SET Announcements

No. MD.025/2007 February 22, 2007 Re: Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2006 To: President The Stock Exchange of Thailand Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2006 1. Report and Analysis of the Operating Results 1.1 Revenue 1.1.1 Services Income In 2006, services income of the company was Baht 1,421.08 million, increasing by Baht 281.70 million or 24.7% compared to that of the last year. There are three major factors influent the services income which are 1) Increasing in volume of fuel serviced, in 2006, the company had volume of fuel serviced of 4,270.62 million litres, growing around 200 million litres from 4,070.40 million litres or 5% from 2005 in parallel with aviation business in general and closing to the company's expectation serviced growth rate. 2) Increased in refueling fee in Donmung Airport from US. Cent 2.58 per gallon to US. Cent 2.74 per gallon in July 1, 2006 and rising to US. Cent 6 per gallon in December 1, 2006 respectively. Leading the refueling fee accrued to 132.6% year on year change. 3) The opening of Suvarnabhumi Airport on September 28, 2006 which the company gained market share of refueling services approximately 90%. In the fourth quarter of 2006, both of the flights and passenger travel and cargo services demand increased rapidly which are positive effect to expand revenue of the company. However, the appreciation in Thai baht against US Dollar has slightly negatively affected to the company's services income since the service fees are charged in US Dollar based. Thai Baht strengthen against US Dollar from the average rate of Baht 40.36 per US Dollar in 2005 to Baht 37.80 per US Dollar in 2006 which accounted for 6.35% appreciation. 1.1.2 Rental Income The rental income of 2006 was Baht 30.37 million which comprised of office and pipeline receiving system rental to Fuel Pipeline Transportation Limited (FPT) of Baht 27.48 million and land and utilities system rental to Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) of Baht 2.89 million. The rental income decreased Baht 13.56 million or 30.9% from last year. The decrease in rental income was due to the decrease in pipeline receiving system rental to FPT since decrease in volume of fuel transported at fuel depot at Donmuang Airport according to relocating primary airport to Suvarnabhumi Airport. 1.1.3 Other Income Other income was Baht 81.13 million increasing by Baht 43.96 million or 118.2% from last year mostly comprised of interest income of Baht 12.70 million, guarantee fee received from TARCO at the rate of 1% per year of outstanding loan of each quarter totaling Baht 10.9 million, unrealized gain on TARCO's foreign exchange of Baht 36.8 million, interest received from TARCO of Baht 0.40 million, unrealized gain on JP-One's foreign exchange of Baht 0.24 million and interest received from JP-One of Baht 0.77 million. 1.2 Expenses 1.2.1 Cost of Services In 2006, cost of services was Baht 535.05 million. Major items in cost of services are refueling concession fee charged from Airports of Thailand PLC. (AOT) of Baht 63 million, pipeline rental charge from AOT of Baht 55.52 million, land rental of Baht 16.37 million, maintenance expense of Baht 24.43 million, insurance expenses comprised of all risk insurance of Baht 9.63 million and third party legal liability insurance of Baht 15.97 million, depreciation of Baht 65.37 million and salary and staff reward of Baht 141.45 million. Besides, there was retirement benefit recorded as an expense of Baht 43.85 million in 2006 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 2005, cost of services increased Baht 150 million or 38.96%. There were three major factors contributing to the increase in cost of services. The first factor was an increased in refueling concession fee at Baht 0.06 per litres charge before expense paid to AOT of Baht 63.0 million. The second was an increased in retirement benefit recorded of Baht 23.13 million and the third was an increased in company's depreciation of Baht 4.89 million and increased in TARCO's depreciation of Baht 14.69 million consecutive. Besides that pipeline rental charge paid to AOT in 2006 was decreasing by Baht 11.11 million in accordance to the exemption from AOT since September 28. For the others, there were some increased in expenses which should be mentioned such as salary and staff reward of Baht 20.81 million, fuel for vehicle of Baht 2.72 million, maintenance expense of Baht 3.72 million and cost of services of TARCO and JP-One of Baht 21.09 million and Baht 14.50 million respectively. 1.2.2 Administrative Expenses Administrative expenses was Baht 253.99 million, comprised of major items such as salary and staff reward of Baht 88.33 million, retirement benefit of Baht 18.81 million, depreciation of Baht 16.58 million, computer supplies of Baht 13.02 million and advertisement of Baht 12.63 million. Moreover, there were also administrative expenses from the company's subsidiaries which TARCO and JP-One comprised of Baht 14.55 million and Baht 7.68 million respectively. The Administrative expenses increased by Baht 33.60 million or 15.2% from the last year due to the increased in salary and staff reward of Baht 13.50 million , advertising expense of Baht 7.55 million, computer supplies of Baht 3.04 million, security expense of Baht 5.08 million and depreciation of Baht 2.14 million. Whereas retirement benefit increased by Baht 9.77 million. 1.2.3 Interest Expenses The Company had the interest expenses in 2006 of Baht 80.94 million which increasing by Baht 42.93 million or 113.0% from last year. Mainly comprised of interest payment for long term loan from KBANK of Baht 800 million amounted to Baht 37.41 million, interest payment for long term loan from BBL of Baht 2,000 million amounted to Baht 23.23 million, loan for construction of TARCO's hydrant from BBL with a total credit amount of USD 8 million and Baht 870 million amounted to Baht 17.97 million and JP-One's loan for construction of Pipeline transportation from Mukkasan to Suvarnabhumi Airport of Baht 120 million from BBL amounted to Baht 1.65 million. 