Management Discussion and Analysis for 9 month 2007

9M'07 9M'06 9M'07 9M'06 %Chg Revenues - - 6,079 8,569 (29%) Expenses - - 3,581 4,581 (22%) Share of Profits 581 (178) 4,218 (178) n.a. -Sales of electricity of IPP Group were Baht 6,002 million, representing a decrease of Baht 2,249 million or 27% compared to the same period last year. The decrease was a result of REGCO's lower electricity sales by Baht 1,379 million to register Baht 2,684 million and KEGCO's lower electricity sales by Baht 870 million to register Baht 3,318 million. These decreases were caused by a decrease in the Capacity Rate for REGCO and a decrease in the Base Availability Credit for KEGCO which both partly resulted from Baht appreciation. These were in accordance with the capacity payment formula calculated on a "Cost Plus Basis" under the PPAs and in line with the company's projection. Sales of Electricity - IPP Group: Unit : Million Baht 9M'07 9M'06 %Changes REGCO 2,684 4,063 (34%) KEGCO 3,318 4,188 (21%) Total Sales of Electricity - IPP 6,002 8,250 (27%) The PPAs cover the full amount of the projected fixed costs, debt financing charges and major maintenance charges, which are used in calculating the electricity tariffs for each period. Moreover, the calculation of the capacity payment is adjusted to include compensation for the exchange rate effect from debt services and expenses of major maintenance parts denominated in US Dollar. REGCO and KEGCO receive the compensation monthly for each billing period. They receive higher capacity charge than that stated in the original PPAs before the inclusion of foreign exchange indexation if the exchange rate is above Baht 28 per US Dollar and vice versa. In the first nine months of 2007, REGCO and KEGCO received compensation for the exchange rate effect of Baht 312 million. - Interest income and others amounted to Baht 77 million, a decrease of Baht 241 million or 76%, mainly from REGCO's decreased interest income in the amount of Baht 178 million. It resulted from lower interest rates and lower amount of deposits at banks and financial institutions due to capital reduction at REGCO from Baht 9,220 million to Baht 4,702 million in December 2006. KEGCO's interest income decreased by Baht 59 million resulting from lower interest rates. REGCO and KEGCO's other revenues also decreased by Baht 4 million. - Cost of sales totaled Baht 2,572 million, an increase of Baht 27 million or 1% compared to the first nine months of 2006, mainly because KEGCO's cost of sales increased by Baht 18 million or 1%. Cost of Sales - IPP Group: Unit : Million Baht 9M'07 9M'06 %Changes REGCO 1,354 1,345 1% KEGCO 1,218 1,201 1% Total Cost of Sales - IPP Group: 2,572 2,546 1% - Administrative expenses and income taxes were Baht 593 million, a decrease of Baht 576 million or 49%, mainly from lower REGCO's administrative expenses of Baht 193 million or 70% compared to the same period of last year which incurred the make-whole premium payment; and tax payment at REGCO and KEGCO decreased by Baht 391 million from lower revenues.REGCO and KEGCO currently enjoy 50% corporate tax reduction privilege on profits from power generation, ending on April 19, 2008 and September 25, 2009, respectively. - Interest expenses were Baht 415 million, a decrease of Baht 451 million or 52%, resulting from REGCO's payment of all of its debt in December 2006 and KEGCO's lower principal amounts of loans and debentures. - Share of profits from joint ventures, BLCP and GPG, were recognised in the amount of Baht 4,218 million. BLCP's recognition of net profit since January 2007 amounted to Baht 3,637 million and GPG's net profit was Baht 581 million thanks to KK2 Project-Unit 1's sales of electricity to EGAT after achieving its COD in May 2007, plus other income from KK2 Project-Unit 1's liquidated damage claim on the EPC contractor owing to the delayed COD. 3) SPP Group incorporates five companies, namely: GEC (excluding GPG), AEP, APBP,EGCO Cogen and Roi-Et Green. The total revenues were reported at Baht 1,623 million, a decrease of Baht 69 million or 4% compared to the first nine months of 2006. The expenses were Baht 1,331 million, an increase from last year by Baht 2 million or 0.15%. The share of profits from joint ventures were reported at Baht 541 million, an increase of Baht 394 million or 269% compared to the same period of last year. The details are as follows: Total Revenues, Total Expenses and Share of Profits of SPP Group: Unit : Million Baht EGCO Cogen Roi-Et Green GEC (exclude GPG) 9M'07 9M'06 9M'07 9M'06 9M'07 9M'06 Revenues 1,449 1,494 174 199 - - Expenses 1,228 1,232 103 96 - - Share of Profits - - - - 453 10 . APBP and AEP Total 9M'07 9M'06 9M'07 9M'06 % Chg Revenues - - 1,623 