SET Announcements

No. MD.088/2004 August 10, 2004 Re:Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2004 To:President The Stock Exchange of Thailand Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2004 1. Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In Q2/2004, services income of the company was Baht 245.73 million, increasing by Baht 62.66 million or 34.23% compared to that of the same period last year. There are two major factors influent the services income which are volume of fuel serviced and the exchange rate. In Q2/2004, the company had volume of fuel serviced of 971.10 million litres, increasing 209.58 million litres or 27.52% from Q2/2003 and decreasing 10.30 million litres or 1.05% from the last quarter. Such a high growth rate of fuel serviced compared to Q2/2003 caused by the effect of SARS outbreak making the volume of fuel serviced dropped sharply in that quarter. After Q3/2002, the aviation business was turning around with a strong potential of growth both in the number of flights and volume. There were many new airlines started operating at Bangkok International Airport since the beginning of 2004 including some low cost airlines. The mentioned factors helped minimizing the decrease in volume of fuel serviced in Q2/2004 compared to the previous quarter even though Q2 is normally a low season for aviation business. The other important factor accounted for the movement of services income is the exchange rate since the service fees are charged in US Dollar based. The Baht appreciated against US Dollar from the average rate of Baht 42.72 per US Dollar in Q2/2003 to Baht 40.44 per US Dollar in Q2/2004 which accounted for 5.35% appreciation. The effect of the Baht appreciation, the increase of volume of fuel serviced of 27.52% and the increase in service fee of 10% in November 2003 resulted in the increase in services income of 34.23% from the same period of last year. 1.1.2 Rental Income The rental income of Q2/2004 was Baht 13.13 million which comprised of office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 12.79 million and land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht 0.34 million. The rental income increased Baht 2.46 million or 23.06% from the same period last year. The increase in rental income was due to the increase in pipeline receiving system rental to FPT of Baht 2.46 million which is set at the rate of 28% based on FPT's Jet A-1 transportation revenue according to FPT's higher tariff rate. 1.1.3 Other Income Other income was Baht 8.07 million, mostly comprised of interest income from short term investment of Baht 0.43 million, interest income from FPT of Baht 1.23 million, principal repayment received from FPT of approximately Baht 1.61 million as specified in the repayment schedule of the third debt restructuring and principal prepayment from FPT of approximately Baht 4.33 million. 1.2 Expenses 1.2.1 Cost of Services In Q2/2004, cost of services was Baht 86.37 million. Major items in cost of services are pipeline rental charge from Airports of Thailand PLC. (AOT) of Baht 18.18 million , land rental of Baht 4.79 million, maintenance expense of Baht 4.04 million, insurance premiums comprised of all risk insurance of Baht 2.61 million and aviation third party legal liability insurance of Baht 3.98 million, depreciation of Baht 16.79 million and salary of Baht 17.02 million. When comparing to Q2/2003, cost of services increased Baht 4.70 million or 5.75%. The major factors contributing to the increase in cost of services were an increase in pipeline rental charge paid to AOT of approximately Baht 2.25 million from CPI adjustment and retirement benefit and severance pay of Baht 2.65 million. 1.2.2 Administrative Expenses Administrative expenses was Baht 44.72 million, comprised of salary of Baht 11.52 million, real-estate taxes of Baht 5.19 million, depreciation of Baht 3.27 million, computer services and supplies of Baht 1.98 million, oversea training of Baht 1.69 million, interest expense of Baht 4.32 million. Besides, there were administrative expenses of TARCO of Baht 1.57 million and JP-One of Baht 2.20 million. The Administrative expenses increasing by Baht 12.85 million or 40.32% from the same period of last year due to the increase in salary of Baht 3.19 million from annual raise and cost of living adjustment in June, oversea training of Baht 1.69 million and interest expense of Baht 4.32 million. 