SET Announcements

Management's Discussion and Analysis for Business Operations For the year ended December 31, 2008 Business Overview Oil Price Situation Starting from year 2008, oil prices was approximately 90 USD/BBL (Dubai crude price), had continuously increased and reached record-high at 140.77 USD/BBL on July 4, 2008 and then dramatically decreased to 36.40 USD/BBL at the end of the year, which was the lowest level of 2008. This drastic oil price decreasing was the result of declining oil demand, impact of the financial crisis spread out worldwide as well as the relieve of speculation over oil supply shortages and the sudden unwinding or selling hedged position from hedge funds. Moreover, lengthy period of high oil price distressing the demand to significantly drop together with high level of oil inventories were also the factor to slump down the price; despite of OPEC's several attempts cutting off their crude production quota to stabilize the oil prices. During the time of high oil price, refineries will have positive impact of time lacking between crude prices and product selling prices (in other words: inventory gain); however, the companies have to use significant part of such gain to purchase higher price of crude feedstock. Conversely, the current downward trend in oil prices causes refineries' inventory loss; nonetheless, they recognize the lower working capital required for feedstock procurement. In order to balance the risk and return matters arising from this unexpected movement in oil prices, the company has been managing to maintain the optimum inventory level to minimize the impacts from the inventory value. Production and Sales Looking at the refinery utilization, the Company's crude run in year 2008 was 74.2 KBD in average, higher than 2007 which was 66.3 KBD. This is owing to the increasing in exporting of Fuel Oil Very Low Sulfur (FOVS) which its demand from the captive user is still strong. The company is able to export all of fuel oil production at premium price as its premium quality; this was accounted for 133 million liters per month in the year 2008 increased from 99 million liters per month of last year. In terms of the Company's sale in year 2008, the sale volume through retail gas station was increased by 8.4% (yoy). Yet, the market share through retail gas station in Jan.-Dec.2008 achieved the 4th rank or 14.0 %, increased from 12.7 % of 2007. 1. Analysis of the Operating Results for 2008 1.1 Profit/(Loss) Analysis 1) For the whole year of 2008, the consolidated financial statements recorded net loss of Baht 750 million (EPS = -0.67 Baht), which belongs to the part of the Company's net loss of Baht 689 million and the subsidiaries' (Bangchak Green Net Company Limited - BGN and Bangchak Bio Fuel Company Limited - BBF) net loss of Baht 33 million, with the adjustment of connected transactions of Baht 28 million. 2) The Company's performance EBITDA for 2008 was Baht 5,610 million. Combining with another Baht -5,080 million inventory effect (Baht 4,138 million for inventory loss and Baht 942 million for inventory mark down by lower of cost or market-LCM), total EBITDA was Baht 530 million. However, breakdown EBITDA by business units were summarized as follows: Table: Details of breakdown EBITDA 2008 2007 Change +/ - (Million Baht) (A) (B) (A) - (B) Performance EBITDA 5,610 2,120 +3,490 - Refinery 4,419 1,911 +2,508 - Marketing 1,191 209 +982 Gain(Loss) Inventory effect (4,138) 1,857 -5,995 (less) LCM (942) - -942 Total EBITDA 530 3,977 -3,447 - Refinery (661) 3,768 -4,429 - Marketing 1,191 209 +982 - Focusing to Refinery Business, its performance EBITDA was Baht 4,419 million,increased from last year of Baht 1,911 million. Refining Margin (excluded inventory loss and LCM) for the year of 2008 was 6.54 USD/BBL (equivalent to 1.38 Baht/liter), higher than that of last year which was 3.71 USD/BBL (equivalent to 0.81 Baht/liter). Besides, the Company's crude run was at 74.2 KBD, also higher than the last year's of 66.3 KBD. USD/BBL 2008 2007 Change Refining Margin from +/- Base GRM 6.79 3.64 +3.15 GRM Hedging (0.25) 0.07 -0.32 Total 6.54 3.71 +2.83 Base GRM: The Base GRM of year 2008 was 6.79 USD/BBL, higher than the last year, as a result of the Company's expanding the Fuel Oil very low sulfur (FOVS) export market, which was priced higher than domestic market, as well as the tall spread of product price over Dubai especially Gas oil/Dubai (GO/DB), which climbed up to the peak at 45.66 USD/BBL in the second quarter of the year. Year 2008,GO/DB was 25.98 USD/BBL comparing with that of the 2007 at average of 16.72 USD/BBL, which was the result of its mechanical adjusting along crude oil price and abnormal region Gasoil Demand to serve the Olympic in China. While, the 2008 Gasoline and Dubai Spread was 5 