Management Discusscion and Analysis

COMPANY PERFORMANCE ANALYSIS

Net Profit

The consolidated net loss for the year ended 31 December 2018 was 107.8 million baht, decreased from the previous year in an amount of 415.1 million baht, which reported previous year’s net profit at 307.3 million baht. This was mainly due to:

Production and Distribution of Steel Billet Business:

The company reported net loss in an amount of 212.1 million baht.

  • This was mainly from the increase in raw material price in average of 17%, start-up cost of opening factory phase 1 which was ceased the operation for three consecutive years. This spending in an amount of Baht 18 million was revamp the factory into the normal operation. Besides, the Company recorded an allowance for diminution in value of inventories in an amount of 56.9 million baht and the idle capacity cost is an amount of 5 million baht. Consequently, there was net loss for this period.

Logistic business:

  • Net profit increased 2.9 million baht due to increase in revenue from service million baht and less administrative expense of 1.2 million baht.

Renewable Energy Business:

The company reported net profit in an amount of 101.4 million baht. This mainly comprised of the following

  • Increase in sales of electricity 218.1 million baht mainly from newly operating solar power plants during the year which was the main drive of increasing in net profit.
  • Gain from strategic exit of two solar power plants, in line with the Company’s business plan, amounting to Baht 214.5 million.
  • Decrease in administrative expenses by 154.5 million baht mainly from restructuring the solar power plants, devaluation of land and assets.

Total Revenues from sale and service

The consolidated revenue for the year ended 31 December 2018 reported of Baht 4,064.0 million; an increase of Baht 387.9 million or 10.6% from the same period of previous year which reported total revenue of Baht 3,676 million. This was described below:

Production and Distribution of Steel Billet Business:

  • Revenue for Steel business amounted to Baht 3,077.8 million, an increase of Baht 813.3 million or 35.9% from the previous year. This increase was due to an increase in domestic sales amount of Baht 615 million mainly from MOU with TATA INTERNATIONAL MATALS (ASIA) LIMTED and export sales amount of Baht 198 million.

Logistic Business:

  • Transportation revenue - other customers amounted to Baht 4.2 million due to increase in truck traffic volume.

Renewable Energy Business:

The total revenue for the year 2018 was Baht 981.8 million; a decrease of Baht 428.3 million or 30.4% Y-O-Y. The revenue comprised of:

  • Revenue from Sales of Electricity from Solar Plant amounting to Baht 700.7 million. This represented an increase of 218.1 million baht Y-O-Y. This was because of higher capacity of solar power plants. These included 23.70 MWdc. Solar power plant in full year operating whereas previous year had started in March and April 2017. Furthermore, the company was successfully construction many new solar power plants in Japan, one plant capacity 26.68 MWdc operated in April 2018 and three plants capacity of 4.83 MWdc operated in October 2018.
  • The company had revenue from trading for construction materials for solar power plants amount of 277.8 million baht, decreased by 644.1 million baht from the previous year. Due to the nature of business being project based, the volume of trading for construction materials for solar power plants decreased.

Gain from strategic exit of Solar Power Plant

Renewable Energy Business:

  • The company reported the significant gain from strategic exit of solar power plant in Japan with 2 projects, in line with the Company’s business plan, amounted to 214.5 million baht One project has a capacity of 4.02 MWdc and the other project is a project under development which its capacity of 12 MWdc.

Other income

  • Other income for the year ended December 31, 2018 was 23 million baht. This was from steel business in amount of 10 million baht and solar business in amount of 13 million bath. Steel was the income from sales scrap while Solar was the refund from insurance company due to cancellation the insurance policy, tax refund. There was a decrease of 206.6 million baht or 94.1% mainly from previous year due to the compensation from legal execution amount of 200 million baht.

Cost of Sales and Service

The consolidated cost of sales and service for the year ended 31 December 2018 was 3,704.5 million baht; an increase of 657 million baht or 21.6% from the same period of previous year.

Production and Distribution of Steel Billet Business:

  • Cost of sales for steel business increased by 937.1 million baht; this was directly related to the increase in volume of Sales and improvement cost to recover factory phase 1 to be able to return to normal production. Meanwhile, the market price of raw materials fluctuated, the company recorded the allowance for diminution in value of goods and idle capacity.

Logistic Business:

  • Cost of transportation increased by 1.42 million baht in relation of an increase in sales volume.

Renewable Energy Business:

  • Cost of sales and service was at a total of 583.5 million baht comprised of cost of electricity sales and cost of trading for construction material related to solar power plants, decreased in an amount of 270.8 million baht Y-O-Y. This major decrease came from the cost of goods sold by 447.3 million baht while the cost of electricity sales increased mainly due to depreciation cost of new Solar Plants which had been completely constructed during April 2018 and October 2018 respectively, as well as the operating cost as the maintenance, fixed assets tax and land rental cost.

