Management s Discussion and Analysis (MD&A) Thai Oil Public Company Limited

Transcription

1 Management s Discussion and Analysis (MD&A) Thai Oil Public Company Limited For the Fourth Quarter and the Year of 2017

2 Table of Contents Page 1. Company and its Subsidiaries Operating Results Summary of Financial Result by Business Market Condition and Financial Result of Refinery Business Market Condition and Financial Result of Aromatics Business Market Condition and Financial Result of an Intermediate for the Production of Surfactants Business Market Condition and Financial Result of Lube Base Oil Business Financial Result of Power Generation Business Financial Result of Solvent Manufacturing and Distribution Business Financial Result of Crude, Petroleum and Petrochemical Marine Transportation and Storage, Ship Management Service and Crew & Utility Boat Service Business Financial Result of Ethanol Business Analysis of Consolidated Financial Statement 3.1 Statement of Financial Position Statement of Cash Flows Financial Ratios Industry Outlook for the First Quarter and the First Half of Appendix 5.1 Summary of Approved Investment Plan Summary of Key Project under Feasibility Studies: Clean Fuel Project (CFP) 25 1

3 1. Company and its Subsidiaries Operating Results Table 1: Summary of Consolidated Financial Results Management s Discussion and Analysis (MD&A) Thai Oil Public Company Limited and Subsidiaries For the Fourth Quarter and the Year of 2017 (Million Baht) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Integrated Intake (kbd) (5) Gross Integrated Margin (GIM) (1) (US$/bbl) : excluding stock gain/(loss) (1.9) : including stock gain/(loss) (0.7) (Million Baht) Q4/17 Q3/17 Q3/17 +/(-) Q4/16 +/(-) +/(-) Q4/ /(-) +/(-) Sales Revenue 89,443 80,296 9,147 77,104 12, , ,739 62,649 Hedging Gain/(Loss) (63) (20) (43) (330) 267 (133) (243) 110 EBITDA 10,810 10,983 (173) 10, ,925 32,675 4,250 Foreign Exchange Gain/(Loss) (28) (870) 1,547 3, ,736 Finance Costs (797) (812) 15 (911) 114 (3,285) (3,461) 176 Income Tax Expense (1,711) (1,729) 18 (794) (917) (5,529) (2,295) (3,234) Net Profit 6,927 7,605 (678) 5,802 1,125 24,856 (3) 21,222 (3) 3,634 Basic Earnings per Share (Baht) (0.33) Net Profit excluding stock gain/(loss) and inventory write-down to NRV (2) 3,450 5,194 (1,744) 2,050 1,400 21,441 14,043 7,398 Exchange Rate (Baht: 1 US$) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Average FX (0.43) (2.46) (1.36) Ending FX (0.68) (3.15) (3.15) Remark (1) Gross integrated margin is the integrated gross margin among Thaioil refinery, Thai Paraxylene Co., Ltd., LABIX Co., Ltd. and Thai Lube Base Plc. (2) Excluding pre-tax stock gain/(loss) and pre-tax write-down to NRV on petroleum inventory /(a reversal of write-down to NRV on petroleum inventory) which are included in cost of sale of goods and rendering of services in the. (3) Including dividends received of Baht 158 million for the year 2017 and Baht 247 million for the year 2016 from Thai Petroleum Pipeline Co., Ltd. Compared Q4/17 with Q3/17, Thaioil and Subsidiaries had sales revenue of Baht 89,443 million, increased by Baht 9,147 million as a result of higher average product selling prices and total product sales volume. However, Thaioil and Subsidiaries recorded GIM excluding stock gain/ (loss) of 8.3 US$/bbl, decreased by 1.9 US$/bbl following 1) lower petroleum product spreads, which were owing to higher supply in the U.S. and Europe as a resumption of refineries after ceasing their operations in last quarter, and 2) higher Chinese export volume. Aromatics market, especially benzene, improved as a result of tight supply in the U.S., which was due to maintenance shutdowns of many aromatics plants and strong styrene monomer demand in Asia. This was resulted in higher BZ spread over ULG 95. Linear Alkyl Benzene (LAB) market was pressured by weak trading activities during year end because buyers planned to maintain low inventory. Fortunately, the market was supported by supply shrinkage as production plants in Asia were under maintenance. Lube base oil and bitumen markets were pressured by softened demand from agricultural and road construction demand. However, a 7.9 US$/bbl increased in Dubai price from previous quarter to close at 61.6 US$/bbl led Thaioil and Subsidiaries to realize stock gain of Baht 3,341 million. Including net hedging loss of Baht 63 million, Thaioil and Subsidiaries reported EBITDA of Baht 10,810 million, decreased by Baht 173 million. However, an appreciation in Thai Baht against US Dollar from the end of Q3/17 caused Thaioil and Subsidiaries to have net foreign 2

4 exchange gain of Baht 677 million. Offsetting with depreciation, finance costs and income tax expense, Thaioil and Subsidiaries earned net profit of Baht 6,927 million or 3.40 Baht per share, declined by Baht 678 million from Q3/17. Comparing Q4/17 with Q4/16, Thaioil and Subsidiaries had higher sales revenue by Baht 12,339 million due to increases in average product selling prices and total product sales volume following higher integrated intake. Thaioil and Subsidiaries recorded stronger GIM mainly due to better spreads of jet/kero and gas oil over Dubai, including base oil and bitumen over fuel oil. Therefore, Thaioil and Subsidiaries recognized EBITDA increased by Baht 725 million. Moreover, Thaioil and Subsidiaries reported net foreign exchange gain of Baht 677 million in Q4/17, compared with net foreign exchange loss of Baht 870 million in Q4/16. However, Thaioil and Subsidiaries recorded income tax expense increased by Baht 917 million due to fully-utilized of loss carry forward and BOI tax privileges from emission reduction and energy efficiency projects in This resulted in Thaioil and Subsidiaries to record net profit improved by Baht 1,125 million from Q4/16. For the year 2017, comparing with the year 2016, Thaioil and Subsidiaries had sales revenue of Baht 337,388 million, increased by Baht 62,649 million due to increases in average product selling prices tracking crude oil price and higher integrated intake. Thaioil and Subsidiaries posted GIM excluding stock gain/ (loss) of 9.1 US$/bbl, improved by 1.6 US$/bbl, thanks to stronger petroleum product spreads, especially gasoil and fuel oil, and lower crude premium. Besides, aromatics market was supported by recovery of benzene market which was resulted from tight supply after shutdowns of major benzene producers in the U.S. since late However, paraxylene market was pressured by new supply from India. For LAB market, its spread over feedstock remained weak due to sluggish Indian demand. Lube base oil market improved as a result of supply shrinkage from scheduled maintenances of lube base oil plants in the region. Bitumen market also improved since regional supply decrease after many refineries in Thailand and Singapore had maintenance shutdowns in the first half of In addition, some producers increased fuel oil production instead of bitumen because of higher margin following a rise in fuel oil price. Therefore, Thaioil and Subsidiaries reported EBITDA of Baht 36,925 million, increased by Baht 4,250 million. According to a 3.15 Baht/US$ appreciation in Thai Baht from the end of 2016, Thaioil and Subsidiaries had net foreign exchange gain of Baht 3,182 million, increased by Baht 2,736 million. However, TM recorded a loss on assets impairment of Baht 547 million due to a change in marine transportation business and a sluggish in exploration and production industry which caused TM to earn lower chartering rate and some vessels to be unutilized. However, the commercial startups of LABIX and TOP SPP operations since 2016 continuously provided contributions to Thaioil and Subsidiaries throughout the year Meanwhile, Ethanol business improved thanks to a significant increase in gross margin following higher selling price and lower feedstock cost. In 2017, Thaioil and Subsidiaries achieved benefits from profitability improvement strategy of Baht 5,505 million which was exceed the target. The strategy consists of 4 main types of activities: (1) supply and marketing management, (2) hydrocarbon management (3) Transcendence project and (4) cost savings via the Orchestra project. Thaioil and Subsidiaries, however, recorded income tax expense increased by Baht 3,234 million to Baht 5,529 million due to a rise in profit before tax and a fully-utilized of loss carry forward and BOI tax privileges from emission reduction and energy efficiency projects. Thus, Thaioil and Subsidiaries earned net profit of Baht 24,856 million or Baht per share in 2017, superior than 2016 by Baht 3,634 million. 3

