SET Announcements

Management's Discussion and Analysis for Business Operations For the three-month period ended March 31, 2009 Business Overview for 2009 Oil Price Situation For the first quarter of 2009, there was a sign that the world oil market began to rebound as the oil prices at the ending period were increased from the ending of year 2008; although the 1st quarter average crude oil prices yet were still below the 4th quarter's price. Also, as the result of the OPEC's reduced production according to the declining world oil demand, the crude oil price had become more stable. Oil product price were lowering its base following to crude price and concerning over sharp global oil demand drop due to economics recession. However, there were mixed picture of the spread of product prices (compared with the Dubai crude price). Since refineries decided to cut run according to the huge decline in gas oil demand, while the gasoline demand was only slightly decrease, together with the inventory level in the United States and Singapore remains comparatively low; as a result the spread of gasoline became wider and the gas oil's shrank. The comparison of oil prices are shown in the table below; USD/BBL 1st Quarter, 2009 2008 Changing Price Max Min Avg Avg.1stQuarter Avg.4thQuarter (A)-(B) (A)-(C) (A) (B) (C) DB 50.74 36.40 44.31 91.09 52.64 -46.78 -8.33 UNL95/DB 20.91 0.38 10.69 13.70 3.84 -3.01 +6.85 GO/DB 18.25 3.28 8.81 22.84 17.77 -14.03 -8.96 FO/DB -0.86-12.89 -6.69 -17.10 -7.60 +10.41 +0.91 Recently, oil price swings in narrow range according to news that might put down more worry or relief on the world oil fundamental. Furthermore, the negative factor to slump down the oil price in the second quarter will be the Swine Flu (New Influenza Virus 2009) which may directly impact tourism industries and aviation. However, the most significant factor which impact oil demand is a global economy so if it is able to recover shortly, the world oil demand will increase and consequently, oil price will increase then. Production and Sales For the first quarter of 2009, the crude run production was 81.6 KBD, higher than 60.6 KBD of the same period of 2008 which there was the 45 days scheduled turnaround. Since the Product Quality Improvement project (PQI) was under the commissioning period in this first quarter, then the Company still operated as a hydro-skimming refinery. Still, the Company was able to export all production of fuel oil very low sulfur grade (FOVS) at a premium price which higher than domestic fuel oil price as its premium quality. In terms of the Company's sale, in the first quarter of 2009, the sales volume through retail gas station increased by 1.4% (yoy), thank to the higher demand following the decrease in the retail oil price even though there are some other negative impacts - PQI production shift and temporary shutdown in other Thai refineries causing BCP's supply-balance-shortage. As a result, the market share during January and February 2009 was in the 4th rank or 13.0%, decreased from 13.7% (yoy). 1. Explanation and Analysis of the Operating Results for 1st quarter of 2009 compared with that of the year 2008 Net Profit/(Loss) Analysis 1) Regarding the business operations for the first quarter of 2009, the Company and its subsidiaries recorded net profit of Baht 1,591 million, which composed of the Company's profit of Baht 1,581 million and the subsidiaries' (Bangchak Green Net - BGN and Bangchak Bio Fuel - BBF) profit of Baht 13 million. The consolidated figures were adjusted by connected transactions of Baht 3 million. 2) The Company's performance EBITDA for the first quarter of 2009 was Baht 3,205 million.Combining with another Baht -179 million inventory effect (Baht 1,103 million for inventory loss and Baht 924 million for LCM reversal), total EBITDA was Baht 3,026 million. The breakdown EBITDA by business units were summarized as follows: Table: Details of breakdown EBITDA 1st Quarter,09 1st Quarter,08 Changing +/ - (Million Baht) (A) (B) (A) - (B) Performance EBITDA 3,205 749 +2,456 - Refinery 2,637 647 +1,990 - Marketing 568 102 +466 Gain from Inventory effect - 810 -810 (less) Loss from Inventory effect (179) - -179 Total EBITDA 3,026 1,559 +1,467 - Refinery 2,458 1,457 +1,001 - Marketing 568 102 +466 - Focusing to Refinery Business, its performance EBITDA was Baht 2,637 million,increased from Baht 647 million of the same period of last year. Refining Margin (excluded inventory effect) for this period was 11.50 USD/BBL (equivalent to 2.57 Baht/liter), higher than that of last year which was 5.66 USD/BBL (equivalent to 1.16 Baht/liter). On the top of that, the Company's crude run was at 81.6 KBD, also higher than the last year's of 60.6 KBD owing to BCP's scheduled turnaround for 45 days in