Management Discussion and Analysis for Q3-2008

or 1% compared to the same period of 2007, mainly because KEGCO's cost of sales decreased by Baht 85 million or 7% mostly from a higher heavy oil cost in 2007 due to EGAT's operating order. Meanwhile, REGCO's cost of sales increased by Baht 48 million or 4% from major maintenance. Cost of Sales - IPP Group: Unit : Million Baht 9M08 9M07 %Changes REGCO 1,404 1,356 4% KEGCO 1,135 1,220 (7%) Total Cost of Sales - IPP Group 2,539 2,576 (1%) * Administrative expenses and income taxes were Baht 674 million, an increase of Baht 80 million or 14%, mainly from higher tax payment at REGCO that amounted to Baht 145 million or 91% higher due to the end of corporate tax reduction BOI previlege on April 19,2008. Meanwhile, tax payment at KEGCO decreased by Baht 93 million or 35% due to lower revenues. KEGCO currently enjoy 50% corporate tax reduction BOI privilege on profits from power generation, ending on September 25, 2009. * Interest expenses were Baht 272 million, a decrease of Baht 146 million or 35%,resulting from KEGCO's lower principal amounts of loans and debentures. * Share of profits from joint ventures, BLCP and GPG, was recognised in the amount of Baht 3,856 million, a decrease of Baht 357 million or 8%, mostly due to a fall in the share of profit from BLCP of Baht 2,790 million (including a loss from foreign exchange rate of Baht 25 million) by Baht 842 million or 23% from lower gain on foreign exchange rate and lower electricity sales which was in accordance with the tariff formula as well as higher maintenance cost in 2008. Meanwhile, the share of profit from GPG of Baht 1,066 million (including a loss from foreign exchange rate of Baht 161 million) increased by Baht 486 million or 84% thanks to the electricity sales of GPG, following its KK2 Project-Unit 1 and 2 achieving COD in May 2007 and February 2008, respectively. 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 1,670 million, an increase of Baht 47 million or 3% compared to the same period of 2007. The total expenses were Baht 1,422 million, an increase from the same period of last year by Baht 91 million or 7%. The share of profits from joint ventures were reported at Baht 285 million (including a loss from foreign exchange rate of Baht 6 million), down by Baht 256 million or 47% as compared to the same period of last year which showed the share of profits totaling Baht 541 million (including a gain from foreign exchange rate of Baht 293 million). The details are as follows: Total Revenues, Total Expenses and Share of Profits (Loss) from JVEs of SPP Group : Unit : Million Baht EGCO Cogen Roi-Et Green GEC (exclude GPG) 9M08 9M07 9M08 9M07 9M08 9M07 Total revenues 1,456 1,449 215 174 - - Total expenses 1,309 1,228 113 103 - - Profits bf Share of Profits (Loss) from JVEs 147 221 101 71 - - Share of Profits (Loss) from JVEs - - - - 238 453 Net Profit bf Subs's Fx and MI 147 221 101 71 238 453 APBP and AEP Total 9M08 9M07 9M08 9M07 % Chg Total revenues - - 1,670 1,623 3% Total expenses - - 1,422 1,331 7% Profits bf Share of Profits (Loss) from JVEs - - 248 292 (15%) Share of Profits (Loss) from JVEs 47 88 285 541 (47%) Net Profit bf Subs's Fx and MI 47 88 533 833 (36%) * Sales of electricity of the SPP Group were Baht 1,657 million, representing an increase of Baht 62 million or 4% compared to the same period of last year. Most of the increase of SPP group's electricity sales was from Roi-Et Green in the amount of Baht 51 million, resulting mainly from higher Energy Charge due to higher fuel oil cost, which was in accordance with the tariff formula. Moreover, EGCO Cogen's electricity sales also increased by Baht 12 million due to higher steam sales. Sales of Electricity - SPP Group: Unit : Million Baht 9M08 9M07 %Changes EGCO Cogen 1,446 1,435 1% Roi-Et Green 210 160 32% Total Sales of Electricity - SPP Group 1,657 1,594 4% * Interest income and others amounted to Baht 14 million, a decrease of Baht 15 million or 52%, mainly because the four-year subsidy for guarantee fee from UNDP for Roi-Et Green ended in 2007, causing a lower other income of Baht 9 