Ihl 06

Contents

1sthgilhgiH laicnaniF

2ynapmoC eht fo noitamrofnI lareneG

Message from the Chairman and Managing Director

5ynapmoC eht fo erutaN ssenisuB

Trend of industrial sentiment and competition in the futur

8srotcaF ksiR

21erutcurtS gnidloherahS

41erutcurtS tnemeganaM

72tropeR eettimmoC tiduA

82snoitcasnarP ytraP detaleR

Report of the Board of Director’s Responsibilities for

45stnemetatS laicnaniF

Management Decision and Analysis of

Financial Status and 55ecnamrofreP

16rotiduA tnednepednI fo tropeR

26stnemetatS laicnaniF

96stnemetatS laicnaniF ot setoN

7

4

Financial Highlights

Note At the end of Year 2004 and Year 2005, the Company had the issued and fully paid shares of Baht 160 Million

composed of Million 16 ordinary shares of Baht 10 each and Baht 300 Million composed of Million 60 ordinary shares

of Baht 5 each respectively. For comparitive purposes with 3 years, a common benchmark par value of 5 per share

with Million 60 ordinary shares has been adopted.

(Unit : Thousand)

2004 2005 2006

Profit & Loss Statement

Sale Income 648,769 996,922 927,742

Total Income 654,132 1,003,151 941,150

Profit 124,037 239,206 186,102

Operating Profit 76,227 176,259 121,171

Net Profit 38,598 120,897 81,533

Balance Sheet Statement

Current Assets 338,352 516,136 469,726

Total Assets 573,190 995,343 1,139,758

Total Liabilities 602,772 456,942 534,824

Shareholders Equity 13,518 538,401 604,934

Per Share Data

Earning Per Share (Unit:Baht) 0.64 2.01 1.36

Dividend Per Share (Unit:Baht) 0 0.25 1

Book Value Per Share (Unit:Baht) 0.23 8.97 10.08

Financial Ratio

Current Ratio (Times) 0.71 1.93 2.11

Collection Period (Days) 50 46 63

Payment Period (Days) 87 70 73

Return On Assets (ROA) (%) 6.49% 12.15% 7.15%

Debt/Equity Ratio (D/E ratio) (Times) 44.59 0.85 0.88

1 INTERHIDES PUBLIC COMPANY LIMITED

General Information of the Company

Companys name in Thai : () ()

Companys name in English: Interhides Public Company Limited

Nature of Business: Producing and distributing leather covering for car seats and other related

products

Location:

Headquarter: 678 Soi T.J.C. Sukhumvit Rd. Tambon Bangpoomai Amphoe

Muang Samutprakarn 10280

First factory: 192 M. 2 Soi Foknung Kilometer 34 Sukhumvit Rd. Tambon

Bangpumai Amphoe Muang Samutprakarn 10280

Second factory: 678 Soi T.J.C. Sukhumvit Rd. Tambon Bangpoomai Amphoe


Third Fourth

Factory: 999 Soi T.J.C. Sukhumvit Rd. Tambon Bangpoomai Amphoe


Fifth Factory: 555 Soi T.J.C. Sukhumvit Rd. Tambon Bangpoomai Amphoe


Sixth Factory: 1111 M. 2 Soi Foknung Kilometer 34 Sukhumvit Rd. Tambon

Bangpumai Amphoe Muang Samutprakarn 10280

Companys Registration Number: PLC 0107574800595

Website: http://www.interhides.com

Telephone: (662) 323-2754-5, (662) 709-5512-4, (662) 709-6288-9, (662) 710-6244-5

Fax: (662) 709-5516, (662) 323-2749

Authorized Share Capital: Common benchmark par value of Baht 5 per share with

Million 60 ordinary shares

Issued and Paid-up Share

Capital: Common benchmark par value of Baht 5 per share with

Million 60 ordinary shares

INTERHIDES PUBLIC COMPANY LIMITED 2

Other Referees: 1. Auditor

Ernst & Young Office Limited

33rd Floor Lake Rajada Office Complex

(Near Queen Sirikit National Convention Centre)

193/136-137 Rajadapisek Road Bangkok 10110

Telephone: (662) 264-0777, (662) 661-9190

Fax: (662) 264-0789, (662) 661-9192

2. Securities Registrar

Thailand Securities Depository Co., Ltd.

62 The Stock Exchange of Thailand Building,

Rachadapisek Road, Klongtoey, Bangkok 10110

Tel: (662) 229-2800

Fax: (662) 359-1259

3. Internal Control Systems Auditor

Chutikarn Accounting Office

25/92 M.3 Sukhapiban 3 St. Kwang Sapansuong

Supansuong District Bangkok 10240

Telephone : (662) 373-8016, (662) 373-7776

Fax: (662) 373-1277


Message from the Chairman and Managing Director

Following the proceeding of its shares listed in the Stock Exchange of Thailand (SET) from 22 December

2004 onwards, the Company was enabled to utilize its capital to expand the production capabilities to sustain the

increasing demand of the market signaling continual growth.

However, the year 2006 witnessed the overall automobile industry in deceleration owing to incessantly

increasing oil prices, and potentially soaring interest rates, natural calamity as well as insurgencies in the southern

Thailand. This all has a great impact on the market sentiment and the automobile industry as a whole. All in all,

nevertheless, Thai automobile part and automobile export movement is still growing up in succession as a result of

the expansion of the world economy and the production base movement of many other car manufacturers to Thailand

for export including the effect of free trading. It is expected that 2007 will be the year of distinctive growth of the

automobile industry in Thailand.

As for the outcomes of operation throughout the year 2006, even though the net profit has reduced from

121 million baht in the year 2005 to 82 million baht in the year 2006 due to the regression of the industry sentiment

and the change of car models of many car manufacturers. This has resulted in the dramatic decrease of purchase

orders of the Company in the first half of the year and the Company had to absorb the increasing constant capital

cost. Nevertheless, in the second half of the year, the Company had set out full force to produce new car models for

major car manufacturers which gained popularity swiftly. Consequently, the Company could achieve considerably

increased sales volume. This can be seen from the net profit of the third quarter of 2006 in which the total sale was

231 million baht with the net profit of 24 million baht equivalent to that of the first and second quarters of 2006

combined. In the third of the year 2006, the Company could maintain its sales capacity and make lucrative profit

continuously. Thus, this gives rise to the Companys financial results in the fourth quarter as the best of the year 2006

316 million baht sales volume and 33 million baht net profit per quarter. In 2007, the Company is very confident

that it can maintain the constant growth of its sales volume and prospective financial growth steadily. This becomes

obvious when considering new 6 factories being geared up to expand the production capacity of up to 4-fold and to

enlarge customer base overseas to hedge against reliance on the domestic industry sentiment. Producing more

diverse products will also be emphasized such as airplane cushioned seats which will become another principal

revenue base of the Company in the years to come.

The Board of Directors appreciates all the parties involved: shareholders, clients, counterparts, personnel

including financial institutions, public and private sectors, mass media and the general public for their unfailing trust

and support of the Company operation. The Company is prepared to develop its ongoing potential to attain being a

superb organization with verifiable transparency and will move on with caliber to optimize the benefits of every

stakeholder perpetually.

MR. THIRA WIPUCHANIN MR. ONGART THUMRONGSAKUNWONG

Chairman of the Board Managing Director


Board of Directors

!

π“¬ÕßÕ“® ¥”√ß °ÿ≈«ß…Ï√Õßª√–∏“π°√√¡°“√∫√‘…—∑·≈–°√√¡°“√ºŸÈ®—¥°“√Mr.Ongart ThumrongsakunvongDeputy Chairman and Managing Director

π“¬∏’√– «‘¿Ÿ™π‘πª√–∏“π°√√¡°“√·≈–°√√¡°“√Õ‘ √–Mr.Thira WipuchaninChairman andIndependent Director

§ÿ≥ ¡™“µ‘ ≈‘¡ª“πÿ¿“æ°√√¡°“√µ√«® Õ∫·≈–°√√¡°“√Õ‘ √–Mr.Somchart LimpanuphapAudit Committee and Independent Director

π“¬«‘∫Ÿ≈¬Ï ‘∑∏“æ√°√√¡°“√µ√«® Õ∫ ·≈–°√√¡°“√Õ‘ √–Mr.Wiboon SeetthapornAudit Committee and Independent Director

π“¬æ√√≥æ ™–√–‰ ¬Ïª√–∏“π°√√¡°“√µ√«® Õ∫·≈–°√√¡°“√Õ‘ √–Mr.Punnop CharasaiyaChairman of Audit Committee andIndependent Director

π“ß “«™ÿµ‘¡“ ∫ÿ…¬‚¿§–°√√¡°“√Miss.Chutima BusayapokaDirector

π“ß«—≈≈¿“ ∑«ππ«√—µπÏ°√√¡°“√Mrs.Wallapa ThuannavaratDirector

π“¬Õ«¬™—¬ ¡µ‘∏π«‘√ÿÃÀÏ°√√¡°“√Mr.Ouychai MatitanaviroonDirector

π“¬§“ Ÿ‚¬™‘ Œ‘°Ÿ™‘°√√¡°“√Mr.Kazuyoshi HiguchiDirector

π“¬Õ—∑ ŸŒ‘‚√ ¡“√Ÿ¬“¡Ë“ºŸÈ®—¥°“√∑—Ë«‰ªΩË“¬°“√µ≈“¥Mr.Atsuhiro MaruyamaMarketing General Manager

π“¬∫—≥±‘µ ‚™µ‘«√√≥æ√ºŸÈ®—¥°“√∑—Ë«‰ªΩË“¬∫—≠™’·≈–°“√‡ß‘πMr.Bandid ChotiwannapornFinance and Accounting

General Manager

π“¬‡Õ°√‘π∑√Ï ®—π·¥ßºŸÈ®—¥°“√∑—Ë«‰ªΩË“¬ªØ‘∫—µ‘°“√Mr.Eakarin Chandaeng

Operation General Manager

π“¬«—≈≈¿ ™ÿ¡· ßºŸÈ®—¥°“√∑—Ë«‰ªΩË“¬ª√–°—π§ÿ≥¿“æMr.Wunlop ChoomsangQuality Assurance General

Manager

"Management

Business Nature of the Company

Type of Products and Services

The Company produces and distributes car seat leather using processed cow or buffalo rawhides bleached

and dyed, then cut and/or sewed to produce finished products. The complete cycle of products and services is

implemented according to the customers order. Products and services can be divided into three major groups:

1. Leather and leather cut parts = They are the major materials for car seats and other car accessories

such as steering wheels and gear knobs. For cut parts, made-to-order products are required. Tanned

leather f will be cut in shape of the tailor-made drawing as ordered by the customer.

2. Sewing service = It is for leather car seats and other leather accessories, mostly receiving order from

first tier suppliers. The service is divided into:

2.1 Sewing service for car seats. The leather will be cut and sewed in a shape of car seat.

2.2 Sewing service for steering wheels

2.3 Sewing service for gear knobs

3. Made-to-order car seat service = It is serving the target customers who like to change their fabric car

seat to leather car seat which is manufactured on a made-to-order basis.

Products in the first and second groups are manufactured from the Companys factory to be delivered to

customers. The third service will be provided at the Companys branch.

The Companys product is certified with ISO/TS 16949:2002 in terms of production and the overall operating

system from TUV Rheinland Group, Germany, a certification that is well accepted in the automotive industry. Most of

the Companys production is made to order from both domestic and foreign customers. Each customer can order

leather products in various shapes and usage types such as cleaning leather and Chrome free leather. The Company,

able to produce all various leather products and meet every need, will attentively work with carmakers to come up

with the design leather products for each car model. The Companys advantages are the strong management team

and high technology machinery and equipment which allow the Company to produce up to 12,000,000 square feet

per year or around 360,000 pieces per year. In 2006, the Company had the actual production of 10,515,490.70

square feet which accounted for 88% of the capacity utilization.


Income Proportion from Each Production Line or Business Group

Table of the Companys Income Structure from 2004 2006

(Unit: Million Baht)

Production Line Operated % of 2004 2005 2006

or Business Group by Shareholding Amount % Amount % Amount %

Income from Leather for car seats

and other car accessories

- Leather and leather cut parts IHL 100% 596 91% 904 90% 817 87%

- Sewing service IHL 100% 5 1% 7 1% 3 0%

- Made-to-order car seat service IHL 100% 19 3% 11 1% 6 1%

- By Product /1 IHL 100% 29 4% 53 5% 56 6%

- Other Products /2 IHL 100% 0 0% 22 2% 46 5%

Other Incomes /3 IHL 100% 5 1% 6 1% 13 1%

Total IHL 100% 654 100% 1,003 100% 941 100%

Remarks: /1 By Product includes (1) 3rd layear lime split from the splitting process of production line This type of hides can be used

to produce dog chew (2) Wet blue spliet which is the 2nd layer of hides from the splitting process of production line.

/2 Income from other products consists of fabrics, PVC and in 2005 the Company sold machines to affiliated companies,

Vivid Atelier Co., Ltd (closed down on June 30, 2006 and the accounts of both parties had already been settled) and

Automotive Accessory Co., Ltd.

/3 Consisting of income from foreign exchange, from disposables of asset, rental revenue, service revenue, etc.

The companys main customer is the producer of car seat leather and interior leather parts for car accessories

(First Tier Original Equipment Manufacturers or 1st Tier OEM) of the leading carmakers such as Toyota, Honda,

Nissan, Ford, Mitsubishi, Isuzu, Mazda, Subaru, and so on. However before receiving the order, the Company has to

be chosen from these carmakers to be the second tier original equipment manufacture (or 2nd Tier OEM) because

they have to research and develop the products together before they can sell each model of the car in each country

so that the Company is trusted for the quality of the products. Moreover, the Company has to show confidence in the

capacity of the production, the standard of the products, and the punctuality in delivering products to the customers

because the nature of the Companys operation is planning well ahead in advance in order to deliver car seat leather

and other accessories to the First Tier OEM punctually for the later production line. As the Second Tier OEM, the

Company can present the products to other manufacturers of car seat leather and accessories of any cars model

directly around the globe, not only in Thailand, within the model life of that cars model. In general, each cars model

has the model life of 4-8 years. The Company has to bid for the products price which is the business practice with

other manufacturers. The Company can export its products through two channels which are (1) indirect export in

which the carmakers using the Companys products export cars to other countries and (2) direct export in which the

Company itself would present the products to the customers in other countries. Hence, selling products in other

countries is considered only the direct export from the Company.


Trend of industrial sentiment and competitionin the future

In 2006, even though Thailand encountered various negative factors affecting the overall economy, be it

the steady increase in oil prices, the gradual rise of interest rates throughout the year, natural disasters and insurgencies

in the southern Thailand, the growth of GDP remained constant at 4.5 %. Also, the car industry could continuously

stabilize its growth. Although in the first 5 months, the sales volume was 279,244 cars, decreasing by 1.1 % compared

with that same period of 2005. Furthermore, the purchasing behavior of consumers has changed; that is, there is an

emphasis on smaller cars to reduce expenses. Thus, it was estimated that the total sale volume of cars within the

country throughout 2006 would still be on the rise at the decelerated rate of only 4-5 percent in comparison with the

growth rate of 12.4 % in 2005.

For the trend of cars and car parts export, it is expected to grow progressively as a result of the worlds

economy expansion, the production base movement of many other car manufacturers to Thailand for export including

the effect of free trading. It was anticipated that in 2006 the proportion of export of the Thai car industry would

increase about 43 % higher than that of 2005 in which such a proportion was at 39.2 % and it is predicted that the

aforementioned proportion will be gradually rising after the completion of the production base movement of many

car makers. This would result in Thailand being the hub of manufacture for export to the worlds market or Detroit of

Asia in the near future.

Therefore, what car part manufacturers should take into account and quickly adapt to is monitoring and

maintaining production cost towards stabilizing reduction in conjunction with increasing abilities in designing research

and developing new products and attaining better quality. This will be a worthy option and correspond to clients

needs more thoroughly with an attempt to increasingly spread out the market base to the worlds market. This also

aims at risk distribution from decreasingly relying on the domestic industry sentiment by utilizing the effective

management system and maintaining the quality control system to be acceptable at the international level accordingly.


Risk Factors

1 The uncertainty of revenue from the bidding process of each car model

The Companys main revenue is from manufacturing car seat leather for other car manufacturers.

