Eastern Water Resources Development and Management : Quarter 2/2023

EASTERN WATER RESOURCES DEVELOPMENT AND MANAGEMENT PUBLIC COMPANY LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS FOR Q2/2023

1. ANALYSIS OF FINANCIAL PERFORMANCE

For the first half of 2023, East Water Group had total consolidated sales and services income of 2,281.48 million Baht, decreased slightly by 6.98 million Baht or -0.30%, primarily from decreased raw water sales volume, whilst costs of sales and services totaled 1,489.00 million Baht, increased by 153.69 million Baht or +11.51% compared to Q2/2022. East Water Group generated a net profit of 240.73 million Baht, with net profit attributable to equity holders of the parent company of 235.34 million Baht, decreased by 270.28 million Baht or -53.46%.

Proportion of revenues and cost

Rental and services revenue 3%	Construction revenue	Rental and services costs 5%	Construction cost
Industrial water		under Concession	Industrial water		under Concession
		Agreements 1%
	Agreements
revenue		costs 6%
	0.9%	Cost of
3%	Revenue Of
	Jan - Jun 2023			Jan - Jun 2023
	= 2,281.48	Raw water		= 1,489.00	Raw water
Tap water	million Baht	Tap water costs	million Baht
revenue	costs
	36%
revenue		60%		53%
33%

	Income statement (Million Baht)							Q2 (3-month period)
				2023				2022				YoY				%
	Total Sales and Services revenue		1,168.32			1,150.99			17.33			1.51%

Q2 (6 months cumulative)

2023		2022		YoY		%
2,281.48		2,288.45		(6.98)		(0.30%)

Raw water revenue	681.27	716.25	(34.98)	(4.88%)	1,367.42	1,448.43	(81.01)	(5.59%)
Tap water revenue	386.01	356.83	29.18	8.18%	749.99	689.55	60.44	8.77%
Industrial water revenue	45.96	16.09	29.87	185.62%	68.14	29.48	38.66	131.17%
Rental and services revenue	39.28	35.06	4.21	12.02%	75.78	73.23	2.54	3.48%
Construction revenue under Concession Agreements	15.81	26.76	(10.95)	(40.92%)	20.15	47.76	(27.61)	(57.81%)
Costs of Sales and Services	766.91	690.61	76.30	11.05%	1,489.00	1,335.31	153.69	11.51%
Raw water cost	407.08	354.62	52.46	14.79%	784.15	691.52	92.62	13.39%
Tap water cost	266.69	246.14	20.56	8.35%	537.10	477.76	59.33	12.42%
Industrial water cost	45.94	33.41	12.52	37.48%	85.20	54.35	30.85	56.75%
Rental and services cost	31.39	29.68	1.72	5.78%	62.41	63.91	(1.50)	(2.35%)
Construction cost under Concession Agreements	15.81	26.76	(10.95)	(40.92%)	20.15	47.76	(27.61)	(57.81%)
Gross profit	401.41	460.38	(58.97)	(12.81%)	792.48	953.14	(160.67)	(16.86%)
Other income	12.53	53.70	(41.16)	(76.66%)	24.29	60.01	(35.72)	(59.53%)
Sells and administrative expenses	213.36	138.50	74.87	54.06%	359.71	268.13	91.58	34.15%
Operating profit	200.59	375.58	(175.00)	(46.59%)	457.06	745.02	(287.97)	(38.65%)
Finance cost	77.55	64.82	12.73	19.64%	150.69	120.15	30.54	25.42%
Income tax expenses	34.08	55.04	(20.96)	(38.08%)	65.64	115.70	(50.06)	(43.27%)
Net profit	88.96	255.73	(166.77)	(65.21%)	240.73	509.18	(268.45)	(52.72%)
Net profit attributable to shareholders of the	86.23	253.64	(167.41)	(66.00%)	235.34	505.61	(270.28)	(53.46%)
parent company
Earnings per share (EPS)	0.05	0.15	(0.10)	(66.00%)	0.14	0.30	(0.16)	(53.46%)

EASTERN WATER RESOURCES DEVELOPMENT AND MANAGEMENT PUBLIC COMPANY LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS FOR Q2/2023

