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MD.145/2008 August 8, 2008 Re: Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2008 To: President The Stock Exchange of Thailand Management Discussion and Analysis For the Three Month Period Operating Results ended June 30, 2008 1. Report and Analysis of the Operating Results For the three months period ended June 30, 2008, Bangkok Aviation Fuel Services Plc. or BAFS and its subsidiaries' net profit was Baht 124.2 million as compared to net income of Baht 153.2 million earned during the same period in 2007 which is decreasing by 18.9%. The details of changes are as follows: 1.1 Revenue In Q2/2008, total revenues of BAFS and its subsidiaries amounted to Baht 536.0 million, an decrease of Baht 8.5 million or 1.6% when compared with that for the last year which details are follows. 1.1.1 Services Income Services income of BAFS and its subsidiaries amounted to Baht 528.2 million, an increase of 0.1% when compared with that for the last year. Which the major factor influent the increasing in services income of company's group was increased in volume of fuel serviced by 0.3% (y-o-y) to 1,106.0 million litres when compared with that for the last year. However, this was decreased by 9.1% when compared with the last quarter as a result of crisis of increasing in oil price which affect to aviation business and rental charges for receiving pipeline system. Moreover, in Q2/2008, TARCO, JP-One and IPS had services income at Baht 145.3 million, Baht 23.3 million and Baht 1.1 million respectively. 1.1.2 Rental Income The rental income of the consolidated financial statement of company's group was Baht 5.0 million for the Q2/2008, increasing by Baht 0.4 million or 8.8% compared to that of the last year. 1.1.3 Other Income Other income of the consolidated financial statement of company's group was Baht 2.7 million, decreasing by Baht 9.7 million or 77.8% compared to that of the last year. Which the major factor influent this decreasing was FX loss by Baht 8.3 million from the change in the exchange rate during the time aforementioned that mainly because of company's group hedging contract in foreign currency. The detail was follows a note of no.18 in financial statement. Other income also comprised of principal repayment as specified in the repayment schedule of debt restructuring and principal prepayment received from FPT of Baht 5.6 million, interest income from short term investment of Baht 5.35 million, guarantee fee from TARCO and JP-One at rate of 1% of outstanding loan of Baht 2.9 million. Moreover for this quarter, BAFS received dividend income from TARCO's operation at the amount of Baht 62.8 million. 1.2 Expenses 1.2.1 Cost of Services For the consolidated financial statement of company's group in Q2/2008, cost of services was Baht 224.9 million, increasing by Baht 21.7 million or 10.7% compared to that of the last year. Major items which increased cost of services are 1) increasing in rental charge for pipeline system at Don Mueang airport and Land rental charges at Don Mueang and Suvarnabhumi Airport of Baht 7.1 million 2) increasing in salaries and other employee's expense of Baht 7.1 million 3) increasing in depreciation and amortization of Baht 5.6 million respectively. 1.2.2 Administrative Expenses Administrative expenses for the consolidated financial statement of company's group in Q2/2008, was Baht 73.3 million, increasing by Baht 7.2 million or 10.8% compared to that of the last year. Which are comprised of 1) increasing in salaries and other employee's expense of Baht 4.1 million 2) increasing in depreciation and amortization of Baht 3.4 million 3) increasing in real-estate tax of Baht 3.6 million respectively. 1.2.3 Interest Expenses The interest expenses for the consolidated financial statement of company's group in Q2/2008 was Baht 40.3 million which decreasing by Baht 6.4 million or 13.6% when compared to that of the last year. Mainly comprised of interest payment for long term loan of BAFS at amounted of Baht 26.1 million and interest payment for financial lease amounted to Baht 0.4 million. Besides that the interest expenses of long term loan and interest payment for financial lease of TARCO and JP-One are Baht 12.2 million and Baht 1.6 million respectively. 