SET Announcements

Management's Discussion and Analysis for Business Operations For the year ended December 31, 2009 Business Overview for 2009 Oil Price Situation For the year 2009, the oil prices in the World's markets maintained in an upward trend. The main supported factors consisted of production volume control of OPEC and depreciation of the US Dollar while the spread between finished products and crude oil, particularly, the Diesel maintained at the low level caused by the dramatic decrease of oil consumption after the slump of the World's economy, leading to lower growth rate of oil finished products prices when compared with the crude oil price. In addition, the expansion of production capacity of refineries across the World, especially in Asia, had affected the demand and supply of the crude oil prices and finished products, respectively. However, the spread between fuel oil price and crude oil price had improved after the depressed situation of fuel oil in the region due to the demand of fuel oil for bunker in Singapore, and the high demand from the Middle East. In 2008, the oil prices were very volatile. In the first half of 2008, crude oil price had continuously increased till it reached its historical high at USD 140.77 per barrel in July before it dramatically decreased till the end of 2008 when the Dubai crude oil price reached USD 36.40 per barrel, the lowest price of the year. Many of international and local refinery business operators received negative impacts from stock loss caused by the decrease of oil prices. Table 1: The comparison of oil prices USD/BBL 2008 2009 Changing(A-B) Max Min Avg. Max Min Avg. Price (A) (B) DB 79.57 36.40 61.82 140.77 36.40 93.48 -31.66 UNL95/DB 20.91 0.38 8.55 18.04 -4.65 9.12 -0.57 GO/DB 18.25 1.14 7.24 45.66 13.39 25.98 -18.74 FO/DB -0.86 -12.89 -5.06 -1.95 -31.21 -14.93 +9.87 Production and Sales In the second quarter of 2009, the Hydro-cracking unit was shutdown for repairing the damage which caused the delay of the PQI project in terms of commercial production. After the repair, test-run, and the final performance test run as stated in the EPC contract, the Company accepted the PQI refining unit and its expenses, including production expenditures, depreciation, and interest were recorded in the Company's balance sheet since December 7, 2009. For 2009, the Company's oil refining was at an average of 79.2 thousand barrels per day increased from 74.2 thousand barrels per day in 2008 due to the rise of total distribution in the markets. For oil distribution through marketing business in 2009, the total volume of distribution increased from 53.2 thousand barrels per day in the previous year to 61.0 thousand barrels per day, or increased by 14.7% of which every channel of distribution was increase, particularly the jet oil market and industry market through transportation channel. The information from the Department of Energy Business shows that the local demand of the total oil market in January-December 2009 increases by 2.3% when compared with the same period of 2008. 1. Explanation and Analysis of the Operating Results 1.1 Net Profit/(Loss) Analysis 1) For the year of 2009, the consolidated financial statements recorded net profit of Baht 7,523 million, which was the Company's net profit of Baht 7,475 million and the subsidiaries' (Bangchak Green Net Company Limited- BGN and Bangchak Bio Fuel - BBF) net profit of Baht 49 million. The consolidated figures were adjusted by connected transactions of Baht 1 million. While taking out the loss attributed to Minority interests of Baht 1 million, remaining to equity holders of the Company of Baht 7,524 million. (EPS 6.57 Baht) 2) The Company's performance EBITDA for 2009 was Baht 9,081 million. Combining with another Baht 3,163 million inventory effect, total EBITDA was Baht 12,244 million. The breakdown EBITDA by business units were summarized as follows: Table: Details of breakdown EBITDA 2009 (A) 2008 (B) Changing +/ - (Million Baht) (A) - (B) - Performance EBITDA 9,081 5,610 +3,471 - Refinery 7,676 4,419 +3,257 - Marketing 1,405 1,191 +214 - Plus Gain from Inventory effect 3,163 - +3,163 (Minus) Loss from Inventory effect - (5,080) -5,080 - Total EBITDA 12,244 530 +11,714 - Refinery 10,839 (661) +11,500 - Marketing 1,405 1,191 +214 - Focusing to Refinery Business, its performance EBITDA was Baht 7,676 million,increased from Baht 4,419 million of last year. Gross Refining Margin (excluded inventory effect) for this year was 9.60 USD/BBL with crude run level at 79.2 KBD, higher than that of last year which was 6.54 USD/BBL with crude run level at 74.2 KBD. GRM analysis is as follows: USD/BBL 2009 2008 Changing GRM from +/- Base GRM 3.98 6.79 -2.81 GRM Hedging 5.62 (0.25) +5.87 Inventory Gain/(Loss) 2.22 (4.54) +6.76 LCM 0.94 (1.03) +1.97 Total 12.76 0.97 +11.79 Base GRM decreased by USD 2.81 per barrel due