SET Announcements

No. MD. 037/2005 February 8, 2005 Re:Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2004 To:President The Stock Exchange of Thailand Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2004 1.Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In 2004, services income of the company was Baht 1,015.67 million, increasing by Baht 177.69 million or 21.20% 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 2004, the company had volume of fuel serviced of 3,959.29 million litres, increasing 465.36 million litres or 13.32% from 2003. There were major factors contributing to the high increase in volume uplifted in 2004. The first one was the recovery of aviation business after SARS outbreak during Q2/2003 and early Q3/2003 and also the natural growth in parallel with economic growth. The second factor was the increase in charter flights during festival period such as Chinese New Year and New Year which evidenced by the high volume of fuel serviced in December 2004. The last factor was the increase in many low cost airlines during 2004 such as Air Asia, Nok Air, Valuair and Tiger Airways. The other important factor accounted for the movement of services income is the exchange rate. Thai Baht has been appreciated against US Dollar in 2004 and negatively affected the services income since the service fees are charged in US Dollar based. Thai Baht appreciated against US Dollar from the average rate of Baht 41.41 per US Dollar in 2003 to Baht 40.27 per US Dollar in 2004 which accounted for2.75% appreciation. Apart from the major factors described above, the Company has increased the service fee from US. Cent 2.34 per gallon to US. Cent 2.58 per gallon since November 2004 accounted for 10% increase after the prior increase of 10% in November 2003. Therefore, the service fee charged in 2004 was approximately 10% higher than in 2003. When combined with the increase in volume serviced of 13.32% and the Baht appreciation of 2.75%, the services income increased by 21.20%. 1.1.2 Rental Income The rental income of 2004 was Baht 56.81 million which comprised of office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 55.38 million and land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht 1.43 million. The rental income increased Baht 9.47 million or 20% from last year. The increase in rental income was due to the increase in pipeline receiving system rental to FPT of Baht 9.50 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 as well as the increase in volume of fuel transported of 11.40% from last year. 1.1.3 Other Income Other income was Baht 35.47 million, mostly comprised of interest income from short term investment of Baht 1.64 million, interest income from FPT of Baht 4.89 million, principal repayment received from FPT of approximately Baht 6.42 million as specified in the repayment schedule of the third debt restructuring and principal prepayment from FPT of approximately Baht 14.45 million. Besides, there was gain from exchange rate of TARCO of Baht 2.20 million recorded from the depreciation of the outstanding US Dollar loan. 1.2 Expenses 1.2.1 Cost of Services In 2004, cost of services was Baht 388.61 million. Major items in cost of services are pipeline rental charge from Airports of Thailand PLC. (AOT) of Baht 81.42 million , land rental of Baht 19.10 million, maintenance expense of Baht 19.13 million, insurance expenses comprised of all risk insurance of Baht 10.03 million and third party legal liability insurance of Baht 15.58 million, depreciation of Baht 66.72 million, salary and staff reward of Baht 96.68 million. Besides, there was retirement benefit recorded as an expense of Baht 18.85 million in 2004 since the Company has guaranteed to compensate to employees hired before July 1, 1997 if the amount of money received from a provident fund is less than the employees' retirement benefit as specified in the Company's welfare policy for the lesser amount. This program was launched to motivate the employees to join the provident fund to reduce the Company's expense in the long run. This reserve will stabilize the profit of the Company when there is staff retirement or resignation in the future. When comparing to 2003, cost of services increased Baht 28.61 million or 7.95%. 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 13.90 million from CPI adjustment of Baht 5.70 million and from the rental of additional pipeline reimbursed from March 2003 of Baht 8.72 million. The second factor was an increase in personnel expenses which were salary and staff reward of Baht 4.43 million and overtime of Baht 3.07 million due to rapidly increase in number of low cost airlines flights. The last factor was an increase in retirement benefit of Baht 10.55 million. Other than increasing expenses, there was an important decreasing expense which is depreciation expense of Baht 4.23 million. 1.2.2 Administrative Expenses Administrative expenses was Baht 197.74 million, comprised of salary and staff reward of Baht 62.64 million, retirement benefit of Baht 22.94 million and depreciation of Baht 12.44 million. The Administrative expenses increased by Baht 47.30 million or 31.44% from the last year due to the increase in personnel expenses which were salary and staff reward of Baht 14.55 million , retirement benefit of Baht 15.66 million, oversea training of Baht 3.91 million and computer supplies of Baht 4.18 million. 1.2.3 Interest Expenses The Company had the interest expenses in 2004 of Baht 24.27 million which comprised of interest from long term loan from KBANK of Baht 800 million amounted to Baht 19.55 million and interest from short term loan for working capital from banks amounted to Baht 4.72 million. 