dcc 06

1

ANNUAL REPORT 2006

General Information 2

Financial Highlights 4

Report from the Board of Directors 6

Board of Directors 9

Sub Committee 16

Audit Committee 18

Management Team 20 Major Changes in 2006 22

Nature Of Business 23

Market Situation 29

Company & Subsidiaries’ Structures 31

Risk Factors 32

Capital Structure 35

Shareholders’ Structure 35

Dividend Policy 37

Management Structure 38

Directors’ Remuneration 40

Auditor’s Remuneration 44

Related Transactions 45

Good Corporate Governance 49

Board of Directors’ Responsibility To Financial Report 54

Management discussion & Analysis 55

Financial Ratio 58

Auditor’s Report 60 Financial Statements & Notes to Financial Report

2

GENERAL INFORMATION Company Dynasty Ceramic Public Company Limited

Company registration Bor.Mor.Jor. (PCL) 321 (0107537000742)

Established 1 August 1989

Listing on the SET 3 January 1992, trading under the abbreviation “DCC” under the construction materials group.

Nature of business Core business: Manufacturer and distributor of ceramic floor and wall tiles under "Dynasty", "Tomahawk", "Jaguar", "Nava" brand. Also, it purchases the ceramic floor, wall and decorative tiles from Tile Top Industry Public, Co., Ltd., which is one of the subsidiaries of the Company.

Secondary core business: Nationwide distributor through its subsidiaries: Pick & Pay Co., Ltd., Muangthong Ceramics Co., Ltd., and World Wide Ceramics Co., Ltd. In addition, Dynasty Cerami is an importer of Polished Porcelain tiles from China for sales, as well as Sanitary wares and other related products such as Tile grout for sale.

Registered capital 408,000,000 Baht, comprising 408,000,000 shares with a par value of 1 Baht per share, issued and fully paid-up

Subsidiary The Company has four subsidiaries : Tile Top Industry Co., Ltd., Pick and Pay Co.,Ltd. Muangthong Ceramic Co., Ltd., and World Wide Ceramic Co., Ltd, in which it holds an equity stake of 96 percent of the registered and paid-up capital.

Head Office Address 37/7 Suthisarn-Winijchai Road, Samsen-Nok Sub-district Huay Kwang District, Bangkok 10320.

Tel. 0-2276-9275-81Fax.0-2276-0313-17

Subsidiaries Company Address 37/7 Suthisarn-Winijchai Road, Samsen-Nok Sub- district Huay Kwang District, Bangkok 10320.

Tel. 0-2276-9275-81Fax.0-2276-0313-17

Homepage http://www.dynastyceramic.com

DCC Factory Address 54/8 Moo3,Suwannasorn Road, Koke Yae Sub-District, Nong Kae District, Saraburi Province 18230

Tel. 036-379023-4Fax. 036-371024

Tile Top Factory Address 3/2 Moo 8, Paholyothin Road, Nong Khai Nam

Sub district, Nong Khae District, Saraburi Province 18140

Tel. 036-371815 Fax. 036-371111

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Subsidiary Outlets By the end of 2007, there are a total of 142 factory outlets locatednation-wide in forms of factory outlets.

Registrar Thailand Securities Depository Co. Ltd. The Stock Exchange of Thailand Building, 52 Ratchadapisek Road, Klongtoey Sub-district, Klongtoey District, Bangkok 10110 Fax: +66 2 654 5599 Telephone: +66 2 229 2800

Auditors Mr. Pichai Dachanaphirom, Certified Public Accountant, Registration Number 2421, or Miss. Jantra Wongsri-Udomporn, Certified Public Accountant, Registration Number 4996,

Dharmniti Auditing Co. Ltd., 267/1 Pracharatch Sai 1, Bangsue Sub-district, Bangsue District, Bangkok 10800 Telephone: +66 2 587 8080

Legal Counsel Jaturadhamma Legal Office

130-132 Akaranuphongse Building, Krungkasem Road, Bangkunprom

Sub-district, Phra Nakhon District, Bangkok 10200.

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Financial Hi-light

SUMMARY OF FINANCIAL DATA IN THE PAST 5 YEARS

Million Baht

COSOLIDATEDFINANCIAL STATEMENT 2006 2005 2004 2003 2002

Total Revenue 4,460 4,292 3,785 3,215 2,338

Net Sales 4,452 4,255 3,739 3,165 2,251

Cost of Sales (2,829) (2,710) (2,402) (2,131) (1,590)

Gross Profit (Exclude Other Revenue)

Gross Profit (%)

1,623

36.5 %

1,545

36.3%

1,337

35.7%

1,034

32.7%

661

29.4%

Selling and Administration Expenses (746) (485) (397) (363) (295)

EBITDA 1,252 1,371 1,286 970 597

Net Profit after Tax 567 749 675 502 364

Earning per Share (Baht) 1.39 1.84 1.66 1.23 0.89

Consolidated Balance Sheet

Total Assets 4,349 4,144 3,303 3,173 2,796

Total Liabilities 2,306 2,273 1,633 1,725 1,416

Share’s Capital

Total Shareholders’ Equities

408

2,043

408

1,871

408

1,670

408

1,448

408

1,379

Financial Ratios

Profitability Ratio (%) 12.71 17.45 17.84 15.61 15.57

Debt: Equity Ratio (times) 1.13 1.21 0.98 1.19 1.03

Return on Total Asset (%) 13.03 18.07 20.45 15.82 13.02

Return on Equity (%) 27.74 40.02 40.44 34.67 26.40

Book Value per Share (Baht) 5.01 4.59 4.09 3.55 3.38

Dividend per Share (Baht) 0.97 1.30 1.18 0.65 0.48

Dividend /Net Profit (%)

Dividend Yield (%)

70

7.2

71

9.7

71

8.8

53

54

5

0.89

0.475

1.23

0.65

1.66

1.18

1.84

1.3 1.39

0.97

0.00

0.50

1.00

1.50

2.00

Bah

t/Sha

res

2002 2003 2004 2005 2006

DIVIDEND & EARNING PER SHARE

Earning Per Share Dividend Per Share

DCC STATISTIC

364

2,338502

3,215675

3785

749

4292

567

4460

0

1,000

2,000

3,000

4,000

5,000

Mill

ion

Baht

2002 2003 2004 2005 2006

SALES & PROFIT

กําไรสุทธิ / NET PROFITยอดขาย(NET SALES)

2796

1379

3173

1448

3303

1670

4144

1871

4349

2043

0

1000

2000

3000

4000

5000

Mill

ion

Bah

t

2002 2003 2004 2005 2006Year

ASSET & EQUITY

สินทรัพย ASSETSสวนผูถือหุน EQITY

6

Report of The Board of Directors

Throughout 2006, the property market was somewhat sluggish and slowed down from the previous year. Several negative factors included a surge in high oil prices, which fuelled inflation, and fluctuations in the Baht value and interest rates. In addition, several regions of Thailand were flooded, while the political crisis directly affected consumer purchasing power by raising among consumers worries regarding their future earnings. As a result, people delayed making decisions for spending on non-essential items, which included house purchases and repairs. Moreover, total domestic production capacity of floor and wall tiles rose to 180 million square meters per year while demand stood at only 140 million square meters. In addition, 15 million square meters of tiles from China were imported for sale in the mid-range and high-end markets. Therefore, each tile factory within the industry had to cut production capacity and pursue aggressive sales promotion activities, making it exceedingly difficult to adjust ceramic tile selling prices to match rising production costs, especially with regard to energy and transportation costs.

Although the Company’s total sales rose, our net profit declined, compared to the same period in 2005. In a bid to maintain the Company’s profitability, the board of directors focused on reducing production costs. During the past year, the Company invested in machinery to recycle waste heat created during the production process. This enabled the Company to cut natural gas costs by 10% compared to a year earlier. The Company also had more output from production capacity expansion with two more kilns from March, 2006. The Company was able to increase output by 480,000 square meters per month. Therefore, production costs per unit decreased, thanks to an ‘economy of scale’ from effective utilization of the factory’s production capacity. This enabled the Company to maintain gross profits at over 36%.

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As of the end of 2006, the Company’s production capacity of floor and wall ceramic tiles, from both the Dynasty Ceramic factory and the Tile Top factory, was approximately 46 million square meters a year, using 75% of existing production capacity. The Board considered a plan to expand production output by 6 million square meters a year in 2006 and decided this should be postponed as the domestic demand for ceramic tiles has not increased significantly. Existing combined production capacity is still sufficient to meet the current level of demand.

To date, the Company has strengthened its domestic production and marketing bases and has been able to respond to customers’ needs by producing products featuring innovative patterns and conveniently offering them at locations close to customers’ homes. During 2006, the Company opened 32 new ceramic tiles factory outlets under the Company’s three distributing subsidiaries, namely Pick and Pay Co. Ltd., Muangthong Ceramics Co. Ltd. and Worldwide Ceramics Co. Ltd. Combined with the existing 110 factory outlets, the company has a total of 142 factory outlets. It also has 32 branch warehouses across Thailand. With 130 distributors nationwide, the company has 304 distribution stores for goods made by its factories. This enables the Company to maintain the biggest share of Thailand’s ceramic tile market.

Meanwhile, it was deemed necessary to adopt a more efficient distribution and inventory system for factory outlets and stores across the country. The Company has invested in linking data networks between the company, its factories and factory outlets nationwide. Furthermore, the inventory, accounting and financial systems of the head office and factory operations have been standardized with an online computer system. The total investment for this upgrade was valued at 60 million baht. The Company started testing the systems from the end of 2006. When the enhancement is completed, the Company will be able to better control production, sales and inventory volumes, while effectively monitoring sales figures and debt levels, enabling it to reduce its future workforce and management expenditures.

Dynasty Ceramic Plc and its subsidiaries posted total sales of 4,452 million baht, up by 198 million baht, or 5% growth from a year earlier. While production costs increase 4%, the Company’s marketing and sales costs rose due to increasing diesel prices resulting in increased transport costs. In addition, the Company recorded sales and management expenses from three distribution companies which opened new branches. Hence, net profit after income tax for 2006 is lower than 2005 results. The total net profit for the group was 567 million baht, a 182-million-baht decrease from last year, providing earnings per share for 2006 of 1.39 baht.

Apart from satisfying our customers’ needs, another corporate mission entails operating the business to ensure the highest return on equity (ROE) for our shareholders. In 2006, the Company had an ROE rate of 27% and an average dividend payment rate of 8% of the average market share price. With this outstanding ROE rate, the Company was named by Forbes magazine as one of the 200 small Asian companies with the best operating results in 2006 (Asia’s 200 Best Under A Billion). Only 11 companies in Thailand were recognised with this honour. This is the Company’s second such acknowledgement, with the first occasion being in 2003

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In 2007, the Company intends to manage inventory to better complement sales. Since there is no plan to increase production capacity, with plans only to open 15 more outlets and expenditures for computer equipment, the combined investment outlay will not exceed 100 million baht. As a result, the Company will have sufficient liquidity to repay loans to lower its interest expense burden. The goal is to reduce the debt to equity ratio down to 0.8 times to adapt to the economic slowdown. If everything transpires as planned, the Board of Directors will be able to increase dividend payment rates for shareholders. The Company would like to take this opportunity to thank our shareholders, customers and business partners who have contributed to the Company’s continuous growth. The Board of Directors, management and staff are confident that they will be able to operate the business to meet the needs of consumers and simultaneously continue to develop organizational efficiency. We will continue to focus on corporate governance in our management, which will enable the company to realise sustained growth well into the future.

On behalf of the Board of Directors

( Mr. Roonroj Saengsastra )

President

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BOARD OF DIRECTORS

Mr. Roongroj Saengsastra Position Chairman & President % Share on hand 24.07 Highest Education Bachelor degree, Accounting, Chulalongkorn University Previous 5 years Experience President of TileTop Industry Company Limited, President of Pick and Pay Company Limited, President of Muang Thong Ceramic Company Limited, President of World Eide Ceramic Company Limited, Family relationship among executives Miss Cattleya Saengsastra’s brother Training From IOD None

Illegal history within the past 10 years None

General Yutthasak Sasiprapha

Position Independent Director, Audit Committee % Share on hand None Highest Education

Command and General Staff College, Chulachomklao Royal Military Academy

Current Position- President of the Olympic Committee, Thailand Chairman of PTTCH

Past Experience Deputy Of Defence Minister

Chairman of Thai Olephine .(Public) Co.,Ltd

Family relationship among executives None

Training From IOD None


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Pol.Gen. Patcharavat Wongsuwan

Position Independent Director & Audit Committee % Share on hand None Highest Education Master degree, Art Social,

Kasetsart University Current Position: Deputy Commissionner-

General(Administration) -Royal Thai Police Previous 5 years Experience :Assistant

Commissionner-Royal Thai Police Family relationship among executives None Training From IOD None


Mr.Yothin Juangbhanich

Position Independent Director & Audit Committee Since May 2006 % Share on hand None Highest Education Master Degree(MBA) from

University of Santa Clara,USA % Share on hand None Current Position :

Tax Economist 9 Revenue Department Director, Performance Improvement Unit

Previous 5 years Experience Regional 12 Revenue Chief

Family relationship among executives None Training From IOD None


. Mr. Surasak Kosiyajinda Position Independent Director & Audit Committee Since Jan 1998 % Share on hand None Highest Education Bachelor degree in Law,

Tammasart University Current Position - Lawyer Jutturatham Law Office

Professional Ethic Committee Lawyers Council of Thailand

Previous 5 years Experience- Jutturatham Law Office Family relationship among executives None Training From IOD – DAP 48/2005


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Mr. Sanchai Janejarat

Position Director&Vice President (Production) since 1998

% Share on hand 0.6 (2,461,000 shares) Highest Education Bachelor degree, Engineering, Chulalongkorn University Working Experience Current Position VicePresident (Production), TileTop Industry PCL. Previous 5 years Experience Plant Manager-Royal Asia Brick & Tiles Family relationship among executives None Training From IOD – DAP 54/2006


. Mr. Chana Suthiwangcharoen

Position Director since 1998 % Share on hand None

Highest Education Bachelor degree,Communication

Arts, Chulalongkorn University

Current Position Vice President (Marketting) DCC Working Experience Vice President (Marketting)

Thai German Ceramic Industry Co.,Ltd Family relationship among executives None Training From IOD –None


Mr. Suvit Smarnpanchai

Position Director since December1997 Share on hand 12,892,000 shares

Highest Education High-School, Sahakunsuksa Previous 5 years Experience Current Position -Ekasithpun Co.,Ltd. Illegal history within the past 10 years None Working Experience Director TileTop Industry PCL Family relationship among executives None Training From IOD – DAP 54/2006


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Mr. Chaiyasith Viriyametakul

Position Director 09 / 01/1998- Share on hand 17,244,000 shares Highest Education Bachelor degree, Engineering, Chulalongkorn University

National Defence College (NDC.4414) Current Position: President of Vibhavadee Hospital Previous 5 years Experience President of Thai Rim Construction Co,,Ltd. Family relationship among executives None Training From IOD – DAP 20/2004 Illegal history within the past 10 years None

Miss. Cattleya Saengsastra

Position Executive Director and Company’s Secretary Since 02/1998 Share on hand 11,000,000 shares Highest Education

Bachelor degree Accounting, ChulalongkornUniversity Management Development Program J.J Kellogg

North Western University Current Position Executive Director and Company’s Secretary Working Experience 1971-1990 Accounting Systems Manager-Siam Cement Group 1990-1992 Vice President- Accounting, S&P Syndicate PCL. Illegal history within the past 10 years None) 1993-Present Executive Vice President, TileTop Industry PCL Family relationship among executives -

Mr.Roongroj Saengsastra’s Sister Training From IOD – DAP 47/2005 Illegal history within the past 10 years None

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Scope and Authority of the Board of Directors

The Company’s Board of Directors is responsible for the Company’s operations and was duly appointed by the meeting of shareholders. There are currently 10 Directors, with six Non-executive Directors and four Independent directors. The Board meets at least four times a year. The major agenda of each meeting is clearly set out in advance throughout the year and details of the agenda will be submitted to the Board of Directors beforehand for consideration. Consideration of the agenda items are executed fairly, taking into account benefits to shareholders and the parties concerned. Opportunities for expressing opinions freely are ensured at the meetings. Sufficient time is allocated for careful discussion and voicing opinions. The Chairman ensures that appropriate time is spent on the meeting.

Nomination of Directors The nomination of Directors is not reviewed by the normal procedure of the

Nominating Committee since most Directors are representatives of the shareholders. There are also Independent Directors who are representatives of minor shareholders. However, the company has set guidelines for the appointment of Directors of the Board and the Committee considers candidates’ qualifications, knowledge, skills and their ability before proposing their selected candidates to the Shareholders.

In accordance with the Articles of Association of the Company, the Board of Directors must comprise at least five members. The Shareholders’ Meeting selects and appoints Directors in accordance with the following guidelines and method:

1.The selection shall be determined by a majority vote. Each Shareholder has a vote equivalent to one vote per share.

2.Each Shareholder may use all his votes to appoint one or more individuals as Directors, but may not divide his votes with any other persons.

3.Candidates receiving the most votes in successive descending order will be appointed as Directors according to the number of Directors required, or to be voted for, on that particular occasion. In the event that there is a tie between candidates in the next tier, which would exceed the number of Directors required, the Chairman of the Meeting will cast the deciding vote.