to narrow spread of all finished products and crude oil, particularly the diesel spread (the Company has high yield production) had decreased from average USD 25.98 per barrel in 2008 to USD 7.24 in 2009. The decrease mainly came from high level of stock in the region. Though the overall picture of the economy started to recover, the demand of diesel utilization showed very little improvement, of which continuously put the pressure on oil prices. Yet, the crude oil price was growing strong due to the policy of OPEC to reduce production capacity to control crude oil price. As a result, many refinery operators experienced low gross refining margin, causing many refineries to reduce their production capacity. For the spread between fuel oil and Dubai crude oil price (FO/DB) had improved from an average of USD-14.93 per barrel to USD -5.06 per barrel, leading to the better price of export fuel oil of the Company in 2009 when compared to last year's with the realization of benefit from the fuel oil export contract at high premium. Products crack spread were shown below. USD/BBL 2009 2008 Changing Products crack spread +/- UNL95/DB 8.55 9.12 -0.57 IK/DB 8.28 27.90 -19.62 GO/DB 7.24 25.98 -18.74 FO/DB -5.06 -14.93 +9.87 GRM hedging increased by USD 5.87 per barrel due to the Company's entering hedging transaction when the refining margin was high (around quarter 1-2 of 2008), allowing the Company to sell forward of finished products and crude oil price spread in 2009 at high level. In 2009, the hedged position was at around 54% of average refinery production level (Last year, the hedged position was around 23% of refinery production level), amounting for the profit of Baht 5,631 million from GRM hedging in this year. Inventory Effect and LCM in this year showed stock gain of USD 3.16 per barrel due to an ongoing high oil price from the beginning of 2009. This was totally different from the oil price direction in 2008 when the oil price dramatically decreased in the second half of 2008, leading to stock loss, including the loss from Lower of Cost or Market -LCM. - EBITDA from the marketing business at Baht 1,405 million was higher than that of last year at Baht 1,191 million. In 2009, the Company's marketing margin (excluding lubricant) was at Baht 0.57 per litre (equivalent to USD 2.63 per barrel) which was slightly different from last year's marketing margin of around Baht 0.60 per litre (equivalent to USD 2.83 per barrel). It was because in 2009, the movement of the oil prices in the World's markets had gradually increased without much fluctuation, leading to this year's control and marketing margin determination to be in accordance with the actual cost. To compare with the previous year while the marketing margin was higher, but there was a limitation to determine the marketing margin after the fluctuation of the oil prices situation which had caused the marketing margin in the first half of 2008 to negatively shrink. The marketing margin in the second half of the year was so high since the oil prices in the World dramatically plunged, particularly in August-September. The distribution volume through marketing business, it increased from 2008 at 53.2 thousand barrels per day to 61.0 thousand barrels per day in 2009 due to the more expansion to transportation channel and more export to neighbouring countries. 1.2 Income Analysis 1) Revenue from sale and services of the Company and its subsidiaries for 2009 were Baht 108,681 million, composed of the Company's revenues of Baht 107,678 million and its subsidiaries, Baht 16,411 million from Bangchak Green Net (BGN) as well as Baht 53 million from Bangchak Bio Fuel (BBF), adjusted by connected transaction of Baht 15,461 million which mostly associates with the sale transactions from the Company to BGN. The major combinations of the changes in the Company's revenues comparing to last year were as follows: - Revenues from total sales (including refinery business sales and marketing business sales) were lower than last year by Baht 20,375 million or 15.9%. Owing to lower world oil price caused the average oil selling price reduced by 21.1%, whereas total sales volume increased 6.4%. - Other income decreased by Baht 23 million or 9.1% after the Company had received dividend payment of Baht 20 million from Bangchak Green Net Co., Ltd. in 2008 - In 2009, the Company's gain Baht 5,631 million from crude and product oil price hedging contract, while last year's loss of Baht 250 million, was caused by the hedging transaction as analyzed in the aforementioned refining margin from GRM Hedging. 