SET Announcements

1600 / 148 / 2003 August 21 , 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 June 30, 2003 Attachment : Management's Discussion and Analysis for Business Operations ending June 30, 2003 As 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 incompliance 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 June 30, 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 June 30, 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 businesses 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 previous one. The latest unit was completed in the year 1999. The new refinery was designed to produce the clean fuel 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 comprise approximately 600 standard service stations and 500 community service stations. Business Overview In quarter 2/2003, the Company operated under the situation of the declining price of crude and products in the world market after US-Iraq war, resulting to the Company's loss of approximately Baht 800 million. Such oil price fluctuation is normal condition in operating oil business. The Company posted the net loss of Baht 913 million. However, the Company emphatically minimized its controllable costs as well as cooperated with other oil companies in order to enhance income, such as Mogas optimization and sending long residue to add value at the other refineries.The Company also continuously implemented several proactive marketing strategies since Songkran Festival. Furthermore, not only the quality development of oil and lubricant products but also increasing campaign and service at the service stations resulted to sale volume through the Bangchak service stations, increasing 24.5 percent compared with the same period of the previous year. For all that, marketing margin in this quarter was low, still, because of severe competitiveness so that the company slowed down oil sale through Jobber, which had a few portion of profit. The details are as follows:The Company's financial status and business operations 1. Financial Ratios Q' 2/2003 Q' 2/2002 (Reviewed) (Reviewed) Liquidity Ratio Current Ratio Times 0.68 0.79 Quick Ratio Times 0.29 0.30 Cash Flow Liquidity Times 0.07 -0.02 Receivable Turnover Times 5.30 5.79 Collection Period Days 17.17 15.71 Inventory Turnover Times 2.45 2.50 Inventory Turnover Period Days 37.15 36.46 Account Payable Turnover Times 3.83 6.97 Payment Period Days 23.78 13.05 Cash Cycle Days 30.54 39.12 Profitability Ratio Gross Profit Margin % -1.57 7.93 Net Profit Margin % -6.16 2.65 Return on Equity % -21.74 12.77 Efficiency Ratio Return on Total Assets % -3.13 1.29 Assets Turnover Times 0.51 0.49 Financial Policy Ratio Debt to Equity Times 6.75 8.14 In quarter 2/2003, although the Company tried to improve the efficiency of asset utilization and continually enhanced trade accounts payable utilization in order to increase liquidity, some liquidity ratios were still deteriorated caused by the tight loan payment schedule, 70% of total loans reaching the maturity during 2003-2004. However, the Ministry of Finance agreed with the Company's policies, business and financial restructuring, and also ordered an involving public and government sector to support the restructuring issue, which would be completed in 6 months, resulting the Company more firmly. 2. Explanation and Analysis of the Operating Results for Quarter 2/2003 compared with Quarter 2/2002 Statement of Income For the three months ended June 30, 2003 and 2002 Unit : Million Baht Quarter 2 2003 2002 change Sales 14,827 12,857 1,970 Other Incomes 143 147 -4 Total Revenues 14,971 13,004 1,966 Cost of Sales -15,204 -11,985 -3,219 Selling & Administrative Expenses -327 -297 -30 Others Expenses -74 -80 6 Interest Expenses -276 -305 29 Total Expenses -15,881 -12,667 -3,214 Operating Profit (Loss) -910 337 -1,247 Income Tax -2.4 3.6 -6 Net Profit (Loss) -913 341 -1,254 2.1 Income Analysis In quarter 2/2003, the Company posted total revenue of Baht 14,971 million, increased by Baht 1,966 million or 15.1 percent compared with the same period of the previous year. The details are as follows: 1) Revenue from sales amounting Baht 14,827 million was higher than that of the same period of the previous year by Baht 1,970 million or 15.3 percent, which resulted from an average unit selling price increased by 3.0 percent, 9.44 to 9.72 baht per litre, and sale volume increased by 12.0 percent. 