Management Discussion and Analysis
For the first six-month Financial Results
Ended June 30, 2011
Note: This Management Discussion and Analysis (MD&A) was made to disclose information and the vision
of the management in order to assist investors to better understand the company's financial status and
operation. It also supports the "Good Corporate Governance Project" of the Securities and Exchange
Commission (SEC).
An English version of the MD&A has been prepared from the Thai version. In the event of a conflict or
a difference in interpretation between the two languages, the Thai version shall prevail.
The objective of this MD&A is to present the information and the explanation of financial status and
operating results as of the date hereof. However, the information provided in this MD&A may vary if any
factors or situation are changed in the future; the investors are, therefore, required to have their own
discretion regarding the usage of this information for any purpose. For further detail, please contact Investor
Relations Section of the Electricity Generating Public Company Limited at Tel: 662-998-5145-7 or Email:
ir@egco.com
MD&A_6M_E_Final
Management Discussion and Analysis
1. Executive Summary
Significant events for the first six-month of 2011 are summarized as below:
- EGCO has been awarded the lincenses for 2010 Firm Small Power Producer
Cogeneration projects from Electricity Generating Authority of Thailand (EGAT) in
accordance with the resolution of the Energy Regulatory Commission. The projects are
TJ Cogen, TP Cogen and SK Cogen, with installed capacity of 125 MW each.
- On March 1, 2011, EGCO aquired a 12.50% interest in Xayaburi Power Company
Limited (Xayaburi) from CH.Karnchang Public Company Limited. Xayaburi plans to
develop a 1,285 MW run-of-river hydroelectric project on the Mekong River in Laos
PDR. The commercial operation date is currently scheduled for January 2019.
- On March 25, 2011, EGCO completed the acquisition of an additional 26.125% interest
in Quezon Power (Philippines) Limited Co. (Quezon) bringing EGCO’s total ownership
interest in Quezon to 52.125%. In addition, EGCO completed the acquisition of 100%
of the outstanding shares of Pearl Energy Philippines Operating Inc. (PEPOI),
previously named Covanta Philippines Operating Inc. (CPOI), the entity which provides
operation and maintenance services to Quezon through a long-term Operation and
Maintenance Agreement.
EGCO is structured as an investment holding company and has Rayong power plant,
which generates and supply electricity, as an operating company (IPP1). EGCO has invested in
a number of subsidiaries and joint ventures as follows:
1.
Subsididiaries which can be categorized into 2 businesses:
Power Generation
Khanom Electricity Generating Co., Ltd. (KEGCO)
IPP
EGCO Cogeneration Co., Ltd. (EGCO Cogen)
SPP2
Roi-Et Green Co., Ltd. (Roi-Et Green)
SPP
Others
EGCO Engineering and Service Co., Ltd. (ESCO)
O&M3
Egcom Tara Co., Ltd. (Egcom Tara)
Water
PEPOI
O&M
North Pole Investment Co., Ltd. (North Pole)
Holding Co.
1
IPP: Independent Power Producer
SPP: Small Power Producer
3
O&M: Operating and Maintenance
2
MD&A_6M_E_Final
2
2.
Joint Ventures in Power Generation business
Gulf Electric Public Company Limited (GEC)
Gulf Cogeneration Co., Ltd. (GCC)
Nong Khae Cogeneration Co., Ltd. (NKCC)
Samutprakarn Cogeneration Co., Ltd. (SCC)
Gulf Yala Green Co., Ltd. (GYG)
Gulf Power Generation Co., Ltd (GPG)
BLCP Power Co., Ltd. (BLCP)
Natural Energy Development Co., Ltd. (NED)
(Under construction)
Nam Theun 2 Power Co., Ltd. (NTPC)
Conal Holdings Corporation (Conal)
Western Mindanao Power Corporation
Southern Philippines Power Corporation
Alto Power Management Coporation
Quezon
Holding Co.
SPP
SPP
SPP
SPP
IPP
IPP
SPP
IPP
Holding Co.
SPP
SPP
O&M
IPP
In addition, EGCO holds 18.72% of the outstanding shares in East Water Resources
Development and Management Public Company Limited (East Water). East Water is a listed
Thai company and EGCO’s position is held as long-term financial investment in marketable
securities.
As of June 30, 2011, EGCO, the Rayong power plant, each subsidiary and each joint
venture company in EGCO’s portfolio, are hereinafter collectively referred to as EGCO Group. In
total, the EGCO Group holds interests in 14 operating plants, totaling 4,417.30 MW (equity
share).
EGCO Group has a 12.27% market share in Thailand out of a total installed capacity of
31,446.71 MW1. Capacity of 3,861.53 MW from the Group’s operation plants is contracted with
EGAT under long-term Power Purchase Agreements (PPAs).
