SET Announcements

No. MD. 118/2004 November 12, 2004 Re: Management Discussion and Analysis For the Three Month Period Operating Results ended September 30, 2004 To: President The Stock Exchange of Thailand Management Discussion and Analysis For the Three Month Period Operating Results ended September 30, 2004 1. Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In Q3/2004, services income of the company was Baht 257.12 million, increasing by Baht 59.11 million or 29.85% 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 Q3/2004, the company had volume of fuel serviced of 987.67 million litres, increasing 141.03 million litres or 16.66% from Q3/2003 and increasing 16.57 million litres or 1.71% from the last quarter. Such a high growth rate of fuel serviced compared to Q3/2003 was because the SARS outbreak still had an effect on fuel serviced until July 2003 and then most of the flights from China, Hongkong and Singapore started to resume their routes to Thailand in October. Besides, there were many new airlines started operating at Bangkok International Airport since the beginning of 2004 including some low cost airlines especially Nok Air (THAI's subsidiary) that started its operation in late July 2004. The mentioned factors not only explained the high growth rate of fuel serviced in Q3/2004 from the same period last year but also the slightly increase of fuel serviced from the previous quarter. 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 41.56 per US Dollar in Q3/2003 to Baht 41.46 per US Dollar in Q3/2004 which accounted for 0.26% appreciation. The effect of the Baht appreciation, the increase of volume of fuel serviced of 16.66% and the increase in service fee of 10% in November 2003 resulted in the increase in services income of 29.85% from the same period of last year. 1.1.2 Rental Income The rental income of Q3/2004 was Baht 15.13 million which comprised of office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 14.76 million and land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht 0.38 million. The rental income increased Baht 2.55 million or 20.24% 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 2.56 million which is set at the rate of 28% based on FPT's Jet A-1 transportation revenue according to FPT's higher volume of fuel transfered and higher tariff rate. 1.1.3 Other Income Other income was Baht 7.06 million, mostly comprised of interest income from short term investment of Baht 0.34 million, interest income from FPT of Baht 1.22 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 3.05 million. 1.2 Expenses 1.2.1 Cost of Services In Q3/2004, cost of services was Baht 83.77 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 4.80 million, maintenance expense of Baht 4.60 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 16.55 million and salary of Baht 17.52 million. When comparing to Q2/2003, cost of services increased Baht 4.37 million or 5.51%. The major factors contributing to the increase in cost of services were the increase in pipeline rental charge paid to AOT of approximately Baht 2.25 million from CPI adjustment and the increase in salary and overtime of Baht 2.50 million due to the increase in number of flights from low cost airlines. 1.2.2 Administrative Expenses Administrative expenses was Baht 56.95 million, comprised of salary of Baht 11.86 million, retirement benefit of Baht 19.71 million, depreciation of Baht 3.26 million, computer services and supplies of Baht 2.61 million. Besides, there were administrative expenses of TARCO of Baht 1.71 million and JP-One of Baht 1.13 million. The Administrative expenses increasing by Baht 24.74 million or 76.79% from the same period of last year due to the increase in retirement benefit of Baht 19.71 million from the resignation and retirement of executives. 1.2.3 Interest Expenses The Company had the interest expenses in Q3/2004 of Baht 5.70 million which comprised of interest from long term loan from KBANK of Baht 800 million at the rate of THBFIX+ 0.9% amounted to Baht 4.56 million and interest from short term loan from KTB of Baht 200 million at the rate of 2.125% amounted to Baht 0.93 million. 1.3 Operating Results Net profit for the third quarter ended September 30, 2004 was Baht 100.72 million, increasing by Baht 22.86 million or 29.37% from last year of Baht 77.85 million as a result of various factors as discussed above and the Company had an earning per share of Baht 0.30. From the Company's operating results for the nine-month period ended September 30, 2004, the Company had net profit of Baht 308.04 million, increasing Baht 56.62 million or 24.00% from the same period last year, and had earning per share of Baht 0.91. 