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MD.137/2007 August 8, 2007 Re: Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2007 To: President The Stock Exchange of Thailand Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2007 1. Report and Analysis of the Operating Results For the three months period ended June 30, 2007 the Company and subsidiaries have earned a consolidated net income of Baht 153.16 million as compared to net income of Baht 101.06 million earned during the same period in 2006 which is increasing by 52%. The main reasons for changes are as follows: 1.1 Revenue 1.1.1 Services Income In 2nd Quarter, 2007 total income of the consolidated financial statement of company's group was Baht 544.45 million, increasing by Baht 250.69 million or 85% compared to that of the last year. There are major factors influent the increasing in total income of company's group which are increasing in services income by 96% to Baht 527.46 million as consequence of increased in volume of fuel serviced by 7.7% (y-o-y) to 1,103.2 million litres and the increased in refueling fee at Suvarnabhumi Airport and Donmung Airport. Moreover, in this quarter, TARCO JP-One and IPS had services income at Baht 144.14 million, Baht 20.50 million and Baht 1.02 million respectively. 1.1.2 Rental Income The rental income of the consolidated financial statement of company's group was Baht 4.60 million for this quarter , decreasing by Baht 3.61 million or 79% compared to that of the last year. Which main reason is sharply decreased in rental of pipeline receiving system of FPT despite the rental of pipeline receiving system from THAPPLINE was compensated but it's still very low when compared with the earlier. 1.1.3 Other Income Other income of the consolidated financial statement of company's group was Baht 12.40 million, decreasing by Baht 3.5 million or 22% compared to that of the last year. Mostly comprised of interest income from FPT of Baht 1.11 million, interest income from short term investment of -1- Baht 5.42 million, guarantee fee from TARCO and JP-One at rate of 1% of outstanding loan of Baht 3.01 million, gain from exchange rate of company's group of Baht 3.53 million and principal repayment as specified in the repayment schedule of the third debt restructuring and principal prepayment received from FPT of Baht 2.61 million. Besides that for this quarter, BAFS received dividend income from first half of 2007 of TARCO's operation at the amount of Baht 39.59 million. 1.2 Expenses 1.2.1 Cost of Services For the consolidated financial statement of company's group in 2nd quarter, 2007, cost of services was Baht 203.19 million, increasing by Baht 110.17 million or 118% compared to that of the last year. Major items which increased cost of services are a) increasing in refueling concession fee charged at Suvarnabhumi Airport from Airports of Thailand Plc. (AOT) at rate of Baht 0.06 per liter which would be varies by volume of fuel services of Baht 56.94 million b) increasing in depreciation at Suvarnabhumi Airport of Baht 37.98 million. Besides, there were cost of services of TARCO and JP-One of Baht 25.03 million and Baht 13.43 million respectively. Although, pipeline rental charged from AOT for this quarter decreasing by Baht 18.71 million. 1.2.2 Administrative Expenses Administrative expenses for the consolidated financial statement of company's group in 2nd quarter, 2007, was Baht 66.15 million, increasing by Baht 9.66 million or 17% compared to that of the last year. Which are comprised of increasing in employee expenses of BAFS of Baht 2.03 million, increasing in depreciation of Baht 4.06 million, increasing in computer and equipment expense of Baht 2.01 million and increasing in security service expense of Baht 1.24 million. However, advertising and promotion expenses for this quarter was decreased by Baht 4.11 million. Moreover, the administrative expenses of TARCO and JP-One of Baht 8.56 million and Baht 2.67 million respectively. 1.2.3 Interest Expenses The interest expenses for the consolidated financial statement of company's group in 2nd quarter, 2007 was Baht 46.66 million which increasing by Baht 37.2 million when compared to that of the last year. Mainly comprised of interest payment for long term loan of BAFS at amounted of Baht 29.18 million and interest payment for financial lease amounted to Baht 0.33 million. Besides that the interest expenses of long term loan and interest payment for financial lease of TARCO and JP-One are Baht 15.55 million and Baht 1.61 million respectively. 1.3 Operating Results Net profit for the three months period ended June 30, 2007 of BAFS and subsidiaries was Baht 153.16 million which is equivalent an earning per -2- share of Baht 0.33, increasing by Baht 52.10 million or 52% from the same period of last year of Baht 101.06 million as a result of various factors as discussed above. For the company only, net profit was Baht 142.30 million. Which the different in net profit in consolidated financial statement and net profit of company only is related from changing in accounting policies for the record of investment in company's group's subsidiaries to comply with the Accounting Standard no 44 (Revised 2007) "Consolidated Financial Statement and Accounting for investments in Subsidiaries". Moreover the Board of Directors' Meeting No.3/2007 held on August 8, 2007 resolved to pay interim dividend from the first half of 2007's performance at the rate of Baht 0.20 per share or totaling Baht 102 million accounted to 45% 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. 