EGCO Group’s consolidated net profit for the six-month period ended June 30, 2011
was Baht 2,973 million, a decrease of Baht 1,381 million or 32% compared to the same period
of last year. This is mainly due to the decline in electricity sales of KEGCO and BLCP from a
lower Base Availability Credit as well as an increase of Rayong power plant’s cost of sales due
to major maintenance.
1
Source: EGAT
MD&A_6M_E_Final
3
2. Report and Analysis of the Operating Results
This report contains the analysis of the
financial statements of EGCO Group as follows:
Unit : Million Baht
Total Revenues
Total Expenses
NCI *
Profit (Loss)
FX
Share of Profit (Loss)
Net Profit
EGCO and Subsidiaries
Power Generation
Others
6M11
6M10
6M11
6M10
3,641
4,135
348
396
(3,615) (3,337)
(287)
(287)
(28)
(44)
(17)
(15)
(2)
754
44
94
5
20
(21)
3
754
64
73
Joint Ventrues
Power Generation
6M11
6M10
2,906
2,906
3,527
3,527
Total
6M11
3,989
(3,902)
(45)
42
25
2,906
2,973
%
6M10 Change
4,531 (12%)
(3,624)
8%
(59) (24%)
848 (95%)
(21) (221%)
3,527 (18%)
4,354 (32%)
*NCI is Non-Controlling Interests
EGCO Group’s net profit for the first six-month period of 2011 ended June 30, 2011 was
Baht 2,973 million, representing a decrease of Baht 1,381 million or 32% compared to the same
period of last year. This is mainly due to the decline in KEGCO and BLCP’s electricity sales as
results of its reduced Base Availability Credit (according to the PPA) as well as an increase of
Rayong power plant’s cost of sales due to major maintenance.
The earnings before finance costs, tax, depreciation, amortization and gain (loss) from
foreign exchange (FX) (EBITDA) for the first six-month of 2011 was Baht 4,592 million,
representing a decrease of Baht 1,482 million or 24% as compared to the same period of 2010,
in which the EBITDA was Baht 6,075 million.
The gross profit from subsidiaries was Baht 940 million, down by Baht 784 million or
45%, as a result of lower electricity sales by KEGCO and higher maintenance cost at Rayong
power plant when compared to the same period of last year.
Key Profitability Ratios were as follows:
- Gross Profit Ratio was 25.01%
- Operating Profit Ratio was 15.17%
- Net Profit Ratio was 43.12%
- Earnings per share (EPS) was Baht 5.65
- Return on Equity (ROE) was 5.35%
MD&A_6M_E_Final
4
The net profit ratio was reported at 43.12%, lower than the same period of 2010 ratio of
54.03% mainly due to the decreases in the profit from BLCP KEGCO and Rayong power plant.
2.1 The Analysis of EGCO and Subsidiaries in Power Generation business
The first six-month results of 2011 are as follows:
- Total revenues were Baht 3,641 million, a decrease of Baht 494 million or 12%.
- Total expenses were Baht 3,615 million, an increase of Baht 278 million or 8%.
- Gain on FX was Baht 5 million.
The details are as follows:
Total Revenues, Total Expenses and FX:
Total Revenues
Total Expenses
NCI
Profit (Loss)
FX
Net Profit
Unit : Million Baht
EGCO
Rayong
KEGCO
6M11 6M10 6M11 6M10 6M11 6M10
184 150 1,153 1,298 1,164 1,529
(534) (390) (1,055) (932) (1,012) (1,053)
(350) (240)
98 366
152
476
5
(345) (240)
98 366
152
476
EGCO Cogen Roi-Et Green
Total
6M11 6M10 6M11 6M10 6M11 6M10
1,003 1,002 137 156 3,641 4,135
(932) (880) (82) (82) (3,615) (3,337)
(13) (24) (15) (20)
(28)
(44)
58
98
40
54
(2)
754
2
(2)
5
58 100
40
52
3
754
- EGCO’s total revenues of Baht 184 million increased by Baht 34 million or 23% due to
higher interest income and service income from joint ventures. The total expenses of
EGCO were Baht 534 million, an increase of Baht 144 million or 37% mainly from
higher consulting fee for project development and interest expense.
- Sales of electricity were Baht 3,415 million, representing a decrease of Baht 533
million or 13%. The decrease were results of KEGCO and Rayong power plant’s
electricity sales decreased by Baht 365 million and Baht 143 million, respectively,
caused by a decrease in the charges for capacity payments from EGAT. These
changes were in accordance with the capacity payment formula calculated on a "Cost
Plus Basis" under the PPAs and in line with the company's projections.
