SET Announcements

1600 / 088 / 2003 May 22 , 2003 The Stock Exchange of Thailand 62, Ratchadapisek Road, Klongtoey Bangkok 10110 Attention : President of The Stock Exchange of Thailand Subject : Management's Discussion and Analysis for Business Operations ending March 31, 2003 Attachment : Management's Discussion and Analysis for Business Operations ending March 31, 2003 According to that the Office of the Securities and Exchange Commission has fostered listed companies in the Stock Exchange of Thailand to conduct a Management's Discussion and Analysis for Business Operations every quarter so as to enable investors to better understand in the Company's financial status and business operations- apart from the sole financial data in financial statements, as well as to enable investors to adequately access information for decision in a security investment, which is in compliance with the adequate information disclosure in the good corporate governance program ; The Bangchak Petroleum Public Company Limited (BCP), a listed company in the Stock Exchange of Thailand, has concentrated on transparent business operation harmonious with the good corporate governance program. Therefore, the Company would like to conduct and submit Management's Discussion and Analysis for Business Operations ending March 31, 2003 as attachment enclosed. Please be informed accordingly. Yours sincerely (Kiatchai Maitriwong) Assistant Vice President Corporate Planning Office Corporate Planning Office Tel: 0-2335-4583 Management's Discussion and Analysis for Business Operations Ending March 31, 2003 General Information The Bangchak Petroleum Public Company Limited (BCP) was founded in 1985 by the government of General Prem Tinsulanonda, aimed to be managed in the same manner as a private company as well as to be a Thai owned oil company, which conducts its business for the benefits of the Thai people and society. At present, its businesses include retail and wholesale sales of finished oil products and manage an oil refinery with a capacity of 120,000 barrels per day, rebuilt replacing the old one. The latest unit was completed in the year 1999. The new refinery was designed to produce the clean fuels with efficient energy consumption and high production yield. Moreover, The Company has expanded its market base through more than 1,000 of its service stations around the country, which comprised approximately 600 standard service stations and 500 community service stations. Business Overview In quarter 1/2003, the Company operated under the uncertain situation of US- Iraq war, which affected to the price level of crude oil and finished oil products in the world market. Therefore, the Company tried to reduce such risk by minimizing its oil inventories and focusing only on the high profit markets. The Company also made some crude oil and product oil price hedging contracts (FORWARDS) to reduce the effect of oil price fluctuation. Furthermore, the Company has emphatically cooperated with other oil companies to enhance more income and cost reduction, in addition to the continuous implementation of proactive marketing strategies together with the quality development of oil and lubricant products. These enable the Company to post the net profit of Baht 422 million in this quarter. The details are as follows : The Company's financial status and business operations 1. Financial Ratios Q' 1/2003 Q' 1/2002 (Reviewed) (Reviewed) Liquidity Ratio Current Ratio Times 0.72 1.06 Quick Ratio Times 0.35 0.52 Cash Flow Liquidity Times 0.11 0.04 Q' 1/2003 Q' 1/2002 (Reviewed) (Reviewed) Receivable Turnover Times 4.54 4.92 Collection Period Days 19.81 18.31 Inventory Turnover Times 2.28 2.55 Inventory Turnover Period Days 39.54 35.25 Account Payable Turnover Times 3.54 6.44 Payment Period Days 25.42 13.98 Cash Cycle Days 33.93 39.58 Profitability Ratio Gross Profit Margin % 7.19 7.48 Net Profit Margin % 2.93 2.69 Return on Equity % 8.91 12.07 Efficiency Ratio Return on Total Assets % 1.43 1.16 Assets Turnover Times 0.49 0.43 Financial Policy Ratio Debt to Equity Times 5.19 9.05 In quarter 1/2003, although the Company tried to enhance the efficiency of asset utilization and the benefits from extending the payment period in order to increase its liquidity, some liquidity ratios still deteriorate caused by the tight loan payment schedule, 70% of total loans would reach the maturity during 2003 - 2004. However, the Ministry of Finance, the Company's major shareholder, recognized this problem and has considered the potential conditions and alternatives for its financial restructuring as well as appropriate forms of the Government support. This consideration is expected to finalize at the end of the second quarter. 2. Explanation and Analysis of the Operating Results for Quarter 1/2003 compared with Quarter 1/2002 Statement of Income For the three months ended March 31, 2003 and 2002 Unit : Million Baht Quarter 1 2003 2002 change Sales 14,397 11,399 2,998 Other Incomes 77 88 -11 Total Revenues 14,474 11,487 2,987 Cost of Sales -13,361 -10,547 -2,814 Selling & Administrative Expenses -302 -243 -59 Others Expenses -117 -70 -47 Interest Expenses -274 -321 47 Total Expenses -14,054 -11,181 -2,873 Operating Profit (Loss) 421 306 114 Income Tax 1.7 0.4 1.3 Net Profit (Loss) 422 307 116 2.1 Income Analysis In quarter 1/2003, the Company posted total revenue of Baht 14,474 million, increased by Baht 2,987 million or 26.0 percent compared to the previous year's same period. The details are as follows : 1) Revenue from sales amounting Baht 14,397 million was higher than the previous year's same period by Baht 2,998 million or 26.3 percent, which resulted from an average unit selling price increased by 31.2 percent, but total sale volumes decreased by 3.7 percent. The decreasing of those sale volumes was in the low- profit wholesale market, but increasing in the retail service station market by 17 percent. 