anagement Discussion and Analysis for 2005

Revenues from the Other Business: Unit : Million Baht 2005 2004 % Changes Service Income - ESCO 487 390 25% Sales of Water - ET 168 157 7% - Service income from ESCO amounted to Baht 487 million, up by Baht 96 million or 25%, resulting mostly from an increase of operation and maintenance (O&M) services and selling spare parts to Elgali 2 Power Plant in Sudan. - Sales of water from a subsidiary, ET, were Baht 168 million, up by Baht 11 million, or 7%, thanks to an increase of water tariff under the Water Purchase Agreement. - Interest income and others amounted to Baht 15 million, an increase by Baht 4 million or 34%, mainly from ET's interest income. - ESCO's share of profit of associates and joint ventures totaled Baht 0.77 million, an increase by Baht 0.26 million, mainly from the share of loss of Agro Energy Co.,Ltd amounting to Baht 0.49 million that happened in 2004. On the other hand, Amata Power-Esco Service Co.,Ltd (AMESCO)'s increased expenses resulted in lower share of profit in the amount of Baht 0.24 million in 2005. 3.3 Expense Analysis Total expenses from EGCO, its subsidiaries and joint ventures in 2005 were Baht 12,212 million, an increase of Baht 540 million or 5% from last year. The details are as follows: Total Expenses: Unit : Million Baht 2005 2004 % Changes EGCO 474 501 (5%) IPP Group 5,364 5,791 (7%) SPP Group 4,917 4,415 11% Overseas 990 553 79% Others 468 412 13% 1) Total expenses of EGCO, which were administrative expenses, totaled Baht 474 million, a decrease of Baht 27 million or 5% from last year because EGCO's debenture matured in October 2004. 2) The IPP Group's expenses were Baht 5,364 million, a decrease of Baht 427 million or 7%. The details are as follows: - Cost of sales of Baht 3,268 million, a decrease of Baht 61 million or 2% compared to 2004, mainly from KEGCO which experienced a decrease of Baht 89 million or 6% as compared to 2004 as a result of decreased insurance expense in 2005 and the incurrence of major maintenance cost in 2004. REGCO's cost of sales increase of Baht 28 million came from the maintenance expense incurred in the replacement of the impaired steam turbine rotor. Cost of Sales - IPP Group: Unit : Million Baht 2005 2004 %Changes REGCO 1,834 1,806 2% KEGCO 1,434 1,523 (6%) - Administrative expenses and income tax were Baht 639 million, a decrease of Baht 30 million or 4%, mainly from REGCO's decreased income tax which was in line with a decline in revenues. - Interest expenses were Baht 1,457 million, a decrease of Baht 336 million or 19%, resulting from the decrease in interest expenses at REGCO and KEGCO of Baht 196 million and Baht 140 million, respectively, owing to lower principal amounts. For REGCO, the USD syndicated loan was fully repaid since December 2004. 3) The SPP Group's expenses were Baht 4,917 million, an increase from last year of Baht 501 million or 11%, according to the following reasons: - Cost of Sales were Baht 4,200 million, an increase of Baht 489 million or 13%, substantially driven by an increase at GEC amounting to Baht 293 million owing to maintenance expenses as well as an increase at TLP Cogen amounting to Baht 97 million from higher fuel costs and maintenance expenses. An increase at APBP amounting to Baht 69 million was due to higher maintenance expenses. Moreover, Roi-Et Green's cost of sales increased by Baht 31 million due to higher cost of rice husk used as fuel. Cost of Sales - SPP: Unit : Million Baht 2005 2004 %Changes GEC 2,503 2,210 13% TLP Cogen 1,313 1,216 8% APBP 271 203 34% Roi-Et Green 113 82 38% - Administrative expenses and income tax were Baht 389 million, a decrease of Baht 19 million or 5%, coming substantially from TLP Cogen's lower administrative expenses in 2005 compared to 2004 when the company incurred refinancing fee of Baht 26 million. GEC incurred expenses totaling Baht 336 million, a fall by Baht 19 million whilst APBP incurred expenses of Baht 23 million, an increase of Baht 15 million owing to the fine charged by EGAT for not reaching the required ratio in the utilization of steam to thermal process as determined in the PPA. - Interest expenses were Baht 328 million, an increase of Baht 31 million or 10%, driven by an increase in TLP Cogen's interest expenses amounting to Baht 16 million because of higher loan amount to cover the refinancing fee plus a higher interest rate from swapping floating rate to fixed rate.GEC's interest expenses increased by Baht 12 million due to loan drawdown for power plant construction. GEC and TLP Cogen's interest expenses were Baht 192 million and Baht 109 million, respectively. 