Sales of Electricity:
6M11
1,127
1,159
995
134
3,415
Rayong Power Plant
KEGCO
EGCO Cogen
Roi-Et Green
Total Sales of Electricity
MD&A_6M_E_Final
5
6M10
1,270
1,524
1,000
154
3,948
Unit : Million Baht
% change
(11%)
(24%)
(0.47%)
(13%)
(13%)
- Cost of sales totaled Baht 2,636 million, an increase of Baht 250 million or 10% from
an increase of Rayong power plant’s cost of sales by Baht 207 million due to major
maintenance as planned.
Cost of Sales:
6M11
929
769
870
68
2,636
Rayong Power Plant
KEGCO
EGCO Cogen
Roi-Et Green
Total Cost of Sales
6M10
721
747
842
76
2,386
Unit : Million Baht
% change
29%
3%
3%
(10%)
10%
2.2 The Analysis of Subsidiaries in Other business
The first six-month results of 2011 are as follows:
- Total revenues were Baht 348 million, a decrease of Baht 48 million or 12%.
- Total expenses were Baht 287 million, a decrease of Baht 0.26 million or 0.09%.
- Gain on FX was Baht 20 million.
The details are as follows:
Unit : Million Baht
Total Revenues, Total Expenses and FX:
Total Revenues
Total Expenses
NCI
Profit (Loss)
FX
Net Profit
ESCO
6M11 6M10
147
266
(137) (220)
10
46
20
(21)
30
25
Egcom Tara
6M11
6M10
139
130
(69)
(67)
(17)
(15)
53
48
53
48
PEPOI
6M11 6M10
62
(44)
18
(0)
18
-
North Pole*
6M11
6M10
(37)
(37)
(37)
-
Total
6M11
348
(287)
(17)
44
20
64
6M10
396
(287)
(15)
94
(21)
73
*Major transaction in North Pole is expense of Withholding Tax of dividend incomes from foreign projects.
- Service income amounted to Baht 205 million, down by Baht 57 million or 22%,
resulting mostly from ESCO’s lower maintenance service income and lower spare part
sales to overseas power plant totaling Baht 119 million, meanwhile, higher service
income from PEPOI totaling Baht 62 million due to the acquisition and stating
recognition in Q2/2011.
- Cost of services was Baht 143 million, a decrease of Baht 46 million or 24% which
was in accordance with the decrease in service income of ESCO.
MD&A_6M_E_Final
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2.3 The Analysis of Joint Ventures in Power Generation business
Share of Profits from Joint Ventures for the fisrt six-month results of 2011 totaled Baht
2,906 million, decrease by Baht 621 million or 18%. The details are as follows:
Share of Profits (Losses) incld. FX:
GEC Group *
GPG
BLCP
NED
NTPC
Conal
Quezon
Total Share of Profits (Losses) incld.FX
* GEC Group consists of GCC NKCC SCC and GYG
6M11
122
703
1,145
(14)
490
68
392
2,906
6M10
186
963
1,703
(11)
289
121
276
3,527
Unit : Million Baht
% change
(34%)
(27%)
(33%)
(22%)
70%
(44%)
42%
(18%)
Share of profits (Losses) decreased mainly from
- A decline in electricity sales of BLCP from a lower Base Availability Credit
- GPG’s major maintenance outage.
Meanwhile,
- Electricity sales of NTPC increased as a result of full recogonition this period and the
acquisition of an additional 10% stake in te company which was completed in
September 2010, compared to the same period of last year which commercial
operated in March 2010.
- Share of profit from Quezon increased due to the acquisition of an additional 26.125%
stake in March 2011.
MD&A_6M_E_Final
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3. Report and Analysis of Financial Position
3.1 Asset Analysis
As at June 30, 2011, the total assets of EGCO Group amounted to Baht 70,866 million,
an increase of Baht 3,826 million or 6% from December 31, 2010. The important details are as
follows:
Unit : Million Baht
80,000
70,866
70,000
67,040
Q2 2011
2010
60,000
50,000
37,464
40,000
30,712
30,000
20,000
13,780 14,796
7,933 11,402
10,000
11,689 10,130
0
Total Assets
Cash,ST & LT
Interests in JVEs
Investment include use
as collateral
Property, Plant and
Equip (net)
Others
1) Cash and deposits at financial institutions, short-term and long-term marketable
securities include use as collateral were Baht 7,933 million or 11% of the total assets, down
by Baht 3,469 million or 30%. This resulted mainly from investments in subsidiaries and joint
ventures of Baht 6,294 million. In addition, dividends from joint ventures and others totaled Baht
1,909 million and net cash receipts from financing activities of Baht 700 million.