5 2. Summary of Financial Result by Business Table 2: Financial Result by Business (Million Baht) Sales Revenue Q4/17 Q3/17 Q2/17 +/(-) +/(-) Q4/16 Q3/16 +/(-) +/(-) M/ M/16 +/(-) +/(-) Consolidated 89,443 80,296 9,147 77,104 12, , ,739 62,649 Refinery 93,969 83,512 10,457 80,495 13, , ,293 66,536 Aromatics and LAB (1) 14,757 13, , ,881 48,385 9,496 Lube Base Oil 4,531 4, , ,662 13,536 5,126 Power Generation (2) 2,635 2,840 (205) 2,801 (166) 10,929 9,132 1,797 Solvent (3) 2,513 2, , ,182 7,630 1,552 Marine Transportation (4) (22) (76) Ethanol (5) ,620 1, Others (6) EBITDA Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Consolidated 10,810 10,983 (173) 10, ,925 32,675 4,250 Refinery 7,973 8,181 (208) 7, ,508 21,140 3,368 Aromatics and LAB 1,242 1, ,380 (138) 5,528 5,749 (221) Lube Base Oil (84) ,694 2, Power Generation (65) 861 (187) 2,832 2, Solvent (39) (103) Marine Transportation (20) 51 (21) (111) Ethanol (4) 116 (11) Others (21) Net Profit / (Loss) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Consolidated (7) 6,927 7,605 (678) 5,802 1,125 24,856 21,222 (7) 3,634 Refinery (8) 5,866 5,940 (74) 4,275 1,591 17,614 14,028 3,586 Aromatics and LAB (76) 2,730 3,087 (357) Lube Base Oil (70) ,812 1, Power Generation (9) (93) 643 (104) 2,341 1, Solvent (23) (67) Marine Transportation (538) (8) (530) (4) (534) (530) 57 (587) Ethanol (2) Others (10) (22) Remark (1) Thai Paraxylene Co., Ltd. invested 75% of total investment in LABIX Co., Ltd. which produces an intermediate for the production of surfactants (LAB). (2) Thaioil Plc. shares 73.99% in Thaioil Power Co., Ltd., and shares 99.99% in TOP SPP Co., Ltd. for small power plants (SPPs) business. (3) Including Thaioil Solvent Co., Ltd., having respective interests in TOP Solvent Co., Ltd., Sak Chaisidhi Co., Ltd. and TOP Solvent (Vietnam) LLC. (4) Including Thaioil Marine Co., Ltd., having respective interests in Thaioil Marine International Pte. Ltd., TOP Maritime Service Co., Ltd., TOP-NTL Pte. Ltd., TOP-NTL Shipping Trust, TOP Nautical Star Co., Ltd., TOP-NYK MarineOne Pte. Ltd., and T.I.M. Ship Management Co., Ltd. (5) Including Thaioil Ethanol Co., Ltd., having respective interests in Sapthip Co., Ltd., Ubon Bio Ethanol Co., Ltd and Maesod Clean Energy Co., Ltd. However, Thaioil Ethanol Co., Ltd disposed an investment in Maesod Clean Energy Co., Ltd. in February (6) Including Thaioil Energy Services Co., Ltd. (TOP holds 99.99% shares) which provides human resources management service. (7) Including dividends received of Baht 158 million for the year 2017 and Baht 247 million for the year 2016 from Thai Petroleum Pipeline Co., Ltd. (8) For Q4/17, Q3/17, Q4/16, the year 2017 and 2016, pre-tax stock gain on crude intake of correspondent period was recorded at Baht 3,341 million, Baht 2,259 million, Bahr 3,510 million, Baht 3,343 million, and Baht 6,138 million respectively. Additionally, for the mentioned peiod, the reversal of the inventory write-down to NRV of Baht 136 million, Baht 152 million, Baht 242 million, Baht 73 million, and Baht 1,041 million were reported, respectively. (9) Including Thaioil Group s shares of profits from the investments in Global Power Synergy Public Company Limited (GPSC). (10) Including Thaioil Group s shares of profits from the investments in PTT Digital Solutions Co., Ltd. And PTT Energy Solutions Co., Ltd. 4

6 2.1 Market Condition and Financial Result of Refinery Business Table 3: Average Crude Oil Price, Petroleum Product Prices and Crack Spreads Average Prices (US$/bbl) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Dubai Crude Oil Unleaded Gasoline (ULG95) Jet/Kero Gas Oil (GO) Fuel Oil (HSFO) Spread over Dubai (US$/bbl) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Unleaded Gasoline (ULG95) (1.7) 14.6 (0.2) Jet/Kero Gas Oil (GO) (0.9) Fuel Oil (HSFO) (3.1) (1.3) (1.8) (1.7) (1.4) (2.3) (5.0) 2.7 Remark Closing Dubai crude oil at the end of Q4/17, Q3/17, Q2/17, Q1/17 and Q4/16 were calculated from average Dubai price of December 2017, September 2017, June 2017, March 2017 and December 2016, respectively. The prices were 61.6 US$/bbl, 53.7 US$/bbl, 46.5 US$/bbl, 51.2 US$/bbl and 52.1 US$/bbl, respectively. Graph 1: Prices of Crude Oil and Petroleum Product 5 Crude oil price in Q4/17 surged from Q3/17 because of crude oil market deficit on the extension of OPEC and non-opec s supply cut deal of around 1.8 million barrels per day to December 2018 from March Moreover, they intended to reduce OECD oil stocks back to 5 years average level. The market also concerned on tight supply resulting from unrest situations in the Middle East, for example, Iraqi-Kurdish political conflict on Kurdish independence and risk of Iran sanction from the U.S. against Iranian nuclear program, which could lead to limited Iranian crude oil export. Nevertheless, crude oil price did not increase significantly as it was pressured by higher U.S. crude oil production resulting from an increase in crude oil price to stay over average breakeven cost of production. U.S. crude oil producers then reoperated their productions, resulted in U.S. oil rig count risen by more than 30% compared with the same period last year. In 2017, crude oil price considerably rose from previous year after the market turned to deficit following OPEC and non-opec s cooperation to reduce the productions as pledged. Meanwhile, oil demand growth was healthier thanks to an improvement in global economy and low oil retail prices, which helped motivate oil consumption. Gasoline spread over Dubai in Q4/17 declined from Q3/17 and Q4/16 because gasoline demand in the U.S. was weaker after colder-thanexpected weather which led to a slowdown in travelling. Additionally, the spread was pressured by higher gasoline supply from U.S. refineries, which were back to normal operations after unplanned shutdowns in prior quarter, and an increasing Chinese export. Gasoline spread for the year 2017 remained stable compared with 2016 as demand grew consecutively despite increasing supply from higher refineries capacity. Jet/kero spread over Dubai in Q4/17 rose from Q3/17 and Q4/16 and also its spread for the year 2017 increased from 2016 thanks to increasing heating oil demand and travelling demand during year end. Gas oil spread over Dubai in Q4/17 dropped from previous quarter as it was pressured by rising supply from U.S. and European refineries who continued their oprations after they had

