MD&A Q3/2005
Central Pattana Public Company Limited
Management's Discussion and Analysis
Consolidated Financial Results : Quarter 3/2005
OVERALL PERFORMANCE
Central Pattana Plc., reported consolidated net
profit in Q3/2005 of 2,173.6 MB, an increase of 1,793.3 MB,
or 471.6% from Q3/2004. This was mainly came from the gain
of 2,766.7 MB (or 1,937 MB net of tax) from financial lease
(1) of its building and utility system of Central Plaza Rama
2 and Rama 3 to CPN Retail Growth Property Fund "CPNRF".
However, the Company has made a provision for losses on
impairment of its land bank of 406.6 MB (or 285 MB net of
tax). Excluding the gain from financing lease with CPNRF of
2,766.7 MB, the impairment provision of 406.6 MB, the impact
to income tax (2) of 708.0 MB and the share of loss in
subsidiaries attributed to minority interests of 113.9 MB
from such provision, CPN's net profit from normal operation
totaled 407.6 MB, an increase of by 27.4 MB or 7.2% over
Q3/2004. This increase came mainly from the increase of
rental income from The Offices at Centralworld and Central
Town Rattanathibet, which completed its expansion in August.
Moreover, CPN also received property management fee and
profit sharing of 33% from CPNRF in this quarter which was
11.0 MB and 35.9 MB respectively.
On 15th and 16th August 2005 CPN completed a
lease transaction of Central Plaza Rama2 and Rama3 to CPNRF
creating the largest retail property fund in Thailand with
net asset value of 11,023.9 MB as at September 30, 2005. The
proceed from the establishment of CPNRF has strengthened
CPN'S financial position by allowing CPN to repay a portion
of its loan and retain a high balance of cash of 5,000 MB to
finance its future investment. As a result, net interest
bearing debt to equity declined substantially from 0.9x in
Q2/2005 to 0.4x in Q3/2005 still lower than the company's
policy of 1.0x.
Central Town Rattanathibet was officially
relaunched with the grand opening ceremony on September 15,
2005. The building's interior & exterior have been completely
renovated & modernized, and salable area increased
approximately 25,000 sq.m. for the new cinemas, restaurants
and other retail shops. Robinson Department store also opened
on the first and second floor. So far, this project has
received very good responses from customers. Therefore, CPN
believe it can increase its revenue and profit in the long
run.
Revenues
Rental & service and food & beverage income for
Q3/2005 were 1,674.1 MB, a Y-o-Y increase of 202.2 MB or
13.7%. Although revenue of Central Plaza Rama 2 and Rama 3
were partially transferred to CPNRF. The increase in rental
revenue from The Offices at Centralworld and the relaunch of
Central Town Rattanathibet.
In Q3/2005, other income was 2,878.4 MB, an
increase of 2,798.4 MB, or 3,497.9% over Q3/2004. The
increase mainly came from the gain from the financial lease
of building and system with CPNRF which amounted to 2,766.7
MB. In addition, CPN also received property management fee
from CPNRF which amounted to 11.0 MB.
Cost and Administrative expenses
In Q3/2005, Cost of rental & service and food &
beverage were 875.1 MB, Y-o-Y increase of 95.3 MB, or 12.2%.
The main attributes were higher operating costs and
depreciation of The Offices at Centralworld and Central Park
Rama2, land lease fee of Central World project, and higher
utility cost due to increases in electricity expense.
Selling and administration expenses in Q3/2005
was 633.1 MB, a Y-o-Y increase of 463.1 MB, or 272.5%. The
principle increase came from the provision for losses on
impairment of its land bank of 406.6 MB. and higher
advertising and promotion expenses due to more activities in
all shopping centers such as the public relation campaign of
Central World and the relaunch of Central Town Rattanathibet.
