IRPC Public : Management Discussion and Analysis Yearly Ending 31 Dec 2018

IRPC Public Company Limited

Management Discussion and Analysis

Operating Results for Year 2018 and the Fourth Quarter of 2018

คำอธบิ ำยและกำรวเิ ครำะหข์ องฝ่ ำยจดั กำร (MD&A)

บรษิ ทั ไออำรพ์ ซี ี จำกดั (มหำชน) และบรษิ ทั ยอ่ ย สำหรบั ไตรมำส 3/2559

Management Discussion and Analysis

Management Discussion and Analysis (MD&A) IRPC Public Company Limited and its subsidiaries

Operating Results for Year 2018 and the Fourth Quarter of 2018

Executive Summary

Quarter
Unit	YoY
4Q18	4Q17	3Q18	YoY	QoQ	2018	2017
Crude Intake	Million bbl	19.09	19.05	18.68	0.2%	2%	76.05	65.54	16%
Sales[1]	Million Baht	69,736	62,891	73,819	11%	(6%)	280,551	214,101	31%
Net Sales [2]	Million Baht	64,233	58,443	68,831	10%	(7%)	258,919	197,594	31%
Market GIM	Million Baht	8,879	9,036	7,667	(2%)	16%	33,607	32,370	4%
USD/bbl[3]	14.09	14.33	12.37	(2%)	14%	13.60	14.48	(6%)
Accounting GIM	Million Baht	4,151	10,864	8,738	(62%)	(52%)	32,370	34,638	(7%)
USD/bbl	6.58	17.22	14.10	(62%)	(53%)	13.10	15.49	(15%)
EBITDA	Million Baht	534	6,530	5,258	(92%)	(90%)	18,344	20,420	(10%)
Net Profit	Million Baht	(1,627)	4,513	2,560	(136%)	(164%)	7,735	11,354	(32%)

Change

Year

Note:[1]	Sales includes (1) Petroleum Sales (2) Petrochemical Sales (3) Power and Utilities Sales
(4) Sales of tank farm and port service, etc
[2]	Net Sales includes (1) Petroleum Sales (excluding excise tax) (2) Petrochemical Sales (3) Power and Utilities Sales
[3]	Market GIM per bbl : [(Market GIM / Crude Intake)/exchange rate]
In 2018, the Company generated net sales of Baht 258 ,919 million, increased by 31% when

compared to 2017, YoY, which attributed to the increase in sales volume and products prices. The refinery utilization rate was 208,000 barrels per day of crude intake, rose 16% due to increasing efficiency of the refinery plant

2018

31%

2017

68% 1%

after major turnaround during 1Q17. The Market GIM was Baht 3 3,607 million ( USD 13. 60 per barrel) , increased 4% from last year mainly due to an increase in sales volume following the higher utilization rate. However, crude oil price had sharply declined as a result of supply surge especially from the U. S. as well

as the lower- than- expected economic growth through a prolonged trade war between China and the

United State. This resulted in the net stock loss of Baht 1 ,238 million, the Accounting GIM of Baht 32,370 million, down 7%, and earnings before interest, tax, depreciation and amortization ("EBITDA") of Baht 18,344 million, decrease 10 %. The Company reported the depreciation amounting to Baht 8,237 million, rose 17% according to an increase in depreciation from PPE and PPC projects which started commercial operation since late 2017 . Likewise, the financial costs of Baht 2 ,227 million, increased 12% caused by the lower gain from Cross Currency Swap (" CCS ") by Baht 334 million together with the lower of gain from impairment and disposal of fixed assets amounting to Baht 296 million, decreased by 64% mainly owing to Non-recurring item in 2017 which was gains from reversal of impairment from disposal of investment property amounting to Baht 794 million. The corporate income tax of Baht 1,147 million, dropped 47% as a decrease in operating profit and an increase benefit from investment promotion (BOI), especially for environmental projects. As a result, the Company had a net profit of Baht 7,735 million, a 32% decline when compare to the previous year.

