SET Announcements

Management's Discussion and Analysis for Business Operations For the second quarter and six-month period ended June 30, 2009 Business Overview for 2009 Oil Price Situation For the second quarter of 2009, the world oil market was keeping its uptrend momentum from the first quarter. This was the results of the effective collaboration of OPEC cut run. However, the crude oil price increasing outpaced the product price, the Gasoline and Gasoil spread (to Dubai) decreased from the first quarter due to low demand and high stock, surpassing the 5 year band. While the Fuel oil spread move up as several refineries had cut run responding to the low demand of Gasoline and Gasoil, as well as the strong demand from Middle East and in this regional. Lately, the oil price swings in narrow range according to daily sentiment to upcoming news or evidences. There are several bearish factors to keep eyes on, for example, the US economy recovery of which the picture is not yet clear, that will significantly affect to the global oil demand as the largest oil consumption country in the world, the outback of the Swine Flu (New Influenza Virus 2009) which might hold back the economy recovery worldwide. Conversely, speculations in oil market or the sign of ending in the recession will encourage oil price to rise sharply though. Table 1: The comparison of oil prices USD/BBL 2nd Quarter,2009 2009 2008 Changing Max Min Avg. Avg.1stQuarter Avg. 2ndQuarter (A)-(B) (A)-(C) Price (A) (B) (C) DB 71.55 47.18 59.22 44.31 116.59 +14.91 -57.37 UNL95/DB 13.35 5.99 9.58 10.69 12.87 -1.11 -3.29 GO/DB 9.39 5.09 7.07 8.81 37.47 -1.74 -30.40 FO/DB -3.36-10.08 -5.95 -6.69 -24.09 +0.74 +18.14 Production and Sales The crude run for the second quarter of 2009 was 83.9 KBD, almost identical with crude run of the same period last year at 83.6 KBD. During April and May 2009, the Company performed the commissioning process of the Product Quality Improvement Project (PQI). At the stage of final test run, the Company found that the pumping and valve control system of the Hydro-Cracking Unit (HCU), parts of PQI was damaged. As a result, the Company had to shutdown the Unit to safely repair the damage since May 21, 2009. Currently, the repair work is now completed, and the PQI is under resuming its commissioning process. However, as the project has not yet being handed over to the Company, all damage of HCU is subsequently under the EPC contractor's responsibility. Moreover, the damage is well covered by Construction All Risks insurance (CAR) as well as the Delay in Start-up insurance (DSU). Also, this shutdown is not impact on the Company's retail market sales as the existing refinery is still operating in normal. Since, there is no handover of the project yet, this quarter's accountancy still based on only Hydro-skimming Refinery. In terms of the Company's sale, in the second quarter of 2009, the sales volume through the marketing business equaled 63.6 KBD, higher than the same period of last year which was 57.5 KBD, or increased by 10.6%. Most increases came from aviation market and the industrial market especially through the transportation sector and exporting to neighboring countries. Nevertheless, the Sales volume through our retails service stations decreased from same period last year; since last year during this period the Company tried best to mitigate Thai's people impact from high oil price by delaying price increasing adjustment so the retail price of the Company usually was the lowest, which attracted and recorded historical sale volume. However, according to the Department of Energy Business (DOEB), the overall domestic demand of gasoline and diesel through every channel in Thailand during the second quarter was increased by 6.0% (yoy), 1. Explanation and Analysis of the Operating Results Net Profit/(Loss) Analysis 1) For six-month period, the consolidated financial statements recorded net profit of Baht 4,295 million (EPS 3.84 Baht), which was the Company's net profit of Baht 4,258 million and the subsidiaries' (Bangchak Green Net Company Limited- BGN and Bangchak Bio Fuel - BBF) net profit of Baht 37 million. 2) The business operations for the second quarter of 2009, the Company and its subsidiaries recorded net profit of Baht 2,704 million (EPS 2.42 Baht), which composed of the Company's profit of Baht 2,677 million and the subsidiaries' (Bangchak Green Net - BGN and Bangchak Bio Fuel - BBF) profit of Baht 26 million. The consolidated figures were adjusted by connected transactions of Baht 1 million. 