SET Announcements

No. MD. 198/2006 November 9, 2006 Re:Management Discussion and Analysis For the Three Month Period Operating Results ended September 30, 2006 To:President The Stock Exchange of Thailand Management Discussion and Analysis For the Three Month Period Operating Results ended September 30, 2006 1. Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In Q3/2006, services income of the company was Baht 293.47 million, slightly increasing by Baht 0.50 million or 0.17% compared to that of the last year despite the increase in service fee from 2.58 Baht to 2.74 Baht, increasing by 6%, since July 1, 2006. It was a result of slightly increase in volume of fuel serviced only 13.30 million litres or 1.30% to 1,034.72 million litres comprised of Donmuang volume of 1,001.24 million litres and Suvarnabhumi volume of 33.48 million litres for the 3-day operation since the opening of Suvarnabhumi Airport on September 28, 2006. The Company gained market share of refueling service of approximately 91%. Furthermore, Thai Baht has been appreciated against US Dollar in Q3/2006 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 41.32 per US Dollar in Q3/2005 to Baht 37.61 per US Dollar in Q3/2006 which accounted for 8.98% appreciation. 1.1.2 Rental Income The rental income of Q3/2006 was Baht 8.27 million which comprised of land, office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 7.55 million and land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht.0.72 million. The rental income decreased Baht 2.47 million or 23.03% from last year. The decrease in rental income was due to the decrease in pipeline receiving system rental to FPT of Baht 2.80 million. 1.1.3 Other Income Other income in Q3/2006 was Baht 14.79 million, mostly comprised of interest income from short term investment of Baht 1.66 million, interest income from FPT of Baht 1.13 million, principal repayment as specified in the repayment schedule of the third debt restructuring and principal prepayment received from FPT of approximately Baht 2.21 million. Besides, there was guarantee fee from TARCO of Baht 2.66 million and guarantee fee from JP-One of Baht 0.09 million. Besides, there was gain from exchange rate of TARCO of Baht 5.30 million recorded from the depreciation of the outstanding US Dollar loan. 1.2 Expenses 1.2.1 Cost of Services In Q3/2006, cost of services was Baht 95.61 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 5.55 million, utilities of Baht 3.90 million, insurance expenses comprised of all risk insurance of Baht 2.77 million and third party legal liability insurance of Baht 4.08 million, depreciation of Baht 9.73 million, salary of Baht 21.13 million and overtime of Baht 4.70 million. Besides, there was retirement benefit recorded as cost of service of Baht 5.15 million. When comparing to Q3/2005, cost of services increased only Baht 13.14 million or 15.93%. Major increase expenses were maintenance of Baht 1.04 million, utilities of Baht 1.65 million, airport concession fee of Baht 1.76 million, salary of Baht 2.45 million, overtime of Baht 2.39 million and retirement benefit of Baht 6.39 million. Other than increasing expenses, the major decreasing expense was depreciation of Baht 5.36 million. 1.2.2 Administrative Expenses Administrative expenses was Baht 52.07 million, comprised of salary of Baht 15.37 million, retirement benefit of Baht 7.21 million, depreciation of Baht 3.56 million and computer supplies of Baht 2.70 million. The Administrative expenses Increased by Baht 13.46 million or 34.87% from Q3 of last year due to the increase in major expenses such as salary of Baht 2.07 million and retirement benefit of Baht 8.25 million. 1.2.3 Interest Expenses The Company had the interest expenses in Q3/2006 of Baht 9.54 million which comprised of the interest from long term loan from KBANK of Baht 800 million of Baht 9.38 million and interest from financial lease of Baht 0.16 million. 1.3 Operating Results Net profit for the third quarter ended September 30, 2006 was Baht 108.61 million, decreasing by Baht 30.10 million or 21.70% from Q3/2005 of Baht 138.71 million as a result of various factors as discussed above and the earning per share was Baht 0.25. From the Company's operating results for the nine-month period ended September 30, 2006, the Company had net profit of Baht 336.69 million, decreasing Baht 9.57 million or 2.76% from the same period last year, and had earning per share of Baht 0.79. 