1.3 Expense Analysis 1) Total expenses of the Company along with its subsidiaries for 2009 primarily were costs of sales and services of Baht 101,009 million, which involved the Company's costs of Baht 100,588 million and its subsidiaries Baht 15,751 million from BGN and Baht 37 million from BBF, adjusted by connected transaction of Baht 15,367 million, which mostly were cost of product sales from the Company to BGN. Major components in changes of the Company's expenses comparing to last year were as follows: - Cost of sell and services decreased by Baht 24,172 million or 19.4% because the cost of oil prices decreased following the oil prices in the World's markets. The cost had a higher decrease rate when compared with the decrease rate of sale revenue at 15.9% after the accounting method by Weighted Average. As a result, when the oil prices were in the upward direction, the average cost was lower than the present cost, leading to the stock gain of the Company. - administration expenses increased by Baht 269 million, or 38.3%, mainly came from 1)Salary and fringe benefits expenses increased by Baht 152 million from employees' bonuses, salary base improvement, and Employee Joint Investment Program (EJIP) to create long-term engagement with employees 2)Corporate image advertising and public relations expenses increased by Baht 38 million 3)Security expenses increased by Baht 10 million 4)Expert advisory and consultancy fees increased by Baht 10 million 5)Depreciation and amortization for back office increased by Baht 10 million 6)Repair and maintenance expenses increased by Baht 7 million. - Loss from foreign exchange rate decreased by Baht 111 million, or 66.2%. Since in 2008, the Thai Baht had depreciated from Baht 33.89 per USD at the end of 2007 to Baht 35.08 per USD at the end of 2008, leading to the loss from liabilities in foreign currencies such as trade account payables. For 2009, despite the appreciation direction of the Thai Baht, the Company's loss from foreign exchange rate still existed. It was caused by the Mark-to-Market of loaning item worth around USD 200 million which the Company had swapped the loan currency of Thai Baht to USD (Cross Currency Swap) following the policy of Natural Hedge to prevent the Company's business from the impact of foreign exchange rate's volatility. - Financial costs decreased by Baht 303 million or by 35.4% after last year's loan refinance expenses, consisting of prepayment and cancellation fee, totaling of Baht 242 Million, were realized, as well as the cost of debt also decreased. 1.4 Profitability Analysis Consolidated Company 2009 2008 2009 2008 Sales and Services, Million Baht 108,681 129,042 107,678 128,053 Net Profit (Loss), Million Baht 7,524 (750) 7,475 (689) Gross Profit Margin, % 7.06 2.87 6.58 2.57 Net Profit Margin, % 6.92 -0.58 6.94 -0.54 Earning Per Share, Baht/Share 6.57 -0.67 6.53 -0.62 Return on Equity-ROE, % 33.01 -3.68 32.80 -3.37 Net profit margin for the year 2009 as shown in the consolidated financial statement and the Company's were 6.92% and 6.94% respectively, increased from -0.58% and -0.54% at 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 -3.68% to 33.01% for the consolidated financial statement. 2. Explanation and Analysis of the Financial Position as of December 31, 2009 compared with December 31, 2008 2.1 Assets 1) At the end of 2009, total assets of the Company and its subsidiaries were totally Baht 53,891 million, which comprised of the Company's total assets of Baht 52,901 million, Baht 779 million of BGN's total assets and Baht 1,150 million of BBF's total assets, adjusted by connected transactions of Baht 939 million which was mainly account receivable-BGN of Baht 616 million. 2) The Company's total assets at the end of 2009 increased by Baht 10,608 million or 25.1% compared to the end of 2008. The major changes of assets were as follows: - Cash and cash equivalent decreased by Baht 384 million or 18.3%, caused by oil price increasing consequently cash out flow into the working capital; more details are showing in Cash Flow statement. - Account receivable increased by Baht 1,051 million, or 23.6% due to the increase of oil prices. The average selling oil prices of the Company increased by 77.6% from Baht 12.67 per litre in December 2008 to Baht 22.50 per litre in 2009, whereas the sales volume in December 2009 compared with those of 2008 decreased by 12.5%. - The value of inventory increased by Baht 7,882 million, or 137.2% after the increase of oil prices (referring to the Dubai crude oil price in December 2009 at an average of USD 75.26 per barrel, increased by 87.9% when compared with the average price of USD 40.05 per barrel in December 2008) and the increase of inventory volume to serve the refining activity of the PQI Unit. The inventory volume as of ended 2009 was at around 69 days. However, when the Company fully utilizes the refining capacity, the inventory volume can be controlled and decreased to an appropriate level of 50-55 days. - Oil Fuel Fund Subsidies Receivable decreased by Baht 191 million, or 28.3% since the Company received more compensation, mostly came from Biodiesel B5 and the