Annual Report 2008
PTT Chemical Public Company Limited
VISION
Leader and innovative chemical company MISSION -
PTT flagship in olefins business Diversified and integrated chemical company Superior benefits to stakeholders Market back and innovation driven company Knowledge based organization Trustworthy company to stakeholders with safety responsibility and environmental care
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FINANCIAL KEY FIGURES
Year
Total Assets
2006
2007
2008
111,531
133,514
152,318
Total Liabilities
29,712
39,117
56,121
Total Shareholder’s Equity
81,819
94,397
96,197
Total Revenues
73,819
77,112
85,152
EBITDA
23,789
25,343
20,258
Net Profit
18,282
19,167
11,739
15.75
12.85
7.84
4.00
2.39
2.96
EBITDA to Revenues (%)
32.23
32.87
23.79
Net profit on Revenues (%)
24.77
24.86
13.79
Return on Total Assets (%)
15.58
15.64
8.21
Return on Equity (%)
21.26
21.75
12.32
0.36
0.41
0.58
Earnings Per Share (Baht) FINANCIAL RATIOS Current Ratio (times)
Debt to Equity (times)
Unit : Million Baht
152,318 133,514 111,531 85,152 77,112 73,819
18,282
2006
2007
Total Assets
2008
2006
2007
Total Revenues
2008
2006
19,167 11,739
2007
Net Profit
2008
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ACHIEVEMENTS OF THE YEAR 2008
Top Corporate Governance Report Award Conferred by the Stock Exchange of Thailand and Finance & Banking Magazine at the SET Awards 2008 function, this award recognized outstanding listed companies’ reports on compliance with good corporate governance principles. EIA Monitoring Award 2008 This award was presented to the I-1 Plant under the HDPE Project. CSR-DIW Award This award was conferred by the Ministry of Industry in support of industrial works with outstanding social responsibility.
Most Convincing and Coherent Strategy PTT Chemical Plc was ranked by Euromoney Magazine among Asian petrochemical companies with outstanding strategic plans.
Plaudits for a Corporate Citizen National Outstanding Business Operator in Safety, Occupational Health, and Work Environment Award for 2008 Conferred by the Ministry of Labour, this award has gone to PTT Chemical Plc for the 10th consecutive year.
Excellent CG Scoring This achievement was earned in the wake of the Thai Institute of Directors’s (IOD) assessment of the Company’s corporate governance report against OECD international principles.
Return on Environment Award Conferred by the US-based GE Group, this award reflected selected clients’ outstanding environmental preservation through effective water and energy consumption.
MESSAGE TO SHAREHOLDERS
Mr. Pornchai Rujiprapa Chairman, Board of Directors
Asia’s Major Producer of Olefins
Thailand’s Foremost
Thailand’s Pioneer
Producer of HDPE
of EO-Based and Oleochemicals Producer
Mr. Veerasak Kositpaisal President & CEO
Dear Shareholders PTT Chemical stepped into its third year of operation in 2008 in the wake of the NPC-TOC merger in late 2005. This year happened to see changes in our management in the midst of the global economic downturn, which has wielded its impacts throughout the world. To cope with this difficulty, the Company has leveraged its potential in adjusting its management strategy to maintain the stability of its business.
Restructuring to grow On 1 February 2008, the Company underwent restructuring for flexibility and efficiency, as it was prepared to grow into a world player. A value-based organization was instituted for maximized business benefit; each value chain’s proactive business operation and meeting customers’ expectation while efficiently addressing business changes; promoting the use of resources for maximum value creation, from upstream to downstream, which means priming PTT Chemical for growth into a world-class business force with global network and sustainable growth. Furthermore, the Board of Directors has concurred with the proposal made by the Nominating Committee to appoint Mr. Veerasak Kositpaisal as the new President & CEO, with effect from 1 October 2008, replacing Mr. Aditheb Bisalbutr, the first president, who retired.
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Addressing customers’ need in a diverse way The Company has taken steps to address customers’ needs while growing with their success. That is to say, besides investing to expand its product lines to meet the needs of the market and customers, PTT Chemical has focused on working with customers to develop products that meet their specialized needs - a solution provider for products and services. To this end, it has improved its services and delivery to ease customers’ contact with PTT Chemical through more channels and easy access. To be sure, cost saving is also taken into consideration.
Succeeding together While it was true that the Company faced economic volatility around the fourth quarter of last year, it has kept forging ahead in every business group while preparing itself for future growth opportunities through greater capacity-building and expansion of production bases to diversify responses to customers and moving business bases overseas; notably, the polymers business has expanded its marketing branches and product channels to serve growth in Asia market and access to more customers. The oleochemicals business group has expanded its product lines and sales in an integrated value chain, covering markets in Asia, Europe, and the US, for which a new company PTT Chemical International Pte. Ltd. (PTTCH Inter) has been set up. An agreement was made to buy common shares in COM from Cognis B.V. to expand the business base of oleochemicals, meaning bio-based chemicals that meet more demand of environmental concerns and have a growing market. The investment was seen as a way to expand our investment for greater value to both the Company and society. The Company’s growth and progress are based on participation and cooperation with its customers and business partners, selective combination of strengths and expertise to jointly foster value for superior business benefits.
Personnel development for success, today and future The business strength of PTT Chemical results mainly from quality personnel with continuously improved competency. To supplement their potential for performing their missions in the midst of such dynamic circumstances as at the present, the Company has promoted innovative personnel development and internationally accepted assessment of potential that suits the development of its business to prime its personnel for future needs and growth in line with its goal of becoming a regional and global chemical leader.
Toward sustainable development PTT Chemical values environmental stewardship, which produces sound health and happiness for communities and society, together with better living through the expansion of knowledge and contribution of business values with communities and society. Continuously implemented projects include the HDPE plastic flapped sacks to help farmers prevent landslides, the Plastic for the Planet project to support campaigns for efficient use of plastic containers. PTT Chemical’s committed responsibility for communities, society, and all stakeholders has earned several major awards that the Company takes great pride in as a practitioner of corporate social responsibility (CSR):
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• The CSR-DIW, conferred by the Department of Industrial Works, Ministry of Industry, and the Management System Certification Institute (Thailand) • The Return on Environment Award, conferred by the GE Group • The National Outstanding Business Operator in Safety, Occupational Health, and Work Environment Award for 2008, conferred to the Company for the 10th successive year by the Ministry of Labour • The SET Awards 2008, Top Corporate Governance Report, conferred by the Stock Exchange of Thailand to outstanding listed-company reports on compliance with good corporate governance principles • The “Excellent CG Scoring”, conferred by the Thai Institute of Directors Association (IOD) in recognition of its corporate governance report against OECD principles.
Robust and sustainable growth Today’s economic volatility - with steep drops in demand and consumption of commodities - which affected business operators in the last quarter of 2008, is a most formidable challenge. Recognizing the responsibility of the Board and the management to all shareholders and stakeholders, PTT Chemical has focused on prudent management, constantly taking into consideration cost reduction and efficiency improvement, together with production capacities. At the same time, the Company still values cooperation with customers, business partners, and joint-venture partners to continually develop and create value to its products and services. Our success and overcoming of obstacles have been made possible by the cooperation and support from the management, staff, and all parties related - the shareholders, customers, business partners, joint-venture partners, financial institutions, and communities. The Board is most thankful to all and pledges to do our best for the benefit of shareholders while strengthening the Company for long-term growth and sustainability.
(Mr. Pornchai Rujiprapa) Chairman, Board of Directors
(Mr. Veerasak Kositpaisal) President & CEO
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WORLD ECONOMIC REVIEW AND OUTLOOK
While petrochemical experts had assessed the down cycle of the petrochemical industry as a whole a few years before, such prediction was largely based on capacity rises, particularly in the Middle East. Little were they aware of the economic troubles that would deprive the market of petrochemical demand. So when the worldwide economic crisis hit in the latter half of 2008, the petrochemical industry was hit by both the supply side with big rises in capacities, and the demand side with much lower demand. Add to this the impact of plunging crude oil prices by more than 60% within a few months. Also, during the latter half of 2008, together with people’s lower purchasing power and demand for goods, this indicated entry into the first phase of the down cycle, causing sliding prices of petrochemicals. Meanwhile, lower crude oil prices also quickly made petrochemical operators suffer from heavy losses due to depreciated inventories, especially during the last two quarters of the year. The factors affecting world market prices and capacity utilization for each region consisted of: • Petrochemical demand, which varied with short-term business expectations • The price of naphtha, one of the two core feedstock for the industry, which varied with the world oil price • Inventory changes on the part of downstream petrochemical producers, distributors, and users worldwide • Timing and purchasing patterns of Chinese importers in this biggest petrochemical importer in the world. As regards the medium-term outlook for the industry, this varies with projected demand figures, which in turn varies with the medium-term economic outlook. This last variable dictates investment plans - both capacity expansion and new investments.
Short-term economic outlook (2009) Much uncertainty rules the economies of the world in 2009, notably the efficiency of passing on the effect of the downward adjustment in the policy interest rates of Central banks worldwide and that of the support measures given to US and European financial institutions over the past year. Still, the very low policy interest rates in countries like the US and Japan have imposed limitations to future interest reduction worldwide. Therefore, the speed and efficiency of the implementation of treasury measures to stimulate the spending by consumers and public investment, notably in the US, Europe, Japan, and China, will become increasingly crucial to the world economic outlook in 2009. The world economy, which has been projected to shrink by 0.6% in 2009, a vastly different picture than the 2.2% expansion in 2008, has prompted the IMF to project that the global
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trade would shrink by 2.8% against the 6.2% expansion registered in 2007. As a result, the export revenue of each country is looking downward, which means the world economies, particularly Asian ones, cannot rely on exports to drive their economies as in several previous years. The world economy’s expected recession in 2009 stems from the fact that the economies of the US, Europe, and Japan are all in a recession at the same time, while the Asian economies are expected to register healthy growth rates, but the 5.5% for overall growth is a far cry from 7.8% of 2008. Apart from the severity of the recession in industrialized countries, what will dictate things is the expansion of the Chinese economy. If it is lower than the 6.7% projection by the IMF, the Asian economy would expand at a lower rate than expected. If this were to happen, it would hurt the export sector and the overall economy of each industrialized country. And this would imply greater shrinking of the world economy in 2009.
Medium-term economic outlook (2010-2013) While the Central banks in much of the world has implemented relaxed monetary policies in 2008 with the tendency of continuing on in 2009, countries in certain regions could still go down further in policy interest rates, notably Europe and Asia. And while governments around the world have resorted to more relaxed treasury policies, particularly as monetary policies were running out of steam, with more limitations because the policy interest rates were approaching zero, the world economy of 2009 remained largely uncertain - slipping between instability and recovery. This is due to the magnitude and complexity of problems and repercussions of the worst economic crisis since the end of World War II. As a result, the world economy in the next stage would continue to be highly uncertain in the timing and magnitude of recovery, especially in 2010. At any rate, if monetary and treasury measures around the world were to successfully raise the purchasing power and confidence of consumers, it is expected that the world economy would start picking up around 2010, led by the US, Japanese, and European economies. On the other hand, Asian economies, particularly the Chinese economy, would expand more. On the whole, the world economy would gradually improve (see table below):
World Economic Growth (%)*
2008
2009
2010
2011
2012
2013
2.2
-0.6
2.1
2.8
3.5
3.8
*Based on fixed market - prices exchange rates Sources: IMF, PTT Chemical Plc
World economic recovery risks Although the world economy has been projected to significantly recover from around 2010 onward, the risks are there to pull it down in 2009 beyond expectations, meaning that the recovery would be delayed beyond 2010. Most notorious of these risks are delays, inadequacy, and inefficiency of the public sector’s investment push and of stimulus packages of each country around the world, particularly the US, Europe, Japan, and China. Should such risks become real, new purchasing power will not build up adequately to replace what was lost. As a result, capacity utilization in the real sector would dip below its potential or capability; this would in turn prevent adequate employment to bolster the confidence and add to the purchasing power of labor workers, who are also consumers. This causes further sapping of the economies around each region and the world, thus delaying any recovery.
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BUSINESS REVIEW 2008
OLEFINS & SHARED FACILITIES
This value centre consistently improved its processing efficiency for competitive costs and laying down a secure foundation for future business development and opportunities. The highlights are as follows.
Improving process efficiency: This began with process efficiency improvement through the so-called Advanced Process Control (APC) in the I-1 plant, with the work on I-4 already completed in the previous year, and the Operation Training Simulator, in use between April 2008 and September 2009. The value centre has a process to monitor its performance against worldwide producers, thus ensuring our competitive advantage. With Solomon Associates, it instituted benchmarking for both I-1 and I-4 Olefins plants.
Developing competitiveness and marketing advantage: • Creation of synergistic value for profit optimization for both Olefins and its by-products • Supply chain optimization management, ranging from production planning, procurement, to distribution, with an aim for low-cost business operation • Improvement of reliability through utility alignment of process support between olefins plants under the Company • Installation of additional equipment at the jetty and buffer tank farm to sustain new services arising from business expansion.
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POLYMER PRODUCTS
The Polymers value centre focused on marketing and process efficiency to constantly raise competitiveness and product development through innovation and quality services in keeping with customers’ demand. The highlights are as follows.
Improving process efficiency: • Installation of APC in the HDPE I-1 and the HDPE plant under BPE, the continuation of a 2008 project to be completed in stages by the end of 2009. • Development of personnel operation skills under the Operation Training Simulator Project (OTS) • Synergy between HDPE I-1 and HDPE-BPE for optimum processing benefit, including joint process formulation and planning and inventory reduction • Efficiency improvement through the application of ORMS (Operation Reliability Management System) and MERIT (Manufacturing Enhance Reliability Improvement Team) in inspection and reduction of equipment-damaging problems. As regards performance assessment, with Phillip Townsend Associates Inc. (PTAI), both plants underwent benchmarking.
Developing competitiveness and marketing advantage: • Merging of the NPCX (under PTT Chemical) and Thai-zex (under BPE) trademarks and marketing of the unified polymer products as “Innoplus” since 20 March 2008, winning warm response from customers • The Supply Chain Management Project, a cooperation among four companies - namely HDPE I-1, HDPE-BPE, PTTPM, and PTTPL - and their supply chains for greater efficiency, low cost, and readiness to support PTTPE’s polymers business, due to begin in late 2009. • The HDPE-BPE plant has achieved the ISO 9001:2000 quality management system certification, ISO 14001:2004 environmental management system certification, TIS 18001:1999 occupational health and safety management system certification, OHSAS 18001:2007 certification for the scope of design, development, and production of HDPE and HDPE compounds by the Management System Certification Institute (Thailand).
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EO-BASED PERFORMANCE PRODUCTS
This group focused on developing its process efficiency for international competitiveness while expanding their processing potential to sustain domestic market growth. The highlights are as follows.
Improving process efficiency: Putting priority on safety and the environment, it was poised to introduce an internal control program in the control of hazardous materials, with benchmarking of TOCGC against other producers.
Developing competitiveness and marketing advantage: • TOCGC developed its management practices under the ISO 9000 quality management system, the ISO 14000 environmental management system, the ISO 18000 occupational health and safety management system to achieve certification in April 2008. It also improved the plant real-time information system to be on par with the PTT Chemical Group and get ready for the expansion of management potential • TEX achieved ISO 9000 quality management certification in September 2008 • TEA is in position for developing the ISO 9000, ISO 14000, and TIS 18000, with the goal of achieving certification within two years from the date of commercial production. It developed a business work flow to control work under different stages for efficient commercial production.
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OLEOCHEMICAL PRODUCTS
The oleochemicals pioneer in Thailand, this group tried to establish its international competitive advantage by forging international business alliances and standardizing its processes and products to bolster the confidence of its food product customers. The highlights are as follows.
Improving process efficiency: As this was a new business in Thailand for the first year of operation, it was very much a development and information-gathering year for efficiency improvement. Aspects of improvement included modification for feedstock flexibility, modification for multiple methyl ester products, and cost reduction. As well as information was gathered for benchmarking.
Developing competitiveness and marketing advantage: • Development of operating quality systems under HACCP/GMP and ISO 9000, scheduled for completion by 2009 • Setting of a target to achieve the top market share in Thailand for methyl ester • Building of a marketing and international distribution network for fatty alcohol • Preparation of supply chain optimization.
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FINANCIAL REVIEW
• The Company invested about Baht 32,388 million, which was less than the planned amount of Baht 35,416 million, because of delayed disbursement to contractors. Yet, construction and operation progress went according to plan. • The Company secured loans under the investment plan approved by the extraordinary shareholders’ meeting No. 1/2006 for a total of Baht 27,400 million out of the approved loan ceiling of Baht 32,000 million (Baht 22,500 million in 2008 and Baht 4,900 million in 2007). PTT Chemical retained credibility ranking from Standard & Poor’s Rating Service, Moody’s Investor Services Ltd., and Fitch Ratings (Thailand) Ltd. at BBB (stable), Baa3 (stable) and A+ (stable) respectively. • Employees exercised warrants issued in 2006 amounting to 258,000 shares priced at Baht 66.50 each, giving the Company Baht 17,157,000 million.
GOVERNANCE AND SHARED SERVICES
• Implemented a Value-Based Organization (VBO) in organizational management, with the governance/shared services mode of process supervision and development. VBO was designed for uniform business processes among the Group. Also, instituted a performance monitoring and assessment process. • Planned to develop the potential of its people through a revision and development of people competency to nurture outstanding competencies, apart from evolving a career development model to prime its people for their career paths. To institute a standard for efficiency-based performance monitoring, it has devised a pay for performance system to support team-based performance.
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• Launched a procurement process transformation project to develop its business processes and procurement efficiency by leveraging strategic sourcing of advanced technology. • Prepared an IT value framework and installed the Single SAP ERP 6.0 system to support future business growth. • Systematized supply chain management, a project jointly undertaken with PTT Polymer Marketing Co., Ltd., Bangkok Polyethylene Plc, and PTT Polymer Logistics Co., Ltd., from November 2007 to December 2008 as planned. • Appointed a pricing committee for all operation and business groups to decide a transparent, fair, and timely price framework and continuously deliberated marketing plans and other performance aspects for each product on an ongoing basis. Initiated systematic customers’ activities and sales promotion, including key account management, customer satisfaction for various groups, and registration of chemicals for those to be sold in the European Union under REACH (The Registration, Evaluation, Authorisation and Restriction of Chemical Substances). • Appointed an operational excellence working group, consisting of senior executives and heads of operating units, to implement assorted, technologies, policies, and tools, apart from defining knowledge lists for staff in each production unit to reach operational excellence. • Formalized operating standards for safety, health, environmental, and quality (SHEQ) processes and standard stock codes for PTT Chemical Group once the VBO was implemented to unify management for the whole Group. The standard stock code system is due to be completed in 2009. • Prepared environmental impact assessment (EIA) reports for all projects under the PTT Chemical Group for compliance with laws, regulations, and Company policies. • Developed chemical laboratory services into a shared service unit of the Group for subsequent development into a business unit. • Formulated a strategic plan incorporating the group management process under VBO and strived to identify business growth opportunities through business development, internationalizing business, and mergers and acquisitions to build and expand value under diverse portfolio management and product research and development in support of marketing activities and satisfying customers’ needs.
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Operation PTT Chemical produces and sells olefins, a collective term for ethylene and propylene, to downstream petrochemical plants located in the same industrial estate, including an HDPE plant belonging to the Company, Bangkok Polyethylene Plc (BPE), and the ethylene oxide/ethylene glycol (EO/EG) plant run by TOC Glycol (TOCGC). The Company holds all the shares in BPE and TOCGC. The olefins surplus from domestic consumption are sold on international spot markets, mainly in Northeast Asia and Southeast Asia. In 2008, the olefins & shared facilities successfully debottlenecked the I4-2 plant, thus adding 150,000 tons per year in capacity and raising its equipment efficiency as well as preserving its competitiveness. A new olefins plant with a capacity of 1,025,000 tons per year is on track for completion in late 2009, which would move the Company up to the second largest in Asia. PTT Chemical’s olefins nameplate capacity is 1,863,000 tons per year - 1,376,000 for ethylene and 487,000 for propylene - from three plants: • I1, with gaseous feedstock (461,000 tons per year of ethylene and 127,000 tons per year of propylene) • I4-1, with gaseous and naphtha feedstock (515,000 tons per year of ethylene and 310,000 tons per year of propylene) • I4-2, with gaseous feedstock (400,000 tons per year of ethylene and 50,000 tons per year of propylene). With both gas and naphtha as feedstock, PTT Chemical was able to adjust its feedstock for its maximum benefit. The Company also produces and sells olefins by-products, namely mixed C4, pyrolysis gasoline, tail gas, cracker bottom, and hydrogen, to domestic customers. As regards the production and sale of utilities for its own consumption in the olefins plant and for sale to downstream petrochemical plants in authorized concessions as well as other companies in Map Ta Phut Industrial Estate, operation was efficient. In 2008, the Company commanded 210 megawatts (MW) in power generation capacity, 340 tons per hour in steam capacity, 1,500 cubic meters per hour of industrial water, and 1,000 cubic meters per hour of sea water reverse osmosis (SWRO). PTT Chemical manages its jetty and buffer tank farm for petrochemicals to support production security and serve the logistics of plants run by Group companies alike, not to mention the services for downstream petrochemical plants.
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2008 Asian olefins market overview Compared with 2007, it was a highly volatile year for olefins prices. Both ethylene and propylene prices hit all-time highs in July at $1,618 per ton of ethylene and $1,784 per ton of propylene, only to drop sharply toward year-end. On average, ethylene commanded $1,133 per ton (4% lower than the previous year) and propylene commanded $1,253 per ton (9% higher than the previous year)1. The first major reason for the steady push in ethylene prices during the first half of the year, peaking in July, was the peaking prices of crude oil and naphtha - thanks to concerns about the tight supplies of the oil market and the weak US dollar. This happened with the spiraling demand for crude oil worldwide, which in turn raised production costs for ethylene producers. Besides, the ethylene market was tight - with about 229,000 tons vanishing - due to the maintenance shutdowns and capacity reduction as a result of the rising costs of naphtha2. Still, during the latter half of the year, with the reeling economies of Europe and the US, the demand for crude oil and derivatives took substantial drops, thus causing a rapid reduction in both crude oil and naphtha prices. This in turn causes ethylene prices to suffer sharp losses until year-end 2008. In fact, even after most producers in the region had cut their outputs, it did little to raise the prices of the commodity. As a result, the profitability of naphtha-based ethylene producers eroded due to the price gap between ethylene and naphtha in 2008 ($287 per ton) and 2007 ($216 per ton)3. But thanks to its feedstock flexibility, the Company commanded greater profitability than its competitors. In the meantime, propylene prices in Asian markets saw bigger adjustments than ethylene prices. In the first half of the year, the rising prices of oil and naphtha contributed to that. The tighter market was also produced by three new propylene units - with a combined capacity of 620,000 tons per year - which deferred their commissioning. Combined with the cracker shutdown and lower utilization rate, about 680,000 tons of propylene disappeared from the market, causing a very tight market4. And while during the latter half of the year, the global economic crisis likewise affected propylene, its markets remained tighter than those of ethylene, thus its higher prices. As regards competition in the olefins market in 2008, the first half of the year was relatively mild as a result of tight supply in the Asian and domestic markets while the prices hovered at high levels. During the latter half of the year, however, with the economic crisis expanding throughout the world, both the market demand and olefins prices plummeted, thus producing extensive price cuts. PTT Chemical strived to maintain satisfactory business returns through various actions, including the management of inventories, assorted cost reduction measures, and cash flow management. In addition, the Company’s strengths contributed to its ability to compete. The fact that it had intermediate and downstream units, namely the MEG and HDPE units, enabled it to adjust output levels for maximum profits under a given market condition. Olefins production based on more than 80% gaseous feedstock kept the Company’s production costs more competitive than its domestic and regional competitors, as gas prices were more stable than those of naphtha; competitiveness also benefited intermediate and downstream businesses, which saw correspondingly lower production costs. Note : 1, 3 : ICIS 2, 4 : CMAI
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Operation The main derivatives of olefins, polymer products are processed into assorted consumer commodities, needed merchandise in industries and agriculture, and merchandise that eases modern lifestyles, closely related to everyday life, thus PTT Chemical’s focus on this business group. In 2008, the Company’s HDPE capacity equaled 250,000 tons per year and, under its subsidiary Bangkok Polyethylene Plc (BPE), another 250,000 tons per year. The products were distributed under the tradename Innoplus, with customers in more than 100 countries around the world. PTT Chemical’s plan is to expand its HDPE capacity by 50,000 tons per year and the capacity of BPE by 250,000 tons per year, and it plans to expand the polymer group to LDPE and LLDPE under its wholly owned subsidiary PTT Polyethylene Co., Ltd. (PTTPE). A 400,000-ton-per-year LLDPE plant is under construction, due for commercial production in September 2009, and a 300,000-ton-peryear LDPE plant is due for commercial production in the second quarter of 2010. In short, our customers will be receiving a wide range of products from us, thus making PTT Chemical Asia’s foremost producer of polyethylene. In March, PTTPE acquired the assets of HMT Polystyrene Co., Ltd., and set up a new company called Thai Styrenics Co., Ltd. (TSCL), wholly owned by PTTPE. The Company’s presence in the market is definitely boosted by the sale of PS with a capacity of 90,000 tons per year , further diversifying our polymer products. PTT Chemical also joined hands with PTT Polymer Marketing Co., Ltd. (PTTPM) in improving its product quality, diversity, distribution channels, and modern and efficient service through the B2B e-ordering and e-payment for customers’ greater convenience and advantages.
Polymer market overview Polyethylene prices steadily rose during the second half of 2008, peaking in July at $1,830 per ton before losing steam toward year-end. The average price of HDPE for the second half was $1,312 per ton, roughly 3% down from the average of the previous year, and 20% down from the first half of the year.* The rapid drop of the commodity prices stems from the US subprime crisis, which notoriously brought about a financial crisis in the US and Europe, which triggered a worldwide downturn. Many business
Note : * Source : ICIS
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sectors found themselves trimming their output and hiring, which led to drops in both the demand and prices of crude oil in the world markets. Still, the profitability of polyethylene producers remained because of the spread between polyethylene and ethylene feedstock. The export sector of Thailand was also exposed to the impact of the US financial crisis, as seen in the lower sales volumes and prices of plastic products throughout the latter half of the year. The industries that saw big drops in sales order were the auto-parts industry and the real-estate sector. It was projected that the Thai plastic industry this year would gross about 330 billion baht in market value, a 20-30% drop from the previous year. The market growth of PE in 2008 shrank by 0.6% from the previous year. Polyethylene-based plastic products include containers, plastic bags, bags for frozen food, and agricultural film - most of them everyday products. For the first three quarters of the year, Thailand commanded healthy growth rates for most export products, whereas for the last quarter, the impacts from the worldwide financial crisis scuttled consumers’ confidence, thus lowering the demand for polyethylene-based goods. Classified as a downstream petrochemical industry, production of polymers is capitalintensive, with volatile price levels that reflect the oil price and supply-demand of commodities, just like other petrochemical products. Therefore, in a down cycle, production cost control and a secure customer base become essential for long-term survival. PTT Chemical’s long-standing HDPE production experience, its cordial relationships with and technological transfer from technology proprietors assured its efficient production; a secure customer base enhances the leverage on capacities, with a low cost per unit. In addition, PTT Chemical has joined PTT Plc in setting up PTTPM to undertake marketing and distribution of polymers and all by-products for the PTT Chemical Group, and assigning PTT Polymer Logistics Co., Ltd. (PTTPL), another PTT Group company, to manage its inventories and logistics for all Group polymer products.
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Operation It was PTT Chemical that foresaw a need for commodities not yet produced domestically, particularly those with high value added to olefins and a farther reach for industries and consumers, those that can replace imported feedstock, and those that enhance the Thai petrochemical competitive edge. That was why the Company had embarked on the production of ethylene oxide-based performance products since 2003 through the establishment of TOC Glycol Co., Ltd. (TOCGC), to construct a required plant and began commercial production in the middle of 2006. The EO and EG plants yielded Mono Ethylene Glycol (MEG), its core product used as a raw material for polyester fiber in the textile industry and production of clear plastic (PET) bottles. Toward the end of 2008, TOCGC expanded its capacity for MEG from 300,000 to 395,000 tons per year while offtaking ethylene from the olefins plant. In addition, PTTCH set up a joint-venture company and wholly owned subsidiaries to run an EO Derivatives project with the EO feedstock produced by TOCGC. • Thai Ethoxylate Co., Ltd. (TEX), a joint venture with Cognis Thai Co., Ltd., to produce ethoxylate, a raw material for shampoos, dish-washing liquids, and assorted washing liquids; this was Thailand’s first producer of ethoxylate, with a capacity of 50,000 tons per year • Thai Ethanolamine Co., Ltd. (TEA), whose main product is ethanolamine, a component of hair conditioners, fabric softeners, cosmetics, and the pharmaceutical industry, with a capacity of 50,000 tons per year • Thai Choline Chloride Co., Ltd. (TCC), whose main product is choline chloride, an essential blended item for foul and pig feed, with a capacity of 20,000 tons per year. Originally scheduled to begin production in the second quarter of 2009, this project faced market uncertainty along with rising construction costs, thus a decision was made to delay investment and revise the project.
Market review and outlook Since MEG is the main feedstock for the polyester industry, which is in turn closely related to the textile industry and the clear-bottle industry, its marketing picture mirrors that of the polyester industry, which has been projected to grow by 5.3 - 5.8% from 2009 to 2012. In the meantime, more MEG is expected to come onto the market, with a capacity rise of about 2 million tons per year. As a result, its market competition will become fiercer, particularly in China, which has the highest demand for MEG and the highest imported volume, and other Asian countries alike.
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As regards the Thai MEG market, the demand in 2009 is expected to track that in 2008, at roughly 400,000 tons due to the economic downturn, caused by domestic political and other external factors, depressing the downstream product demand, in turn depressing the MEG demand by current polyester producers. However, the polyester plant of the former Tuntex Plc, suspended since late 2006 and acquired by the Indorama group, is planned to start up again in 2009. This would prop up the MEG demand to a level comparable to that seen in 2008. While the overall market expansion cannot be termed substantial when compared to the regional market, Thailand’s MEG market is one to be reckoned with by the world’s leading MEG producers, who value and want to preserve market shares - and even expand them. In other words, from 2009 to 2012 the MEG scene in Thailand will likely feature greater competition. It is domestic operators that TOCGC pays greater attention to, with the surplus output from domestic sales exported. Compared with other domestic producers, TOCGC commanded business strength and marketing advantages, namely the fact that it is a domestic producer that can deliver products with less contaminant than imported products, shorter ordering and delivering periods than others, and the ability to deliver products continuously from its tank farms at its plant and the jetty. Such strength and advantages enable TOCGC to compete with other producers domestically. Besides focusing on maintaining and raising domestic market shares, TOCGC strives to preserve its overseas customer base and continually foster cordial relationships with trade brokers to sustain rising exports of its products thanks to its future production expansion. In the meantime, TEX will be focusing on maintaining and raising domestic market shares, displacing imports, and preserving the former international customer base while seeking out new markets. This is because of several production bases for personal care and home care products in this region, thus TEX’s business opportunities. It also exports products to assorted regions, including Asia and Europe. Finally, TEA will be focusing on building a firm marketing base - domestic and international - together with selling products to customer groups in each industry and individual countries with demand for ethanolamine (EOA), which has a promising growth outlook - to diversify risks and build a stable marketing base.
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Annual Report 2008
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Operation Because of Southeast Asia’s terrain and climate that suits oil-yielding plants like palm, coconut, and jatropha - which can be processed into chemical products called oleochemicals - and thanks to the current demand for environmentally friendly products and the rising prospect for the consumption of alternative energy, PTT Chemical has set up Thai Oleochemicals Co., Ltd. (TOL). This company produces fatty alcohol (100,000-ton-per-year capacity), methyl ester (200,000-ton-per-year capacity), and glycerine as a by-product (31,000-ton-per-year capacity) for a combined capacity of 331,000 tons per year. Fatty alcohol is an essential precursor for home, health & personal care products. Methyl ester finds applications in biodiesel or high-quality biodiesel; the Company has signed a supply contract of methyl ester with PTT Plc to produce the B100 biodiesel. Glycerine finds its applications in the chemical, pharmaceutical, and food industries. In 2008, the Company set up PTT Chemical International Pte. Ltd. (PTTCH Inter) to undertake its international business expansion. It also acquired 200 million common shares worth 104 million euros in Cognis Oleochemicals (COM) from Cognis B.V. through a joint venture with Sime Darby Plantation (Malaysia), the world’s foremost company engaged in planting and production of palm trees and palm oil. The intention is to expand its business base of production and sale of oleochemicals in an integrated manner, covering assorted regional markets, including Asia, Europe, and the US.
Market review Fatty alcohol In 2008 the world market for fatty alcohol was far from healthy because of the greater supply than demand. Accounting for this is the fact that fatty alcohol projects in Malaysia, Indonesia, and the Philippines have begun commercial production. However, this condition is likely to approach a balance in the next 1-2 years, coupled with positive factors resulting from the rising demand for naturally derived fatty alcohol to replace synthesized fatty alcohol.
Methyl ester High fluctuations mark methyl ester prices in the world market in 2008, as palm oil prices tracked the soaring crude oil price; there is also a looming conflict about the use of oil palm as a raw material for alternative energy, which could worsen the food crisis. Raw palm oil during the first half of the year commanded high prices, only to plummet during the last quarter of the year with plummeting crude oil prices. Such fluctuation bore heavily on the price of methyl ester. It is projected that methyl ester will be costing less in 2009 with the drop in palm oil prices and the larger completed capacities of methyl ester in other countries. Another main factor is that
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governments in several countries have made it a policy to use more biodiesel, thus raising the demand for methyl ester. As regards Thailand, the Ministry of Energy’s clear goal is to promote alternative energy, with a plan to implement 5% biodiesel (that is, a blend of 95% diesel and 5% methyl ester) by the end of 2011, or a projected demand for methyl ester of 1.3 million tons per year, or roughly four million liters a day. Note that there are several more domestic biodiesel producers, 10 of whom have secured approval from the Department of Energy Business for the production and sale of biodiesel; another one is under application. In short, there is bound to be more competition, a point recognized by the Company, which has investigated prospects of downstream investment.
Glycerine In 2008, the glycerine market is one of wild fluctuation, tracking methyl ester in the world market, with several negative factors affecting its market, particularly the rising number of biodiesel projects around the world. What is more, the policy of mandatory consumption of biodiesel has been adopted in several countries, thus steadily hiking glycerine production in the world market. However, the Company has investigated research on substituting glycerine for several chemicals in downstream chemical processes. Business direction : Due to the fluctuation and the cyclicality of returns of the oleochemical industry, PTT Chemical is undertaking a project to supplement the value of oleochemicals and the production of specialty oleochemicals could alleviate such cyclicality while supplementing value and diversifying risks. As for Cognis Oleochemicals (COM), the Company is poised to complete its management plan by early 2009 through cooperation with Sime Darby to improve and develop the company in alignment with the Company’s strategic plan to foster sustainable growth, expand its growth base, and supplement value to the oleochemical and natural derivative businesses, both of which command secure expansion prospects. The new company is likely to venture into international oleochemical markets with ease and speed through COM’s distribution channels. Above all, the joint venture with Sime Darby - the world’s foremost producer of palm oil - fosters the ability to secure raw materials.
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Annual Report 2008
PTT Chemical Public Company Limited
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Social Responsibility Policy
Social Responsibility & Sustainable Development
Committed to nurturing and upgrading the sustained quality of life and society, PTT Chemical forged a proper beginning by way of innovations, linking the search for mutual values among relevant agencies, allies, communities, society, and company staff. Then we put together the knowledge, skills, expertise, and innovative processes to generate initiatives that ripple in all directions.
From Policy to Action We are determined to turn policy into action with a concept of ‘shaping an innovative society’. • Forging value through innovations, from concept, learning, to practice in conjunction with our business and social allies • We are convinced that the co-creation and alliance supplement greater value to our performance. This is in fact regarded as a sustained asset for business and society that leads to many beneficial projects for society in the long term. The Company maintained CSR projects of its initiation for the benefit of community and social development in 2008 as follows :
Plastic Flapped Sack Evolvement Turning HDPE polymers into plastic flapped sacks to protect soil for farmers PTT Chemical applied an initiative of HRH Princess Maha Chakri Sirindhorn as bestowed to Chaipattana Foundation to ease people’s hardship through a search for ways to prevent the top soil from collapsing or sliding in Ban Nam Ta community of Amphoe Tha Pla of Uttaradit province. Together with Chaipattana Foundation, the Hydro and Agro Informatics Institute, and the Department of Mineral Resources, PTT Chemical successfully developed its own HDPE Plastic Flapped Sacks for emergencies. Above all, they can be used by communities themselves. The Company will be introducing this royal initiative to help other areas throughout the Kingdom.
Tripartite Educational Development Application of knowledge taught by young-generation teachers bringing development and improving society in a sustainable way PTT Chemical recognizes the criticality of nurturing values and joint development of community education. The tripartite project for educational quality development through our collaboration with the Faculty of Education, Chulalongkorn University, Rayong Education Service Area Office (Zone 1), and Map Ta Phut Municipality. Under the project, selected teacher interns taught students in Rayong schools to develop the quality of education for communities. The objective was to enable community youths to turn into quality adults who apply knowledge creatively and contribute to sustainable social development.
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Water Retention Basins Application of the well-known royal initiative to manage Rayong water resources To promote the effectiveness of water resource management in Rayong and to promote participation by the public, industrial works, and government agencies, PTT Chemical joined hands with the Hydro and Agro Informatics Institute and the National Science and Technology Development Agency, Ministry of Science and Technology, in launching an investigation project on water retention basins (“Kaem Ling”) of Khlong Thap Ma in Rayong. The project investigated weir conditions and proper development of areas in former laterite pools into retarding basins to raise the efficiency of agricultural water management and development of relevant branches of knowledge. In addition, the Company has also taken part in social, community, and environmental stewardship efforts, including the Plastic for the Planet project; in cooperation with the Federation of Thai Industries and the Thai Plastic Industries Association, it launched a fund-raising project for a campaign on the promotion of efficient use of plastic containers; the “Thai Hearts, Environmental Hearts” TV program, aired on TV Channel 5, promoted innovative thinking for environmental stewardship by youths and institutions. The Company contributed to the promotion of culture and cultural heritage preservation apart from lending support to and participating in assorted community activities, including PTT Chemical Meets Communities, Sharing with Communities to support public health and medicine, Thailand Innovation Award, Remote Education via Satellite, English Teaching, Computer for Youths, and PTT Chemical Cup Soccer. It is our great pride to see a happy society as a result of sustained development. We constantly recognize that people’s participation leads to infinite, bigger miracles.
