) Opinion of IFA on the Connected Transections

2.7 The Board of Directors The Board of Directors of TTW as of November 14, 2008 is as follows: Name Position 1. Mr. Plew Trivisvavet * Chairman 2. Mr. Narong Sangsuriya * Director 3. Mr. Prasert Marittanaporn * Director 4. Mr. Sombat Kitjalaksana * Director 5. Mr. Yoshio Kometani Director 6. Mr. Tomoaki Matsumoto Director 7. Mr. Suvich Pungcharoen Director 8. Mr. Techathip Sangsingkeo Chairman of Audit Committee 9. Mr. Somnuk Chaidejsuriya Audit Committee 10. Mr. Phairuch Mekarporn Audit Committee 11. Mr. Sompodh Sripom Managing Director Notes : * Representative from CK 2.8 Profile of CH. Karnchang Plc. 2.8.1 Background and nature of business operations CK was incorporated as a limited company on November 27, 1972 with a start-up capital of Baht 1.40 million to engage in a general construction business. Initially, CK provided construction services of buildings and general civil works for main customers from the government sector such as the Royal Thai Army and the Royal Thai Air Force. Being aware of the necessity to broaden the scope of business to ensure growth in the long run, CK in 1981 entered into a joint venture with Tokyu Construction Co., Ltd., one of the top ten contractors in Japan. By doing so, CK has benefited from technology transfer in construction and management know-how, as well as partnership with a competent strategic alliance. CK has consistently undertaken business expansion and capital increase. CK was converted into a public company on October 10, 1994 and listed on the SET on August 3, 1995. Its current registered capital is Baht 1,450 million, of which Baht 1,446 million is paid-up capital. 2.8.2 Nature of business operations CK is a contractor, mainly serving the government sector projects, whether large-scale infrastructures or buildings. It has also engaged in joint ventures in concession businesses such as expressway project 2, subway management project, and Nam Ngum 2 hydroelectric power plant designing, development, construction and operation project, each with a concession period of 25-30 years, The Nakorn-Pathom-Samut Sakorn water supply project, Pathum Thani water supply project and wastewater supply for the Phuket Municipality. Construction service revenues earned by CK from the government and the private sectors are in a proportion of 70:30. CK's businesses are divided into three categories: production, construction and concession. Members of the CK group, comprising subsidiary, joint venture and associated companies, are classified by the nature of their business. CK currently has seven subsidiaries, 13 joint venture companies, four associated companies, and one related company. As of September 30, 2008, CK had total assets of Baht 24,286 million, total liabilities of Baht 19,173 million, and shareholders' equity of Baht 5,112 million, a net profit of Baht 33 and 570 million, respectively for year ended 2007 and the first nine-month of 2008. 2.8.3 Financial and operational performances Summary of CK's financial status and performances audited by Ernst & Young as of December 31, 2005, with Khun Rut Chaowanakavee, CPA no. 3247 as the auditor, and for 2006 - 2007, audited consolidated financial statements and reviewed consolidated financial statements ended June 30, 2008, with Khun Siraphorn Uaanantakul, CPA no. 3844 as the auditor: (Unit : Baht Million) Consolidated Audited Reviewed Financial Statements 31 Dec 05 31 Dec 06 31 Dec 07 30 Sep 08 Current assets Cash and cash equivalents 1,542.69 3,033.26 2,682.32 1,532.04 Trade account receivables unrelated parties, net 5,045.96 5,489.45 1,228.04 1,377.92 Other current assets 10,619.76 10,120.03 7,547.20 9,057.81 Total current assets 17,208.41 18,642.72 11,457.56 11,967.77 Non-current assets Investments in associated companies 4,014.01 4,674.35 4,549.03 4,688.17 Investment in related and other companies 2,611.18 2,967.35 2,918.22 2,042.32 Other non-current assets 5,989.33 4,029.48 5,550.96 5,587.41 Total non-current assets 12,614.52 11,671.18 13,018.21 12,317.91 Total assets 29,822.93 30,313.91 24,475.77 24,285.68 Current liabilities Bank overdrafts and short-term loans 5,510.20 3,822.85 2,664.68 2,398.81 Trade accounts payable related parties 515.34 445.59 402.10 32.53 Trade accounts payable unrelated parties 1,804.11 2,151.75 1,439.68 1,689.14 Current portion of long-term loans from financial institutions 934.93 3,897.04 655.74 250.20 Current portion of - 2,200.00 1,700.00 3,700.00 debentures Accounts payable and loans from related parties 3,006.45 2,575.86 2,965.57 - Other current liabilities 4,338.95 3,714.53 2,274.02 1,599.77 Total current liabilities 