PTT Global Chemical Public Company Limited. FY 2014 Management Discussion and Analysis. (Translation) EXCELLENCE CREATES SUSTAINABLITIY

Transcription

1 PTT Global Chemical Public Company Limited FY 2014 Management Discussion and Analysis (Translation) EXCELLENCE CREATES SUSTAINABLITIY

2 Executive Summary In 2014 PTT Global Chemical Public Company Limited ( the Company ) had a net profit of 15,036 MB with earning per share (EPS) of 3.33 baht per share, decreased 55% from year 2013 with a net profit of 33,140 MB or 7.35 baht per share. Table 1 : Performance Summary (Unit: Million Baht) 2013** 2014 YoY % + /(-) 4Q/2014 Sales Revenue 549, ,224 4% 125,638 EBITDA 58,227 34,748-40% 413 EBITDA Margin (%) 11% 6% -5% 0% Net Profit 33,140 15,036-55% -4,935 EPS (Baht/Share) % Adjusted EBITDA* 55,198 52,915-4% 14,105 Adjusted EBITDA Margin (%) 10% 9% -1% 11% Note: * Adjusted EBITDA refers EBITDA excluding impact of inventory value (Inventory and NRV) and the impact from business restructuring of Vencorex ** Restated 2013 Income Statement from the implementation of new accounting standard no. 19 regarding employee benefit The net profit of 2014 decreased 55% from prior year mainly due to significant decrease in crude price in the 4Q/2014 which caused huge amount of stock loss and NRV (Net Realizable Value) however, when considering the performance without impact from stock, the adjusted EBITDA decreased only 4% with adjusted EBITDA margin of 9%, decreased from 10% in prior year. The decrease was due to the decline of aromatics performance 73% from prior year as spread of paraxylene significantly decreased from the oversupply situation, while refinery and olefins and derivatives businesses improved 75% and 5% accordingly from higher utilization rate and the increase in polymer price. In 2014, Dubai crude decreased approximately 55 USD/bbl, opened in the beginning of the year at USD/bbl and closed at USD/bbl, and continued to decrease after year ended. This has caused to report stock loss and NRV of 15,928 MB. Moreover, in 2014, the Company has recorded the provision for business restructuring of Vencorex (the Company holds shares of 51% as of 2Q/2014) contributing to the shareholding portion of Baht 1,142 million. Table 2 : Adjusted EBITDA Margin % Adj. EBITDA Margin Q/2014 Business Unit : Refinery Aromatics Olefins and Derivative Green HVS Average FY 2014 Management Discussion and Analysis Page 2

3 Summary of Core Business Performance The performance of refinery business excluding the impact of stock in 2014 (adjusted EBITDA) improved from prior year due to an increase of refinery utilization rate to 102% from 91% in previous year which had a planned shutdown. In price aspect, average 2014 petroleum spread over Dubai crude decreased however, as average crude price in 2014 decreased, the value for fuel loss and fuel used also decreased. This resulted in the Company s improved GRM from prior year. CDU GRM was at 5.61 USD/bbl increased 28% from 4.37 USD/bbl in However, due to significantly decrease in crude price especially in 4Q/2014, the Company reported stock loss of 9,053 MB and NRV (loss) of 1,519 MB for refinery business. The performances of aromatics business worsen with adjusted EBITDA decreased 73% in This was due to a decreased in aromatics product margin especially paraxylene (PX) from oversupply problem. PX-Condensate spread decreased 28% from 557 USD/ton in 2013 to 400 USD/ton in In addition, product price significantly decreased in 4Q/2014 and resulted in the Company s reporting of aromatics stock loss of 3,782 MB and NRV of 1,431 MB. rate increased from 90% to 91% in However, EBITDA margin of olefins and olefins and derivatives in 2014 decreased to 25% from 27% in prior year, which was due from 1.) Shutdown of 2 olefins plants in 1Q/ ) Ethane volume received from PTT s gas separation plant (GSP) decreased in first half of 2014 as GSP could not run at its full capacity until 3Q/2014 when GSP could resume to its full capacity. 3.) HDPE price and spread decreased significantly in the end of 2014 Change in Accounting Standard In 2014 the Company has implemented a new accounting standard no. 19 (revised 2014) regarding employee benefit to recognize all actuarial gains and losses of defined benefit plans in other comprehensive income instead of previously recognized in profit and loss. This resulted in a restatement of profit and loss statement in 2014 for same basis comparison purpose, the net profit of 2014 reduced by 137 MB. Olefins and olefins derivatives performance in 2014 improved from prior year due to the increase in product price and volume. HDPE price average at 1,544 USD/ton, 4% increase from 2013, while olefins utilization FY 2014 Management Discussion and Analysis Page 3