The Company will offer its bidding to each carmaker before receiving the order for each car model. The

Company has no long-term commercial agreement to be a sole supplier of all car models of each carmaker.

Instead, the Company will receive a letter of intent stating that the Company has been accepted as a supplier

of that particular car model, with normal model life of 4-8 years. However, the Company can develop its

products to be well accepted by many car markers and the opportunities for the customers to switch to other

leather seat suppliers are minimal.

Competition in manufacturing leather for cars is not too intense, since expertise in production is

needed and the standard is quite high, and takes time in developing products that car manufacturers can

accept the quality of the Companys product and makes the Company to be on the supplier shortlist. Even

though the Company does not manufacture and deliver the products to car manufacturers directly, the car

manufacturers will currently select the Second Tier OEM by themselves which the order will be from the

bidding of the First Tier OEM. Then, if the Company can develop the quality and standard products which

satisfy the car manufacturers, the Company will be trusted and chosen to be the manufacturer of car seat

leather and other accessories. The chance of changing suppliers by car manufacturers is very limited, as it

takes time in the process of product development.

2 Revenue structure relying on the automotive sector with few players in the industry

As the revenue of the Company directly depends on the automotive sector, then, if there is a slowdown

in the automotive industry expansion during the economic recession or oil price increase, it will directly affect

the Companys sales. However, even though oil prices are still increasing, the sales of the Company continually

rise as well. It is because the customers currently prefer leather seat. Therefore, car manufacturers increase

the proportion of using leather seat in new car models as in high-priced cars, medium-priced cars and small-

sized cars, which, in the past, leather seat was used in high-priced cars only.

Nevertheless, the Company has a policy to maintain customer relationships by working closely with

each carmaker to strengthen the customer relationship as a strategic partner. The Company will also participate

in developing products to increase relationships and trust from the customers.

3 Risk from foreign exchange rate fluctuation

The Company imports materials such as raw hides and chemicals from the USA, Australia, Singapore,

and German for which payment is currently made in U.S. dollars and Singapore dollars only. At the same

time, the Company is also exporting products for which revenue is received in U.S. dollars and Singapore

dollars. In 2006, the Baht currency had been continually stronger which affected the export in a negative

way. However, the volume of exporting and importing raw materials in foreign currency is not much high, the

Company; therefore, does not have a high risk in foreign exchange rate fluctuation. Even so, if there is a

higher risk in the future, the Company can apply a hedging policy of buying foreign currency (Forward contract)


based upon certain situations. Moreover, the Company will still be using the policy of risk management from

exchange rate with the Natural Hedge Risk Management by spending foreign currency received from export

to pay for the imported raw materials without exchange the currency. As a result, the Company can be

relieved from the risk of exchange rate fluctuation. In 2007, the Company is confident that exchange rates will

have more stability from stronger control and investigation of the Government. The Government has already

initiated several policies to monitor such risks.

4 Risk from the change in technology of production line

At present, the government has a tendency in considering the measure for the leather manufacturer

to change the technology of the production from the process of chemical in tanning, Chrome type, to Chrome

Free process in order to decrease the negative impact on the environment. For instance, Honda, one of the

worlds biggest car makers, also agrees with environment preservation. Especially for the European Market,

the leather manufacturer has already initiated the production of Chrome Free with many car manufacturers

such as Honda, Audi, and Volvo. If the Company changes the production to be Chrome Free, this will be

affected with the change of details from machines to chemicals for which the cost will be higher and the

Company then takes this burden. The ordinary machines need to be replaced, since they cannot usually be

used with Chrome Free production and the chemical cost will increase approximately 10% more. Therefore,

the Company would not ensure whether or not we can adapt to the other fast technology changes according

to the policy of car manufacturers and the government, which this will affect the investment and cost of the

Companys operation.

However, the Company is preparing for the changes including the change of the aforementioned

technology by emphasizing on the research project and production development. For the Chrome Free

production line which might need to be changed in the future, the Company plans to be able to manufacture

the products to satisfy needs of the customer. Nonetheless, in 2007, the Company will be able to manufacture

the Chrome Free leather for Honda, CRV model, which the Company has already received the order. Therefore,

the Company believes to be able to fulfill the customers satisfactions and manage the production cost

effectively.

5 Competition from overseas leather manufacturers such as China after the free trade in the future

The policy of free trade under the World Trade Organization or WTO, AFTA, and FTA with the privilege

of import tax has the effect on the tendency in developing the automotive industry in Thailand. By this policy,

car manufacturers can select to purchase auto parts in the system of Global Sourcing to get quality products

with the most optimal cost. Therefore, in the future, the revenue from leather tanning of the Company may be

affected with the competition from China which gains more advantage in cost of production particularly the

labor cost.

However, as the Company has been in tanning business for over 13 years and over 5 years in leather

production business for the car industry which highlights producing quality products according to the car

manufacturers standard including the ability in developing products to be congruent with the changing needs

and in delivering merchandise on time. This will enable the company to maintain clients base and gain their


trust as leather producers for new car models increasingly and continuously especially leather cut parts,

requiring high quality and standard, for car seats which generate the main revenue for the Company. As a

result, it would be difficult for any leather producers for car seats to gain reliability to be in the list of car

manufacturers. The Companys product quality is well acceptable for car manufacturers in Japan and the

U.S.A and the Company is listed on a record of producers for several leading car manufacturers which is

considered as the distinctive feature of the Company.

6 Risk from raw material supply

The significant raw materials for production are cow and buffalo rawhides, which now accounts for

44% of the total production cost. If, in the future, the Company would face a shortage of raw materials or if raw

materials become expensive due to epidemic diseases such as mad cow disease or other animal diseases or

the number of raw materials (cow and buffalo rawhides) decreases owing to the trend of less meat consumption

including a less tendency of signing a contract for raw material purchase in the long term, these may result in

the increase of raw material production cost.

Nevertheless, the Company has a policy to order raw materials from many material suppliers by

ordering the raw materials from several regions such as Asia, Europe and America in order to keep a certain

number of distributors. This is risk distribution in raw material supply. The Company does not order raw materials

from any distributors more than 30 % of the total purchase volume. However, the Company considers quality,

price, and the punctuality of goods delivery as well. Moreover, the Company has a strong relationship with

many raw material suppliers by a long term trading relation. Up to present, the Company has never had any

raw material shortage problem.

7 Risk from the fluctuation of price of raw materials

The main raw materials used in production are animal hides especially cow and buffalo hides and

chemical substances presently estimated at about 78% of the total cost of production. The cost of raw

Materials may fluctuate according to demand and supply. Besides, raw material prices may be marked up in

accordance with several events and factors, for example, mad cow disease overseas and seasonal changes

as Buddhist Lent period which reduces animal slaughter. This will cause a higher cost of hides including the

increase of logistics cost as a result of oil price increase. Basically, the purchase order of raw materials is

done in the long term contract; therefore, these factors have a direct impact on the production cost of the

Company and its operation.

Even though the price of raw materials tends to increase, the Company can monitor closely and

continuously on raw material prices by contacting many hide and chemical suppliers in both domestic and

international areas. Besides, if the price of raw materials would be continuously marked up, the Company

believes to be able to negotiate with car manufacturers in order to adjust product prices to reflect the reasonable

cost

8 Risk from breakdown, derailment or mechanical and equipment production damage

The production of the Company mainly relies on machinery in tanning, sewing, and cutting. At present,

the Company has produced through the use of machinery approximately to 80% of its total production capacity.


Thus, if the production procedure would be delayed or some equipment would be damaged, this will be effect

on the operation of the production process. However, the Company constantly monitor and examine equipment

and machines in the form of regular preventive maintenance including annual machinery maintenance plan.

This is done for the protection and reduction of the above mentioned problems. The Company also keeps

machinery spare parts and hires maintenance mechanics for the factory. Owing to this effective management

and administration, the Company has never had a mechanical problem to the extent that the machines

completely stopped working.

9 Risk from substitutes that may arise in the future Risk from relying on personnel with special expertise

In the past, most car seats were made of fabric and synthetic hides; however the current consumers

behavior tends to change. There is a preference for leather car seats for they are softer, durable, and easier

to clean. In the future, the consumers behavior may alter; consumers would rather use substitutes

technologically developed and as qualified as genuine leather such as synthetic leather. On the other hand,

they may opt to use fabric car seats. All in all, in the future if the technology of synthetic leather production is

so highly advanced that its quality is similar to genuine one with lower cost, consumers may opt to use

synthetic leather instead. Thus, this may have an impact on the companys revenue. Even though, at present,

there is a development on PVC Sole which can be used to replace genuine leather, this is far less in terms of

quality.

Nevertheless, the Company is certain that in the near future there will be no goods replaceable

genuine leather as genuine leather is naturally soft and tender, and good at ventilating heat and more durable.

Thus, real leather is still popular among consumers; moreover, at present car manufacturers pay more attention

to the environment. This reduces the chance that car manufacturers will opt to synthetic leather made of

chemical PVC affecting negatively to the environment so substitutes seem unlikely.

10 Risk from relying on personnel with special expertise

Since the Companys products focus on high quality, design, and expertise, especially the

procedures needed for sewing and monitoring hide conditions, etc. Even though the Company has planned

to bring in machinery for use in some parts of the production process, the production process in many phases

still need manual work for these phases require personnel expertise and each production line needs a skilled

and experienced person in the industry to close monitor and supervise. Therefore, personnel is the core of

production which can reduce the rate of production loss but the Company cannot guarantee in the future that

it can retain skilled and experienced industrial personnel to work with the Company perpetually.

Well realizing the problem, the Company constantly organizes training courses for the personnel

so that they can improve their work and solve problems in each department. The Company has set goals of

production in each step including increasing remuneration if the production can be reduced such as the

layout of patterns for cutting. As in the past, the production loss was effectively reduced. In addition, the

Company offers salaries and fringe benefits as equally as others in the same industry, which this can attract

personnel to retain with the Company. In the mean time, this means creating motivation in their work to

collaborate for the growth of the Company hand in hand.


Shareholding Structure

Top 10 major shareholders

December 31, 2006

Name Number % of overall

of shares shares

1. Mr.Ong-art Thumrongsakunvong Group

Miss Chutima Busayapoka 15,119,164 25.20%

Mr. Ong-art Thumrongsakunvong 10,987,786 18.31%

Mr. Thanat Busayapoka 1,811,750 3.02%

Miss Wanvisa Thumrongsakunvong 1,244,200 2.07%

Mr. Taksa Busayapoka 310,000 0.52%

Mrs. Wallapa Thuannavarat 200,000 0.33%

Mr. Peng Thuannavarat 180,000 0.30%

Mr. Kitti Busayapoka 50,000 0.08%

Mr. Wattana Busayapoka 33,090 0.06%

Miss Thanida Busayapoka 30,000 0.05%

Miss Suthira Busayapoka 27,000 0.05%

Mrs. Jaruwan Busayapoka 20,000 0.03%

Total Mr.Ong-art Thumrongsakunvong Group 30,012,990 50.02%

2. Sumitomo Group

SUMITOMO CORPORATION 9,000,000 15.00%

SUMITOMO CORPORATION THAILAND LTD. 3,000,000 5.00%

Total Sumitomo Group 12,000,000 20.00%

3. Mr. Chusak Chuprayul 1,909,800 3.18%

4. Thai Automotive VCF Co.Ltd 1,909,020 3.18%

5. Mr. Paitoon Kongmuang 1,852,700 3.09%

6. Miss Rapeepan Sriharan 1,498,700 2.50%

7. Miss Metta Hongtongdang 1,419,100 2.37%

8. Mr. Pipat Thupanyakanok 1,380,300 2.30%

9. TPP International Co.Ltd 1,026,010 1.71%

10. Mr. Mongkol Lertthearthamrong 600,100 1.00%

11. Others 6,991,380 11.65%

Total Shares 60,000,000 100.00%


Name Business Shareholding structure %

1 Sumitomo Corporation /1 Trading 1 Japan Trustee Services Bank, Ltd.(Trust Account) 7.13%

2 The Master Trust Bank of Japan, Ltd.(Trust Account) 6.99%

3 Mitsui Sumitomo Insurance Co., Ltd. 2.66%

4 Sumitomo Life Insurance Company 2.47%

5 Japan Trustee Services Bank, Ltd.(Trust Account4) 2.32%

6 State Street Bank and Trust Company 1.67%

7 The Dai-ichi Mutual Life Insurance Company 1.43%

8 Nomura Securities Co., Ltd. 1.24%

9 Nippon Life Insurance Company 1.21%

10 Sumisho Lease Co., Ltd. 1.18%

11 Others 71.70%

2 Sumitomo Corporation Thailand Ltd. Trading and 1 Summit Global Management II B.V. 99.99%

Investment 2 Others 0.01%

3 Thai Automotive VCF Co., Ltd. Investment in 1 JAIC Asia Holding PTE Ltd. 42.31%

SMEs 2 Bank of Small and Medium Enterprise 19.23%

3 Dynamic Choice International Co.Ltd. 15.38%

4 VNET Capital Co.Ltd. 15.38%

5 Mrs.Valeeporn Ingtanet 3.85%

6 Sumitomo Corporation /1 3.85%

4 TPP International Co.Ltd Investment in 1 Thai Packaging and Printing (Public) Co.Ltd 99.00%

businesses or 2 Mr.Supoj Prueksanan 1.00%

projects

1/ Sumitomo Corporation has investment of 3.85% in Thai Automotive VCF CO.Ltd. Therefore, Sumitomo Group (Sumitomo Corporation

and Sumitomo Corporation Thailand Ltd.) has both direct and indirect investment in the Company amounting to 20.18%.

Major shareholder groups having influences on setting management policies or the Companys operations:

• Mr.Ong-art Damrongsakulwongs group sent 3 representatives to be committees: Mr.Ong-art

Damrongsakulwong, Ms. Chutima Busayapoka, and Mrs.Wanlapa Thuannavarat.

• Sumitomos group by Sumitomo Corporation: one representative was sent to be a committee, Mr. Kazuyoshi

Higuchi. Sumitomo Corporation Thailand Ltd. sent 1 representative to be a committee, Mr.Ouychai

Matitanaviroon.

Dividend payment policy

The dividend payment policy of the Company is that in case the Company has net profit, the Company will pay a

dividend to the Companys shareholders more than 40% of its net profit except that the Company has other

investment projects.


Management Structure

Audit Committee

Finance

Section

IT Section Oversea Marketing

Section

Supply Chain

Section

Maintenance

Section

Production Unit 4-5

Section

Accounting

Section

Human Resource

Section

Local Marketing

Section

Production Engineer

Section

Quality Assurance

Section

Production Unit 1-3

Section

Deputy Managing Director(Operation Division)

Internal AuditManaging Director

Executive Committee

Board of Director

Finance and Accounting Dept.

General Manager

Quality Assurance Dept.

General Manager

Operating Dept.

General Manager

Marketing Dept.

General Manager

Deputy Managing Director(Administration Division)


The Company Committee Structure

It consists of 4 committee groups: Companys Board of Directors, Executive Directors, The Audit Committee

and The Remuneration Committee (set on February 24, 2007)

1. Board of Directors

As of December 31, 2006, Board of Directors consists of 9 committees as follows:

Name Position

1. Mr.Thira Wipuchanin Chairman and Independent Director

2. Mr.Ongart Thumrongsakunvong Deputy Chairman

3. Miss.Chutima Busayapoka Director

4. Mrs.Wallapa Thuannavarat Director

5. Mr.Ouychai Matitanaviroon Director

6. Mr.Kazuyoshi Higuchi Director

7. Mr.Punnop Charasaiya Chairman of Audit Committee and Independent Director

8. Mr.Somchart Limpanuphap Audit Committee and Independent Director

9. Mr.Wiboon Seetthaporn Audit Committee and Independent Director

Authorized directors who can sign on behalf of the Company

Authorized directors who can sign on behalf of the Company are Ms.Chutima Busayapoka,

Mr.Ong-art Damrongsakulwong and Mrs.Wanlapa Thuannavarat. Two out of three directors can jointly sign and

bind the Company with the Companys seal affixed.

Duties and responsibilities of the Companys Board of Directors

1. The Board of Directors has power and duties to conduct the Companys business according to the laws,

Companys objectives, Articles of Association, and resolutions of the shareholders meetings.