million, and the lower interest rates caused a decrease in interest income of Roi-Et Green and EGCO Cogen of Baht 6 million. * Cost of Sales of SPP Group was reported at Baht 1,334 million, an increase of Baht 98 million or 8% as compared to the same period of 2007. This was substantially driven by an increase in cost of sales of EGCO Cogen amounting to Baht 88 million as a result of higher fuel cost and maintenance cost from planned outage. Moreover, Roi-Et Green's cost of sales increased by Baht 10 million mainly from a higher fuel cost. Cost of Sales - SPP Group: Unit : Million Baht 9M08 9M07 %Changes EGCO Cogen 1,231 1,143 8% Roi-Et Green 103 93 11% Total Cost of Sales - SPP Group 1,334 1,236 8% * Administrative expenses and income taxes were Baht 26 million, up by Baht 1 million or 4% as compared to the same period of 2007. This mainly resulted from EGCO Cogen's penalty payment to EGAT amounting to Baht 13 million, since its thermal process ratio did not meet the requirement in accordance with the PPA. Meanwhile, income tax decreased by Baht 12 million due to income tax payment a year earlier following Thai LNG Power Co., Ltd. (TLPC)'s liquidation in 2007. * Interest expenses were Baht 62 million, a decrease of Baht 8 million or 11%, mainly from a lower principal of EGCO Cogen. * Share of profits from joint ventures, GEC (excluding GPG), APBP and AEP, totaled Baht 285 million, down by Baht 256 million or 47% as compared to the same period of 2007. This mainly resulted from the share of profit from the joint venture GEC (excluding GPG) of Baht 238 million (including a loss from foreign exchange rate of Baht 12 million), a decrease of Baht 215 million or 47% from a decrease in the gain on foreign exchange rate. Moreover, the share of profits from joint ventures, APBP and AEP, totaled Baht 47 million (including a gain on foreign exchange rate of Baht 6 million), which included the operating results until May 15, 2008 before the sale of shares in EGCO JD, down by Baht 41 million or 47%. 4) Overseas Group refers to Conal and NTPC, of which their share of losses from joint ventures were reported at Baht 31 million, a lower loss of Baht 178 million compared to the same period of 2007. NTPC's share of loss was Baht 98 million (including a loss from foreign exchange rate of Baht 42 million), a lower loss of Baht 146 million or 60% as compared to the same period of 2007, caused mainly by lower foreign exchange loss of Baht 169 million. Meanwhile, Conal's share of profit was reported at Baht 67 million (including a gain on foreign exchange rate of Baht 39 million), an increase of Baht 33 million or 95% compared to the same period of last year, mainly from a decrease in interest expenses, owing to the pretermination of long term loans, and an increase in gain on foreign exchange rate. 5) Other Business Group includes two subsidiaries, ESCO and ET, and a joint venture, AMESCO. Total revenues were Baht 861 million, an increase of Baht 123 million or 17% as compared to the same period of 2007 and total expenses were Baht 606 million, an increase of Baht 82 million or 16%. The share of profit from the joint venture was reported at Baht 4 million, a decrease of Baht 1 million or 26% as compared to the same period of last year. The details are as follows: Total Revenues, Total Expenses and Share of Profits (Loss) from JVEs of Other Business Group: Unit : Million Baht ESCO ET Total 9M08 9M07 9M08 9M07 9M08 9M07 % Chg Total revenues 683 564 178 175 861 739 17% Total expenses 553 467 54 58 606 524 16% Profits bf Share of Profits (Loss) from JVEs 130 97 124 118 255 215 19% Share of Profits (Loss) from JVEs 4 5 - - 4 5 (26%) Net Profit bf Subs's Fx and MI 134 102 124 118 259 219 18% * Service income from ESCO amounted to Baht 660 million, up by Baht 107 million or 19%, resulting mostly from higher maintenance service income and spare parts sale to overseas power plants. * Sales of water from ET, were Baht 172 million, up by Baht 4 million, or 2%, 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 30 million, an increase of Baht 11 million or 63% due to a gain from the sale of