SET Announcements

No. MD.022/2004 20 February 2004 Re: Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2003 To: President The Stock Exchange of Thailand Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2003 1.Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In 2003, services income of the company was Baht 837.98 million, decreasing by Baht 28.95 million or 3.34% compared to that of the last year. There are two major factors influent the services income which are volume of fuel serviced and the exchange rate. In 2003, the company had volume of fuel serviced of 3,493.93 million litres, decreasing 58.52 million litres or 1.65% from 2002. The major factor contributing to the decrease in volume uplifted was the effect from SARS outbreak in Q2/2003 and continued to early Q3/2003 which resulted in severely decrease in volume uplifted in that quarter. However, in quarter 4/2003 which is a high season of aviation business, the Company had volume of fuel serviced of 953.02 million litres, increasing 25.68 million litres or 2.77% from the same period last year. This indicated a recovery of the aviation business in the future which will be clearly evident in Q1/2004. The other important factor accounted for the movement of services income is the exchange rate. Thai Baht has been appreciated against US Dollar in 2003 and negatively affected the services income since the service fees are charged in US Dollar based. The Baht appreciated against US Dollar from the average rate of Baht 42.95 per US Dollar in 2002 to Baht 41.41 per US Dollar in 2003 which accounted for 3.58% appreciation. The effect of the Baht appreciation and the reduction of volume serviced resulted in the decrease in services income of 3.34%. The proportion of the decrease in services income was less than the total effect of the Baht appreciation and the volume reduction because of the increase in service fee from US. Cent 2.13 per gallon to US. Cent 2.34 per gallon since November 2003. 1.1.2 Rental Income The rental income of 2003 was Baht 47.35 million which comprised of office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 45.88 million, land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht 1.28 million and office rental to Thai Aviation Refueling Co., Ltd. (TARCO) of Baht 0.18 million. The rental income increased Baht 1.33 million or 2.89% from last year. The increase in rental income was due to the increase in pipeline receiving system rental to FPT of Baht 1.21 million which is a variable rate referenced to FPT's Jet A-1 transportation revenue, since FPT has periodically raised the Jet A-1 transportation fee from Baht 0.0691 per litre in April 2003 to Baht 0.0901 per litre in October 2003. 1.1.3 Other Income Other income was Baht 44.85 million, mostly comprised of interest income from short term investment of Baht 12.17 million, interest income from FPT of Baht 5.12 million, principal repayment received from FPT of approximately Baht 5.62 million as specified in the repayment schedule of the third debt restructuring and principal prepayment from FPT of approximately Baht 8.35 million. Besides, there was gain from exchange rate of TARCO of Baht 9.71 million recorded from the depreciation of the outstanding US Dollar loan. 1.2 Expenses 1.2.1 Cost of Services In 2003, cost of services was Baht 354.30 million. Major items in cost of services are pipeline rental charge from Airports of Thailand PLC. (AOT) of Baht 67.51 million , land rental of Baht 20.82 million, maintenance expense of Baht 18.60 million, insurance expenses comprised of all risk insurance of Baht 10.31 million and third party legal liability insurance of Baht 16.85 million, depreciation of Baht 70.95 million, salary of Baht 65.49 million and staff reward of Baht 26.75 million. When comparing to 2002, cost of services increased Baht 11.80 million or 3.44%. There were many factors contributing to the increase in cost of services. The first factor was an increase in pipeline rental charge paid to AOT of approximately Baht 4.55 million from CPI adjustment. The second factor was an increase in personnel expenses which were salary and staff reward of Baht 8.43 million. The last factor was an increase in insurance expenses including all risk insurance of Baht 4.82 million and third party legal liability insurance of Baht 1.93 million.Other than increasing expenses, there were some important decreasing expenses including maintenance expense of Baht 2.74 million, utilities expense of Baht 2.59 million and depreciation expense of Baht 2.62 million. 1.2.2 Administrative Expenses Administrative expenses was Baht 143.39 million, comprised of salary of Baht 34.23 million, staff reward of Baht 13.86 million and depreciation of Baht 11.12 million. The Administrative expenses decreasing by Baht 10.10 million or 6.58% from the last year due to the decrease in advertising and public relations expenses of Baht 12.14 million. 1.2.3 Share of loss on investments accounted for under equity method Share of loss on investments accounted for under equity method decreased from Baht 4.01 million in 2002 to Baht 1.83 million in 2003. This was a result of loss on investment in TARCO for its operation during January to August 26, 2003 before the Company's additional acquisition of TARCO's shares to increase the investment in TARCO to 90%. TARCO had interest income of Baht 0.03 million and incurred administrative expenses of Baht 4.08 million which resulted in net loss of Baht 4.06 million. 1.3 Operating Results Net profit for the year ended December 31, 2003 was Baht 312.68 million, decreasing by Baht 7.13 million or 2.23% from last year as a result of various factors as discussed above as well as a decrease in corporate income tax rate from 30% to 25% from 2003 to 2007 as an incentive of being a listed company in the Stock Exchange of Thailand in 2002. From the Company's operating results for one year ended December 31, 2003, the Company had net profit of Baht 312.68 million and an earning per share of Baht 0.92. The Board of Directors' Meeting No.1/2004 held on February 20, 2004 resolved to pay dividend from the second half of 2003's performance at the rate of Baht 0.32 per share to shareholders whose names appear in the share registration book on April 29, 2004 and to fix the dividend payment date to be May 14, 2004. Beside this dividend payment, BAFS paid interim dividend of Baht 0.28 per share on September 5, 2003 which altogether would be a dividend payment ratio of 65% of net profit. 