Directors’ Term of Office At every Annual Meeting of Ordinary Shareholders, a number of one in three

(1/3) of the total number of Directors at that time will vacate their offices. Directors who are obliged to vacate their offices in the first or second year following the Company registration will be decided by a ballot. During successive years, the longest-serving Directors will vacate their offices. Directors who vacate their offices may be re-elected to assume their seats by the Shareholders’ meeting. Termination of a Director’s term occurs thus: by the death of a Director or voluntary resignation; and by removal with a Shareholders’ Meeting’s resolution with a vote of not less than three in four (3/4) of the number of shareholders in attendance with voting rights, and a collective number of votes of at least one half of shares held by Shareholders in attendance and with voting rights.

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The Nominating Committee will select individuals as Directors from experts in various professions, who possess leadership, distinctive vision, morals, ethics and transparent work records as well as the ability to express opinions freely.

Authority and Duties of the Board of Directors 1. To determine the Company’s vision, mission and business policies to

ensure stability and balanced and sustainable benefits of all concerned, and continuously add value for shareholders.

2. To consider and approve business plans and investment budgets for expansion and consider and approve capital-increase plans, issue of debenture and mergers which have been considered by executive directors, for proposal to the Shareholders’ Meeting.

3. To evaluate the Company’s operating results compared to plans and adjust strategies appropriate for the prevailing situation and increase staff competitiveness.

4. To oversee and develop the risk management system including prevention of potential risk.

5. To devote themselves and their time to the Company by not seeking benefits for themselves or any specific individual, as well as to avoid any action that represents a conflict of interest with the Company and its Subsidiaries.

6. To comply with the Laws, Company objectives and Company regulations, including resolutions of Shareholder Meetings, with honesty, integrity and caution in protecting the Company’s interests.

7. To follow corporate governance principles and the Code of Best Practices for Directors of Listed Companies of the Stock Exchange of Thailand (SET) and the Securities and Exchange Commission.

8. To disclose important and necessary corporate information following the SET’s Guidelines on Disclosure of Information, to investors or shareholders for their decision making regarding investment in the company’s stock.

9. To encourage staff at all levels to have a sense of ownership by emphasising the importance of internal audit systems to reduce the risk of corruption and prevent illegal actions.

10. To fairly look after the benefits of both major and minor Shareholders according to their rights.

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Directors with Signatory Authority

Two in six of the Directors comprising Mr. Roonroj Saengsastra or Ms.Cattleya Saengsastra or Mr. Chana Suthiwangcharoen or Mr. Suvit Samarnphanchai or Mr. Chaisit Viriyamettakul or Mr. Sanchai Janejarat may act as joint corporate signatories, together with the Company’s seal.

Assignment of Management Duties to the Managing Director

The Board of Directors must comply with the Laws, Company objectives and Company regulations, including resolutions of Shareholder Meetings. The board has the authority to appoint an individual to conduct operations on behalf of the Company under the control of the board of directors, or delegate authority and duties to the said person as appropriate. The Board of Directors may cancel, revoke or amend such authority.

The Board of Directors has written guidelines on management and approval authority of the managing director and executives from all levels. The Company has followed these written guidelines to control operations. The Managing Director has the authority to conduct and approve transactions following the budget approved by the Board of Directors. If the transaction is a special item for which no budget has been allocated, but needs to be implemented urgently for the Company’s benefits, the Managing Director is authorized to approve a budget of not more than 10 million baht, but this must be proposed to the Board of Directors for ratification during the next meeting.

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SUB COMMITTEE Independent Directors To ensure the Company has good corporate governance following SET guidelines, the Board of Directors appointed four Independent Directors as follows:

1. General Yuthasak Sasiprapa Independent Director

2. Pol. General Patcharawat Wongsuwan Independent Director

3. Mr. Surasak Kosiyajinda Independent Director

4. Mr. Yothin Juangpanich Independent Director

All Independent Directors were appointed as the Company’s Audit Committee Directors and held meetings with the Audit Committee.

Executive Board The Company has five Executive Directors as follows

1. Mr. Roonroj Saengsastra (President)

2. Mr. Sanchai Janejarat (Vice President-Production)

3. Mr. Chana Suthiwangcharoen (Vice President-Marketing)

4. Ms. Cattleya Saengsastra (Executive Director and

Company’s Secretary)

5. Miss Sonthaya Yaowalee (Assistant Managing Director)

Scope and Authority of Executive Board 1. Authorised to order, plan and implement operations of the Company in

accordance with the policies established by the Board.

2. Establish operational strategies for the Company’s group

3. Formulate plans and directions concerning investment and fund raising in accordance with the Company’s and Subsidiaries’ policies before proposing them to the Board of Directors for approval.

4. Determine the salary rate, appoint, dismiss, fire, reward, and award raises as well as bonus to staff.

5. Has the authority to determine staff welfare in line with the situation, tradition and law.

6. Has the authority to approve investment, sales and purchases of fixed assets of the Company and Subsidiaries, procurement, application for loans, provision of loans, entry into contracts, and legal transactions in relation to normal business and trade and in accordance with the Company’s objectives, under a budget approved by the Board of Directors and within the operating authority of the Company. In case the items represent conflicts of interest with the Company or the subsidiaries, the Executive Board must present such items to the meeting of the Board and/or the meeting of

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Shareholders (as applicable) for approval of the items in accordance with the Company’s Articles of Association or relevant laws.

Certification of Accuracy of Information by the Executive Board The Executive Board reviews the annual information disclosure form as Executive Directors of the Company or as Top Accounting Executive by certifying that the information disclosed is complete and accurate and does not mislead or lacks important contents that should be disclosed, as follows:

1. Financial statements and financial information presented in the annual information disclosure form comprise complete and correct data on financial status, operating results and cash flows of the Company and Subsidiaries.

2. Responsible for arranging an adequate information disclosure system for the Company to ensure that the Company discloses complete and accurate information of a significant nature of the Company and its subsidiaries, including overseeing that the system is followed.

3. Responsible for arranging an effective internal control system for the Company and overseeing that the system is followed, which includes system weaknesses and major changes as well as illegal actions that may affect the preparation of the financial reports of the Company and its subsidiaries.

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Audit Committee

To ensure the Company has good corporate governance following SET regulations, making shareholders and general investors confident in company management, the Board of Directors appointed the Audit Committee of Dynasty Ceramic Plc to review information related to financial reporting, internal audit and audit by a certified auditor. The Committee must follow corporate governance principles and encourage the Company to follow Code of Best Practices for Listed Companies. The committee’s duty is to give advice on risk management and internal audit systems by reporting related results to the company’s board of directors.

The Audit Committee comprises four independent directors, with the Director of the Internal Audit Office serving as Secretary to the Audit Committee.

The Audit Committee comprises the following members:

1. Chairman of the Audit Committee General Yuthasak Sasiprapa

2. Audit Committee Director Pol. General Patcharawat Wongsuwan

3. Audit Committee Director Mr. Surasak Gosiyajinda

4. Audit Committee Director Mr. Yothin Juangphanich

5. Secretary to the Audit Committee Miss Sonthaya Yaowalee

Scope of duties and responsibilities of the Audit Committee 1. To ensure that the Company’s operations comply with regulations of the

Stock Exchange of Thailand and other relevant laws.

2. To review information disclosures in the Company’s Annual Report in regard to its decision on accounting policy choices and in the event of connected transactions or transactions that may cause a conflict of interest, to ensure accuracy and completeness in the financial statements.

3. To consider, select, and propose the appointment of the Company auditors and to consider the auditors’ remuneration by taking into account the credentials, supporting staff, capacity and experience of the auditors.

4. The Chairman of the Audit Committee or Audit Committee Director must attend the Company’s Shareholders Meeting to explain the appointment of the auditors and transactions related to the Audit Committee.

5. To arrange four annual meetings on average, to consider matters assigned by the Company’s Board of Directors. The Chairman of the Audit Committee may call for a special meeting of Audit Committee Directors if necessity demands joint discussions between Audit Committee Directors, internal Auditors, Auditors or the President of the Company.

6. To review the Company’s key risks and suggests preventive measures to reduce such risks.

7. To protect the interests and benefits of minor shareholders.

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8. To conduct other duties as assigned by the Board of Directors and prescribed in the Company’s regulations.

9. To evaluate the results of the Audit Committee’s corporate governance according to these regulations and to prepare a report of the results for disclosure in the Company’s Annual Report.

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Report of the Audit Committee

During the accounting cycle ended 31 December, 2006, the Audit Committee convened a total of four meetings to perform duties assigned by the Board of Directors, and review the internal auditing system, and present quarterly financial reports and last year’s annual financial reports to the Board of Directors’ Meeting. Independent consideration of issues was achieved by inviting executives concerned and the internal auditor to attend the meetings as required by the issues considered. The Audit Committee reported the results of each meeting to the Board of Directors.

In 2006, the Audit Committee considered and proposed the Board of Directors improvement of the regulations governing the Audit Committee to ensure complete coverage of the Audit Committee roles. In summary, the Audit Committee considered and agreed with the Corporate Auditors that the Company’s financial statements possess accurate content in line with standardized accounting practices and contain sufficient disclosure of information. The Company’s internal control systems are effective: it was found there was no failure of compliance with the relevant rules and regulations, nor connected transactions and items with potential conflicts of interest. The Audit Committee performed its duties independently with no restrictions in accessing information for auditing.

For the 2007 financial statements, the Audit Committee has proposed the Board of Directors re-appoint Dharmniti Auditing Company Limited as Corporate Auditor since the company is well-known and follows generally accepted auditing standards. The appointment of Corporate Auditor will be proposed to the Annual Ordinary Meeting of Shareholders, scheduled for 27 April, 2007, for approval.

(General Yuthasak Sasiprapa)

Chairman of the Audit Committee

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Management Team

The Company’s Management is appointed by the Managing Director and assigned to oversee performance defers to the plans and budget approved by the Board of Directors.

Over the past year, the Company’s Management held monthly meetings to consider and screen monthly reports of operating results compared to the business plans and policies established by the Executive Board. It is also responsible for monitoring the operations of each department and suggesting measures for prevention of potential risks.

The Company’s Management Team comprises

1. Mr. Roongroj Saengsastra President (Chairman)

2. Mr. Jeera Tritawil Company’s Consultant

3. Mr. Chana Suttiwangcharoen Executive Director (Marketting)

4. Mr. Sanchai Janecharat Executive Director (Production)

5. Miss.Sontaya Yaowalee Assistant Managing Director

6. Mr. Sutee Boonnag Vice President- Production

(Tiletop Factory)

7. Mr. Paibon Vejkarnchana Vice President-Production (DCC Factory)

8. Mr Arun Natchayangkoon Vice President-Factory Management

9. Mr. Monrak Saengsastra Vice President- Management

and Operation

10. Mr.Marut Saengsastra Vice President- System and Computer

11. Mr.Jarujate Tritawil Vice President-Internal Audit Office

12. Miss Porntip Pengtako Vice President-Subsidiary’s Accounting

13. Miss Anchalee Pongkunakorn Purchasing Manager

14. Miss Somruetai Boonyarit Vice President-Accounting Office

(Secretary of Management Committee)

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Management Team

Front from left . Sutee Boonnag(Vice President- Production -Tiletop Factory) Mr. Jeera Tritawil (Company’s Consultant) Mr. Sanchai Janejarat (Executive Director -Production)Mr. Roongroj Saengsastra (President) Mr. Chana Suttiwangcharoen (Executive Director- Marketting) Miss.Sontaya Yaowalee(Assistant Managing Director)

Standing Behind From Left Mr Arun Natchayangkoon(VicePresident-Factory Management) Mr.Jarujate Tritawil (Vice President-Internal Audit Office ) Mr.Marut Saengsastra (Vice President- System and Computer) Mr.Yingsak Taksinanond (Advisor) Mr. Monrak Saengsastra (Vice President- Management and Operation) Miss Somruetai Boonyarit (Vice President-Accounting Office) Miss Porntip Pengtako(Vice President-Subsidiary’s Accounting) Miss Anchalee Pongkunakorn (Purchasing Manager)Mr. Paibon Vejkarnchana (Vice President- Production -DCC Factory )

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Major Changes in 2006

1. In early March 2006, the project to expand the production capacity of floor tiles at the Dynasty Ceramic plant, with two added kilns, was completed. This resulted in a monthly increase of 480,000 square meters or combined output from the two companies of around 46 million square meters per year.

2. After the merger with three major ceramic distributors in the fourth quarter of 2005, the Company invested in linking data between the Company, factories and factory outlets nationwide. Also, the inventory, accounting and financial systems of the headquarters and factories have been standardized by using an online computer system. The total investment for such improvements amounted to 60 million baht. The Company started testing the systems from the end of 2006 by initially installing the systems at 120 outlets nationwide. When the project is completed, the Company will be able to control production, sales and inventory volumes, while effectively controlling sales figures and debt levels, enabling it to reduce future workforce and management expenditures.

3. During 2006, the Company opened 32 more ceramic tiles factory outlets under the Company’s three distributing subsidiaries, namely Pick and Pay Co. Ltd., Muangthong Ceramics Co. Ltd. and Worldwide Ceramics Co. Ltd. Combined with the existing 110 factory outlets, the company has a total of 142 factory outlets and 32 branch warehouses across Thailand. With 130 distributors nationwide, the company has 304 distribution stores for goods made by its factories. This enables the Company’s products to better reach individual customers.

4. The Company invested in machinery to cut energy costs in line with the national energy-saving project by improving machinery able to recycle waste heat created during the production process. This was completed in the middle of 2006. This enabled the Company to cut natural gas costs by 10% compared to a year earlier.

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Nature Of Business Business Operation of Each Product Line 1.Current Business Outlook

Dynasty Ceramic Public Company Limited was formerly known as Royal Floor Tiles Co., Ltd. Its primary business is the manufacture and distribution of ceramic tiles under "Dynasty", "Tomahawk", "Jaguar", "Nava" trademark. The Company was founded on 1 August 1989, listed on the Stock Exchange of Thailand on 3 January 1992, and registered as a Public Company on 9 March 1994. At present, the registered capital is 408 million shares, with capital paid-up at a par value of 1 Baht per share, of which 77.41 percent is held by Thai nationals and 22.59 percent is held by foreign nationals. (As of the close of the share registrar on 28 February 2006).DCC had 4 Subsidiaries Company:

Tile Top Industry Public Company Limited. The Company is currently therefore the major shareholder in Tile Top Industry Public Co., Ltd. with an equity stake of 96.83 percent. Tile Top Industry Public Co., Ltd., which was likewise a producer of ceramic tiles with a factory located in the same vicinity as Dynasty’s factory, at Nong Kae District, Saraburi Province. The Company purchases the entire production output of Tile Top Industry Public Co., Ltd. for sole distribution, in order to economize on marketing and transportation costs.

Pick and Pay Company Limited. The Company is currently holding an equity stake of 97.99 of the registered capital. Pick and Pay Co., Ltd performed its business as the sold agent for Dynasty Ceramic Public Company Ltd., which has a total of 43 outlet stores located through out Thailand.

Muangthong Ceramic Company Limited. The Company is currently holding an equity stake of 98.98 of the registered capital. Muangthong Ceramic Co., Ltd performed its business as the sold agent for Dynasty Ceramic Public Company Ltd., which has a total of 54 outlet stores located through out Thailand.

World Wide Ceramic Company Limited. The company is currently holding an equity stake of 99.93 of the registered capital. World Wide Ceramic Co., Ltd performed its business as the sold agent for Dynasty Ceramic Public Company Ltd.which has a total of 13 outlet stores located through out Thailand.

In addition, Dynasty Ceramic imports polish porcelain tiles from China for sale, as well as a purchaser of sanitary ware and other related products. The company and its subsidiary implemented an ongoing expansion of production capacity, allowing the combined production capacity of both firms to increase up to 40 million square metres per year. The Company’s sales have therefore grown significantly and it currently enjoys the largest capacity and market share of ceramic tile products in the country.

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Nature Of Business Business Operation of Each Product Line

1.Current Business Outlook

Dynasty Ceramic Public Company Limited was formerly known as Royal Floor Tiles Co. Ltd. Its core business is the manufacture and distribution of ceramic tiles. The Company was founded on 1 August 1989, listed on the Stock Exchange of Thailand on 3 January 1992, and registered as a Public Company on 9 March 1994. Its registered capital was increased to 280 million baht, with capital paid-up at a par value of 10 baht per share at 272 million baht, in January, 1995.

At the end of 1997, the Shareholders and Directors of Tile Top Industry Public Co. Ltd, also a manufacturer of ceramic tiles with a factory located close to the Dynasty Ceramic Plant, bought 14.9 million ordinary shares of the company, or 54.82% of the paid-up capital, from the major shareholder which is a securities company. It has invested in more efficient machinery and developed quality and more colorful products. It has also adjusted marketing strategies to focus more on distribution to consumers.

Towards the end of 2000, the Company increased its registered capital to 408 million Baht, comprising 40.8 million shares with a par value of 10 Baht per share. The funds were to be utilized for the expansion of production capacity through the purchase of the entire ordinary shareholding in Tile Top Industry PCL from the original shareholders. As a result, the Company acquired the factory of Tile Top Industry Public Co. Ltd. The Company is currently the major shareholder in Tile Top Industry Public Co. Ltd., with an equity stake of 96.83%, of which 83.5% is held by Thai nationals and 16.5% by foreigners. (Register closed 28 February, 2007)

Dynasty Ceramic Public Company Limited’s core business is the manufacture and distribution of ceramic tiles. It buys all products produced by Tile Top Industry Public Co. Ltd. at a wholesale price for sale; it also imports granite tiles from China, which are larger than the type manufactured by the Company. The Company also purchases sanitaryware and products related to ceramic tiles such as stair components and tile grout for sale through its three subsidiaries, namely Pick and Pay Co. Ltd., Muangthong Ceramic Co. Ltd. and Worldwide Ceramic Co. Ltd, in which the Company invested an equity stake of over 90% in 2005, to operate a retail business in the form of factory outlets. This enables the Company to get closer to its customers, know what they want and understand their ceramic tile purchasing trends. The Company used such information to improve its products and services, resulting in a rise in sales.