incentive for Diesel production with Euro 4 standard. - Investment in subsidiaries increased by Baht 118 million, or increased around 1.5 times after the Company had fully paid the capital increase in BBF as the Company's investment proportion of 70%. Thus, as of December 31, 2009, the Company's investment in BBF was at Baht 197.05 million, and in BGN was at Baht 0.49 million. - Other long-term investments increased by Baht 43 million or increased by 27.6% due to additional investment in MFC Energy Fund at Baht 53 million. However, the Company had set the provisional loss from impairment at Baht 10 million. - Deferred tax assets decreased by Baht 316 million, or decreased by 66.6%. In the first 6 months of 2009, the Company's profits from operations were subjected to income tax payment and the Company had utilized benefit from the loss carrying forward of the 2008 for tax credit. Thus, the deferred income tax, recorded as assets, was decreased 2.2 Liabilities 1) At the end of 2009, total liabilities of the Company and its subsidiaries were Baht 27,938 million, which consisted of Baht 27,069 million of the Company's total liabilities and Baht 741 million of BGN's total liabilities as well as Baht 857 million of BBF's total liabilities, adjusted by connected transactions of Baht 729 million most of which resulted from account payable-BGN of Baht 616 million. 2) Comparing to the end of 2008, the Company's total liabilities increased by Baht 4,517 million or 20.0% at the end of this period. The major changes of liabilities were as follows: - Trade account payable increased by Baht 1,560 million or 35.0% due to high oil price causing average purchasing crude oil and finished products prices to increase (in December 2009, the average purchasing price was at Baht 22.6 per litre, or around USD 107.1 per barrel while in December 2008, the average purchasing price was at Baht 10.9 per litre or around USD 49.6 per barrel). However, the purchased volume in December 2009 decreased by 0.6 million barrels when compared with those of December 2008. - Excise tax and Oil Fuel Fund payable increased by Baht 455 million or increased around 3.2 times. It was because the excise tax and oil fund rates were back to the normal rate after the completion of the 9-month stimulus measures' excise tax reduction project. - Liabilities on hedging contracts increased by Baht 236 million mainly came from the Mark to Market of forward contract as risk prevention against depreciation of foreign exchange rates. - Other current liabilities increased by Baht 1,193 million, or increased by 78.8% mainly came from PQI project payment provision of Baht 971 million. - Long-term loan from financial institutions (including with current portion of long-term loans) increased by Baht 907 million due to loan withdrawal for the PQI project of Baht 1,510 million and Baht 603 million for long-term loan repayment within the period - Convertible Debentures decreased by Baht 725 million or decreased by 26.3% after the holders of BCP141A debenture exercised their rights to convert the debentures to common shares, amounting for 51 million shares. 2.3 Shareholders' Equity 1) At the end of 2009, the consolidated total shareholders' equity of the Company were Baht 25,953 million, which comprised of Baht 25,832 million from the total shareholders' equity of the Company and Baht 38 million from BGN's as well as Baht 293 million from BBF's, adjusted by Baht 210 million connected transactions. 2) The Company's total equity increased by Baht 6,091 million or 25.9% comparing to the end of 2008. The changes in the Company's equity were as follow; - The Company reported net profit of 2009 at Baht 7,475 million. - Shareholders of BCP141A debenture exercised their right to convert the debenture worth Baht 725 million to common shares at Baht 14.30 per 1 common share, leading to an increase of common share of Baht 51 million (with the par at Baht 1 per share), and the share premium increased by Baht 674 million. - Annual dividend payment to shareholders in April 2009 at Baht 0.50 per share and an interim dividend payment in September 2009 at Baht 1.00 per share, amounting for total dividend payment of Baht 1,729. - Amortization of surplus on revaluation of fixed assets revaluation was at Baht 379 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 December 31, 2009, other financial instruments, such as convertible debenture and warrants, if these were fully converted or exercised, it would be equivalent to 212 million shares or 15.3% of total shares after full dilution. 3. Explanation and Analysis of the Cash Flows Statement for the year 2009 3.1 For the year of 2009, the Company and its subsidiaries had beginning cash and cash equivalents of total Baht 2,322 million. During the period, net cash decreased from the utilizing in various activities by Baht 186 million, (more)