4 Summary of events that had significant impact on financial statements in 2014: On May 2, 2013, the Company has acquired 40% of PPCL from PTT which resulted in the Company having 100% share in PPCL. Subsequently, non-controlling interest of PPCL decreased from 40% to 0%. On December 23, 2013, the Company exercised right to purchase Myriant Corporation s shares from existing shareholders, and Myriant purchased shares from a group of existing shareholders. As a result, the Company s shareholding in Myriant changed from 47.18% to 84.21%, and Myriant has changed its status from the Company s affiliate to subsidiary. On August 8, 2014, the company issued unsecured and unsubordinated, and nameregistered Thai Baht Bond of Baht 10,000 million with 7-year tenor and a fixed coupon rate of 4.5% per annum with the objective to support its investment projects and to be used as working capital. On August 28, 2014, the Company purchased 34% of the registered capital in Vencorex from Perstorp Holding AB and this changed PTTGC's shareholding in Vencorex from 51% to 85%. As at the date of acquisition, the Company paid for an initial payment of the shares as agreed and will pay the outstanding in the future, where the total value of the shares will be in accordance with the operating performance of Vencorex for fiscal year 2014 and On September 15, 2014, the Company has shutdown Aromatics plant unit#2 (Aromatic production capacity of 1,070,000 ton/year) to repair the reactor of platforming unit. On September 22, 2014, the Company s Board of Directors has passed resolution to appoint Mr. Supattanapong Punmeechaow, to be President and Chief Executive Officer and acting secretary to the Board of Director in replacement of Mr. Bowon Vongsinudom due to his retirement, effective from October 1, 2014 onwards. On February 16, 2015, the Board of Director passed the resolution to propose the Annual General Meeting of Shareholders to consider and approve the dividend payment for year 2014 of 2.37 Baht/share or 71% of consolidated net profit. On September 12, 2014 the Company had paid interim dividend of 1.37 Baht/share and will pay final dividend of 1 Baht/share. This is still subject to approval of Annual General Meeting of shareholder FY 2014 Management Discussion and Analysis Page 4

5 Market Overview Petroleum Market Overview Table 3 : Crude Price & Petroleum Product Spreads Unit : USD/bbl YoY % + /(-) 4Q/2014 Dubai Crude Oil % Jet-Dubai % Diesel-Dubai % Fuel Oil-Dubai % Gasoline-Dubai % In 2014, Dubai crude price dropped significantly from the beginning of the year at USD/bbl to close at USD/bbl, or decreased 51%. As for 2014, crude price averaged at USD/bbl, dropped from the previous year which averaged at USD/bbl, or decreased 8%. This year, the market was very volatile as crude oil price has risen from unrest situation in Iraq early After that, it continually declined to its lowest level at the end of the year as a result of excess supply. This was due to increasing in operating rate of US Shale Oil, in which production increased by 1.07 MBD and consequently reduced the import volume by 0.39 MBD. Meanwhile, OPEC has changed its position from supply balancer to market player who competes for market share and maintains its production level at 30 MBD. The spread between products and Dubai crude declined from last year, in line with the reduction in crude price. In 2014, the average spread of Jet-Dubai was 15.9 USD/bbl, decreased 1.6 USD/bbl from previous year, and Diesel-Dubai spread was at 16.1 USD/bbl, decreased 1.8 USD/bbl from previous year. The main factors that put pressure on oil price in the region include the increasing in Refinery capacity in the US and Middle East, the economic slowdown in China as well as unrecovered European economy. Hence, oil demand remained sluggish and oil price dropped. FY 2014 Management Discussion and Analysis Page 5

6 Aromatics Market Overview Table 4 : Aromatics Product Prices and Spreads over Condensate Unit: USD/ton YoY % + /(-) 4Q/2014 Condensate % 634 Paraxylene (FECP) 1,479 1,236-16% 1,035 Paraxylene (FECP)-Condensate % 401 Benzene (Spot Korea) 1,301 1,211-7% 954 Benzene (Spot Korea)-Condensate % 320 Overall Aromatics market was still in down cycle according to the huge additional supply from new producers in China, Korea, Singapore and India. In addition, the demand growth decreased because of the slowdown in global economy that was the driver of decline in demand for end products of benzene and paraxylene, including electronics appliances, computer parts, automotive, toys, furniture and garments. Paraxylene Paraxylene price for 2014 averaged at 1,236 USD/ton, decreased by 243 USD/ton or 16% from previous year. Meanwhile, condensate price dropped by 86 USD/ton, or 9%, causing the paraxylene-condensate spread averaged at 400 USD/ ton with a decrease of 157 USD/ton or 28%. This was mainly due to the surplus of supply from addition capacity around 3.6 million tons, while operating rate of main derivative, PTA, remained low. In addition, a sharp drop in crude price in 4Q/2014 resulted in lower feedstock cost, so Polyester and PTA producers slowed down their purchased volume with expectation that paraxylene price would decrease accordingly. Moreover, paraxylene producers that temporary shutdown plants in 3Q/2014 resumed their operations in 4Q/2014, as a result, paraxylene-condensate spread reduced in 4Q/2014. Benzene In 2014, benzene price averaged at 1,211 USD/ton, decreased from previous year by 90 USD/ton or 7%. While the average benzenecondensate spread for 2014 was 375 USD/ton, a 1% decrease from previous year. In the first three quarters of the year benzene market experienced a shortage of raw material, pyrolysis gasoline; benzene-condensate spread remained at a high level during this period. This was due to the use of shale gas as a feedstock instead of naphtha, as a result, pyrolysis gasoline derived from naphtha cracker reduced as a consequence. However, a sharp drop of crude price and naphtha price in 4Q/2014 caused naphtha cracker producers returned to profitability and hence, increased their production volume. Thereby, the problem of raw material shortage resolved and reflected to the reduction in benzene-condensate spread FY 2014 Management Discussion and Analysis Page 6