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As at the end of 2006, the Company had 180 branch warehouses nationwide and

130 local distributors. Its products are exported overseas to countries and regions

including Brunei, the Maldives, Indochina, Sri Lanka, Myanmar, Australia, New

Zealand, Korea, Japan, Canada and Malaysia. The ceramic tiles produced by the

Company and its subsidiaries comprise

1. Floor and wall ceramic tiles under the “Dynasty” trademark

2. Floor and wall ceramic tiles under the “Tile Top” trademark

3. Decorative ceramic tiles under the “Tile Top” trademark

4. Floor and wall ceramic tiles under the “Tomahawk” trademark

5. Floor and wall ceramic tiles under the “Jaguar” trademark

6. Floor and wall ceramic tiles under the “Nava” trademark

7. Floor and wall ceramic tiles under the “Value” trademark

8. Floor and wall ceramic tiles under the “Anna” trademark

9. Floor and wall ceramic tiles under the “Mustang” trademark

The Company and its subsidiary have been focusing on expanding production capacity. Both companies have a combined yearly output of 46 million square meters, which has led to a continuous rise in the Company’s sales volume. The Company currently holds the biggest share in the domestic ceramic tile market.

27

2.Business Structure

29

3. Revenue Structure

1. Revenue from sales of ceramic tiles manufactured by Dynasty Ceramic PCL.

2. Revenue from the distribution of ceramic tiles purchased from the subsidiary (Tile Top Industry PCL) for re-sale to customers at a profit on the wholesale price of the said subsidiary.

3. Revenue from the distribution of granite tiles imported from China for domestic sale.

4. Revenue from the sale of sanitaryware, grout and other products purchased for re-sale.

5. Revenue from the share of profits from its Tile Top Industry PCL subsidiary, in which the Company holds an equity stake of 96.83%. 6. Revenue from the share in profits acknowledged from the Company’s subsidiaries: Pick and Pay Co. Ltd. Muangthong Ceramic Co. Ltd., and Worldwide Ceramic Co. Ltd, in which the Company holds an equity stake of over 95%.

7. Revenue from the merger of business and recognition of negative goodwill, recorded as annual revenue of 35 million baht.

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4. Organization

BOARD OF DIRECTORS

AUDIT COMMITTEE

PRESIDENT

VICE PRESIDENT-

MARKETTING

VICE PRESIDENT-

PRODUCTION

VICE PRESIDENT-ADMINISTRTION

DEPUTY

MANAGER

DYNATY FACTORY MANAGER

TILETOP FACTORY MANAGER

FACTORY ADMIN

-INTERNAL AUDIT - PROJECTS OFFICE

- ACCOUNTING-SUBSIDIARIES

COMPANY

MARKETTING SALES COORDINATION

ACCOUNTING OFFICE

ADMIN & MANAGEMENT

SYSTEM AND COMPUTER -

EXECUTIVE DIRECTORS

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5. Corporate Control in Dynasty Ceramic Public Co. Ltd.

Major Shareholders who also serve as Directors and have the authority to manage and govern Dynasty Ceramic Public Co. Ltd., as of 28 February 2007, are presented below. Name Position %Shareholding 1. Mr. Roongroj Saengsastra Chairman and President 24.07 2. Mr. Chaiyasith Viriyamettakul Director 4.28 3. Mr. Suvit Smarnphanchai Director 3.16 4. Miss.Cattleya Saengsastra Executive Director and 2.70 Company Secretary 5. Mr. Sanchai Janejarat Vice President (Production) 0.08 Directors with controlling authority and serving as Executives in the Company are shown below but having no shareholdings Name Position 1.Gen.Yuthasak Sasiprapha Independent Director and Chairman of the Audit Committee 2.Pol.Gen.Patcharawart Wongsuwan Independent Director and Audit Committee 3.Mr.Yothin Juangbhanich Independent Director and Audit Committee 4.Mr. Surasak Kosiyajinda Independent Director and Audit Committee 5.Mr. Chana Suthiwangcharoen Vice President (Marketing)

Corporate Control in Subsidiaries The Company has four subsidiaries:

1. Tile Top Industry Public Co. Ltd. -- a subsidiary in which Dynasty Ceramic Public Co. Ltd. has a 96.83% equity stake -- is governed through the Board of Directors, of which some members also serve as Directors in the Company.

1.1. Mr. Roongroj Saengsastra President 1.2. Mr. Chana Suthiwangcharoen Vice President ( Marketing) 1.3. Mr. Sanchai Janejarat Vice President (Production) 1.4. Pol.Gen.Patcharawart Wongsuwan Director 1.5. Miss. Cattleya Saengsastra Executive Director and

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Company Secretary

2. Pick and Pay Co. Ltd. - a subsidiary in which Dynasty Ceramic Public Co. Ltd. has a 97.79 % equity stake, is governed through the Board of Directors, of which some members also serve as Directors in the Company.

2.1 Mr. Roongroj Saengsastra President

2.2 Mr. Chana Suthiwangcharoen Company Director

2.3 Ms. Cathleeya Saengsastra Company Director

3 . Muang Thong Ceramic Co. Ltd. - a subsidiary in which Dynasty Ceramic Public Co. Ltd. has a 99.98 % equity stake, is governed through the Board of Directors, of which some members also serve as Directors in the Company.




4 World Wide Ceramic Co. Ltd. a subsidiary in which Dynasty Ceramic Public Co. Ltd. has a 99.93 % equity stake, is governed through the Board of Directors, some of whom also serve as Directors in the Company.




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Market Situation and Competition

During 2006, the floor and wall ceramic tile business saw some of its most difficult times, owing to the disastrous floods which proved to be more serious than in previous years. Floods prevented affected residents from entering their homes to conduct improvements and repairs; when water levels started to recede, the end of 2006 was approaching. The Company forecasts that purchasing power in 2007 will rise again, boosted by demand for home repairs and interior decoration works after the floods, which will help the market for repairs, (the Company’s target market), to expand again. Seventy percent of the Company’s main markets are in the provinces; most represent the market for replacement tiles. In addition, increased economic and political confidence and the decrease in oil prices and lending interest rates will probably serve as positive factors leading to an upswing in tile consumption in 2007. Tile consumption for home repairs and decoration in 2007 is expected to increase 10% from a year earlier, or by an equivalent of 130-140 million square meters per year.

Although the demand for tiles will increase, it is not sufficient to absorb the combined production capacity of total floor and wall tile manufacturer, which stands at around 180 million square meters, approximately 40 million square meters higher than actual domestic demand. There are also imports of tiles from China for sale in the mid-range to high-end markets. As a result, selling prices cannot be raised. Moreover, periodical price dumping occurs. It is predicted that though sales will increase, manufacturers will continue to engage in price wars.

In such a competitive situation, Dynasty Ceramic Public Co. Ltd. holds an advantage over other manufacturers because the Company is well-equipped with production capacity and its own distribution channels covering every region of the country. It also has another important advantage since it has the lowest production costs in the industry. Production costs in 2007 are expected to improve in line with oil prices, which have started to decrease. The company expects that its net profit for 2007 will grow 15% from a year earlier.

Corporate Business Goals

The Company has set a sales target for 2007 at 15% higher than the previous year, as it has opened 15 more factory outlets, which will help expand new customer

34

bases, in line with construction trends which are expected to rise from last year. The Company is determined to maintain its market share in the domestic market as high as possible, or at 30% of total market value. As a result of the Company’s ongoing manufacturing capacity expansion, the Company and its subsidiaries currently have a combined maximum production capacity of 46 million square meters per year or 3,800,000 square meters per month. Consequently, the production cost per unit has decreased, thanks to the expansion in manufacturing capacity. With reference to the plan to expand production capacity by adding two more kilns, representing an additional 6 million square meters a year, the Board of Directors decided this project should be postponed until demand recovers sufficiently. In 2007, the Company had no investment projects that required large outlays, as it plans to open 15 more outlets for nationwide distribution coverage and aims to improve operations for greater efficiency, to further reduce production and administrative costs. In 2006, the Company’s expenditure on branch expansion and manufacturing capacity amounted to 700 million baht. Therefore, from 2007 onwards, return on investments made over previous years will start to be realised.

The Company continues with its policy to pay dividends every quarter. The dividend pay-out rate is 70% of net profit after corporate income tax, depending on the economic situation, operating results and future business plans. For 2007, the Company’s net profit is expected to increase as a result of rising sales, an expected decrease in production costs as full production capacity will be utilized, and decreasing fuel costs in transportation, as well as lower debts and interest rates. The company aims to reduce its debt to equity ratio down to 0.8 times. As the Company’s investment outlay is not large, it will have sufficient reserves to repay all its long-term loans. If everything transpires as planned, the Board of Directors will be able to increase the dividend payment rate for shareholders. The company continues to have short-term loans and overdraft,which have lower interest rates than long-term loans, in line with the Company’s spending plan requiring more inventory in accordance with the additional number of branches.

In the mid-term, the Company expects the country’s overall economy to grow from stimulus government measures, lowered interest rates and a more relaxed political situation after the general election towards the end of the year. The Company therefore has a policy to use resources effectively to create maximum benefit. It plans to maintain and repair machinery and equipment on a regular basis and focus on becoming a manufacturer with the lowest costs, to maintain its position as the biggest market share holder. If the demand for ceramic tiles rises, the Company will consider production capacity expansion on an ongoing basis without having to increase capital, as it still has sufficient working capital and the debt to equity ratio remains low. It may also be able to increase the return on equity rate for dividend payments to shareholders.

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Management Structure of DCC & Subsidiaries

Holding 97.99 % Holding 99.98 % Holding 99.93 %

Holding 96.83 %

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Risk Factors

The economy in 2006 was relatively sluggish. The main causes were escalating oil prices, domestic and international natural disasters, and rising interest rates. These factors all affected business operations. The Company closely monitored the situation so that it could adopt a suitable business direction, taking into account potential risks as follows:

1. Risk from business competition

As the economy is likely to slow down further and domestic manufacturing capacity remains higher than demand, competition in the market for ceramic tile products will intensify. To increase competitiveness, the management accords a high importance to research and development for manufacturing processes, to decrease production costs. Over the past year, the Company invested in machinery to reuse waste heat, which resulted in a huge saving in energy costs. In 2007, the Company will develop products that are more colorful and beautiful, with lower costs, to meet customers’ needs. The company also has its own retail stores and branch expansion activities every year, so it can handle the risk from price competition. In addition, the Company has an export market which it has focused on significantly yet because it wishes to meet domestic demand as its first priority. If there is manufacturing capacity remaining, the Company can then expand its export base.

2.Risk from fluctuation of the price of energy used in manufacturing processes Energy costs used in ceramic tile manufacturing processes entail natural gas and electricity. During last year, production costs increased significantly as the price of natural gas continued to rise throughout the year. Consequently, the average production cost of ceramic ties was higher than estimated. To reduce the risk from fluctuations in the price of energy used in the manufacturing process, in 2006 the management considered improving and modifying machinery to reuse waste heat created during the production process. This enabled the Company to cut natural gas costs by 10%, compared to a year earlier.

3. Credit Risk

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The company has credit risk in relation to trade debtors. It is cautious in extending credit as its customer bases are diverse. The highest risk involved with providing credit will be equivalent to the value of account receivables in the balance sheet.

4. Interest Rate Risk

Interest rate risk is associated with changes in interest rates that adversely affect the Company and its subsidiaries in current fiscal cycles and successive cycles. The Company and its subsidiaries expect that the effects from a rise in interest rates will have no significance on the Company’s interest payables, since the Company chooses to utilise local loans which are short-term loans. These have lower interest rates than long-term loans, which quote interest rates using references from the money market.

5. Foreign Currency Exchange Risk

The Company forecasts that the impact from foreign currency exchange is insignificant as the Company does not borrow from foreign financial institutions. However, the Company and its subsidiaries face some risk from foreign currency exchange as the Company and its subsidiaries have trust receipts payable and account payables in dollar and euro currencies. The Company, however, has planned to minimize the said risk by seeking new resources both locally and in neighboring countries and entering into fixed-price sale contracts, apart from engaging in research and development to find cheaper raw materials and substitute raw materials for the production process.

6.Risk from imports of ceramic tiles Over the past years, several distributors and retailers of floor and wall tiles have

directly imported low-cost floor tiles from China for domestic sale. This caused a decrease in orders from local manufacturers. Such a situation only has a slight effect because the imported goods are polished floor tiles sold in the high-end market, and are not products manufactured and sold by the Company. If they imported products of the same kind as the Company produces, they would not be able to compete with the Company in terms of production costs, because when transportation costs are taken into consideration, the costs would be higher than the products manufactured locally. They would also have to stockpile products in various designs.

However, as the Company has an internal control system that can monitor operations to ascertain whether they are in accordance with corporate plans or goals, management is able to manage potential risks in a timely manner. The Executive Board also convenes regularly to review standards and adjust plans to minimize business risks for each situation and period.

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Shareholders’ Structure

Securities of Dynasty Ceramic Public Co. Ltd. Consist of; Registered, issued and paid-up capital comprising 408 million shares Par value of 1 Baht per share, representing a total value of 408 million Baht. No debentures or warrants have been issued whatsoever. No obligations with regard to the issue of future securities. No Major Shareholding Agreement on any company’s business

Investments in ordinary shares of subsidiaries As of 31 December 2006, the Company’s investments in ordinary shares of

subsidiaries are as follows:

1. Investment in ordinary shares of Tile Top Industry PCL, which under the equity method at 687.2 million baht. The Company holds an equity stake of 96.83 % in this subsidiary.

2. Investment in ordinary shares of Pick and Pay Co. Ltd., which under the equity method at 61.0 million baht. The Company holds an equity stake of 97.79% in this subsidiary.

3. Investment in ordinary shares of Muangthong Ceramic Co. Ltd., which under the equity method at 34.1 million baht. The Company holds an equity stake of 99.98 % in this business.

4. Investment in ordinary shares of Worldwide Ceramic Co. Ltd., which under the equity method at (40.3) million baht. The Company holds an equity stake of 99.93 % in this firm.

Subsidiaries There are four subsidiaries as follows: 1. Tile Top Industry PCL has registered capital of 300 million baht. Issued and paid-up capital as of 31 December, 2006 comprised 22.2 million shares with a par value of 10 baht per share, amounting to 222 million baht in total. Tile Top Industry PLC has no subsidiary or affiliated company in which it has shareholdings or investments.

39

2. Pick and Pay Co. Ltd. has registered capital of 12 million baht. Issued and paid-up capital as of 31 December 2006 comprised 120,000 shares with a par value of 100 baht per share at 12.0 million baht. Pick and Pay Co. Ltd. has no subsidiary of affiliated company in which it has shareholdings or investments.

3. Muangthong Ceramic Co. Ltd. has registered capital of 4.5 million baht. Issued and paid-up capital as of 31 December 2006 comprised 45,000 shares with a par value of 100 baht per share at 4.5 million baht. Muangthong Ceramic Co. Ltd. has an equity stake in a ceramic tile retailer, Acapulco Co. Ltd., at 16.65% of registered capital, representing a value of 499,500 baht. 4. Worldwide Ceramic Co. Ltd. has registered capital of 1.0 million baht. Issued and paid-up capital as of 31 December 2006 comprised 10,000 shares with a par value of 100 baht per share, totaling 1 million baht. Worldwide Ceramic Co. Ltd. has no subsidiary of affiliated company in which it has shareholdings or investments.

Shareholders Shareholding structure (10 major shareholders) as of 28 February 2007 Dynasty Ceramic Public Co., Ltd.

Shareholder name No. of shares % of

shareholding 1 Mr. Roongroj Saengsastra 98,225,720 24.07

2 Mr. Vibul Vadcharasurang 34,332,310 8.41

3 SOMERS (U.K.) LIMITED 18,699,400 4.58

4 Mr. Chaiyasith Viriyamettakul 17,444,000 4.28

5 Mr. Monrak Saengsastra 13,456,800 3.30

6 Mr. Marut Saengsastra 13,251,400 3.25

7 Mr. Suvit Smarnphanchai 12,892,000 3.16

8 Mr. Jeera Trithawhin 11,747,190 2.88

9 Goldman Sachs International 11,691,100 2.87

10 Thai NVDR Co.,LTD. 11,632,500 2.85

Total 10 major shareholders 243,363,420 59.65

Total number of shares 408,000,000 100.00

Shareholding structure of the subsidiary 1.Tile Top Industry Public Co., Ltd Company/individual shareholder name No. of shares % of shareholding

40

1 Dynasty Ceramic Public Co., Ltd. 21,495,906 96.82

2 Kiatnakin Bank Public Co.,Ltd. 300,000 1.35

3 Thailand Asset Management 400,000 1.80

2. Pick and Pay Co., Ltd Company/individual shareholder name No. of shares % of shareholding

1 Dynasty Ceramic Public Co., Ltd. 117,593 97.99

2 Mr. Roongroj Saengsastra 1 0.0

3 Miss. Cattleya Saengsastra 1 0.0

4 Mr. Monrak Saengsastra 1 0.0

5 Mr. Jeera Trithawhin 1 0.0

3. Muangthong Ceramic Company Limited Company/individual shareholder name No. of shares % of shareholding






4. World Wide Ceramic Co., Limited Company/individual shareholder name No. of shares % of shareholding






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Dividend Payment Policy Dynasty Ceramic Public Co. Ltd. The Company has a policy to pay shareholders a dividend at a rate of not less than 70% of net income after corporate income tax, depending on the economic situation, operating results and future business plans.

