SET Announcements

Management's Discussion and Analysis for Business Operations For the third quarter and nine-month period ended September 30, 2009 Business Overview for 2009 Oil Price Situation For the third quarter of 2009, the world oil market was in upward trend from the first quarter and the second quarter of this year. The trend was totally different from the same period of last year when it dramatically plunged. The main factors that drove the oil price in this quarter consist of the effective collaboration of OPEC cut run, depreciation of the US dollar, and continuous increase of speculations in oil futures markets. On the other hand, the spread of oil products price and crude oil price was still at low level due to a sharp fall of oil consumption demand forasmuch worldwide economic crisis. As a result, the oil products price growth rate was lower than the increase of crude oil price. In addition, refineries' production capacity outpaced the oil products demand. However, the spread of fuel oil and crude oil had improved after the shortage of supply, which is expected to continue till the end of this year since the strong demand from the Middle East and this region, as well as the arbitrage from the West to Asia region has decreased. Table 1: The comparison of oil prices USD/BBL 3rd Quarter, 2009 2009 2008 Changing Max Min Avg. Avg.2ndQuarter Avg.3rdQuarter Price (A) (B) (C) (A)-(B) (A)-(C) DB 73.00 60.50 68.02 59.22 113.52 +8.80 -45.50 UNL95/DB 12.73 2.83 8.84 9.58 6.06 -0.74 +2.78 GO/DB 8.89 1.14 6.88 7.07 25.87 -0.19 -18.99 FO/DB -1.03 -8.16 -3.11 -5.95 -10.91 +2.84 +7.80 The oil market price in the fourth quarter of 2009 may continuously increase due to economic factor as well as the winter season force heating oil demand to increase. In addition, the US dollar shows the downward trend against other currencies. Despite positive economic forecast, several analysts concern about the oil consumption demand which may grow at slow pace while the stock of oil products is still at high level. Moreover, the squeeze of gross refining margin situation may cause several oil refinery operators to cut their production of which will pressure increasing in oil price. Production and Sales In the third quarter of 2009, the crude run production was 81.7 KBD, higher than 74.3 KBD of the same period of 2008. For the operating results of this quarter, the Company had realized the results of the refinery business from the existing production plant (Hydro-Skimming refinery) since the Product Quality Improvement project (PQI) had not been delivered from the contractor. In terms of the Company's sale through the marketing business; retail gas station, jet fuel market, and industrial market, in this third quarter of 2009 had increased in every channel of distribution from 47.8 KBD to 60.6 KBD or increased by 26.8% yoy. According to a report from the Department of Energy Business (DOEB), the overall domestic demand of gasoline and diesel through every channel in Thailand during July - August 2009 increased by 12.2% from the same period of last year due to lower oil price level of this year 1. Explanation and Analysis of the Operating Results Net Profit/(Loss) Analysis 1) For nine-month period, the consolidated financial statements recorded net profit of Baht 6,446 million (EPS 5.68 Baht), which was the Company's net profit of Baht 6,399 million and the subsidiaries' (Bangchak Green Net Company Limited- BGN and Bangchak Bio Fuel - BBF) net profit of Baht 46 million. The consolidated figures were adjusted by connected transactions of Baht 1 million. 2) The business operations for the third quarter of 2009, the Company and its subsidiaries recorded net profit of Baht 2,151 million (EPS 1.84 Baht), which composed of the Company's profit of Baht 2,141 million and the subsidiaries' (Bangchak Green Net - BGN and Bangchak Bio Fuel - BBF) profit of Baht 9 million. The consolidated figures were adjusted by connected transactions of Baht 1 million. 3) The Company's performance EBITDA for the third quarter of 2009 was Baht 2,078 million. Combining with another Baht 1,208 million inventory effect, total EBITDA was Baht 3,286 million. The breakdown EBITDA by business units were summarized as follows: Table: Details of breakdown EBITDA 3rd Quarter,09 3rd Quarter,08 Changing +/ - (Million Baht) (A) (B) (A) - (B) - Performance EBITDA 2,078 1,568 +510 - Refinery 1,704 909 +795 - Marketing 374 659 -285 - Plus Gain from Inventory effect 1,208 (1,245) +2,453 - Total EBITDA 3,286 323 +2,963 - Refinery 2,912 (336) +3,248 - Marketing 374 659 -285 - Focusing to Refinery Business, its performance EBITDA was Baht 1,704 million, increased from Baht 909 million of the same period of last year. Gross Refining Margin (excluded inventory