2. To set the Companys directions in running business; monitor the Companys operation according to relevant

official civil office, disclose sufficient information to shareholders and transparently run the business in the

most useful manner for the shareholders.

3. To fix the Companys goals, directions, policies, plans and budgets; monitor the Companys management

based on the policy. Some matters must be approved by the shareholders before being implemented such

as editing regulations, increasing and decreasing investment, issuing stocks or debentures, selling or

transferring the Companys business or vice versa, combining the business with other parties or juristic

persons. The purposes are to share profit and loss, amend or discontinue a contract on leasing partial or

entire Companys business, authorizing outsourcing to manage the Company, merging or halting the business,

paying remuneration and bonus to committees, etc.


4. The Companys Board may appoint a committee as appropriate to operate the business assigned by the

Companys Board, and the Companys Board will appoint one member of the Companys Board to be

Chairman.

5. The Companys Board may assign the Managing Director (MD) or give other persons authority to operate the

business under the Board of Directors supervision or may give authority to that person based on the

Committees agreement within the appropriate time limit. The Board may cancel, withdraw, change or alter

such authority. The Companys Board can authorize the MD or other persons based on the Companys Board

consensus.

6. The Companys board will ensure that the Company has the internal control system and effective internal

audit by providing auditors to take care of the operation and co-ordinate with the Committee.

7. Independent and external committees will use their own judgment in considering strategies, management,

assigning the Committee to substitute resigning committees and matters which have an impact on the

Companys benefits while accessing financial Information Technology and other businesses sufficiently for

the operation.

8. The Committee has to prepare a compliance manual of the Company about code of ethics, business ethics,

executive and staff codes of ethics and to be a guideline for the Company.

Remark: The Company is in the process of preparing a compliance manual for the Company on code of ethics, business ethics,

executive and staff codes of ethics.

2. Executive Directors

As of December 31, 2006, there are 3 executive directors as follows:

Name Position

1. Mr.Ongart Thumrongsakunvong Chairman of Executive Directors

2. Miss.Chutima Busayapoka Vice Chairman of Executive Directors

3. Mrs.Wallapa Thuannavarat Executive Director

Duties and responsibilities of Executive Directors

1. To set a policy, direction, strategy and principle to be in agreement with the goal assigned by the Companys

Board and have authority to operate based on the Companys Board policy under the Companys jurisdiction,

condition, rules and regulations.

2. To conduct organizations structure, authority covering selection, employment, transferring, training, and

resigning companys staff, except the Chairman of the Board and the MD.

3. To consider annual budget arrangement for screening before asking the Companys Board approval.


4. To examine, follow policy and companys way of management effectively.

5. To have power to consider, screen in terms of investment in relevant business with key business or vice

versa before asking the Companys Board approval.

6. To have authority in approving of loans or credit loans from financial institutions, including making imbursement

for the Companys regular business transactions such as investment, buying land or land with building(s),

buying machinery or other assets and other payments with the credit limit for each transaction of less than

50 million baht. If it is more than 50 million baht, the Companys Board has to approve first.

7. To have authority in considering and allocating pension, bonus or other remunerations approved by the

Companys Board.

8. To perform other duties in each duration assigned by the Companys Board

9. To approve of loans as welfare to staff with low income in the amount of no more than 500,000 baht.

3. The Audit Committee

As of December 31, 2006, there are 3 independent committees as follows:

Name Position

1. Mr.Punnop Charasaiya Chairman of Audit Committee and Independent Director

2. Mr.Somchart Limpanuphap Audit Committee and Independent Director

3. Mr.Wiboon Seetthaporn Audit Committee and Independent Director

Mr.Bandid Chotiwannaporn, General Manager of Accounting and Finance is the secretary of the Audit Committee.

Duties and responsibilities of the Audit Committee

1. To review and ensure that the Company provides a sufficient and accurate report of financial statements.

2. To review and ensure that the Company has appropriate and efficient internal control and internal audit

systems.

3. To review and ensure that the Company complies with the securities and exchange laws, regulations of the

SET and the laws relating to the Companys business.

4. To consider, select, nominate, including to determine compensation for, the auditor of the Company.

5. To consider the Companys disclosure of information to ensure its accuracy and completeness when there

are connected transactions or transactions that may result in conflict of interest.

6. To perform any other activities as designated by the Board of Directors upon the Audit Committees

approval such as reviewing financial and risk management policy, reviewing performance according to the

Management business ethics, reviewing with the Companys Management in major reports that have to be

presented to the public by law namely reports and analyses of the Management and so on.


7. To prepare the Audit Committees disclosure report which will be disclosed in the Companys annual

report. The report must be signed by the Chairman of the Audit Committee. That report should consist of:

- Opinions about the process of conducting and disclosing information in the Companys financial

report as well as its accuracy, completeness and reliability.

- Opinions about the sufficiency of the Companys internal control system.

- Rationale that the Companys auditors are eligible enough to be appointed for another term.

4. The Remuneration Committee

It was set on February 24, 2007 from 1st 2007 Companys Board meeting. There are 3 committees as

follows:

Name Position

1. Mr.Punnop Charasaiya Chairman of Remuneration Committee

2. Mr.Somchart Limpanuphap Remuneration Committee

3. Mr.Ouychai Matitanaviroon Remuneration Committee

Duties and responsibilities of the Remuneration Committee

1. To consider committees remuneration by considering operations outcome from committee in each year,

duties and responsibilities, companys financial status and rate of remuneration which compare with industrial

standard, asking salary rate approval or other benefits from companys board.

2. Other missions assigned by the Companys Board.

The Management Team

As of December 31, 2006, there are 7 executives as follows:

Name Position

1. Mr.Ongart Thumrongsakunvong Managing Director

2. Miss.Chutima Busayapoka Deputy Managing Director (Operation)

3. Mrs.Wallapa Thuannavarat Deputy Managing Director (Administration)

4. Mr.Bandid Chotiwannaporn Finance and Accounting General Manager

5. Mr.Atsuhiro Maruyama Marketing General Manager

6. Mr.Wunlop Choomsang Quality Assurance General Manager

7. Mr.Eakarin Chandaeng Operation General Manager


Election of the Directors and the Executive Management

The election of directors by the shareholders meeting shall be in accordance with the following rules and

procedures:

(1) A shareholder shall have one vote for one share.

(2) Each shareholder shall use all his or her votes under (1) to elect one or several persons as a

director. However, he or she may not divide his or her votes among any candidates.

(3) The persons who receive the most votes in ranking order will be elected as directors up to the

number of directors the Company shall have or elect at that meeting. In case the persons being

elected in subsequent order have equal votes but their election will exceed the number of

directors required to be elected in that meeting, the chairman of the meeting shall have a

casting vote.

At each annual general meeting of shareholders, one-third of the Companys directors

shall resign in rotation. Directors with the longest term in office resign first. Should the number

of directors to resign in rotation not be divisible by three, the number of directors closest to one-

third (1/3) of all directors shall resign.

In the first and second year of the registration of the Company, directors shall hold a lottery to decide

who shall resign from the directorship. The longest-serving directors shall resign in the third and subsequent

years. Directors who resign may be re-elected.

Apart from the resignation from the directorship in office, directors may be dismissed according to

- Death

- Resignation

- Lack of qualifications in accordance with section 68 the Public Company Act B.E.2535

- Shareholders meeting making a consensus about the directors resignation

- Court order

Directors and Management remuneration

1. The amount of remuneration is totaled at 15,582,400 baht (in 2006) by dividing the remuneration for

those in director positions only and the remuneration for the Companys Board of Directors and Management,

the details of which can be found as follows :

a) Director Positions only : 2,100,000 baht

• Remuneration for the Companys Board of Directors: total 1,545,000 baht

• Remuneration for the Audit Committee: total 555,000 baht


Name Board of Director Audit Committee Total

(Baht) (Baht) (Baht)

1 Mr.Thira Wipuchanin 225,000 - 225,000

2 Mr.Ongart Thumrongsakunvong 165,000 - 165,000

3 Miss.Chutima Busayapoka 165,000 - 165,000

4 Mrs.Wallapa Thuannavarat 165,000 - 165,000

5 Mr.Ouychai Matitanaviroon 165,000 - 165,000

6 Mr.Kazuyoshi Higuchi 165,000 - 165,000

7 Mr.Punnop Charasaiya 165,000 225,000 390,000

8 Mr.Somchart Limpanuphap 165,000 165,000 330,000

9 Mr.Weboon Seetthaporn 165,000 165,000 330,000

Total 1,545,000 555,000 2,100,000

b) Remuneration for the Companys Board of Directors and Management* for 2006 comprising salaries,

bonuses and welfare is totaled at 13,428,400 baht.

Remark: *Management means managers, the first 4 persons down from the managers and every 4th management

executive, excluding the accounting or financial managers if not in the same line as the 4th management executive.

2. Other remunerations: - None

Good Corporate Governance

The Companys directors have a policy to follow according to Code of Best Practices by Stock Exchange of

Thailand (SET) to make clearness, increase potential in competition and make shareholders credibility and relevant

persons in every department. The Company lays focus on the importance in corporate governance as follows:

1. Corporate Governance Policies

The Company has set up the corporate governance policy by focusing on important and necessity of business

operation to make stable growth by using honesty, professional management system, clearness with equality

of shareholder, fixing structure, duties and responsibilities of committee with the Companys board clearly,

disclosing clear information to investor at the right time, setting up control system and risk management with

carefulness, estimating risk with thinking about strategy and following risk management constantly and

properly, including taking care of executives and staff to perform based on codes of ethic.

2. Shareholder: rights and equitable treatment of shareholders

Right to know the Companys information

The Company realizes that shareholders should get correct, complete, sufficient, on-time and equal information.

The Company will deliver a letter of meeting 7 days in advance. In each period, there must be the agreement

from the committee for making decisions and recording everything in the meeting for shareholders to

examine.


Right to vote

The Chairman of the meeting will give a chance to shareholder equally to examine companys operation by

asking and giving opinion with suggestion, including recording important point in minutes to let shareholders

examine. For shareholders who are not free to attend a meeting, they can give authority others to attend the

meeting instead.

Right to be supervised equally

The shareholders will be supervised and treated with equality from the Company.

3. Right of persons with interests

The Company put a high value on every group of person who has an influence on the Company both internally

(companys board and staff) and externally (competitor, creditor).

- Personnel: treat equally and give fair remuneration.

- Trader and creditor : treat equally and follow trading condition.

- Customer: take care of customers by producing good quality and standardized goods and serve customers

needs and wants by focusing on the importance of quality of goods and services with a reasonable price.

- Competitor: perform under suitable rules to make a norm in competition.

- Society : having responsibility and taking care of society without any impact with environment in the

community, including supporting activity in community in suitable occasion.

4. Shareholders meetings

The Company has a policy to prepare a proper place and time for meeting, including having a meeting with

sufficient time to give a chance for shareholder equally to ask and give suggestion. Committee, auditor

committee, and managing director have to attend the meeting to answer the questions.

5. Leadership and vision

The Companys Board must have knowledge, ability and experience with having leadership and vision to go

along with standard by participating to set vision, mission, strategy, goal and budget and taking care of

operation based on business plan and budget effectively and efficiently. Moreover, the Company must have

internal control system, internal audit and risk management procedure effectively and efficiently and monitoring

operation constantly, preparing staff to operate according to the policy, excluding conflict and items that

have to ask shareholders approval from SET.

6. Conflict of interests

The Company gives the importance about the items that may cause conflict by setting up policies, steps for

approval according to the law. If the Company has any item to make conflict, company will propose to

committee for considering and making decisions.


Moreover, company has a policy about executives internal information to prevent for using information in

seeking for personal benefit both direct or indirect way. The Company prohibits executives and staff who

have internal information as secret or numeric information to do anything for personal benefit as followings:

- Stock Trading Stoppage

Committees, executives and staff know information that has an impact on stocks in terms of price will

stop 1 month earlier.

- Punishment

In case that committees, executives, or staff break a rule, they will be punished with one or more

punishments such as cutting salary, resigning or dismissing.

7. Business ethics

The Company sets up ethics for committees, executives and staff as a guideline to perform based on

companys mission honestly and equally for relevant persons, publics and society by running business with

responsibility, clearness, honesty and ability of competition and treating every group of people equally such

as shareholders, customers, traders and creditors, competitor, staff, country, community and society equally.

8. Balance of non-executive directors

The Companys structure consists of 9 highly qualified persons:

- 3 committees from shareholder and executive (30% of overall committee).

- 2 committees from shareholder (22.22% of overall committees).

- 1 independent director and 3 independent audit committees (44.44% of overall committees) who

have qualifications in audit companies.

9. Merge or separation of positions

The Company separates positions clearly according to the scope of duties and responsibilities set by the

Companys Board and MD. Furthermore, the Company appoints 3 independent directors to monitor the

Companys operation.

10. Remuneration of Directors and Executives

The Company appointed the Remuneration Committee on February 24, 2007 by having at least one

independent director to be on the committee:

Directors remuneration: setting up clear remuneration and suitable level with the industry.

Executives remuneration: setting up remuneration based on the Companys operation outcome and

performance by having a process to give remuneration equally.


Moreover, paying remuneration emphasizes fairness, sufficient and suitable remuneration with making

motivation to perform with good quality and standard.

11. Board of Directors meetings

The Company has a policy to have meeting every 3 months. However, additional meeting will be needed if

necessary by delivering a letter 7 days in advance to let committees have enough time to see details before

attending a meeting.

12. Sub-committees

The Company sets up sub-committee which is auditing committee to help the Companys supervision

according to information in (9.1) about management structure, having a meeting by auditing committee

every 3 months. If there is an emergency case, an urgent meeting will be conducted.

13. Internal controls system and internal audit

The Company gives an importance to have internal control system in top management and subordinate by

setting duties, authority to committee, executive with separating workers and auditors to weight and monitor

performance, including financial control by having a report to propose.

The Company employs an expert about examining internal control system which is Chutikarn Accounting

Office to examine and conduct internal control system for operation and important financial activity to ensure

that the main operation and important financial activities followed rules and regulations efficiently.

14. Report of the Board of Directors

The Companys board is responsible for important business operation and supervision, budget, financial IT

to publics in form of annual report with carefulness and disclosing sufficient information such as stock

structure, risk factors, relevant items to shareholder.

The Companys committee appoints committee to check quality of financial report and internal control

system to monitor the Company to have correct and enough financial report, having suitable and efficient

internal control system and auditing system.

15. Investor relations

The Committee will value disclosing correct, complete, clear, accessible and on-time information to investors

in terms of financial reports, performance reports and other related information. The Company realizes that

all information plays a key role for investors decisions to invest.


Name Age EducationShare

Relationship Employment Record

(%) Period Position Company

1 Mr.Thira Wipuchanin 58

Chairman

2 Mr.Ongart Thumrongsakunvong 48

- Deputy Chairman

- Chief Executive Director

- Managing Director

3 Miss.Chutima Busayapoka 45

- Director

- Deputy Chief Executive Director

- Deputy Managing Director

(Operation)

- BBA. University of Wisconsin, USA.

- DCP and ACP Program of IOD

- Highschool

Assumption Sriracha School

- DAP and ACP Program of IOD

- Diploma Certificate

- Phanyapranit College


-

43.51

(including

Spouse)

43.51

(including

Spouse)

-

Spouse of No. 3

Spouse of No. 2

2005 present

2005 present

2003 present

2000 present

2000- present

1998 2003

1994 - 1997

1990 - 1994

1975 - 1990

1992 present

2005 - present

2005 - present

2005 present

1992 1994

1988 1991

1992 present

1992 1994

1988 1991

Chairman and IndependentCommittee

Audit Committee and Independent

Committee

Director

Chairman of Audit Committee and

Independent Committee

Independent Committee

Senior Deputy Managing Director

Deputy Managing Director

Thailand Branch Representative

Deputy Chairman

Managing Director

Director

Director

Director

Managing Director

Manager


(Operation)Deputy Managing

DirectorAssistant Manager

Interhides Public Company Limited

Bangkok First Investment & Trust

Public Company Limited

Siam Macro Public Company Limited

United Palm Oil Industry Public Company Limited

Precious Shipping Public Company Limited

Export-Import Bank of Thailand

Premier Group

Prudential Asset Management Asia Ltd.