1. ANALYSIS OF FINANCIAL PERFORMANCE (CONT.)

	EBITDA (Million Baht)							Q2 (3-month period)
				2023				2022				YoY				%
Operating profit	200.59		375.58		(175.00)		(46.59%)
	Depreciation	180.51		179.72		0.79		0.44%
	Amortization	91.61		88.77		2.84		3.20%

Q2 (6 months cumulative)

2023		2022		YoY		%
457.06	745.02	(287.97)	(38.65%)
357.90	347.98	9.92	2.85%
182.46	175.29	7.17	4.09%

EBITDA

472.70

644.08

(171.37)

(26.61%)

997.42

1,268.29

(270.87)

(21.36%)

Note: Depreciation does not include depreciation from recognizing the rights to use assets in accordance with the lease financial standards (TFRS16)

2. ECONOMIC SITUATION

For Q2/2023, overall businesses expanded slightly from the same period last year and last quarter in almost all sectors, following the ongoing gradual economic recovery and increasing number of foreign tourists which benefits the service, hospitality and trade sectors. The manufacturing and export sectors expanded slightly from the automotive manufacturing sector recovering from the gradually easing semiconductor shortage. The increased housing demands for foreign individuals and the government's construction projects lead to an expansion to the real estate and construction sector. On the other hand, the petrochemical sector is in a slowdown cycle compared to the same period last year from the maintenance shutdown of petrochemical plants and decreased demand for plastic for export, especially for basic petrochemicals, such as ethylene and propylene, from the upward price adjustment following the global crude oil price hike due to the Ukraine - Russia war, which hindered production in several countries. Overall, Thailand's trade sector stable. Nevertheless, most businesses were still dealing with sustained high production costs, while there were certain limitations on raising selling prices from the still fragile purchasing power and high competition. Investment and labor sectors are stable.

For Q3/2023, the economy is projected to expand compared to the same period of last year and last quarter, following the upward trend in the number of foreign tourists which benefits the service and hospitality sectors, and the clearer political situation regarding the formation of the new government, which would improve consumer and operator's confidence. For the manufacturing section, foreign orders are expected to recover and continue to expand, especially the United States which is a major trade partner for electrical goods, motorcycles and animal feed. Nevertheless, businesses are still concerned with the domestic purchasing power, which have been impacted by heightened cost of living which makes it difficult to pass on the increase cost through price hikes.

3. WATER SITUATION

As of 28 July 2023, the water supply situation in Chonburi and Rayong were in the higher-than-normal range. The water supply in several main reservoirs were higher than the 10-year average. Nevertheless, rainfall in the June to July period across the majority of Thailand was approximately 5% lower than normal from the intermittent rainfall, with significantly lowered volume and dispersion, which may cause water shortages for the agricultural sector in several regions. The Thai Meteorological Department predicts that the total rainfall in the Eastern Seaboard in the August-October 2023 rainy season will be about 5% lower than normal and the temperature will be approximately 0.5-1.0 degrees Celsius higher than average 32-34 degrees Celsius.

The water in the reservoirs in Chonburi and Rayong were 42.07% and 60.24% of total capacity, respectively.

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EASTERN WATER RESOURCES DEVELOPMENT AND MANAGEMENT PUBLIC COMPANY LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS FOR Q2/2023

3. WATER SITUATION (CONT.)

	Water Volume (Million Cu.M)				Chonburi								Rayong
				Bangphra				Nongkho				Dokkrai				Nongplalai				Klongyai				Prasae
	Water reserve	44.99		13.23		38.89		97.63				29.28		185.93
	Percentage of total capacity	38.00%		62.00%		54.00%		60.00%				73.00%		63.00%
	Average (2013-2022)	53.02		9.39		37.81		97.10				18.97		152.25
	Above/(below) average (2013-2022)	(8.03)		3.84		1.08		0.53				10.31		33.68

4. SIGNIFICANT EVENTS

Dividend Payment: On 20 April 2023, the Annual General Shareholders Meeting (AGM) approved the 2022 dividend payout to shareholders of 0.21 Baht per share, comprising of an interim dividend payout of 0.12 Baht per share, totaling 199 million Baht, which the shareholders received 27 September 2022 and dividend payout for the second 6-months of 2022 of 0.09 Baht per share, totaling 150 million Baht, with the list of shareholders entitled to the dividend payment cut-off date of 27 April 2022 and dividend payment on 19 May 2023.

