SET Announcements

- Translation - 1000/237/2005 November 22, 2005 Subject : Management's Discussion and Analysis for Business Operations ending September 30, 2005 Attention : President of The Stock Exchange of Thailand Attachment : Management's Discussion and Analysis for Business Operations ending September 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, 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 September 30, 2005 as attachment enclosed. Please be informed accordingly. Yours sincerely -Sign- (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 September 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 third quarter of the year 2005 For the third quarter of the year 2005, the company had operated under the increasing trend of oil prices in the world market, which was the result of substantial increasing of oil demand comparing to the small addition of the refining capacity, as well as, the anxiety in the temporary shutting down of many refineries caused by hurricane situation in US. These resulted to the increases in gasoline and diesel oil prices in the world and Singapore markets. However, the fuel oil price increased at the lower rate comparing to those other refined oil products and crude, it limited the capacity utilization of the simple refineries that produce a large portion of fuel oil. For the domestic oil prices situation, after the Government decided to float the retail diesel price to move along with the market mechanism since quarter 2 , this affected to the slower adjustment of the retail diesel prices comparing to its costs, which resulted to the low marketing margin of marketing oil companies. 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 more than 600 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 third 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 third quarter of the year 2005, net profit of the Company and its subsidiary were Baht 1,250 million, which composed of Baht 1,250 million of the Company's net profit and Baht 4 million of its subsidiary's net profit, The Bangchak Greennet, in which, Baht 4 million of the connected-transaction for adjustment. 2) The Company's EBITDA was Baht 1,882 million, increased from Baht 1,542 million of the same period last year by Baht 340 million. Such profit resulted from the following factors: * EBITDA of the Refinery Business was Baht 2,172 million, increased from that of last year at Baht 1,548 million by Baht 624 million. Since the Company had gross refining margin (excluding inventory gain/ loss) of 5.36 $/BBL, higher than that of last year at 1.26 $/BBL, due to the substantial increases in oil demand comparing to the small addition of the refining capacity in the region. These diminished the surplus of oil supply, which resulted to the continuous improving of the gross refining margin. Moreover, many refineries in the US also had to shut down as the result of the hurricane situation, these resulted to the increases in gasoline and diesel oil prices in the world market, as well as, the Singapore markets, which consequently increased the gross refining margin as well. However, the fuel oil price increased at the lower rate comparing to the other refined oil products and crude, it limited the capacity utilization of the Company's refinery at 58 KBD, comparing to that of the same period last year of 89 KBD, so as to reduce the fuel oil production at the optimum level as well as maintain the gross refining margin at high level. Due to such low capacity utilization, the Company had to focus only on the high profit markets and maximized the fuel oil volumes sending to Thaioil refinery for upgrading. In addition, the Company had the inventory gains of Baht 1,100 million, since oil prices had continuously increased throughout the year. * EBITDA of Marketing Business was Baht -290 million, decreased from that of the same period last year of Baht -6 million by Baht 284 million, since marketing margin (excluding Jet fuel) in the third quarter of year 2005 was Baht -0.23 per Liter, lower than that of the same period last year at Baht 0.37 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 32 million or 0.38 Baht/liter, comparing to Baht -109 million or Baht -0.94 per liter of losses from selling JET fuel in the same period of last year. The Company's sale volumes in the retail market decreased to 48.6 KBD, comparing to that the same period of last year at 55.1 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 third quarter of year 2005 were Baht 21,472 million, which composed of the Company's revenues of Baht 21,254 million and its subsidiary's revenues of Baht 2,930 million, adjusted by connected transaction of Baht 2,712 million. The major changes of revenues are as follows: 1) Revenue from sales was Baht 21,168 million, higher than that of the same period last year by Baht 378 million, since the average selling price increased by 54.8% (average oil price was 18.55 Baht/liter comparing to 11.98 Baht/liter), but total sale volumes decreased by 33.7%. 2) In the third quarter of the year 2005, the company had recorded gain from its subsidiary company by taking equity method of Baht 11 million. 1.3 Expense Analysis Total expenses of the Company and its subsidiary in second quarter of year 2005 were Baht 20,222 million, which composed of the Company's expenses of Baht 20,004 million and its subsidiary's expenses of Baht 2,926 million, adjusted by connected transaction of Baht 2,708 million. The major changes of expenses are as follows: 1) Cost of good sold amounted Baht 19,111 million, increased by Baht 121 million from that the same period of last year. Since crude costs had continuously increased (Dubai crude oil price averagely increased by 20 $/BBL comparing to that the same period of last year), but the total sale volumes decreased by 33.7% 2) Selling and administrative expenses was Baht 358 million, equal to that of the same period of last year. The expenses that were significant change are the following: the personnel related expense had decreased since there was the early retirement expense in the quarter 2 of last year. On the other hand, the delivery expense had increased due to the increase in oil prices, as well as, the service station's maintenance expenses had increased due to the service station improvement project for Gasohol selling. 3) Interest expense was Baht 160 million, decreased from that of the same period of last year by 24 million, because the Depository Receipt of Convertible debenture (CDDR) amounting Baht 1,626 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. 