SET Announcements

No. MD. 030/2006 February 22, 2006 Re: Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2005 To: President The Stock Exchange of Thailand Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2005 1.Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In 2005, services income of the company was Baht 1,139.37 million, increasing by Baht 123.71 million or 12.18% 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 2005, the company had volume of fuel serviced of 4,070.40 million litres, increasing 111.11 million litres or 2.81% from 2004 in parallel with aviation business in general. However, the fuel serviced growth rate was a little below the company's expectation of 3% despite the higher growth rate in the second half of the year at 3.72%. The other important factor accounted for the movement of services income is the exchange rate. Thai Baht has been depreciated against US Dollar in 2005 and positively affected the services income since the service fees are charged in US Dollar based. Thai Baht depreciated against US Dollar from the average rate of Baht 40.27 per US Dollar in 2004 to Baht 40.36 per US Dollar in 2005 which accounted for 0.21% depreciation. 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. Therefore, the service fee charged in 2005 was approximately 8.4% higher than in 2004. When combined with the increase in volume serviced of 2.81% and the Baht depreciation of 0.21%, the services income increased by 12.18%. 1.1.2 Rental Income The rental income of 2005 was Baht 43.94 million which comprised of office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 42.36 million and land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht 1.58 million. The rental income decreased Baht 12.88 million or 22.67% from last year. The decrease in rental income was due to the decrease in pipeline receiving system rental to FPT of Baht 13.27 million since BAFS reduced the rental rate from 28% to 21.5% of FPT's Jet A-1 transportation revenue from March 2005 due to the relocation of 1 out of 3 rental tanks to install pipeline receiving facilities for rent to JP-One Asset Co., Ltd. (JP-One) at fuel depot at Suvarnabhumi Airport as well as the decrease in volume of fuel transported of 14.59% from last year. 1.1.3 Other Income Other income was Baht 37.18 million, mostly comprised of interest income from short term investment of Baht 3.09 million, interest income from FPT of Baht 4.70 million, principal repayment as specified in the repayment schedule of the third debt restructuring and principal prepayment from FPT of approximately Baht 15.41 million. Besides, there was guarantee fee received from TARCO at the rate of 1% per year of outstanding loan of each quarter totaling Baht 7.17 million. 1.2 Expenses 1.2.1 Cost of Services In 2005, cost of services was Baht 385.04 million. Major items in cost of services are pipeline rental charge from Airports of Thailand PLC. (AOT) of Baht 66.63 million , land rental of Baht 18.60 million, maintenance expense of Baht 20.71 million, insurance expenses comprised of all risk insurance of Baht 8.71 million and third party legal liability insurance of Baht 16.14 million, depreciation of Baht 60.48 million and salary and staff reward of Baht 106.05 million. Besides, there was retirement benefit recorded as an expense of Baht 20.72 million in 2005 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 2004, cost of services decreased Baht 3.57 million or 0.92%. There were two major factors contributing to the decrease in cost of services. The first factor was a decrease in pipeline rental charge paid to AOT of approximately Baht 14.79 million according to the reverse of pipeline rental charge of additional pipeline reimbursed of Baht 8.72 million paid in 2004. The reverse transaction caused pipeline rental charge in 2005 to decrease from 2004. The second factor was a decrease in depreciation expense of Baht 6.24 million. In contrary, there were some increase expenses to be mentioned such as salary and staff reward of Baht 8.92 million, fuel for vehicle of Baht 2.37 million, maintenance expense of Baht 1.58 million and retirement benefit of Baht 1.87 million. 1.2.2 Administrative Expenses Administrative expenses was Baht 220.39 million, comprised of major items such as salary and staff reward of Baht 73.72 million, retirement benefit of Baht 9.04 million, depreciation of Baht 14.44 million and computer supplies of Baht 9.98 million. Moreover, there were also administrative expenses from the company's subsidiaries. Administrative expenses of TARCO comprised of administrative expenses of Baht 7.43 million and loss from exchange rate of Baht 12.14 million. For JP-One, there was administrative expenses of Baht 5.30 million. The Administrative expenses increased by Baht 22.65 million or 11.45% from the last year due to the increase in salary and staff reward of Baht 11.08 million , advertising expense of Baht 1.51 million, forward contract amortization of Baht 0.68 million, security expense of Baht 0.97 million and depreciation of Baht 1.99 million. Whereas retirement benefit decreased by Baht 13.90 million. Moreover, TARCO had higher loss from exchange rate of Baht 14.34 million than last year. 1.2.3 Interest Expenses The Company had the interest expenses in 2005 of Baht 38.01 million which comprised of interest from long term loan from KBANK of Baht 800 million amounted to Baht 37.20 million and interest from financial lease of Baht 0.81 million. 1.3 Operating Results Net profit for the year ended December 31, 2005 was Baht 417.57 million, increasing by Baht 54.07 million or 14.88% from last year of Baht 363.50 million as a result of various factors as discussed above. The company had an earning per share of Baht 1.06. The Board of Directors' Meeting No.1/2006 held on February 22, 2006 resolved to pay dividend from the second half of 2005's performance at the rate of Baht 0.37 per share accounted for Baht 157.25 million. The Company fixed the share registration book closing date for the right to receive dividend on May 3, 2006 at 12.00 hr. and fixed the dividend payment date to be May 19, 2006. Beside this dividend payment, BAFS paid interim dividend of Baht 0.25 per share on September 6, 2005 which altogether would be a dividend payment in 2005 of Baht 0.62 per share or Baht 263.50 million accounted for payout ratio of 63.10% of net profit. 