SET Announcements

- Translation - 1000 / 281 / 2004 November 26, 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 September 30, 2004 Attachment : Management's Discussion and Analysis for Business Operations ending September 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 September 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 BusinessOperations Ending September 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 3, 2004 In quarter 3, 2004, The Company operated under the continuous increase of crude and product oil price. Dubai crude price had been increased by 3 $/BBL while Tapis crude price had been increased by 8 $/BBL comparing to the previous quarter. Although the domestic consumption had been declined due to the rainy season, 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 3, 2004 compared to that the same period in 2003 1.1 Net Profit (Loss) Analysis Regarding to the business operations in quarter 3rd 2004, the Company's revenue was Baht 20,816 million, EBITDA was Baht +1,542 million, net interest expense (after deducting interest receivable) was Baht 180 million, and Depreciation and amortization was Baht 183 million. Therefore, the Company posted Baht 1,186 million of net profit (net loss of Quarter 3, 2003 was Baht 120 million). Such profit resulted from the following factors: 1) EBITDA of the Refining Business was Baht 1,548 million, which resulted from - Total Gross Refining Margin was 1.26 $/BBL, decreased by 0.15$/BBL compared to the same period in 2003, resulted from the rapid increase of crude oil price in August 2004 especially Tapis crude which accounted for 40% of company's crude feed. Therefore the company's cost of good sold had been increased dramatically. Moreover, the increase of product price has been increased less than that of crude oil, especially fuel oil price, resulting to the lower gross refinery margin. However, because of the higher oil price in the world market, the company has a profit from inventory gain of Baht 1,414 million comparing to Baht 229 million in the same period of 2003. - In quarter 3, the Company increased the refinery utilization rate up to 89 KBD, increased by 10 KBD comparing to the same period of last year. Even though the company had to stop the operation for 8 days of the Catalytic Reforming Unit for maintenance, the refinery utilization rate had not been affected because the Company has increased the refinery utilization rate to meet up the decrease of operation in the maintenance period. - In order to solve the problem of low refinery margin due to the high increase of Tapis crude, the Company adjusted the crude mix by reducing the portion of Tapis and using other crude oil which had similar product yield but lower in price. The company expected the higher refinery margin in quarter 4. 2) EBITDA of the Marketing Business was Baht -6 million resulted from - In quarter 3, the Company's marketing margin was 0.37 Baht/Liter comparing to 0.31 Baht/Liters in the same period of 2003 due to the rainy season. - Moreover, the Jet fuel price formula had an effect of Baht 109 million to the EBITDA of marketing business. In Jet fuel price formula, the average price of the previous month would be the selling price for the current month. Therefore while the Jet fuel price was continuously increasing, the cost of the Jet fuel product would be higher than the selling price resulting to the loss of earning. On the other hand, the company would gain the profit if the Jet fuel price was continuously declining. 1.2 Income Analysis In quarter 3, 2004, the Company posted Baht 20,816 million of total revenues, increased by Baht 5,712 million or 37.8 percent comparing to that of the same period of last year. The details are as follows: 1) Revenue from sales was Baht 20,790 million, higher than that of the same period last year by Baht 5,922 million or 39.8%, since total sale volumes increased by 13.6%, and average unit selling price increased by 23.4% (unit selling price was 11. 98 Baht/ liter comparing to 9.71 Baht/ liter). 1.3 Expense Analysis In quarter 3, 2004, the Company's total expenses were Baht 19,449 million, increased by Baht 4,704 million or 31.9%. The interest expense was Baht 183 million, decreased by Baht 59 million or 24.2%. The details are as follows: 1) The Company's total expenses were Baht 19,449 million, increased by Baht 4,704, resulted from Cost of sales amounting Baht 18,990 million which was higher than that of the same period of last year by Baht 4,631 million or 32.2%, since total sale volumes increased by 13.6%, and an average unit cost increased by 16.4% (unit cost increased was 11.04 Baht/ liter comparing to 9.49 Baht/ liter). In addition, the selling and administrating expenses also increased by Baht 42 million or 13.2% due to the increase in sales. 2) Interest expense amounting Baht 183 million decreased by Baht 59 million or 24.2%, 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 from Krungthai Bank as the financial restructuring plan. 2. Explanation and Analysis of the Financial Position as of September 30, 2004 compared with December 31, 2003 2.1 Assets At the end of quarter 3, 2004, the total assets increased by Baht 6,433 million comparing to that at the end of 2003. The significantly changed items are the followings. 1) Cash and cash equivalent amounting Baht 468 million decreased by Baht 2,880 million because the Company used cash on hand at the beginning of the year to repay some parts of due debts and early repayment debts, as well as, the Company also acquired the credit line of the short term loan for working capital as the financial restructuring plan, therefore, the Company can better manage cash on hand. 2) Trade accounts receivable amounting Baht 4,224 million increased by Baht 1,430 million comparing to that at the end of 2003 caused by increasing of sale volumes and the higher selling prices of finished oil products. 3) Total inventories amounting Baht 11,541 million increased by Baht 6,144 million, since the Company increased the inventory level by 341 million liters for supporting the expansion of sales and refinery utilization. In addition, the company bought additional crude oil to replace Tapis crude which the price had been dramatically increased. It results to the increase of inventory level. The average-value of inventories also increased by 3.35 Baht/ liter. 4) Others of other current assets amounting Baht 1,707 million increased by Baht 1,564 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 1,461 million increased by Baht 488 million, since the Company was allowed to extend the lease period at the state property for the refinery plant from 12 years to 30 years 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 3, 2004, total liabilities increased by Baht 797 million comparing to that at the end of year 2003. The significantly changed items are the followings. 1) Trade accounts payable amounting Baht 6,841 million increased by Baht 2,411 million because of the increase of crude oil purchase and the higher crude oil price. 2) Short-term and long-term loans totaling Baht 16,365 million decreased by Baht 1,716 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 At the end of quarter 3, 2004, Shareholders' Equity increased by Baht 5,635 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, in the early of July, some depository receipts of convertible debenture (CDDR) were exercised to the ordinary share of 28 million shares or approximately Baht 402 million. In addition, the Company could generate the net profit of the first 9 months of Baht 2,479 million. Therefore, the total shareholders' equity was Baht 8,716 million at the end of quarter 3. 3. Explanation and Analysis of the Statement of Cash Flows for the first nine months of 2004 compared with that the same period of 2003 In the first nine months of 2004, the company had cash and cash equivalent amounting Baht 468 million, decreased by Baht 1,294 million, since the Company performed the financial restructuring by acquiring loans for using as working capital and repaying due debts. So the Company did not 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 4,132 million, since the Company had the operating gain before changes in operating assets and liabilities of Baht 3,042 million but had the increase in operating assets and liabilities of Baht 7,174 million. These mainly caused by high oil prices level, which resulted to the increases in values of account receivables and oil inventories, and the purchase of additional crude oil to replace Tapis crude which the price had been dramatically increased. 2) Net cash using in investing activities amounting Baht 356 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 1,607 million, due to the drawing of the short-term and the long-term loans from Krungthai Bank and new capital from issuing CSDR as the financial restructuring plan. 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.