TAT). This spectacular increase was a result of several positive factors; namely, global economy recovery, ongoing road shows by the TAT to promote Thailand overseas and fee-exempted measures. In term of local tourism in 2010, TAT estimates there were 91 million trips of domestic tourism which increased by 5 percent from last year. This was a result of supporting measures from the public and private sectors, which included personal tax exemption given to hotel rooms paid by local tourists, the government s announcement of extended holidays and ongoing promotions of visiting Thailand campaigns initiated by the private sector and TAT. International tourist arrivals statistics Millions Coup Airport Closure Politics and H1N1 Politics Tsunami F Number of tourist arrival Remark: Tourism Authority of Thailand, Ministry of Tourism and Sports 042

45 SUCCESS WITH INTEGRITY As for 2011, the tourism sector is expected to expand further from 2010 thanks to several positive factors ranging from global economy showing steady improvement, high demands of tourist in the end of 2010 which continue to the first quarter of 2011, an expansion of low-cost airlines and the fact that Bangkok has been voted the world s most attractive city for visiting in 2010 by Travel & Leisure Magazine, followed by our own Chiang Mai in the second. The TAT expects that 16.5 millions foreign visitors will visit Thailand in 2011 or a 5 percent increase, generating approximate revenue of 600 billion baht or an increase of 3.7 percent from Yet, this depends largely on the political stability. In 2011, tourists from East Asia will remain the largest group of visitors to Thailand accounting for 51 percent of all foreign visitors, a situation similar to what happened in Similarly, Chinese, Russian and Indian tourists will continue to remain high. Tourism Council of Thailand expects the number of local visits by Thai people to increase 7 percent, or 97 million trips. As for new supply of international chain and regional chain hotels expected to open in 2011, most are luxury hotels and mid-scale hotels. In Bangkok, some mid-scale hotels have gradually opened since late 2010 and several hotels expected to complete their construction in 2011 to support demands of Asian tourists to visit in Thailand in the near future. Overall speaking, 2011 s prospect is rosier than that of last year thanks to Thailand s good fundamentals such as its long reputation as a preferred tourism destination, friendliness, cultural diversity and extraordinary nature and its affordability, all of which will continue to propel the Thailand tourism industry to a solid growth in the future. Domestic tourists statistics Times Coup Airport Closure Politics and H1N1 Politics 80.0 Tsunami Number of domestic tourist Remark: Tourism Authority of Thailand, Ministry of Tourism and Sports F 043 Hotel Industry

46 Rental Property The Erawan Group Public Company Limited Industrial Outlook and Competition Conditions During the first half of 2010, the local political unrest was a major negative factor affecting both the office rental business and the tourism-related business. Majority of the tenants preferred to renew the rental agreements together with negotiating for rent reduction rather than relocating to new premises. In the third and fourth quarter of 2010, the domestic political situation still unchanged which continued to affect the office rental business. Demands hardly improved so leasing in both Grade A and Grade B office buildings remained idle. Together with the doldrums in the world s economy and several countries suffered from natural disasters which required time for recovery, this indeed slowed down foreign investments in Thailand. Office Building Overall, on the latter period of 2010, the available spaces for office buildings had a total of 7.98 million square meters for rent, a slightly increasing of 7.86 million square meters from the same period the year before. Approximately 2.81 million square meters were in Bangkok s Central Business District (CBD) where 2.50 million square meters or percent had already been rented. The remaining 0.31 million square meters or percent were unoccupied. (Source: CB Richard Ellis (Thailand) Co., Ltd.) An average rental rate of Grade A office was around Baht 680 per square meter while Grade B office space (the same category as our office building) in Bangkok s CBD area tumbled down 5.5 percent from Baht 578 per square meters to Baht 548 per square meters. The important factor was due to static demands as tenants either downsized the spaces or negotiated the rental rate in order to minimize cost which made landlords to opt to lower the rate down according to the unfavorable economic conditions. In the last quarter, the vacant spaces remained as much as 1.10 million square meters. And in 2011, the supply is expected to increase around 114,480 square meters, all of which will be in the CBD area. It is hoped that in 2011, as the world s economic condition is improving, business will start to expand and investment activities will once again pick up. This will positively effected Thailand s overall economy especially the rental of office space in Bangkok s CBD area. Yet, local political situation remains closely watched by investors for choosing Thailand as the potential investment destination. 044