Financial Position as at September 30, 2005
* Assets
As at September 30, 2005, the consolidated assets
were 31,572.2 MB, an increase of 3,565.6 MB, or 12.7% over
June 30, 2005. A large component came from the increase in
cash from the lease and/or sub-lease of some properties of
Central Plaza Rama2 and Rama3 of CPNRF and the gain
associated with such lease. Consolidated assets also
increased due to the increase in property and equipment from
the construction and renovation of Central World Plaza and
Central Town Center Rattanathibet and the purchase of land
for new projects. Moreover, CPN consolidated 40% of Rama3's
assets from the purchase of shares of Central Pattana Rama3
Co., Ltd. from Rodamco Thailand B.V. Currently, CPN holds
100% shares of the company as mentioned.
* Liabilities
As at September 30, 2005, the consolidated
liabilities were 20,238.4 MB, an increase of 1,889.1 MB or
8.0% over June 30, 2005. The increase was attributed to the
increase in deferred income tax from the gain of the
transactions with CPNRF, the impairment provision which
amounted to 708.0 MB, the increase in unearned rental income
from operating lease of land with CPNRF, and consolidation of
40% liabilities of Central Pattana Rama3 Co., Ltd.
Furthermore, the Company also repaid loan of Central Pattana
Rama 2 and Rama 3 amounted to 1,035 MB.
* Shareholders' Equity
Shareholders' equity as at September 30, 2005 was
11,333.7 MB, 2,070.9 MB or 22.4% higher than June 30, 2005.
The increase came from net income from Q3/2005 of 2,173.6 MB.
Financial Ratio Analysis
* Profitability
In Q3/2005 gross profit margin was 47.7%, a
slight increase from the same period of last year due to
increase revenue from The Offices at Centralworld which has
started to cover its costs, especially depreciation expense.
However, this ratio will further improve in the next quarter
due to higher occupancy rate of The Offices at Centralworld
and the opening of expansion of Central World Plaza in the
mid of 2006.
Net profit margin and Return on equity (ROE) in
Q3/2005 were 47.7% and 80.2%, which increased Y-o-Y from
24.0% and 18.7% respectively. This was due to the gain from
lease of building and utility system to CPNRF as mentioned
above.
* Financial Policy
Interest coverage ratio was 16.7x, which
increased Y-o-Y from 7.5x. This was due to the increase of
cash flow from operation (from the increase in revenue and
cash inflow from lease/sublease of land of Central Plaza
Rama2 and Rama3) and the decrease of long term borrowing from
the repayment of loan of Rama 2 and Rama 3 projects of
1,035 MB.
Net interest bearing debt to equity ratio
decreased from 0.9x in Q3/2004 to 0.4x in Q3/2005.
As at September 30, 2005, interest bearing debt
comprised of 89% fixed and 11% floating interest rate. The
weighted average interest rate was 4.8%.
Key Ratio Q3/2005 Q3/2004
LIQUIDITY RATIO
Current Assets/Current Liabilities (Times) 1.4 0.9
Accounts Receivable Turnover (Days) 3 7
PROFITABILITY RATIO
Gross Profit Margin (%) 47.7% 47.0%
Net Profit Margin (%) 47.7% 24.0%
Return on Equity (%) 80.2% 18.7%
EFFICIENCY RATIO
Return on Assets (%) 27.5% 5.7%
FINANCIAL POLICY RATIO
Net Interest Bearing Debt to Equity (Times) 0.4 0.9
Interest Coverage (Times) 16.7* 7.5
Note : *Cash flow included cash from operating lease and/or
sub-lease of land for Central Plaza Rama 2 and Rama 3
project.
(1) Two types of leasing contract are as follow;
1. Financial Lease : realize a one time gain on the
agreement date gain from the lease of building and utility
system to CPNRF .
2. Operating Lease : amortize revenue from the
lease/sublease of land to CPNRF throughout the period of
lease agreement.
(2) Income tax on the gain from the financial lease with
CPNRF and the impairment provision : CPN recorded income
tax on such 2 transactions according to deferred income tax
principle that meaned income tax of 30% on these transactions
were recorded in this quarter. Tax on the gain from
financial lease was 830.1 MB (30% of 2,766.7 MB) and tax on
the impairment provision was (122.0) MB ( 30% of 406.6
million baht). So; net income tax from these transactions
was 708.0 MB.