7 unplanned shutdowns in prior quarter. Moreover, Chinese export increased due to startups of two new refineries with total capacity of 0.46 million barrels per day. However, gas oil spread over Dubai in Q4/17 and year 2017 increased compared with Q4/16 and year 2016, respectively, owing to rising heating oil demand. Fuel oil spread over Dubai in Q4/17 significantly declined from Q3/17 and Q4/16 as a consequence of higher supply from EU and the U.S. to Asian market. On the other hand, its spread for the year 2017 dramatically improved from 2016 thanks to bunker oil demand growth in the region. Table 4: Financial Result of Refinery Business Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Throughput (1) (%) 112% 114% (2%) 110% 2% 112% 108% 4% Intake (kbd) (3) Gross Refining Margin (GRM) (US$/bbl) : excluding stock gain/(loss) : including stock gain/(loss) Remark (1) Throughput (%) calculated based on 275,000 barrels per day In Q4/17, Thaioil refinery had a slight drop in performance from Q3/17 as GRM excluding stock gain/(loss) decreased following petroleum product spreads. Comparing 2017 with 2016, Thaioil refinery had healthier GRM excluding stock gain/(loss), and had a considerable rise in net foreign exchange gain. Thaioil refinery then recorded an improved net profit despite lower stock gain and significantly higher income tax expense. 6 (2.1) (0.9) In Q4/17, Thaioil refinery had a throughput of 112% which slightly decreased from Q3/17, however total product sales volume increased by 2%. Petroleum product sales proportion was categorized as 85% for domestic, 9% for Indochina and the rest 6% for export. Thaioil refinery had sales revenue of Baht 93,969 million, risen by Baht 10,457 million following increases in average selling prices and total product sales volume. Nevertheless, decreases in petroleum product spreads following higher supply led Thaioil refinery to have GRM excluding stock gain/(loss) of 6.0 US$/bbl, plunged by 2.1 US$/bbl from Q3/17. Thaioil refinery posted stock gain of 3.6 U$/bbl or Baht 3,341 million, which was due to a continuous rise in crude oil price, and had a reversal of write-down to NRV on petroleum inventory totaling Baht 136 million. Aggregating with net hedging loss of Baht 67 million, the refinery earned EBITDA of Baht 7,973 million, dropped by Baht 208 million. Besides, Thaioil refinery posted net foreign exchange gain of Baht 641 million which was slightly higher than Q3/17. Offsetting with depreciation, finance costs and income tax expense, Thaioil refinery recorded net profit of Baht 5,866 million in Q4/17, reduced by Baht 74 million from Q3/17. Compared Q4/17 with Q4/16, Thaioil refinery had a slight increase in throughput and had total product sales volume risen by 5%. With rises in selling prices, Thaioil refinery had sales revenue increased by Baht 13,474 million. In Q4/17, the refinery maintained its GRM excluding stock gain/(loss) as the same period last year. However, the refinery had reductions in stock gain and a reversal of write-down to NRV on petroleum inventory by Bath 169 million and Baht 106 million, respectively. Combining with a decrease in net hedging loss by Bah 263 million, Thaioil refinery earned EBITDA risen by Baht 778 million to Baht 7,973 million. Besides, it had foreign exchange gain higher by Baht 1,445 million. Thaioil refinery then posted net profit larger by Baht 1,591 million from Q4/16. For the year 2017, Thaioil refinery had a throughput of 112%, risen by 4% from 2016, and had sales revenue of Baht 349,829 million, increased by Baht 66,536 million, as a result of a 5% rise in total product sales volume and a significant improvement in average selling prices tracking crude oil price. The refinery had petroleum product sales proportion categorized as 86% for domestic, 9% for Indochina and the rest 5% for export. In 2017, Thaioil refinery posted GRM excluding stock gain/(loss) of 6.7 US$/bbl which was superior by 1.5 US$/bbl due to lower crude premium together with higher petroleum product spreads

8 Nonetheless, the refinery had stock gain and a reversal of write-down to NRV on petroleum inventory of Baht 3,343 million and Baht 73 million, plummeted by Baht 2,795 million and Baht 968 million, respectively. Aggregating with net hedging loss of Baht 128 million, Thaioil refinery earned EBITDA of Baht 24,508 million which improved by Baht 3,368 million. Moreover, the refinery had net foreign exchange gain of Baht 2,882 million, higher than last year by Baht 2,510 million, which mostly came from an unrealized translation gain of US$-denominated debentures following Thai Baht appreciation. However, income tax expense rose to Baht 4,253 million, increased by Baht 3,032 million, owing to fully utilized of loss carry forward and BOI tax privileges from emission reduction and energy efficiency projects in This resulted in Thaioil refinery to record net profit of Baht 17,614 million, improved by Baht 3,586 million from 2016 (including dividend income in 2017, Thaioil refinery had net profit of Baht 28,740 million). 2.2 Market condition and Financial result of Aromatics Business Table 5: Average Prices and Spreads of Aromatics Products Average Price (US$/Ton) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Paraxylene (PX) (1) Benzene (BZ) (2) Toluene (TL) (2) Spread over ULG95 (US$/Ton) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Paraxylene (PX) (20) (41) Benzene (BZ) Toluene (TL) (8) 103 (49) (38) Remark (1) Based on CFR Taiwan price (2) Based on FOB Korea price Graph 2: Prices of Aromatics Products and ULG95 the same period last year owing to lower maintenance shutdowns of PX plants compared with Q4/16. PX price in Q4/17 increased from Q3/17 an6d Q4/16, supported by rising crude oil price. Moreover, PX demand was fairly healthy due to a continuous firm demand for downstream products such as PTA and polyester for winter clothing. Moreover, the price was supported by a startup of new PTA plant in China with capacity 2.5 million tons per annum which will fully operate in January However, PX spread over ULG95 in Q4/17 was stable from previous quarter but lower than Q4/16. This was due to a dramatic rise in ULG95 price which was more than PX price. Moreover, PX supply was higher than PX price in 2017 increased from 2016 tracking crude oil price and 2-million-ton growth in Asia Pacific where polyester demand grew by 6.8%, which was more than previous-3-year average at 4.5%. PX market also supported by startups of new PTA plants in North Asia such as a new PTA plant in Taiwan with capacity of 1.5 million tons per annum. However, PX spread over ULG95 in 2017 decreased from last year because PX market was pressured by an additional supply from a new aromatics plant in India with PX capacity of 1.45 million tons per annum starting its operations in April 2017 and a dramatic rise in ULG95 price. 7

9 BZ price and its spread over ULG95 in Q4/17 increased from Q3/17 and Q4/16 following crude oil price. Additionally, there was a strong import demand from Asia to the U.S. after many BZ plants had reduced their operation rates due to technical outage. Besides, Asian styrene monomer market, which was downstream demand, remained healthy. Despite lower maintenance shutdowns in Q4/17, the aforementioned supporting factors and a postponement of new aromatics plants in Asia led average BZ price in Q4/17 to record high since March BZ price and its spread over ULG95 in 2017 were higher than 2016 due to rising crude oil price and healthy global BZ demand. The BZ demand grew by 2.5% or 1.2 million tons per annum which was more than previous-5-year average at 0.9 million tons per annum. It supported overall BZ market to stay healthy throughout the year However, an additional supply from a new aromatics plant in India with BZ capacity of 0.4 million tons per annum started its operations in April 2017 and had some impact to BZ price in Q2/17. TL price in Q4/17 increased from Q3/17 and Q4/16 tracking crude oil price and BZ price. Moreover, higher ULG95 price supported TL demand as an octane booster for gasoline blending. However, TL spread over ULG95 in Q4/17 declined from Q3/17 and Q4/16 due to increasing ULG95 price which was more than TL price. TL price in 2017 increased from 2016 tracking crude oil price and BZ price. However, a concern over an uncertainty of mixed aromatics consumption tax in China which was likely to be announced in 2017 caused reductions in import cargoes of mixed aromatics and other related substances including TL since March As a result, TL price increased lower than ULG95 price and led TL spread over ULG95 in 2017 to be lower than last year. 8

10 Table 6: Financial Result of TPX Q4/17 Q3/17 +/(-) Q4/17 +/(-) /(-) Aromatics Production Rate (1) (%) 82% 81% 1% 82% - 83% 81% 2% Aromatics Production (kton) Product-to-feed Margin (2) (US$/Ton) (2) (1) Remark (1) Based on a nameplate capacity of 838,000 Tons/year (527,000 tons of paraxylene per year, 259,000 tons of benzene per year and 52,000 tons of mixed xylene per year) (2) Calculated from gross margin divided by feedstock volume (Ton) Compared Q4/17 with Q3/17, TPX reported higher net profit due to an increase in product-to-feed margin from better BZ spread over ULG95. The increase was supported by tightened supply and strengthened demand. In 2017, TPX had lower net profit than 2016 owing to a decrease in PX spread over ULG95. In addition, TPX posted net foreign exchange loss and had higher finance costs and income tax expense, which was due to the fully utilize of loss carry forward in Compared Q4/17 with Q3/17, Thai Paraxylene Co., Ltd. (TPX) had aromatics production rate of 82%, closed to previous quarter. TPX had sales revenue of Baht 11,127 million, increased by Baht 790 million because of rises in selling prices tracking crude oil price and PX sales volume which increased by 5,000 tons compared with Q3/17. Besides, BZ spread over ULG95 increased thanks to tight supply in the U.S. and strong demand from styrene monomer production. This caused product-to-feed margin to rise to 93 US$/Ton and EBITDA to increase by Baht 130 million to Baht 1,069 million. However, TPX had net foreign exchange loss of Baht 7 million. Offsetting with depreciation, finance costs and income tax expense, TPX reported net profit of Baht 499 million, increased by Baht 38 million from Q3/17. Compared with Q4/16, TPX had sales revenue higher by Baht 689 million, supported by rises in aromatics selling prices, especially BZ price which significantly increased, tracking crude oil price. However, productto-feed margin slightly declined owing to weakened PX spread from stronger ULG95 price than PX price. Moreover, PX supply increased from the new aromatics plant in India with capacity of 1.45 million tons per annum starting its operations since April TPX then had decreased EBITDA by Baht 50 million. However, it had net foreign exchange loss of Baht 7 million, compared to Q4/16 TPX had net foreign exchange gain of Baht 42 million in Q4/16, and had increased finance costs by Baht 23 million in Q4/17. Offsetting with depreciation and income tax expense, TPX reported net profit reduced by Baht 156 million from Q4/16. Compared 2017 with 2016, TPX had aromatics production rate increased by 2% thanks to higher aromatics selling prices tracking crude oil price. This was supported sales revenue to increase by Baht 5,642 million to Baht 43,608 million. However, PX spread over ULG95 decreased owing to additional supply from the startup of a new aromatics plant in India amid rising BZ spread over ULG95 following healthy global demand. TPX then had a slight decrease in product-to-feed margin and reported EBITDA of Baht 4,750 million, declined by Baht 183 million. Moreover, TPX had net foreign exchange loss of Baht 29 million, compared with net foreign exchange gain of Baht 38 million in Besides, TPX had finance costs of Baht 121 million, jumped by Baht 66 million. Furthermore, TPX had income tax expense of Baht 653 million, increased by Baht 118 million, because TPX fully utilized its loss carry forward. Therefore, TPX reported net profit of Baht 2,610 million, decreased by Baht 481 million from In Q4/17, aromatics group (TPX holds 75% shares of LABIX) had consolidated sales revenue of Baht 14,757 million, consolidated EBITDA of Baht 1,242 million and consolidated net profit of Baht 490 million. For 2017, aromatics group had consolidated sales revenue of Baht 57,881 million, consolidated EBITDA of Baht 5,528 million and consolidated net profit of Baht 2,730 million. 9

