SET Announcements

1600 / 071 / 2004 May 24, 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 March 31, 2004 Attachment : Management's Discussion and Analysis for Business Operations ending March 31, 2004 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 March 31, 2004 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 March 31, 2004 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 quarter 1, 2004 In quarter 1, 2004, the domestic and regional economic growths were continuously improved, resulted to the increases in oil demand for consumption, especially in China and the petrochemical industry as feedstock, while the production capacity remained constant or increased a little. This resulted to the increases in the prices of finished oil products and gross refining margin. For the domestic competition of oil industry, it would be loosen comparing to the previous years as the result of economic recovery, which directly affected to the oil demand for consumption. In addition, the government has also fixed the retail oil prices, so it minimized the price competition in the service station market. Therefore, the Company increased the capacity utilization and sale volumes in all markets, especially in highly profit markets, for example, light oil products in service station market, fuel oil sales in industry market, and long residue sending to upgrade at other refineries. The details of the business operation are as follows: 1. Explanation and Analysis of the Operating Results for quarter 1, 2004 compared to that the same period in 2003 1.1 Net Profit (Loss) Analysis Regarding to the business operations in quarter 1st 2004, the Company's EBITDA was Baht +1,057 million, increased by Baht 117 million from the same period of last year, net interest expense (after deducting interest receivable) was Baht 235 million, and Depreciation and amortization was Baht 183 million. Therefore, the Company posted Baht 646 million of net profit (net profit of Quarter 1, 2003 was Baht 422 million). Such profit resulted from the following factors: 1) EBITDA of the Refining Business was Baht 797 million, which resulted from - Total Gross Refining Margin was 3.15 $/BBL, resulted from the increase in oil demand corresponding to the economic recovery and the sharply increase in oil consumption in the petrochemical industry, which affected to the gasoline and diesel oil prices to increase at the higher rate comparing to crude oil prices, as well as, the Company has continuously performed the operation synergies with the other oil companies in order to enhance revenues and reduce costs. Moreover, the Company also increased the refinery utilization rate up to 96 KBD, increased by 39 KBD comparing to the same period of last year, since there was temporarily shut down for the major turnaround of plant no. 2 (production capacity of 80 KBD) for 30 days in quarter 1, 2003. However, a part of such margin was contributed from the increasing of crude oil and finished oil products prices, so a part of the Company's profit would derive from the inventory gain. Therefore, in case of excluding inventory gain/ loss, gross refining margin was 1.93 $/BBL, decreased from 2.18 $/BBL in the same period of last year, which resulted from the rapidly increase in finished oil product prices in quarter 1,2003 corresponding to the oil prices in the future market as a consequence of the intense situation of US- Iraq relationship. - 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 405 million, comparing to that of Baht 518 million in the same period of last year. 2) EBITDA of the Marketing Business was Baht 259 million, which resulted from - Sales volumes of finished oil products increased in all markets comparing to that of the same period of last year. The retail sales increased to 55.7 KBD or increased by 15%. This was the result of increase in sales through service stations by approximately 16%, which resulted from the continuous implementing of the marketing activities and campaigns, as well as, increase in Fuel oil sales by approximately 10%, which resulted from the increase in capacity utilization of the industrial factories as a consequence of economic recovery. - Marketing margin was 0.44 Baht/ Liter, decreased by 0.08 Baht/ liter, which resulted from the competitive situation during the period of increasing of oil prices before the government implemented oil funds mechanism to fix the retail oil prices. 1.2 Income Analysis In quarter 1, 2004, the Company posted Baht 18,469 million of total revenues, increased by Baht 3,995 million or 24.6 percent comparing to that of the same period of last year. The details are as follows: 1) Revenue from sales amounting Baht 18,406 million was higher than that of the same period last year by Baht 4,009 million or 27.8%, since total sale volumes increased by 29.8%, but an average unit selling price decreased by 2.5% (unit selling price decreased from 10.86 Baht/ liter to 10.59 Baht/ liter). 