American International Assurance Co.,Ltd.


Vivid Atelier Co.,Ltd.

Trio Fustion Co.,Ltd.

Automotive Accessory Co.,Ltd.

OC Leather Co.,Ltd (Closed)





Management Information

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24

- BBA. Sukhothaithammatirat

- DAP Program of IOD

- MBA. Campbell University, USA.

- DAP Program of IOD

- BBA. Waseda University, Japan

- Master Science of ManagementArthur D.

Little University, USA

.- DAP and ACP Program of IOD

- Master of Accountancy

Thammasat University


0.63

(including

Spouse)

-

-

-

0.14

Sister of

No. 3

-

-

-

-

1994 present

1978 1993

1997 - 1978

2006- present

2005 - present

2003 - 2006

1998 2003

1993 1998

1992 1992

1989 1989

1986 1986

2005 present

2004 present

2002 2003

1997 2001

1979 - 1996

2005 present

1996 present

1976 - 1996

2005 - present

1999 - present

1985 - 1999

1975 - 1984


(Administration)

Supervisor (General Account)

Accountant

Director and Deputy Logistic Management

Director

General Manager


Manager

Assistant Manager

Senior In charge

Officer

Director

General Manager

Manager

General Manager

Assistant Manager

Independent Director, Chairman of

Audit Committee


Vice President

Independent Director, Audit Committee

Manager (Credit Dept.)

Branch Manager

Internal Auditor


Thai Investment and securities

Public Company Limited

Poonpipat Public Company Limited

Sumitomo Corporation Thailand Co.,Ltd.









Sumitomo Corporation, Japan


Sumitomo Corporation, Mexico




Kasikorn Bank


Bangkok Bank

Bangkok Bank

Bangkok Bank

4 Mrs.Wallapa Thuannavarat 53

- Director

- Executive Director

- Deputy Managing Director

(Administration)

5 Mr.Ouychai Matitanaviroon 47

Director

6 Mr.Kazuyoshi Higuchi 52

Director

7 Mr.Punnop Charasaiya 58

- Independent Director

- Chairman of Audit Committee

8 Mr.Somchart Limpanuphap 55


- Audit Committee




25

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- LL.M.

Temple University, USA.

- A Barrister-at-Law, The Bar Association


- MBA Finance

University of Exeter

- Financial Advisor-

CPA / Thailand

- Diploma Certificate / Chemical

Otaru Technical Senior Highschool,

Japan

- Bachelor of Engineer

Mahanakorn University

- Bachelor of EngineerThonburee King

Mongkut of Technology University

-

-

-

-

-

-

-

-

-

-

2005 present

2006 - present

1998 - present

1976 - 1997

1974 - 1975

1971 1973

2006 - present

2005 2006

2004 2005

2001 2003

1998 2001

2005 - present

2004 - 2005

2000 - 2004

1979 - 2000

1972 - 1979

2005 present

2002 - 2005

2001 2002

1999 2001

2000 present

2002 2003

2001 2002

2000 2001

Independent Director, Audit Committee


Executive Vice President

Vice President

Attorney

Credit Compromise Officer

Finance and Accounting General Manager

Assistant Vice President Investment

Banking Department

Manager - Investment Banking

Department

Manager Internal Audit Department

Senior Auditor

Marketing General Manager


Managing Director

Manager (Marketing Dept.)

Assistant Manager


Production Manager

Sales and Service Engineer

Production Manager

Quality Assurance General Manager

R & D Manager

Engineering Manager

Engineer




Kasikorn Bank

Office of Adul Singhanade

Bangkok Bank

Interhides Publice Company Limited

TSEC Securities Co.,ltd.

Syrus Securities Public Company Limited

Biz Acc Consulting Co.,ltd.

PricewaterhouseCoopers ABAS.


N.E. Chemcat, Japan

Engelhad Chemcat (Thailand) Co.,Ltd.

N.E. Chemcat Co.,Ltd., Japan

Nippon Engelhad Co.,Ltd., Japan



UMC Service Engineering Co.,Ltd.

VRK Spectrum Co.,Ltd.





9 Mr.Weboon Seetthaporn 58


- Audit Committee

10 Mr. Bandid Chotiwannaporn 31

Finance and Accounting

General Manager

11 Mr.Atsuhiro Maruyama 52

Marketing General Manager

12 Mr.Eakarin Chandaeng 30


13 Mr.Wunlop ChoomsangQuality 29

Assurance General Manager




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Audit Committee Report

The Board of Directors of Interhides Public Co., Ltd. has unanimously appointed the three audit committees of

Interhides Public Co., Ltd. who are highly intellectual in law, finance and corporate governance. According to the

appointment, Mr. Pannop Charasai is the Chairman of the audit committee. Mr Somchart Limpanupap and Mr Wiboon

Seetthaporn are the audit committees. In 2006, the audit committee had four meetings with the management and

other divisions within the Company. While in session, the audit committee considered the operating results, risk

management, problems and obstacles in the companys operation.

The audit committee performed its duties and responsibilities as appointed by the Board of Directors as follows:

review control of corporate governance, financial review control, and review control of internal monitoring assessment

which can be concluded below:

Review control of corporate governance: The audit committee has monitored information disclosure with utmost

transparency and has complied with the regulations set forth by Securities and Exchange Commission, the Stock

Exchange of Thailand and the law required for business operation such as mutual review control of corporate group

of which the Companys executives are shareholder to ensure that the Company has implemented its operation

according to the normal business condition.

Review control of quarter and annual financial statement 2006: This is to ascertain that the Company has observed

accounting standards according to the Accountancy Act of 2006 as proclaimed by Securities and Exchange

Commission, the Stock Exchange of Thailand and that the accounting system and financial statement are accurate

and trustworthy including sufficient and in time information disclosure on financial statement to benefit investors or

any parties using financial statement of the Company in making financial decisions. Also, Audit Committee appoints

the Auditor and considers the audit fee.

Review control of internal monitoring assessment: The Company has a sufficient internal monitoring system in the

business operation and has achieved it objectives of internal monitoring in both efficiency and effectiveness of

resource operation including asset security, failure protection or minimization, damage, leakage, over-consumption

or corruption, the reliability of financial reports and operation, compliance with laws, rules, and regulations in which

the Companys auditors have all agreed upon that no problematic issues or failures as critical are detected. In 2006,

the Company has assessed internal monitoring and the results of internal monitoring assessment of the internal audit

division deem that the internal monitoring of the Company has been ample and therefore efficient.

The audit committee values effective corporate governance and internal monitoring in order for the Company to

achieve desirable corporate governance with sufficient internal monitoring suitable for a business operation. The

accounting system and financial reports are of accuracy and trustworthiness including compliance with laws, rules,

and regulations pertinent to the Companys business operation.

(Pannop Charasaiya)

Chairman of Audit Committee


Related Party Transactions

Detail of related transactions in the 2005 and 2006

1) Vivid Atelier Company Limited (Vivid)

Nature of business Manufacture and sale of coating work, pattern coating, decoration of material surface, color spray, pattern spray i.e.

cover of perfume spray in toilet.. Founded on March 27, 2005.

Registered and paid capital 5 millions Baht with total 500 thousand shares at par Baht 10. (Bor Or Jor 5 as at April 29, 2006)

Shareholding structure as of December 31, 2005.

Name Share Percent

Mr. Ongart Thumrongsakunvong 174,999 35.00

Miss Wanwisa Thumrongsakunvong 124,999 25.00

Alliance Wallnut Manufacture Co.1 100,000 20.00

Matcher Chemical Co. 2 99,999 20.00

Miss Chutima Busayapoka 1 0.00

Other aliens 1 0.00

Other Thai citizens 1 0.00

Total 500,000 100.00

Remarks:1 Manufacture and sale of wood pattern decoration of car / Taiwan citizen. / Have no relationship with the executives or company.

2 Manufacture and sale of coating work, pattern coating on material surface / Singaporean citizen / Have no relationship with the executives or company.

Relationship with the Company: Relative operation. Director as main shareholders of the Company; Mr. Ongart Thumrongsakunvong Miss Wanwisa

Thumrongsakunvong (a daughter of Mr. Ongart and Miss Chutima) and Miss Chutima Busayapoka, held 299,999

shares of Vivid respectively, totally 60 percent. However, Vivid closed the business on June 30, 2006.

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Important particularsBalance / Value ( Baht)

Terms of price / necessity Comments of the Audit Committee

Year 2005 Year 2006

1. The Company sold machinery to Vivid.

- Machinery sale

- Account receivable

6,794,500 -

(30,598) -

- The Company sold permanent assets i.e. Liquid

Coating Equipment to Vivid in the cost price plus

opportunity loss compensation (interest) in the

rate of 7.25% and profit of 3% according to the

resolution of the board of directors No. 8/2005

dated March 23, 2005. At the end of 3rd quarter,

Vivid paid for the total machinery costs.

- Above particulars occurred because the

Company planned to invest in Vivid, and Vivid

received purchase order from the customer in

advance. It is required to order machinery used

on manufacturing from abroad prior to

completion of foundation of Vivid. All purchase

orders have been prepared in the name of the

Company. However, after the Company knew

restrictions of investment in Vivid that the main

shareholders during the mid of year 2005

planned to invest on leather manufacturing

business for vehicle industry only, the Company

cancelled the investment plan and machinery

sale for Vivid in the price fixed by the committee.

- The machinery sale is not transaction on normal

course of business. The Audit Committee

considers that the price requirement and terms

do not prejudice the Company. The provided

selling price is the cost price of the Company

plus opportunity loss compensation and profit in

the appropriate rate. However, the Audit

Committee found the termination of interaction

since December 2005.

- Nowadays, Vivid completely closed the business

and financial statement which will never have the

related party transaction with the company in the

future.

Single particulars = According to the business closed on June 30, 2006, there will never have the related party transaction between the Company and Vivid in the future.

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Year 2005 Year 2006

2. The Company sold plant accessories

to Vivid.

- Sale of plant accessories


3. The Company sold plant materials

and service to Vivid.

- Sale of pl ant materials

- Transportation service cot


484,909 -

- -

41,454 -

45,900 -

12,412 -

- The Company manufactured and sold plant

accessories i.e. table, shelf, spray room to Vivid

Company in the cost price plus additional profit

of 10 percent. The above particulars occurred

at the initial period of foundation of Vivid.

However, the Company stopped accessory sale


- The Company sold plant materials i.e. synthetic

fiber to Vivid in the cost price plus additional

profit. For product transportation service for

Vivid, the Company planned to charge the price

on basis of the distance plus additional profit of

10 percent. The above particulars occurred at

the initial period of foundation of Vivid. However,

the Company stopped accessory sale and

transportation service to Vivid since December

2005

- The sale of plant accessory is not transaction on

normal course of business. The Audit Committee











future.

- The sale of plant materials is not transaction on

normal course of business. The Audit Committee











future.

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Year 2005 Year 2006

4. The Company purchased office

equipment from Vivid

- Office equipment


5. The Company granted office and

factory lease to Vivid.

- Rent and central service charge

- Fine


- The Company purchase office equipment at net

book value price from Vivid due to Vivid

business closed.

- The Company granted Vivid the lease of space

on the 5th floor of Plant Building 4 to be used as

office and factory, calculated for the total area

of 1,680 square metes. The Company charged

the rent in the rate of 110 Baht per square meters

per month and central service charge of 8,000

Baht per month.

- The Company allowed Canter Consultant Co.,

Ltd. as central estimation company in the list of

Security Exchange Committee to estimate the

rent price to Vivid and found that the estimation

price equals to 130 Baht per square meters per

month as higher rate than the rate collected from

Vivid. To correspond with market circumstances,

- The purchase of office equipment is not

transaction on normal course of business. The

Audit Committee considers that the price

requirement and terms do not prejudice the

Company. The provided selling price is the cost

price of the Company plus opportunity loss

compensation and profit in the appropriate rate.

- However, the Audit Committee found the

termination of interaction since June 2006.

Nowadays, Vivid completely closed the business



future.

- The lease rate is appropriate and close to the

market price estimated by Cantor Consultant Co.,

Ltd. And it is considered as full utilization of

unused area of the Company. The lease is made

in short time, about 1 year if the Company needs

additional space to support work enlargement in

the future. The contract can be extended if the

Company deems proper.

- However, the Audit Committee considers that the

Company should provide policy of lease

collection in the period described in the lease

contract strictly.

- 74,240

- -

1,751,061 1,310,400

- 6,461

677,915 -

Continuous particulars = According to the business closed on June 30, 2006, there will never have the related party transaction between the Company and Vivid in the future.

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Year 2005 Year 2006

6. The Company charged the public

utility fee from Vivid.

- Public utility fee


110,485 146,488

44,018 -

the Company executives deemed appropriate to

adjust the rent to be 130 Baht per square meter

per month, which includes the central service

charge. It is specified in the contract that Vivid

should pay within 7 days since receipt of notice

from the Company.

- The contract commences from September 1,

2005 August 31, 2006. Upon contract expiry,

the lessor allows the lessee to extend the contract

for another 1 year each time with increase of rent

not exceeding 10%. The Company or the lessee

may terminate the lease prior to the expiry date

with notice in writing not less than 3 months.

- The Company allowed Vivid as lessee to use

water and electricity, and water and electric

meters were installed to inform actual used

quantity of water and electricity. The Company

charged the water and electricity fees in the rate

of Baht16 and 4 Baht respectively.

- As the Company entered into the lease contract

with Vivid on September 1, 2005 in order to adjust

the rent according to the market rate, the water

and electric charges have been adjusted

according to the rate collected directly by the

Provincial Water Authority and Provincial

Electricity Authority. According to the lease, Vivid

is required to pay within 7 days after receipt of

notice from the Company.

- If the lessee defaults on rent payment for

consecutive period of longer than 2 months, the

Company must charge the penalty fee from the

lessee in the rate of 1.25 percent per month of

the unpaid amonth as described in the lease

contract.

- For the fine, it is counted by the delayed period

over 2 months and calculated by the delayed

month multiply by 1.25% of accrued rental fee.

- However, Vivid completely closed the business



future.

- Considered as expense separation of the

Company and lessee. Separate meter installation

informs the actual use quantity and can charge

from Vivid in the rate actually colleted by the

authority.


Company should collect the public utility fee in

the period described in the lease strictly.




future.

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2) Schumans Electronics Co.,Ltd (Schumans), previously named Trio Fusion Company Limited

Nature of business Assembly of electronic equipment for use in the vehicle industry i.e. Reverse Sensor. Founded on May 16, 2005 and renamed to Department

of Business Development with effective date on June 8, 2006

Registered and paid capital 10 millions Baht with total 1 Million shares at par Baht 10 (Bor Or Jor 5 as at May 25, 2006)

Shareholding structure As of December 31, 2006

Name Share Percent

Shoemans (Thailand) Co., Ltd.Mr. 682,496 68.25

Rama Jandran Tangaweru 145,000 14.50

Ongart Thumrongsakunvong 100,000 10.00

Taan Huan Kaan 72,500 7.25

Other aliens 3 0.00


Total 1,000,000 100.00

Relationship with the Company: Relative Operation. Director as main shareholder and executive of the Company, Mr. Ongart Thumrongsakunvong, held 100,000 shares

of Schumans, calculated as 10 percent.

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Year 2005 Year 2006

Single particulars

1. The Company manufactured and

sold plant accessories for

Schumans.

- Sale of plant accessories


Continuous particulars

2. The Company allows Schumans to

rent office and factory space.


- Fine


67,079 -

- -

328,200 612,000

- 24,503

- 169,748

- The Company manufactures plant accessories

i.e. shelf for sale to Schumans in the cost price

plus additional profit of 10 percent. Above

particulars occurred at the initial period of

Schumans foundation. The Company stopped

accessory sale to Schumans since December

2005.

- The Company leased Schumans some area on

the 2nd floor of Plant Building 2 to be used as

office and factory with the total area of 340 square

meters. The rent and service charge are

collected monthly 110 Baht per square meters

and 6,000 Baht respectively.










- The lease rate is appropriate and close to the

market price estimated by Cantor Consultant Co.,

Ltd. And it is considered as full utilization of

unused area of the Company. The lease is made

in short time, about 1 year if the Company needs

additional space to support work enlargement in

the future. The contract can be extended if the

Company deems proper.

