2006 page 01-15 eng 25-03 › pdf › annual › en › makro... · book value per share (baht)...

Company Profile 1

Financial Highlights 2

Messages from the Board of Directors 4

Audit Committee’s Report 6

Management Discussion and Analysis 7

Makro Cash and Carry 11

Makro Office Centres 15

Siam Food Services 17

Industry and Competitive Environment 18

Looking to the Future 21

Risk Factors 23

Corporate Achievements 26

Other Information 28

Report of the Board of Directors’ Responsibilities for Financial Statements 59

Financial Statements 60

Makro, Makro Office Centres and Siam Food Services’ Locations 98

CONTENTS

VISION

Makro in Thailand always strives to continue

to be the leading Cash & Carry operator,

distributing Food and Non Food products

to our registered customers, providing

the best buying conditions and solutions

for our professional customers.

MISSION

� We shall be the one-stop supplier for

our professional customers; Retailers,

HoReCa (Hotels, Restaurants and Caterers)

and Service Providers.

� We shall always fulfil and maintain

our customers’ satisfaction, providing

quality products at competitive prices with

full availability to our core customers.

� We shall work in collaboration with

our business partners for the continuous

improvement of efficiency, giving an

increase in mutual benefits for all parties.

� We shall operate our business professionally,

committing ourselves to the principles of good

corporate governance, by recognising the

importance of our human resources, the good

relationship with our community and society

and the appropriate added value for

our stakeholders.

� Growth through Performance

� Go for Niche and Market Share

� Invest in People

� Manage Change

� Look for the Unusual

� Listen, Learn and React

� Keep Things Simple

CORPORATE PHILOSOPHY

Siam Makro Public Company LimitedSiam Makro Public Company LimitedANNUAL REPORT 2006

The principle business of Siam Makro Public Company Limited is the operation of Wholesale Cash and Carry

Trade Centres, registered under the name of “Makro” throughout Thailand. Currently, there are 29 Makro stores

of varying sizes, 8 stores are located within the Greater Bangkok area and 21 stores are in the provinces. Each

store is ideally positioned geographically to be easily accessible for all customers. Every store offers a product

range and assortment, designed specifically for the customers' changing needs and expectations.

With a registered customer base of over 1.8 million, the Company continues to successfully sell food and non-

food products to a multitude of Clientele. The main focus being small to medium size businesses, predominantly

small retailers, HoReCa (Hotels, Restaurants and Caterers), institutions, professionals and the service sector.

The company has three 99.9% owned subsidiary businesses. Makro Office Centre is a uniquely structured

business. By having two clearly defined business models, the ‘category killer - niche retailer business’ and the

‘Contract Delivery’ business, MOC is able to target all segments of its customer base as a “Single Source

Solution Provider” for office products, supplies, and services. Siam Food Service, the business acquired by the

Company in early 2005, is a leading provider of premium food products and logistic services to the food service

industry that specialises in the nation-wide supply of value-added services and highly specific frozen and chilled

meat, seafood, poultry, etc. Makro Properties Ltd. is a land investment company. A number of Makro stores are

located on land owned by Makro Properties Ltd.

Siam Makro Public Company Limited is controlled by SHV group, a privately held Dutch group, which operates

the Makro Cash and Carry business in Asia from a head office located in Bangkok. Makro Cash and Carry is

currently trading within 6 Asian countries and has a total of 77 stores across the region. In Thailand, an

experienced professional management team based at the head office in Bangkok manages the Company and is

supported by a store management team at each of its stores.

Siam Makro Public Company Limited is listed on the Stock Exchange of Thailand and has a registered share

capital of 240 million shares with a par value of Baht 10 each with a paid-up share capital - as of the

31 December 2006 – of Baht 2,400 million. The total shareholders’ equity, as of this time being Baht 8,742 million

and the total revenues for the year end being Baht 57,407 million. The Net income for the year was Baht 1,223

million, an increase of 7.7% on the previous year.

COMPANY PROFILE

1

Siam Makro Public Company LimitedSiam Makro Public Company Limited ANNUAL REPORT 2006

Unit : Baht Million Change (%)

2006 2005 2004 2006/2005 2005/2004

Total assets 18,851 18,494 18,215 1.9 1.5

Total liabilities 10,109 9,655 8,893 4.7 8.6

Share capital 2,400 2,400 2,400 0.0 0.0

Shareholders’ equity 8,742 8,839 9,323 (1.1) (5.2)

Sales 53,285 48,393 43,490 10.1 11.3

Total revenues 55,373 50,456 45,290 9.7 11.4

Gross profit 2,899 2,616 2,566 10.8 1.9

Net profit for the year 1,223 1,136 1,107 7.7 2.6

Earnings per share for the year (Baht) 5.10 4.74 4.61 7.5 2.8

Par value per share (Baht) 10.00 10.00 10.00 0.0 0.0

Book value per share (Baht) 36.43 36.83 38.84 (1.1) (5.2)

Dividend per share (Baht) 5.50 9.00 2.75 (38.9) 227.3

Net profit margin for the year (%) 2.2 2.3 2.4

Return on equity (%) 13.9 12.5 12.2

Return on total assets (%) 6.6 6.2 6.5

Dividend pay out ratio (%) 107.9 190.1 59.6

Remark : *

Dividend per share include the followings.

1) Interim dividend of Baht 1.50 per share was fully paid in the third quarter of 2006.

2) Proposed final dividend of Baht 4.00 per share for shareholders’ approval on April 27, 2007 bringing total dividend

for 2006 to Baht 5.50 per share.

FINANCIAL HIGHLIGHTSAs at 31 December

Siam Makro Public Company Limited

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FINANCIAL HIGHLIGHTSAs at 31 December

Siam Makro Public Company Limited and its subsidiaries

Unit : Baht Million Change (%)

2006 2005 2004 2006/2005 2005/2004

Total assets 19,283 18,968 18,539 1.7 2.3

Total liabilities 10,540 10,129 9,216 4.1 9.9

Share capital 2,400 2,400 2,400 0.0 0.0

Shareholders’ equity 8,742 8,839 9,323 (1.1) (5.2)

Sales 55,531 50,418 44,670 10.1 12.9

Total revenues 57,407 52,295 46,258 9.8 13.1

Gross profit 3,322 3,022 2,813 9.9 7.4

Net profit for the year 1,223 1,136 1,107 7.7 2.6

Earnings per share for the year (Baht) 5.10 4.74 4.61 7.5 2.8

Par value per share (Baht) 10.00 10.00 10.00 0.0 0.0

Book value per share (Baht) 36.43 36.83 38.84 (1.1) (5.2)

Dividend per share (Baht) 5.50 9.00 2.75 (38.9) 227.3

Net profit margin for the year (%) 2.1 2.2 2.4

Return on equity (%) 13.9 12.5 12.2

Return on total assets (%) 6.4 6.1 6.4

Dividend pay out ratio (%) 107.9 190.1 59.6

Remark : *

Dividend per share include the followings.

1) Interim dividend of Baht 1.50 per share was fully paid in the third quarter of 2006.

2) Proposed final dividend of Baht 4.00 per share for shareholders’ approval on April 27, 2007 bringing total dividend

for 2006 to Baht 5.50 per share.

3


MESSAGES FROM THE BOARD OF DIRECTORS

In 2006 we successfully achieved a sales growth of 10.1% despite the down turn within the retail industry in

Thailand, where retailers struggled throughout 2006. Makro has also been able to withstand the negative effects

in the market, notably rising oil prices, interest rates, inflation, severe flooding spanning 48 provinces and

continued violence in the south.

During 2004 and 2005 we conducted an intensive expansion plan; we increased the number of stores by 6 to

give a total of 29 stores, 8 within Bangkok and 21 located within the provinces. We also successfully completed

the re-modelling of 16 stores. During 2006, the remaining two stores, Surin & Ubol Ratchathani have been

successfully remodeled to the new format, thus concluding the re-modelling program.

In 2006 we continued to focus on meeting the customers’ needs as a core area for development. We reviewed

the services provided in stores, not just in terms of range, assortment and pricing but also in other areas, such as

presentation and display. We also reviewed value-added services provided for customers.

We have also continued to review the product range and focused on the development of own-brand ranges. This

includes premium ‘aro’ brand for food service operators and the value ‘savepak’ brand. House-brand products are

a good alternative at a time when energy prices are high and also provide customers with value for money whilst

generating a positive impact on margin. This brand mix ensures we are constantly adhering to our customers’

needs and expectations.

In October of 2006, we hosted the second ‘HoReCa Extravaganza’ at the Impact Exhibition Centre in

Muangthong Thani but this time we doubled the exhibition area to 10,000 square meters. This event gave Makro

the unique opportunity of bringing specialised suppliers within the hotel, restaurant and catering arena together

with our customers. More than 260 suppliers and industry experts participated in the event, offering to our

customers’ not only product information and future initiatives, but an HoReCa Advisory centre, cooking

demonstrations and a unique culinary contest, seminars on food hygiene and lots, lots more. This could not have

been achieved without the dedication of our employees and the close partnerships that exists between Makro

and its suppliers. We, the board of directors would like to take this opportunity to thank all participants for making

the second ‘HoReCa Extravaganza’ a success and we look forward to the ‘HoReCa Extravaganza III’ in 2007.

The Company’s trading subsidiaries have continued to perform well in 2006, with Makro Office Centre

successfully achieving a sales growth of 10.3%. MOC have also introduced new initiatives into the market such

as the launching of the Mid-Year catalogue to aid the ‘Contract Delivery’ business, which is a dependable and

customised office supplies procurement solution for customers’ to optimise efficiency and manage control.

Operational efficiency has also continued to improve in conjunction with enhanced customer care and service.

4


MESSAGES FROM THE BOARD OF DIRECTORS

This year we also saw the second full trading year of Siam Food Service, a leading provider of premium food

products and logistic services to the food industry, this being strategically important to reinforce of our position

within the food professionals market.

Makro has always been and will continue to be fully committed to our responsibilities within the society.

Throughout the year the Company together with its employees participated in a number of social activities. The

Company also continues to supports The ‘Royal Project’. Our involvement is the countrywide distribution and

sales in our stores, of organic fruits and vegetables from the ‘Nong Marg Tao Integrated Farm’ located in Sakon

Nakhon and Muang Ngai. This is a special Agriculture Project, which is run under the royal patronage of HM The

Queen. This project is designed to educate and promote agricultural techniques for poor rural people. During

2006, we have provided the machine for labelling of organic produce to the ‘Nong Marg Tao Integrated Farm’

located in Sakon Nakhon.

2006 has been an incredible year for Thailand mainly due to the 60th Anniversary of His Majesty the King’s

accession to the throne. In April of 2006 we introduced the “60 Million Thais – The Loyalty to Beloved King”, a

project that produced and sold limited editions of project souvenirs. All the proceeds after expenses went to His

Majesty the King’s foundations. The launch ceremony was presided over by Arsa Sarasin, Principal Private

Secretary, on April 20, 2006 at Makro Ladprao.

In 2006, Thailand experienced terrible flooding especially within the provinces of Nakhon Sawan, Chainat,

Sing Buri, Ang Thong and Phra Nakhon Siayutthaya. Siam Makro Plc. in partnership with D 3350 Rotary

International, Thailand, donated relief bags and ‘aro’ drinking water to flood affected residents. Makro

Chanthaburi, also donated clothes to Chanthaburi Red Cross Foundation. This foundation distributes the

donations to the flood affected residents within the province.

We would like to thank the Board of Directors, employees, management, customers and suppliers for their

continued support in making Siam Makro the leading Cash and Carry in Thailand.

Mr. Arsa Sarasin Mrs. Suchada Ithijarukul

Chairman President

5


AUDIT COMMITTEE'S REPORT

Siam Makro Public Company Limited’s Audit Committee comprise of three Independent Directors who have the

required qualifications and are independent in compliance with the SET’s requirements. The members of the

Audit Committee are Mr. Athaporn Khaimarn, Chairman, Mr. Chavalit Uttasart and Mr. Thira Wipuchanin.

During the year 2006, the Audit Committee hold four meetings and the major matters discussed are as follows:

1. Review the Company’s internal control systems and propose recommendations to the Company’s

management.

2. Review internal audit plan and audit findings for the year 2006 reported by Internal Audit Department.

3. Select the Group external auditors and consider proposed audit fees together with the Company’s

Board of Directors.

4. Review the quarterly and annual financial statements and consolidated financial statements of the

Company and its subsidiaries for the year 2006 by reviewing the reports and meeting with the external

auditors, as well as receiving the clarifications from the company’s management.

5. Review the Company’s compliance with significant accounting policies and practices, which included

procedures for preparation of the financial statements and disclosures.

6. Jointly with the external auditors, the internal auditor and the company’s management, review material

issues relating to internal controls and operations procedures of the company.

The Committee is of the opinion that the financial statements have been prepared based on the Company’s

operations carried out according to the objectives and policies of the Board of Directors, with appropriate and

necessary internal control systems.

(Mr. Athaporn Khaimarn)

Chairman of the Audit Committee


6


Total Consolidated Revenues (Baht Million) Net Profit for the Year (Baht Million)

2006

46,258

52,295

57,407

20052004 2006

1,1071,136 1,223

20052004

MANAGEMENT DISCUSSION AND ANALYSIS

Economics Environment

The Thai economy performed well quarter one of 2006 growing by 6.1%, a faster rate than 4.5% of the previous

year. However, there was a continuous downturn quarter two and three taking the growth rate to 4.7%. Many

factors can be attributed to this; the political uncertainties culminating in the military coup, the surge in oil prices

throughout 2006, widespread flooding spanning 48 provinces and the continued regional unrest in the south of

Thailand have each heavily impacted on the local economy, However, even due to all the negative factors

mentioned above, the year ended with a growth rate of 5% higher than the 4.5% from the previous year.

The Stock Exchange of Thailand’s performance in 2006 was significantly down from the prior year and the SET index

ended the year at 679.84, decrease of 33.89. This is lower than expected and being attributed to the stock market crash on

19 December. The SET index crashed to a two-year low at 622.14, down 108.41 points or 14.84%, worth 72.1 billion baht.

Revenue

Consolidated sales like-for-like increased by almost 10.1% to Baht 55,531 million, up from Baht 50,418 million in

the prior year. The continuing growth in like for like sales reflects the successful repositioning and business

strategy. On an overall sales grew by 10.1% with a particularly strong performance in fresh and frozen food

sales, which grew massively by 23.2%. In 2006, the Company has continued developing our core customers,

HoReCa and small retailers of which their sales rose by 24.3% and 13.6% respectively. Service income was

down to Baht 1,479 million from Baht 1,503 million in the prior year, a 1.6% negative growth rate was recorded,

this mainly being attributed to the lower signboard income. Other income increased over the prior year, 6.3% up

from Baht 374 million to Baht 397 million. Total consolidated revenues were Baht 57,407 million, up from Baht

52,295 million in the prior year, an increase of 9.8%. Growing at a rate greater than the GDP of Thailand, thus

reflecting the impact delivery of our strategy throughout our business.

7


Consolidated Selling and Administrative Expenses

(Baht Million)

No. of Employees of the Company

and its Subsidiaries

2006

2,814

3,2863.486

20052004 2006

2,9113,173

3,541

20052004


Gross Profit

The absolute amount of gross profit margin rose by 9.9% from 2005 in line with the sales growth. However, the

percentage of gross profit margin to total sales did not change in 2006, staying at 6.0%, reflecting increased

participation from the food business with improved margin in line with management’s strategy of growing the

business as a wholesale cash and carry operator.

Selling and Administrative Expenses

Overall the selling and administrative expenses increased by Baht 200 million to Baht 3,486 million up from Baht

3,286 million, representing 6.1% of total revenue compared to 6.3% in 2005. The increase in selling and

administrative expenses, are held at a lower rate as selling and administrative expenses per store are tightly

controlled. We will continue to make significant gains in productivity and efficiency and at the year-end, the Group

employed 3,541 including the employees of Makro Office Centre and Siam Food Services.

Net Income

Consolidated income before interest expenses and taxation was Baht 1,712 million, up Baht 100 million from

Baht 1,612 million in 2005 representing an increase of almost 6.2%. Interest rates increased steadily throughout

the year improving the interest income, this positively impacts the Company, given its substantial cash position

reflecting its business as a cash and carry operator. Income after taxation was Baht 1,223 million, up some Baht

87 million or 7.7% from Baht 1,136 million in 2005. In 2006, the Company has recognized the realized loss from

disposal of impaired asset of which the reserve of impairment was recorded in prior year. This resulted to the

lower corporate tax rate as compared to last year.

8


Earnings per Share

Earnings per share were Baht 5.10 per share for 2006 compared to Baht 4.74 share in 2005, this reflecting the

continuing improvement in net income for the year.

Financial Status

The Company’s financial status as of 31 December 2006 reflects it’s strong trading position, positive cash inflows

and managed investment program. Consolidated total assets have increased in 2006 to Baht 19,283 million from

Baht 18,968 million in 2005. Primarily, reflecting the impact of the conclusion of the store investment program,

which included investment in property, plant and equipment amounting to some Baht 470 million and increased

intangible assets of Baht 27 million. Additions to property, plant and equipment being the cost of the

refurbishment and expansion of the food area within 2 existing Makro stores and the work in progress for the 2

new Makro stores due to open in 2007.

The Company has maintained its traditional strong working capital position and holds cash and cash equivalent and

current investments at the year-end of some Baht 4,871 million. The high cash and cash equivalent and current

investments reflects the very strong trading performance achieved in 2006. Operating cash flows and existing cash

flows funded the store investment program of Baht 470 million, the dividend pay-out of some Baht 1,320 million.

The high cash and cash equivalent and current investments at year end also reflects a higher balance of trade

accounts payable, up from Baht 9,068 million at 2005 to Baht 9,272 million. The Company actively manages its

trade payables as part of its overall working capital management program. Other current liabilities increased over

the prior year, reflecting the underlying growth in the business, as current tax liabilities increased reflecting the

increased tax arising on profits for the year, and a higher level of accruals reflecting the increased number of

company activities.

Inventories have slightly increased from Baht 4,048 million to Baht 4,200 million. The increase was attributable to

the additional inventory from the preparation for new store opening in January 2007, being partly offset through

reduced inventory levels at existing stores. We continue to tightly manage our inventory levels as lower value

food inventory continues to become a more significant proportion of our total inventory.

The Company is equity financed. There have been no increases in share capital during the year and share

capital remains unchanged at 240 million shares with a par value of Baht 10 per share, fully paid up. The

decrease in shareholders’ equity from last year was resulted from the dividend payment during the year for the

amount of Baht 1,320 million. The Group has adequate cash and short-term investment funding with which to

fund future expansion and business acquisitions should appropriate opportunities be identified.


9



As of December 31, 2006, the company’s debt equity ratio (D/E) was 1.2 , slightly increased from last year of 1.1.

The increase was due mainly to higher accounts payable and lower shareholders’ equity. However, the D/E was

in the low level as compared to other companies in the same business sector.

Dividend

A dividend in respect of 2005 of Baht 4.00 per share amounting to a total of Baht 960 million was approved at the

Annual General Shareholders’ Meeting on 27 April 2006 and fully paid in the second quarter of 2006.

A 2006 interim dividend of Baht 1.50 per share amounting to a total of Baht 360 million was approved at the

Board of Directors’ Meeting on 9 August 2006 and fully paid in the third quarter of 2006.

Final dividend in respect of 2006 of Baht 4.00 per share amounting to Baht 960 million was approved by the

Board of Directors’ Meeting on 22 February 2006. This will be presented for final approval, during the Annual

General Shareholders’ Meeting on 27 April 2007.

Share Price

The closing share price for the Company at 31 December 2006 was Baht 98, this increasing by 41% over last

year of Baht 69.50. The Company was capitalized at Baht 23,520 million, up Baht 6,840 million from Baht 16,680

million at the previous year-end.

Audit Committee

In accordance with the regulations of the Stock Exchange of Thailand the Company has formed an audit

committee comprising three independent directors. The report of the audit committee is set out on page 6.

Corporate Governance

The Company is committed to the implementation of Good Corporate Governance practice, and a report on our

application of the Principles of Good Corporate Governance is set out on page 53.

10


Since 2001 Siam Makro Plc. has undergone major restructuring. The aim has been to reposition the company

back into its original wholesale cash and carry format, whilst at the same time taking into account the unique

characteristics of the indigenous market. This was successfully achieved during 2006 by focusing more on

professional customers and by ensuring the nature of the business was understood by all. The extensive re-

modelling of all our stores to the new improved fresh format, which commenced in 2003, has been completed

during 2006. This further developed and supported this strategy. The range of perishable goods was extended

and given greater prominence in the stores and the new format has improved the selection and the displays for

the target customer.

‘Growth through Performance’

The main focus of 2006 was ‘Growth Through Performance’. The company

endeavoured to achieve this by taking advantage of and making the most of

opportunities brought about by change. Siam Makro continued to optimise the

business and look for new opportunities whilst in parallel working as a team for

better results keeping the hierarchy and bureaucracy to a minimum.

