SET Announcements

1600 / 030 / 2004 March 8, 2004 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 December 31, 2003 Attachment : Management's Discussion and Analysis for Business Operations ending December 31, 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 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 December 31, 2003 as attachment enclosed. Please be informed accordingly. Yours sincerely (Watcharapong Saisuk) Assistant Vice President Corporate Planning Office Corporate Planning Office Tel: 0-2335-4583 Management's Discussion and Analysis for Business Operations Ending December 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 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 crude distillation unit was completed in 1994. 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 approximately 1,100 of its service stations around the country, which comprise approximately 600 standard service stations and 500 community service stations. Business Overview in 2003 In 2003, the domestic and regional economic growths were continuously improved, resulted to the increases in oil demand for consumption and the gross refining margin accordingly. However, the Company still had to operate under the fluctuation of oil prices in the world market from the US-Iraq war, as well as, the appreciation of Thai Baht against US dollar. For the domestic competition of oil industry, it was still high although it would be loosen comparing to the previous years, because the oil production capacity was still higher than the demand for consumption. However, such demand has continuously improved as the economic recovery, the Company expects the demand and supply of oil will be balanced in 2005 - 2006. So The Company now emphasized only on the highly profit markets, for example, the increase of sale volumes through the service stations, the increase of fuel oil sales in industry market, but decrease of its sales in Jobber market. The details of the business operation are as follows: 1. Explanation and Analysis of the Operating Results for 2003 compared with 2002 1.1 Net Profit (Loss) Analysis 1) Regarding to the business operations in 2003, the Company's EBITDA (excluded inventory gains/ losses and other items occurred from the business and financial restructuring) was Baht +1,502 million, increased by Baht 289 million from last year. The major factors are as follows: - In 2003, Gross Refining Margin (excluded inventory gains/ losses) increased by 0.18 $/BBL to approximately 1.49 $/BBL from 1.31 $/BBL in 2002, since the demand of oil consumption has continuously increased as the economic recovery. However, the operation synergies for enhancing revenues and reducing costs with the other oil companies has been performed at a partial level, since the MOU were signed at the end of 2003. In addition, BCP's refinery utilization was still 74 KBD closed to that last year, since The Company emphasized only on the highly profit markets, such as, sales through service stations and industry market. In 2003, the Company had gains from the changes of oil price and foreign exchange rate on crude and finished oil product inventories (Inventory gains) by Baht 52 million, comparing to that Baht 1,609 million in 2002. In addition, the Company also reserved for the doubtful debts of the advance payment of the fuel transportation fee (Tariff Prepayment) and the interest receivable from the Fuel Pipeline Transportation Co., Ltd. (FPT), as well as, the prepaid taxes from the Reformate importing totaling Baht 233 million, which were included in the selling and administrative expenses. Such factors decreased the Company's accounting gross margin. - In 2003, Sales through the Company's service stations increased by 17%, while the fuel oil sales in the industry market also increased by 7%. However, Jobber market sales decreased due to the low profit margin and JET fuel sales also decreased due to the spread of SARS. However, the marketing margin of finished oil products decreased by approximately 0.03 Baht/ liter from last year, which was the result of high competitive situation. 