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Year 2005 Year 2006

- The Company allowed Canter Consultant Co.,

Ltd. as central estimation company in the list of

Security Exchange Committee to estimate the

rent price to Schumans and found that the

estimation price equals to 150 Baht per square

meters per month as higher rate than the rate

collected from Schumans. To correspond with

market circumstances, the Company executives

deemed appropriate to adjust the rent to be 150

Baht per square meter per month, which includes

the central service charge. It is specified in the

contract that Vivid should pay within 7 days since

receipt of notice from the Company.

- The contract commences from September 1,

2005 August 31, 2006. Upon contract expiry,

the lessor allows the lessee to extend the contract

for another 1 year each time with increase of rent

not exceeding 10%. The Company or the lessee

may terminate the lease prior to the expiry date

with notice in writing not less than 3 months.











the unpaid amonth as described in the lease

contract

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Year 2005 Year 2006


utility fee from Schumans.



16,281 98,361

2,052 78,069

- The Company allowed Schumans as lessee to

use water and electricity, and water and electric

meters have been installed to be informed about

actually used quantity of water and electricity.

The Company charged the water and electricity

fees in the rate of 16 Baht and 4 Baht

respectively.

- As the Company entered into the lease contract

with Schumans in order to adjust the rent

according to the market rate, the water and

electric charges have been adjusted according

to the rate collected directly by the Provincial

Water Authority and Provincial Electricity

Authority. According to the lease, Schumans is

required to pay within 7 days after receipt of

notice from the Company.




from Vivid in the rate actually colleted by the

authority.




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Year 2005 Year 2006

4. The Company purchased finished

goods from Schumans.

- Purchase of finished good

- Account Receivable

- 476,425

- 27,217

- The Company purchased sets of reverse sensors

from Schumans. The product sets were made

by orders and the Company can take advantages

by marking up the additional profit at least 15%

by a cost plus method.

- The Company signed the letter of intent and the

business agreement with Shumans for each

model. The agreement presents details of the

product price which enable the Company mark

up the profit which is a generally accepted price.

In addition, according to made-by-order

products, it is beneficial to the Company not

keeping the stocks and not disadvantage to the

Company.

- For orders of the new models, if the Company

develops the reverse censors together with car

manufacturers, it assumes that the Company is

assigned to search for the reverse censors for

the car manufacturers and the Company will hire

Schumans as a sub-contractor with the pricing

method as mentioned. However, if Schumans

can directly find out and contact car

manufacturers, it can make the deal by itself

without passing through the Company.

- The transactions have price and business

conditions which are not disadvantage to the

Company. In addition, the transaction price is the

fair price for the business deal.

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3) Automotive Accessories Company Limited (Automotive)

Nature of business Manufacture and sale of coating work, pattern coating, pattern spray, wood coating spray, spray on material surface used in the vehicle

industry.

Registered and paid capital 15 millions Baht with total 1.5 million shares at par Baht 10 (Bor Or Jor 5 as at September 29, 2006)

Shareholding structure As of December 31, 2006

Name Share Percent

Mr. Ongart Thumrongsakunvong 719,999 48.00

Miss Chutima Busayapoka 719,998 48.00

Mr. Pisit Wimolsaet 30,000 2.00

Miss Nanthawadee Thawonpanich 30,000 2.00


Total 1,500,000 100.00

Relationship with company Main shareholders; Mr. Ongart Thumrongsakunvong and Miss Chutima Busayapoka, held shares of Automotive, totaling 96 percent with

co-director: Mr. Ongart Thumrongsakunvong.

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Year 2005 Year 2006

Single particulars

1. The Company sold machinery to

Automotive.

- Machinery sale

- Manufacturing parts


8,596,600 -

277,172 -

4,383,797 4,186,858

- The Company sold permanent assets i.e. wood

dryer, wood vacuum, wood refinement as new

machinery to Automotive in the cost price, less

depreciation cost, plus opportunity loss

compensation (interest) in the rate of 7.25% and

profit of 6% according to the meeting resolution

of the board of directors, and sold parts used on

manufacturing, which the Company must

purchase from the customer company for use

on manufacturing. The balance is available due

to machinery test running.

- According to small revenue of Automotive, it can

have the remaining account receivable.

However, since Q32006, Automotive have had

increase of sale orders and expected to repay

the remaining account receivable continuously.







the appropriate rate. Even though Automotive had

small revenue in year 2006, it can have

continuous repayment to the Company.

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Year 2005 Year 2006


2. The Company leased office and

factory space to Automotive.


- Fine


370,500 1,861,600

- 55,322

- 1,462,500

- The Company leased the total area of 570 square

meters on the 1st floor of Plant Building 4 to be

used as office and factory. The short-term

contract for 5 months, commencing from August

1, 2005 until December 31, 2005, will be

prepared with option to extend the contract for

another 1 year each time. The Company will

charge additional rent not exceeding 10 percent.

The Company charged the rent together with

central service charge in the rate of 130 Baht

per square meter per month as closest rate to

the market rate used on evaluation by Cantor

Consultant Co., Ltd. about rent space of Vivid.

- The Company or lessee can terminate the lease

prior to the expiry date with prior notice in writing

not less than 3 months.

- In year 2006, Automotive can roll over the rental

agreement annually from 1 January to 31

December 2007 and the Company can fine

Automotive for the delay payment with a fine rate

not over 10% of accrued payment. The Company

provided the monthly rental fee rate Baht 10 per

square feet.




- The lease rate is based on the market price like

normal lease and does not prejudice the

Company, and it is considered as full utilization

of unused area of the Company. The lease is

made in short time, about 1 year if the Company

needs additional space to support work

enlargement in the future. The contract can be

extended if the Company deems proper.


Company should collect the rent in the period

described in the lease strictly.





the unpaid amount as described in the lease

contract

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Year 2005 Year 2006


utility fee from Automotive.



4. The Company provided R&D

services to Automotive.

- R&D fee


4,350 321,463

1,415 313,396

- 329,463

- 256,420

- The Company allowed Automotive as lessee to

use water and electricity, and water and electric

meters have been installed to be informed about

actually used quantity of water and electricity.

Automotive will be responsible for the payment

in the rate actually collected by the Provincial

Water Authority and Provincial Electricity

Authority. The payment must be done within 7

days after receipt of notice from the Company.-

In year 2006, Automotive already installed water

electric meters which can provide the actual

use for Automotive repayment continuously and

accurately.

- The Company provided R&D services to

Automotive, since the Company solely sold all

products of Automotive and the pricing charge

was calculated by chargeable hours multiply by

the third party rate.




from Automotive in the rate actually colleted by

the authority. In year 2005, the Company cannot

complete installation of electricity and water

meters in time. It is deemed appropriate that after

completion of meter installation, the Company

should collect from Automotive retrospectively in

the price used in the last month of meter

installation multiplying with number of unpaid

months.


Company should collect the outstanding public

utility fee strictly.

- The transaction was not disadvantageous to the

Company and Automotive have had repayment

to the Company continuously.

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Year 2005 Year 2006

5. The company purchased finished

good from Automotive

- Purchase of finished good

- Account Receivable

634,765 1,912,500

- -

- The Company purchased wooden surface

products from Automotive for selling to third

parties or car manufacturers with made-by-

orders. The Company gained the additional profit

by marking up the price at least 15% of cost.

- In present, there is no wooden surface

manufacturer in Thailand, mostly import from

international with expensive price. According to

many difference of product types complied with

different models of cars, it is difficult to have a

comparison price. The Company, however,

made a business contract to Automotive by each

product model after the Company has the letter

of intent from the car manufacturer. The letter of

intent presents adequate details and price for

the Company to set the additional profit and

generally-accepted-business-conditions. In

addition, the sale orders of the products are

made by order which enable the Company not

keep stocks; therefore, this transaction is not

disadvantageous to the Company.

- For orders of the new models, if the Company

develops the wooden surface products together

with car manufacturers, it assumes that the

Company is assigned to search for the wooden

surface products for the car manufacturers and

the Company will hire Automotive as a sub-

contractor with the pricing method above.

- The transaction is reasonable for normal business

and the pricing is not disadvantageous to the

Company as well as the conditions of the

agreement were prepared as those of third par-

ties agreement.

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4) Sumitomo Corporation Thailand (Sumitomo)

Nature of business Trading and investment business

Registered and paid capital 420.00 millions Baht with total 0.42 million shares at par Baht 1,000 (Bor Or Jor5 as at January 31, 2007)

Shareholding structure As of September 30, 2006

Name Share Percent

Summit Global Management ll B.V. 419,994 99.99

Other 6 0.01

Total 420,000 100.00

Relationship with the Company - Relative operation. Sumitomo Group, consisting of Sumitomo Corporation and Sumitomo Corporation (Thailand) Co., Ltd., held shares

of 20 Percent as at December 31, 2006

- Sumitomo Group by Sumitomo Corporation and Sumitomo Corporation (Thailand) Co., Ltd. assigned their representatives to act as

directors; Mr. Kazuyoshi Higuchi and Mr. Ouychai Matithanawirun, respectively

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Year 2005 Year 2006


1. The Company purchased chemical

product from Sumitomo.

- Raw materials purchase

- Account payable

2. The Company paid commission to

Sumitomo.

- Commission

- Administration & Management Fee

- Accrued expenses

3,959,805 3,378,698

- -

1,320,553 -

- 2,400,000

56,123 -

- The Company ordered raw materials, chemical

products from Sumitomo for longer than 3 years

after considering the quality, price and conditions

to be proper according to the market price.

However, the Company ordered raw materials

from other manufacturers in addition to

Sumitomo.

- Sumitomo granted marketing support to the

Company on contact with the customer

company. As result, the Company received

purchase orders from many car manufacturing

giant companies. On commission payment to

Sumitomo, the commission rate and conditions

of commission payment are provided in the

Commission Agreement for each model.

- The Company agreed to cancel commission

payment to Sumitomo totally on present car

model or new model with prospective increase,

effective since January 1, 2006 because

Sumitomo did not enter into strategic partnership.

However, Sumitomo Group takes role on support

of the Company operation. Especially on

marketing aspect, Sumi-Thai International Co.,

Ltd. as affiliate company of Sumitomo Group sent

4 its operating officers. One operating officer will

- Purchase particulars with proper conditions and

price based on the normal market price and does

not prejudice the Company.

- Proper particulars. The commissioning is

provided obvious rate by model as provided in

the compensation contract.

- Reasonable particulars. 5 sent officers for market

supporting if provided by the Company by itself

must pay for salary more than management fee

paid to Sumi-Thai International Co., Ltd. because

1 supporting officer is Japanese citizen and is

paid wage in the high rate. Determination of

management fee of the next year is provided from

achievement of Sumi-Thai International Co., Ltd.

and considered annually. Observe the rules of

the Security Exchange Committee and Security

Exchange of Thailand through approval by the

board of directors. The Audit Committee

considers reasonability of particulars, and

Sumitomo Group as interested person cannot

participate in approval.

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Year 2005 Year 2006

stand by permanently at the Company. Another

three officersgranted marketing support upon

request by the Company. The Company also sent

1 Japanese executive officer as marketing expert

to grant advice to the Company upon request.

Therefore, it is deemed appropriate to pay the

management fee to Sumi-Thai International Co.,

Ltd. The management fee in the year 2006 as

provided in the Management Agreement

between the Company and Sumi-Thai from

January 1, 2006 December 31, 2006 equals to

2.40 mill ions Baht per year with monthly

installments. The management fee will be agreed

annually on basis of consideration of

achievements of Sumi-Thai on each year.

- In addition, this charge can be advantageous to

the Company, since the fix charge can be

controllable. For the ext year, the Company will

calculate this fee by annual consideration with

the outputs or services Sumitomo provides to the

Company. It needs to be complied with the

regulations of SET and SEC, which Audit

Committee will review and approve the

reasonableness of the transaction and

Sumitomo, as a stakeholder of the transaction,

can not be allowed to participate in the

consideration meeting.

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7. Miss.Chutima Busayapoka

Relationship with the Company: Director, main shareholder and executive of the Company



Year 2005 Year 2006


1. The Company rented land from

Miss Chutima.

- Rent

- Account payable

312,750 417,000

- -

- The Company rented land for use on construction

of Plant Building 5 and canteen for the total area

of 1,668 square wah and with monthly rent of

34,750 Baht, equal to the monthly rent estimated

by Cantor Consultant Co., Ltd. The contract is

effective for 3 years, commencing from April 1,

2005, and can be extended for another 5 years

each time. The lessor may increase the rent not

exceeding 15% upon expiry of the lease. In case

of expiry, the Company must remove all buildings

from the rent space, or must consider that the

ownership on buildings belong to the lessor.

- In November 2005, the Company entered new

lease and cancelled the former lease with more

obvious terms of lease extension. The lessee may

extend the lease for another 3 years each time if

the lessee deemed proper, and if the lessor

wishes to sell the land, The Company shall be

given option to purchase land first.

- The Company made land rent because during

the year 2004, the Company needed increasing

current fund due to increasing sales and the

Company just earned a few profits from its

operation. In addition, the debt and capital ratio

of the Company is high about 45 times. Therefore,

- Purchase particulars with proper conditions and

price based on the normal market price and do

not prejudice the Company. New lease contract

is beneficial to the Company and causes

obviousness of contract extension. It is provided

that the Company can extend the lease contract.

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Year 2005 Year 2006

the Company planned to rent land to lessen the

investment and loan burden of the Company.

- However, the Company plans to purchase land

from Miss Chutima in the future if it considers

the investment to be proper and renders

appropriate compensation, and the Company is

ready on investment and without prejudice to the

financial status and achievement. The price will

be given fairly and estimated by the central

estimation company in the list of the Security

Exchange Committee. The particulars must be

approved by the board of directors. The Audit

Committee shall consider reasonability of

particulars. The price and conditions must be

fair, and interested person or beneficially

conflicted person cannot participate in approval.

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Year 2005 Year 2006

2. The Company rented commercial

building from Miss Chutima.

- Rent

- Account payable

520,000 392,000

- -

- The Company rented 4-storeyed commercial

buildings of 3 units for 3 years, commencing from

February 6, 2004 to be used as branch office for

cushion stitching service for individual customer

with the monthly rent of 40,000 Baht as estimated

by Cantor Consultant Co., Ltd. as central

estimation company in the list of Security

Exchange Committee for rent evaluation. The

renew contract started from June 1, 2006 to May

31, 2009 with the monthly rental fee Baht 48,000.

Miss Chutima and the Company may terminate

the contract with prior notice in writing not less

than 3 months.

- However, as at September 30, 2006, the

Company terminated the contract to Miss

Chutima which this transaction will no longer

happen.

- The rent payable by the Company is considered

to be in the appropriate rate because it is close

to the comparative market price. In addition,

building lease for After Market business tends to

grow well. However, according to the contract

cancellation, this transaction will no longer

happen.

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8. Mr. Ongart Thumrongsakunvong

Relationship with the Company : Director, main shareholder and executive of the Company



Year 2005 Year 2006


1. The Company granted lease of space

to Mr Ongart for dwelling purpose.

- Received rent


211,400 724,800

- -

- Lease of space on the 1st and2nd floors of Plant

Building 2with the total area of 604 square meters

to Mr. Ongart to be used as dwelling place for

Mr. Ongarts family. Short-term lease contract for

1 year, starting from September 16, 2005 until

September 15, 2006,and in 2006, the Company

approved to roll over the contract until September

15, 2007 in the rate of 100 Baht per square meter

per month, equal to the price estimated by Cantor

Consultant Co., Ltd. as central estimation

company in the list of the Security Exchange

Committee. Mr Ongart may extend the contract

for another 1 year each time with increasing rent

possible not exceeding 10%. Upon lease expiry,

if Mr Ongart wishes to extend the lease, he must

inform the Company in writing not less than 3

months. If the Company does not need to extend

the lease, it must inform Mr Ongart in writing 3

months in advance.

- Particulars of lease rate based on the market price

same as normal rent and not cause prejudice

against the Company.

49

INTE

RH

IDES P

UB

LIC C

OM

PAN

Y LIM

ITED



Year 2005 Year 2006


utility fee from Mr.Ongart



- 79,952

- -

- The Company planned to install water and

electricity meters separately in order to be

informed about actual quantity of use. The

Company will charge the water and electricity

fees on basis of actual use.