Tile Top Industry Public Co. Ltd. Currently has no policy to pay dividends

Pick and Pay Co. Ltd. Currently has no policy to pay dividends

Muangthong Ceramic Co. Ltd. Currently has no policy to pay dividends

Worldwide Ceramic Co. Ltd. Currently has no policy to pay dividends

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Management Structure As of 28 February 2007, the Board of Directors of Dynasty Ceramic Public Co. Ltd. comprised the following members

NO NAME POSITION

1 Mr. Roongroj Saengsastra Chairman & President 2

Gen. Yuthasak

Sasiprapha

Independent Director & Chairman of Audit committee

3 Pol.Gen. Patcharawart Wongsuwan Independent Director & Audit Committee

4 Mr. Yothin Juangbhanich Independent Director & Audit Committee

5 Mr. Surasak Kosiyajinda Independent Director & Audit Committee

6 Mr. Chaiyasith Viriyamettakul Director

7 Mr. Suvit Smarnphanchai Director

8 Mr. Sanchai Janejarat Director & Executive Director-Production

9 Mr. Chana Suthiwangcharoen Director & Executive Director-Marketting 10

Miss. Cattleya

Saengsastra

Executive Director &Company’s Secretary

Board of Directors’ Meetings The Company states that a Board of Directors’ meeting shall be held once every three months. An invitation letter stating a clear agenda is sent to every Director in advance according to the Company’s Articles of Association. Majority votes shall be employed for the resolutions of the meeting and if a resolution is objected to by any Director, it shall be recorded in the minutes of the meeting which are kept at the Company.

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Board Attendance during the year 2006 (Times )

Directors’ remuneration To ensure appropriate and transparent remuneration for Directors and

Executives, the Company requires that remuneration of Directors be presented to the Shareholders’ Meeting for consideration and approval each year. The Personnel Committee was also established to consider remuneration for Executives; the Committee was formed with the purpose of determining remuneration for Executives as well as for employees. Approval is then sought from the Board of Directors. The details of remuneration provided to Directors and Executives are presented in the Annual Report, in accordance with Announcements of the Securities and Exchange Commission and the Stock Exchange of Thailand.

The company has transparently and precisely determined the remuneration for Directors. The remuneration is relatively low when compared to the net profit ratio, but has been appropriately set to follow industry standards and is always approved by the shareholders. In 2006, the Company remunerated Directors in the following manner.

Name Of Board Members

DCC Board Committee

(10 Members) Total 4 Times

Audit Committee (4Members)

Total 4 Times

TILE TOP Board

Committee (10 Members) Total 4 Times

Shareholders Meeting For Year 2006

(10 Members) On 28/4/ 2006

1. Mr.Roongroj Saengsastra 4/4 4/4 1 2.Gen.Yuthasak Sasiprapha 3/4 4/4 1 3.Pol.Gen.Patcharawart Wongsuwan

4/4 3/4 3/4 1

4. Mr. Surasak Kosiyajinda 4/4 4/4 1 5.Mr.Chaiyasith Viriyamettakul 4/4 1 6. Mr.Suvit Smarnphanchai 4/4 1 7.Mr.Chana Suthiwangcharoen 4/4 4/4 1 8. Mr. Sanchai Janejarat 4/4 4/4 1 9. Mr. Yothin Juangbhanich 3/4 2/4 1 10.Miss Cattleya Saengsastra

4/4 4/4 1

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Each Director received a meeting allowance of 40,000 baht per meeting and the Chairman received 50,000 baht. In addition, Directors earned an allowance paid on a once yearly basis, subject to operating results: the allowance for 2006 amounted to 275,000 baht per Director.

Directors also appointed as Audit Committee Directors received additional remuneration due to the increased working hours. The President and employees received remuneration in the form of a regular monthly salary and twice-yearly bonus. The provision of a bonus is dependent on profitability in each period and is approved by the Board of Directors on each occasion.

In 2006, the Company and its subsidiary remunerated Directors, compared to the previous year, in the following manner

Company No. of Directors Meeting allowance for Directors & Audit Committee (MB./Year)

( person ) 2006 2005

Dynasty Ceramic PCL (DCC) 10 2.04 2.0

Tile Top Industry PCL 5 0.63 0.5

Total 15 2.67 2.5

Remuneration for DCC Directors & Executive Directors 14 3.85 3.5

Remuneration for Tile Top Directors 5 1.0 1.0

Grand Total 19 7.52 7.0

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Meeting allowance for each Directors, compared to the previous year Dynasty Ceramic PCL & Tile Top Industry PCL

Notes: * Pol. Gen. Patcharawat Wongsuwan was appointed Audit Committee Director on 28 April, 2006 and appointed Director of Tile Top Industry PCL on 28 April, 2006ใ

** Mr. Yothin Juangpanic was appointed Director and Audit Committee Director on 28 April, 2006.

*** Mrs. Pawanya Kritachart resigned as Director and Audit Committee Director on 28 April, 2006.

Name Of Board Members

Board Meeting Allowance

DCC

DCC Audit

Committee

Meeting Allowance

Board Meeting Allowance

TILETOP

Director Fee

DCC and

Tiletop Total

1. Mr.Roongroj Saengsastra 190,000 0 190,000 750,000 1,130,000

2.Gen.Yuthasak Sasiprapha 110,000 190,000 0 275,000 575,000

3.Pol.Gen.Patcharawart Wongsuwan*

150,000 120,000 * 90,000* 275,000 635,000

4. Mr. Surasak Kosiyajinda 150,000 150,000 20,000 475,000 795,000

5.Mr.ChaiyasithViriyamettakul 150,000 0 0 275,000 425,000

6. Mr.Suvit Smarnphanchai 150,000 0 0 275,000 425,000

7..Mr.Chana Suthiwangcharoen 150,000 0 110,000 750,000 1,010,000

8. Mr. Sanchai Janejarat 150,000 0 110,000 750,000 1,010,000

9. Mr. Yothin Juangbhanich**

Mrs. Pawanya Krittachat***

120,000

30,000

80,000

0

0

0

0

275,000

200,000

305,000

10.Miss Cattleya Saengsastra 150,000 0 110,000 750,000 1,010,000

Total 1,500,000 540,000

630,000 4,850,000 7,520 ,000

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Executive Board The Executive Board of Dynasty Ceramic Public Co. Ltd. comprises the President and four other senior executives as follows

Name-Surname Title 1 Mr. Roongroj Saengsastra President

2 Miss Cattleya Saengsastra Executive Director and Company Secretary

3 Mr. Sanchai Janejarat Vice President (Production) 4 Mr. Chana Suthiwangcharoen Vice President (Marketing) 5 Miss Sonthaya Yaowalee Vice President (Audit Office)

Executive Director having the title of Accounting Director or responsible for the Company’s accounting activities:

1 Miss Somruethai Boonyarith Accounting Department Director

Company

No. of Executives as of 31 Dec, ‘06

Monthly salary/bonus/provident fund/benefits(Million Baht)

2006 2005

Dynasty Ceramic PCL 5 13.7 12.1

Tile Top Industry PCL 4 4.9 3.8

Pick and Pay Co. Ltd. 4 1.9 1.6

Muangthong Ceramic Co. Ltd. 2 0.4 0.3

Worldwide Ceramic Co. Ltd. 0 0 0

Total 20.9 17.8

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Executives’ Remuneration

Dynasty Ceramic Public Co. Ltd. and Tile Top Industry Public Co. Ltd. (subsidiary) remunerate executives in the form of monthly salary, bonus determined by corporate operating results, provident fund and other benefits such as petrol allowances.

The Company and its subsidiaries remunerated employees in the form of monthly salary, bonus, benefits, provident fund contribution and medical benefits approved by the Board of Directors. Employee remuneration in 2006, compared to 2005, is as follows:

Number of employees for the Company and its subsidiaries as of 31 December, 2006, compared to a year earlier, is as follows

Total employee remuneration

Total employee remuneration Remuneration

In 2006 (million baht) In 2005 (million baht) Increase

(Decrease)

Plant HQ Total Plant HQ Total %

Dynasty Ceramic PCL 103 34 137 82 32 114 20 Tile Top Industry PCL 120 10 130 105 9 114 14

Pick and Pay Co. Ltd. 29 0 29 26 0 26 12 Muangthong Ceramic Co. Ltd. 31 0.5 31.5 28.7 0.3 29 9 Worldwide Ceramic Co. Ltd. 11 0 11 2 0 2 450

Total 294 44.5 338.5 243.7 41.3 285 19

No. of Employees As of 31 Dec 2006

No. of Employees As of 31 Dec 2005

Increase (Decrease)

%Increase (Decrease)

Plant HQ Total Plant HQ Total From last

year From last

year Dynasty Ceramic PCL 654 95 749 674 90 764 (15) (2) Tile Top Industy PCL 609 21 630 771 22 793 (163) (20) Pick and Pay Co. Ltd. 282 0 282 243 0 243 39 16 Muangthong Ceramic Co. Ltd. 330 6 336 288 2 290 46 16 Worldwide Ceramic Co. Ltd. 164 0 164 69 0 69 95 138

Total 2,039 122 2,161 2,045 114 2,159 2 0

48

The Company and its subsidiaries had no labour disputes during the past five years.

The Company and its subsidiaries’ Auditors’ Fees (baht/year) Audit Fee (Quarterly Financial Statements and Annual Financial Statements)

Audit Fee Proposed for 2007

Actual Fee 2006

Actual Fee 2005

Baht/Year Baht/Year Baht/Year Financial statements for Dynasty Ceramic PCL only 475,000 475,000 440,000

Dynasty Ceramic PCL -Consolidated financial statements

245,000 245,000 140 ,000

Tile Top Industry PCL 450,000 450,000 415,000 Pick and Pay Co. Ltd. 380,000 290,000 160,000 Muangthong Ceramic Co. Ltd. 350,000 310,000 180,000 Worldwide Ceramic Co. Ltd. 170,000 125,000 60,000

Total Audit Fee 2,070,000 1,895,000 1,395,000 Audit Report Summary 2006 2005 2004

Auditor /registration

Mr. Pichai Dachanaphirom

/2421


/2421


/2421 Auditing Office Dharmniti

Auditing Co. Ltd. Dharmniti

Auditing Co. Ltd. Dharmniti

Auditing Co. Ltd. Auditor’s opinion No conditions No conditions No conditions

49

Related Transactions

Dynasty Ceramic Public Co. Ltd. has connected transactions with its subsidiaries as follows:

1. The Company is a sole distributor of all ready made products purchased from Tile Top Industry Pubic Co. Ltd., which manufactures floor, wall and decorative tiles, at wholesale prices. The Company is the sole distributor. In the second half of 2006, Tile Top Industry Public Co. Ltd. contracted Dynasty Ceramic Public Co. Ltd. to manage its operations, inventory (including raw materials and packaging), purchasing and sales, financial and accounting systems with an online computer system, with a yearly budget of 12 million baht, resulting in connected transactions. Dynasty Ceramic Public Co. Ltd. rented warehouse facilities located at Tile Top factory for storage of products purchased from Tile Top Industry PCL and contracted Tile Top Industry PCL to manage the Company’s warehouses, within a budget of 4 million baht.

2. Dynasty Ceramic Public Co. Ltd. delivered and sold its own products and those purchased to the three distributors, namely Pick and Pay Co. Ltd., Muangthong Ceramic Co. Ltd. and Worldwide Ceramic Co. Ltd., at wholesale prices, resulting in connected sales of products. Moreover, Dynasty Ceramic designed shop format and arranged management systems for all the three subsidiaries as well as collecting fees on the product distribution right on a yearly basis. In addition, during the second half of 2006, the three distributors contracted Dynasty Ceramic Public Co. Ltd. to manage their operations, inventory, purchasing and sale, financial and accounting systems with an online computer system, with an annual budget of 0.1 million baht per branch, resulting in connected transactions. Since Dynasty Ceramic is in charge of controlling its own and its subsidiaries’ financial policies, Tile Top Industry PCL borrowed working capital to manufacture products for Dynasty Ceramic. Payments were made in advance on some items produced and distributed to Dynasty Ceramic Public Co. Ltd. This is a means of providing financial support to its subsidiary. There were also borrowings between Tile Top Industry PCL and Dynasty PCL, and Muangthong PCL, with the borrowers issuing a promissory note to the loan provider. Interest is calculated according to prevailing market rates on the date the borrowing was made.

The financial statements of Dynasty Ceramic PLC include transactions with related companies and the financial statements reflect the effects of these transactions on the basis determined by the companies concerned.

50

In Thousand Baht

Consolidated The Company Only

As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Trade accounts receivable

- Tile Top Industry Public Co., Ltd. - - 1,394,552 28,987

- Pick and Pay Co., Ltd. - - 284,287,667 337,698,838

- Muangthong Ceramic Co., Ltd. - - 275,867,173 264,396,646

- World Wide Ceramic Co., Ltd. - - 287,238,370 111,794,481

Other receivables

- Muangthong Ceramic Co., Ltd. - - - 36,000

848,787,762 713,954,952

Accrued interest income

- Muangthong Ceramic Co., Ltd. - - 4,895,849 924,205

Short - term loan to subsidiaries


Trade accounts payable

- Tile Top Industry Public Co., Ltd. - - 78,699,029 35,725,778

- Pick and Pay Co., Ltd. - - 4,609,534 238,046

- Muangthong Ceramic Co., Ltd. - - 541,016 696,595

- World Wide Ceramic Co., Ltd. - - 182,598 72,350

84,032,177 36,732,769

Deferred income - Franchise

- Pick and Pay Co.Ltd. - - - 604,916

- Muangthoug Ceramic Co., Ltd. - - - 584,432

- World Wide Ceramic Co., Ltd. - - - 148,509

- 1,337,857

Short - term loan from subsidiaries


Accrued interest expense


51

In Baht

Price Policy Consolidated The Company Only

As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Sales - finished goods

- Pick and Pay Co., Ltd. At the parent company

- - 1,125,260,513 266,612,337

- Muangthong Ceramic Co., Ltd.

concerned, not market

- - 1,162,451,633 273,959,398

- World Wide Ceramic Co., Ltd.

price but more than cost

- - 474,609,806 57,176,367

2,762,321,952 597,748,102

Sales - raw materials and supplies

- Tile Top Industry Public Co., Ltd.

At cost - - 10,680,419 24,723,838

Sales - machine


At cost - - - 1,717,782

Interest income


In 2005 at the rate of 2.20 - 3.30% p.a.

3,919,224


In 2006 at the rate of 4.5 - 6% p.a.

In 2005 at the rate of 4.5 - 4.75% p.a.

5,102,548 944,548

5,102,548 4,863,772

Rental Charges


Amount Baht 30,000 per month

360,000 360,000

- Pick and Pay Co., Ltd. Amount Baht 10,000 per month - - 120,000

30,000


Amount Baht 12,000 per month - - 144,000

36,000


Amount Baht 3,000 per month - - 36,000 9,000

52

660,000 435,000

Franchise income

- Pick and Pay Co., Ltd. Amount Baht 50,000 per year per province

- -604,916

318,013


Amount Baht 50,000

per year per province

- -

584,432

333,395


Amount Baht 50,000 per year per province

- -148,509

71,054

1,337,857 722,462

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Management Income


Since July 1, 2006 to Dec. 31, 2006

Amount Baht 1,000,000 per month

6,000,000

per month - - 6,000,000 -

- Pick and Pay Co., Ltd.

Amount Baht 100,000 per year per branch

2,291,666


Amount Baht 100,000 per year per branch 3,066,667


Amount Baht 100,000 per year per branch

1,550,000

12,908,333 -

Purchases - finished goods


At the parent company

concerned, not market price but more than cost of production

1,824,238,207

1,783,252,030

- Pick and Pay Co., Ltd. At cost - - 5,783,993 385,567

53

-Muangthong Ceramic Co. Ltd. At cost - - 5,686,535 819,502

- World Wide Ceramic Co., Ltd At cost - - 25,792,906 106,201

1,861,501,641 1,784,563,300

Purchases - raw materials and supplies


At cost - - 21,667,907 29,400,555

Purchases - Machinery


At cost - - 2,118,255 -

Management fee

Tile Top Industry Public Co. Ltd.

At the parent company concerned, not market price - - 3,600,000 3,600,000

Interest expense


In 2006 at the rate of

4.8-6.0% p.a

In 2005 at 4.47-4.9% p.a

11,260,486 335,962

Related Transactions The Company has related transactions with Tile Top Industry Public Co. Ltd., Pick and

Pay Co. Ltd, Muangthong Ceramic Co. Ltd, and Worldwide Ceramic Co. Ltd. (its subsidiaries) in which its has the major shareholding of over 95%. In addition, the Directors of the subsidiaries are also Directors of the Company. Therefore, connected transactions have no impact on the consolidated financial statements, or on minority shareholders whatsoever.

The Company has no related transactions with Directors or major shareholders.