the last year. GRM analysis is as follows: USD/BBL 1st Quarter 1st Quarter Changing GRM from 2009 2008 +/- Base GRM 6.54 11.50 5.15 5.66 +1.39 5.84 GRM Hedging 4.96 0.51 +4.45 Inventory Effect (0.68) 4.51 -5.19 Total 10.82 10.17 +0.65 Base GRM The Company's base GRM for this quarter was increased by 1.39 USD/BBL. Although almost of all products crack spreads over Dubai crude reduced significantly from the same period of last year due to the falling demand from the world economic crisis as well as new supply into the market increased, the fuel oil crack spread (FO/DB) improved from -17.10 USD/BBL to -6.69 USD/BBL, moreover, the exporting fuel oil price was higher than last year. Products crack spread were shown below. USD/BBL 1st Quarter 1st Quarter Changing Products crack spread 2009 2008 +/- UNL95/DB 10.69 13.70 -3.01 IK/DB 10.99 23.13 -12.14 GO/DB 8.81 22.84 -14.03 FO/DB -6.69 -17.10 +10.41 GRM hedging The Company's GRM hedging was increased by 4.45 USD/BBL; as a result of the appropriated time entering hedging transaction at the second quarter of the last year, allowing the Company to sell forward of products crack spread at high level. When the actual prices in this quarter were lower than the hedged price, the Company then has been profitable. The hedged position for this quarter was at 54% of average production level; while the same period of last year was at 30%. Inventory Effect The inventory effect for this quarter was equivalent to -0.68 USD/BBL, net off inventory loss and LCM reversal, comparing to the last year of inventory gain 4.51 USD/BBL which caused by the oil price adjustment in the upward direction. - EBITDA of the Marketing Business was Baht 568 million, increased from Baht 102 million of the same period of last year, since the movement of oil prices in world market was quite stable so the Marketing Margins could be properly adjusted to reflect its actual costs. Thus, the overall Marketing Margin (excluding lubricant margin) was at 0.80 Baht per liter, equivalent to 3.58 USD/BBL, higher than those of last year which was at the level 0.28 Baht per liter, equivalent to 1.38 USD/BBL.Additionally, as the lower prices in global oil market made the domestic demand increased, the sales volume through our marketing business was increased from 53.8 KBD to 58.3 KBD. 1.2 Income Analysis 1) Revenues from sale and services of the Company as well as its subsidiaries for the first quarter of 2009 were Baht 21,522 million, comprised of the Company's sale revenue of Baht 21,319 million and its subsidiary's (BGN) of Baht 3,166 million, adjusted by connected transaction of Baht 2,963 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 lower than the same period of last year by Baht 8,245 million or 27.9% because of the dramatic decrease in world oil prices causing the average oil selling prices in terms of US dollar reduced by 36.7%, whereas total sales volume increased 12.9% and Thai Baht depreciation by about 9.0% (reference average T/T selling rate of 1Q2009 at 35.49 Baht/USD compared with 1Q2008 at 32.55 Baht/USD). - Gain from oil products and crude oil forward contracts increased by 1,250 million Baht which has been mentioned in the GRM hedging section. - As LCM basis was applied to assess inventory value and recorded loss at the ending of last year, the Company had already realized actual loss in cost of sales that the cost exceeded market selling price in this quarter. Therefore, the Company has reversed Baht 924 million of LCM reserve. 1.3 Expense Analysis 1) Total expenses of the Company along with its subsidiaries for the first quarter of 2009 primarily were costs of sales and services of Baht 20,268 million, which involved the Company's costs of Baht 20,183 million and its subsidiary's (BGN) of Baht 3,022 million, adjusted by connected transaction of Baht 2,937 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 decreased by Baht 7,918 million or 28.2% as the remarkable decline in world oil price. - Executive remuneration decreased due to the fact that the 2008 performance as accounting report was a net loss, hence the Board of Directors were not allowed to receive bonus in this year, while in previous year the Company paid bonus to its Board of Directors from earning of 2007 result. - As the Company has applied some financial instruments in the market to mitigate the foreign exchange volatility risk by utilizing sell and buy forward contracts for oil product sales and crude oil purchase as well as Cross Currency Swap (CCS) from baht loan to US dollar link, amounted of USD 200 million following the policy to leverage the differences of US dollar liabilities balancing with revenue (natural Hedge). For this quarter, the Baht was depreciated against U.S. Dollar resulted accounting loss of Baht 503 million, which comprised of unrealized for Baht 445 million and realized for Baht 58 million, whereas the Company had been operational benefited from GRM in term of Baht value. 