SET Announcements

- Translation - 1000/110/2005 May 19, 2005 Subject : Management's Discussion and Analysis for Business Operations ending March 31, 2005 Attention : President of The Stock Exchange of Thailand Attachment : Management's Discussion and Analysis for Business Operations March 31, 2005 As the Office of the Securities and Exchange Commission has fostered listed companies in the Stock Exchange of Thailand to conduct a Management's Discussion and Analysis for Business Operations every quarter so as to enable investors to better understand in the Company's financial status and business operations- apart from the sole financial data in financial statements, as well as to enable investors to adequately access information for decision in a security investment, which is in compliance with the adequate information disclosure in the good corporate governance program ; The Bangchak Petroleum Public Company Limited (BCP), a listed company in the Stock Exchange of Thailand, has concentrated on transparent business operation harmonious with the good corporate governance program. Therefore, the Company would like to conduct and submit Management's Discussion and Analysis for Business Operations ending March 31, 2005 as attachment enclosed. Please be informed accordingly. Yours sincerely -signed- (Patiparn Sukorndhaman) Senior Executive Vice President Finance and Accounting Corporate Planning and Investor Relation Office Tel: 0-2335-4583 Management's Discussion and Analysis for Business Operations Ending March 31, 2005 General Information The Bangchak Petroleum Public Company Limited (BCP) was founded in 1985 by the government of General Prem Tinsulanonda, aimed to be managed in the same manner as a private company as well as to be a Thai owned oil company, which conducts its businesses for the benefits of the Thai people and society. At present, its businesses include retail and wholesale sales of finished oil products and manage an oil refinery with a capacity of 120,000 barrels per day, rebuilt replacing the previous one. The latest crude distillation unit was completed in 1994. The new refinery was designed to produce the clean fuel with efficient energy consumption and high production yield. Moreover, The Company has expanded its market base through approximately 1,100 of its service stations around the country, which comprise approximately 600 standard service stations and 500 community service stations. Business Overview in the first quarter of year 2005 For the first quarter of year 2005, the company had operated under the situation of continuous increase of oil prices in the world market, especially Gasoline and Diesel oil price were increasing more than those of crude oil price, as well as, the company has continuously performed the operation synergies with the other oil companies in order to enhance revenues and reduce costs, therefore, the gross refining margin had increased comparing to that the same period of last year. Furthermore, since the company is the leader of producing and selling Gasohol, containing 340 service stations throughout Thailand, which boosted BCP's Gasohol sales, while Gasoline consumption had decreased in accordance with the increase in its price, therefore, the Company's market share in the service station sector had risen up. However, the company had annual refinery maintenance in the first quarter of year 2005, this brought the company emphasizing on the high margin market. 1. Explanation and Analysis of the Operating Results for the first quarter of year 2005 compared with that of year 2004 1.1 Net Profit (Loss) Analysis 1) Regarding to the business operations in the first quarter of 2005, net profit of the Company and its subsidiary were Baht 438 million, which composed of Baht 438 million of the Company's net profit and Baht 24 million of its subsidiary's net profit, The Bangchak Greennet, in which, Baht 24 million of the connected-transaction for adjustment. 2) The Company's EBITDA was Baht 750 million, decreased from Baht 1,057 million of the same period last year by Baht 307 million. Such profit resulted from the following factors: *EBITDA of the Refinery Business was Baht 876 million, increased from that of last year at Baht 797 million, since the Company had gross refining margin (excluding inventory gain/ loss) of 4.43 $/BBL, but the capacity utilization was 69 KBD, due to the annual plant turnaround for maintenance.However,a part of such EBITDA derived from the inventory gain of Baht 678 million. In case of excluding it, gross refining margin was 1.89 $/BBL, as well as, adjusted EBITDA was Baht 198 million. *EBITDA of Marketing Business was Baht -126 million, decreased from that of the same period last year at Baht 259 million, since marketing margin, excluding Jet fuel, was Baht 0.23 per Liter in the first quarter of year 2005, lower than that of the same period last year at Baht. 0.47 per Liter.This resulted from the increase in retail gasoline price slower than continuously increase in cost in according with the Singapore gasoline price, as well as, the reduction of Gasohol selling price lowering than the normal unleaded gasoline octane 95 by 1.50 Baht/liter in order to attract more users (However, such reduction of gasohol price boosted up the Gasohol sale volumes more than 3.8 times). However, this lower marketing margin was expected to temporarily occur and would relax in the near future. Moreover, the Marketing business had recorded loss from selling Jet fuel by Baht 131 million or 1.26 Baht/liter, since the Jet fuel selling price formula is based on the average price of previous month, while the transferred price from Refining business unit to Marketing business unit is based on the current month. Therefore, during price up trend period; there always is a loss incurred for the marketing business. However, the result will be in opposite way if Jet fuel price is in a down trend period. 