54

Good Corporate Governance

1. Corporate Governance Policies

The Board of Directors values good corporate governance and has assigned management to issue a manual of good corporate governance principles since 2003; a revised version was issued on 27 October, 2006. Employees and all concerned have been informed about specific principles and asked to follow them accordingly. Corporate governance focuses on business ethics and governance to ensure that the Company’s operations comply with business laws, Articles of Association and meetings’ resolutions as well as principles issued by the Securities and Exchange Commission and the Stock Exchange of Thailand. The Board of Directors has utilized its knowledge and experience to ensure that management follows the corporate vision and business strategies and goals as well as the effective use of corporate budgets.

The Board of Directors and Management Executives are in charge of corporate operations. Authority in relation to corporate operations is established in the Company’s rules and regulations. The President meets with department executives every month to screen the Company’s operations, review plans and follow the progress of tasks in accordance with resolutions of the Board of Directors’ meeting.

To support its environmental and social responsibility, the Company has a budget for environmental conservation, both within the factories and in adjacent areas. It has installed a dust collector at its factory facilities and has implemented a waste water disposal system. Waste water can be recycled for the manufacturing process to help maintain the quality of the surrounding environment and community.

Corporate governance and management in its subsidiaries is implemented through the Company’s personnel, acting as Directors in the said subsidiaries. The management authority of the Company depends on the number of Directors and the Articles of Associations of the subsidiaries. The management policies of the subsidiaries are independent and are based on industrial competition.

2. Shareholders: rights and equality of shareholders The Company’s shareholders are treated with equality and are given sufficient information about the Company. For meetings, the Company sends an invitation letter to shareholders in advance so that they have sufficient time to read the Board of Directors’ opinions and other information contained in each agenda. The shareholders can freely express their opinions and raise questions at the shareholders’ meeting as well as vote in the manner they wish. In addition, the Company sends a proxy form with the invitation letter, so that the shareholders can assign someone to attend the meeting and vote on their behalf in case they cannot attend the meeting, as well as the Company’s Articles of Association related to the Shareholders’ meeting. Moreover, the Company allows the shareholders to propose a list of nominees for Directors and additional agendas in advance. The shareholders can also access information on each meeting’s agenda in advance and view each Shareholders’ Meeting’s minutes on the Company’s website.

55

3. Rights of Various Stakeholder Groups The Company is aware of the rights of both internal and external stakeholder groups and has included them in writing in the Company’s corporate governance policies. The Company has an operational system that can control procurement processes, price and quality comparison, to ensure fairness to its trading partners. The Company has a responsibility to customers in terms of products and services. Customer information is treated with confidentiality and will not be disclosed without customers’ consent. The Company provides its employees with appropriate benefits and development of skills and knowledge essential for operations. The Company also has a unit responsible for communities and environments around its plants. 4. Shareholders’ Meetings

The Company organizes at least one Shareholders’ Meeting per year and treats all shareholders equally. The Company specifies that the Shareholders’ Meeting is conducted legally, from the calling of a meeting, document delivery and informing meeting agendas complete with the Board of Directors’ opinions in advance. The meeting agenda details items for consideration; appointment of the Board of Directors and their remuneration and appointment of auditors. Before each meeting begins, the Chairman will announce how voting is conducted for each agenda and give shareholders a chance to voice their opinions and raise questions freely, in accordance with the Public Company Act, regulations of the Stock Exchange of Thailand and the Company’s regulations. Each meeting’s minutes will be reported to the shareholders and published on the Company’s web site. In past Shareholders’ meetings, the Board of Directors comprising Independent Directors and Audit Committee Directors, all attended the meeting and provided an opportunity for the shareholders to freely voice their opinions and raise questions. 5. Leadership and Vision

The Board of Directors and Executives has set out the corporate vision, mission and values for all to follow. The Directors are legally and ethically responsible to the Company and stakeholders and must carefully perform their duties with skills and integrity. They should voice their opinions freely, and always employ independent consideration in operating the Company’s business to gain full trust from the shareholders. They should carefully and transparently nominate suitable candidates to the Board or the meeting of shareholders for election of a new director to fill the vacant position, and appoint a nomination sub-committee or any other sub-committees essential to important missions. The Directors must devote themselves and their time to the Company and always attend company meetings. 6.Conflicts of Interest Insider Information Measures

56

The Company has a policy to supervise executives’ use of insider information. This policy is established as part of business ethics and rules for employees, stating that all employees should comply and act as honest representatives of the company. They should not disclose any information considered as corporate secrets to outsiders or to fellow employees who have no duty relevant to the said information. They should not use the Company’s assets, information, or their titles for personal gain or for other people as well as conduct any transactions that represent a conflict of interest with the Company as established in the Company’s management authority and Articles of Association, where punishment for disclosing internal information and use of insider information for personal gain is clearly stated. Corporate Policy on Conflicts of Interest According to the Company’s Articles of Association, the Board of Directors is prohibited from operating a business that is considered a competitor to the Company. However, if there is a connected transaction, the Company will disclose such information to the Stock Exchange of Thailand. In case the connected transaction has to be approved by the meeting of shareholders, the shareholders will be given information and the opinions of Independent Directors attached with the invitation letter. The parties concerned in the said transaction will have no right to vote on the transaction. 7. Business Ethics

The Company has prepared guidelines for business ethics, covering the role and duties of Executives and management, ethics in relation to shareholders, customers, competitors and employee ethics. These ethical and integrity issues have been clearly specified by the Company.

In the Company’s manual of good corporate governance principles, the code of ethics for the Board of Directors is stated as follows:

1. Comply with the Laws, Company objectives and Company regulations, including resolutions of Shareholder Meetings. 2. Manage for the benefit of mutual stakeholders and maintain the Company’s image. 3. Manage with integrity and strict neutrality. 4. Have no direct or indirect share in any business with the company in which one is a director or in any business considered a competitor of the company in which one is a director, whether directly or indirectly 5. Manage without conflict of interest to ensure effective and efficient management. 6. Do not seek undue benefits from work, whether directly or indirectly 7. Perform duties professionally and with full potential to ensure maximum benefits for the Company. 8. Shall not be an entrepreneur or major shareholder or have family members as directors of shareholders in a business or trade of which nature is the same as the Company’s and is a competitor or trading partner of the Company in which one is a director, whether it is for personal or other people’s gain. 9. Shall not perform any task that represents management in the Company in a manner that adversely affects the benefits of the Company in which one is a director or benefits any individual or juristic person, whether for personal or other people’s gain.

57

8. Balance and Check of Non-executive Directors

The Board of Directors comprises ten Directors, with four Executive Directors and six Non-Executive Directors. The Non-Executive Directors comprise Independent Directors, Audit Committee Directors and Directors who are representatives of shareholder groups. At Board of Directors’ Meetings, non-Executive Directors express their opinions alongside that of Executive Directors. With regards to voting at Board Meetings, each Director has one vote; in the event that votes are tied, the Chairman of the Meeting will cast one additional decisive vote. 9. Consolidation or Separation of Positions

The Company recognizes the importance of enhancing the efficiency of the balance and check of authority between Executive and non-Executive Directors. However, the positions of Chairman of the Board of Directors and President are not separate This is due to the nature of the Company’s business, which requires constant adaptation of marketing and production strategies, in order to realize the goal of being the manufacturer with the lowest production costs and highest market share. This calls for an individual with decision-making authority who is knowledgeable and highly experienced, and capable of establishing timely plans. This person is in charge of determining strategies and implementing the strategies approved by the Board of Directors’ Meetings, within the framework specified by the Board. Moreover, the Chairman of the Board of Directors is elected by the Board of Directors.

10. Internal Audit and Control Systems The Audit Committee reviews operations to ensure they comply with policies and regulations of the company as well as relevant laws, principles and rules of related authorities. It also encourages development of financial and accounting systems to meet international standards, ensures that the Company has internal control, internal audit and risk management systems which are appropriate, modern and effective. The committee performs its duties and voices its opinions independently with the Company’s Audit Office acting as its tool. It also regularly consults with the auditors, counsel, and legal and accounting experts.

The Audit Committee evaluates the internal controls as determined by the Board of Directors by implementing preventive and useful audit policies. It reviews that the company has accurate and adequate financial reporting, including sufficient and transparent information, audits in accordance with good corporate governance principle and enhances efficiency and performance by following international audit standards.

11.Report of Board of Directors’ Responsibilities to Financial Reports

The Board of Directors is responsible for the accuracy and completeness of Dynasty Ceramic Public Company Limited’s own financial statements and Dynasty Ceramic Public Company Limited and its subsidiaries’ consolidated financial statements, including the financial information presented in this annual report. The said financial statements have been prepared in accordance with generally accepted accounting principles. Appropriate and regularly practiced accounting policies were selected. The said statements presented accurate and complete information in relation

58

to the Company and its subsidiaries’ financial status, operating results and cash flows. Important information is sufficiently presented in the notes to financial statements in the annual report, which covers contents as prescribed by the Stock Exchange of Thailand’s good corporate governance for listed companies. The Company appointed an Audit Committee to be in charge of reviewing the financial statements, internal control, and risk management. The Audit Committee also reviewed disclosure of related transactions of the Company and its subsidiaries to ensure that and ensured the Company and its subsidiaries have disclosed significant information accurately and completely. It also ensured that such systems were followed. The Company’s financial statements and the consolidated financial statements of the Company and its subsidiaries have been examined by an external auditor from Dharmaniti Auditing Co. Ltd. The Company provided the auditors with complete documentation and information to enable the auditor to audit and express opinions in accordance with auditing standards. The auditor’s comments are presented in the Auditor’s Report in the Annual Report. 12. Investor Relations

The Company always gives importance to disclosure of information that is accurate, complete, transparent, timely and credible to the shareholders, investors, customers, government agencies and all parties concerned, direct or indirect. The Company has assigned the Securities Depository Centre of the Stock Exchange of Thailand the responsibility of preparing information to be disclosed to the Stock Exchange of Thailand, including information to be printed and distributed to the Company’s shareholders. The Company has an Office of the Corporate Secretary which handles shareholder inquiries and provides information to investors as requested. The Company also makes information available through its web site at http://www.dynastyceramic.com

59

Management discussion & Analysis Analysis of Operating Results for 2006 for Dynasty Ceramic Public Co. Ltd. only

The Company recorded total sales revenue of 4,141 million baht for 2006, down by 104 million baht or 2% from a year earlier, owing to the adjustment in selling prices between its subsidiaries. The cost of sales in 2006 was 2,965 million baht, or calculated as 72% of total sales, compared to the cost of sales in 2005 which stood at 2,827 million baht or calculated as 67% of total sales in 2005. The cost of sales rose because of the adjustment in buying prices with its subsidiaries, resulting in a gross benefit of 1,176 million baht for 2006, or 28% of total sales. The decrease is due to the said adjustment in selling-purchasing prices (in 2005, the gross profit was 33%). The company had selling and administrative costs in 2006 of 487 million baht, up 69 million baht from the year earlier, or a 17% rise. Most of the expenses were spent on increased transportation costs resulting from rising oil prices and sales volumes. The company had interest expenses of 67 million baht for 2006, up by 47 million baht from the year earlier. This is due to borrowings for the production capacity expansion and for investment in an online computer system during 2006. As a result, the company recorded profit before tax of 736 million baht, 295 million baht lower than the year earlier. The allocation for corporate income tax for 2006 was 169 million baht, 114 million baht lower than the year earlier (in 2005 the allocation was 283 million baht). The Company used a corporate income tax exemption privilege according to the Revenue Department Director-General announcement No. 156, dated 15 September, 2006. On an investment of 110 million baht in production capacity expansion and a computer system, the Company was able to obtain a tax exemption privilege of 8 million baht. Consequently, the Company had a net profit after income tax of 567 million baht in 2006, after recognizing share in profit of 97 million baht from its subsidiaries (Tile Top Industry PCL and the other three subsidiaries). In 2005, the Company recognized a net profit of 43 million baht from its subsidiaries. Hence, the Company’s net profit for 2006 was 182 million baht lower than that of the year earlier, or a year-on-year decrease of 24%. Earnings per share in 2006 were calculated at 1.39 baht per share, while earnings per share in 2005 were at 1.84 baht per share. Earnings per share decreased 0.45 baht per share. Analysis of the Company’s balance sheet as of 31 December, 2006, compared to the same date of last year

Total assets for the Company were valued at 3,844 million baht, up 407 million baht from a year earlier, or a 12% increase. This was due to the Company’s production expansion in 2006, resulting in inventory valued at 745 million baht as of 31 December, 2006, 196 million baht higher than the previous year. The Company’s accounts receivable decreased by 66 million baht and receivables from subsidiaries as of 31 December, 2006, increased by 135 million baht from branch expansion. The Company’s total current assets as at 31 December, 2006, were 1,195 million baht, up by 221 million baht from a year earlier. The amount of investments in allowance for debts in its subsidiaries (Tile Top Industry Public Co. Ltd, Pick and Pay Co. Ltd, Muangthong Ceramic Co. Ltd, and Worldwide Ceramic Co. Ltd.) increased from 646 million baht in 2005 to 742 million baht in 2006, resulted from increased profit of the subsidiaries recognized by Dynasty Ceramic. The value of property, plant and equipment as of 31 December, 2006, rose by 56 million baht from a year earlier, with a book value totalling 1,137 million baht. The majority was from projects involving an online computer system, inventory, sale and purchasing, accounting and shop retail systems for branches nationwide

Total liabilities for the Company were 1,825 million baht. The debt to equity ratio was 0.90 times, an increase from the previous year in which the debt to equity ratio was 0.86 times. The rise stemmed from the Company’s overdraft, short-term loans and long-term loans due

60

within one year, which increased by 127 million baht. Its long-term loan increased 10 million baht. The Company’s short-term loans to subsidiaries rose by 100 million baht and accounts payable and payable to subsidiaries rose 10 million baht. Accumulated profit rose 174 million baht from a year earlier, resulting in shareholders’ equity of 2,019 million baht as of 31 December, 2006, providing a book value per share of 4.95 baht. Analysis of the Company and its subsidiaries’ operating results

The Company and its subsidiaries had total sales revenue for 2006 of 4,452 million baht, rising by 197 million baht from a year earlier, or calculated at 5%. The rise resulted from a change in recording of retail prices of the three distributing companies shown in consolidated financial statements. In 2006, the cost of sales was 2,829 million baht, or calculated at 64% of total sales, compared to the cost of sales in 2005 which was 2,710 million baht, or calculated at 64% of total sales. The cost of sales was slightly different from that of a year earlier, resulting in a gross profit for 2006 of 1,623 million baht, or calculated at 36% of total sales, similar to the previous year. This resulted from the adjustment of selling prices in connected transactions (the gross profit for 2005 was calculated at 36%). The Company had selling and administrative costs of 735 million baht in 2006, rising by 260 million baht from a year earlier, or a 55% increase. This was caused by a hike in oil prices pushing up the transportation costs, and by the consolidation of selling and administrative costs from three subsidiaries. The company had not yet merged the business during the first quarter of 2005. The company had interest expenses of 87 million baht for 2006, up by 57 million baht from a year earlier. This is due to borrowings for the production capacity expansion and for investment in an online computer system during 2006. As a result the company recorded profit before tax of 798 million baht, 269 million baht lower than a year earlier. The allocation for corporate income tax for 2006 was 230 million baht, 88 million baht lower than a year earlier (in 2005 the allocation was 318 million baht). Hence, the Company’s net profit after income tax for 2006 totalled 567 million baht. Earnings per share in 2006 were calculated at 1.39 baht per share, while earnings per share in 2005 were 1.84 baht per share. Earnings per share decreased 0.45 baht per share. Analysis of the balance sheet of the company and its subsidiaries as of 31 December, 2006, compared to the same period last year

Total assets for the Company and its subsidiaries were valued at 4,349 million baht, increasing by 205 million baht or 5% from a year earlier. This is due to the production capacity expansion in 2006 to support additional branches of three subsidiaries. Consequently, the inventory as of 31 December, 2006, was valued at 1,392 million baht, 260 baht higher than a year earlier. Accounts receivable decreased by 54 million baht. As a result, the Company’s current assets as of 31 December, 2006, totalled 1,686 million baht, a 194 million baht increase from a year earlier.

Total liabilities for the Company and its subsidiaries were valued at 2,306 million baht. The debt to shareholders’ equity ratio was 1.13 times, down from a year earlier in which the debt to shareholders’ equity ratio was 1.21 times. This is due to the fact that in 2006 the Company’s total liabilities increased 33 million baht while in 2005 total liabilities rose 640 million baht from production capacity expansion. In 2006, shareholders’ equity was 2,044 million baht, 173 million baht higher than a year earlier, partly from interim net profit. As a result, the Company and its subsidiaries in 2006 had lower debt to shareholders’ equity ratio.

Notes: Please refer to the details in the consolidated financial statements, including the Notes to the financial statements, for the operating results and financial status of the Company.