2.Report and Analysis of Financial Status 2.1 Assets As at September 30, 2004, the Company and its subsidiaries had total assets in the amount of Baht 4,176.47 million, increased by Baht 400.60 million or 10.61% from that of last quarter. The important details are as follows: 2.1.1 Cash and cash equivalent and short term investment increased from Baht 380.66 million in Q2/2004 to Baht 472.66 million in Q3/2004 or increasing by Baht 92.01 million. The details of important sources and uses of cash and short term investment are as follows: - The Company and its subsidiaries had cash flow from operations of Baht 54.19 million from net profit of Baht 100.72 million, depreciation of Baht 20.23 million and decrease in other current liabilities of Baht 66.86 million due to the reclassification of Retention from other current liabilities to Retention item under non-current liabilities of Baht 130.52 million. - Cash flow from investment was Baht 225.66 million comprised of investment in Depot of Baht 144.14 million, investment in Into-plane of Baht 24.31 million, investment in Hydrant of TARCO of Baht 39.16 million and investment in Pipeline transportation from Mukkasan to Suvarnabhumi Airport of JP-One of Baht 100.03 million. Besides, the Company and its subsidiaries had capital injection from minority shareholders of JP-One of Baht 105 million on July 26, 2004 and payment of liability under agreement to purchase rights of claim of Baht 17.30 million. - Cash flow from financing was Baht 263.48 million. The Company had increase in short term loan of Baht 120 million and long term loan of Baht 232 million to invest in Depot and Into-plane Projects whereas TARCO drew long term loan from US Dollar portion of USD 0.32 million in September 28, 2004 causing increase in long term loan of Baht 15.03 million. Furtheremore, there was dividend payment of Baht 102 million in September 6, 2004. 2.1.2 Property, leasehold improvement and equipment - net was Baht 2,583.67 million comprised of the Company's property, leasehold improvement and equipment of Baht 1,556.50 million and TARCO's work in progress of Baht 902.22 million and JP-One's work in progress of Baht 124.95 million. 2.1.3 Goodwill was incurred from the acquisition of TARCO's shares at the price higher than its book value which was recorded at Baht 768.01 million. 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 September 30, 2004, the Company and its subsidiaries had total liabilities of Baht 2,132.28 million, increased Baht 297.79 million or 16.23% compared to that of Q2/2004 resulted in debt to equity ratio of 1.04:1 time. Liabilities comprised of major items as follows: 2.2.1 Short term loan of Baht 200 million which was wholly drawn from KTB at the rate of 2.125% to be used for construction payment due to its lowest cot of capital. 2.2.2 Liability under agreement to purchase rights of claim due within 1 year of Baht 34.59 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 Other current liabilities of Baht 143.59 million which comprised of major items such as accrued corporate income tax of Baht 22.81 million and others of Baht 99.66 million. Other current liabilities decreased Baht 161.98 million from last quarter due to the reclassification of Retention from other current liabilities to Retention item under non-current liabilities. 2.2.4 Long term loan from bank of Baht 1,567.93 million comprised of the following portions. - The first portion of Baht 800 million was long term loan from KBANK with 7 years time to maturity starting from 2004, interest rate of 3-month THBFIX + 0.90%, and 3 years grace period. The Company has already hedged the interest rate risk by entering into interest rate swap agreement with KBANK to swap the floating interest rate to fixed interest rate of 4.65% since October 4, 2004. - The second portion of Baht 307 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 starting from 2004, 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 460.93 million from BBL with a total credit facilities of USD 8 million at the rate of Libor+2.75% and Baht 700 million at the rate of MLR. The loan has 10 years time to maturity starting from 2002 and a grace period of 5 years. After a negotiation with BBL, the interest rate has been reduced to Libor+1.75% for USD portion and 3- month Fixed Deposit Rate +1.75% for THB portion since August 13, 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 September 30, 2004, shareholders' equity was Baht 2,044.19 million, increasing from last quarter by Baht 102.81 million due to the company's net profit of Q3/2004 of Baht 102.72 million, dividend paid from the first half operation of 2004 of Baht 102.00 million and minority interest in JP- One of Baht 105 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 bank guarantee to TARCO for a total loan of Baht 700 million and USD 8 million and interest as well as other expenses incurred by a lender to force TARCO to pay its liability. The liability will incur to the Company only for the remaining amount not covered by the liquidation of TARCO's property, when TARCO has defaulted the loan agreement and has been charged and forced to sell its property by auction. TARCO had net loss in Q3/2004 of Baht 3.57 million resulting from loss from foreign exchange of Baht 1.86 million and administrative expenses of Baht 1.71 million. TARCO had retained loss as at Q3/2004 of Baht 26.09 million. As of September 30, 2004, TARCO had liabilities in Thai Baht Currency of Baht 327 million and liabilities in US Dollar Currency of USD 3.22 million. TARCO had registered and paid up capital of Baht 530 million. Please be informed accordingly. Respectfully yours, (M.R. Supadis Diskul) Managing Director