2) Besides Baht +1,502 million of EBITDA (excluded the inventory gains and other incomes from business and finance restructuring) and Baht 52 million of the inventory gains, the Company posted the gains from foreign exchange rate and others by Baht 103 million, the interest expense before financial restructuring by Baht 1,028 million, the interest income by Baht 36 million, and the depreciation and amortization expenses by Baht 740 million. These resulted to the Company's loss before the other items by Baht 74 million. In addition, the other items that occurred from the business and financial restructuring (the details are show in the expense analysis section) were Baht 1,199 million, therefore, the Company posted Baht 1,275 million of net loss. 1.2 Income Analysis In 2003, the Company posted Baht 61,262 million of total revenues, increased by Baht 9,325 million or 18.0 percent compared to last year. The details are as follows: 1) Revenue from sales amounting Baht 60,815 million was higher than that of last year by Baht 9,011 million or 17.4 percent, which resulted from an average unit selling price increased by 9.7 percent (unit selling price increased from 9.24 to 10.14 Baht/ liter) and total sale volumes increased by 7.0 percent. 2) Gains from the foreign exchange rate fluctuations amounting Baht 293 million, which comprised of Baht 103 million gains from loans and others and Baht 190 million gains from trade payable, was higher than that of last year by Baht 304 million. These gains resulted from the appreciation of Baht against US dollar from 43.30 Baht/ USD at the end of 2002 to 39.74 Baht/ USD at the end of 2003. 1.3 Expense Analysis In 2003, the Company's total expenses were Baht 62,536 million, comprised of Baht 61,337 million of operating expenses and Baht 1,199 million of other items occurred from the business and financial restructuring. 1) Operating expenses amounting Baht 61,337 million was higher than that of last year by 9,924 million or 19.3 percent. The details are as follows: - Cost of sales excluding the effect of change in oil inventory value (inventory gains) was higher than that of last year by 16.9 percent since the cost of crude and finished oil products increased by 17.9 percent as the result of the increase in oil prices and sale volumes. However, the manufacturing expenses decreased, since the Company could adjust the refinery depreciation period in accordance with the useful life of the refinery and the expansion of land rent period from 12 years to 30 years. Therefore, the 2003 depreciation of the refinery could reduce by Baht 303 million, which was recorded in the cost of sales. However, the 2003 cost of sales including the effect of change in oil inventory value were Baht 58,709 million as stated in statement of income. - Selling and administrative expenses (excluding Baht 233 million of the other items that occurred from the business and financial restructuring) amounting Baht 1,309 million was higher than that of last year by Baht 173 million or 15.2 percent. This resulted from the higher sale volumes and the outsourcing of oil distribution contractors in order to enhance the efficiency of oil delivery to customers. - Interest expenses amounting Baht 1,028 million was lower than that of last year by Baht 272 million or 21.0 percent, since the Company made on refinancing of its domestic loans due, while the market interest rate reduced, resulted to the reduction of the Company's interest rate by 1.0 percent. Moreover, in 2002, the Company incurred the prepayment fee of World Bank loans amounting Baht 92 million, but such prepayment enabled the Company to reduce the interest expenses about Baht 85 million per annum. 2) The other items that occurred from the business and financial restructuring amounting Baht 1,199 million comprised of Baht 987 million of the impairment of non-utilized assets and reserves for doubtful debts of the Tariff Prepayment and others (non cash items), and Baht 212 million of early redemption fee from the early redeemed MOF's guaranteed bond. The impairment of non-utilized assets and reserves for doubtful debts of the Tariff Prepayment and others were recorded in the losses from the asset impairment by Baht 754 million (the impairment of unused lands waiting for sale and non-operating service stations) and in the selling and administrative expenses by Baht 233 million (allowance for the doubtful debts of the Tariff Prepayment and the interest receivable from FPT, as well as, the prepaid taxes from the Reformate importing). 2. Explanation and Analysis of the Financial Position as of December 31, 2003 compared with December 31, 2002 2.1 Assets At the end of year 2003, the total assets decreased by Baht 409 million comparing to those at the end of year 2002. The significantly increased items are followings. 1) Cash and cash equivalent amounting Baht 3,348 million increased by Baht 1,974 million, preparing for crude paying 3 vessels on January 6, 2004 approximately USD 46 million. 2) Trade accounts receivable amounting Baht 2,794 million increased by Baht 69 million. This mainly caused by increasing of sale volumes and average selling prices of finished products. 