SET Announcements

- Translation - 1000/151/2005 August 22, 2005 Subject : Management's Discussion and Analysis for Business Operations ending June 30, 2005 Attention : President of The Stock Exchange of Thailand Attachment : Management's Discussion and Analysis for Business Operations ending June 30, 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, 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 June 30, 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 June 30, 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 second quarter of the year 2005 For the second quarter of the year 2005, the company had operated under the fluctuation of oil prices in the world market, oil prices had continuously increased since the beginning of the year, but sharply decreased in May; however, it rebounded once again in June. Moreover, the Government also decided to float the retail diesel price to move along with the market mechanism, which affected to the slower adjustment of the retail diesel prices comparing to its costs. However, the Company's sale volumes had increased against the decreases in demand for diesel and gasoline consumption, since the Company is the leader of producing and selling Gasohol, containing 340 service stations throughout Thailand, as well as, continuously perform the marketing activities. Therefore, the Company's market share in the service station sector had risen up. Explanation and Analysis of the Operating Results for the second quarter of the year 2005 compared with that of the year 2004 1.1 Net Profit (Loss) Analysis 1) Regarding to the business operations in the second quarter of the year 2005, net profit of the Company and its subsidiary were Baht 1,317 million, which composed of Baht 1,317 million of the Company's net profit and Baht 12 million of its subsidiary's net profit, The Bangchak Greennet, in which, Baht 12 million of the connected-transaction for adjustment. 2) The Company's EBITDA was Baht 1,647 million, increased from Baht 1,003 million of the same period last year by Baht 644 million. Such profit resulted from the following factors: * EBITDA of the Refinery Business was Baht 1,561 million, increased from that of last year at Baht 702 million. Since the Company had gross refining margin (excluding inventory gain/ loss) of 3.28 $/BBL, higher than that of last year at 1.83 $/BBL. Furthermore, the Company had inventory gain of Baht 967 Million or 3.70 $/BBL from the continuous increase in oil prices. The capacity utilization was 65 KBD, lower than that of last year at 85 KBD as a result of the decrease in import volumes of Middle East Crude in order to minimize risk of losses from low gross refining margin and inventory loss. * EBITDA of Marketing Business was Baht 86 million, decreased from that of the same period last year of Baht 144 million, since marketing margin (excluding Jet fuel) in the second quarter of year 2005 was Baht 0.13 per Liter, lower than that of the same period last year at Baht 0.44 per Liter. This resulted from the increase in retail oil price slower than the sharply increase in its costs in accordance with the world oil prices. However, the Marketing business had recorded gain from selling Jet fuel by Baht 27 million or 0.34 Baht/liter. The Company's sale volumes in the retail market decreased by 53.7 KBD, comparing to that the same period of last year at 55.4 KBD, since the Company needed to focus only on high profit market during the low utilization of production capacity 1.2 Income Analysis Total revenues of the Company and its subsidiary in the second quarter of year 2005 were Baht 22,307 million, which composed of the Company's revenues of Baht 22,096 million and its subsidiary's revenues of Baht 2,578 million, adjusted by connected transaction of Baht 2,368 million. The major changes of revenues are as follows: 1) Revenue from sales was Baht 22,068 million, higher than that of the same period last year by Baht 3,792 million, since the average selling price increased by 36.7% (average oil price was 15.15 Baht/liter comparing to 11.08 Baht/liter), but total sale volumes decreased by 11.6%. 2) In the second quarter of the year 2005, the company had recorded gain from its subsidiary company by taking equity method of Baht 12 million. 1.3 Expense Analysis Total expenses of the Company and its subsidiary in second quarter of year 2005 were Baht 20,978 million, which composed of the Company's expenses of Baht 20,783 million and its subsidiary's expenses of Baht 2,551 million, adjusted by connected transaction of Baht 2,356 million. The major changes of expenses are as follows: 1) Cost of good sold amounted Baht 20,030 million, increased by Baht 3,060 million from that the same period of last year. Since crude costs had continuously increased (Dubai crude oil price averagely increased by 4 $/BBL in 2004), but the total sale volumes decreased by 11.6% 2) Selling and administrative expenses was Baht 376 million, increased from that the same period of last year by Baht 72 million, due to the increases of the major expenses such as Advertising and promotion expenses, service station maintenance expense, personnel expenses, amortization, and others. 3) Net interest expense was Baht 157 million, decreased from that the same period of last year by 23 million, because the Depository Receipt of Convertible debenture (CDDR) amounting Baht 1,426 million were gradually converted to the ordinary shares since the quarter 2 last year, and the Company gradually refinanced the high interest rate bonds with the low interest rate loan from the Krungthai Bank. In addition, in the second quarter of the year 2005, the Company reduced the utilization of short-term loan due to the lower working capital required, since the Company had received cash from oil fund after the floatation of diesel oil price, together with the reduction of capacity utilization and sale volumes. 