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MD. 031 / 2008 February 25, 2008 Re: Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2007 To: President The Stock Exchange of Thailand Management Discussion and Analysis For the One Year Period Operating Results ended December 31, 2007 1. Report and Analysis of the Operating Results For the results of operations of the year 2007, Bangkok Aviation Fuel Services Plc. or BAFS and its subsidiaries' net profit was Baht 543.3 million as compared to net income of Baht 461.5 million earned during the same period in 2006 which is increasing by 17.7%. The main reasons for changes are as follows: 1.1 Revenue For the year 2007, total revenues of BAFS and its subsidiaries amounted to Baht 2,258.1 million, an increase of Baht 725.5 million or 47.3% when compared with that for the last year which details are follows. 1.1.1 Services Income In 2007, services income of BAFS and its subsidiaries amounted to Baht 2,186.2 million, an increase of 53.8% when compared with that for the last year. Which the major factors influent the increasing in services income of company's group were increased in volume of fuel serviced by 7.4% (y-o-y) to 4,588 million litres when compared with that for the last year. Moreover, in 2007, TARCO, JP-One and IPS had services income at Baht 610.3 million, Baht 87.8 million and Baht 4.6 million respectively. 1.1.2 Rental Income The rental income of the consolidated financial statement of company's group was Baht 20.2 million for the year 2007, decreasing by Baht 10.2 million or 33.5% 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 51.7 million, decreasing by Baht 29.4 million or 36.3% compared to that of the last year. Mostly comprised of principal repayment as specified in the repayment schedule of debt restructuring and principal prepayment received from FPT of Baht 12.2 million, interest income from short term investment of Baht 17.2 million,guarantee fee from TARCO and JP-One at rate of 1% of outstanding loan of Baht 12.1 million and unrealized FX gain of Baht 14.6 million. Moreover for this year, BAFS received dividend income from TARCO's operation at the amount of Baht 111.6 million. 1.2 Expenses 1.2.1 Cost of Services For the consolidated financial statement of company's group in 2007, cost of services was Baht 915.2 million, increasing by Baht 380.2 million or 71.1% compared to that of the last year. Major items which increased cost of services are 1) 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 239.4 million 2) depreciation and amortization of Baht 322.3 million. Besides, there were cost of services of TARCO and JP-One of Baht 110.2 million and Baht 54.9 million respectively. 1.2.2 Administrative Expenses Administrative expenses for the consolidated financial statement of company's group in 2007, was Baht 299.3 million, increasing by Baht 45.3 million or 17.8% compared to that of the last year.Which are comprised of increasing in depreciation of Baht 16.2 million. Moreover, the administrative expenses of TARCO and JP-One of Baht 25.5 million and Baht 11.7 million respectively. 1.2.3 Interest Expenses The interest expenses for the consolidated financial statement of company's group in 2007 was Baht 186.2 million which increasing by Baht 105.2 million or 130.0% when compared to that of the last year. Mainly comprised of interest payment for long term loan of BAFS at amounted of Baht 117.0 million and interest payment for financial lease amounted to Baht 1.5 million. Besides that the interest expenses of long term loan and interest payment for financial lease of TARCO and JP-One are Baht 61.2 million and Baht 6.5 million respectively. 1.3 Operating Results Net profit for 2007 of BAFS and its subsidiaries was Baht 543.3 million increasing by Baht 81.9 million or 17.7% from last year of Baht 461.5 million which is equivalent an earning per share of Baht 1.14, as a result of various factors as discussed above. For the company only or BAFS, net profit of 2007 was Baht 419.0 million, increased by Baht 52.7 million from last year. 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". 