2) Other incomes amounting Baht 143 million were lower than those of the same period of the previous year by Baht 4 million due to the followings. - The Company made hedging contracts of crude and product oil price selectively in order to reduce the adverse risk of oil price fluctuation. However, after the period of US-Iraq war, oil price was rapidly declined so that the profit from this transaction was amount Baht 71 million. - The Company posted a gain from the foreign exchange fluctuations by Baht 54 million, which resulted from the appreciation of Baht against US dollar by about 0.9 Baht/ USD, compared with the exchange rate at the end of March 2003. - Interest income was Baht 7 million, decreased by Baht 5 million because of 1 vessel crude purchasing more than usually purchasing for supporting increasing crude feed after shutting down for maintenance in the quarter 1/2003, which impacted to decreasing cash on hand and at banks. 2.2 Expense Analysis In quarter 2/2003, the Company's total expenses were Baht 15,881 million, increased by Baht 3,214 million or 25.37 percent, compared with the same quarter of the previous year. Total expenses comprised cost of sales 95.74 percent, selling and administrative expenses 2.10 percent, interest expenses 1.74 percent and other expenses 0.46 percent, which increased from the followings. 1) Cost of sales totaling Baht 15,204 million was higher than that of the same period of the previous year by Baht 3,219 million or 26.9 percent due to the increasing in oil price per unit by 13.3 percent and sale volume by 12.0 percent. 2) Selling and administrative expenses totaling Baht 327 million were higher than those of the same period of the previous year by Baht 30 million or 10.1 percent, consisting of the increasing of selling expenses by Baht 19 million and the financial consultant fee and other expenses by Baht 12 million. 3) Interest expenses amounting Baht 276 million were lower than those of the same period of the previous year by Baht 29 million or 9.5 percent, since the Company made on refinancing of its domestic loans due, while the market interest rate reduced, resulting in the reduction of the Company's interest rate by 0.3 percent. Moreover, the Ministry of Finance agreed to allow the Company to extend the short-term loan under the Euro Commercial Paper Programme (ECP) for another six months for short-term Bridge Financing during providing a long-term Baht loan, with the maturity on July 31, 2003 and interest rate of 1.5 percent per annum. This enabled the Company to reduce the interest expenses about Baht 85 million per annum. 4) Other expenses amounting Baht 74 million were lower than those of the same period of the previous year by Baht 6 million because of earning from associated company. 2.3 Net Profit (Loss) Analysis In quarter 2/2003, The Company posted a net loss of Baht 913 million, which increased Baht 1,254 million compared with the same period of the previous year due mainly to the followings. 1) Oil Price After US-Iraq war, the oil price in the world market was decreased approximately 7 USD/BBL while the crude cost of the Company was still the crude cost purchasing in the quarter 1/2003, which was comparatively high, resulting in the loss approximately Baht 819 million. 2) Production and Sale Compared with the same period of the previous year, the production in the quarter 2/2003 was still nearly the same level; however, the Company emphasized on a highly profit market, making the average sale volume through the service stations, a highly marketing-margin channel, increased by 24.5 percent. This was the result of not only increasing diesel Power D in Bangkok and Vicinity and expanding to provinces but also consecutively having marketing campaign since Songkran Festival. Furthermore, Feedstock sale volume was increased by 87.7 percent because of accelerating cooperation with the other refineries in order to increase revenue and decrease cost; on the other hand, the sale volume of the transportation market was decreased by 21.7 percent due to declining jet sale resulting from SARS and high competitiveness. Consequently, the sale volume through Jobber, a declining profit market, was decreased by 87.5 percent. 3. Explanation and Analysis of the Financial Position as of June 30, 2003 compared with December 31, 2002 3.1 Asset Analysis Balance Sheet As of June 30, 2003 and December 31, 2002 Unit : Million Baht As of 30 Jun 03 31 Dec 02 change Assets Current Assets Cash and cash equivalents 2,345 1,374 970 Trade accounts receivable, net 2,869 2,725 145 Inventories 6,325 6,089 236 Other current assets Materials and supplies, net 352 365 -13 Others 360 371 -11 Total Current Assets 12,251 10,924 1,327 Investments for using the equity method - 1 -1 Other long-term investments 5 5 0 Tariff prepayment 179 183 -4 Property, plant and equipment, net 14,968 15,638 -670 Intangible assets 1,021 1,056 -35 Other non-current assets Investment - service station 625 634 -9 Deferred income tax 59 60 -1 Others 430 400 30 Total assets 29,539 28,901 638 As of June 30, 2003, total assets increased by Baht 638 million compared with those at the end of year 2002. The significantly increased items are followings. 