Shareholders are not looking for "puffed up" quarterly or annual results, but for

sustainable growth and shareholders accept the risks of new endeavours.

Therefore, 2006 was the year of the STORM for Siam Makro Plc.

The Customers

Knowing who our customers are is essential to ensuring the repositioning within the market successfully

continues. Only when we know who our customers are, we can clearly understand our customers' needs and

expectations. This is a number one priority for Siam Makro Plc.

The main focus area of 2006, as in 2005 was to increase the customer base within the HoReCa customer group.

As part of this initiative, a number of stores went through a re-modelling program, which included widening the

sales space for fresh foods and increasing the product range for the growing popularity of frozen products. This

was also supported with a wider range of dry goods, beverages and related items such as disposable food

packaging and tableware. Additionally, the offering of non-food products targeted especially for this specific

market, such as household and electrical goods, has given Makro a greater opportunity to become a key player

within the market share for this customer group. Makro is a ‘One-Stop for Food Services’ and as oil prices

continued to increase through the year, the one-stop experience was extremely important for our customer’s

needs.

MAKRO CASH AND CARRY

S sustainable growth

T team work

O open for opportunity

R risk taking

M minimum hierarchy

and bureaucracy

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There are currently 29 Makro stores within the Kingdom of Thailand with each store having its’ own specific

customer base. However, the needs of customers located within the Bangkok area and the needs of customers

from the provinces are diverse. To fully understand our customer’s needs and wants during 2006, new

specifically trained personnel were added to the existing strong store teams. Within 14 stores, the new position of

‘Customer Development Officer’, were introduced. Their roles to ensure we know our customer needs by means

of data analysis, regular face-to-face contact and continuous reviewing our customer needs with the store

management team. This has been highly successful and will continue throughout 2007.

A customer call centre was also opened in 2006. The call centre provides information for our customers and

allows the customer to directly speak with a high trained operator. May it be a customer complaint or the request

for product information, each call is treated with the highest importance and follow ups are carried out to ensure

the customer is completely satisfied with the service on offer by Makro.

HoReCa Extravaganza – ‘One-Stop for Food Service’

2005 was a highly successful year for introducing new initiatives into the Makro business. One of the finest

achievements of the year was the hosting of a unique three-day event. The ‘HoReCa Extravaganza’ was held at

the Impact Exhibition Center in Muangthong Thani, which offered an exhibition area of 5,000 square meters.

However, in 2006 we managed to improve on an already successfully initiative by hosting the ‘HoReCa

Extravaganza II’. The exhibition area was doubled to 10.000 square meters. This event gives Makro the unique

opportunity of bringing specialised suppliers within the hotel, restaurant and catering arena together with its

customers. More than 260 suppliers and industry experts participated in the event, offering to our customers’ not

only product information but future initiatives, an HoReCa Advisory center, cooking demonstrations and a unique

culinary contest, seminars on food hygiene and lots, lots more. Over the 3 days 50,000 people attended the

event of which 40% were from the registered customer base. The remaining 60% of visitors were potentially new

future customers for Makro.

The Initiatives of 2006

As mentioned above, 2006 was our year of ‘Growth through Performance’. This does not just mean growth in

terms of sales but also growth within our people. New initiatives introduced in 2005 such as; Stock Management

methodology, which covers all aspects of stock control and stock management - effective margin control, aging

stocks and stock financing - new improved working practices within all areas of our business, all of these

initiatives need time to become effective. 2006 was the year for all our initiatives and hard work over the last few

years to come to fruition. However, this does not mean we will stop introducing new initiatives. We constantly

explore new value added supply sources, such as the use of auctions to achieve the best pricing for specific

products. Collaboration with other Makro Asia operations and the identification of overseas sources has enables

12



Makro to directly import certain fruits and vegetables, not widely grown in Thailand. The increasing number of

bilateral trade agreements to which Thailand is party, further increases our opportunities in this area.

Efficiency in operations is always a key factor to a successful business. A new initiative introduced during 2006,

allowed the technical department along with the operational department to work closely together to optimise

current business processes. This project covers all aspects of our store operation, such as goods receiving and

shelf replenishment. The objective is to analyse the current working methods and supporting IT tools available

and where possible identify and implement new supporting IT tools to further enhance working practices. This is

also supported with refined working methods and clearly defined procedures.

Throughout 2006 working practices and relationships with suppliers continued to be strengthened. By working

closely, strong partnerships have been forged to obtain the best possible deals and opportunities for the customer.

Quality supplier relationships also enabled Makro to address and incorporate factors such as food hygiene and safety

into the supply chain operation. This being of great importance to our customers, as well as to their own customers.

The implementation of the Makro Business Intelligence project was also achieved during 2006. Business

intelligence (BI) is a category of applications and technologies for gathering, storing, analyzing, and providing

access to data, to help enterprise users make better business decisions. BI applications include decision

support systems, query and reporting, online analytical processing, statistical analysis, forecasting, and data

mining. This project aims to provide the right information, at the right time, for the right people.

Assortment and Price Competitiveness

Assortment is key to our ability to attract and retain our core customer base. Our customers must be satisfied

that our stores will have the products that they want to buy, at the right price. Assortment represents not only the

product range that we offer but also the choice within that range; for example choice in terms of packaging and

sizing, own brand availability and the actual choice of brands available. Our target customer groups have special

and differing buying needs – small retail shops may wish to sell certain products in small package sizes whilst our

catering and hotel customers seek access to larger pack sizes in food categories. Through close observation of

customer buying patterns, we are responsive to the different demands of our core customer base. As we expand

more into the provinces, with our increased focus on food, we can adapt our product offering to the specific

needs of the customers in each location.

Price competitiveness is pivotal to our success and to our ability to attract and stay supplier of choice for our core

customer base. The ability to price competitively is achieved through a variety of factors, not just the price at

which we buy from our suppliers. Improved cost management benefits not only our shareholders through

enhanced profitability, but also our customers through competitive pricing.

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Moving Forward in Logistics

Logistics is a fundamental part of Makros’ business strategy and in 2004 two cross-docking distribution centres

were opened. The first was temperature controlled fresh food DC in Wangnoi, just north of Bangkok. From this

location Makro was able to accelerate the distribution of Fresh and frozen products to stores, whilst maintaining

the highest quality freshness of products. The second DC was an ambient temperature DC, located near

Navanakorn Industrial Estate, which handles dry food and non food products. In early 2006 this DC was moved

to Klonglung Truck Terminal for more operating space and to be more efficient in managing the growth in volume

passing through this DC. As a consequence, there are increased opportunities for obtaining handling and

administrative cost advantages as well as co-ordinated transport, shared warehousing and distribution costs and

lower inventory costs throughout the supply chain. These advantages can then be passed on to our customers

by offering the best competitive prices in the market.

Success comes through our People

Our people development programme is ongoing, through training and skill development courses, through

discussion and feedback, and through sharing business and customer knowledge within the company. An

extensive Customer Development Training Program that was introduced in 2005 continues throughout 2006.

This program concentrated on all aspects of customer management, this initiative paying great dividend within

the stores.

As a meritocracy company we reward people for performance and over recent years we have paid close

attention to the need to develop and bring through our own people, at stores and in the head office. Going

forward this will continue with a focus on development and succession from within. Promoting from within is

extremely important to the success of any business and extensive training programs designed for potential Store

General Managers for High Achievers continued during 2006. Outstanding performances and results from

employees are always recognised and rewarded by means of performance-related rewards on an individually

and team bases.

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MAKRO OFFICE CENTRES

Makro Office Centre is a uniquely structured business. By having two clearly defined business models, the

‘category killer - niche retailer business’ and the ‘Contract Delivery’ business, MOC is able to target all segments

of its customer base as a “Single Source Solution Provider” for office products, supplies, and services.

MOC’s retail stores provide a comprehensive range of office products specialising in office supplies, office

automation, office furniture and business services. There are 19 stores strategically located in Bangkok and the

provincial areas of Thailand, which target small businesses and walk-in consumers. To further enhance the level

of service to customers, credit facilities as well as delivery and mail order services are offered.

Alternatively the ‘Contract Delivery’ business, targets medium and large businesses that typically do not buy their

office supplies from a retail outlet. Once ‘Contract customers’ office supplies needs are identified, pricing is fixed

over a defined period of time (i.e. 12 months) with payment terms and a convenient delivery service to the

customers’ doorsteps. Combine periodic spend analysis, web-based ordering and the result is a dependable and

customised office supplies procurement solution for customers’ to optimise efficiency and manage control.

Corporate Account Managers and professionally trained Customer Service Executives are readily available to

provide value-added services as a part of the single source solution.

During 2006 the emphasis was on growth and new initiatives. In Bangkok a new store at Ngamwongwan was

launched. As this niche business continues to grow, so too does the specialist knowledge within the operation of

site selection, new store sites are selected by an in-house committee to identify strategically significant locations.

In 2006 a number of new commercial activities were introduced to the business. These were designed to

highlight the customer’s awareness of Makro Office Centres. Outdoor activities such as a 10 day event named

the ‘Big Brand Grand Sale’ - was highly successfully, not only did this event create Office Centre brand

awareness, it also increased sales. New displays have also been introduced within 9 stores. A 4-ways fixture to

display writing products has generated great interest from our customers and has greatly increased revenues.

MOC understands that the correct assortment is essential to our ability to attract and retain our customer base.

Our customers must be satisfied that our stores will have the products that they want to buy, at the right price.

During 2006 we introduced a new product range ‘Fancy & Trendy’, these products are designed to create more

excitement and customer interest.

Throughout 2006, MOC has introduced a number of new training projects for the employees. Product training is

now conducted on a monthly basis, as MOC understands the importance of product knowledge for all our customers.

During the second half of the year, training sessions have also been delivered to our employees’ on the topic of

Dynamic Management and Customer Management. Our organizational structure has been realigned during 2006, to

support the achievement of standardisation, clear expectations, communication and working towards agreed-upon goals.

15



Communication with consumers is maintained via the monthly 12-16 paged mailer, which is sent to all customers.

Building awareness was a key strategy in 2006 and as a result, the number of targeted mailers and leaflets had

increased. The annual catalogue remains the core of the mail order business and more variety in the assortment

is continually added for the customer who prefers to purchase from his business or home. The catalogue offers

some 260 pages, offering more than 8,000 articles with a distribution of 35,000 copies. Assortment and pricing is

continuously reviewed and stores offer an extensive range of international brands as well as a comprehensive

range of competitively priced “Office Centre” exclusive brands for supplies and furniture. Additionally many stores

include a business centre providing copying, printing, laminating and binding service.

In 2006, sales increased by 10.3% to Baht 1,480 million, giving a growth margin improvement of 5.7%. However,

underlying profitability was Baht 28.9 million, a decrease of 22.6%. Many factors contributed to this decrease,

mainly increased running costs due to the full year operation of five new stores opened last year and a new store

opened this year, the expansion of the Contract Delivery business and the loss from closing the store-Abdulrahim

branch during the year. The number of employees increased by 96 during 2006, taking the total number to 343 as

of 31 December 2006.

MOC engages in several activities in aid of charitable organisations and local concerns within the society. During

2006, all stores participated within a National campaign named ‘Children’s Day’. Within each store, donation

boxes were provided, so our customers and employees could make donations. This money was then utilised to

purchase schooling equipment and donated to a number of schools within the provinces of Suphan Buri,

Ratchaburi and Nakhon Pathom.

2007 will be a year of investment and consolidation in order to strengthen our foundation for growth. MOC will

continue to make improvements by renovating a number of MOC stores within Thailand. Major upgrading of the

existing technical infrastructure will be undertaken to enable the successful implementation of a Customer

Relationship Management system to manage the Contract Delivery business and enhancements to the existing

web-based ordering system.

The extensive training programs that were introduced in 2006 will continue, including the High Achievers

program, product training, customer management and many, many more. The main focus in 2007 will be on the

acquisition of major new accounts for the Contract Delivery business whilst maintaining successes within all other

areas of the business thus allowing MOC to continue to be the leading Office Supplies provider for all segments

of customers in Thailand.

16


SIAM FOOD SERVICES

The food service industry in Thailand is a well-developed and competitive market with many international brands

established in the kingdom. Thailand has a large population and a growing urbanisation, higher disposable

incomes together with an affinity for trying new food experiences allow for continued market development.

The company is a leading provider of premium food products and logistic services to the food service industry.

SFS specialises in the nation-wide supply of value-added services and highly specific frozen and chilled meat,

seafood, poultry, potato, dairy, bakery, ethnic food and beverage products. Principal customers are in the Full and

Quick Service Restaurants, catering, lodging and retail sectors. These include all major independent and multi-

national restaurant operations, hotels and contract food service operations.

The acquisition of SFS is of strategic importance to Siam Makro, as it provides the company with food service

expertise, distribution capabilities, and access to previously untapped food service channels, particularly the high-

end full service restaurant and hotel sector. In a drive to become the premier supplier to the industry, SFS’s

services, knowledge and portfolio can be the differential, adding value and helping to move away from commodity

orientation. This is particularly relevant in an industry that is growing rapidly whilst leveraging buying power and

placing increasing service demands on a fewer number of selected suppliers.

In the face of adverse market conditions SFS continued to deliver strong top line growth across existing and new

channels. During 2006 the business excelled in the seafood category and also performed strongly within the

savoury and dairy categories. Bakery sales were disappointing and category reposition is currently being

executed. Leveraging the combined strengths of SML and SFS further diversification towards dry groceries and

new customers in catering and institutions was initiated. Significant capital investment was made within

Information Technology with the objective to position the company for industry leadership in terms of Enterprise

Resource Planning and Customer Relationship Management. The combat of margin erosion continued high on

the agenda during the year particularly also in the face of rising distribution and finance costs.

The management is confident regarding forward strengths on the basis of organic growth platforms and company

initiatives. Through the addition of services, the dry groceries portfolio differentiation, leveraging the strengths of

SML, the company is ideally positioned to capture market growth opportunities. Planned geographic expansion

and productivity increases from Enterprise Resource Planning (ERP) and Customer Relationship Management

(CRM) implementations will further help combat margin erosion.

Sales in 2006 rose by 9.8% to Baht 848 million before elimination of sales to Siam Makro Public Company

Limited. Sales of Baht 777 million after elimination of sales to Siam Makro Public Company Limited was improved

by 13.4% over last year. The underlying profitability was Baht 14 million. The profitability was lower from previous

year owing to significant increases in logistics and finance costs and higher stock shrinkage. However new

Management structure and organization in Supply Chain will correct this components going forward. At the end of

the year , the company operated with 89 employees.

17


INDUSTRY AND COMPETITIVE ENVIRONMENT

Retail Market in Thailand

There are two types of retail business operating in Thailand. One is the unique ‘mom and pop’ grocery store,

traditionally located in every small community throughout the country. The other type is the modern trade store,

which includes not only department stores, but also other retail outlets. The face of the Thai market has been

changing for a number of years. Small traditional independent retailers are gradually being replaced with modern

and often foreign-owned large retail operation chains. New shopping experiences are also being introduced into

the market such as, the Siam Paragon which opened in December of 2005, Central World Plaza development

which opened end of 2006 and malls that are located underground. All of which are forcing the key players within

the market to rethink their approaches.

Key Players within the Retail Market

Discount Sector

In the discount (superstore/hypermarket) sector there are 3 major players, Tesco Lotus, Big C and Carrefour.

This highly competitive sector does not include the cash-and-carry sector, as the sector has different operating

characteristics to that of the hypermarket sector. Tesco Lotus has also continued to diversify the store formats

through which it does business, as opportunities for the development of large hypermarket store has been

impacted by the zoning laws. They now operate through the Express store, Value store and supermarket formats

and are currently trailing a new shop format known as ‘Talad Lotus’. However during 2006 Tesco Lotus opened

2 new hypermarket stores, 2 Value stores, 10 Talad Lotus stores and more than 70 Express stores, bringing their

total numbers to 56 hypermarket,15 Value stores, 18 Talad Lotus and 189 Express stores. Big C being the

second participant within the discount sector, like Tesco Lotus, Big C has also continued to explore variable store

format opportunities, opening its first Big C “Compact” store in 2004. During 2006, Big C opened 4 new

hypermarket stores and resulted to 49 stores at year end. The third major player is Carrefour which opened

1 store, bringing to 24 stores. As the current zoning regulations continue to impact opportunities for new

development, particularly of the larger size stores, it is anticipated that operators within this sector will continue in

2007, to explore opportunities through the diversification of their store format and their store location to be

located in the outside zoning areas. However, the first-ever retail business law may be in effect and on top of the

current zoning laws, which should clarify regulations regarding expansion plans.

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Cash and Carry Sector

The cash-and-carry sector does not focus on the end user, but on commercial business users, for whom buying is

an integral business function. The cash-and-carry operators, who compete in the same market segment as the

traditional wholesalers, experience slower growth than the hypermarkets, and compete for a different customer

segment. Cash-and-carry operators do not necessarily target the same locations as the discount hypermarkets,

as their core customer base is not the same. Furthermore, core customers to the cash-and-carry operators

include the small retailers, the ‘Mom and Pop’ shops that actually represent competition to the discount

hypermarkets.

Supermarket Sector

The competitive supermarket sector is mainly concentrated in Bangkok where the higher levels of consumer income

and sophisticated customer base supports this retail format. The major players are TOPS, Foodland and Villa Market.

In 2004 Central Retail Corporation Ltd re-acquired 100% of its Tops Supermarket business. The Tops brand has

strong recognition in the eyes of the Thai consumer. Foodland is Thailand’s oldest supermarket chain and currently

has 10 outlets and plans to continue opening more in the face of intensifying competition from foreign hypermarkets

and Tops supermarket chain. Villa Market provides all household essentials as well as local and imported groceries,

fresh fruits, vegetables, meat, poultry, fish, liquor, electrical, school and office supplies, local and imported magazines

and a mini pharmacy. Targeting the premium market segment, most of its shops are located in affluent areas.

Convenience Sector

The convenience store sector is dominated by the 7-Eleven group, and continues to see very rapid expansion, with

7-Eleven adding more stores to exceed 3,780 stores. The second largest operator in this sector is Family Mart with

more than 520 stores. The convenience store sector has continued to focus on food and beverage sales in 2006.

Department Store Sector

The department store sector is dominated by two major players. ‘Central’ and ‘The Mall’ are owned by the Central

Retail Corporation and The Mall Group Company Limited, respectively. Although continuing to face competition

from the discount/hypermarket stores, the different shopping environments, promotional campaigns and

marketing activities of the department stores continue to retain a strong customer base. The Central Retail

Corporation has been active in the development of speciality retail businesses, for example health and beauty,

office products, and electrical goods. Both these major department store groups are involved in the significant

new luxury retail outlets in central downtown Bangkok. A result of which should be the making of Rama

1/Ploenchit area of Bangkok a comparable retail experience to Singapore’s Orchard Road.

19



Now and the Future

The Thai retail market experienced a decrease in sales growth in 2006 reflecting the negative effects of the surge

in oil prices and widespread flooding. Also, inflation, interest rates and political unrest have hurt the consumers’

confidence. Sales of almost all retail operators reported single digit growth in 2006. However, Makro has

managed to overcome the negative affects and reported double digit growth.

The future is unsure for retailers, as the zoning laws are to be revised and a new retail business law is to be put

in effect. At this time, it is not clear who and how this new law will affect the retail market within Thailand.

20


LOOKING TO THE FUTURE

Siam Makro is a Cash and Carry Wholesaler with a strategy focused on consolidating the Company’s position as

the leading cash and carry wholesaler in Thailand. This means ensuring that the Company understands and

delivers what the core customer group expects and ensuring customers, suppliers and other stakeholders

understand the nature of the business and their part in it.

For a number of years, there has existing within Thailand a conflict between the big and the small players within

the retail market. This conflict has intensified during 2006 and the introduction of zoning laws by the previous

government has failed to solve the conflicts. The zoning laws significantly curtailed the expansion plans for the

larger store retailer, forcing them to review their store formats. The aggressive expansion in 2005 and 2006 to a smaller

format were made by some modern trade operators to avoid the zoning regulation. 2007 will see the introduction

of the first ever retail business law within Thailand which should clarify expansion plans within the retail market.

The Company realises that the growth in business is derived from both expansion and growth through

performance. Though no expansion was made in 2005 and 2006, the performance of the Company continued to

grow more than 10% consecutively. In order to have continuous growth in 2007, the main focus in 2007 will be

‘Year of Quality’ and expansion. The ‘Year of Quality’ concept will aim to increase the quality in 5 domains

comprising ‘Quality People’, ‘Quality Products’, ‘Quality Services & Equipment’, ‘Customer Satisfaction’ and

‘Quality Information’ for business decision making.

In 2007, we plan to continue our expansion plan with the opening of 4 new stores; Store 30 in Sa Kaeo province

in January, Store 31 in Ko Samui in April and the last 2 stores which will be opened end of the year. The stores

expansion will focus to serve the requirements of our core customers.

