anagement Discussion and Analysis 2006

And the increase of Roi-Et Green's electricity sales came from higher tariff thanks to the tariff formula that is linked to the price of fuel oil. Sales of Electricity - SPP Group: Unit: Million Baht 2006 2005 %Changes GEC 3,168 3,017 5% TLP Cogen 1,962 1,727 14% APBP 338 257 31% Roi-Et Green 233 187 24% Total Sales of Electricity - SPP Group 5,700 5,188 10% - Interest income and others amounted to Baht 111 million, an increase of Baht 38 million or 51%, mainly from an increase of GEC's interest income of Baht 30 million as well as an increase of TLP Cogen's interest income of Baht 12 million thanks to higher interest rates. In contrast, APBP's other income showed a decrease in the amount of Baht 6 million since there was a recognition of insurance claims of a physical impairment of an electricity generating equipment in 2005; Roi-Et Green's other income was down as well by Baht 5 million from lower income from selling bagasse and ashes. - Share of profit from an associate was from AEP totaling Baht 42 million, an increase of Baht 16 million or 60% as compared to 2005 due to increased electricity sales to EGAT and industrial users. - Cost of Sales of SPP Group were reported at Baht 4,654 million, an increase of Baht 454 million or 11% as compared to 2005. This was substantially driven by an increase in cost of sales of TLP Cogen amounting to Baht 228 million from higher fuel costs and usages as well as an increase in cost of sales at GEC amounting to Baht 224 million owing to major maintenance cost plus maintenance expense incurred from the spare part replacement in the gas turbine. The APBP's cost of sales was Baht 1 million higher; Roi-Et Green's cost of sales was also up by Baht 1 million. Cost of Sales - SPP Group: Unit: Million Baht 2006 2005 %Changes GEC 2,727 2,503 9% TLP Cogen 1,541 1,313 17% APBP 272 271 0.19% Roi-Et Green 114 113 1% Total Cost of Sales - SPP Group 4,654 4,200 11% - Administrative expenses and income taxes were Baht 511 million, up by Baht 122 million or 31% as compared to 2005. This increase was substantially from GEC's administrative expenses and income taxes which were higher by Baht 126 million, totaling Baht 462 million, that resulted mainly from prepayment fee and debt refinancing fees at GEC's 3 subsidiaries, namely: Gulf Cogeneration Co., Ltd. (GCC), Nong Khae Cogeneration Co., Ltd. (NKCC), and Samutprakarn Cogeneration Co., Ltd. (SCC). - Interest expenses were Baht 432 million, an increase of Baht 104 million or 32%, driven mainly by an increase in GEC's interest expenses amounting to Baht 116 million due to an unwind cost of Interest Rate Swap Agreement and loan drawdown for administrative expenses for Khaeng Khoi 2 Project. TLP Cogen and Roi-Et Green's interest expenses were down by Baht . 12 million and Baht 2 million, respectively, owing to lower principal amounts. 4) Overseas Group refers to Conal and NTPC, of which their revenues were Baht 765 million, a decrease of Baht 83 million or 10% compared to 2005. The expenses were Baht 484 million, a decrease of Baht 506 million or 51% compared to 2005, owing to the following reasons: Total Revenues and Expenses of Overseas Group: Unit : Million Baht Conal NTPC Total 2006 2005 2006 2005 2006 2005 % Chg Revenues 762 844 3 3 765 847 (10%) Expenses 452 533 31 458 484 990 (51%) - Sales of electricity of the Overseas Group were Baht 676 million, a decrease of Baht 126 million or 16% compared to last year. This resulted from the contractual transfer of the 40 MW of NMPC's Power Plant to NPC in February 2006. - Interest income and others amounted to Baht 88 million, an increase of Baht 43 million or 95% as compared to 2005, mainly due to an increase of Conal's other income from input VAT. - Cost of Sales were Baht 153 million, a decrease of Baht 141 million or 48% due to the transfering of NMPC's Power Plant. - Administrative expenses and income taxes were Baht 259 million, a decrease of Baht 369 million or 59%. This was due to the change to the proportionate consolidation method for the accounting of NTPC that led to a recognition of theseexpenses in the amount of Baht 31 million for 2006 whereas the expenses were recognised in the amount of Baht 458 million in 2005, mainly from development expenses of Baht 280 million. Conal's income tax increased by Baht 74 million, mainly owing to the adjustment of a deferred income tax incurred in 2005; whereas the transfering of NMPC's Power Plant resulted in lower administrative expenses by Baht 14 million. - Interest expenses were Baht 72 million, up by Baht 3 million or 5%. 