7 in the latter half of the year. Overall, average benzene-condensate spread in 2014 was slightly decreased from last year. Olefins and Olefin Derivatives Market Overview Table 5 : Prices and Spreads of Olefins and Olefins derivatives Unit : USD/ton YoY % + /(-) 4Q/2014 Naphtha (MOPJ) % 647 Ethylene (SEA) 1,352 1,395 3% 1,214 HDPE 1,488 1,544 4% 1,448 HDPE-Naphtha % 802 LLDPE 1,487 1,543 4% 1,431 LLDEP- Naphtha % 785 LDPE 1,534 1,571 2% 1,440 LDPE- Naphtha % 793 MEG (ACP) 1,202 1,113-7% 1,035 MEG-0.65 Ethylene % 246 Ethylene price in 2014 averaged at 1,395 USD/ton, increased by 43 USD/ton or 3% increase from previous year. This was due from the demand and supply of ethylene market that became more balanced. The demand continued to grow while supply in Asia became tighter as many olefins cracker went under maintenance shutdown. However, ethylene price declined sharply in 4Q/2014 from the decrease in crude oil and naphtha price which used as olefins feedstock for this region. The HDPE price averaged at 1,544 USD/ton, increased by 56 USD/ton or 4% increase from prior year. LLDPE price averaged at 1,543 USD/ton, increased by 56 USD/ton or 4% increase from prior year. The LDPE price averaged at 1,571 USD/ton, increased by 37 USD/ton or 2% increase from prior year. The increase was according to the increase in demand while polymer producers in Asia and Middle East had maintenance shutdown. Moreover, Middle East producers exported their products to Latin America instead of to Asia coupled with consistent demand for plastic resins. This helped maintain Asian polymer price in high level even though in 4Q/2014, the polymer price decreased following the decreasing crude oil price, but the average price was still higher than The spread of HDPE over naphtha was at 682 USD/ton, increased 116 USD/ton or 21% increase from MEG price for 2014 averaged at 1,113 USD/ton, decreased 89 USD/ton or 7% decrease from supply surplus of downstream products such as PTA and polyester. Coupled with the demand which has not fully recovered and the impact of crude price which declined in the end of 4Q/2014 caused buyers to become more cautious in buying and kept their inventory to the minimum. FY 2014 Management Discussion and Analysis Page 7

8 Performance Analysis by Business Unit Refinery Business Unit Table 6 : Refinery Intake YoY % + /(-) 4Q/2014 Crude (Mbbl) % (KBD) % Condensate Residue & Others (Mbbl) % 4.79 (KBD) % Total Intake (Mbbl) % (KBD) % CDU Utilization Rate 91% 102% 101% The performance of petroleum business, regardless of the impact from stock loss and NRV, improved in 2014 mainly due to the better utilization rate. The utilization rate of crude distillation unit (CDU) was at 102% in 2014, increased from 2013 at 91% as there was a planned shutdown of the refinery for 38 days in 2Q/2013 and another 9 days to fix hydrocracking unit while there was no shutdown of the refinery in The total refinery intake increased 9% to KBD in 2014, of which the crude intake increased 11% and condensate residue and other intake increased only 3%. This was due to an unplanned shutdown of an aromatics unit #2 plant which was not able to produce condensate residue for refinery as a feedstock during its shutdown time. Sales volume of petroleum products also increased 11% in 2014 from previous year. Most petroleum spreads decreased in Diesel-Dubai spread decreased 10%, Jet- Dubai spread decreased 9% and Fuel Oil- Dubai spread decreased 3%. The mentioned 3 products accounted for 77% of petroleum production volume in Table 7 : Petroleum Sales Volume YoY 4Q/2014 Product '000 '000 '000 % % % + /(-) barrels barrels barrels % Naphtha 5,005 8% 4,902 7% -2% 1,221 7% Reformate 3,701 6% 4,955 7% 34% 1,520 9% Jet/Kero 7,472 12% 8,995 13% 20% 2,625 15% Diesel 25,247 42% 34,038 50% 35% 7,725 45% Bio Diesel 5,758 9% 0 0% -100% 0 0% Fuel Oil 8,507 14% 9,213 14% 8% 2,440 14% Others 5,048 8% 5,342 8% 6% 1,608 9% Total 60, % 67, % 11% 17, % FY 2014 Management Discussion and Analysis Page 8