effect) for this period was 8.52 USD/BBL with crude run level at 81.7 KBD, higher than that of last year which was 5.38 USD/BBL with crude run level at 74.3 KBD. GRM analysis is as follows: USD/BBL 3rd Quarter,09 3rd Quarter,08 Changing GRM from +/- Base GRM 3.32 5.62 -2.30 8.52 5.38 +3.14 GRM Hedging 5.20 (0.24) +5.44 Inventory Gain/(Loss) 4.71 (1.27) +5.98 4.71 (5.36) +10.07 LCM - (4.09) +4.09 Total 13.23 0.02 +13.21 Base GRM Compared to the same period of year 2008, base GRM for this quarter decreased by 2.3 USD per barrel due to narrow spread of oil products and crude oil, particularly the diesel spread had decreased from 25.87 USD per barrel in the third quarter of 2008 to 6.88 USD per barrel in this quarter. The decrease mainly came from an ongoing sluggish demand of the diesel and high level of oil stock in the region while the crude oil price was so strong that many refineries encountered low refining margin. The Fuel oil and Dubai spread (FO/DB) also narrowed down from an average of -10.91 USD per barrel to -3.11 USD per barrel which was beneficial to the Company when added 6.2 USD per barrel of fuel oil export premium then total selling price in this quarter was a lot better than that of last year. Products crack spread were shown below. USD/BBL 3rd Quarter,09 3rd Quarter,08 Changing Products crack spread +/- UNL95/DB 8.84 6.06 +2.78 IK/DB 7.20 28.68 -21.48 GO/DB 6.88 25.87 -18.99 FO/DB -3.11 -10.91 +7.80 Oil hedging increased by 5.44 USD per barrel due to the appropriated time entering hedging transaction when the refining margin was high (around quarter 1-2 in 2008), allowing the Company to sell forward of products crack spread in 2009 at high level.Therefore, when the actual prices in this period were lower than that of the hedging prices, the Company received the gain from the GRM Hedging. The hedged position for this quarter was at 50% of average production level; while the same period of last year was at 21%. Inventory Effect and LCM in this quarter showed stock gain of 4.71 USD per barrel due to ongoing high oil price from the second quarter of 2009. The plunge of oil price in the same period of last year, especially in the second part of the third quarter of 2008, had caused stock loss of 1.2 USD per barrel. In addition, in that period, the Company also realized the loss from the mark to market by using lower of cost or market (LCM) which accounted for another loss of 4.09 USD per barrel. - EBITDA from the marketing business at Baht 374 million was lower than Baht 659 million of the same period of last year due to the different movement of oil prices in the world market. In the third quarter of last year, the oil prices in the world market sharply fell, leading to high marketing margin. However, the oil prices in the third quarter of this year showed upward trend, leading to the decrease of marketing margin. In this quarter, the Company's marketing margin (excluding lubricant) was at Baht 0.59 per litre (around 2.76 USD per barrel), lower than 1.19 Baht per litre (around 5.55 USD per barrel) of the same period of last year. Moreover, the total sales volume through marketing business, including retail gas station, jet fuel market, and industrial market) was at 60.6 KBD, increased by 26.8% from the same period of last year which was at 47.8 KBD. 1.2 Income Analysis 1) Revenue from sale and services of the Company and its subsidiaries for nine-month period of 2009 were Baht 79,177 million, composed of the Company's revenues of Baht 78,418 million and its subsidiary's (BGN) of Baht 11,755 million, adjusted by connected transaction of Baht 10,996 million which mostly associates with the sale transactions from the Company to BGN. 2) More specifically, for the third quarter of 2009, revenues from sale and services of the Company as well as its subsidiaries were Baht 30,542 million, comprised of the Company's sale revenue of Baht 30,247 million and its subsidiary's (BGN) of Baht 4,580 million, adjusted by connected transaction of Baht 4,285 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 6,622 million or 18.0%. Owing to lower world oil price caused the average oil selling price reduced by 28.0%, whereas total sales volume increased 13.9%. - Gain from oil products and crude oil price forward contracts increased by 1,388 million Baht due to the Company's hedging transaction as mentioned in the GRM hedging section. - In this quarter, the Company received gain on foreign exchange of Baht 145 million since the Thai Baht had appreciated from the end of the second quarter of 2009. As a result, the net debt value in the US Dollar decreased in the Thai Baht as to compensate the lower gross refining margin in terms of Thai Baht. This was coming from the natural hedge policy for risk prevention and reduction of foreign exchange fluctuation effect against the Company's business. 