11 2.3 Market Condition and Financial Result of an Intermediate for the Production of Surfactants Business Table 7: Average Price of LAB Average Price (US$/Ton) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Linear Alkylbenzene (LAB) (1) 1,226 1, , ,219 1, Remark (1) Based on ICIS price Graph 3: Prices of LAB LAB price in Q4/17 increased from Q3/17 tracking higher feedstock prices following crude oil price. Moreover, after rainy season, Asian consumer demand improved as well as the recovery of transportation systems; especially in India where was hit by heavy rains during last quarter. Besides, the market was supported by supply shrinkage since a Chinese LAB plant who expected to have a maintenance shutdown from mid-august to the end of September postponed a resumption to October. Furthermore, LAB plants in South Korea and Japan shut for maintenance from the end of October to the beginning of December. However, the market was pressured by the thin year-end trading activities because buyers planned to maintain low inventory. Compared LAB price in Q4/17 with Q4/16, it increased following significantly higher feedstock prices. In 2017, LAB price was better than 2016 tracking higher feedstock prices following crude oil price. Table 8: LAB Production Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) LAB Production Rate (1) (%) 105% 104% 1% 104% 1% 100% 102% (2%) LAB Production (kton) Remark (1) Based on nameplate capacity of 120,000 Tons/year In Q4/17, a decrease in LAB sales volume following weakened demand during year end coupled with a reduction in net foreign exchange gain led to LABIX to report lower net profit than previous quarter. For 2017, LABIX recorded improved net profit from 2016 mainly due to higher net foreign exchange gain than last year. In Q4/17, LABIX Co., Ltd. (LABIX) had sales revenue of Baht 3,909 million, risen from Q3/17 by Baht 151 million due to an increase in LAB price. However, owing to softened demand during year end since buyers intended to minimize their inventory levels, LAB sales volume in Q4/17 was lower than previous quarter by 19%. Moreover, a usual rise in administrative expenses during the end of year resulted in a fall in EBITDA by Baht 5 million from prior quarter to Baht 173 million. Besides, LABIX had net foreign exchange gain of Baht 57 million, dropped by Baht 16 million from Q3/17, which mostly came from an unrealized translation gain of US$-denominated loans. Offsetting with depreciation and finance cost, LABIX reported net loss of Baht 12 million, compared with net profit of Baht 16 million in Q3/17 Compared with Q4/16, LABIX reported a rise in sales revenue of Baht 248 million following higher feedstock prices. Nevertheless, lowered LAB sales volume by 11% led to a fall in EBITDA by Baht 88 million. Including an increase in net foreign exchange gain of Baht 192 million and offsetting with depreciation and finance cost, LABIX recorded improved net profit of Baht 107 million from the same period of prior year. 10

12 Compared 2017 with 2016, LABIX had sales revenue of Baht 15,409 million which was increased by 4,133 million tracking higher LAB price and sales volume than previous year since LABIX fully operated in 2017 after starting its commercial operations in the first quarter of Nevertheless, the gross margin in 2017 was pressured by softened demand in India due to 1) withdrawal 500 and 1,000 rupee notes from circulation 2) implementation of anti-dumping duty on LAB imported from Iran, Qatar, and China, and 3) Goods and Services Tax (GST) reform. This caused LABIX to have a decrease in EBITDA of Baht 39 million to Bath 777 million. However, LABIX had net foreign exchange gain of Baht 362 million, risen by Baht 341 million from prior year, which mostly came from an unrealized translation gain of US$denominated loans. Offsetting with depreciation and finance cost, LABIX had net profit of Baht 161 million which was better than 2016 by Baht 166 million. 2.4 Market Condition and Financial Result of Lube Base Oil Business Table 9: Average Prices and Spreads of Key Lube Base Oil Products Average Prices (US$/Ton) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) 500SN (1) (25) Bitumen (2) Spread over HSFO (US$/Ton) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) 500SN (70) Bitumen (45) (29) (16) (80) 35 (31) (49) 18 Remark (1) Based on Ex-tank Singapore price (2) Based on FOB Singapore price Graph 4: Prices of Lube Base Oil (500SN), Bitumen and Fuel Oil US$/Ton 1, HSFO 500SN Bitumen Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4 In Q4/17, lube base oil price (500SN) and its spread over fuel oil softened from Q3/17 as a result of heavy storm at the beginning of the quarter resulting in weakened agricultural demand. Besides, lube base oil supply rose as lube base oil producers in the U.S. and Europe such as lube base oil Group I and II plants in Texas, United States with total capacity of 1.08 million ton per annum and lube base oil Group I and II plants in Italy with total capacity of 622,000 tons per annum resumed their operations after Hurricane Harvey in the U.S. and floods in Europe had been relieved. However, lube base oil price and its spread in Q4/17 improved from Q3/16 because of shutdowns for maintenance of lube base oil Group I plants in Japan with total capacity of 180,000 tons per annum and lube base oil Group I plants in Indonesia with total capacity of 440,000 tons per annum. In 2017, lube base oil price (500SN) and its spread over fuel oil were better than 2016 due to tightened supply from planned and unplanned maintenance shutdowns of several Asian lube base oil plants resulting in total capacity losses of 1,923,000 tons per annum that were larger than 2016, which had total capacity losses of 984,000 tons per annum. Moreover, a new lube base oil Group II plant in Saudi Arabia with total capacity of 715,000 tons per annum postponed its operations from 2017 to 2018, therefore, concerns over excess supply were 11

13 relieved. However, global demand growth in 2017 was 0.5% lower than 2016 which was 2.3% as a considerably declining in crude oil price in 2016 which resulted in lube base oil demand growth tracking car usage during the period. Bitumen price in Q4/17 rose from Q3/17 and Q4/16 owing to increased crude oil price and tightened supply in the region since some producers increased fuel oil production instead of bitumen because of higher margin following a rise in fuel oil price. Besides, the market was better after rainy season ended thanks to the acceleration in road repair and construction. However, Bitumen price and its spread over fuel oil in Q4/17 dropped from Q3/17 owing to 1) softened demand in Indonesia since the government increased budget spending on other public utility projects rather than road construction 2) high inventory level in Vietnam, and 3) sluggish demand in North China since heavy snow obstructed road construction. Meanwhile, bitumen spread over fuel oil in Q4/17 was better than Q4/16 as a result of tighter supply because some producers reduced bitumen production while increased fuel oil production as mention earlier. Bitumen price and its spread over fuel oil in 2017 improved from 2016 because of an increase in crude oil price and a decrease in regional supply as some producers in Singapore, South Korea and Thailand increased fuel oil production, which had better margin after the price increased, instead of bitumen. Moreover, the regional supply became tight particularly in the first half of the year after a refinery in Thailand had been under planned maintenance shutdown from February to March, whereas supply in Singapore reduced in June owing to a decrease in bitumen production after a fire incident in crude distillation unit. However, the regional demand increased slightly due to uncertainties on Vietnamese and Indonesian government budget spending including high inventory level of each country. Furthermore, road construction plans in Indonesia were lower-than-expected since the government focused more investments on dam and airport construction projects. 12

