ผลการดำเนินงานของ ปตท. ปี 2545 7-8 กรกฎาคม 2546 Thank you Corrina, Mr. Chairman, Distinguished panelists and participants, It is a great pleasure for me to be here with you this afternoon. I will cover the opportunity in Oil, Gas and Petrochemical industry, and will touch on the Land Bridge Project in the end. Economic Value Added แนวทางแห่งความสำเร็จในการบริหารองค์กร 9 พฤษภาคม 2549

Agenda EVA Overview What is EVA ? Why EVA ? EVA Improvement EVA Value Tree & Key Value Drivers EVA-based Management Platform PTT Introduction PTT Practice EVA Key Success Factors & Benefit

Agenda EVA Overview What is EVA ? Why EVA ? EVA Improvement EVA Value Tree & Key Value Drivers EVA-based Management Platform PTT Introduction PTT Practice EVA Key Success Factors & Benefit

EVA is widely endorsed by leading independent experts… “We need data on total factor productivity…That explains the growing popularity of EVA Analysis.” “By measuring the value added over all costs, including the cost of capital, EVA measures, in effect, the productivity of all factors of production…it shows what we need to find out and that we need to take action. EVA should also be used to find out what works. It does show which products, services, operations or activities have unusually high productivity and add unusually high value. Then we should ask ourselves, “What can we learn from these successes?” Peter F. Drucker Management Challenges for the 21st Century, page 117, 1999 “You have to account for the cost of capital or you’re nowhere. The people at Stern Stewart are very talented at applying M&M to real world situations.” Merton Miller Noble Prize winning Financial Economist “Creating EVA is the ideal outcome of a successful strategy, and that’s what we are trying to do.” Robert S Kaplan Author of Balanced Scorecard “The major reason for the conflict of interest between the agent and a principal, between the managers and the shareholders, is that the managers are playing poker with somebody else’s money.” Michael Jensen Professor of Finance, Harvard Business School Copyright © 2004 by Stern Stewart & Co. All rights reserved

Copyright © 2004 by Stern Stewart & Co. All rights reserved EVA is globally recognized by investment community to be one of the best performance measures for managing for shareholder value EVA AND EVA GOVERNANCE “EVA®…more accurately reflects economic reality (as opposed to accounting reality) when compared with many traditional valuation measures, such as earnings-per-share, return on equity and free cash flow.” Goldman Sachs & Co. EVA® Primer “The EVA® methodology explicitly addresses business and financial risk and allows the investor to gauge the magnitude and sustainability of returns. Of all financial measures, it best explains the creation of shareholder value.” Credit Suisse First Boston EVA® Primer “EVA®… not only focuses management on creating value for shareholders, but helps investors and managers measure, observe and understand the underlying value drivers or destroyers of a business.” Salomon Smith Barney EVA® Primer Copyright © 2004 by Stern Stewart & Co. All rights reserved

Institutional Investors use EVA for making their investment decisions EVA AND EVA GOVERNANCE The California Public Employees’ Retirement System seeks to improve shareholder value by identifying the worst performers among the 1,626 U.S. companies in its $128 billion stock portfolio. Its target list has long reflected companies’ relative rates of shareholder returns and weaknesses in corporate governance practices. The Wall Street Journal, Feb. 24, 1998 Copyright © 2004 by Stern Stewart & Co. All rights reserved

Agenda EVA Overview What is EVA ? Why EVA ? EVA Improvement EVA Value Tree & Key Value Drivers EVA-based Management Platform PTT Introduction PTT Practice EVA Key Success Factors & Benefit

ความหมายของ EVA EVA เป็น เครื่องมือในการบริหารจัดการองค์กร ให้มีผลการดำเนินงานที่เป็นตัวเงินเป็นไปตามเป้าหมายในรอบระยะเวลาบัญชีนั้น ๆ ซึ่งแสดงถึงประสิทธิภาพและประสิทธิผลในการสร้างผลกำไร เมื่อเปรียบเทียบ กับต้นทุนทางการเงินที่จัดหามาลงทุน” (Capital Charge)