The store to be opened in Ko Samui, will be of a new format for Makro. The ‘ECO’ store will be specifically

targeting our HoReCa customers. The store will be 4,600 square meters compared to our normal Makro Store of

5,500 to 10,000 square meters and will carry the specific assortment for Horeca customers and not carry our

entire assortment.

In 2007 we will continue to focus on meeting the customers’ needs as a core area for development. We will

review the services provided in stores, not just in terms of range, assortment and pricing but also in other areas,

such as presentation and display. We will also review value-added services provided for customers. We realise

that our core customers, small retailers have been effected by the aggressive expansion to the smaller format of

the modern trade operators, in 2007, under the slogan of “Makro Your Business Partner”, we will set up and have

the grand opening of a new ‘RETAIL CENTRE’. This centre will offer our customers the unique opportunity to

receive advice from qualified, experienced personnel regarding all aspects pertaining to running a small

successful retail business. On offer to our customers will be free advice on retail management, finance, shop

layouts & optimisation, to name but a few and will mainly cater for our Mom and Pop customers.

21


LOOKING TO THE FUTURE

Although we are a wholesale cash and carry business, customer service is still an important element of the

overall offering. To support this, an extensive training program was instigated in 2005, which concentrated on

‘Customer Management Methodology’. This evolved throughout 2006 with the introduction of ‘Customer

Development Offices’ within 14 stores. By the end of 2007, all stores will have highly trained customer

development offices on hand, to deal with all our customer’s needs and wants. In conjunction with this, other specifically

targeted customer training programs, such as customer relationship and marketing skills will be conducted.

Our people development programme is ongoing, through training and skill development courses, through

discussion and feedback, and through sharing business and customer knowledge within the company. 2007 will

be the year of training for Makro. We understand that investment in our people is essential to our success. Each

employee will receive a minimum of 30 hours training. Training assessments will be made and the correct training

offered where possible, either by means of in-house or external training. As a meritocracy company we reward

people for performance and over recent years we have paid close attention to the need to develop and bring

through our own people, at the stores and in the head office. Going forward this will continue with a focus on

development and succession from within.

A new exciting initiative for 2007 will be to re-introduce the bakery within all stores. The smell of freshly cooked

bread is always a welcoming smell for our customers. This will be piloted within one store, with the plan to roll out

to all stores within the near future.

We will also continue to invest in Information Technology, both from a technical and operational perspective.

Enhancements to the current logistics system will be made to incorporate the Fresh Food operation. These

enhancements will also include new working methodologies and practices to optimise the business.

Efficiency in operations is always a key factor to a successful business. The optimisation project whereby the

technical department along with the operational department works closely together to optimise business

processes will continue through out 2007. This project covers all aspects of the store operation, such as supplier chain

management, goods receiving and shelf replenishment. The objective is to analyse the current working methods

and supporting IT tools available and where possible identify and implement new supporting IT tools to further

enhance working practices. This will also be supported with refined working methods and clearly defined procedures.

As a cash and carry wholesaler the growth of the business aligns closely with the customers. We have been

successful in refocusing the core business towards the core customer group and this has been reflected in the

positive results for 2006. The year ahead will be challenging but through hard work we will continue to grow sales

through business expansion within the target customer group and grow the margin through closer relationships

with suppliers. This will be achieved by stronger supply chain management and greater operational efficiency and

through the identification of opportunities in complementary businesses.

22


RISK FACTORS

Risk, complexity and uncertainty define all business environments. Risks to a business can be strategic,

financial, compliance, regulatory, natural or operational and systems derived in nature. Risks change constantly

as the internal and external dynamics within a business’s operating environment change. There is internal risk

within the business itself, ranging through the spectrum. From the more traditional risks in the form of hazards,

such as fire and flooding, to risks in our operating environment, such as our reliance on information technology,

to risk in our employee workforce, for example in our ability to skill and retain our employees. There is also risk

from external factors; from our interactions with others, our relationships as supplier, customer, employer and

investor – factors outside our control, which have significant impact to the environment we operate in and the

results we achieve. Major risks we currently face include stock market risk, shareholder risk, and economic risk,

competitive risks such as the actions of our competitors, regulatory and legislative risk, employee risk and

information technology risk.

The Company is listed on the Stock Exchange of Thailand, and its share price is, therefore, impacted by market

sentiment, locally, regionally and internationally. Local market sentiment is driven by political and economic

conditions in Thailand, regionally and internationally, and by speculation. The market closed down 4.7% from

2005. However, the Company’s shares have performed well, with our share price closing the year at Baht 98, up

from 69.50 reflecting retail sector sentiment and our strong performance. There have been many negative factors

impacting market sentiment in 2006, both at the national and international level. The political tensions during the

first nine months and the coup on September 19, weighed heavily on investor sentiment. Severe flooding

spanning 48 provinces, mostly in the central and northern regions and continued regional unrest in the south of

Thailand have impacted on the local economy, whilst Black Tuesday on December 19 has shattered international

investors sentiment and made investors cautious about investing in Thailand.

Although we are a public listed company a significant proportion of our equity is held by a limited number of

shareholders, primarily the SHV group base in the Netherlands that, the Company has had a long relationship

with the SHV group, and through this relationship has conducted a cash and carry business in Thailand for 17

years. Our management team comprises a highly skilled and experienced team, with both international and Thai

experience, and has, therefore, a high level of knowledge, understanding and competence in the Thai retail and

supply chain industries. We do, however, consult with SHV in all aspects of our business, for example in areas as

diverse as procurement, finance and information technology. Furthermore, we also have certain software and

license agreements with members of the SHV group. Such agreements are subject to annual renewal and we

are not aware of any factors that would impact such renewal. We are not reliant upon any other shareholder in

the ordinary course of our business and do not consider that changes in shareholding interests, other than those

made by SHV, our principal shareholder, would significantly impact our business.

23


RISK FACTORS

As a cash and carry wholesaler we believe that we are less exposed to downturns in consumer confidence than

the discount and hypermarket operators as our core customer base are not end-users. However, all businesses

are sensitive to the economic environment in which they operate and deterioration in Thailand’s economic

performance in future would impact us. As a cash and carry operator our commercial structure partly mitigates

such risks, as we are not exposed to bad debt risk, as sales are substantially all in cash and our working capital

position is favourable. As a food wholesaler, particularly with our focus on fresh food, we are exposed to potential

negative impact on sales arising from food scares, for example the negative impact on chicken sales that arises

from outbreaks of bird flu or similar diseases in the region. The increasing attention paid to food safety and food

hygiene by our customers is becoming more evident as the consumer becomes more sophisticated. Although, we

source our fresh food from reliable and certified suppliers and impose strict cleanliness and hygiene standards on

our stores and staff, we are exposed to potential negative sentiment and corresponding adverse impact on sales

from general scares and alerts within the region.

Competition in the modern retail sector remains aggressive, with many operators having undertaken rapid

expansion through building new stores in recent years such that the overall retail trade now is fundamentally

different to that of 10 years ago. The impact of new retail zoning laws, which were introduced in 2003, has

significantly curtailed operators’ ability to grow through expansion within built up urban areas. These laws have

yet to be clarified and for some retail chains, especially within the cash and carry sector, expansion plans have

been put on hold. However, some operators have pursued growth expansion through alternative formats such as

the convenience store sized mini outlets.

The growth of the modern retail sector in Thailand in the last decade, whilst benefiting the Thai consumer by

expanding their choice, and the quality and value of retail offerings, has been perceived to have significantly

impacted other sectors of the economy, including the traditional retail sector. This perceived adverse impact

encouraged calls for legislative and regulatory intervention, and 2003 saw the implementation of significant

Notifications regarding zoning, the impact of which is discussed above, and anti-competition legislation. The

reinforcement of Competition Act in 2003 focused in respect to market domination and unfair trade practices,

Under the section 18 (2) of Competition Act, the office of the Trade Competition Commission has issued the

guidelines for determination of Trade Practices between Wholesale-Retail Business operator and Manufacture or

Distributor which came into force on October 12, 2006 and in January 2007, the cabinet approved the definition of

business operator having dominant position in the market. These regulations will create hurdles within our

business operations.

24


RISK FACTORS

Moreover, new zoning laws have not solved the conflict between the big and small players in the retail market but

has indirectly pushed the big modern retailers to expand in smaller format, which has resulted in more

competitiveness to the small retailers. Therefore, the interim government will consider to approve the draft of

Thailand’s first ever retail business law. Our business is, and will continue to be, exposed to changes in the

regulatory, legislative or compliance environments that adversely impact our performance.

Compliance, operational and systems risk management is ongoing, and subject to continual review. We have

skilled employees across all aspects of the business, who are up to date with global developments in retail and

management and the Board of Directors actively review our risk exposure in these areas. We continually train

and invest in our employees but must compete against other employers in Thailand to secure the best employees

out of a relatively small pool of skilled labour. There is continued demand for skilled employees, especially in the

provincial areas, and there is risk that we will be unable to recruit and retain employees with the levels of skills

that we require. Furthermore the modern retail trade represents a highly challenging work environment, in which

both succession and continuity in our employee base are important to achieve the growth that we seek. As

investment in employee development continues there is also increased risk that we will invest resources in our

staff, but be unable to reap the benefits if those employees leave us for our competitors. We believe that the

meritocratic environment that we offer, the support and training programmes that we provide, the feeling of

teamwork coupled with the family environment that exist amongst our staff group, reduces our risk in obtaining

and retaining the quality of staff that we need to manage and grow our business.

We use information technology throughout our organisation and it is fundamental to our ability to do business.

Our use of information technology includes links with parties’ external to our organisation, for example through

our B2B platform, and through the use of email and such communication tools. Furthermore, our operational

systems are fully computerised. We are, therefore, exposed to potential adverse impact on our business should

our information technology fail, or otherwise become corrupted, for example through exposure to electronically

communicated viruses. Our information technology department is active in ensuring that the Company is properly

and effectively safeguarded against such risk.

25


1988 : Setting up the Company with the registered capital of Baht 750 million.

1989 : Opening 1st Makro store in Lardprao.

1990 : Opening Makro stores in Chaengwattana, Srinakarin and Bangbon.

Setting up its subsidiary company namely Makro Properties Ltd.

1993 : Opening Makro stores in Chonburi and Chiang Mai.

1994 : Increasing its registered capital to Baht 2,400 million.

: Opening Makro stores in Nakhon Ratchasima, Rangsit and Hat Yai.

: Becoming a listed company on the Stock Exchange of Thailand.

1995 : Opening Makro store in Udonthani.

: Opening 1st Makro Office Centre in Seacon Square.

1996 : Opening Makro stores in Phitsanulok, Khon Kaen, Surat Thani and Ubol Ratchathani.

: Setting up the company namely Makro Office Centre Co., Ltd.

: Opening 3 Makro Office Centres at United Centre Building, Sindhorn Building

and Royal City Avenue.

1997 : Opening Makro store in Rayong.

: Spin-off Makro Office Centre businesses.

: Opening 2 Makro Office Centres at Rama III Road and Lardprao Road.

1998 : Opening Makro store in Nakhon Sawan.

1999 : Opening Makro store in Charansanitwongse, Bangkok.

: Opening 1 Makro Office Centre at Phaholyothin Road.

2000 : Opening Makro stores in Sathorn, Bangkok and Nakhon Pathom.

: Opening 1 Makro Office Centre at Wong Wean Yai.

2001 : Opening Makro store in Surin.

2002 : Opening Makro store in Samsen.

: Opening 1 Makro Office Centre at Sukhumvit Road.

CORPORATE ACHIEVEMENTS

26


CORPORATE ACHIEVEMENTS

2003 : Opening Makro stores in Nakhon Si Thammarat and Chiang Rai.

: Remodelling 3 existing stores (Lardprao, Chaengwattana and Srinakarin) to have new format

to focus on a wholesale cash and carry business and a one-stop shop for food service.

: Opening 1 Makro Office Centre at Pattaya.

2004 : Opening Makro stores in Sakon Nakhon, Suphan Buri, Chanthaburi, Phuket, Roi Et and Trang.

: Remodelling 7 existing stores (Bangbon, Chonburi, Chiang Mai, Hat Yai, Nakhon Sawan,

Sathorn and Samsen) to have new format.

: Opening 4 Makro Office Centres at Rangsit, Phuket, Chaengwattana and Sathorn.

2005 : 1 January 2005, acquired 100% shares of Siam Food Services Limited.

: Remodelling 9 existing stores (Charansanitwongse, Surat Thani, Nakhon Pathom, Phisanulok,

Udonthani, Rangsit, Nakhon Ratchasima, Khon Kaen and Rayong) to have new format.

: Opening 5 Makro Office Centres at AbdulRahim Place, SSP Tower 3, Samsen, Ekkamai

and Phayathai.

2006 : Remodelling 2 existing stores (Surin and Ubol Ratchathani) to have new format.

: Opening 1 Makro Office Centres at Ngamwongwan.

27


1. General Information of the Company, Subsidiaries and Associated Company

1.1 Siam Makro Public Company Limited

Company registration No. : 0107537000521 (Former no. Bor Mor Jor. 299)

Date of incorporation : May 10, 1988

Head office : 3498 2nd Floor, Lardprao Road, Klongchan, Bangkapi, Bangkok 10240

Tel. 0-2375-7000, 0-2723-1000 Fax. 0-2375-2927

Home Page www.siammakro.co.th

Type of business : Operating cash and carry wholesale business, selling both food and

non-food products to registered members

Type and No. of shares : Registered ordinary shares with number of shares 240,000,000 shares

Registered capital : 240,000,000 shares at a par value of Baht 10 each, totalled Baht 2,400,000,000

Issued and paid-up capital : 240,000,000 shares at a par value of Baht 10 each, totalled Baht 2,400,000,000

1.2 The Subsidiary and Associated Companies

The Subsidiary Companies

(1) Makro Properties Ltd.

Company registration No. : 0105533040004 (Former no. 4000/2533)

Date of incorporation : April 5, 1990

Head office : 3498 Lardprao Road, Klongchan, Bangkapi, Bangkok 10240

Tel. 0-2375-7000, 0-2723-1000 Fax. 0-2375-2927

Type of business : Land investment and property leasing


Registered capital : 7,000,000 shares at a par value of Baht 100 each, totalled Baht 700,000,000

Issued and paid-up capital : 7,000,000 shares at a par value of Baht 100 each, totalled Baht 700,000,000

(2) Makro Office Centre Co., Ltd.

Company registration No. : 0105539113917 (Former no. (4)445/2539)

Date of incorporation : October 11, 1996

Head office : 1705, 2nd Floor, Phaholyothin Road, Chatuchak, Chatuchak, Bangkok 10900

Tel. 0-2939-5700 Fax. 0-2939-5903-5

Home Page www.officecentre.co.th

Type of business : Retailing of office supplies, office equipment, office furniture

and business services centre


Registered capital : 20,000,000 shares at a par value of Baht 10 each, totalled Baht 200,000,000

Issued and paid-up capital � 20,000,000 shares at a par value of Baht 10 each, totalled Baht 200,000,000

OTHER INFORMATION

28


OTHER INFORMATION

(3) Siam Food Services Limited

Company registration No. : 0105527032739 (Former no. 3276/2527)

Date of incorporation : September 7, 1984

Head office : 2439 Old Paknam Railway Road, Prakhanong, Klongtoey, Bangkok 10110

Tel. 0-2240-4000 Fax. 0-2249-7294

Home Page www.siamfoodservices.com

Type of business : Specializing in the import and distribution of value added,

temperature controlled, high specification meats, seafood, poultry, potato,

dairy, bakery and ethnic food products of both international and domestic

brand owners. Distribution reach is nationwide to all provinces of Thailand.

Type and No. of shares : Registered ordinary shares with number of shares 100,000 shares

Registered capital : 100,000 shares at a par value of Baht 100 each, totalled Baht 10,000,000

Issued and paid-up capital : 100,000 shares at a par value of Baht 100 each, totalled Baht 10,000,000

The Associated Company

- None -

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OTHER INFORMATION

1.3 Reference Persons

Share Registrar : Thailand Securities Depository Co., Ltd.

62 The Stock Exchange of Thailand Building,

4th, 7th Floor, Ratchadaphisek Road, Klongtoey, Klongtoey, Bangkok 10110

Tel. 0-2229-2800, 0-2654-5599 Fax. 0-2359-1259

Auditor : Mr. Somchai Jinnovart C.P.A Reg. No. 3271

Ms. Nangnoi Charoenthaveesub C.P.A Reg. No. 3044

Mr. Prasan Chuapanich C.P.A Reg. No. 3051

PricewaterhouseCoopers ABAS Ltd.

15th Floor, Bangkok City Tower

179/74-80 South Sathorn Road, Tung Mahamek, Sathorn, Bangkok 10120

Tel. 0-2286-9999, 0-2344-1000 Fax. 0-2286-5050

Legal Counsel : Siam City Law Offices Limited

26th Floor, Rajanakarn Building,

183 South Sathorn Road, Yannawa, Sathorn, Bangkok 10120

Tel. 0-2676-6667-8 Fax. 0-2676-6188-9

International Legal Counsellors Thailand Ltd.

18th Floor, Sathorn City Tower,

175 South Sathorn Road, Tung Mahamek, Sathorn, Bangkok 10120

Tel. 0-2679-6005, 0-2679-6015 Fax. 0-2679-6041, 0-2679-6042

Dej Udom & Associates Ltd.

9th Floor, Charn Issara Tower,

942/142-3 Rama IV Road, Suriyawong, Bangrak, Bangkok 10500

Tel. 0-2233-0055 Fax. 0-2236-6681

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OTHER INFORMATION

2. Nature of Business

Revenue Structure of Company Group (Revenue net of inter-group transactions)

Activities/Products/Services Operate by Shareholding of 2006 2005 2004

Company (%) Mil. Baht % Mil. Baht % Mil. Baht %

Makro Cash and Carry

Sales of consumer goods Siam Makro Plc. � 55,060 95.9 50,174 95.9 45,018 97.3

and other income

Total 55,060 95.9 50,174 95.9 45,018 97.3

Makro Office Centre

Sales of goods Makro Office 99.99 1,545 2.7 1,397 2.7 1,231 2.7

and services Centre Co., Ltd.

and other income

Total 1,545 2.7 1,397 2.7 1,231 2.7

Property Rental

Property rental Makro 99.99 7 - 8 - 9 -

and services Properties Ltd.

and other income

Total 7 - 8 - 9 -

Importing and

trading frozen foods

Sales of goods and services Siam Food 99.99 795 1.4 716 1.4 - -

and other income Services Limited

Total 795 1.4 716 1.4 - -

Grand total 57,407 100 52,295 100 46,258 100

Remark : * After elimination of sales to Siam Makro Plc.

�

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OTHER INFORMATION

3. Shareholding Structure and Management

3.1 Shareholders

Major Shareholders

Major shareholders as at the latest book closing date (August 24, 2006)

Name No. of shares % of all shares

1.) Siam Makro Holding (Thailand) Ltd. 132,015,140 55.01

2.) Orkam Holding Asia N.V. 14,898,160 6.21

3.) Investors Bank and Trust Company 11,638,400 4.85

4.) Mellon Bank, N.A. 7,073,677 2.95

5.) Somers (U.K.) Limited 6,940,100 2.89

6.) State Street Bank and Trust Company, for London 6,472,600 2.70

7.) The Bank of New York (Nominees) Limited 6,299,500 2.62

8.) Nortrust Nominees Ltd. 4,764,100 1.99

9.) BNP Paribas Securities Services Luxembourg 4,230,000 1.76

10.) Aberdeen Growth Fund 3,542,500 1.48

Major Shareholder Groups

The major shareholder groups as stated on the latest book closing date on August 24, 2006 are as follows :

Name No. of shares % of all shares

1. SHV Group

- Orkam Holding Asia N.V. 14,898,160 6.21

2. Joint venture among SHV Group

and other shareholders

- Siam Makro Holding (Thailand) Ltd. 132,015,140 55.01

Remark : 1. SHV Group has control over the plan and the policies of the Company and its subsidiaries.

2. Investors can visit the Company’s website www.siammakro.co.th for more update information

before Annual General Shareholders’ Meeting.

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OTHER INFORMATION


Organization Structure as at 31 December 2006

Board of Directors

Audit Committee President Executive Board

Internal Audit

HR.

Director

Finance

Director

ISD

Director

Operations

Director

Commercial

Director

(Non-Food)

Commercial

Director

(Dry Food)

Commercial

Director

(Fresh Food)

Area Manager

Store General Manager

Executive Assistant Business Development

Executive Secretary

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OTHER INFORMATION

3.2 Management

(1) Management Structure

The Company’s management structure comprised the Board of Directors, Executive Board and

Audit Committee.

