Financial Statement Analysis

1. From financial statement, please identify which items should be a concern and why.
2. Please prepare financial analysis based on the content below and the available financial statement. Please describe on sales & profitability, working capital management & liquidity, capital structure and cash flow.

• Please identify key risks of the company and mitigations for those risks.

IRPC Public Company Limited or “IRPC” (“the Company”) formerly known as Thai Petrochemical Industry Public Company Limited or “TPI” was incorporated as a juristic person in 1978 by Lei the Prime Hughes Registered as a public company on October 10, 1994 and listed on the Stock Exchange of Thailand on March 17, 1995. The Company started production of plastic resins for sale in 1982 and expanded its production of various plastic resins. Oil refinery Including infrastructure and became the first integrated petrochemical operator in Southeast Asia. The company faced a financial crisis after the government announced the floating of the baht in 1997, the company went into the process of business rehabilitation in 2000 and the Central Bankruptcy Court ordered the cancellation of the business rehabilitation on April 26, 2006 by PTT Public Company Limited. Major Shareholder the Company changed its name from Thai Petrochemical Industry Public Company Limited to IRPC Public Company Limited in October 2006.

The company is a full-fledged petrochemical business. Oil refineries and petrochemical plants Located in Rayong. It is an industrial area under the management of the Company. It has the infrastructure to support both businesses. The main business of the Company is divided into 4 types as follows:

1.) The Company has the total capacity of 215,000 barrels per day, consisting of ADU 1 and ADU 2, capacity of 65,000 and 150,000 barrels per day, respectively, ranked third in domestic refining capacity. It can produce a variety of petroleum products including naphtha, gasoline, diesel, liquefied petroleum gas (LPG). In addition, the Company has a 320,000 tonne / year base of lubricant production base with the highest production capacity in the country. And an             Asphalt plant with a capacity of 600,000 tons per year.

The company has developed innovative products in the base lubricants including TDAE (Treated Distillate Aromatic Extract) and RAE (Residue Aromatic Extract), which are used as raw materials for tire production, reducing the amount of polycyclic aromatic hydrocarbons (PAHs). To increase safety for consumers.

2.) Petrochemicals The Company is a producer of primary petrochemical products, namely olefins aromatics, with a capacity of 828,000 and 367,000 tonnes per annum, respectively, used as feedstock for downstream petrochemical plants. Polyethylene (HDPE, PP) polyethylene with a capacity of 615,000 tons per annum and styrene (ABS / SAN, EPS, PS) Styrene resins, with a capacity of 247,000 tons per annum. Year to distribute to various types of plastic industry.

            The company’s innovative polystyrene products include Green ABS, ABS Powder, Impact Modifier-MBS, Anti-dripping Additive, Anti-Bacteria. While the company’s innovative Polyolefin products include UHMW-PE, Polyolefin Catalyst, Baby Bottle Polypropylene, Antimicrobial Compound.

3. The dock Business IRPC Port is located in the same area as the company factory. It provides facilities to serve customers in docking, such as towing vessels, boat navigation services, container scales, container yards. Warehouse Transportation and warehousing.

            Liquid & Chemical Terminal Ports services petroleum and gas. The pier has a total length of 1,623 meters, divided into 6 sub-divisions, capable of handling 1,000 - 250,000 DWT ships (deadweight tonnage).

            Container port Bulk & Container Terminal provides bulk cargo handling services and containers. It is 900 meters long and 48 meters wide. It is divided into 6 sub-divisions, accommodating 800-150,000 DWT vessels.

            The port of the company can a backup port for the Country Navy when a disaster or emergency occurs because it is one of the deepest in the country.

            In addition, the Company also provides storage tanks for petrochemical and liquid petroleum products for external customers. Transportation through the port of petrochemical and liquid petroleum or LCT to accommodate imports and exports in the eastern region. In addition, the Company also provides storage tanks for petrochemical and liquid petroleum products for external customers. Transportation through the port of petrochemical and liquid petroleum or LCT to accommodate imports and exports. Industrial sector in the eastern region. The Company also has 5 oil depots distributed by region, namely Rayong Oil Terminal, Phra Pradaeng Oil Depot, Ayutthaya Oil Depot, Chumphon Oil Depot, and Mae Klong oil depot. To provide liquid petroleum products for external customers and support the distribution of our products.