2) Gains from the foreign exchange rate fluctuations amounting Baht 33 million was higher than that of the same period of last year by Baht 8 million, which comprised of Baht 7 million gains from loans and others and Baht 26 million gains from trade payable. These gains resulted from the appreciation of Baht against US dollar from 39.74 Baht/ USD at the end of 2003 to 39.55 Baht/ USD at the end of quarter 1, 2004. 2.2 Expense Analysis In quarter 1, 2004, the Company's total expenses were Baht 17,581 million, increased by Baht 3,801 million or 27.6%. The interest expense was Baht 243 million, decreased by Baht 32 million or 11.5%. The details are as follow: 1) The Company's total expenses were Baht 17,581 million, increased by Baht 3,801 million or 27.6%. It was the result of the following factors: - Cost of sales amounting Baht 17,135 million was higher than that of the same period of last year by Baht 3,774 million or 29.8%, since total sale volumes increased by 29.8%, but an average unit cost decreased by 1.2% (unit cost decreased from 9.81 Baht/ liter to 9.69 Baht/ liter). In addition, the manufacturing expenses also decreased by approximately Baht 60 million, since the Company has adjusted the refinery depreciation period in accordance with the useful life of the refinery and the extension of refinery's land lease period. Therefore, such depreciation of the refinery recorded in the cost of sales could reduce. - Selling and administrative expenses amounting Baht 290 million decreased by Baht 11 million, since there incurred the irregular expenses in quarter 1, 2003 such as Business and Financial Restructured consulting fees and computer software license expense. - Loss from crude oil and product oil prices amounting Baht 84 million increased by Baht 39 million, since the oil product price in quarter 1, 2004 has had a increasing trend consecutively resulting in higher gain than target and even higher price than the forward contracts that the Company has committed. Therefore, the Company had to pay the difference of the global market price and the forward contract price as the normal settlement of the hedging transaction, however, the Company already realized the operating profit as target earlier. 2) Interest expense amounting Baht 243 million decreased by Baht 32 million or 11.5%, since the Company made on refinancing a part of high interest rate bonds with the new capital from financial restructuring. Such financial restructuring will take a full effects on the Company's performance since quarter 2 of this year onwards. 2. Explanation and Analysis of the Financial Position as of March 31, 2004 compared with December 31, 2003 2.1 Assets At the end of quarter 1, 2004, the total assets increased by Baht 599 million comparing to that at the end of 2003. The significantly changed items are the followings. 1) Cash and cash equivalent amounting Baht 751 million decreased by Baht 2,598 million, since the Company had to pay approximately USD 46 million or Baht 1,800 million of crude costs on January 6, 2004 at the end of 2003. In addition, the Company has received Baht 4,000 million of the working capital loan as the financial restructuring plan, which strengthen the cash management of the Company. 2) Trade accounts receivable amounting Baht 3,426 million increased by Baht 632 million comparing to that at the end of 2003. This mainly caused by increasing of sale volumes and average selling prices of finished oil products. 3) Total inventories amounting Baht 7,338 million increased by Baht 1,942 million, since the Company increased the inventory level by 181 million liters for selling during the temporally shutdown of plant no. 2 for maintenance in mid of quarter 2. In addition, the average-value of inventories also increased by 0.53 Baht/ liter. 4) Others of other current assets amounting Baht 296 million increased by Baht 153 million, because the government has implemented the oil fund mechanism for fixing the retail oil price at the service station since the early of January 2004. So the Company has more oil fund receivable. 5) Intangible assets amounting Baht 1,502 million increased by Baht 529 million, since the Company was allowed to extend the lease period at the state property for the refinery plant and the Company's head office with the total leasehold fee of Baht 552 million. The Company will install the leasehold fee since the year 2007 - 2015. 6) Others of non-current assets amounting Baht 523 million increased by Baht 123 million, since the Company had the deferred expenses for the issuance of debentures and long-term loans of Baht 111 million. 2.2 Liabilities At the end of quarter 1, 2004, total liabilities decreased by Baht 2,916 million comparing to that at the end of year 2003. The significantly changed items are the followings. 1) Trade accounts payable amounting Baht 4,957 million increased by Baht 528 million, this resulted from the increasing of crude oil and finished oil product prices. 