Board of Directors

Name of Members of the Board of Directors as at December 31, 2006

1. Mr. Dhanin Chearavanont Honorary Chairman

2. Mr. Arsa Sarasin Chairman

3. Mrs. Suchada Ithijarukul Vice Chairman

4. Mr. Dennis Casey* Director

5. Mr. Prasert Jarupanich Director

6. Mr. Ruurd Jacobus Faber Director

7. Mrs. Saowaluck Thithapant Director

8. Mr. Athaporn Khaimarn Independent Director and Chairman of the Audit Committee

9. Mr. Chavalit Uttasart Independent Director and Member of the Audit Committee

10. Mr. Thira Wipuchanin Independent Director and Member of the Audit Committee

11. Mr. David Thomas Binnion Independent Director

Remark : 1. * Appointed to replace the director who resigned during the year.

2. Independent Director means director who is not an executive director, major shareholder

of the company and does not involve in the day-to-day operations of the company.

Functions and Responsibilities of Directors

1. To comply with all laws and regulations, all objects and articles of association of the Company,

and carry out their duties in line with the resolutions of shareholders’ meeting in good faith and

with care to preserve the interests of the Company and to ensure the management’s

accountability to shareholders.

2. To implement and direct the Company’s policies, as well as monitor and supervise its operations.

3. To follow and monitor the business’s performance and the operations of the Company continuously,

according to its by-laws and regulations and to be notified by the management of any

significant matters regarding the Company’s business.

4. To maintain the effectiveness of the Company’s internal control and internal audit.

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OTHER INFORMATION

Executive Board

Name of Members of the Executive Board as at December 31, 2006

1. Mrs. Suchada Ithijarukul Chairman of the Executive Board and President

2. Mr. Dennis Casey* Executive Director

3. Mr. Ruurd Jacobus Faber Executive Director

4. Mrs. Saowaluck Thithapant Executive Director

Remark : * Appointed to replace the executive director who resigned during the year.

Functions and Responsibilities of the Executive Board

1. To determine the Company’s strategy and business plans of each business including investment,

human resources, performance appraisals and remuneration.

2. To prepare budgets and investment projects of each business and submit to the Board of Directors

for approval.

3. To follow and monitor the operating performance and the progress of investment projects in each

business together with performance report, problems and obstacles encountered and possible

solutions to the Board of Directors.

4. To follow and monitor developments in management and risk management system of each business.

5. To follow and monitor human resource development, management promotion and rotation in each

business according to the Company’s plans.

6. Being the authorised directors whose signatures bind the Company (Joint signatures of two directors

affixed by the Company seal).

Audit Committee

Name of Members of the Audit Committee as at December 31, 2006

1. Mr. Athaporn Khaimarn Chairman of the Audit Committee

2. Mr. Chavalit Uttasart Member of the Audit Committee

3. Mr. Thira Wipuchanin Member of the Audit Committee

Functions and Responsibilities of the Audit Committee

1. To review the Company’s financial reporting process to ensure accuracy and adequacy;

2. To ensure that the Company has suitable and efficient internal control system and internal audit;

3. To review the performance of the Company to ensure compliance with the securities and exchange

law, regulations of the SET or laws relating to business of the Company;

4. To consider, select, nominate and recommend remuneration of the Company’s external auditor;

5. To review the disclosure of information of the Company in case of connected transaction or

transaction that may lead to conflict of interest to ensure the accuracy and completeness;

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OTHER INFORMATION

6. To prepare a report on monitoring activities of the Audit Committee and disclose it in an annual

report of the Company, and have such report signed by the Chairman of the Audit Committee; and

7. To perform any other act as assigned by the Board of Directors with approval of the Audit Committee.

The Criteria of Independent Director Selection

Qualifications of the Independent Director

The Independent Director must possess qualifications according to the criteria as follows :

1. Holding shares not more than 5 per cent of paid-up capital of the company, affiliated company,

associated company or related company, which shall be inclusive of the shares held by related

persons.

2. - Being the director who does not take part in the management of the company, affiliated company,

associated company, related company or majority shareholder of the company.

- Not being an employee, staff member or advisor who receives a regular salary from the company,

affiliated company, associated company or related company or majority shareholder of the company.

3. - Being a director who has no direct or indirect benefit or interest in finance and management of the

company, affiliated company, associated company or majority shareholder of the company.

- Being a director who has benefit or interest of the said nature during the period of 1 year before

his appointment as a Independent Director except where the Board of Directors has carefully

considered that such previous benefit or interest does not affect the performance of duties

and the giving of independent opinions.

4. Being a director who is not a related person or close relative of any management member or

majority shareholder of the company.

5. Being a director whom is not appointed as a representative to safeguard interests of the company’s

directors, majority shareholders or shareholders who are related to the company’s majority

shareholders.

6. Being capable of performing duties, giving opinions or reporting the results of performance of

work according to the duties delegated by the Board of Directors free and clear of the control of

the management or the majority shareholders of the company including related persons or

close relatives of the said persons.

Remark : Related persons mean to include persons who have relationship with or are related to

the company to the extent that they cannot perform their duties independently or in a

flexible manner

Independent Director Nomination

Independent Director Nomination is as in the clause of Directors Nomination on page 45

36


OTHER INFORMATION

Biographical Information of the Company’s Directors and Executives

Directors

Mr. Dhanin Chearavanont (67)

Position Honorary Chairman

Shareholding 10 shares (no change)

Relationship with Executives None

Education National Defence College

Commercial School, Hong Kong

Certificate in Directors Accreditation Program initiated by the Thai Institute of Directors

Working Experience 1988-1999 Chairman, Siam Makro Plc.

1989-present Chairman & CEO, Charoen Pokphand Group Company Limited

and its subsidiaries

Present Chairman, Charoen Pokphand Foods Plc. and its subsidiaries

Present Chairman, C.P. Seven Eleven Plc. and its subsidiaries

1993-present Chairman, True Corporation Plc. and its subsidiaries

1999-present Honorary Chairman, Siam Makro Plc.

Mr. Arsa Sarasin (70)

Position Chairman

Shareholding 18,900 shares (no change)


Education B.A. in Business Administration, Boston University, U.S.A.


Working Experience 1994-1999 Honorary Chairman and Independent Director, Siam Makro Plc.

1992-present Chairman, Thai-Asia Pacific Brewery Co., Ltd.

1998-present Chairman, Padaeng Industry Plc.

1999-present Independent Director and Member of the Audit Committee,

Charoen Pokphand Foods Plc.

1999-present Chairman, Siam Makro Plc.

Note : ( ) age at December 31, 2006

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OTHER INFORMATION

Mrs. Suchada Ithijarukul (54)

Position Vice Chairman and President

Shareholding None


Education Bachelor degree in Accountancy, Chulalongkorn University

Certificate in Directors Certification Program initiated by the Thai Institute of Directors

Working Experience 1995-2001 Finance Director, Siam Makro Plc.

1996-present Director, Siam Makro Plc.

Director, Makro Properties Ltd.

Director, Makro Office Centre Co., Ltd.

2001-present Vice Chairman and President, Siam Makro Plc.

2005-present Director, Siam Food Services Limited

Mr. Dennis Casey (55)

Position Director

Shareholding None


Education Kingsway College, London (part-time) 3 GCSE passes and

Apothecary Technician Certificate

University of Michigan Strategy and Integration. Various leadership courses

Working Experience 2001-2003 CEO & Sales Development Director, AS Watson Philippines

2003-2004 Concept and Brand Development Director Group, AS Watson

Hong Kong

2004-2006 CEO Eastern Europe and Nordic Countries, Concept and

Brand Development Director Group, AS Watson Eastern

Europe, Latvia, Hong Kong

2006-present CEO, Makro Asia Management Ltd.

Jun 2006-present Director, Siam Makro Plc.


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OTHER INFORMATION

Mr. Prasert Jarupanich (58)

Position Director

Shareholding 10 shares (no change)


Education Ph. D. in Industrial Engineering and Management, Oklahoma State University


Working Experience 1988-present Director, C.P. Seven Eleven Plc.

Director, Siam Makro Plc.

Mr. Ruurd Jacobus Faber (47)

Position Director

Shareholding None


Education B.A. Human Resources, Hojeschool of Amsterdam

Working Experience 1995-1999 Human Resources Director, NCR Corp.

2000-present Human Resources Director, Makro Asia Management Ltd.

2005-present Director, Makro Asia Management Ltd.

Director, Siam Makro Plc.

Mrs. Saowaluck Thithapant (51)

Position Director and Finance Director

Shareholding None


Education Bachelor degree in Accountancy, Thammasart University

Bachelor degree in Laws, Thammasart University

Master degree in Accountancy, Thammasart University


Working Experience 1997-1999 Vice President-Accounting and Finance,

Premier Enterprise Plc.

1999-2002 Senior Vice President-Accounting and Finance,

Premier Group of Companies

2002-present Finance Director, Siam Makro Plc.

Director, Makro Properties Ltd.


2004-present Director, Siam Makro Plc.



39


OTHER INFORMATION

Mr. Athaporn Khaimarn (62)

Position Independent Director and Chairman of the Audit Committee

Shareholding None


Education Associate member of the Institute of Chartered Accountants in Australia

Associateship in Accounting from Western Australia Institute of Technology

(Now, Curtin University of Technology)


Working Experience 1992-1996 Managing Director, Price Waterhouse, Bangkok

Present Independent Director and Chairman of the Audit Committee,

Goodyear (Thailand) Plc.

1999-present Independent Director and Chairman of the Audit Committee,

Siam Makro Plc.

Mr. Chavalit Uttasart (58)

Position Independent Director and Member of the Audit Committee

Shareholding None


Education LL.B. Honors, Chulalongkorn University

Barrister-At-Law, The Institute of Legal Education

Barrister-At-Law, Gray’s Inn, London


Working Experience 1977-2005 Director, International Legal Counsellors Thailand Ltd.

Present Managing Director, Siam City Law Offices Limited


Siam Makro Plc.


40


OTHER INFORMATION

Mr. Thira Wipuchanin (57)

Position Independent Director and Member of the Audit Committee

Shareholding None


Education B.Sc. in Economic and Business Administration,

University of Wisconsin-Stevents Point, U.S.A.


Certificate in Audit Committee Program initiated by the Thai Institute of Directors

Working Experience 1990-1994 Thailand Representative, Prudential Asset Management Asia Ltd.

1995-1997 Senior Vice President, Premier Group of Companies

1998-2004 Senior Executive Vice President, Export – Import Bank of Thailand

Present Chairman and Independent Director, Interhides Plc.

Present Independent Director, Precious Shipping Plc.

Present Independent Director and Member of the Audit Committee,

Bangkok First Investment & Trust Plc.

Present Independent Director and Chairman of the Audit Committee,

United Palm Oil Industry Plc.


Siam Makro Plc.

Mr. David Thomas Binnion (49)

Position Independent Director

Shareholding None


Education Leeds University, U.K. B.Sc. Hons., Biochemistry/ Pharmacology

Manchester Business School, U.K. MBA

Kennedy-Western University, U.S.A. Ph.D., International Business (external)

Working Experience 1996-1997 Regional Director Asia, Fresenius GMBH

1998-2003 Director, Hay Group Thailand

2004-present Partner, Indigo Consulting Group Co., Ltd.

Independent Director, Siam Makro Plc.


41


OTHER INFORMATION

Executives

Mrs. Suchada Ithijarukul (54)

Details as mentioned in Biographical Information of the Company’s Directors.

Mr. Philip William Cox (61)

Position Commercial Director (Dry Food)

Shareholding None


Education Attended the Sydney University to study Business Administration

Working Experience 1989-1997 Managing Director, Mah Boonkrong Sirichai Supermarket Co., Ltd.

1997-present Commercial Director (Dry Food), Siam Makro Plc.


Mr. Louis Lin (43)

Position Commercial Director (Fresh Food)

Shareholding None


Education Business Manager Courses, Chung-Shin University

Working Experience 1990-2001 Fresh Food Manager, Wellcome Taiwan Dairy Farm

2001-2003 Commercial Director (Food), Makro Taiwan

2003-present Commercial Director (Fresh Food), Siam Makro Plc.

Mr. David Yvon Joseph Francois Poussier (36)

Position Operations Director

Shareholding None


Education DEUG Sciences Economics, University of CAEN

Working Experience 1999-2000 Fresh Supervisor, Makro Portugal

2000-2005 Store Manager, Makro Portugal

2005-Dec 2005 Senior Operations Manager, Makro Asia Management Ltd.

Jan 2006-present Operations Director, Siam Makro Plc.


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OTHER INFORMATION

Mrs. Saowaluck Thithapant (51)

Details as mentioned in Biographical Information of the Company’s Directors.

Mrs. Boonsin Srilertchaipanij (53)

Position Human Resource Director

Shareholding None


Education B.A. Faculty of Arts, Chulalongkorn University


Certificate in Finance for Non-Finance Director initiated by the Thai Institute of Directors

Working Experience 1992-1997 Vice President-Administration & Personnel

Christiani & Nielsen (Thai) Plc.

1998-present Human Resource Director, Siam Makro Plc.

2000-present Director, Makro Properties Ltd.


2001-2004 Director, Siam Makro Plc.


Mr. Chertchai Thirakul (46)

Position Information Services Director

Shareholding None


Education Bachelor Degree in Electrical Engineering,

King Mongkut Institute of Technology, Ladkrabang

Master Degree in Computer Science, University of Southwestern Louisiana, U.S.A.

Working Experience 1994-1997 Country Sales Manager, Oracle Systems (Thailand) Co., Ltd.

1997-present Information Services Director, Siam Makro Plc.


43


Details of the Board of Directors and Executives in the Company and its Subsidiaries and or Related Companies

as at December 31, 2006

Remark :

Positions

1 = Honorary Chairman 2 = Chairman 3 = Vice Chairman

4 = Chairman of the Executive Board 5 = President 6 = Director

7 = Executive Director 8 = Independent Director 9 = Chairman of the Audit Committee

10 = Member of the Audit Committee

Subsidiary Companies

A = Makro Properties Ltd. B = Makro Office Centre Co., Ltd. C = Siam Food Services Limited

Related Companies

D* = Charoen Pokphand Group Co., Ltd. E* = Charoen Pokphand Foods Plc. F* = Perfect Companion Co., Ltd.

G = Makro Asia Management Ltd.

* As at September 30, 2006

Company Name Siam Makro Plc. Subsidiary Companies Related Companies

Name A B C D E F G

Mr. Dhanin Chearavanont 1 2, 4 2

Mr. Arsa Sarasin 2 8, 10

Mrs. Suchada Ithijarukul 3, 4, 5 6 6 6

Mr. Dennis Casey 6, 7 4

Mr. Prasert Jarupanich 6 6

Mr. Ruurd Jacobus Faber 6, 7 6

Mrs. Saowaluck Thithapant 6, 7 6 6 6

Mr. Athaporn Khaimarn 8, 9

Mr. Chavalit Uttasart 8, 10

Mr. Thira Wipuchanin 8, 10

Mr. David Thomas Binnion 8

Mrs. Boonsin Srilertchaipanij 6 6 6

Mr. Philip William Cox 6

� � �

OTHER INFORMATION

44


OTHER INFORMATION

(2) Directors Nomination

(2.1) Unless otherwise provide in clause (2.2), a general meeting of shareholders shall elect

directors in accordance with the following rules and procedures:

a) A shareholder shall have a number of votes which is equivalent to the number of shares

held by him;

b) Each shareholder may exercise all the votes he has under clause a), to elect one or more

persons as directors but he may not split his votes among any such persons;

c) The persons receiving the highest number of votes in the respective order of the votes

shall be elected as directors up to the total number of directors required or to be

elected at such time. In the event that a number of persons receives an equal number

of votes for the last directorship exceeds the number of directors the Company required

or to be elected at such time, the chairman of the meeting shall have a casting vote;

(2.2) If the directorship become vacant for any reason other than by rotation, the board of

directors shall elect a person who is qualified and not having a prohibited characteristics

as provided in Section 68 of the Public Limited Company Act B.E. 2535 as director to fill

the vacancy at the subsequent board of directors meeting unless the remaining term of

the director is less than 2 months. The director who fills the vacancy shall retain his office

only for the remaining term of the office of the director whom he replaces.

The resolution of the board of directors under the first paragraph shall consist of not less

than three-fourth of the votes of the remaining directors.

Details of Directors of Subsidiary Companies as at December 31, 2006

Subsidiary Companies Makro Properties Ltd. Makro Office Siam Food

Centre Co., Ltd. Services Limited

Directors Name

Mrs. Suchada Ithijarukul Director Director Director

Mrs. Boonsin Srilertchaipanij Director Director Director

Mrs. Saowaluck Thithapant Director Director Director

Mrs. Supornsri Naktanasukarn - Director -

Mr. Philip Sutherland Younie - - Director

Mr. Philip William Cox - - Director

Miss Thanyamas Vorachart - - Director

45


OTHER INFORMATION

In addition, the Company has never appointed a Nominating Committee and defined the

numbers of directors from major shareholders. Therefore, an election of the Company’s

directors is in compliance with the Company‘s articles of association as above mentioned on

Directors Nomination.

(3) Remuneration of the Executives in 2006

Financial Remuneration

(a) The 7 directors of the total 12 directors (including director who resigned during the year)

of the Company received fee of Baht 8.0 million. As being the full-time employees of

the Company or affiliated company, the remaining 5 directors did not receive such

remuneration. The directors’ remuneration rates in 2006 are as follow.

Name Remuneration Rate

1. Mr. Dhanin Chearavanont 100,000 Baht/ Month

2. Mr. Arsa Sarasin 120,000 Baht/ Month

3. Mrs. Suchada Ithijarukul None (full-time employee of the

Company)

4. Mr. Francisco Henrique Passos Fernandes None (full-time employee of the

(resigned during the year) affiliated company)

Mr. Dennis Casey (new appointed) None (full-time employee of the

affiliated company)

5. Mr. Prasert Jarupanich 80,000 Baht/ Month

6. Mr. Ruurd Jacobus Faber None (full-time employee of the

affiliated company)

7. Mrs. Saowaluck Thithapant None (full-time employee of the

Company)

8. Mr. Athaporn Khaimarn 110,000 Baht/ Month

9. Mr. Chavalit Uttasart 90,000 Baht/ Month

10. Mr. Thira Wipuchanin 90,000 Baht/ Month

11. Mr. David Thomas Binnion 80,000 Baht/ Month

Other Remuneration of Directors None

(b) The 6 directors of the Executive Board have received the remuneration as member of

the Board of Directors or executive employees of the Company or affiliated company.

(c) The 7 executives received remuneration in the form of salary and bonus with total

amount of Baht 70.9 million.

46


OTHER INFORMATION

Other Remuneration

In 2006 the Company paid 7 executives other remuneration in the amount of Baht 15.0 million.

The remuneration consists of the Company’s contributed provident fund (3 % of salary) and the

expatriate executives’ expenses i.e. house rent, utility bills, telephone expenses, income tax

payable and travelling expenses etc.

Directors and Executives’ Shareholding Status in the Company and Affiliated Companies

As at December 31, 2006

Name and Position Company/Affiliated No. of shares held Increase/Decrease

Companies

1.) Mr. Dhanin Chearavanont

Honorary Chairman Siam Makro Plc. 10 No change

- Makro Properties Ltd. 1 No change

2.) Mr. Arsa Sarasin

Chairman Siam Makro Plc. 18,900 No change

3.) Mr. Prasert Jarupanich

Director Siam Makro Plc. 10 No change

- Makro Properties Ltd. 1 No change

(4) Practice of Best Code for Directors of Listed Companies

In compliance with the Code of Best Practice for Directors of Listed Companies of the Stock

Exchange of Thailand, the Company’s Board of Directors has been performing their duties

according to the roles and responsibilities in compliance with laws and regulations, objectives

and articles of association of the Company as well as the resolutions of shareholders’ meetings

with honesty and care to preserve the interests of the Company, and have accountability to

shareholders. The Board of Directors has implemented and directed the Company’s policies,

monitored and supervised its operations as well as continuously followed and monitored the

business’s performance and the operations of the Company, according to its by laws and

regulations. In addition, the Board of Directors has maintained the adequacy of the Company’s

internal control and internal audit in order to ensure the effectiveness of the Company’s

operation.

47


OTHER INFORMATION

(5) Supervision on Insider Trading

In order to prevent securities trading by using inside information and to prevent criticism on the

appropriateness of insider purchases or sales, the Company has supervisions and limitations on the

use of the Company’s information for personal benefit, as well as for securities trading. The Company

will keep confidential, material information which are not known to the public, and will be revealed only to

related senior executives. Senior executives who are able to access material information which is not

known to the public must report their purchases and sales of the Company’s securities pursuant to the

regulations of the SEC and SET, Re: Rules, Conditions and Procedures Governing the Preparation and

Disclosure of Reports on Securities Holding. Furthermore, the preparation and distribution of documents

related to such secret information will be done only by appropriate and related officers of the Company.