shares in AMESCO totaling Baht 15 million. * Cost of services was Baht 459 million, an increase of Baht 58 million or 14%, resulting from an increase in maintenance service costs which was consistent with increased revenues. * Cost of water sales of ET was Baht 50 million, a decrease of Baht 1 million or 2%. * Administrative expenses and income taxes totaled Baht 96 million, an increase of Baht 25 million or 35% compared to the same period of 2007, mostly from an increase in ESCO's income taxes by Baht 25 million from higher revenues. * ESCO's share of profit from a joint venture, AMESCO, totaled Baht 4 million, a decrease of Baht 1.27 million or 26%. 4. Report and Analysis of Financial Position 4.1 Asset Analysis As at September 30, 2008, total assets of EGCO, its subsidiaries and interests in joint ventures amounted to Baht 55,047 million, an increase of Baht 1,446 million or 3% from December 31, 2007. The important details are as follows: 1) Cash and deposits at financial institutions, and short-term and long-term marketable securities were Baht 6,766 million or 12% of the total assets, up Baht 1,274 million or 23%. This resulted mainly from an increase of cash and cash equivalent by Baht 1,510 million due to cash receipts from operating activities of Baht 3,496 million, dividends from joint ventures totaling Baht 1,998 million, cash receipts from the sale of shares in EGCO JD and AMESCO totaling Baht 815 million, and dividend of Baht 78 million received from EASTW. Meanwhile, the investment in joint ventures was Baht 551 million, debenture and loan repayment totaled Baht 1,188 million and dividend payment to shareholders amounted to Baht 2,707 million. 2) Short-term and long-term investments used as collateral were Baht 1,140 million or 2% of the total assets, up Baht 224 million or 25%. This increase mainly came from cash reserve for the repayment of the principal and interest of the debt of KEGCO and EGCO Cogen. 3) Investment in subsidiaries and interests in joint ventures recorded under the equity method in the consolidated financial statements as at September 30, 2008 amounted to Baht 20,184 million or 37% of the total assets, down Baht 49 million or 0.24%. The major change can be defined as follows: 3.1) an increase in share of profit from investment according to the equity method amounting to Baht 4,212 million. 3.2) an investment in additional paid-up shares amounting to Baht 10 million. 3.3) dividends received from BLCP, GEC and Conal by Baht 3,300 million. 3.4) the sale of shares in EGCO JD and AMESCO amounting to Baht 835 million. 3.5) loss from translation adjustment totaling Baht 136 million. For the company financial statements, the original cost was applied to record the investment in subsidiaries and interests in joint ventures at the beginning; the book value as at September 30, 2008 was Baht 29,855 million, up Baht 202 million, thanks to the additional paid-up shares in joint ventures, NTPC and Sustainable Energy and Environmental Development Co.,Ltd. (SEED), amounting to Baht 541 million and Baht 10 million, respectively. Meanwhile, the sale of shares in EGCO JD amounted to Baht 348 million. 4) Property, plant and equipment (net) totaled Baht 17,493 million or 32% of the total assets. They were down Baht 1,145 million or 6% due to the decrease in property, plant and equipment from the depreciation of EGCO and subsidiaries' assets totaling Baht 1,618 million and the reclassification of unutilised capital spare parts from property, plant and equipment to spare parts and supplies at REGCO, KEGCO and EGCO Cogen totaling Baht 295 million. Meanwhile, there was a recording of capital spare parts as property, plant and equipment following the major maintenance at REGCO, KEGCO and EGCO Cogen in the amount of Baht 658 million and net purchase of property, plant and equipment totaling Baht 111 million. 5) Other assets were Baht 9,464 million or 17% of the total assets, up Baht 1,142 million or 14% mainly from an increase of dividends receivable from a joint venture by Baht 1,302 million. Meanwhile, spare parts and supplies were down Baht 262 million. 