2.Report and Analysis of Financial Status 2.1 Assets As at December 31, 2005, the Company and its subsidiaries had total assets in the amount of Baht 6,649.92 million, increased by Baht 2,077.92 million or 45.45% 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 414.99 million in 2004 to Baht 351.06 million in 2005 or decreasing by Baht 63.93 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 488.77 million from net profit of Baht 417.57 million adjusted with cash inflow items such as depreciation of Baht 76.44 million, increase in retirement benefit of Baht 26.79 million, unrealized loss from exchange rate of Baht 12.14 million and increase in other current liabilities of Baht 13.81 million which mainly were account payable from construction of the Company and its subsidiaries. Cash outflow items comprised of reversal of allowance for doubtful debt of Baht 15.41 million from debt repayment from FPT, increase in account payable of Baht 15.20 million, increase in other current assets of Baht 17.14 million and decrease in account payable of Baht 10.92 million. - Cash flow from investment was Baht 1,906.63 million comprised of investment in Depot and Into-plane of Baht 989.34 million, investment in Hydrant of TARCO of Baht 531.04 million, investment in Pipeline transportation from Mukkasan to Suvarnabhumi Airport of JP-One of Baht 387.46 million and payment of liability under agreement to purchase rights of claim of Baht 17.30 million. Besides, the Company and its subsidiaries had cash inflow from capital injection from minority shareholders of JP-One of Baht 120 million and decrease in loan to and long-term receivable from related company of Baht 15.41 million. - Cash flow from financing was Baht 1,353.93 million. The Company had increase in long term loan of Baht 926 million to invest in Depot and Into-plane Projects whereas TARCO drew long term loan from US Dollar portion of USD 3.70 million and from THB portion of Baht 358 million causing increase in long term loan of Baht 516.70 million. Furtheremore, there was dividend payment of Baht 140.25 million. 2.1.2 Property, leasehold improvement and equipment was Baht 5,272.01 million comprised of the Company's property, leasehold improvement and equipment of Baht 3,064.15 million and TARCO's and JP-One's construction in progress of Baht 1,544.50 and 663.18 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, 2005, the Company and its subsidiaries had total liabilities of Baht 4,213.69 million, increased Baht 1,683.77 million or 66.55% compared to that of last year resulted in debt to equity ratio of 1.73 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Account payable of Baht 42.93 million which comprised of account payable-related company of Baht 27.88 million which was airport concession fee collected from oil suppliers to pass to Airports of Thailand Plc. and account payable - others of Baht 15.05 million. 2.2.2 Other current liabilities of Baht 247.81 million which comprised of major items such as accrued corporate income tax of Baht 52.41 million and others of Baht 156.18 million which mainly were account payable from construction of the Company and its subsidiaries. Other current liabilities decreased Baht 21.47 million from last year. 2.2.3 Retention was Baht 354.87 million, comprised of the Company's retention of Baht 196.01 million, TARCO's retention of Baht 109.51 million and JP-One's retention of Baht 49.34 million. 2.2.4 Long term loan from bank of Baht 3,441.93 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 4.65% fixed, and 3 years grace period. - The second portion of Baht 1,602 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 third portion was TARCO's loan for construction of Hydrant of Baht 969.93 million from BBL with a total credit facility of USD 8 million at the rate of Libor+1.75% and Baht 700 million at the rate of 3- month Fixed Deposit Rate +1.75%. The loan has 10 years time to maturity starting from 2002 and a grace period of 5 years. - The remaining portion was JP-One loan for construction of Pipeline transportation from Mukkasan to Suvarnabhumi Airport of Baht 70 million from BBL with a total long term credit facility of Baht 120 million at the rate of MLR-2.50%. The interest rate will increase 0.25% every 6 month from contract date on December 1, 2005 until reach MLR-1%. A grace period is up to December 30, 2007 and the loan has approximately 7 years time to maturity. 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, 2005, shareholders' equity was Baht 2,436.22 million, increasing from last year by Baht 394.16 million due to the company's net profit of 2004 of Baht 417.57 million and the dividend payment paid from the second half performance of 2004 and the first half performance of 2005 of approximately Baht 140.25 million and minority interest of Baht 116.84 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 2005 of Baht 19.19 million resulting from interest income of Baht 0.38 million, administrative expenses of Baht 7.43 million and loss from exchange rate of Baht 12.14 million. TARCO had retained loss in 2005 of Baht 39.75 million. At the end of 2005, TARCO had liabilities in Thai Baht Currency of Baht 685 million and liabilities in US Dollar Currency of USD 6.92 million. TARCO had registered and paid up capital of Baht 530 million. The Company has contingent liability from providing a bank guarantee to JP-One for a proportion of 50% of outstanding amount from total long term loan facility of Baht 120 million. JP-One had net loss in 2005 of Baht 2.60 million resulting from interest income of Baht 2.70 million and administrative expenses of Baht 5.30 million. JP-One had retained loss in 2005 of Baht 7.61 million. As of December 31, 2005, JP-One had registered and paid-up capital of Baht 600 million. Please be informed accordingly. Respectfully yours, (M.R. Supadis Diskul) Managing Director