4. Property Management is a business unit that manages the assets in the empty land. It is located in Rayong and other provinces and has 10,000 rai of land to develop into an industrial estate or industrial zones. The objective is to support the Company’s core businesses. We focus on environmentally friendly businesses.

The major subsidiaries of IRPC are:

1. Thai ABS Co., Ltd. is a subsidiary of IRPC with 99.99% shareholding. Its registered and paid-up capital is Baht 2,500 million. It manufactures and distributes styrene resins such as ABS / SAN PS and EPS. Thai ABS Co., Ltd. sells the products it produces to the company.
2. IRPC OIL Public Company Limited is a subsidiary of IRPC, 99.99%. Its registered and paid-up capital is Baht 2,000 million. It is a supplier of refined oil products from the Company with five oil depots available for distribution in different sectors.
3. IRPC Polyol Co., Ltd. is a subsidiary of IRPC in proportion to 99.99%. Its registered and paid-up capital is Baht 300 million. It manufactures and sells polyols including polyester and polyether polyols. It uses raw material for producing polyurethane that is used to produce various products. Such as foam in making furniture and shoes, and foam used as insulation.
4. IRPC Technology Company Limited or “IRPC Technology School” is a subsidiary of IRPC is 99.99% owned and operated with a registered and paid-up capital of Baht 750 million. It offers Vocational Certificate and Diploma in Commerce and Factory.

Revenue structure

• Other businesses include revenue from electricity, transportation ports and utilities.

In 2012, the major risk that may affect the business operation of the Company to achieve business goals are

2.1 Risks of fluctuations in raw material and product prices

Oil is the main material used in company. In 2012, the crude oil price is still volatile due to the slowdown in major economies such as the US, Europe and China. The protracted political unrest in the Middle East which is a major producer and exporter of oil. Accidents and serious natural disasters that affect the refineries. The volatility of crude oil prices has resulted in fluctuations in prices of petroleum and petrochemical products which affect the financial status and the results of the company significantly.

Risk reduction approach The Company continued to implement several risk management measures from the previous year, including coordinating with PTT Group companies to reduce costs and increase bargaining power. Inventory management by introducing a supply chain management system to target the inventory to be kept at an appropriate level. Introduction to Linear Programming and Production Management Tools to improve the planning of raw material procurement and product sales. Derivatives trading contracts, with the target price, volume and duration of risk management appropriate and in line with the business plan, under the supervision of the Supply Chain and Financial Risk Management Committee. The Company has also implemented additional risk management measures, namely, the provision of new crude oil with higher margins. Used in the production process. Focus on selling high-margin products. Including special grade products.

2.2 Exchange rate risk

Most of the revenues and costs of raw materials are in USD or trading based on the market price in the US dollar. And converted to US dollars in Thai Baht. With the average exchange rate as specified in the sales contract, the gross profit of the Company The exchange rate in Thai baht will be affected by the high exchange rate fluctuation between Thai Baht and US Dollar.

Risk reduction approach in order not to affect the ability to pay, and loan is in Thai Baht. The Company has a risk management approach with the proportion of USD denominated loans. In line with the revenue structure of the Company. And to comply with the Natural Hedge policy or the sale of US dollars. This is in line with the Natural Hedge policy.

2.3 Operational Risk
In the production process of the company there is a risk that the production process will be interrupted. This is mainly due to internal factors and external factors such as equipment and machinery, human error, power outage, climate change, etc., which will result in the company’s risk of production planning and delivering products to customers. This may affect the Company’s performance. Significantly Key operational risks include:

2.3.1. Risk from reduction of plant readiness or disruption of machinery used in production. Most of the machines and equipment are from IRPC that has been running for more than 20 years causing the deterioration of machinery and equipment within the factory and the high chance of damage or disruption. A risk management plan is needed to ensure that effective losses are minimized.

