) IFA's Opinion regarding the connected transaction of TTW

2007 2008 Description Amount % Amount % Amount % Current Assets Cash and deposit at financial institutions 8,321 0.92% 8,438 0.90% 8,108 0.61% Investment in fixed deposit 5,581 0.62% 5,758 0.61% 5,889 0.44% Trade account receivables 29,866 3.32% 41,060 4.38% 38,148 2.88% Properties for sale 14,764 1.64% 11,073 1.18% 11,073 0.84% Other current assets Accrued interest receivable 3,222 0.36% 7,923 0.85% 20,613 1.55% Others 487 0.05% 518 0.06% 2,225 0.17% Total current assets 62,241 6.92% 74,770 7.98% 86,056 6.49% Non-current Assets Loans to directors - 0.00% 50,750 5.41% 73,850 5.57% Loans to related companies 488,856 54.31% 404,105 43.11% 594,249 44.82% Investments in associated companies - 0.00% - 0.00% - 0.00% Investments in related companies 169,468 18.83% 160,001 17.07% 68,545 5.17% Property, plant and equipment - net 163,455 18.16% 231,599 24.71% 476,002 35.90% Other non-current assets 16,060 1.78% 16,060 1.71% 27,060 2.04% Total non-current assets 837,840 93.08% 862,515 92.02% 1,239,706 93.51% Total assets 900,080 100.00% 937,285 100.00% 1,325,762 100.00% Current Liabilities 0.00% Trade account payables 97,955 10.88% 83,718 8.93% 92,975 7.01% Other current assets 0.00% Accrued water supply payable 19,910 2.21% 23,383 2.49% 22,756 1.72% Other creditors - 0.00% 62,824 6.70% 238,681 18.00% Accrued income tax payable 15,513 1.72% 11,103 1.18% 9,297 0.70% Others 10,207 1.13% 7,386 0.79% 6,168 0.47% Total current liabilities 143,585 15.95% 188,414 20.10% 369,877 27.90% Page 21 of the total 92 pages The Opinion Report of the Independent Financial Advisor Unit: Thousand Baht 2006 2007 2008 Description Amount % Amount % Amount % Non-current Liabilities Loans from directors 80,600 8.95% - 0.00% - 0.00% Account payables under hire-purchase agreement - net 312 0.03% - 0.00% - 0.00% Long-term loans 257,037 28.56% 309,850 33.06% 559,051 42.17% Other non-current liabilities - 0.00% - 0.00% 3,471 0.26% Total non-current liabilities 337,948 37.55% 309,850 33.06% 562,522 42.43% Total liabilities 481,533 53.50% 498,264 53.16% 932,399 70.33% Shareholders' Equity Share capital Registered (2.4 million ordinary shares at par value of Bt. 100 each) 240,000 26.66% 240,000 25.61% 240,000 18.10% Issued and paid-up (2.4 million ordinary shares at par value of Bt. 100 each) 240,000 26.66% 240,000 25.61% 240,000 18.10% Retained earnings Appropriated - statutory reserve 9,000 1.00% 9,000 0.96% 9,000 0.68% Unappropriated 41,007 4.56% 78,333 8.36% 124,132 9.36% Unrealized gains on change of investment value 128,540 14.28% 111,688 11.92% 20,232 1.53% Total shareholders' equity 418,547 46.50% 439,021 46.84% 393,364 29.67% Total liabilities and shareholders' equity 900,080 100.00% 937,285 100.00% 1,325,762 100.00% Source: BLDC's financial statements audited by Mr. Marut Makornsen, certified public accountant No. 6532. Financial ratios 2006 2007 2008 Liquidity ratio (times) 0.43 0.40 0.23 Quick ratio (times) 0.27 0.26 0.13 Receivables turnover (times) 10.47 5.98 7.28 Collection period (days) 34 60 49 Account payable turnover ratio (times) 2.61 2.14 2.55 Payment period (days) 138 169 141 Gross profit margin (%) 31.25% 8.50% 21.92% Net margin (%) 22.00% 12.77% 13.13% Return on equity (%) 19.87% 8.71% 11.00% Return on assets (%) 8.28% 4.06% 4.05% Asset turnover ratio (times) 0.38 0.32 0.31 Debt to equity ratio (times) 1.15 1.13 2.37 Page 22 of the total 92 pages The Opinion Report of the Independent Financial Advisor Analysis of performance and financial position of BLDC Performance BLDC's total revenues during 2006-2008 amounted to Bt. 368.41 million, Bt. 292.38 million and Bt. 348.74 million respectively. Most of its operating income came from sale of land in Bangpa-in Industrial Estate and public utilities services totaling approximately Bt. 291.30 million, Bt. 211.97 million and Bt. 288.36 million and representing 79.07%, 72.50% and 82.69% of total revenues respectively. Although income from public utilities services grew continuously in line with the demand from Bt. 181.4 million in 2006 to Bt. 200.6 million in 2007 and Bt. 203.2 million in 2008, the operating income in 2007 and 2008 declined due to decrease in recognition of income from sale of land during the said period. The major proportion of other income was interest income which accounted for Bt. 41.64 million, Bt. 34.25 million and Bt. 37.43 million or 11.30%, 11.71% and 10.73% of total revenues during 