5) Other Business Group includes two subsidiaries, ESCO and ET. Total revenues were Baht 1,004 million, an increase by Baht 335 million or 50% as compared to 2005 and total expenses totaled Baht 703 million, an increase of Baht 235 million or 50%. The details are as follows: Total Revenues and Expenses of Other Business Group: Unit: Million Baht ESCO ET Total 2006 2005 2006 2005 2006 2005 % Chg Revenues 804 497 201 172 1,004 669 50% Expenses 640 405 63 63 703 468 50% - Service income from ESCO amounted to Baht 788 million, up by Baht 301 million or 62%, 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 192 million, up by Baht 24 million, or 14%, thanks to an increase of minimum take and tariff under the long-term Water Purchase Agreement with Provincial Waterworks Authority. - Interest income and others amounted to Baht 23 million, an increase of Baht 9 million or 61%, mainly from ET's interest income, up Baht 5 million and ESCO's interest income, up Baht 4 million thanks to the higher interest rates. - ESCO's interest in joint ventures totaled Baht 2 million, an increase of Baht 1 million, mainly from Amata Power-Esco Service Co., Ltd (AMESCO). - Cost of Services were Baht 547 million, an increase of Baht 212 million or 63%, resulting from an increase in the costs of ESCO's operation and maintenance (O&M) services to customers and spare parts which was consistent with its increased revenues. - Cost of water sales of ET was Baht 59 million, up Baht 4 million or 7% mainly from an increase of operating and maintenance service costs. - Administrative expenses and income taxes totaled Baht 95 million, an increase of Baht 22 million or 31% compared to 2005, mostly from ESCO's higher administrative expenses and income taxes. - Interest expenses were Baht 3 million, a decrease of Baht 3 million or 54% compared to 2005, owing to lower principal amount of ET's debt. 4. Report and Analysis of Financial Position 4.1 Asset Analysis As at December 31,2006, total assets of EGCO, its subsidiaries, and joint ventures amounted to Baht 71,886 million, an increase of Baht 10,636 million or 17% from December 31, 2005. The important details are as follows: 1) Cash and deposits at financial institutions, and short term and long term marketable securities were Baht 9,633 million or 13% of the total assets, down Baht 2,780 million or 22%. This resulted mainly from a decrease of cash and cash equivalent by Baht 2,972 million due to EGCO's advance payment of Baht 2 billion to CLP Power (BLCP) Ltd, a subsidiary of CLP Holdings Limited, for the subscription of newly issued BLCP shares, along with REGCO's prepayment of its remaining balance of US Institutional Loans totaling USD 78 million (equivalent to Baht 3,222 million). On the other hand, there was an increase of Baht 99 million in deposits at financial institutions and short-term marketable securities, and an increase of Baht 93 million in long-term investments in marketable securities. 2) Short-term and long-term investments used as collateral were Baht 4,466 million or 6% of the total assets, down Baht 10 million or 0.21%.This decrease was mainly because cash reserve is no longer required at REGCO after the payment of all its debt. Meanwhile, GEC incurred an increase in cash reserved for additional debt drawdown and debenture issuance. 