USD/BBL lower than the last year, due to the decreasing gasoline demand as the price increase and the high inventory level among major regional oil Terminal - Singapore, Japan, and The United State.Nevertheless, the Company realized more positive impact from the higher GO/DB spread rather than injury from the negative impact of the lower 95/DB spread, since in year 2008, the Company production yielded lower gasoline proportion, 14%,compared with Gasoil yield of 35%. USD/BBL 2008 2007 Change Products crack spread +/- UNL95/DB 9.12 14.55 -5.43 IK/DB 27.90 18.44 +9.46 GO/DB 25.98 16.72 +9.26 FO/DB -14.93 -10.40 -4.53 GRM hedging Since the actual crack spreads were greater than the hedged spreads;therefore, the Company has booked loss on GRM hedging at 0.25 USD/BBL, lower than last year by 0.32 USD/BBL. The hedged position for this year was 23% of average actual production while the period of 2007 was 37%. - For Marketing Business, its EBITDA was Baht 1,191 million, increased from Baht 209 million of last year. The overall Marketing Margin (exclude lubricant margin) was 0.60 Baht/liter, compared to 0.26 Baht/liter in year 2007; During the period of increasing oil price, oil companies could not adjust the retail price along with the increasing oil costs, so during the first seven months, the marketing margin occasionally moved in negative area, but when the price collapse, the margin was be able to move up into the appropriated zone. As well, the Marketing Business sales volume (retail marketing business, industrial customers business, and aviation fuel business) was rising from 51.7 KBD to 53.2 KBD or 2.9% against the decrease of whole industry demand, which was falling 5.0%(yoy); according to DOEB's report. - Regarding to the dramatic decreasing of crude oil price in the second half of 2008, it resulted the refinery business to experience inventory loss of Baht 4,138 million (equivalent to GRM -4.54 USD/BBL) compared to last year which was inversely gain of Baht 1,857 million (equivalent to GRM +2.16 USD/BBL). In addition, the Company realized another Baht 942 million (equivalent to GRM -1.03 USD/BBL) for inventory mark down by lower of cost or market-LCM. 1.2 Income Analysis Revenues from sales and services of the Company as well as its subsidiaries' for the year of 2008 were Baht 129,042 million, comprised of the Company's sales of Baht 128,053 million and its subsidiary's (BGN) of Baht 18,231 million, adjusted by connected transaction of Baht 17,242 million which mostly associated with the sale transactions from the Company to BGN. The major combinations of the changes in the Company's revenues comparing to those of last year were as follows; - Revenues from total sales (including refinery business sales and marketing business sales) were higher than last year by Baht 33,920 million or 36.0%. The improvements came from 1) increasing of sale volumes by 12.4% and 2) rising in the average selling price by 21.1% even though the closing oil price for 2008 was end up at 3-year lowest. - Interest income reduced by Baht 133 million or 69.0% since the Company had used up cash from PQI fund raising to pay the PQI contractors in accordance with their milestone achievement. 1.3 Expense Analysis Total expenses of the Company along with its subsidiaries for year 2008 primarily were costs of sales and services of Baht 125,341 million, which involved the Company's costs of Baht 124,760 million and its subsidiary's (BGN) of Baht 17,730 million, adjusted by connected transaction of Baht 17,149 million, which mostly were cost of product sales from the Company to BGN. Major components in changes of the Company's expenses comparing to those of last year were as follows; - Cost of sales increased by Baht 36,236 million or 40.9% as of the increase of sales volume and cost of sales price. The cost of sales increased more than the salerevenues shown the inventory loss as a result of the price collapse. - Since the Company has entered into FX forward instrument to mitigate the foreign exchange volatility risk, and the Baht had depreciated more than the hedged Baht value, so the Company realized FX hedging loss, while physically gaining more GRM in terms of Baht. - By using lower of cost or market (LCM) to assess inventory value, the Company had realized loss of Baht 942 million from inventory write down caused by oil price's continuous plunge. - Interest expense was Baht 854 million, increased from last year at Baht 655 million,according to recognizing of refinancing fee which included prepayment and cancellation fee as well as write off accrued financial fees and expenses of the refinanced loan. 1.4 Profitability Analysis Consolidated Company 2008 2007 2008 2007 Sales and Services, Million Baht 129,042 94,979 128,053 94,134 Net Profit (Loss), Million Baht (750) 1,764 (689) 1,691 Gross Profit Margin, % 2.87 6.42 2.57 5.96 Net Profit Margin, % -0.58 1.86 -0.54 1.80 Earning Per Share, Baht/Share -0.67 1.58 -0.62 1.51 Gross profit margin varies by the world oil price movement for both refining and marketing margin. Gross profit margin for 2008 was 2.57%, decreased from last year which was 5.96%.This result was influenced by the oil price that affected to refining and marketing margin as mentioned in item 1.1 section 2. The net profit margin for 2008 then decreased from 1.80% to -0.54%. 