4) The Overseas Group's expenses were Baht 990 million, an increase of Baht 437 million or 79% compared to 2004, owing to the following reasons: - Cost of Sales were Baht 294 million, an increase of Baht 65 million or 29%, in line with an increase of revenues. - Administrative expenses and income tax were Baht 628 million, an increase of Baht 376 million or 150%. This came from the change to the proportionate consolidation method for the accounting of NTPC which led to a recognition of expenses in the amount of Baht 460 million, mainly from the write-off of the development expense of Baht 280 million. Conal had an incurred expenses of Baht 168 million, a decrease of Baht 84 million thanks mainly to a decrease in income tax. - Interest expenses were Baht 68 million, a decrease of Baht 5 million or 7% owing to lower principal amount of debt. 5) The Other Business Group's expenses were Baht 468 million, an increase of Baht 55 million or 13%, owing to the following reasons: - Service costs were Baht 334 million, an increase of Baht 65 million or 24%, resulting from an increase of ESCO's operation and maintenance (O&M) services to customers which was consistent with its increased revenue. - Cost of water sales of ET was Baht 55 million, a decrease of Baht 0.01 million or 0.03% mainly from a decrease of operating and maintenance service costs. - Administrative expenses and income tax totaled Baht 72 million, a decrease of Baht 6 million or 7%. This was mostly from a decrease in ESCO's operating expenses of Baht 11 million or 21% due to Agro-Energy Co.,Ltd.'s write-off of bad debt in 2004. On the other hand, ESCO's income tax increased by Baht 5 million due to an increase in revenues. - Interest expenses were Baht 6 million, a decrease of Baht 4 million or 40%, resulting from the lower principal amount of ET's debt. 4. Report and Analysis of Financial Position 4.1 Asset Analysis As at December 31, 2005, total assets of EGCO, its subsidiaries, associates and joint ventures amounted to Baht 61,250 million, an increase of Baht 6,184 million or 11% from December 31, 2004. The important details are as follows: 1) Cash and deposits at financial institutions, and short term and long term marketable securities were Baht 12,413 million or 20% of the total assets, up Baht 5,073 million or 69%. This came from an increase in cash and cash equivalent of Baht 6,969 million, mainly from operating results amounting to Baht 9,347 million and GEC's and NTPC's loan drawdown totaling Baht 2,481 million whilst there were repayment of loan and debenture of Baht 3,421 million plus dividend payment to shareholders of Baht 1,707 million. 2) Short-term and long-term investments used as collateral were Baht 4,475 million or 7% of the total assets, down Baht 2,944 million or 40% since REGCO obtained lenders' approval in the first quarter of 2005 to reduce the Foreign Exchange Reserve Account (FEXRA) and to release Debt Service Reserve Account (DSRA) by pledging a bank guarantee. 3) Investment in subsidiaries and associates and interests in joint ventures amounted to Baht 403 million or 1% of the total assets, up by Baht 5 million or 1%. This increase is mainly a result of the recognition of the share of profit of AEP. 4) Property, plant and equipment (net) totaled Baht 34,749 million or 57% of the total assets. They were up Baht 3,466 million or 11% due to an increase in property, plant and equipment related to GEC and NTPC's construction of Baht 4,044 million and Baht 1,334 million, respectively; as well as the recording of capital spare parts as property, plant and equipment following the major maintenance of REGCO and TLP Cogen in the amount of Baht 222 million and Baht 28 million, respectively. The translation adjustment of overseas assets increased by Baht 116 million as well. However, a decrease in property, plant and equipment was from depreciation of EGCO and subsidiaries' assets totaling Baht 2,525 million and the reclassification of unutilised capital spare parts from property, plant and equipment to inventories of REGCO, KEGCO and TLP Cogen amounting to Baht 15 million, Baht 27 million and Baht 23 million, respectively. 