SET Announcements

No. MD. 110/2006 August 10, 2006 Re:Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2006 To:President The Stock Exchange of Thailand Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2006 1. Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In Q2/2006, services income of the company was Baht 269.62 million, decreasing by Baht 8.14 million or 2.93% 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 Q2/2006, the company had volume of fuel serviced of 1,024.76 million litres, increasing 33.47 million litres or 3.38% from Q2/2005. The other important factor accounted for the movement of services income is the exchange rate. Thai Baht has been appreciated against US Dollar in Q2/2006 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 40.44 per US Dollar in Q2/2005 to Baht 37.92 per US Dollar in Q2/2006 which accounted for 6.23% appreciation. Together with the increase in volume serviced of 3.38%, the services income increased by 2.93%. 1.1.2 Rental Income The rental income of Q2/2006 was Baht 8.21 million which comprised of land, office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 7.79 million and land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht. 0.41 million. The rental income decreased Baht 1.46 million or 15.12% from last year. The decrease in rental income was due to the decrease in pipeline receiving system rental to FPT of Baht 1.62 million which charged at a variable rate referenced to FPT's Jet A-1 transportation revenue according to the decrease in volume of fuel transported of 39.47% from Q2 of last year. 1.1.3 Other Income Other income in Q2/2006 was Baht 15.93 million, mostly comprised of interest income from short term investment of Baht 1.93 million, interest income from FPT of Baht 1.14 million, principal repayment as specified in the repayment schedule of the third debt restructuring and principal prepayment received from FPT of approximately Baht 4.13 million. Besides, there was guarantee fee from TARCO of Baht 2.48 million and guarantee fee from JP-One of Baht 0.09 million. Besides, there was gain from exchange rate of TARCO of Baht 4.26 million recorded from the depreciation of the outstanding US Dollar loan. 1.2 Expenses 1.2.1 Cost of Services In Q2/2006, cost of services was Baht 93.02 million. Major items in cost of services are pipeline rental charge from Airports of Thailand PLC. (AOT) of Baht 18.71 million , land rental of Baht 4.59 million, maintenance expense of Baht 4.49 million, utilities of Baht 3.87 million, insurance expenses comprised of all risk insurance of Baht 1.97 million and third party legal liability insurance of Baht 4.08 million, depreciation of Baht 10.59 million, salary of Baht 21.22 million and overtime of Baht 6.45 million. Besides, there was retirement benefit recorded as cost of service of Baht 4.22 million. When comparing to Q2/2005, cost of services increased only Baht 1.07 million or 1.16%. The increase in cost of services was in normal level. Some major increased expenses that would worth mentioned were the increase in salary of Baht 2.5 million, overtime of Baht 1.29 million and utilities of Baht 1.8 million. Other than increasing expenses, there were important decreasing expenses which were depreciation expense of Baht 4.81 million and retirement benefit of Baht 1 million. 1.2.2 Administrative Expenses Administrative expenses was Baht 56.48 million, comprised of salary of Baht 15.07 million, real-estate taxes of Baht 4.97 million, advertising and public relations expenses of Baht 5.81 million, retirement benefit of Baht 2.34 million, depreciation of Baht 3.57 million and computer supplies of Baht 1.83 million. The Administrative expenses decreased by Baht 9.37 million or 14.23% from Q2 of last year due to decrease in foreign exchange loss of BAFS of Baht 11.95 million, decrease in foreign exchange loss of TARCO of Baht 11.89 million from the US dollar loan of USD 8 million. When THB appreciated against USD, TARCO incurred exchange gain instead of loss in Q2/2005. Moreover there was a decrease in retirement benefit of Baht 1.78 million. However, there were some increasing expenses such as salary of Baht 1.82 million, advertising and public relations of Baht 5.08 million and real-estate taxes of Baht 4.97 million. 1.2.3 Interest Expenses The Company had the interest expenses in Q2/2006 of Baht 9.46 million which comprised of the interest from long term loan from KBANK of Baht 800 million of Baht 9.27 million and interest from financial lease of Baht 0.19 million. 1.3 Operating Results Net profit for the second quarter ended June 30, 2006 was Baht 101.06 million, increasing by Baht 9.60 million or 10.5% from Q2/2005 of Baht 91.46 million as a result of various factors as discussed above and the earning per share was Baht 0.24. From the Company's operating results for the six-month period ended June 30, 2006, the Company had net profit of Baht 228.08 million, increasing Baht 20.53 million or 9.89% from the same period last year, and had earning per share of Baht 0.54. The Board of Director's Meeting No.4/2006 held on August 10, 2006 resolved to pay interim dividend from the first half of 2006's performance at the rate of Baht 0.20 per share or totaling Baht 85 million accounted to 37% of dividend payout ratio which was lower than the Company's dividend payment policy to pay out the dividend of at least 50% of net profit. Since the Company has to maintain financial liquidity for the future operations until Suvarnabhumi Airport commercially open with its full capacity. 