14 Table 10: Financial Result of TLB Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Base Oil Production Rate (1) (%) 88% 88% - 88% - 88% 81% 7% Base Oil Production (kton) Product-to-feed Margin (2) (US$/Ton) (11) Remark (1) Based on nameplate capacity of 267,015 Tons/year (2) Calculated from gross margin divided by feedstock volume (Ton) In Q4/17, lube base oil and bitumen spreads over fuel oil weakened due to softened demand and additional supply of lube base oil. As a result, TLB s performance softened from Q3/17. For 2017, TLB had an increase in base oil production rate after planned major turnarounds last year. In addition, base oil and bitumen spreads over fuel oil rose due to tightened supply resulting in better performance, compared with previous year. Compared Q4/17 with Q3/17, Thai Lube Base Plc. (TLB) had base oil production rate of 88% and had sales revenue of Baht 4,531 million, increased by Baht 46 million. There were weakened agriculture demand of lube base oil and softened road construction demand of bitumen as well as higher supply of lube base oil after base oil plants in the U.S. and Europe had resumed their operations after unplanned maintenance shutdowns. Consequently, lube base oil price and its spread declined leading to productto-feed margin of 102 US$/Ton decreased by 11 US$/Ton, and EBITDA of Baht 565 million dropped by Baht 84 million. Offsetting with depreciation and income tax expense, TLB posted net profit of Baht 365 million, fallen by Baht 70 million from Q3/17. Compared with Q4/16, TLB had base oil production rate of 88% and had sales revenue higher by Baht 600 million owing to increases in product prices tracking crude oil price and rises in lube base oil and bitumen spreads over fuel oil from tight supply. Then, TLB posted product-to-feed margin higher by 25 US$/Ton resulting in increases in EBITDA and net profit of Baht 291 million and Baht 229 million, respectively, from the same period of previous year. Compared 2017 with 2016, TLB had base oil production higher by 7% and had sales revenues 18,662 million risen by 5,126 million, as there were planned major turnarounds of lube base oil production and other related units for 31 days in Q3/16 as well as increases in product prices following crude oil price. Lube base oil and bitumen spreads over fuel oil improved thanks to tightened supply since several base oil plants had been under maintenance shutdowns and some producers increased their fuel oil production, which earned higher margin following an increase in fuel oil price, instead of bitumen. Moreover, TLB maintained sales proportion of specialty products which have good margin. Consequently, TLB reported product-to-feed margin increased by 5 US$/Ton and recorded EBITDA of Baht 2,694 million, improved by Baht 690 million, and net profit of Baht 1,812 million, risen by Baht 551 million from

15 2.5 Financial Result of Power Generation Business Table 11: Sales Volume from Power Generation Business TP + TOP SPP (1) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Electricity Dispatched (GWh) (24) 612 (7) 2,504 2, Steam Exported (kton) 1,030 1,076 (46) 1,073 (43) 4,233 3, Remark (1) 100% of electricity dispatched and steam exported In Q4/17, TP s net profit dropped from previous quarter because of planned HGPI inspection for 12 days. TOP SPP booked a slight decrease in sales revenue following lower sales volume and higher fuel oil cost. TOP SPP then reported a dip in net profit. Compared 2017 with 2016, TP booked lower sales revenue and net profit from drops in selling prices and electricity sales volume. However, TOP SPP reported higher sales and net profit as it commercially operated in April and June In Q4/17, Thaioil Power Co., Ltd. (TP) had sales revenue of Baht 1,006 million, Baht 58 million decreased from Q3/17 as there were planned maintenance shutdowns for Hot Gas Path Inspection (HGPI) resulting in having a decrease in EBITDA of Baht 23 million from prior quarter to Baht 197 million. Offsetting with finance costs and income tax expense, TP recorded net profit in Q4/17, excluding share of profit from the investment in Global Power Synergy Public Co., Ltd. (GPSC), of Baht 117 million decreased by Baht 16 million from Q3/17. TOP SPP Co., Ltd. (TOP SPP), in Q4/17, earned Baht 1,629 million in sales revenue decreased by Baht 147 million from the previous quarter due to lower average selling prices of electricity and steam following lower natural gas price and an appreciation in Thai Baht against US Dollar. Together with higher fuel oil cost, TOP SPP reported EBITDA of Baht 477 million, or a decrease of Baht 42 million from prior quarter. Offsetting with finance costs and income tax expense, TOP SPP recorded net profit of Baht 278 million in Q4/17, decreased by Baht 40 million from Q3/17. Compared with Q4/16, TP s sales revenue rose by Baht 30 million thanks to higher average selling prices of electricity and steam following higher natural gas price and Ft rate including a depreciation in Thai Baht against US Dollar compared with Q4/16. As a result, TP s EBITDA increased by Baht 17 million. Offsetting with finance costs and income tax expense, TP posted net profit, excluding share of profit from the investment in GPSC, risen by Baht 16 million. For TOP SPP, sales revenue declined by Baht 196 million according to diminishing customers demand. Moreover, owing to a significant increase in fuel oil cost, TOP SPP had lower EBITDA by Baht 203 million in Q4/17. Offsetting with decreases in finance costs and income tax expense, TOP SPP recorded a decrease in net profit of Baht 189 million from the same period of previous year. Compared 2017 with 2016, TP reported sales revenue from electricity and steam sales of Baht 4,150 million, a dip of Baht 113 million following significant declines in natural gas price and Ft rate. Additionally, electricity sales volume declined according to customers demand. With increased production cost from higher fuel price, TP reported EBITDA of Baht 838 million, or a dip of Baht 77 million. Offsetting with finance costs and income tax expense, TP reported net profit of Baht 501 million which was decreased by Baht 54 million, excluding share of profit from the investment in GPSC. For TOP SPP, it had higher sales revenue from electricity and steam sales by Baht 1,911 million to Baht 6,779 million as TOP SPP commercially operated its 2 Blocks in April and June Its EBITDA and net profit increased by Baht 521 million to Baht 1,994 million and Baht 306 million Baht 1,200 million, respectively. Thaioil and Subsidiaries recognized, without non-controlling interest, share of profit from the investment in GPSC of Baht 771 million, increased by Baht 115 million from Thaioil and Subsidiaries, therefore, recognized net profit of Baht 2,341 million from power generation business in 2017, increased by Baht 380 million from previous year. 14

16 On 29 September 2017, TOP SPP was successfully refinancing the inter-company loan of Baht 8,500 million from Thai Oil Public Company Limited to the 19-year syndicated loan with collateral by signing a facility agreement with four financial institutions, namely Bank of Ayudhya Public Company Limited, Kasikornbank Public Company Limited, Sumitomo Mitsui Banking Corporation, and Kiatnakin Bank Public Company Limited. TOP SPP expects to make the first drawdown in Q1/ Financial Result of Solvent Manufacturing and Distribution Business Table 12: Financial Result of Thaioil Solvent Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Solvent Utilization Rate (1) (%) 126% 119% 7% 114% 12% 123% 109% 14% Solvent Production (1) (kton) Solvent Sales Volume (kton) Remark (1) Produced solvent by Sak Chaisidhi Co., Ltd. (TOP Solvent Co., Ltd. holds 80.52% shares) In Q4/17, both higher solvent sales volume and average unit selling price resulted in Thaioil Solvent s sales revenue to increase from Q3/17. In addition, a higher gross profit margin led to increases in EBITDA and net profit from previous quarter. For 2017, although increases in both solvent sales volume and average unit selling price led to higher Thaioil Solvent s sales revenue, softened gross profit margin from higher competition impacted EBITDA and net profit down, compared with the same period of last year. In Q4/17, compared with Q3/17, Thaioil Solvent (Solvent Manufacturing and Distribution Business) had a 126% solvent utilization rate, added by 7% or approximately 2,000 tons higher production volume, and higher sales volume of about 4,000 tons from prior quarter. This was in line with the economic growth of trading partners in many countries, such as Indonesia, India, and Myanmar as well as greater demand from coming New Year festival in Vietnam. Moreover, solvent average selling price per unit improved tracking higher crude oil price. As a result, Thaioil Solvent recorded sales revenue of Baht 2,513 million, increased by Baht 290 million. In addition, gross profit margin was slightly improved from last quarter. Therefore, in Q4/17, Thaioil Solvent reported EBITDA of Baht 182 million, added by Baht 44 million. However, Thaioil Solvent had foreign exchange loss of Baht 11 million in Q4/17, larger loss by Baht 8 million than Q3/17. Offsetting with depreciation of Baht 47 million, finance costs of Baht 18 million, and income tax expense of Baht 15 million, Thaioil Solvent posted net profit of Baht 84 million, increased by Baht 32 million from last quarter. In Q4/17, compared with Q4/16, Thaioil Solvent had its solvent utilization rate improved by 12% and solvent sales volume increased by approximately 6,000 tons as a result of more solvent exports to international markets after the capacity expansion of Sak Chaisidhi Co., Ltd. Besides, greater economic growth in Vietnam helped Thaioil Solvent to have better sales revenue by Baht 312 million. However, the gross profit margin of international markets was usually less than that of domestic markets. Also, there was higher solvent supply in Q4/17 than Q4/16 because of no reported planned shutdown maintenance in Q4/17. This resulted in narrow gross profit margin leading to lower EBITDA by Baht 39 million. Moreover, Thaioil Solvent had foreign exchange loss of Baht 11 million in Q4/17, compared with foreign exchange gain of Baht 20 million in Q4/16. Offsetting with depreciation lowered by Baht 1 million, finance costs down by Baht 7 million, and income tax expense lowered by Baht 10 million, Thaioil Solvent then earned net profit in Q4/17 dropped by Baht 23 million, compared with the same period of a year earlier. Comparing 2017 with 2016, Thaioil Solvent had a 123% solvent utilization rate, added by 14% tracking higher solvent sales volume because Thaioil Solvent adjusted its strategies to increase its market shares. In addition, solvent average selling price per unit improved tracking higher crude oil price. This resulted in sales revenue of Baht 9,182 million, increased by Baht 1,552 million. However, softened gross profit 15