Policy on Occupational Health, Safety, and Environment PTT Chemical Public Company Limited, Branch 2, Branch 3, and Branch 4, are committed to the management policies concerning occupational health, safety, and environment in all aspects of the Company’s operations through: 1. Assessment of the risks in occupational health and safety, and identify conditions likely to cause environmental concerns. 2. Prevention and reduction of adverse impacts in occupational health, safety, and the environment to all stakeholders. 3. Strict compliance to laws, regulations, and standard requirements. 4. Continual improvement of operational systems will be maintained. The Company will develop and maintain an occupational health, safety, and environment management system, and will provide sufficient resources for implementation. The Company will establish an implementation framework in accordance with the occupational health, safety, and environment management plan, and will thoroughly inform all staff accordingly. This announcement is effective from 15 November 2006, onwards.
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Environmental, Safety, and Occupational Health Management It is our business mission to use resources cost-effectively and efficiently, exercise due control to minimize environmental impacts, and ensure safety and health in a most strict manner required by law.
Environment PTT Chemical commands an environmental management system of international standards through the control of aspects arising from its operation, while stressing continual development.
CSR-DIW Award Such was our pride to be named a company with outstanding corporate social responsibility and win a CSR-DIW award from the Department of Industrial Works, Ministry of Industry, and the Management System Certification Institute (Thailand).
• Integrated management of natural resource consumption through eco-efficiency philosophy in order to improve resource consumption and waste reduction, taking into account financial performance, business opportunities, and markets. As for economic ecology efficiency indices, our environmental information was compiled and investigated in five aspects, namely water use, energy use, global warming contribution, ozone-depleting substances, and waste. • The I-1 olefins plant replaced the burner of the Oleflex Unit to a low-NOx burner to cut NOx emission, thus improving plant emissions. • Continued control of volatile organic compounds (VOCs) through the appointment of a dedicated task force, training of staff, and regular inspection of leaks to ensure that our process equipment does not leak. • An environment display board in front of each plant, with information on environmental management, pollution reduction and projects to encourage the awareness of staff along with our determination to save the environment. • Expansion of green zones around Company compound and Map Ta Phut by tree planting covering 55 rai: 35 rai around PTT Chemical and 20 rai under the cooperation of the Office of Map Ta Phut Industrial Estate and the Company - in an effort to reduce global warming.
Safety PTT Chemical takes strict safety measures for plant operation while supporting activities to encourage the awareness of and regard for operating safety. In 2008, notable activities consisted of: • S-H-E Day activities, in which we promoted staff awareness among those that took part in sharing S-H-E knowledge of each unit, including talks by public recognized speakers
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• Behavior-based safety (BBS) application of our safety culture. BBS is one of the processes implemented to continuously improve the behavior of all employees in line with safety goals, apart from enabling staff to take care of one another and make the workplace safer.
Health PTT Chemical supports the following projects designed to regularly promote employees’ occupational health. • Annual physical examination, including those of specific workers • Measurement of workplace environment parameters like chemical concentrations, loudness, light intensity, and heat • E-Health Book project, which is a customized health book program for those working in a so-called risky environment. A software system records their physical examination results conducted by occupational medical doctors. This enables employees to access up-to-date health and medical records at all times, thus enabling more complete health monitoring.
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BOARD OF DIRECTORS
Present Important Positions • Permanent Secretary of Energy • Chairman, Electricity Generating Authority of Thailand
Education / Training • Ph.D. (Urban & Regional Economics) University of Pennsylvania, U.S.A. • M.Sc. (Regional Economics) University of Pennsylvania, U.S.A. • M.P.A (Programming Planning Administration) National Institute of Development Administration (NIDA) • B.Sc. (Agro-Industry) Kasetsart University • Capital Market Academy Leader Program Class 7 • The Joint State - Private Sector Regular Course, Class 11, the National Defence College
Training on Director Roles and Responsibilities
Mr. Pornchai Rujiprapa Chairman Age : 56
• Director Accreditation Program (DAP), Class 56/2006, Thai Institute of Directors Association (IOD)
Experiences • Deputy Secretary General, the National Economic and Social Development Board (NESDB) • Deputy Permanent Secretary of Energy • Chairman, Electricity Generating Public Company Limited • Chairman, PTT Public Company Limited • Chairman, Rayong Refinery Public Company Limited • Chairman, PTT Aromatics and Refining Public Company Limited
Relation among family within the Company : None
Annual Report 2008
PTT Chemical Public Company Limited
Present Important Positions • Chief Executive Officer & President, PTT Public Company Limited • Chairman, PTT Exploration and Production Public Company Limited • Vice Chairman, IRPC Public Company Limited • Director, Thai Oil Public Company Limited • Director, PTT Aromatics and Refining Public Company Limited
Education / Training
Mr. Prasert Bunsumpun Vice Chairman Age : 56
• Honorary Doctorate Degree in Engineering, Chulalongkorn University • Honorary Doctorate Degree in Management, National Institute of Development Administration (NIDA) • Honorary Doctorate Degree in Management Science, Petchaburi Rajabhat University • M.B.A., Utah State University, U.S.A. • Bachelor of Civil Engineering, Chulalongkorn University • Certificate in Advanced Management Program, Harvard Business School, U.S.A. • The Joint State - Private Sector Regular Course, the National Defence College (Class 10)
Present Important Positions • Chairman, Thaioil Power Company Limited
Education / Training • M.Sc. Economics, University of Kentucky, U.S.A. • B.Sc. Economics (Honor) Thammasat University • Certificate, Industrial Development, Nagoya, Japan • The National Defense College, Class 34
Training on Director Roles and Responsibilities • The Role of the Chairman Program, Class 3/2001 and Director Certification Program (DCP), Class 30/2003, Thai Institute of Directors Association (IOD)
Experiences
Mr. Manu Leopairote Independent Director - Chairman of the Audit Committee Age : 65
• Permanent Secretary, Ministry of Industry • Chairman, PTT Public Company Limited • Chairman, PTT Exploration and Production Public Company Limited • Chairman, Thai Oil Public Company Limited • Chairman of the Corporate Governance Committee PTT Chemical Public Company Limited
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• Politics and Governance in Development Systems for Executive Course, King Prajadhipok’s Institute (Class 6)
Training on Director Roles and Responsibilities • Director Accreditation Program (DAP), Class 26/2004, Thai Institute of Directors Association (IOD)
Experiences • Senior Executive Vice President, Gas Business Group, PTT Public Company Limited • Director, The Aromatics (Thailand) Public Company Limited • Director, Rayong Refinery Public Company Limited
Relation among family within the Company : None
Relation among family within the Company : None
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Present Important Positions • Chairman, Bangkok Polyethylene Public Company Limited • Director, PTT Exploration and Production Public Company Limited • Director, IRPC Public Company Limited • Director, Thaioil Power Company Limited
Education / Training
Mr. Pala Sookawesh Independent Director - Chairman of the Nominating Committee - Chairman of the Remuneration Committee
Training on Director Roles and Responsibilities • The Role of the Chairman Program, Class 2/2001, Director Accreditation Program (DAP), Class 14/2004, and The Role of the Compensation Committee (RCC), Class 3/2007, Thai Institute of Directors Association (IOD)
• Honorary Doctorate Degree in Engineering from Chulalongkorn University • M.S. Industrial Engineering (Operation Research), Oregon State University, U.S.A. • Bachelor of Engineering (Honors) in Electrical Engineering (Power), Chulalongkorn University • Cert. in System Analysis in Water Resource Planning, U.S. Army. Corps. of Engineers, U.S.A. • Diploma, National Defense Course for the Joint State - Private Sector, the National Defense College (Class 333) • Cert. in Advanced Management Program, Harvard Business School, Harvard University, U.S.A.
Experiences
Present Important Positions
Experiences
• Director, Thaioil Power Company Limited
• Permanent Secretary, Ministry of Energy • Chairman, PTT Public Company Limited • Chairman, the Electricity Generation Authority of Thailand • Chairman, PTT Exploration and Production Public Company Limited • Chairman, Thai Oil Public Company Limited
• Director, PTT Public Company Limited • Director and Chairman of Audit Committee, Vinythai Public Company Limited • Director, Thai Oil Public Company Limited • Director, PTT Aromatics and Refining Public Company Limited • Chairman, Thai Oleochemicals Company Limited
Relation among family within the Company : None
Age : 68
Education / Training • M.A. Economics, Georgetown University, U.S.A. • B.A. Economics (Honor), Thammasat University • The National Defense College, Class 40 • King Prajadhipok’s Institute “Politics and Governance in Democratic Systems for Executives”, Class 5 • The Civil Service Executive Development Program I (Class 13), the Civil Service Training Institute • Capital Market Academy Leader Program Class 5
Training on Director Roles and Responsibilities
Mr. Cherdpong Siriwit Independent Director - Director to the Audit Committee - Director to the Nominating Committee Age : 62
• Director Certification Program (DCP) Class 104/2008, Director Accreditation Program (DAP) Class 8/2004, The Role of the Chairman Program Class 10/2004, and Finance for Non-Finance Director Class 13/2004, Thai Institute of Directors Association (IOD)
Relation among family within the Company : None
Annual Report 2008
PTT Chemical Public Company Limited
Present Important Positions • Director, Department of Primary Industries and Mines, Ministry of Industry • Chairman, Thai Oleochemicals Company Limited • Chairman of the Association of QC Headquarters of Thailand • Director, the Institute of Industrial Standards Accreditation • Advisor, MASCI Systems Certification Sub-Committee • Director, the Electricity Generating Authority of Thailand • Director, the Industrial Estate Authority of Thailand • Director, PTT Aromatics and Refining Public Company Limited
Education / Training
Mr. Witoon Simachokedee Independent Director - Director to the Corporate Governance Committee Age : 54
• Ph.D in Public Admimistration (Public and Private Management), Ramkhamhaeng University • M.B.A., Thammasat University • LL.B., Thammasat University • B.Eng (Electrical Engineering), Kasetsart University • The National Defense College (Class 46)
• Financial Statement for Directors (FSD) Class 4/2009 Thai Institute of Directors Association (IOD)
Experiences • Director, the Industrial Estate Authority of Thailand • Director, Technology Promotion Association • Director, the Institute of Small and Medium Enterprises Development • Director, Customers Protection Committee • Director, Electricity Generating Public Company Limited • Deputy Permanent Secretary, Ministry of Industry
Relation among family within the Company : None
Experiences • Director, Thai Airways International Public Company Limited • Deputy Commissioner-General, Royal Thai Police • Director-General, Department of Special Investigation • Assistant Commissioner-General, Royal Thai Police
Training on Director Roles and Responsibilities
Age : 63
Training on Director Roles and Responsibilities
• Chief Corporate Security Officer, Business Security Office, Charoen Pokphand Group • Executive Assistant to President/CEO & Director, Fraud & Cyber Crime, True Corporation Public Company Limited • Criminal Justice, M.A., California State University, U.S.A. • Public Administration (Police), B.A., Police Cadet Academy • Oversea Command Course, Police Staff College, United Kingdom • FBI National Academy, Quantico, Virginia, U.S.A.
Independent Director - Director to the Remuneration Committee
• Political and Governance Program, King Prajadhipok’s Institute (Class 11) • Capital Market Academy Leadership Program, Class 7, Capital Market Academy
Present Important Positions
Education / Training
Pol.Gen. Nopadol Somboonsub
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• Director Accreditation Program (DAP), Class 25/2004, Audit Committee Program (ACP), Class 11/2006 and Finance for Non-Finance Directors (FND), Class 29/2006 Thai Institute of Directors Association (IOD)
Relation among family within the Company : None
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Present Important Positions
Experiences
• Director General, Department of Policy, Strategy and Budget Planning, Office of the Attorney General • Commissioner, Securities and Exchange Commission, Thailand • Chairman, Krungthai Laws Company Limited • Director, Metropolitan Electricity Authority • Director and Liquidator, Express Transportation Organization of Thailand
• Deputy Director, Department of Prosecutor Commission • Representative of the Office of the Attorney General for Cooperation to the Office of National Security Commission Secretary • Director and Director to the Audit Committee, Neighboring Countries Economic Development Cooperation Agency (Public Organization) (NEDA) • Deputy Director, Department of Intellectual Property and International Trade Litigation • Deputy Director, Department of Criminal Litigation
Education / Training • Master of Political Science, National Institute of Development Administration • Barrister at Law, Institute of Thai Bar Association • LL.B., Ramkamheang University • Provincial Public Prosecutor Program, Class 9/2530
Mr. Somchai Kuvijitsuwan Independent Director - Director to the Corporate Governance Committee Age : 57
• Director Certification Program (DCP) Class 76/2006 and Understanding the Fundamental of Financial Statement, Class 3/2006, Thai Institute of Directors Association (IOD)
Present Important Positions
Experiences
• Chairman, Wang Tong Group Public Company Limited • Director, Thai Industrial Gas Public Company Limited • Chairman, Atop Technology Company Limited
• Senior Executive Vice President, PTT Public Company Limited • President, The Aromatics (Thailand) Public Company Limited • Chairman, Rayong Petrochemical Corporation Limited • Director to the Remuneration Committee
• B.Sc. Chemical Engineering, Chulalongkorn University • Senior Executive Program, National Institute of Development Administration (NIDA) • Senior Executive Program, Sasin Graduate Institute of Business Administration of Chulalongkorn University (Sasin) • NPRA International Petrochemical Conference, U.S.A. • Balanced Scorecard by Learnet International (Thailand) Co., Ltd.
Independent Director - Director to the Audit Committee Age : 66
None
Training on Director Roles and Responsibilities
Education / Training
Mr. Paibulya Punyavutti
Relation among family within the Company :
Training on Director Roles and Responsibilities • Director Certification Program (DCP), Class 22/2002 and Setting the CEO Performance Plan and Evaluation, Thai Institute of Directors Association (IOD)
Relation among family within the Company : None
Annual Report 2008
PTT Chemical Public Company Limited
Present Important Positions
Experiences
• Chief Financial Officer, PTT Public Company Limited • Director, PTT Exploration and Production Public Company Limited • Director, PTT Aromatics and Refining Public Company Limited • Director, Thai Oil Public Company Limited
• Director, EGAT Public Company Limited • Director, the Metropolitan Electricity Authority • Director, The Aromatics (Thailand) Public Company Limited • Director to the Corporate Governance Committee, PTT Chemical Public Company Limited
Education / Training • Honorary Degree Doctor of Philosophy (Accounting), Thammasat University • M.B.A. (Finance), Indiana University of Pennsylvania, U.S.A. • Bachelor of Accounting, Thammasat University • The Joint State - Private Sector Regular Course, the National Defense College, Class 13 • Capital Market Academy Leader Program, Class 5
Mr. Pichai Chunhavajira Director - Director to the Remuneration Committee Age : 59
Present Important Positions
Experiences
• Chief Operation Officer, Downstream Petroleum Business Group, and Senior Executive Vice President, Oil Business Unit, PTT Public Company Limited • Director, PTT Aromatics and Refining Public Company Limtied • Director, Thai Oil Public Company Limited • Director, IRPC Public Company Limited
• Senior Executive Vice President, Corporate Strategy and Development, PTT Public Company Limited • Senior Executive Vice President, Corporate Support, PTT Public Company Limited • Director, The Aromatics (Thailand) Public Company Limited • Director, Rayong Refinery Public Company Limited
Training on Director Roles and Responsibilities • Director Certification Program (DCP), Class 14/2002, Thai Institute of Directors Association (IOD)
Age : 57
None
• Director Accreditation Program (DAP), Class 49/2005, Thai Institute of Directors Association (IOD)
• Ph.D. (Civil Eng.), University of Texas at Austin, U.S.A. • M.S. (Civil Eng.), Stanford University, U.S.A. • B.E. (Civil Eng.), Chulalongkorn University • The National Defense College, Class 15
Director - Chairman of the Corporate Governance Committee - Director to the Nominating Committee
Relation among family within the Company :
Training on Director Roles and Responsibilities
Education / Training
Mr. Prajya Phinyawat
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Relation among family within the Company : None
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Present Important Positions • President, SCG Chemicals Company Limited • Director, Thai Plastic and Chemicals Public Company Limited • Chairman, Rayong Olefins Company Limited • Chairman, SCG Polyolefins Company Limited • Chairman, Thai Polyethylene Company Limited • Chairman, Thai Polypropylene Company Limited • Chairman, SCG Plastics Company Limited • Chairman, Map Ta Phut Olefins Company Limited • Director, Siam Styrene Monomer Company Limited
Training on Director Roles and Responsibilities • Director Accreditation Program (DAP), Class 39/2005, Thai Institute of Directors Association (IOD)
Experiences • Executive Vice President, Cementhai Chemicals Company Limited
Relation among family within the Company : None
Education / Training
Mr. Cholanat Yanaranop Director Age : 49
• Master of Chemical Engineering, Imperial College, London, U.K. • Bachelor of Environmental Chemical Engineering, Salford University, Manchester, U.K. • Certificate in Advanced Management Program, Harvard Business School, U.S.A.
Present Important Positions • Vice President and Chief Financial Officer, SCG • Director, Rayong Olefins Company Limited • Director, SCG Polyolefins Company Limited • Director, Thai Polyethylene Company Limited • Director, Thai Polypropylene Company Limited • Director, SCG Plastics Company Limited • Director, SCG Chemicals Company Limited • Director, Map Ta Phut Olefins Company Limited • Director, Siam Styrene Monomer Company Limited
Education / Training
Mr. Roongrote Rangsiyopash Director Age : 45
• M.B.A. (with Distinction), Harvard Business School, Harvard University, U.S.A. • M.S. Industrial Engineering, University of Texas (Arlington), U.S.A. • Bachelor of Engineering, Chulalongkorn University
Training on Director Roles and Responsibilities • Director Accreditation Program (DAP), Class Cementhai, Thai Institute of Directors Association (IOD)
Experiences • Corporate Planning Director, the Siam Cement Public Company Limited
Relation among family within the Company : None
Annual Report 2008
PTT Chemical Public Company Limited
Present Important Positions • Director, Thoresen Thai Agencies Public Company Limited • Chairman, Bangkok Industrial Gas Company Limited • Director, HMC Polymers Company Limited • Director, Rayong Olefins Company Limited • President, Bangkok Synthetics Company Limited • President, BST Elastomers Company Limited
Education / Training
Mr. Pichit Nithivasin Director
• Ph.D. Operation Research, University of California, Berkeley, U.S.A. • M.S. Industrial Engineer / Operation Research, University of California, Berkeley, U.S.A. • M.S. Electrical Engineer and Computer Science, University of California, Berkeley, U.S.A. • B.S. Industrial Engineer, University of California, Berkeley, U.S.A.
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Training on Director Roles and Responsibilities • Finance for Non-Finance Director Program, Class 4/2003, Thai Institute of Directors Association (IOD)
Experiences • Vice Chairman, Bangkok Polyethylene Public Company Limited • Managing Director, Map Ta Phut Industrial Gases Company Limited
Relation among family within the Company : None
Age : 62
Present Important Positions • President & CEO, PTT Chemical Public Company Limited • Executive Vice President Acting for Senior Executive Vice President, PTT Public Company Limited • Director, Vinythai Public Company Limited • Director, NPC Safety & Environmental Service Company Limited • Director, PTT Polymer Marketing Company Limited • Director, PTT Polyethylene Company Limited • Director, PTT Polymer Logistics Company Limited • Chairman, the Plastic Industry Club, the Federation of Thai Industries
Education / Training
Mr. Veerasak Kositpaisal Director - Secretary to the Board of Directors Age : 54
• Master of Science (Mechanical Engineering), Texas A&I University, U.S.A. • Bachelor of Engineering (Mechanical), Chulalongkorn University
Training on Director Roles and Responsibilities • Director Certification Program (DCP), Class 82/2006 and Finance for Non-Finance (FN), Class 30/2006 Thai Institute of Directors Association (IOD)
Experiences • Director, Secretary to the Board of Directors, Managing Director, Bangkok Polyethylene Public Company Limited • Director and Managing Director, Thai Styrenics Company Limited • Executive Vice President-Polymer Products Value Center, PTT Chemical Public Company Limited • Director and Public Affairs Manager, Esso Thailand and ExxonMobil Thailand • Lubes Country Manager, Esso Thailand and ExxonMobil Thailand
Relation among family within the Company : None
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MANAGEMENT TEAM
Present Important Positions
Experiences
• Executive Vice President Acting for Senior Executive Vice President, PTT Public Company Limited • Director, Vinythai Public Company Limited • Director, NPC Safety & Environmental Service Company Limited • Director, PTT Polymer Marketing Company Limited • Director, PTT Polyethylene Company Limited • Director, PTT Polymer Logistics Company Limited • Chairman of Plastic Industry Club, the Federation of Thai Industries
• Director, Secretary to the Board of Directors, Managing Director, Bangkok Polyethylene Public Company Limited • Director and Managing Director, Thai Styrenics Company Limited • Executive Vice President-Polymer Products Value Center, PTT Chemical Public Company Limited • Director and Public Affairs Manager, Esso Thailand and ExxonMobil Thailand • Lubes Country Manager, Esso Thailand and ExxonMobil Thailand
Education / Training
Mr. Veerasak Kositpaisal President & CEO Age : 54
• Director, Thai Oleochemicals Company Limited • Director, TOC Glycol Company Limited • Director, Thai Choline Chloride Company Limited • Director, Thai Ethanolamines Company Limited • Director, PTT Polyethylene Company Limited • Director, PTT Chemical International (Singapore) Pte., Ltd. • Executive Vice President, Senior Executive Vice President - Petrochemical Business & Refinery Group, PTT Public Company Limited
Education / Training
Senior Executive Vice President, Finance & Accounting Age : 59
None
• Master of Science (Mechanical Engineering), Texas A&I University, U.S.A. • Bachelor of Engineering (Mechanical), Chulalongkorn University • Director Certification Program (DCP), Class 82/2006 and Finance for Non-Finance (FN), Class 30/2006, Thai Institute of Directors Association (IOD)
Present Important Positions
Ms. Panada Kanokwat
Relation among family within the Company
• M.B.A. (Business Administration - Finance & Banking), North Texas State University, U.S.A. • Bachelor of Accounting, Faculty of Commerce & Accountancy, Thammasat University
• Director Accreditation Program (DAP), Class 75/2008 Thai Institute of Directors Association (IOD) • Executive Program in Capital Market Academy Leadership Program, Capital Market Academy • Executive Program in International Management, Stanford-National University of Singapore • Building, Leading & Sustaining the Innovative Organization, Sloan School of Management, Massachusetts Institute of Technology, U.S.A.
Experiences • Executive Vice President - Corporate Finance, PTT Public Company Limited
Relation among family within the Company None
Annual Report 2008
PTT Chemical Public Company Limited
Present Important Positions
Experiences
• Chairman, NPC Safety & Environmental Service Company Limited • Director, Thai Choline Chloride Company Limited • Director, Alliance Plant Service Company Limited
• Executive Vice President - Chief Engineering & Construction, PTT Chemical Public Company Limited
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Relation among family within the Company None
Education / Training • Master’s Degree in Mechanical Engineering, Chulalongkorn University • Bachelor’s Degree in Mechanical Engineering, Chulalongkorn University • Director Certification Program (DCP), Class 92/2007, Thai Institute of Directors Association (IOD)
Mr. Jiamsak Nantananate Executive Vice President, Operational Excellence Age : 56
Present Important Positions • Director, TOC Glycol Company Limited • Director, Thai Oleochemicals Company Limited • Director, Vinythai Public Company Limited • Director, PTT Polyethylene Company Limited • Director, PTT Phenol Company Limited • Director, Thai Tank Terminal Limited • Director, Thai Styrenics Company Limited • Director, PTT Chemical International (Singapore) Pte., Ltd. • Director, Cognis Oleochemicals (M) SDN BHD
Education / Training
Mrs. Puntip Oungpasuk Executive Vice President, Strategy & International Affairs Age : 49
• Master’s Degree in Business Administration (Commerce & Accountancy), Thammasat University • Bachelor’s Degree in Chemical Engineering, Prince of Songkla University • The Advance Management Program (AMP), Harvard Business School, U.S.A. • Director Certification Program (DCP) Class 67/2005, Thai Institute of Directors
Association (IOD) and Australian Institute of Company Directors • Chief Finance Officer (CFO) Class 1/2004, The Institute of Certified Accountants and Auditors of Thailand
Experiences • Director, PTT Polymer Marketing Company Limited • Executive Vice President - Corporate Strategy & Business Development, PTT Chemical Public Company Limited
Relation among family within the Company None
50
Present Important Positions • Director, TOC Glycol Company Limited • Director, Thai Choline Chloride Company Limited • Director, Thai Ethanolamines Company Limited • Director, Eastern Fluid Transport Company Limited • Director, PTT Utility Company Limited • Director, PTT ICT Solutions Company Limited • Director, Alliance Plant Service Company Limited • Director, PTT Chemical International (Singapore) Pte., Ltd.
Education / Training
Mr. Athavudhi Hirunburana Executive Vice President, Organizational Effectiveness
• Master of Science (Mechanical), Manhattan College, New York, U.S.A. • Bachelor of Science (Mechanical), New York Institute of Technology, U.S.A. • Director Accreditation Program (DAP), Class 81/2006, Thai Institute of Directors Association (IOD)
• Senior Executive Program 2007, Stanford University, U.S.A. • Ministry of Finance Executive Program. • Finance for non Finance Manager, Thammasat University. • Senior Executive Program, Sasin Graduate Institute of Business Administration of Chulalongkorn University
Experiences • Executive Vice President - Chief Corporate Development & Support, PTT Chemical Public Company Limited • Acting Managing Director, Thai Ethoxylate Company Limited
Relation among family within the Company None
Age : 53
Present Important Positions
Experiences
• Director, Thai Tank Terminal Limited • Director, PTT Utility Company Limited • Director, PTT Polymer Marketing Company Limited • Director, PTT Utility Company Limited • Director, PTT Phenol Company Limited • Director, Thai Oleochemicals Company Limited • Director, Alliance Petrochemical Investment (Singapore) Pte., Ltd
• Senior Vice President, PTT Chemical Public Company Limited • Executive Vice President - Operation, TOC Glycol Company Limited • EO/EG Project Director, PTT Chemical Public Company Limited
Education / Training
Mr. Dhanes Charoensupaya Executive Vice President, Marketing, Commercial & Supply Chain Governance Age : 54
• Ph.D. (Mechanical Engineering), Illinois Institute of Technology, U.S.A. • Master of Science (Mechanical Engineering), Texas A&I University, U.S.A. • Bachelor’s Degree in Mechanical Engineering, Chulalongkorn University • Advance Management Program, Harvard Business School, U.S.A • Director Certification Program (DCP), Class 97/2007, Thai Institute of Directors Association (IOD)
Relation among family within the Company None
Annual Report 2008
PTT Chemical Public Company Limited
51
Present Important Positions
Experiences
• Director, Thai Tank Terminal Limited • Director, PTT Utility Company Limited • Director, NPC Safety and Environmental Service Company Limited
• Executive Vice President (Operation), National Petrochemical Public Company Limited
Education / Training • M.B.A., Thammasat University • B.Eng. (Electrical Engineering), Chulalongkorn University • Director Certification Program (DCP), Class 97/2007, Thai Institute of Directors Association (IOD) • Senior Executive Program, Sasin Graduate Institute of Business Administration of Chulalongkorn University • Advanced Management Program, Harvard Business School, U.S.A.
Relation among family within the Company None
Mr. Narong Bunditkamol Executive Vice President, Olefins & Shared Facilities Age : 54
Present Important Positions
Experiences
• Director, Bangkok Polyethylene Public Company Limited • Director, NPC Safety and Environmental Service Company Limited • Chairman, Thai Styrenics Company Limited • Director, PTT Polyethylene Company Limited
• Executive Vice President - Chief Operating Unit Plant I-4, PTT Chemical Public Company Limited • Director, TOC Glycol Company Limited • Director, Thai Ethanolamines Company Limited
Education / Training
Mr. Suvit Tinnachote Executive Vice President, Polymer Products Value Centre Age : 52
• Master of Public and Private Management, National Institute of Development Administration (NIDA) • Bachelor’s Degree in Electrical Engineering, King Mongkut’s Institute of Technology (Ladkrabang) • Director Certification Program (DCP), Class 92/2007, Thai Institute of Directors Association (IOD) • Asean Executive Program (AEP), GE Crotonville
Relation among family within the Company None
52
Education / Training • Master and Doctorate Degree (D.E.S) International Laws, Universite D’Aix-Marseille, France • Bachelor Degree in Political Science (International Affairs), Thammasat University • Director Certification Program (DCP), Class 92/2007, Thai Institute of Directors Association (IOD)
Relation among family within the Company None
Experiences • Senior Vice President - Office of the President, PTT Chemical Public Company Limited • Vice President Corporate Governance Office, PTT Chemical Public Company Limited
Mrs. Thasnalak Santikul Senior Vice President, Corporate Affairs Age : 54
Present Important Positions • Director, TOC Glycol Company Limited • Director, Thai Choline Chloride Company Limited • Director, Thai Ethanolamines Company Limited • Director, Thai Fatty Alcohol Company Limited • Director, Thai Ethoxylate Company Limited • Director, PTT Chemical International Private Limited • Director, Cognis Oleochemicals (M) SDN BHD
Education / Training
Mr. Kongkrapan Intarajang Senior Vice President, EO-Based Performance Products Value Center Age : 41
• Ph.D. in Chemical Engineering from the University of Houston, Texas, U.S.A. • Bachelor of Engineering (2nd Class Horns), Chulalongkorn University • Annual Meeting 2007/The European Petrochemical Association-Germany • Asia Petrochemical Industry Conference 2007/APIC-Taiwan
• 2007 International Petrochemical and Refiners Association/ NPRA-U.S.A. • 2007 World Petrochemical Conference & Industry Workshops/ CMAI-U.S.A. • Annual Palm & Lauric Oils Conference & Exhibition Price Outlook 2007/2008Malaysia
Experiences • Acting President & Board of Director, Thai Oleochemicals Company Limited • Vice President - Business Development, PTT Chemical Public Company Limited
Relation among family within the Company None
Annual Report 2008
PTT Chemical Public Company Limited
53
PTTCH没s Managements who appointed as Management of its Subsidiaries: 1. Mr. Khubbhol Suksupha Senior Executive Vice President Appointed as Executive Vice President, PTT Public Company Limited and Managing Director, PTT Polyethylene Company Limited
2. Mr. Tawatchai Chittavanich Senior Vice President Appointed as Managing Director, Thai Tank Terminal Limited
3. Mr. Prakob Petcharuttana Senior Vice President Appointed as President, NPC Safety and Environmental Service Company Limited
4. Mr. Somsak Keerativutisest Senior Vice President Appointed as President, Alliance Plant Service Company Limited
54
ORGANIZATION STRUCTURE
BOARD OF DIRECTORS
Audit Committee
Nominating Committee
Corporate Governance Committee
Remuneration Committee
PRESIDENT & CEO
Internal Audit
Corporate Affairs
Strategy & International Affairs
Olefins & Shared Facilities
Operational Service Subsidiaries
Marketing, Commercial & Supply Chain Governance
Polymer Products Value Centre
Finance and Accounting
Operational Excellence
EO-Based Performance Products Value Centre
Organizational Effectiveness
Oleochemical Products Value Centre
Annual Report 2008
PTT Chemical Public Company Limited
55
ORGANIZATIONAL AND PERSONNEL DEVELOPMENT
Strengthening Value Centres for Excellence PTT Chemical’s business direction lies in integrated petrochemical and chemical business to promote sustained growth in the chemical business together with a step toward chemical industry and innovation leadership. To strengthen efficiency and flexibility while satisfying customers’ demand, the Company implemented value-based organizational (VBO) effectiveness by structuring itself into five value centers: 1. Olefins & Shared Facilities 2. Polymer Products Value Centre 3. EO-Based Performance Products Value Centre 4. Oleochemical Products Value Centre 5. Service & Others. A Corporate Center defines governance roles in defining strategies and policies for corporate development and provides quality shared services to all internal users at competitive costs. Organizational management under VBO calls for planning and management processes for efficiency and effectiveness: • Integrating into one cohesive organization • Re-aligning subsidiary structure and management • Clear strategic directions for the entire PTT Chemical groups to maximize the group’s profitability • Standardized practices and operational platforms across value center and shared facilities • Cost reduction, best practices and optimized resource utilization caused by networks from our shared service centers • Unified work culture from “Functional” to “Process” organization • Improve employee’s career growth opportunities • Preparing for long-term value & growth and increase the level of international competitiveness • Customer Relationship Management/CRM • Supply Chain Management/SCM • Applies the principles of TQA - Thailand Quality Award to our work process and development to ensure alignment and integration • Set up BBS-Behavior Based Safety : to sustain our safety process.
56
Personnel Development To cultivate competencies for performance resulted by customer oriented, the Company identified each value centre’s to meet customers’ demand and defining the ‘Leadership Brand’, the identity of the Company’s own business conduct. The Leadership Brand reflects people’s unique traits in the organization and value centres - apparent and tangible to customers and the public alike. PTT Chemical’s Leadership Brand-inspired traits were identified and aligned to people competency. These consisted of desired behavior, professional quality, and functional competency for the personnel of each value centre. Training courses and development procedures were defined and career development models drawn up to ensure people’s readiness for their career paths.
Annual Report 2008
PTT Chemical Public Company Limited
57
COMPANY INFORMATION
Name Initial Website Registered Number
PTT Chemical Public Company Limited PTTCH www.pttchem.com 0107548000668
Registered Capital Paid-up Capital
Baht 15,191,153,000 comprising of 1,519,115,300 ordinary shares at par value of Baht 10 each Baht 14,968,296,000.00
First Day Trade on the SET Establishment
13 December 2005 7 December 2005
Type of Business
Manufacture and sale of petrochemical products, by-products, chemical products, utilities and providing support services.
Business Structure and Value Chain
-
Number of Employees
1,544 Persons
Contact
Head Office: Tel 66 (0) 2265-8400 Fax 66 (0) 2265-8500 Corporate Governance & Secretarial: Tel 66 (0) 2265-8632-5 Email: cg@pttchem.com Investor Relations: Tel 66 (0) 2265-8574 Email: ir@pttchem.com
Address
Head Office: 123 Suntowers Building B, 31-35th Floor, Vibhavadi Rangsit Road, Chomphon, Chatuchak, Bangkok 10900 Tel 66 (0) 2265-8400 Fax 66 (0) 2265-8500 1st Branch: (Suntowers A Branch) 123 Suntowers Building A, 14th, 18th Floor, Vibhavadi Rangsit Road, Chomphon, Chatuchak, Bangkok 10900 Tel 66 (0) 2265-8100 Fax 66 (0) 2265-8111-2 2nd Branch: (I-1 Road Branch) 14 I-1 Road, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong 21150 Tel 66 (0) 3892-2100 Fax 66 (0) 3892-2111 3rd Branch: (I-4 Road Branch) 9 I-4 Road, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong 21150 Tel 66 (0) 3892-5400 Fax 66 (0) 3892-5600-1 4th Branch: (Jetty and Buffer Tank Farm Branch) 19 Rong - Pui Road, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong 21150 Tel 66 (0) 3892-2750 5th Branch: (Rachniyom Road Branch) 59 Rachniyom Road, Tambon Noen-Phra, Amphoe Mueang Rayong, Rayong 21150 Tel 66 (0) 3899-4000 6th Branch: (Suntowers B Branch) 123 Suntowers Building B, 10th Floor, Vibhavadi Rangsit Road, Chomphon, Chatuchak, Bangkok 10900
Olefins & Shared Facilities Polymer Products Value Centre EO-Based Performance Products Value Centre Oleochemical Products Value Centre
58
References Securities Registrar
Thailand Securities Depository Company Limited 62 The Stock Exchange of Thailand Building, 4th, 7th Floor, Rachadapisek Road, Klongtoey, Bangkok 10110 Tel 66 (0) 2229-2800 Fax 66 (0) 2359-1267
Registrar and Debenture Holders Representative
Thai Military Bank Public Company Limited 393 Silom Road, Bangrak, Bangkok 10500 Tel 66 (0) 2230-5575, 66 (0) 2230-5479 Fax 66 (0) 2266-8150, 66 (0) 2266-9779
Registrar
Siam Commercial Bank Public Company Limited Markets Operations Division 1060 Phetburi Road, Ratchatawee, Bangkok 10400 Tel 66 (0) 2256-2323-8 Fax 66 (0) 2256-2406 Securities Services Product 9 Rutchadapisek Road, Jatujak, Bangkok 10900 Tel 66 (0) 2544-3930 Fax 66 (0) 2937-7662
Auditor
KPMG Phoomchai Audit Ltd. 48th Floor, Empire Tower, 195 South Sathorn Road, Bangkok 10120 Tel 66 (0) 2677-2000 Fax 66 (0) 2677-2222
Legal Advisor
Baker & McKenzie Limited 22-25th Floor, Abdulrahim Place, 990 Rama IV Road, Silom, Bangrak, Bangkok 10500 Tel 66 (0) 2636-2000 Fax 66 (0) 2636-2111 Siam Premier International Law Office Limited 26th Floor, The Offices at Central World, 999/9 Rama I Road, Pathumwan, Bangkok 10330 Tel 66 (0) 2646-1888 Fax 66 (0) 2646-1919 Chandler and Thong-Ek Law Offices Limited 7- 9th Floors, Bubhajit Building, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500 Tel 66 (0) 2266-6485 thru 6510 Fax 66 (0) 2266-6483-4 Hunton & Williams (Thailand) Limited 34th Floor, Q.House Lumpini Building, 1-3401-3402 South Sathorn Road, Thungmahamek, Sathorn, Bangkok 10120 Tel 66 (0) 2645-8800 Fax 66 (0) 2645-8880 Company Information as of 31 December 2008
Annual Report 2008
PTT Chemical Public Company Limited
59
SHAREHOLDING IN AFFILIATES AND REVENUE STRUCTURE
Subsidiaries
PTTCH 100%
100%
100%
100%
BPE
PTTPE
TEX
100%
TSCL
PPCL
PTTUT
TOCGC
PTTPM
TEA
50%
30%
40%
25%
BPE
Bangkok Polyethylene Plc
PTTPE
PTT Polyethylene Co., Ltd.
TSCL
Thai Styrenics Co., Ltd.
TOCGC
TOC Glycol Co., Ltd.
TEA
Thai Ethanolamine Co., Ltd.