4.2 Liability Analysis As at September 30, 2008, the EGCO Group's total liabilities were Baht 9,813 million, which was Baht 1,792 million or 15% lower than the amount as at December 31, 2007. The total liabilities consist of the following: 1) Long-term loans and debentures totaled Baht 8,081 million, or 82% of total liabilities, down Baht 1,156 million or 13%. This mainly came from the long-term loans and debentures repayment from KEGCO, EGCO Cogen and Roi-Et Green. The details are as follows: - USD loans in the amount of USD 18 million - Yen loans in the amount of Yen 772 million - Baht loans in the amount of Baht 4,636 million - Baht debentures in the amount of Baht 2,602 million Maturity of long-term loans and debentures as of September 30, 2008 Unit : Million Baht EGCO KEGCO EGCO Cogen Roi-Et Green Within 1 Year - 772 155 33 1-5 Years - 1,830 1,072 134 > 5 Years 4,000 - - 86 Total 4,000 2,602 1,227 252 Long-term loans and debentures are secured liabilities over land, buildings, power plantsand equipment of subsidiaries and joint ventures. The subsidiaries and joint ventures have to maintain cash reserves as at September 30, 2008 totaling Baht 529 million for the purpose of payment of principal and interest due within one year. 2) Other liabilities amounted to Baht 1,732 million or 18% of total liabilities, representing a decrease of Baht 635 million or 27% which was mostly from a decrease in net liabilities in a joint venture by Baht 447 million as a result of the increased capital and the recognition of NTPC's share of loss totaling Baht 541 million and Baht 94 million, respectively. In addition, trade payables decreased by Baht 228 million mainly from EGCO Cogen and KEGCO. 4.3 Shareholders' Equity Analysis As at September 30, 2008, Shareholders' Equity amounted to Baht 45,234 million, which was Baht 3,238 million or 8% higher than the amount as at December 31, 2007. This was due mainly to the net profit in the consolidated financial statements amounting to Baht 6,268 million. Meanwhile, appropriated dividend totaled Baht 2,603 million. The analysis of the company's capital structure as at September 30, 2008 can be summarized as follows: Shareholders' equity was Baht 45,234 million or 82.17%. Liabilities were Baht 9,813 million or 17.83%. Important financial ratios were as follows: - Debt to equity ratio was 0.22 times, lower than 0.28 times at the end of 2007. - Book value per share was Baht 84.92, higher than Baht 78.78 at the end of 2007. 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 cash and cash equivalents. As at September 30, 2008, the ending balance of cash and cash equivalents was Baht 5,260 million, which was Baht 1,510 million higher than the amount as at December 31, 2007. The details of the sources and uses of funds are as follows: -Net cash received from operating activities totaled Baht 3,496 million. This was cash received from operating activities of Baht 4,747 million and cash payment for working capital of Baht 1,250 million. -Net cash received from investing activities was Baht 2,275 million mainly due to dividends from joint ventures Baht 1,998 million, cash receipts from the sale of shares in EGCO JD and AMESCO totaling Baht 815 million and dividend received from EASTW by Baht 78 million. Meanwhile, the investment in joint ventures was Baht 551 million. -Net cash payment for financing activities was Baht 4,262 million. The payment includes the payment of principal and interest of EGCO, KEGCO, EGCO Cogen and Roi-Et Green's debentures and loans totaling Baht 1,188 million. The dividend payment to shareholders amounted to Baht 2,707 million . In the nine-month period of 2008, the analysis of the company's liquidity ratios is as follows: - Current ratio was 7.14 times, compared to 4.22 times in 2007 - Quick ratio was 3.93 times, compared to 2.26 times in 2007 Both ratios were higher than the ratios in 2007 due to an increase of cash and cash equivalents that resulted mainly from dividends from joint ventures and cash receipts from the sale of shares in EGCO JD and AMESCO and an increase of dividends receivable from a joint venture.