Esso Thailand : Financial Statement for Fourth Quarter and the year

ESSO (THAILAND) PUBLIC COMPANY LIMITED

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS

31 DECEMBER 2020

Independent Auditor's Report

To the shareholders (and the Board of Directors) of Esso (Thailand) Public Company Limited

My opinion

In my opinion, the consolidated financial statements and the separate financial statements present fairly, in all material respects, the consolidated financial position of Esso (Thailand) Public Company Limited (the Company) and its subsidiaries (the Group) and the separate financial position of the Company as at 31 December 2020, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with Thai Financial Reporting Standards (TFRS).

What I have audited

The consolidated financial statements and the separate financial statements comprise:

• • the consolidated and separate statements of financial position as at 31 December 2020;

• • the consolidated and separate statements of comprehensive income for the year then ended;

• • the consolidated and separate statements of changes in equity for the year then ended;

• • the consolidated and separate statements of cash flows for the year then ended; and

• • the notes to the consolidated and separate financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

I conducted my audit in accordance with Thai Standards on Auditing (TSAs). My responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated and separate financial statements section of my report. I am independent of the Group and the Company in accordance with the Code of Ethics for Professional Accountants issued by the Federation of Accounting Professions that are relevant to my audit of the consolidated and separate financial statements, and I have fulfilled my other ethical responsibilities in accordance with these requirements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Key audit matters

Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of my audit of the consolidated and separate financial statements as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters.

Revenue Recognition

In 2020, the Group recognised revenues of Baht 123,649 million which derived from two main business segments, Downstream and Petrochemical segments, as disclosed in the Notes 7 to the financial statements.

The revenues are determined and recognised, based on the contractual price and volume of products delivered. The price is based on the market price and a number of other factors, depending on the distribution channels and contract terms with customers. The volumes sold are measured using applicable meters when the products are delivered to customers via pipeline, truck, or vessel.

I focused on the revenue recognition of the petroleum products and petrochemical products because the revenue amounts and number of revenue transactions are material. In addition, selling prices are based on market prices and a number of other factors as stated in the contracts with customers.

My work performed over revenue recognition included:

• • Obtaining an understanding and making inquiries to management about revenue recognition principle in accordance with TFRS15, accounting guidelines, disclosures and systems to support revenue recognition to assess correctness and appropriateness of the accounting standard and accounting policies the Group applied;

• • Obtaining an understanding and testing the design and operating effectiveness of key controls in relation to the recognition of revenues, particularly focus on controls around the timely and accurate recording of sales transactions;

• • Testing gross sales transactions and credit/debit notes on sampling basis by tracing to relevant supporting documents, including invoices to customers, delivery documents and subsequent cash receipts from those customers. Additionally, I inspected sales contracts and/or other related documents between the Group and customers to determine whether the revenue transactions were recognised correctly and appropriately;

• • Selecting revenue samples prior to and after year end to test whether they are recorded in appropriate timing, based on terms and conditions set out in sales invoices and delivery documents or system generated reports; and

• • Sending debtor confirmations for balances as at 31 October 2020, completing appropriate roll-forward procedures and performing subsequent receipt testing on customer balances for which confirmations were not received.

From the procedures performed, I found that the revenue recognition of the petroleum products and petrochemical products was appropriately applied in accordance with the Group's accounting policies.

Cost of Inventory

As of 31 December 2020, the Group held inventories, mainly petroleum and petrochemical products, of Baht 5,077 million which represent 8 percent of the Group's total assets.

Cost of inventories primarily comprise purchase prices of crude oil and the manufacturing costs which are allocated to each type of products. Cost calculation requires the Group to perform the following procedures:

• • Generating an automated report that computes the unit cost of each product. From this report, the production costs of inventories are pooled together and are allocated to each product using percentage of each product reference value to total production costs;

• • Performing a comparison between product unit costs and market prices to ensure there is no significant unusual item; and

• • Using final unit costs for calculation of inventory balance using FIFO application.

My work performed over cost of inventories included:

• • Obtaining an understanding and testing the design and operating effectiveness of key controls in relation to over the inventory management and procurement cycle to the purchase requisitions, purchase orders, goods receiving, payments and recording to reflect the accuracy of the cost of inventory;

• • Testing purchase transactions in relation to timing, amounts and volumes on sampling basis by tracing to relevant supporting documents, including invoices from suppliers and receiving documents;

• • Selecting inventory purchase samples prior to and after year end to test whether they are recorded in appropriate timing, based on terms and conditions set out in delivery documents and recording to reflect the accuracy of the cost of inventory;

• • Obtaining an understanding of basis of inventory cost to identify appropriateness of accounting policies the Group applied;

I focused on this area because the sizes of inventory balances from petroleum and petrochemical products are material to the Group's financial statements. In addition, the calculation of inventory cost is complex. The accuracy and the completeness of information used for unit cost calculation are important which influences pricing decision and the Group's profit and loss.

• • Comparing unit cost of each product with its market price as at the reporting date to ensure there is no significant unusual item; and

• • Engaging specialists in Information Systems and Technology to verify accuracy and reliability of the reports used in cost allocation.

From the procedures performed, I found that cost of inventories is calculated and allocated based on appropriate methodologies which are consistent with the Group's accounting policies.

Valuation of deferred tax assets on net losses carried forward

As of 31 December 2020, the balance of deferred income tax assets relating to net losses carried forward of the Group was Baht 2,944 million which represents approximately 5 percent of the Group's total assets. The Group recognises deferred tax assets from tax losses carried forward to the extent it is probable that future taxable profits will allow it to be recovered.

Management of the Group has performed a financial performance projection of the Group, including expected future taxable profit to support recoverability of such deferred tax assets. The projection is based on historical data and expected future outcome. The significant assumptions include refining margin, production volumes, and crude prices.

I focus on this area because there are a number of assumptions used in the Group's financial performance projection. Those assumptions involve significant judgement made by management in assessing the Group's future taxable profit. In addition, the balance of deferred income tax assets from net losses carried forward is significant to the consolidated financial statements.

I evaluated evidence supporting the recoverability of the deferred tax assets from net losses carried forward which is management's projected future taxable income by performing procedures below.

• • Evaluating and challenging management's judgement and assumptions used in forming its five-year financial performance projection, which includes the assumptions for future growth of refinery margin, production volumes, and crude prices. The reasonableness of these underlying assumptions was verified against external sources, industry benchmarks, and historical information; and

• • Developing an independent projection of the Group's future taxable income using researched information and verified internal information, with no significant differences from the result that the Group's management prepared.

Based on procedures I have carried out; I consider that management's key assumptions underlying the projection of future taxable income to be within a reasonable range.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated and separate financial statements and my auditor's report thereon. The annual report is expected to be made available to me after the date of this auditor's report.

My opinion on the consolidated and separate financial statements does not cover the other information and I will not express any form of assurance conclusion thereon.

In connection with my audit of the consolidated and separate financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated.

When I read the annual report, if I conclude that there is a material misstatement therein, I am required to communicate the matter to the audit committee.