9 Table 8 : Gross Refinery Margin Unit: USD/bbl YoY % + /(-) 4Q/2014 Market GRM % 4.91 CDU GRM % 6.30 CRS GRM % 2.57 Hedging Gain/(Loss) % 2.08 Stock Gain/(Loss) Net NRV % Accounting GRM % In 2014, the Company report market GRM from CDU (CDU GRM) of 5.61 USD/bbl, 28% increase from CDU GRM of 2013 which was at 4.37 USD/bbl. In price aspect, even though average petroleum spreads over crude decreased in 2014, but average crude price decreased, so the value for fuel loss and fuel used also decreased. This resulted in the Company s improved GRM from previous year. Moreover, in 2Q/2014, there were shutdowns of 2 refineries within PTT group and resulted in domestic supply disruption. On the other hand, the Company was able to sell more petroleum products to domestic market which had positive impact to 2014 GRM. Also, in early year 2013, the Company s refinery used some of the crude intake which had higher quality; caused the overall feedstock cost higher and pushed the GRM of 2013 to be lower. In addition, in 2014, the crude oil price declined sharply while petroleum price slowly declined. Thus, the Company realized better spread; CDU GRM of 4Q/2014 was at 6.30 USD/bbl, highest in 2014 and supported a higher average CDU GRM. In 2014, the Company had gain from commodity hedging of 0.94 USD/bbl, however, with the declined crude oil price especially in 4Q/2014 and after the quarter ended. The Company also reported stock loss and NRV as Dubai crude decreased 55 USD/bbl to close at USD/bbl and continued to decrease after the quarter ended. This resulted in stock loss of 9,053 MB and NRV (loss) of 1,519 MB or a total of 4.36 USD/bbl, in comparison with 2013 when the Company had stock gain of 0.84 USD/bbl. The accounting GRM of 2014 concluded at 0.98 USD/bbl, 81% decrease from 2013 accounting GRM of 5.14 USD/bbl. FY 2014 Management Discussion and Analysis Page 9

10 Aromatics Business Unit Table 9 : Aromatics Intake and Production YoY % + /(-) 4Q/2014 Condensate ('000 tons) 4,993 4,666-7% 947 Others ('000 tons) 1, % 172 Total Intake ('000 tons) 6,012 5,602-7% 1,119 BTX Production ('000 tons) 2,094 1,892-10% 367 BTX Utilization Rate 90% 81% 63% * Aromatics capacity Mton/year The performance of aromatics had a huge decrease in 2014 comparing to previous year. The adjusted EBITDA decreased 73% from the decrease in price and volume. The utilization rate of aromatics (BTX utilization) in 2014 was at 81%, decreased from 2013 at 90%. This was due to an unplanned shutdown of Aromatics Unit #2 in 3Q/2014 and a planned shutdown of Aromatics Unit #1 of 42 days, while there were shutdowns of only some units in Therefore, the volume of aromatics product produced (BTX) decreased 10% when total intake decreased 7% to 5.6 Mton. The aromatics product spread decreased in Paraxylene-condensate spread decreased 28% while benzene-condensate spread decreased 1%. This pulled down price to feed margin (P2F) of aromatics business unit to 174 USD/ton in 2014, a 41% decrease from 2013 at 296 USD/ton. Adjusted EBITDA margin of aromatics also decreased in 2014 from 10% in 2013 to 3% in As a result from the mentioned factor of price and feedstock, the Company reported stock loss of 3,782 MB or loss of 62.3 USD/ton BTX and a loss from NRV of 1,431 MB or loss of 23.6 USD/ton BTX. The Company also record accounting P2F in 2014 at 88 USD/ton BTX, 72% decrease from Table 10 : Aromatics Sales Volume YoY 4Q/2014 Product '000 '000 % '000 tons % % + /(-) tons tons % Benzene (BZ) % % -10% % Cyclohexane 175 5% 162 5% -7% 24 4% Paraxylene (PX) 1,196 36% 1,092 35% -9% % Other BTX Products 64 2% 53 2% -17% 8 1% Total BTX Products 2,046 61% 1,860 59% -9% % Naphtha and Raffinate % % 2% % Other By-Products % % 0% 72 11% Total 3, % 3, % -6% % Table 11 : Aromatics market P2F Unit: USD/ton YoY % + /(-) 4Q/2014 Market P2F % 164 NRV N/A -114 Hedging Gain/(Loss) N/A -0.4 Stock Gain/(Loss) N/A Accounting P2F % -235 FY 2014 Management Discussion and Analysis Page 10