- According to no water-electric meters installation

in year 2005, there was no the transaction in

2005. However, in year 2006, Automotive

completely installed water electric meters which

can provide the actual use for Automotive

repayment continuously and accurately.

- Rolling over the contract will be effective by a

written letter of intent, not necessarily creating a

new contract.

- Obvious separation of expenses of the Company

and the lessee. Separate meter installation

informed the actual quantity of use and can

collect from Mr Ongart in the rate actually charged

by the authority.


Company should provide policy with credit term

of not exceeding 60 days and collect the public

utility fee within the above period strictly.

INTE

RH

IDES P

UB

LIC C

OM

PAN

Y LIM

ITED

50

Necessity and reasonability of interaction

At the meeting of board of directors, the Audit Committee examined the particulars together with the Companys

executives and considered that interactions among individual or juristic person in conflict are reasonable. The price

requirements or terms of the particulars are fair, and the comparison has been made with the price estimated by the

central estimation company or market price. For single particulars i.e. machinery sale, the selling price was established

from the cost price as similar price to the market price, including the opportunity loss compensation and profit in the

proper rate, and the Company didnt lose benefits. However, for single particulars, the Company planned to end all

relative transactions since December 2005. Only the rent and public utility fee are left. (Except if the Company must

claim back the space for rent for purpose of work enlargement, all interactions among the companies or relative

persons are terminated.)

Upon consideration of the business of the relative companies, it may be considered that the business is

relative to the leather manufacturing business for use in the vehicle industry i.e. Schumans and Automotive. However,

on presentation to be products manufacturer for the automobile manufacturing company, each part will be offered

separately and cannot offer products of each company together with presentation of company products. It is deemed

as normal procedures of purchase of the automobile manufacturing company. In addition, the automobile

manufacturing company has standard cost for each product for use on selection of manufacturer of each parts of

each car model. The automobile manufacturing company must realize the quality and properties of products and

companies separately for the most benefit of cost, quality and reliability.

However, the necessity for lease of some plant space by companies and relative persons can be summarized

as follows:

Summary of leased space for companies and relative persons

Companies and relative Space for rent Total area Lease rate on contract Estimated price by

persons (square meters) (Baht per square comparison of market price

meter per month)

Schumans Electronics Co.,Ltd Plant Building 2 340 square 150 150 Baht per square meter

meters

Automotive Accessories Co.,Ltd. 1st floor, Plant Building 4 1,250 square 130 Closest price comparison to

meters the price estimated by Vivid

Mr. Ongart Thamrongsakunvong 1st & 2nd floor,Plant 604 square 100 100 Baht per square meter

Building 2 meters

Total 2,194 square

meters

Remarks: The Company has the total area of 23,425 square meters (including Plant Building 2, 3, 4 and 5). Plant Building 5 has the total area of 1,975 square

meters.


The Company planned manufacturing on collaboration with automobile manufacturing company. Considering

the quantity of car manufacture, the Company has been confirmed to be leather manufacturer for use on manufacture

of cushion or interior decoration parts, the productivity must be prepared sufficiently to support the prospectively

increasing purchase orders. The Company is expected to enlarge stitching and cutting personnel to support the

purchase order of the year 2006. The Company began to construct Plant Building 5 opposite to the location of

present factory in the year 2005 to enlarge productivity for the year 2006. However, the plant space is still vacant. For

the most benefits of efficient use, the Company considered that all 3 companies rent the space for the total area of

2,590 square meters (not including the space used by Khun Ongart and his family a dwelling place since establishing

the factory). The lease rate is provided by comparison with the market price as estimated by Cantor Consultant Co.,

Ltd., central estimation company in the list of the Security Exchange Committee. The committee considered the

particulars as use of not fully used space and as short-term lease for 1 year. The Company may need to use

additional space to support work expansion in the future. The lease extension is possible if the Company deemed

proper.

For factory extension project to Leather Tanning Industrial Estate, Km. 34, it is expected to increase the

productivity from 12 millions square feet per year to 24 millions square feet per year as enlargement for the part of

Plant 1, which is leather tanning plant. The procedures are required in the leather tanning industrial estate due to

limitations of waste water treatment from the tanning plant.

The necessity of particulars and comments of the Audit Committee towards interaction can be seen from

the table of Related Party Transactions

Measures or procedures for approval of interaction

The Company complied with the regulations of the Committee of the Securities Control and Security Exchange

of Thailand. In case of interaction causing conflicts on benefits, the approval must be granted by the board of

directors. The Audit Committee shall consider the reasonability of particulars and realize the most benefits of the

Company. The price requirements and terms of particulars must be based on the normal course of business with fair

price or comparison with the market price. In addition, the interested persons or person in conflict about benefits

cannot participate into the approval of interactions.

For continuous interactions, which have been considered by the Audit Committee, the Audit Committee

planned to examine the particulars quarterly.

Policy or trend of interactions in the future

The Company planned to prepare interactions in the future for continuous particulars and realized the

necessity and reasonability of the particulars, fair price and market price as well as benefits of the Company. The

main particulars can be summarized as follows:

- Space lease to all 2 relative companies i.e. Schumans and Automotive to be used as office and plant.

The lease rate is provided from the rate estimated by the central estimation company in the list of the

Security Exchange Committee and for short-term lease not exceeding 1 year if the Company needs


additional space. The Company may extend the lease if it deemed appropriate upon expiry of the

lease.

- Requirement for public utility use of all 3 relative companies

The Company required installation of water and electricity meters of each company and charged those

companies in the rate actually collected by the Provincial Water Authority.

- Land lease from Khun Chutima for construction of Plant 5 and canteen building

The lease rate equals to the rate estimated by the central estimation company in the list of the Security

Exchange Committee. The Company may extend the lease in case of lease expiry. If the lessor wishes

to sell the land, the Company will be granted option first to purchase land.

- Purchase of products from Automotive for re-sale

The Company planned to establish the additional profit rate for products purchased from relative

companies for re-sale, plus additional profit rate not less than 15 percent.

On meeting of board of directors No. 1/2007 on February 24, 2007 prospective interactions with relative

companies have been approved. Above particulars may cause conflict of benefits between the Company and

executives or main shareholders of the Company or other companies, on which the executives or main shareholders

are directors or shareholders, especially for the particulars which the Company purchased or employed the relative

company to manufacture products for re-sale. The Company plans to calculate additional profit not less than 15

percent.

The Company shall comply with the rules and regulations of the Committee of Securities Control and Security

Exchange of Thailand as well as requirements to disclose the relative data, acquisition and distribution of important

assets of the Company or affiliate company and according to the accounting standard provided by the Professional

Accountant Council. In case of conflict of benefits, the Company assigned its board of directors and Audit Committee

to consider the necessity and reasonability of the particulars, including terms of price and circumstances to correspond

with the normal course of business. The Company may consider comparison of price with outsider or with the market

price. The interested person is not involved on approval of particulars.

If the Audit Committee is not expert to consider possible interactions, the Company assigned an independent

expert or auditor to give comments about interactions for support of decision by the board of directors or Audit

Committee or shareholders as the case maybe. The Company will disclose interaction particulars in the note annexed

to the financial balance sheet examined or reviewed by the auditor and in the annual information sheet (Form 56-1)

Investment policies on all 2 relative companies in the future i.e. Schumans and Automotive

The Company has no policy about short-term investment on all 2 relative companies. However, if the business

operations on all 3 companies become more obvious in the future, The Company shall observe the relative criteria of

the Security Exchange of Thailand. The particulars must be approved by the board of directors. The Audit Committee

shall consider the reasonability of particulars and realized the most benefits of the Company. The terms of price and

conditions must be based on fair price or comparison with market price. The interested persons or persons in

conflict about benefits cannot participate into approval and must study the possibility, reasonability, fair selling

price, which must be estimated by the central estimation company or independent expert.


Report of the Board of Director’s Responsibilitiesfor Financial Statements

The financial statement of Interhides Public Co., Ltd. was organized to conform to the regulations of the

Department of Commercial Registration dated 14 September 2004 in accordance with unit 11 third section of the

Accountancy Act of 2003 following the bookkeeping standards set by the Certified Accountant and Auditor Association

of Thailand.

The committee accountable for the financial records of Interhides Public Co., Ltd. has been organized to

ensure that the Company has shown its financial status, income and expenditure and liquidity accurately and

reasonably. This is done through the sufficiently accurate and complete records of accounting data in order to

maintain assets including preventing fraud and irregular operation. As shown in the financial report, the Company

has chosen the appropriate accounting policy which can be regularly practiced according to the general certified

accounting standard. Moreover, the significant data is sufficiently available in the note of the financial budget. The

auditors have already expressed their comments on the financial budget of Interhides Public Co., Ltd. in their report.

MR. THIRA WIPUCHANIN MR. ONGART THUMRONGSAKUNWONG

Chairman of the Board Managing Director


Management Decision and Analysis of FinancialStatus and Performance

Analysis of Performance

The Companys principal income is from producing and distributing the leather covering for car seats,

steering wheels and gear knobs for the leading carmakers. The Company has four factories with the total capacity

of 12.00 million square feet per year or around 360,000 pieces per year. In 2005 and 2006, there was a comparable

production of 10.79 million square feet and 10.52 million square feet or 90% and 87.63% respectively from the total

capacity. The Companys Production, Research & Development has gained a lot of support from the strategic

partner, Sumitomo Group of Companies. These companies have a lot of experience in the automobile industry,

which makes the Company have more advantages in competition. Moreover, the Company has already started to

export the products to other countries. The export proportion of the year 2005 and 2006 was 12.67% and 13.27%

respectively.

Analysis of Income

The Companys total revenue is divided into two parts of which the first part is the revenue from leather for

car seats and other car accessories, and the second part is from other revenues. The revenue from leather for car

seats and other car accessories includes the sales of leather, leather cut parts, sewing service, and made-to-order

car seat service. The other revenues consist of rental revenue and the revenue from foreign exchange.

In 2006, the Companys total revenue was 941.15 MTHB, a decrease of 62 MTHB from the previous year.

Because of the economic slowdown caused by the rise in oil prices and interest rates leading to a slower demand in

the automobile industry, especially for the first half of the year 2006, in the second quarter, many carmakers decreased

the production rate of car models and this made the Companys total revenue decreased to 391.17 MTHB with the

net profit of 24.31 MTHB. However, the Company could increase earnings in the third and fourth quarters to 550.15

MTHB, or an increase of 40.64% from the first and second quarters. This was due to the fact that many new car

models were produced. Besides, The Motor Expo event in the years end well stimulated the demand in the automobile

industry.


Table of Companys Sales Income Source Classified by Products

2005 2006

Production Line/ Business Group Amount%

Amount%

(MTHB) (MTHB)

Leather for Car Seats 653.63 65.56 705.08 76.00

Leather for Steering Wheels and Gear Knobs 199.43 20.00 109.19 11.77

Sewing Service 6.60 0.66 2.87 0.31

Leather 61.38 6.16 9.10 0.98

The Medium Level of Hides and Spitted Wet Blue 52.17 5.23 55.86 6.02

Other Revenues 23.71 2.39 45.64 4.92

Total 996.92 100.00 927.74 100.00

As indicated in the table above, the income from leather for car seats still had a high proportion from

65.56% in 2005 to 76% in 2006.

Other revenues of the Company consist of that from interest, the revenue from gain (loss) on exchange rate,

space rental revenue from Vivid Atelier Co., Ltd. (closed down on June 30, 2006) and Schumans Electronics Limited

(the former name being Trio Fusion Company Limited). In 2005 and 2006, other revenues were totaled at 6.23

MTHB and 13.41 MTHB respectively or only 0.62% and 1.45% of the total revenues accordingly.

.

Analysis of Cost and Expenses

Cost of sales

The cost increased by 76.01% from the previous year while the Companys sales volume decreased

considerably. This was the result of the slower automotive sector and the slowdown in the economy during the first

half of 2006. The second quarter of 2006 was the end period of the production of car seats for many carmakers

which resulted in the decrease in sales unlike the production in a regular period. The decrease in sales did not

correlate with the Companys fixed costs such as depreciation of machines and factories, production labor cost,

electricity and water expenses for production, which caused the decrease in the cost of sales per sales volume of

2006 when compared with that of 2005.

Selling and Administrative Expenses

For 2006, the Companys operation expense was 78.34 MTHB, an increase from 2005 of 69.18 MTHB or

13.25% higher. This was caused by the increase in employees wages, the increase in numbers of employees, and

the increase in employees benefit such as pickup and drop-off cars and housing allowance.


Interest Expenses

Interest expenses in 2006 amounted to 19.59 MTHB, a decrease of 11.29 MTHB or 36.57% from 2005. The

major factor was from paying debt to the financial institutions, including paying low-rate interest to the long-term

loans for constructing a new factory.

Net Profit

IHL concluded the year 2006 with a net profit of 81.53 MTHB, a decrease of 39.36 MTHB or 32.56% from

the year before. As explained in the cost of sales section, it resulted from a slower automotive sector and the

slowdown in the economy during the first half of 2006. The Company was burdened by the high amount of fixed

costs, causing a great deal to a drop in profit. In addition, the net profit margin for 2006 also decreased from 12.05%

in 2005 to 8.79% which caused a decrease in net profit per share from 3.06 to 1.36 respectively.

Analysis of Financial Status

Analysis of Assets

The Companys significant assets comprise cash and cash equivalents, trade accounts receivable,

inventories, property, plants, and equipment net. As of December 31, 2006, IHL had the total assets of 1,139.76

MTHB, an increase of 144.41 MTHB, or 14.51% from 2005; this was caused by an increase in fixed asset value of the

Companys sixth factory.

Accounts and Notes Receivable

Considering the Companys accounts and notes receivable by the current portion as of December 31,

2006, the undue and the three months accrued accounts receivable were 89.44% and 10.41% of the total accounts

receivable respectively. The total accounts receivable with more than three months accrued were only 0.16%. The

Company anticipated that a chance that bad debt would occur is unlikely because of the strong financial status of

the customers companies.

Net Inventory

The Companys net inventory comprised a number of goods in process and finished goods. The Company

did not stock a lot of raw hides because of the made-to-order service. According to the Just In Time system, the raw

hides could not be kept for a long period. Therefore, the Company had come up with the policy of processing the

rawhides into the wet blue hides which can be kept for a long time without deterioration or decay, which was

considered goods in process. In order to plan for the most efficient production and correspond to incessantly

increasing purchase orders, the Company had come up with a policy to stock tanned leather ready to be sewed as

finished goods which were also considered goods in process. Therefore, the Company had a high value of goods

in process, with a proportionate increase to the increase of sales. Normally, the leather in the production process

took approximately 30 days.


As of December 31, 2006, the Companys net inventory was 290.84 MTHB, a decrease of 9.41 MTHB in

2005. The Company had also tightened the policy in inventory control and kept less stock of goods so that the

Company could use the space for production more effectively. The major inventory in this period was still be goods

in process and finished goods.

Table of Companys Merchandise Inventory (Unit: MTHB)

Description 2005 2006

Raw Materials- Leather 11.26 13.33

Supplies 2.25 11.69

Work in Process 140.15 104.05

Finished Goods 111.25 143.17

Goods in Transit 9.24 1.59

Raw Materials- Chemical 32.67 25.52

Total 306.81 299.35

Less Allowance for diminution in value of inventory (6.56) (8.51)

Net Total 300.25 290.84

In 2006, the Company set an increase of the allowance for decrease in product value to be 1.95 MTHB

which mainly included chemical products in furniture production. The Company anticipated that those chemical

products could be used with leather production in the automobile industry or could be spared partly for sales.

However, such chemical products were easily debased and could not be used; therefore, the allowance for decrease

in product value was decreased in this accounting period.

Property, Plant, and Equipment - Net

As of December 31, 2006, the Companys property, plant, and equipment - Net were worth 658.78 MTHB,

an increase of 241.07 MTHB from 2005 because of the increase in the new factory construction, and the new

machines which were bought additionally. The factory would be opened in the first quarter of 2007.

Liabilities

As of December 31, 2006, IHL had total liabilities of 534.82 MTHB, an increase of 77.88 MTHB. The major

part of the liabilities increase was the long-term loans for constructing a new factory. However, Debt to Equity ratio

of the Company in year 2006 can maintain in a good position with 0.88 times which was nearly to that of year 2005

with 0.85 times. Also, considering the Companys debentures, the liabilities would be decreased according to the

following.