3) Investment in associates and interests in joint ventures amounted to Baht 7,083 million or 10% of the total assets, up by Baht 6,680 million. The increase was mainly from the recognition of investment in BLCP amounting to Baht 6,645 million plus the recognition of the share of profit of AEP. Since most conditions precedent as specified in the BLCP's Share Purchase Agreement were fulfilled in 2006 except for the legal transfer of shares and the formal receipt of the lenders' consent letter which occurred in January 2007, EGCO, therefore, concluded that the share purchase was completed within 2006. However, EGCO has not accounted for such interest by proportionate consolidation because EGCO will have effective joint control overBLCP in 2007. 4) Property, plant and equipment (net) totaled Baht 41,247 million or 57% of the total assets. They were up Baht 6,498 million or 19% due to an increase in property, plant and equipment related to GEC (GPG and GYG), NTPC and APBP's construction of Baht 7,520 million, Baht 1,140 million and Baht 180 million, respectively; as well as the recording of capital spare parts as property, plant and equipment following the major maintenance of REGCO, KEGCO and TLP Cogen in the amount of Baht 301 million, Baht 396 million and Baht 40 million, respectively. Meanwhile, the decrease in property, plant and equipment was from the depreciation of EGCO and subsidiaries' assets totaling Baht 2,555 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 211 million, Baht 207 million and Baht 35 million, respectively. 5) Other assets were Baht 9,458 million or 13% of the total assets, up Baht 248 million or 3% mainly from an increase of other current assets by Baht 167 million, other non-current assets by Baht 166 million, trade receivable from a related party (EGAT) by Baht 117 million; whilst spare parts and supplies dropped by Baht 171 million. 4.2 Liability Analysis As at December 31,2006, the EGCO Group's total liabilities were Baht 35,302 million, up Baht 6,166 million or 21% as a result of recording the connected transaction for the acquisition of shares in BLCP as amounts due to related parties of Baht 4,645 million. The increase came also from additional loan drawdown and debenture issuance. The total liabilities consist of the following: 1) Long-term loans and debentures totaled Baht 25,245 million, or 72% of total liabilities, up Baht 1,760 million or 7%. The details are as follows: - USD loans in the amount of USD 306 million - Yen loans in the amount of Yen 970 million - Filipino Peso loans in the amount of Peso 52 million - Baht loans in the amount of Baht 8,018 million - Baht debentures in the amount of Baht 6,337 million In 2006, there was additional loan drawdown that totaled Baht 10,859 million for the construction at GEC, NTPC and APBP in the amount of Baht 9,208 million, Baht 1,523 million and Baht 128 million, respectively.On the other hand, there was loan principal repayment of Baht 9,434 million: from REGCO - Baht 4,048 million which included prepayment of its US Institutional Loans for the remaining balance; KEGCO- Baht 1,304 million; TLP Cogen - Baht 149 million; ET- Baht 60 million;Roi-Et Green - Baht 34 million; Conal - Baht 223 million; APBP - Baht 33 million; and GEC - Baht 3,583 million.Based on EGCO's equity ownership of 50% in GEC, EGCO's proportion of 50% in GCC's issuance of Baht debenture to refinance GCC, NKCC and SCC's long-term debt facilities in April 2006 amounted to Baht 2,900 million. And REGCO, KEGCO and GEC's debenture repayments were Baht 735 million, Baht 583 million and Baht 145 million, respectively. Maturity of long-tern loans and debentures as of December 31,2006 Unit: Million Baht KEGCO TLP Cogen Roi-Et Green APBP Within 1 Year 2,012 150 29 41 1-5 Years 3,637 765 122 209 > 5 Years - 655 142 166 Total 5,649 1,570 294 416 GEC Conal NTPC Within 1 Year 350 189 - 1-5 Years 5,149 369 389 > 5 Years 8,536 - 2,336 Total 14,035 558 2,724 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. 