1.3 Expense Analysis 1) Total expenses of the Company along with its subsidiaries for nine-month period of 2009 primarily were costs of sale and services of Baht 72,617 million, which involved the Company's costs of Baht 72,294 million and its subsidiary's (BGN) of Baht 11,246 million, adjusted by connected transaction of Baht 10,923 million, which mostly were cost of product sales from the Company to BGN. 2) Total expenses of the Company along with its subsidiaries for the third quarter of 2009 primarily were costs of sales and services of Baht 28,134 million, which involved the Company's costs of Baht 27,991 million and its subsidiary's (BGN) of Baht 4,410 million, adjusted by connected transaction of Baht 4,267 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 7,164 million or 20.4% as the remarkable decline in world oil price. - Administrative expenses increased by Baht 85 million or 61.6%, mostly originated from corporate image expense and interim bonus payment. 1.4 Profitability Analysis Consolidated Company 3rd Quarter performance 2009 2008 2009 2008 Sales and Services, Million Baht 30,542 37,121 30,247 36,870 Net Profit (Loss), Million Baht 2,151 (252) 2,141 (220) Net Profit Margin, % 7.04 (0.68) 7.08 (0.60) Earning Per Share, Baht/Share 1.84 (0.22) 1.83 (0.20) Return on Equity-ROE, % 8.94 (1.08) 8.90 (0.95) ROE (excluding inventory effect),% 7.40 3.63 7.34 3.81 Net profit margin for the third quarter of 2009 as shown in the consolidated financial statement and the Company's were 7.04% and 7.08% respectively, increased from -0.68% and -0.60% at the same period of last year. This came from changing in refining margin as well as marketing margin as aforementioned in the section of net profit (loss) analysis. The return on equity then increased from -1.08% to 8.94% for the consolidated financial statement. 2. Explanation and Analysis of the Financial Position as of September 30, 2009 compared with December 31, 2008 2.1 Assets 1) At the end of third quarter 2009, total assets of the Company and its subsidiaries were totally Baht 52,578 million, which comprised of the Company's total assets of Baht 51,836 million, Baht 633 million of BGN's total assets and Baht 810 million of BBF's total assets, adjusted by connected transactions of Baht 701 million which was mainly account receivable items of Baht 494 million. 2) The Company's total assets at the end of third quarter increased by Baht 9,543 million or 22.6% compared to the end of 2008. The major changes of assets were as follows: - Inventories value was at Baht 12,712 million, increased by Baht 6,428 million or 111.9% mainly came from the high oil price and the increase of crude oil purchase to serve for increasing crude run level for PQI operation. However, the inventory level will decrease to appropriate level once the PQI fully performs. - Account receivable was at Baht 5,811 million, increased by Baht 1,361 million or 30.6% due to rising oil price from the end of 2008. - Investment in subsidiaries increased by Baht 89 million, or 111.8% after the Company had paid for fund raising of share capital as the proportion to invest in Bangchak Biofuel Company Limited (BBF). As of September 30, 2009, the Company's investment in BBF was at Baht 167 million, from Baht 197 million of investment obligations. - Deferred tax assets decreased by Baht 320 million or 67.5% since the Company utilized tax credit from the net loss of accounting period 2008 as credit of corporate income tax for the first half of 2009. As a result, the deferred tax, recorded as asset,decreased. 2.2 Liabilities 1) At the end of the third quarter of 2009, total liabilities of the Company and its subsidiaries were Baht 27,624 million, which consisted of Baht 26,987 million of the Company's total liabilities and Baht 593 million of BGN's total liabilities as well as Baht 564 million of BBF's total liabilities, adjusted by connected transactions of Baht 520 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 4,435 million or 19.7% at the end of this period. The major changes of liabilities were as follows: - Trade accounts payable increased by Baht 3,422 million or 76.7% 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. - Excise tax and oil funds payable increased by Baht 409 million or 286.6% after the expiry of the 9-month stimulus measures' excise tax reduction project, also, the government had continuously called for high excise tax and oil fund rate. - Liabilities on hedging contracts increased by Baht 280 million mainly came from the mark to market of forward contract as risk prevention against fluctuation of foreign exchange. - Convertible Debenture Depository Receipts (CD-DR) decreased by Baht 725 million or 26.3% after the holders of CD-DR exercised their right at Baht 14.30 per 1 ordinary share, resulting in the increase of the ordinary shares by 51 million shares. 