สูตรการคำนวณค่า EVA EVA = NOPAT – (WACC x Invested Capital) Capital Charge = (WACC x Invested Capital) EVA = NOPAT – Capital Charge EVA =(ROIC – WACC) x Invested Capital Spread = (ROIC – WACC) EVA = Spread x Invested Capital ROIC = NOPAT / Invested Capital NOPAT = Net Operating Profit After Tax ROIC = Return on Invested Capital Invested Capital = Working Capital + Non Current Assets Working Capital = Current Assets Exclude Excess Cash - Non Interest Bearing Current Liabilities

การวิเคราะห์ผลลัพธ์ของค่า EVA ครอบคลุมต้นทุนของเงินลงทุนพอดี EVA มีค่า > 0 แสดงว่าการบริหารงานมีประสิทธิภาพสามารถ สร้างผลกำไรได้มากกว่าต้นทุนของเงินลงทุน EVA มีค่า < 0 แสดงว่าการบริหารงานไม่บรรลุเป้าหมาย ผลกำไรที่ได้ไม่คุ้มกับต้นทุนของเงินลงทุน

EVA: A Measure of Economic Profit Sales Revenue 2,000 - Operating Expenses 1,600 - Tax @ 30% 120 = NOPAT 280 SALES REVENUE OPERATING EXPENSES NET PROFIT AFTER TAX (NOPAT) 2,000 1,600 280 Illustrative Bars in graph are not to scale Trading profits, as if all- equity financed, after paying cash taxes A "rental charge" for using all the assets of the business Note: *Capital charge includes total cost of operating asset funding from both debt and equity. Interest expense is part of capital charge. = CAPITAL CHARGE EVA 250 30 Invested Capital 2500 Cost of Capital x 10% - Capital Charge 250 = EVA 30 120 Copyright © 2004 by Stern Stewart & Co. All rights reserved

EVA : measures economic profit it is a single period measure of performance… Net Operating Profit After Tax (NOPAT) EVA Residual income after all operating and capital costs Cost of Debt Capital + Equity Capital Capital Charge ... and managing for EVA ensures the clear focus on wealth creation Copyright © 2004 by Stern Stewart & Co. All rights reserved

EVA Calculation Income Statement Balance Sheet Sales Revenue 40,000 Cost of Goods Sold 25,000 Gross Margin 15,000 Selling & Admin 4,000 D & A 3,000 Operating Profit 8,000 Other Operating Income + 1,000 EBIT 9,000 Interest 3,000 EBT 6,000 Income Tax (30%) 1,800 Net Profit (EAT) 4,200 NOPAT=EBIT (1-t) 6,300 Balance Sheet Assets Current Assets: CA Cash 1,000 AR 2,500 Inventories 3,000 Other CA 500 Total CA (A) 7,000 Non Current Assets:NCA LT Investment 10,000 Net PP&E 40,000 Other Assets 200 Total NCA(D) 50,200 Total Assets 57,200 EVA = NOPAT – ( WACC x Invested Capital ) EVA = 6,300 – ( 10% x 55,900 ) = 710 Liabilities&Shareholders”Equity Current Liabilities: CL ST Loan (B) 900 AP 1,000 Accrue Expense 200 Other CL 100 Total CL(C) 2,200 Non Current Liabilities:NCL LT Loan 9,000 Total Liabilities 11,200 Shareholders”Equity: SE Share Capital 30,000 Premium on Share Capital 15,000 Retain Earnings 1,000 Total SE 46,000 Liabilities&Shareholders”Equity 57,200 Working Capital [A- (C- B)] = 5,700 Invested Capital [A- (C- B)] + D = 55,900