TCC
Thai Choline Chloride Co., Ltd.
TOL
Thai Oleochemicals Co., Ltd.
TFA
Thai Fatty Alcohol Co., Ltd.
TTT
Thai Tank Terminal Co., Ltd.
APS
Alliance Plant Service Co., Ltd.
NPC S&E
NPC Safety & Environmental
PTTCH Inter
PTT Chemical International Pte., Ltd.
COM
Cognis Oleochemicals (M) Sdn Bhd
Service Ltd. 100%
100%
100%
60%
PTTICT
TCC
TOL
100%
TFA
NPC S&E
VNT
API
EFT
APS
20%
24.98%
16.67%
15%
Associates TEX
Thai Ethoxylate Co., Ltd.
PPCL
PTT Phenol Co., Ltd.
PTTUT
PTT Utility Co., Ltd.
PTTPM
PTT Polymer Marketing Co., Ltd.
PTTICT
PTT ICT Solutions Co., Ltd.
VNT
Vinythai Plc
API
Alliance Petrochemical Investment
EFT
Eastern Fluid Transport Co., Ltd.
(Singapore) Pte., Ltd. 51%
100%
TTT
PTTCH Inter
50%
COM
Note: 1. On 1 September 2006, the Company reduced its equity interest in PPCL from 40% to 30%. 2. On 2 October 2006, the Company bought the shares of BPE and PTTPE from PTT Plc, in line with a resolution of the extraordinary shareholders meeting of 28 September 2006, thus enabling it to wholly own BPE and PTTPE. 3. On 8 April 2008, NPTC Maintenance & Engineering Services (NPTC) underwent a change in names to Alliance Plant Service Co., Ltd. (APS), while changing shareholders (40%) from Toyo Thai Corporation to PTT Plc, with the Company’s equity interest (60%) intact. 4. On 16 July 2008, PTTCH International Co., Ltd. was registered. This company then signed an agreement to buy 50% of the common shares of COM on 23 July 2008. 5. On 17 October 2008, Thai Oleochemicals Co., Ltd. (TOL) a wholly-owned subsidiary of the Company, bought shares of Thai Fatty Alcohol Co., Ltd. (TFA), Cognis Thai Co., Ltd. Cognis B.V. thus enabling TOL s shares to rise from 50% to 100% in TFA.
60
REVENUE STRUCTURE OF THE COMPANY AND ITS SUBSIDIARIES
Products/Services*
Carried
Company
Out by Shareholding(%)
2006
2007
MB
%
2008
MB
%
MB
%
1 . Olefins & Shared Facilities 1.1 Sales of Ethylene
PTTCH
100
28,534
40%
16,154
21%
17,306
21%
1.2 Sales of Propylene
PTTCH
100
15,052
21%
12,511
17%
13,187
16%
1.3 Sales of By-Products
PTTCH
100
6,353
9%
6,025
8%
6,723
8%
1.4 Sales of Utilities
PTTCH
100
3,020
4%
2,929
4%
2,798
3%
1.5 Others
PTTCH
100
-
0%
-
0%
47
0%
52,959
74%
37,619
50%
40,061
48%
Total 2. Polymer Products 2.1 Sales of Polymers - HDPE
PTTCH
100
10,283
14%
11,981
16%
13,092
16%
2.2 Sales of Polymers - HDPE
BPE
100
2,789
4%
10,230
14%
10,233
12%
TSCL
100
2.3 Sales of Polystyrene Total
-
0%
-
0%
1,225
1%
13,072
18%
22,211
29%
24,550
29%
13%
3. EO-based Performance Products 3.1 Sales of EO/EG, EO Derivatives 3.2 EO Derivatives
TOCGC
100
3,633
5%
13,128
17%
10,598
TEX
50
147
0%
912
1%
1,183
1%
3,780
5%
14,040
19%
11,781
14%
5%
Total 4. Oleochemical Products 4.1 Sales of ME/FA 4.2 Sale revenues from PTTCH Inter, COM
TOL, TFA
100
-
0%
-
0%
4,568
PTTCH Inter
100
-
0%
-
0%
1,000
1%
-
0%
-
0%
5,568
7%
2%
Total 5. Service/Others 5.1 Storage and Handling of Liquid Chemicals 5.2 Related Services Income 5.3 Maintenance Services 5.4 Safety & Environmental Services Total Total
TTT
51
1,225
2%
1,234
2%
1,385
PTTCH
100
398
1%
159
0%
238
0%
APS
60
333
0%
189
0%
378
0%
NPC S&E
100
76
0%
132
0%
156
0%
2,032
3%
1,714
2%
2,157
3%
71,843 100%
75,584
100%
84,117
100%
Remark : * The revised businesses is based on value - based organization structure.
Annual Report 2008
PTT Chemical Public Company Limited
61
SHAREHOLDING STRUCTURE
PTT
49.30
SCG
20.18
HMC
2.81
SSB&T
1.96
NORTRUST
1.79
BST
1.46
OMAN OIL
1.11
SSB&TA
0.83
IBT
0.72
HSBC
0.71
OTHERS
19.12
List of major shareholders of PTT Chemical Public Company Limited "PTTCH" Number of Shares
% of Total Shares
1. PTT Public Company Limited (PTT)
737,917,272
49.30
2. The Siam Cement Public Company Limited (SCG)
302,009,222
20.18
42,132,567
2.81
4. State Street Bank and Trust Company
29,340,720
1.96
5. Nortrust Nominees Ltd.
26,824,838
1.79
6. Bangkok Synthetics Company Limited (BST)
21,928,254
1.46
7. Oman Oil Company S.A.O.C
16,595,853
1.11
8. State Street Bank and Trust Company for Australia
12,436,949
0.83
9. Investors Bank & Trust Company
10,775,190
0.72
10. HSBC (Singapore) Nominees PTE LTD
10,615,057
0.71
1,210,575,922
80.88
Name
3. HMC Polymers Company Limited (HMC)
Total
Note :
- PTT Chemical Plc’s top 10 shareholders as of 14 November 2008, at the close of the share register. - With 49.30% shareholding, PTT Plc is in practice the major shareholder with significant influence over the policy formulation of Company management or operation.
62
DIVIDEND PAYMENT POLICY
1. PTT Chemical Public Company Limited At Meeting No. 1/2005, held on 7 December 2005, the Board of Directors agreed to pay a dividend of no less than 30% of net profits after the deduction of tax and capital reserves. However, dividend payment is subject to investment plans, necessity, and other factors. After deciding on an appropriate dividend payment, the Board must propose the payment to a shareholders’ meeting for approval. If necessary, the Board may approve an interim dividend payment and report to the shareholders at their next meeting. Dividend Allocation Profile year
Dividend per share (baht) Total dividend (million baht)
2005
2006
2007
2008 (Jan.-Jun.)
5.00
5.25
6.00
3.00
5,655.70
6,925.67
8,966.52
4,490.49
2. Subsidiaries: Thai Tank Terminal Limited • The dividend allocation policy is as follows: “If there is no other necessity, the Company shall allocate a dividend of no less than 40% of the net profits after the year-end deduction of corporate income tax to maintain the ratio of liabilities to equity of shareholders at no more than 1:1” TOC Glycol Company Limited • The dividend allocation policy is as follows: “In any dividend allocation, the Company shall allocate as capital reserves no less than one-twentieth of the net profits earned from its business until such capital reserves equal or exceed one-tenth of the capital of the Company.” Thai Oleochemicals Company Limited • The dividend allocation policy is as follows: “In any dividend allocation, the Company shall allocate as capital reserves no less than one-twentieth (5%) of the net profits earned from its business until such capital reserves equal or exceed one-tenth of the capital of the Company.” Bangkok Polyethylene Public Company Limited • The dividend allocation policy is as follows: “No dividend allocation is permitted unless decided by the shareholders’ meetings or the Board of Directors. An interim dividend may on occasion be paid if it is apparent to the Board that the Company has been reasonably profitable. Once the dividend allocation has been made, the Board shall report to the next shareholders’ meeting. In so doing, the Company shall allocate a portion as capital reserves; this amount is to be no less than 5% of the annual net profits, deducted by the cumulative loss (if applicable). This practice shall continue until the provisional capital equals 10% of the registered capital.”
Annual Report 2008
PTT Chemical Public Company Limited
63
MANAGEMENT STRUCTURE
The management structure of PTT Chemical Public Company Limited consists of the Board of Directors, the Subcommittees, the President, and the management team. This is the list of the Board of Directors as of 31 December 2008. Name
Position
Mr. Pornchai Rujiprapa Mr. Prasert Bunsumpun Mr. Manu Leopairote
Chairman Vice Chairman Independent Director Chairman, Audit Committee Independent Director Chairman, Nominating Committee Chairman, Remuneration Committee Independent Director Director, Audit Committee Director, Nominating Committee Independent Director Director, Corporate Governance Committee Independent Director Director, Remuneration Committee Independent Director Director, Corporate Governance Committee Independent Director Director, Audit Committee Director Director, Remuneration Committee Director Chairman, Corporate Governance Committee Director, Nominating Committee Director Director Director Director and Secretary to the Board of Directors
Mr. Pala Sookawesh
Mr. Cherdpong Siriwit
Mr. Witoon Simachokedee Pol. Gen. Nopadol Somboonsub Mr. Somchai Kuvijitsuwan Mr. Paibulya Punyavutti Mr. Pichai Chunhavajira Mr. Prajya Phinyawat
Mr. Mr. Mr. Mr.
Cholanat Yanaranop Roongrote Rangsiyopash Pichit Nithivasin Veerasak Kositpaisal
(Details on directors’ appointment and retirement during the year 2008 appear on page73)
64
Board of Directors 1. Composition According to Company regulations, the Board of Directors consists of 5 and up to 15 directors, of whom no less than three are independent directors, elected and removed by the shareholders. At least half of the directors must reside in Thailand. All directors, who must be qualified by law, must not be over 70 years old. (Directors’ names appear on page 40)
2. Appointment and Retirement of Directors Company regulations on the appointment, removal, or retirement of directors are summarized below: Appointment • The shareholders elect directors under the following rules: (1) Each shareholder has one vote per share. (2) If the number of nominees is less than that of directors required in an election, the shareholders’ meeting simply elects those nominees. Each shareholder exercises all votes applicable under (1) to elect one or more directors. A shareholder cannot allocate only part of his/her votes to any nominee. (3) If the number of nominees is greater than that of directors required in the election, a shareholder is to cast his/her vote for the nominees individually. In voting, the nominees are to receive the numbers of votes according to the number of shares each shareholder holds as under (1). Each shareholder cannot allocate only part of his/her votes to any nominee. The nominees are to be ranked by the total numbers of votes received and those that gather the most votes are elected as directors, but the numbers can only be equal to that of the directors required. If the nominees receive equal votes such that their election would result in more directors than required, the chairman of the meeting is to cast a vote to decide which one(s) is appointed. • The directors are to appoint any one among themselves as Chairman, who is to make a final decision anytime there are an equal number of votes among the directors. The Board is to appoint another director as Vice Chairman, who acts as assigned by the Chairman or on his/ her behalf in case he/she is unable to perform the duty, or if the Chairman’s position becomes vacant. • If vacancies on the Board exist for reasons other than term expiration, the Board is to select a qualified person for consideration at the following Board meeting. If the remaining term of directorship is less than two months, the newly elected director replacing the former is to stay in office for the remaining term of the former. The resolution of the Board on this matter must consist of no less than three-quarter votes of the remaining directors. • If vacancies on the Board are less than the quorum, the current Board is to only call, on behalf of the Board, for a shareholders’ meeting to elect directors to fill the vacancies, to be held within one month. Each newly elected director replacing the former is to stay in office for the remaining term of the former.
Termination of directors • At every Annual General Meeting (AGM), one-third of the directors - or if the number is not a multiple of three, then the number nearest to one-third - are to retire from office. Nevertheless, a director whose term in the office expires may be re-elected. • Apart from term expiration, directorship is to be considered terminated for reasons of death, resignation, disqualification, shareholders’ resolutions to remove a director, or a court order to remove a director.
Annual Report 2008
PTT Chemical Public Company Limited
65
• Any director may resign by submitting a resignation letter to the Company, and such resignation will take effect on the date the Company receives the letter. He/she may also inform the registrar about the resignation. • At a shareholders’ meeting, shareholders may vote for the removal of any director from office before his/her term expires, in which case a three-quarter vote of eligible shareholders present at the meeting is required, provided that the number of shares represented by the three-quarter vote is no less than half of the total number of shares represented by the total number of eligible shareholders present at the meeting.
3. Authority and Duties of the Board The Board’s core responsibility is to manage Company business and perform its duties under relevant laws, objectives, and regulations of the Company, in addition to the resolutions of the shareholders’ meeting. The authority, duties, and responsibilities of the Board are as follows: Duties required by law • Ensure the availability of balance sheets, statements of income, and financial reports. • Appoint the external auditor to examine financial statements and present for approval to shareholders at the AGM within four months from the end of the Company’s accounting periods. The Board is to send copies of the audited balance sheets together with the auditor’s report and the annual report to all shareholders at least seven days ahead of each meeting date. • Identify the authorized directors who will sign on the behalf of the Company with Company seal affixed. • Consider interim dividend payment when the Company makes enough profits and report to shareholders at the next shareholders’ meeting. Oversight of the Company • Direct and monitor the management’s operation to ensure performance efficiency. • Decide the Company’s internal regulations. • Consider the Company’s annual budget, containing operating and investment budgets. • Assign one director or more to act on behalf of the Board. • Appoint other person(s) to carry out Company business under the Board’s control or delegate authority to the mentioned person(s) and within a suitable timeframe. The Board may revoke, repeal, or amend the authorization at any time. • Hold Board meetings; organize shareholders’ meetings and notify all shareholders; ensure preparation of minutes of Board meetings and shareholders’ meetings. • Establish the Company’s structures. • Consider giving permission to directors wishing to buy the Company’s assets or sell his/ hers to the Company or conduct any transactions with it, either on his/her behalf or others’. • Offer opinions on various matters proposed to shareholders’ meetings, including opinions for the approval of the allocation of annual net profits for capital reserves. • Appoint the Audit Committee, the Nominating Committee, the Remuneration Committee, and the Corporate Governance Committee. Each committee is to consist of directors from the Board of Directors under specified criteria. The following matters, however, require prior approval by the shareholders’ meeting: • Engagement in a connected transaction and acquisition/sale of significant Company assets as defined by law and announced by the Capital Market Regulators
66
• Sale or transfer of the whole or essential parts of the Company to other entities • Purchase or takeover of other companies • Preparation, amendment, or termination of contracts dealing with the granting of a lease of the whole or essential parts of any Company business, the assignment to any other person to manage the Company, or the merger of the Company with any other entity to share profits and losses. • Amendment of the Memorandum of Association or Company regulations • Increase/reduction in registered capital • Issuance of debentures for the public • Company dissolution/merger • Announcement of yearly dividend payment • Other businesses as defined by Company regulations that require prior approval at a shareholders’ meeting.
4. Authorized Directors Directors’ authority to sign on behalf of the Company as stipulated in Company regulations are “Two directors co-sign and affixed with the Company seal. The Board may designate the names of directors authorized to sign and bind the Company and affixed with the Company seal”. At its meeting No. 8/2008 on 14 November 2008, the Board designated the following names and number of directors to sign and bind the Company as follows: “Mr. Cherdpong Siriwit, Mr. Manu Leopairote, Mr. Pala Sookawesh, Mr. Pornchai Rujiprapa, Mr. Paibulya Punyavutti, Mr. Pichai Chunhavajira, Mr. Witoon Simachokedee, Mr. Veerasak Kositpaisal, and Police General Nopadol Somboonsub. The signatures of any two of these nine directors, affixed with the Company seal, are considered valid.”
5. Authority and Responsibilities of the President Company regulations call for the Board to select and appoint a director as President and secretary to the Board, to be called President. The President is to conduct the Company’s day-to-day business as well as other businesses under Board resolution at its meeting No. 1/2005 of 7 December 2005, and to perform core responsibilities under Company announcement No. 108/2007 of 1 December 2007, including the authority to manage Company tasks under Board policy, as summarized below: • Be accountable to the Board and shareholders by generating and supplementing business value for stakeholders • Devise objectives for the supervision of the PTT Chemical Group to supplement business value for stakeholders • Create a broad vision, mission, goals, and targets, as well as ensuring their concrete implementation and organizational development • Delegate authority and responsibility to senior and lesser management in support of his/ her accountability in creating business value • Be accountable for business performance and integrated business development with long-term economic returns comparable to those obtained in domestic and overseas petrochemical businesses • Develop the Company as a model business operation in compliance with the law, morality, and culture • Evolve the organization and its personnel to realize their full potential, create a Company culture, and professional ethics.
Annual Report 2008
PTT Chemical Public Company Limited
67
Such authority and duties of the President, however, is void whenever there is a conflict of interest in any form resulting from the President’s exercising of his power in relation to the Company or its subsidiaries.
Subcommittees In compliance with the Good Corporate Governance principles, at its meeting No. 1/2005 of 7 December 2005, the Board appointed four subcommittees (or ‘committees’) to screen particular critical issues with prudence and efficiency, reporting to the Board. In 2008 all subcommittees, appointed on 7 December 2005, completed their first three-year terms. The Board meeting No. 9/2008 of 12 December 2008 decided to appoint new subcommittees with due consideration given to the guidelines of SET. As of 31 December 2008, the structures of these committees were as follows:
1. Audit Committee The Committee consists of three non-management, independent directors qualified under the announcement of SEC. All are knowledgeable and experienced enough to review the credibility of financial statements. (The qualifications and experience of the Audit Committee appear on page 41) Name
Position
1. Mr. Manu Leopairote 2. Mr. Cherdpong Siriwit 3. Mr. Paibulya Punyavutti
Chairman (Independent Director) Director (Independent Director) Director (Independent Director)
Mr. Adison Vichaikatka, Vice President, Internal Audit Department, served as the secretary to the Committee. The Committee’s term is three years or until their retirement or removal from the Board. However, the Committee may be re-appointed by the Board for up to another term unless the Board decides otherwise. The Committee has the authority and responsibilities under its latest charter, approved by the Board at meeting No. 5/2008 of 25 July 2008. The charter was amended in line with the revised announcement SET and of SEC, which grouped them under these categories for greater clarity: Financial reports and external audit • Review the accuracy and adequacy of disclosure of financial reports • Select and table its choice of an external auditor, as well as its fees, for its independence Internal control • Review the suitability and effectiveness of the internal control system and risk management • Encourage the Company to conduct its processes, maintenance activities, and other operation efficiently, effectively, and safely, with due prevention or mitigation of environmental impacts Internal audit • Ensure that the Internal Audit Department is independent and commands effective audits • Provide recommendations to the management on the appointment, transfer, and termination of the head of Internal Audit, as well as performance evaluation to decide his/ her annual merit award
68
• Approve the charter of the Internal Audit Department • Jointly with the internal auditor, review and examine audit findings • Align the Audit Committee, management, Internal Audit, and auditor to ensure compatible perspectives about the audit, and consider the scope of the audit and audit plan of the internal auditor and external auditor to ensure consistency and cooperation Compliance with relevant laws and regulations • Review the Company’s compliance with securities and exchange laws, regulations of SEC and SET, and laws relevant to Company business • Scrutinize connected transactions or transactions with potential conflicts of interest for their compliance with laws and regulations of SEC and SET and to ensure that such transactions are logical and in the best interests of the Company Reporting • Prepare a report on its supervision for disclosure in the annual report, stating items specified by SET. This report must be signed by its chairman. • Report its performance to the Board • In the course of its performance, if any transaction or act that may significantly affect the Company’s financial status and performance is found or suspected, the Committee must report it to the Board for rectification within a suitable period. These transactions include: • Transactions involving a conflict of interest • Fraud, irregularity, or significant defects in internal control • Violation of the securities and exchange law, regulations of SET, or laws relevant to the Company’s business • If the Board or the management fails to rectify such transaction or any action that may significantly affect the Company’s financial status and performance, any member of the Committee may report it to SEC or SET Others • Seek advice from an independent outside advisor, at the Company’s expense, where necessary • Conduct self-assessment of its own performance and accomplishment under the assigned duties and responsibilities. • Review its charter and propose revisions to the Board for approval • Perform any other duty assigned by the Board within its scope of responsibility • Perform any other duty specified by the Articles of Association. In addition, the Audit Committee is required to hold at least one meeting with the external auditor with no management team members involved. Accountability The Committee is directly accountable to the Board, which is accountable for the Company’s conduct with regard to third parties.
Annual Report 2008
PTT Chemical Public Company Limited
69
2. Nominating Committee The Committee consists of three directors, one of whom must be an independent director. Name
Position
1. Mr. Pala Sookawesh 2. Mr. Cherdpong Siriwit 3. Mr. Prajya Phinyawat
Chairman (Independent Director) Director (Independent Director) Director
Appointed to a three-term term, the Committee has the following authority and responsibilities: 1. Recruit and select nominees for directors and President 2. Devise transparent criteria and selection procedures for directors and President 3. Recruit and select qualified nominees as new directors or President and submit their names to the Board and/or a shareholders’ meeting. Accountability The Committee is directly accountable to the Board, which is accountable for the Company’s conduct with regard to third parties.
3. Remuneration Committee This committee consists of three directors, at least one of whom must be an independent director. For 2008, it consisted of: Name
Position
1. Mr. Pala Sookawesh 2. Pol. Gen. Nopadol Somboonsub 3. Mr. Pichai Chunhavajira
Chairman (Independent Director) Director (Independent Director) Director
Appointed to a three-term term, the Committee has the following authority and responsibilities on behalf of the Board: 1. Consider criteria for compensation for the directors and the President 2. Devise criteria and procedures for fair and reasonable compensation to the Board and the President, and submit details of the Board’s compensation to a shareholders’ meeting for approval. Accountability The Committee is directly accountable to the Board, which is accountable for the Company’s conduct with regard to third parties.
4. Corporate Governance Committee The Committee consists of three directors, one of whom must be an independent director. Name
Position
1. Mr. Prajya Phinyawat 2. Mr. Witoon Simachokedee 3. Mr. Somchai Kuvijitsuwan
Chairman Director (Independent Director) Director (Independent Director)
70
Appointed to a three-term term, the Committee has the following authority and responsibilities on behalf of the Board : 1. Propose PTT Chemical’s good corporate governance guidelines to the Board 2. Advise the Board on good corporate governance matters 3. Supervise the Board and the management under good corporate governance principles 4. Review the Company’s good corporate governance principles and ensure alignment with generally accepted practices Accountability The Committee is directly accountable to the Board, which is accountable for the Company’s conduct with regard to third parties.
Independent Directors The Board has required that independent directors account for one-third of the composition of the Board according to Company regulations and the Good Corporate Governance Principles. As of 31 December 2008, independent directors numbered seven, which exceeded one-third of the Board. Name
Position
1. Mr. Manu Leopairote
Independent Director Chairman, Audit Committee Independent Director Chairman, Nominating Committee Chairman, Remuneration Committee Independent Director Director, Audit Committee Director, Nominating Committee Independent Director Director, Corporate Governance Committee Independent Director Director, Remuneration Committee Independent Director Director, Corporate Governance Committee Independent Director Director, Audit Committee
2. Mr. Pala Sookawesh
3. Mr. Cherdpong Siriwit
4. Mr. Witoon Simachokedee 5. Pol. Gen. Nopadol Somboonsub 6. Mr. Somchai Kuvijitsuwan 7. Mr. Paibulya Punyavutti
In deliberating the qualifications of independent directors, the Board reviewed their past and current positions, including their business relationship with the Company, against the criteria of the Office of the Capital Market Regulators. It also ensured that the composition of subcommittees is largely independent directors and that the Chairmen of these subcommittees are independent directors, in keeping with the good corporate governance principles.
Company Secretary To comply with the Securities and Exchange Act (No. 4) of 2008, Section 89/15, the Board at meeting No. 4/2008 of 20 June 2008 appointed Mrs. Walaiporn Puspavesa, Vice President, Corporate Governance and Secretariat, as Company Secretary, in charge of providing regulation advice to the Board and the management for the benefit of the Company. The Company Secretary supervises Board activities and coordination to ensure compliance with the resolutions of the Board, and operate Board meetings and shareholders’ meetings. She is also required to observe the law in ensuring proper documentation of major Company
Annual Report 2008
71
PTT Chemical Public Company Limited
documents, namely directors’ roster, meeting notices, meeting minutes (Board and shareholders alike), and annual reports.
Board of Directors’ Meetings and Compensation 1. Board Meetings In 2008, the Board and subcommittees held these meetings as summarized below : Meetings in 2008 Board of Directors
Audit Committee
Nominating Committee
Remuneration Committee
Corporate Governance Committee
9
7
5
2
2
2. Compensation for the Board According to the 2008 AGM, held on 10 April 2008, the compensation and bonuses were paid to directors and subcommittees as follows: (1) The compensation for directors and subcommittees, in effect from 10 April 2008, appears below: Compensation
Compensation Rate
1. Board’s Compensation • Monthly Compensation • Meeting Compensation 2. Subcommittee Compensation • Audit Committee • Nominating Committee • Remuneration Committee • Corporate Governance Committee
• • • •
Chairman: Baht 50,000 Directors: Baht 40,000/person None For each meeting: - Chairman: Baht 40,000 - Directors: Baht 30,000/person
(2) Directors’ bonuses for 2007 amounted to Baht 57.50 million, or 0.3% of the Company’s net profits of that year, with the terms of each director taken into account. The Chairman received 25% more than other directors. In addition, with the approval of the AGM 2006 of 26 April 2006, PTT Chemical awarded ESOP warrants for 29,000,000 common shares under an ESOP scheme to directors, executives, consultants, employees, and secondments from PTT Plc and its subsidiaries who served PTT Chemical. 3. Meeting Attendance and Compensation for the Board and Subcommittee in 2008 Directors as of 31 December 2008 Name
1.
Position
Mr. Pornchai Rujiprapa* Chairman
2. Mr. Prasert Bunsumpun Vice Chairman
First Date
Atten-
Total Meeting
Bonus
Compensation
Paid in 2008
of Term
dance
(Baht)
(Baht)
1 Jul. 2007
9/9
600,000.00
4,279,505.65
7 Dec. 2005
9/9
480,000.00
3,800,534.20
* Mr. Pornchai Rujiprapa was appointed Chairman, replacing Mr. Cherdpong Siriwit with effect form 1 Jul. 2007.
72
Name
Position
3. Mr. Manu Leopairote
Independent Director Chairman, Corporate
First Date
Atten-
Total Meeting
Bonus
Compensation
Paid in 2008
of Term
dance
(Baht)
(Baht)
7 Dec. 2005
9/9
480,000.00
3,800,534.20
7 Dec. 2005
2/2
80,000.00
-
7/7
250,000.00
-
Governance
(Resigned on
Committee
12 Dec. 2008)
Audit Committee
7 Dec. 2005
Chairman,
20 Jun. 2008
Audit Committee 4. Mr. Pala Sookawesh
Independent Director
7 Dec. 2005
8/9
480,000.00
3,800,534.20
Chairman,
7 Dec. 2005
2/2
80,000.00
-
7 Dec. 2005
5/5
200,000.00
-
1 Jul. 2007
9/9
480,000.00
4,271,696.33
20 Jun. 2008
4/4
120,000.00
-
20 Jun. 2008
4/4
120,000.00
-
Independent Director
10 Apr. 2008
6/6
348,000.00
-
Director, Corporate
12 Dec. 2008
-
-
-
14 Nov. 2008
1/1
62,666.67
-
-
-
62,666.67
-
-
-
Remuneration Committee Chairman, Nominating Committee 5. Mr. Cherdpong Siriwit
Independent Director Director, Audit Committee Director, Nominating Committee
6. Mr. Witoon Simachokedee
Governance Committee 7.
Pol. Gen. Nopadol
Independent Director
Somboonsub
Director, Remuneration 12 Dec. 2008
-
Committee 8. Mr. Somchai Kuvijitsuwan
Independent Director
14 Nov. 2008
1/1
Director, Corporate
12 Dec. 2008
-
Independent Director
7 Dec. 2005
7/9
480,000.00
3,800,534.20
Director, Audit
7 Dec. 2005
6/7
180,000.00
-
Director, Remuneration 7 Dec. 2005
1/2
30,000.00
-
7 Dec. 2005
7/9
480,000.00
3,800,534.20
Director, Remuneration 7 Dec. 2005
2/2
60,000.00
-
2/2
60,000.00
-
Governance Committee 9. Mr. Paibulya Panyavutti
Committee Committee
(Resigned on 12 Dec. 2008)
10. Mr. Pichai Chunhavajira Director Committee Director, Corporate
7 Dec. 2005
Governance
(Resigned on
Committee
12 Dec. 2008)
Annual Report 2008
PTT Chemical Public Company Limited
73
Total Meeting
Bonus
Compensation
Paid in 2008
Name
Position
First Date
Atten-
of Term
dance
(Baht)
(Baht)
11. Mr. Prajya Phinyawat
Director
7 Dec. 2005
9/9
480,000.00
3,800,534.20
Director, Nominating
7 Dec. 2005
5/5
150,000.00
-
7 Dec. 2005
2/2
60,000.00
-
Committee Director, Corporate Governance Committee Chairman, Corporate
12 Dec. 2008
Governance Committee 12. Mr. Cholanat Yanaranop Director
7 Dec. 2005
8/9
480,000.00
3,800,534.20
13. Mr. Roongrote
Director
7 Dec. 2005
8/9
480,000.00
3,800,534.20
Director
7 Dec. 2005
9/9
480,000.00
3,800,534.20
Director
1 Oct. 2008
2/2
120,000.00
-
Total Meeting
Bonus
First Date
Atten-
Compensation
Paid in 2008
Rangsiyopash 14. Mr. Pichit Nithivasin 15. Mr. Veerasak Kositpaisal*
Directors Whose Terms Ended or Resigned in 2008 Name
1.
Position
of Term
dance
(Baht)
10 Apr. 2008
3/3
133,333.33
3,248,675.82
Director
4 Aug. 2008
4/5
282,580.64
3,800,534.20
Independent Director
22 Sep. 2008
5/8
348,000.00
3,800,534.20
Chairman,
23 May 2008
3/3
120,000.00
-
20 Jun. 2008
1/1
30,000.00
-
1 Oct. 2008
8/8
360,000.00
3,800,534.20
Lt. Gen. Sujin Muakkaew Director
2. Mr. Tongchat
(Baht)
Hongladaromp 3. Mr. Olarn Chaipravat
Audit Committee Director, Nominating Committee 4. Mr. Aditheb Bisalbutr*
Director, Secretary to the Board
of Directors (* Directors’ compensation excluded compensation for management positions)
4. Changes in Composition of Board and Subcommittees in 2008 1. Board of Directors 1.1 Lt. Gen. Sujin Muakkaew ended his term, replaced by Mr. Witoon Simachokedee at the 2008 AGM on 10 April 2008. 1.2 Mr. Tongchat Hongladaromp resigned from the Board on 4 August 2008, replaced by Mr. Somchai Kuvijitsuwan from 14 November 2008 onward. 1.3 Mr. Olarn Chaipravat resigned from the Board on 22 September 2008, replaced by Pol. Gen. Nopadol Somboonsub from 14 November 2008 onward. 1.4 Mr. Aditheb Bisalbutr resigned from the Board and from the post of President and Secretary to the Board, replaced by Mr. Veerasak Kositpaisal, with effect from 1 October 2008.
74
2. Subcommittees 2.1 Audit Committee (1) Mr. Olarn Chaipravat resigned as chairman on 23 May 2008. (2) Mr. Manu Leopairote was then promoted from member to chairman, and Mr. Cherdpong Siriwit replaced Mr. Olarn Chaipravat from 20 June 2008. 2.2 Nominating Committee (1) Mr. Cherdpong Siriwit replaced Mr. Olarn Chaipravat on 20 June 2008. 2.3 Remuneration Committee (1) Pol. Gen. Nopadol Somboonsub replaced Mr. Paibulya Punyavutti, whose term ended on 12 December 2008. 2.4 Corporate Governance Committee (1) Mr. Prajya Phinyawat and Mr. Witoon Simachokedee were appointed as chairman and member respectively. Mr. Witoon Simachokedee replaced Mr. Manu Leopairote, the former chairman, whose term ended on 12 December 2008. (2) Mr. Somchai Kuvijitsuwan replaced Mr. Pichai Chunhavajira, whose term ended on 12 December 2008. 5. Compensation for Directors who served as Directors of major subsidiaries in 2008 The directors serving in subsidiaries’ Boards conducted the businesses under business policies of PTT Chemical Group. Their compensation as board members of major subsidiaries in 2007 appears below : Bangkok Polyethylene Plc (BPE) : PTT Chemical wholly owns BPE Unit : Baht Name
Position
1. Mr. Pala Sookawesh 2. Mr. Prajya Phinyawat 3. Mr. Veerasak Kositpaisal
Chairman Director Director
Compensation
480,000 240,000 240,000
Thai Styrenics Co., Ltd. (TSCL) : PTT Chemical wholly owns TSCL Unit : Baht Name
Position
1. Mr. Veerasak Kositpaisal
Director
Compensation
250,000
Thai Oleochemicals Co., Ltd. (TOL) : PTT Chemical wholly owns TOL Unit : Baht Name
Position
1. Mr. Witoon Simachokedee
Chairman
Compensation
270,000
NPC Safety and Environmental Service Co., Ltd. (NPC S&E) : PTT Chemical wholly owns NPC S&E Unit : Baht Name
Position
1. Mr. Veerasak Kositpaisal
Director
Compensation
165,000
Annual Report 2008
PTT Chemical Public Company Limited
75
6. Shareholding by Directors (as of 31 December 2008)
Name
1. Mr. Pornchai Rujiprapa Chairman 2. Mr. Prasert Bunsumpun Vice Chairman 3. Mr. Manu Leopairote Independent Director 4. Mr. Pala Sookawesh Independent Director 5. Mr. Cherdpong Siriwit Independent Director 6. Mr. Witoon Simachokedee Independent Director (Appointed 10 Apr. 2008) 7. Pol. Gen. Nopadol Somboonsub Independent Director (Appointed 14 Nov. 2008) 8. Mr. Somchai Kuvijitsuwan Independent Director (Appointed 14 Nov. 2008) 9. Mr. Paibulya Punyavutti Independent Director 10. Mr. Pichai Chunhavajiya Director 11. Mr. Prajya Phinyawat Director 12. Mr. Cholanat Yanaranop Director 13. Mr. Roongrote Rangsiyopash Director 14. Mr. Pichit Nithivasin Director 15. Mr. Veerasak Kositpaisal Director & Secretary to the Board of Directors
As of 31 Dec. 2007
As of 31 Dec. 2008
Paid-up Capital:
Paid-up Capital:
Change during
Baht 14,965,716,000
Baht 14,968,296,000
the year
Warrant
% Shareholding /
% Shareholding /
(Shares)
(Unit)
Shares
Shares
-
-
-
-
-
-
-
75,000
0.001002% 15,000 0.003523% 52,734 -
0.001002% 15,000 0.003523% 52,734 -
-
75,000
-
75,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
75,000
0.001670% 25,000 0.001002% 15,000 -
-
(25,000)
75,000
0.001002% 15,000 -
-
75,000
-
75,000
-
-
-
75,000
0.001670% 25,000 -
0.001670% 25,000 0.001810% 27,100
-
75,000
27,100
69,400
ESOP
76
7. Shareholding by Company Executives required to report their portfolios (as of 31 December 2008)
Name
1. Mr. Veerasak Kositpaisal President & CEO 2. Ms. Panada Kanokwat Senior Executive Vice President Finance & Accounting 3. Mr. Khubbhol Suksupha Senior Executive Vice President, Seconded to PTT Plc 4. Mr. Jiamsak Nantananate Executive Vice President Operational Excellence
5. Mr. Athavudhi Hirunburana Executive Vice President Organizational Effectiveness
6. Mrs. Puntip Oungpasuk Executive Vice President Strategy & International Affairs 7. Mr. Dhanes Charoensupaya Executive Vice President Marketing, Commercial & Supply Chain Governance 8. Mr. Narong Bunditkamol Executive Vice President Olefins & Shared Facilities
9. Mr. Suvit Tinnachote Executive Vice President Polymers 10. Mr. Thitipong Chulapornsiridee Acting Vice President, Finance & Accounting and Investor Relations 11. Mr. Theerapol Muenpakdee Vice President Corporate Management Accounting 12. Mrs. Varanee Ubonpoonphol Vice President, Finance Accounting 1 Department
As of 31 Dec. 2007
As of 31 Dec. 2008
Paid-up Capital:
Paid-up Capital:
during
Baht 14,965,716,000
Baht 14,968,296,000
the year
Warrant
% Shareholding /
% Shareholding /
(Shares)
(Unit)
Shares
Shares
-
27,100
69,400
0.000105 % 1,570
0.001810% 27,100 0.000105 % 1,570
-
92,500
0.000868 % 13,000
0.000601% 9,000
(4,000)
69,400
-
69,400
-
69,400
23,100
69,400
-
69,400
10,000
72,500
-
69,400
0.005504% 0.005504% 82,374 82,374 (including (including 59,274 shares 59,274 shares held by spouse) held by spouse) 0.003172% 0.003172% 47,486 47,486 (including (including 15,305 shares 15,305 shares held by spouse) held by spouse) 0.002150% 0.003693% 32,181 55,281 -
-
0.002766% 0.003433% 41,396 51,396 (including (including 15,698 shares 15,698 shares held by spouse) held by spouse) 0.001706% 0.001706% 25,543 25,543
Change ESOP
N/A
0.000007% 100
-
28,500
0.000668% 10,000
0.000200% 3,000
(7,000)
28,500
0.000635% 9,500
0.000635% 9,500
-
28,500
Annual Report 2008
PTT Chemical Public Company Limited
77
Executives Senior executives, including the President, are appointed by a majority vote of the Board. Mr. Veerasak Kositpaisal, Ms. Panada Kanokwat, and Mr. Khubbhol Suksupha are secondments of PTT Plc. The list of senior executives who are required to report their share portfolios as of 31 December 2008 appears below. No. Name
Position
1. Mr. Veerasak Kositpaisal 2. Ms. Panada Kanokwat
President & CEO Senior Executive Vice President Finance & Accounting Senior Executive Vice President, Seconded to PTT Plc Executive Vice President Operational Excellence Executive Vice President Organizational Effectiveness Executive Vice President Strategy & International Affairs Executive Vice President - Marketing, Commercial & Supply Chain Governance Executive Vice President Olefins & Shared Facilities Executive Vice President Polymer Products Value Centre Acting Vice President, Finance & Accounting and Investor Relations Vice President Corporate Management Accounting Vice President Finance Accounting 1 Department
3. Mr. Khubbhol Suksupha 4. Mr. Jiamsak Nantananate 5. Mr. Athavudhi Hirunburana 6. Mrs. Puntip Oungpasuk 7. Mr. Dhanes Charoensupaya 8. Mr. Narong Bunditkamol 9. Mr. Suvit Tinnachote 10. Mr. Thitipong Chulapornsiridee 11. Mr. Theerapol Muenpakdee 12. Mrs. Varanee Ubonpoonphol
(See management details on page 48) Management change in 2008 1) Mr. Veerasak Kositpaisal was appointed President, replacing Mr. Aditheb Bisalbutr, with effect from 1 October 2008 2) Mr. Sahaschai Panichaphong, Senior Executive Vice President, Oleochemicals Products Value Center, retired from 1 October 2008 Executive Compensation in 2008 Compensation in 2008
Total (Persons)
Compensation (baht)
Total Salaries Fringe Benefits Contribution to the Provident Fund
14 14 14
54,383,086 19,019,260 4,297,636
Total
14
77,699,982
Mr. Pala Sookawesh
Mr. Cherdpong Siriwit
Mr. Witoon Simachokedee
Pol. Gen. Nopadol Somboonsub
Mr. Somchai Kuvijitsuwan
Mr. Paibulya Punyavutti
Mr. Pichai Chunhavajira
Mr. Prajya Phinyawat
Mr. Cholanat Yanaranop
Mr. Roongrote Rangsiyopash
Mr. Pichit Nithivasin
Mr. Veerasak Kositpaisal
4
5
6
7
8
9
10
11
12
13
14
15
PTT CHEM
PTT
PTTPE
BPE
X = Chairman
ROC
PTTAR
BST
BIG
TOL
ASSOCIATES/RELATED COMPANIES
SSMC
SUBSIDIARIES
// = Management
Mr. Manu Leopairote
3
/ = Director
Mr. Prasert Bunsumpun
2
Remark :
Mr. Pornchai Rujiprapa
1
DIRECTOR
NAME SIAM MITSUI
NO.
