Vol. 5 : August 2008 Forward to Complex Refinery The Bangchak Petroleum Public Company Limited
Contents Editor s Note 2 Oil Price Situation 2Q 08 3 2Q 08 Performance Summary Product Quality Improvement Project CFO Talk Activities 4 7 8 10 Upcoming Events Q & A 14 13
Editor s s Note Greeting to all investors and analysts, this time we meet you with the IR Letter issue 5. The company has performed in 2 nd quarter better than the same period of last year due to higher gross refinery margin. The analytical details of each business unit will be clarified under the topic 2 nd quarter quarterly analysis. PQI project still proceed on schedule with progress over 95% currently and should be ready for a test run by year end. In the column, CFO Talk, Mr.Patiphan Sukhontaman will explain about the company s recent refinance in July and its benefits. If you want additional information other than what is mentioned in this IR Letter, you can visit www.bangchak.co.th, on Investor Relation page. Moreover, if you have any question about the company s operation or would like to make any suggestion, please call us up at IR Call Center at 02-335-4583 every working day, contact us on www.bangchak.co.th, or mail us at ir@bangchak.co.th. Thank you very much. Mr. Watcharapong Saisuk Vice President Corporate Planning and Investor Relation Office
Oil Price Situation $/BBL 180 160 140 120 100 Oil Price 131.13 Diesel Benzene Dubai Fuel Oil 80 60 40 Jul Aug Sep Oct Nov Dec Jan 08 Feb Mar Apr May Jun For the second quarter of 2008, world oil market was in upward trend, oil prices have continuously increased since beginning of the year. This situation was resulted from fundamental factors such as strong demand in world oil market, tight supply of oil production as evidenced by the announced unchanged of OPEC's oil production level, as well as others factors i.e. unrest situation in middle east countries and unsolved problem in Iran's nuclear project. In addition, the volatile of U.S. dollar caused more mobilization of funds into commodities market. Most of analysts assign more weight toward speculative in oil market which encouraged oil prices in this quarter to be in an oppressively high (average Dubai crude price for the second quarter of 2008 was 116.59 USD/BBL, 79.9% increased from the second quarter of 2007 which was 64.82 USD/BBL and 28.0% increased from the first quarter of 2008 which was 91.09 USD/BBL). This sharply and continuously increased in oil price has caused most of refineries to have higher impacts in inventory gain; however, the refiners will also have to recognize higher crude cost for their next cargos shipment as well. In the other hand, decrease in oil price will cause refineries to have impacts on inventory loss. High level of oil prices had become agenda pressuring oil demand and GDP growth in many countries. The appreciation of U.S. dollar had reduced concentration of funds invest in oil market, these factors has pressured oil price weaken. However, the factors which support increasing in oil price still remain such as the concern over hurricane impact in oil production areas in Gulf of Mexico and political unrest in major crude oil production countries.
Balance Sheet 2Q 08 Performance Summary As of the 2nd quarter of 2008, Balance Sheet (Consolidated) Jun 30,2008 Dec 31,2007 %Change the company s assets increased 17.7% Total Assets, MBt 52,951 44,978 +17.7% from the end of 2007. The increase was mainly attributed to increase in Total Liabilities, MBt 29,514 23,753 +24.3% inventory as oil price continue to rise. Total Equity, MBt 23,437 21,225 +10.4% Inventory quantity also increased as an average refinery crude run improved. Paid-up Share Capital, MBt 1,119 1,119 0.0% The property, land and equipment D/E, Times 0.58 0.52 11.5% increased, mainly due to PQI project Book Value, Bt/Share 20.94 18.97 +10.4% investment. The liability increased was due to increased account payable as oil prices rose over 40% from the level during December 2007. The shareholders equity increased Baht 2,212 million from the end of 2007. The increase was mainly attributed to the increased profits during the first half of the year. Profit and Loss (Consolidated) 2Q'08 2Q'07 YoY (%) Sales and Services, MBt 39,587 24,093 +64.3% Net Profit (Loss), MBt 1,846 881 +109.5% Net Profit Margin, % 4.66 3.66 +27.3% EPS, Bt/Share 1.65 0.79 +108.9% Profit / (Loss) During the 2 nd quarter, the company reported sales and service revenue increased 64.3% from the 2 nd quarter of the previous year, contributed by 14.4% increase in quantity sold, oil price rose 56.8% in US dollar terms, and currency exchange rate appreciated approximately 6.8% (refer to average exchange rate of 2 nd quarter of 2008 at Baht 32.45/US dollar, compared with the average of Baht 34.81/US dollar during 2 nd quarter of 2007), which also increase costs of sales. The company reported net profits of Baht 1,846 million, up from Baht 881 million during the same period last year because the finished product/crude spread has improved, which expand gross refinery margin. Moreover rising oil prices during the quarter has brought about the gains from oil inventory from the 2 nd quarter last year.. The net profit margin was at 4.66%. The company reported earnings per share of Baht 1.65, up from Baht 0.79 during the same period last year.
