Reasons for over 20% change in financial performance

(Translation) No.H.T.061/2006 November 13, 2006 To: Managing Director of SET Re: Explanation of the 3rd Q.2006 Operating result varied over 20% vs.last year The company would like to clarify the operating results, in particular the causes giving rise to the loss associated with the 3rd Quarter 2006 and comment upon the continued success of the company to generate strong operating cash flows. During the 3rd Quarter, management continued to address the non-performing motorcycle hire purchase loans created from sales in 2005 and 2004. These actions have resulted in a considerable number of motorcycles being repossessed, significantly increasing the company's inventory of used motorcycles. The value of used motorcycles in Thailand has decreased rapidly over recent months due to new models being introduced coupled with a significant over supply of used motorcycles in the market generally. The company has therefore commenced sales of motorcycles by auction and directly to dealers in order to reduce inventory levels. The price realized from these sales is much lower than that received by sales through the existing channel, direct to consumers. In order to reflect the lower net realizable value, the company has decided to write down the motorbike inventory to reflect a conservative and prudent value. This action has resulted in an additional inventory write-down of Baht 377 million during the 3rd Quarter, and this has been disclosed separately in the income statement. Given the lower value of repossessed motorcycles the company has also decided to increase provisions for bad and doubtful loans. This step has increased the provision by Baht 113 million. This has also been disclosed separately in the income statement. The total impact of these accounting changes, which are non-cash in nature, has resulted in a charge to the income statement of Baht 490 million, an amount which comprises 69% of the loss for the 3rd Quarter. The process of repossessing motorcycles from non-performing accounts and the related sale of the used motorcycle inventory will continue in the 4th Quarter of 2006. It is anticipated that the inventory of used motorbikes will be reduced to normal trading levels thereafter. The ongoing drive to improve operating cash flow has resulted in Baht 192 million being generated during the 3rd Quarter. For the nine months ended 30 September 2006, a total of Baht 678 million of cash has been generated. This compares to cash utilization of Baht 1,269 million during the same period in 2005, a positive change of almost Baht 2 billion.The company expects to continue to generate cash during the consolidation phase of the business. The company continues to enhance its risk management and control environment to ensure that this situation does not recur. As anticipated, stricter credit granting procedures, have resulted in lower sales volumes, however the quality of the new business is expected to be considerably better. The company will continue to reduce the cost base of the business in order to create a sustainable, profitable business model for the future. Comments to Key Financial Numbers: Income Statement Gross sales for the quarter registered at Baht 585.1 million or 49% of the same period of previous year.The main decrease was motorcycle sales registering only 25% and home appliance registering at 87% compared to the previous year. Interest from installment sales registered at Baht 238 million showing a decrease of Baht 143 million due to the decrease of hire purchase accounts as the result of lower sales and high revert-in since beginning of the year. At end of September numbers of accounts receivable installment was 322,884 comparing to the same period of last year 409,928 showing a decrease of 87,044 accounts. Loss on devaluation of repossession products motorcycles with the amount of Baht 377.2 million was the difference between the current valuation of the repossessed motorcycle and the value of Baht 7,000 per unit which is the expected average auction price. It was treated as special reserve in the inventory as a conservative valuation. Loss on additional reserves for accounts receivable motorcycles with the amount Baht 133.3 was the estimated increase of the reserve (representing additional 20% of the normal reserve) for the motorcycle accounts. In summary the Net Loss for the quarter registering of Baht 713.1 million against Net Profit of Baht 34.7 million of the same period of last year. The difference of Baht 747.8 million can be analyzed as follows: 1. The loss on devaluation of repossession motorcycles 377.2 million 2. The additional reserve for motorcycles HP accounts 113.3 million 3. The increase of Loss on repossession 93.5 million 4. The decrease of Interest from Installment 143.0 million 5. The impact of lower Gross Sales & Others 20.8 million Balance Sheet Installment and other receivables net decreased from Baht 4,706.1 million at end of December 2005 to Baht 3,231.0 million was mainly due to the decrease of HP accounts and the increase of the reserve for the motorcycle accounts. Inventories, net decreased from Baht 754.3 million to Baht 677.8 million was mainly due to the reserve of the motorcycles. Interest bearing debt decreased by Baht 678 million (Baht 192 million for the quarter) was due to favorable operating cash flow as a result of lower purchase of goods especially no new purchase of motorcycle during the year. Kindly be informed. Yours truly, Prateep Saenghiranwathana Controller & Finance Director