In the fourth quarter of 2018 ( 4Q18), the Company had net sales of Baht 64,233 million, fell by 7% from the previous quarter (3Q18), QoQ, which was mainly attributed to a decline in selling prices following crude oil price. The crude intake was 208,000 barrels per day ( 208 KBD) , increased 2%. The Market GIM was Baht 8,879 million (USD 14.09 per barrel), improved by 16% because of the higher products spread as well as the resuming of Hyvahl and RDCC units after planned maintenance shutdown in 3Q18 allowing the Company to have higher high value products. However, as crude oil price plummeted led to the net stock loss of Baht 4,728 million (USD 7.51 per barrel) and the Accounting GIM of Baht 4 ,151 million or falling by 52% as well as the EBITDA of Baht 534 million, sharp decline by 90%. Meanwhile, the Company reported a higher of financial cost by Baht 318 million from a lower of CCS by Baht 345 million versus a decrease in corporate income tax by Baht 829 million due to the Company' s net loss. Besides, there was gain from impairment and disposal of fixed assets amounted to Baht 250 million, mainly gain from sale of land to PTT which was Non-recurring item. Therefore, the Company had net loss of Baht 1,627 million, profit fell by 164% from the previous quarter.

Key incidents in 2018

•  Disposal of investment of IRPC Polyol Company Limited

On April 30, 2018, the Company disposed the 25% stake holding in IRPC Polyol Company Limited ( IRPCP) to PCC Rokita Spolka Akcyjna (" PCC Rokita "). After the disposal, IRPC and PCC Rokita jointly held 50% stake holding each in IRPCP. As a result, the IRPCP status has been changed from Subsidiary to be Join-venture and recorded loss of investment by Baht 45 million.

•  Investment in plastic product e-commerce business

The Board of Directors no. 10/2018, held on 16 October 2018, resolved the following resolutions:

• 1. Approved the Company to invest in Guangzhao Saiju Performance Polymer Ltd. ("GZSJ") in the People' s Republic of China ( PRC) who operates the e- commerce platform under the name " IPLAS" ( https:// www. isuwang.com and https:// www. suwen8. com). The investment is the subscription of capital increased shares equivalent to 15% of total registered capital, in an amount of RMB 135 million (equivalent to the estimated investment value of THB 650 million). GZSJ is the major operator of plastic product e-commerce business in PRC.

• 2. Approved the Company to incorporate the private limited liability company, " the subsidiary", under the laws of Thailand with the registered capital amounting to Baht 120 million ( or approximate USD 3.5 million), by which the Company and GZSJ will hold the shares equivalent to 55% and 45% of total shares, respectively. Such the subsidiary will be incorporated to develop the e-commerce platform in Thailand.

•  Sales of land in Wang Chan district to PTT

  The Board of Directors meeting, held on 23 November 2018, has passed the resolution on the approval of the land for sales to PTT Public Company Limited (" PTT ") which is located in Pa-

  Yup-Nai sub-district, Wang Chan district, Rayong province. The land has a total area of about 152 rai approximately Baht 325 million. The sale was transferred on December 24, 2018. The

  Company had gain from sale of land by Baht 253 million.

Operating Performance

1. Operating Performance by Business Units

1.1. Petroleum business unit

1.1.1 Petroleum Market Overview

According to crude oil market in 2018, the average global crude oil demand was 100 million barrels per day. Dubai price in 2018 moved in the range of USD 49. 5- 84. 4 per barrel, an average of USD 69.4 per barrel, sharply increased USD 16.2 per barrel from an average of USD 53.2 per barrel in 2017. Crude oil prices had continuously increased during the first nine months of 2018 mainly due to the tightening supply situation. This was supporting by the collaboration among petroleum producers from both OPEC and Non-OPEC members to reduce crude oil output, the limited Iran's export after the United States sanctions, together with the lower production from Venezuela towards the country's economic problems. However, crude oil prices plunged during 4Q18 after the United States granted eight oil importers waivers from the Iranian sanctions leading to higher export volume from Iran as well as the crude oil demand shrank amid a continued escalation of the U.S.- China trade war.

In 4Q18, the average Dubai price was USD 67. 4 per barrel, dropped by USD 6.9 per barrel when compared to average Dubai price in 3Q18. It fluctuated in the range of USD 49. 5 - 84. 4 per barrel. During the quarter, it had continued increased and reached the highest level at USD 84. 4 per barrel in the beginning of October as the tight supply towards a decreasing export from Iran after the U.S. imposed sanction. Nevertheless, an increase in U.S. crude oil production as a higher drilling activities owing to a rise of Cushing' s pipeline capacity more than 500,000 barrels per day in November 2018 along with a decline in global economic growth forecast to 3.7% in 2019 by the International Monetary Fund (IMF) because of the U.S. - China trade war resulted in crude oil prices fell to the lowest of USD 49.5 per barrel.

Dubai Price

Unit : USD/BBL

90

80

70

60

50

40