16,109.98 18,807.62 12,101.79 9,670.45 Non-current liabilities Long-term loans, net of current portion 2,430.55 450.00 250.00 1,904.47 Debentures, net of current portion 6,000.00 5,800.00 6,094.02 6,090.60 Other non-current liabilities 353.44 454.19 338.87 1,507.83 Total non-current liabilities 8,783.99 6,704.19 6,682.89 9,502.90 Total liabilities 24,893.97 25,511.81 18,784.68 19,173.35 Registered capital 1,450.00 1,450.00 1,450.00 1,450.00 Issued and paid up 1,081.16 1,247.19 1,446.01 1,446.01 Retained earning (loss) 913.98 (688.28) (58.08) 271.66 Total shareholders' equity 4,928.95 4,802.09 5,691.09 5,112.33 Total liabilities and shareholders' equity 29,822.93 30,313.91 24,475.77 24,285.68 Total revenues 14,954.97 21,605.29 14,918.08 10,568.07 Total cost and expenses 13,239.73 21,439.70 13,894.46 9,334.68 Interest expenses (652.25) (980.55) (939.89) (609.21) Net profit (loss) 684.17 (1,212.84) 33.44 570.27 Net profit (loss) per share (Baht) 0.63 (1.08) 0.01 0.38 Book value per share (Baht) 4.56 3.85 3.92 3.53 Notes : Par value is Baht 1 per share. Viewing CK's operations in the 9-month period ended September 30, 2008, total assets amounted to Bt.24,286 million (major ones being cash and cash equivalents, accounts receivable - non-related comapany), construction work in progress, such non-current assets as long-term loans to associated company and accrued interest, and investment in associated and other companies), total liabilities Bt. 19,173 million and shareholders' equity Bt. 5,112 million. As of December 31, 2007, CK's total assets accounted for Bt. 24,476 million, total liabilities Bt. 18,785 million and shareholders' equity Bt. 5,691 million, while as of December 31, 2006, its total assets amounted to Bt. 30,314 million, total liabilities Bt. 25,512 million and shareholders' equity Bt. 4,802 million. CK's revenues come from three main business lines, i.e. construction contractor, distribution of construction materials and project management. For the 6-month period ended June 30, 2008, its revenues from the three main business lines were in a proportion of 90.16%, 0.49% and 0.23% of the total revenues respectively, and other income was 9.12%. For the operations as of December 31, 2007, such revenue proportion was 87.31%, 0.42% and 0.22% respectively, and other income was 12.05%. For the 9-month period ended September 30, 2008, CK's total revenues amounted to Bt. 10,568 million, with net profit of Bt. 570 million, while in the same period of the previous year, its total revenues were Bt. 12,207 million with net profit of Bt. 248 million. For the retroactive 3 months and 9 months ended September 30, 2008 compared with the corresponding periods ended September 30, 2007, CK recorded an increase in net profit of 189.57% and 138.74% respectively. This was due to the fact that, for the retroactive 9-month period, CK gained from write-back of provision for loss on investment in joint controlled business of Bt. 408.12 million because the liabilities shared in JV BBCD declined in line with the mutual agreement with the consortium parties in the sharing of liabilities of JV BBCD (as detailed in the note to financial statement no. 8 for the 9-month period ended September 30, 2008 and letter to the SET dated May 15, 2008). For the retroactive 3-month period ended September 2008 (quarter 3 of 2008), CK recorded foreign exchange gains of Bt. 0.82 million compared with foreign exchange loss of Bt. 130.15 million in the corresponding period of 2007. CK's interest items also dropped owing to completion of large-scale construction projects and loan repayments. Its loss sharing in investment in associated company also dropped as the associated company improved in operating results. CK's total revenues as of December 31, 2007 accounted for Bt. 14,918 million, compared with Bt. 21,605 million in the same period of the previous year. Net profit was around Bt. 14 million compared with net loss of about Bt. 1,213 million correspondingly. This was mainly because CK's net profit surged Bt. 1,227 million or 101.20% from 2006 as in 2006 there was an increase in allowances for doubtful accounts for the expense compensation of JV BBCD in an amount of Bt, 2,516 million recorded in the income statement, after the Supreme Court dismissed the judgment of the arbitrator for the Expressway and Rapid Transit Authority of Thailand ("EAT") to make payment to JV BBCD. However, JV BBCD filed a civil suit against the contract employer on February 11, 2008 to demand payment for the expenses duly paid by JV BBCD together with interest calculated until the lawsuit filing date. Court summons and statement of claim are