3) Inventories amounting Baht 5,396 million decreased by Baht 693 million, due to the decreasing of the inventories by 94 million liters at higher average-value by 0.19 Baht/ liter in contrast. 4) Tariff prepayment, property, plant and equipment and investment in service stations amounting Baht 14,993 million decreased by Baht 1,462 million, resulting from, at the end of year 2003, the Company impaired totaling Baht 764 million of unused lands waiting for sale, non-operating service stations, and others. Moreover, the company also reserved for doubtful debts of the tariff prepayment and FPT's interest receivable from financial restructuring by Baht 130 million and Baht 41 million respectively, in order to show real value of the assets. In addition, in 2003, machine and refining equipment's expected useful life was expanded from 15 - 20 years to 30 years, which are appropriate with a using period and consistent with a land rent period of the refinery, so that such expansion affected to the decreasing of the depreciation by Baht 303 million. 2.2 Liabilities At the end of year 2003, total liabilities increased by Baht 1,096 million comparing to those at the end of year 2002. The significantly increased items are followings. 1) Trade accounts payable amounting Baht 4,415 million increased by Baht 1,278 million, resulting from advance payment of 1 crude vessel in December 2002 by USD 13 million. 2) Short-term loans amounting Baht 1,391 million decreased by Baht 1,090 million, resulting from the short-term loan repayment and the appreciation of Baht against US dollar which reduced the value of the Euro Commercial Paper loans from the Ministry of Finance amounting USD 35 million by Baht 125 million. 3) Long-term loans, current portion of long-term loans and early redemption loans amounting Baht 9,973 million decreased by Baht 6,380 million, since the company made on refinancing with short-term loans from financial institutions and paid back by some of cash flow from operation during the period of the financial restructuring according to the resolution of the cabinet. 4) Bank overdrafts amounting Baht 8,000 million increased by Baht 7,000 million, since the Company raised the loan from commercial banks in order to repay the short-term and long-term loans, which reached the maturity in year 2003, and early redeemed the debenture bonds, guaranteed by the Ministry of Finance, according to the financial restructuring plan. 2.3 Shareholders' Equity 1) At the end of year, 2003, the Company's accumulated loss amounting Baht 2,389 million decreased by Baht 5,979 million, due to the resolutions of the extraordinary shareholder meeting on August 29, 2003, so that the company recorded in the account as follows : - Decreasing the company's registered capital by canceling 250 million shares, which were not issued and sold, then the outstanding shares were 522 million shares. Such capital reduction was already registered at the Ministry of Commerce on September 11, 2003. - Decreasing the accumulated loss amounting Baht 2,556 million by transferring from premium on share capital amounting Baht 2,008 million and the legal reserve amounting Baht 548 million. This was processed at the end of September 2003. - Decreasing the par value of shares from 10 Bahts to 1 Baht per share then transferring the decreasing value from such the procedure amounting 4,698 million to compensate the accumulated loss. This transaction was already registered at the Ministry of Commerce on November 17, 2003. - The procedure of resolutions will have no any effect to the shareholders'equity. 2) At the end of year, 2003, the shareholders' equity amounting Baht 3,081 million was decreased by Baht 1,505 million comparing to that at the end of 2002, because the Company not only had net loss amounting 1,275 million but also amortize the surplus on fixed assets revaluation amounting Baht 230 million. 3. Explanation and Analysis of the Statement of Cash Flows for 2003 compared with 2002 As of year 2003, the company had cash and cash equivalent amounting Baht 3,348 million increased by Baht 1,974 million, resulting from 1) Net Cash from operating activities amounting Baht 2,574 million was a result from both profit from operating activities amounting Baht 487 million and net increasing of operating assets and liabilities amounting 2,087 million due to the increase of trade accounts receivable and decrease of inventories. 2) Net cash using in investing activities amounting Baht 255 million was a result from the increased investment in permanent assets, equipment and non-current assets. 3) Net cash using in financing activities amounting Baht 345 million, generating from existing cash flows from operating activities, was a result from a loan repayment, which reached the maturity.