PTTPL
IRPC
PTTPM
PPCL
DHIPAYA
THAPPLINE
TPC
TPP
TPE
HMC
SCG
VNT
DETAIL OF DIRECTORS OF PTT CHEMICAL AND ITS SUBSIDIARIES, ASSOCIATES AND RELATED COMPANIES
78
TIG
Ms. Panada Kanokwat
Mr. Khubbhol Suksupha
Mr. Jiamsak Nantananate
Ms. Puntip Oungpasuk
Mr. Athavudhi Hirunburana
Mr. Dhanes Charoensupaya
Mr. Narong Bunditkamol
Mr. Suvit Tinnachote
Mr. Thitipong Chulapornsiridee
Mr. Theerapol Muenpakdee
Mrs. Varanee Ubonpoonphol
/ = Director
2
3
4
5
6
7
8
9
10
11
12
Remark :
PTT CHEM
SUBSIDIARIES TOCGC = TOC Glycol Co., Ltd. TCC = Thai Choline Chloride Co., Ltd. TEA = Thai Ethanolamines Co., Ltd. TOL = Thai Oleochemicals Co., Ltd. BPE = Bangkok Polyethylene PLC PTTPE = PTT Polyethylene Co., Ltd. TSCL = Thai Styrenics Co., Ltd. TTT = Thai Tank Terminal Ltd. APS = Alliance Plant Service Co., Ltd.
TEA
TCC
X = Chairman
TOL
TOCGC
= = = = = = = = = = =
VNT
PTT
CH Inter
NPC S&E
APS
HMC Polymers Co., Ltd. Thai Polyethylene Co., Ltd. Thai Polypropylene Co., Ltd. Thai Plastic and Chemicals PLC Bangkok Industrial Gas Co., Ltd. Bangkok Synthetics Co., Ltd. PTT Aromatics and Refining PLC Rayong Olefins Co., Ltd. Siam Styrene Monomer Co., Ltd. Siam Mitsui PTA Co., Ltd. Thai Petroleum Pipeline Co., Ltd.
PTTUT
PPCL
EFT PTT ICT
DHIPAYA PPCL PTTPM IRPC PTTPL TIG PTTUT API
PTT ICT
Dhipaya Insurance PLC PTT Phenol Co., Ltd. PTT Polymer Marketing Co., Ltd. IRPC PLC PTT Polymers Logistic Co., Ltd. Thai Industrial Gas PLC PTT Utility Co., Ltd. Alliance Petrochemical Investment (Singapore) Pte., Ltd. = Eastern Fluid Transport Co., Ltd. = PTT ICT Solutions Co., Ltd.
= = = = = = = =
PTT Chemical Public Company Limited
ASSOCIATES VNT = Vinythai PLC
RELATED COMPANIES PTT = PTT PLC SCG = The Siam Cement PLC
TTT
TSCL
PTTPE
HMC TPE TPP TPC BIG BST PTTAR ROC SSMC SIAM MITSUI THAPPLINE
PTTPM
ASSOCIATES/RELATED COMPANIES
API
SUBSIDIARIES
BPE
NPC S&E = NPC Safety and Environmental Service Co., Ltd. CH Inter = PTT Chemical International Pte., Ltd
// = Management
Mr. Veerasak Kositpaisal
1
MANAGEMENT
NAME
EFT
NO.
PTTPL
DETAIL OF MANAGEMENT OF PTT CHEMICAL AND ITS SUBSIDIARIES, ASSOCIATES AND RELATED COMPANIES
Annual Report 2008
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80
REPORT OF THE NOMINATING COMMITTEE
To the Shareholders Recognizing the significance of compliance with good corporate governance principles, the Board of Directors appointed the Nominating Committee to perform assignments in issuing transparent criteria for the recruitment and selection of those to be nominated as directors and President & CEO, and proposing them to the Board and/or the AGM for approval. The Committee is chaired by Mr. Pala Sookawesh, with Mr. Prajya Phinyawat and Mr. Cherdpong Siriwit (who replaced Mr. Olarn Chaipravat, who resigned from the Board) as members. Its term is from December 12, 2008 to December 11, 2011.
Meetings and performance In 2008 the Committee met five times with perfect attendance to perform its duties, as summarized below: 1. Deliberation of the names of directors that had completed their terms At the 2008 AGM, five directors were due to leave their posts, namely Mr. Prasert Bunsumpun, Mr. Prajya Phinyawat, Mr. Paibulya Punyavutti, Lt.Gen. Sujin Muakkaew, and Mr. Roongrote Rangsiyopash. After considering their qualifications, experience, skills, and suitability in the best interests of the Company, the Committee proposed the reappointment of four and proposed an external person, Mr. Witoon Simachokedee, to the Board. This was the Board’s proposal to the AGM, which approved the proposal. 2. Selection of the President & CEO After its deliberation, the Committee proposed to the Board the appointment of Mr. Veerasak Kositpaisal, Executive Vice President, Polymer Products Value Centre, PTT Chemical Plc, to replace Mr. Aditheb Bisalbutr, President & CEO, who resigned, with effect from October 1, 2008. This was the Board’s approval. 3. Approval of directors in place of those who resigned Based on the qualifications of independent directors, the Committee proposed to the Board the appointment of Police General Nopadol Somboonsub and Mr. Somchai Kuvijitsuwan to fill the posts left vacant by Mr. Olarn Chaipravat and Mr. Tongchat Hongladaromp before the end of their terms. 4. Nominating members to the subcommittees The Board assigned this Committee to deliberate the composition of the subcommittees, namely the Audit Committee, the Nominating Committee, the Remuneration Committee, and the Corporate Governance Committee, to replace all four subcommittees whose terms were about to end. The Committee proposed their findings to the Board, which approved the proposal.
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Performing its duties to foster the confidence among shareholders and stakeholders in the recruitment and selection processes for directors and senior management, the Committee fully observed transparent actions in line with the Company’s criteria and procedures. Its main consideration is the qualifications of those that can enhance the performance of the Board as a whole, which will in turn supplement long-term value to PTT Chemical.
(Mr. Pala Sookawesh) Chairman of the Nominating Committee
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REPORT OF THE REMUNERATION COMMITTEE
To the Shareholders Adhering to good corporate governance principles for listed companies, the Board of Directors appointed the Remuneration Committee as one of its subcommittees (or committees). This committee devises a fair and rational approach, procedures, and criteria for compensation paid to directors, committee members, and the President & CEO and tables these for the Board’s consideration and approval The Committee is chaired by Mr. Pala Sookawesh, with Mr. Pichai Chunhavajira and Pol. Gen. Nopadol Somboonsup as members. The latter was appointed to replace Mr. Paibulya Punyavutti on this committee at the end of his term. Its term is from December 12, 2008 to December 11, 2011.
Meetings and performance In 2008 the Committee met twice, with perfect attendance, to perform these duties for the Board: 1. Decision on the amended compensation for directors and committee members The Committee tabled these for the approval of the 2008 AGM, based on the current compensation in relation to companies under PTT Group and the petrochemical industry. Such compensation reflects the additional responsibilities of the directors, the Company’s business expansion, as well as the growth in profitability, and proposed that the current compensation rates should remain intact. The shareholders concurred with this proposal. 2. Deliberation of a proposal for 2008 directors’ bonuses The bonuses were considered in line with the Company performance or its net profits and with industry peers. This proposal was tabled to the Board for subsequent submission to the AGM, which concurred with it. 3. Decision on the compensation for the President & CEO The Committee deliberated this matter and forwarded its proposal to the Board: • Decided on the compensation for Mr. Aditheb Bisalbutr, the retiring one, against his mutually decided performance appraisal during his term. • Decided on the compensation for Mr. Veerasak Kositpaisal, the incoming one, with effect from October 1 2008, with his responsibility also taken into consideration. Valuing the significance of instituting transparent deliberation processes for compensation, the Committee took into consideration the correlation between the Company performance and responsibility of directors and the President & CEO, so that compensation decisions may comply with good corporate governance principles and maintain the long-term interests of PTT Chemical.
(Mr. Pala Sookawesh) Chairman of the Remuneration Committee
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REPORT OF THE CORPORATE GOVERNANCE COMMITTEE
To the Shareholders The Corporate Governance Committee was appointed by the Board of Directors to be responsible for proposing practical guidelines for corporate governance, as well as making recommendations for and promoting corporate governance as a culture of PTT Chemical from the Company’s formation in 2005. The Committee is chaired by Mr. Prajya Phinyawat, with Mr. Somchai Kuvijitsuwan and Mr. Witoon Simachokedee as members. They replaced the Committee chaired by Mr. Manu Leopairote with Mr. Pichai Chunhavajira as a member, whose terms ended. Its current term is from December 12, 2008 to December 11, 2011.
Meetings and performance In performing its assigned duties in 2008, this committee held two meetings with perfect attendance. Their performance is summarized below: 1. Defined its criteria to update and amend the Good Corporate Governance Handbook to embrace a code of business conduct to align with the amendment to regulations and criteria issued by regulatory agencies and prevailing business circumstances. 2. Amended the criteria or guidelines for promoting the rights and equality of shareholders through extending the period for them to propose meeting agenda items and nominate suitable candidates for directors in advance of the 2008 AGM to up to three months, that is, from October 1 to December 31 each year, with effect from the 2009 AGM onward. 3. Approved the Company’s corporate governance plan for 2008, with a focus on internationalizing such practices and encouraging earnest implementation. 4. Deliberated the approach of the Company’s business to ensure that it complies with the new Securities and Exchange Act, announcements and requirements made or amended by regulators of listed companies, including the appointment of a Corporate Secretary, defining of the procedure and process for deliberation of connected transactions; and significant items acquired/sold. 5. Reviewed and issued an approach for continuous improvement of the quality of AGMs. The 2008 AGM was rated by the Office of Securities and Exchange Commission (SEC) as a ‘perfect score‘ with special credit given to additional practices rated as ‘excellent’
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6. Deliberated an approach for continuous improvement of corporate governance practices and maintenance of quality, despite its ‘excellent‘ corporate governance assessment made by regulators of listed companies. The move was intended to keep the Company improving its effective and suitable corporate governance.
The Company’s good corporate governance move has won excellent cooperation from all involved, namely the shareholders, the Board of Directors, the management, and the rank and file employees. Special thanks are due to assorted organizations and regulatory agencies that have promoted, assessed, and supported the move to upgrade and internationalize our practices to bolster the confidence and acceptance from the stakeholders and the public. On behalf of the Corporate Governance Committee, I would like to express my sincere appreciation to all.
(Mr. Prajya Phinyawat) Chairman of the Corporate Governance Committee
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REPORT ON CORPORATE GOVERNANCE
The Board of Directors, the management, and the staff of PTT Chemical Plc give priority to doing business under the principles of good corporate governance and are constantly committed to raise the level of corporate governance to international standards. Such commitment resulted in the Company’s assorted awards and certification: SET Awards 2008: Top Corporate Governance Reports Awards; Corporate Governance Report of Thai Listed Companies 2008: Excellent CG Scoring; and Excellent 2008 AGM Assessment. The Company also values close coordination and alliance with the regulators of listed companies, including the Office of the Securities and Exchange Commission (SEC), Stock Exchange of Thailand (SET), Listed Companies Association, Thai Institute of Directors Association (IOD), and Thai Investors Association, all of which share the objectives and mission of raising the level of corporate governance for the benefit of investors, shareholders, and all stakeholders in a fair and sustained way.
Compliance with Good Corporate Governance Principles in 2008 The Board ensured the Companies observe SET’s principles in five main categories completely and with consistently high quality.
Shareholders’ Rights Principle: Shareholders’ rights should be protected and the exercising of such rights encouraged Company practice: The Board values shareholders’ rights by refraining from violating or infringing on such rights. This has been made a policy and disclosed in the Company’s Good Corporate Governance Handbook. In 2007 the Board encouraged and supported this through the following actions. • Fundamental legal rights: PTT Chemical facilitated the exercising of these rights, namely the exchange of securities and the right to receive a dividend. • Right to receive significant information: PTT Chemical disclosed up-to-date information to SET and through its website in both Thai and English. Its investor relations unit communicates and addresses queries about changes or issues of current interest in an equitable manner. • Right to attend meetings and vote: PTT Chemical facilitated all shareholders’ attendance at meetings and exercising of their votes, as well as their major decisions at the Annual General Meeting of Shareholders (AGM) in 2008. It observed the approach advocated by SEC (the so-called AGM Checklist) and made continuous improvement, as evident under the ’Equitable Treatment of Shareholders’ topic below.
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Equitable Treatment of Shareholders Principle: All shareholders should be treated fairly Company practice: To ensure the shareholders of fair treatment and full exercising of voting privileges as owners, the Board has ensured a high quality of the AGM and strives to improve this. It participated in an AGM assessment project organized by SEC and Thai Investors Association, at the end of which PTT Chemical was assessed as “excellent” for 2008. It also prepared an assessment form for the meeting attendants to do the assessment and provide helpful views for further improvement. Our actions are summarized below.
Equitable exercising of rights at shareholders’ meetings • The AGM was organized by the Company on 10 April 2008 at 10 a.m. at the 2nd floor auditorium of PTT Plc Head Office. In so doing, the Company treated all shareholders equally. Before the meeting date: • The Company allowed each shareholder to propose agenda items for consideration at the meeting ahead of the actual meeting date and also to nominate candidates for directors. The Board instituted criteria to support shareholders’ exercising of their rights. • Shareholders were allowed to submit written questions about agenda items to the Board ahead of the meeting date through its website, by fax, and by letter. • In addition to placing meeting notices in daily newspapers (Thai and English) for three consecutive days as required by law, meeting notices and documents were distributed through its website 30 days ahead of the meeting date. These were identical to what the Company mailed to the shareholders 14 days ahead of the date. For good measure, it also publicized this through SET’s channels. The current approach is to improve on this timing for sending the information to recipients. • Adequate and clear information was disclosed in the meeting notice along with the opinions of the Board, without adding or modifying crucial information without notifying them in advance. • Through the meeting notice, the Company informed shareholders of meeting participation criteria, providing them with a list of all independent directors on proxy forms designed by the Ministry of Commerce, to encourage them to choose their voting methods. These proxy forms also provided for shareholders’ written opinions on balloting. Meeting date: • Registration was allowed through the bar-code system two hours ahead of the meeting, and even after that, it allowed shareholders to register their attendance without losing their rights. • The Company staged an shareholders Corner at the foyer, with officers of Investor Relations on hand to provide information and answer shareholders’ queries. • The Company telecast the meeting via a closed-circuit TV system for shareholders outside the meeting room to stay informed throughout the meeting. • Before the meeting began, the Chairman informed the meeting about the meeting criteria and ground rules as well as the procedures for balloting. • The Board allowed shareholders to vote for directors individually, in which case all ballots were collected and a neutral team of observes was assigned to verify the ballot counting. • The Chairman, the subcommittee chairmen, directors and the President attended the AGM to explain and clarify questions. The Chairman introduced the directors and executives, as well as relevant attendees at each meeting. He provided ample opportunities
88
for shareholders to ask questions concerning meetings and Company business and compiled questions sent to the Company in advance for clear explanation with supplementary information. After the meeting date: • The Company Secretary recorded all significant information at the AGM. She not only disseminated the minutes through the Company’s website within 14 days from the meeting date, but also ensured good meeting documentation that favored scrutiny and reference. • The Company taped the proceeding at the meeting and placed it on the Company website for the information of those absent. Interested shareholders may file a request for a copy in the VCD format. • To ensure shareholders of full dividend payment, after the payment had been made as approved by AGM, the Company notified them about the outcome through SET’s channels and details of the dividend payment via SET’s news system. The Company coordinated with the registrar at Thailand Securities Depository Co., Ltd. to ensure complete and accurate rights to the dividends. • In addition, the Company, represented by the Corporate Governance Committee, screened the recommendations and views received from shareholders who assessed the meeting for ways to constantly improve shareholders’ meetings. Control and Prevention of the Use of Inside Information • Directors and the management are required to report to SEC all changes in share ownership under Article 59 of the Securities and Exchange Act. • The Corporate Governance Committee, for good practices, has instructed directors and the management to refrain from buying and selling Company shares 45 days before the public release of the Company’s financial statements and one day after their disclosure to SET. • The Company prepares an annual information disclosure table in compliance with regulations for the Board’s and the management’s reference on when to avoid engaging in share transactions. • Written guidelines for maintaining and preventing the use of inside information are provided for all to observe, with regular follow-ups. • In deliberating and approving connected transactions, disclosure is to be made about the interests of directors, the management, and connected parties, the value of each transaction, the views of independent directors, and related information to allow the Board or shareholders to make proper decisions for the benefit of the Company. • Guidelines are issued to prevent directors, executives with vested interests, and those connected in one way or another from taking part in decision-making on a given connected transaction. Specifically, anyone who is connected with a transaction will be removed from any involvement with that agenda item. • The Company issued guidelines for preparing confidential agenda items for Board meetings; these guidelines are clear and incorporate the procedure and responsible person(s), meeting attendants, and storage of confidential documents.
Roles of Stakeholders Principle: Stakeholders should be duly taken care of, and cooperation should be promoted among them Company practice: In its Good Corporate Governance Handbook, designed for all to observe, the Board has instituted a policy to treat individual groups of stakeholders in line
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with their legal rights and agreements with the Company, while developing formats and approaches for stakeholder participation in fostering sustainable performance. Such policy and measures are outlined below. Shareholders
: The Company is committed to creating the highest satisfaction for shareholders through its consideration of sustainable Company growth, continually suitable returns on investment, and transparent action along with reliable accounting systems. Customers : The Company is committed to creating customers’ satisfaction and confidence through providing quality goods and services at fair prices. A customer satisfaction measurement is implemented to aid decisions relating to improving and maintaining cordial relationships. Business partners, : The Company takes into account business equality, integrity, and competitors, mutual benefit through strict compliance with the law, rules, and its and creditors code of business conduct. It is also committed to fair competition and complies strictly with the terms of all agreements with creditors. Employees : The Company has a clear policy to develop a learning organization with a culture and atmosphere conducive to teamwork with fair compensation. The Company ensures work safety and maintains a good workplace while valuing knowledge development and transfer and listening to opinions and recommendations from all employees alike. (Details of employee care appear on page 56) Communities : Out of its consideration for the quality of life for communities and and society society - both around its plants and at the national level - the Company deliberates matters of direct impact to business and expands to social responsibility by cultivating awareness of such responsibility among all employees. Other activities consisted of inviting community representatives to an open house at the plant and meet executives to share views and recommendations, as well as sharing community concerns, problems, and solutions. The Company’s community relations team regularly visits communities to foster cordial relations. Environment : Valuing the environment, the Company considers it a social duty to take part in environmental and natural resource stewardship. From the stage of plant design, production technology selection, to waste disposal processes, it considers business operation impacts on the environment. An innovation research and development (R&D) department has been instituted to promote efficient energy applications. In taking good care of all stakeholders mentioned above, the Company primarily recognizes the mechanism of participation by stakeholders and devises a policy/measure for compensation in case of damage to their legal rights. In addition, it has instituted a communication channel with the Board through email at cg@pttchem.com, to be handled by the Company Secretary, who will forward them to relevant committees and eventually to the Board.
Disclosure and Transparency Principle: The Company’s significant information should be disclosed accurately, completely, equitably, reliably, and in a timely manner.
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Company practice: The Board recognizes and values the quality of information and fair, transparent, and equitably disclosure through easy access. To ensure such disclosure to all stakeholders, it engaged in the following: Complete disclosure of information • As a rule, the Company fully discloses significant information, both financial and non-financial, in an accurate, complete, and transparent way, with due screening in line with the required procedures. During the year, no case arose of improper disclosure of information. Regular assessment and efficiency improvement of the disclosure process are made. Each set of annual financial statements and all quarterly financial statements are prepared, screened, and submitted to SEC and SET, and disclosed to shareholders and investors ahead of requirements. • The Company ensures that its financial information is accurate, complete, and factual under its accounting standard, and has undergone perusal by the external auditor and the Audit Committee. The Board also issues a report of its responsibility to financial reports, signed by the Chairman and the President, in the annual report and accompanied by a report of the external auditor. • The Company organizes meetings between the management and employees so that its employees may be aware of business strategies and direction, which will serve as guidelines for performing their duties and responsibilities. Information Disclosure Channels and Responsible Parties • Significant, current, and complete Company information in line with good corporate governance is posted on the www.pttchem.com website in both Thai and English, with features accommodating questions and downloading. In 2008, the Company’s policy was to improve the website to fully reflect the Company’s value while addressing the needs of all stakeholders. • An Investor Relations department has been instituted with a responsible owner to serve as a communication channel with shareholders and investors (both minor and institutional), analysts, and related parties, including SET and SEC. Top management members take part in running investor relations activities, including meeting with investors and analysts under an annual schedule, participating in clarification and question-and-answer sessions on Company operation. Such information is clearly presented and posted on the website after each meeting. A questionnaire is prepared to gauge the satisfaction of analysts with the performance of Investor Relations so that its work can be made more efficient. • An additional channel for shareholders, investors, analysts, and the interested public is provided to enable them to investigate additional information at www.pttchem.com. Alternatively, email the unit at ir@pttchem.com, which has been publicized in the Company’s assorted media for shareholders and investors. Finally, an “IR News Release” serves analysts’ interest in other Company information thoroughly and equitably. In 2008, the Investor Relations Department conducted the following activities: • International meetings and roadshows with investors in Asia, Europe, and the United States, a total of eight meetings • Participation in the Money Expo 2008 event from May 8 to 11 and the SET in the City event from November 20 to 23. Besides providing information to prospective investors and shareholders through documents and exhibitions, the management and the Investor Re lations team personally met and provided direct information to them
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• Roadshows and conferences with local institutional and minor investors • Quarterly meetings with securities analysts to report on Company performance (financial and social responsibility) after reporting it to SET • A total of 64 company visits and conference calls between Company executives and shareholders, investors, and analysts as their request • Regular reports to SET as required by the SET principles of good corporate governance • Addressing telephone calls and emails to shareholders, investors, analysts, and concerned agencies • Disclosure of important Company data through its website under “Investor Relations”, including notifications to SET, shareholders’ meeting notices, and share prices. A Corporate Communication Department is in place to publicize and disseminate timely news and movement, activities, and cooperation with agencies for the benefit of the media, including: • Press releases, photo releases, and publications to disseminate Company information, including brochures, company profiles, fact sheets, and community newsletters • Press conferences, designed to allow Company executives to explain or clarify Company performance and investment direction to the media after reporting them to SET • A press conference introducing the new President to members of the media corps on 1 October 2008, the first day of his term • Media visits to Company operation, as well as petrochemical and chemical business education, designed to enable them to appreciate the business • Public relations through the website to expand the Company’s external communication and intranet communication for employees’ information. The Company continually conducted these activities under a plan that aligned with its business operation strategy while paying attention to the quality of disclosed information.
Responsibilities of the Board Principle: The Board, with a key role in corporate governance for the maximum benefit of the Company, is responsible for its performance. Company practice: The Board has performed its duties with integrity, prudence, care, and avoids committing actions in contradiction with Company interests. It bases its actions on the law, good corporate governance, and a code of business conduct for the confidence of shareholders and investors. The Board supervises the Company’s compliance with these principles in the following fashion: Composition of the Board • The Board has deliberated the suitability of the present structure against its core mission of supervising corporate governance practices and the performance of the management • The Board of 2008 consisted of 15 directors - 14 non-executives and one executive. Seven were independent directors. Information about the terms of each director appears in the annual report, Form 56-1, and on the Company’s website. (Details about the Board appear on page 40) • The Chairman and the President are two distinct persons with clear separation of roles. While the Chairman is not an independent director, he has performed his duty with independence, particularly in expressing his views on the Company’s performance under the Board policy and in the best interests of the Company, shareholders, and the country • The Board has not only defined a formal and transparent recruitment procedure for directors, to be executed by the Nominating Committee, but has made it possible for
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shareholders to nominate suitable persons for selection • The Board consists of experts with diverse skills and management experience in petrochemicals and chemicals, the Company’s core products, as well as other disciplines of benefit to the Company. As proof of such expertise, skills, qualifications, and experience, the Company has disclosed the names, profiles, education, experience, and shareholding through the annual report, Form 56-1, and Company’s website. Independent Directors Currently numbering seven, which exceeds one-third of the composition of the Board, all independent directors performed their duties by taking into account equitable benefits of all stakeholders. They meet all the qualifications stipulated by SEC, which are updated as follows: • Hold up to 1% of the voting shares in PTT Chemical, its subsidiaries, associates, or related companies, or potentially connected juristic persons (including the shares held by their close relatives) • Have not been or are not involved in the management, or employees, wage earners, or advisors on the payroll of PTT Chemical, its subsidiaries, associates, or equivalent companies, or juristic persons that could pose conflicts of interest, except when such qualifications have ended for more than two years • Are not related by blood or registration as parents, spouses, siblings, or children, spouses of any of the children to members of the management, major shareholders, those exercising control, or those about to be nominated as members of the management or those exercising control over PTT Chemical or subsidiaries • Have absolutely no vested interests in PTT Chemical, its subsidiaries, associates, or related companies, or juristic persons with possible conflicts of interest • Do not serve as an external auditor or a professional service provider, such as a legal advisor or a financial advisor of PTT Chemical, its subsidiaries, associates, or equivalent companies, or juristic persons that could pose conflicts of interest • Are not appointed to protect the vested interests of directors, major shareholders, or shareholders who are related to major shareholders • Have no characteristics that could bar the expression of their free views. Terms of Directors • As stated in Company regulations, each director’s term is three years, in line with that stated in the Public Company Limited Act. It is also stipulated that the Audit Committee can be in office for up to two consecutive terms, except when the Board decides otherwise. As for other directors, the Board would ensure that Company practices align with the good corporate governance principles. • The Board defines the policy for serving as other companies’ directors to suit Company business and circumstances. Information on such service at other companies appears in the annual report, Form 56-1, and on the Company’s website. • Recognizing the limit to the efficiency of serving as directors, the Board takes seriously the number of companies where Company directors also serve. Where Company directors serve in more than five companies with PTT as a major shareholder, such positions are in the business interests of PTT Chemical, which invests in those companies. PTT Chemical will be including this policy in its good corporate governance policy, which is under revision. • The Board has defined its policy and procedures for serving as directors in PTT Chemical Group for senior executives from the rank of vice president upward. The President has
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the delegated authority for considering the suitability of such terms and the number of companies each can serve in, to align the business direction and strategy with the policy of the Group. In practice, the management committee - consisting of the President and senior executives - defines the approach for appointing them, including their knowledge about the business, competence, availability to track performance, and potential to take the business to the stated goals. Each person may take up to eight directorships. (Details of directorships of senior executives appear on page 79) The Company has defined a unified compensation policy for its executives assigned to serve as directors in Group companies.
Company Secretary Ms. Walaiporn Puspavesa, Vice President, Corporate Governance and Secretariat, has been assigned to serve as Company Secretary under the amended Securities and Exchange Act. In performing her duties, she ensured that the Company and the Board observe the relevant laws and regulations. (Details of the Company Secretary appear on page 70). The Company Secretary can be contacted by email at cg@pttchem.com.
Subcommittees In line with the good corporate governance principles, since the Company’s formation in 2005, the Board has appointed four subcommittees (usually referred to simply as ‘committees’). To comply with good practices concerning the composition of the Nominating Committee and Remuneration Committee, the Board at its meeting No. 9/2008 of 12 December 2008 appointed committees in place of the old ones, which completed their terms. The majority of these are independent directors, with the chairmen stipulated as independent directors. The subcommittees screen critical ad hoc matters with prudence and efficiency as assigned by the Board. They are to regularly report their findings and their performance for the year in the annual report.
The Audit Committee: The current committee consists of three independent directors, all of whom are to be knowledgeable and experienced in reviewing financial statements for reliability. (See the qualifications and experience of the Audit Committee on page 41). A charter of the committee specifies its scope of authority and responsibility. This charter has been revised and amended in line with an announcement of SET and another of SEC (amended in 2008) and won an approval from the Board in its meeting No. 5/2551 on 25 July 2008. The committee’s performance was regularly reported to the Board, the annual performance appraisals were conducted, the number of meetings was disclosed, along with the number of meetings attended by individual directors. Its performance against the charter was reported to shareholders in the annual report. (A report of the committee appears on page 119) The charter has been publicized on the Company’s website.
The Nominating Committee The current committee consists of three directors, two of whom are independent directors. Its term is three years. The Chairman, who is not the Chairman of the Board, is an independent director. The committee performed its assigned duties of deliberating criteria and recruitment process for directors and the President, and selected persons under the recruitment process with independence and transparency. A written charter is being drafted for this committee, with completion and distribution planned for 2009. (Details of the
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committee appears on page 69)
The Remuneration Committee The current committee consists of three directors, two of whom are independent directors. Its term is three years. The Chairman, who is not the Chairman of the Board, is an independent director. The committee deliberated criteria and formats of compensation paid to directors and the management with independence, fairness, transparency, and sensibility. A written charter is being drafted for this committee, with completion and distribution planned for 2009. (Details of the committee appears on page 69)
The Corporate Governance Committee The current committee consists of three directors, two of whom are independent directors. Its term is three years. The Chairman, who is not the Chairman of the Board, is an independent director. The committee deliberated practical guidelines for good corporate governance and provided recommendations to the Board for developing such guidelines in line with the practical guidelines of SEC, SET, and international standards. A written charter is being drafted for this committee, with completion and distribution planned for 2009. (Details of the committee appears on page 69) Segregation of roles • The Board has clearly set its authority against that of the management, as stated in its resolution to be adopted by relevant parties. Specifically, the financial authority and the authority to decide on matters by the President are delegated in writing and valid for three years at a time. • Besides, to achieve the Company’s goals as well as sustained balance among all parties concerned, the Board has decided on its proactive roles, duties, and responsibilities. It has not only endorsed critical operation matters, namely its vision, mission, strategies, financial goals, risks, plans, and budgets, as proposed by a so-called Top Team, consisting of the President, Senior and Executive Vice Presidents from different departments and value centers. The Board has ensured that the management implements its policy and plans. To enable meetings to proceed smoothly and efficiently, the Top Team has jointly defined Top Team Meeting Norms and instituted annual appraisals.
Corporate Governance Policy and Code of Conduct • The Board has endorsed these documents, which cover the Board, the management, and all employees in writing and encompass all five categories of good corporate governance. A Good Corporate Governance Handbook has been disseminated through the website for external communication. It is disseminated inside the Company via intranet. The Board, the management, and other employees receive a copy of this handbook each to master before signing their names and comply. • Through the Corporate Governance Committee, the Board institutes assessment of compliance with the policy. An annual revision and assessment of performance are conducted. In 2008 the committee revised and amended the handbook, and this will be completed by 2009. In addition, the committee endorsed the corporate governance plans every year. • In the annual performance appraisals, integrity - a Company culture concerning righteousness, ethics, integrity, transparency, and openness to scrutiny, delivery of promises, and fairness to all - becomes part of Company personnel’s behavior assessment. In addition, the good corporate governance topic has become part of the
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orientation to all new staff. • PTT Chemical gave priority to the promotion of the good corporate governance culture to ensure staff’s awareness and mastering of the principles involved. In 2008, it not only staged promotional CG activities internally, but cooperated with listed PTT Group companies in organizing a ‘PTT Group CG Day: CG in Action’ in which staff were encouraged to present their application of the principles of CG. This latter event is regularly staged, with a very warm response from staff.
Conflicts of Interest • The Board followed the recommendations of SEC concerning Board approvals for commercial transactions under agreements between PTT Chemical or its subsidiaries and directors, the management, or related parties, to comply with the new Securities and Exchange law before the promulgation. • The Board determines policies and guidelines for dealing with transactions with potential conflicts of interest among shareholders, the Board, the management, and other connected parties. These provided clear practical guidelines to ensure that engagement in such transactions are fair, sensible, and completely disclosed. A report form for disclosing potentially conflicts of interest appears in the Good Corporate Governance Handbook for use by employees in reporting them to their respective superiors if necessary. • The Board ensures prudent compliance with the stated procedures within reason and with mutual independence, transparency of transactions, and maximum benefit to the Company, considered accurate and complete by SET’s criteria. • At each Board meeting, the Chairman reminds the directors of this policy, asks those directors to declare potential conflicts of interest on any agenda item, and asks them to refrain from expressing opinions or voting on such agenda item. • The Audit Committee deliberates the Company’s disclosure of information concerning connected transactions or potential conflicts of interest to ensure accuracy and completeness against SET regulations. • For the benefit of monitoring the vested interests of directors, the management, or related parties, regarded as connected to the management of PTT Chemical and its subsidiaries under the new Securities and Exchange law, the Company will be requiring the reporting of such vested interests under the criteria and procedure to be defined by the Board in 2009.
Internal Control and Audit • The Board values and institutes processes for business control, particularly financial reporting and compliance with regulations, rules, and policies. An independent Internal Audit Department is charged with auditing compliance with the internal control system and reporting to the Audit Committee and the Board. The Board annually reviews the suitability and adequacy of internal control in five aspects, namely the control environment, risk assessment, control activities, information and communication, and monitoring. • The Audit Committee ensures that the Company commands suitable and effective internal control and internal audit, and reports its performance to the Board and the shareholders. • At its meeting No. 1/2009 of 18 February 2009, with the Audit Committee in attendance, the Board reached a consensus that the Company’s internal control was adequate and effective, which would ensure achievement of the Company’s objectives and goals. The Audit Committee also provided recommendations to the management for the continuous
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improvement of the system. • Internal Audit’s responsibilities lie in assessing the adequacy and effectiveness of the internal control of business processes or activities against annual plans approved by the Audit Committee. Its findings are to be regularly reported to the Audit Committee. It also supports the effectiveness of supervision, risk management, and control by observing the code of conduct and the professional standard for internal auditors in order to maintain the independence and quality of internal audits. Proposals to appoint, transfer, terminate - as well as the performance - of the head of Internal Audit must have the prior concurrence of the Audit Committee.
Risk Management The Company has implemented a comprehensive risk management system throughout the entire organization. The Risk Management Committee, consisting of senior executives, is accountable for risk management under the policy, and reports its performance to the Audit Committee and the Board every quarter or when a significant risk or an anomaly arises. To achieve the Company’s business objectives and goals, it is charged with deliberating the suitability and adequacy against risk management practices and effectiveness, and stays informed of warning signals to enable the Company to achieve its business objectives and goals. (Details on risk management and risk factors appears on page 106) Board Meetings • The Board fixes meeting dates and times for the year and informs all directors in advance so that each may schedule their attendance at the meetings. Other extraordinary meetings are scheduled as needed. If a director cannot attend a meeting, he/she must send an apology letter to the Chairman. The agenda items are jointly decided by the Chairman and the President. The Company sends meeting notices with an agenda and support documents to directors so that they may have time to study them before the meeting. The policy is to have them delivered to directors at least seven days ahead of each meeting. Each member may also propose matters they consider important and may request further information from the President, who serves as Secretary to the Board. The Chairman should allow sufficient time for management presentations and discussions by the Board. Directors with potential conflicts of interest must neither attend meetings on their conflicts of interest nor vote on those issues. • The prepared minutes of each meeting, with complete significant details, are to be approved at subsequent Board meetings and signed by the Chairman of the meeting. Storage of the minutes must be in both hard copies and electronic form for convenient search, and a mechanism is in place to prevent minutes amendment without the acknowledgment of the Board. • The number of Board meetings is compatible with the directors’ performance and the nature of Company business. Records show individual directors’ attendance at meetings in line with SEC’s specifications. (Details of directors’ attendance appear on page 71). • The management delivers significant documents/information to the Board regularly and encourages non-executive directors to hold their own meetings in the absence of the management to discuss concerns and problems of interest. To this end, the Corporate Governance Committee has provided a practical approach, including meeting before the full Board meeting, to come up with recommendations or deliberate other matters jointly.
Assessment of Board Performance • The Board institutes annual assessment to allow it to review its own performance, problems, and obstacles during the past year.
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• Self-assessment forms for directors come in two varieties: individual and group. The intent is to assess their suitability in both policy formulation and implementation, structure/performance of the Board and subcommittees, and participation in meetings and their proceeding. • The Corporate Governance Committee deliberated initial assessment findings and tabled them for the Board’s consideration and decision on ways to improve collaboration. The Board considered that both group and individual performances were suitable in aspects such as supervision and compliance with relevant laws and regulations. In addition, the Board provided useful recommendations for the Company’s future conduct in line with its prevailing circumstances in support of the Board’s performance.