Bank Overdraft and Short-term Loans from Financial Institutions

As of December 31, 2006, the Companys bank overdraft and short-term loans were continually decreased

amounted to 40 MTHB and 20 MTHB respectively. This was because the Company still had good liquidity.

(Unit: Thousand Baht)

Description December 31, 2005 December 31, 2006

Promissory Note 40,000 20,000

Total 40,000 20,000

Trade Accounts Payable

As of December 31, 2006, the Companys trade accounts payable amounted to 104.51 MTHB, a decrease

of 25.70 MTHB from 2005. The main accounts payable were the vendors of raw hides and chemicals from both

domestic and foreign markets with the average collection period of 73 days. The growth in accounts payable

correlated with an increase in sales volume.

Long Term Loans

As of December 31, 2006, the Companys long-term loans amounted to 356.69 MTHB of which the amount

of 44.83 MTHB was due within a year. The rest of 311.86 MTHB would be due within more than a year. These long-

term loans were for the construction of the new factory and the business operation.

Shareholders Equity

As of December 31, 2006, the shareholders equity was 604.93 MTHB, or an increase of 66.53 MTHB. The

increase of shareholders equity was largely from the Companys net profit of 81.53 MTHB in 2006, a legal reserve

of 4.08 MTHB, and the annual dividend payment of 15 MTHB for 2005 during the second quarter of 2006.

Liquidity

Cash Flow from Operating Activities

In 2005, the Companys cash flow statement showed an increase of 39.37 MTHB because of the net profit

of 120.90 MTHB. However, the increase in trade accounts receivable and the net inventory of 93.67 MTHB and

50.79 MTHB respectively and the rapid increase of the sales income made some of the Companys cash flow

unsettled with many accounts receivable. Therefore, cash flow from operation did not grow completely. Nevertheless,

the major increased trade accounts receivable, which were not yet due amounting to 73.89 MTHB, were all good

quality accounts receivable.

In 2006, cash flow from operating activities amounted to 110.29 MTHB which was from the significant

sources such as the net profit of 81.53 MTHB, the write back depreciation of 33.23 MTHB, the decrease in trade

accounts receivable of 16.66 MTHB, and the decrease of accounts payable of 25.55 MTHB.


Cash Flow from Investing Activities

In 2005, the Companys cash flow from investing activities stood at 221.40 MTHB. The purchase of land,

the building construction, and the purchase of more machinery amounted to 149.68 MTHB. The rest of 59.34 MTHB

was for the bank deposit in order to guarantee the additional loans.

Cash Flow from Financing Activities

In 2005, the Companys cash flows from financing activities were 219.05 MTHB. Cash from fundraising was

403.99 MTHB and the increase in long-term loans amounted to 255.00 MTHB. The short-term and long-term loan

repayment was made at 431.71 MTHB.

In 2006, the Companys cash flow from financing activities was 89.07 MTHB. The increase in cash after

long-term loans receipt was 169.24 MTHB. The payment of bank overdraft and long-term loans amounted to 59.82

MTHB. Also, the dividend payment of 2005 was 15.00 MTHB.

Audit Fees for Auditors

According to the latest account period of December 31, 2006, the audit fees for auditors, Ernst & Young

Office Limited, amounted to 1,000,000 THB solely for the audit fees of the Company.

The Company did not pay other non-audit fees to the auditors or auditing offices, personnel, or any other

businesses related to the auditors and the subsidiary of the auditors or auditing offices in any way.

Major Factors and Influences Affecting the Companys Future Performance and Financial Status

The Company is opening a new factory built on the 17-rai land located on the tannery industry area km. 34

Samutprakarn. The factory area is 10,000 square meters and will be used as a tannery and a dye factory which can

expand capacity to 24 million square feet per year in 2007 for the increasing order from the industry expansion and

the new market entry and other sale channels of the Company both domestically and internationally. However, the

mentioned factory expansion has resulted in high fixed cost, especially for the new factorys depreciation. If the

purchase order of the Company decreases or could not be expanded enough to cover the increasing cost, this will

affect future performance. Nevertheless, the Companys capacity plan will be considered based on purchase

orders and whether the Company is chosen as a manufacturer and a distributor of each cars model. Generally,

carmakers will have a one-year plan for production and for the new cars model release and will revise the production

plan constantly in order to have the most efficient production plan. Furthermore, the Company is chosen as the

manufacturer and distributor of car seats and other car accessories for many several new car models as well as

manufacturing plane seats for many foreign airlines, which is the additional product from the car seat product for

which the Company is able to sustain its growth continually.


Report of Independent Auditor

To the Board of Directors and Shareholders of


I have audited the accompanying balance sheets of Interhides Public Company Limited as at 31 December 2006

and 2005, and the related statements of income, changes in shareholders equity and cash flows for the years then

ended. These financial statements are the responsibility of the management of the Company as to their correctness

and completeness of the presentation. My responsibility is to express an opinion on these financial statements

based on my audits.

I conducted my audits 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 audits

provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position

of Interhides Public Company Limited as at 31 December 2006 and 2005, the results of its operations, and cash

flows for the years then ended in accordance with generally accepted accounting principles.

Supachai Phanyawattano

Certified Public Accountant (Thailand) No. 3930

Ernst & Young Office Limited

Bangkok : 24 February 2007


BALANCE SHEETS

INTERHIDES PUBLIC COMPANY LIMITED

AS AT 31 DECEMBER 2006 AND 2005

(Unit : Baht)

Note 2006 2005

ASSETS

CURRENT ASSETS

Cash and cash equivalents 16,882,351 38,067,407

Trade accounts receivable 5 152,624,881 169,299,179

Other accounts receivable - related parties 4 6,494,208 5,091,011

Inventories - net 6 290,840,657 300,252,121

Other current assets

Prepaid expenses 556,765 129,909

Others 2,327,185 3,296,470

TOTAL CURRENT ASSETS 469,726,047 516,136,097

NON-CURRENT ASSETS

Restricted bank deposits 7 11,145,755 61,065,509

Property, plant and equipment - net 8 658,781,309 417,709,239

Other non-current assets 104,757 432,381

TOTAL NON-CURRENT ASSETS 670,031,821 479,207,129

TOTAL ASSETS 1,139,757,868 995,343,226

The accompanying notes are an integral part of the financial statements.


BALANCE SHEETS (Continued)



(Unit : Baht)

Note 2006 2005

LIABILITIES AND SHAREHOLDERS EQUITY

CURRENT LIABILITIES

Bank overdrafts and short-term loans from financial institutions 9 20,000,000 40,000,000

Trade accounts and notes payable 104,507,440 130,203,081

Other accounts payable - related party 4 - 56,123

Current portion of hire purchase creditors 10 828,621 1,028,621

Current portion of liability under financial lease agreement 11 3,699,412 4,426,025

Current portion of long-term loans 12 44,829,841 41,500,000

Other current liabilities

Accounts payable - machinery 18,442,665 15,944,881

Corporate income tax payable 11,294,787 12,103,981

Output tax payable 1,412,627 1,149,537

Accrued expenses 8,534,175 17,027,404

Others 8,561,109 3,483,555

TOTAL CURRENT LIABILITIES 222,110,677 266,923,208

NON-CURRENT LIABILITIES

Hire purchase creditors, net of current portion 10 856,021 573,469

Liability under financial lease agreement, net of current portion 11 - 3,679,173

Long-term loans, net of current portion 12 311,857,545 185,766,507

TOTAL NON-CURRENT LIABILITIES 312,713,566 190,019,149

TOTAL LIABILITIES 534,824,243 456,942,357



BALANCE SHEETS (Continued)



(Unit : Baht)

Note 2006 2005

SHAREHOLDERS EQUITY

Share capital

Registered, issued and fully paid up

60,000,000 ordinary shares of Baht 5 each 13 300,000,000 300,000,000

Share premium 13, 14 211,584,110 211,584,110

Retained earnings

Appropriated - statutory reserve 15 10,121,506 6,044,868

Unappropriated 14 83,228,009 20,771,891

TOTAL SHAREHOLDERS EQUITY 604,933,625 538,400,869

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,139,757,868 995,343,226



INCOME STATEMENTS


FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

(Unit : Baht)

Note 2006 2005

REVENUES

Sales 927,742,029 996,922,264

Other income

Gain on sales of property, plant and equipment 314,393 2,118,259

Gains (loss) on exchange 4,467,502 (47,911)

Rental income 4,610,500 2,863,630

Others 4,015,353 1,294,284

TOTAL REVENUES 941,149,777 1,003,150,526

EXPENSES

Cost of sales 741,639,935 757,715,506

Selling and administrative expenses 78,338,779 69,175,794

TOTAL EXPENSES 819,978,714 826,891,300

INCOME BEFORE INTEREST EXPENSES

AND CORPORATE INCOME TAX 121,171,063 176,259,226

INTEREST EXPENSES (19,590,559) (30,884,896)

CORPORATE INCOME TAX (20,047,748) (24,476,961)

NET INCOME FOR THE YEAR 81,532,756 120,897,369

BASIC EARNINGS PER SHARE 17

Net income

1.36 3.06

Weighted average number of ordinary shares 60,000,000 shares 39,471,082 shares



CASH FLOW STATEMENTS

(Unit : Baht)

Note 2006 2005

Cash flows from (used in) operating activities

Net income 81,532,756 120,897,369

Adjustments to reconcile net income to net cash provided by

(paid from) operating activities :-

Depreciation 33,234,553 27,746,870

Allowance for stock obsolescences 1,949,643 6,562,260

Losses on written off of other current assets 370,324 -

Gains on sales of property, plant and equipment (314,393) (2,118,259)

Unrealised losses (gains) on exchange (136,082) 1,728,650

Income from operating activities before changes in

operating assets and liabilities 116,636,801 154,816,890

Operating assets (increase) decrease

Trade accounts receivable 16,659,765 (93,665,283)

Other account receivable - related parties (1,403,197) (5,091,011)

Inventories 7,461,820 (50,791,776)

Other current assets 172,105 1,487,036

Other non - current assets 327,624 6,604,256

Operating liabilities increase (decrease)

Trade accounts and notes payable (25,545,025) 6,255,686

Other account payable - related party (56,123) 56,123

Other current liabilities (3,961,778) 19,700,815

Net cash flow from operating activities 110,291,992 39,372,736





CASH FLOW STATEMENTS (Continued)



(Unit : Baht)

Note 2006 2005

Cash flows from (used in) investing activities

Decrease (increase) in restricted bank deposits 49,919,754 (59,339,944)

Payment of account payable - machinery (15,944,881) (24,178,923)

Acquisition of property, plant and equipment (254,857,629) (149,681,783)

Proceeds from sales of property, plant and equipment 339,874 11,798,638

Net cash flows used in investing activities (220,542,882) (221,402,012)

Cash flows from (used in) financing activities

Decrease in bank overdrafts and short-term loans

from financial institutions (20,000,000) (256,478,896)

Repayment of hire purchase creditors (949,259) (4,125,927)

Repayment of liability under financial lease agreement (4,405,786) (4,096,768)

Cash received from long-term loans 169,242,653 255,000,000

Repayment of long-term loans (39,821,774) (175,230,493)

Proceeds from increase in share capital - 403,985,715

Dividend paid (15,000,000) -

Net cash flow from financing activities 89,065,834 219,053,631

Net increase (decrease) in cash and cash equivalents (21,185,056) 37,024,355

Cash and cash equivalents at beginning of year 38,067,407 1,043,052

Cash and cash equivalents at end of year 16,882,351 38,067,407

Supplemental cash flows information :-

Cash paid during the year for

Interest 25,283,205 29,337,517

Corporate income tax 20,933,286 12,372,980

Non-cash items

Increase of vehicle from hire-purchase contracts 1,031,811 4,569,698

Purchase of machinery on credit 18,442,665 31,708,871



(Unit : Baht)

Issued and Retained earnings

fully paid-up Unappropriated

Note share capital Share premium Appropriated (Deficit) Total

Balance as at 31 December 2004 160,000,000 - - (146,482,215) 13,517,785

Capital increase 13 140,000,000 - - - 140,000,000

Share premium from capital increase 13 - 263,985,715 - - 263,985,715

Transfer share premium to offset deficits 14 - (52,401,605) - 52,401,605 -

Net income for the year - - - 120,897,369 120,897,369

Transfer to statutory reserve 15 - - 6,044,868 (6,044,868) -

Balance as at 31 December 2005 300,000,000 211,584,110 6,044,868 20,771,891 538,400,869

Net income for the year - - - 81,532,756 81,532,756

Transfer to statutory reserve 15 - - 4,076,638 (4,076,638) -

Dividend paid 20 - - - (15,000,000) (15,000,000)

Balance as at 31 December 2006 300,000,000 211,584,110 10,121,506 83,228,009 604,933,625

-


STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY




NOTES TO FINANCIAL STATEMENTSINTERHIDES PUBLIC COMPANY LIMITED


1. GENERAL INFORMATION

Interhides Public Company Limited (the Company) is a public company incorporated and domiciled in

Thailand. The Company is principally engaged in the manufacture and distribution of leather coverings for car

seats and its registered address is 678 Soi T.J.C., Sukhumvit Road, Bangpoomai, Muang, Samutprakarn.

2. BASIS OF PREPARATION

The financial statements have been prepared in accordance with accounting standards enunciated under

the Accounting Profession Act B.E. 2547. The presentation of the financial statements has been made in

compliance with the stipulations of the Notification of the Department of Business Development dated 14

September 2001, issued under the Accounting Act B.E. 2543.

The financial statements have been prepared on a historical cost basis except where otherwise disclosed in

the accounting policies.

3. SIGNIFICANT ACCOUNTING POLICIES

3.1 Revenue Recognition

Sales of goods

Sales of goods are recognised when the significant risks and rewards of ownership of the goods have

passed to the buyer. Sales are the invoiced value, excluding value added tax, of goods supplied after

deducting discounts and allowances.

Interest income

Interest income is recognised as interest accrues based on the effective rate method.

3.2 Cash and cash equivalents

Cash and cash equivalents consist of cash in hand and cash at financial institutions with an original

maturity of three months or less and not subject to withdrawal restrictions.

3.3 Trade accounts receivable

Trade accounts receivable are stated at the net realisable value. Allowance for doubtful accounts is

provided for the estimated losses that may be incurred in collection of receivables. The allowance is

generally based on collection experiences and analysis of debtor aging.


3.4 Inventories

Inventories are valued at the lower of cost (weighted average basis) and net realisable value. Cost

includes all production costs and attributable factory overheads.

Allowance for diminution in inventory value is set up for old, obsolete, slow-moving or deteriorated

inventories.

3.5 Property, plant and equipment / Depreciation

Land is stated at cost. Building and equipment are stated at cost less accumulated depreciation.

Depreciation of plant and equipment is calculated by reference to their costs on the straight-line method

over the follows estimated useful lives :-

Buildings - 20 years

Building improvement - 5 years

Machinery and equipment - 5,10 years

Motor vehicles - 5 years

Depreciation is included in determining income.

No depreciation is provided for land, assets under installation and under construction.

3.6 Borrowing cost

Borrowing cost of loan obtained for the acquisition of fixed assets are capitalised as a cost of the fixed

assets, with capitalisation ceasing when the assets are completed, or when the construction is suspended

and until active development resumes.

3.7 Related party transactions

Related parties comprise enterprises and individuals that control, or are controlled by, the Company,

whether directly or indirectly, or which are under common control with the Company.

They also include associated companies and individuals which directly or indirectly own a voting interest

in the Company that gives them significant influence over the Company, key management personnel,

directors and officers with authority in the planning and direction of the Companys operations.

3.8 Long-term lease agreements

Leases of property, plant or equipment which transfer substantially all the risks and rewards of ownership

are classified as finance leases. Finance leases are capitalised at the lower of the fair value of the

leased assets and the present value of the minimum lease payments. The outstanding rental obligations,

net of finance charges, are included in other long-term payables, while the interest element is charged

to the income statements over the lease period. The property, plant or equipment acquired under

finance leases is depreciated over the shorter of the useful life of the asset and the lease period.