61

FINANCIAL RATIO

UNIT YEAR 2006 YEAR 2005 YEAR 2004 (LIQUIDITY RATIO)

CONSO

LIDATED COMPANY

CONSO

LIDATED

COMPANY CONSOLIDATED COMPANY

LIQUIDITY RATIO TIME 0.8 1.1 0.7 1.1 0.8 1.3

QUICK RATIO TIME 0.1 0.7 0.2 0.7 0.4 0.9

ACCOUNT RECEIVABLE TURNOVER TIME 18.7 18.0 9.1 9.1 5.6 5.6

COLLECTION TURNOVER DAY 20 20 40 40 65 65

INVENTORY TURNOVER TIME 3.3 6.3 5.3 8.4 10.8 11.4

SALES TURNOVER DAY 112 58 69 44 34 32

ACCOUNT PAYABLE TURNOVER TIME 6.9 15.3 6.7 16.2 6.6 19.3

ACCOUNT PAYABLE TURNOVER DAY 53 24 54 22 56 19

CASH CYCLE DAY 78 54 54 61 43 78

UNIT YEAR 2006 YEAR 2005 YEAR 2004 (PROFITABILITY RATIO)

CONSO

LIDATED COMPANY

CONSO

LIDATED COMPANY

CONSO

LIDATED COMPANY

GROSS PROFIT MARGIN % 36.6 30.4 36.9 34.3 37.0 34.1

RETURN ON NET PROFIT % 12.7 13.3 17.4 17.4 17.8 17.3

RETURN ON EQITY % 27.74 28.1 40.0 40.5 40.4 41.0

UNIT YEAR 2006 YEAR 2005 YEAR 2004

(EFFICIENCY RATIO) CONSO

LIDATED COMPANY

CONSO

LIDATED COMPANY

CONSO

LIDATED COMPANY

RETURN ON ASSET % 13.0 14.7 18.1 21.9 20.4 26.2

RETURN ON FIXED ASSET % 22.2 49.9 29.4 69.2 31.1 87.8

CURRENT RATIO TIME 1.0 1.1 1.0 1.2 1.1 1.5

62

UNIT YEAR 2006 YEAR 2005 YEAR 2004

(FINANCIAL POLICY RATIO) CONSO

LIDATED COMPANY

CONSO

LIDATED

CONSO

LIDATED COMPANY

DEBT/EQUITY RATIO TIME 1.1 0.9 1.2 0.9 1.0 0.6

TIME INTEREST EARNED TIME 11.1 10.4 33.1 45.6 62.3 87.7

SHARES STATISTIC UNIT YEAR 2006 YEAR 2005 YEAR 2004

CONSO

LIDATED COMPANY

CONSO

LIDATED

CONSO

LIDATED COMPANY

BOOKED VALUE BAHT 5.01 4.95 4.59 4.53 4.09 4.03

EARNING PER SHARE BAHT 1.39 1.39 1.84 1.84 1.66 1.66

% GROWTH UNIT YEAR 2006 YEAR 2005 YEAR 2004

CONSO

LIDATED COMPANY

CONSO

LIDATED

CONSO

LIDATED COMPANY

TOTAL ASSET % 5.0 11.8 25.5 33.1 4.1 (6.6)

TOTAL LIABILITIES % 1.4 14.8 39.2 70.0 (5.4) (30.1)

NET REVENUE % 4.7 (2.5) 13.8 13.5 18.1 18.1

SELLING & ADMIN. EXPENSES % 53.9 16.6 22.1 12.4 7.8 14.5

NET PROFIT % (24.3) (24.3) 10.9 10.9 34.5 34.5

63

REPORT OF THE AUDITOR

To The Shareholders and Board of Directors of Dynasty Ceramic Public Company Limited I have audited the consolidated balance sheets of Dynasty Ceramic Public Company Limited and subsidiaries as at December 31, 2006 and 2005, the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended and the balance sheets of Dynasty Ceramic Public Company Limited as at December 31, 2006 and 2005, the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management as to their correctness and completeness of the presentation. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dynasty Ceramic Public Company Limited and subsidiaries as at December 31, 2006 and 2005, the consolidated results of their operations, the consolidated changes in their shareholders’ equity and their consolidated cash flows for the years then ended and the financial position of Dynasty Ceramic Public Company Limited as at December 31, 2006 and 2005, the results of its operations, the changes in its shareholders’ equity and its cash flows for the years then ended in conformity with generally accepted accounting principles.

(Mr. Pichai Dachanapirom) Certified Public Accountant Registration No. 2421

Dharmniti Auditing Company Limited Bangkok, Thailand February 19, 2007 2007/181/7595

64

DYNASTY CERAMIC PUBLIC COMPANY LIMITED

BALANCE SHEETS ASSETS

In Baht Consolidated The Company Only

Note As at December As at December As at

December As at

December 31, 2006 31, 2005 31, 2006 31, 2005 CURRENT ASSETS

Cash and cash equivalents 4 42,663,254 38,378,788 13,201,562

7,690,612

Current investment - net 5 - - - -

Trade accounts receivable 6 214,482,218 267,767,978 198,522,049

264,177,273

Less Allowance for doubtful accounts (3,727,003) (2,462,416) (1,435,729) (1,435,729)

Trade accounts receivable - net 210,755,215 265,305,562 197,086,320

262,741,544

Receivables from subsidiaries 22 - -

848,787,762

713,954,952

Short-term loan to subsidiaries 7, 22 - -

100,000,000

145,000,000

Inventories - net 8 1,391,666,978 1,132,389,730 745,499,134

549,359,880

Other current assets 22 40,707,619 55,950,758 10,105,951

15,557,639

Total current assets 1,685,793,066 1,492,024,838 1,914,680,729

1,694,304,627

NON-CURRENT ASSETS

Investment in subsidiaries 2, 9, 26 - -

782,329,490

657,613,983

Other investment - net 499,500 999,500 - -

Property, plant and equipment - net

10, 13, 17 2,553,021,919 2,545,077,512

1,136,922,441

1,081,381,344

Other non-current assets - net 11 52,285,641 44,963,455

10,160,629

4,110,189

Goodwill - net 12 57,866,067 61,020,914 - -

Total non-current assets 2,663,673,127 2,652,061,381 1,929,412,560

1,743,105,516

TOTAL ASSETS 4,349,466,193 4,144,086,219 3,844,093,289

3,437,410,143

Notes to financial statements form an integral part of these statements.

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DYNASTY CERAMIC PUBLIC COMPANY LIMITED BALANCE SHEETS (CONT.)

LIABILITIES AND SHAREHOLDERS' EQUITY In Baht Consolidated The Company Only

Note As at

December As at December As at

December As at

December 31, 2006 31, 2005 31, 2006 31, 2005 CURRENT LIABILITIES Bank overdrafts and short-term loans

from financial institutions 13

1,580,191,146 1,548,737,463

1,033,777,002

986,912,103

Trade accounts and notes payable 14

371,710,145 453,740,150

174,795,273

212,214,556

Payable to subsidiaries 22 - -

84,032,177

36,732,769

Short-term loan from subsidiaries

15, 22 - -

245,000,000

145,000,000

Current portion of liabilities under financial lease agreements

3,327,600 -

3,327,600

-

Current portion of long - term loan 16

80,000,000 -

80,000,000

-

Accrued income tax

97,443,511 131,560,801

59,296,569

123,709,886

Other current liabilities 22

114,345,448 95,970,023

89,729,983

73,077,626

Total current liabilities

2,247,017,850 2,230,008,437

1,769,958,604

1,577,646,940 NON-CURRENT LIABILITIES

Liabilities under financial lease agreement - net 16

4,991,400 -

4,991,400

-

Long-term loan - net 17

10,000,000 -

10,000,000

-

Provident fund 18

43,729,091 42,979,038 -

- Liabilities from investment

under equity method 2, 9, 26 - -

40,262,276

12,050,118

Total non-current liabilities

58,720,491 42,979,038

55,253,676

12,050,118

TOTAL LIABILITIES

2,305,738,341 2,272,987,475

1,825,212,280

1,589,697,058


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DYNASTY CERAMIC PUBLIC COMPANY LIMITED BALANCE SHEETS (CONT.)

LIABILITIES AND SHAREHOLDERS' EQUITY (CONT.) In Baht Consolidated The Company Only

Note As at December As at December As at

December As at

December 31, 2006 31, 2005 31, 2006 31, 2005 SHAREHOLDERS' EQUITY Share capital Authorized share capital

408,000,000 ordinary shares

of Baht 1.00 each

408,000,000 408,000,000

408,000,000

408,000,000 Issued and paid-up share capital

408,000,000 ordinary shares

of Baht 1.00 each

408,000,000 408,000,000

408,000,000 408,000,000 Paid-in capital

Premium on share capital

506,000,000 506,000,000

506,000,000 506,000,000 Retained earnings

Appropriated - legal reserve 19

40,800,000 40,800,000

40,800,000 40,800,000

Unappropriated

1,064,081,009 892,913,085

1,064,081,009

892,913,085 Total shareholder's equity of parent company

2,018,881,009 1,847,713,085

2,018,881,009

1,847,713,085

Minority interest in subsidiaries

24,846,843 23,385,659 - -

Total shareholder's equity 2,043,727,852 1,871,098,744

2,018,881,009

1,847,713,085

TOTAL LIABILITIES AND

SHAREHOLDERS' EQUITY

4,349,466,193 4,144,086,219

3,844,093,289

3,437,410,143


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STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

In Baht Consolidated The Company Only Note 2006 2005 2006 2005 REVENUES

Sales 22 4,452,422,967 4,254,513,255 4,140,898,231 4,245,284,348

Other income Amortization of negative goodwill - net 12 - 25,106,195 - -

Gain on sale of fixed assets 299,484 - - 297,267

Others 22 7,772,654 11,927,525 23,946,594 12,722,118

Share of gain (loss) in subsidiaries - - 96,503,349 42,697,960

Total Revenues 4,460,495,105 4,291,546,975 4,261,348,174 4,301,001,693

EXPENSES

Cost of sales 22 2,829,339,004 2,709,555,727 2,965,060,249 2,826,742,615

Selling and administrative expenses 22 735,198,828 474,862,121 487,346,387 417,522,614

Amortization of goodwill - net 12 3,154,847 - - -

Loss on sales/writen off fixed assets 39,644 2,835,317 - -

Directors' remuneration 7,520,000 7,030,000 5,890,000 5,550,000

Total Expenses 3,575,252,323 3,194,283,165 3,458,296,636 3,249,815,229

Income before interest and income tax 885,242,782 1,097,263,810 803,051,538 1,051,186,464

Interest expense 22 86,796,536 30,029,525 67,071,086 19,758,488

Income tax 230,057,138 318,009,515 169,052,528 282,672,274

Income before minority interest 568,389,108 749,224,770 566,927,924 748,755,702

Net loss (income) of minority interest (1,461,184) (469,068) - -

Net income 566,927,924 748,755,702 566,927,924 748,755,702

EARNINGS PER SHARE - Baht 20

Net income (loss) from ordinary activities 1.39 1.84 1.39 1.84

Notes to financial statements form an integral part of these statements

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STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

In Baht

Share capital Premium on Legal Retained Minority Total

issued and ordinary reserve earnings interest

Note paid-up shares

Consolidated

Beginning balance 2005 408,000,000 506,000,000 40,800,000 690,877,383 24,127,221 1,669,804,604

Net income for the year 2005 - - - 748,755,702 - 748,755,702

Dividend 21 - - - (546,720,000) - (546,720,000)

Net income of ninority interest - - - - (741,562) (741,562)

Ending balance 2005 408,000,000 506,000,000 40,800,000 892,913,085 23,385,659 1,871,098,744


Dividend 21 - - - (395,760,000) - (395,760,000)

Net income of minority interest - - - - 1,461,184 1,461,184

Enging balance 2006 408,000,000 506,000,000 40,800,000 1,064,081,009 24,846,843 2,043,727,852

The Company Only

Beginning balance 2005 408,000,000 506,000,000 40,800,000 690,877,383 - 1,645,677,383


Dividend 21 - - - (546,720,000) - (546,720,000)

Ending balance 2005 408,000,000 506,000,000 40,800,000 892,913,085 - 1,847,713,085


Dividend 21 - - - (395,760,000) - (395,760,000)

Enging balance 2006 408,000,000 506,000,000 40,800,000 1,064,081,009 - 2,018,881,009


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DYNASTY CERAMIC PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 In Baht


2006 2005 2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES

Net income 566,927,924 748,755,702 566,927,924 748,755,702

Add (less) Adjustments to reconcile net profit to

net cash flows :

Depreciation and amortization 370,821,913 324,285,089 148,050,363 115,579,095

Provision for bad debt 1,264,587 - - -

Provision for impairment of other investment 500,000 - - -

Provision for bad debt (reversal) (101,213) - - -

Loss (gain) on sale of fixed assets (299,484) 2,842,005 - (297,267)

Loss on written off fixed assets 39,644 - - -

Unrealized loss (gain) on exchange rate (101,540) (707,657) (164,648) (351,685)

Share of loss (gain) in subsidiaries - - (96,503,349) (42,697,960)

Minority interest in net income of subsidiaries 1,461,184 469,068 - -

Amortization of goodwill - net 3,154,847 - - -

Amortization of negative goodwill- net - (25,106,195) - -

Income from operations before change in

operating assets and liabilities 943,667,862 1,050,538,012 618,310,290 820,987,885

Operating assets (increase) decrease

Trade accounts and notes receivable 53,289,582 466,883,805 65,659,046 410,238,252

Receivable from subsidiaries - - (134,832,810) (713,924,952)

Short-term loan to subsidiaries - - 45,000,000 (42,000,000)

Inventories (259,277,248) (233,079,006) (196,139,254) (137,224,015)

Other current assets 16,290,852 (1,350,789) 6,398,188 (6,622,041)

Other non-current assets (8,935,621) 418,694 (6,050,440) 1,230,002

Other investment - 94,900 - -


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In Baht Consolidated The Company Only 2006 2005 2006 2005 Operating liabilities increase (decrease) Trade accounts and notes payable (81,908,753) (571,846,647) (37,234,923) 76,444,560 Payable to subsidiaries - - 47,299,408 36,426,782 Short-term loan from subsidiaries - - 100,000,000 145,000,000 Accrued income tax (34,117,290) (59,985,464) (64,413,318) 10,893,109 Other current liabilities 18,375,425 (7,922,256) 16,652,357 (3,120,519) Provident fund 750,053 2,153,950 - -

Net cash provided by (used in) operating activities 648,134,862 645,905,199 460,648,544 598,329,063 CASH FLOWS FROM INVESTING ACTIVITIES Increase in property, plant and equipment (370,853,271) (510,820,060) (194,555,159) (431,939,235) Proceeds from sale of fixed assets 2,996,527 8,220,046 - 4,604,100 Proceeds from purchase of subsidiaries, net - 9,556,080 - - Cash paid for purchase of subsidiaries - - - (18,374,257)

Net cash provided by (used in) investing activities (367,856,744) (493,043,934) (194,555,159) (445,709,392)CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in bank overdrafts and short-term loans from financial institutions 31,430,148 413,067,392 46,841,365 384,364,326 Increase in long-term loans 90,000,000 - 90,000,000 - Cash paid for dividend (395,760,000) (546,720,000) (395,760,000) (546,720,000) Payment of liabilities under financial lease agreement (1,663,800) - (1,663,800) - Payment of hire-purchase contract payable - (622,150) - -

Net cash provided by (used in) financing activities (275,993,652) (134,274,758) (260,582,435) (162,355,674)Net increase (decrease) in cash and cash equivalents 4,284,466 18,586,507 5,510,950 (9,736,003)Cash and cash equivalents, beginning of year 38,378,788 19,792,281 7,690,612 17,426,615

Cash and cash equivalents, end of year 42,663,254 38,378,788 13,201,562 7,690,612

Supplemental disclosures of cash flows information 1. Cash paid during the year for : Interest expense 87,411,736 36,752,151 81,822,498 18,289,611 Income tax 264,191,236 379,917,733 233,465,846 271,779,166 2. Assets acquisition under leasing agreements office equipment 9,036,300 - 9,036,300 - 3. In 2005, a subsidiary transferred land an factory building - net of Baht 21.04 million, to be a part of other non-current asstes - net 4. In 2006 and 2005, the company recorded capitalization of the borrowing cost amounted to Baht 2.63 million and Baht 1.67 million, respectively.


71

5.

On October 3, 2005, the Company acquired the ordinary shares of Pick and Pay Co.,Ltd. Muangthong Ceramic Co., Ltd. and World Wide Ceramic Co.,Ltd. As a result, the said companies are subsidiaries by direct own.

The details of net assets of the said subsidiaries at the date of acquisition are as follow :-

Baht

Pick and Pay Muangthong World Wide Total

Ceramic Ceramic

Fixed assets 89,766,301 95,471,533 32,731,417 217,969,251

Other assets 190,713,968 243,268,279 42,862,655 476,844,902

Total Liabilities (339,092,656) (431,381,762) (95,583,062) (866,057,480)

Minority interest 1,178,109 18,528 13,992 1,210,629

Faif value at the date of acquistion (57,434,278) (92,623,422) (19,974,998) (170,032,698)

Negative Goodwill 69,954,264 97,413,756 21,038,935 188,406,955

Purchased price 12,519,986 4,790,334 1,063,937 18,374,257

Less Cash in hand and at banks of subsidiary

at the date of acquistion (17,662,366) (8,439,727) (1,828,244) (27,930,337)

Purchased price-net (5,142,380) (3,649,393) (764,307) (9,556,080)


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NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

1. GENERAL INFORMATION

(a) Legal status and address for company and subsidiary

The Company was registered to be a limited public company under the Limited Public Company Act with the Ministry of Commerce on March 9, 1994

The address of its registered office is as follows: 37/7, Suthisarnwinijchai Rd., Samsennok, Hueykwang, Bangkok 10310, Thailand The subsidiary companies:-

Company Registered to be a

Limited Public Company or Limited Company

Address Number of branches

As at December

31, 2006

Number of branches

As at December

31, 2005

1. Tile Top Industry Public CompanyLimited

November 23, 1995 37/7,Suthisarnwinijchai Rd., Samsennok, Hueykwang, Bangkok, 10310, Thailand

- -

2. Pick and Pay CompanyLimited

January 2, 1992 54 Moo 4 Phaholyothin Rd., Hueykhamin, Nongkae, Saraburi, 18230, Thailand

48 branches 43 branches

3. Muangthong CeramicCompany Limited

October 24, 2000 37/7,Suthisarnwinijchai Rd., Samsennok, Hueykwang, Bangkok, 10310, Thailand


4. World Wide CeramicCompany Limited

October 20, 2004 37/7,Suthisarnwinijchai Rd., Samsennok, Hueykwang, Bangkok, 10310, Thailand.