1.3 Operating Results Net profit for the second quarter ended June 30, 2004 was Baht 99.99 million, increasing by Baht 31.95 million or 46.95% from last year as a result of various factors as discussed above and the Company had an earning per share of Baht 0.29. From the Company's operating results for the six-month period ended June 30, 2004, the Company had net profit of Baht 207.33 million, increasing Baht 36.76 million or 21.55% from the same period last year, and had earning per share of Baht 0.61. The Board of Directors' Meeting No.3/2004 held on August 10, 2004 resolved to pay interim dividend from the first half of 2004's performance at the rate of Baht 0.30 per share as specified in the Company's dividend policy to pay out the dividend of at least 50% of net profit. 2.Report and Analysis of Financial Status 2.1 Assets As at June 30, 2004, the Company and its subsidiaries had total assets in the amount of Baht 3,775.88 million, increased by Baht 237.34 million or 6.71% 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 433.18 million in Q1/2004 to Baht 380.66 million in Q2/2004 or decreasing by Baht 52.53 million. The details of important sources and uses of cash and short term investment are as follows: Cash from operations Baht 120.46 million Investment in Depot Baht (150.89) million Investment in hydrant of TARCO Baht (84.20) million Investment in pipeline of JP-OneBaht (70.45) million Advanced payment for Depot construction Baht 13.70 million Advanced payment for Hydrant construction Baht 4.89 million Advanced payment of JP-One Baht 5.89 million Other current liabilities Baht 97.42 million Cash paid for liability under agreement Baht (17.30) million to purchase rights of claim Short term loan Baht 80.00 million Long term loan Baht 79.29 million Dividend paid Baht(108.80) million 2.1.2 Property, leasehold improvement and equipment - net was Baht 2,310.39 million comprised of the Company's property, leasehold improvement and equipment of Baht 1,377.24 million and TARCO's work in progress of Baht 862.65 million and JP-One's work in progress of Baht 70.45 million. 2.1.3 Goodwill was incurred from the acquisition of TARCO's shares at the price higher than its book value. In Q2/2004 goodwill was recorded at Baht 768.01 million, increased by Baht 12 million from the previous quarter. Since TARCO called capital increase in June of Baht 120 million of which Baht 12 million was paid for NBIA's portion by BAFS and it was recorded as goodwill. The goodwill will be amortized along with the concession period for 30 years starting from the opening of Suvarnabhumi Airport. 2.2 Liabilities As at June 30, 2004, the Company and its subsidiaries had total liabilities of Baht 1,834.49 million, increased Baht 235.78 million or 14.75% compared to that of Q1/2004 resulted in debt to equity ratio of 0.94:1 time. Liabilities comprised of major items as follows: 2.2.1 Liability under agreement to purchase rights of claim due within 1 year of Baht 51.89 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. 2.2.2 Other current liabilities of Baht 325.25 million which comprised of major items such as accrued corporate income tax of Baht 47.81 million and others of Baht 261.64 million. 2.2.3 Long term loan from bank of Baht 1,320.91 million. The first portion of Baht 800 million was long term loan from KBANK with 7 years time to maturity, interest rate of 3-month THBFIX + 0.90%, and 3 years grace period. The second portion of Baht 75 million was long term loan from BBL with a total credit facilities of Baht 2,000 million used to finance Depot and Into-plane projects with 10 years time to maturity, interest rate of 3-month FDR +1.25% and 3 years grace period. The remaining portion was TARCO's loan for construction of Hydrant of Baht 445.91 million. 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 June 30, 2004, shareholders' equity was Baht 1,941.38 million, increasing from last quarter by Baht 1.56 million due to the company's net profit of Q2/2004 of Baht 99.99 million, dividend paid of Baht 108.80 million and minority interest in TARCO of Baht 12 million. The remaining amount was loss from subsidiaries realized as a percentage of investment. 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 loss in Q2/2004 of Baht 5.88 million resulting from interest revenue of Baht 0.09 million, loss from foreign exchange of Baht 4.40 million and administrative expenses of Baht 1.57 million. TARCO had retained loss as at Q2/2004 of Baht 22.51 million. As of June 30, 2004, TARCO had liabilities in Thai Baht Currency of Baht 327 million and liabilities in US Dollar Currency of USD 2.898 million. TARCO had registered and paid up capital of Baht 530 million. Please be informed accordingly. Respectfully yours, (M.R. Supadis Diskul) Managing Director