Selling expenses

Selling expenses for the year ended 31 December 2018, amounted to 62.8 million baht from the transportation expense from steel business , a decrease of 0.4 million baht or 0.6% from the previous year.

Administrative expenses

Administrative expenses for the year ended 31 December 2018 was 196.6 million baht; a decrease of 188.6 million baht or 49 % from the previous year.

Production and Distribution of Steel Billet Business:

  • The company reported the amount of 53.8 million baht, lower from the previous year by 32.7 million bath or 37.8%. This was because administrative expense for the year 2017 had included depreciation expense of factory phase 1 in an amount of 26 million baht while this year the company started the operation of the factory phase 1 and presented as cost of goods manufactured.

Logistic Business:

  • The company reported 3 million bath, lower by 1 million baht due to recording of provision for devaluation of assets during 2017.

Renewable Energy Business:

  • The company reported its administrative expenses the amount of 139.8 million baht, decrease of 148.42 million baht the company mainly had the tax expense from the acquisition cost of two Solar Power Plants & the provision for receivables of the subsidiaries in japan, total amount of 58 million baht and bank fee to support the credit facilities for subsidiaries.

Finance cost

The consolidated finance cost for the year ended 31 December 2018 was 414.4 million baht, increased by 64.8 million baht or 18.5% from the previous year

Production and Distribution of Steel Billet Business:

  • The company reported this expenses in an amount of 129.3 million baht, lower than the previous year by 66.2 million baht, due to the net repayment of Loan from financial institution.

Logistic Business:

  • The company reported this expense in an amount of 1 million baht, slightly lower finance cost due to the repayment of Loan.

Renewable Energy Business:

  • The company reported its borrowing cost for the year 2018 amounted to 284.1 million baht; an increase of 131 million baht from the previous year due to the increase in project finance to support the construction of 5 Solar power plants during Q2/18 and Q3/18. Moreover, the capitalized interest of the completed solar power plant during April 2018 posted as expenses in the profit and loss statements, treated differently from the capitalized assets from the previous year.

Consolidated Statement of Financial Position

Total Assets

The consolidated total assets for the year ended 31 December 2018 and 31 December 2017 was 13,211.2 million baht and 12,565.4 million baht respectively, a decrease of 645.8 million baht or 5.1% as below reasons

Cash and cash equivalent increased by 164.9 million baht

Production and Distribution of Steel Billet Business:

  • Cash and cash equivalent decreased by 12.5 million baht

Renewable Energy Business:

  • Cash and cash equivalent increased by 177.4 million baht, mainly because settlement of bank transaction of advance intercompany during year end.

Trade and other receivables decreased by 182.1 million baht, as per the details below:

Production and Distribution of Steel Billet Business:

  • Decreased in trade accounts receivable in the amount of 146.1 million bath.

Renewable Energy Business:

  • Decreased in trade receivables by 36.1 million baht as a result of the settlement of development service charges during 2018.

Inventories decreased 67 million baht, as per the details below:

Production and Distribution of Steel Billet Business:

  • Increased in inventories the amount of 95.4 million bath, higher in quantities 18.7% and the higher price 31.5% and order backlog during Q4/2018.

Renewable Energy Business:

  • Decreased in inventories the amount of 30.5 million baht because of reclassification to spare parts for solar power plants, presenting under Property.

Revenue department receivables increased 87.3 million baht, as per the details below:

Production and Distribution of Steel Billet Business:

  • Increased in an amount of 75.7 million bath because of higher purchase VAT during the year while the company had more export sales than prior year.

Renewable Energy Business:

  • Increased in an amount of 11.6 million bath because of higher purchase VAT for investment in cost of construction of Solar Plant in Japan during 2018. The balance of revenue department in Thailand 55.6 million baht and 134.8 million baht in Japan respectively.

Deposits at financial institutions with restriction on withdrawal

Renewable Energy Business:

  • Increased because of higher amount of long term loan for several newly operated solar power projects during 2018.

Property, plant and equipment and Intangible assets decreased by 351.5 million baht and increased by 335.7 million baht respectively, mainly comprising of

Production and Distribution of Steel Billet Business:

  • Property, plant and equipment decreased by 33.7 million baht, mainly due to the depreciation of fixed assets amounted 49.8 million baht while the company also purchased and factory equipment amounted 16.1 million baht.

Renewable Energy Business:

  • Property, plant and equipment and Intangible asset reported a decrease net amount of 317.8 million baht and 335.7 million baht respectively. This comprised of:
    • An increase in construction cost of six Solar Power Plants in Japan in the amount 336.9 million baht, of total capacity of 41 MWdc. One of which, with capacity of 26 MWdc, completed construction and reached commercial operation during April 2018
    • A decrease amount of 222.3 million baht was mainly from depreciation expense of solar power plant amounted 231.3 million baht and amortization of intangible asset of these plants amounted 86.1 million baht.
    • Decrease of 467.7 million baht was mainly due to the strategic exit of one operating Solar Power Plants in Japan and one under development Solar Power Plants and including reclassification from Land to Investment Property amounted to 22.9 million baht.