2) Other incomes amounting Baht 77 million was lower than the previous year's same period by Baht 11 million due to the followings. - In quarter 1/2003, the Company made the crude oil and product oil price hedging contracts selectively in order to reduce the adverse risk of oil price fluctuation during the period of US- Iraq war. But oil price still shoot up in early year, thus, the expense was incurred in this transaction. - In quarter 1/2003, the Company posted a gain from the foreign exchange fluctuations by Baht 25 million, which resulted from the appreciation of Baht against US dollar by about 0.4 Baht/ USD, compared to the exchange rate at the end of the year 2002. - Interest income in quarter 1/2003 was Baht 11 million, increased by Baht 4 million, since the Company reduced its oil inventories to minimize the risk of oil price collapse, which resulted to the increasing of cash on hand and at banks. - Other income in quarter 1/2003 was Baht 41 million, increased by Baht 21 million, due to the sales of scrap from the major turnaround of plant no. 2. 2.2 Expense Analysis In quarter 1/2003, the Company's total expenses were Baht 14,054 million, increased by Baht 2,873 million or 25.7 percent, when compared with the same quarter last year. Total expenses comprised cost of sales 95.07 percent, selling and administrative expenses 2.15 percent, interest expenses 1.95 percent and other expenses 0.82 percent, which increased from the followings. 1) Cost of sales totaling Baht 13,361 million was higher than the previous year's same period by Baht 2,814 million or 26.7 percent due to the increasing of oil price per unit by 31.7 percent and of the maintenance and repair expenses from plant turnaround by Baht 107 million. 2) Selling and administrative expenses totaling Baht 302 million was higher than the previous year's same period by Baht 59 million or 24.3 percent, due to the increasing of selling expenses by Baht 34 million and of the financial consultant fee and other expenses by Baht 25 million. 3) Interest expenses amounting Baht. 274 million was lower than the previous year's same period by Baht 47 million or 14.7 percent, since the Company made on refinancing of its domestic loans due, while the market interest rate reduced, it resulted to the reduction of the Company's interest rate by 0.3 percent. Moreover, the Ministry of Finance has agreed to allow the Company to extend the short- term loan under the Euro Commercial Paper Programme (ECP) for another six months, with maturity on July 31, 2003 and with interest rate of 1.5 percent per annum. This has enabled the Company to reduce its interest expenses of about Baht 85 million per annum. 4) Other expenses amounting Baht 117 million was higher than the previous year's same period by Baht 47 million, since the Company incurred an expense from the crude oil and product oil price hedging contracts (Forwards) so as to reduce adverse risk from oil price fluctuation during the period of US- Iraq war. 2.3 Net Profit (Loss) Analysis The Company posted a net profit of Baht 422 million in this quarter, which included the gain from foreign exchange fluctuations of Baht 25 million. Such net profit was higher than the same period last year by Baht 116 million. Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) stayed at Baht +952 million, which, if deducted by interest expense, the Company still generated profit. This improvement was due mainly to the followings. 1) Refining Margin In the first quarter, refining margin had improved, which partly caused by the continual rising oil prices in the world market as a consequence of the prolonged strike in Venezuela together with the US-Iraq war. 2) Sales The Company's service station sales, the highest margin selling channel, for this quarter had increased 17 percent compared with the same quarter last year. This resulted from the introduction of special grade diesel oil "Power D" which received good response from the customers. In addition,the Company has revamped the image of its service stations and convenience stores and improved its services to achieve optimum customers' satisfaction. 3) Production The Company's refinery was temporarily shut down for the major turnaround since mid of February until early of March, which resulted to the reduction of the refinery run in this quarter. However, the Company had provided the products for sales by drawing down its oil inventory in order to reduce risk from oil price fluctuation and additional supplied from the other sources in order to maintain its market share. In addition, the Company continues its endeavor to expand the cooperation with the other refineries so as to reduce cost and increase the income. The feedstock volumes sent to upgrading value had increased by 143 percent, compared to the previous year's same period. 