2. Report and Analysis of Financial Status 2.1 Assets As at December 31, 2007 the Company's group had total assets in the amount of Baht 7,500.4 million, decreased by Baht 8.3 million or 0.1% from that of last year. The important details are as follows: 2.1.1 Cash, cash equivalent and short term investment of the Company's group is Baht 743.5 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 976.9 million from consolidated net profit of 2007 of Baht 543.3 million adjusted with cash inflow items such as depreciation and amortization of Baht 322.3 million, allowance for retirement benefit of Baht 30.4 million, goodwill amortization of Baht 22.5 million, decreased in others current asset of Baht 15.0 million. And increased in account payable and others current liabilities of Baht 25.6 million. - Cash outflow items comprised of unrealized FX gain of Baht 14.6 million, allowance for bad debts of Baht 12.2 million and increased in spare parts of Baht 1.2 million. - Cash flow used in investment was Baht 725.0 million mainly comprised of investment in property, leasehold improvement and equipment of Baht 582.9 million and restricted fixed deposits with finance institutions of Baht 149.6 million. However, prepaid for construction of this year decreased by Baht 5.0 million. Besides, loan to and long-term receivable from related company's group decreased of Baht 12.2 million. - Cash flow used in financing was Baht 342.8 million which mainly was dividend payment for 2nd half of 2006 and 1st half of 2007 operations at the amount of Baht 195.5 million and bank loan principle payment at the amount of Baht 139.7 million 2.1.2 Property, leasehold improvement and equipment at December 31, 2007 was Baht 5,743.8 million comprised of TARCO's and JP-One's property, leasehold improvement and equipment of Baht 1,635.3 million and 664.2 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 768.0 million and will be amortized along with the concession period for 30 years starting from the opening of Suvarnabhumi Airport. Up to December 31, 2007 the goodwill was Baht 735.7 million. 2.2 Liabilities As at December 31, 2007, the Company's group had total liabilities of Baht 4,460.9 million,decreased by Baht 381.3 million or 7.9% compared to that of last year resulted in debt to equity ratio of 1.47 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Account payable of Baht 60.4 million which comprised of account payable - related company's group of Baht 43.7 million and others account payable of Baht 16.7 million. 2.2.2 Portion of long term loan which to be paid of Baht 520.5 million which are comprised of long term loan which to be paid for BAFS of Baht 301.6 million, TARCO's long term loan which to be paid of Baht 194.9 million and JP-One's long term loan which to be paid of Baht 24.0 million. Besides that the financial lease which to be paid in one year was Baht 11.3 million. 2.2.3 Retention was Baht 67.1 million, comprised of BAFS's retention of Baht 9.3 million, TARCO's retention of Baht 57.8 million. 2.2.4 Other current liabilities of Baht 170.0 million which comprised of major items such as accrued corporate income tax of Baht 64.7 million, other account payable of Baht 21.2 million and others of current liabilities of Baht 84.1 million. 2.2.5 Long term loan from bank of Baht 3,404.3 million decreased by Baht 497.8 million or 12.8% compared to that of last year which comprised of : - The first portion of Baht 558.7 million was long term loan from KBANK with restructured to 10 years and maturity in 2014 which is semiannual principle payment. The Company paid principle payment of Baht 50.8 million in each period. - The second portion of Baht 1,800.0 million was long term loan from BBL used to finance Depot and Into-plane projects with 10 years and maturity in 2014 which has interest rate of 3-month FDR +1.25%. - The third portion was TARCO's loan of Baht 949.6 million from BBL with a total credit amount of USD 6.4 million at the rate of Libor +1.75% and Baht 560.0 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 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 96.0 million from BBL with a total long term credit facility of Baht 120.0 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 December 31, 2007, shareholders' equity of the Company's group was Baht 3,039.6 million, increasing from last year by Baht 373.1 million or 14.0%. 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 870.0 million and USD 8.0 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 2007 of Baht 293.8 million which was net profit margin at 48.1%. Resulting from services income of Baht 610.3 million, cost of services and administrative expenses of Baht 110.2 million and Baht 25.5 million respectively. 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 2007 of Baht 16.4 million which was net profit margin at 18.7%. Resulting from services income of Baht 87.8 million compared with cost of services and administrative expenses was of Baht 54.9 million and Baht 11.7 million respectively. Please be informed accordingly. Yours sincerely, (M.R. Supadis Diskul) Managing Director Legal and Securities Division Tel. (0)-2834-8900 ext.8914 Fax. (0)-2834-8920