2. Analysis of the Financial Position as of December 31, 2008 compared with December 31,2007 2.1 Assets 1) At the end of 2008, total assets of the Company and its subsidiaries were totally Baht 42,540 million, which comprised of the Company's total assets of Baht 42,293 million,Baht 454 million of BGN's total assets and Baht 273 million of BBF's total assets,adjusted by connected transactions of Baht 480 million which was mainly account receivable items of Baht 364 million. 2) The Company's total assets decreased by Baht 2,546 million or 5.7%, at the end of 2008, compared to the end of 2007. The major changes of assets were as follows: - Cash and cash equivalent items decreased by Baht 4,593 million or 75.4%, mainly caused by PQI project cost payment and some minor amount for working capital.(See details in cash flow statement analysis) - Account Receivable value decreased by Baht 1,531 million or 25.6% from the sharp decrease of the oil price, affected from decreasing in the December average selling price from 22.41 Baht per liter in 2007 to 12.67 Baht per liter in 2008. - Inventories value decreased by Baht 5,001 million or 46.6%, being written down (LCM) of Baht 942 million or 14.1%, due to falling in oil prices (average Dubai price in December 2008 was 40.05 USD/BBL, decreased by 53.4% while at December last year was 85.98 USD/BBL). Additionally, the Company has been managing to maintain the optimum inventory level to minimize the impact from inventory value, thus involved the Inventory level to be decreased by 0.53 million barrels at the end of the year (3.09 million barrels against 3.62 million barrels at the end of year 2007). - To alleviate the impact of high oil price, Energy Policy and Planning Office (EPPO) has promoted more subsidy for gasohol and diesel. Therefore, Oil Fund Subsidies Receivables increased by Baht 480 million. Moreover, the company has been receiving the oil fund subsidy from producing diesel as a EURO IV specification.Thus, at the end of 2008, total oil fund subsidies receivables equal Baht 676 million. - Other current assets increased by Baht 1,140 million which mainly was claimed receivable from corporate income tax (equivalent to 1,115 million baht), that the Company paid for mid-year result. - Long-term investments increased by Baht 145 million, from purchasing 6.56% common shares of ASEAN Potash Mining Public Company Limited in the amount of Baht 80 million as well as more capital investing of Baht 65 million in MFC Energy Fund. - Values of property, plant, and equipment (PPE) increased by Baht 6,614 million or 35.9%, primarily resulted from investment in PQI project. - Other non current assets decreased by Baht 418 million or 44.5%. According to the oil prices and the crack spreads descent; the Company was able to repossess the margin call deposit of oil hedging from counterparties. Furthermore, the Company successfully negotiated with the counterparties for relaxing or expanding in threshold amount. 2.2 Liabilities 1) At the end of 2008, total liabilities of the Company and its subsidiaries were Baht 22,777 million, which included Baht 22,552 million of the Company's total liabilities and Baht 470 million of BGN's total liabilities as well as Baht 144 million of BBF's total liabilities, adjusted by connected transactions of Baht 389 million most of which arrived from account payable of Baht 364 million. 2) Comparing to the end of 2007, the Company's total liabilities decreased by Baht 1,088 million or 4.6% at the end of 2008. The major changes of liabilities were as follow: - Trade accounts payable reduced by Baht 4,488 million or 50.1% due to falling in oil prices (average buying price in December 2008 was 44.2 USD/BBL; whereas December 2007 was 90.9 USD/BBL) - Long-term loan increased by Baht 4,112 million, mainly for PQI project investment. - Liabilities on hedging contracts decreased by Baht 853 million or 98.8% as the payment on the maturity contracts of oil hedging and FX had been settled. - Other current liabilities grew by Baht 645 million, mostly were the accounts payable for PQI's contractor and retention for PQI construction project. 