1.3 Operating Results Net profit for Q2/2008 of BAFS and its subsidiaries was Baht 124.2 million decreasing by Baht 28.9 million or 18.9% from last year of Baht 153.2 million which is equivalent an earning per share of Baht 0.24, as a result of various factors as discussed above. Moreover the Board of Directors' Meeting No.3/2008 held on August 8, 2008 resolved to pay interim dividend from the first half of 2008's performance at the rate of Baht 0.15 per share or totaling Baht 76.5 million accounted to 36.9% of net profit of the company only. 2. Report and Analysis of Financial Status 2.1 Assets As at June 30, 2008 the Company's group had total assets in the amount of Baht 7,293.5 million, decreased by Baht 0.1 million or 1.8% from March 31, 2008. The important details are as follows: 2.1.1 Cash, cash equivalent and short term investment of the Company's group is Baht 692.7 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 265.4 million from consolidated net profit of Q2/2008 of Baht 124.2 million adjusted with cash inflow items such as depreciation and amortization of Baht 87.0 million, allowance for retirement benefit of Baht 6.1 million, concession of subsidiary of Baht 6.4 million, unrealized FX loss of Baht 7.4 million and change in working capital. - Cash outflow items comprised of, allowance for bad debts of Baht 5.6 million and increased in account receivable and others spare part of Baht 1.7 million. - Cash flow used in investment was Baht 43.2 million mainly comprised of investment in property, leasehold improvement and equipment of Baht 39.5 million. - Cash flow used in financing was Baht 277.5 million which mainly was dividend payment of Baht 163.2 million, bank loan principle payment and financial lease payment at the amount of Baht 104.6 million including dividend paid to minority interest at the amount of Baht 10.2 million. 2.1.2 Property, leasehold improvement and equipment at June 30, 2008 was Baht 5,640.2 million comprised of TARCO's and JP-One's property, leasehold improvement and equipment of Baht 1,655.3 million and 661.1 million, respectively. 2.1.3 Concession of subsidiary was incurred from the acquisition of TARCO's shares at the price higher than its book value in August 2003. The concession of subsidiary 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 June 30, 2008 this concession was Baht 723.0 million. 2.2 Liabilities As at June 30, 2008, the Company's group had total liabilities of Baht 4,146.2 million, decreased by Baht 94.8 million or 2.2% compared from March 31, 2008 and resulted in debt to equity ratio of 1.32 : 1 time. Liabilities comprised of major items as follows: 2.2.1 Account payable of Baht 44.3 million which comprised of account payable - related company's group of Baht 34.7 million and others account payable of Baht 9.7 million. 2.2.2 Portion of long term loan which to be paid of Baht 520.0 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 194.4 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 11.7 million. 2.2.3 Other current liabilities of Baht 173.3 million which comprised of major items such as accrued corporate income tax of Baht 89.5 million, other account payable of Baht 13.5 million and others of current liabilities of Baht 70.2 million. 2.2.4 Long term loan from bank of Baht 3,142.3 million decreased by Baht 68.7 million or 2.1% compared to ending of last year which comprised of : - The first portion of Baht 507.9 million was long term loan from KBANK. - The second portion of Baht 1,700.0 million was long term loan from BBL. - The third portion was TARCO's loan of Baht 850.3 million from BBL which comprised of USD 5.6 million that TARCO already swap to Baht 190.3 million and THB baht loan of 660.0 million. - The remaining portion was JP-One loan at amount of Baht 84.0 million from BBL. 2.3 Shareholders' Equity As at June 30, 2008, shareholders' equity of the Company's group was Baht 3,147.3 million, increasing from March 31, 2008 by Baht 38.5 million or 1.2%. 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 outstanding amount from total long term loan of Baht 630.0 million and USD 7.2 million (including portion to be paid in one year) 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 Q2/2008 of Baht 68.4 million which was net profit margin at 49.1%. Resulting from services income of Baht 145.3 million, cost of services and administrative expenses of Baht 25.8 million and Baht 9.7 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 which is Baht 54.0 million (including portion to be paid in one year) JP-One had net profit in Q2/2008 of Baht 1.2 million which was net profit margin at 5.3%. Resulting from services income of Baht 23.3 million compared with cost of services and administrative expenses was of Baht 17.8 million and Baht 2.9 million respectively. Please be informed accordingly. Yours sincerely, (M.R. Supadis Diskul) Managing Director Legal and Securities Division Tel 0-2834-8914 Fax 0-2834-8920