11 Olefins and Olefins Derivative Business Unit Table 13 : Sales volume and utilization rate of Olefins and Olefins derivatives YoY 4Q/2014 Sales Volume '000 tons Utilization Rate Sales Volume '000 tons Utilization Rate % + /(-) Sales Volume '000 tons Utilization Rate Olefins * % % -6% % HDPE % % 5% % LLDPE % % 3% % LDPE % % 48% % Total PE 1,449 99% 1, % 11% % MEG % % 3% % Note: * Sales Volume of Olefins is external volume. In 2014, the performance of olefins and olefins derivative improved from previous year due to the increase in product price and sales volume in HDPE price averaged at 1,544 USD/bbl in 2014, 4% increase from prior year. The utilization rate of olefins in 2014 was at 91%, increased from 90% in 2013 even with the shutdowns of olefins I-1 and I-4/1 plants in 1Q/2014. Even though the performance of olefins and olefins derivative improved but the EBITDA margin of the business decreased to 25% in 2014 from 27% in 2013 due to 1.) Shutdown of 2 olefins plants in 1Q/ ) The decrease in ethane volume from PTT s gas separation plant #5 in the first half of 2014 which was able to start running at its full capacity in 3Q/ ) HDPE price and spread decreased significantly in the end of 2014 Performance of HDPE The performance of HDPE in 2014 improved with 17% revenue improved. This was due to a slight improvement of 3 HDPE plants utilization rate to 107% in 2014 from 106% in 2013 while sales volume increased 5% from previous year to 873 KTon in 2014 from inventory sales. This resulted in a 25% decrease in inventory at period end. price increased 4% to 1,544 USD/ton. Performance of LLDPE Moreover, HDPE The performance of LLDPE in 2014 improved when compare to LLDPE sales revenue increased 13% from previous year due to a 3% increase of sales volume to 407 Kton. In 2014, the Company also sold its inventory and this resulted in 21% decrease in period end inventory level, while LLDPE utilization rate decreased to 100% from 103% in Moreover, LLDPE average price in 2013 was at 1,543 USD/ton, 4% increase from Performance of LDPE The performance of LDPE in 2014 improved with an increase of 70% in sales revenue. This was due in an increase in sales volume of 48% and an increase in LDPE utilization rate to 105% from 76% in 2013, reason being that there was an unplanned shutdown of LDPE plant to fix booster/primary compressor for 77 days last year. Moreover, LDPE price improved 2% from previous year to 1,571 USD/ton. FY 2014 Management Discussion and Analysis Page 11

12 Performance of Ethylene Oxide The performance of ethylene oxide in 2014 soften mainly due decrease in product price and product spread. On top of this, the salve volume also decreased. The utilization rate of ethylene oxide ( EO ) in 2014 decreased to 103% from 106% in previous year due to the 28- day planned shutdown in 1Q/2014. The total production capacity of Ethylene Oxide (feed stock for Ethylene Glycol (EG) products including MEG, DEG, TEG and EO derivatives: Ethoxylate and Ethanolamine) was 335,925 tons as of 2014 with the MEG portion of 81% of total Ethylene Oxide Equivalent (EOE) while the utilization rate of MEG in 2014 was 95% increased from 94% in 2013 (The reference for calculation of this utilization rate was the total capacity of 395,000 tons per year.) As for price aspect, MEG price decreased significantly. MEG spread decreased 36% to 206 USD/ton. This resulted in a decrease in ethylene oxide business in 2014 when compared to 2013 with the decrease in EBITDA of 25% from prior year. Table 14 : Utilization Rate and Sales of EOE YoY % + /(-) 4/2557 Sales Volume ('000 Ton) % 95 Utilization Rate 106% 103% -3% 114% FY 2014 Management Discussion and Analysis Page 12

13 Operating Performance 2013*** 2014 YoY 4Q/2014 MB % MB % Sales Revenue 549, , , , Feedstock Cost (444,890) (81) (463,693) (81) 18,803 4 (98,532) (78) Product to Feed Margin 104, , , , Variable Cost (26,611) (5) (29,703) (5) 3, (7,643) (6) 2 Fixed Cost (16,991) (3) (18,312) (3) 1,321 8 (4,437) (4) 3 Stock Gain/(Loss) & NRV 3,029 1 (15,928) (3) (18,957) (626) (13,692) (11) 4 Gain/(Loss) Commodity Hedging 1, , ,227 1 Other Income 5, ,395 1 (45) (1) 1, SG&A (12,565) (2) (13,253) (2) (3,862) (3) 6 Provision for Business Restructuring ** 0 0 (2,239) (0) (2,239) EBITDA 58, ,748 6 (23,479) (40) Depreciation & Amortization (16,670) (3) (17,323) (3) (4,398) (4) EBIT 41, ,425 3 (24,132) (58) (3,985) (3) Finance Cost (4,525) (1) (4,475) (1) (50) (1) (1,142) (1) 7 FX Gain/(Loss) (2,272) (0) , (447) (0) 8 Shares of Profit/(Loss) from Investments (77) (0) (236) (0) 9 Income Tax Expense (1,976) (0) (559) (0) (1,417) (72) Net Profit 32, ,532 2 (19,175) (59) (4,876) (4) Profit/(loss) attributable to: Owners of the Company 33, ,036 3 (18,104) (55) (4,935) (4) Non-controlling interests (433) (0) (1,504) ** (0) (1,071) (247) 59 0 Adjusted EBITDA* 55, ,915 9 (2,283) (4) 14, Note: * Adjusted EBITDA refers to EBITDA excluding impact of inventory value (excludes Inventory and NRV) and the impact from business restructuring of Vencorex ** Vencorex business restructuring provision expense totaling to Baht 2,239 million contributes to shareholders portion by Baht 1,142 million and non-controlling interests portion by Baht 1,097 million *** Restated 2013 Income Statement from the implementation of new accounting standard no. 19 regarding employee benefit FY 2014 Management Discussion and Analysis Page 13

