BTSC has started to invest in property business by purchasing 5 plots of land, some of which has already started development as mentioned in Item 3 of Property Business of the Future Plans Section. However, with respect to the acquisition of 94.6% in BTSC, the Company believes that it has the opportunity to enhance the efficiency in developing these projects as the Company has extensive experience and human resource in property development. Therefore, the Company plans to be involved in the development of such projects such as design, construction as well as project management. However, in order to reduce the financial risk as well as to allow the Company and BTSC to efficiently manage BTSC's capital, the Company and BTSC is open to financial partners who can support the development of such whereby BTSC will still be the major shareholder in the subsidiaries. 4. Services Business 4.1 Smartcard Business BTSC established Bangkok Smartcard System Co., Ltd. to operate a E-Money business. BTSC entered into a ticket system development agreement with Bangkok Metro Public Company Limited ("BMCL"), the subway operator, to jointly develop a common ticketing system for the convenience for passengers. In the future, BTSC may provide opportunities for financial institutions, retail shops, and other service providers to join the smartcard system to expand the card and system network, be more widely used and more convenience to passengers. Bangkok Smartcard System Co., Ltd. is in the process of applying for an E-money license from the Bank of Thailand. 4.2 Hotel Management Business The Company has set up a joint venture with partner that has long experiences in hotel management, namely Absolute Hotel Services Co., Ltd. ("AHS"). AHS provides consultancy and hotel management service under "U" and "Eastin" brands, which are owned by AHS. Furthermore, AHS has agreed to manage 2 of the Company's hotels under "U" brand, one at Kanchanaburi which is under renovation while the other is at Khao Yai which is in the designing stage. At the same time, in February 2010, the Company has set up a joint venture with the same partner in Hong Kong under the name "Absolute Hotel Services Hong Kong Limited, to engage in the consultancy service and hotel management business in the Asia Pacific region as well as investing in companies in the Asia Pacific region which engage in the consultancy service and hotel management business. 4.3 Project Management Business The Company has invested in Hip Hing Construction (Thailand) Co., Ltd. ("Hip Hing"), a joint venture with Hip Hing Oversea Co., Ltd., a leading Hong Kong contractor with experiences in construction of large projects overseas. Hip Hing Oversea Co., Ltd., can contribute its advanced construction technology and knowhow. Its first project in Thailand is the construction of Four Points by Sheraton Hotel, a 4-star hotel with 427 rooms in 32-storey building. The project is located in the central business district (CBD) of Bangkok on Sathorn Road adjacent to Surasak BTS with the contract value of approximately Baht 2,035 million. In addition, the Company has been selected by the National Housing Authority to construct the low cost residential housing projects in the amount of 20,000 units. At present, the number of units that the Company has been approved to construct has been reduced to 8,048 units. The Company has already subcontracted to third party contractors, completed the construction and handovered 4,216 units to the National Housing Authority. Presently, 2,108 units is under construction and 1,724 units has not started construction. 4.4 Golf Club Business 6 The Company operates the Golf Club business in Thana City through its subsidiary, Thanacity Golf and Country Club Company Limited, which provided services such as 18-hole golf course of the Company. Revenue Structure 1. Revenue Structure of the Company before BTSC Share Acquisition The revenues of the Company were mainly from the property development business. Details are shown in the table below: Consolidated Financial Statement Fiscal Year ended 31 Mar 9 Months ended 31 Dec 2009 2007 2008 2009 Bt mm % Bt mm % Bt mm % Bt % mm Revenues from sales of real 29.8 0.87 10.2 0.41 48.8 4.56 81.7 8.30 estate Revenue from land procurement of 502.1 14.68 144.3 5.79 0.0 0.00 0.0 0.00 low-cost residential housing project Revenues from construction 0.0 0.00 831.7 33.39 547.4 51.13 574.0 58.30 services Rental and 74.5 2.18 138.2 5.55 167.9 15.68 118.6 12.05 service income Revenues from 35.2 1.03 37.4 1.50 36.8 3.44 28.2 2.86 hotel operations Others 2,778.3 81.24 1,329.2 53.4 269.9 25.2 182.2 18.5 Total revenues 3,419.9 100.00 2,491.0 100.00 1,070.7 100.00 984.6 100.00 Note: Excluding gain from debt restructuring 2. Revenue Structure of BTSC Primary revenue of BTSC came from skytrain buisiness by collecting fares from passengers. Other revenues consist of advertisements inside/outside trains and on stations, rental of commercial space in