2. Report and Analysis of Financial Status 2.1 Assets As at June 30, 2007 the Company's group had total assets in the amount of Baht 7,480.28 million, decreased by Baht 46.77 million or 0.6% from that of last quarter. The important details are as follows: 2.1.1 Cash, cash equivalent and short term investment of the Company's group is Baht 668.77 million. The details of important sources and uses of cash and short term investment are as follows: - The Company's group had cash flow from operations of Baht 232.57 million from consolidated net profit of 2nd Quarter, 2007 of Baht 153.16 million adjusted with cash inflow items such as depreciation and amortization of Baht 78.50 million, decreased in reversal of allowance for doubtful accounts of Baht 2.61 million, decreased in retirement benefit of Baht 2.90 million, decrease in account receivable of Baht 20.12 million. And increased in account payable and Goodwill amortization of Baht 2.94 million and Baht 6.38 million respectively. - Cash outflow items comprised of reversal of unrealized gain from exchange rate of Baht 1.94 million and decrease in other current liabilities of Baht 32.38 million. - Cash flow used in investment was Baht 168.69 million mainly comprised of investment in property, leasehold improvement and equipment of Baht 149.38 million and prepaid for construction of Baht 21.92 million. Besides, loan to and long-term receivable from related company's group in this quarter decreased of Baht 2.6 million. - Cash flow used in financing was Baht 96.64 million which mainly was dividend payment for 2nd half of 2006 operation. 2.1.2 Property, leasehold improvement and equipment was Baht 5,717.2 million comprised of BAFS's property, leasehold improvement and equipment of Baht 3,348.8 million and TARCO's and JP-One's of Baht 1,691.2 million and 684.4 million, respectively. -3- 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 June 30, 2007 the goodwill was Baht 748.65 million. 2.2 Liabilities As at June 30, 2007, the Company's group had total liabilities of Baht 4,574.1 million, decreased Baht 110.55 million or 2.4% compared to that of last quarter resulted in debt to equity ratio of 1.57 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Account payable of Baht 41.6 million which comprised of account payable - related company's group of Baht 33.5 million and account payable - others of Baht 8.1 million. 2.2.2 Portion of long term loan which to be paid of Baht 387.5 million which are comprised of long term loan which to be paid for the company of Baht 277.78 million, TARCO's long term loan which to be paid of Baht 97.73 million and JP-One's long term loan which to be paid of Baht 12 million. Besides that the financial lease which to be paid in one year was Baht 9.3 million. 2.2.3 Retention was Baht 179.7 million, comprised of the Company's retention of Baht 97.12 million, TARCO's retention of Baht 58.20 million and JP-One's retention of Baht 24.41 million. 2.2.4 Other current liabilities of Baht 161.73 million which comprised of major items such as accrued corporate income tax of Baht 88.57 million, other account payable of Baht 34.44 million and others of Baht 38.71 million. 2.2.5 Long term loan from bank of Baht 3,590.94 million decreased Baht 90.42 million or 2.5% compared to that of last quarter which comprised of : - The first portion of Baht 533.33 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 1,900 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 1,049.61 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 -4- additional loan of Baht 170 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%. - The remaining portion was JP-One loan at amount of Baht 108 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. 2.3 Shareholders' Equity As at June 30, 2007, shareholders' equity of the Company's group was Baht 2,906.18 million, increasing from last quarter by Baht 63.8 million or 2.2%. 3. Major factors that may affect operating performance or financial status The Company's group 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's group 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 the second quarter of 2007 of Baht 69.27 million which was net profit margin at 48%. Resulting from services income of Baht 144.14 million, cost of services and administrative expenses of Baht 25.03 million and Baht 5.70 million respectively. Besides, gain from exchange rate in this quarter was of Baht 3.52 million. Moreover, 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. JP-One had net profit in the second quarter of 2007 of Baht 3.15 million which was net profit margin at 15%. Resulting from services income of Baht 20.50 million compared with cost of services and administrative expenses was of Baht 16.16 million. Please be informed accordingly. Yours sincerely, (M.R. Supadis Diskul) Managing Director Legal and Securities Division Tel 02-565-3811-8 ext.373 -5-