2) Short-term and long-term loans totaling Baht 15,665 million decreased by Baht 3,699 million, since the Company performed the financial restructuring by issuing and offering of Baht 3,000 million of newly ordinary shares in form of depository receipt (CSDR), and repaying the due debt by using remaining cash flow in 2003 and quarter 1, 2004. Moreover, the Company also made on refinancing a part of high interest debts by issuing and offering of Baht 4,000 million of convertible debentures in form of depository receipt (CDDR), which was recorded as long-term loan, however, the Company do not have any obligation to redeem its principles, since the convertible bondholders have 2 alternatives to redeem its principles by converting into the ordinary shares of the Company or reselling back to the Ministry of Finance at the offering price. 3) At the end of quarter 1, 2004, the Company had the liabilities on long-term lease amounting Baht 552 million, since the Treasury Department allowed the Company to install the leasehold fee for the extension of lease period at the state property for the refinery plant and the Company's head office by starting the installation from the year 2007 - 2015, which are recorded as the liabilities on long-term lease. 2.3 Shareholders' Equity 1) At the end of quarter 1, 2004, Shareholders' Equity amounting Baht 6,596 million increased by Baht 3,515 million comparing to that at the end of 2003, since the Company issued and offered the newly ordinary shares in form of depository receipt (CSDR) of Baht 3,000 million, as well as, the Company could generate Baht 646 million of net profit in quarter 1, 2004. 2) The 2004 general shareholders' meeting, held on April 29, 2004, approved the transfer of the excess capital from sale of ordinary shares with the premium of Baht 2,389,126,110 to compensate the accumulated loss. After such compensation, the total accumulated loss as of the end of 2003 of Baht 2,389,126,110 will be totally off set. Therefore, the transaction will be executed in the financial statement of quarter 2, 2004. 3. Explanation and Analysis of the Statement of Cash Flows for quarter 1, 2004 compared with that of the same period of 2003 In quarter 1, 2004, the company had cash and cash equivalent amounting Baht 751 million, decreased by Baht 2,598 million, since the Company performed the financial restructuring by acquiring loans for using as working capital and repaying due debts. So the Company do no need to hold a lot of cash. At the end of 2003, cash and cash equivalent amounting Baht 3,348 million were used in the following activities : 1) Net Cash using in operating activities was Baht 1,666 million, since the Company had the operating gain before changes in operating assets and liabilities of Baht 824 million but had the increase in operating assets and liabilities of Baht 2,490 million. These mainly caused by the increases in sales and production volumes and inventories, as well as, oil price levels, which resulted to the increases in values of account receivables and oil inventories. 2) Net cash using in investing activities amounting Baht 158 million was a result of the increases in investment in permanent assets, equipment and non-current assets. 3) Net cash using in financing activities was Baht 774 million, since the Company made on refinancing a part of due debts and early repaying debts by drawing the long- term loans from Krungthai Bank as the financial restructuring plan, as well as, repaid a part of such debts by using the new capital from the offering of newly ordinary shares and the remaining cash flow in 2003 and quarter 1, 2004. 4. Factors and major influences that may affect the Company's performance or financial status in the future For oil business, important factor that affects the demand for oil consumption concerns the economic growth. In 2004, the regional economy tends to report a higher growth rate, in particular China, of which the economic performance has been in a continued expansion. The Thai economy is also expected to expand further, which would result in a rise in the domestic demand. The Company, therefore, foresees that the regional and domestic demand for oil consumption and production capacity would be in balance in 2005-2006. This is consistent with the forecast of various researchers. If production surplus declines, the refining margin would significantly improve. However, oil prices would still produce direct impact on the operations of the Company. It is probable that oil prices that have been on a rise since the end of 2003 would decline by mid or end of 2004. As a result, value of oil inventories would decrease. In order to deal with such situation, the responsible team of the Company keeps a close watch on the situation and is ready to perform risk management on the matter. In addition, the Company is planning to refine crude oil from the Gulf of Thailand that would produce better rate of return than imported crude by approximately 2 USD/BBL, due to the lower transportation cost and additional discount from Exploration Company. However, the Company has to install a mercury removal unit at its refinery in order to refine more of such crude oil, which contains substance of mercury. At present the negotiation is under way with the purpose to increase the volumes of crude oil to be purchased as well as the discount rate.