2. Report and Analysis of Financial Status 2.1 Assets As at June 30, 2006, the Company and its subsidiaries had total assets in the amount of Baht 6,824.87 million, increased by Baht 10.66 million or 0.16% from that of Q1/2006. The important details are as follows: 2.1.1 Cash and cash equivalent decreased from Baht 303.19 million at the end of Q1/2006 to Baht 223.46 million as at Q2/2006 or decreasing by Baht 79.73 million. The details of important sources and uses of cash and cash equivalent are as follows: - The Company and its subsidiaries had cash flow from operations of Baht 100.69 million from net profit of Baht 101.06 million, adjusted with cash inflow items such as depreciation of Baht 14.51 million, increase in retirement benefit of Baht 3.6 million, decrease in account receivable of Baht 16.94 million and decrease in other current assets of Baht 7.41 million. Cash outflow items comprised of reversal of allowance for doubtful account of Baht 4.13 million, unrealized gain from exchange rate of Baht 5.47 million and decrease in other current liabilities of Baht 33.22 million. - Cash flow from investment was Baht 163.91 million mainly comprised of investment in Depot and Into-plane of Baht 79 million, investment in Hydrant of TARCO of Baht 49.12 million, investment in Pipeline transportation from Mukkasan to Suvarnabhumi Airport of JP-One of Baht 17.95 million. - Cash flow from financing was Baht 16.52 million. The Company had increase in long term loan of Baht 142.16 million of which Baht 90 million was drown by BAFS to invest in Depot and Into-plane Projects whereas TARCO had increase in long term loan of Baht 47.69 million from drawing long term loan from US Dollar portion of USD 0.58 million and from THB portion of Baht 30 million as well as unrealized exchange gain of Baht 4.26 million due to Baht appreciation causing TARCO's long term loan to decrease. Moreover, there was dividend payment of Baht 157.25 million. 2.1.2 Property, leasehold improvement and equipment was Baht 5,566.28 million comprised of the Company's property, leasehold improvement and equipment of Baht 3,251.14 million and TARCO's and JP-One's work in progress of Baht 1,636.91 million and 675.47 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 June 30, 2006, the Company and its subsidiaries had total liabilities of Baht 4,317.54 million, increased Baht 67.38 million or 1.59% compared to that of the end of Q1/2006 resulted in debt to equity ratio of 1.72 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Account payable of Baht 40.48 million which comprised of account payable - related company of Baht 30.67 million which was airport concession fee collected from oil suppliers to pass to Airports of Thailand Plc. and account payable - others of Baht 9.81 million. 2.2.2 Other current liabilities of Baht 146.95 million which comprised of major items such as accrued corporate income tax of Baht 55.37 million and others of Baht 64.68 million which mainly were account payable from construction of the Company and its subsidiaries. Other current liabilities decreased Baht 80.20 million from last quarter. 2.2.3 Retention was Baht 357.67 million, comprised of the Company's retention of Baht 195.81 million, TARCO's retention of Baht 112.52 million and JP-One's retention of Baht 49.34 million. 2.2.4 Long term loan from bank of Baht 3,488.95 million (including current portion of long term loan) 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 Company will repay the first installment of Baht 88.89 million in February 2007. - The second portion of Baht 1,720 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 1,036.64 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. Moreover, TARCO had additional loan of Baht 300 million from BBL with the interest rate of MLR-2.50%. The interest rate will increase 0.25% every 6 month from contract date on May 2, 2006 until reach MLR-1.5%. A grace period is 4 years and the loan has approximately 8 years time to maturity. The additional loan would be used to invest in additional work as expanded by AOT. - 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. The interest rate at the end of Q2/2006 was MLR - 2.25% 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, 2006, shareholders' equity was Baht 2,507.32 million, decreasing from last quarter by Baht 56.73 million due to the company's net profit of Q2/2006 of Baht 101.06 million and the dividend payment of Baht 157.25 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 1,000 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 profit in Q2/2006 of Baht 1.50 million resulting from gain from exchange rate of Baht 4.26 million and administrative expenses of Baht 2.99 million. TARCO had retained loss as at Q2/2006 of Baht 24.80 million. At the end of Q2/2006, TARCO had liabilities in Thai Baht Currency of Baht 730 million and liabilities in US Dollar Currency of USD 8 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 Q2/2006 of Baht 1.41 million resulting from interest income of Baht 0.15 million and administrative expenses of Baht 1.57 million. JP-One had retained loss in Q2/2006 of Baht 10.12 million. JP-One had registered and paid-up capital of Baht 600 million. Please be informed accordingly. Respectfully yours, (M.R. Supadis Diskul) Managing Director