3.9 Foreign currencies

Foreign currency transactions are translated into Baht at the exchange rates ruling on the transaction

dates. Assets and liabilities denominated in foreign currencies outstanding at the balance sheet date

are translated into Baht at the exchange rates ruling on the balance sheet date.

Gains and losses on exchange are included in determining income.

3.10 Impairment of assets

The Company assesses at each reporting date whether there is an indication that an asset may be

impaired. If any such indication exists, the Company makes an estimate of the assets recoverable

amount. Where the carrying amount of the asset exceeds its recoverable amount, the asset is considered

impaired and is written down to its recoverable amount. Impairment losses are recognised in the income

statement. An assets recoverable amount is the higher of fair value less costs to sell and value in use.

3.11 Employee benefits

Salary, wages, bonuses and contributions to the social security fund and provident fund are recognised

as expenses when incurred.

3.12 Income Tax

Income tax is provided for in the accounts based on the taxable profits determined in accordance with

tax legislation.

3.13 Derivatives

Forward exchange contracts

Receivables and payables arising from forward exchange contracts are translated into Baht at the

rates of exchange ruling on the balance sheet. Gains and losses from the translation are included in

determining income. Premiums or discounts on forward exchange contracts are amortised on a straight-

line basis over the contract periods.

3.14 Use of accounting estimates

Preparation of financial statements in conformity with generally accepted accounting principles requires

management to make estimates and assumptions in certain circumstances, affecting amounts reported

in these financial statements and related notes. Actual results could differ from these estimates.

4. RELATED PARTY TRANSACTIONS

During the years, the Company had significant business transactions with related parties, which have been

concluded on commercial terms and bases agreed upon in the ordinary course of businesses between the

Company and those individuals and companies. Below is a summary of those transactions.


(Unit : Million Baht)

2006 2005 Pricing policies

Transactions with related companies

Sales of fixed assets - 16.2 Cost plus margin

Rental and service income 4.1 2.7 Contract price

Purchase of goods 5.7 4.6 Cost plus margin

Commission expense 2.4 1.3 Contract price

Transactions with management and directors

Rental expense 0.8 0.8 Contract price

Rental income 0.7 - Contract price

The balances of the accounts as at 31 December 2006 and 2005 between the Company and those related

companies are as follows:

(Unit : Baht)

2006 2005

Other account receivable - related parties

Related companies

Vivid Atelier Company Limited - 703,747

Schumans Electronics Company Limited 275,034 2,052

(Formerly Know as Trio Fusion Company Limited)

Automotive Accessories Company Limited 6,219,174 4,385,212

Total 6,494,208 5,091,011

Other account payable - related party

Related company

Sumitomo Corporation Thailand Limited - 56,123

Directors and managements remuneration

In 2006 the Company paid salaries, meeting allowances and gratuities to their directors and management

totaling Baht 15.5 million (2005: Baht 10.3 million).


5. TRADE ACCOUNTS RECEIVABLE

The outstanding balances of trade accounts receivable as at 31 December 2006 and 2005 are aged, based

on due date, as follows:

(Unit : Baht)

2006 2005

Age of receivables

Not yet due 136,502,560 144,648,866

Past due

Up to 3 months 15,881,397 23,720,801

3 - 6 months 56,052 929,512

6 - 12 months 174,872 -

Over 12 months 10,000 -

Trade accounts receivable 152,624,881 169,299,179

6. INVENTORIES

(Unit : Baht)

2006 2005

Finished goods 143,168,711 111,252,077

Work in process 104,059,301 140,153,344

Raw materials 38,844,271 43,922,690

Supplies 11,693,894 2,245,884

Raw materials in transit 1,586,383 9,240,386

Total 299,352,560 306,814,381

Less : Allowance for diminution in value of inventory (8,511,903) (6,562,260)

Inventories, net 290,840,657 300,252,121

7. RESTRICTED BANK DEPOSITS

These represent fixed deposits pledged with the banks to secure credit facilities granted by two banks as

mentioned in Note 9 and 12.


8. PROPERTY, PLANT AND EQUIPMENT

(Unit : Baht)

Furniture, Assets under

Building Machinery fixture and installation

and building and office Motor and under

Land improvement equipment equipment vehicles construction Total

Cost :

As at 31 December 2005 176,689,875 180,329,929 266,539,586 10,712,523 10,835,574 16,185,127 661,292,614

Additions - 113,000 28,313,174 1,405,032 2,580,556 237,340,149 269,751,911

Disposals - - - (59,200) (1,079,553) - (1,138,753)

Transfer between classes of accounts - 16,708,765 586,310 - - (17,295,075) -

Capitalised interest - - - - - 4,580,194 4,580,194

As at 31 December 2006 176,689,875 197,151,694 295,439,070 12,058,355 12,336,577 240,810,395 934,485,966

Accumulated depreciation :

As at 31 December 2005 - 78,081,076 155,716,564 5,000,153 4,785,582 - 243,583,375

Depreciation for the year - 9,190,595 21,029,555 1,652,900 1,361,503 - 33,234,553

Depreciation on disposals - - - (33,720) (1,079,551) - (1,113,271)

As at 31 December 2006 - 87,271,671 176,746,119 6,619,333 5,067,534 - 275,704,657

Net book value :

As at 31 December 2005 176,689,875 102,248,853 110,823,022 5,712,370 6,049,992 16,185,127 417,709,239

As at 31 December 2006 176,689,875 109,880,023 118,692,951 5,439,022 7,269,043 240,810,395 658,781,309

Depreciation for the year :

2005 (Baht 23.07 million included in manufacturing cost, and the balance in selling and administrative expenses) 27,746,870

2006 (Baht 26.74 million included in manufacturing cost, and the balance in selling and administrative expenses) 33,234,553

As at 31 December 2006, certain plant and equipment items have been fully depreciated but are still in use.

The original cost of those assets amounted to approximately Baht 145 million (2005: Baht 129 million).

The Company has mortgaged their certain land and premises, and most of their machinery to secure credit

facilities granted by banks. As at 31 December 2006, the net book values of assets which were mortgaged as

collateral totaled Baht 241.3 million (2005 : Baht 206.2 million).

9. BANK OVERDRAFTS AND SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS

Bank overdrafts and short-term loans from financial institutions as at 31 December 2006 and 2005 consist of :-

(Unit : Baht)

Interest rate

(percent per annum) 2006 2005

Promissory notes 7.0 20,000,000 40,000,000

These credit facilities are secured by the Companys fixed deposits, part of the Companys assets as mentioned

in Note 8, assets of the Companys directors, and are guaranteed by the directors.


10. LIABILITIES UNDER HIRE PURCHASE AGREEMENTS

(Unit : Baht)

2006 2005

Liabilities under hire purchase agreements 1,838,996 1,736,441

Less : Deferred interest expense (154,354) (134,351)

1,684,642 1,602,090

Less : Portion due within one year (828,621) (1,028,621)

Liabilities under hire purchase

agreements - net of current portion 856,021 573,469

As at 31 December 2006, there were the following commitments payable under a hire purchase agreements

by the Company :-

Year Baht

2007 929,842

2008 647,368

2009 261,786

1,838,996

11. LIABILITIES UNDER FINANCIAL LEASE AGREEMENT

(Unit : Baht)

2006 2005

Liabilities under financial lease agreement 3,831,406 8,742,902

Less : Deferred interest expense (131,994) (637,704)

3,699,412 8,105,198

Less : Portion due within one year (3,699,412) (4,426,025)

Liabilities under financial lease

agreements - net of current portion - 3,679,173

The Company has entered into the financial lease agreement with leasing company for rental of the vehicle for

operation and committed to pay rental fee on a monthly basis. As at 31 December 2006, there were leasing

commitments under the financial lease agreement of Baht 3,831,406 payable to the Company within one

year.


12. LONG-TERM LOANS

The balance as at 31 December 2006 represent long-term loans from three local banks (2005 : two banks)

which consist of :-

(Unit : Baht)

Balance as at 31 December

2006 2005

a) A Baht loan, carrying interest at MLR minus 0.25% 166,980,000 202,600,000

p.a. for a period of 7 years, and repayable in monthly

installments, commencing in February 2005.

b) A Baht loan, carrying interest at MLR minus 0.25% 20,464,733 24,666,507

p.a. for a period of 5 years, and repayable in monthly

installments, commencing in November 2005.

c) A Baht loan, carrying interest at BBLs MLR minus 1.5% 130,567,949 -

for first 2 years, and BBLs MLR minus 1.0% for year

3 to 7, and repayable in monthly installments,

commencing in September 2007.

D A Baht loan, carrying interest at BBLs MLR minus 1.5% 38,674,704 -

for first 2 years, and BBLs MLR minus 1.0% for year

3 to 7, and repayable in monthly installments,

commencing in April 2008.

Total 356,687,386 227,266,507

Less : Portion due within one year (44,829,841) (41,500,000)

Long-term loans net of current portion 311,857,545 185,766,507

The aforementioned loans are secured by the Companys fixed deposits, part of the Companys assets as

mentioned in Note 8, assets of the Companys directors, and are guaranteed by the directors.

Under the loan agreements, the Company has to comply with certain financial covenants, as normally required

by financial institutions, including restrictions on disposals of assets and limits on additional liabilities.

As at 31 December 2006, outstanding long-term credit facilities of the Company which have yet to be drawn

down total Baht 93.76 million.


13. SHARE CAPITAL

On 22 April 2005, Extraordinary General Meeting No. 3/2548 of the Companys shareholders passed resolutions

to increase the Companys registered share capital from Baht 160 million to Baht 190 million through the

issuance of 3,000,000 ordinary shares of Baht 10 each, The Company registered the capital increase with the

Ministry of Commerce on 28 April 2005.

On 15 July 2005, Extraordinary General Meeting No. 5/2548 of the Companys shareholders passed resolutions

to increase the Companys registered share capital from Baht 190 million to Baht 225 million through the

issuance of 3,500,000 ordinary shares of Baht 10 each to be offered to the existing shareholder at a selling

price of Baht 31 per share, generating share premium of Baht 73.5 million. The Company registered the

capital increase with the Ministry of Commerce on 25 July 2005.

On 11 August 2005, Extraordinary General Meeting No.7/2548 of the Companys shareholders passed

resolutions to change the par value of the Companys ordinary shares from Baht 10 (a total of 22,500,000

shares) to Baht 5 (a total of 45,000,000 shares) and to increase the Companys registered share capital from

Baht 225 million to Baht 300 million through the issuance of 15,000,000 ordinary shares of Baht 5 each to be

offered to the public. The Company registered its par value change and the capital increase with the Ministry

of Commerce on 24 August 2005.

In December 2005, the Company made the additional public offering of these ordinary shares at a price of

Baht 18.25 per share, or a total of Baht 273.75 million, with a share premium of Baht 198.75 million. The

related underwriting expenses of Baht 8.3 million were offset against this share premium.

14. SHARE PREMIUM

On 23 November 2005, Extraordinary General Meeting No.8/2548 of the Companys shareholders passed

resolutions to offset the share premium resulting from the capital increase in July 2005 with the deficit of Baht

52.4 million outstanding as at 30 September 2005.

15. STATUTORY RESERVE

Pursuant to Section 116 of the Public Limited Companies Act B.E. 2535, the Company is required to set aside

to a statutory reserve at least 5 percent of its net income until the reserve reaches 10 percent of the registered

capital. The statutory reserve is not available for dividend distribution.


16. NUMBER OF EMPLOYEE AND RELATED COSTS

2006 2005

Number of employees at end of year (persons) 756 645

Employees costs for the year (Thousand Baht) 89,244 73,150

17. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income for the year by the weighted average

number of ordinary shares in issue during the year.

18. SEGMENT INFORMATION

The Companys operations involve a single industry segment, manufacture and distribution of leather coverings

for car seats, and are carried on in the single geographic area of Thailand. As a result, all of the revenues,

operating profits and assets reflected in these financial statements pertain to the aforementioned industry

segment and geographic area. Export sales during 2006 are amounted to Baht 49.09 million (2005 : Baht

126.05 million).

19. PROVIDENT FUND

The Company and its employees have jointly established a provident fund in accordance with the Provident

Fund Act B.E. 2530. Both employees and the Company contributed to the fund monthly at the rate of 2

percent of basic salary. The fund, which is managed by BT Assets Management Company Limited, will be

paid to employees upon termination in accordance with the fund rules. During the year 2006, the Company

contributed Baht 262,980 (2005: Baht 164,755) to the fund.

20. DIVIDEND PAID

(Unit : Baht)

Total Dividend

Approved by Dividends per share Paid on

Final dividend for the Annual General Meeting of the

year 2005 shareholders on 4 April 2006 15,000,000 0.25 25 April 2006


21. COMMITMENTS AND CONTINGENT LIABILITIES

21.1 Capital commitments

As at 31 December 2006, the Company had capital commitments of approximately Baht 12.5 million,

EUR 51,940, USD 770,408 and Yen 247,158 relating to the construction of factory buildings and

acquisition of machinery.

21.2 Operating lease commitments

The Company has entered into several lease agreements in respect of the lease of land and building.

Future minimum rentals payable under these leases as at 31 December 2006 are as follows:

Payable within : Million Baht

1 year 0.6

2 to 5 years 0.4

21.3 Long-term service commitments

The Company has entered into security guard service agreement, and agreement install a new computer

system under which it has commitment to pay Baht 0.9 million

21.4 Management fee agreement

The Company has entered into a management fee agreement with a related company under which it

has commitment to pay management fee the year 2007 at the rate of Baht 200,000 per month.

21.5 Bank guarantees

As at 31 December 2006, there were outstanding bank guarantees of Baht 2.2 million, issued by banks

on behalf of the Company as required in the ordinary course of business of the Company.

22. FINANCIAL INSTRUMENTS

22.1 Financial risk management and policies

The Companys financial instruments, as defined under Thai Accounting Standard No. 48 Financial

Instruments: Disclosure and Presentations, principally comprise cash and cash equivalents, trade

accounts receivable, and short-term and long-term loans. The financial risks associated with these

financial instruments and how they are managed is described below.


Credit risk

The Company is exposed to credit risk primarily with respect to trade accounts receivable and other receivable.

The Company manages the risk by adopting appropriate credit control policies and procedures and therefore

does not expect to incur material financial losses. In addition, the Company does not have high concentration

of credit risk since it has a large customer base. The maximum exposure to credit risk is limited to the carrying

amounts of trade accounts receivables and other receivables as stated in the balance sheet.

Interest rate risk

The Companys exposure to interest rate risk relates primarily to its cash at banks, bank overdrafts, short-term

and long-term borrowings. However, since most of the Companys financial assets and liabilities bear floating

interest rates or fixed interest rates which are close to the market rate, the interest rate risk is expected to be

minimal.

Foreign currency risk

The Companys exposure to foreign currency risk relates primarily to those of its trade accounts receivable

and payable which are denominated in foreign currencies.

The balances of financial assets and liabilities denominated in foreign currencies as at 31 December 2006

are summarised below.

Financial Financial Average exchange rate

Foreign currency assets liabilities as at 31 December 2006

(Million) (Million) (Baht per 1 foreign currency unit)

US dollar 0.10 0.56 36.0932

Euro - 0.10 47.4592

Japanese Yen - 1.10 0.3035

Singapore dollar - 0.25 23.5228

22.2 Fair value of financial instruments

Since the majority of the Companys financial instruments are short-term in nature or bear floating

interest rates, their fair value is not expected to be materially different from the amounts presented in

the balance sheets.

A fair value is the amount for which an asset can be exchanged or a liability settled between

knowledgeable, willing parties in an arms length transaction. The fair value is determined by reference

to the market price of the financial instrument or by using an appropriate valuation technique, depending

on the nature of the instrument.


23. SUBSEQUENT EVENTS

The meeting of the Board of Directors held on 24 February 2007 proposed a dividend in respect of the year

ended 31 December 2006 of Baht 1 per share, or a total of Baht 60 million. This dividend proposal is subject

to approval by the forthcoming Annual General Meeting of the shareholders.

24. RECLASSIFICATION

Certain amounts in the financial statements for the year ended 31 December 2005 have been reclassified to

conform to the current years classifications, with no effect on previously reported net income or shareholders

equity.

25. APPROVAL OF FINANCIAL STATEMENTS

These financial statements were authorised for issue by the Companys Board of Directors on 24 February

2007.


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