1.4 Profitability Analysis Consolidated Company 1st Quarter performance 2009 2008 2009 2008 Sales and Services, Million Baht 21,522 29,819 21,319 29,564 Net Profit (Loss), Million Baht 1,591 853 1,581 841 Net Profit Margin, % 7.39 2.86 7.42 2.85 Earning Per Share, Baht/Share 1.42 0.76 1.41 0.75 Return on Equity-ROE, % 7.76 3.94 7.72 3.90 ROE (excluded inventory effect), % 8.37 1.32 8.33 1.27 Net profit margin for the first quarter of 2009 in the consolidated financial statement and the Company were 7.39% and 7.42% respectively, increased from 2.86% and 2.85% at the same period of last year. This higher gross profit margin came from better refining margin and more utilizing rate of refinery business as well as increasing in marketing margin as mentioned in the section of net profit (loss) analysis. The return on equity then increased from 3.94% to 7.76% for the consolidated financial statement and increased from 3.90% to 7.72% for the Company only. 2. Explanation and Analysis of the Financial Position as of March 31, 2009 compared with December 31, 2008 2.1 Assets 1) At the end of first quarter 2009, total assets of the Company and its subsidiaries were totally Baht 49,637 million, which comprised of the Company's total assets of Baht 49,238 million, Baht 566 million of BGN's total assets and Baht 458 million of BBF's total assets, adjusted by connected transactions of Baht 625 million which was mainly account receivable items of Baht 468 million. 2) The Company's total assets at the end increased by Baht 6,945 million or 16.4%, at the end of first quarter, compared to the end of 2008. The major changes of assets were as follows: - The Company's short term investment from some excess cash for bill of exchange (B/E), increased by Baht 2,950 million, then at the end of the first quarter total B/E outstanding was Baht 3,550 million. - Inventories value increased by Baht 3,247 million or 56.5%, due to increasing in crude purchase which was provided for increasing in crude run level for PQI operation. Though, it is going to reduce to the appropriate level after PQI has been fully performed. - Other current assets-others increased by Baht 765 million or 59.3% which primarily was account receivable from oil hedging in March 2009, increased by Baht 532 million compared to December 2008. Moreover, VAT receivable increased another Baht 219 million by importing more crude oil preparing for PQI intake. - An investment in subsidiary increased by Baht 40 million since the Company has paid for fund raising of share capital as the proportion that has invested in Bangchak Biofuel Company Limited (BBF). As of March 31, 2009 total amount invested was Baht 119 million, equal to 60.4% of investment obligation. 2.2 Liabilities 1) At the end of the first quarter of 2009, total liabilities of the Company and its subsidiaries were Baht 28,363 million, which consisted of Baht 28,012 million of the Company's total liabilities and Baht 569 million of BGN's total liabilities as well as Baht 275 million of BBF's total liabilities, adjusted by connected transactions of Baht 493 million most of which arrived from account payable of Baht 468 million. 2) Comparing to the end of 2008, the Company's total liabilities increased by Baht 5,460 million or 24.2% at the end of this period. The major changes of liabilities were as follow: - Short-term loan increased by Baht 700 million or 55.1% according to a negative carry policy for a working capital preparation during PQI's starting up period. - Trade accounts payable increased by Baht 2,736 million or 61.3% due to rising in crude oil purchase providing for more utilization from PQI operation. - Liabilities on hedging contracts increased by Baht 366 million primarily from "mark to market" the contracts of exchange rate which was already recorded loss from foreign exchange in statements of income. - Other current liabilities grew by Baht 549 million or 36.3%, mostly oil hedging counterparties' collateral causing from the Company's in the money position (mark- to-market gain). 2.3 Shareholders' Equity 1) At the end of the first quarter of 2009, the consolidated total shareholders' equity of the Company were Baht 21,274 million, which comprised of Baht 21,226 million from the total shareholders' equity of the Company and Baht -3 million from BGN's as well as Baht 184 million from BBF's, adjusted by Baht 132 million connected transactions. 