In addition, the Company has policy and made regular internal and public announcements and

notifications on the core values of the Company relating to the lawful and ethical conduct. In

particular, the use of material secret information, which may affect the trading of securities, as

well as gaining of personal benefit when dealing in securities. Such misconduct by revealing

material and internal information of the Company for personal benefit is strictly prohibited.

According to the Company's policy, it is prohibit for the management and employee to use the

inside information for their own benefit. Our policy stipulate that each employee avoid any abuse

of insider knowledge and any mixing of personal and business interests, and the appearance of

such an abuse or conflict of interest. A strict obligation of secrecy applies.

(6) The Opinion of the Board of Directors Concerning Internal Control of the Company and Its

Subsidiaries

The Company’s Board of Directors, which compose of the Company’s Audit Committee, opined that

the financial systems, financial reports and financial audit of the Company and its subsidiaries

are reliable under adequate and appropriate internal control system. The Company’s internal

audit department continuously monitors its internal control system to ensure the adequacy and

effective implementation of the internal process in accordance with the Company’s policy.

(7) Dividend Payment Policy

Unless it is feasible to do so, the Company’s Board of Directors intends to propose to

shareholder’s meeting for approval of the Company to pay dividend not less than 40 percent of

its net profit after income tax, subject to annual operating performance. Starting from the

financial year of December 31, 1994.

In addition, the dividend payment policy of the subsidiaries, the Board of Directors of the

subsidiaries shall consider paying the dividend on occasion.

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OTHER INFORMATION

4. Related Transactions with the Conflict of Interested Persons

In 2006 the Company and its subsidiaries had incurred transactions with the conflict of interested persons.

The related transactions are shown on page 87 in clause 20 “Related Party Transactions” of Notes to the

Consolidated and Company Financial Statements for the years ended 31 December 2006 and 2005 which

is audited by the certified public accountant.

Feature of Relationships and Related Transactions

1. Purchase of goods

The Company purchased goods from related companies in the Charoen Pokphand Group which are

related by having the same directorship persons and/or shareholding interests. From 1 October 2006,

the Company has excluded Charoen Pokphand Group from related parties list as Charoen Pokphand

Group simply has three common directors with the Company and has no control or significant influence

over financial and operating policy decisions of the Company.

The Company purchased goods from related companies in the Charoen Pokphand Group as follows :

Company Name Feature of Relation Amount (Baht Mil.)

1. C.P. Consumer Products Co., Ltd. Supplier 18.0

2. C.P. Retailing and Marketing Co., Ltd. Supplier 28.2

3. CP-Meji Co., Ltd. Supplier 35.2

4. Charoen Pokphand Foods Plc. Supplier 2.3

5. Bangkok Agro-Industrial Products Plc. Supplier 16.8

6. Charoen Pokphand Northeastern Plc. Supplier 14.5

7. Charoen Pokphand Industry Co., Ltd. Supplier 10.9

8. Perfect Companion Co., Ltd. Supplier 27.9

9. Seafood Enterprise Co., Ltd. Supplier 0.03

10. Vee Food Products Co., Ltd. Supplier 91.5

11. Universal Food and Marketing Co., Ltd. Supplier 15.5

12. CPF Food Products Co., Ltd. Supplier 32.9

Total 293.7

2. Purchase of intangible assets

The Company and its subsidiaries have been granted rights to use software and upgrade from overseas

affiliated companies, being members of the SHV Group as follows :


1. Orkam Asia Management AG Affiliated company 10.2

2. SHV Holdings N.V. Affiliated company 0.7

Total 10.9

49


OTHER INFORMATION

3. Service expenses

The Company and its subsidiaries have been granted rights to use the software, trademarks and

received consultant services in relation to own brand development, management services and technical

assistance in auction purchasing and maintenance services for application software from both local and

overseas affiliated companies, being members of SHV Group as follows :


1. Orkam Asia Trademark AG Affiliated company 132.9

2. Orkam Asia Management AG Affiliated company 8.0

3. Makro Asia Management Ltd. Affiliated company 13.5

4. SHV Holdings N.V. Affiliated company 0.04

Total 154.4

Pricing Policy of Related Transactions

1. Goods purchased transactions are in line with normal business condition and treated in the same manner

as other unrelated manufacturers and/or distributors of merchandises and with reference to the market prices.

2. Purchase of intangible assets i.e. the use of software license and upgrade are specified in agreements

and are on a reasonable basis for the Company and its subsidiaries as follows :

a) The upgrade charge of a business intelligence application software application is EUR 140,000.

The agreement is valid for 1 year from January to December 2006.

b) The upgrade charge of B2B E-Commerce application software is EUR 25,400. The agreement is

effective on December 2006 for an unlimited period of time, unless either party shall terminate it by

written notice. This software supports sharing and exchanging information through the Internet

between the Company and suppliers.

3. Software license fees, royalty fees, consultant service fees, management fees and maintenance service

fees for the use of such trademarks and services are as specified in agreements and are on a reasonable

basis for the Company and its subsidiaries as follows :

a) Royalty fee for the use of trademarks is 0.5 percent of sales volume of the first-10 stores of the Company

and all stores of its subsidiaries subtracted by value of goods return and VAT. The agreement is valid

for 1 year. However, the Company and its subsidiaries reserve the right to renew the agreement

every year and have the right to use such trademarks and service marks in business operations.

b) Software license fee is NLG 50,000 (or EUR 22,689 in equivalent) for each Makro’s new store. The

payment is made once a new store is open. The agreement is valid for 1 year and is renewable

annually. Regarding the benefit from this license, the Company will obtain the specific IT software

which is necessary to the business operations.

50


OTHER INFORMATION

c) Consultant service fee in relation to own brand development is R.M. 12,320 per month. The agreement

is valid for 1 year. Regarding the benefit from this service agreement, the Company will receive

consultant services in relation to own brand development. The service is already finished in the year

2005 and included in the new agreement as presented in (h).

d) Annual maintenance fee is 20% of the total user license fees in which each license fee costs USD

550 per user. The agreement is for unlimited period of time, unless party shall terminate the agreement

by written notice. The Company will receive maintenance services for the application software.

e) Annual membership fees in relation to cost sharing for the shared use of auction tools were charged

proportionally to the auction volumes made by the Company amounting to USD 21,678 (2005 :

USD 58,310). The agreement is valid for 1 year and the Company will receive auction purchasing

services. Annual fee for management service and technical assistance in auction purchasing is

charged in Thai Baht equivalent to USD 116,000. The service is already finished in the year 2005

and included in the new agreement as presented in (h).

f) Consultant service fee in relation to joint buying activities is charged in Thai Baht 2,781,130 for the

period from September to December 2005. Regarding the benefit from this service agreement, the

Company will receive consultant service in relation to joint buying development. This service is

already finished in the year 2005 and included in the new agreement as presented in (h).

g) Management consultant service fee is charged in Thai Baht equivalent to USD 15,000 for the period

from January to March 2006 (2005: annual fee in Thai Baht equivalent to USD 128,000). Regarding

the benefit from this service agreement, the Company will receive consultant service in relation to

logistics and supply chain development.

h) Annual fee for commercial consultant service in relation to the development and implementation

regarding joint buying, private label and auction activities is charged in Thai Baht equivalent to USD

350,000. The agreement is valid for 1 year from January to December 2006. Regarding the benefit

from this service agreement, the Company will receive consultant service in order to improve the

cost structure, the efficiency and quality of the buying process.

i) Maintenance fee regarding business intelligence application is charged in Thai Baht equivalent to

EUR 82,000. The agreement is valid for 1 year from January to December 2006. In additional, each

license fee is charged at EUR 750 per user and annual maintenance fee is 25% of the total user

license fee. The agreement is for unlimited period of time, unless party shall terminate the agreement

by written notice. Regarding the benefit from these service agreements, the Company will receive

maintenance services for the application software.

51


OTHER INFORMATION

Necessity and Reasons of Related Transactions

1. In respect of goods purchased transactions, the Company followed its practice under the procurement

system i.e. selection of goods, manufacturers and/or distributors of merchandises, negotiation of price,

term of payment, delivery and return of merchandises, etc. These are corresponded to the customers’

need and the Company’s focus on providing maximum benefit for customers and the Company.

2. In respect of the purchase of intangible assets i.e. the use of software license and upgrade. The Company

and its subsidiaries have been supported in technical service and management for the Company and its

subsidiaries’ core business operations by overseas affiliated companies and costs of the use of software

are cheaper than local system development.

3. In respect of the use of software license, trademarks and consultant services in relation to own brand

development, management services and technical assistance in auction purchasing and maintenance

services for application software, the Company and its subsidiaries have been supported in technical service

and management for the Company and its subsidiaries’ core business operations by local and overseas

affiliated companies and costs of the use of software are cheaper than local system development.

Measures or Procedures for Approving Transactions and Policy for Future Transactions

The related transactions are incurred only when required as normal course of doing business and for the

benefit of the Company and its subsidiaries. The goods purchased transactions from Charoen Pokphand

Group refer to the market price which is a normal trading convention under the Company’s management

procedures and internal control system. The purchase of intangible assets and use of software license,

trademarks and consultant services in relation to own brand development, management services technical

assistance in auction purchasing and maintenance services for application software are necessary for

business operations. Such transactions are reviewed by our Audit Committee and the Audit Committee is

of the opinion that transactions are on the fair and reasonable basis. The transactions must be approved

by our Board of Directors which is in line with the Company’s Articles of Association before the transactions

are taken. In the future, the Company and its subsidiaries have policy to incur the related transactions

when and only if its business operations are required to do so and receive the approval from the Board of

Directors before entering into those related transactions. Terms and conditions of all transactions will be

treated in the same manner as the other third-party transactions.

52


OTHER INFORMATION

5. Corporate Governance

1. Policy on Corporate Governance

The Board of Directors has established and is committed to a policy regarding corporate governance

where strategic directions of the Company’s operations have been defined and the Board of Directors

works to ensure that such policy has been implemented efficiently by the Management for the ultimate

benefits of the Company and its shareholders in a transparent and fair manner. These will be achieved

under legislative and regulatory framework as well as business codes of conduct. Moreover, emphasis

has been placed on the Company’s internal control and audit system.

2. Shareholders : Rights and Equitable Treatment

In 2006 there was Annual General Shareholders’ Meeting, which was held at Monthathip Room,

Radisson Hotel, No. 92, Rama 9 Road, Bangkapi Subdistrict, Huay Khwang District, Bangkok. The

meeting notices were delivered together with supporting documents to the agenda in advance to

shareholders as required by law for their prior review. The shareholders may appoint proxies to attend

the meeting and vote for them or, alternatively, delegate the Company’s independent directors as their

proxies. The Company also provides to the shareholders to vote under the agenda which is in line with

the Company’s Articles of Association. In this regard, we have equally facilitated and treated all

shareholders with respect to the shareholders’ meeting.

3. Various groups of Stakeholders

The Company has given attention to rights of all groups of interested persons by complying with

provisions of laws to supervise the rights of various groups of interested persons and to appropriately

organize the joint benefit as follows:

Shareholders : The Company will transparently carry on its business with the intention to create

the firm growth in the long run and with the good yield to the shareholders.

Customers : The Company intends to continuously seek and increase the variation of the

products and the services to correspond to the customers’ need for the customers’

highest satisfaction and to increase the customers’ royalty and to monitor the

products and the services with quality to elevate the standard of Markro’s services.

Employees : The Company has the policy to train, develop and open opportunities for employees’

career advancement. The Company has co-operated with the Department of Skills

Development, Ministry of Labour, for training to upgrade the skills and knowledge

of employees in order to be equipped with quality workforce, efficient and outstanding

performance staff, ready for promotion from within. In addition, the Company

has the policy to fairly pay according to the job value and performance.

53


OTHER INFORMATION

Trading Partners : The Company intends to treat the trading partners with equality based on fairness

in considering the joint benefit.

Competitors : The Company carries on the businesses according to international competition

rules and regulations and will not destroy the competitors in the unfaithful manner.

Social and Environment : The Company realizes the importance of the society and environment that we

reside. Each Makro stores are encouraged to take responsibility for the society

they are in and participate in social activities and public welfare. The Company

support educational social and environmental development.

4. Shareholders’ Meetings

The 2006 Annual General Shareholders’ Meeting was attended by the Company’s directors including

audit committee. All shareholders were treated equally with respect to their rights in making inquiries

and comments regarding businesses under the agenda and proposals.

5. Leadership and Vision

The Board of Directors works closely with the Company to establish objectives, business plans and

budgets and to ensure efficient and effective implementation of the business plans and budgets in

order to optimise economic benefits to the Company and stability to its shareholders. Roles, duties and

responsibilities of the Board of Directors, Executive Committee and Audit Committee have been

discussed under ‘Management Structure’ on page 34. The Board of Directors also approves financial

transactions with respect to investment of the Company other than those required approval of

shareholders pursuant to regulations of the SEC, SET and Public Limited Companies Act B.E. 2535.

6. Conflict of Interests

a) Transactions with potential conflict of interest have been discussed under ‘Related Transactions with

the conflict of Interested Persons’ on page 49. Such transactions are disclosed in the notes to

quarterly and annual financial statements under ‘Related Party Transactions’. The financial

statements have been reviewed by the Audit Committee and approved by the Board of Directors.

b) Transactions falling under the category of interconnected transactions must be reviewed and approved

by the Board of Directors and must be in compliance with relevant SET regulations.

c) Supervision on use of internal information has been discussed under ‘Supervision on Insider Trading’

on page 48.

54


OTHER INFORMATION

7. Business Ethics

The Business Ethics was established by the Company for strict compliance by the management and

employees to ensure that they conduct their duties to the Company, interested parties, the public and society in

an honest, just and unprejudiced manner. The Company closely monitors compliance with the Business Ethics

and disciplinary actions are imposed against any violators.

8. Balance of Power for Non-Executive Directors

The Board of Directors comprises 11 directors:

a) 4 executive directors

b) 3 non-executive directors

c) 1 independent director was not member of the audit committee

d) 3 independent directors were members of the audit committee

The Company had 4 independent directors, equivalent to 36.36% of total number of directors

9. Aggregation or Segregation of Positions

The Chairman of the Board of Directors neither has any relationship with, nor is the same person as the

Managing Director, in order to ensure complete division of corporate governance duties and managerial duties.

10. Remuneration for Directors and the Management

a) Directors’ remuneration

Directors’ remuneration has been fixed in a clear and transparent manner by obtaining approval

from the meeting of shareholders.

b) Management’s remuneration

Management’s remuneration has been fixed in compliance with the principle and policy of the

Company with reference to its performance and performance of respective management.

c) Remuneration for directors and management in 2006

This has been discussed in ‘Remuneration of the Executives in 2006’ on page 46.

11. Board of Directors’ Meetings

The Board of Directors meets every 3 months and extra meetings are held depending on necessity.

The agenda of the meetings must be clearly set out prior to the meeting, including an agenda to

approve reports of the Audit Committee and financial statements of the Company. Thus the Company

arranged for the notice of meeting together with agendas for the meeting and other documents to be

delivered to the Board of Directors 7 days prior to the meeting so that the Board of Directors will have

time to examine the information. In 2006 the Board of Directors had total 8 ordinary meetings. The

follow is a summary of the Board of Directors’ Meeting attendance.

55


OTHER INFORMATION

Name Position Meeting attendance

1. Mr. Dhanin Chearavanont Honorary Chairman 1

2. Mr. Arsa Sarasin Chairman 8

3. Mrs. Suchada Ithijarukul Vice Chairman 8

4. Mr. Francisco Henrique Passos Fernandes Director 4

(resigned)

Mr. Dennis Casey* (new appointed) Director 3

5. Mr. Prasert Jarupanich Director 7

6. Mr. Ruurd Jacobus Faber Director 5

7. Mrs. Saowaluck Thithapant Director 8

8. Mr. Athaporn Khaimarn Independent Director and 8

Chairman of the Audit Committee

9. Mr. Chavalit Uttasart Independent Director and 8

Member of the Audit Committee

10. Mr. Thira Wipuchanin Independent Director and 8

Member of the Audit Committee

11. Mr. David Thomas Binnion Independent Director 7

Remark : * Appointed to replace the director who resigned during the year according to the resolution of

the Board of Directors’ Meeting No. 4/2006

As such, the minutes of all the meetings were recorded in writing certified by the Board of Directors

and sufficient for the Board of Directors or other related parties to examine.

12. Committees

The Board of Directors set a sub-committee to help manage the activities of the Company, e.g. an audit

committee that was made up of three independent directors which include Mr. Athaporn Khaimarn who

is the Chairman of the Audit Committee, Mr. Chavalit Uttasart and Mr. Thira Wipuchanin who are the

Members of the Audit Committee and senior division manager-internal audit who is the secretary

general of the audit committee respectively. Further details can be found under the heading Audit

Committee’s Report page 6 and under the heading Audit Committee at page 35. The management of

Internal Audit Department directly reports to the audit committee.

56


OTHER INFORMATION

13. Controlling System and Internal Audit

a) Controlling System and Internal Audit

The Company has given importance to the system of internal control both at the management level

and at the operations level. Therefore it has allocated duties and powers of the employees and

management in writing, these persons have the responsibility of control the use of assets of the

Company to yield the greatest benefits possible and to divide the duties of the employees from the

control and evaluation committee in order to obtain balance and fairness as each side will review

the other. The Company has internal control in relation to financial system as the Company has

arranged there to be a system of financial report to the management. Apart from this the Company

has an internal audit department to ensure that the main activities and behaviours in relation to

major finances of the Company is of quality moving in the planned direction.

b) Risk Management

The Company has given great importance to risk management. It has set and evaluated the risk of

the operation of the Company. The Company has its own self risk assessment questionnaires in all

areas concerned and has the management to respond to these questions. Subsequently, those

completed questionnaires were reviewed by our external auditor to ensure that these answering in

the questionnaires are documentary evident. In addition, it has set protection measures and has

arranged for risks to include risks to the operation of the Company as a protection measure to

ensure the stability of the Company.

14. Directors’ Reporting

A report of the Board of Directors’ Responsibilities for Financial Statements is set out on page 59.

15. Relations with Investors

The Company has given importance to the accurate, complete, transparent and thorough disclosure of

both general and financial information up to information which could have an impact on the market price

of the shares of the Company. It has disclosed such information to investors and related parties through

channels and other routes of the SET. Furthermore the Company has consented for the finance director

to have the duty of communication with institutional investors, shareholders, general analysts and

relevant government agencies. The Company has regularly organise the investor analyst meeting once

in a quarter after the disclosure of reviewed or audited financial statements to SET.

57


OTHER INFORMATION

6. Auditors’ Remuneration in 2006

Audit fee

The Company and its subsidiaries paid audit fee to the audit firm; namely, PricewaterhouseCoopers ABAS

Ltd. for the fiscal year 2006 as the following details.

Remark : * Excluding the remuneration in the case of the auditors attending the observation on the stock

count during the year at each branch of the Company and its subsidiaries of Baht 451,042.

Non-audit fee

The Company paid non-audit fee i.e. risk assessment to the audit firm; namely, PricewaterhouseCoopers

ABAS Ltd. for the fiscal year 2006 as the following details.

Company Non Audit Service Service Providers Paid Contingent

(Baht) Expenses

(Baht)

Siam Makro Plc. Risk Assessment Pricewaterhouse 190,000 -

Coopers ABAS Ltd.

Total 190,000 -

Company Audit Firm Audit Fee (Baht)

Siam Makro Plc. PricewaterhouseCoopers ABAS Ltd. 3,502,703*

Subsidiary Companies PricewaterhouseCoopers ABAS Ltd. 1,634,545*

58


REPORT OF THE BOARD OF DIRECTORS’ RESPONSIBILITIES FOR FINANCIAL STATEMENTS

The Board of Directors of Siam Makro Public Company Limited has provided the financial statements showing

the Company’s financial status and business operation result for the year 2006 under the Public Company Act

B.E. 2535 (A.D. 1992) and Rules and Regulations of the Stock Exchange of Thailand. The Board of Directors is

responsible for the consolidated and company financial statements presented in this annual report. The Board of

Directors confirms that the aforementioned financial statements are in accordance with Thai Generally Accepted

Accounting Principles, using appropriate accounting policy consistently employed by the Company as well as

applying careful judgement and best estimation. Important information is adequately disclosed in the notes to

financial statements.

The Board of Directors has provided and maintained an efficient internal control system to ensure that accounting

records are accurate, complete and adequate to protect its assets and uncover weaknesses in order to prevent

fraud or materially irregular operations.

The Board of Directors has appointed an Audit Committee, which consists of Non-Executive Directors

responsible for the quality of financial statements, internal control system and law compliance, whose comments

on these issues are readily included in the Audit Committee Report in this annual report.

The Board of Directors is of opinion that the Company’s overall internal control system has functioned up to the

satisfactory level and rendered credibility and reliability to the consolidated and company financial statements for

the year ended December 31, 2006.