going to be sent to the contract employer. In 2007, CK's total revenues as shown in the consolidated financial statements dropped 30.95% as most of its past projects were duly completed and delivered in 2006. They were Suvarnabhumi gas pipeline, construction of Suvarnabhumi oil tanks, construction of SET Building (North Park), etc., as well as such mega-project as Bangphli-Suksawat (Bangphli-Bang Khun Thian) expressway of EAT, which was in the last phase and the construction of which was completed and delivery of which was made to EAT in October 2007. New projects were mostly in the stage of preparation for construction, hence no significant income to be realized. Moreover, most new projects were signed by CK. Thus, income from sales of construction materials and project management as well as dispatch of personnel to carry out the implementation dropped from those in 2006. Other income also dropped in 2007 due mainly to the fact that, in 2006, CK gained from sales of short-term investment in TTW ordinary shares amounting to Bt. 1,256 million and it recorded income from the reversal of accrued interest of JV BBCD while in 2007 it gained from divestment of investment in PTW to TTW amounting to Bt. 631 million, the size of which was significantly smaller than that of the gains from sales of TTW shares. 2.8.4 Key financial ratios Consolidated Audited Reviewed financial statements 31 Dec 05 31 Dec 06 31 Dec 07 30 Sep 08* Liquidity ratios; Current ratio (times) 1.07 0.97 0.95 1.24 Quick ratio (times) 0.26 0.17 0.25 0.44 Receivables turnover (times) 5.07 3.20 3.25 4.80 Collection period (days) 72 113 111 57 Inventory turnover period (times) 44.53 89.60 26.55 18.58 Average sale period (days) 9 5 14 15 Payment period (days) 228 204 257 58 Account payable turnover (times) 1.58 1.77 1.40 4.74 Cash cycle (days) (149) (88) (133) 4 Profitability ratios; Gross profit margin (%) 13.34 9.49 8.31 10.62 Net profit margin (%) 4.57 (5.61) 0.10 5.25 Return on equity (%) 14.07 (25.28) 0.28 10.27 Effciency ratios; Return on assets (%) 2.50 (4.40) 0.05 3.04 Assets turnover (times) 0.55 0.78 0.73 0.59 Financial ratios; Debt to equity ratio (times) 5.05 5.31 3.30 3.75 Net debt to equity ratio (times) 2.28 1.85 1.47 1.32 (times) (2.53) 1.39 1.07 (0.58) Contingent liabilities coverage ratio (times) (0.87) 0.00 0.40 (1.17) Source : *Thai Tap Water Supply Plc. And reviewed by the IFA. Liquidity CK recorded a drop in net cash flows, with cash and cash equivalents decreasing from Bt. 2,933.26 million in 2006 to Bt. 2,682.32 million in 2007. The drop came from cash flows used in financing acitivity of Bt. 3,501.08 million, as for the EAT's Bangphli-Suksawat (Bangphli-Bang Khun Thian) expressway, there was draw-down of payment for contract works from the lending banks instead of draw-down from the contract employer. The contractor employer would bear the liabilities to the banks as of the whole work delivery date. CK delivered all the project and transferred the liabilities with banks to EAT as the employer in October 2007. With the pregress in the construction work, CK obtained payments for the proress of the construction and made loan repayment together with bond redemption. CK also had net cash flows obtained from operating activity of Bt. 2,946.46 million and from investing activity Bt. 307.61 million, mainly from cash obtained from divestment of investment in associated company and gains from divestment of investment in associated company. In view of liquidity, based on consolidated financial statements ended September 30, 2008, net cash flows dropped Bt. 1,150 million, coming from cash flows used in operating activity of around Bt. 1,441 million and cash flows used in investing activity of Bt. 1,131 million. This was attributable mainly to loans to related business of Bt. 417 million, long-term loans to associated company of Bt. 390 million, and increase in payment for land, property and equipment of Bt. 306 million. Meantime, CK recorded cash flows obtained from financing activity of around Bt. 1,417 million, mainly as a result from its bond issue of Bt. 2,000 million. As regards key financial ratios, for the year ended December 31, 2007, CK's current ratio declined from 0.97 time in 2006 to 0.95 time, while quick current ratio picked up from 0.17 time in 2006 to 0.25 time. CK delivered its projects and transferred liabilities with banks to EAT as the contract employer in October 2007 while there was progress in the construction works and thus short-term loan repayments were made to financial institutions. As such, with the drop in loans, CK's total liabilities to equity ratio dropped from 5.31 times in 2006 