ANNUAL REPORT 2009 WELCOME TO OUR INSPIRED WORLD CONTENTS 3 Message from Chairman and CEO 8 Management Team 18 Social Role and Responsibilities 30 Investment in Subsidiaries 33 Financial Highlights 35 Business Descriptions 91 Risk Factors 96 Shareholding Structure and Management 130 Related Party Transactions 136 Management Discussion and Analysis 152 Financial Statements Annual Report 2009 Message From Chairman and CEO welcome to our inspired world 3 MessageMessage fromfrom thethe ChairmanChairman andand CEOCEO RSRS AnnualAnnual ReportReport 20092009 Mr. Kriengkai Chetchotisak Mr. Surachai Chetchotisak Chairman Chief Executive Officer 4 welcome to our inspired world Message from the Chairman and CEO RS Annual Report 2009 Message from the Chairman and Chief Executive Officer Dear Shareholders, 2009 was another year of challenge for entrepreneurs in almost every field of business whether in Thailand or any other country in the world in the wake of the financial crisis in United States of America and Europe posing a critical impact on various business operations since Quarter 3 and Quarter 4 last year until Quarter 1 this year representing one of the hardest times of media business of almost every type. As many multinational companies suffering from drastic economic shrink in big markets i.e. America and Europe cut back on their advertising budget and PR expenses in a vast amount, thus leading to a minus growth of media industry in the first half of the year, compounded by the major obstacle to economic recovery i.e. public disorder due to political conflict to the extent that the government was forced to announce the state of emergency in April after the political rally was on the rampage, which caused a decline in tourist confidence in their safety and, in turn, led to a large decrease in tourist visits in Thailand. The unfavorable political and economic situations in 2009 resulted in the minus growth of Thai economy in three consecutive quarters and Thai economy just began to recover in the last quarter, constituting the minus growth of 2.3 percent for the whole year as estimated by Office of National Economic and Social Development Board. Although the media business was hard hit by economic recession, the growth of music business went against the sluggish economy. This is because of a change in consumer behavior replacing CDs or VCDs with digital files especially through mobile phones as high as 50 million numbers, together with the Company’s emphasis on digital marketing and all-inclusive preparation in modern technologies, facilities, work procedures including personnel in support of this innovative marketing method to achieve the goal set since the year earlier; thus enabling the Company to effectively respond to consumer needs, as evidenced by the growth of music business as high as 25 percent, whereas CD and VCD sales showed a steady decline. As to online business, the Company still attaches importance to the development of the major websites like www.zheza.com towards strength and clarity in its capacity as infotainment community or center of teenagers consisting of over 2 million subscribing members, as well as to the improvement of www.pleng.com to become an powerful online tool to boost popularity and promote music under the record label of the Company, and to the development of www.skoolbuz.com as an educational website in response to the needs of teenagers. welcome to our inspired world 5 Message from the Chairman and CEO RS Annual Report 2009 There were altogether 3 films hitting the theatre in 2009, compared with 4 in 2008; however, the Company’s film business in 2009 showed a year-on-year increase by 13 percent which was attributed to a higher percentage of the average income per film (box office). Those 3 films consisted of Hode Na Hiew (Wrinkle-Faced Tough Guy), Mor 3.Pee4, and Phan Kao (Ex). The sports business in 2009 was only involved with the management of indoor soccer field of which its income showed a slight decline due to many new competitors and most staff members were busy in preparation for a big program in 2010 i.e. live broadcast of the 19th World Cup from the Republic of South Africa. A feedback from sponsors was well-received by which sales could be closed more than 90 percent in six-month’s time before the kick –off. The management of media by RS group of companies was fairly good amid the crisis of the shrinkage of the industry. The income from TV media was not particularly good or bad. The income from in-store media showed a decline by 9 percent. The income from radio media showed a decline by 20 percent, and the Company decided to remain only one station, by returning/terminating the concession of radio station 103, the hits for teen target, because of a change in teen behavior expressing less interest in listening to music via radio but more via Internet. Being well prepared to cope with economic recession in tandem with strategic adjustment in line with consumer behaviors in the digital age enabled the Company to post a net profit of Baht 76 million in 2009, from a net loss of Baht 398 million in 2008. The Company had the total revenues of Baht 2,212 million in 2009, representing a year-on-year decline by Baht 145 million or 7 percent. Selling and production costs in 2009 amounted to Baht 1,666 million, representing a year-on-year decline by Baht 411 million or 20 percent, because of the expenses in the year earlier in gearing up for the live broadcast of the 2009 Euro football matches. Selling and administrative expenses in 2009 amounted to Baht 436 million, representing a year-on-year decline by Baht 193 million or 31 percent thanks to more efficiency in expenditure management by keeping a suitable level of inventories. With the capabilities of marketing and sales department of formulating plans to boost sales and control inventories at a suitable and precise level, the number of goods produced and launched in the marketplace could meet customer demands, leading to a reduction in excessive expenses. Moreover, the Company had the policy on working capital management in a more careful and prudent manner. In 2009, the Company was able to collect more debts and was certainly able to reduce the allowance for doubtful accounts. Furthermore, the Company was capable of controlling selling expenses in accordance with the given budget. 6 welcome to our inspired world Message from the Chairman and CEO RS Annual Report 2009 As a result of the better performance in 2009, the Company earned an increase in cash flow from operating activities and had enough liquidity to repay loans to financial institutions and trade creditors as well as various debts owed by the Company i.e. the total debts in 2009 reduced from those in 2008 by 17.0 percent; hence, the debt to equity ratio was satisfactorily down to 2.07 (from 2.77 in 2008). As to corporate social responsibility, RS has been committed to continuing social activities in tandem with entertainment business operations. In 2009, RS Give Back Program was launched stemming from the sending of RS artists to perform various functions as a ambassador of individual charity organizations so that every artist in our care is given an opportunity to help society, by presenting some of the proceeds from the sale of CDs and VCDs to charity organizations working for children and juveniles in various issues, such as Plan International, Rak Thai Foundation (a member of CARE International and ECPAT International). Additionally, the Company has encouraged personnel within the organization to take part in social activities all year round under the same policy and many different activities were organized to strengthen society through juveniles in a variety of themes as shown in this annual report. The Company strives to promote and develop a policy for good corporate governance on an ongoing basis, which reflects the Company’s management in an efficient, transparent and ethical manner, with a high sense of responsibility towards society and environment as well as towards our shareholders, investors and stakeholders. The Company was ranked a Very Good CG Scoring in the Corporate Governance Report of Thai Listed Companies for the year 2009. The policy on corporate governance is available in writing. The said policy and a guide book on ethical practices are printed out as hard copy and posted on the intranet for the board of directors and employees to observe and abide by, both of which will be reviewed and assessed at least once a year to ensure latest update of best practices and compliance therewith. On behalf of the board of directors, we would like to thank shareholders, customers, government agencies, sponsors including employees and artists for continuing cooperation in abiding by the Company’s policies, even in tough times, our staff members never give up but collaborate efforts to develop themselves and the organization to get ready to deal with ever changing trends in customer preference and to make RS an entertainment network that presents the originality of works and always has a high sense of responsibility towards society. Mr. Kriengkai Chetchotisak Mr. Surachai Chetchotisak Chairman Chief Executive Officer welcome to our inspired world 7 Annual Report 2009 Management Team 8 welcome to our inspired world Management Team RS Annual Report 2009 Mr. Kriengkai Chetchotisak Position : Chairman Education : Master’s degree in Business Administration (Honorary) Ramkhamhaeng University Experience : 1992 - present Chairman and Advisory to the Executive Committee RS