47 SUCCESS WITH INTEGRITY Shopping Centers At the end of 2010, supply of shopping center space was at 5.55 million square meters increasing 0.17 million square meters more than the previous year, which accounted for approximately 3.0 percent. Of all this increasing space, most of them were around Bangkok and developed to Community Malls offering goods and services to customers around the area. Rental rate on ground floor of Grade A shopping centers started from Baht 1,200 to Baht 3,200 per square meter while rents on the other floors were between Baht 700 to Baht 2,600 per square meter. As for Grade B, average rents were around Baht 1,000 to Baht 2,500 per square meter for ground floor and Baht 400 to Baht 1,200 per square meter for the rest. In addition, the local political situation and the world s economy remain to be the two major factors that caused more caution to consumers and entrepreneurs in their spending and their investing activities. It is expecting that in 2011 as the economy is getting better, this will be a boost to the retail market and operators confidences to invest or expand their business, which in the end should drive more demands for spaces in this market. 045 Rental Property

48 Risk Factors The Erawan Group Public Company Limited Our company has the Financial and Risk Management Committee ( FRC ) to supervise and evaluate the risk management strategies to ensure efficiency and effectiveness of the program. Each head of department are responsible 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 world s 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 highlyexperienced 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 Impacting on Property and On-going Business External risk factors such as natural disaster, terrorism or political unrest that may have an impact on property and business operation are inevitable and unpredictable. However, apart from implementing an international standard of emergency procedure and safety manual (i.e. restricted access to and from properties, occupation of vicinity, evacuation, etc.) in accordance with emergency level to prevent and/or reduce damage, we also have all-risk, terrorism and business interruption insurances to cover the aforesaid damage if it occurs directly to our properties. 046

49 SUCCESS WITH INTEGRITY 4. External Risk Factors Affecting Hotel Business Performance External risk factors affecting hotel business performance, such as political unrest or epidemic, are beyond our control and prevention. These will cause a sudden drop in number of foreign tourist arrival, which will directly impact on hotel revenue. Nevertheless, from historical data. these impacts are short around 3-9 month period. Our risk management strategy to handle this is to have a flexibility and responsiveness in 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. For the purpose of financial risk mitigation in light of interest uptrend, the Company converted a portion of long term loan from floating rates into fixed rates for a period of 4 years. As of 31 st December 2010, approximately 68 percent of our long term loans were subject to a floating interest rate and 32 percent were subject to a fixed rate. Majority of our floating-rate term loans apply a Minimum Lending Rate (MLR) minus percent while the remaining applies a 6-month Fixed Deposit Rate plus 2.0 percent which was lower. 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 been changed and recruited employees and managements in key growth 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 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. 047 Risk Factors

50 Good Corporate Governance Award The Erawan Group Public Company Limited Year 2010 Excellent recognized as Good Example AGM Assessments Program Project: AGM Assessments Program 2010 Excellent CGR Awards 2010 Project: Corporate Governance Report of Thai Listed Companies Excellent IR Awards 2010 Project: SET Awards in 2 Nomination to Excellent CSR Awards 2010 Project: SET Awards 2010 Year nd Quartile,Year 2005 (Top rating = 1 st Quartile) Project: Corporate Governance Report of Thai Listed Companies very good CGR Awards 2006 Project: Corporate Governance Report of Thai Listed Companies good AGM Assessments Program Project: AGM Assessments Program 2006 very good CGR Awards 2006 Project: Corporate Governance Report of Thai Listed Companies very good AGM Assessments Program Project: AGM Assessments Program 2007 Board of the Year for Distinctive Practices 2006/2007 Project: Board of the Year Awards 2006 very good CGR Awards 2008 Project: Corporate Governance Report of Thai Listed Companies Excellent AGM Assessments Program Project: AGM Assessments Program 2008 Excellent CGR Awards 2009 Project: Corporate Governance Report of Thai Listed Companies Excellent AGM Assessments Program Project: AGM Assessments Program in 3 Nomination to IR Excellent Awards 2009 Project: SET Awards 2009 Excellent CG Report 2009/