2Q 08 Performance Summary EBITDA (Company only) EBITDA During the 2 nd quarter of 2008, the company recorded total EBITDA of Baht 2,765 million, up from Baht 1,444 million during the 2nd quarter last year. The refinery business reported EBITDA Baht +3,337 million as oil price and finished product/crude spread increased. However, the retailing business s EBITDA was at negative Baht -572 million from Baht +82 million in the same period last year. The decline was due to negative retailing margin at the service station. For overall EBITDA excluding effect from oil inventory, adjusted EBITDA will be at Baht 1,017 million, up from Baht 595 million in the 2 nd quarter last year. Refinery Business 2Q'08 2Q'07 YoY (%) Performance EBITDA 1,017 595 +70.9% Plus Inventory effect 1,748 849 +105.9% Total EBITDA 2,765 1,444 +91.5% - Refinery 3,337 1,362 +145.0% - Marketing (572) 82-797.6% During the quarter, the refinery business reported EBITDA of Baht 3,337 million, up from Baht 1,362 million during the same period last year. The adjusted EBTIDA (EBITDA exclude inventory effect) were at Baht 1,589 million, up from Baht 513 million during the 2 nd quarter last year. During this 2 nd quarter, the company utilized average refinery capacity of 83.6 thousand barrels/day, up from 73.8 thousand barrels/day during the same period last year. During this quarter, the base refinery margin (exclude inventory gain/loss) was at high level of US$7.97/barrel, up from US$3.24/barrel in the same quarter last year. The improved margin was mainly contributed by increasing finished products/crude spread, particularly diesel, which accounted for 35% of total production yield. The diesel/dubai spread was at US$37.47/barrel, up from US$16.44/barrel in the same quarter last year. The gains from oil inventory also improved during the quarter.
2Q 08 Performance Summary Marketing Business In the 2 nd quarter, the retailing business s EBITDA was at negative Baht 572 million from Baht 82 million in the same period last year. The decline was due to negative retailing margin at the service station as oil prices rose rapidly and the service station cannot raised retail price quickly enough to compensate for the rising cost. As a result the retailing margin (ex-lubricant) was at negative Baht 0.74/litre, down from Baht 0.25/litre during the 2 nd quarter of the previous year. Others 11.4 % 8.0 % 14.0 % 15.1 % 37.1 % 14.4 % Market Share January May 2008 Marketing Margin 2Q'08 2Q'07 Retail MKM exclude Lube (St./Ltr.) -74 25 Sales Volume (KBD) 57 53 However, overall sales volume improved from the same period last year of 53 thousand barrels/day to 57 thousand barrels/days, which improve market shares. Market Share The company ranked 4 place in the service station shares Jan-May 2008 at 14.0%, an improvement from 13.5% as of March 2008. During the rising oil price environment, the company has adjusted prices slower than other operators (except PTT). Therefore, market shares improved.
PQI Project PQI Currently, the progress is over 95% and the project is expected to test run by year end. Vacuum Distillation Unit and Hydrogen Plan Hydro Cracking Unit Hydrocracking Unit
CFO Talk CFO The refinance was what the company has been planning for a long time, and now is an opportune time for the refinancing. With lower interest cost is just a by-product, the main purpose for refinance is to increase liquidity to ensure the company ready for value-accretive investment for shareholders value over the next 4-5 years after the completion of PQI project. Therefore, the company needs sufficient liquidity to support future investment and to ready for uncertainty in oil business that might occur over the next 3-4 years. This refinance changed loan profile from project finance to corporate finance The 2004 restructure and 2006 financing for PQI project are project finance which many conditions that the company need to abide to. Moreover, the loan repayment profile of the previous loan contract will result in the company repaying loan at the very high installment over the last 4-5 year, at an average of Bt2.0-2.5 billion. Therefore, the refinance, the company has stretch the loan duration out from 7 years to 9 years, and making repayment back-end loaded. The lower repayment over the next 4-5 years means the company will have more free cash flow to support future investment and volatile oil prices over the next 4-5 years. The previous loan was a secured loan, which required the company to pledge the assets with the creditor with a covenant to prohibit the company from making more debt and/or investing in a new project without obtaining permission from the creditors. The company sees that there are potential problem that the creditor may not understand the company s need for investment and could prevent our investment plan.