1.3 Operating Results Net profit for the year ended December 31, 2006 was Baht 461.47 million, increasing by Baht 30.11 million or 10.5% from last year of Baht 417.57 million as a result of various factors as discussed above. The company had an earning per share of Baht 1.09. The Board of Directors' Meeting No.1/2007 held on February 22, 2007 resolved to pay dividend for 2006's performance at the rate of Baht 0.62 per share for 424,998,370 shares which accounted to be the total amount of Baht 263.50 million or accounted for payout ratio of 57% of net profit. According to interim dividend was paid at the rate of Baht 0.20 per share, for the rest of dividend of Baht 0.42 per share would be paid in terms of cash dividend payment of Baht 0.22 per share and in term of stock dividend shares at the ratio of 5 existing shares to 1 dividend share to the Company's shareholders which was higher than the Company's dividend payment policy to pay out the dividend of at least 50% of net profit. The Company fixed the share registration book closing date for the right to receive dividend on May 2, 2007 at 12.00 hr. and fixed the dividend payment date to be May 18, 2007. 2. Report and Analysis of Financial Status 2.1 Assets As at December 31, 2006, the Company and its subsidiaries had total assets in the amount of Baht 7,508.70 million, increased by Baht 858.78 million or 12.91% from that of last year. The important details are as follows: 2.1.1 Cash and cash equivalent and short term investment increased from Baht 351.06 million in 2005 to Baht 685.33 million in 2006 or increasing by Baht 334.27 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 555.60 million from net profit of Baht 461.47 million adjusted with cash inflow items such as depreciation of Baht 105.23 million, minority interest of Baht 11.04 million, increase in retirement benefit of Baht 54.29 million, decrease in other current asset of Baht 9.74 million and increase in other current liabilities of Baht 35.82 million. Cash outflow items comprised of reversal of unrealized gain from exchange rate of Baht 43.23 million, allowance for doubtful debt of Baht 12.04 million from debt repayment from FPT, increase in account payable of Baht 74.07 million, increase in other current assets of Baht 1.37 million . - Cash flow from investment was Baht 671.61 million mainly comprised of investment in property, leasehold improvement and equipment of Baht 413.54 million. - Cash flow from financing was Baht 450.28 million. The Company had increased in long term loan of Baht 675.28 million, increase in financial lease of Baht 17.24 million and there was dividend payment of Baht 242.25 million. 2.1.2 Property, leasehold improvement and equipment was Baht 5,771.59 million comprised of the Company's property, leasehold improvement and equipment of Baht 3,377.76 million and TARCO's and JP-One's construction in progress of Baht 1,702.20 and 691.63 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. Up to December 31, 2006 goodwill was amortized by Baht 6.66 million. 2.2 Liabilities As at December 31, 2006, the Company and its subsidiaries had total liabilities of Baht 4,842.21 million, increased Baht 628.52 million or 14.92% compared to that of last year resulted in debt to equity ratio of 1.82 : 1 time. The increment mainly was current liabilities of Baht 387.13 million increasing by Baht 90.84 million or 30.66% from last year resulted in current ratio of 2.49 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Account payable of Baht 48.12 million which comprised of account payable - related company of Baht 28.24 million which mainly was refueling airport concession fee and account payable - others of Baht 19.89 million. 2.2.2 Portion of long term loan and financial lease which to be paid of Baht 177.78 million and Baht 9.04 million respectively. 2.2.3 Other current liabilities of Baht 152.20 million which comprised of major items such as accrued corporate income tax of Baht 54.97 million, other account payable of Baht 30.71 million and others of Baht 66.52 million which mainly were account payable from construction of the Company and its subsidiaries. Other current liabilities decreased Baht 94.13 million from last year. 2.2.4 Retention was Baht 363.69 million, comprised of the Company's retention of Baht 196.64 million, TARCO's retention of Baht 118.03 million and JP-One's retention of Baht 49.07 million. 2.2.5 Long term loan from bank of Baht 3,902.07 million comprised of : - 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 second portion of Baht 2,000 million was long term loan from BBL 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 1.159.85 million from BBL with a total credit amount 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 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 Shareholder's Equity As at December 31, 2006, shareholders' equity was Baht 2,666.49 million, increasing from last year by Baht 230.27 million or 9.45% due to the company's net profit of 2006 of Baht 461.47 million and the dividend payment paid from the second half performance of 2005 and the first half performance of 2006 of approximately Baht 245.25 million and minority interest increasing of Baht 11.04 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 870 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 2006 of Baht 113.10 million resulting from services income of Baht 166.17 million, cost of services of Baht 21.09 million, administrative expenses of Baht 14.55 million, interest expense of Baht 17.97 million and unrealized gain from exchange rate of Baht 36.81 million. At the end of 2006, TARCO had retained profit of Baht 73.35 million and liabilities in Thai Baht Currency of Baht 870 million and liabilities in US Dollar Currency of USD 8 million which registered and paid up capital was 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 2006 of Baht 0.68 million resulting from services income of Baht 22.56 million, cost of services of Baht 14.50 million, administrative expenses of Baht 7.86 million. As of December 31, 2006, JP-One had retained loss of Baht 8.30 million and registered and paid-up capital was Baht 600 million. Please be informed accordingly. Respectfully yours, (M.R. Supadis Diskul) Managing Director Legal and Securities Division Tel 02-565-3811-8 ext.373