Assessment of Audit Committee Performance The Audit Committee assessed its performance in 2008 so as to review how it had performed against the assigned scope of responsibility, and reported its findings to the Board as follows: • Assessment covered the eight areas under the jurisdiction of the Audit Committee, namely its charter; composition; meetings; training and resources; responsibility; relationship with the head of Internal Audit/external auditor, and the management; reporting to the Board and shareholders; and quality assurance. Three grades were involved - not practiced, partly practiced, and fully practiced. In summary, most areas were fully practiced and none was ‘not practiced’ • Individual self-assessment covered five areas, namely business knowledge; specialty; independence and fairness; appreciation of duties and responsibility; and dedication to office and meetings. Three grades were involved - little, moderate, and considerable. In summary, most areas were rated as considerable and none rated as little.
Directors’ Compensation • The Remuneration Committee formulates clear policies and criteria for compensating directors and tables them before the Board, which then seeks approval from the shareholders. The decision process for such compensation is transparent and the compensation amounts are approved by the shareholders. • The compensation structures/components must be fair, suit individual directors’ responsibilities, reflect the Company’s performance, and must be comparable to those for the industry in which the Company operates. Each director that also serves as committee members duly receives additional compensation. • The Board also discloses the types of compensation and the sums given to directors, as well as compensation for directors and senior executives serving as directors of PTT Chemical subsidiaries required by position and responsibility in line with stated policies.
Compensation to the President • The Remuneration Committee decides the assessment criteria for the President for the Board’s approval. • The Remuneration Committee appraises the performance of the President and decide on his/her compensation in line with the preliminary assessment findings, which is to be tabled for the Board’s consideration. The Chairman is to communicate the Board’s decision to the President. • In deliberating of the compensation of the new President, appointed on 1 October 2008, the Board decided that his compensation should be based on his new responsibility. (Details about compensation to the Board and the senior management appear on page 71-77)
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Development of Directors and the Management • The Board’s policy and means of training for directors are in place for both new and current ones, as well as senior executives appointed to serve as directors of PTT Chemical Group companies. It also regularly disseminates the regulations and practical guidelines of SEC and SET to all of them by the following methods. Incoming directors: PTT Chemical has instituted an orientation for all incoming directors, where information/knowledge is provided on the roles of directors along with other helpful documents for the mastering of PTT Chemical Group business. Plant visits and meetings with the management team are also arranged. New directors are encouraged to undergo IOD directors’ training. Current directors: Continuing education is provided to these directors through sponsorship of relevant training courses offered by IOD. All directors underwent such courses, and participation in more such courses are in the works, both concerning directors’ duties and Company business in general. Management executives: These executives are continually trained in relevant laws and regulations that are helpful to their performance in the management role, including a seminar designed to prime executives for the new Securities and Exchange law. Those that are directors of PTT Chemical Group companies are encouraged to attend directors’ courses at IOD; to date, more than 90% of Group company directors have passed IOD courses. Relevant parties in corporate governance: The Company Secretary, the secretary to the Audit Committee, officers engaged in investor relations, as well as those doing relevant jobs, regularly attend assorted training courses and sit in on seminars on relevant and current topics, and topics that are helpful to their performance organized by SEC, SET, Listed Companies Association, and IOD. Succession Plan • For the succession and selection of senior executives, the Board defines and deliberates relevant plans in line with stated plans. An alternative plan is in place in case the President or senior management cannot perform their duties. Compliance with the above-mentioned good corporate governance reflects the Board’s commitment to upgrading such compliance on par with international practices, with continual improvement. We realize that the confidence and trust given by all are critical in all circumstances, particularly the ongoing global economic crisis.
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PTT Chemical Public Company Limited
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MANAGEMENT’S DISCUSSION AND ANALYSIS
1. Executive Summary In the year 2008, PTT Chemical Public Company Limited (“the Company” or “PTTCH”) and its subsidiaries reported net profits of Baht 11,739 million, or Baht 7.84 per share, down 39% comparing to the same period last year of Baht 19,167 million or Baht 12.85 per share. The operating results of the Company and its subsidiaries are shown below: Comparing 2008 and 2007 operating results (Unit : Million Baht)
Sales EBITDA Net Profit Basic Earning Per Share (Baht)
2007
2008
Change
73,870 25,343 19,167 12.85
81,960 20,258 11,739 7.84
11% (20%) (39%) (39%)
The decrease in net profits in 2008 comparing to that of 2007 was due mainly to 1. An increase in feedstock cost; An increase in naphtha cost from higher crude oil price in the 1Q/08, 2Q/08, and 3Q/08 of 49%, 53%, and 46% respectively while HDPE price only rose 27%, 29%, and 23% respectively. An increase in natural gas price from PTT to reflect market price, which has been implemented since August 2008. 2. An increase in processing cost and selling and administration cost due to the consolidation of TOL (COD in Feb. 2008), TSCL (COD in May 2008), and Chemical International Pte. Ltd., which owns 50% of Cognis Oleochemicals (M) Sdn Bhd (COM), in December 2008. 3. An inventory loss in 3Q/08 and 4Q/08 due to a significant drop in feedstock and product market price when compared to the Company’s cost. Comparing 4Q/08 and 3Q/08 operating results (Unit : Million Baht)
Sales EBITDA Net Profit Basic Earning Per Share (Baht)
3Q/08
4Q/08
Change
23,642
12,698
(46%)
6,786 4,926 3.29
(2,542) (4,182) (2.80)
(137%) (185%) (185%)
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The decrease in net profits in 4Q/08 comparing to that of 3Q/08 was due mainly to 1. A drop in sales volumes due to plant shutdown as follows: 1.1 A commercial shutdown of Oleflex Unit (olefins plant I1) for 55 days (25 Oct. - 18 Dec.) 1.2 A commercial shutdown of olefins plant I4-1 for 26 days (31 Oct. - 25 Nov.) 1.3 A commercial shutdown of HDPE plant (olefins plant I1) for 10 days (18 - 27 Dec.) 1.4 De-bottlenecking shutdown (planned) of I4-2 plant for 68 days (25 Oct. - 31 Dec.) 1.5 De-bottlenecking shutdown (planned) of TOCGC’s MEG plant for 43 days (8 Oct. - 19 Nov.) 2. Product to feed margin (HDPE over naphtha) decreased to 573 USD/ton or down by 22%. In 4Q/08 HDPE price dropped from 1,709 USD/ton to 910 USD/ton or down by 47% while naphtha price decreased from 973 USD/ton to 337 USD/ton, or down by 65%. 3. An increase in inventory loss of Baht 269 million from a significant drop in feedstock and product market price when compared to the Company’s cost. To enhance the Company’s competitiveness in petrochemical business and the Company’s sustainable long-term growth, and to stabilize the overall margins, which are related to the Company’s main strategy, the Company has implemented several investment projects. The investments are shown below:
To Enhance the Competitiveness Project Description Progress Operation Start Up Date Project Description Progress Operation Start Up Date
De-bottlenecking Project (Plant I4-2) To expand ethylene capacity by 100,000 tons per year and propylene by 50,000 tons per year 4Q/2008 COD: January 2009 Ethane Cracker Project under PTT Polyethylene Co., Ltd. holding 100% by PTTCH An ethylene plant with capacity of 1,000,000 tons per year, which ethane will be provided by PTT. Under construction phase 4Q/2009
To integrate into downstream businesses and related businesses to diversify the investment risks POLYMER PRODUCTS Project Description Progress Operation Start Up Date Project Description Progress Operation Start Up Date
HDPE Expansion under PTT Chemical PLC. To expand HDPE capacity from 250,000 tons per year to 300,000 tons per year Under construction phase 4Q/2009 HDPE Expansion under Bangkok Polyethylene PLC. To expand HDPE capacity from 250,000 tons per year to 500,000 tons per year Under construction phase 4Q/2009
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PTT Chemical Public Company Limited
Project Description Progress Operation Start Up Date
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LLDPE and LDPE Projects under PTT Polyethylene Co., Ltd. holding 100% by PTTCH A LLDPE plant with capacity of 400,000 tons per year and LDPE plant with capacity of 300,000 tons per year Under construction phase LLDPE : 4Q/2009 LDPE : 2Q/2010
EO-BASED PERFORMANCE PRODUCTS Project Description Progress Operation Start Up Date Project Description Progress Operation Start Up Date Project Description Progress Operation Start Up Date Project
Description Progress Operation Start Up Date Project Description Progress Operation Start Up Date
MEG Expansion Project under TOC Glycol Co., Ltd. holding 100% by PTTCH To increase EO/EG capacity of 95,000 tons per year 4Q/2008 COD: December 2008 Phenol Projects under PTT Phenol Co., Ltd. holding 30% by PTTCH A phenol plant with capacity of 200,000 tons per year During commissioning phase 2Q/2009 Ethanolamines Project under Thai Ethanolamines Co., Ltd. holding 100% by PTTCH An ethanolamines plant with capacity of 50,000 tons per year Under construction phase 2Q/2009 Choline Chloride Project under Thai Choline Chloride Co., Ltd. holding 100% by PTTCH A choline chloride plant with capacity of 20,000 tons per year The project has been postponed due to high construction cost Bis Phenol-A (BPA) Project under PTT Phenol Co., Ltd. holding 30% by PTTCH A Bis Phenol-A plant with capacity of 150,000 tons per year Under construction phase 3Q/2010
OLEOCHEMICAL PRODUCTS Project
Description Progress Operation Start Up Date
MPR (Multi-Purpose Reactor) Project under Thai Oleochemical Co., Ltd. holding 100% by PTTCH MPR plant with capacity of 14,000 tons per year During selecting EPC contractor 1Q/2010
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2. Industry Overview Product price, feed stock price and product to feed margins Feedstock
Ethylene
Propylene
Derivatives HDPE
Unit :
MOPS
SEA
MTP
SEA
$/MT
2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 2008
MTP
(FILM) SEA
677 857 1,027 973 337 798
1,180 1,139 1,237 1,325 1,385 1,439 1,379 1,508 530 851 1,133 1,281
1,154 1,159 1,352 1,293 1,358 1,607 1,523 1,506 1,679 1,572 1,612 1,709 626 891 910 1,253 1,342 1,476
Spread
MEG
Ethylene Propylene
SEA
MTP-
MTP-
HDPE-
MEG-
Cont.
MOPS
MOPS
MOPS
MOPS
463 468 412 534 514 482
482 502 479 639 554 543
676 750 653 736 573 678
449 597 230 257 498 395
1,126 1,453 1,257 1,230 835 1,194
Source: CMAI
For ME unit of TOL, Selling price, feedstock (Crude Palm Oil-CPO), and spread margin in 2008 are summarized as follows: Unit : USD/ton ME Price*
CPO*
ME-CPO
1Q/08
1,440
1,065
375
2Q/08
1,336
1,009
327
3Q/08
1,192
860
332
4Q/08
746
506
240
2007
2008
Note : * Price of Ministry of Energy
3. Financial Results Unit : Baht Million % Change
Sales Revenue
73,870
81,960
11%
Feedstock Cost
(41,328)
(50,979)
23%
Net Realize Value Adjustment Gross Margin Processing Cost
-
(753)
0%
32,542
30,228
(7%)
(7,167)
(9,444)
32%
Other Revenue
2,015
2,587
28%
S&A Expenses
(2,047)
(3,113)
52%
EBITDA
25,343
20,258
(20%)
Depre. & Amort.
(3,561)
(4,054)
14%
EBIT
21,782
16,204
(26%)
Financing Expenses (Net Interest Earned) FX Gain (Loss) Share of Gain from Investment
(161)
(814)
406%
210
(910)
(533%)
27
40
48%
(403)
(461)
14%
(2,288)
(2,320)
1%
Net Profits
19,167
11,739
(39%)
Earnings Per Share (Baht/Share)
12.85
7.84
(39%)
Earning to Minority Corporate Tax
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1. In 2008, the Company recorded sales revenues of Baht 81,960 million, up 11% due mainly to a hike in product price. HDPE (SEA) price was 1,476 USD/ton, up 9% and MEG (SEA) price was 1,194 USD/ton, up 6%. In addition, the Company also consolidated revenues from PTT Chemical International Pte. Ltd., which owns 50% of Cognis Oleochemicals (M) Sdn Bhd (COM), in December 2008. 2. Processing cost was Baht 50,979 million, up 23% due to a hike in naphtha price from 677 USD/ton to 798 USD/ton or up 18%. Natural feedstock cost bought from PTT also rose to reflect market price. 3. In 2008, the Company recorded inventory loss (Net Realize Value Adjustment) of Baht 753 million, which was accounted for the Company’s NRV of Baht 284 million and the Company’s subsidiaries and affiliates’ NRV of Baht 469 million. 4. Processing cost was Baht 9,444 million, up 32% due mainly to higher production of TOL, started COD in February 2008, and TSCL, started consolidating in May 2008, and the consolidated of processing cost of COM in December 2008. 5. Selling and administrative expenses were Baht 3,113 million, up 52% due to higher expenses which resulted from an increasing inflation in 2008, and the consolidation of COM’s SG&A in December 2008. 6. EBITDA was Baht 20,258 million, down 20% due to higher feedstock cost, processing cost, and SG&A. 7. The Company recorded interest expenses net interest income of Baht 814 million, up 406% due to lower interest income. In 2008, the Company recorded interest expenses of Baht 1,378 million while interest income was Baht 564 million, comparing to those of 2007 of Baht 1,150 million and Baht 989 million respectively. 8. Loss from unrealized foreign currency exchange (FX) was Baht 910 million. This was due mainly to the weakening of Baht against US currency, which resulted in higher amount of debentures in Baht currency. (The Company has outstanding debentures of 300 MUSD) and also loss from FW contract of the Company and subsidiaries. 9. The company recorded lower net profit; however, Income tax was Baht 2,320 million, up 1%. This was due mainly to an expiration of olefins plant I4’s tax privilege received under investment promotion program from BOI in December 2007. This resulted in a rise in tax rate from 15% to 30%. 10.In 2008, earning per share was recorded at Baht 7.84, down 39% due mainly to lower net profit.
4. The Sales of Products In 2008, ethylene sales volumes were 853,321 tons, down by 1%, while propylene sales volumes were 317,692 tons, decreased by 8% comparing to those of 2007. HDPE sales volumes (olefins plant I1’s HDPE unit and BPE) were 492,232 tons, up 1% comparing to those of 2007 MEG sales volumes of TOCGC in 2008 were 306,875 tons, decreased by 10% comparing to those of 2007.
5. Production Efficiencies In 2008, olefins production volumes were 1,437,432 tons, up 1% when compared to those of 2007 despite the commercial shutdown of olefins plant I1 in 4Q/08. Ethylene production volumes were 1,121,410 tons, up 2% while propylene production volumes were 316,022 tons, down by 9%. The utilization rate of olefins was recorded at 84%.
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HDPE production volumes (olefins plant I1’s HDPE unit and BPE) were 492,722 tons, down from those of 2007 by 5%, with utilization rate of 99%. MEG production volumes of TOCGC were 310,121 tons, slightly down from 2007 by 1%, with utilization rate of 103% 2007
2008
Olefins Plant Utilization Rate
85%
84%
Olefins Yield
66%
67%
93%
99%
105%
103%
n.a.
55%
HDPE Plant (I1 + BPE) Utilization Rate TOCGC’s MEG plant Utilization Rate TOL’s ME plant Utilization Rate
Note: 1. Capacity utilization rate is calculated from actual production divided by nameplate capacity. 2. TOL started to consolidate revenues from Methyl Ester unit in 1Q/08. 3. In 1Q/08 olefins plant I4-1 was shutdown for maintenance (unplanned) for 12 days (31 Jan. - 11 Feb.). - HDPE plant (of olefins plant I1) was shutdown for maintenance (unplanned) for 10 days (29 Feb. - 6 Mar. and 10 - 12 Mar.). - HDPE plant of BPE was shutdown for maintenance (unplanned) for 6 days (15 - 20 Mar.). 4. In 2Q/08 Oleflex unit of olefins plant I1 was shutdown for maintenance (planned) for 42 days (16 May - 27 June). 5. In 3Q/08 olefins plant I4-1 was shutdown for maintenance (unplanned) for 11 days and BPE’s HDPE plant was shutdown for maintenance (planned) for 30 days (1 - 30 Aug.). 6. In 4Q/08 Oleflex unit (olefins plant I1) was commercial shutdown for 55 days (25 Oct. - 18 Dec.). - Olefins plant I4-1 was commercial shutdown for 26 days (31 Oct. - 25 Nov.). - HDPE plant of olefins plant I1 was commercial shutdown for 10 days (18 - 27 Dec.). - Olefins plant I4-2 was shutdown for de-bottlenecking for 68 days (25 Oct. - 31 Dec.). - TOCGC’s MEG plant was shutdown for de-bottlenecking for 43 days (8 Oct. - 19 Nov.).
6. Financial Status Assets As of December 31, 2008, the Company recorded total assets of Baht 152,318 million, up Baht 18,804 million from end of 2007 to Baht 133,514 million or up 14%. This was due mainly to an increase in property, plant, and equipment-net to Baht 100,061 million from Baht 75,184 million, up Baht 24,877 million or 33% from an increase in work in construction of the Company’s subsidiaries.
Liabilities As of December 31, 2008, the Company recorded total liabilities of Baht 56,121 million, up Baht 17,004 million from end of 2007, to Baht 17,004 million, or up 43%. This was due mainly to a rise in long-term loan and debentures of Baht 10,000 million and 12,000 million respectively, which resulted in the Company’s end of 2008 long-term loan and debentures of Baht 13,733 million and Baht 28,257 million respectively.
Shareholders’ Equity As of December 31, 2008, the Company had total shareholders’ equity of Baht 96,197 million, up Baht 1,801 million or up 2% from end of 2007. This was due mainly to an increase in un-appropriated retained earnings from Baht 39,044 million to Baht 40,306 million, up 3%.
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Cash Flows As of December 31, 2008, the Company had cash flows from operations of Baht 17,758 million while cash flow from investments was recorded at Baht 30,020 million, resulting in the negative cash flow before financing activities (free cash flow) of Baht 12,263 million. The Company also recorded cash flow from financing activities of Baht 8,508 million. This resulted in negative cash and cash equivalent of Baht 3,755 million. When concluded with beginning cash on hand of Baht 24,797 million, the Company’s ending cash and cash equivalent was Baht 21,175 million as end of 2008.
Important Financial Ratios 2007
2008*
2.39
2.96
EBITDA to revenue
32.97%
23.55%
Net Profit to revenue
24.93%
13.65%
Return on total assets
14.94%
8.21%
Return on equity
20.77%
12.20%
0.23
0.46
Net debt to equity
(0.03)
0.25
Net debt to EBITDA
(0.11)
1.16
Current Ratio
Interest Bearing Debt to equity
Note: Current ratio EBITDA to revenue (Last 4 quarters)
= =
Net profit on revenue (Last 4 quarters)
=
Return on total assets
=
Return on equity
=
Interest Bearing Debt to equity Net Debt to equity
= =
Net Debt to EBITDA
=
Current assets divided by current liabilities EBITDA divided by total revenue (exclude profits/(losses) from exchange rates and equity in net income of subsidiaries & associated companies) Net profit divided by total revenue (exclude profits/ (losses) from exchange rates and equity in net income of subsidiaries & associated companies) Net profit divided by average total assets (Calculated on the past four quarters) Net profit divided by average total shareholder’s equity (Calculated on the past four quarters) Interest Bearing Debt divided by shareholder’s equity to equity Interest Bearing Debt net from cash and cash equivalent and current investments divided by shareholder’s equity Interest Bearing Debt net from cash and cash equivalent and current investments divided by EBITDA
* The calculation of financial ratios is based on the method given by SET (The Stock Exchange of Thailand).
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RISK MANAGEMENT AND RISK FACTORS
Risk Management Recognizing the business risks involved, PTT Chemical and its affiliates established a systematic, company-wide risk management system steered by a risk management committee (RMC), comprising senior executives. An audit committee also provides advice to the RMC regarding the suitability and sufficiency of the Company’s risk management policy and framework so that the overall business may achieve their targets. The Company constantly ensured risk analysis for its group of companies in both quantitative and qualitative aspects. A financial simulation is analyzed by the “Value at Risk (VaR)” approach, indicating financial impacts of various degrees resulting from key changes. Also, an analysis of impacts and the probability of risks affecting goal achievement or project goal achievement in the form of a 4x4 matrix was instituted together with a risk management plan to reduce risk incidents. Finally, risk information is to be regularly reported to senior executives, the Audit Committee, and the Board.
Risk Factors PTT Chemical has closely aligned its risk management process with those of recognized international standards. However, the nature of the petrochemical industry and activities of PTT Chemical Group make it difficult to totally avoid risks. Therefore, certain risks, both industrial and corporate-specific ones, could have significant impacts on the Group’s operations. Industrial Risks Product and Feedstock Price Risks Changes in product and feedstock prices can significantly affect the Group’s operations, as its product and feedstock prices are those of, or formula-linked to, the world market, which is subject to the direct impact of changes in product demand, which is in turn exposed to the global economy or domestic economy in major consuming countries, as well as capacity changes of given products in world markets. All these are beyond the Group’s control. Risk Mitigation Approach : PTT Chemical’s policy is to explicitly quote prices of products and feedstock in all transaction contracts that reflect current prices in major markets (US, EU and Asian markets) to avoid drastic price fluctuations. Where suitable, it follows a policy of basing product and feedstock prices in all transaction contracts on production costs to reduce any adverse effect on the product supplier if the market prices fall below production costs. For example, the price of natural gas, the Company’s major feedstock, reflects those of polymers, its main products. Such policy gives more flexibility to the changes in prices of the end products, and thus lessens the impact of changing prices of products and feedstock, especially during the industry’s down cycle.
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PTT Chemical has instituted centralized output planning coordination among its olefins & shared facilities, polymer products, and ethylene oxide (EO)-based performance groups so that the distribution of ethylene and propylene for each product line and production in individual product groups may achieve efficiency and the highest returns and temper the impacts of price fluctuations on feedstock and products. PTT Chemical believes that the capacity expansion in olefins & shared facilities, polymer products, and ethylene oxide (EO)-based performance groups to achieve economies of scale will lower the costs of production per unit. Higher total sales after the capacity expansions would compensate for income lost due to a lower price per unit, especially during the down cycle. The Group constantly seeks opportunities to expand into downstream products with sound business potential to reduce adverse effects if product prices in certain groups should fall and tone down fluctuation in revenue and in net profits in the long term. Downstream products, such as polymers, usually belong to different price cycles from that of ethylene, a main upstream product. Expansion into the downstream petrochemicals with high potential and higher value-added lessens the impact of price competition in the long term and gives the Company greater opportunities to venture into innovative products, an essential factor for the sustained growth of the Group. Recognizing the impacts of the recent slowdown in the global economy on the demand for its core products, resulting in demand reduction in line with the economy, the Group has drawn up a marketing plan for products with healthy potential or high spreads to be sold in countries or regions that could sustain more of such products. Cluster-of-Plants Risks PTT Chemical Group’s plants are located at or around Map Ta Phut Industrial Estate and so are its major feedstock suppliers and principal customers. Therefore, serious damage or losses to the Group’s production facilities, its major suppliers, customers, or the pipeline system could have severe impacts on the Company’s or its affiliates’ performance. Risk Mitigation Approach : To reduce the impacts of such mishaps, the Group has instituted a security system at the plants that is up to international standards, and made it a policy to lake out an all-risk insurance policy for projects with commercial operation, and a construction all-risk insurance policy for relevant projects under internationally accepted standards. Environmental Risks By its nature, industrial operations and general petrochemical operations tend to be associated with activities that could harm human health and the environment. Mishaps may sighificantly harm stakeholders, business, and the image of PTT Chemical or its affiliates, in both short and long terms. Risk Mitigation Approach : The Company’s health, safety, and environment policy frames its business mission, ranging from the choice of technology and processes, design and installation, work procedures, fostering of a safety culture, assessment of environmental risks, prevention and mitigation of environmental risks on stakeholders, strict compliance with laws and standards, continual development and improvement of the environmental management system, and communication to all involved. This includes implementation of
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the ISO 14001 environmental management system, preparation of reports on compliance with preventive and mitigation measures, and continual monitoring of environmental quality for submission to the Office of Natural Resources and Environmental Policy and Planning. Financial Risks (a) Foreign Exchange (FX) Risks Typically, PTT Chemical Group’s revenue and expenses are in US dollars or US dollar-linked, and foreign exchange (FX) risks could therefore affect income in the unhedged portion. For instance, should the Baht strengthen against the dollar, the Company would experience a lower net profit in Baht. This clearly indicates that the currency exchange fluidity, over which the Group has no control, could have a significant impact on the Company’s net profits. Risk Mitigation Approach : The Company manages FX risks by using natural-hedge management, which seeks a balance between cash inflows and outflows, including capital expenditure, in foreign currencies. It also ensures that its net income - the difference between revenue and expenses tied to the US dollar - tracks the foreign loans. To elaborate, should the Baht appreciate, the Company’s net income drops with the foreign loans in Baht equivalent. (b) Interest Rate Risks Over the logn term, PTT Chemical’s policy is to maintain for the Group a net interest-bearing debt-to-equity ratio of up to 100% and a net interest-bearing debt-to-EBITDA ratio of up to 200% to create an optimal return on investment for stakeholders while supporting the Group’ s operational and investment plans. However, it is necessary to bear interest-rate risks from fluctuating and rising interest rates, particularly when the Group intends to secure loans. This may result in higher financial costs, the inability to secure loans, or the necessity of issuing debt securities to the full amount required by the Company and its affiliates. Risk Mitigation Approach : To temper the impacts of fluctuating interest rates and a rate hike when the Company wishes to secure a loan or issue debt securities, PTT Chemical may seek to increase its short-term and medium-term credit lines. The Company may use financial instruments where necessary to minimize a negative impact when the financial market is in a state of flux. The Company also plans to arrange a bigger term (short-term and intermediate-term) and amount of the required loans or debt securities to synchronize with the Company’s financial structure and need for capital, financial situation, interest rate outlook, and the financial market for a given period. Company-Specific Risks Conflicts of Interest Risks Siam Cement Plc is a major shareholder of PTT Chemical (with 20.18 percent of the paid-up capital), with subsidiaries producing olefins and HDPE, LDPE, and LLDPE polymers, similar to PTT Chemical Group (both in operational and planning stages), thus presenting a potential conflict of interest between the Group and Siam Cement because this may reduce the Company’s capability to maximize its profits. By the same token, PTT Plc, the largest shareholder, with 49.30 percent shares, is the major supplier of feedstock required by PTT Chemical, supplying about four-fifths of PTT Chemical’s total required feedstock.
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Risk Mitigation Approach : PTT Chemical not only observes a recognized good corporate governance policy and principles but stresses their importance and the implementation at all levels of the Group’s operations. In addition, it has always observed the principle of conducting its business under the highest ethical standards. These principles are expected and required to be implemented by Board members, executives, management, supervisors, employees, and contractor employees, all of whom must acknowledge and follow the policies and guidelines set forth in the Company’s Good Corporate Governance Handbook. This includes guidelines for transactions with shareholders, subsidiaries, or associates of shareholders, directors, or the management of PTT Chemical. The guidelines also include the practice of engaging in connected transactions, which prohibits concerned parties from voting on agendas of interests during a meeting of the Board or the shareholders. PTT Chemical is fully committed to abiding by the rules and regulations of the Securities and Securities Exchange of Thailand Act of 1992 and its amendment of 2008 by appointing an independent directors and the Audit Committee to safeguard the interests of minor shareholders and ensure fair treatment for all stakeholders. Supplier Risks PTT Chemical procures about four-fifths of its total required feedstock from PTT Plc, therefore bearing a supplier risk. Risk Mitigation Approach : As the major supplier is also the Company’s major shareholder, the purchase of feedstock is mostly arranged under long-term agreements. The very nature of the petrochemical industry itself limits the ability of the feedstock supplier to obtain a new customer. There is therefore only a slim chance that either this feedstock supplier or this ethylene customer would break its contracts at short notice. Consequently, the Company bears only a limited risk by having a large feedstock supplier. Plant Operation Risks In operating petrochemical plants, some potential occurrences from within and outside the Group can unexpectedly cause disruption of plant operation. Human errors, accidents, insufficient or undeliverable utilities (electricity, water, steam, etc.), machinery failures and operational failures of feedstock supply, or customer-related occurrences could lead to an interruption in production with possible significant impacts on the Company’s or the Group’s financial performance. Risk Mitigation Approach : Aware of these operational risks, PTT Chemical Group has established business interruption plans for controlling emergency incidents, minimizing losses and safeguarding personnel and the environment. Furthermore, the Group has scheduled preventive and predictive maintenance procedures to minimize machinery risks. It has also established procedures and manuals for machinery maintenance to minimize errors, accidents, and disruptions. Finally, the Company and its subsidiaries have an all-risk insurance policy to compensate for and minimize financial losses from such occurrences. Project Risks PTT Chemical Group is expanding current and new product lines of upstream and downstream petrochemicals, including production and services in support businesses like utilities, jetties, and other support functions. Most projects, some of which are in the design or construction phase, are related to one another in the supply of feedstock and offtaking products, or in the transfer of electricity and steam between product lines and utilities. The Group inevitably encounters assorted project risks, some of which could have considerable
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impacts on the projects themselves and ultimately on the Company or the Group. As project risks may result from feedstock supply or may be related to the environment, engineering design, procurement, construction, execution, markets, and logistical risks, these risks may cause project delays, cost overruns, or project viability, among others. Risk Mitigation Approach : Aware of these project risks, PTT Chemical assigns a risk owner i.e., project owner, to be responsible for project risk management under the Company’s risk management policy and framework. The processes include identification of project risks, assessment of impacts and likelihood of occurrences of the relevant risks, formulation and implementation of risk management plans, and continual reporting and reviewing of a risk report. The Company believes that its systematic risk management will encourage risk owners, the management of the Company and its affiliates, and other relevant parties to become more aware of the risks encountered by concerned projects, while recognizing the importance of the risk management of a project as well as that of the Group as a whole. With project risk management in place, the possibility of a risk is reduced and/or the project owners will be better prepared should a risk occur. This also means that a direct loss or a loss of business opportunities would be proportionally less, enabling the Group to achieve its growth targets in the medium term and long term. On the whole, project risk management by the Group focuses on minimizing the likelihood of project delays and keeping project costs under the budget. Moreover, the Company and its affiliates command a construction all-risk insurance policy covering projects under construction, which would compensate the Company and its affiliates for financial losses if severe project risks were to occur, thus minimizing risks to the Group. Human Resource Risks The Group is expanding its business further downstream, including derivatives, to many projects. After their commercial operation, the configuration and running of plants and machinery, as well as product planning and sales management, may differ radically from the present. Current personnel of the Group may lack skills or experience in carrying out new modes of operation efficiently, at the standard level, or at a competitive level. Alternatively, the Group may be unable to recruit external personnel with the required skills and experience. In the worst case, such shortage could pose severe risks that hurt the Group’s operation significantly. Risk Mitigation Approach: The Group has recognized these risks all along ever since its contemplation of project operation and preparation of skilled and experienced people for assorted projects. To cope with this problem, the Group has decided on the use of shared services among its business units since 1 February 2008, whereby actions will be taken to upgrade its personnel’s capability and prepare training plans in line with personnel competency gaps and the Group’s strategic implementation. The Company is convinced that such actions will not only add efficiency to the management and human resource development of the Group, but also align with the need for human resources of ongoing projects. On the whole, this would somewhat alleviate such human resource risks. Financial Risks (c) Liquidity Risks The Company recognizes the currently high uncertainty in financial markets, both domestic and international. While this uncertainty has somewhat subsided from the initial impacts facing financial institutions in 2008, repercussions have been felt and may well continue to
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do so in the future. Add to these the possible drops in prices and sales volumes against the Group’s original estimates and need for capital under its investment plans; on the whole, it could be short on cash for a period, thus crippling PTT Chemical businesswise. Risk Mitigation Approach : Recognizing the grave danger of running low on liquidity, PTT Chemical made it a policy for all its companies to generate maximum liquidity without impacting routine businesses and planned project operations. To this end, centralized coordination has been instituted among expense plans for the above-mentioned business undertaking to allow PTT Chemical to remain adequately liquid at all times.
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CONNECTED TRANSACTIONS
Transactions with Shareholders and Connected Companies As of 31 December 2008, some significant business transactions had taken place between the Company and its shareholders and connected companies of common shareholders or directors. Mainly concerning product and service transactions, these transactions were based on market or contractual prices. Below are the details.
Company Business Relationship with PTT Chemical
PTT Plc (PTT) Petrochemical business operation & support - Major shareholder with 49.30% shares - Common director : Mr. Prasert Bunsumpun - Sales transactions of products and services
Company Business Relationship with PTT Chemical
HMC Polymers Co., Ltd. (HMC) Manufacture & sale of PP - Holds 2.81% of the shares in PTTCH - Common directors : 1. Mr. Prajya Phinyawat 2. Mr. Pichit Nithivasin - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Thai Plastic and Chemicals Plc (TPC) Manufacture & sale of PVC - Holds 0.62% of the shares in PTTCH - Common director : Mr. Cholanat Yanaranop - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Thai Polyethylene Co., Ltd. (TPE) Manufacture & sale of PE - TPE’s major shareholder (Siam Cement) is also a major share holder of PTTCH - Common directors : 1. Mr. Cholanat Yanaranop 2. Mr. Roongrote Rangsiyopash - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Thai Polypropylene Co., Ltd. (TPP) Manufacture & sale of PP - TPP’s major shareholder (Siam Cement) is also a major shareholder of PTTCH - Common directors : 1. Mr. Cholanat Yanaranop 2. Mr. Roongrote Rangsiyopash - Sales transactions of products and services
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Company Business Relationship with PTT Chemical
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PTT Aromatics and Refining Plc (PTTAR) Manufacture & sale of benzene, toluene, paraxylene, orthoxylene, and mixed xylenes, and oil refinery business - PTTAR’s major shareholder (PTT) is also a major shareholder of PTTCH - Common directors : 1. Mr. Prasert Bunsumpun 2. Mr. Witoon Simachokedee 3. Mr. Prajya Phinyawat 4. Mr. Pichai Chunhavajira - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Rayong Olefins Co., Ltd. (ROC) Petrochemical business - ROC’s major shareholder (Siam Cement) is also a major shareholder of PTTCH - Common directors : 1. Mr. Cholanat Yanaranop 2. Mr. Roongrote Rangsiyopash 3. Mr. Pichit Nithivasin 4. Mr. Prajya Phinyawat - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Siam Styrene Monomer Co., Ltd. (SSMC) Manufacture of styrene monomers - SSMC’s major shareholder (Siam Cement) is also a major shareholder of PTTCH - Common directors : 1. Mr. Cholanat Yanaranop 2. Mr. Roongrote Rangsiyopash - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Siam Mitsui PTA Co., Ltd. Manufacture of purified terephthalic acid - Siam Mitsui’s major shareholder (Siam Cement) is also a major shareholder of PTTCH - Common director : Mr. Cholanat Yanaranop - Sales transactions of products with PTTCH’s subsidiary
Company Business
Thai Tank Terminal Ltd. (TTT) Storage and logistical services for liquid chemicals, oil, and gas at Map Ta Phut Industrial Estate - A subsidiary of PTTCH (51% of the shares) - Three TTT directors are PTTCH executives : 1. Mr. Dhanes Charoensupaya 2. Mrs. Puntip Oungpasuk 3. Mr. Narong Bunditkamol - Sales transactions of products and services
Relationship with PTT Chemical
Company Business Relationship with PTT Chemical
Company Business Relationship with PTT Chemical
Alliance Plant Service Co., Ltd. (APS), formerly known as NPTC Maintenance and Engineering Services Co., Ltd. (NPTC) Maintenance and engineering services, etc. (domestic and Asia) - A subsidiary of PTTCH (60% of the shares) - Two APS directors are PTTCH executives : 1. Mr. Athavudhi Hirunburana 2. Mr. Jiamsak Nantananate - Service transactions NPC Safety and Environmental Service Co., Ltd. (NPC S&E) Safety and environment services for network government agencies and private companies - A wholly - owned subsidiary of PTTCH - Four NPC S&E directors are PTTCH executives : 1. Mr. Veerasak Kositpaisal 2. Mr. Jiamsak Nantananate 3. Mr. Narong Bunditkamol 4. Mr. Suvit Tinnachote - Service transactions
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Company Business Relationship with PTT Chemical
PTT Utility Co., Ltd. (PTTUT) Production and sale of electricity, steam, and water for production processes - A PTTCH associate with 40% of the shares - PTTUT’s major shareholder (PTT) is also a major shareholder of PTTCH - Three PTTUT directors are PTTCH executives : 1. Mr. Athavudhi Hirunburana 2. Mr. Dhanes Charoensupaya 3. Mr. Narong Bunditkamol - Sales transactions of products
Company Business Relationship with PTT Chemical
PTT Polyethylene Co., Ltd. (PTTPE) Manufacture of olefins and derivatives - A wholly - owned subsidiary of PTTCH - Common director : Mr. Prajya Phinyawat - Four PTTPE directors are PTTCH executives : 1. Ms. Panada Kanokwat 2. Mr. Khubbhol Suksupha 3. Mr. Suvit Tinnachote 4. Mrs. Puntip Oungpasuk - Service transactions
Company Business Relationship with PTT Chemical
Thai Styrenics Co., Ltd. (TSCL) Manufacture and sale of petrochemical products - A wholly-owned joint venture of PTTCH - Common director : Mr. Veerasak Kositpaisal - Three TSCL directors are PTTCH executives : 1. Mr. Khubbhol Suksupha 2. Mrs. Puntip Oungpasuk 3. Mr. Suvit Tinnachote - Sales transactions of products and services
Company Business Relationship with PTT Chemical
PTT Phenol Co., Ltd. (PPCL) Manufacture of phenol and by-products - A PTTCH associate with 30% of the shares - PPCL’s major shareholder (PTT) is also a major shareholder of PTTCH - Common director : Mr. Prajya Phinyawat - Two PPCL directors are PTTCH executives : 1. Mrs. Puntip Oungpasuk 2. Mr. Dhanes Charoensupaya - Sales transactions of products and services
Company Business Relationship with PTT Chemical
PTT Polymer Marketing Co., Ltd. (PTTPM) Marketing and distribution of polymer products for PTT Group - A PTTCH associate with 25% of the shares - PTTPM’s major shareholder (PTT) is also a major shareholder of PTTCH - Common directors : 1. Mr. Prajya Phinyawat 2. Mr. Veerasak Kositpaisal - One PTTPM director is a PTTCH executive : Mr. Dhanes Charoensupaya - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Star Petroleum Refining Co., Ltd. (SPRC) Oil refinery business - SPRC’s major shareholder (PTT) is also a major shareholder of PTTCH - Sales transactions of products
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Company Business Relationship with PTT Chemical
Vinythai Plc (VNT) Manufacture & sale of PVC - PTTCH holds 24.98% of the shares - Common director : Mr. Veerasak Kositpaisal - One VNT director is a PTTCH executive : Mrs. Puntip Oungpasuk - Sales transactions of products
Company Business Relationship with PTT Chemical
IRPC Plc (IRPC) Petrochemical business - IRPC’s major shareholder (PTT) is also a major shareholder of PTTCH - Common directors : 1. Mr. Prasert Bunsumpun 2. Mr. Pala Sookawesh 3. Mr. Prajya Phinyawat - Sales transactions of products
Company Business Relationship with PTT Chemical
Bangkok Polyethylene Plc (BPE) Manufacture & sale of HDPE - A wholly - owned subsidiary of PTTCH - Common directors : 1. Mr. Pala Sookawesh 2. Mr. Prajya Phinyawat - One BPE director is a PTTCH executive : Mr. Suvit Tinnachote - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Bangkok Synthetics Co., Ltd. (BST) Manufacture & sale of mixed-C4s derivatives - BST has 1.46% of the shares in PTTCH - Common directors : 1. Mr. Pichit Nithivasin 2. Mr. Cholanat Yanaranop - Service transactions
Company Business Relationship with PTT Chemical
Bangkok Industrial Gas Co., Ltd. (BIG) Manufacture and sale of industrial gases - Common director : Mr. Pichit Nithivasin - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Thai Petroleum Pipeline Co., Ltd. (THAPPLINE) Fuel pipeline transport services - THAPPLINE’s major shareholder (PTT) is also a major shareholder of PTTCH - Common director : Mr. Pichai Chunhavajira - Service transactions
Company Business Relationship with PTT Chemical
Eastern Fluid Transport Co., Ltd. (EFT) Pipeline infrastructural services - A PTTCH associate with 15% of the shares - Common director : Mr. Athavudhi Hirunburana - Service transactions
Company Business Relationship with PTT Chemical
Dhipaya Insurance Plc (DHIPAYA) Insurance business - DHIPAYA’s major shareholder (PTT) is also a major shareholder of PTTCH - Common director : Mr. Pichai Chunhavajira - Connected transactions
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Company Business Relationship with PTT Chemical
TOC Glycol Co., Ltd. (TOCGC) Manufacture & sale of MEG - A wholly-owned subsidiary of PTTCH - Three TOCGC directors are PTTCH executives : 1. Ms. Panada Kanokwat 2. Mrs. Puntip Oungpasuk 3. Mr. Athavudhi Hirunburana - Sales transactions of products and services
Company Business
Thai Ethoxylate Co., Ltd. (TEX) Manufacture & sale of fatty alcohol ethoxylates, base chemicals of personal healthcare products - A PTTCH joint venture with 50% of the shares - Sales transactions of products and services
Relationship with PTT Chemical Company Business Relationship with PTT Chemical
Thai Ethanolamines Co., Ltd. (TEA) Manufacture & sale of ethanolamines and products for paint, pharmaceutical, cosmetics, cement, etc. - A wholly - owned subsidiary of PTTCH - Two TEA directors are PTTCH executives : 1. Ms. Panada Kanokwat 2. Mr. Athavudhi Hirunburana - Service transactions
Company Business Relationship with PTT Chemical
Thai Choline Chloride Co., Ltd. (TCC) Manufacture & sale of choline chloride for animal feed - A wholly-owned subsidiary of PTTCH - Three TCC directors are PTTCH executives : 1. Ms. Panada Kanokwat 2. Mr. Jiamsak Nantananate 3. Mr. Athavudhi Hirunburana - Service transactions
Company Business Relationship with PTT Chemical
Thai Oleochemicals Co., Ltd. (TOL) Manufacture & sale of methyl ester, fatty alcohol, and glycerine - A wholly-owned subsidiary of PTTCH - Common director : Mr. Witoon Simachokedee - Three TOL directors are PTTCH executives : 1. Ms. Panada Kanokwat 2. Mrs. Puntip Oungpasuk 3. Mr. Dhanes Charoensupaya - Sales transactions of products and services
Company Business
Vopak Holding International B.V. Logistics of chemical and oil products from manufacturers to consumers - Vopak holds 49% of the shares in TTT, a PTTCH subsidiary - Sales transactions of services among subsidiaries
Relationship with PTT Chemical Company Business Relationship with PTT Chemical
Thai Industrial Gases Plc (TIG) Manufacture & sale of industrial gases - Common director : Mr. Paibulya Punyavutti - Sales transactions of products and services
Company Business
PTT ICT Solutions Co., Ltd. (PTTICT) Services for information communication and technology to PTT Group - A PTTCH associate with 20% of the shares - Common director : Mr. Athavudhi Hirunburana - Service transactions
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Company Business Relationship with PTT Chemical
PTT Polymers Logistic Co., Ltd. (PTTPL) Logistical services to PTT Group’s petrochemical businesses - PTTPL’s major shareholder (PTT) is also PTTCH’s major shareholder - Common director : Mr. Prajya Phinyawat - Two PTTPL directors are PTTCH executives : 1. Mr. Veerasak Kositpaisal 2. Mr. Khubbhol Suksupha
Company Business Relationship with PTT Chemical
Thai Fatty Alcohol Co., Ltd. (TFA) Manufacture & sale of oleochemicals, fatty alcohols, and derivatives - A PTTCH joint venture with a subsidiary holding 50% of the shares - Common director : Mr. Tongchat Hongladaromp - Sales transactions of products and services
Company Business Relationship with PTT Chemical
Cognis Thai Co., Ltd. Manufacture of oleochemicals and petrochemical derivatives - Holds 50% of the shares in a PTTCH joint venture
Company Business
Cognis Oleochemicals (M) Sdn Bhd Manufacture of oleochemicals, fatty alcohols, and all its derivatives - Its major shareholder (Cognis German) wholly owns Cognis Thai Co., Ltd.