2.3 Shareholders' Equity 1) At the end of the third quarter of 2009, the consolidated total shareholders' equity of the Company were Baht 24,954 million, which comprised of Baht 24,849 million from the total shareholders' equity of the Company and Baht 40 million from BGN's as well as Baht 246 million from BBF's, adjusted by Baht 181 million connected transactions. 2) The Company's total shareholders' equity increased by Baht 5,108 million or 25.9% comparing to the end of 2008, resulted total shareholders' equity at the end of the period to be Baht 24,849 million or equivalent to book value per share at Baht 21.24.The changes in the Company's equity were as follow; - The Company reported nine-month net profit of 2009 at Baht 6,399 million. - The holders of the Convertible Debenture Depository Receipts (CD-DR) exercised their right accounted for Baht 725 million, conversion rate at Baht 14.30 per 1 ordinary share. Consequently, the ordinary shares capital increased by Baht 51 million (par value at Baht 1 per share) as well as share premium increased by Baht 674 million. - Annual dividend payment at Baht 0.50 per share was paid to shareholders in April 2009 and interim dividend payment at Baht 1.00 per share was paid in September 2009, totally amounted Baht 1,725 million payout. - Amortization of surplus on fixed assets revaluation was at Baht 287 million. 3) On August 24, 2009, the ESOP warrant, amounting to 24,000,000 units, expired. During which time, no warrant holder had exercised the right to purchase the Company's new ordinary shares according to the terms and condition of such warrant. Therefore as of September 30, 2009, other financial instruments, such as convertible debenture and warrants, if these were fully converted or exercised, it would be equivalent to 143 million shares or 15.3% of total shares after full dilution. 3. Explanation and Analysis of the Cash Flows Statement for nine-month period, ending September 30, 2009 3.1 For this nine-month period, the Company and its subsidiaries had beginning cash and cash equivalents of total Baht 2,322 million. During the period, net cash increased from the utilizing in various activities by Baht 661 million, of which Baht 5,028 million were received from operating activities, while Baht 2,843 million were used in investing activities and Baht 1,524 million were used in financing activities. Hence, cash and cash equivalent as shown in the consolidated financial statements at the end of the third quarter of 2009 were Baht 2,983 million, which consisted of Baht 2,672 million of the Company and Baht 270 million of BGN as well as Baht 41 million of BBF. 3.2 The Company's beginning cash of the period was Baht 2,095 million, consisted of Baht 187 million for PQI project and Baht 1,908 million for normal operation. During this year, the Company's net cash was increased by Baht 577 million from the following activities; 1) Net cash received from operating activities was Baht 4,908 million; - Cash from operating profit before changes in operating assets and liabilities worth Baht 9,554 million. - Cash utilized in operating assets of Baht 6,777 million consisting of Baht 5,486 million for increase of inventory, Baht 1,372 million for increase of account receivable but Baht 81 million from decrease in other assets - Baht 4,276 million of cash received from operating liabilities consisting of Baht 3,446 million from increase in trade account payable and Baht 830 million from other liabilities. - Interest and corporate income tax the Company paid by cash amounting to Baht 2,145 million 2) Net cash used for investing activities was Baht 2,398 million; - Baht 89 million for fund raising of share capital of Bangchak Biofuel Company Limited (BBF). - Baht 2,310 million of cash payment for investment in fixed asset-equipment, of which Baht 1,309 million paid for the PQI project. - Cash increased from other assets, amounting to Baht 1 million. 3) Net cash used in financing activities was Baht 1,933 million; - Baht 1,270 million for short-term loan repayment. - Baht 1,350 million from long-term loan drawdown for the PQI project. - Baht 284 million for scheduled long-term loan repayment. - Baht 1,729 million for annual and interim dividend payments to the shareholders. At the end of the third quarter year 2009, cash and cash equivalents outstanding was Baht 2,672 million which consisted of Baht 229 million appropriated for PQI project and Baht 2,443 million for normal operation usage. 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 (more)