5) Other assets were Baht 9,210 million or 15% of the total assets, up Baht 584 million or 7% mainly from spare parts and supplies up by Baht 400 million, trade receivable and trade receivable from related companies that were up Baht 260 million, other assets that were up by Baht 546 million mainly from the license of operating NTPC power plant, while net goodwill was down by Baht 76 million and long-term loans to related parties were down by Baht 547 million following NTPC's shareholder loan repayment for the whole amount and GEC's shareholder loan partial repayment. 4.2 Liability Analysis As at December 31, 2005, the company's total liabilities were Baht 29,136 million, up Baht 3,172 million or 12% driven by increasing long-term loan drawdown from financial institutions. The total liabilities consist of the following: 1) Long-term loans and debentures totaled Baht 23,485 million, or 81% of total liabilities, down by Baht 448 million or 2%. The details are as follows: - USD loans in the amount of USD 295 million - Yen loans in the amount of Yen 1,066 million - Filipino Peso loans in the amount of Peso 70 million - Baht loans in the amount of Baht 6,549 million - Baht debentures in the amount of Baht 4,927 million In 2005, the amount of loans increased by Baht 2,914 million due to the loan drawdown for the construction of GEC and NTPC while principal repayment of long-term loans and debentures by subsidiaries totaled Baht 3,421 million. 2) Other liabilities amounted to Baht 5,650 million or 19% of total liabilities, mostly from construction payables of Baht 2,459 million, bank overdrafts and short-term loans from financial institutions of Baht 109 million, trade payables of Baht 751 million, interest payable of Baht 161 million, value added tax payable and income tax payable of Baht 336 million,and others of Baht 1,834 million. 4.3 Shareholders' Equity Analysis As at December 31, 2005, Shareholders' Equity amounted to Baht 32,115 million, which was Baht 3,012 million higher than the amount as at December 31, 2004. This was due mainly to the profits from operation of 2005. The analysis of the company's capital structure as at December 31, 2005 is summarized as follows: Shareholders' equity was Baht 32,115 million or 52.43%. Liabilities were Baht 29,136 million or 47.57%. Important financial ratios were as follows: - Debt to equity ratio was 0.91 times, higher than last year at 0.89. - Book value per share was Baht 58.96, higher than Baht 53.55 at the end of last year. 5. Report and Analysis of Cash Flow Position Cash Flow Statement shows the change in cash flows from operating activities, investing activities, and financing activities at the end of the accounting period, and indicates the ending balance of the cash and the cash equivalents. As at December 31, 2005, the ending balance of the cash and the cash equivalent was Baht 8,820 million, up by Baht 6,969 million from the end of 2004.The details of the sources and uses of funds are as follows: -Net cash received from operating activities totaled Baht 9,347 million. Most of this was cash from operating activities that amounted to Baht 7,546 million and cash received from working capital increase of Baht 1,801 million. -Net cash payment for investing activities was Baht 18 million. The cash outflows were from the investment in GEC and NTPC's power plant construction amounting to Baht 1,236 million and Baht 1,433 million, respectively; whereas, cash received from deposits at financial institutions increased by Baht 2,032 million. Cash received from shareholder's loan repayment from NTPC, GEC and AEP was Baht 971 million, Baht 76 million and Baht 32 million, respectively. In addition, cash inflows were from dividends of EASTW, KTSF and the other open-end funds, which amounted to Baht 92 million, Baht 130 million and Baht 19 million, respectively. - Net cash payment for financing activities was Baht 2,363 million, mainly owing to loan and debenture repayment from REGCO, KEGCO, ET, TLP Cogen, Roi-Et Green, APBP, GEC and Conal, which amounted to Baht 3,421 million, plus dividend payment to shareholders that amounted to Baht 1,707 million; while there was debt drawdown at GEC in the amount of Baht 1,096 million and NTPC of Baht 1,385 million and cash received from selling treasury stock of Baht 100 million.