3. Explanation and Analysis of the Financial Position as of March 31, 2003 compared with December 31, 2002 3.1 Asset Analysis Balance Sheet As of March 31, 2003 and December 31, 2002 Unit : Million Baht As of 31 Mar 03 31 Dec 02 change Assets Current Assets Cash and cash equivalents 2,763 1,374 1,388 Current investments 153 153 0 Trade accounts receivable, net 3,323 2,725 599 Inventories 5,652 6,089 -437 Other current assets Materials and supplies, net 352 365 -12 Others 437 371 66 Total Current Assets 12,681 11,076 1,604 Investments for using the equity method 1 1 0 Other long-term investments 5 5 0 Tariff prepayment 181 183 -2 Property, plant and equipment, net 15,320 15,638 -318 Intangible assets 1,040 1,056 -17 Other non-current assets Investment - service station 633 634 -1 Deferred income tax 61 60 2 others 348 248 101 Total assets 30,270 28,901 1,369 As of March 31, 2003, total assets increased by Baht 1,369 million compared to that the end of the year 2002. The items that significantly increased are followings. 1) Cash and cash equivalent amounting Baht 2,763 million increased by Baht 1,388 million compared to that at the end of the year 2002. This caused by the reduction of its oil inventories for reducing risk from oil price collapse. 2) Trade accounts receivable amounting Baht 3,323 million increased by Baht 599 million, compared to that at the end of the year 2002. This mainly caused by increasing of oil price together with a rise in sales from long residue and gasoline component delivered for cracking into clean oil products at other refineries, which recorded as sales according to the Company's accounting system. Consequently, it caused higher trade accounts receivable. 3) Inventories amounting Baht 5,652 million decreased by Baht 437 million compared to that at the end of the year 2002, due to the reduction of its oil inventories by 0.7 million barrel. 3.2 Liability Analysis Balance Sheet As of March 31, 2003 and December 31, 2002 Unit : Million Baht As of 31 Mar 03 31 Dec 02 change Liabilities and Shareholders' Equity Current Liabilities Bank overdrafts and short- term loans from FI 3,034 1,000 2,034 Short- term loans 2,470 2,481 -10 Trade accounts payable 4,410 3,137 1,273 Current portion of long- term loans 6,755 6,380 375 Accrued excise tax and oil stabilization fund 205 144 61 Accrued expenses / others 718 791 -73 Total Current Liabilities 17,592 13,933 3,660 Long- term loans 7,395 9,973 -2,578 Other non current liabilities 396 409 -14 Total Liabilities 25,383 24,315 1,068 Shareholders' Equity Issued and paid- up share capital 5,220 5,220 Premium on share capital 2,008 2,008 Surplus on fixed assets revaluation 5,057 5,178 -121 Retained earnings (Accumulated deficit) -7,398 -7,820 422 Total Shareholders' Equity 4,887 4,586 301 Total Liabilities and Shareholders' Equity 30,270 28,901 1,369 As of March 31, 2003, total liabilities increased by Baht 1,068 million compared to that at the end of the year 2002. The items that significantly increased are followings. 1) Short-term loans from financial institutions amounting Baht 3,034 million increased by Baht 2,034 million, since the Company had to repay the long- term loans that reached the maturity during the quarter 1/2003. 2) Trade accounts payable amounting Baht 4,410 million increased by Baht 1,273 million. This mainly caused by the increasing of oil price together with the receiving clean oil products as proceeds of the cooperation with other refineries, which recorded as purchase according to the Company's accounting system. 3) Long- term loans amounting Baht 7,395 million decreased by Baht 2,578 million, since the Company made on refinancing with short-term loans from financial institutions. 3.3 Shareholders' Equity Analysis As of March 31, 2003, retained earnings amounting Baht 4,887 million increased by Baht 301 million compared to that at the end of the year 2002, since the Company could generate net profit of Baht 422 million but decrease in the surplus on fixed assets revaluation by Baht 121 million. 4. Explanation and Analysis of the Statement of Cash Flows for Quarter 1/2003 compared with Quarter 1/2002 Statement of Cash Flows For the three months March 31, 2003 and 2002 Unit : Million Baht Quarter 1 2003 2002 change Cash Flows from Operating Activities Net Profit 422 307 116 Depreciation / Amortization / Others 273 252 21 Operating gain before change in operating asset/ lia. 695 559 136 Operating assets (increase), decrease (199) (1,161) 962 Operating liabilities increase, (decrease) 1,211 897 314 Net Cash Provided by (Used in) Operating Activities 1,707 295 1,413 Cash Flows from Investing Activities Purchase of PPE / Others (increase), decrease (35) (45) 10 Other non- current assets (increase), decrease (115) (31) -84 Net Cash Provided by (Used in) Investing Activities (150) (76) -74 Cash Flows from Financing Activities OD and Short- term loans increase, (decrease) 2,034 (51) 2,085 Long- term loans increase, (decrease) (2,203) (822) -1,381 Net Cash Provided by (Used in) Financing Activities (169) (873) 704 Increase (Decrease) in Cash and Cash Equivalent 1,388 (655) 2,043 In quarter 1/2003, the Company's cash and cash equivalent increased by Baht 1,388 million, since the Company could generate the operating profit of Baht 695 million as well as its working capital also decreased by Baht 1,012 million. These caused by the decrease in its oil inventories and increase in trade account payable. In addition, the Company also paid its loans that reached the maturity and made the additional investment in the fixed assets and other equipment totaling Baht 35 million and in the other non- current asset totaling Baht 115 million.