(b) Nature of the Company’s business

Main business activities of the Company and subsidiaries are manufacturing and selling of wall and floor ceramic tile.

73

(c) Employees

As at December 31, 2006 and 2005, the Company and subsidiaries have 2,197 employees and 2,161 employees, respectively. (749 employees and 764 employees, respectively, for the Company only).

(d) Supplemental disclosures of revenue and expense information

Supplemental disclosures of revenue and expense information are as follows:

In Baht


For the years ended

December 31,

For the years ended

December 31,

2006 2005 2006 2006

Depreciation and amortization

370,821,913 324,285,089 148,050,363 115,579,095

Amortization of goodwill 37,681,391 9,420,348 - -

Amortization of negative goodwill

34,526,544 34,526,543 - -

Profit (loss) on exchange 2,248,713 5,473,412 1,120,137 1,999,148

Employee benefit cost 357,025,179 250,916,688 139,082,695 117,965,786

74

The staff cost was consisted of salary, bonus, welfare, social security and contribution to provident fund.

2. BASIS FOR CONSOLIDATION AND OPERATIONS

2.1 The accompanying consolidated financial statements include the accounts of Dynasty Ceramic Public Company Limited and the following subsidiaries are owned directly and indirectly by the Company.

Subsidiaries are those companies controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

2.2 Significant intercompany transactions between the Company and subsidiaries have been eliminated.

2.3 The consolidated financial statements are prepared in accordance with the same accounting policies

2.4 On October 3, 2005 the Company acquired ordinary shares of Pick and Pay Co., Ltd., Muangthong Ceramic Co., Ltd. and World Wide Ceramic Co., Ltd. at 97.99%, 99.98% and 99.93% respectively, registered share capital of the said company. The Company has recorded the investment in such subsidiaries by the equity method in the Company’s financial statements only and the financial statements of the said company have been consolidated to the accompanying consolidated financial statements by the purchase method.

Percentage of Holding by Dynasty Ceramic Public Co.,Ltd

As at December

31, 2006

As at December

31, 2005

Nature of Business

Tile Top Industry Public Co.,Ltd.

96.83 96.83 Manufacturing and distribution of wall and floor ceramic tile

Pick and Pay Co.,Ltd. 97.99 97.99 Distribution of wall and floor ceramic tile

Muangtong Ceramic Co.,Ltd.

99.98 99.98 Distribution of wall and floor ceramic tile

World Wide Ceramic Co.,Ltd.

99.93 99.93 Distribution of wall and floor ceramic tile

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3. SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis for preparation of financial statements

The financial statements of the Company are prepared in accordance with generally accepted accounting principles and accounting standard prescribed in Accounting Act.

3.2 Recognition of revenues and expenses

Sales are recognized upon delivery of goods at the net value after discounts.

The Company recognizes expenses on the accrual basis.

3.3 Allowance for doubtful accounts

Allowance for doubtful accounts is calculated on the debts which are expected to be uncollectible.

3.4 Inventories

Inventories are shown at the lower of cost or net realizable value. Cost is calculated using the average cost method.

3.5 Investments in marketable securities

Investment in marketable securities - trading securities are stated at the fair value. The cost of investment in marketable securities is computed by the weighted average method

3.6 Investment in subsidiaries

Investment in subsidiaries are stated at equity method. Equity method presents investments at first at cost and subsequently adjusted by equity gain (loss) in net income (loss) of subsidiaries according to the ratio of investment. The Company recognized equity gain (loss) in net income (loss) of subsidiaries in the statement of income.

Excess of loss on investment over the cost of the investment has been shown as a liability under the caption “Liability from investments accounted for under equit method” in the balance sheets.

3.7 Investments in Shares (General Investment)

Long-term investments in other companies are stated at cost. The Company recognizes gain or loss on disposal of the investment in the statement of income and also impairment loss on the investment.

3.8 Property, plant and equipment

Land is stated at Cost.

Land improvements plant and equipment are stated at cost less accumulated depreciation.Depreciation is calculated by the straight-line method, based on the estimated useful lives of the assets as follows:

76

Land improvement 20 years

Building 20 years

Machinery and equipment 10-15 years

Vehicles 5 years

Equipment and tools 5 years

Office equipment 5 years

3.9 Property foreclosed and assets not used in operation

Property foreclosed and assets not used in operation is stated at the lower of the amount due to the company or net realized value.

3.10 Impairment of assets

The Company and its subsidiary companies review the impairment of assets whenever events indicate that the carrying value of an asset exceeds its realisable value. Realisable value is determined the value of an asset’s net selling price and its value in use whichever is higher. The value in use is derived from management estimates.

The Company and its subsidiary companies recognise an impairment loss in the earnings statements whenever the carrying value of an asset exceeds its realisable value. The Company and ists subsidiary companies will reverse the impairment loss when there are indications that the value of the asset is no longer impaired or the amount of impairment has decreased.

3.11 Intangible assets

Intangible assets are stated at cost less accumulated amortisation. Amortisation of intangible assets is calculated by reference to their costs on a straight-line basis over the following estimated useful lives:

Leasehold rights - over the lease period

Software - 5 years

3.12 Foreign currencies transactions

Transactions in foreign currencies throughout the year are recorded in Baht at rates prevailing at the date of transactions. Outstanding assets and liabilities denominated in foreign currencies at end of period are converted into Baht at the rates of exchange prevailing on that date. Profit (loss) on exchange is recognized in the profit and loss statement.

3.13 Income tax

Corporate income tax is calculated from net income for the periods adjusted by the items defined under the Revenue Code as taxable or non-taxable income and expense at the rate of 25% per annum for the first of Baht 300 million net profit starting year 2002 to year 2006

77

3.14 Cash and cash equivalents

Cash and cash equivalents consist of cash in hand and at banks and deposits at financial institutions which are promissory notes with original maturity of 3 months or less and excluded deposits which are pledged as collateral.

3.15 Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

3.16 Related parties

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.

3.17 Financial instruments

The Company and its subsidiary companies have no policy to speculate in or engage in the trading of any financial derivative instruments.

Financial instruments carried in the balance sheet include cash and cash equivalents, current investments, trade accounts receivable, loans to subsidiaries, trade accounts payable, loans from subsidiaries and loans from financial institutions. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

4. CASH AND CASH EQUIVALENTS

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Cash in hand 10,674,924 18,292,302 105,125 132,038

Cash at bank - current accounts

11,109,727 7,588,254 7,632,268 5,065,743

Cash at bank - saving accounts

20,878,603 12,498,232 5,464,169 2,492,831

Total 42,663,254 38,378,788 13,201,562 7,690,612

78

The above cash at bank - saving accounts bear interest at the floating rate which are set by the bank.

5. CURRENT INVESTMENTS

Investments in marketable securities are included in current investment and consist of the following

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Investment in marketable

securities-trading securities 156,400 1,481,400 156,400 1,481,400

Less Allowance for diminution

in value of securities (156,400) (1,481,400) (156,400) (1,481,400)

Net - - - -

As at December 31, 2005, investment in two listed securities has aggregated cost of Baht 1,481,400. The Company has recorded allowance for diminution in value such securities amounting To Baht 1,481,400, which an investment in listed financial institution has been ordered to wind up operations by the Ministry of Finance on December 8, 1997.

In year 2006 the Company has written off the investment in a listed security in the amount of Baht 1,325,000 as a consequence of the permanent wind up in business operations.

6. TRADE ACCOUNTS, NOTES RECEIVABLE AND RECEIVABLE FROM SUBSIDIARIES

The accounts receivable were classified by aging as follows:

In Baht

Consolidated

As at December

As at December

31, 2006 31, 2005

Not due 179,084,297 227,842,225

Over 91 days to 120 days 18,412,820 21,500,389

Over 120 days to 180 days 4,665,656 11,335,514

79

Over 180 days to 365 days 11,900,478 5,927,506

Over 365 days 418,967 1,162,344

Total 214,482,218 267,767,978

Less Allowance for doubtful accounts (3,727,003) (2,462,416)

Net 210,755,215 265,305,562

In Baht

The Company Only

As at December

As at December

31, 2006 31, 2005

Not due 789,058,926 882,225,995

Over 91 days to 120 days 100,866,883 42,722,690

Over 120 days to 180 days 93,482,814 32,434,477

Over 180 days to 365 days 63,305,572 20,160,095

Over 365 days 595,616 588,968

Total 1,047,309,811 978,132,225

Less Allowance for doubtful accounts (1,435,729) (1,435,729)

Net 1,045,874,082 976,696,496

SHORT-TERM LOAN TO SUBSIDIARIES

In Baht

As at December

As at December

31, 2006 31, 2005

Tile Top Industry Public Co., Ltd.

Beginning balance - 103,000,000

Increase - 156,000,000

Decrease - (259,000,000)

Ending balance - -

80

In Baht

As at December

As at December

31, 2006 31, 2005

Muangthong Ceramic Co., Ltd.

Beginning balance 145,000,000 -

Increase 2,000,000 152,000,000

Decrease (47,000,000) (7,000,000)

Ending balance 100,000,000 145,000,000

Total 100,000,000 145,000,000

In 2005 the Company has loan to Tile Top Industry Public Co., Ltd. and charged interest at the rate of 2.2 - 3.3% per annum and due at call.

In 2006 and 2005, the Company has loan to Muangthong Ceramic Co., Ltd. and charged interest at the rate of 4.5 - 6.0% per annum, and 4.5 - 4.75% per annum, respectively, and due at call.

8. INVENTORIES - NET

Inventories-net consist of the following :

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Finished goods 990,947,606 745,612,256 552,443,142 385,675,399

Work in process 38,232,408 29,133,275 14,402,873 9,379,480

Raw materials 187,514,975 172,995,109 89,205,023 63,377,222

Supplies 184,807,873 176,696,934 88,294,409 84,566,611

Goods in transit 4,235,361 22,023,401 3,233,956 8,441,437

Total 1,405,738,223 1,146,460,975 747,579,403 551,440,149

Less Allowance for obsoleted stock

(14,071,245) (14,071,245) (2,080,269) (2,080,269)

Net 1,391,666,978 1,132,389,730 745,499,134 549,359,880

81

Allowance for obsolete stock is changed during the periods as follows :-

In Baht


As at December

31, 2006

As at December

31, 2005

As at December

31, 2006

As at December

31, 2005

Beginning balance 14,071,245 12,083,721 2,080,269 2,080,269

Increase (decrease) - 1,987,524 - -

Ending balance 14,071,245 14,071,245 2,080,269 2,080,269

INVESTMENT IN SUBSIDIARIES

The Company Only

mpany’s Nature of Relationship Paid-up Percentage of holding(%)

Cost Equity method (In Baht) Dividen

me Business share capital

As at As at Method As at As at (In Bah

(In Baht) December

31, 2006

December

31, 2005

(In Baht) December

31, 2006

December

31, 2005

sidiary mpanies:-

Top Industry

lic Co.Ltd.

Manufacturing

and distribution of wall and floor ceramic tile

Co-Directing/

Shareholding

222,000,000

96.83

96.83 109,479,530

687,210,426

630,898,601

-

k and Pay

Co.,Ltd.

Distibution of wall and floor ceramic tile.

Co-Directing/

Shareholding

120,000,000

97.79

97.79 12,519,986

61,003,286 16,385,943 -

angthong amic Ltd.


Co-Directing/Shareholding

4,500,000

99.98

99.98 4,790,334

34,115,778

10,329,439

-

782,329,490 657,613,983

rldWide amic

Co.,Ltd.


Co-Directing/

Shareholding

1,000,000

99.93

99.93 1,063,937 (40,262,276) (12,050,118) -

(40,262,276) (12,050,118)

82

The Company has recognized the equity gain (loss) in subsidiaries based on the audited financial statements.

10. PROPERTY, PLANT AND EQUIPMENT - NET

Property, plant and equipment - net consist of the following :

In Thousand Baht

Consolidated

Balance per Additions Deduction Balance per

Book as at Book as at

December December

31, 2005 31, 2006

At cost

Land 258,166 1,300 - 259,466

Land improvements 59,812 281 - 60,093

Buildings 818,726 233,448 - 1,052,174

Buildings improvements 16,158 3,962 - 20,120

Machinery and equipment 2,827,214 433,977 (2,914) 3,258,277

Less loss on devaluation (655) - - (655)

Machinery and equipment - net

2,826,559 433,977 (2,914) 3,257,622

Furniture, Fixture and

Office equipment 378,123 88,850 (644) 466,329

Vehicles 72,000 4,802 (1,589) 75,213

Construction in progress 419,245 306,613 (693,345) 32,513

Total 4,848,789 1,073,233 (698,492) 5,223,530

Less Accumulated depreciation

Land improvements (20,836) (2,996) - (23,832)

Building (281,895) (56,702) - (338,597)

Buildings improvements (2,998) (876) - (3,874)

Machinery and equipment (1,691,072) (253,806) 797 (1,944,081)

Furniture, Fixture and

Office equipment (263,478) (44,477) 25 (307,930)

83

Vehicles (43,433) (10,350) 1,588 (52,195)

Total accumulated depreciation

(2,303,712) (369,207) 2,410 (2,670,509)

Property, plant and equipment-net

2,545,077 2,553,021

84

In Thousand Baht

The Company Only



December December

31, 2005 31, 2006

At cost

Land 120,634 - - 120,634

Land improvements 23,311 - - 23,311

Buildings 224,330 98,444 - 322,774

Machinery and equipment 1,249,240 416,585 - 1,665,825

Less loss on devaluation (655) - - (655)

Machinery and equipment - net

1,248,585 416,585 - 1,665,170

Office equipment 213,611 73,392 - 287,003

Vehicles 23,976 4,206 - 28,182

Construction in progress 398,219 154,952 (543,988) 9,183

Total 2,252,666 747,579 (543,988) 2,456,257

Less Accumulated depreciation

Land improvements (6,979) (1,165) - (8,144)

Building (94,450) (14,996) - (109,446)

Machinery and equipment (918,088) (98,107) - (1,016,195)

Office equipment (129,507) (31,543) - (161,050)

Vehicles (22,261) (2,239) - (24,500)

Total accumulated depreciation

(1,171,285) (148,050) - (1,319,335)

Property, plant and equipment-net

1,081,381 1,136,922

Portion of interest charge for the years ended December 31, 2006 and 2005 amounting to Baht 2,634,246.57 and Baht 1,673,994, respectively, were capitalized as part of construction cost of factory and construction cost of head office.

85

A portion of land, including building of the Company and subsidiaries are mortgaged as collateral against loans from banks.

A part of the above land for construction of head office building amounting to Baht 73 million (2.7% of total area) was registered the servitudes on such land.

As at December 31, 2006, the Company and subsidiaries have the fully but depreciated building, machinery and equipment, furniture, fixture and office equipment and vehicles, but still in use amounted to Baht 5,380,815.09, Baht 394,549,106.87, Baht 212,552,835.46 and Baht 33,072,341.19, respectively. (the fully but depreciated machinery and equipment, furniture fixture and office equipment and vehicles, but still in use amounted to Baht 391,068,402.87 Baht 99,791,404.87 and Baht 23,357,863.13, respectively, for the Company only).

OTHER NON-CURRENT ASSETS – NET

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Property foreclosed 24,628,133 26,241,568 4,121,865 4,121,865

Assets is not used in operation

4,647,318 4,647,318 4,647,318 4,647,318

Deposit 5,663,906 5,527,688 388,324 588,324

Leasehold right - land, net 16,317,292 13,773,187 - -

Intangible assets 6,250,440 - 6,250,440 -

Guarantee of fixed account 104,858 100,000 - -

Total 57,611,947 50,289,761 15,407,947 9,357,507

Less Allowance for impairment

(5,326,306) (5,326,306) (5,247,318) (5,247,318)

Net 52,285,641 44,963,455 10,160,629 4,110,189

The Company’s property foreclosed comprises land of which the Company takes possession from its receivables.

The Subsidiary’s property foreclosed comprises land of which the Company takes possession from its receivables and land with former office building.

12. GOODWILL - NET

The excess of equity in net assets of a subsidiary lower cost is recognized as “Goodwill”which is stated at cost less accumulated amortization. The goodwill is amortized as expense on straight-line method over the period of 5 year

86

The excess of equity in net assets of a subsidiary over cost is recognized as “Negative Goodwill”which is stated at cost less accumulated amortization. The negative goodwill is amortized as income over the weighted-average of the remaining useful lives of building and equipment of the subsidiary (102 months).

Goodwill, net of accumulated amortization, are presented as part of assets in the consolidated balance sheets.