17 margin from higher competition caused Thaioil Solvent to report EBITDA of Baht 690 million, dropped by Baht 103 million from Offsetting with depreciation, finance costs and income tax expense, Thaioil Solvent reported net profit of Baht 309 million, fallen by Baht 67 million, compared with the same period of a year earlier. Besides, late 2017, the Council of TOP Solvent (Vietnam) LLC. (TOP Solvent Co., Ltd. holds 100% shares) had passed the resolution on The North Vietnam Distribution Project with total investment cost approximately USD 13 million and its commercial operation date was expected in Q1/ Financial Result of Crude, Petroleum and Petrochemical Marine Transportation and Storage, Ship Management Service and Crew & Utility Boat Service Business Table 13: Utilization Rate of TM Utilization Rate (%) Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Petroleum & Petrochemical Product Vessel : TM 99% 100% (1%) 98% 1% 96% 92% 4% Crude Vessel: TOP-NYK 100% 83% 17% 100% - 88% 100% (12%) Crew and Utility Boat: TMS 64% 37% 27% 55% 9% 50% 57% (7%) In Q4/17, TM had consolidated revenue higher than Q3/17 because of higher utilization rate of TMS crew boats. However, TM recorded the impairment of assets resulting in higher consolidated net loss. For the year 2017, TM had lower consolidated services revenue following a slowdown in exploration and production business, but reported higher shares of profits from its investments. Nonetheless, because of the impairment of assets, TM recognized consolidated net loss compared with consolidated net profit in In Q4/17, Thaioil Marine Co., Ltd. (TM) reported services revenue, including revenues from TMS (TM holds 55% shares), of Baht 207 million, increased by Baht 11 million from Q3/17 because TMS had higher utilization rates due to additional chartering contracts. However, TM had EBITDA of Baht 30 million, decreased by Baht 20 million following increases in vessel operating and administrative expenses. In Q4/17, TM recorded the impairment of assets of Baht 547 million. However, it had share of profit from the investment in TOP-NYK MarineOne Pte. Ltd. (TOP-NYK) of Baht 20 million, increased by Baht 25 million from higher VLCC s utilization rate after its dry-dock from late Q2/17 to early Q3/17 had completed. Besides, cost from dry-dock was mainly booked in Q3/17. TM also had share of profits totaling Baht 18 million from the investments in TOP-NTL Pte. Ltd. (TOP-NTL), TOP-NTL Shipping Trust, TOP Nautical Star Co., Ltd. (TOP Nautical Star), and T.I.M. Ship Management (TIM), an increase of Baht 9 million from prior quarter, mainly attributable to unrealized net foreign exchange gain from US$-denominated borrowings. Offsetting with depreciation, finance costs, and income tax expense, TM reported consolidated net loss of Baht 538 million, compared with consolidated net loss of Baht 8 million in Q3/17. Compared Q4/17 with Q4/16, TM had services revenue decreased by Baht 22 million because some TM vessels received lowered chartering rates following market situation and TMS crew boats also had lowered chartering rates due to the slowdown in exploration and production industry. Consequently, TM reported lower EBITDA by Baht 21 million. Furthermore, TM had the impairment of assets of Baht 547 million in Q4/17. However, TM had share of profit from the investment in TOP-NYK increased by Baht 11 million and reported higher shares of profits by Baht 17 million from the investments in TOP-NTL, TOP-NTL Shipping Trust, TOP Nautical Star, and TIM. Offsetting with depreciation, finance costs, and income tax expense in Q4/17, TM recorded higher consolidated net loss than Q4/16, which posted consolidated net loss of Baht 4 million. 16

18 For the year 2017, TM booked services revenue of Baht 802 million, a dip of Baht 76 million from 2016, mainly due to the sluggish demand in exploration and production industry which caused some vessels to be under-utilized and received lowered chartering rates. Thus, TM reported EBITDA of Baht 153 million, dropped by Baht 111 million. Furthermore, TM had the impairment of assets of Baht 547 million in Q4/17. However, TM booked higher share of profit from the investment in TOP-NYK by Baht 8 million and reported higher shares of profits by Baht 30 million from the investments in TOP-NTL, TOP-NTL Shipping Trust, TOP Nautical Star, and TIM. Offsetting with depreciation, financial costs, and income tax expense, TM recognized consolidated net loss of Baht 530 million, compared with consolidated net profit of Baht 57 million in

19 2.8 Financial Result of Ethanol Business Table 14: Utilization Rate of TET Q4/17 Q3/17 +/(-) Q4/16 +/(-) /(-) Ethanol Utilization Rate (%) - Sapthip 111% 99% 12% 113% (2%) 101% 99% 2% - Ubon Bio Ethanol 103% 107% (4%) 94% 9% 98% 79% 19% - Maesod Clean Energy* %* - 124%* 89% 35% Remark (*) The utilization rate was presented only in January 2017 as a result of disposal of investment in Maesod Clean Energy Co., Ltd. in February Compared Q4/17 with Q3/17, TET reported a decrease in EBITDA by Baht 4 million due to higher selling and administrative expenses. However, combining with an increase in share of profit from the investment in associate, TET recorded a rise in net profit by Baht 1 million. For the year 2017, TET posted an increase in gross profit margin due to higher average ethanol selling price and lower feedstock cost. As a result, TET had greater net profit by Baht 225 million from year In Q4/17, Thaioil Ethanol Co., Ltd. (TET) had consolidated sales revenue from Sapthip Co., Ltd. (TET holds 50% shares) of Baht 448 million, increased by Baht 85 million compared with Q3/17, due mainly to an increase in ethanol sales volume after planned maintenance shutdown in Q3/17. However, TET posted EBITDA of Baht 105 million, decreased by Baht 4 million from previous quarter due to an increase in selling and administrative expenses. TET had share of profit from the investment in Ubon Bio Ethanol Co., Ltd, increased by Baht 3 million from Q3/17. Offsetting with depreciation and finance cost, TET posted net profit of Baht 52 million in Q4/17, risen by Baht 1 million from last quarter. In comparison with Q4/16, TET had consolidated sales revenue from Sapthip Co., Ltd., rose by Baht 11 million. However, TET reported a decrease in gross profit margin because average cost per unit of cassava (main feedstock) increased due to higher demand from China. As a result, in Q4/17, TET had EBITDA dropped by Baht 11 million from Q4/16. Furthermore, TET had share of profit from the investment in Ubon Bio Ethanol Co., Ltd of Baht 16 million, increased by Baht 4 million. Thus, TET reported lower net profit by Baht 2 million, compared with Q4/16. For the year 2017, TET had consolidated sales revenue from Sapthip Co., Ltd. of Baht 1,620 million, risen by Baht 82 million. It also had EBITDA of Baht 468 million, boosted by Baht 172 million from 2016 due particularly to higher gross profit margin tracking higher average ethanol selling price and lower feedstock cost. In addition, TET had share of profit of Baht 66 million from the investment in Ubon Bio Ethanol Co., Ltd. which was increased by Baht 45 million. As a result, TET recorded net profit of Baht 263 million, increased by Baht 225 million from last year. 18