Relationship with PTT Chemical Company Business Relationship with PTT Chemical
PTT Exploration and Production Plc (PTTEP) Petroleum exploration and production - PTTEP’s major shareholder (PTT) is also a major shareholder of PTTCH - Common directors : 1. Mr. Prasert Bunsumpun 2. Mr. Pala Sookawesh 3. Mr. Pichai Chunhavajira
Transactions with Connected Parties For 2007 and 2008, details of the Company’s transactions with connected parties appear in the top pro forma financial statements as of year-end 2008 and 2007, item 5.
Needs and Justification of Connected Transactions Sales of products by PTT Chemical to connected parties have been carried out mainly so that they may convert its products into their own for sale at prices corresponding to long-term offtake agreements or spot prices. Prices must prove reasonable to both parties and be based on market prices without any undue transfer of interests. When providing services to connected parties, transactions must cover transportation or storage costs of products. The charge for services is both market-based and benefit-based, without any transfer of interests. Product and feedstock supplies and/or services as well as the volume of products, feedstock or services given by connected parties must meet the needs and business operation of PTT Chemical. Prices of product trading or services are as agreed by the Company and connected parties without any transfer of interests. In addition, the Company is required to purchase feedstock for producing ethylene, propylene, and other by-products from connected parties because the capacity and quality of such feedstock meet its needs. PTT Chemical also saves transportation expenses since feedstock bought from connected parties can be transferred safely by the Company’s pipeline system from their plants in Map Ta Phut Industrial Estate, Rayong.
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Measures and Procedures for Approval of Connected Transactions Company regulations state that a director can acquire or dispose of company assets or perform any business transaction involving the Company either by himself or herself or on behalf of others only with the approval of the Board. Any director who personally gains from any acquisition or disposal of company assets or any transaction of the Company is not allowed to vote on that matter. After securing approval from the Board, the Company can perform any business transaction or acquire or dispose of major assets in line with an announcement of the Stock Exchange of Thailand (SET). This also applies to the Company’s subsidiaries in the SET announcement concerning connected transactions of registered companies as well as the buying or selling of registered company assets.
Opinion of Independent Directors The Company’s independent directors noted that the connected transactions complied with the requirements of the Board.
Policies and Trends of Future Connected Transactions Future connected transactions between the Company and connected parties will remain normal and unexceptional without any transfer of interests. Pricing between them will be implemented at arm’s length. Moreover, the prices of products or feedstock purchased from connected parties will be set in agreements or linked to market prices. In addition, service charges paid to connected parties will also be at arm’s length. The prices of products sold or purchased between the Company and connected parties will, as a rule, be linked to the Map Ta Phut market prices. Disclosure of the Company’s connected transactions is to comply with the rules and regulations of the Securities and Exchange Commission (SEC) and SET. The audit standards for connected parties will be as specified by the Federation of Accounting Professions and Office of the Auditor-General.
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REPORT OF THE AUDIT COMMITTEE
The Board of Directors of PTT Chemical Plc appointed the Audit Committee, whose members are experts in finance, accounting, economics, management, and the petrochemical industry, consisting of Mr. Manu Leopairote as Chairman, with Mr. Cherdpong Siriwit and Mr. Paibulya Punyavutti as members. Their qualifications are in line with the Notification of the Stock Exchange of Thailand (SET) governing the qualifications and scope of performance of the Audit Committee of 2008. In 2008 a series of changes were seen in the Committee: On 20 June 2008, the Board appointed Mr. Manu Leopairote as its Chairman in place of and Mr. Olarn Chaipravat, who resigned from the chairmanship and appointed Mr. Cherdpong Siriwit as a member. On 6 December 2008, the entire Audit Committee resigned at the end of its term. Then on 12 December 2008, the Board decided at its meeting No. 9/2009 to appoint a new one consisting of the above-named persons to a three-year term.
Performance of the Audit Committee The Committee has performed its duties and exercised its judgment under the scope of authority and duties specified in its charter, which was approved by the Board. The Committee held seven meetings in 2008 and held meeting No. 1/2009 on 17 February 2009 to review the financial statements for the year 2008 and internal control for the same year. Company management and related executives also attended in their respective agenda items. A separate meeting was held with the external auditor, with no management members in attendance, to consult the auditor on assorted audit matters. Reviews and recommendations were made by the Committee to each agenda item, summarized as follows: 1. Reviewed the Company’s financial statements to ensure that these financial statements had been duly prepared under generally accepted accounting principles and the sufficient disclosure of significant matters had been made for the benefit of decision-making by the users. Connected transactions were accurately and completely disclosed. The statements consisted of quarterly and annual financial statements for 2008, which, according to the external auditor, were essentially accurate under the generally accepted accounting principles. The Committee concurred with this. 2. Reviewed the internal control system assessment to ensure that the Company had adequate and effective internal control that enabled it to achieve its objectives and, as such, acknowledged that the system was both adequate and effective. 3. Reviewed the independence and effectiveness of internal audit practices based on the performance of the head of internal audit; reviewed the charter of internal audit and
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4.
5.
6.
7.
8.
9.
10.
monitored the audit plan submitted by the group to acknowledge the findings together with the actions to address the recommendations of the auditor; acknowledged the restructuring of the internal audit group; revised the business manual and self-assessment of the internal audit group while providing recommendations on the group’s quality improvement. Considered and proposed for approval the external auditor team for independence. The Committee proposed for 2008 Mr. Nirand Lilamethawat, Mr. Winid Silamongkol, or Mr. Vairoj Jindamaneepitak of KPMG Phoomchai Audit Ltd. together with their fees, considered appropriate, to the Board, who would then seek approval from the shareholders. Deliberated connected transactions or those with possible conflicts of interest to ensure lawful actions and compliance with SET requirements. The Committee tracked and acknowledged connected transactions, disclosed in the notes to the annual and quarterly financial statements. Note that in 2008 no such cases required approval by the shareholders. Reviewed the Company’s compliance with the Securities and Exchange laws, Notifications of SET, and relevant laws. The Committee acknowledged the audit findings of the internal audit group in 2008. The audit identified no items or remarks about the actions of the Company that could be construed as being against the law. Monitored and acknowledged performance on key Company activities, namely risk management, production operation, Group business operation, and major construction projects. Reviewed and improved the charter of the Audit Committee in line with the announcement of SET concerning the qualifications and scope of operation of the Audit Committee of 2008 and the announcement of the Securities and Exchange Commission; the revisions have been tabled for the Board’s consideration. Carried out collective and self-assessment for the Audit Committee for the year to review their performance and accomplishments against the assigned scope of work and then reported the findings to the Board. Reported its activities in the annual information disclosure form and the annual report. Reports of its performance were regularly sent to the Board.
Having performed its duties as mentioned, the Committee commented about PTT Chemical’s finance and accounting, internal audit, risk management, operation, major business groups and projects for the management’s consideration. The internal audit group is charged with monitoring corrective actions and reporting to the Committee each quarter.
The Audit Committee conducted its thorough duties under the scope and responsibility of its charter. Its seven meetings were participated in by a majority of committee members; in fact, only once did a member request a leave of absence because of hospitalization. The Committee appreciates the constructive cooperation given by the Board, the management, the external auditor, and all related parties.
(Mr. Manu Leopairote) Chairman of the Audit Committee 17 February 2009
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THE BOARD OF DIRECTORS’ REPORT ON ITS RESPONSIBILITY TO FINANCIAL REPORT
Financial Statement of PTT Chemical Public Company Limited, and its subsidiaries included in the consolidated financial statements has been prepared in compliance with notification of Department of Commercial Registration dated September 14, 2001, under the third paragraph of section 11 of the Accounting Act 2000, in compliance with the accounting standard determined by the Federation of Accounting Professions. The responsibilities of the Board of Directors towards the financial report of PTT Chemical Public Company Limited, and its subsidiaries has been provided to ensure that it has revealed the financial status, incomes and expenses, and consolidated cash flow on a practical and reasonable basis and the accounting data has been properly recorded in relation to the property retention, including the anti-corruption and abnormal transactions. Regarding the provision of the financial report, the Company has considered and selected proper accounting policy for regular practices in compliance with the generally accepted accounting standard and has disclosed significant data in the notes to the financial statement, which the auditor has expressed the opinions to the financial statements of PTT Chemical Public Company Limited and its subsidiaries in the auditor’s report.
(Mr. Pornchai Rujiprapa) Chairman
(Mr. Veerasak Kositpaisal) President & CEO
122
124
AUDIT REPORT OF CERTIFIED PUBLIC ACCOUNTANT
To the Shareholders of PTT Chemical Public Company Limited I have audited the accompanying consolidated and separate balance sheets as at 31 December 2008, and the related statements of income, changes in equity and cash flows for the year then ended of PTT Chemical Public Company Limited and its subsidiaries, and of PTT Chemical Public Company Limited, respectively. The Company’s management is responsible for the correctness and completeness of information presented in these financial statements. My responsibility is to express an opinion on these financial statements based on my audit. The consolidated and separate financial statements of PTT Chemical Public Company Limited and its subsidiaries, and of PTT Chemical Public Company Limited, respectively, for the year ended 31 December 2007 were audited by another auditor whose report dated 22 February 2008 expressed an unqualified opinion on those statements, with an emphasis paragraph on the change in accounting policy for investments in subsidiaries, associates and jointly-controlled entities from the equity method of accounting to the cost method in the Company’s financial statements to comply with TAS 44 (revised 2007), and the change in accounting policy for the valuation method of property, plant and equipment from revaluation to cost. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the consolidated and separate financial statements referred to above present fairly, in all material respects, the financial positions as at 31 December 2008 and the results of operations and cash flows for the year then ended of PTT Chemical Public Company Limited and its subsidiaries, and of PTT Chemical Public Company Limited, respectively, in accordance with generally accepted accounting principles.
Annual Report 2008
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125
I draw attention to note 27 to the financial statements. Starting from 1 January 2008, the Group has changed its accounting policy for goodwill from the cost less accumulated amortisation method to the test for impairment method.
(Vairoj Jindamaneepitak) Certified Public Accountant Registration No. 3565
KPMG Phoomchai Audit Ltd. Bangkok 18 February 2009
126
BALANCE SHEETS PTT Chemical Public Company Limited and its Subsidiaries As at 31 December 2008 and 2007
The accompanying notes are an integral part of these financial statements.
Annual Report 2008
The accompanying notes are an integral part of these financial statements.
PTT Chemical Public Company Limited
127
128
BALANCE SHEETS PTT Chemical Public Company Limited and its Subsidiaries As at 31 December 2008 and 2007
The accompanying notes are an integral part of these financial statements.
Annual Report 2008
STATEMENTS OF INCOME PTT Chemical Public Company Limited and its Subsidiaries For the years ended 31 December 2008 and 2007
The accompanying notes are an integral part of these financial statements.
PTT Chemical Public Company Limited
129
The accompanying notes are an integral part of these financial statements.
PTT Chemical Public Company Limited and its Subsidiaries For the years ended 31 December 2008 and 2007
STATEMENTS OF CHANGES IN EQUITY
130
PTT Chemical Public Company Limited
The accompanying notes are an integral part of these financial statements.
PTT Chemical Public Company Limited and its Subsidiaries For the years ended 31 December 2008 and 2007
STATEMENTS OF CHANGES IN EQUITY
Annual Report 2008
131
132
STATEMENTS OF CASH FLOWS PTT Chemical Public Company Limited and its Subsidiaries For the years ended 31 December 2008 and 2007
The accompanying notes are an integral part of these financial statements.
Annual Report 2008
The accompanying notes are an integral part of these financial statements.
PTT Chemical Public Company Limited
133
134
NOTES TO THE FINANCIAL STATEMENTS PTT Chemical Public Company Limited and its Subsidiaries For the years ended 31 December 2008 and 2007
Annual Report 2008
PTT Chemical Public Company Limited
135
Notes to the financial statements For the years ended 31 December 2008 and 2007
Name of the entity
Direct subsidiaries Bangkok Polyethylene Plc.
Type of business
Country of incorporation
Ownership interest (%) 2008 2007
Manufacturing and distributing petrochemical products
Thailand
100
100
TOC Glycol Co., Ltd.
Manufacturing and distributing petrochemical products
Thailand
100
100
Thai Ethanolamines Co., Ltd.
Manufacturing and distributing petrochemical products
Thailand
100
100
Thai Choline Chloride Co., Ltd.
Manufacturing and distributing petrochemical products
Thailand
100
100
Thai Oleochemicals Co., Ltd.
Manufacturing and distributing petrochemical products
Thailand
100
100
PTT Polyethylene Co., Ltd.
Manufacturing and distributing petrochemical products
Thailand
100
100
NPC Safety and Environmental Service Co., Ltd.
Safety and environmental services
Thailand
100
100
PTT Chemical International Pte. Ltd.
Holding and operating international business
Singapore
100
-
Alliance Plant Services Co., Ltd.
Maintenance factory and services engineering
Thailand
60
60
Thai Tank Terminal Ltd.
Service for the storage and handling of liquid chemicals, oil and gas
Thailand
51
51
Annual Report 2008
136
PTT Chemical Public Company Limited
Notes to the financial statements For the years ended 31 December 2008 and 2007
Name of the entity
Indirect subsidiaries Thai Styrenics Co., Ltd.
Thai Fatty Alcohol Co., Ltd.
Type of business
Ownership interest (%) 2008 2007
Manufacturing and distributing petrochemical products
Thailand
100
-
Manufacturing and distributing petrochemical products
Thailand
100
-
Thailand
100
-
Thailand
50
50
Services rendering to the PTT Chemical International (Asia Pacific Group ROH) Ltd. Jointly-controlled entities Thai Ethoxylate Co., Ltd. Manufacturing and distributing petrochemical products
2
Country of incorporation
Thai Fatty Alcohol Co., Ltd.
Manufacturing and distributing petrochemical products
Thailand
-
50
Cognis Oleochemicals (M) Sdn Bhd
Manufacturing and distributing petrochemical products
Malaysia
50
-
Basis of preparation of the financial statements The financial statements issued for Thai reporting purposes are prepared in the Thai language. This English translation of the financial statements has been prepared for the convenience of readers not conversant with the Thai language. The financial statements are prepared in accordance with Thai Accounting Standards (“TAS”) including related interpretations and guidelines promulgated by the Federation of Accounting Professions (“FAP”) and with generally accepted accounting principles in Thailand.
Annual Report 2008
PTT Chemical Public Company Limited
137
Notes to the financial statements For the years ended 31 December 2008 and 2007
The Group has adopted the following new and revised Thai Accounting Standards (TAS) which were issued by the FAP during 2007 and effective for accounting periods beginning on or after 1 January 2008: TAS 25 (revised 2007)
Cash Flows Statements
TAS 29 (revised 2007)
Leases
TAS 31 (revised 2007)
Inventories
TAS 33 (revised 2007)
Borrowing Costs
TAS 35 (revised 2007)
Presentation of Financial Statements
TAS 39 (revised 2007)
Accounting Policies, Changes in Accounting Estimates and Errors
TAS 41 (revised 2007)
Interim Financial Reporting
TAS 43 (revised 2007)
Business Combinations
TAS 49 (revised 2007)
Construction Contracts
TAS 51
Intangible Assets
The adoption of these new and revised TAS does not have any material impact on the consolidated or separate financial statements except as disclosed in note 27. The FAP has issued during 2008 a number of revised TAS which are only effective for financial statements beginning on or after 1 January 2009 and have not been adopted in the preparation of these financial statements. These revised TAS are disclosed in note 30. The financial statements are presented in Thai Baht, rounded in the notes to the financial statements to the nearest million unless otherwise stated. They are prepared on the historical cost basis except as stated in the accounting policies. The preparation of financial statements in conformity with TAS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The judgements, estimates and assumptions are based on historical experience and various other factors, including management’s assessment of the potential impact on the Group’s operations and financial position of the global economic crisis. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes: Note 4 Note 10 Note 12 Note 13 Note 28
Acquisitions Other long-term investments Intangible assets Deferred tax Financial instruments
Annual Report 2008
PTT Chemical Public Company Limited
138
Notes to the financial statements For the years ended 31 December 2008 and 2007
3
Significant accounting policies
(a)
Basis of consolidation The consolidated financial statements relate to the Company and its subsidiaries and jointly-controlled entities (together referred to as the “Group”) and the Group’s interests in associates. Significant intra-group transactions between the Company and its subsidiaries and jointly-controlled entities are eliminated on consolidation. Subsidiaries Subsidiaries are those companies controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Jointly-controlled entities Jointly-controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group’s proportionate share of the entities’ assets, liabilities, revenue and expenses combined with items of a similar nature on a line by line basis, from the date that joint control commences until the date that joint control ceases. Associates Associates are those companies in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Business combinations Business combinations are accounted for using the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
Annual Report 2008
PTT Chemical Public Company Limited
139
Notes to the financial statements For the years ended 31 December 2008 and 2007
(b)
Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to Thai Baht at the foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Thai Baht at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the statement of income. Non-monetary assets and liabilities measured at cost in foreign currencies are translated to Thai Baht using the foreign exchange rates ruling at the dates of the transactions. Foreign entities The assets and liabilities of foreign entities are translated to Thai Baht at the foreign exchange rates ruling at the balance sheet date. Goodwill and fair value adjustments arising on the acquisition of foreign entities are stated at exchange rates ruling on the balance sheet date. The revenues and expenses of foreign entities are translated to Thai Baht at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on translation are recognised in a separate component of equity until disposal of the investments. Where monetary items, in substance, form part of the Group’s net investment in a foreign entity, foreign exchange differences arising on such monetary items and related hedges are recognised directly in a separate component of equity until disposal of the investment.
(c)
Derivative financial instruments Derivative financial instruments are used to manage exposure to foreign exchange, interest rate arising from operating and financing activities. Derivative financial instruments are not used for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in the statement of income when incurred. Subsequent to initial recognition, they are remeasured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the statement of income. The fair value of interest rate swaps is based on broker quotes at the balance sheet date. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the balance sheet date. The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price at the balance sheet date for the residual maturity of the contract using a risk-free interest rate (based on government bonds).
Annual Report 2008
PTT Chemical Public Company Limited
140
Notes to the financial statements For the years ended 31 December 2008 and 2007
(d)
Cash and cash equivalents Cash and cash equivalents in the statements of cash flows comprise cash balances, call deposits and highly liquid short-term investments. Bank overdrafts that are repayable on demand are a component of financing activities for the purpose of the statement of cash flows.
(e)
Trade and other accounts receivable Trade and other accounts receivable are stated at their invoice value less allowance for doubtful accounts. The allowance for doubtful accounts is assessed primarily on analysis of payment histories and future expectations of customer payments. Bad debts are written off when incurred.
(f)
Inventories Raw materials, work in progress and finished goods Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost principle, and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to complete and to make the sale.
(g)
Investments Investments in subsidiaries, jointly-controlled entities and associates Investments in subsidiaries, jointly-controlled entities and associates in the separate financial statements of the Company are accounted for using the cost method. Investments in associates in the consolidated financial statements are accounted for using the equity method. Investments in equity securities Equity securities which are not marketable are stated at cost less impairment losses. Disposal of investments On disposal of an investment, the difference between net disposal proceeds and the carrying amount is recognised in the statement of income. If the Group disposes of part of its holding of a particular investment, the deemed cost of the part sold is determined using the weighted average method applied to the carrying value of the total holding of the investment.
Annual Report 2008
PTT Chemical Public Company Limited
141
Notes to the financial statements For the years ended 31 December 2008 and 2007
(h)
Property, plant and equipment Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Leased assets Leases in terms of which the Group substantially assumes all the risk and rewards of ownership are classified as finance leases. Property, plant and equipment acquired by way of finance leases is capitalised at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation and impairment losses. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the statement of income. Depreciation Depreciation is charged to the statement of income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Plant, machinery and equipment Facilities system Factory tools and equipment Buildings and other constructions Leasehold improvement Furniture, fixtures and office equipment Vehicles
3-30 7-30 3-15 10-25 6-30 3-20 5
years years years years years years years
No depreciation is provided on freehold land or assets under construction. (i)
Intangible assets Goodwill Goodwill in a business combination represents the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired. The Group has changed its accounting policy for goodwill with effect from 1 January 2008 as discussed in note 27. Acquisitions prior to 1 January 2008 Goodwill represents the amount recognised under the Group’s previous accounting policy under which goodwill was stated at cost less accumulated amortisation and impairment losses. Acquisitions on or after 1 January 2008 Goodwill is stated at cost. Subsequent measurement Goodwill is measured at cost less impairment losses. In respect of equity accounted investments, the carrying amount of goodwill is included in the carrying amount of the investment.
Annual Report 2008
PTT Chemical Public Company Limited
142
Notes to the financial statements For the years ended 31 December 2008 and 2007
Other intangible assets Other intangible assets that are acquired by the Group, which have finite useful lives, are stated at cost less accumulated amortisation and impairment losses. Amortisation Amortisation is recognised in the statement of income on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives are as follows: Production licence fees Computer software Right to use pipe rack Trademark (j)
10 - 20 5 - 10 15 10
years years years years
Impairment The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. Goodwill and other intangible assets with indefinite useful lives, and intangible assets not yet available for use, are tested for impairment annually and as and when indicators of impairment are identified. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The impairment loss is recognised in the statement of income unless it reverses a previous revaluation credited to equity, in which case it is charged to equity. Calculation of recoverable amount The recoverable amount of non-financial assets is the greater of the assets’ net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment An impairment loss in respect of a financial asset is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss in respect of goodwill is not reversed. Impairment losses recognised in prior periods in respect of other non-financial assets are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Annual Report 2008
PTT Chemical Public Company Limited
143
Notes to the financial statements For the years ended 31 December 2008 and 2007
(k)
Interest-bearing liabilities Interest-bearing liabilities are recognised initially at fair value less attributable transaction charges. Subsequent to initial recognition, interest-bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of income over the period of the borrowings on an effective interest basis.
(l)
Trade and other accounts payable Trade and accounts payable are stated at cost.
(m)
Employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of income as incurred. Share based payments The share option programme allows the Group’s employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
(n)
Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
(o)
Revenue Revenue excludes value added taxes and is arrived at after deduction of trade discounts. Sale of goods and services rendered Revenue is recognised in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there is continuing management involvement with the goods or there are significant uncertainties regarding recovery of the consideration due, associated costs or the probable return of goods. Service income is recognised as services are provided. Rental income Rental income from investment property is recognised in the statement of income on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.
Annual Report 2008
PTT Chemical Public Company Limited
144
Notes to the financial statements For the years ended 31 December 2008 and 2007
Interest and dividend income Interest income is recognised in the statement of income as it accrues. Dividend income is recognised in the statement of income on the date the Group’s right to receive payments is established.
(p)
Expenses Operating leases Payments made under operating leases are recognised in the statement of income on a straight line basis over the term of the lease. Lease incentives received are recognised in the statement of income as an integral part of the total lease payments made. Contingent rentals are charged to the statement of income for the accounting period in which they are incurred. Finance costs Interest expenses and similar costs are charged to the statement of income for the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use or sale. The interest component of finance lease payments is recognised in the statement of income using the effective interest rate method.
(q)
Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the statement of income except to the extent that it relates to items recognised directly in equity. Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date and applicable to the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is provided, using the liability method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not recognised for goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Annual Report 2008
PTT Chemical Public Company Limited
145
Notes to the financial statements For the years ended 31 December 2008 and 2007
4
Acquisitions On 20 June 2008, the Company invested SGD 205.2 million to acquire 205.2 million ordinary shares representing 100% of the issued share capital of PTT Chemical International Pte. Ltd. at their par value of SGD 1 per share. Subsequently, on 23 July 2008, PTT Chemical International Pte. Ltd. entered into Share Purchase Agreement for a 50% stake in Cognis Oleochemicals (M) Sdn Bhd which is incorporated in Malaysia from Cognis BV, which is a related party, at Baht 4,854 million. The acquiree’s net assets at the acquisition date (24 November 2008) comprised the following: Recognised values Cash and deposits at financial institutions Trade accounts receivable Inventories Other current assets Long-term investments Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets Interest-bearing liabilities Trade accounts payable Other current liabilities Deferred tax liabilities Other non-current liabilities Net identifiable assets and liabilities Goodwill on acquisition Consideration paid Cash acquired Net cash outflow
959 2,344 2,276 243 28 2,889 165 23 77 (1,863) (1,429) (619) (44) (593) 4,456 398 4,854 (959) 3,895
Fair value adjustments (in million Baht) -
Carrying amounts 959 2,344 2,276 243 28 2,889 165 23 77 (1,863) (1,429) (619) (44) (593) 4,456
Annual Report 2008
PTT Chemical Public Company Limited
146
Notes to the financial statements For the years ended 31 December 2008 and 2007
5
Related party transactions and balances Related parties are those parties linked to the Group as shareholders or by common shareholders or directors. Transactions with related parties are conducted at prices based on market prices or, where no market price exists, at contractually agreed prices. Relationships with related parties that control or jointly control the Group are being controlled or jointly controlled by the Company or have transactions with the Group were as follows: Name of entities
Country of incorporation / nationality
Nature of relationships
PTT Plc.
Thailand
Major shareholder, some common directors
Bangkok Polyethylene Plc.
Thailand
Subsidiary, 100% shareholding, some common directors
TOC Glycol Co., Ltd.
Thailand
Subsidiary, 100% shareholding
Thai Ethanolamines Co., Ltd.
Thailand
Subsidiary, 100% shareholding
Thai Choline Chloride Co., Ltd.
Thailand
Subsidiary, 100% shareholding
Thai Oleochemicals Co., Ltd.
Thailand
Subsidiary, 100% shareholding, some common directors
PTT Polyethylene Co., Ltd.
Thailand
Subsidiary, 100% shareholding, some common directors
NPC Safety and Environmental Service Co., Ltd. Alliance Plant Services Co., Ltd.
Thailand
Subsidiary, 100% shareholding
Thailand
Subsidiary, 60% shareholding
Thai Tank Terminal Ltd.
Thailand
Subsidiary, 51% shareholding
Thai Ethoxylate Co., Ltd.
Thailand
Jointly - controlled entity, 50% shareholding
Thai Fatty Alcohols Co., Ltd.
Thailand
Subsidiary of the Company’s subsidiary
Cognis Oleochemical (M) Sdn Bhd
Malaysia
Jointly - controlled entity of subsidiary, 50% shareholding by a subsidiary
Annual Report 2008
PTT Chemical Public Company Limited
147
Notes to the financial statements For the years ended 31 December 2008 and 2007
Name of entities
Country of incorporation / nationality
Nature of relationships
PTT Utility Co., Ltd.
Thailand
Associate, 40% shareholding
PTT Phenol Co., Ltd.
Thailand
Associate, 30% shareholding, some common directors
PTT Polymer Marketing Co., Ltd.
Thailand
Associate, 25% shareholding, some common directors
Vinythai Plc.
Thailand
Associate, 25% shareholding, some common directors
PTT ICT Solutions Co., Ltd.
Thailand
Associate, 20% shareholding
Eastern Fluid Transport Co., Ltd.
Thailand
Associate, 15% shareholding, 15% shareholding by a subsidiary
Thai Styrenics Co., Ltd. HMC Polymers Co., Ltd.
Thailand Thailand
Subsidiary of the Company’s subsidiary The Company’s shareholder, some common directors
Thai Polyethylene Co., Ltd.
Thailand
Major shareholder as the Company’s shareholder , some common directors
Thai Polypropylene Co., Ltd.
Thailand
Major shareholder as the Company’s shareholder, some common directors
Thai Plastic and Chemical Plc.
Thailand
The Company’s shareholder, some common directors
Thai Industrial Gas Plc.
Thailand
Some common directors
Bangkok Industrial Gas Co., Ltd.
Thailand
Some common directors
Bangkok Synthetic Co., Ltd.
Thailand
The Company’s shareholder, some common directors
IRPC Plc.
Thailand
The Company’s shareholder, some common directors
PTT Aromatic and Refinery Plc.
Thailand
Major shareholding by the Company’s major shareholder, some common directors
PTT Exploration and Production Plc.
Thailand
Major shareholding by the Company’s major shareholder
Annual Report 2008
PTT Chemical Public Company Limited
148
Notes to the financial statements For the years ended 31 December 2008 and 2007
Name of entities
Country of incorporation / nationality
Nature of relationships
Rayong Olefins Co., Ltd.
Thailand
Major shareholding by the Company’s shareholder, some common directors
Siam Styrene Monomer Co., Ltd.
Thailand
Major shareholding by the Company’s shareholder, some common directors
Star Petroleum Refining Co., Ltd.
Thailand
Major shareholding by the Company’s shareholder
Siam Mitsui PTA Co., Ltd.
Thailand
Major shareholding by the Company’s shareholder, some common directors
Thai Petroleum Pipeline Co., Ltd.
Thailand
Major shareholding by the Company’s major shareholder, some common directors
PTT Polymer Logistic Co., Ltd.
Thailand
Major shareholding by the Company’s major shareholder, some common directors
Dhipaya Insurance Plc.
Thailand
Major shareholding by the Company’s major shareholder, some common directors
Vopak Holding International B.V.
Netherlands
Shareholder of a subsidiary
Cognis Thai Co., Ltd.
Thailand
Shareholder of a jointly – controlled entity
Cognis Group
Related to shareholder of a jointly – controlled entity
The pricing policies for particular types of transactions are explained further below: Transactions
Pricing policies
Revenue from sale of goods Revenue from rendering of services Purchase of goods/raw materials Interest on loan
Contract price / Regional market price / World market price Agreed price Contract price / Market price Cost of fund
Annual Report 2008
PTT Chemical Public Company Limited
149
Notes to the financial statements For the years ended 31 December 2008 and 2007
Significant transactions for the years ended 31 December 2008 and 2007 with related parties were as follows: Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Major Shareholder Sales of goods or rendering of services Purchases of goods or receiving of services Other income Other expense Subsidiaries Sales of goods or rendering of services Purchases of goods or receiving of services Other income Other expense Interest income Jointly – controlled entities Sales of goods or rendering of services Other income Associates Sales of goods or rendering of services Purchases of goods or receiving of services Other income Other expense Other related parties Sales of goods or rendering of services Purchases of goods or receiving of services Other income Other expense
4,632 43,735 12 98
3,251 37,211 9 270
1,821 43,554 12 79
3,240 37,193 7 263
-
-
14,869 730 1,887 125 1,131
13,346 113 336
-
-
7
4 10
29,757 913 144 151
25,087 670 31 160
19,362 108 143 132
17,223 56 29 159
33,337 1,318 2 122
28,148 4,954 11 939
29,958 327 2 93
27,438 4,899 7 902
Annual Report 2008
PTT Chemical Public Company Limited
150
Notes to the financial statements For the years ended 31 December 2008 and 2007
Balances as at 31 December 2008 and 2007 with related parties were as follows: Trade accounts receivable from related parties
Major Shareholder PTT Plc. Subsidiaries Bangkok Polyethylene Plc. TOC Glycol Co., Ltd. Thai Oleochemicals Co., Ltd. Thai Tank Terminal Ltd. Thai Styrenics Co., Ltd. Associates PTT Utility Co., Ltd. PTT Phenol Co., Ltd. PTT Polymer Marketing Co., Ltd. Vinythai Plc. Other related parties HMC Polymers Co., Ltd. Thai Polyethylene Co., Ltd. Thai Polypropylene Co., Ltd. Thai Plastic and Chemical Plc. Thai Industrial Gas Plc. Bangkok Industrial Gas Co., Ltd. Bangkok Synthetic Co., Ltd. IRPC Plc. PTT Aromatics and Refinery Plc. PTT Exploration and Production Plc. Rayong Olefins Co., Ltd. Siam Styrene Monomer Co., Ltd. Star Petroleum Refining Co., Ltd. Siam Mitsui PTA Co., Ltd. PTT Polymer Logistics Co., Ltd. Cognis Thai Co., Ltd. Cognis Japan Ltd. PT Cognis Indonesia Cognis Kimya Sanayi Ticalet Less allowance for doubtful accounts Net Bad and doubtful debts expenses for the year
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 190
429
76
426
-
-
530 406 4 6 1
951 565 11 -
46 143 1,504 138
1 2,326 1,192
111 758 134
1,049 1,189
316 212 54 176 5 9 43 1 53 5 1 12 2 103 4 3,017 3,017
573 794 367 790 11 20 164 335 506 1 476 282 38 8 1 155 1 25 8,495 8,495
314 212 54 176 9 42 27 1 2,861 2,861
572 793 367 790 11 20 161 335 430 476 277 38 1 8,462 8,462
-
-
-
-
Annual Report 2008
PTT Chemical Public Company Limited
151
Notes to the financial statements For the years ended 31 December 2008 and 2007
Other receivables from related parties
Major Shareholder PTT Plc. Subsidiaries Bangkok Polyethylene Plc. TOC Glycol Co., Ltd. Thai Ethanolamine Co., Ltd. Thai Choline Chloride Co., Ltd. Thai Oleochemicals Co., Ltd. PTT Polyethylene Co., Ltd. NPC Safety and Environmental Service Co., Ltd. Alliance Plant Services Co., Ltd. Thai Tank Terminal Ltd. Thai Fatty Alcohol Co., Ltd. Jointly – controlled entities Thai Ethoxylate Co., Ltd. Thai Fatty Alcohol Co., Ltd. Associates PTT Utility Co., Ltd. PTT Phenol Co., Ltd. PTT Polymer Marketing Co., Ltd. PTT ICT Solutions Co., Ltd. Other related parties Thai Industrial Gas Plc. Cognis Thai Co., Ltd. Less allowance for doubtful accounts Net Bad and doubtful debts expenses for the year
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 11
9
5
7
-
-
9 14 7 3 11 34
19 7 6 11 25
-
-
10 55 1 2
11
-
-
4 2 14
4 3 2 35
14
4 3 2 35
2 33 33
4 5 62 62
173 173
4 147 147
-
-
2
4 2
-
-
7
1 3 2
-
Annual Report 2008
PTT Chemical Public Company Limited
152
Notes to the financial statements For the years ended 31 December 2008 and 2007
Loans to related parties
Consolidated financial statements
Interest rate 2008 2007 (% per annum)
2008
Separate financial statements
2007 2008 (in million Baht)
2007
Short-term loans Subsidiaries
NPC Safety and Environmental Service Co., Ltd. Thai Oleochemicals Co., Ltd. Thai Ethanolamines Co., Ltd.