Total Liabilities

Total liabilities as of 31 December 2018 and 31 December 2017 was 11,755.1 million baht and 11,039.7 million baht respectively, increased by 715.4 million bath because of higher construction loan from finance of power plants which was received on

Production and Distribution of Steel Billet Business:

The liabilities as of 31 December 2018 was 2,934.6 million baht, decreased 36.5 million baht the major changes Comprised of

  • A decrease in account payable in the amount of 225 million baht, mainly from lower advance payment from customers in an amount of 212.8 million bath and lower trade payables in an amount of 3.9 million baht.
  • Loan from financial institute increase in net amount 187.3 million baht.

Renewable Energy Business

The liabilities as of 31 December 2018 was 8,820.5 million baht, the major changes were

  • Increase in bank overdrafts repayment in the amount of 425.3 million baht during Q4/18 in order to facilitate the cash management of the group company
  • Decrease in account payable in the amount of 182.1 million baht, mainly construction project
  • Increase in the current portion of long term loan in the amount of 243.4 million baht and increase in long term loan in the amount of 316 million baht, respectively mainly from construction finance and project finance for Solar power plants.
  • Decrease in Tax payables in the amount of 30.2 million baht due to lower income as a result of trading and other compensation income 84 million baht as reflected in profit and loss this year.

The consolidated total shareholders’ equity

Total consolidated total shareholders’ equity of 31 December 2018 and 31 December 2017 was 1,448.6 million baht and 1,525.8 million baht respectively, decreased by 77.2 million bath. The detail decrease of equity comprised of:

  • A decrease in net profit for this period of 107.8 million baht.
  • An increase in exchange differences on translating financial statements of foreign subsidiaries in Japan 30.6 million baht.

Consolidated Statements of cash flows as for the period ended 31 December 2018

At the beginning of the current year, the Company presented cash and cash equivalents of 975.9 million baht. The net cash flow increased from all activities of 164.9 million baht, resulting from net cash flows from operating activities, investing activities and financing activities The Company reported cash and cash equivalents at the end of the period of 1,140.8 million baht.

Cash flows from operating activities

The company had cash outflow from operating activities of 142.1 million baht

Production and Distribution of Steel Billet Business:

  • The Company’s cash outflow was 411.1 million baht, resulting from the payment of trade accounts payable of 222.5 million baht, payment of interest 131 million baht and payment to revenue department 75.7 million baht.

Renewable Energy Business:

  • The Company’s cash flow from operating activities was 269.0 million baht, mainly due to the increase in net income before tax 140.1 million baht, collection from receivable 47.0 million baht and refund for tax and VAT 83.8 million.

Cash flows from investing activities

The company had cash outflow from investing activities of 795 million baht

Production and Distribution of Steel Billet Business:

  • The company received cash from deposits as guarantee obligations amounting to 17 million baht and purchase asset amounting to 8 million bath.

Renewable Energy Business:

  • The company had cash outflow from investing activities; totally 799.8 million baht. This was for the investment in construction cost of five Solar Plants in Japan amounted to 991.6 million baht, cash received from sales of 2 Solar power plant s 715.0 million baht, lower cash collateral 432.2 million baht and lower restricted cash amounted 87.3 million baht.

Cash flows from financing activities

The company had cash flows from financing activities of 1,093 million baht

Production and Distribution of Steel Billet Business:

  • The company had net cash inflow from financing amounted to 186.6 million baht, paid overdrafts and short term loans from financial institutions amounted to 237.2 million baht and received long-term loans of 1,483 million baht and repaid 1,059 million baht.

Renewable Energy Business:

  • The Company received cash from financing activities amounted to 906.5 million baht, as the company issued overdrafts of 425.3 million baht and received long-term loans of 1,233.3 million baht and repaid loan 747.7 million baht.

Auditor’s Remuneration

The Company, by the Audit Committee, has reviewed the qualifications of external auditors, taking into account their independence, appropriateness, accountability, and absence of relationship or interest of conflict of interest with the Company, subsidiaries, executives, major shareholders or their related persons. Furthermore, the Audit Committee has annually reviewed and determined audit fee commensurate with the scope of audit work. The Audit Committee shall propose the qualified external auditors and audit fee to the Board of Directors, who shall propose the appointment of external auditors and determination of audit fee to the annual general meeting of shareholders for approval.

  • Auditor’s Remuneration
    The Company paid auditor’s remuneration to AST Master Co., Ltd. for the year 2018 at the amount 1,050,000 Baht
  • Non-audit services
    None