1) Cash and cash equivalent amounting Baht 2,345 million increased by Baht 970 million compared with those at the end of year 2002, prepared for paying 6 crude vessels in July. 2) Trade accounts receivable amounting Baht 2,869 million increased by Baht 145 million. This mainly caused by increasing 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 the higher trade accounts receivable. 3) Inventories amounting Baht 6,325 million increased by Baht 236 million, due to the increasing of its oil inventories by 83 million liters at a lower average price in contrast. 3.2 Liability Analysis Balance Sheet As of June 30, 2003 and December 31, 2002 Unit : Million Baht As of 30 Jun 03 31 Dec 02 Change Liabilities and Shareholders' Equity Current Liabilities Bank overdrafts and short- term loans from FI 6,711 1,000 5,711 Short-term loans 2,439 2,481 -42 Trade accounts payable 4,808 3,137 1,671 Current portion of long-term loans 3,155 6,380 -3,225 Accrued excise tax and oil stabilization fund 222 144 78 Accrued expenses / others 607 791 -184 Total Current Liabilities 17,942 13,933 4,009 Long-term loans 7,395 9,973 -2,578 Other non current liabilities 389 409 -20 Total Liabilities 25,726 24,315 1,411 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 4,896 5,178 -282 Retained earnings (Accumulated deficit) -8,311 -7,820 -491 Total Shareholders' Equity 3,813 4,586 -773 Total Liabilities and Shareholders' Equity 29,539 28,901 638 As of June 30, 2003, total liabilities increased by Baht 1,411 million compared with those at the end of year 2002. The significantly increased items are followings. 1) Overdrafts and loans from financial institutions amounting Baht 6,711 million increased by Baht 5,711 million since the end of year 2002 because the Company had to repay the long-term loans that would reach the maturity in the 1st half of year 2003. 2) Trade accounts payable amounting Baht 4,808 million increased by Baht 1,671 million compared with the same period of the previous year, resulting from not only crude paying 1 vessel in advance in December 2002, USD 13 million, but also crude purchasing 1 more vessel, USD 19 million, to support increasing the crude-run in quarter 3/2003. 3) Long-term loans amounting Baht 10,550 million decreased by Baht 5,803 million, since the Company made on refinancing with short-term loans from the financial institutions during the period of the financial restructuring according to the resolution of cabinet 3.3 Shareholders' Equity Analysis As of June 30, 2003, the shareholders' equity was decreased by Baht 773 million compared with the end of year 2002 because of the loss in the 1st half amounting by Baht 491 million and decreasing in the surplus on fixed assets revaluation by Baht 282 million. Those mainly result in the decreasing of shareholders' equity by Baht 3,813 million at the end of June, 2003. 4. Explanation and Analysis of the Statement of Cash Flows for Quarter 2/2003 compared with Quarter 2/2002 Statement of Cash Flows For the three months June 30, 2003 and 2002 Unit : Million Baht Quarter 2 2003 2002 change Cash Flows from Operating Activities Net Profit (491) 647 -1,138 Depreciation / Amortization / Others 507 436 71 Operating gain before change in operating asset/ lia. 16 1,084 -1,068 Operating assets (increase), decrease (345) (2,219) 1,874 Operating liabilities increase (decrease) 1,483 923 560 Net Cash Provided by (Used in) Operating Activities 1,154 (212) 1,366 Cash Flows from Investing Activities Purchase of PPE/Others(increase),decrease (98) (118) 20 Cash provided by selling assets 64 8 56 Other non-current assets(increase),decrease (58) (79) 20 Net Cash Provided by (Used in) Investing Activities (93) (189) 96 Cash Flows from Financing Activities OD and Short-term loans increase, (decrease) 5,711 (73) 5,785 Long-term loans increase, (decrease) (5,803) (1,122) -4,681 Net Cash Provided by (Used in) Financing Activities (91) (1,195) 1,104 Increase (Decrease) in Cash and Cash Equivalent 970 (1,596) 2,566 In the first half of 2003, the Company's cash and cash equivalent increased by Baht 970 million, since the Company could generate the operating profit of Baht 16 million as well as its net operating liabilities also increased by Baht 1,138 million, resulting from the increase of trade accounts payable. On the other hand, the decreasing portion were the loans that reached the maturity Bath 91 million and the additional investment in the fixed assets/ other equipment and the other non-current asset totaling Baht 93 million.