EVA Value Tree Sales Gross Profit COCS Operating Profit NOPLAT WACC Invested Capital - x Capital Charge Income Tax EBIT Operating Profit Other Operational Income Deferred Charge Depreciation & Amortization Selling & Admin Exp. Gross Profit COCS Sales + รายได้อื่น ๆ ที่เกี่ยวเนื่องกับการดำเนินธุรกิจโดยปกติ ไม่รวมดอกเบี้ยรับจากธนาคาร ไม่รวมค่าใช้จ่ายจากการด้อยค่าสินทรัพย์

EVA Value Tree : Oil Business A/R EVA NOPLAT WACC Invested Capital Fixed Working Net Plant Property and Equipment Other Asset Service Station Depots Building - x + Capital Charge Inventory Material & Supply CAEEC NIBCL A/P Accrued Expenses Cash CAEEC= Current Assets Exclude Excess Cash NIBCL = Non Interest Bearing Current Liability AR= Account Receivable AP= Account Payable

EVA Value Tree : Business NOPLAT WACC Invested Capital Cost of Debt After Tax Cost of Equity Proportion of Debt 1-Tax Rate Proportion of Equity Total Equity Total Capital RF RP b Total Debt Cost of Debt (Interest Rate) - x + / RM Capital Charge b = Sensitivity of Stock RF = Risk free rate RP = Risk premium RM= Return of market

Agenda EVA Overview What is EVA ? Why EVA ? EVA Improvement EVA Value Tree & Key Value Drivers EVA-based Management Platform PTT Introduction PTT Practice EVA Key Success Factors & Benefit

Enron Aimed at the Wrong Target, and Got What It Paid For -- an EPS Win but an EVA Loss EPS & NI EVA “Enron’s performance in 2000 was a success by any measure…The company’s net income reached a record in 2000. Enron is laser-focused on earnings per share, and we expect to continue strong earnings performance.” From Enron’s 2000 Annual Report (Letter to Shareholders) Copyright © 2004 by Stern Stewart & Co. All rights reserved

Copyright © 2004 by Stern Stewart & Co. All rights reserved Stern Stewart developed EVA Governance System as an integrated and value-aligned system of internal corporate governance “Manage for Value” 2. Redesign the Management Systems so that strategy, resource allocation and performance management focuses on creating value “See the Value” 1. Focus Performance Measurement on the underlying economics of value and wealth creation “Understand Value Creation” 4. Reshape the corporate Mindset through training, coaching and communication to make managers more entrepreneurial, capital conscious, and value-focused “Encourage Value Creation” 3. Motivate managers to create value by tying their rewards to value creation EVA Governance makes employees accountable for developing and executing value adding strategies Copyright © 2004 by Stern Stewart & Co. All rights reserved

An EVA® company is a company that… WHY EVA ? Focuses the Management System on shareholder value Makes managers accountable for the Continuous Improvement in Shareholder Value Strengthens the Culture of Ownership Incorporate the cost of capital into business planning, resource allocation and performance measurement Value growth is the “bottom line” Managers who think like owners, act like owners, because they are paid like owners Copyright © 2004 by Stern Stewart & Co. All rights reserved

EVA Measurement - The EVA Governance Concept in 60 Seconds ... Static Analysis Dynamic Analysis

EVA :The Real Key to Creating Wealth “MVA, or Market Value Added, is shareholder wealth” MVA = Market Value - Total Capital MVA = Present Value of EVA Copyright © 2004 by Stern Stewart & Co. All rights reserved

EVA is a measure of period-by-period value created by managers WHY EVA ? Market Enterprise Value Invested Capital MVA Wealth Creation X EVA Cost of Capital Capital Net Operating Profit After Taxes (NOPAT) Value Creation Shareholders and MVA The shareholders’ objective is to increase wealth. Wealth equates to MVA, which is the present value of all future EVAs EVA measure managers like owners. If managers are rewarded for improving long-term EVA, their interests will be aligned with those of the shareholders Managers and EVA Copyright © 2004 by Stern Stewart & Co. All rights reserved