20 3. Analysis of Consolidated Financial Statement 3.1 Statement of Financial Position The financial position of Thaioil and Subsidiaries as of 31 December 2017 compared with 31 December 2016 was summarized as follows: Table 15: Condensed Consolidated Statements of Financial Position (Million Baht) 31 December December /(-) +/(-) % Assets Cash and cash equivalents and Current investment 67,941 60,775 7, % Other current assets 58,270 54,956 3, % Non-current assets 101, ,000 (103) (0.1%) Total assets 228, ,731 10, % Liabilities Current liabilities 31,756 27,008 4, % Long-term borrowings and debentures (including current portion) 65,499 75,434 (9,935) (13.2%) Other non-current liabilities 3,705 3, % Total liabilities 100, ,134 (5,174) (4.9%) Equity Equity attributable to owners of the company 122, ,857 15, % Non-controlling interests 4,925 4, % Total equity 127, ,597 15, % Total liabilities and equity 228, ,731 10, % Total Assets As of 31 December 2017, Thaioil and Subsidiaries had total assets of Baht 228,108 million, grown by Baht 10,377 million or 4.8% from 31 December 2016 due to the following main reasons: - Cash and cash equivalents and current investment rose by Baht 7,166 million mainly due to cash flows from operations for the year Nevertheless, Thaioil and Subsidiaries paid dividends in April and September 2017 and repaid debentures in March Other current assets increased by Baht 3,314 million primarily due to a rise in trade accounts receivable by Baht 2,792 million following higher average product prices in December 2017 than December Furthermore, receivable from Oil Fuel Fund grew by Baht 865 million tracking higher LPG subsidized rate than prior year. However, inventories fell by Baht 348 million since inventory level as of the end of December 2017 was lower than the end of December Non-current assets reduced by Baht 103 million because property, plant, and equipment had a net decrease of Baht 3,699 million mainly from assets depreciation. However, investments in available-for-sale securities grew by Baht 2,859 million mainly from investments in private funds. Besides, the Company invested in 2 new companies as follows: 1) Sarn Palung Social Enterprise Co., Ltd. has the initial registered share capital of Baht 10 million and the Company shares 15% or Baht 1.5 million. The objective of this company is to support the execution of social enterprises activities of PTT group companies. In 2017, there is initial 25% paid-up capital or 375,000 Baht. 19

21 2) Thaioil Treasury Center Co., Ltd. has registered share capital of Baht 10 million, which is fully paid in 2017, and the Company shares 100%. The purpose of this company is to conduct businesses in the area of International Head Quarter (IHQ) and Treasury Center (TC) in order to increase financial efficiency for Thaioil and Subsidiaries. Total Liabilities As of 31 December 2017, Thaioil and Subsidiaries had total liabilities of Baht 100,960 million, decreased by Baht 5,174 million or 4.9% from 31 December 2016 due to major reasons as follows: - Current liabilities rose by Baht 4,748 million primarily due to an increase in excise duty payable of Baht 3,335 million since Excise Department has changed regulations for excise duty submission. Additionally, income tax payable went up by Baht 2,324 million owing to full utilization of loss carry forward and BOI tax privileges from emission reduction and energy efficiency projects. However, trade accounts payable dropped by Baht 924 million following lower average crude oil purchase in December 2017 than December Long-term borrowings and debentures (including current portions) decreased by Baht 9,953 million mainly because: : Thaioil refinery repaid its due Baht-denominated debentures of Baht 2,000 million and due Baht-denominated with cross currency swap contract debentures of Baht 2,932 million in Q1/17. Moreover, Thaioil refinery s US$denominated debentures went down by Baht 3,105 million owing to the 3.15 Baht/US$ appreciation in Thai Baht from the end of : Sak Chaisidhi Co., Ltd. (shares indirectly held by TS) repaid its due Baht-denominated borrowings of Baht 240 million. : TP repaid its due Baht-denominated borrowings of Baht 172 million. : TM and TMS (shares indirectly held by TM) repaid their due Baht-denominated borrowings of Baht 165 million. : LABIX (shares indirectly held by TPX) repaid its due Baht-denominated borrowings of Baht 387 million and due Bahtdenominated with cross currency swap contract borrowings of Baht 606 million. Table 16: Consolidated Long-term Loans (Million Baht) TOP TS TP TM TET LABIX Total Debentures : US$-denominated 32, ,339 : Baht-denominated 23, ,500 Borrowings : US$-denominated ,581 3,581 : Baht-denominated 1, , ,727 6,079 As of 31 December ,839 1, , ,308 65,499 As of 31 December ,853 1, , ,606 75,434 + / (-) (8,014) (240) (172) (165) (46) (1,298) (9,935) Total Equity As of 31 December 2017, Thaioil and Subsidiaries had total equity of Baht 127,148 million, increased by Baht 15,551 million or 13.9% from 31 December This resulted from total comprehensive income for the year 2017 of Baht 25,006 million, deducted by dividends paid from Thaioil and Subsidiaries of Baht 9,455 million. 20

22 3.2 Statement of Cash Flows As of 31 December 2017, Thaioil and Subsidiaries had cash and cash equivalents of Baht 15,623 million while Thaioil refinery had cash and cash equivalents of Baht 11,915 million. In addition, Thaioil and Subsidiaries and Thaioil refinery had current investments of Baht 52,318 million and Baht 51,897 million, respectively. Cash flows are detailed as presented below: Table 17: Condensed Statement of Cash Flows (Million Baht) Consolidated Separated Net cash provided by operating activities 34,417 22,948 Net cash used in investing activities (30,092) (21,608) Net cash used in financing activities (19,226) (17,086) Net decrease in cash and cash equivalents (14,901) (15,745) Effect of exchange rate changes on cash and cash equivalents (596) (581) Cash and cash equivalents at the beginning of year 31,121 28,240 Cash and cash equivalents at the end of year 15,623 11,915 Thaioil and Subsidiaries had cash flows provided by operating activities of Baht 34,417 million, and cash flows used in investing activities of Baht 30,092 million as a consequence of the purchases of property, plant and equipment of Baht 3,679 million. Thaioil refinery spent Baht 3,257 million in main projects such as Thaioil Sriracha Building project, New Crude Tanks Construction project, New Jetty 7&8 project, Lorry Loading Terminal Expansion project which commercially operated in Q1/17 and supported domestic sales, and Front-End Engineering and Design (FEED) of Clean Fuel Project. The rest of Baht 422 million was used by Subsidiaries in several projects such as Sludge Digester Recirculation project of Sapthip Co., Ltd., and new office building project of Sak Chaisidhi Co., Ltd. Besides, Thaioil and Subsidiaries had purchase of current investments and net purchase of available-for-sale securities of Baht 23,423 million and Baht 2,865 million, respectively. Meanwhile, cash flows used in financing activities was Baht 19,226 million. This was attributable to dividends paid of Baht 9,455 million, the redemption of debentures of Baht 4,932 million, finance costs paid of Baht 3,364 million, and net repayment of long-term borrowings of Baht 1,576 million while there was cash receipt from short-term borrowings of Baht 101 million. According to the mentioned cash flows activities, Thaioil and Subsidiaries reported cash and cash equivalents decreased by Baht 14,901 million from 31 December However, Thaioil and Subsidiaries recorded loss from effect of exchange rate changes on cash and cash equivalents of Baht 596 million. Hence, Thaioil and Subsidiaries had cash and cash equivalents of Baht 15,623 million. Including current investments of Baht 52,318 million, Thaioil and Subsidiaries had cash and cash equivalents and current investments of Baht 67,941 million as of 31 December