stations, and fees received from transactions related to the linkage of sky- bridges to stations. After the acquisition of VGI Group by BTSC on September 30, 2009, BTSC started consolidating and recognizing revenues from advertising spaces in superstores. Details are shown in the table below: Company Only Financial Statement Consolidated Financial Statement Fiscal Year Ended 31 Mar 9 months ended 31 Dec 2009 2550 2551 2552 Bt mm % Bt mm % Bt mm % Bt mm % Farebox revenue 3,062.5 76.45 3,221.1 38.45 3,288.1 77.22 2,588.9 77.05 - net 7 Service income 0.0 0.00 0.0 0.00 0.0 0.00 151.9 4.52 from train operating management Service income 0.0 0.00 0.0 0.00 0.0 0.00 298.5 8.88 Other income Advertising 228.7 5.71 277.3 3.31 344.8 8.10 222.5 6.62 and merchandising space rental revenues Revenue from 19.4 0.48 31.3 0.37 24.8 0.58 10.1 0.30 utilities services Reversal of 0.0 0.00 4,688.7 55.97 0.0 0.00 0.0 0.00 allowance for diminution in value of project costs Gain on 578.7 14.45 0.0 0.00 0.0 0.00 0.0 0.00 exchange rate Others 116.4 2.91 158.4 1.89 600.7 14.11 88.0 2.62 Total revenues 4,005.7 100.00 8,376.7 100.00 4,258.4 100.00 3,360.0 100.00 3. Revenue Structure of the Company after BTSC Share Acquisition After the BTSC Share Acquisition, Tanayong has no policy to change the nature of both Tanayong and BTSC. As such, Tanayong will still be engaging in the property development business and BTSC will still be engaging in the mass transit business. Therefore, after the BTSC Share Acquisition, it is expected that farebox revenue from the BTSC's skytrain business will be the primary source of revenue of the group in the future. Revenue from property development will be a smaller portion of the total revenue as most of the projects are still in the early development stage. Summary of Material Terms and Conditions of the Agreements 1. Concession Agreement 1.1 Parties BTSC and BMA 1.2 Material terms and conditions BTSC had entered into this agreement with BMA on 9 April 1992 (as amended on 25 January 1995 and 28 June 1995, respectively), whereby BTSC was granted a concession for procuring and operating the mass transit system and is entitled to exclusively procure, operate and maintain the Bangkok mass transit system for a period of 30 years. BTSC has the right to earn revenues from businesses related to the BTS SkyTrain's system, including advertisement, sublicensing, and fare collection for a period of 30 years, commencing from its first date of commercial operations. In addition, in order to extend BTSC concession, which is scheduled to expire in December 2029, BTSC must give BMA advance notice of at least three years and not 8 more than five years in advance of our intention to extend. Such extension is subject to the prior consent of the Minister of the Ministry of Interior. 2. Rolling Stock Agreement 2.1 Parties BTSC and Changchun Railway Vehicles Co. Ltd. and CITIC International Cooperation Co., Ltd (collectively, as the "Supplier") 2.2 Material terms and conditions BTSC had entered into this agreement with the Supplier on 20 June 2007. The Supplier will manufacture, supply and deliver the Rolling Stock System in accordance with the terms and conditions set out in this agreement. The term of this agreement is no later than 36 months after the issuance of Instruction to Proceed, or such extended time as shall be allowed in accordance with the provisions of this agreement. 3. Installation Agreement in relation to the Installation of CBTC Signaling System 3.1 Parties BTSC and Bombardier Transportation Signal (Thailand) Ltd., (as the "Contractor") 3.2 Material terms and conditions BTSC had entered into this agreement with the Contractor on 22 February 2007. The Contractor shall complete the installation, testing, and commissioning work with respect to the CBTC Signaling System supplied under the Foreign Supply Contract in accordance with the term and conditions set out in this agreement within 36 months from the effective date of this agreement. 4, Supply Contract with respect to CBTC Signaling System 4.1 Parties BTSC and Bombardier Transportation Signal (Thailand) Ltd., (as the "Supplier") 4.2 Material terms and conditions BTSC had entered into this agreement with the Supplier on 15 February 2007. The Supplier shall supply the CBTC Signaling System in accordance with the terms and conditions set out in the agreement. 5. License To Manage Marketing Services Agreement 5.1 Parties BTSC and VGI Global Media Company Limited ("VGI") 5.2 Material terms and conditions BTSC had entered into this agreement with VGI on 29 June 2001. BTSC has granted an an exclusive license to VGI to manage marketing services with respect to the Advertising Space, Merchandising Area, Exterior Train Area and a non-exclusive license to VGI to manage marketing services with respect to the Additional Area in accordance with the terms and conditions stated in this Agreement. The term of this agreement is 10 years commencing from 5 December 1999 and VGI can extend this agreement for another 5 years under the terms and conditions hereof. 