2) The Company's total shareholders' equity were increased by Baht 1,485 million or 7.5% comparing to the end of 2008, this came from net profit of Baht 1,581 million in the first quarter of 2009 and amortized Baht 96 million of surplus on fixed assets revaluation, this resulted total shareholders' equity at the end of the period to be Baht 21,226 million or equivalent to book value per share at Baht 18.97. 3) As of March 31, 2009 the Company has 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 Statement of Cash Flows for the first quarter of 2009 3.1 For this first quarter of 2009, the Company and its subsidiaries had beginning cash and cash equivalents of total Baht 1,682 million. During the period, net cash was increased from the utilizing in various activities by Baht 668 million, of which Baht 3,340 million were received from operation, Baht 4,061 million were used in investing activities, while Baht 1,389 million were received from financing activities. Hence, cash and cash equivalent at the end of the first quarter of 2009 were Baht 2,351 million, which consisted of Baht 2,032 million of the Company and Baht 245 million of BGN as well as Baht 74 million of BBF. 3.2 The Company's beginning cash of the period was Baht 1,495 million, consisted of Baht 187 million for PQI project and Baht 1,308 million for normal operation. During this year, the Company had received another Baht 537 million from the following activities; 1) Net cash received from operation was Baht 3,270 million; Cash of Baht 2,155 million from operation gain before changes in operating assets and liabilities. Cash utilized in operating assets of Baht 2,072 million which came from increasing in inventories of Baht 2,323 million and drop in accounts receivable and other assets of Baht 251 million. Cash received in operating liabilities of Baht 3,453 million, combining with Baht 2,750 million from increasing in trade accounts payable and Baht 703 million from other operating liabilities. Paid in interest and corporate income tax for amounting of Baht 266 million. 2) Net cash used for investing activities was Baht 3,983 million; Short-term investment in B/E of Baht 2,950 million. Equity investment in BBF of Baht 40 million. Investment in fixed assets of Baht 995 million, of which Baht 590 million was PQI's. Cash increased from other investments of Baht 2 million. 3) Net cash received from financing activities was Baht 1,250 million; Short term loan drawdown for the Company's working capital of Baht 700 million Net long term loan drawdown of Baht 550 million for the PQI project cost. At the end of the first quarter of 2009 cash and cash equivalents outstanding was Baht 2,032 million which consisted of Baht 147 million appropriated for PQI project and Baht 1,885 million for normal operation. Moreover, the Company has more cash-invested in B/E with total B/E investment outstanding at the end of this quarter Baht 3,550 million. 4. Factors and major influences that may affect the Company's performance or financial status in the future 4.1 Product Quality Improvement Project (PQI) Major factors that affected the performance were the marketing margin and gross refining margin. For the marketing margin, as the oil prices has fluctuated, the retail oil price could be adjusted at a slower rate than its actual cost. For the refining margin, given that a simple refinery having a high proportion of fuel oil production of which the price is always lower than crude price, the Company's gross refining margin was capped to a certain level depending on the fuel oil price. Thus, the Company has to attain the long-term resolution for converting fuel oil production to more value added product to enhance gross refining margin to be at the same level of the industry's. Therefore, the Company has adopted the Product Quality Improvement project (PQI) by installing the hydro-cracking unit as well as other associated units; these will reduce proportion of fuel oil production to the near level of other local and foreign refineries, and hence become a complex refinery. The Company expects that the project will be started up in the second quarter of 2009 and will consequently result increasing in EBITDA from average Baht 2,000-4,000 million per year to approximately Baht 6,000-8,000 million after its completion which is subjected to oil price. The project cost (included contingency reserve) is the total of Baht 15,369 million or equivalent to USD 378 million. Concerning to achievement, the Company has appointed CTCI Overseas Corporation Limited and CTCI (Thailand) Co., Ltd. to be contractors of the PQI under fixed price, date certain, and performance guaranteed arrangement. Currently, the mechanical parts of the Project has been completed, the Project has now been in the process of commissioning three major units and its equipments - Vacuum Distillation Unit (VDU), Hydrogen Plant Unit (HPU), and Hydro-cracking Unit (HCU). On April 25, 2009, the (more)