14 Performance Comparison (1) Variable Cost (4) Gain/(Loss) Commodity Hedging Variable cost increased by Baht 3,092 million In order to manage risk, the Company has or 12% from FY2013 in line with 3% increase in done Crack Spread Hedging, Fuel Loss Hedging and overall production and sales volume and 7% increase Inventory Hedging to hedge the margin and ending in average unit cost of all products. The increasing in inventory value to the targeted level. In 2014, the average unit cost mainly came from the depreciation Company reported gain from Commodity Hedging of of Baht against USD. Excluding impact of exchange Baht 2,257 million in which Baht 990 million was gain rate, variable cost per unit slightly increased from last from Crack Spread Hedging and Fuel Loss Hedging year. and the remaining Baht 1,267 million was gain from Inventory Hedging. Previously, the Company had gain (2) Fixed Cost from Commodity Hedging of Baht 1,626 million in In 2014, fixed cost increased by Baht 1, million or 8% from This was mainly due to an increase in staff cost around Baht 423 million from (5) SG&A the increment in number of employees as well as In 2014, SG&A expense increased by Baht 688 annual salary adjustment. In addition there was an million or 5% from 2013 due mainly to the increment increase in maintenance cost around Baht 833 million in SG&A expense of Myriant around Baht 1,040 as a result of planned and unplanned maintenance million after consolidation in 1Q/2014. This was shutdown during the year. according to the change in the proportion of investment in Myriant from 47% to 84% and its status (3) Stock Gain/(Loss) and NRV changed from associate to subsidiary. Moreover, In 2014, the Company reported Stock Loss there was a Baht 697 million donation for the and NRV of Baht 15,928 million, of which Stock Loss foundation of PTT Group Science and Technology was Baht 12,835 million, and NRV was Baht 3,093 Institution in Rayong in However, there was million. one-time/special expense as a result of Oil Spill that The Stock Loss of Baht 12,835 million in 2014 the Company accrued in 3Q/2013 of Baht 1,059 comprised of Stock Loss from Aromatics of Baht 3,782 million. million and Stock Loss from Refinery of Baht 9,053 million. The major factor was from the significantly (6) Provision for Business Restructuring decline in crude price that opened at USD/bbl In 2Q/2014, the Company recorded the in the beginning of the year and closed at provision for business restructuring of Vencorex in USD/bbl in the end of the year. France as an extraordinary item. This included Additionally, NRV of Baht 3,093 million in impairment of assets, employee compensation and 2014 was mainly from Aromatics and Refinery other related expense totaling to Baht 2,239 million business as the product prices continued to decrease which contributes to shareholders portion by Baht after period ended. 1,142 million and non-controlling interests portion Previously, the Company had total Stock Gain by Baht 1,097 million. of 3,139 and NRV of Baht 110 million in FY 2014 Management Discussion and Analysis Page 14

15 (7) Gain/(Loss) from Foreign Exchange In 2014, the Company reported gain from foreign exchange of Baht 607 million which was mainly came from foreign currency forward contract and cross currency swap contract (CCS). This year, Thai Baht was slightly depreciated by Baht 0.16 per USD comparing to last year (Based on average sales BOT, end of 2014 at Baht per USD against end of 2013 at Baht per USD). In 2013, the Company had loss from foreign exchange by Baht 2,272 million as a result of translation of loan denominated in foreign currency. This was due to Baht 2.17 per USD depreciation in last year (Based on average sales BOT, end of 2013 at Baht per USD against end of 2012 at Baht per USD). At the end of 2014 and 2013, the Company had foreign liabilities of USD 2,019 million and USD 2,204 million, respectively. (8) Share of Profit/(Loss) from Investments In 2014, the Company realized total share of profit from investments of Baht 534 million, increased from loss of Baht 77 million in 2013 or an increase by Baht 611 million from The major factor was the change in the method to recognize the performance of Myriant from Taking Equity to Consolidation since 1Q/2014. The Company realized loss from Myriant totaling to Baht 597 million in 2013, whereas there was no such amount in (9) Income Tax Expense The Company reported income tax expense totaling to Baht 559 million in 2014, a decrease of Baht 1,417 million or 72% from 2013 (Effective tax rate: ETR decreased from 5.6% in 2013 to 3.6% in 2014). The major reason was from Refinery and Aromatics business that had negative performance from Stock Loss in 2014, while generated high profit in 2013 from Stock Gain which was subject to 10-20% tax rate. FY 2014 Management Discussion and Analysis Page 15