1.3 Operating Results Net profit for the year ended December 31, 2004 was Baht 363.50 million, increasing by Baht 63.80 million or 21.29% from last year of Baht 299.70 million (from adjusted financial statement which recorded retirement benefit as an expense in 2003 of Baht 12.98 million and deducted from retained earning of Baht 44.84 million) as a result of various factors as discussed above. From the Company's operating results for one year ended December 31, 2004, the Company had net profit of Baht 363.50 million and an earning per share of Baht 1.07. The Board of Director's Meeting No.1/2005 held on February 8, 2005 resolved to pay dividend from the second half of 2004's performance at the rate of Baht 0.35 per share accounted for Baht 119 million to shareholders in terms of shares and cash as follows: - Cash dividend payment of Baht 34 million or Baht 0.10 per share. - Stock dividend of 85 million dividend shares at the par value of Baht 1.00 allotted to the Company's shareholders at the ratio of 4 existing shares to 1 dividend share, totaling Baht 85 million equivalent to a dividend payment of Baht 0.25 per share. In case the fraction of the shares is less than 4 shares, the dividend payment shall be paid at Baht 0.25 per share. The Company fixed the share registration book closing date for the right to receive dividend on May 4, 2005 at 12.00 hr. and fixed the dividend payment date to be May 20, 2005. Beside this dividend payment, BAFS paid interim dividend of Baht 0.30 per share on September 6, 2004 which altogether would be a dividend payment in 2004 of Baht 0.65 per share accounted for payout ratio of 61% of net profit. 2.Report and Analysis of Financial Status 2.1 Assets As at December 31, 2004, the Company and its subsidiaries had total assets in the amount of Baht 4,571.99 million, increased by Baht 1,055.18 million or 30% 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 438.24 million in 2003 to Baht 414.99 million in 2004 or decreasing by Baht 23.25 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 621.56 million from net profit of Baht 363.50 million, depreciation of Baht 80.83 million, decrease in other current assets of Baht 27.64 million and increase in other current liabilities of Baht 162.79 million which mainly were account payable from construction of the Company and its subsidiaries. - Cash flow from investment was Baht 846.51 million comprised of investment in Depot of Baht 599.36 million, investment in Into-plane of Baht 79.89 million, investment in Hydrant of TARCO of Baht 193.05 million, investment in Pipeline transportation from Mukkasan to Suvarnabhumi Airport of JP-One of Baht 191.93 million and payment of liability under agreement to purchase rights of claim of Baht 69.19 million. Besides, the Company and its subsidiaries had cash inflow from redemption of P/N which was short term investment of Baht 110 million and capital injection from minority shareholders of JP-One of Baht 180 million. - Cash flow from financing was Baht 311.70 million. The Company had decrease in short term loan of Baht 158 million and increase in long term loan of Baht 676 million to invest in Depot and Into-plane Projects whereas TARCO drew long term loan from US Dollar portion of USD 0.32 million on September 28, 2004 causing increase in long term loan of Baht 11.07 million. Furtheremore, there was dividend payment of Baht 210.80 million on May 14 and September 6, 2004. 2.1.2 Property, leasehold improvement and equipment was Baht 2,978.86 million comprised of the Company's property, leasehold improvement and equipment of Baht 1,829.88 million and TARCO's and JP-One's work in progress of Baht 957.04 and 191.93 million, respectively. 2.1.3 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 768.01 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, 2004, the Company and its subsidiaries had total liabilities of Baht 2,529.93 million, increased Baht 713.42 million or 39.27% compared to that of last year resulted in debt to equity ratio of 1.24 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Other current liabilities of Baht 268.80 million which comprised of major items such as accrued corporate income tax of Baht 41.28 million and others of Baht 203.55 million which mainly were account payable from construction of the Company and its subsidiaries. Other current liabilities increased Baht 162.79 million from last year. 2.2.2 Retention was Baht 158.71 million, comprised of the Company's retention of Baht 91.15 million, TARCO's retention of Baht 63.14 million and JP-One's retention of Baht 4.43 million. 2.2.3 Long term loan from bank of Baht 1,929.23 million comprised of : - 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 676 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 453.23 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 Shareholder's Equity As at December 31, 2004, shareholder's equity was Baht 2,042.07 million, increasing from last year by Baht 341.76 million due to the company's net profit of 2004 of Baht 363.50 million and the dividend payment paid from the second half performance of 2003 and the first half performance of 2004 of approximately Baht 210.80 million and minority interest of Baht 189.06 million. 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 2004 of Baht 4.70 million resulting from interest income of Baht 0.25 million, gain from exchange rate of Baht 2.20 million and administrative expenses of Baht 7.16 million. TARCO had retained loss in 2004 of Baht 20.56 million. At the end of 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. The Company has an obligation to pay for unpaid capital of JP-One, a 50% subsidiary, of Baht 120 million in 2005. JP-One had net loss in 2004 of Baht 5.01 million resulting from interest income of Baht 0.39 million and administrative expenses of Baht 5.40 million. JP-One had retained loss in 2004 of Baht 5.01 million. As of December 31, 2004, JP-One had registered capital of Baht 600 million and paid up capital of Baht 360 million. Please be informed accordingly. Respectfully yours, (M.R. Supadis Diskul) Managing Director