23 3.3 Financial Ratios Table 18: Financial Ratios (Consolidated) for the year 2017 Profitability Ratios Q4/17 Q3/17 +/(-) /(-) Quality of earnings ratio (%) 12% 14% (2%) 11% 12% (1%) Gross profit margin ratio (%) 13% 14% (1%) 12% 13% (1%) Net profit margin ratio (%) 8% 9% (1%) 7% 8% (1%) Liquidity Ratios Q4/17 Q3/17 +/(-) /(-) Current ratio (times) (0.4) Quick ratio (times) (0.3) Financial Policy Ratios Q4/17 Q3/17 +/(-) /(-) Total liability/ Total equity (times) (0.2) Net debt/ Equity (times) (0.1) (0.1) Long-term loan/ Total equity (times) (0.1) (0.2) Interest coverage ratio (times) Long-term loan/ Total capitalization (%) 34% 36% (2%) 34% 40% (6%) Financial Ratios Calculation Quality of Earnings ratio (%) = EBITDA / Sales Revenue Gross Profit Margin ratio (%) = Gross Profit / Sales Revenue Net Profit Margin ratio (%) = Net Profit (Loss) for the year / Total Revenue Current ratio (times) = Current Assets / Current Liabilities Quick ratio (times) = (Cash and Cash equivalent + Current investments + Accounts Receivable) / Current Liabilities Total Liabilities / Total Equity (times) = Total Liabilities / Total Equity Net Debt/ Equity (times) = Net Debt / Total Equity Long term loan/ Total Equity (times) = Long Term Loan / Total Equity Long term loan = Long-term borrowings from financial institutions + Debentures (includes current portion) Interest Coverage ratio (times) = EBITDA/ Interest Expenses (Finance costs) Long term loan/ Total Capitalization (%) = Long Term Loan / Total Capitalization Total Capitalization = Long Term Loan + Total Equity Net Debt = Interest bearing debt - Cash and cash equivalent - Current investments 22

24 4. Industry outlook for the first quarter and the first half of Crude oil and refinery market outlook In Q1/18, crude oil prices are likely to increase from Q4/17 supported by OPEC and Non-OPEC producers who continue to reduce their production capacity by 1.8 million barrels per day until the end of this year. As a result, the developed-world oil inventories (OECD oil stocks) in November 2017 decreased more than 107 million barrels from the previous year to the level of 2,948 million barrels. Moreover, sudden cold weather resulted in growing heating oil demand whilst supply fell due to difficulty of drilling activities in some areas. However crude oil prices will be pressured by continuously rising U.S. oil production tending to reach at 10 million barrels per day after many U.S. drillers increased their drilling activities when crude oil prices rises in Q1/18. In addition, the maintenance shutdown of oil refineries will put pressure on demand for crude oil. In the first half of 2018, crude oil prices are likely to improve from last year s prices. OECD crude oil inventories had fallen close to the 5- year average, supported by continuous OPEC and Non-OPEC supply cuts that was extended throughout Moreover, sudden cold weather not only creates unexpected heating oil demand from the Northern parts of the world, but also put 300,000 barrels per day of the U.S. drilling capacity into a halt. However, high levels of uncertainty remains in the oil market as OPEC will be discussing about their exit strategy in the next OPEC meeting, which would be held in June Furthermore, growing Non-OPEC s supply, mainly from the U.S. shale oil, is very probable to dilute the supply cuts and promote surplus into the oil market. (Source: IEA Oil Monthly Report, January 2018 & EIA Short-term Energy Outlook, January 2018) Gross Refinery Margin (GRM) in Q1/18 is likely to remain stable from Q4/17 supported by healthy Diesel and JET spread over Dubai crude price from abnormally cold winter especially in U.S. and North Asia as well as travelling demand during the Chinese New Year. However, Gasoline spread over Dubai crude price is expected to soften from weak driving demand due to the cold weather. In the first half of 2018, Gross Refinery Margin (GRM) is going to be firm supported by rising oil demand growth particularly Diesel following the expansion of world economy and abnormally cold winter in early of the year. Meanwhile, gasoline demand is expected to grow tracking growing numbers of car sales in Asia. Nevertherless, rising oil price may be the headwind of the demand growth. Moreover, tight products supply during refinery maintenance period will as well support the Gross Refining Margin (GRM), while Chinese petroleum products export, which is expected to rise following the launch of two new refineries in the second half of 2017, including the Chinese government s announcement to increase the export quota will limit the upside. (Source: FGE Semi-Annual Report, October 2017) 4.2 Aromatics market outlook In Q1/18, aromatics market is expected to recover from Q4/17 due to improving demand after long holidays in the year-end. Although the demand may weaken somewhat during Chinese New Year holidays, it is forecasted to recover afterwards. Moreover aromatics demand tends to constantly grow from March until Q2/18 driven by paraxylene demand for clothes and PET bottles in summer as well as imported paraxylene demand of a new PTA plant in China operated in January 18 with the production capacity of 2.5 million tons per year. Furthermore, benzene demand is also expected to improve due to a new Styrene plant in China with the production capacity of 0.5 million tons per year which is expected to be operated within Q1/18. However, additional supply from a new aromatics plant in Saudi Arabia with the production capacity of paraxylene and benzene of 1.34 million tons per year and 0.42 million tons per year respectively may put some pressure on aromatics market. In the first half of 2018, aromatics market is likely to remain stable from the second half of 2017 supported by summer demand and tight supply during seasonal plants maintenance in Q2/18. However additional supply in the market from new plants in Saudi Arabia and 23

25 Vietnam will put pressure on aromatics market in Asia and Middle East. Moreover, the new Chinese regulation on import tax collection of mixed aromatics; expected to be enforeced in late March 2018, may have an impact on imports of Toluene and Mixed-xylene. (Source: HIS, January 2018 and PCI Wood Mackenzie, January 2018) 4.3 LAB market outlook In Q1/18, LAB market is expected to be better than Q4/17 due to recovered Asian demand after long holidays in the year-end and higher import demand prior to Chinese New Year and also during the summer period. However the resumption of Asian plants maintenance in Q4/17 will pressure the LAB market. In the first half of 2018, LAB market is forecasted to be slightly better than in the second half of 2017 supported by high regional demand in summer. In addition, Indian demand is expected to improve after the market returns to normal from last year s situation of Anti-dumping and GST Tax changes. (Source: CAHA, January 2018 and ICIS, January 2018) 4.4 Lube Base Oil market outlook In Q1/18, lube base oil market is expected to remain stable compared to Q4/17. Lube base oil demand will soften in late January 18 to mid-february 18 as China, a major importer of lube base oil, will reduce imports during the Chinese New Year. However, the market is forecasted to rebound in March 2018 from reducing supply due to several plants maintenance in Asia. In addition, the demand will be improved driven by improving driving and agricultural demand in summer. In the first half of 2018, lube base oil market is expected to be softer than in the second half of 2017 due to higher additional supplies of new lube base oil group 2 and group 3 plants. However, the market will be supported by decreasing supply of plants maintenance shutdown in Asia as well as rising demand in summer which is the period of lubricant changing for transportation sector and agriculture sector. (Source: ICIS, January 2018 and Argus, January 2018) 4.5 Bitumen market outlook In Q1/18, bitumen market is forecasted to be weaker than Q4/17 due to thin demand in Northen China from cold weather and snow. As a result, South Korea; the the exporter of bitumen to China, has to cut price and risingly export to Southeast Asia. Moreover the demand from Vietnam and Indonesia remains thin. In the first half of 2018, bitumen market is expected to be stable compared to in the second half of 2017 due to improving demand of roads repair and construction in summer. In addition, India, a major bitumen importer, tends to increase road repairing activities in the first quarter due to approaching the fiscal year ended in March However, bitumen supply is forecasted to increase from many producers switching back their production to bitumen yield instead of fuel oil yield when the fuel oil market is likely to be weak. (Source: Argus, January 2018) 24

26 5. Appendix 5.1 Summary of Approved Investment Plan Thaioil and Subsidiaries has investment plan which has been approved by Board of Directors as of 31 December 2017 as summarized below CAPEX Plan (Unit US$ million) Project Planned capital investment Reliability, Efficiency and Flexibility Improvement Benzene Derivatives LAB Power 2 SPPs 2 Infrastructure Improvement - Lorry Expansion Jetty 7&8 / Improvement Office Relocation & New Crude Tank Site office preparation for fire water & fire water improvement 40 3 Other Investments ( i.e. solvent distribution in North Vietnam ) 3 15 Total Notes: Excluding approximately 40 M$/year for annual maintenance $315m 5.2 Summary of Key Project under Feasibility Studies: Clean Fuel Project (CFP) Main objectives of CFP Enhance competitive advantage of the refinery and maintain 1 st quartile performer Enhance capability to upgrade lower value product into higher value product and ability to process heavier (cheaper) crude oil CFP Study Time line COD FID (Final Investment Decision) CAPEX +/- 10% EPC (Engineering Procurement Construction) EPC Bidding BDP FEED (Basic Design Package) (Front-End Engineering and Design)