CFO Talk CFO This refinance changed loan profile from project finance to corporate finance, which enables the company to borrow a clean loan without pledging the company s assets to the creditor, which has covenant called negative pledge; prohibit the company from pledging any assets on other creditor. However, the clean loan will not happen immediately but after PQI project pass performance test for a certain duration before the bank automatically release security. The new loan will not require the company to request for the bank approval as long as it is within the conditions agreed with the bank, which allow broad area of investment. The company will not be constrained in making new debt, which will enhance the company s debt capacity as long as the company can maintain 2-3 key financial ratios at reasonable level. So the company will have additional debt capacity of about Baht 13-15 billion, depending on our debt repayment capacity. The advantage of the new loan profile will give the company flexibility to expand in the future. The refinance will strengthen our financial status Another flexibility the refinance provide us is the ability to manage financial risk. The refinance enable the fixed interest loan from interest rate swap (from a current floating rate), and enable US-denominated debt via cross currency swap (from Baht-denominated debt) to match US-denominated GRM. Previously, we link interest rate with MLR in MLR swap, which is expensive and not widely used. In the new loan, we will change our approach from basis interest that link to MLR to THBFIX that link with swap rate. The THBFIX loan will enable us to swap from float to fix rate and/or swap from Baht to US dollar-denominated debt. Overall this refinance will strengthen our financial status to enhance shareholders value according to our 5- year plan. 9
Activities On May 8-11,2008, the Company organized a booth together with other companies in PTT Group in Money Expo 2008. In this event, investors got the change to meet listed companies and got corporate information. Money Expo 2008 On April 22, 2008, the Company arranged analyst meeting to clarify the Company s Q1 2008 operating result and to update on the progress of the PQI project to analysts, fund managers and press at Intercontinental hotel, Sukhumvit Road. Analyst Meeting Q1 08 10
Activities Roadshow Thailand Corporate Day in Singapore On July 4, 2008, the Company went on a roadshow arranged by Tisco Securities and DUETSCHE BANK in THAILAND CORPORATE DAY in Singapore The Company met many analysts and fund managers to provide information about the Company and progress on the PQI project. Opportunity Day with SET On May 26, 2008, the Company joined Opportunity Day arranged by the Stock Exchange of Thailand. More than 80 investors joined the meeting to listen to Q1 2008 operating result at the Stock Exchange of Thailand. 11
Activities Company Visit On July 11, 2008 The Company, with the cooperation of Thai Investors Association (TIA), arranged Company Visit for interested investors to visit Bangchak s refinery plant and to be updated on Product Quality Improvement project (PQI) at Bangchak Refinery Sukhumvit 64. Signing Ceremony Baht 23,734 million Credit Facilities Agreement On 2 July 2008, the company signed loan agreement valued of Baht 23,734 million with Siam Commercial Bank Public Company Limited, Bank of Ayudhaya Public Company Limited, Siam City Bank Public Company Limited, TMB Bank Public Company Limited, ABN AMRO Bank N.V. and Mizuho Corporate Bnak Ltd. at JW Mariott Hotel, Bangkok. 12
Upcoming Events 21August 2008 2 nd Quarter performance summary and the progress of the Company present to the analysts Intercontinental Hotel, 4 th floor 2.00-4.00 pm. 2 nd Quarter performance summary and the progress of the Company present to the investors SET Building,11 9.00 - th Floor, Room 1101 10.30 am. 27August 2008 15-17September Roadshow arranged by UBS Securities in Singapore and Hong Kong 13
Q&A What will happen to the company if oil price continue to decline? The company has 2 major business units, refinery and marketing businesses, which will react differently on oil price movement. For refinery business, if oil prices rise, oil inventory will increase in value, resulting in gains from oil inventory, and vice versa if oil prices fell during the second half of the year. However, the core profits of refinery business are more dependent on finished products/crude spread. For the marketing business, the falling oil price will help the business as the retailing price adjustment is usually slower than falling cost, which could improve retailing margin. Presently, consumer prefer to use more alternative fuel such as gasohol or NGV, how this trend affect the company? While the increasing popularity of gasohol or biodiesel will reduce overall petrol consumption, the company owns distribution network and has policy to be a leader in alternative energy. The company continues to encourage selling of gasohol and biodiesel in the company s gas stations, which resulted in higher sales and service station shares. The increased usage of NGV might reduce gasoline consumption in the future as NGV is the direct substitute for gasoline. However, the company cooperates with PTT to distribute NGV at Bangchak service station, which would increase income as well. The company plan to increase numbers of gas stations distributing NGV in the future. 14
Disclaimer The company aim to give out information related to The Bangchak Petroleum Public Company Limited (Bangchak) to the members and related individual. The information in this newsletter is reliable and accurate as of the time of publication. Content, information, picture and other items in this IR Letter are made during to the publication period, thus may have some information discrepancies, typing mistakes, and content may be changed as the situation has been updated. The reader will exercise their discretion in reading and analyzing the information. As the company does not intend to solicit investor to invest, the company is not liable for any damage or impact that may occur. All content, information, pictures and other items in this IR Newsletter belongs to Bangchak. Do not copy, duplicate, or imitate without proper authorization from the company. If you have any disagreement, doubt, or inquiry regarding any issues, kindly make inquiries with the publisher. 15