9 10 6. Maintenance Agreement Relating to the Bangkok Metropolitan Administration Transit System 6.1 Parties BTSC and Siemens Limited (the "Maintenance Contractor") 6.2 Material terms and conditions BTSC had entered into this agreement with the Maintenance Contractor on 30 December 2004. The Maintenance Contractor provides maintenance services or carries out maintenance work to a rail transit system of a similar type, nature and complexity to the E&M System. Under the Agreement, "E&M System" means the System, excluding the buildings (other than the interior of the Employer's depot) and civil engineering structures forming a part thereof, but including (a) Trackwork (defined as all permanent track appurtenances and fixtures above the top surface of the track structural deck including plinths), (b) all sub-systems the performance of which is intrinsically linked to the achievement of the performance criteria and the electrical system from the MEA cable termination points at the BTS 24 kV panels installed, respectively, at the Chatujak and Paisingto substations as supplied by Siemens under the Construction Contract, excluding Automatic Fare Collection and Lifts and Escalators. The term of this agreement is 10 years from the date of this agreement. 7. Design and Build Contract for BTSC's Surasak Hotel 7.1 Parties The Company and BTS Assets Co., Ltd. (the "Contractor") 7.2 Material terms and conditions The Company had entered into this agreement with the Contractor on 28 August 2008. The Contractor agrees to design and build on a turnkey basis the four-star hotel with no less than 430 rooms, located in Bangkok's central business district on Sathorn road adjacent to Surasak BTS skytrain station 8. Concession Agreement for the Construction of 20,000 units of the Low-Cost Residential Housing Projects (Baan Aur-Arthorn) 8.1 Parties The Company and National Housing Authority 8.2 Material terms and conditions The Company had entered into this agreement with the National Housing Authority on 25 April 2006. The Company agrees to construct 20,000 units of the low-cost residential housing projects. The project will involve three-storey and four-storey condominium including public utility system and public facility pursuant to the standard of the National Housing Authority. Future Plans 1. Mass Transit Business 1.1 Signaling System Upgrade BTSC has signed an agreement with Bombardier Group to replace the existing Signaling System. The new Signaling System will enable BTSC to better serve the skytrain extension lines and requires less maintenance cost as it is more modern. Furthermore, the new Signaling System will allow BTSC to be less 11 dependent on third party service provider as Bombardier Group is required to provide technical information and training to BTSC under the agreement. The new Signaling System will be used in the Silom line initially and will be ready for both lines by December 2010. 1.2 New trains To support the increasing demand in the existing lines and potential demand from future skytrain extension, BTSC has ordered 12 additional 4-car trains (existing trains are 3- car train) from CRC, the leading manufacturer of train cars and electric train cars in China and will gradually receive all the trains by June 2010. All new trains are expected to be ready for commercial use by December 2010. 1.3 Other mass transit business In addition to the operating and maintenance agreement for the 2.2 km Silom line extension, BTSC is also interested in becoming the operator of future mass transit projects, both skytrain extensions and other mass transit projects, whether as an operator under the operation contract or as a partial or full investor. In addition to the operating and maintenance fee that BTSC can receive as operator, BTSC could benefit from increased number of passengers feeding into the existing 23.5 km system which will also increase BTSC's farebox revenue. Nonetheless, the Company and BTSC will have to consider the details and return to ensure the value creation to BTSC's shareholders. BTSC is interested in operating Wongwianyai - Bangwa extension and from On Nut - Baring extension. Although, the BMA has not yet selected or appointed the operator for these two extension lines, BTSC believes that BTSC have an advantage for the operator role or for the concession due to the nature of the track, which should be a single and continuing railway, making operation by a single operator more efficient. The other extension projects, especially the Green Line extensions from Mo Chit to Saphanmai and from Baring to Samut Prakarn, are still in their preporatory stage and the role of the private sector in such projects are not yet finalized. BTSC will continue to closely monitor and assess any opportunities to participate in possible bids, either as an operator under operation contract or as a direct investor in the projects. BTSC will ensure that any investment or opportunity pursued will be value accretive to the company. Furthermore, BTSC is also interested in leveraging on its experience to participate in other mass transit systems such as Light Rail and Bus Rapid Transit ("BRT"), mass transit system overseas. BTSC's participation may be in the role of an operator, investor or advisor. 