2. Explanation and Analysis of the Financial Position as of June 30, 2005 compared with December 31, 2004 2.1 Assets 1) At the end of second quarter of the year 2005, total assets of the Company and its subsidiary were Baht 33,014 million, which composed of Baht 32,906 million of the Company's total assets and Baht 445 million of its subsidiary's total assets, adjusted by Baht 297 million of connected transactions of 15 days credit term. 2) At the end of second quarter of the year 2005, the Company's total assets decreased by Baht 1,363 million, comparing to that at the end of 2004. The major changes of assets are as follow: * Cash and cash equivalent amounted Baht 1,454 million, decreased by Baht 441 million, comparing to that at the end of last year, since the Company had repaid a part of bond that reached the maturity by the remaining cash flow from the operation. * Trade accounts receivable amounted Baht 3,188 million. This equal to 13 days of sales, which decreased by 2 days from that of forth quarter of last year, since the Company decided to focus only on high profit market and its own service station market, which required shorter credit terms. * Total inventories amounted Baht 10,009 million, increased by Baht 63 million comparing to that at the end of last year, since the average price of inventories increased by 3.21 Baht/ liter, but the inventories level decreased by 196 million liters as the result of the decrease in import volumes of Middle East crude so as to minimize risk of losses from low gross refining margin and inventory loss. * The receivable from oil fund amounted Baht 785 million, decreased by Baht 558 million comparing to that at the end of last year as the result of retail diesel price floatation by the government. The company expected to receive all oil fund subsidy within third quarter of this year. 2.2 Liabilities 1) At the end of second quarter of the year 2005, total liabilities of the Company and its subsidiary were Baht 21,552 million, which composed of Baht 21,444 million of the Company's total liabilities and Baht 405 million of its subsidiary's total liabilities, adjusted by Baht 297 million of connected- transactions. Total shareholder's equity was Baht 11,462 Million, included the minority of shareholder's equity amounted Baht 0.5 Million together with Bangchak Greennet shareholders' equity amounted Baht 40 Million. 2) At the end of second quarter of the year 2005, the Company's total liabilities decreased by Baht 3,044 million, comparing to the end of year 2004. The major changes of liabilities are as follow: * Total interest bearing debt decreased by Baht 2,066 million comparing to at the end of last year, since the Company had repaid Baht 1,229 million of bond, which reached the maturity during the first half of the year, by drawing down Baht 700 million of the new long term loan facility from Krungthai Bank, in addition, Baht 37 million of the Depository Receipt of the benefits in the Company's convertible debenture (CDDR) were converted into the ordinary share. Moreover, the Company also repaid the short term loan for working capital of Baht 1,500 million as the result of the decreases in sale volumes and capacity utilization, as well as, cash inflow from oil fund receivable, which resulted to the decrease in working capital required. * Trade accounts payable amounted Baht 6,847 million, decreased by Baht 735 million comparing to that at the end of last year, due to the decrease in crude oil purchase in order to maintain gross refining margin at the high level, as well as, minimize risk of inventory loss in case the decrease in oil prices. 2.3 Shareholders' Equity 1) Total shareholders' equity of the Company and its subsidiary were Baht 11,462 million, which composed of Baht 11,462 million of the Company's total shareholders' equity and Baht 0.5 million of minority shareholders. 2) The Company's total shareholders' equity was Baht 11,462 million, increased by Baht 1,681 million comparing to that at the end of 2004, since the company could generate net profit of Baht 1,755 million in the first half of the year, as well as, the Depository Receipt of Convertible debenture (CDDR) had been converted to ordinary share amounted Baht 37 million, which was recorded in the paid-up capital by Baht 2 million and premium on share by Baht 35 million. 3. Explanation and Analysis of the Statement of Cash Flows for second quarter of the year 2005 compared with that of the same period in the year 2004 3.1 In the second quarter of the year 2005, the Company and its subsidiary had the operating cash flow of Baht 2,216 million, which composed of Baht 2,175 million of the Company's operating cash flow and Baht 41 million of its subsidiary's operating cash flow. 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. The Company and its subsidiary used those cash in the company's activities by Baht 2,839 million, which main activities were Baht 2,029 million of debt repayment and Baht 515 million of the investment in non-current and other non-current assets. Therefore, cash and cash equivalent at the end of this second quarter were Baht 1,590 million, which composed of Baht 1,454 million of the Company cash and cash equivalent and Baht 136 million of its subsidiary's cash and cash equivalent. 3.2 The Company had the net profit of Baht 1,755 million, added back the non-cash items of Baht 420 million. Thus, the Company had cash flow from operation of Baht 2,175 million together with cash at the beginning of period of Baht 1,894 million, which were used in the Company's activities as follows : 1) Net cash used in operating activities was Baht 73 million, due to the decrease in crude oil purchased, as well as, the slow down of sale volumes during the situation of low marketing margin, which resulted to the decrease in account receivable and account payable. 2) Net cash used in investing activities was Baht 515 million, due to the increase in investments in fixed assets and equipments, as well as, the other non-current assets. 3) Net cash used in financing activities was Baht 2,029 million, since the Company had repaid Baht 1,500 million of short term loan for working capital and Baht 1,229 million of bond that reached the maturity by drawing down Baht 700 million of new long term loan facility from Krungthai Bank. Thus, at the end of second quarter of the year 2005, the Company had cash and cash equivalents of Baht 1,454 million, decreased by Baht 441 million comparing to that the end of the year 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 second quarter of the year 2005, 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. However, due to the fact that oil prices continuously increased, it affected to the slower adjustment of retail oil price comparing to its costs, especially, the increase in diesel and gasoline prices after the price floatation by the government, which not only depressed the marketing margin at low level, but also slowed down the demand for oil 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. 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.