2.Report and Analysis of Financial Status 2.1 Assets As at December 31, 2003, the Company and its subsidiaries had total assets in the amount of Baht 3,516.81 million, increased by Baht 1,613.79 million or 84.80% from that of last year. The important details are as follows: 2.1.1 Cash and cash equivalent and short term investment decreased from Baht 837.46 million in 2002 to Baht 438.24 million in 2003 or decreasing by Baht 399.22 million. The details of important sources and uses of cash and short term investment are as follows: Cash from operations Baht 438.26 million Cash paid for Investment in TARCO Baht (836.07) million Investment in Depot Baht (521.99) million Advanced payment for Depot construction Baht (127.43) million Investment in hydrant of TARCO Baht (53.73) million Cash paid for liability under agreement Baht (69.17) million to purchase rights of claim Short term loan Baht 958.00 million Dividend paymentBaht (180.19) million 2.1.2 Investments accounted for under equity method totally decreased Baht 169.07 million from last year after the Company had acquired TARCO's shares since August 2003 and finally hold 90% stake in TARCO. Therefore, the Company changed the accounting method from equity method to consolidation method from Q3/2003 onward. 2.1.3 Property, leasehold improvement and equipment was Baht 1,939.60 million comprised of the Company's property, leasehold improvement and equipment of Baht 1,175.61 million and TARCO's work in progress of Baht 763.99 million. 2.1.4 Goodwill was incurred from the acquisition of TARCO's shares at the price higher than its book value in August 2003. The goodwill was recorded at Baht 756.01 million and will be amortized along with the concession period for 30 years starting from the opening of Suvarnabhumi Airport. 2.2 Liabilities As at December 31, 2003, the Company and its subsidiaries had total liabilities of Baht 1,759.05 million, increased Baht 1,441.85 million or 454.56% compared to that of last year resulted in debt to equity ratio of 1:1 time. Liabilities comprised of major items as follows: 2.2.1 O/D and short term loan of Baht 958 million for shares acquisition in TARCO of Baht 800 million which will be due on February 25, 2004. The remaining portion of Baht 158 million was O/D outstanding with Krung Thai Bank Plc. which has a total credit line of Baht 200 million. The aforesaid amount of O/D was totally paid off in January 2004. 2.2.2 Liability under agreement to purchase rights of claim of Baht 86.48 million.The Company recorded reserve for FPT guarantee of Baht 415.11 million as a liability in 2001 and later in 2002, the Company released the guarantee by purchasing the right of claim from FPT's creditors (group 2) and became a creditor of FPT for the whole amount. The Company recorded such a liability as "Liability under agreement to purchase rights of claim". The Company made the first payment of Baht 207.55 million on the contract signing date. The remaining of Baht 207.55 million would be paid in equal amount of Baht 17.30 million on a quarterly for 12 quarters starting from June 2002 to March 2005. 2.2.3 Long term loan from bank of Baht 442.16 million which was totally TARCO's loan for construction of Hydrant. Other than the above liabilities, there will be more liabilities incurred in the near future according to the investment at Suvarnabhumi Airport. The Company had a financial plan to use source of fund from financial institution with a total of Baht 2,800 million. The loan can be divided in to 2 portions. The first portion of Baht 800 million will be drawn to replace the short term loan for TARCO acquisition with 7 years time to maturity, interest rate of 3-month THBFIX + 0.90%, and 3 years grace period. The loan agreement was signed on February 19, 2004. The second portion of Baht 2,000 million will be used to finance Depot and Into- plane projects with 10 years time to maturity. Currently it is in the process of agreement preparation and the loan will be firstly drawn in March 2004. Upon the completion of the drawdown period, the Company's Debt to Equity Ratio will increase significantly. However, the Company has a policy to maintain D/E Ratio in the level of not more than 2:1 time to maintain financial flexibility and strength of financial status. Eventually, D/E Ratio will drop rapidly after the opening of Suvarnabhumi Airport. 2.3 Shareholders' Equity As at December 31, 2003, shareholders' equity was Baht 1,757.77 million, increasing from last year by Baht 171.93 million due to the company's net profit of 2003 of Baht 312.68 million and the dividend payment paid from the second half performance of 2002 and the first half performance of 2003 of approximately Baht 180.19 million and minority interest of Baht 39.47 million. 3.Major factors that may affect operating performance or financial status The Company has contingent liability from providing a sponsor support to TARCO for a total loan of Baht 700 million and USD 8 million. The liability will incur to the Company when TARCO has financial difficulties and default to pay interest and principal to a lender in the amount that the lender consider to be sufficient for covering TARCO's obligation. TARCO had net profit in 2003 of Baht 2.32 million resulting from interest income of Baht 0.05 million, gain from exchange rate of Baht 9.71 million and administrative expenses of Baht 7.43 million. TARCO had retained loss in 2003 of Baht 15.86 million. At the end of 2003, TARCO had liabilities in Thai Baht Currency of Baht 327 million and liabilities in US Dollar Currency of USD 2.898 million. Please be informed accordingly. Respectfully yours, (M.R. Supadis Diskul) Managing Director