2. Advertising Business With regards to advertising on BTSC skytrain, VGI group plans to seek opportunity to manage the new advertising space on BTSC's 12 new trains which is expected to be in service by the end of 2010. Furthermore, VGI also plans to manage the advertising space on the 25 buses which BTSC will use to service the BRT I (Chong Nonsi - Rachapreuk) which BTSC won the bid for the bus operation and maintenance contract from BMA. 3. Property Business The Company's future projects Condominium on Sukhumvit 66/1, Bangkok Low-rise boutique condominium project on approximately 2 rai of land strategically located just 250 meters from the future BTS station at Udomsuk. The project will be developed in two phases with 55 rooms in each phase and comes in the form of one- and two- bedroom. The project will also has facilities such as swimming pool and fitness center. Preselling is expected to be launched in the mid-2010. U Inchan Tree Hotel 4 star boutique hotel project on approximately 5 rai of land on river frontage of the River Khwae under the name "U Inchan Tree", part of the U Hotel and Resort chain. Currently, the project is currently in the process of renovating the existing buildings. A centerpiece of the project will be to give prominence to the In-Chan tree on the site which is more than 100 years old. The hotel is expected to be opened for service in November 2010. 12 BTSC's future projects BTSC purchased, for development, 5 plots of land in Bangkok, all of which are along the current and future skytrain route. BTSC has the policy to invest through its subsidiaries and to raise additional required capital from external sources at subsidiary level to reduce dependency on BTSC. This may be by finding a joint venture partner, issuing various securities by the subsidiaries assuming suitable market condition, or borrowing from financial institutions. The Company plans to jointly develop these projects with BTSC by leveraging the Company's experience to increase efficiency in the project development. BTSC's 5 property development projects are as follows: Condominium project on a piece of land of approximately 22 rai 2 ngarn 18 square wah, which is the only asset of Nuvoline (80% held by BTSC). The land, with buildings, is situated on Phahonyothin road, close to Central Ladprao and along the dark green line extension. Presently, Nuvoline has signed an agreement to engage the Company as the projectment management advisor in the development of 3 condominiums under the brand "Abstracts". The sale office has been built in April and the Company targets to launch the sale of the first building in June 2010 with CB Richard Ellis (CBRE) as the real estate agent for the first building which has approximately 1,000 rooms 4-star, 29-floor, 430-room hotel project on land area of 2 rai 1 ngarn 18 square wah land. The land is situated on South Sathorn road and the hotel can be connected to the Surasak BTS station. Management agreement has been signed with Starwood under "Four Points by Sheraton" brand. Presently, the construction is over 20% complete and the hotel is expected to be completed and ready for service by the end of 2011. 5-star, 210-room hotel project and 128-unit service apartment on land area of 3 rai 1 ngarn 69 square wah is located on Sukhumvit road can be connected to the Nana BTS station. Management agreement has been signed with the Langham Group under "The Langham" brand for the hotel and under the "The Langham Residence" brand for the service apartment. Presently, the architect has already been appointed. 5-star, 440-room hotel project on land area of 2 rai 2 ngarn 67 square wah. The land is situated on Phayathai road and can be linked to the Phayathai BTS station and Airport Link station. Management agreement has been signed with The Langham Group under the "Langham Place" brand. Presently, the architect has already been appointed. 15 rai 2 ngarn 63.3 square wah. land situated on Phahonyothin road, close to BTSC's head office. Presently, the land is under the feasibility study to be developed into residential and office buildings and the first building is targeted to be launched within the end of 2010. BTSC estimated that these projects will require a total investment of approximately Baht 27,000 million (including cost of land). Out of such amount, BTSC expects to invest approximately Baht 5,000 million from its own capital. As for the remaining capital expenditures, BTSC has the policy for the subsidiaries to raise fund by borrowing from financial institutions or selling shares to investors or business alliance. (more)