1,693 (4%) Expenses - - 1,331 1,329 0.15% Share of Profits 88 137 541 146 269% - Sales of electricity of the SPP Group were Baht 1,594 million, representing a decrease of Baht 67 million or 4% compared to the same period of last year. Most of the decrease of SPP group's electricity sales was from EGCO Cogen in the amount of Baht 41 million, resulting from lower electricity sales to industrial users and EGAT due to the Baht appreciation. Roi-Et Green's electricity sales decreased by Baht 26 million from lower tariff, as its tariff formula is linked to the price of fuel oil which experienced a drop. Sales of Electricity - SPP Group: Unit : Million Baht 9M'07 9M'06 %Changes EGCO Cogen 1,435 1,476 (3%) Roi-Et Green 160 186 (14%) Total Sales of Electricity - SPP Group 1,594 1,662 (4%) - Interest income and others amounted to Baht 29 million, a decrease of Baht 2 million or 7%, mainly from lower interest income totaling Baht 5 million. - Cost of Sales of SPP Group were reported at Baht 1,236 million, a decrease of Baht 1 million as compared to the first nine months of 2006. This was substantially driven by a decrease in cost of sales of EGCO Cogen amounting to Baht 9 million from lower fuel costs and usages,whilst an increase in cost of sales at Roi-Et Green, up by Baht 8 million due to higher fuel costs. Cost of Sales - SPP Group: Unit : Million Baht 9M'07 9M'06 %Changes EGCO Cogen 1,143 1,152 (1%) Roi-Et Green 93 85 10% Total Cost of Sales - SPP Group 1,236 1,237 0% - Administrative expenses and income taxes were Baht 25 million, up by Baht 13 million or 113% as compared to the same period of 2006. This mainly resulted from the income tax payment following Thai LNG Power Co., Ltd. (TLPC)'s liquidation amounting to Baht 13 million. - Interest expenses were Baht 70 million, a decrease of Baht 11 million or 13%, mainly from a decrease in EGCO Cogen's interest expenses amounting to Baht 9 million due to lower principal. - Share of profit from interests in joint ventures, GEC (excluding GPG), APBP and AEP,totaled Baht 541 million, up by Baht 394 million as compared to the same period of 2006. The share of profit from the joint venture GEC contributed the most in the amount of Baht 453 million,an increase of Baht 443 million as compared to the same period of last year. This was primarily a result of an increase of gain on foreign exchange rate, up by Baht 305 million, plus the electricity sales increased by Baht 94 million. Meanwhile, the share of profit from interest in joint ventures, APBP and AEP, totaled Baht 88 million, down by Baht 49 million or 36%, which was primarily from AEP's lower electricity sales to EGAT and higher maintenance expenses. 4) Overseas Group refers to Conal and NTPC, of which their share of loss from joint ventures were reported at Baht 208 million, an increase in loss of Baht 170 million compared to the first nine months of 2006. Conal's share of profit was reported at Baht 34 million, a decrease of Baht 50 million compared to the same period of 2006, mainly from a decrease of electricity sales after transferring NMPC, a 40 MW power plant, to NPC in February 2006 and the Peso appreciation. NTPC's share of loss was Baht 242 million, an increase in loss of Baht 120 million as compared to the same period of 2006, caused mainly by a foreign exchange loss. 5) Other Business Group includes two subsidiaries, ESCO and ET and a joint venture,AMESCO. Total revenues were Baht 739 million, an increase by Baht 55 million or 8% as compared to the same period of 2006 and total expenses totaled Baht 522 million, an increase of Baht 57 million or 12%. The share of profit from a joint venture was reported at Baht 5 million, an increase of Baht 2 million or 70% as compared to the same period of last year. The details are as follows: Total Revenues, Total Expenses and Share of Profits of Other Business Group: Unit : Million Baht ESCO ET Total 9M'07 9M'06 9M'07 9M'06 9M'07 9M'06 % Chg Revenues 564 536 175 148 739 684 8% Expenses 464 419 58 46 522 465 12% Share of Profits 5 3 - - 5 3 70% - Service income from ESCO amounted to Baht 553 million, up by Baht 28 million or 5%,resulting mostly from the operation service to LNG power plant in Russia and the new fuel gas compressor installation service as well as relocating fire water pump unit for PTT Chemical Public Company Limited (PTTCH). - Sales of water from a subsidiary, ET, were Baht 168 million, up by Baht 26 million, or 18%, thanks to the increase of the minimum take and tariff under the long-term Water Purchase Agreement with Provincial Waterworks Authority. - Interest income and others amounted to Baht 18 million, an increase of Baht 2 million or 12%, mainly from an increase in ET's interest income amounting