2006-2008 respectively. Interest income was generated mainly from loans to directors and related companies with interest charged at the rate of 6.75% - 8.25% p.a. in 2007 and 7.25% - 7.50% in 2008. Costs of sale and service mainly are costs of land development, public utilities, depreciation of machinery and equipment, fee to be paid by BLDC to IEAT, which during 2006-2008 amounted to Bt. 200.27 million, Bt. 193.96 million and Bt. 225.15 million, representing 68.75%, 91.50% and 78.08% of major operating income respectively. The gross profit margin was recorded at 31.25%, 8.50% and 21.92% respectively. Costs of sale and service compared to major operating income in 2007 moved up considerably due to expenses on maintenance and improvement of residue storage, dredging of canals and water trough, and construction of parking areas in the I-EA- T Free Zone, totaling Bt. 43.24 million. During 2006-2008, major selling and administrative expenses, i.e. personnel expenses, commissions, insurance premiums, and building rentals, amounted to Bt. 32.82 million, Bt. 24.32 million, and Bt. 30.82 million or 8.91%, 8.32% and 8.84% of total income respectively. Selling and administrative expenses were rather stable at around 8%-9% of total revenues due to the efficient control and management of BLDC. From the above performance, BLDC recorded a net profit during 2006-2008 of Bt. 81.05 million, Bt. 37.33 million and Bt. 45.80 million, representing a net profit margin of 22.00%, 12.77% and 13.13% respectively, and earnings per share of Bt. 33.77, Bt. 15.56 and Bt. 19.08, respectively. Financial position During 2006-2008, total assets of BLDC amounted to Bt. 900.08 million, Bt. 937.29 million and Bt. 1,325.76 million, respectively, consisting largely of loans to directors and related companies which were 54.31%, 48.52% and 50.39% of total assets, respectively, and property, plant and equipment representing 18.16%, 24.71% and 35.90% of total assets, respectively. Consistent increase of property, plant and equipment from Bt. 163.46 million in 2006 to Page 23 of the total 92 pages The Opinion Report of the Independent Financial Advisor Bt. 231.60 million in 2007 and Bt. 476.00 million in 2008 was because the construction of BLDC's tap water production and distribution systems in Bangpa-in Industrial Estate worth Bt. 426.5 million was started in 2007 and completed in early 2009. In addition, in Q4/2008, BLDC invested in capacity expansion of its waste water treatment system from 12,000 cu.m./day to 18,000 cu.m./day with total project value of Bt. 28.89 million. The completion of the project is expected in July 2009. Returns on equity during 2006-2008 were posted at 8.28%, 4.06% and 4.05%, respectively. Total liabilities during 2006-2009 amounted to Bt. 481.53 million, Bt. 498.26 million and Bt. 932.40 million or 53.50%, 53.16% and 70.33% of total assets, respectively. Most of BLDC's liabilities were long-term loans from financial institutions representing 53.38%, 62.19% and 59.96% of total liabilities, respectively. In 2008, BLDC also owed other creditors a total amount of Bt. 238.68 million or 25.60% of total liabilities for accrued payment of tap water system construction and expansion of waste water treatment system. The rising liabilities in 2008 resulted in an increase of the debt to equity ratio from 1.15 times and 1.13 times in 2006 and 2007 to 2.37 times in 2008. The shareholders' equity was Bt. 418.55 million, Bt. 439.02 million and Bt. 393.36 million representing 46.50%, 46.84% and 29.67% of total assets, respectively. The decrease in shareholders' equity in 2008 despite net profit earning was caused by a sharp drop in unrealized gains on change of investment value from Bt. 111.69 million in 2007 to just Bt. 20.23 million in 2008. This was owing to plunging share value of companies invested by BLDC in line with the bearish stock trading in late 2008 resulting from the global and national economic crisis and the internal political conflict. The rise and fall of return on equity, i.e. 19.87% in 2006, 8.71% in 2007, and 11.00% in 2008, was in line with the increase and decrease in net profit. 