2) Other liabilities amounted to Baht 10,056 million or 28% of total liabilities, represented an increase of Baht 4,406 million which mostly resulted from an increase of amounts due to related parties totaling Baht 5,019 million. This reflected a recording of the connected transaction for the acquisition of shares in BLCP as amounts due to a related party, CLP Power (BLCP) Ltd., of Baht 4,645 million, which was paid to CLP Power (BLCP) Ltd. and share transfer completed on January 30, 2007. The other non-current liabilities increased by Baht 816 million, trade payables increased by Baht 283 million and income tax payable up Baht 354 million; whereas GEC's construction payable decreased by Baht 1,932 million. 4.3 Shareholders' Equity Analysis As at December 31,2006, Shareholders' Equity amounted to Baht 36,585 million, which was Baht 4,470 million or 14% higher than the amount as at December 31, 2005. This was due mainly to the following reasons: - Net profits from 2006 operation amounted to Baht 6,036 million. - The resolution of the Shareholders' Annual General Meeting No.1/2006 held on April 24, 2006 approved the dividend payment for the second half of the year 2005 to be 1.75 Baht per share, totaling Baht 921 million. The date of dividend payment was May 10, 2006. - The Board of Directors at the meeting on August 28, 2006 approved the payment of interim dividend at Baht 2.00 per share with the dividend payment date on September 26, 2006, totaling Baht 1,053 million. The analysis of the company's capital structure as at December 31, 2006 is summarized as follows: Shareholders' equity was Baht 36,585 million or 50.89%. Liabilities were Baht 35,302 million or 49.11%. Important financial ratios were as follows: - Debt to equity ratio was 0.96 times, higher than 0.91 times at the end of 2005. - Book value per share was Baht 67.26, higher than Baht 58.96 at the end of 2005. 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 31,2006, the ending balance of the cash and the cash equivalent was Baht 5,849 million, down Baht 2,972 million from the end of 2005. This decrease was a result of a decrease of cash in hand and deposits at financial institutions of Baht 3,112 million and the effect of foreign exchange rate changes of Baht 141 million.The details of the sources and uses of funds are as follows: -Net cash received from operating activities totaled Baht 8,298 million. Most of this was cash from operating activities that amounted to Baht 8,280 million and cash from working capital of Baht 18 million. -Net cash payment for investing activities was Baht 12,066 million. There was cash payment for the investment in power plant construction that amounted to Baht 8,121 million at GEC, Baht 1,739 million at NTPC and Baht 178 million at APBP. The cash inflow was from dividends of KTSF, EASTW and the other open-ended funds which amounted to Baht 130 million, Baht 31 million and Baht 8 million, respectively. - Net cash received from financing activities was Baht 655 million, mainly owing to the loan repayment by REGCO, KEGCO, TLP Cogen,Roi-Et Green, ET, APBP, GEC and Conal totaling Baht 9,434 million, including the prepayment by REGCO of all its outstanding US Institutional Loans.The repayment of debentures by REGCO, KEGCO and GEC amounted to Baht 1,464 million,and the payment of dividends by EGCO shareholders was Baht 2,150 million. On the other hand, there was additional loan drawdown by GEC in the amount of Baht 9,208 million, NTPC in the amount of Baht 1,523 million and APBP in the amount of Baht 128 million, plus GCC's debenture issuance of Baht 2,900 million. In 2006, the analysis of the company's liquidity ratios is as follows: - Current ratio was 1.69 times, lower than 2.27 times for 2005 - Quick ratio was 1.27 times, lower than 1.79 times for 2005 Both liquidity ratios were lower compared to 2005, mostly as a result of the recording of the connected transaction for the acquisition of shares in BLCP as amounts due to a related party, CLP Power (BLCP) Ltd, of Baht 4,645 million, which was paid to CLP Power (BLCP) Ltd.in 2007. The fall in the ratios was partially offset by a decrease in the long-term loans maturing within one year that resulted from REGCO's prepayment of its outstanding US Institutional Loans.