TRIS Rating:On 30 June 2023, TRIS RATING maintained the rating of the Company's credit and the ratings on its outstanding senior unsecured debentures at "A" with "Stable Outlook". The ratings reflects the strength of the Company as a major raw water supplier with a comprehensive pipeline network in the Eastern Economic Corridor (EEC), its reliable services and lengthy track record, and it's strong profitability.

Progress on lawsuits filed with the Central Administrative Court concerning lease of the Treasury Department's pipelines:On 30 July 2021, the Company participated in the bid process to selection of a private entity to operate and manage the main pipe system in the Eastern Region which comprises 1) the Dokkrai pipeline, 2) the Nongplalai-Nongkhopipeline and 3) Nongkho - Laemchabang (Phase 2) pipeline in accordance with the governmental agency's application of Ratchaphatsadu Land Act, B.E. 2562 (2019) and the Ministerial Regulations on Ratchaphatsadu, B.E. 2564 (2021). The Company submitted a proposal on 9 August 2021. On 26 August 2021, the government agency sent a letter announcing the annulment of the bidding process and invited the Company to resubmit a proposal for a revised bid, dated 10 September 2021. The Company submitted the proposal for the new bid on 28 September 2021.

However, the Company considers the aforementioned annulment of the bid may cause damage to the Company. Thus, on 23 September 2021, the Company filed a lawsuit with the Central Administrative Court (Court) against the Private Entity to Operate and Manage Pipe System Selection Committee (Committee) and the Treasury Department, petitioning the Court to order the revocation the Committee's resolution or its order to annul the bid and to revoke the Committee's announcement and Request for Proposal for the second bid, as well as file a petition for a temporary measure while the Court deliberates. The Court dismissed the temporary measure petition, although the Court's decision also stated that even after the contract for the project in dispute is signed, but the selection process of the private company is subsequently found to not be in compliance with the law, the Court will still have the authority to revoke the proceedings, and that if the Company determines that it has incurred damages, then it has the right to file a suit for damages.

On 1 August 2022, the Company filed a petition for a temporary measure with the Central Administrative Court to postpone the signature of the lease contract for the management and operation of the major water distribution pipelines in the Eastern Seaboard area between the Treasury Department and the private company that acquired the lease scheduled for 3 August 2022. On 2 August 2022, the Central Administrative Court issued a court order granting the temporary measure before the court's final deliberation to suspend the implementation of the announcement and Request for Proposal for the management and operation of the major water distribution pipelines in the Eastern Seaboard area dated 10 September 2021. This results in the temporary postponement of the signature of the above-mentioned contract until the Court issues its ruling or other order. On 21 September 2022, the Supreme Administrative Court ruled against the Central Administrative Court's decision, thus reversing the Central Administrative Court's decision and dismissing the petition.

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EASTERN WATER RESOURCES DEVELOPMENT AND MANAGEMENT PUBLIC COMPANY LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS FOR Q2/2023

4. SIGNIFICANT EVENTS (CONT.)

Nonetheless, the Supreme Administrative Court's ruling only affected the petition for a temporary measure to postpone the signature of the contract, and is in no way a ruling on the main case. The specifics of the main case are still being deliberated by the Central Administrative Court; the results are still uncertain. Once the Central Administrative Court issues an order or renders judgement on the main case, the Company may file an appeal with and enter the Supreme Administrative Court's deliberation process. If the Company determines that it has incurred damages, then it has the right to file a suit for damages.

Transfer of pipeline assets to Treasury Department: On 10 March 2023, the government agency issued a lease/management termination notice for two water pipeline projects: Nong Pla Lai-NongKho and Nong Kho-LaemChabang (Phase 2). The notice requested the Company to demolish its buildings and structures on the site, remove its assets and personnel, and completely deliver the area and assets of the two projects to the government agency by 11 April 2023. On 22 March 2023, the Company disputed the notice's accuracy and explained the potential impacts on water users if the property was handed over to the government agency on the specified date. The Company is still awaiting the Central Administrative Court's order results regarding the lawsuits it filed. Despite the ongoing legal dispute, the government agency insisted that the Company deliver the assets by the 11 April 2023 deadline. As a result, the Company delivered the projects' assets to the government agency on that date.