1.6 Profile of Thai Tap Water Supply Plc. 1.6.1 Background and key developments Thai Tap Water Supply Plc. ("the Company" or "TTW") engages in the production and distribution of tap water for the Provincial Waterworks Authority ("PWA") service areas in the vicinity of Nakhon Chaisi District, Sam Phran District, Bhudhamonton District in Nakhon Pathom Province, and Mueang District and Krathum Baen District in Samut Sakhon Province, to replace the tap water production from the PWA's groundwater wells and to increase the tap water production volume to sufficiently accommodate the consumers' demand so as to help alleviate the land subsidence problems and saltwater penetration in accordance with the government's policy. The Company was incorporated on September 11, 2000 under the name VKCS (Thailand) Co., Ltd. (later changed to Thai Tap Water Supply Co., Ltd.) to engage in the land management and development to serve the purpose of tap water production and distribution project. TTW was a 50:50 joint venture between CK and Thames Water Group with a paid-up registered capital of Bt. 100,000 (par value of Bt. 100 per share). On September 21, Page 24 of the total 92 pages The Opinion Report of the Independent Financial Advisor 2000, the Company entered into the Water Purchase and Sale Agreement with PWA for a period of 30 years from July 21, 2004 to July 20, 2034 on the Build-Own-Operate ("BOO") basis. The Company maintains the ownership of the tap water production and distribution systems to consumers without transfer of the ownership of the said production and distribution systems to PWA. The Agreement also specifies the minimum off-take quantity ("MOQ") to be purchased by PWA throughout the 30-year period, whereby the MOQ is set to increase during the period of the Agreement as follows: Starting date End of period MOQ (cu.m./day) July 21, 2004 July 20, 2006 200,000 July 21, 2006 July 20, 2008 250,000 July 21, 2008 July 20, 2034 (end of the Agreement) 300,000 However, the amendment to the Agreement with PWA was made on December 29, 2008 with MOQ to be increased from 300,000 cu.m./day to 354,000 cu.m./day. The purchase will gradually increase from the first date of the additional purchase and sale, starting at 309,000 cu.m./day within 660 days from the agreement signing date or no later than October 19, 2010. The purchase will increase on a yearly basis by 9,000 cu.m./day until the MOQ reaches 354,000 cu.m./day throughout the period of the existing Agreement. Apart from the Water Purchase and Sale Agreement, the Company was granted a 25-year concession to operate tap water business from the Ministry of Natural Resources and Environment on March 11, 2005 which allows the Company to produce tap water for the areas in the aforementioned five districts in two provinces. TTW produces and distributes tap water with maximum capacity as at March 31, 2009 of 320,000 cu.m./day and sells tap water at the rate of Bt. 23.55/cu.m. in 2009, an increase from Bt. 22.75/cu.m. in 2008. The Company previously entered into an agreement to engage WaterFlow Co., Ltd. ("WaterFlow") to carry out such production, repair and maintenance, as well as production control and distribution. On April 27, 2006, the Company purchased all ordinary shares of WaterFlow from Advance Assets Associates Limited ("AAA"), thus leading WaterFlow to become a subsidiary of the Company. On April 1, 2006, an amendment to the agreement with WaterFlow was made, thus leading WaterFlow to become a tab water production and distribution arm of the Company for further supply to PWA. At present, WaterFlow has a paid-up registered capital of Bt. 10.0 million. In 2007, TTW purchased ordinary shares of Pathum Thani Water Supply Co., Ltd. ("PTW") in a total amount of Bt. 3,998.3 million representing 98% of PTW's paid-up registered capital. PTW operates the business of tap water production and distribution to PWA in the same manner as the Company. On August 31, 1995, PTW entered into an agreement on the operation of tap water production and distribution to PWA for a period of 25 years from October 15, 1998 to October 14, 2023. The agreement is on the Build-Own-Operate-Transfer ("BOOT") basis, i.e. PTW will construct production and distribution systems and then transfer the water distribution system to PWA on the first Page 25 of the total 92 pages The Opinion Report of the Independent Financial Advisor commercial operation date, while the tap water production system will be under PWA's ownership after completion of the 25-year period. PWA purchases tap water from PTW for sale to consumers in Pathum Thani-Rangsit areas in Pathum Thani Province. Apart from the said agreement on the rights to produce and distribute tab water for PWA, PTW was granted a tap water concession from the Ministry