to Baht 1.46 million. - Cost of services were Baht 400 million, an increase of Baht 37 million or 10%, resulting from an increase in the cost of the new fuel gas compressor installation as well as relocating fire water pump unit for PTTCH. - Cost of water sales of ET was Baht 51 million, up Baht 9 million or 20% mainly from an increase of operating and maintenance service costs which was consistent with its increased revenues. - Administrative expenses and income taxes totaled Baht 71 million, an increase of Baht 13 million or 23% compared to the same period of 2006, mostly from an increase in ESCO's administrative expenses by Baht 11 million. - ESCO's interest in joint ventures totaled Baht 5 million, an increase of Baht 2 million from AMESCO. 4. Report and Analysis of Financial Position 4.1 Asset Analysis As at September 30, 2007, total assets of EGCO, its subsidiaries and interests in joint ventures amounted to Baht 53,873 million, an increase of Baht 3,412 million or 7% from December 31, 2006. The important details are as follows : 1) Cash and deposits at financial institutions, and short-term and long-term marketable securities were Baht 5,711 million or 11% of the total assets, down Baht 3,065 million or 35%.This resulted mainly from a decrease of cash and cash equivalent by Baht 1,938 million and a decrease of long-term investments in marketable securities by Baht 1,659 million due to EGCO's payment for the acquisition of shares in BLCP amounting to Baht 4,645 million to CLP Power (BLCP) Ltd., a subsidiary of CLP Holdings Limited, and EGCO's payment for additional paid-up shares in BLCP and GEC amounting to Baht 4,743 million. In addition, EGCO paid dividend to shareholders in the amount of Baht 2,259 million. Meanwhile, EGCO drew down short-term financing of Baht 4,350 million from local banks. 2) Short-term and long-term investments used as collateral were Baht 1,773 million or 3% of the total assets, down Baht 527 million or 23%. This decrease mainly came from the use of cash to repay the principal and pay the interest of KEGCO's debt. 3) Investment in subsidiaries and interests in joint ventures recorded under the equity method in the consolidated financial statements as at September 30, 2007 amounted to Baht 19,807 million or 37% of the total assets, up Baht 7,429 million or 60%. The major change can be defined as follows : 3.1) an investment in the additional paid-up shares amounting to Baht 4,743 million; GEC of Baht 1,485 million and BLCP of Baht 3,258 million. 3.2) an increase in share of profit from investment according to the equity method amounting to Baht 4,798 million. 3.3) dividend received from BLCP and Conal totaling Baht 2,145 million 3.4) profit from translation adjustment totaling Baht 34 million For the company financial statements, the original cost was applied for recording the investment in subsidiaries and interests in joint ventures at the beginning; the book value as at September 30, 2007 was Baht 28,853 million, up Baht 4,743 million or 20%, thanks to the additional paid-up shares in joint ventures, GEC and BLCP. 4) Property, plant and equipment (net) totaled Baht 18,963 million or 35% of the total assets. They were down Baht 1,176 million or 6% due to the decrease in property, plant and equipment from the depreciation of EGCO and subsidiaries' assets totaling Baht 1,589 million and the reclassification of unutilised capital spare parts from property, plant and equipment to spare parts and supplies at REGCO and KEGCO totaling Baht 156 million. Meanwhile, there was a recording of capital spare parts as property, plant and equipment following the major maintenance at REGCO and KEGCO in the amount of Baht 407 million and net purchase of property, plant and equipment totaling Baht 161 million. 5) Other assets were Baht 7,618 million or 14% of the total assets, up Baht 752 million or 11% mainly from an increase of dividend receivable from a joint venture by Baht 1,075 million which was partially offset by a decrease of spare parts and supplies by Baht 215 million and shareholder's loan to GEC by Baht 100 million. 