3) The Company's performance EBITDA for the second quarter of 2009 was Baht 2,568 million. Combining with another Baht 1,453 million inventory effect, total EBITDA was Baht 4,021 million. The breakdown EBITDA by business units were summarized as follows: Table: Details of breakdown EBITDA 2nd Quarter,09 2nd Quarter,08 Changing +/ - (Million Baht) (A) (B) (A) - (B) Performance EBITDA 2,568 1,017 +1,551 - Refinery 2,182 1,589 +593 - Marketing 386 (572) +958 Plus Gain from Inventory effect 1,453 1,748 -295 Total EBITDA 4,021 2,765 +1,256 - Refinery 3,635 3,337 +298 - Marketing 386 (572) +958 - Focusing to Refinery Business, its performance EBITDA was Baht 2,182 million, increased from Baht 1,589 million of the same period of last year. Gross Refining Margin (excluded inventory effect) for this period was 9.90 USD/BBL (equivalent to 2.17 Baht/liter) with crude run level at 83.9 KBD, higher than that of last year which was 7.97 USD/BBL (equivalent to 1.63 Baht/liter) with crude run level at 83.6 KBD. GRM analysis is as follows: USD/BBL 2nd Quarter, 09 2nd Quarter, 08 Changing GRM from +/- Base GRM 4.26 9.40 -5.14 9.90 7.97 +1.93 GRM Hedging 5.64 (1.43) +7.07 Inventory Effect 5.40 7.09 -1.69 Total 15.30 15.06 +0.24 Base GRM Compared to the same period of year 2008, base GRM for this quarter decreased by 5.14 USD/BBL arising from the decline in most of all product crack spread following to crude price. Particularly, diesel crack spread (GO/DB), 35% of BCP's production, significantly decreased from 37.47 USD/BBL in 2Q/08 to 7.07 USD/BBL in this quarter. The major driven for lower oil crack spread is more refinery capacities creep, whereas the demand dropped due to concern of the world economic crisis also reinforced. Despite small drop of fuel oil export premium in this quarter, 8.6 USD/BBL compare to 2Q/08 at 9.3 USD/BBL, total selling price of fuel oil export was still far better than the same period of the last year with the increase in fuel oil crack spread (FO/DB) from -24.09 USD/BBL to -5.95 USD/BBL. Products crack spread were shown below. USD/BBL 2nd Quarter,09 2nd Quarter,08 Changing Products crack spread +/- UNL95/DB 9.58 12.87 -3.29 IK/DB 7.32 37.86 -30.54 GO/DB 7.07 37.47 -30.40 FO/DB -5.95 -24.09 +18.14 Oil hedging 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, GRM from oil hedging contributed more 7.07 USD/BBL in this quarter then. When the actual prices in this quarter were less than the hedged price, the Company subsequently made it profitable. The hedged position for this quarter was at 51% of average production level; while the same period of last year was at 23%. Inventory Effect The inventory effect for this quarter was equivalent to 5.40 USD/BBL resulting from upward adjustment of oil price. However, it was slightly lower compare to the last year of 7.09 USD/BBL, as the fact that the last year's price increased more drastically. - On the other hand, EBITDA of the Marketing Business was Baht 386 million,increased from Baht -572 million of the same period of last year. This improvement originated from the gradual movement in oil price rather than fast movement as the last year was, so that the marketing margin could be properly adjusted to reflect its actual costs. Thus, the overall Marketing margin (excluding lubricant margin) was at 0.49 Baht per liter, equivalent to 2.23 USD/BBL, higher than those of last year which was at the level -0.52 Baht per liter, equivalent to -2.54 USD/BBL. Additionally, the sales volume through our marketing business increased from 57.5 KBD to 63.6 KBD.Mainly contribution came from an expansion from jet fuel market and the industrial market; yet, sales volume through the service stations decreased according to the declining in domestic demand. 1.2 Income Analysis 1) Revenue from sale and services of the Company and its subsidiaries for six-month period of 2009 were Baht 48,635 million, composed of the Company's revenues of Baht 48,171 million and its subsidiary's (BGN) of Baht 7,175 million, adjusted by connected transaction of Baht 6,711 million which mostly associates with the sale transactions from the Company to BGN. 2) More specifically, for the second quarter of 2009, revenues from sale and services of the Company as well as its subsidiaries were Baht 27,114 million, comprised of the Company's sale revenue of Baht 26,852 million and its subsidiary's (BGN) of Baht 4,007 million, adjusted by connected transaction of Baht 3,745 million. 