of Interior on January 13, 2000, allowing PTW to produce tap water for sale in the service areas of Pathum Thani-Rangsit in Pathum Thani Province for a period of 25 years. PTW then expanded its production capacity from 280,000 cu.m./day to the maximum of 388,000 cu.m./day to meet the rising water demand in the area. In the light of the increasing demand for water consumption in the service areas, PTW entered into a water purchase and sale agreement with PWA on September 15, 2006 with an increase of purchase volume by another 70,000 cu.m./day. The purchase will start from 50,000 cu.m./day on the date on which PTW is able to produce and distribute tap water at 70,000 cu.m/day and will gradually increase annually by 10,000 cu.m./day until the purchase volume reaches 70,000 cu.m./day. The production and distribution by PTW covers the areas served by Rangsit Waterworks Office. Previously, PTW entered into an agreement to engage Pathum Thani Operations Co., Ltd. to carry out such production operation, and Pathum Thani Operations Co., Ltd. then subcontracted such operation to BJT Water Co., Ltd. ("BJT"). On January 26, 2007, PTW terminated the operation and maintenance agreement with Pathum Thani Operations Co., Ltd. and then acquired all ordinary shares in BJT in the total amount of Bt. 305 million. At the same time, PTW entered into an operation and maintenance agreement with BJT, hiring the latter to undertake the production, maintenance, production control, and tap water distribution for PTW. BJT currently has a paid-up registered capital of Bt. 50.0 million. TTW was transformed to a public company on July 6, 2006 under the name Thai Tap Water Supply Plc. and made an initial public offering. On May 22, 2008, it was listed on the SET with the trading symbol "TTW". As of March 31, 2009, the Company had a paid-up registered capital of Bt. 3,990 million, divided into 3,990 million ordinary shares at par value of Bt. 1 each. 1.6.2 Description of business The Company operates a public service business in production and distribution of tap water to the Provincial Waterworks Authority (PWA) with a maximum capacity of 320,000 cu.m./day as of March 31, 2008 and with the selling price set for 2009 at Bt. 23.55/cu.m. On September 21, 2000, the Company entered into the Water Purchase and Sale Agreement with PWA for a period of 30 years with PWA to purchase tap water for distribution to the people in the districts of Sam Phran and Nakhon Chaisi in Nakhon Pathom Province and those in Samut Sakhon Province. The Company also obtained a concession for tap water business from the Ministry of Natural Resource and Environment on March 11, 2005 for a concession period of 25 years, allowing the Company to operate a public service business in production and distribution of tap water in the districts of Sam Phran, Nakhon Chaisi, and Page 26 of the total 92 pages The Opinion Report of the Independent Financial Advisor Buddhamonthon in Nakhon Pathom Province, and the districts of Krathum Baen and Mueang Samut Sakhon in Samut Sakhon Province. In the tap water production, the Company pumps raw water from the Tha Chin River. The produced tap water is distributed by the Bulk Transmission Main (BTM) from the water production plant at Bang Len District, Nakhon Pathom Province, to the Company's two distribution stations, namely, Buddhamonthon Distribution Station and Mahachai Distribution Station, and water is then pumped through the Local Distribution Network (LDN) for distribution to the public in the service areas of the Sam Phran, Om Noi and Samut Sakhon Waterworks Offices. PTW, a subsidiary of the Company, operates the business of tap water production and distribution to the PWA in the same manner as the Company. As of March 31, 2008, it had the maximum capacity of 388,000 cu.m./day. On August 31, 1995, PTW entered into the agreement on operation of tap water production and distribution to PWA for a contract term of 25 years. Furthermore, PTW was awarded a concession for tap water business from the Ministry of Interior on January 13, 2000 for a period of 25 years, allowing PTW to distribute tap water to the public in the service areas in Pathum Thani and Rangsit, Pathum Thani Province. The tap water production of PTW starts from pumping raw water from the Chao Phraya River into the production process in the water production plant at Sam Khok District, Pathum Thani Province. The produced tap water is distributed through (more)