Kuala Lumpur, February 23 - Esso Malaysia Berhad today announced the Company's fourth quarter and full year results for the year ended December 31, 2005:

Full Year 2005 Financial Results

The Company recorded an after tax profit of RM 20 million for 2005, an improvement of RM 9 million over 2004. 

The full year and quarterly results referenced in this report have been restated in accordance with the adoption by the Company of several new and revised financial reporting standards, including a change in the inventory cost formula from last-in-first-out to first-in-first-out basis. The standards were issued by the Malaysian Accounting Standards Board during the year as part of efforts towards alignment with international standards, and will become mandatory for financial periods starting in 2006.  The Company has early-adopted these standards for the 2005 audited financial statements so as to provide a strong and audited foundation to the interim financial statements issued in 2006. 

Revenues in 2005 were RM 8.3 billion, an increase of RM 2.1 billion or 33% over the previous year, reflecting higher product prices.  Sales volumes of 97 thousand barrels per day (kbd) were unchanged year-on-year.

Over the year prices continued their upward trend, with crude costs increasing 50% to about $60 per barrel by year-end 2005.  Margins were squeezed across most of the year as supply costs continued to rise faster than product price increases.  This was compounded by unfavourable price lags under the Automatic Pricing Mechanism.  However the price increases also generated partially offsetting holding gains on crude and product inventories.

Fourth Quarter 2005 Financial Results

The Company recorded an after tax loss of RM 9 million in the fourth quarter of 2005, compared to a loss of RM 3 million in the fourth quarter of 2004. Over the fourth quarter 2005, prices reversed the upward trend seen over the first nine months of the year. This generated positive price lag effects but was offset by inventory losses from lower quarter-end crude and product prices and upfront costs associated with retail initiatives.

The fourth quarter results were, however, an improvement over the third quarter 2005 loss of RM 29 million when results were impacted by unfavourable lag effects as product prices rose across that quarter.

The Port Dickson Refinery's crude throughput for the quarter was about 70 kbd, whilst total sales averaged about 92 kbd.  Revenues for the fourth quarter were RM 2.2 billion, 28% higher than the same quarter in 2004, reflecting higher prices.

Dividends for Financial Year 2005

Management remains confident in the underlying performance of our business and in the Company’s competitive position in a growing economy.  In recognition of this and of our desire to continue to provide a steady return to shareholders, the Board proposes a dividend for the year ended December 31, 2005 of 12 sen less Malaysian income tax at 28% per ordinary stock unit.  This matches the dividend paid for the 2004 financial year.

Review of Operations

The Port Dickson Refinery processed an average of 74 kbd, at about the same level as 2004. In spite of the absence of the 2004 planned refinery shutdown impact, 2005 crude runs remained low mainly driven by unfavourable crude economics. Refining margins continued to be under pressure given the relatively higher priced light crude that the refinery is configured to process.  As part of margin improvement efforts, the refinery increased its use of alternative feedstocks and additives for motor gasoline production and blending. In addition, efforts continued to optimise operations for improved recovery of high value petroleum products.  A number of energy and maintenance cost mitigation measures were also implemented.

In the marketing business, retail sales increased during the year reflecting benefits realised from an expanded service station network and various retail initiatives including On the Run stations and loyalty cards.  Six new service stations were opened in 2005.  Five of these were On the Run stations incorporating the global ExxonMobil convenience store design projecting the Fast, Fresh and Friendly concept.

The Company introduced its new Smiles Driver Reward loyalty card in June 2005, replacing the Xchange loyalty card.  This has helped improve the Company's competitive edge as the new card can be used for purchases as well as instant redemptions at both Esso and Mobil stations, thus capitalising on the larger combined service station network.  The Company was amongst the first in the industry to enable the new security chip-based credit cards to be accepted at the pumps, providing an added convenience to customers as they no longer have to go into the shop to pay for their petroleum purchases.  In 2005, the Company also introduced a new car wash concept, Wash N Run, promoting Fast, Clean and Easy service.  A total of seven Wash N Run services were in operation by year end.