to 3.30 times in 2007. Considering the 9-month perod ended September 30, 2008 compared with the end of 2007, current ratio increased from 0.95 time to 1.23 times. Quick current ratio also moved up from 0.25 time to 0.44 time due to the increase in accounts receivable. Current liabilities dropped, e.g. payables and loans from related business, advance payment from contract employer and construction payment in installment, as CK completed construction of large infrastructure projects. In overall, liabilities increased not so significantly coming from long-term loans and provision for loss on investment in joint controlled business. Hence, total liabilities to equity ratio rose from 3.30 times in 2007 to 3.75 times in 2008. 2.8.5 Shareholders The major shareholders of CK as shown in share register book as at April 9, 2008, which was the latest book closure date are as follows: Name No. of shares % holding 1. Mahasiri Siam Co., Ltd. 293,784,788 20.317 2. CH. Karnchang Holding Co., Ltd. 151,707,400 10.491 3. TMB Bank Plc. 90,914,200 6.287 4. Thai NVDR Co., Ltd. 83,002,700 5.740 5. CK Office Tower Co., Ltd. 75,000,000 5.187 6. Mrs. Pranee Thongkittikul 56,163,420 3.884 7. State Street Bank and Trust Company for London 28,058,000 1.940 8. Mr. Charnnarong Vongsrinil 27,000,000 1.867 9. SCB Securities Co., Ltd. (Investment Port) 22,194,100 1.535 10. Mr. Tavorn Trivisvavet 21,277,200 1.471 11. Mr. Plew Trivisvavet 20,847,620 1.442 12. Bang Pa-in Land Development Co., Ltd. 18,935,000 1.309 13. Morgan Stanley & Co International Limited 14,580,200 1.008 14. Citibank Nominees Singapore Pte Ltd.12,039,200 0.833 15. Mr. Prasert Trivisvavet 11,600,048 0.802 16. Mrs. Walaiporn Sorwongtrakul 8,600,000 0.595 17. Gerlach & Co.-Charles Schwab FBO Customers 8,245,400 0.570 Total major shareholders 943,949,276 66.278 Minority shareholders 502,062,893 34.722 Total 1,446,012,169 100.000 Notes : The latest list of shareholders of CK which provided by the Company to the Financial Advisor). 2.8.6 The Board of Directors The Board of Directors of CK as of November 14, 2008 is as follows: Name Position 1. Mr. Aswin Kongsiri Chairman 2. Mr. Plew Trivisvavet Chairman of the Executive Board and CEO 3. Mr. Narong Sangsuriya Director and Seior Executive Vice President 4. Mrs. Saikasem Trivisvavet Director 5. Mr. Ratn Santaannop Director 6. Mr. Prasert Marittanaporn Director and Executive Vice President 7. Mr. Sombat Kitjalaksana Director and Executive Vice President 8. Mr. Anukool Tuntimas Director 9. Mr. Pavich Tongroach Director 10. Mr. Vitoon Tejatussanasoontorn Chairman of Audit Committee 11. Mr. Don Pramudwinai Audit Committee 12. Mr. Thawansak Sukhawun Audit Committee 3. Reasonableness of the Transaction 3.1 Objective and necessity of the transaction From the study of Thai DCI Engineering Consultant Co., Ltd. (According to the Company, this is a company with experience and expertise in the survey, feasibility study and engineering design and planning particularly for large-scale engineering works.) engaged by the Company to study demand for tap water consumption in the service areas in June 2006, total water consumption volume was 967,234 cu.m./day, of which only 19% was tap water and as high as 81% was groundwater. Thai DCI (review by the IFA compared with the Company's current water distribution volume showed similar figures) expects that groundwater consumption of industrial plants in the Company's service areas will come to an end in 2015. Since the Company's start of tap water distribution to the public in the districts of Buddhamonthon, Sam Phran and Nakhon Chaisi in Nakhon Pathom province, and the districts of Krathum Baen and Muang Samut Sakhon in Samut Sakhon province on January 5, 2004, its tap water distribution volume has consistently increased up to present. Average water distribution volume in 2008 can be classified by month as tabulated below: Month Average % of total max. Month Average % of total max. m3/day capacity m3/day capacity January 274,803.29 85.88 June 302,348.98 94.48 February 286,988.90 89.68 July 298,721.23 93.35 March 298,203.77 93.19 August 294,564.06 92.05 April 289,838.45 90.57 September 294,378.07 91.99 May 301,087.19 94.09 October 300,289.89 93.84 Source : Thai Tap Water Supply Plc. From the above data, if there is no action undertaken, the Company's water distribution will definitely meet the full production capacity of 320,000 cu.m./day in the near future. According to Thai DCI's assessment, consumption of water in the service areas will reach the Company's maximum production capacity in 2009 as in the following table: Year m3/day Year m3/day 2006 203,461 2011 443,717 (more)