Risk reduction approach: The Company continues to implement risk management measures from the previous year. To improve the efficiency of machinery and equipment, long-term projects need to be carried out including the Corrosion Control & Monitoring Project, the 3P (Preventive, Predictive and Precision Maintenance), and reducing the time taken to stop production by planning and managing contractors to be efficient.

2.3.2. The risk of insecurity to the lives of employees and contractors.
Risk reduction approach: The accident occurred in the company mostly happened to external contractors. In addition to conducting safety programs for our employees, we also cover the outsourcers. We treat outsources as if they are employees of the Company, providing them with pre-operation safety training. In addition, the Company conducts a Behavior Based Safety (BBS) project, which is carried out on a continuous basis to create safety behaviors for employees and executives. And focus on creating a culture of safety.

2.3.3 Risk of Power Outages in the Production Unit of the IRPC Operational Area

Risk reduction approach: The Company conducts various projects. To strengthen the power system in the production process, such as the brain system to process and control the production order. (Power Management System), which will help balance the demand and the supply of electricity. Causing the management of the entire power system in the production process to be more efficient. And can reduce the loss due to the power outage significantly.

2.3.4 Risks that may affect the Company’s production and operations from drought

Risk reduction approach: The company monitors the water level of the reservoirs in Rayong regularly. And also conduct the simulation of water levels at different levels. In addition, the reservoir will be provided in case of an accident by reserving water in the well in the area of the company.

2.4 Risk from the investment project

The company has many important investment projects in order to meet the vision of a long-term investment plan from 2010 to 2014 to enhance the company’s competitiveness and maintain the growth of the company. Plans to improve sustainable growth, such as the expansion of propylene production to reduce the import of raw materials. And development of quality diesel and gasoline to clean fuel in accordance with Euro IV standards.

Risk reduction approach: The Company has continued to implement risk management measures for its investment projects since the previous year. Including the important investment projects into the company’s risk, in order to monitor progress closely and to ensure that the implementation of projects can achieve the objectives as the company. In addition to the legal implications of implementing the Environmental Impact Assessment (EIA) and the impact assessment The Health Care Assessment (HIA) is carefully planned for compliance with the legal process. And there is constant communicate and coordinate with government agencies and local community to be in line with the law and within the planned timeframe.

2.5 Environmental and community risks

The Company pays attention to the environmental management process. The IRPC factory is located near the community. Without a good control system, it can have an adverse effect on the environment and security to the community in the vicinity. It also can affect the cooperation and understanding of the community to the company.

Reducing environmental risks Approach: The Company focuses on the business under the law. Safety and Environment Regulations TIS / OHSAS 18001 Occupational Health and Safety Standard ISO 14001 Environmental Management System Volatile Organic Compounds (VOCs) are also regularly measured at the establishment. Although the value of the company’s production process has never exceeded the standard, it can be monitored and managed immediately if abnormal measurement is detected. Including the preparation of volatile organic compounds in the premises for long-term environmental management.

Community and Social Risk Reduction Approach: The Company continues its CSR (Corporate Social Responsibility) program on a regular basis. To build understanding and good relationships with communities and stakeholders, such as the creation and restoration of public utilities. Scholarships Opportunity for the community and the company. Understand the operation through the Open House Project, the Field Coordinating Center to coordinate and participate in community activities. It also includes emergency plans for community and government agencies.

2.6 Risk from Disaster or serious incidents that may affect business operations.

Because of the current uncertainty. As a result, the Company has to prepare for and respond to various events. Potential to help reduce the loss. Protect reputation and important business activities.

Risk reduction approach: The Company has adopted Business Continuity Management (BCM) standards and systems to implement preventive and mitigation plans. Caused by disruption of business. It is under the supervision of the Risk Management Committee. In this regard, the Company the Business Continuity Plan (BCP) has been fully developed. Including the implementation of the plan. The BS25999 and ISO 22301 standards have been adopted as guidelines for preparing for crisis such as fire, riots, floods, epidemics, etc.