5.4-5.6
-
5.4-5.75
6
5.4-5.6
-
Less allowance for doubtful accounts Short-term loans to related parties, net Long-term loans Subsidiaries TOC Glycol Co., Ltd. Bangkok Polyethylene Plc. PTT Polyethylene Co., Ltd.
-
-
-
230
-
-
-
7,215
-
-
550
-
-
7,995
4,400
-
-
7,995
4,400
4,400 -
4.8
-
-
-
5.4-5.75
6
-
-
2,030
540
5.4-5.75
6
-
-
19,648 21,678 21,678
3,700 6,163 6,163
-
-
7,995 21,678 29,673 29,673 -
4,400 6,163 10,563 10,563 -
Less allowance for doubtful accounts Long-term loans to related parties, net Summary of loans to related parties Short-term loans Long-term loans Less allowance for doubtful accounts Total loans to related parties, net Bad and doubtful debts expenses for the year
1,923
Annual Report 2008
PTT Chemical Public Company Limited
153
Notes to the financial statements For the years ended 31 December 2008 and 2007
Movements during the years ended 31 December 2008 and 2007 of loans to related parties were as follows:
Loans to related parties
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht)
Short-term loans Subsidiaries At 1 January Increase Decrease At 31 December
-
-
4,400 3,695 (100) 7,995
4,717 (317) 4,400
Long-term loans Subsidiaries At 1 January Increase Decrease At 31 December
-
-
6,163 17,438 (1,923) 21,678
4,975 4,240 (3,052) 6,163
Long-term loan agreements On 31 August 2007, the Company entered into an unsecured long-term loan agreement with PTT Polyethylene Co., Ltd. with the credit limit of Baht 25,300 million. The loan bears interest at the rate of the Company’s cost of fund. This loan is repayable in equally quarter instalments commencing from June 2010 within 8 years. On 5 September 2007, the Company entered into an unsecured long-term loan agreements with Bangkok Polyethylene Plc. with the credit limit of Baht 3,805 million. The loan bears interest at the rate of the Company’s cost of fund. This loan is repayable equally in semi-annual instalments commencing from September 2010 within 7 years.
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Investments in subsidiaries, jointly controlled entities and associates (Note 9)
8,000
6,905
42,113
35,731
Annual Report 2008
PTT Chemical Public Company Limited
154
Notes to the financial statements For the years ended 31 December 2008 and 2007
Trade accounts payable to related parties
Major Shareholder PTT Plc. Associate PTT Utility Co., Ltd. Other related parties Thai Plastic and Chemical Plc. Bangkok Industrial Gas Co., Ltd. Bangkok Synthetic Co., Ltd. IRPC Plc. PTT Aromatics and Refinery Plc. Rayong Olefins Co., Ltd. Siam Styrene Monomer Co., Ltd. Star Petroleum Refining Co., Ltd. Vopak Holding International B.V. Cognis Thai Co.,Ltd. Cognis Oleochemicals (M) Sdn Bhd Total Other payables to related parties
Major Shareholder PTT Plc. Subsidiaries Bangkok Polyethylene Plc. TOC Glycol Co., Ltd. Thai Oleochemicals Co., Ltd. NPC Safety and Environmental Service Co., Ltd Alliance Plant Services Co., Ltd. Thai Tank Terminal Ltd. Associates Vinythai Plc. PTT Utility Co., Ltd. PTT ICT Solutions Co., Ltd. Eastern Fluid Transport Co., Ltd. Other related parties Thai Plastic and Chemical Plc. Thai Industrial Gas Plc. Bangkok Industrial Gas Co., Ltd. IRPC Plc. PTT Aromatics and Refinery Plc. PTT Polymer Logistics Co., Ltd. Dhipaya Insurance Plc. Cognis Thai Co., Ltd Cognis Deutscheland Total
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 1,486
7,381
1,485
7,380
103
141
1
10
1 10 10 4 44 157 5 1,820
7 4 48 103 475 103 134 6 8,402
5 4 1,495
5 4 48 103 475 103 8,128
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 74
54
52
41
-
-
28 6 6
-
-
-
21 336 4
10 1 20
1 4 37 2
65 1
1 32 2
65 1
1 12 1 2 3 17 13 1 168
2 10 9 5 28 5 179
1 10 1 2 3 11 10 526
2 10 9 8 167
Annual Report 2008
PTT Chemical Public Company Limited
155
Notes to the financial statements For the years ended 31 December 2008 and 2007
Significant agreements with related parties Sales Agreements On 16 December 1992, the Company entered into the Olefins Sales Agreement with five downstream petrochemical companies, for the period of 15 years commencing from 1 June 1995. Under the agreement it is agreed that purchases by these companies will not be lower than the volume specified in the agreement with Olefins product prices based on prices prevailing in the world market. On 6 February 2002, the Company entered into the Purchase and Sale of Expansion Ethylene Agreement with PTT Public Co., Ltd. for the period of 7 years commencing from commercial operation date of expansion unit of the Company. Product prices are based on prices prevailing in the world market. On 1 July 2003, the Company entered into the Ethylene Sales Agreement with Thai Polyethylene Company Limited. The selling price structure is characterized by profit sharing from polyethylene product (HDPE). This agreement will expire in 2016. On 1 November 2003, the Company entered into the Ethylene Sales Agreement with Thai Plastic and Chemicals Public Company Limited and concurrently abrogated its obligations under the former Olefins Sales Agreement and Expansion Olefins Sales Agreement. A new selling price structure for Ethylene is formulated under this agreement with reference to the world market price. This agreement will expire in 2016. On 25 February 2004, the Company entered into the Propylene Sales Agreement with HMC Polymers Company Limited, pricing structure is profit sharing based on the average price of polypropylene (PP Film). The agreement is effective from 1 January 2004, and will expire on 31 December 2016. On 1 June 2004, the Company entered into the Propylene Sales Agreement with Thai Polypropylene Company Limited, pricing structure is profit sharing based on the average price of polypropylene (PP Film). The agreement will expire on 31 December 2016. On 28 February 2005, the Company entered into the additional Ethylene Sales Agreement with Vinythai Public Company Limited at market prices, for the period of 15 years. The Ethylene selling prices are based on market prices. The Company has delivered the product and commenced the agreement with Vinythai Public Company Limited in April 2007. On 7 July 2006, the Company entered into the Ethylene Sales Agreement with TOC Glycol Company Limited, for the period of 15 years. The Ethylene selling prices are based on Ethane prices that PTT Public Company Limited charges to the Company. On 25 May 2007, the Company entered into the Propylene Sales Agreement with PTT Phenol Company Limited, for the period of 15 years. The selling prices are based on Polypropylene and Propylene world market prices. On 1 July 2008, the Company renewed the Propylene Sales Agreement with IRPC Public Company Limited, for the period of 1 year. The selling prices are based on Propylene world market price. The above agreement is effective from 1 July 2008, and will expire on 30 June 2009. On 1 June 2008, the Company entered into the additional Ethylene Sales Agreement with Vinythai Public Company Limited, for the period of 1 year. The selling prices are based on the world market price.
Annual Report 2008
PTT Chemical Public Company Limited
156
Notes to the financial statements For the years ended 31 December 2008 and 2007
Hydrogen Supply Agreement On 1 October 2005, the Company entered into the Raw Hydrogen Supply Agreement (Raw H2) with Bangkok Synthetics Company Limited, for the period of 4 years and expiring on 30 September 2009. On 1 October 2005, the Company entered into the Purified Hydrogen Supply Agreement (Pure H2) with Bangkok Industrial Gas Company Limited, for the period of 3 years commencing from the date of the first receipt of the product on 23 November 2005. The agreement can be extended by further terms of 1 year with the mutual agreement of both parties. Pyrolysis and Gasoline Supply Agreement On 1 January 2001, the Company entered into the Pyrolysis and Gasoline Agreement with PTT Aromatics and Refinery Public Company Limited, for the period of 15 years commencing from the date of the first receipt of the product on 2 November 1996 to 1 November 2011. Mixed C4 Supply Agreements The Company entered into two Supply Mixed C4 Agreements with Bangkok Synthetic Company Limited. The term of the agreement dated 20 October 1997 was 10 years from product receiving date on 8 September 1997 to 7 September 2008. The term of the agreement dated 16 December 1992 was 15 years from product receiving date on 1 June 1995 to 31 May 2010. Tail Gas Supply Agreement On 11 February 2005, the Company entered into the Tail Gas Supply Agreement with TOC Glycol Company Limited, for the period of 15 years commencing from the date of the first receipt of the product on 1 August 2007 to 31 July 2022. Feedstock and Fuel Gas Sales Agreements On 18 October 1991, the Company entered into NGL Supply Agreement and LPG Supply Agreement with PTT Public Co., Ltd., for the period of 15 years commencing from 1 June 1995, Commercial Operation Date of the Company, and is renewable for another period of 5 years with the agreement of both parties. On 1 June 1999, the Company entered into Purchase and Sale of Light Naphtha and Raffinate Agreement with PTT Public Co., Ltd., for the period of 13 years. On 9 September 1999, the Company entered into the Feedstock Sales Agreement and the Natural Gas Sales Agreement with PTT Public Company Limited (PTT). Under the Feedstock Sales Agreement, the feedstock pricing structure is changed to link to the olefins prices which the Company sells to its customers, in the manner stipulated in the agreement. This agreement is effective from 1 January 1999, is to continue in force for 12 years, and is renewable for another period of 5 years with the agreement of both parties. The Natural Gas Sales Agreement is the standard agreement under which PTT sells Natural Gas to small power producers (SPP). This agreement is effective from 1 January 1999, is to continue in force for 20 years, and is renewable for another period of 4 years with the agreement of both parties. On 17 September 2001, the Company entered into Ethane Supply Agreement with PTT Public Company Limited, for the period of 15 years commencing from 1 August 2005 (Startup date) and renewable for another period of 5 years with the agreement of both parties.
Annual Report 2008
PTT Chemical Public Company Limited
157
Notes to the financial statements For the years ended 31 December 2008 and 2007
On 31 July 2003, the Company amended the part of the Feedstock Sales Agreement with PTT Public Company Limited dealing with Ethane. Under the amendment the pricing structure is changed to link to the Company’s selling price for Polyethylene (HDPE). This agreement is effective from 1 July 2003, and will expire in 2016. On 20 February 2004, the Company entered into a Feedstock Sales Agreement with PTT Public Company Limited under which the Propane/LPG pricing structure was changed from profit sharing based on the price of Propylene to profit sharing based on the average price of Polypropylene (PP Film). The amendment is effective from 1 January 2004, and extends the original expiry date of the agreement from 31 December 2010 to 31 December 2016. On 23 September 2005, a subsidiary entered into Purchase and Sale Agreement of the Liquefied Natural Gas Agreement with PTT Public Co., Ltd. for the period of 15 years. The agreement period commenced on the date of the first receipt and distribution of the gas and could be extended in accordance with the condition of the agreement. Utilities Sales Agreements On 8 June 1999, the Company entered into Memorandum of Understanding of Power Supply with Bangkok Polyethylene Public Company Limited (BPE) to supply 12 MWh. electricity, for the period of 15 years commencing from 31 October 2000. On 1 January 2007, the Company entered into extended Utilities Sales Agreement with HMC Polymers Company Limited (HMC) to supply utilities for the period of 10 years. On 1 January 2007, the Company entered into extended Utilities Sales Agreement with Thai Polyethylene Company Limited (TPE) to supply utilities for the period of 10 years. The Company entered into Power Supply Agreement with Thai Tank Terminal Company Limited to supply 2.5 MWh. electricity for the period of 15 years commencing from January 2002. On 1 January 2007, the Company entered into extended Utilities Sales Agreement with Thai Plastic and Chemical Public Company Limited to supply utilities for the period of 10 years. The Company entered into Power Supply Agreement with Thai Plastic and Chemical Public Company Limited PVC9 to supply 3 MWh. Electricity, for the period of 5 years commencing from January 2007 and renewable for 5 years. The Company entered into Memorandum of Understanding of Power Supply after the expiry of the Agreement with Bangkok Industrial Gas Company Limited to supply 5 MWh. electricity for the period from 1 October 2007 to 30 September 2008. The extension of this agreement is in process. On 1 May 2008, the Company entered into Power Supply Agreement with Thai Styrenics Company Limited to supply 1.2 MWh. electricity for the period of 6 years. Nitrogen Supply Agreement On 2 May 2003, the Company entered into the Nitrogen Supply Agreement with Bangkok Industrial Gases Company Limited for the period of 10 years commencing from 16 October 2004, and renewable with the provision of 2 years’ notice prior to the expiry date.
Annual Report 2008
PTT Chemical Public Company Limited
158
Notes to the financial statements For the years ended 31 December 2008 and 2007
On 26 January and 23 September 2004, the Company entered into two Supply Nitrogen Agreements with Bangkok Industrial Gases Company Limited for the period of 3 years commencing from 1 December 2004 and 1 July 2005, respectively, and renewable with the provision of 1 years’ notice prior to the expiry date. The extension of this agreement is in process. On 5 September 2006, the Company entered into the Nitrogen Supply Agreement with Thai Industrial Gases Public Company Limited for the period of 8 years. The agreement can be terminated by either party providing not less than 12 months’ prior written notice to the counterparty. Polyethylene Sales Agreement On 29 September 2006, the Company entered into the Polyethylene Sales Agreement with PTT Polymer Marketing Company Limited, for the period of 15 years commencing from 1 January 2007. Under this agreement, the Company entirely sells all HDPE products to PTT Polymer Marketing Company Limited for distributing to the customers. Under the Polyethylene Sale Agreement, the Polyethylene pricing structure is changed to link to the Polyethylene product price, which the Company sells to ended customers, adjusted by the appropriate marketing expenses for fairness to both parties. Shareholder’s Commercial Support Agreement The Company, as the issuer of bonds, entered into Shareholder’s Commercial Support Arrangement with PTT Public Co., Ltd. (PTT) and bondholders’ representative, under which PTT has provided a commercial trade credit line amounting to USD 100 million to the Company (As at 31 December 2008, this commercial credit line had not been used). Agreement for purchase of materials and utilities On 23 September 2005, a subsidiary entered into Natural Gas Sales Agreement with PTT Public Company Limited, for the period of 15 years commencing from the date of the first receipt and distribution of the natural gas which could be extended by either party providing not less than 6 months’ prior written notice to the other party. On 5 April 2007, a subsidiary entered into Sales and Purchase Steam Agreement with PTT Utility Company Limited covering steam, electricity and demineralised water for the period of 15 years commencing from 1 January 2007. Share Service Agreements On 24 December 2008, the Company entered into Share Service Agreements with its 7 subsidiaries for the provision of general services. Service charges will be reviewed and agreed in the fourth quarter of each year. The agreements are effective from 1 July 2008 and may be terminated by either party with 3 months written notice.
Annual Report 2008
PTT Chemical Public Company Limited
159
Notes to the financial statements For the years ended 31 December 2008 and 2007
6
Cash and cash equivalents Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 1 1 879 2,060 5,436 729 4,513 387 17,848 19,360 17,442 18,187 21,175 24,797 18,171 22,700
Cash on hand Cash at banks – current accounts Cash at banks – savings accounts Fixed deposit Highly liquid short-term investments Total
The currency denomination of cash and cash equivalents as at 31 December was as follows: Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 19,966 23,348 18,169 21,496 267 1,449 2 1,204 512 430 21,175 24,797 18,171 22,700
Thai Baht (THB) United States Dollars (USD) Euro (EUR) Others Total
7
Trade accounts receivable
Note Related parties Other parties Less allowance for doubtful accounts Total Bad and doubtful debts expenses for the year
5
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 3,017
8,495
2,861
8,462
3,242
4,039
194
264
6,259
12,534
3,055
8,726
(15)
(2)
6,244
12,532
-
-
(2) 3,053 -
(2) 8,724 -
Annual Report 2008
PTT Chemical Public Company Limited
160
Notes to the financial statements For the years ended 31 December 2008 and 2007
Aging analyses for trade accounts receivable were as follows: Consolidated financial statements 2008 2007
Separate financial statements 2008 2007
(in million Baht) Related parties Within credit terms
2,978
7,859
2,861
7,826
35
634
-
634
3 - 6 months
4
2
-
2
6 - 12 months
-
-
-
-
Over 12 months
-
-
-
-
3,017
8,495
2,861
8,462
-
-
-
-
3,017
8,495
2,861
8,462
2,850
4,022
188
255
370 11 2 9 3,242 (15) 3,227 6,244
11 3 1 2 4,039 (2) 4,037 12,532
4 2 194 (2) 192 3,053
5 2 2 264 (2) 262 8,724
Overdue: Less than 3 months
Less allowance for doubtful accounts Net Other parties Within credit terms Overdue: Less than 3 months 3 - 6 months 6 - 12 months Over 12 months Less allowance for doubtful accounts Net Total
The normal credit term granted by the Group ranges from 19 days to 90 days. The currency denomination of trade accounts receivable as at 31 December was as follows
Thai Baht (THB) United States Dollars (USD) Euro (EUR) Others Total
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 3,877 10,295 3,055 8,726 1,300 2,239 649 433 6,259 12,534 3,055 8,726
Annual Report 2008
PTT Chemical Public Company Limited
161
Notes to the financial statements For the years ended 31 December 2008 and 2007
8
Inventories Consolidated Separate financial statements financial statements 2007 2008 2007 2008 (in million Baht) Finished goods Work in progress Raw materials Factory supplies Spare parts Goods in transit Less allowance for decline in value of inventories allowance for obsolescence Net
3,594 676 1,753 273 2,120 21 8,437 (773) (17) 7,647
1,431 59 2,715 115 1,912 11 6,243 6,243
864 805 102 1,751 6 3,528 (284) (11) 3,233
801 2,368 102 1,665 11 4,947 4,947
In 2008, the Company and subsidiaries recognised allowance for decline in net realisable value of inventories of Baht 284 million and Baht 753 million, respectively, which was included in cost of sale of goods.
9
Investments in subsidiaries, jointly-controlled entities and associates
At 1 January Share of profits of investments - equity method Acquisitions Dividend income At 31 December
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 6,905 5,036 35,731 23,599 40 28 1,107 1,877 6,382 12,132 (52) (36) 8,000 6,905 42,113 35,731
PTT Chemical Public Company Limited
162
Co., Ltd. PTT Polymer Marketing Co., Ltd. Vinythai Plc. Eastern Fluid Transport Co., Ltd. PTT ICT Solutions Co., Ltd. Total
Associates PTT Utility Co., Ltd. PTT Phenol
30
25 25
23
20
25 25
23
20
40
30
40
Ownership interest 2008 2007 (%)
150
10
40 7,111
6,892
6,859
150
10
40 7,111
3,202
6,859
Paid-up capital 2008 2007
30 8,150
1
10 3,297
2,068
2,744
30 7,043
1
10 3,297
961
2,744
47 8,000
10
30 3,599
1,836
2,478
32 6,905
8
38 3,360
852
2,615
-
-
-
-
-
Consolidated financial statements Cost method Equity method Impairment 2008 2007 2008 2007 2008 2007 (in million Baht)
-
-
-
-
-
47 8,000
10
30 3,599
1,836
2,478
32 6,905
8
38 3,360
852
2,615
At equity - net 2008 2007
52
2
50
-
-
-
-
36
1
35
Dividend income 2008 2007
Investments in subsidiaries, jointly-controlled entities and associates as at 31 December 2008 and 2007, and dividend income from those investments for the years then ended were as follows:
Notes to the financial statements For the years ended 31 December 2008 and 2007
Annual Report 2008
Co., Ltd.
Subsidiaries Bangkok Polyethylene Plc. TOC Glycol Co., Ltd. Thai Ethanolamine Co., Ltd. Thai Choline Chloride Co., Ltd. Thai OleoChemicals Co., Ltd. PTT Polyethylene Co., Ltd. NPC Safety and Environmental Service
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Ownership interest 2008 2007 (%)
165
15,100
2,400
280
900
5,395
1,700
105
15,100
2,400
280
450
5,395
1,700
Paid-up capital 2008 2007
Notes to the financial statements For the years ended 31 December 2008 and 2007
PTT Chemical Public Company Limited
165
15,700
2,400
280
900
5,395
3,664
105
15,700
2,400
280
450
5,395
3,664
-
-
-
-
-
-
-
-
-
-
-
-
-
-
165
15,700
2,400
280
900
5,395
3,664
105
15,700
2,400
280
450
5,395
3,664
Separate financial statements Cost method Impairment At cost - net 2008 2007 2008 2007 2008 2007 (in million Baht)
Annual Report 2008
-
-
-
-
-
-
-
Market price 2008 2007
163
-
-
-
-
-
-
-
-
-
-
-
-
4,336
-
-
-
-
-
-
1,329
180
Dividend income 2008 2007
Total
50
Jointly-controlled entity Thai Ethoxylate Co., Ltd. 50
420
150
420
150
42,113
210
30
35,731
210
30
1
-
-
-
-
-
-
-
-
-
42,113
210
30
1
10 3,297
35,731
210
30
1
10 3,297
961
-
-
-
-
-
-
-
-
-
-
-
-
4,798
-
-
1
50
-
1,902
-
-
-
35
-
-
20
1
-
2,068
-
20
10
10 3,297
-
-
PTT ICT Solutions Co., Ltd.
10
10 3,297
-
-
15
40 7,111
961
2,744
15
40 7,111
2,068
2,774
25 25
3,202
-
25 25
6,892
-
30
2,744
30
2,744
40
40
6,859
-
4,765
-
-
-
4,765
-
4,765
-
100
6,859
358
411
-
-
-
-
459
-
459
-
-
25
-
25
459
-
459
-
900
25
Dividend income 2008 2007
900
25
Market price 2008 2007
51
42
At cost - net 2008 2007 (in million Baht)
51
42
Impairment 2008 2007
60
Cost method 2008 2007
164
60
Paid-up capital 2008 2007
Separate financial statements
PTT Chemical Public Company Limited
Alliance Plant Services Co., Ltd. Thai Tank Terminal Ltd. PTT Chemical International Pte. Ltd. Associates PTT Utility Co., Ltd. PTT Phenol Co., Ltd. PTT Polymer Marketing Co., Ltd. Vinythai Plc. Eastern Fluid Transport Co., Ltd.
Ownership interest 2008 2007 (%)
Notes to the financial statements For the years ended 31 December 2008 and 2007
Annual Report 2008
Annual Report 2008
PTT Chemical Public Company Limited
165
Notes to the financial statements For the years ended 31 December 2008 and 2007
The following summarised financial information on associated companies which have been accounted for using the equity method is not adjusted for the percentage of ownership held by the Group:
Ownership
Total assets
Total liabilities
Total revenues
Net profit/ (loss)
(in million Baht)
(%) 2008 PTT Utility Co., Ltd. PTT Phenol Co., Ltd. PTT Polymer Marketing Co., Ltd. Vinythai Plc. Eastern Fluid Transport Co., Ltd. PTT ICT Solutions Co., Ltd. Total
40 30 25 25 15 20
15,661 14,676 1,877 15,830 75 840 48,959
9,466 8,555 1,759 2,292 29 607 22,708
2,687 34 28,342 13,320 184 947 45,514
(343) (407) (33) 1,035 19 73 344
2007 PTT Utility Co., Ltd. PTT Phenol Co., Ltd. PTT Polymer Marketing Co., Ltd. Vinythai Plc. Eastern Fluid Transport Co., Ltd. PTT ICT Solutions Co., Ltd. Total
40 30 25 25 15 20
11,125 8,423 2,779 16,548 52 691 39,618
4,586 5,584 2,629 3,828 18 531 17,176
1,519 2 24,614 12,680 59 648 39,522
(145) (208) 88 654 7 11 407
PTT Chemical Public Company Limited
166
50
50
2008 Thai Ethoxylate Co., Ltd. Total
2007 Thai Ethoxylate Co., Ltd. Total
(%)
Ownership
326 326
314 314
Current assets
240 240
241 241
Noncurrent assets
566 566
555 555
Total assets
Noncurrent liabilities
167 167
85 85
165 165
143 143
(in million Baht)
Current liabilities
332 332
228 228
Total liabilities
928 928
1,224 1,224
Total revenues
886 886
1,131 1,131
Total expenses
42 42
93 93
Net Profit
The following summarised financial information on interests in jointly-controlled entity which has been included in the consolidated financial statements represents the Group’s share:
Notes to the financial statements For the years ended 31 December 2008 and 2007
Annual Report 2008
Annual Report 2008
PTT Chemical Public Company Limited 167
Notes to the financial statements For the years ended 31 December 2008 and 2007
10
Other long-term investments Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Other long-term investments Other non marketable equity securities Alliance Petrochemical Investment (Singapore) Pte. Ltd. (16.67% Shareholding) Guangzhou Keylink Chemical Co., Ltd. (15% Shareholding)
290
290
290
290
29 319
290
290
290
The currency denomination of other long-term investments as at 31 December was as follows:
Singapore Dollars (SGD) Hong Kong Dollars (HKD) Total
Consolidated Separate financial statements financial statements 2007 2008 2007 2008 (in million Baht) 290 290 290 290 29 319 290 290 290
57,296 29 8,398 (34)
65,689 665 9,071 (38) 6,400
144 81,931
-
2,475 689 -
130
(2) 3,292
-
-
-
-
Plant, machinery and equipment
1,856 132 487 -
Land
Property, plant and equipment
Cost At 1 January 2007 Additions Transfers Disposals At 31 December 2007 and 1 January 2008 Additions Transfers Disposals Acquisition through business combinations Translation differences on consolidation At 31 December 2008 Finance costs capitalised Finance costs capitalised during 2007 (note 22) Rates of interest capitalised during 2007 (% per annum) Finance costs capitalised during 2008 (note 22) Rates of interest capitalised during 2008 (% per annum)
11
-
-
-
-
1,789
-
1,165 624 -
773 392 -
-
-
-
-
667
-
571 77 22 (3)
738 70 42 (279)
Factory equipment and tools
4-6
13
-
-
6 6,212
2,841
1,949 54 1,451 (89)
-
-
-
-
447
-
372 1 76 (2)
-
-
-
-
54
-
52 2 -
Leasehold Buildings improveimproveBuildings ment ment (in million Baht) 1,804 361 41 96 2 49 11 9 -
Consolidated financial statements
-
-
-
-
9 1,201
246
589 144 230 (17)
633 70 38 (152)
Furniture, fixtures and equipment
-
-
-
-
531
23
396 119 8 (15)
370 114 (88)
Vehicles
PTT Chemical Public Company Limited 168 Notes to the financial statements
Pipeline and metering
For the years ended 31 December 2008 and 2007
Annual Report 2008
4-6
1
4-6
1
(26) 43,130
404
30,670 24,692 (12,172) (438)
13,417 26,802 (9,426) (123)
Assets under construction
4-6
14
4-6
1
131 139,254
10,044
103,928 25,752 1 (602)
(676)
76,289 27,315
Total
Net book value Owned assets Assets under finance leases Total at 31 December 2007 Net book value Owned assets Assets under finance leases Total at 31 December 2008
Accumulated depreciation At 1 January 2007 Depreciation charge for the year Disposals At 31 December 2007 and 1 January 2008 Depreciation charge for the year Disposals Acquisition through business combinations Translation differences on consolidation At 31 December 2008
47,829 47,829
(129) (34,102)
-
3,292 3,292
(5,067)
-
40,105 40,105
(25,584) (3,341) 19
-
2,475 2,475
(22,741) (2,875) 32
-
Land
Plant, machinery and equipment
1,214 1,214
686 686
(575)
-
(479) (96) -
(429) (50) -
223 223
207 207
(444)
-
(364) (84) 4
(569) (74) 279
Factory equipment and tools
3,381 3,381
907 907
8 (2,831)
(1,719)
(1,042) (136) 58
(943) (99) -
212 212
155 155
(235)
-
(217) (19) 1
(206) (11) -
14 14
14 14
(40)
-
(38) (2) -
(37) (1) -
Leasehold Buildings improveimproveBuildings ment ment (in million Baht)
Consolidated financial statements
416 75 491
133 54 187
(9) (710)
(223)
(402) (94) 18
(492) (62) 152
Furniture, fixtures and equipment
25 250 275
10 218 228
(256)
(12)
(168) (88) 12
(168) (73) 73
Vehicles
PTT Chemical Public Company Limited 169 Notes to the financial statements
Pipeline and metering
For the years ended 31 December 2008 and 2007
Annual Report 2008
43,130 43,130
30,670 30,670
-
-
-
-
Assets under construction
99,736 325 100,061
75,362 272 75,634
(130) (39,193)
(7,021)
(28,294) (3,860) 112
(25,585) (3,245) 536
Total
Cost At 1 January 2007 Additions Transfers Disposals At 31 December 2007 and 1 January 2008 Additions Transfers Disposals At 31 December 2008 Accumulated depreciation At 1 January 2007 Depreciation charge for the year Disposals At 31 December 2007 and 1 January 2008 Depreciation charge for the year Disposals At 31 December 2008
41,289 11 7,909 (28)
49,181 298 952 (14) 50,417
(19,105)
(2,140) 28
(21,217)
(2,351) (23,568)
489 64 479 -
1,032 689 1,721
-
-
-
-
Land
Plant, machinery and equipment
(49)
(63) (541)
(478)
-
(429)
1,159 71 1,230
767 392 -
Pipeline and metering
For the years ended 31 December 2008 and 2007
Annual Report 2008
(67) 3 (413)
(349)
(63) 279
(565)
498 50 21 (3) 566
711 24 42 (279)
Factory equipment and tools
(56) (516)
(460)
(52) -
(408)
957 907 1,864
909 48 -
(11) (212)
(201)
(9) -
(192)
339 37 376
328 11 -
(38)
(38)
(1) -
(37)
49 49
38 2 9 -
Leasehold Buildings improveimproveBuildings ment ment (in million Baht)
The Company financial statements
(77) 14 (402)
(339)
(49) 136
(426)
482 118 229 (14) 815
536 46 37 (137)
Furniture, fixtures and equipment
(65) 6 (183)
(124)
(59) 70
(135)
301 72 (8) 365
293 92 (84)
Vehicles
PTT Chemical Public Company Limited 170 Notes to the financial statements
-
-
-
2,995 6,149 (2,906) (409) 5,829
7,733 4,311 (8,927) (122)
Assets under construction
(2,690) 23 (25,873)
(23,206)
(2,422) 513
(21,297)
56,993 6,687 (448) 63,232
53,093 4,550 (650)
Total
27,964 27,964
26,849 26,849
1,032 1,032
1,721 1,721
689 689
681 681
Pipeline and metering
153 153
149 149
Factory equipment and tools
1,348 1,348
497 497 164 164
138 138 11 11
11 11
Leasehold Buildings improveimproveBuildings ment ment (in million Baht)
The Company financial statements
356 57 413
101 42 143
Furniture, fixtures and equipment
4 178 182
3 174 177
Vehicles
5,829 5,829
2,995 2,995
Assets under construction
PTT Chemical Public Company Limited 171 Notes to the financial statements
37,124 235 37,359
33,571 216 33,787
Total
As at 31 December 2008, the gross carrying amount of certain fully depreciated property and equipment that were still in use amounted to Baht 919.03 million in the consolidated financial statements (2007: Baht 744.76 million) and amounted to Baht 732.98 million in the separate financial statements (2007: Baht 632.06 million).
Net book value Owned assets Assets under finance leases Total at 31 December 2007 Net book value Owned assets Assets under finance leases Total at 31 December 2008
Land
Plant, machinery and equipment
For the years ended 31 December 2008 and 2007
Annual Report 2008
12
15 13
441 562
Net book value At 31 December 2007 At 31 December 2008
167 200
(12)
(198)
(2,142)
Loss from impairment At 31 December 2008
(2) (10) (2) -
(8)
103 96
(19)
-
(7) (12) (7) -
(5)
Right to use Jetty (in million Baht) 25 114 1 25 115 25 115
Right to use Pipeline
-
(32) (145) (36) -
(113)
269 15 28 312 7 79 398
Software Licences
(17) -
(63) (378) (78) (1,635)
(315)
819 819 30 1,758 26 71 2,704
License for production process
Consolidated financial statements
1,768 1,722
(46)
(2)
(3) (41)
-
972 796 1,768 30 55 (89) 4 1,768
Right for other operation
2,553 3,020
(1) (391)
-
(312) (390) -
(78)
2,943 2,943 431 36 1 3,411
Goodwill
PTT Chemical Public Company Limited 172 Notes to the financial statements
17 (68)
Transfers Translation differences on consolidation
Amortisation charge for the year At 31 December 2007 and 1 January 2008 Amortisation charge for the year Acquisition through business combinations
At 1 January 2007
Accumulated amortisation
Cost At 1 January 2007 Additions Transfers At 31 December 2007 and 1 January 2008 Additions Acquisition through business combinations Transfers Translation differences on consolidation At 31 December 2008
Intangible assets
For the years ended 31 December 2008 and 2007
Annual Report 2008
5,047 5,613
(1) (2,808)
(70)
(416) (935) (126) (1,676)
(519)
5,142 811 29 5,982 498 1,849 16 76 8,421
Total
Annual Report 2008
PTT Chemical Public Company Limited 173
Notes to the financial statements For the years ended 31 December 2008 and 2007
Separate financial statements License for Software production licences Others
Total
(in million Baht) Cost At 1 January 2007 Additions Transfers At 31 December 2007 and 1 January 2008 Additions Transfers At 31 December 2008 Accumulated amortisation At 1 January 2007 Amortisation charge for the year At 31 December 2007 and at 1 January 2008 Amortisation charge for the year At 31 December 2008 Net book value At 31 December 2007 At 31 December 2008
13
680 -
220 8 28
-
900 8 28
680 680
256 15 271
6 6
936 6 15 957
(241) (57)
(93) (24)
-
(334) (81)
(298) (57) (355)
(117) (27) (144)
-
(415) (84) (499)
382 325
139 127
6
521 458
Deferred tax Deferred tax assets and liabilities determined after appropriate offsetting are included in the balance sheets as follows:
Deferred tax assets Deferred tax liabilities Net
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 197 1 113 1 (750) (641) (648) (641) (553) (640) (535) (640)
Annual Report 2008
PTT Chemical Public Company Limited 174
Notes to the financial statements For the years ended 31 December 2008 and 2007
Movements in deferred tax assets and liabilities during the year were as follows:
At 1 January 2008 Deferred tax liabilities Depreciation and amortization Finance lease assets Net gain on remeasurement to fair value of interest rate swap contracts Others Total Deferred tax assets Net loss on remeasurement to fair value of cross currency interest rate swap contracts Allowance for net realizable value of inventories Others Total Net
Consolidated financial statements (Charged) / credited to: Statement Acquisition of income Exchange of differences Equity subsidiary (note 23) (in million Baht)
At 31 December 2008
(618) (23)
(75) 1
-
(16) -
-
(709) (22)
(641)
(12) (1) (87)
-
(6) (22)
-
(12) (7) (750)
-
46
-
2
-
48
1 1
112 27 185
-
7 2 11
-
119 30 197
98
-
(11)
-
(553)
(640)
Annual Report 2008
PTT Chemical Public Company Limited 175
Notes to the financial statements For the years ended 31 December 2008 and 2007
At 1 January 2007 Deferred tax liabilities Depreciation and amortization Finance lease assets Total Deferred tax assets Allowance for doubtful accounts Total Net
Consolidated financial statements (Charged) / credited to: Statement Acquisition of income Exchange of differences Equity subsidiary (note 23) (in million Baht)
(605) (18) (623)
1 1 (622)
(13) (5) (18)
(18)
-
-
-
-
-
-
-
-
-
At 31 December 2007
(618) (23) (641)
1 1 (640)
Separate financial statements (Charged) / credited to: Statement At 1 At 31 of income January December (note 23) Equity 2008 2008 (in million Baht) Deferred tax liabilities Depreciation Finance lease assets Net gain on remeasurement to fair value of interest rate swap contracts Total Deferred tax assets Allowance for net realizable value of inventories Net loss on remeasurement to fair value of cross currency interest rate swap Others Total Net
(618) (23)
2 4
-
(616) (19)
(641)
(13) (7)
-
(13) (648)
-
72
-
72
1 1
38 2 112
-
38 3 113
105
-
(535)
(640)
Annual Report 2008
PTT Chemical Public Company Limited 176
Notes to the financial statements For the years ended 31 December 2008 and 2007
Deferred tax liabilities Depreciation Finance lease assets Total Deferred tax assets Allowance for doubtful accounts Total Net
14
Separate financial statements (Charged) / credited to: Statement At 31 At 1 of income December January (note 23) Equity 2007 2007 (in million Baht) (605) (18) (623)
1 1 (622)
(13) (5) (18)
(18)
-
(618) (23) (641)
-
1 1
-
(640)
Interest-bearing liabilities Consolidated Separate financial statements financial statements 2007 2008 2007 2008 (in million Baht) Current Short-term loans from financial institutions unsecured
Current portion of long-term loans from financial institutions secured unsecured Debentures secured Current portion of finance lease liabilities Non-current Long-term loans from financial institutions secured unsecured Debentures secured unsecured
Finance lease liabilities Total
979
38
-
-
392 913 1,305
259 830 1,089
546 546
546 546
400
1,257
400
1,257
130 2,814
98 2,482
100 1,046
80 1,883
431 13,302 13,733
571 2,837 3,408
11,636 11,636
2,182 2,182
400 27,857 28,257
800 14,986 15,786
400 27,857 28,257
800 14,986 15,786
234 42,224 45,038
209 19,403 21,885
166 40,059 41,105
163 18,131 20,014
Annual Report 2008
PTT Chemical Public Company Limited 177
Notes to the financial statements For the years ended 31 December 2008 and 2007
The periods to maturity of interest-bearing liabilities, excluding finance lease liabilities, as at 31 December were as follows: Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Within one year After one year but within five years After five years Total
2,684 16,270 25,720 44,674
2,384 6,238 12,956 21,578
946 14,269 25,624 40,839
1,803 5,065 12,903 19,771
Secured interest-bearing liabilities as at 31 December were secured on the following assets: Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Machinery and equipment Total
14,460 14,460
13,736 13,736
The principal features of debentures as at 31 December were as follows:
12,000 12,000
12,000 12,000
2,100
Baht
Baht
Unsubordinated and unsecured debenture
Unsubordinated and unsecured debenture
2,800
300
2,000
Baht
U.S. Unsubordinated and Dollars unsecured debenture, value of debenture is 99.46 percentage of the face value, a time period of 10 years
Secured and installment of principal debenture which condition specified in the agreement
(in million)
Currency
1,000
1,000
10,000
1,000
Per share
Facilities Face Value
For the years ended 31 December 2008 and 2007
Annual Report 2008
-
-
-
-
Years
5.5
Interest is payable on semi-annual basis and maturity to redeem on 10 October 2017
2,082
2,788
2,789
10,116
2,789
2,085
10,483
2,788
2,082
10,116
2,057
Separate financial statements 2008 2007
(in million Baht) 2,057 800
2,085
Interest is payable on semi-annual basis and maturity to redeem on 10 October 2012
4.58
800
Interest is payable on 10,483 semi-annual basis and maturity to redeem on 24 June 2015
Principal and interest are payable on semiannual basis and maturity to redeem on 24 September 2010.