2) Interests in joint ventures recorded under the equity method in the consolidated
financial statements as at June 30, 2011 amounted to Baht 37,464 million or 53% of the total
assets, up by Baht 6,752 million or 22%. The major change can be defined as follows:
2.1) An increase in share of profit from interests in joint ventures amounting to Baht
2,906 million.
2.2) An increase in share capital of joint ventures totaling Baht 5,938 million.
2.3) Dividends received from GEC, BLCP, Conal and Quezon by Baht 2,282 million.
2.4) Loss from translation adjustments totaling Baht 190 million.
3) Property, plant and equipment (net) totaled Baht 13,780 million or 19% of the total
assets, down by Baht 1,017 millon or 7% mainly from the depreciation and amortization.
MD&A_6M_E_Final
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4) Other assets were Baht 11,689 million or 16% of the total assets, up by Baht 1,559
million or 15% mainly from an increase in the right of long-term operation and maintenance
agreement (PEPOI), dividends receivable from joint ventures and trade receivables from a
related party.
3.2 Liability Analysis
As at June 30, 2011, EGCO Group's total liabilities were Baht 14,028 million, which was
Baht 2,316 million or 20% higher than the amount as at December 31, 2010. The total liabilities
consist of the following items:
1) Long-term loans and debentures totaled Baht 12,060 million, or 86% of total liabilities,
up by Baht 2,500 million or 26% mainly coming from the drawdown of Baht 3,043 million in
long-term loans. Meanwhile, debenture repayment of KEGCO totaling Baht 497 million and longterm loan repayments for EGCO Cogen and Roi-Et Green also occurred during the quarter. The
details are as follows:
- USD loan in the amount of USD 112 million
- Yen loan in the amount of Yen 516 million
- Baht loans in the amount of Baht 8,414 million
Maturity of long-term loans and debentures as at June 30, 2011
Within 1 Year
1-5 Years
> 5 Years
Total
EGCO
10,808
281
11,089
EGCO Cogen
201
571
772
Unit : Million Baht
Roi-Et Green
39
160
199
Long-term loans are secured liabilities over land, buildings, power plants and equipment
of subsidiaries. The subsidiaries were also required to maintain cash reserves as at June 30,
2011 totaling Baht 139 million for debt service obligations.
2) Other liabilities amounted to Baht 1,967 million or 14% of total liabilities, down by
Baht 184 million or 9%.
3.3 Shareholders' Equity Analysis
As at June 30, 2011, Shareholders' Equity amounted to Baht 56,337 million, which was
Baht 1,517 million or 3% higher than the amount as at December 31, 2010. This was mainly
from the net profit in the consolidated financial statements which amounted to Baht 2,973
million. Meanwhile, the dividend declared totaling Baht 1,448 million.
MD&A_6M_E_Final
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The analysis of the company's capital structure as at June 30, 2011 can be summarized as
follows:
Liabilities were Baht 14,028 million or 19.79%
Shareholders' equity was Baht 56,839 million (include NCI) or 80.21%.
Key financial ratios were as follows:
- Debt to equity ratio was 0.25 times, higher than 0.21 times at the end of 2010.
- Book value per share was Baht 107.01, higher than Baht 104.13 at the end of 2010.
4. Report and Analysis of Cash Flow Position
Cash Flow Statement shows the change in cash flow 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 June 30, 2011, the ending balance of cash
and cash equivalents was Baht 5,294 million, which was Baht 2,455 million lower than the
amount as at December 31, 2010. The details of the sources and uses of funds are as follows:
- Net cash received from operating activities totaled Baht 1,301 million. This was
comprise of cash from operating activities of Baht 1,612 million and payment for working capital
of Baht 311 million.
- Net cash payment for investing activities was Baht 4,439 million mainly due to
investment in joint ventures totaled Baht 6,294 million. Meanwhile, dividend received from joint
ventures and others totaled Baht 1,909 million.
- Net cash received from financing activities was Baht 700 million. This came mainly
from EGCO’s debt drawdown of Baht 3,043 million. Meanwhile, the dividend payment to
shareholders totaling Baht 1,495 million, the debentures repayment of KEGCO totaling Baht 497
million, the interest payments of Baht 242 million and the loan repayments for EGCO Cogen and
Roi-Et Green totaled Baht 107 million.
As at June 30, 2011, the company’s liquidity ratios were as follows:
- Current ratio was 14.50 times, compared to 10.26 times in 2010.
- Quick ratio was 6.64 times, compared to 5.59 times in 2010.
MD&A_6M_E_Final
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