16 Statement of Financial Position Unit: Billion Baht Cash/ Cash equivalent/ Short term investment Other Liability Current Asset Interest Bearing Debt PP&E Non-Current Asset Shareholders Equity 31 December 2013 Baht 433 Billion 31 December 2014 Baht 405 Billion Assets As at December 31, 2014, the Company had total asset of Baht 404,753 million, decreased by Baht 27,974 million from December 31, 2013 which came from a decrease in current asset of Baht 28,974 million while non-current asset increased by Baht 1,017 million. 1) Current asset decreased Baht 28,974 million or 18% mainly due to the following reasons: Cash and cash equivalents and current investments increased by Baht 3,023 million or 7% which was mainly due to cash received from operation of Baht 45,641 million and cash received from bond issuing of Baht 10,000 million, while there was cash used in purchasing assets totaling to Baht 20,195 million, net repayment of loan and interest of Baht 17,033 million and payment of dividend totaled Baht 15,097 million. Accounts receivable decreased by Baht 17,639 million or 30% that was mainly due to a decrease in accounts receivable of Refinery and Aromatics business totaling to Baht 10,305 million and Baht 5,929 million, respectively. This was because of a sharp drop in product price comparing to the end of last year. In addition, accounts receivable of Olefins and Derivatives business decreased by Baht 698 million from the decline in Olefins and Polymers price even though sales volume significantly rose in December 2014 in comparison to the same period of last year (Days) 2014 (Days) +/(-) (Days) AR Turnover (3) AR Turnover for 2014 averaged at 30 days, 3 days decreased from 2013 which was due mainly to a decrease in AR days in almost all business units. For Refinery business, AR days decreased from averaged at 27 days to 22 days and for Aromatics business, AR days decreased from averaged at 40 days to 33 days. This was because domestic sales portion of these two business units increased in comparison to last year and credit term of FY 2014 Management Discussion and Analysis Page 16

17 Inventory Turnover domestic sales is by nature shorter than export sales. Inventory decreased by Baht 14,478 million or 29%. A decrement was mainly because of a sharp drop in crude price, therefore, the Company has policy to manage inventory level to minimize loss from NRV. Moreover, as crude price declined, overall feedstock and product prices dropped accordingly (Days) 2014 (Days) +/(-) (Days) (2) Inventory turnover for 2014 averaged at 19 days, decreased from end of year 2013 by 2 days as a result of inventory management policy as mentioned. Other current asset decreased by Baht 120 million or 2%, resulted from 1.) a decrease of VAT receivable of Baht 909 million as the Company get the refund during the year 2.) a decrease of receivable from Oil Fuel Fund totaled Baht 454 million because of the cancelation of compensation in diesel at the beginning of the year together with the reduction in compensation rate of LPG. However, other receivable increased by Baht 1,094 from gain from Crack Spread Hedging and Inventory Hedging during December ) Non-current asset decreased by Baht 1,017 million which was mainly due to: Property, plant and equipment increased by Baht 275 million or 0.1%. This came from an increase in assets cost by Baht 15,440 million, net off the depreciation recognized in the period by Baht 14,127 million and impairment of assets from Vencorex restructuring at the amount of Baht 1,038 million. The increment in assets cost was mainly resulted from additional assets and construction-in-progress from on-going projects such as Phenol II, Aromatics II Debottlenecking and TOCGC improvement project. In addition, there was an increase in plant turnaround recognized as asset during the period. Other non-current asset increased by Baht 742 million or 2% due mainly from an increase of investment in associates from share of profit recognized during Liability As at December 31, 2014, the Company had total liability of Baht 162,877 million, decreased by Baht 24,475 million from December 31, 2013 which resulted from a decrease in current liability of Baht 21,425 million and a decrease in non-current liability of Baht 3,050 million. 1) Current liability decreased Baht 21,425 million or 26% from the following reasons: Accounts payable decreased by Baht 22,719 million or 50%, which was mainly from a significant drop in crude price as well as product price comparing to the end of last year. Moreover, the Company has reduced purchase quantities according to inventory management policy. In addition, accounts payable of Aromatics business decreased because of the reduction in material purchased to align with planned shutdown of Aromatics 1 plant in October to December Other accounts payable increased by Baht 733 million or 9% as a result of an increase in accrued expense for contribution to Oil Fuel Fund and excise tax. FY 2014 Management Discussion and Analysis Page 17