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 12,516 million or 31.8%. Owing to lower world oil price caused the average oil selling price reduced by 34.1%, whereas total sales volume increased 3.5% and Thai Baht depreciation by approximately 7.3% (reference average T/T selling rate of 2Q2009 at 34.82 Baht/USD compared to 2Q2008 at 32.45 Baht/USD). - Gain from oil products and crude oil price forward contracts increased by 1,870 million Baht which was mentioned in the oil hedging section. - Furthermore, having the Baht appreciated against U.S. Dollar compared to end of the first quarter of 2009, the Company realized Baht 232 million of gain from foreign exchange risk management transactions to compensate the lower gross refining margin in terms of Thai Baht, the details of risk management will be mentioned in the part 4.2 Foreign Exchange. 1.3 Expense Analysis 1) Total expenses of the Company along with its subsidiaries for the second quarter of 2009 primarily were costs of sales and services of Baht 24,215 million, which involved the Company's costs of Baht 24,119 million and its subsidiary's (BGN) of Baht 3,818 million, adjusted by connected transaction of Baht 3,722 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 11,377 million or 32.1% as the remarkable decline in world oil price. - Selling expenses decreased by Baht 62 million or 14.2%, mostly came from the decrease in delivery expense following oil price reduction as well as decrease in export volume. - Administrative expense increased by Baht 61 million or 39.2%, mostly originated from the advisory and consultancy fees as well as increase in salaries and wages. 1.4 Profitability Analysis Consolidated Company 2nd Quarter performance 2009 2008 2009 2008 Sales and Services, Million Baht 27,114 39,587 26,852 39,367 Net Profit (Loss), Million Baht 2,704 1,846 2,677 1,818 Net Profit Margin, % 9.97 4.66 9.96 4.62 Earning Per Share, Baht/Share 2.42 1.65 2.39 1.62 Return on Equity-ROE, % 12.15 8.13 12.04 8.03 ROE (excluding inventory effect), % 7.57 2.66 7.45 2.51 Net profit margin for the second quarter of 2009 as shown in the consolidated financialstatement and the Company's were 9.97% and 9.96% respectively, increased from 4.66% and 4.62% at the same period of last year. This higher gross profit margin came from better refining margin as well as increase in marketing margin as aforementioned in the section of net profit (loss) analysis. The return on equity then increased from 8.13% to 12.15% for the consolidated financial statement and increased from 8.03% to 12.04% for the Company only. 2. Explanation and Analysis of the Financial Position as of June 30, 2009 compared with December 31, 2008 2.1 Assets 1) At the end of second quarter 2009, total assets of the Company and its subsidiaries were totally Baht 52,864 million, which comprised of the Company's total assets of Baht 52,225 million, Baht 639 million of BGN's total assets and Baht 656 million of BBF's total assets, adjusted by connected transactions of Baht 656 million which was mainly account receivable items of Baht 500 million. 2) The Company's total assets at the end of second quarter increased by Baht 9,932 million or 23.5% compared to the end of 2008. The major changes of assets were as follows: - Inventories value increased by Baht 6,325 million or 110.1%, due to rising in oil price and crude purchase which was provided for increasing crude run level for PQI operation. Though, it is going to reduce to the appropriate level after PQI has been fully performed. - Trade account receivable increased by Baht 1,232 million or 27.7% as a result of higher oil price. - Other current assets-others increased by Baht 891 million or 69.2% which primarily was account receivables from oil hedging in June 2009,increased by Baht 487 million compared to December 2008. Moreover, VAT receivable increased for another Baht 393 million by purchasing 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 30 June 2009, total amount invested was Baht 119 million, equal to 60.4% of investment obligation. 2.2 Liabilities 1) At the end of the second quarter of 2009, total liabilities of the Company and its subsidiaries were Baht 29,542 million, which consisted of Baht 28,978 million of the Company's total liabilities and Baht 613 million of BGN's total liabilities as well as Baht 476 million of BBF's total liabilities, adjusted by connected transactions of Baht 525 million most of which resulted from account payable of Baht 500 million. 