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Mr. Piyasvasti Amranand

Chairman


Mr. Tevin Vongvanich

President & Chief Executive Officer

Dear Shareholders

From H.M. the Late King Bhumibol Adulyadej’s royal graceand legacy, the Sufficiency Economy philosophy was bestowed upon thai people. To become a Pride and Treasure of Thailand, all along PTT has humbly adopted such philosophy as guidance for itsbusinesses. To elaborate, PTT emphasizes the importance of engaging all stakeholders and executes its core mission by supplying adequate thorough fair and sustainable national energy in parallel with its sustainable stewardship of society, communities, and the environment. Our overall business has pursued suitable returns, constant growth covering the upstream, midstream, and downstream businesses to strengthen immunity for the corporation with strict regard for corporate governance, risk management, and QSHE management on a par with international standards. Finally, our employees are required to be smart, conscientious, and responsible.

In 2016, we continued to face a slowly recovering global economy with lower GDP growth than anticipated, mainly due to slumping commodity prices, weak trade and investment, and volatile money markets due to China’s economic slow down, the UK’s decision to quit the EU (Brexit), and the outcome of the US presidential election, including oil price volatility. The Dubai oil price dropped to USD 22.80 per barrel in January this year, albeit ending the year slightly higher, whereas the year’s price average dipped below that of last year. PTT Group therefore defined its business strategies in “3D”:

1) Do Now-productivity improvement to be implemented immediately to strengthen the business amid energy price volatility

2) Decide Now-sustainable growth to be achieved through 3-5-year investment decisions for organic growth with a focus on leveraging competitiveness and business advantages of PTT Group

3) Design Now-priming for leapfrogging growth by leveraging innovation and new technologies for new S-Curve growth characterized by customer centricity and opportunities derived from megatrends together with the addressing of the public sector’s industrial drive to “Thailand 4.0”.

In forging national energy security, in 2016 we successfully negotiated a long-term LNG supply agreement with business partners, which lowered LNG import costs by roughly THB 110 billion for the entire agreement period. Construction work has been accelerated on the first LNG-receiving terminal, expanding from 5 to 10 million tons per year, to be inaugurated early in this coming year. Besides, we have secured Cabinet approval to heighten the terminal’s capacity to 11.5 million tons per year, due for completion by 2019. Finally, construction of the second terminal to accommodate 7.5 million tons per year is set for completion by 2022.

As far as our oil business is concerned, PTT has launched 18 “PTT Compact Model” service stations to multiply its service to communities on secondary roads, a number set to soon rise along with the development of “Mini-Community Malls” to accommodate burgeoning urban growth. Employing its nationwide service station network, PTT engaged in public service by setting up “Pracharath Sookjai Shops” on 148 service station compounds that served as outlets for agricultural products, community enterprise goods, and outstanding OTOP (One Tambon One Product) community products; local tourism information centers; a project for rice purchase from suffering rice farmers, which generated THB 108 million in income for them; housing of assistance for flood victims in the South; and the “Yak-Lak-Yim” (sorting for smile) Project to cultivate the habit of waste sorting while using the income derived from selling sorted waste for social and community development. Partly as a result of these projects, our domestic retail oil market share this year maintained leadership (at 40.8%) while PTT remained the most popular brand for the 13th consecutive year by BrandAge Magazine and the “No. 1 Brand Thailand” by Marketeer Magazine for the fifth consecutive year.

Committed to improving lives everywhere it operates, PTT constantly leverages business know-how in coordination with community participation in solving community problems. This year the Natural Gas Transmission group applied engineering know-how by using natural energy to solve the water shortage of the Ban Khanun Khli and Ban Phu Toei communities in Kanchanaburi by developing hydraulic ram pumps to take water from a lower elevation to a higher elevation. At the same time, hydraulic power generates electricity for needy communities. This project is being extended in collaboration with the Royal Forest Department in order to build on the “Sufficiency Agriculture Project” under H.M. the late King’s initiative to divert water from water sources to arid agricultural plots and forests. Meanwhile, PTT remains determined to play its part in the conservation and stewardship of natural resources, an effort of which is based on reforestation and forest rehabilitation. In 2016, PTT handed over 54,600 rai of reforested acreage to public agencies, adding to the total since 2013. To date, 208,081 rai has been covered out of the 2022 goal of 500,000 rai. Other natural conservation projects include a project on water, forest and Khung Bang Kachao conservation and another on five pilot livable towns. Our pride this year is a project on urban forest, “PTT Metro-Forest project”, graciously inaugurated on May 18 by H.R.H. Princess Maha Chakri Sirindhorn, named the outstanding landscape architecture award of the year by the American Society of Landscape Architects.

In summary, our performance this year netted a profit of THB 94.609 billion, a substantial THB 74.673-billion rise from last year. Whereas a part of this gain came from a lower recorded accounting impairment and a stock gain from early in the year (totaling approximately THB 70 billion), the lower average sales revenue of petroleum and petrochemical products contributed to a substantial drop as well to THB 1.72 trillion from THB 2.03 trillion last year while the margins of the petrochemical and refining business plummeted by some THB 20 billion. Nonetheless, thanks to the serious productivity efforts made by all dedicated PTT Group personnel, we have supplemented THB 24 billion in value. One must not forget that our businesses span the entire value chain (from upstream to downstream), which explains why PTT Group’s performance recovered faster than several other leading oil companies that primarily invested in the upstream business.

Our success is prominently seen in the assorted acclaim we earned this year, including the Outstanding State Enterprise Award, DJSI (Dow Jones Sustainability Indices) membership for a fifth consecutive year, The Asset CEO of the Year (oil and gas business), and Asia’s Outstanding Corporate Governance Award, and Excellent CG Scoring, presented by Thai Institute of Directors Association (IOD). All these awards resulted from the total dedication of PTT Group’s executives and employees together with the caliber of the Board and wonderful support from the shareholders and all stakeholders.

On behalf of the Board of Directors, we are sincerely grateful to the shareholders and all stakeholders for their trust in and support to PTT’s operations. Please rest assured that the Board, the management, and all employees will remain as committed as ever to carrying out their missions so that PTT will always remain the Pride and Treasure of Thailand.