2. Report and Analysis of Financial Status 2.1 Assets As at September 30, 2006, the Company and its subsidiaries had total assets in the amount of Baht 6,990.88 million, increased by Baht 166.01 million or 2.43% from that of Q2/2006. The important details are as follows: 2.1.1 Cash and cash equivalent decreased from Baht 223.46 million at the end of Q2/2006 to Baht 209.94 million as at Q3/2006 or decreasing by Baht 13.52 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 97.37 million from net profit of Baht 108.61 million, adjusted with cash inflow items such as depreciation of Baht 14.29 million, increase in reserve for retirement benefit of Baht 7.08 million and decrease in other current assets of Baht 4.82 million. Cash outflow items comprised of reversal of allowance for doubtful account of Baht 2.21 million, unrealized gain from exchange rate of Baht 6.08 million,increase in account receivable of Baht 9.63 million, decrease in account payable of Baht 4.70 million and decrease in other current liabilities of Baht 15.27 million. - Cash flow from investment was Baht 159.53 million comprised of BAFS' investment in Depot, Into-plane including acquisition and improvement of dispenser and others of approximately Baht 80 million, investment in Hydrant of TARCO of Baht 59.62 million, investment in Pipeline transportation from Mukkasan to Suvarnabhumi Airport of JP-One of Baht 18.77 million. - Cash flow from financing was Baht 48.64 million. The Company had increase in long term loan of Baht 135 million of which Baht 30 million was drown by BAFS to invest in Depot and Into-plane Projects whereas TARCO had increase in long term loan of Baht 49.46 million from drawing long term loan from THB portion of Baht 55 million as well as unrealized exchange gain of Baht 5.30 million due to Baht appreciation causing TARCO's long term loan to increase less than draw-down amount. Moreover, JP-One has drawn Baht 50 million for its pipeline investment. Finally, there was dividend payment from the first half of 2006 performance of Baht 85 million. 2.1.2 Property, leasehold improvement and equipment was Baht 5,749.16 million comprised of the Company's property, leasehold improvement and equipment of Baht 3,331.75 million and TARCO's and JP-One's property and equipment of Baht 1,724.43 million and 693.03 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. 2.2 Liabilities As at September 30, 2006, the Company and its subsidiaries had total liabilities of Baht 4,092.37 million, decreased Baht 225.17 million or 5.22% compared to that of the end of Q2/2006 resulted in debt to equity ratio of 1.62 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Account payable of Baht 35.79 million which comprised of account payable- related company of Baht 25.32 million which was airport concession fee collected from oil suppliers to pass to Airports of Thailand Plc. and account payable - others of Baht 10.47 million. 2.2.2 Current portion of long term loan from bank of Baht 177.78 million which was loan from KBANK for the whole amount, Baht 88.89 million of which will be due in February 2007 and the rest will be due in August 2007. 2.2.3 Other current liabilities of Baht 153.73 million which comprised of major items such as accrued corporate income tax of Baht 29.28 million and others of Baht 90.21 million which mainly were account payable from construction of the Company and its subsidiaries. Other current liabilities increased Baht 6.78 million from last quarter. 2.2.4 Retention was Baht 364.17 million, comprised of the Company's retention of Baht 195.11 million, TARCO's retention of Baht 119.83 million and JP-One's retention of Baht 49.28 million. 2.2.5 Long term loan from bank of Baht 3,578.32 million - The first portion of Baht 622.22 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 in February 2007. - The second portion of Baht 1,750 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 1,086.10 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 120 million from BBL 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 Q3/2006 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 Shareholder's Equity As at September 30, 2006, shareholders' equity was Baht 2,529.41 million, increasing from last quarter by Baht 22.08 million due to the company's net profit of Q3/2006 of Baht 108.61 million and the dividend payment of Baht 85 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 Q3/2006 of Baht 4.66 million resulting from services income of Baht 4.80 million, gain from exchange rate of Baht 5.30 million, cost of services of Baht 0.57 million, administrative expenses of Baht 2.65 million and corporate income tax of Baht 11.54. TARCO had retained loss as at Q3/2006 of Baht 29.45 million. At the end of Q3/2006, TARCO had liabilities in Thai Baht Currency of Baht 785 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 Q3/2006 of Baht 2.15 million resulting from interest income of Baht 0.03 million and administrative expenses of Baht 2.19 million. JP-One had retained loss in Q3/2006 of Baht 12.28 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 Investor Relations Section Tel 02-565-3811-8 ext.373