Repayment Terms
Consolidated financial statements 2007 2008
5.5
Average Baht 6month time deposit rate plus 2.5% p.a.
Rates (%) p.a.
Interest
PTT Chemical Public Company Limited 178 Notes to the financial statements
Baht
Baht
Unsubordinated and unsecured debenture
Unsubordinated and unsecured debenture
Total Less Current portion Net
Baht
Unsubordinated and unsecured debenture
Currency
4,000
8,000
500
(in million)
1,000
1,000
1,000
Per share
Facilities Face Value
For the years ended 31 December 2008 and 2007
Annual Report 2008
1-3 4-5 6-7
1-3 4-5
-
Years
Interest is payable on quarterly basis and maturity to redeem on 4 December 2013
5.3 6
Interest is payable on quarterly basis and maturity to redeem on 4 December 2015
Interest is payable on semi-annual basis and maturity to redeem on 22 October 2015
5.6
5.3 6 6.45
Repayment Terms
Rates (%) p.a.
Interest
28,657 (400) 28,257
4,000
8,000
500
4,000
28,657 (400) 28,257
17,043 (1,257) 15,786
8,000
-
-
17,043 (1,257) 15,786
-
-
-
Separate financial statements 2008 2007
(in million Baht) 500 -
Consolidated financial statements 2007 2008
PTT Chemical Public Company Limited 179 Notes to the financial statements
3,000
1,000
7,500
Baht
Baht
135
(in million)
Baht (Draw-down only permitted until December 2006)
The Company U.S. Dollars (Revolving credit facility has conditions as specified in the agreement)
Currency
Facilities
-
-
-
-
Years
Interest Rates (%) p.a.
Interest Repayment Terms
Eleven semi-annual instalments with grace period for the first 24 months commencing from the date of signing agreement. ( September 2005)
Highest interest rate for Fifteen semi-annual instalments with grace 6 month-fixed deposit period for the first 36 months starting from plus 1.875 % p.a. the date of signing agreement. (August 2008)
THBFIX plus 0.32 % p.a. The principal will be repayable when the agreement is terminated (the time of period 7 years commencing 26 August 2008).
Average 3 month –fixed deposit rate of Government Saving Bank plus 2.5% p.a.
2,726
-
-
2,181
1,000
7,500
-
7,500
1,000
2,181
-
-
2,726
-
Separate financial statements 2008 2007
(in million Baht) -
Consolidated financial statements 2007 2008
PTT Chemical Public Company Limited 180 Notes to the financial statements
LIBOR plus 0.43% p.a. Repayment of principal varied with repayment of interest in every three month or six months or upon termination of the agreement ( September 2010)
The details of loans as at 31 December were as follows:
For the years ended 31 December 2008 and 2007
Annual Report 2008
1,500
Baht
-
1,000
22.4
369.2
Baht (Conditions as specified in the agreement)
USD (Conditions as specified in the agreement)
Baht
-
-
-
-
Years
450
Subsidiaries Baht (Conditions as specified in the agreement)
(in million)
Currency
Facilities
Nine semi-annual instalments with grace period for the first 36 months starting from the date of signing agreement (September 2008).
Repayment Terms
3 month-fixed deposit rate plus 2.25% p.a.
The principal is repayable on semi-annual basis, in 7 instalments commencing on 31 May 2006.
LIBOR plus 1.45% p.a. The principal is repayable on semi-annual basis, in 7 instalments commencing on 31 May 2006.
THBFIX 3 M plus 0.3 % The principal is repayable on quarterly p.a. basis, in 17 instalments, commencing on 1 June 2008.
THBFIX 3 M plus 0.3 % The principal is repayable on quarterly basis, p.a. in 15 instalments, commencing on 1 June 2006.
4.55 %
Interest Rates (%) p.a.
-
185 104
-
380
220
-
-
700
240
835
120
1,500
-
-
-
-
-
Separate financial statements 2008 2007
(in million Baht) 1,500
Consolidated financial statements 2007 2008
PTT Chemical Public Company Limited 181 Notes to the financial statements
Interest
For the years ended 31 December 2008 and 2007
Annual Report 2008
Repayment Terms
(545) 11,636
3,408
12,181
-
-
-
(1,089)
4,497
-
175
-
(in million Baht) 91 -
2,181
(545)
2,726
-
-
-
-
Separate financial statements 2008 2007
As at 31 December 2008 the Group and the Company had unutilised credit facilities totalling Baht 30,997.48 million and 16,755.85 million, respectively (2007: Baht 45,215.42 million and Baht 14,579.21 million, respectively).
13,733
Net
1,008
164
70
(1,305)
Repayable on maturity date in 2011
The principal is repayable on quarterly basis, in 14 instalments commencing on 31 August 2008.
The principal is repayable on quarterly basis, in 14 instalments commencing in November 2009.
336
Less: Current portion
EURIBOR plus 0.6% p.a.
Interest rate for 3 monthfixed deposit plus 3% p.a.
Highest interest rate for 3 month-fixed deposit plus 2.25% p.a.
MLR minus 1.125%-1.25% The principal is repayable on semip.a. annual basis, in 14 instalments commencing on 1 June 2009
Interest Rates (%) p.a.
Consolidated financial statements 2007 2008
15,038
-
-
-
-
Years
Interest
PTT Chemical Public Company Limited 182 Notes to the financial statements
Total
Euro
Baht
286
135
Baht
Jointly-controlled entities
1,300
(in million)
Facilities
Baht
Currency
For the years ended 31 December 2008 and 2007
Annual Report 2008
Annual Report 2008
PTT Chemical Public Company Limited 183
Notes to the financial statements For the years ended 31 December 2008 and 2007
Finance lease liabilities Finance lease liabilities as at 31 December were payable as follows:
Principal Within one year
130
After one year but within five years Total
234 364
Consolidated financial statements 2008 2007 Interest Payments Principal Interest (in million Baht) 147 98 14 17 1
17 34
251 398
209 307
Payments 112
16 30
225 337
Separate financial statements Principal
2008 Interest
Within one year
100
12
After one year but within five years Total
166 266
12 24
Payments Principal (in million Baht) 112 80
178 290
163 243
2007 Interest
Payments
11
91
12 23
175 266
The currency denomination of interest-bearing liabilities as at 31 December was as follows: Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 32,349 11,391 30,625 9,899 10,746 10,494 10,480 10,115 1,943 45,038 21,885 41,105 20,014
Thai Baht (THB) United States Dollars (USD) Others Total
15
Trade accounts payable
Note
Related parties Other parties Total
5
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 1,820 8,402 1,495 8,128 1,610 485 72 238 3,430 8,887 1,567 8,366
Annual Report 2008
PTT Chemical Public Company Limited 184
Notes to the financial statements For the years ended 31 December 2008 and 2007
The currency denomination of trade accounts payable as at 31 December was as follows: Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 3,142 8,819 1,567 8,364 50 22 2 71 46 167 3,430 8,887 1,567 8,366
Thai Baht (THB) United States Dollars (USD) Euro (EUR) Others Total
16
Other current liabilities Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 1,000 314 992 242 342 222 159 131 1,057 618 252 359 18 289 199 197 159 177 331 266 117 98 2,947 1,617 1,679 1,296
Other payables Retentions Accrued interest and other accrued expenses Value-added tax payable Withholding tax payable Others Total
17
Share capital Par value per share (in Baht)
2008 Number
2007 Baht Number Baht (million shares / million Baht)
Authorised At 1 January -ordinary shares At 31 December ordinary shares
10
1,519
15,191
1,519
15,191
10
1,519
15,191
1,519
15,191
Issued and paid up At 1 January - ordinary shares Issue of new shares At 31 December ordinary shares
10 10
1,497 -
14,966 2
1,490 7
14,901 65
10
1,497
14,968
1,497
14,966
Annual Report 2008
PTT Chemical Public Company Limited 185
Notes to the financial statements For the years ended 31 December 2008 and 2007
In year 2008, holders of 258,000 warrants under the Company’s Employee Stock Ownership Plan exercised their rights to purchase 258,000 ordinary shares in the Company at the exercise price of Baht 66.50 per share. The Company registered the increase in the paid-up share capital of Baht 2,580,000 (divided into 258,000 shares at Baht 10 par value) with the Ministry of Commerce, increasing the issued and paid-up share capital from Baht 14,965,716,000 (divided into 1,496,571,600 shares at Baht 10 par value) to Baht 14,968,296,000 (divided into 1,496,829,600 shares at Baht 10 par value). The new shares were issued at Baht 66.50 per share, resulting in an increase in share premium of Baht 14,577,000. In year 2007, holders of 6,456,300 warrants under the Company’s Employee Stock Ownership Plan exercised their rights to purchase 6,456,300 ordinary shares in the Company at the exercise price of Baht 66.50 per share. The Company registered the increase in the paid-up share capital of Baht 64,563,000 (divided into 6,456,300 shares at Baht 10 par value) with the Ministry of Commerce, increasing the issued and paid-up share capital from Baht 14,901,153,000 (divided into 1,490,115,300 shares at Baht 10 par value) to Baht 14,965,716,000 (divided into 1,496,571,600 shares at Baht 10 par value). The new shares were issued at Baht 66.50 per share, resulting in an increase in share premium of Baht 364,780,950. As at 31 December 2008, there were 22.29 million units of unexercised warrants, which will expire on 28 September 2011.
18
Reserves Share premium Section 51 of the Public Companies Act B.E. 2535 requires companies to set aside share subscription monies received in excess of the par value of the shares issued to a reserve account (“share premium”). Share premium is not available for dividend distribution. Currency translation changes The currency translation changes recognised in equity relate to: (a)
foreign exchange differences arising from translation of the financial statements of foreign operations to Thai Baht;
(b)
foreign exchange differences arising on translation of monetary items which form part of the Group’s net investment in foreign operations, provided certain conditions are met.
Legal reserve Section 116 of the Public Companies Act B.E. 2535 Section 116 requires that a company shall allocate not less than 5% of its annual net profit, less any accumulated losses brought forward, to a reserve account (“legal reserve”), until this account reaches an amount not less than 10% of the registered authorised capital. The legal reserve is not available for dividend distribution.
Annual Report 2008
PTT Chemical Public Company Limited 186
Notes to the financial statements For the years ended 31 December 2008 and 2007
19
Segment information Segment information is presented in respect of the Group’s business segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest or dividendearning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. The Group comprises the following main business segments: Segment 1 Segment 2 Segment 3 Segment 4 Segment 5
Olefins / Shared Facilities Polymers EO-Based Performance Oleochemicals Services & Others
1,567 66 41,723
13,606 1,029 2,155
10,422
2,533 601 48,694
Profit (loss) before interest and income tax expenses 13,481 Interest expense 1,208 Income tax expense 2,194
Profit (loss) for the year
10,079
40,090
45,560
Cost of sales Selling and administrative Expenses Other expenses Total expenses
51,131 1,204 1,091 1,903 55,329
55,227 1,618 532 4,798 62,175
Segment 1 2008 2007
Revenue Interest income Other income Unallocated revenue Total revenue
Business segment results
3,765
3,932 143 24
572 178 20,819
20,069
24,550 23 178 24,751
4,488
4,587 85 14
925 6 17,831
16,900
22,212 51 155 22,418
3,727
3,749 23 (1)
107 65 8,589
8,417
12,190 33 115 12,338
6,146
6,356 210 -
253 4 8,086
7,829
14,335 54 53 14,442
Segment 3 2008 2007
(993)
(802) 282 (91)
343 158 6,673
6,172
5,759 9 103 5,871
(97)
(93) 4 -
136 3 145
6
7 45 52
1,034
1,239 55 150
220 1,807
1,587
3,046
3,025 11 10
838
978 22 118
169 8 1,263
1,086
2,229 8 4 2,241
Segment 4 Segment 5 2008 2007 2008 2007 (in million Baht)
(5,414)
(5,703) (333) 44
(499) (17,328)
(16,829)
(16,634) (1,131) (468) (4,798) (23,031)
(2,226)
(2,426) (200) -
(876) (14,945)
(14,069)
(14,323) (335) (810) (1,903) (17,371)
Eliminations 2008 2007
PTT Chemical Public Company Limited 187 Notes to the financial statements
Segment 2 2008 2007
For the years ended 31 December 2008 and 2007
Annual Report 2008
12,200
15,898 1,378 2,320
3,276 1,002 69,254
64,976
84,117 564 471 85,152
2008
2007
19,571
23,008 1,150 2,287
2,174 87 54,103
51,842
75,584 989 538 77,111
Total
Cash and cash equivalent Trade accounts receivable Other accounts receivable Inventories Short-term loans to related Parties Other current assets Investments in subsidiaries, joint venture and associated Companies Other long term investment Long term loan to related Parties Property, plant and Equipment Intangible assets Deferred tax assets Other non-current assets Total assets
16,510 7,674 147 4,404
4,400 650
35,731 236
6,163
31,025 196 1 314 107,451
12,610 2,295 173 2,700
7,995 963
42,113 235
21,678
34,466 174 105 156 125,663
Segment 1 2008 2007
Business segment financial position
40,801 2,031 27 312 52,611
-
55
555
-
5,956 1,505 27 1,342
21,649 2,067 19 37,786
-
55
3,705
-
6,822 2,326 3 1,140
11,319 43 17 827 13,954
-
-
312
-
273 853 11 299
9,985 2 207 15,625
-
-
307
-
889 3,943 5 287
Segment 3 2008 2007
10,429 649 49 91 18,738
-
28
411
6,161 88 11 7,285
-
-
269
Segment 4 2008 2007 (in million Baht) 1,743 383 2,366 6 1 2,966 372
4,201 129 1 5,751
-
2
413
593 373 39
3,790 140 1 4,624
-
2
189
193 268 41
Segment 5 2008 2007
(1,155) 2,586 (2) (64,399)
(21,678)
(34,113) (2)
(7,995) (1,010)
(1,148) (184) 302
3,024 2,554 (2) (39,257)
(6,163)
(28,826) (2)
(4,400) (3,668)
(1,678) (94) (2)
Eliminations 2008 2007
PTT Chemical Public Company Limited 188 Notes to the financial statements
Segment 2 2008 2007
For the years ended 31 December 2008 and 2007
Annual Report 2008
100,061 5,612 198 1,385 152,318
-
8,000 318
1,644
-
6,905 291
1,452
24,797 12,533 62 6,242
2007
75,634 5,047 1 550 133,514
Total
21,175 6,244 33 7,648
2008
Short – term loans from financial institutions Short-term loans from related Parties Trade accounts payable 1,561 Other accounts payable to related parties 514 Payables to contractors 154 Current portion of long-term Loans 442 Current portion of debentures 324 Income tax payble 195 Other current liabilities 1,360 Long-term loans from financial institutions 9,424 Long-term loans from related Parties Debentures 22,884 Deferred tax liabilities 516 Other non-current liabilities 239 Total liabilities 37,613 661 107 2,740 427 76 15 534 2,212 21,678 5,373 205 67 34,095
8,355
167 248
443 1,022 1,330 1,051
1,770
12,807 519 244 27,956
4,240 2,979 121 48 14,055
727
351 235 579
42 3,714
1,019
-
Segment 2 2008 2007
13 1,933
143
21 547
37 62
550 560
-
1,923 14 3,394
165
10 56
44 321
861
-
Segment 3 2008 2007
28 599 12,246
1,296
48 15 702
30 13
7,215 1,321
979
5 4,986
91
133
12 248
4,400 59
38
Segment 4 2008 2007 (in million Baht)
1 70 2,383
658
367 37 580
49 75
230 316
-
64 1,460
655
285 41 169
7 26
213
-
Segment 5 2008 2007
(21,678) (2) (32,149)
-
(118) (776)
(569) (22)
(7,995) (989)
-
(6,163) (2) (12,735)
-
(85) (371)
(93) (1)
(4,400) (1,620)
-
Eliminations 2008 2007
PTT Chemical Public Company Limited 189 Notes to the financial statements
-
Segment 1 2008 2007
For the years ended 31 December 2008 and 2007
Annual Report 2008
28,257 750 986 56,121
13,733
1,305 400 144 2,947
168 3,022
3,430
979
15,786 640 373 39,116
3,408
1,089 1,257 1,286 1,617
179 4,556
8,887
38
Total 2008 2007
Annual Report 2008
PTT Chemical Public Company Limited 190
Notes to the financial statements For the years ended 31 December 2008 and 2007
20
Selling and administrative expenses Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 195 179 13 18 1,203 1,005 892 775 1,554 809 1,623 781 262 181 208 150 62 27 3,276 2,174 2,763 1,724
Distribution Personnel Administrative Depreciation and amortisation Loss on disposal of fixed assets Total
21
Personnel expenses Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 2,805 2,328 1,895 1,700 119 91 83 71 20 7 2,944 2,426 1,978 1,771
Wages and salaries Contribution to defined contribution plans Others Total
The defined contribution plans comprise provident funds established by the Group in Thailand for its employees. Membership to the funds is on a voluntary basis. Contributions are made monthly by the employees at rates ranging from 2% to 10% of their basic salaries and by the Group at rates ranging from 5% to 10% of the employees’ basic salaries. The provident funds are registered with the Ministry of Finance as juristic entities and are managed by a licensed Fund Manager.
22
Interest and financial expenses
Note Interest paid and payable to financial institutions Capitalised as cost of assets under construction Net
11
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 1,392
1,151
1,264
1,064
(14) 1,378
(1) 1,150
1,264
1,064
Annual Report 2008
PTT Chemical Public Company Limited 191
Notes to the financial statements For the years ended 31 December 2008 and 2007
23
Income tax
Current tax expense Current year Under / (over) provided in prior years Deferred tax expense Movements in temporary differences
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 Note (in million Baht) 2,359 2,341 2,236 2,208 58 (71) 63 (71) 2,417 2,270 2,299 2,137 13 (98) 18 (105) 18
Total
Reconciliation of effective tax rate
Profit before tax Income tax using the Thai corporation tax rate Income tax reduction Effect of different tax rates in foreign jurisdictions Income not subject to tax Expenses not deductible for tax purposes Total
Reconciliation of effective tax rate
Profit before tax Income tax using the Thai corporation tax rate Income tax reduction Income not subject to tax Expenses not deductible for tax purposes Total
2,319
2,288
2,194
2,155
Consolidated financial statements 2008 2007 Rate (in million Rate (in million (%) Baht) (%) Baht) 14,520 21,859 30.00% 4,356 30.00% 6,558 (0.09%) (13) (0.01%) (1) (16.98%) (2,466) (19.92%) (4,354) 3.05% 443 0.39% 84 15.97% 2,319 10.47% 2,288 Separate financial statements 2008 2007 Rate (in million Rate (in million (%) Baht) (%) Baht) 16,614 16,892 30.00% 4,984 30.00% 5,068 (0.08%) (13) (18.57%) (3,086) (17.37%) (2,935) 1.86% 309 0.13% 22 13.21% 2,194 12.76% 2,155
Income tax reduction Royal Decree No. 387 B.E. 2544 dated 5 September 2001 grants companies listed on the Stock Exchange of Thailand a reduction in the corporate income tax rate from 30% to 25% for taxable profit not exceeding Baht 300 million for the five consecutive accounting periods beginning on or after enactment. Listed companies that received income tax reduction under this Royal Decree are also eligible to continue the period of tax reduction under Royal Decree No. 475 but not beyond the 2010 accounting period ending on or after 31 December 2010. The Company has, accordingly, calculated income tax on its taxable profit for the years ended 31 December 2008 and 2007 at the corporate income tax rate as specified in the Royal Decree.
Annual Report 2008
PTT Chemical Public Company Limited 192
Notes to the financial statements For the years ended 31 December 2008 and 2007
24
Promotional privileges By virtue of the provisions of the Industrial Investment Promotion Act of B.E. 2520, the Group has been granted privileges by the Board of Investment relating to production and distribution of petrochemical product, Polyethylene plastic resin, utilities and production support facilities such as jetty and buffer tank farm services for liquid chemical and marine transportation services. The privileges granted include: (a)
exemption from payment of import duty on machinery approved by the Board;
(b)
exemption from payment of income tax for certain operations for a period of eight years from the date on which the income is first derived from such operations; and
(c)
a 50% reduction in the normal income tax rate on the net profit derived from certain operations for a period of five years, commencing from the expiry date in (b) above.
As promoted companies, the Company and its subsidiaries must comply with certain terms and conditions prescribed in the promotional certificates.
Summary of revenues from promoted and non-promoted businesses:
Promoted businesses Export sales Local sales Service income Eliminations Total Revenues
3,984 39,598
Consolidated financial statements 2008 2007 NonPromoted Nonpromoted busipromoted businesses Total nesses businesses (in million Baht) 1 3,985 5,563 5 54,199 93,797 66,229 17,251 2,969 (16,634) 84,117
Total 5,568 83,480 859 (14,323) 75,584
Separate financial statements
Export sales Local sales Service income Total Revenues
Promoted businesses
2008 Nonpromoted businesses
24,970 24,970
43,198 151 43,349
Promoted busiTotal nesses (in million Baht) 72 68,168 55,130 151 96 68,319 55,298
2007 Nonpromoted businesses 7,620 194 7,814
Total 72 62,750 290 63,112
Annual Report 2008
PTT Chemical Public Company Limited 193
Notes to the financial statements For the years ended 31 December 2008 and 2007
25
Earnings per share Basic earnings per share The calculations of basic earnings per share for the years ended 31 December 2008 and 2007 were based on the profit for the years attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding during the years as follows: Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht / million shares) Profit attributable to equity holders of the Company (basic) Number of ordinary shares outstanding at 1 January Effect of shares issued during the year Weighted average number of ordinary shares outstanding (basic) Earnings per share (basic) (in Baht)
11,739
19,167
14,420
14,736
1,496.6 0.1
1,490.0 1.6
1,496.6 0.1
1,490.0 1.6
1,496.7
1,491.6
1,496.7
1,491.6
7.84
12.85
9.63
9.88
Diluted earnings per share The calculations of diluted earnings per share for the years ended 31 December 2008 and 2007 were based on the profit for the years attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding during the years after adjusting for the effects of all dilutive potential ordinary shares as follows: Consolidated Separate financial statements financial statements 2007 2008 2007 2008 (in million Baht / million shares) Profit attributable to equity holders of the Company (diluted) Weighted average number of ordinary shares outstanding (basic) Effect of shares options on issue Weighted average number of ordinary shares outstanding (diluted) Earnings per share (diluted) (in Baht)
11,739
19,167
14,420
14,736
1,496.7 -
1,491.6 -
1,496.7 -
1,491.6 -
1,496.7
1,491.6
1,496.7
1,491.6
12.85
9.63
7.84
9.88
Annual Report 2008
PTT Chemical Public Company Limited 194
Notes to the financial statements For the years ended 31 December 2008 and 2007
26
Dividends At the Board of Directors meeting held on 22 August 2008, the Board approved the appropriation of interim dividends of Baht 3 per share, amounting to Baht 4,490 million, from the net profit for the six-month period ended 30 June 2008. The dividend was paid to shareholders on 19 September 2008. At the annual general meeting of the shareholders of the Company held on 10 April 2008, the shareholders approved the appropriation of dividends of Baht 6 per share, amounting to Baht 8,966 million, from the net profit of 2007 after deducting the interim dividends of Baht 2 per share, amounting to Baht 2,980 million, paid to shareholders during 2007 from the net profit for the six-month period ended 30 June 2007. The balance of dividend, amounting to Baht 5,986 million, was paid to shareholders during 2008. At the Board of Directors meeting held on 24 August 2007, the Board approved the appropriation of interim dividends of Baht 2 per share, amounting to Baht 2,980 million, from the net profit for the six-month period ended 30 June 2007. The dividend was paid to shareholders on 19 September 2007. At the annual general meeting of the shareholders of the Company held on 19 April 2007, the shareholders approved the appropriation of dividends of Baht 5.25 per share, amounting to Baht 6,926 million, from the net profit of 2006 after deducting the interim dividends of Baht 2 per share, amounting to Baht 2,980 million, paid to shareholders during 2006 from the net profit for the six-month period ended 30 June 2006. The balance of dividend, amounting to Baht 4,098 million, was paid to shareholders during 2007.
27
Changes in accounting policies The following change of accounting policy by the Group has no effect on the separate financial statements of the Company. Until 31 December 2007, the Group accounted for goodwill at cost less accumulated amortisation. Amortisation was charged to the statement of income over the estimated useful life of 10 years. The annual amortisation charge to the statement of income was Baht 349 million. The carrying amount of goodwill as at 31 December 2007 was Baht 2,553 million. During 2007, the Federation of Accounting Professions issued Thai Accounting Standard (TAS) 43 (revised 2007) “Business Combinations� which is effective for accounting periods beginning on or after 1 January 2008. TAS 43 (revised 2007) requires that the carrying amount of goodwill in the financial statements at the beginning of the first annual accounting period beginning on or after 1 January 2008 that arose from a business combination for which the agreement date was before 1 January 2008 shall be to discontinue amortising such goodwill, eliminate the carrying amount of the related accumulated amortisation with a corresponding decrease in goodwill, and from the beginning of the first annual period beginning on or after 1 January 2008 test all goodwill arising from business combinations for impairment in accordance with relevant Thai Accounting Standards.
Annual Report 2008
PTT Chemical Public Company Limited 195
Notes to the financial statements For the years ended 31 December 2008 and 2007
The Group has, accordingly, applied the change in its accounting policy for goodwill prospectively from 1 January 2008. The financial statements for the year ended 31 December 2007 have not been affected by this change in accounting policy. The effect of the change in accounting policy on the Group’s consolidated financial statements for the year ended 31 December 2008 is to reduce the charge to the statement of income for the year ended 31 December 2008 resulting from the amortisation of goodwill that would have been recognised under the former accounting policy by approximately Baht 360 million, with a corresponding increase in reported profit for the year. Management has determined that there is no impairment in the carrying value of goodwill as at 31 December 2008.
28
Financial instruments Financial risk management policies The Group is exposed to normal business risks from changes in market interest rates and currency exchange rates and from non-performance of contractual obligations by counterparties. The Group does not hold or issue derivative financial instruments for speculative or trading purposes. Risk management is integral to the whole business of the Group. The Group continually has a system of risk management process to create an acceptable and appropriate balance of risk.
Interest rate risk Interest rate risk is the risk that future movements in market interest rates will affect the results of the Group’s operations and its cash flows because the Group’s finances loans which have both floating and fixed interest rates, for their operations. The Group mitigates this risk by ensuring that the majority of its borrowings are at fixed interest rates. The effective interest rates of loans receivable as at 31 December and the periods in which the loans receivable mature or re-price were as follows: Effective interest rate (% per annum) 2008 Current Loans receivable – Related parties Non-current Loans receivable – Related parties Total 2007 Current Loans receivable – Related parties Non-current Loans receivable – Related parties Total
Separate financial statements Within 1 After 1 year After 5 year but within 5 years years
Total
(in million Baht)
MLR-1.75%
7,995
-
-
7,995
MLR-1.75%
7,995
20,835 20,835
843 843
21,678 29,673
MLR-1.75%
4,400
-
-
4,400
MLR-1.75%
4,400
6,163 6,163
-
6,163 10,563
Annual Report 2008
PTT Chemical Public Company Limited 196
Notes to the financial statements For the years ended 31 December 2008 and 2007
The effective interest rates of interest-bearing liabilities at 31 December 2008 and 2007 and the periods in which those liabilities mature or re-price were disclosed in note 14. Foreign currency risk The Group is exposed to foreign currency risk relating to purchases and sales, including borrowings which are denominated in foreign currencies. The Group primarily utilizes forward exchange contracts to hedge such financial assets and liabilities denominated in foreign currencies. The forward exchange contracts entered into at the balance sheet date also relate to anticipated purchases and sales, denominated in foreign currencies, for the subsequent period.
In addition, the Group uses derivative financial instruments, principally interest rate and currency swaps, to manage exposure to fluctuations in interest rates and in exchange rates on specific debt securities and borrowings.
At 31 December, the Group and the Company were exposed to foreign currency risk in respect of financial assets and liabilities denominated in the following currencies:
Note USD Cash and cash equivalents Trade accounts receivable Advance payment Interest-bearing liabilities Trade accounts payable Payable to contractors Other payable Gross balance sheet exposure Currency swaps Currency forwards Net exposure EUR Cash and cash equivalents Trade accounts receivable Advance payment Interest-bearing liabilities Trade accounts payable Other payable Gross balance sheet exposure Currency swaps Currency forwards Net exposure
6 7 14 15
6 7 14 15
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) 267 1,449 2 1,204 1,300 2,239 290 59 290 59 (10,746) (10,494) (10,480) (10,115) (50) (22) (2) (1,058) (1,464) (267) (165) (248) (162) (10,264) (8,398) (10,436) (9,016) 63 57 63 57 5 272 (10,196) (8,069) (10,373) (8,959)
512 649 384 (1,583) (71) (123) (232) 1 (231)
13 (46) (33) (66) (66)
384 (85) 299 299
13 (33) (20) (20)
Annual Report 2008
PTT Chemical Public Company Limited 197
Notes to the financial statements For the years ended 31 December 2008 and 2007
Note SGD Cash and cash equivalents Other investments Payable to contractors Other payable Gross balance sheet exposure Currency swaps Currency forwards Net exposure GBP Cash and cash equivalents Trade accounts receivable Other payable Gross balance sheet exposure Currency swaps Currency forwards Net exposure JPY Cash and cash equivalents Trade accounts receivable Advance payment Interest-bearing liabilities Trade accounts payable Other payable Gross balance sheet exposure Currency swaps Currency forwards Net exposure MYR Cash and cash equivalents Trade accounts receivable Interest-bearing liabilities Trade accounts payable Gross balance sheet exposure Currency swaps Currency forwards Net exposure
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht)
6 10
3 290 (10) (17) 266 266
6 7
5 18 (1) 22 22
6 7
17 234 439 (38) (97) (191) 364 364
67 (6) 61 61
367 120 (311) (68) (108) (108)
-
14 15
6 7 14 15
290 (6) (8) 276 276
-
290 (7) 283 283
(1) (1) (1)
439 (191) 248 248
-
290 (2) 288 288
-
67 (6) 61 61
-
Annual Report 2008
PTT Chemical Public Company Limited 198
Notes to the financial statements For the years ended 31 December 2008 and 2007
Note CAD Trade accounts receivable Interest-bearing liabilities Trade accounts payable Gross balance sheet exposure Currency swaps Currency forwards Net exposure BRL Cash and cash equivalents Trade accounts receivable Gross balance sheet exposure Currency swaps Currency forwards Net exposure HKD Cash and cash equivalents Trade accounts receivable Other investments Gross balance sheet exposure Currency swaps Currency forwards Net exposure CNY Cash and cash equivalents Trade accounts receivable Gross balance sheet exposure Currency swaps Currency forwards Net exposure
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht)
7 14 15
20 (11) (2) 7 7
-
-
-
6 7
16 14 30 30
-
-
-
6 7 10
6 5 29 40 40
-
-
-
-
-
-
16 22 38 38
-
-
-
6 7
Annual Report 2008
PTT Chemical Public Company Limited 199
Notes to the financial statements For the years ended 31 December 2008 and 2007
Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or a counterparty to settle its financial and contractual obligations to the Group as and when they fall due. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. However, the majority of the customers are on the long-term contracted commitment and parts of them are the Company’s shareholders which the company has consistently collected from them. For the customers who do not have the long-term contracted commitments, the Group monitors the risk on an ongoing basis and would do the business only with the credible customers by limiting the credit lines and requesting the guarantee on some cases. For the export, the credit of counterparty will be considered and will demand a payment on a case to case basis. Management does not anticipate material losses from its debt collection. Liquidity risk The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows. Fair values The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value of trade and other short-term receivables is taken to approximate the carrying value. The fair value of investments in equity securities, which are held for held-to-maturity, are determined by reference to their quoted bid price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only. The fair value of interest rate swaps is based on broker quotes at the balance sheet date. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the balance sheet date. The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price at the balance sheet date for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of non-derivative financial liabilities, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Fair values of financial assets and liabilities, together with the carrying values shown in the balance sheets at 31 December were as follows:
Annual Report 2008
PTT Chemical Public Company Limited 200
Notes to the financial statements For the years ended 31 December 2008 and 2007
2008 Current Debentures Non-current Debentures Total 2007 Current Debentures Non-current Debentures Total
29
Consolidated Separate financial statements Financial statements Fair Carrying Fair Carrying value value value Value (in million Baht) 400
400
400
400
22,957 23,357
28,257 28,657
22,957 23,357
28,257 28,657
1,257
1,257
1,257
1,257
17,852 19,109
15,786 17,043
17,852 19,109
15,786 17,043
Commitments with non-related parties Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Capital commitments Contracted but not provided for Land Plant, machinery and equipment Buildings Other Total
21 13,346 199 28 13,594
27,936 27,936
5,750 6 5,756
427 427
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Non-cancellable operating lease commitments Within one year After one year but within five years After five years Total
598 361 100 1,059
2 3 5
-
-
Annual Report 2008
PTT Chemical Public Company Limited 201
Notes to the financial statements For the years ended 31 December 2008 and 2007
Consolidated Separate financial statements financial statements 2008 2007 2008 2007 (in million Baht) Other commitments Unused letters of credits Bank guarantees Land and building lease Other agreements Total 30
482 204 72 758
435 140 76 129 780
467 157 73 697
435 137 45 129 746
Thai Accounting Standards (TAS) not yet adopted The Group has not adopted the following revised TAS that have been issued as of the balance sheet date but are not yet effective. These revised TAS will become effective for financial periods beginning on or after 1 January 2009. TAS 36 (revised 2007)
Impairment of Assets
TAS 54 (revised 2007)
Non-current Assets Held for Sale and Discontinued Operations
The adoption and initial application of these revised TAS is not expected to have any material impact on the consolidated or separate’s financial statements.
31
Reclassification of accounts Certain accounts in the 2007 financial statements have been reclassified to conform to the presentation in the 2008 financial statements as follows: 2007 Consolidated financial statements Before After reclass. Reclass. reclass.
Separate financial statements Before After reclass. Reclass. reclass.
(in million Baht) Balance sheet Cash and cash equivalents Other current assets Property, plant and equipment Intangible assets Trade accounts payable Payables to contractors Other current liabilities Current portion of debentures Debentures
24,841 1,408 75,721 4,959 8,893 4,400 1,766 1,246 15,797
(44) 44 (88) 88 (6) 155 (149) 11 (11)
24,797 1,452 75,634 5,047 8,887 4,555 1,617 1,257 15,786
22,713 785 33,787 521 1,246 15,797
(13) 13 11 (11)
22,700 798 33,787 521 1,257 15,786
202
AUDIT FEE
Audit Fee In 2008, PTT Chemical Plc and its subsidiaries paid Baht 7.28 million in audit fee to the external auditor’s office.
Non - Audit Fee None
Annual Report 2008
PTT Chemical Public Company Limited
ABBREVIATIONS
Chemical Products EG
Ethylene Glycol
EO
Ethylene Oxide
EVA
Ethylene Vinyl Acetate
FA
Fatty Alcohol
HDPE
High Density Polyethylene
LDPE
Low Density Polyethylene
LLDPE
Linear Low Density Polyethylene
LPG
Liquefied Petroleum Gas
ME
Methyl Ester
MEG
Mono Ethylene Glycol
NGL
Natural Gasoline
PC
Polycarbonate
PE
Polyethylene
PET
Poly Ethylene Terephthalate
PP
Polypropylene
PS
Polystyrene
PTA
Purified Terephthalic Acid
PVC
Poly Vinyl Chloride
PYGAS
Pyrolysis Gasoline
VCM
Vinyl Chloride Monomer
Others CEO
Chief Executive Officer
CG
Corporate Governance
COM
Cognis Oleochemicals (M) Sdn Bhd
CSR
Corporate Social Responsibility
203
13.62% Carbon Reduction Using less paper is an effective way of saving trees and protect environment. By cutting down the amount of paper used for this annual report, we help reduce energy consumption needed for transportation and carbon dioxide emission, hence decreasing pollution and global warming. Fully aware of our social responsibility and our commitment to sustainable development, PTT Chemical makes great efforts to improve efficiency use of resources and to help reduce the global warming.
DON’T CUT DOWN TREES, CUT DOWN CARBON FOOTPRINT