18 Current portion of long-term loan increased by Baht 3,249 million or 16% from the reclassification of long term loan and debenture to current portion by Baht 23,087 million. However, there had been repayment of debenture and loan during the period totaled to Baht 15,000 million and Baht 4,775 million, respectively. Income tax payable decreased by Baht 1,209 million or 94% due mainly to the performance of second half this year was lower than the same period of last year. 2) Non-current liability decreased by Baht 3,050 million or 3% which was mainly due to: Long-term loan decreased by Baht 4,544 million or 5%. This was mainly due to the reclassification of long term loan and debenture to current portion at the amount of Baht 23,087 million. However, the Company issued new loan and bond totaling to Baht 8,543 million and Baht 10,000 million in 2014 with the objective to support investment projects and to be used as working capital and repayment of existing loan. Deferred tax liability decreased by Baht 321 million or 8% from last year due to the reversal from actual tax paid in 2Q/2014 totaled to Baht 300 million. Employee benefit obligation increased by Baht 729 million or 22% due to the recalculation of employee benefit provision that will be performed every three years by a qualified actuary using the current variables. Other non-current liability increased by Baht 1,086 million or 126% from provision for business restructuring of Vencorex which comprised of staff compensation and factory development cost amounting to Baht 752 million. The addition also included estimated consideration to be paid for step up investment in Vencorex (increase shareholding interest from 51% to 85%). As a result, the Company estimated the consideration at EUR 5.97 million or approximately Baht 239 million and recognized a liability for that amount in other non-current liability. Shareholder s Equity As of December 31, 2014, the Company reported total shareholders of Baht 241,876 million, decreased by Baht 3,482 million from December 31, This included an increase in the Company s portion of Baht 923 million whereas non-controlling interest portion reduced by Baht 4,405 million. The Company s portion increased by Baht 923 million or 0% arose from the Company s net profit during the year of Baht 15,036 million, profit from an increase in shareholding portion of Vencorex from 51% at the end of 2013 to 85% totaled to Baht 1,761 million, net loss from an increase in shareholding portion of Myriant from 72.21% at the end of 2013 to 84.18% amounting to Baht 258 million, dividend payment of Baht 14,198 million and loss in the foreign currency translation differences for international operations and loss from financial derivative valuation to reduce risk of cash flow for Baht 1,418 million. However, non-controlling interest portion reduced by Baht 4,405 million or 64%. This included loss from operation during the period of Baht 1,504 million, dividend payment to non-controlling interest portion of Baht 556 million, a decrease in noncontrolling interest portion in Vencorex and Myriant of Baht 2,127 million, loss from foreign currency translation of Baht 213 million and loss of noncontrolling interest portion from investment in subsidiaries of Baht 5 million. FY 2014 Management Discussion and Analysis Page 18

19 Statement of Cash Flows For statement of cash flows the year ended December 31, 2014, the Company had net cash from operating activities of Baht 45,641 million, net cash used in investing activities of Baht 25,527 million which was mainly from investment in on-going projects such as Phenol II, Aromatics 2 Debottlenecking and TOCGC improvement project, etc. In addition, the Company had net cash used in financing activities of Baht 22,739 million from repaying debenture and long-term loan, interest expense, and dividend payment. Adding up together with beginning cash and cash equivalents and effect of exchange rate changes on balances held in foreign currencies of Baht 18,041 million, the Company had cash and cash equivalents at the end of 2014 of Baht 15,416 million. Including current investments, the Company reported cash and cash equivalents and current investments totaled to Baht 47,405 million. FY 2014 Management Discussion and Analysis Page 19

20 Key Financial Ratios Financial Ratios Current Ratio (Times) EBITDA to sales revenue (%) 10.60% 6.09% Net Profits to sales revenues (%) 6.03% 2.64% Return on total assets (%) 9.39% 4.68% Return on equity (%) 14.38% 6.29% Interest Bearing Debt to equity (Times) Net interest bearing debt to equity (Times) Net interest bearing debt to EBITDA (Times) Note: Current ratio = Current assets divided by current liabilities EBITDA to sales revenue = EBITDA divided by sales revenue (for the last 4 quarters) Net profit on sale revenue = Net profit divided by sales revenue (for the last 4 quarters) Return on total assets = Net profit (for the last 4 quarters) divided by average total assets Return on equity = Net profit (for the last 4 quarters) divided by average total shareholder s equity Interest Bearing Debt to Shareholders Equity Net Interest Bearing Debt to Shareholders Equity = Interest Bearing Debt divided by shareholder s equity = Interest Bearing Debt net from cash and cash equivalent and current investments divided by shareholder s equity Net Interest Bearing Debt to EBITDA = Interest Bearing Debt net from cash and cash equivalent and current investments divided by EBITDA (for the last 4 quarters) FY 2014 Management Discussion and Analysis Page 20