2.3 Shareholders' Equity 1) At the end of 2008, the consolidated total shareholders' equity of the Company were Baht 19,763 million, which comprised of Baht 19,741 million from the total shareholders' equity of the Company and Baht -16 million from BGN's as well as Baht 129 million from BBF's, adjusted by Baht 91 million connected transactions. 2) The Company's total shareholders' equity decreased by Baht 1,458 million comparing to the end of 2007. As the Company generated full year 2008 net loss of Baht 689 million while paid dividend for 2007 operating period was Baht 336 million and amortized of surplus on fixed assets revaluation was the Baht 433 million, this resulted total shareholders' equity at the end of the year to be Baht 19,741 million. 3) As of December 31, 2008 the Company had financial instruments (CDDR, subordinated convertible debenture, warrant and ESOP), if these were fully converted or exercised,equivalent to 287 million common shares or approximately 20.4% of total shares in fully dilution. 3. Explanation and Analysis of the Cash Flow Statement for the year 2008 3.1 For the year 2008, the Company and its subsidiaries had beginning cash as well as cash equivalent items of total Baht 6,450 million. During the period, net cash was decreased from the utilizing in various activities by Baht 4,768 million, of which Baht 1,394 million were used in operating activities, Baht 7,735 million were used in investing activities, while Baht 4,361 million were received from financing activities. Hence, Cash and cash equivalent at the end of 2008 were Baht 1,682 million, which consisted of Baht 1,495 million of the Company and Baht 143 million of BGN as well as Baht 45 million of BBF. 3.2 The Company's beginning cash of this year itself was Baht 6,088 million, consisted of Baht 2,918 million for PQI project and Baht 3,170 million for normal operation. During this year,the Company had utilized Baht 4,593 million for the following activities; 1) Net cash used in operating activities was Baht 1,200 million; Cash received from operation before changes in operating assets and liabilities of Baht 1,574 million Cash increased from operating assets of Baht 5,109 million which came from decreasing in inventories of Baht 4,059 million and accounts receivable of Baht 1,512 million deducted with increasing in other current assets of Baht 462 million. Cash utilized in operating liabilities of Baht 4,952 million, combining with Baht 4,488 million from reducing in trade accounts payable and Baht 464 million from other operating liabilities. Reduced cash by Baht 1,163 million and Baht 1,768 million for interest paid and corporate income tax respectively 2) Net cash used for investing activities was Baht 7,560 million; Investment in fixed assets of Baht 7,541 million, of which Baht 6,840 million was PQI's Investment in other assets of Baht 518 million; comprised of Baht 359 million of short term investment (fixed deposit and bill of exchange), Baht 79 million of equity investment in BBF, and Baht 80 million for purchasing common shares of ASEAN Potash Mining Public Company Limited Return from margin called on oil hedging transactions of Baht 396 million and other investments activities of Baht 103 million 3) Net cash received from financing activities was Baht 4,167 million; Short term loan drawdown for the Company's working capital of Baht 390 million Net long term loan drawdown of Baht 4,113 million, comprising Baht 4,659 million for the PQI project cost and Baht 546 million for loan repayment Dividend payment of Baht 336 million (total share of common stock 1,119 million at 0.30 Baht per share) At the end of 2008, cash and cash equivalents items outstanding was Baht 1,495 million which consisted of Baht 187 million appropriated for PQI project and Baht 1,308 million for normal operation. 4. Financial ratios analysis and the explanation for the year 2008 compared with 2007 Unit 2008 2007 Liquidity Ratios Current Ratio Time 1.8 1.8 Quick Ratio Time 1.1 1.0 Receivable Turnover Time 27.2 23.3 Average Collection Period Day 13.5 15.7 Inventory Turnover Time 14.8 8.9 Inventory Turnover Period Day 24.7 40.9 Account Payable Turnover Time 18.5 13.5 Average Payment Period Day 19.7 27.1 Cash Cycle Day 18.5 29.5 Profitability Ratios Net Profit Margin % -0.6 1.9 Net Profit Margin (excluded inventory effect)1/ % 2.2 0.6 Retutn on Equity % -3.7 8.8 Return on Equity (excluded inventory effect) 1/ 13.6 2.9 Efficiency Ratios Return on Total Assets % -1.7 4.3 Return on Total Assets (excluded inventory effect)1/ % 6.4 1.4 Assets Turnover Time 2.9 2.3 Financial Policy Ratios Debt 2/ to Equity Time 0.8 0.5 Debt to Equity (included convertible debenture) 3/ Time 0.6 0.4 Remark: calculation based on consolidated financial statements 1/ Excluding impact from inventory gain/loss, and apply tax rate at 30% 2/ Interest Bearing Debt 3/ Convertible debenture was included in Equity portion (more)