INTEGRITY QUALITY SERVICE - Saha-Union Co., Ltd

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SAHA-UNION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND OPERATING RESULTS
1. PERFORMANCE ON THE BUSINESS PLAN
As a part of the Company’s foreign investment plan, the Company has invested in a mutual fund project for real estate development
in Vietnam entitled “Ban Yan Tree Indochina Hospitality Fund L.P.,” which the Company has not fully paid its investments therein;
however, the investments were continuingly paid as the construction period. From the end of 2010, the investments in this project
as equivalent to Baht 65.055 million, which increased to Baht 90.9 million at the end of 2011. In other words, during 2011, the
Company increased the investments in this project by Baht 25.845 million. The project management expects that it will progress
as planned. The first phase will be finished within 2012.
The joint venture real estate project in Jiashan, China, which the Company and its subsidiaries have invested as equivalent to
Baht 677 million, or 49% of the investments, with 3 phases of construction, was proceeding as planned. Currently, Phase 1 of
the project was about to complete and expected to be sold within 2012.
2. OPERATING RESULT
During 2011, regarding the Company’s operating result under its separate financial statements calculated according to the cost
method, the net profits were Baht 760.33 million, decreased by Baht 547.48 million, or 41.86% when compared to the 2010 amount
at Baht 1,307.81 million. The main reason was that the Company received decreasing amount of dividends by Baht 173.16 million.
In this year, the Company did not reverse the net allowance for impairment of real estate for investment or property, plant and
equipment amounted to Baht 152.69 million, as a result of changing in business type of Sriracha Operation. Moreover, during
last year, there was the reverse transfer of loss on impairment of investments at Baht 106.72 million, which was considered as
the revenue; however, in this year the Company has recorded the reverse transfer of losses from impairment of investments for
Baht 68.55 million, of which partly came from the net allowance for impairment of investments in Yunnan Energy Qujing–Union
Power Co., Ltd., reducing the income margin by Baht 175.26 million. Moreover, the total revenue has reduced due to a changing
in business type of Sriracha Operation by Baht 93.72 million. In 2011, the Company’s finance cost reduced by Baht 37.21 million
due to a dramatic decrease from a before-due long term loan repayment. In addition, the corporate income tax expenses also
decreased by Baht 8.46 million. From the reasons above, the net profit in 2011 under its separate financial statements valued
at Baht 760.33 million as set forth by the accounting standard to be calculated by the cost method; therefore, the result was
different from the net profit under the consolidated financial statements, which was calculated by the equity method. In 2011,
as for the operating results of the Company and its subsidiaries under the consolidated financial statements, the profit to equity
holders of the Company was Baht 738.08 million, decreasing by Baht 1,074.97 million, or 59.29% when compared to the 2010
at Baht 1,813.04 million. The main reason for changing in operating results was due to the following factors:
2.1 Policies of Foreign Government Agencies
As the Company has its investments in energy businesses in China, in the category of generating and selling of electricity
and steam, which are considered as public utilities business, one of the joint venture companies named “Wuxi–Union
Cogeneration Co., Ltd.”, located in Wuxi of Jiangsu province, was affected by the urban expansion to the location of this
power plant. The government had a policy to relocate factories around the power plant to a new location, causing the
number of this power plant’s customers to decrease. The government also made the power plant choose for either moving
to a new location or changing from a coal power plant to a natural gas, which required massive amounts of investments.
Otherwise, moving to a new location also cost high investments for new construction. As a result, the Company considered
that this power plant was unable to perform its normal business without a high investment, which might not be worth; thus,
it was necessary for the Company to sell these investments, causing the reduction of associate companies and no returns
from this joint venture anymore when compared to the high returns of investment in the past.
Moreover, the Company has invested in the power plant in Yunnan named “Yunnan Energy Qujing-Union Power Cogeneration
Co., Ltd.,” which uses coal as fuel. The coal price become much higher lately and there must be an investment in the
environmental matter, making the costs to rise. Nevertheless, the Chinese government did not allow the business to raise