4.2 Liability Analysis As at September 30, 2007, the EGCO Group's total liabilities were Baht 12,740 million, down Baht 1,802 million or 12%. The total liabilities consist of the following: 1) Short-term loans totaled Baht 4,350 million, or 34% of total liabilities. On January 3,2007, EGCO entered into short-term loan agreements with two local banks for a credit facility of up to Baht 4,000 million with each bank. The first drawdown was on January 29, 2007. The principal is to be repaid in one lump sum one year from the agreement entering date. 2) Long-term loans and debentures totaled Baht 6,244 million, or 49% of total liabilities, down Baht 1,269 million or 17%. The details are as follows : - USD loans in the amount of USD 58 million - Yen loans in the amount of Yen 873 million - Baht loans in the amount of Baht 715 million - Baht debentures in the amount of Baht 3,292 million Maturity of long-term loans and debentures as of September 30, 2007 Unit: Million Baht KEGCO EGCO Cogen Roi-Et Green Within 1 Year 2,001 151 30 1-5 Years 2,602 975 120 > 5 Years - 256 109 Total 4,603 1,382 259 Long-term loans and debentures are secured liabilities over land, buildings, power plants and equipment of subsidiaries and joint ventures. The subsidiaries and joint ventures have to maintain cash reserves for the purpose of repayment of principal and interest due within one year and as a reserve for minimising the foreign exchange risk. 3) Other liabilities amounted to Baht 2,145 million or 17% of total liabilities, representing a decrease of Baht 4,883 million or 69% which mostly resulted from EGCO's payment for the acquisition of BLCP of Baht 4,645 million to CLP Power (BLCP) Ltd. in return for the share transfer on January 30, 2007. In addition, income tax payable was down Baht 397 million. Meanwhile, an increase in net liabilities in a joint venture and interest payable amounting to Baht 207 million and Baht 100 million, respectively. 4.3 Shareholders' Equity Analysis As at September 30, 2007, Shareholders' Equity amounted to Baht 41,133 million, which was Baht 5,214 million or 15% higher than the amount as at December 31, 2006. This was due mainly to the following reasons: - the net profit in the consolidated financial statements that amounted to Baht 7,390 million. - at the Annual General Shareholders' meeting on April 23, 2007, it was unanimously resolved to pay dividends in respect of the operating results for the six-month period ended December 31, 2006 at Baht 2 per share, totaling Baht 1,053 million. These dividends were paid to shareholders on May 8,2007. - the EGCO Board of Directors' meeting on August 25, 2007 approved to pay an interim dividend in respect of the operating results for the six-month period ended June 30, 2007 at Baht 2.25 per share, totaling Baht 1,185 million. These dividends were paid to shareholders on September 21, 2007. The analysis of the company's capital structure as at September 30, 2007 can be summarized as follows: Shareholders' equity was Baht 41,133 million or 76.35%. Liabilities were Baht 12,740 million or 23.65%. Important financial ratios were as follows: - Debt to equity ratio was 0.31 times, lower than 0.40 times at the end of 2006. - Book value per share was Baht 77.19, higher than Baht 67.26 at the end of 2006. 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 September 30, 2007, the ending balance ofthe cash and the cash equivalent was Baht 3,664 million, down Baht 1,938 million. The details of the sources and uses of funds are as follows: -Net cash received from operating activities totaled Baht 4,131 million. This was cash received from operating activities that amounted to Baht 4,182 million. Meanwhile, cash received from working capital was down Baht 51 million. - Net cash payment for investing activities was Baht 6,978 million. Cash payment for the investment in the additional shares in joint ventures amounted to Baht 1,485 million at GEC and Baht 3,258 million at BLCP; meanwhile, cash payment for the acquisition of shares in BLCP amounted to Baht 4,645 million. Whereas the net cash inflow from dividend from joint ventures amounted to Baht 1,070 million and the short-term and long-term investments amounted to Baht 1,371 million. In addition, the cash receipt from repayment of shareholder's loan by GEC amounted to Baht 100 million and dividends of EASTW and the other open-end funds amounted to Baht 61 million and Baht 72 million, respectively. - Net cash received from financing activities was Baht 909 million, mainly owing to short-term loans drawn down by EGCO in the amount of Baht 4,350 million whereas the loan repayment of KEGCO, EGCO Cogen and Roi-Et Green totaled Baht 864 million and debenture repayment of KEGCO totaled Baht 317 million. In addition, dividend payment to shareholders amounted to Baht 2,259 million. In the third quarter of 2007, the analysis of the company's liquidity ratios is as follows : - Current ratio was 1.68 times, same as 2006 - Quick ratio was 1.05 times, lower than 1.18 times for 2006 Quick ratio changed slightly as compared to 2006, as a result of the payment of the additional shares totaling Baht 4,743 million to BLCP and GEC and the payment for shares acquisition in BLCP totaling Baht 4,645 million to CLP Power (BLCP) Ltd. Meanwhile there was short-term loans drawn down amounting to Baht 4,350 million.