1.2 Income Analysis Total revenues of the Company and its subsidiary in the first quarter of year 2005 were Baht 18,055 million, which composed of the Company's revenues of Baht 17,867 million and its subsidiary's revenues of Baht 2,053 million, adjusted by connected transaction of Baht 1,865 million. The major changes of revenues are as follows: 1) Revenue from sales was Baht 17,811 million, lower than that of the same period last year by Baht 594 million, since total sale volumes decreased by 17.2%, but average unit selling price increased by 18.1% (unit selling price was 12.51 Baht/liter comparing to 10.59 Baht/liter). 2) Gain from foreign exchange was Baht 5 million, lower than that of the same period last year by Baht 28 million. Such FX gains composed of Baht 8 million of foreign exchange gain from accounts payable and Baht 3 million of foreign exchange loss from other transactions. These foreign exchange gain and loss were the results of the appreciation of Thai Baht from 39.2 Baht/USD at end of 2004 to average 38.7 Baht/USD in the first quarter of 2005. 3) In the first quarter of 2005, the company had recorded gain from its subsidiary company by applying equity method of Baht 27 million. 1.3 Expense Analysis Total expenses of the Company and its subsidiary in first quarter of year 2005 were Baht 17,622 million, which composed of the Company's expenses of Baht 17,434 million and its subsidiary's expenses of Baht 2,028 million, adjusted by connected transaction of Baht 1,840 million. The major changes of expenses are as follows: 1) Cost of good sold amounted Baht 16,824 million, decreased by Baht 310 million, since total sale volumes declined to 98.5 KBD from 119.0 KBD from the same period of last year. However, the crude cost also continuously increased (Dubai crude oil price averagely increased by 7 $/BBL in 2004). 2) Selling and administrative expenses was Baht 374 million, increased from that the same period of last year by Baht 84 million, due to the increases of the following expenses : the early retirement expenses, Advertising and promotion expenses, and service station maintenance expense. 3) Interest expense was Baht 160 million, decreased from that the same period of last year by 83 million, since the Company made on refinancing almost high interest rate bonds with the new capital from financial restructuring. Moreover, the company also recorded interest income of Baht 6 million which was decreased from that the same period of last year by Baht 2 million as the company received a working capital line from financial restructuring plan.Therefore, the company did not have to reserve a lot of cash on hand for working capital purpose. 2. Explanation and Analysis of the Financial Position as of March 31, 2005 compared with December 31, 2004 2.1 Assets 1) At the end of first quarter of year 2005, total assets of the Company and its subsidiary were Baht 35,632 million, which composed of Baht 35,541 million of the Company's total assets and Baht 683 million of its subsidiary's total assets, adjusted by Baht 564 million of connected transactions of 15 days credit term. 2) At the end of first quarter of year 2005, the Company's total assets increased by Baht 1,272 million, comparing to that at the end of 2004. The major changes of assets are as follow: *Cash and cash equivalent amounted Baht 1,629 million, decreased by Baht 266 million, comparing to that the same period of last year,but it still remained at high level. *Trade accounts receivable amounted Baht 3,969 million, increased by Baht 348 million, due to the increasing of sale volumes in March for compensating the reduction in its sales during annual plant turnaround for maintenance together with increasing average oil price. *Total inventories amounted Baht 11,309 million, increased by Baht 1,363 million, since the Company increased the inventory level by 36 million liters for supporting the expansion of sales and refinery utilization after the annual plant turnaround for maintenance. In addition, the average prices of inventories also increased by 1.03 Baht/ liter. *The receivable from oil fund amounting Baht 1,303 million was the receivable from the implementation of the retail oil price capped mechanism at the service station, which normally has 45 days of credit term. 2.2 Liabilities 1) At the end of first quarter of year 2005, total liabilities of the Company and its subsidiary were Baht 25,468 million, which composed of Baht 25,379 million of the Company's total liabilities and Baht 655 million of its subsidiary's total liabilities, adjusted by Baht 564 million of connected transactions. 2) At the end of first quarter of year 2005, the Company's total liabilities increased by Baht 890 million, comparing to the end of year 2004. The major changes of liabilities are as follow: *At the end of first quarter of year 2005, total loans increased by Baht 557 million, due to the withdrawal of long-term loan of Baht 700 million from Krungthai Bank in order to pay for bond and promissory note of Baht 1,165 million., which reached the maturity in the first quarter of year 2005 *Trade accounts payable amounted Baht 8,129 million, increased by Baht 546 million, due to the higher crude oil prices (Dubai crude oil averagely increased by 7 $/BBL). 2.3 Shareholders' Equity 1) Total shareholders' equity of the Company and its subsidiary were Baht 10,163 million, which composed of Baht 10,163 million of the Company's total shareholders' equity and Baht 0.5 million of minority shareholders (total shareholders' equity of its subsidiary was Baht 28 million). 