In the industrial business, margins continued to be pressured by rising product costs and intense price competition. In response the Company continued to selectively restructure its diesel business. In the liquefied petroleum gas business, margins remained strong and competition intense as market players aggressively attracted dealers through various incentive schemes to grow volumes.

The Company’s lubricants and specialties business turned in good operating performance during 2005. Commercial vehicle and marine lubricants sectors recorded strong growth from the continued economic expansion and activities in the offshore oil and gas sector. However, margins were squeezed by escalating product costs. Several cost reduction initiatives were implemented, including switching to alternative delivery modes through the use of third party distribution terminals or direct delivery from suppliers, to help reduce distribution cost.

The Company remains focused on its efforts to reduce operating costs. Several measures were undertaken during the year including the dredging of the jetty front at the Bagan Luar terminal to accommodate larger ships thereby reducing the number of port calls and related costs.  Although we incurred one time expenses for the various retail initiatives, this was offset by the absence of costs in the previous year for maintenance and repair expenditure incurred during the planned refinery shutdown and other one time expenses to streamline the organisation.

During the year the Company invested about RM 54 million, mainly for the acquisition of service station sites and the construction of service stations as the Company continues to grow its service station network through selective investments in high growth areas.

Safety, health and environmental performance continue to be a priority for the Company.  Safety performance at the Port Dickson refinery was outstanding with zero total recordable injury rates for both employees and contractors.  The refinery’s goal in safety is to create a workplace where "Nobody Gets Hurt".  By year-end 2005, the site had clocked 4 million man-hours over 10 years without any employee lost-time injuries and 0.3 million man-hours over 3 years without a contractor lost-time injury. Plant and terminal operations were also incident free throughout the year. The Company's distribution network reached 8 consecutive years without any lost time injury, and two consecutive years without any incident, earning them the ExxonMobil Refining and Supply Asia Pacific Silver Award. The Company's safety performance was again recognised by the Malaysian Society of Occupational Safety and Health (MSOSH) with all three of its distribution terminals winning MSOSH Gold Awards. Two of the terminals received the award for the fourth consecutive year.

As a caring corporate citizen and neighbour, the Company continued to improve the quality of life in the community, especially in the areas where it operates.  Direct monetary contributions were made to assist organizations such as public libraries, hospitals and community groups.  Scholarships were awarded to students through the Company-supported ExxonMobil Education and Scholarship Fund. The Company is proud of its employees who have continued our strong tradition of employee volunteerism. Together with family members, they have lent their time and skills through “gotong royong” projects to help the underprivileged and the needy.  These included improving facilities at welfare centres and taking orphans on educational outings. Several employees continued to be involved as student advisors in the ExxonMobil Young Entrepreneur (EYE) programme which teaches school children the value of business and free enterprise.  We were deeply saddened by the devastation caused by the tsunami in December 2004.  The Company donated assistance in-kind to victims in Penang and Kedah while the employees carried out a community project to help displaced victims.  In addition, employees, retirees, dealers and distributors participated in ExxonMobil's worldwide donation matching programme to raise funds for tsunami relief and reconstruction in affected countries.

Business Outlook

The prospects for the Malaysian economy in 2006 remain strong, but there are many challenges ahead of us. We expect refining margins to remain affected by regional refining capacity and the spread between prices for light crudes and other grades.  Crude price volatility has continued into the early parts of this year with prices rising to more than US$70 per barrel in January from about US$60 per barrel in the fourth quarter of 2005. Product margins are thus expected to continue to be under pressure.  Over the long term, we anticipate that the country’s robust economic growth will continue to support strong demand in petroleum products, but competition is likely to remain intense.

With the potential for earnings volatility and intense competition, we need to position ourselves to meet the challenges and participate in opportunities for growth. The Company's focus remains on expanding its strong business position through continued emphasis on strategic investments, product and service quality, the development of our human resources, and optimizing costs to strengthen the Company’s financial position. At the same time, we must continue to look for improvement ideas to sustain our competitive position.