Mr. Arsa Sarasin Mrs. Suchada Ithijarukul

Chairman President

59


Consolidated and Company

Financial Statements

31 December 2006


60


To the Shareholders of Siam Makro Public Company Limited

I have audited the accompanying consolidated and Company balance sheets as at 31 December 2006 and 2005,

and the related consolidated and Company statements of income, changes in shareholders’ equity and cash

flows for the years then ended of Siam Makro Public Company Limited and its subsidiaries, and of Siam Makro

Public Company Limited, respectively. The Company’s management is responsible for the correctness and

completeness of information in these financial statements. 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 consolidated and Company financial statements referred to above present fairly, in all material

respects, the consolidated and Company financial positions as at 31 December 2006 and 2005, and the

consolidated and Company results of operations, and cash flows for the years then ended of Siam Makro Public

Company Limited and its subsidiaries, and of Siam Makro Public Company Limited, respectively, in accordance

with generally accepted accounting principles.

SOMCHAI JINNOVART

Certified Public Accountant

(Thailand) No. 3271

PricewaterhouseCoopers ABAS Limited

Bangkok

22 February 2007

AUDITOR’S REPORT

61


Consolidated Company

2006 2005 2006 2005

Notes Baht Baht Baht Baht

ASSETS

Current Assets

Cash and cash equivalents 4 4,871,396,725 4,038,633,732 4,739,909,088 3,885,847,009

Short-term investments 5 - 324,858,920 - 324,858,920

Trade accounts receivable, net 6 207,914,206 180,831,684 33,869,015 30,781,001

Advances and short-term loans

to related parties 20 158,513 471,845 107,182,702 125,432,645

Inventories, net 7 4,200,010,279 4,048,131,694 3,888,143,306 3,750,712,121

Purchase discounts receivable 350,851,616 342,425,409 337,181,375 328,146,293

Other current assets, net 289,207,188 591,686,950 268,982,663 573,787,546

Total Current Assets 9,919,538,527 9,527,040,234 9,375,268,149 9,019,565,535

Non-Current Assets

Investments - equity method 8 - - 2,951,332,123 2,718,936,887

Long-term loan to a related party 20 - - 174,000,000 500,000,000

Property, plant and equipment, net 9 8,970,701,354 9,044,569,269 6,029,917,231 6,075,903,483

Land held for sale

or future development, net 10 135,500,000 143,663,688 135,500,000 -

Goodwill, net 11 177,230,554 187,076,696 - -

Other intangible assets, net 12 39,216,079 18,613,016 29,868,562 15,501,382

Deposits 20 40,405,581 46,983,082 155,321,835 164,009,983

Total Non-Current Assets 9,363,053,568 9,440,905,751 9,475,939,751 9,474,351,735

Total Assets 19,282,592,095 18,967,945,985 18,851,207,900 18,493,917,270

The notes to the consolidated and Company financial statements form an integral part of these financial statements.

BALANCE SHEETSAs at 31 December 2006 and 2005


62



2006 2005 2006 2005


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Short-term loans from financial institutions 64,549,528 53,514,433 � �

Trade accounts payable

Third parties 9,272,349,343 8,991,430,707 8,972,831,238 8,671,531,776

Related parties 20 - 76,807,650 11,631,776 96,588,853

Total trade accounts payable 9,272,349,343 9,068,238,357 8,984,463,014 8,768,120,629

Advances from related parties 20 68,691,590 69,032,145 65,184,205 65,091,308

Other current liabilities

Non-trade accounts payable 335,329,853 250,511,208 317,148,832 221,460,950

Income tax payable 229,517,118 217,376,748 212,480,431 171,235,491

Accrued expenses 341,750,559 280,582,070 320,919,899 260,049,107

VAT payable 37,901,269 1,767,630 32,719,050 -

Others 71,856,592 67,727,048 65,679,054 59,031,280

Total Current Liabilities 10,421,945,852 10,008,749,639 9,998,594,485 9,544,988,765

Non-Current Liabilities

Provision for employee benefits 75,861,900 73,498,206 74,957,245 72,561,667

Other liabilities 20 42,484,996 46,545,318 35,356,823 37,214,016

Total Non-Current Liabilities 118,346,896 120,043,524 110,314,068 109,775,683

Total Liabilities 10,540,292,748 10,128,793,163 10,108,908,553 9,654,764,448

Shareholders’ Equity

Share capital 13

Authorised share capital 2,400,000,000 2,400,000,000 2,400,000,000 2,400,000,000

Issued and paid-up share capital 2,400,000,000 2,400,000,000 2,400,000,000 2,400,000,000

Premium on share capital 3,290,152,068 3,290,152,068 3,290,152,068 3,290,152,068

Retained earnings

Appropriated Legal reserve 14 240,000,000 240,000,000 240,000,000 240,000,000

Unappropriated 15 2,812,147,279 2,909,000,754 2,812,147,279 2,909,000,754

Total Shareholders’ Equity 8,742,299,347 8,839,152,822 8,742,299,347 8,839,152,822

Total Liabilities and Shareholders’ Equity 19,282,592,095 18,967,945,985 18,851,207,900 18,493,917,270


BALANCE SHEETSAs at 31 December 2006 and 2005


63



2006 2005 2006 2005


Revenues

Sales 20 55,530,564,647 50,418,090,404 53,284,826,112 48,393,171,448

Service income 20 1,478,806,577 1,502,667,620 1,409,520,465 1,435,256,833

Other income 20 397,425,904 373,892,595 406,401,569 379,965,982

Share of net profit of investments

- equity method 8 - - 272,395,236 247,248,656

Total revenues 57,406,797,128 52,294,650,619 55,373,143,382 50,455,642,919

Expenses

Cost of sales 20 52,208,931,344 47,396,030,935 50,385,643,358 45,777,646,116

Selling and administrative expenses 16, 20 3,477,896,847 3,280,038,512 3,327,211,653 3,173,464,769

Directors’ remuneration 8,040,000 6,200,000 8,040,000 6,200,000

Total expenses 55,694,868,191 50,682,269,447 53,720,895,011 48,957,310,885

Profit before interest expense and income tax 1,711,928,937 1,612,381,172 1,652,248,371 1,498,332,034

Interest expense (3,320,962) (2,661,570) - -

Income tax (485,461,450) (473,253,642) (429,101,846) (361,866,074)

Net profit for the year 1,223,146,525 1,136,465,960 1,223,146,525 1,136,465,960

Basic earnings per share 17

Net profit for the year 5.10 4.74 5.10 4.74


STATEMENTS OF INCOMEFor the years ended 31 December 2006 and 2005


64


STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYFor the years ended 31 December 2006 and 2005


Consolidated

Issued

and paid-up Premium on Retained

share capital share capital earnings Total


2005

Opening balance 2,400,000,000 3,290,152,068 3,632,534,794 9,322,686,862

Net profit for the year - - 1,136,465,960 1,136,465,960

Dividends 18 - - (1,620,000,000) (1,620,000,000)

Closing balance 2,400,000,000 3,290,152,068 3,149,000,754 8,839,152,822

2006

Opening balance 2,400,000,000 3,290,152,068 3,149,000,754 8,839,152,822


Dividends 18 - - (1,320,000,000) (1,320,000,000)

Closing balance 2,400,000,000 3,290,152,068 3,052,147,279 8,742,299,347

Company

Issued

and paid-up Premium on Retained

share capital share capital earnings Total

Baht Baht Baht Baht

2005

Opening balance 2,400,000,000 3,290,152,068 3,632,534,794 9,322,686,862


Dividends 18 - - (1,620,000,000) (1,620,000,000)

Closing balance 2,400,000,000 3,290,152,068 3,149,000,754 8,839,152,822

2006

Opening balance 2,400,000,000 3,290,152,068 3,149,000,754 8,839,152,822


Dividends 18 - - (1,320,000,000) (1,320,000,000)

Closing balance 2,400,000,000 3,290,152,068 3,052,147,279 8,742,299,347


65


STATEMENTS OF CASH FLOWSFor the years ended 31 December 2006 and 2005



2006 2005 2006 2005


Cash flows from operating activities

Net profit 1,223,146,525 1,136,465,960 1,223,146,525 1,136,465,960

Adjustments for:

Depreciation and amortisation 9, 11, 12 633,320,584 642,511,503 581,633,752 592,263,323

Reverse for loss on disposal of

obsolete plant and equipment - (2,000,000) - (2,000,000)

Allowance for impairment relating to property 10 8,163,688 - - -

(Gain) loss on disposal of property,

plant and equipment 1,833,440 (898,734) (1,289,981) (178,156)

Share of net profit of investments

- equity method 8 - - (272,395,236) (247,248,656)

Allowance (reverse) for obsolete

and shrinkage inventories 7 24,631,252 (60,019,439) 16,179,540 (63,226,512)

Provision for employee benefits 10,889,210 7,367,861 10,422,396 7,621,865

Others (11,887,833) 9,990,442 (13,735,119) 5,577,766

Changes in operating assets and liabilities

Trade accounts receivable (28,679,808) (128,101,314) (3,088,014) (446,432)

Advances to related parties 313,332 (467,460) 249,943 (1,015,812)

Inventories (176,509,837) (85,168,684) (153,610,725) 63,223,144

Purchase discounts receivable (8,426,207) (30,045,460) (9,035,082) (25,320,282)

Other current assets 315,964,881 (73,389,284) 318,540,002 (66,968,015)

Trade accounts payable - third parties 280,918,636 864,089,361 301,299,462 762,474,035

Trade accounts payable - related parties (76,807,650) (6,533,944) (84,957,077) 13,247,259

Advances from related parties (340,555) 6,218,292 92,897 5,299,177

Non-trade accounts payable 5,793,236 (42,582,926) 9,681,415 (46,249,874)

Income tax payable 12,140,370 (29,820,712) 41,244,940 (34,351,871)

Accrued expenses 61,168,489 49,233,915 60,870,792 39,522,278

VAT payable 36,133,639 183,633 32,719,050 -

Other current liabilities 4,129,544 (16,921,263) 6,647,774 (17,294,789)

Provision for employee benefits (8,525,516) (9,689,869) (8,026,818) (7,901,765)

Net cash receipts from operating activities 2,307,369,420 2,230,421,878 2,056,590,436 2,113,492,643


66


STATEMENTS OF CASH FLOWS (CONTINUED)For the years ended 31 December 2006 and 2005



2006 2005 2006 2005


Cash flows from investing activities

Net (purchase) disposals of short-term investments 5 324,858,920 (275,418,882) 324,858,920 (275,418,882)

Purchase of investment in a subsidiary 8 - (196,922,838) - (234,764,379)

Purchase of property, plant and equipment (469,880,742) (619,482,050) (445,140,580) (549,694,919)

Purchase of other intangible assets (27,164,622) (17,210,542) (20,781,096) (14,476,677)

Purchase of land held for sale

or future development - - (135,500,000) -

Disposals of property, plant and equipment 4,027,743 10,331,272 3,203,444 8,682,786

Dividends received from a related party 8 - - 40,000,000 40,000,000

Net repayments short-term loans

from related parties 20 - - 18,000,000 98,500,000

Net repayments long-term loan

from a related party 20 - - 326,000,000 -

Net deposits received 2,517,179 23,503,202 6,830,955 29,169,739

Net cash receipts (payments) in investing activities (165,641,522) (1,075,199,838) 117,471,643 (898,002,332)

Cash flows from financing activities

Short-term loans from financial institutions 11,035,095 53,514,433 - -

Dividends paid 18 (1,320,000,000) (1,620,000,000) (1,320,000,000) (1,620,000,000)

Net cash payments in financing activities (1,308,964,905) (1,566,485,567) (1,320,000,000) (1,620,000,000)

Net increase (decrease) in cash

and cash equivalents 832,762,993 (411,263,527) 854,062,079 (404,509,689)

Cash and cash equivalents, opening balance 4,038,633,732 4,449,897,259 3,885,847,009 4,290,356,698

Cash and cash equivalents, closing balance 4,871,396,725 4,038,633,732 4,739,909,088 3,885,847,009

Supplementary information for cash flows

Interest paid during the year 3,312,774 2,801,735 - -

Income tax paid during the year 473,321,080 510,196,020 387,856,906 396,217,945

Non cash transactions

Investing activities:

Purchase of property, plant and equipment unpaid 181,867,436 105,994,577 175,863,939 90,923,679

Purchase of other intangible assets unpaid 5,486,618 2,334,068 3,192,236 2,126,029


67


NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTSFor the years ended 31 December 2006 and 2005


1 General information

Siam Makro Public Company Limited was incorporated in Thailand on 10 May 1988, changed its status to a

public company on 11 February 1994 and was subsequently listed on the Stock Exchange of Thailand on

11 August 1994.

The Company’s principal business is the operation of Cash and Carry Trade Centres throughout Thailand,

under the name “Makro”, selling food and non-food products to registered members, predominantly small and

medium size businesses, retailers, caterers, professional and service sectors and institutions.

The Company has three subsidiaries - Makro Office Centre Company Limited, Siam Food Services Limited

and Makro Properties Limited which operate businesses as follows: Makro Office Centre Company Limited is

a specialised retailing operation, a category killer supplying office supplies, office automation products and

office services such as copying and printing, on a self service, mail order and delivery basis, Siam Food

Services Limited is an importing and trading frozen foods company and providing services such as freight,

delivery, rental and storage and Makro Properties Limited is a land investment company, purchasing the land

and lease them to Makro stores.

The registered office of the Company is located at 3498 2nd Floor, Lard Prao Road, Klongchan, Bangkapi,

Bangkok 10240.

The consolidated and Company financial statements have been approved for issue by the board of directors

on 22 February 2007.

2 Accounting policies

The principal accounting policies adopted in the preparation of these consolidated and Company financial

statements, which have been applied consistently, are set out below.

2.1 Basis of preparation

The consolidated and Company financial statements have been prepared in accordance with Thai

generally accepted accounting principles under the Accounting Act B.E. 2543, being those Thai

Accounting Standards issued under the Account Profession Act B.E. 2547, and the financial reporting

requirements of the Securities and Exchange Commission.

68




2 Accounting policies (Cont’d)

2.1 Basis of preparation (Cont’d)

The consolidated and Company financial statements have been prepared under the historical cost

convention.

An English version of the consolidated and Company financial statements has been prepared from the

statutory financial statements that are in the Thai language. In the event of a conflict or a difference in

interpretation between the two languages, the Thai language statutory financial statements shall prevail.

The preparation of financial statements in conformity with Thai generally accepted accounting principles

requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the

reported amounts of revenues and expenses during the reported periods. Although these estimates are

based on management’s best knowledge of current events and actions, actual results may differ from

those estimates.

Where necessary, comparative figures have been adjusted to conform with changes in presentation in

the current year.

2.2 Investments in subsidiaries

Investments in subsidiaries are those entities in which the Group has an interest of more than one half of

the voting rights or otherwise has power to exercise control over the operations. Subsidiaries are

consolidated from the date on which control is transferred to the Group and are no longer consolidated

from the date that control ceases. All intercompany transactions and balances between group companies

are eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure

consistency with the policies adopted by the Group.

Investments in subsidiaries in the Company financial statements are presented by the equity method of

accounting.

2.3 Foreign currency transactions

Foreign currency transactions in the Group are accounted for at the exchange rates prevailing at the date

of the transactions. The outstanding monetary assets and liabilities denominated in foreign currencies

69





2.3 Foreign currency transactions (Cont’d)

are translated at the exchange rate ruling at the balance sheet date. Gains and losses resulting from the

settlement of such transactions and from the translation of monetary assets and liabilities denominated in

foreign currencies are recognised in the statements of income. Such balances including balances

hedged by forward foreign exchange contracts are translated at year-end exchange rates.

2.4 Financial instruments

Financial instruments carried on the balance sheet include cash and cash equivalents, short-term

investments, trade receivables and payables, amounts due from/to related parties, and loans to related

parties. The particular recognition methods adopted are disclosed in the individual policy statements

associated with each item.

Foreign currency forward contracts establish the exchange rate at which the Group will pay foreign

currency amounts on a predetermined future date. Where the Group enters into significant forward

contracts, the foreign currency amount receivable under these contracts are translated at the year end

exchange rate. Unrealised gains or losses that result from the translation are recognised in the income

statements. Any premium or discount equal to the difference between the spot exchange rate and the

forward rate arising at the inception of the contract is amortised over the life of the contract.

2.5 Cash and cash equivalents

Cash and cash equivalents are carried on the balance sheet at cost. Cash and cash equivalents

comprise cash in hand, deposits with banks and other short-term highly liquid investments with a maturity

of three months or less when purchased.

2.6 Trade accounts receivable

Trade accounts receivable are carried at original invoice amount less allowance for doubtful receivables

based on a review of all outstanding amounts at the year end. The amount of the allowance is the

difference between the carrying amount of the receivable and the amount expected to be collectible. Bad

debts are written-off during the year in which they are identified and recognised in the income statements.

70





2.7 Inventories

Inventories are stated at the lower of cost or net realisable value. Cost is determined by the latest

purchase price which approximates to cost determined by the first-in first-out basis. The cost of purchase

comprises both the purchase price and costs directly attributable to the acquisition of the inventory, such

as import duties and transportation charges, less all attributable discounts, allowances or rebates. Net

realisable value is the estimate of the selling price in the ordinary course of business, less the costs of

completion and selling expenses. Allowance is made, where necessary, for obsolete, slow-moving and

shrinkage inventories.

2.8 Investments

The Group classifies its investments in debt securities as held-to-maturity securities. Those investments

with fixed maturity that the management has the intent and ability to hold to maturity are included in

current assets when the maturity date is less than 12 months from balance sheet date and included in

non-current assets when the maturity date is longer than 12 months.

Investments in debt securities which are classified as held-to-maturity securities are carried at amortised cost.

A test for impairment is carried out when there is a factor indicating that an investment might be impaired.

If the carrying value of the investment is higher than its recoverable amount, the impairment loss is

charged to the income statements.

On disposal of an investment, the difference between the net disposal proceeds and the carrying amount

is charged to the income statements.

2.9 Property, plant and equipment

All property, plant and equipment are initially recorded at cost, and are stated at cost less accumulated

depreciation.

Depreciation is calculated on the straight-line method to write-off the cost of each asset to their residual

values over their estimated useful lives which range from 3 - 20 years. Land is not depreciated as it is

considered to have an indefinite life.

71





2.9 Property, plant and equipment (Cont’d)

Leasehold rights are amortised by the straight-line method over the period of agreements, which range

from 25 - 30 years.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written

down immediately to its recoverable amount. Estimated recoverable amount is the higher of the

anticipated discounted cash flows from the continuing use of the asset and the amount obtainable from

the sale of the asset less any costs of disposal.

Gains and losses on disposals of property, plant and equipment are determined by reference to their

carrying amount and are included in operating profit.

Expenditure on additions, renewals and betterment, which result in a substantial increase in the current

replacement value of an asset is capitalised. Repair and maintenance costs are recognised as an

expense when incurred.

2.10 Land held for sale or future development

Land held for sale or future development is recorded at cost less allowance for impairment of assets.

2.11 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of

the net assets of the acquired subsidiary undertaking at the date of acquisition. Goodwill on acquisition

of subsidiary is reported in the consolidated balance sheet as an intangible asset. Goodwill is amortised

using the straight-line method over its estimated useful life but not over 20 years.

2.12 Leases - where a Group company is the lessee

Leases not transferring a significant portion of the risks and rewards of ownership to the lessee are

classified as operating leases. Payments made under operating leases (net of any incentives received

from the lessor) are charged to the statements of income on a straight-line basis over the period of the

lease.

72





2.12 Leases - where a Group company is the lessee (Cont’d)

When an operating lease is terminated before the lease period has expired, any payment required to be made

to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

2.13 Other intangible assets

Other intangible assets represent proprietary software for internal use. The cost includes cost of software

development and software license fee. Other intangible assets are amortised using the straight-line

method over their estimated useful lives, which range from 3 - 6 years.

2.14 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of

past events, it is probable that an outflow of resources will be required to settle the obligation, and a

reliable estimate of the amount of the obligation can be made.

2.15 Employee benefits

Provision for employee benefits

i) Pension fund benefit

The Group operates a pension scheme for employees who joined the Company before the 1st of

January 2003 and choose to retain the benefits of the original scheme. Employees, upon resignation

or retirement from the Company after having completed 3 years of service, shall be entitled to receive

cash payment equivalent to their prevailing salary multiplied by the number of years of service, but not

exceeding the equivalent of 10 months of final salary.

ii) Severance benefit

Under Labor Laws applicable in Thailand and Group’s employment policy, all employees completing

120 days of service are entitled to severance pay on termination or retrenchment without cause or

upon retirement age of 60. The severance pay will be at the rate according to number of years of service

as stipulated in the Labor Law which is currently at a maximum rate of 300 days of ending salary.

73





2.15 Employee benefits (Cont’d)

Provision for employee benefits (Cont’d)

iii) Additional benefit related to provident fund

The Group operates an employee benefit scheme under which employees who are members of the

Group’s provident fund, being a defined contribution plan, for at least 9 years are entitled to receive

additional contribution from the Group on their resignation or retirement from employment with the

Group. Employees, who are member of the provident fund for at least 9 years, shall be entitled to

receive an additional 50% of the contributions made by the Group on their behalf.