2) The Company's total shareholders' equity was Baht 10,163 million, increased by Baht 382 million comparing to that at the end of 2004, since the company could generate net profit of Baht 438 million, but offsetting by the decrease in surplus on fixed assets revaluation of Baht 56 million. 3. Explanation and Analysis of the Statement of Cash Flows for first quarter of year 2005 compared with that of the same period in the year 2004 3.1 In the first quarter of year 2005, the Company and its subsidiary had the operating profits of Baht 670 million, which composed of Baht 642 million of the Company's operating profit and Baht 28 million of its subsidiary's operating profit. In addition, the Company and its subsidiary had cash and cash equivalent at the beginning of period of Baht 2,213 million, which composed of Baht 1,894 million of the Company's cash items and Baht 319 million of its subsidiary's cash items. Moreover, the Company used those cashes in the Company's activities during this quarter by Baht 713 million which a part of it was the account payable between the company and its subsidiary. Moreover, the Company and its subsidiary used cash to repay due bond and promissory note and to use it as working capital purpose by Baht 557 million, making the company and its subsidiary have cash ad cash equivalent during this quarter amounted Baht 156 million. Thus, cash and cash equivalents at ending period of the first quarter were Baht 2,057 million which composed of Baht 1,629 million of the Company cash and cash equivalent and Baht 428 million of its subsidiary's cash and cash equivalent. 3.2 The Company had the operating profit of Baht 642 million and cash items at the beginning of period of Baht 1,894 million. These cash items were used in the Company's activities as follows: 1) Net cash used in operating activities was Baht 772 million, due to the increase in values of account receivable and oil inventories by Baht 1,678 million. Such increases resulted from the increasing of crude run and sale volumes after annual refinery maintenance, as well as, oil prices. 2) Net cash used in operating activities was Baht 51 million, due to the investments in fixed assets and equipments, as well as, the financial restructuring expenses. 3) Net cash used in financing activities was Baht 557 million, due to the withdrawal of long term loans amounted Baht 700 million to repay the bond and promissory note of Baht 1,165 million that reached the maturity during the first quarter of year 2005, as well as,the withdrawal of short-term loan from bank for working capital purpose. Thus, at the end of first quarter of year 2005, the Company had cash and cash equivalents of Baht 1,629 million, decreased by Baht 266 million comparing to that the end of 2004. 4. Factors and major influences that may affect the Company's performance or financial status in the future For oil business, important factors that affect the performance were the gross refining margin and marketing margin. In the first quarter of the year 2005, the Gasoline and Diesel oil price were increasing more than those of crude oil prices, therefore, the gross refining margin had increased comparing to last quarter. However, such continuous increase in oil prices causes to the slower adjustment of retail oil prices comparing to its costs, especially gasoline price which much increase after government did the price floatation. This not only depressed the marketing margin, but also decreases the demand for gasoline consumption. In addition, oil prices would still produce direct impact on the operations of the Company. It is probable that oil prices that have been on a rise since the end of 2003 would decline in some period of 2005. However,the Company foresees that crude oil prices and refined product prices still remain at high level due to the fact that the demand for oil consumption still grow continuously. Therefore, such declines of oil prices will be lower the value of oil inventories. In order to deal with such situation, the responsible team of the Company keeps a close watch on the situation and is ready to perform risk management on the matter. Although oil prices would continuously increase, the fuel oil price would increase at the lower proportion than that of the crude oil and other refined products; so that the Company's gross refining margin was depressed at a certain level. However, the Company could resolve a part of this effect by sending its fuel oil to upgrade at other refineries. However,it is necessary to the Company to attain the long-term resolution for reducing the fuel oil production in order to enhance the gross refining margin to the same level as the industries' numbers. Therefore, the Company currently is under the process of basic engineering designs of hydro-cracker and other offsite units, which will reduce the fuel oil production yield to the nearly level as any other local and foreign refineries, as well as, improve the oil quality consistent with the new quality standard issued by the government in the year 2011. Furthermore, since the fluctuation of Thai Baht against US dollar has had the tendency to continue, the Company's performance will get this effect as well, due to the fact that the Company's revenues were based on US dollar, as well as, the US dollar based assets, oil inventories, also greater than US dollar based liabilities, account payable. Therefore, the appreciation of Thai Baht will cause to the decrease in net assets, on the other hand, the depreciation of Thai Baht also cause to the increase in net assets. The Company has had the policy to adjust the proportion of assets and liabilities in US dollar to the nearly level up to readiness of the Company. However, the Company currently does the hedging contracts in order transfer some parts of such FX risk.