4) The Company posted Baht 302 million of corporate income taxes, since the Company could generate the accumulated profit exceeding the loss carry forward; therefore, the Company had to start to pay income taxes for the performance of this year. 2. Explanation and Analysis of the Financial Position as of September 30, 2005 compared with December 31, 2004 2.1 Assets 1) At the end of third quarter of the year 2005, total assets of the Company and its subsidiary were Baht 36,010 million, which composed of Baht 35,898 million of the Company's total assets and Baht 501 million of its subsidiary's total assets, adjusted by Baht 389 million of connected transactions of 15 days credit term. 2) At the end of third quarter of the year 2005, the Company's total assets decreased by Baht 1,629 million, comparing to that at the end of 2004. The major changes of assets are as follow: * Cash and cash equivalent amounted Baht 537 million, decreased by Baht 1,357 million, comparing to that at the end of last year, since the Company had repaid Baht 1,192 million of crude costs during ending period of the quarter, this resulted to the decrease of cash on hand. * Trade accounts receivable amounted Baht 3,661 million, increased by Baht 40 million, comparing to that at the end of last year, since oil prices had continuously increased, while the Company decreased its sales volumes during the situation of low marketing margin. * Total inventories amounted Baht 13,854 million, increased by Baht 3,907 million comparing to that at the end of last year, since the average price of inventories increased by 5.56 Baht/ liter or 50%, but the inventories level decreased by 64 million liters or 7.2% as the result of the increases in oil price. * The receivable from oil fund amounted Baht 438 million, decreased by Baht 905 million comparing to that at the end of last year as the result of retail diesel price floatation by the government since the second quarter of this year. 2.2 Liabilities 1) At the end of third quarter of the year 2005, total liabilities of the Company and its subsidiary were Baht 23,154 million, which composed of Baht 23,042 million of the Company's total liabilities and Baht 457 million of its subsidiary's total liabilities, adjusted by Baht 345 million of connected- transactions. 2) At the end of third quarter of the year 2005, the Company's total liabilities decreased by Baht 1,447 million, comparing to the end of year 2004. The major changes of liabilities are as follow: * At the end of third quarter of the year 2005, total interest bearing debt increased by Baht 141 million comparing to at the end of last year, since the Company had drawdown Baht 1,050 million of short term loan for additional working capital, as well as, Baht 700 million of long term loan for repaying a part of Baht 1,373 million of bonds that reached the maturity during the first 9 months of the year. In addition, Baht 236 million of the Depository Receipt of the benefits in the Company's convertible debenture (CDDR) was converted into the ordinary share in 2005. * Trade accounts payable amounted Baht 6,055 million, decreased by Baht 1,528 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. * In the third quarter of the year 2005, the Company had to start to pay corporate income tax, since the Company could generate the accumulated profit exceeding the loss carry forward, however, the Company already paid approximately Baht 35 million of withholding tax. Therefore, the company had to accrue Baht 267 million of the corporate income tax at the end of third quarter of the year 2005. 2.3 Shareholders' Equity 1) At the end of third quarter of the year 2005, total shareholders' equity of the Company and its subsidiary were Baht 12,857 million, which composed of Baht 12,856 million of the Company's total shareholders' equity and Baht 0.5 million of minority shareholders. 2) The Company's total shareholders' equity increased by Baht 3,077 million comparing to that at the end of 2004, since the company could generate net profit of Baht 3,005 million in the first 9 months of the year, as well as, the Depository Receipt of Convertible debenture (CDDR) had been converted to ordinary share amounted Baht 236 million, which was recorded in the paid-up capital by Baht 16 million and premium on share by Baht 220 million. Therefore, total shareholders' equity at the end of third quarter of the year 2005 was Baht 12,857 million. 3. Explanation and Analysis of the Statement of Cash Flows for 9 months of the year 2005 compared with that of the same period in the year 2004 3.1 In the first 9 month of the year 2005, the Company and its subsidiary had cash profit from operation of Baht 3,602 million, which composed of Baht 3,549 million of the Company's cash profit and Baht 53 million of its subsidiary's cash 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. The Company and its subsidiary used those cash in the company's activities by Baht 5,105 million, which main activities were Baht 4,767 million used for acquiring the operating assets and liabilities and Baht 715 million of the investment in non-current and other non-current assets, however, the Company acquired Baht 377 million from financing activities. Therefore, cash and cash equivalent at the end of this third quarter were Baht 710 million, which composed of Baht 537 million of the Company cash and cash equivalent and Baht 172 million of its subsidiary's cash and cash equivalent. 3.2 The Company had the net profit of Baht 3,005 million, added back the non-cash items of Baht 544 million. Thus, the Company had cash profit from operation of Baht 3,549 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 acquiring operating assets and liabilities was Baht 4,568 million, since oil prices had continuously increased and the Company had stored its oil inventories at high level comparing to its low production and sales resulting from the situation of the low marketing margin; therefore, the Company needed additional cash for working capital. However, the Company reduced its crude ordering quantity in order to decrease its oil inventories at the proper level; this resulted to the reduction of account payable. 2) Net cash used in investing activities was Baht 716 million, due to the increase in investments in fixed assets and equipments, as well as, the other non-current assets. 3) Net cash provided by financing activities was Baht 378 million, since the Company had drawdown additional Baht 1,050 million of short term loans for working capital and Baht 700 million of long term loan facility from Krungthai Bank for repaying a part of bond that reached the maturity.Thus, at the end of third quarter of the year 2005, the Company had cash and cash equivalents of Baht 537 million, decreased by Baht 1,357 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 third 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 bidding process of EPC contractors for 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. 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.