However, for the handover of assets the Company has reserved the right to object and the right of use and manage the main water distribution pipeline in the Eastern Region as per the legal relations between the Company and the government agency, including the right to file any additional lawsuit with the Court, as well as take any required legal action, including the right to file a suit for all damages that occur or may occur.

The period of the handover of assets to the new operator must have clear plans and actionable steps, agreed upon by all stakeholders, and the Company must prepare the assets to be transferred and separate the operations and management of said assets to ensure minimal impact to the customers along both the Treasury Department's pipelines and the Company's pipelines. Presently, the Company reserves the right to take further legal actions.

The Company is still able to operate its business as usual. Additionally, the water grid that the Company uses to manage water distribution in Rayong, Chon Buri and Chachoengsao Province area has a total length of 523 kilometers, of which, 135.90 kilometers of which are pipes that leased to manage from the Treasury Department (after 11 April 2023 handover, only 77.40 kilometers remain). The rest of the water grid that the Company invested in is operating normally. Moreover, the Company is implementing the Water Resources and Main Pipe System in the Eastern Region Development Masterplan which includes the construction of an additional 139.08 kilometers of pipeline to replace, expand and connect the Water Grid, as well as improve the water security in the region to support the increasing future water demands from the expansion of the EEC. These constructions are scheduled to be completed in time to be able to supply water to customers in December 2023.

Extension of concessions of tap water contract that ended: The Lan Island Waterworks contract ended on 30 September 2021, however the Company and the City of Pattaya have signed an agreement to extend the operations of the Lan Island Waterworks for another 3 years, from the original date of 30 September 2021 to 30 September 2024.

5. RAW WATER BUSINESS

Raw water revenue for Q2/2023 was 1,367.42 million Baht, decreased by 81.01 million Baht or -5.59% compared to Q2/2022, mainly from raw water sales volume decrease of 6.17 million Cu.M or -4.79% (excluding internal usage of the Group of Companies of 22.42 million Cu.M.) caused by the handover of assets of the Nongplalai - Nongkho and Nongkho - Laemchabang (Phase 2) pipeline projects to the Treasury Department on 11 April 2023, as described above, which compelled some customers in the Pluakdaeng-Bowin area to temporarily source raw water from the other private supplier while the

Company's replacement pipeline is under construction (Nongplalai - Nongkho - Laemchabang Pipeline Project). Additionally,

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EASTERN WATER RESOURCES DEVELOPMENT AND MANAGEMENT PUBLIC COMPANY LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS FOR Q2/2023

5. RAW WATER BUSINESS (CONT.)

compared to the previous year, the slowdown in petrochemical industry from the impact of the global economy caused raw water lower demands for customers in the petrochemical sector from reduced production and exports.

The average raw water sales price was 11.14 Baht per Cu.M., decreased by 0.10 Baht per Cu.M. or -0.85% compared to the same period of 2022.

	Raw Water Volume (Million Cu.M)								Q2 (3-month period)
				2023				2022				YoY				%
	Total distribution volume	74.53		72.12		2.40		3.33%
	(deduct) Internal usage for within the	13.01		8.47		4.54		53.57%
	group of companies

Q2 (6 months cumulative)

2023		2022		YoY		%
145.14	145.38	(0.24)	(0.17%)
22.42	16.49	5.93	35.93%

Net raw water sales volume	61.51	63.65	-2.14	-3.36%	122.72	128.89	-6.17	-4.79%

Raw Water Distribution by Customer Group (Internal usage for tap water production is included)

	Internal Usage		Internal Usage
	15%		11%	Industrial
	Industrial	Factories
Factories	Estate		Estate
4%
4%	58%		64%
	Jan - Jun 2022
	Jan - Jun 2023
	= 145.14		= 145.38
	million Cu.M.	Household	million Cu.M.
Household
	Customer
Customer
	21%
23%

Considering the direction and trend industries, there is substantial raw water business growth potential from the expansion of industries, as well as, the government policy promoting Rayong, Chonburi and Chachoensao provinces to be the production hub of high-tech industries and increasing competitivenes with the Eastern Economic Corridor (EEC). The Company's raw water capabilities are considered highly ready to support the EEC; from investments, stability of water resourses and water distribution network.

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