The Group recognises liabilities in respect of these three defined benefit plans at the present value

of the defined benefit obligations at the balance sheet date adjusted for actuarial gains/losses. These

defined benefit obligations are calculated by independent actuaries using the projected unit credit

method. The present value of the defined benefit obligations is determined by the estimated future

cash outflows using interest rates of government bonds which have terms to maturity approximating

the terms of the related liability.

Actuarial gains and losses arising from experience adjustments (the effects of differences between the

previous actuarial assumptions and what has actually occurred), changes in actuarial assumptions

and amendments to employee benefits plans are charged or credited to income over the average

remaining service lives of the related employees.

Provident fund

The Group operates a provident fund, being a defined contribution plan, the assets for which are held in a

separate trust fund. The provident fund is funded by payments from employees and by the Group. The

Group’s contributions to the provident fund are charged to the income statements in the years to which

they relate.

2.16 Revenue recognition

Sales are recognised on the delivery of products and customer acceptance, net of discounts. For

consolidated financial statements, intra-group sales are eliminated.

74





2.16 Revenue recognition (Cont’d)

Sales of services are recognised in the accounting period in which the services are rendered.

2.17 Segment reporting

The segmental reporting has been prepared based on the Company’s method of internal reporting, which

desegregates its business by service or product.

2.18 Earnings per share

Basic consolidated earnings per share and Company earnings per share are calculated by dividing the

consolidated net earnings attributable to shareholders by the weighted average number of ordinary

shares in issue during the year.

2.19 Dividends

Dividends are payable when declared by the board of directors and approved by the shareholders.

2.20 Income taxes

The Group calculates income taxes according to the Revenue Code and records them on accrual basis.

The Group does not recognise income taxes payable or receivable in future periods in respect of

temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in

the financial statements.

3 Amendment to publish standard effective for annual period beginning on 1 January 2007

TAS 44 (amendment 2006) - Consolidated Financial Staments and Accounting for Investment in Subsidiaries

and TAS 45 (amendment 2006) - Accountings for Investment in Associates, are mandatory for the Group’s

accounting period beginning on or after 1 January 2007. This amendment requires for investments in

subsidiaries to be accounted for at cost (previously equity method) in the separate financial statements.

Under the cost basis, dividend income is recognised as income in the profit and loss accounts. The Group will

adopt this new basis from 1 January 2007.

75




4 Cash and cash equivalents


2006 2005 2006 2005

Baht Baht Baht Baht

Cash in hand 677,103,753 465,887,332 672,362,853 456,309,923

Deposits held at call with banks 1,003,344,594 1,438,149,281 886,597,857 1,294,939,967

Fixed deposits 205,000,000 - 205,000,000 -

Short-term debenture 699,724,419 1,055,133,085 699,724,419 1,055,133,085

Promissory notes 10,000,000 100,000,000 - 100,000,000

Treasury bills 2,276,223,959 979,464,034 2,276,223,959 979,464,034

4,871,396,725 4,038,633,732 4,739,909,088 3,885,847,009

The weighted average effective interest rates of deposits held at call with banks was 0.32% - 4.25% per

annum (2005 : 0.34% - 3.75% per annum).

Investments in debt securities represent fixed deposits, short-term debenture, promissory notes and treasury

bills having weighted average effective interest rates of 2.80% - 5.125% per annum (2005 : 1.25% - 3.95%

per annum), having a maturity of three months or less when purchased.

During the year, other income includes interest income from investments in debt securities as follows:


2006 2005 2006 2005

Million Baht Million Baht Million Baht Million Baht

Investments in debt securities

Interest income 94.1 62.6 93.8 61.8

76




5 Short-term investments


2006 2005 2006 2005

Baht Baht Baht Baht

Opening net book value 324,858,920 49,440,038 324,858,920 49,440,038

Additions - 324,858,920 - 324,858,920

Disposals (324,858,920) (49,440,038) (324,858,920) (49,440,038)

Closing net book value - 324,858,920 - 324,858,920

As at 31 December 2005, short-term investments represent investments in bill of exchange and promissory

notes bearing interest rates at 3.60% - 3.75% per annum.

6 Trade accounts receivable, net


2006 2005 2006 2005

Baht Baht Baht Baht

Gross trade accounts receivable 215,454,384 186,774,576 33,869,015 30,781,001

Less allowance for doubtful accounts (7,540,178) (5,942,892) - -

Trade accounts receivable, net 207,914,206 180,831,684 33,869,015 30,781,001

As at 31 December 2006, the outstanding balances of trade accounts receivable aged longer

than 91 days comprise Baht 21,718,165 (2005 : Baht 7,345,913) in the consolidated financial statements

and there are no outstanding balances of trade accounts receivable aged longer than 91 days in the

Company financial statements in 2006 and 2005.

7 Inventories, net


2006 2005 2006 2005

Baht Baht Baht Baht

Finished goods 4,284,124,554 4,095,233,190 3,976,748,950 3,823,255,360

Goods-in-transit 21,790,284 34,171,811 630,585 513,450

4,305,914,838 4,129,405,001 3,977,379,535 3,823,768,810

Less allowance for obsolete

and shrinkage inventories (105,904,559) (81,273,307) (89,236,229) (73,056,689)

Inventories, net 4,200,010,279 4,048,131,694 3,888,143,306 3,750,712,121

77




8 Investments - equity method


2006 2005 2006 2005

Baht Baht Baht Baht

Opening net book value - - 2,718,936,887 2,276,923,852

Acquisition of a subsidiary - - - 234,764,379

Share of net profit of subsidiaries - - 272,395,236 247,248,656

Dividends received - - (40,000,000) (40,000,000)

Closing net book value - - 2,951,332,123 2,718,936,887

Company

31 December 2006

Accumulated

Paid-up % share of profit

Subsidiaries Business Relationship Capital Ownership Cost in subsidiaries Equity Dividend

Baht’000 Interest Baht’000 Baht’000 Baht’000 Baht’000

Makro Properties Land investment & Being shareholder 700,000 99.99 710,641 1,745,183 2,455,824 -

Limited property leasing and under the same

management

Makro Office Retail business of Being shareholder 200,000 99.99 200,000 39,141 239,141 40,000

Centre Company office supplies, office and management

Limited equipment, office participation

furniture and business

service center

Siam Food Importing and Being shareholder 10,000 99.99 234,764 21,603 256,367 -

Services Limited trading frozen foods, and management

provide services such participation

as freight, delivery,

rental and storage

1,145,405 1,805,927 2,951,332 40,000

78




8 Investments - equity method (Cont’d)

Company

31 December 2005

Accumulated

Paid-up % share of profit

Subsidiaries Business Relationship Capital Ownership Cost in subsidiaries Equity Dividend

Baht’000 Interest Baht’000 Baht’000 Baht’000 Baht’000

Makro Properties Land investment & Being shareholder 700,000 99.99 710,641 1,505,834 2,216,475 -

Limited property leasing and under the same

management

Makro Office Retail business of Being shareholder 200,000 99.99 200,000 50,255 250,255 40,000

Centre Company office supplies, office and management

Limited equipment, office participation

furniture and business

service center

Siam Food Importing and Being shareholder 10,000 99.99 234,764 17,443 252,207 -

Services Limited trading frozen foods, and management

provide services such participation

as freight, delivery,

rental and storage

1,145,405 1,573,532 2,718,937 40,000

79




9 Property, plant and equipment, net

Consolidated

Land & Equipment & Construction

buildings vehicle in progress Total

Baht Baht Baht Baht

At 31 December 2005

Cost 9,786,454,297 5,377,605,484 53,240,217 15,217,299,998

Less accumulated depreciation (2,161,969,936) (4,010,760,793) - (6,172,730,729)

Net book value 7,624,484,361 1,366,844,691 53,240,217 9,044,569,269

For the year ended 31 December 2006

Opening net book value 7,624,484,361 1,366,844,691 53,240,217 9,044,569,269

Additions (Transfers) 124,534,238 221,851,474 199,367,889 545,753,601

Disposals (1,855,677) (4,005,506) - (5,861,183)

Depreciation charge (271,751,487) (342,008,846) - (613,760,333)

Closing net book value 7,475,411,435 1,242,681,813 252,608,106 8,970,701,354

At 31 December 2006

Cost 9,894,119,383 5,481,148,752 252,608,106 15,627,876,241


Net book value 7,475,411,435 1,242,681,813 252,608,106 8,970,701,354

Company

Land & Equipment & Construction

buildings vehicle in progress Total

Baht Baht Baht Baht

At 31 December 2005

Cost 6,809,620,776 5,086,533,643 49,701,175 11,945,855,594


Net book value 4,735,684,980 1,290,517,328 49,701,175 6,075,903,483


Opening net book value 4,735,684,980 1,290,517,328 49,701,175 6,075,903,483

Additions (Transfers) 121,547,945 208,437,698 200,095,197 530,080,840

Disposals (996,629) (916,834) - (1,913,463)

Depreciation charge (255,409,585) (318,744,044) - (574,153,629)

Closing net book value 4,600,826,711 1,179,294,148 249,796,372 6,029,917,231

At 31 December 2006

Cost 6,929,014,876 5,180,562,697 249,796,372 12,359,373,945


Net book value 4,600,826,711 1,179,294,148 249,796,372 6,029,917,231

80




10 Land held for sale or future development, net

Land held for sale or future development, net represents land amounting to Baht 135,500,000 net of the

impairment provision as follows:


2006 2005 2006 2005

Baht Baht Baht Baht

Land held for sale or

future development 308,572,549 308,572,549 135,500,000 -

Less allowance

for impairment loss (173,072,549) (164,908,861) - -

Land held for sale or

future development, net 135,500,000 143,663,688 135,500,000 -

11 Goodwill, net

Consolidated

Baht

As at 31 December 2005

Cost 196,922,838

Less accumulated amortisation (9,846,142)

Net book value 187,076,696

Transactions during the year ended 31 December 2006

Opening net book value 187,076,696

Amortisation (9,846,142)

Closing net book value 177,230,554


Cost 196,922,838

Less accumulated amortisation (19,692,284)

Net book value 177,230,554

81




12 Other intangible assets, net

Consolidated

Computer Construction

software in progress Total

Baht Baht Baht


Cost 39,986,135 - 39,986,135

Less accumulated amortisation (21,373,119) - (21,373,119)

Net book value 18,613,016 - 18,613,016


Opening net book value 18,613,016 - 18,613,016

Additions 10,149,737 20,167,435 30,317,172

Amortisation (9,714,109) - (9,714,109)

Closing net book value 19,048,644 20,167,435 39,216,079


Cost 50,135,872 20,167,435 70,303,307


Net book value 19,048,644 20,167,435 39,216,079

Company

Computer Construction

software in progress Total

Baht Baht Baht


Cost 28,525,203 - 28,525,203


Net book value 15,501,382 - 15,501,382


Opening net book value 15,501,382 - 15,501,382

Additions 3,871,552 17,975,751 21,847,303

Amortisation (7,480,123) - (7,480,123)

Closing net book value 11,892,811 17,975,751 29,868,562


Cost 32,396,755 17,975,751 50,372,506


Net book value 11,892,811 17,975,751 29,868,562

82




13 Share capital and premium on share capital

As at 31 December 2006 and 2005, the total authorised number of ordinary shares is 240,000,000 shares

with a par value of Baht 10 per share. All issued shares are fully paid-up.

Number of shares Ordinary Shares Share Premium Total

Baht Baht Baht

At 31 December 2004 240,000,000 2,400,000,000 3,290,152,068 5,690,152,068

Issue of shares - - - -

At 31 December 2005 240,000,000 2,400,000,000 3,290,152,068 5,690,152,068

Issue of shares - - - -

At 31 December 2006 240,000,000 2,400,000,000 3,290,152,068 5,690,152,068

14 Legal reserve


2006 2005 2006 2005

Baht Baht Baht Baht

Opening balance 240,000,000 240,000,000 240,000,000 240,000,000

Appropriation during the year - - - -

Closing balance 240,000,000 240,000,000 240,000,000 240,000,000

Under the Public Companies Act, the Company is required to set aside as a statutory reserve at least 5%

of its net profit after accumulated deficit brought forward (if any) until the reserve is not less than 10%

of the registered capital. The reserve is non-distributable.

15 Unappropriated retained earnings

As at 31 December 2006 and 2005, the unappropriated retained earnings of the Company financial

statement are classified as follows:

Company

2006 2005

Baht’000 Baht’000

Unappropriated retained earnings at cost method 1,006,220 1,335,469

Accumulated share of profit from investments in subsidiaries 1,805,927 1,573,532

Unappropriated retained earnings at equity method 2,812,147 2,909,001

83




16 Selling and administrative expenses

The following expenditure items, classified by nature, have been included in selling and administrative

expenses.


Notes 2006 2005 2006 2005

Depreciation on property, plant

and equipment (Baht’000) 9 613,760 626,349 574,154 587,613

Amortisation of other intangible

assets (Baht’000) 12 9,714 6,315 7,480 4,650

Amortisation of

goodwill (Baht’000) 11 9,846 9,846 - -

Land rental (Baht’000) 44,241 43,081 337,545 335,611

Employee costs (Baht’000) 895,777 808,555 798,714 719,157

Number of employees

at the end of the year 3,541 3,173 3,109 2,836

17 Basic earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted

average number of ordinary shares in issue during the year, that is 240,000,000 shares in the year 2006

(2005 : 240,000,000 shares). There are no dilutive instruments in issue.

Consolidated and

Company

2006 2005

Net profit (Baht) 1,223,146,525 1,136,465,960

Weighted average number of ordinary shares (shares) 240,000,000 240,000,000

Basic earnings per share (Baht) 5.10 4.74

84




18 Dividends

A 2006 interim dividend of Baht 1.50 per share amounting to a total of Baht 360 million was approved at the

Board of Directors’ meeting on 9 August 2006 and fully paid in the third quarter of 2006.

A dividend in respect of 2005 of Baht 4.00 per share amounting to a total of Baht 960 million was approved at

the annual shareholders’ meeting on 27 April 2006 and fully paid in the second quarter of 2006.

A 2005 interim dividend of Baht 5.00 per share amounting to a total of Baht 1,200 million was approved at the

Extraordinary shareholders’ meeting on 26 October 2005 and fully paid in the fourth quarter of 2005.

A dividend in respect of 2004 of Baht 1.75 per share amounting to a total of Baht 420 million was approved at

the annual shareholders’ meeting on 25 April 2005 and fully paid in the second quarter of 2005.

19 Contingencies and commitments

As at 31 December 2006 and 2005, the Company and its subsidiaries have contingent liabilities in respect of

bank and other guarantees and other matters arising in the ordinary course of business from which it is

anticipated that no material liabilities will arise. In the ordinary course of business, the Company and its

subsidiaries have provided guarantees to third parties as follows:

Bank guarantees

As at 31 December 2006 and 2005, banks have provided guarantees on behalf of the Company and its

subsidiaries, primarily in respect of electricity as follows:


2006 2005 2006 2005

Baht Baht Baht Baht

Bank guarantees 54,447,965 52,071,800 52,983,800 50,619,800

85




19 Contingencies and commitments (Cont’d)

Operating lease agreements

The future minimum payments under operating lease agreements as at 31 December are as follows:


2006 2005 2006 2005

Baht Baht Baht Baht

Not later than 1 year 156,641,625 158,425,103 355,487,526 354,593,402

Later than 1 year and not later than 5 years 350,269,577 396,189,339 348,304,812 653,324,809

Later than 5 years 1,355,246,193 1,411,306,676 1,281,017,673 1,319,264,579

1,862,157,395 1,965,921,118 1,984,810,011 2,327,182,790

Capital commitments

Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows:


2006 2005 2006 2005

Baht Baht Baht Baht

Property, plant and equipment 488,972,823 60,873,023 477,414,623 59,983,015

As at 31 December 2006, the Company has capital commitments mainly related to the renovation of existing

stores, leasehold rights and building construction for new stores.

Contingencies

In the year 2002, the Company sold all investments in a subsidiary, Makro Auto Care Company Limited.

Under the sales agreement in respect of the sale of the subsidiary, the Company has made certain

representations and warranties for a certain period in respect of the completeness and accuracy of the

subsidiary’s accounts and records, and its compliance with various laws and regulations, such warranties

being those ordinarily found on the sale of a business. In the event of a breach of those representations and

warranties, the Purchaser may be entitled to claim damages from the Company. The maximum amount that

the Purchaser could seek to claim under the agreement is Baht 890 million during the period of 5 years for

86




19 Contingencies and commitments (Cont’d)

Contingencies (Cont’d)

certain warranty from 31 May 2002. The Company does not anticipate receiving any substantial claim under

these warranties and as at the date of these financial statements the Company has not received any notice

and is not aware of any incident indicating that the Purchaser would exercise the above right under the Agreement.

20 Related party transactions

Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are

controlled by, or are under common control with, the Company, including holding companies, subsidiaries and

fellow subsidiaries are related parties of the Company. Associates and individuals owning, directly or

indirectly, an interest in the voting power of the Company that gives them significant influence over the

enterprise, key management personnel, including directors and officers of the Company and close members

of the family of these individuals and companies associated with these individuals also constitute related parties.

In considering each possible related party relationship, attention is directed to the substance of the

relationship, and not merely the legal form.

SHV Group has control over the plan and the policies of the Company and its subsidiaries through the

appointment of directors and senior executive management. Therefore, members of the SHV Group are

considered to be related parties.

Feature of relationships and related transactions

Transactions with subsidiaries

Trading transactions with and purchases of assets and services from subsidiaries are carried out under

commercial terms and conditions. They are treated in the same manner as unrelated parties and are

presented at market price.

The rental income and expenses charges in respect of land and buildings as specified in the agreement

between the Company and subsidiaries are based on the cost of the land and buildings plus related

expenses which can be compared to the available market price. Cost of the land and buildings means

acquisition cost and related expenses mean other related expenses incurred in bringing them into working

condition for their intended use.

87




20 Related party transactions (Cont’d)

Transactions with subsidiaries (Cont’d)

Management services provided by the Company are charged at appropriate price upon the actual service

rendered to a subsidiary on the basis of an agreed annual fee.

The Company has entered into agreements with a subsidiary to use its trademarks. The fee for the use of the

trademarks represents a percentage of total gross sales under the trademark used.

A subsidiary has issued a promissory note at call to the Company, with an interest rate being set with

reference to the interest rates of short-term loans provided by financial institutions.

A subsidiary has issued 7-year promissory note to the Company with a due date of 29 December 2009,

based on the market interest rate.

Transactions with other related parties

1. Purchase of goods

The Company purchases goods from related companies in the Charoen Pokphand Group, being C.P.

Consumer Products Co., Ltd., C.P. Interfood (Thailand) Co., Ltd., Perfect Companion Co., Ltd., C.P.

Retailing and Marketing Co., Ltd., Vee Food Products Co., Ltd., CP-Meiji Co., Ltd., Univerasal Food and

Marketing Co., Ltd., etc. which are related by having the same director or shareholders.

Goods purchased transactions are in line with normal business conditions and are treated in the

same manner as other unrelated manufacturer and/or distributors of merchandise and with reference to

market prices.

From 1 October 2006, the Company has excluded Charoen Pokphand Group from related parties list as

Charoen Pokphand Group simply has three common directors with the Company and has no control or

significant influence over financial and operating policy decisions of the Company.

2. Purchase of intangible assets

The Company has been granted rights to use software from overseas affiliated companies, being

members of the SHV Group, which is Orkam Asia Management AG.

88





Transactions with other related parties (Cont’d)

2. Purchase of intangible assets (Cont’d)

The upgrade costs are specified in agreements and are on a reasonable basis for the Company and its

subsidiaries as follows:

a) The upgrade charge of a business intelligence application software is EUR 140,000. The agreement

is valid for 1 year from January to December 2006.

b) The upgrade charge of B2B E-Commerce application software is EUR 25,400. The agreement is

effective on December 2006 for an unlimited period of time, unless either party shall terminate it by

written notice. This software supports sharing and exchanging information through the Internet

between the Company and suppliers.

3. Service expenses

The Company has been granted rights to use software and trademarks and received consultant services

in relation to own brand development, management services and technical assistance in auction

purchasing and maintenance services for application software from both local and overseas affiliated

companies, being members of the SHV Group, which are Orkam Asia Management AG, Orkam Asia

Trademark AG, Makro Cash & Carry Distribution (M) SDN.BHD. and Makro Asia Management Ltd. respectively.