2) Comparing to the end of 2008, the Company's total liabilities increased by Baht 6,426 million or 28.5% at the end of this period. The major changes of liabilities were as follows: - Short-term loan increased by Baht 630 million or 49.6% according to a negative carry policy for a working capital preparation during PQI's starting up period. - Trade accounts payable increased by Baht 3,175 million or 71.1% as a result of the increase of crude oil price level as well as extra crude oil purchase providing for more utilization from PQI operation. - Accrued payable of excise tax and oil fund increased by Baht 210 million or 147.4% as the increasing in the excise tax and oil fund rate on each oil product. - Liability on hedging contracts increased by Baht 310 million, primarily from "mark to market" of foreign exchange rate risk management transactions which was already shown unrealized loss in statements of income since 1Q2009. 2.3 Shareholders' Equity 1) At the end of the second quarter of 2009, the consolidated total shareholders' equity of the Company were Baht 23,322 million, which comprised of Baht 23,247 million from the total shareholders' equity of the Company and Baht 26 million from BGN's as well as Baht 180 million from BBF's, adjusted by Baht 131 million connected transactions. 2) The Company's total shareholders' equity increased by Baht 3,506 million or 17.7% comparing to the end of 2008, resulted total shareholders' equity at the end of the period to be Baht 23,247 million or equivalent to book value per share at Baht 20.77.The rise in equity came from net profit of Baht 4,258 million in the first half of 2009, less with amortization of Baht 192 million of surplus on fixed assets revaluation as well as Baht 560 million of dividend payout. 3) As of June 30, 2009, value of convertible financial instruments issued by the Company (CDDR, subordinated convertible debenture, warrant, and ESOP), if these were fully converted or exercised to be BCP common shares, equaled to 287 million common shares or approximately 20.4% of total shares. Though, at the redemption period in July 3, 2009, the CDDR holders exercised their rights to convert the debentures for the amount of 51 million common shares. Therefore, the remaining convertible financial instruments are equivalent to 236 million common shares. 3. Explanation and Analysis of the Cash Flows Statement for six-month period, ending Jun 30, 2009 3.1 For this six-month period, the Company and its subsidiaries had beginning cash and cash equivalents of total Baht 1,682 million. During the period, net cash increased from the utilizing in various activities by Baht 414 million, of which Baht 1,772 million were received from operation, Baht 2,355 million were used in investing activities, while Baht 997 million were received from financing activities. Hence, cash and cash equivalent as shown in the consolidated financial statements at the end of the second quarter of 2009 were Baht 2,096 million, which consisted of Baht 1,795 million of the Company and Baht 268 million of BGN as well as Baht 33 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 300 million from the following activities; 1) Net cash received from operation was Baht 1,667 million; Cash of Baht 6,244 million from profit from operation before changes in operating assets and liabilities. Cash utilized in operating assets of Baht 7,529 million which came from increase in inventories of Baht 5,382 million and accounts receivable of Baht 1,240 million as well as other assets of Baht 907 million. Cash received in operating liabilities of Baht 7,529 million, combining with Baht 3,181 million from increase in trade accounts payable and Baht 219 million from other operating liabilities. Interest and corporate income tax paid for the amount of Baht 448 million. 2) Net cash used for investing activities was Baht 2,043 million; Additional short-term investment in B/E of Baht 500 million. Equity investment in BBF of Baht 40 million. Investment in fixed assets of Baht 1,507 million, of which Baht 880 million was PQI's. Cash increased from other assets of Baht 4 million. 3) Net cash received from financing activities was Baht 676 million; Short term loan drawdown for the Company's working capital of Baht 630 million Net long term loan drawdown of Baht 890 million for the PQI project cost. Long term loan repayment of Baht 284 million. Annual dividend payment of Baht 560 million at the rate 0.50 Baht per share. At the end of the second quarter year 2009, cash and cash equivalents outstanding was Baht 1,795 million which consisted of Baht 197 million appropriated for PQI project and Baht 1,598 million for normal operation. 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 (more)