Transaction of goodwill during the period is as follows:-

In Baht



December 31, 2005

December 31, 2006

Goodwill 188,406,955 - - 188,406,955

Less Accumulated amortization (9,420,348) (37,681,391) - (47,101,739)

Net 178,986,607 (37,681,391) - 141,305,216

Less Negative Goodwill 292,743,912 - - 292,743,912

Less Accumulated amortization (174,778,219) (34,526,544) - (209,304,763)

Net 117,965,693 (34,526,544) - 83,439,149

Goodwill - net 61,020,914 57,866,067

BANK OVERDRAFTS AND SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Bank overdrafts 9,211,950 35,590,037 2,797,806 13,764,677

Short-term loans

Note payable 1,570,000,000 1,420,000,000 1,030,000,000 880,000,000

Liabilities under trust receipts

979,196 93,147,426 979,196 93,147,426

Total 1,580,191,146 1,548,737,463 1,033,777,002 986,912,103

87

Million Baht

Credit line

2006 2005 Rate Due Date Guarantee

Bank overdraft

The parent company

35 25 At the floating rate at MOR per annum to MOR less 2.25% per

- - By the mortgage of the Company’s land and construction there on

annum. - By its subsidiary company

The subsidiaries 25 35 At the floating rate at MOR per annum to MOR less 0.5% per

- - By the mortgage of the Company’s land and construction there on

annum. - By its parent company

- By some director

Short-term loans

The parent company

1,340 1,090 At the average floating rate

Due at call

- By the mortgage of the Company’s

In 2006 : 5.61% per annum

Land and construction there on

In 2005 : 3.92% per annun

- By its subsidiary company

The subsidiaries 640 740 At the average floating rate

Due at call


In 2006 : 5.26% per annum

land and construction there on

In 2005 : 2.58% per annun

- By its parent company

- By some director

88

Liabilities under trust receipts

The parent company

45 245 At the average rate at MLR less 1.5%

Maturity on


per annum agreement

Land and construction there on

- By its subsidiary company

The subsidiaries 50 50 In 2006 : at the floating rate at MOR per

Maturity on


annum agreement

land and construction there on

In 2005 : at the floating rate at MOR per

annum - By its parent company

14. TRADE ACCOUNTS PAYABLE AND NOTES PAYABLE

Trade accounts and notes payable consist of foreign currencies as at December 31, 2006 and 2005 are as follows :

Consolidated

In Currencies Baht

2006 2005 2006 2005

Baht 339,993,638 371,187,553 339,993,638 371,187,553

Euro 608,544 1,621,242 29,070,210 79,359,506

US.Dollar 73,040 77,550 2,646,297 3,193,091

371,710,145 453,740,150

The Company Only

In Currencies Baht

2006 2005 2006 2005

Baht 157,675,280 167,598,551 157,675,280 167,598,551

Euro 305,140 851,002 14,576,591 41,656,374

US.Dollar 70,200 71,880 2,543,402 2,959,631

174,795,273 212,214,556

89

SHORT-TERM LOAN FROM SUBSIDIARIES

In Baht

Consolidated

As at December

31, 2006

As at December

31, 2005

Tile Top Industry Public Company Limited

Beginning balance 145,000,000 -

Increase 113,000,000 231,800,000

Decrease (13,000,000) (86,800,000)

Ending balance 245,000,000 145,000,000

In 2006 and 2005, the Company has loan from Tile Top Industry Public Company Limited with interest at the rate of 4.8 - 6.0% per annum, and 4.47-4.9% per annum respectively, and due at call

16. LIABILITIES UNDER FINANCIAL LEASE AGREEMENTS

Liabilities under financial lease agreements were leasing for assets and the Company records as financial lease method, consisted of:

In Baht

As at December 31, 2006

As at December

31, 2005

Financial lease agreement - computer equipment 8,319,000 -

Less portion due with in one year (3,327,600) -

Net 4,991,400 -

Under these agreements, the Company has an option to purchase such assets, at the end of contract and the Company has to comply with condition specified in the agreement.

90

17. LONG-TERM LOANS - NET

Long-term loans from bank consist of :

In Baht

As at December 31, 2006

As at December

31, 2005

Long-term loans 90,000,000 -

Less Current portion of long-term loans (80,000,000) -

Long-term loan, net of current portion 10,000,000 -

As at December 31, 2006 the Company has long-term credit line of Baht 200 million; this represents long-term loan from a local bank. The loan is charged interest at the rate MLR less 1.5% per annum and repayment to be made at quarterly amount minimum Baht 20 million within three years.

This loan is guaranteed by the mortgage of land and plant including building thereon of a subsidiary and a negative pledge of machinery of agreement. (Note 10)

The Company has to abide by the loan agreement in respect of important matters such as the requirements to maintain the ratio of debt to common stock of not more than double and to maintain the proportion of shareholding held by some directors at any time not less than 25.5% of the Company’s total number of shares, etc.

18. PROVIDENT FUND

The Company established a provident fund covering all of its employees in accordance with the provident Fund Act B.E. 2530. The employees contribute to the fund at the amount equivalent to 5% of the basic salaries and the Company contributes an amount based on number of years employed. The Company appointed a fund manager to manage the fund in accordance with the terms and conditions prescribed in the Provident Fund Act B.E.2530.

A subsidiary established a provident fund covering all of its employees, which it manages that fund by itself (not in accordance with the Provident Fund Act B.E.2530). The employees contribute to the fund at the amount equivalent to 5% of the basic salaries and the subsidiary contributes an amount based on number of years employed.

Since July 1, 2003, The said subsidiary established a provident fund covering all of its employees in accordance with the provident fund Act B.E. 2530. The employees contribute to the amount equivalent to 5% of the basic salaries and the subsidiary contributes an amount based on number of years employed. The subsidiary appointed a fund manager to manage the fund in accordance with the terms and conditions prescribed in the provident Fund Act B.E. 2530. The old provident fund is still remain in the subsidiary.

91

The Company and subsidiary contribution for the years ended December 31, 2006 and 2005 amounted to Baht 12.75 million and Baht 11.52 million, respectively. (amounted to Baht 5.97 million and Baht 5.26 million, respectively, for the Company only).

19. LEGAL RESERVE

Under the provision of the Public Limited Companies Act B.E.2535, the Company is requires to appropriate at least 5% of its annual net income after deduction of the deficit brought forward (if any) as reserve fund until the reserve reaches 10% of the authorized share capital. The reserve is not available for dividend distribution.

The reserve has already reached 10% of the authorized share capital.

20. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income (loss) for the period by the weighted average number of ordinary shares which are issued and paid-up during the period.


For the years ended December 31,


2006 2005 2006 2005

Net income for the period (Baht) 566,927,924 748,755,702 566,927,924 748,755,702

Weighted average number of ordinary

shares (Shares) 408,000,000 408,000,000 408,000,000 408,000,000

Basic earnings per share (Baht per share)

1.39 1.84 1.39 1.84

21. CASH DIVIDEND

At the board of directors meeting held on January 26, 2007 the board of directors resolved to approve the declaration of dividend payment for the year 2006 to all shareholders whose names appeared on the shareholder registration book as of April 9, 2007 at the rate of Baht 0.97 per share. (ordinary share of Baht 1 each) The Company paid the interim dividend in 2006 at Bath 0.76 per share (amounting to Baht 310.08 million). Therefore, the final payment will be paid at the rate of Baht 0.21 per share, totaling Baht 85.68 million. The payment shall be made on May 4, 2007.

At the board of directors meeting held on October 27, 2006, the board of directors passed the resolution to approve the payment of interim dividend from the net income of the third quarter 2006 at Baht 0.23 per share (ordinary share of Baht 1 each) amounting to Baht 93.84 million. The Company will paid the interim dividend on November 24, 2006.

At the board of directors meeting held on July 28, 2006, the board of directors passed the resolution to approve the payment of interim dividend from the net income of the

92

second quarter 2006 at Baht 0.23 per share (ordinary share of Baht 1 each) amounting to Baht 93.84 million. The Company paid the interim dividend on August 25, 2006.

At the board of directors meeting held on April 28, 2006, the board of directors passed the resolution to approve the payment of interim dividend from the net income of the first quarter 2006 at Baht 0.30 per share (ordinary share of Baht 1 each) amounting to Baht 122.40 million. The Company paid the interim dividend on May 26, 2006.

At the board of directors meeting held on January 27, 2006, the board of directors resolved to approve the declaration of dividend payment for the year 2005 to all shareholders whose names appeared on the shareholder registration book as of April 7, 2006 at the rate of Baht 1.30 per share (ordinary share of Baht 1 each). The Company paid the interim dividend in 2005 at Bath 1.09 per share (amounting to Baht 444.72 million). Therefore, the final payment will be paid at the rate of Baht 0.21 per share, totalling Baht 85.68 million. The payment shall be made on May 4, 2006.

At the board of directors meeting held on October 27, 2005, the board of directors passed the resolution to approve the payment of interim dividend from the net income of third quarter 2005 at Baht 0.28 per share (ordinary share of Baht 1 each) amounting to Baht 114.24 million. The Company paid the interim dividend on November 25, 2005.

At the board of directors meeting held on July 28, 2005, the board of directors passed the resolution to approve the payment of interim dividend from the net income of the second quarter 2005 at Baht 0.36 per share (ordinary share of Baht 1 each) amounting to Baht 146.88 million. The Company paid the interim dividend on August 24, 2005.

At the board of directors meeting held on April 22, 2005, the board of directors passed the resolution to approve the payment of interim dividend from the net income of the first quarter 2005 at Baht 0.45 per share (ordinary share of Baht 1 each) amounting to Baht 183.6 million. The Company paid the interim dividend on May 20, 2005.

At the board of directors meeting held on January 28, 2005, the board of directors resolved to approve the declaration of dividend payment for the year 2004 to all shareholders whose names appeared on the shareholder registration book as of April 7, 2005, 12.00 o’clock at the rate of Baht 1.18 per share, (ordinary share of Baht 1 each) totalling Baht 481.44 million. The Company paid the interim dividend in 2004 at Baht 0.93 per share (amounting to Baht 379.44 million). Therefore, the final payment will be paid at the rate of Baht 0.25 per share, totalling Baht 102 million. The payment shall be made on April 29, 2005.

22. TRANSACTIONS WITH RELATED COMPANIES

The financial statements include transactions with related companies and the financial statements reflect the effects of these transactions on the basis determined by the companies concerned.

Transactions with related companies consist mainly of:

93

In Thousand Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Trade accounts receivable


- Pick and Pay Co., Ltd. - - 284,287,667 337,698,838


- World Wide Ceramic Co., Ltd. - - 287,238,370 111,794,481

Other receivables

- Muangthong Ceramic Co., Ltd. - - - 36,000

848,787,762 713,954,952

Accrued interest income

- Muangthong Ceramic Co., Ltd. - - 4,895,849 924,205

Short - term loan to subsidiaries


Trade accounts payable


- Pick and Pay Co., Ltd. - - 4,609,534 238,046

- Muangthong Ceramic Co., Ltd. - - 541,016 696,595

- World Wide Ceramic Co., Ltd. - - 182,598 72,350

84,032,177 36,732,769

Deferred income - Franchise

- Pick and Pay Co.Ltd. - - - 604,916

- Muangthoug Ceramic Co., Ltd. - - - 584,432

- World Wide Ceramic Co., Ltd. - - - 148,509

- 1,337,857

Short - term loan from subsidiaries


Accrued interest expense


94

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Sales - finished goods

- Pick and Pay Co., Ltd. At the parent company

- - 1,125,260,513 266,612,337



- - 1,162,451,633 273,959,398



- - 474,609,806 57,176,367

2,762,321,952 597,748,102

Sales - raw materials and supplies


At cost - - 10,680,419 24,723,838

Sales - machine


At cost - - - 1,717,782

Interest income



2.20 - 3.30% p.a.

3,919,224



4.5 - 6% p.a.


4.5 - 4.75% p.a. 5,102,548 944,548

5,102,548 4,863,772

Rental Charges


Amount Baht 30,000

per month

360,000 360,000

- Pick and Pay Co., Ltd. Amount Baht 10,000

per month

-

-

120,000 30,000


Amount Baht 12,000

per month

-

-

144,000 36,000

95


Amount Baht 3,000

per month - - 36,000 9,000

660,000 435,000

Franchise income



-

-

604,916 318,013


Amount Baht 50,000


-

-

584,432 333,395


Amount Baht 50,000


-

-

148,509 71,054

1,337,857 722,462

In Baht


As at December

As at December

As at December

As at December

31, 2006 31, 2005 31, 2006 31, 2005

Management Income


Since July 1, 2006 to

December 31, 2006

Amount Baht 1,000,000

per month - - 6,000,000 -


per year per branch

- - 2,291,666 -


Amount Baht 100,000

per year per branch

- - 3,066,667

-


Amount Baht 100,000

per year per branch

- - 1,550,000 -

96

12,908,333 -

Purchases - finished goods


At the parent company



of production - - 1,824,238,207 1,783,252,030

- Pick and Pay Co., Ltd. At cost - - 5,783,993 385,567


At cost - - 5,686,535 819,502


At cost - - 25,792,906 106,201

1,861,501,641 1,784,563,300

Purchases - raw materials and supplies


At cost - - 21,667,907 29,400,555

Purchases - Machinery


At cost - - 2,118,255 -

Management fee


At the parent company concerned, not market price - - 3,600,000 3,600,000

Interest expense



4.8 - 6.0% p.a.


4.47 - 4.9% p.a.

- - 11,260,486 335,962

97

22.2 Guarantee

The Company was contingently liable for guarantee of subsidiary’s credit facilities with a local bank approximately Baht 250 million. The Company has no charge for guarantee fee.

A subsidiary was contingently liable for guarantee of the Company’s credit facilities with a local bank of Baht 350 million. The subsidiary has no charge for guarantee fee.

23. GEOGRAPHICAL SEGMENT FINANCIAL INFORMATION

Geographical segment financial information of the Company and subsidiaries for the years ended December 31, 2005 and 2004 is as follow :

In Thousand Baht


Domestic Foreign Total

2006 2005 2006 2005 2006 2005

Net sales 4,410,393 4,218,291 42,030 36,222 4,452,423 4,254,513

Cost of sales (2,792,790) (2,675,664) (36,549) (33,891) (2,829,339) (2,709,555)

Gross margin on sales

1,617,603 1,542,627 5,481 2,331 1,623,084 1,544,958

As at December 31

Fixed assets - net 2,553,021 2,545,077

Others 1,796,445 1,599,009

Total assets 4,349,466 4,144,086

Geographical segment financial information of the Company only for the years ended December 31, 2005 and 2004 is as follows:

In Thousand Baht


Domestic Foreign Total

2006 2005 2006 2005 2006 2005

Net Sales 4,098,868 4,209,062 42,030 36,222 4,140,898 4,245,284

Cost of sales (2,928,511) (2,792,852) (36,549) (33,891) (2,965,060) (2,826,743)

Gross margin on sales

1,170,357 1,416,210 5,481 2,331 1,175,838 1,418,541

98

As at December 31

Fixed assets - net 1,136,922 1,081,381

Others 2,707,171 2,356,029

Total assets 3,844,093 3,437,410

Gross margin on sales of each geographical segment derived from deducting the sales amounts by the cost of sales which calculated by averaging the total gross margin on sales of the Company and subsidiary.

Other assets are mainly consisted of cash on hand and in banks, accounts and notes receivable -trade, loan to subsidiary, inventories, investment in subsidiaries, long-term investments and others.

24 COMMITMENTS AND CONTINGENT LIABILITIES

As at December 31, 2006, the Company and subsidiaries:

24.1 Had contingent liabilities from letters of guarantee issued by a bank on behalf of the Company of approximately Baht 10.01 million for the Company and amounting to Baht 19.91 million for the subsidiary.

24.2 Had undrawn balances of short-term loan amounting to Baht 386.22 million for the company and amounting to Baht 168.59 million for the subsidiary.

24.3 Has commitment to pay under hire labor agreement for construction of platform and warehouse totalling Baht 14.66 million (excluding VAT).

25. FINANCIAL INSTRUMENTS

25.1 Accounting Policies

Details of significant accounting policies are disclosed in Note 3.

25.2 Financial Risk Management

The Company and subsidiaries manages theirs financial risk exposure on financial assets and financial liabilities in normal business by its internal management and control system and the Company and subsidiaries do not held or issue any derivative instruments.

25.3 Credit Risk

The Company is exposed to credit risk primarily with respect to trade and notes accounts receivable.

The Company’s prudent credit policy and its diversified customer. The subsidiary sell its product to the Company only. The maximum credit risk exposure is equal to the book value of accounts receivable in the balance sheet.

25.4 Interest Rate Risk

Interest rate risk arises from the potential for a change in interest rate to have an adverse effect on the Company and the subsidiary in the current reporting period and in

99

future years. The Company and the subsidiary do not expect to incur material incremental effect on its interest expense.

25.5 Foreign currency risk

The Company and the subsidiary’s exposure to foreign currency risk relates to their trust receipts and accounts payable foreign in US dollars and EURO. However, the Company and the subsidiary do not expect to incur material effect on their foreign currency expense.

25.6 Fair Value

The fair value of significant financial assets and financial liabilities does not differ from their carrying value except for the fair value of investment in subsidiaries, long-term loans, financial lease agreements contract payable and provident fund cannot be properly calculated, accordingly, no disclosure is made.

26 Reclassification

Certain reclassifications have been made on the 2005 financial statements to conform to the presentation used in 2006, reclassified items were as follows:

Bath

Increase (Decrease)

Investment in subsidiaries (12,050,118)

Liabilities from investment under equity method 12,050,118

27. AUTHORIZATION FOR ISSUE OF FINANCIAL STATEMENT

These financial statements have been approved by the Company’s director on February 19, 2007.

dcc 06

Documents

klongtoey district

bangsue district

klongtoey subdistrict

bangsue subdistrict

nong khae district

nong kae district

subsidiaries company

financial report