Software license fees, royalty fees, consultant service fees, management fees and maintenance service

fees for the use of such trademarks and services are as specified in agreements and are on a reasonable

basis for the Company and its subsidiaries as follows:

a) Royalty fee for the use of trademarks represents a percentage of their total gross sales. The agreement

is valid for 1 year. However, the Company and its subsidiaries reserve the right to renew the agreement

every year and have the right to use such trademarks and service marks in business operations.

b) Software license fee is NLG 50,000 (or EUR 22,689 in equivalent) for each Makro new store. The

payment is made once a new store is open. The agreement is valid for 1 year and is renewable

annually. Regarding the benefit from this licence, the Company will obtain specific IT software which

is necessary to its business operations.

89






3. Service expenses (Cont’d)

c) Consultant service fee is RM 12,320 per month. The agreement is valid for 1 year. Regarding the

benefit from this service agreement, the Company will receive consultant services in relation to own

brand development. The service is already finished in the year 2005 and included in the new

agreement as presented in (h).

d) Annual maintenance fee is 20% of the total user license fees in which each license fee costs USD

550 per user. The agreement is for unlimited period of time, unless party shall terminate the agreement

by written notice. The Company will receive maintenance services for the application software.

e) Annual membership fees in relation to cost sharing for the shared use of auction tools were charged

proportionally to the auction volumes made by the Company amounting to USD 21,678 (2005 : USD

58,310). The agreement is valid for 1 year and the Company will receive auction purchasing services.

Annual fee for management service and technical assistance in auction purchasing is charged in

Thai Baht equivalent to USD 116,000. The service is already finished in the year 2005 and included

in the new agreement as presented in (h).

f) Consultant service fee in relation to joint buying activities is charged in Thai Baht 2,781,130 for the

period from September to December 2005. Regarding the benefit from this service agreement, the

Company will receive consultant service in relation to joint buying development. This service is

already finished in the year 2005 and included in the new agreement as presented in (h).

g) Management consultant service fee is charged in Thai Baht equivalent to USD 15,000 for the period

from January to March 2006 (2005 : annual fee in Thai Baht equivalent to USD 128,000). Regarding

the benefit from this service agreement, the Company will receive consultant service in relation to

logistics and supply chain development.

h) Annual fee for commercial consultant service in relation to the development and implementation

regarding joint buying, private label and auction activities is charged in Thai Baht equivalent to USD

350,000. The agreement is valid for 1 year from January to December 2006. Regarding the benefit

from this service agreement, the Company will receive consultant service in order to improve the cost

structure, the efficiency and quality of the buying process.

90






3. Service expenses (Cont’d)

i) Maintenance fee regarding business intelligence application is charged in Thai Baht equivalent to

EUR 82,000. The agreement is valid for 1 year from January to December 2006. In addition, each

license fee is charged at EUR 750 per user and annual maintenance fee is 25% of the total user

license fee. The agreement is for unlimited period of time, unless party shall terminate the agreement

by written notice. Regarding the benefit from these service agreements, the Company will receive

maintenance services for the application software.

The following material transactions were carried out with related parties:

i) Sales of goods, plant and equipment, service income, and interest income


For the years ended 31 December 2006 2005 2006 2005


Sales of goods

Subsidiaries - - 10.9 2.6

Other related party 0.1 - - -

0.1 - 10.9 2.6

Sales of plant and equipment

Subsidiary - - - 1.4

- - - 1.4

Services income

and interest income:


Other related parties 0.5 1.4 0.5 1.4

0.5 1.4 30.0 33.4

91



The following material transactions were carried out with related parties: (Cont’d)

ii) Purchases of goods, assets and service expenses


For the years ended 31 December 2006 2005 2006 2005


Purchases of goods:



293.7 379.0 364.8 466.0

Purchase of land:

Subsidiary - - 135.5 -

- - 135.5 -

Purchases of intangible assets:

Other related parties 10.9 - 10.8 -

10.9 - 10.8 -

Service expenses:

Subsidiary - - 298.5 295.6


154.4 146.9 445.5 433.0

iii) Outstanding balances arising from sales, purchases of goods


2006 2005 2006 2005


Trade accounts payable

to related parties

Subsidiary - - 11.6 19.8

Other related parties - 76.8 - 76.8

- 76.8 11.6 96.6



92






iv) Advances and loans to related parties


2006 2005 2006 2005


Advances to


Other related party 0.2 0.5 0.2 0.4

0.2 0.5 2.2 2.4

Short-term loans

to related parties


- - 105.0 123.0

Total advances and

short-term loans to

related parties 0.2 0.5 107.2 125.4

Long-term loan to

a related party

Subsidiary - - 174.0 500.0

Total long-term loan to

a related party - - 174.0 500.0


2006 2005 2006 2005


Movements of short-term loans

to subsidiaries are as follows:

Opening balance - - 123.0 221.5

Net decrease during the year - - (18.0) (98.5)

Closing balance - - 105.0 123.0

Short-term loans to subsidiaries, being in the form of promissory notes, are due at call.

93






iv) Advances and loans to related parties (Cont’d)


2006 2005 2006 2005


Movements of long-term loan to a

subsidiary are as follows:

Opening balance - - 500.0 500.0

Decrease during the year - - (326.0) -

Closing balance - - 174.0 500.0

As at 31 December 2006, the outstanding balance of this promissory note was Baht 174 million with due

date of 29 December 2009.

v) Deposits for land lease paid to a subsidiary


2006 2005 2006 2005


Deposits for land lease paid to

Subsidiary - - 146.7 145.9

- - 146.7 145.9

vi) Advances from related parties


2006 2005 2006 2005


Advances from related parties

Subsidiary - - 0.2 -


68.7 69.0 65.2 65.1

94






vii) Deposits for land lease received from a subsidiary


2006 2005 2006 2005


Deposits for land lease received from

Subsidiary - - 0.6 0.6

- - 0.6 0.6

21 Financial information by business segments


Wholesale and Land

Retail Business Rental Business Elimination Total


Sales 55,613 - (82) 55,531

Other income

- Third parties 1,870 6 - 1,876

- Related parties 29 299 (328) -

1,899 305 (328) 1,876

Total revenues 57,407

Cost of sales (52,209)

Selling and administrative expenses (3,478)

Directors’ remuneration (8)

Interest expense (3)

Income tax (486)

Net income 1,223

Property, plant and equipment

net book value as at 31 December 2006 6,181 2,790 - 8,971

Other assets 10,312

Total assets as at 31 December 2006 19,283

95




21 Financial information by business segments (Cont’d)


Wholesale and Land

Retail Business Rental Business Elimination Total


Sales 50,508 - (90) 50,418

Other income

- Third parties 1,868 8 - 1,876

- Related parties 33 295 (328) -

1,901 303 (328) 1,876

Total revenues 52,294

Cost of sales (47,396)

Selling and administrative expenses (3,280)

Directors’ remuneration (6)

Interest expense (3)

Income tax (473)

Net income 1,136

Property, plant and equipment

net book value as at 31 December 2005 6,255 2,790 - 9,045

Other assets 9,923

Total assets as at 31 December 2005 18,968

Sales to third parties and related parties are carried out at market price.

Property, plant and equipment of each business are for its own operations. Other assets comprise mainly

cash and cash equivalents, inventories, amounts due from and loans to related companies.

22 Financial instruments

Interest rate risk

The Group encounters interest rate risk through its exposure to interest rate fluctuations on its cash and

short-term investments but such risks do not carry significant impact.

96




22 Financial instruments (Cont’d)

Foreign currency exchange risk

The Group has limited exposure to foreign currency exchange fluctuations on purchasing of goods and services

and these purchases are not significant in the ordinary course of business. The Group manages this risk

through forward exchange contracts. Foreign currency exchange trading for speculative purpose is prohibited.

Credit risk

The Group has no significant concentrations of credit risk relating to its cash, short-term investments, trade

receivables, amounts due from related parties and loans to related parties as the Group primarily operates on

cash and carry basis in which most transactions are cash sales. In addition, the Group places its cash and

short-term investments with high quality financial institutions. The Group’s policies are designed to limit

exposure with any one financial institution and to invest excess cash in low risk investment instruments.

The Group has not experienced any losses on such accounts. The subsidiaries have in place credit policies

not to provide credit for any companies considered high risk of collections.

Liquidity risk

The Group manages its liquidity risk by holding sufficient cash and short-term investments for operating

expenses.

Fair value

Fair values of financial instruments are accounted for at their carrying amounts because of the short

maturities of these instruments, therefore, they are not considered a significant risk in the Group’s future

cash flows.

23 Subsequent event

At the Board of Directors’ meeting of the Company on 22 February 2007, the Board of Directors unanimously

resolved to propose to the Annual General Shareholders’ Meeting for approval of the Company to declare

final dividend payment for the year 2006, at the rate of Baht 4 per share. The proposed dividends must be

approved by the shareholders at their meeting.

97


MAKRO CASH & CARRY

�

Siam Makro Public Company Limited, Head Office

3498 2nd Fl., Lardprao Rd., Klongchan, Bangkapi,

Bangkok 10240

Tel : 0-2375-7000, 0-2723-1000 Fax : 0-2375-2927

�

Makro Store Lardprao Branch

3498 Lardprao Rd., Klongchan, Bangkapi, Bangkok 10240

Tel : 0-2375-2781-9 Fax : 0-2375-9162

�

Makro Store Chaengwattana Branch

34/54 Moo 1, Chaengwattana Rd., Klongklear,

Pakkred, Nonthaburi 11120

Tel : 0-2574-0670 Fax : 0-2574-6045

�

Makro Store Srinakarin Branch

422 Moo 5, Srinakarin Rd., Samrongnua,

A. Muang, Samutprakarn 10270

Tel : 0-2383-4104 Fax : 0-2383-4441

�

Makro Store Bangbon Branch

40/8 Moo 10, Ekachai Ring Road-Petchkasem,

Bangbon, Bangbon, Bangkok 10150

Tel : 0-2416-8080-90 Fax : 0-2416-5974

�

Makro Store Chonburi Branch

55/3 Moo 2, Sukhumvit Rd., T.Samed, A.Muang,

Chonburi 20000

Tel : (038) 279-201 Fax : (038) 279-200

�

Makro Store Chiang Mai Branch

152 Moo 6, T.Nong-Pa-Krung, A.Muang, Chiang Mai 50000

Tel : (053) 116-200-10 Fax : (053) 116-217

�

Makro Store Nakhon Ratchasima Branch

523 Mittraphap-Nongkai Rd., T.Naimuang,

A.Muang, Nakhon Ratchasima 30000

Tel : (044) 230-477-90 Fax : (044) 230-471-2

�

Makro Store Rangsit Branch

189 Phaholyothin Rd., T.Prachathipat,

A.Thanyaburi, Pathumthani 12130

Tel : 0-2992-1011-21 Fax : 0-2992-2213

�

Makro Store Hat Yai Branch

345 Moo 5, Kanjanavanit Rd., T.Kho-Hong,

A.Hat Yai, Songkhla 90110

Tel : (074) 428-320-9 Fax : (074) 210-969

�

Makro Store Udonthani Branch

207/3 Moo 14, T.Makkhang, A.Muang, Udonthani 41000

Tel : (042) 322-922 Fax : (042) 322-944

�

Makro Store Phitsanulok Branch

1199 Boromtrirokkanart 2 Rd., T.Naimuang,

A.Muang, Phitsanulok 65000

Tel : (055) 218-765 Fax : (055) 218-764

�

Makro Store Khon Kaen Branch

195 Moo 17, Mittraphap, T.Naimuang, A.Muang,

Khon Kaen 40000

Tel : (043) 325-050 Fax : (043) 325-065

�

Makro Store Surat Thani Branch

216 Moo 4, Chonkasem Rd., T.Makamtey,

A.Muang, Surat Thani 84000

Tel : (077) 219-855 Fax : (077) 219-866

�

Makro Store Ubol Ratchathani Branch

333 Moo 15, T.Khamyai, A.Muang,

Ubol Ratchathani 34000

Tel : (045) 281-677-90 Fax : (045) 281-688

�

Makro Store Rayong Branch

8/2 Moo 3, T.Tubma, A.Muang, Rayong 21000

Tel : (038) 875-300 Fax : (038) 875-301

98


�

Makro Store Nakhon Sawan Branch

67/15 Moo 6, T.Nakhon Sawan East, A.Muang,

Nakhon Sawan 60000

Tel : (056) 325-200 Fax : (056) 325-210

�

Makro Store Charansanitwongse Branch

521, 521/27 Charansanitwongse Rd.,

Bangkhunsri, Bangkoknoi, Bangkok 10700

Tel : 0-2864-5714 Fax : 0-2864-5713

�

Makro Store Sathorn Branch

1 Narathiwasratchanakarin Rd.,

Thungwatdon, Sathorn, Bangkok 10120

Tel : 0-2676-0676 Fax : 0-2676-1676

�

Makro Store Nakhon Pathom Branch

86 Moo 13, T.Prongmadua, A.Muang,

Nakhon Pathom 73000

Tel : (034) 200-711-27 Fax : (034) 200-728-9

�

Makro Store Surin Branch

4/3 Lukmuang Rd., T. Naimuang A.Muang, Surin 32000

Tel : (044) 531-759-66 Fax : (055) 531-777

�

Makro Store Samsen Branch

935/11 Samsem Rd., Thanonnakornchaisri,

Dusit, Bangkok 10300

Tel : 0-2241-8400-8 Fax : 0-2241-8409

�

Makro Store Nakhon Si Thammarat Branch

93/7 Moo 2, Garome Rd., T. Posadet, A. Muang

Nakhon Si Thammarat, Nakhon Si Thammarat 84000

Tel : (075) 316-680-90 Fax : (075) 316-698

�

Makro Store Chiang Rai Branch

12 Moo 17, T. Bandoo, A.Muang Chiang Rai, Chiang Rai 57000

Tel : (053) 703-688 Fax : (053) 703-679

�

Makro Store Sakon Nakhon Branch

459 Moo 3, Bankoksomhong Rd., T.Thatchoengchum,

A.Muang Sakon Nakhon, Sakon Nakhon 47000

Tel : (042) 731-078-97 Fax : (042) 731-076-7

�

Makro Store Suphan Buri Branch

290/2 Moo 4, T.Sanam-Chai,

A.Muang Suphan Buri, Suphan Buri 72000

Tel : (035) 547-250-65 Fax : (035) 547-271

�

Makro Store Chanthaburi Branch

21/11 Moo 11, T.Plubpla, A.Muang Chanthaburi,

Chanthaburi 22000

Tel : (039) 355-240-54 Fax : (039) 355-257

�

Makro Store Phuket Branch

77 Moo 5, T.Vichit, A.Muang Phuket, Phuket 83000

Tel : (076) 249-791-800 Fax : (076) 249-801

�

Makro Store Roi Et Branch

32/1 Taewapiban Rd., T.Naimuang,

A.Muang Roi Et, Roi Et 45000

Tel : (043) 525-680-90 Fax : (043) 525-692-3

�

Makro Store Trang Branch

89 Moo 2, T.Khok-Lo, A.Muang Trang, Trang 92000

Tel : (075) 228-050-60 Fax : (075) 228-061

�

Makro Store Sa Kaeo Branch

1000 Suwannasorn Rd., T.Sa Kaeo,

A.Muang Sa Kaeo, Sa Kaeo 27000

Tel : (037) 220-801-18 Fax : (037) 220-822-3

�

Makro Store Ko Samui Branch

115/52 Moo 6 T.Bo Phut, A.Ko Samui,

Surat Thani 84320

Tel : (077) 960-140-60 Fax : (077) 960-161-2

MAKRO CASH & CARRY

99



�

Makro Office Centre Co., Ltd. Head Office

1705 2nd Fl., Phaholyothin Rd., Ladyaw,

Chatuchak, Bangkok 10900

Tel : 02-939-5700 Fax : 02-939-5903-5

�

Makro Office Centre, Seacon Square Branch

Basement I, Seacon Square, 904 Moo 6,

Srinakarin Rd., Nongbon, Prawet, Bangkok 10260

Tel : 0-2721-8260-6 Fax : 0-2721-8274

�

Makro Office Centre, United Centre Branch

Basement I, United Centre Building,

323 Silom Rd., Bangrak, Bangkok 10500

Tel : 0-2267-6262 Fax : 0-2267-6258

�

Makro Office Centre, Sindhorn Building Branch

Tower 1, Ground Floor, Sindhorn Building,

130-132 Wireless Rd., Lumpini, Patumwan,

Bangkok 10330

Tel : 0-2263-2277 Fax : 0-2650-9999

�

Makro Office Centre, Royal City Avenue Branch

31/1 Soi Soonvijai, Rama IX Rd., Bangkapi,

Huey Kwang, Bangkok 10240

Tel : 0-2641-5900 Fax : 0-2641-5901

�

Makro Office Centre, Rama III Branch

295 Rama III Rd., Bangkorleam, Bangkorleam,

Bangkok 10120

Tel : 0-2689-0922-6 Fax : 0-2689-0921

�

Makro Office Centre, Tawanna Branch

3500 Lardprao Rd., Klongchan, Bangkapi,

Bangkok 10240

Tel : 0-2704-7411 Fax : 0-2704-7410

�

Makro Office Centre, Phaholyothin Branch

1705 Phaholyothin Rd., Ladyaw, Chatuchak,

Bangkok 10900

Tel : 0-2513-0105-8 Fax : 0-2513-0109

�

Makro Office Centre, Wong Wean Yai Branch

130-132 Somdejphachaotaksin Rd.,

Bang Yee Rua, Thonburi, Bangkok 10600

Tel : 0-2890-2780-6 Fax : 0-2890-2791

�

Makro Office Centre, Sukhumvit Branch

651 Sukhumvit Rd., Klongtannua, Wattana,

Bangkok 10110

Tel : 0-2261-9661 Fax : 0-2261-9660

�

Makro Office Centre, Pattaya Branch

24/79-83 Moo 9, Sukhumvit Rd., T. Nongprue,

A. Banglamoong, Chonburi 20260

Tel : (038) 716-944 Fax : (038) 716-950

�

Makro Office Centre, Zeer Rangsit Branch

99 Moo 8, Phaholyothin Rd., T.Kookot,

A.Lam-Looka, Phatumthanee 12130

Tel : 0-2992-5609 Fax : 0-2992-5619

�

Makro Office Centre, Phuket Branch

76 Moo 5, T.Vichit A.Muang Phuket, Phuket 83000

Tel : (076) 249-520 Fax : (076) 249-525

�

Makro Office Centre, Chaengwattana Branch

88/8 Moo 1, Chaengwattana Rd., Toongsonghong,

Laksi, Bangkok 10210

Tel : 0-2984-3303 Fax : 0-2984-3317

100


MAKRO OFFICE CENTRES SIAM FOOD SERVICES

�

Makro Office Centre, Sathorn Branch

1 Narathiwasratchanakarin Rd., Thungwatdon,

Sathorn, Bangkok 10120

Tel : 0-2676-3730 Fax : 0-2676-3850

�

Makro Office Centre, SSP Tower 3 Building Branch

88 Silom Rd., Suriyawong, Bangrak, Bangkok 10500

Tel : 0-2634-3550 Fax : 0-2634-3530

�

Makro Office Centre, Samsen Branch

939/12 Samsen Rd., Thanonnakornchaisri,

Dusit, Bangkok 10300

Tel : 0-2636-9885 Fax : 0-2636-9886

�

Makro Office Centre, Ekkamai Branch

78/2 Soi Sukhumvit 63 (Ekkamai), Sukhumvit Rd.,

Phakanongnuea, Wattana, Bangkok 10110

Tel : 0-2714-8260 Fax : 0-2714-8261

�

Makro Office Centre, Phayathai Branch

15 Phayathai Rd., Thanonphayathai,

Ratchatevee, Bangkok 10400

Tel : 0-2245-7550 Fax : 0-2245-7551

�

Makro Office Centre, Ngamwongwan Branch

69/21 Moo 2 Ngamwongwan Rd., T.Bangkhen,

A.Muang Nonthaburi, Nonthaburi 11000

Tel : 0-2953-6100 Fax : 0-2956-6110

�

Siam Food Services Limited. Head Office

2439 Old Paknam Railway Rd., Prakhanong,

Klongtoey, Bangkok 10110

Tel : 0-2240-4000 Fax : 0-2249-7294

�

Siam Food Services, Koh Samui Branch

115/52 Moob T.Bo.Phut, A.Koh Samui,

Surat Thani 84320

101

Bangkok Branches :

Lardprao

Chaengwattana

Srinakarin

Bangbon

Rangsit

Charansanitwongse

Sathorn

Samsen

Makro Operations

in Thailand

Makro Operations

in Thailand

Roi Et

Suphan Buri

Chanthaburi

Phuket

Trang

Socialist Republic ofThe Union of Myanmar

Democratic People'sRepublic Of Laos

Democratic Kampuchea

Ko Samui

(will be opened

in April 2007)

Sa Kaeo

(will be opened

in January 2007)

Sakon Nakhon

Udonthani

Ubol Ratchathani

Nakhon Sawan

Nakhon Ratchasima

Nakhon Pathom

Chonburi

2006 page 01-15 eng 25-03 › pdf › annual › en › makro... · book value per share (baht)...

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