Management Report and Analysis on Financial Status and Operating Performance

Following the recent economic difficulties that have challenged the global zinc industry, the company has pursued its strategy of concentrating on its core zinc business. It has continued to develop its zinc markets and more particularly the markets of its zinc specialty alloys, to improve its production efficiency and has converted its long term debt into local currency. As a result, total revenues equaled Baht 5,222.02 million and net profit for the year of Baht 335.30 million.

The company has been able to market 105,697 mt of zinc products, an increase of 5% over 2000. This increase has been fuelled by the sales of specialty products as die casting alloys and as the newly produced continuous galvanizing grade alloy (CGG). Those sales totalled 30,207 mt, an increase of 30% over the year 2000. The position of the company in Thailand has also been consolidated with 75% of the sales being domestic against 72% in 2000.

These factors combined with the appreciation of 11% of the US dollar expressed in local currency have mitigated on the revenues the impact of the decrease of the zinc price. The same factors have had the opposite effects on the operating costs, increasing significantly the cost of electricity, but the company has been able to contain the increase while continuing its extensive maintenance program. On the exploration side, while the mineralisation has proven more complex than assessed two years ago, the company has been able to confirm the life of at least ten years for the Padaeng mine. Considering its view of low metal prices for the next few years, the company has reviews its fixed assets for eventual impairment, and has decide to write-off for about Baht 100 million of fixed assets, more particularly the machinery of the Cadmium plant as the company does not see the possibility to market the pure cadmium it produces during the next few years.

Revenue from Sales
In 2001, the company total revenue was Baht 5,222.02 million, Baht 93.43 million lower than in 2000. This is due to the decrease of the LME world zinc price. However, effective production management increased cathode production from 100,780 mt to 106,293 mt in 2001, the increase in high margin product of alloy from 23,323 mt. to 30,207 mt in 2001, and the increase in domestic sale from 72% to 75% helped support sale revenue together with the depreciation of baht from 39.77 Baht/USD in 2000 to 44.52 Baht/USD in 2001. Other revenue was from sale of metal scrap amounted to Baht 15.05 million.

The Profitability
Net profit was Baht 335.30 million in 2001, Baht 124.30 million higher than that of 2000. This was due to the differences in abnormal items. The profitability was affected by the decrease of the LME zinc price and world economic slow down while the processing costs mainly electricity, increased. A reduction in financial cost and administration cost helped improved profitability in 2001. Abnormal Items
In 2001, major abnormal items include the profit from deconsolidation of Padaeng Poongsan Metals amounting to Baht 150.87 million. It was offset with the loss from investment (Asian Potash), asset impairment loss of Baht 113.11 million and stock revaluation of Baht 34.94 million. This was in line with a permanent effort to bring the accounting policy in compliance with international standard.

Balance Sheet (Consolidated)
Asset & Liability: The company’s total asset at the end of the year was Baht 4,652.2 2 million. It was Baht 468.33 million or 9.15 % decreased from 2000. This was mainly due to the reduction in current asset and the fixed asset written-off. For liability, the company’s total liability was Baht 1,786.99 million. It was Baht 804.49 million or 31.04 % decreased from 2000. This mainly came from the positive cashflow position, the current asset management in the low zinc price environment and the refinancing program.

In 2001, there has been major changes in the balance sheet. In Q2, the company offset its expansion reserve of Baht 1,969.00 million which brought the retain loss down to Baht 810.25 million. The company had also written down the asset value. Long term debt had been refinanced and now all denominated in Baht for a tenure of 3 to 5 years on clean loan basis. From the performance of 2001, the retain loss was Baht 625.85 million at December 31, 2001.

Liquidity: In year 2001, the company’s liquidity remained high as a consequence of the new financing structure and lower inventory level. This enables management to manage its liability effectively.

Capital Expenditure: All capital expenditure in year 2001 were mainly for the efficiency improvement of machine and equipment and also the expansion of residue pond capacity. Some improvement plan will continue in 2002.

Source of Fund: As at December 31, 2001, the company’ s debt equity ratio has improved from 1.27 in 2000 to 0.67 in 2001. The company was able to reduce its debt burden with cashflow from operation.





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