SET Announcements

1000 / 179 / 2004 August 23, 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 June 30, 2004 Attachment : Management's Discussion and Analysis for Business Operations ending June 30, 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 June 30, 2004 as attachment enclosed. Please be informed accordingly. Yours sincerely (Patiparn Sukorndhaman) Senior Executive Vice President Corporate Planning and Investor Relation Office Tel: 0-2335-4583 Management's Discussion and Analysis for Business Operations Ending June 30, 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 2, 2004 In quarter 2, 2004, the domestic and regional economic growths were continuously improved, resulted to the increases in oil demand for consumption, 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 2, 2004 compared to that the same period in 2003 1.1 Net Profit (Loss) Analysis Regarding to the business operations in quarter 2nd 2004, the Company's revenue was Baht 18,297 million, EBITDA was Baht +1,003 million, net interest expense (after deducting interest receivable) was Baht 180 million, and Depreciation and amortization was Baht 184 million. Therefore, the Company posted Baht 647 million of net profit (net loss of Quarter 2, 2003 was Baht 913 million). Such profit resulted from the following factors: 1) EBITDA of the Refining Business was Baht 859 million, which resulted from - Total Gross Refining Margin was 3.58 $/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 85 KBD, increased by 13 KBD comparing to the same period of last year, but decreased from quarter 1st of this year, since there was temporarily shut down for the major turnaround of plant no. 2 (production capacity of 40 KBD) for 25 days. 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 1.83 $/BBL, closed to the same period of last year which was 1.85 $/BBL, These resulted from, in quarter 2 of last year, the highly increase in fuel oil prices corresponding to high fuel oil demand from Japan for electricity production instead of Nuclear plant that shut down for maintenance. Together with the situation in Iraq which hasn't been improved. - The Company had gains from the changes of oil price and foreign exchange rate on crude and finished oil product inventories (Inventory gains) of Baht 553 million, comparing to the loss of Baht 770 million from the decrease of crude price of 7 $/BBL in the same period of 2003. 2) EBITDA of the Marketing Business was Baht 144 milllion, 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 55.3 KBD or increased by 12.2%. This was the result of increase in sales through service stations by approximately 6.4%, which resulted from the continuous implementing of the marketing activities and campaigns, in addition, the industrial and transportation sales also increased by approximately 14.8%, which resulted from the increase in capacity utilization of the industrial factories as a consequence of economic recovery, and increase in Jet fuel sales due to the recovery situation from SARS. - Marketing margin of finished oil products (excluding Jet fuel) was 0.44 Baht/ Liter, closed to the same period of last year, which was 0.40 Baht/ liter. This resulted from the implementation of oil fund mechanism for fixing the retail oil prices, which stabilized the marketing margins. However, since Jet fuel price formula that the Company sell to Thai Airways International Plc. uses the jet fuel price of previous month as the selling price of the current month, while the cost of jet fuel that marketing business unit purchases from refinery is the cost of jet fuel at the current month. Therefore, the period that oil prices tend to increase, the marketing margin of jet fuel will be low. But the Company still has to sell jet fuel to Thai Airways in order to maintain the market share. As the result of above factors, the total marketing margins of the Company was 0.32 Baht/ Liter. 1.2 Income Analysis In quarter 2, 2004, the Company posted Baht 18,297 million of total revenues, increased by Baht 3,327 million or 22.2 percent comparing to that of the same period of last year. The details are as follows: 1) Revenue from sales amounting Baht 18,276 million was higher than that of the same period last year by Baht 3,448 million or 23.3%, since total sale volumes increased by 8.1%, and average unit selling price increased by 14.0% (unit selling price increased from 9.72 Baht/liter to 11.08 Baht/liter). 1.3 Expense Analysis In quarter 2, 2004, the Company's total expenses were Baht 17,471 million, increased by Baht 1,866 million or 12.0%. The interest expense was Baht 182 million, decreased by Baht 93 million or 33.9%. The details are as follow: 1) The Company's total expenses were Baht 17,471 million, increased by Baht 1,866 million or 12.0%. It resulted from Cost of sales amounting Baht 16,970 million was higher than that of the same period of last year by Baht 1,766 million or 11.6%, since total sale volumes increased by 8.1%, and an average unit cost increased by 3.5% (unit cost increased from 9.66 Baht/ liter to 9.99 Baht/ liter). In addition, the manufacturing expenses also increased by approximately Baht 19 million, since the Company has a temporarily shut down for the major turnaround of plant no. 2 2) Interest expense amounting Baht 183 million decreased by Baht 93 million or 33.9%, since the Company had Baht 3,000 million of new capital injection, and made refinancing a major part of existing bonds by issuing Baht 4,000 million of CDDR, as well as, the new source of debt, Krungthai Bank, as the financial restructuring plan. 2. Explanation and Analysis of the Financial Position as of June 30, 2004 compared with December 31, 2003 2.1 Assets At the end of quarter 2, 2004, the total assets increased by Baht 1,378 million comparing to that at the end of 2003. The significantly changed items are the followings. 1) Cash and cash equivalent amounting Baht 975 million decreased by Baht 2,374 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 3,759 million increased by Baht 965 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 7,272 million increased by Baht 1,876 million, since the Company increased the inventory level by 108 million liters for supporting the expansion of sales and refinery utilization. In addition, the average-value of inventories also increased by 1.30 Baht/ liter. 4) Others of other current assets amounting Baht 756 million increased by Baht 613 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 1,479 million increased by Baht 506 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. 2.2 Liabilities At the end of quarter 2, 2004, total liabilities decreased by Baht 2,728 million comparing to that at the end of year 2003. The significantly changed items are the followings. 1) Trade accounts payable amounting Baht 4,513 million increased by Baht 83 million, since the crude oil prices increased, but the crude purchase orders decreased during the turnaround period of plant no. 2 for 25 days. 2) Short-term and long-term loans totaling Baht 16,365 million decreased by Baht 2,999 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). 3) 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 2, 2004, Shareholders' Equity amounting Baht 7,186 million increased by Baht 4,105 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 1,294 million of net profit in first half of 2004. 2) In quarter 2 2004, the Company had transferred the excess share capital from sale of ordinary shares with the premium of exceeding Baht 2,389,126,110 to compensate the accumulated loss at the end of 2003 by Baht 2,389,126,110. After such compensation, the premium on share capital would be left by Baht 302,992,006. 3. Explanation and Analysis of the Statement of Cash Flows for the first six months of 2004 compared with that the same period of 2003 In the first six months of 2004, the company had cash and cash equivalent amounting Baht 975 million, decreased by Baht 2,374 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 2,062 million, since the Company had the operating gain before changes in operating assets and liabilities of Baht 1,679 million but had the increase in operating assets and liabilities of Baht 3,741 million. These mainly caused by high oil prices level, which resulted to the increases in values of account receivables and oil inventories. 2) Net cash using in investing activities amounting Baht 237 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 75 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 is 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 oil demand for consumption also. The Company, therefore, foresees that the regional and domestic oil demand for consumption and production capacity would be in balance in 2005-2006. This is consistent with the forecast of various researchers. 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 the 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. Moreover, the low increasing of fuel oil price comparing to the price of other oil products has depressed the gross refining margin of the Company at a certain level, however, the Company resolved a part of this effect by sending its fuel oil to upgrade at other refineries. Thus, the Company has to attain the long- term resolution for reducing the fuel oil production in order to enhance the gross refining margin of the Company to the same level of the industry. 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. The Company plans to complete the installation of the mercury removal unit at the end of 2004 and increase the utilization of such local crude oil in early of 2005 onwards.