Which BU has Performed Better? WHY EVA ? 25 50 75 100 125 Year 1 Year 2 Year 3 Year 4 EVA Business Unit A (50) (25) Business Unit B Copyright © 2004 by Stern Stewart & Co. All rights reserved

Agenda EVA Overview What is EVA ? Why EVA ? EVA Improvement EVA Value Tree & Key Value Drivers EVA-based Management Platform PTT Introduction PTT Practice EVA Key Success Factors & Benefit

Three strategies for EVA Improve EVA Value Matrix 1 Operating Efficiency Return Spread (R-C) High Low Invested Capital Copyright © 2004 by Stern Stewart & Co. All rights reserved

EVA Method#1:Improve Operating Efficiency Sales 100 100 - Operating Cost & Taxes 80 79 NOPAT 20 21 Capital 150 150 x Cost of Capital 10% 10% Capital Charge 15 15 EVA 5 6 Cut Cost ,Save Taxes, Increase Efficiency and Raise NOPAT without Raising Capital Copyright © 2004 by Stern Stewart & Co. All rights reserved

EVA Method#2: Profitable Growth Sales 100 120 - Operating Cost & Taxes 80 96 NOPAT 20 24 Capital 150 180 x Cost of Capital 10% 10% Capital Charge 15 18 EVA 5 6 Invest Capital and Grow, But Earn More than the Cost of Capital Copyright © 2004 by Stern Stewart & Co. All rights reserved

EVA Method#3: Manage Assets Sales 100 90 - Operating Cost & Taxes 80 72 NOPAT 20 18 Capital 150 120 x Cost of Capital 10% 10% Capital Charge 15 12 EVA 5 6 Reduce Capital that earning a less return, But More than the Cost of Capital Copyright © 2004 by Stern Stewart & Co. All rights reserved

Agenda EVA Overview What is EVA ? Why EVA ? EVA Improvement EVA Value Tree & Key Value Drivers EVA-based Management Platform PTT Introduction PTT Practice EVA Key Success Factors & Benefit

EVA Value Tree : Drivers NOPAT WACC Invested Capital Fixed Working - x + EBIT Tax GM OPEX Depre. Sales Rev. COGS Price per Litre Total Litre sold Driver Negotiation Skill Understanding of customer alternative Understanding of regional supply & balance KPI Contribution margin Gross margin Ratio Pricing vs competitor Sales force effectiveness Customer service Technical support Reliability/speed Customer Satisfaction Score Market share Compliance (Preventive Maintenance Detail understanding of supply /demand Balances & price trends/ Distribution Cost Product Purchase Cost Index 1. Distribution Cost per Litre = Total distribution cost for PTT products = (transshipment cost +delivery cost to all customers) / Total Sales Volume Rationales : Manage cost of distribution through better distribution planning, truck scheduling and long term contractor relationships 2.Product Purchase Cost Index = [Total product Purchase Cost/Total volume purchase] /Import price of product placed in Thailand Rationales : Encourage negotiating the lowest contract price to minimize product cost per litre as compare to world price 3.Gross margin = (Total sales revenue - product purchase Cost – transshipment cost) / Total sales revenue Rationales : Encourage optimize price setting to customer to maximize profit 4.Compliance (Preventive Maintenance) = # of preventive maintenance calls completed on schedule / Total schedule maintenance calls during the period Rationales : Provide timely maintenance planning services

EVA Value Tree : Drivers NOPAT WACC Invested Capital Fixed Working Net Plant Property and Equipment Other Asset Service Station Depots Building Driver Format Land cost Site efficiency Construction cost Material cost KPI Investment/ Station Throughput/ Station - x + Depot Investment /Litre of storage Capacity Depot Throughput /Litre of Storage Capacity

EVA Value Tree : Drivers A/R Inventory Material & Supply EVA NOPAT WACC Invested Capital Fixed Working Driver Collection effectiveness Mix of customer Proportion of sales Under extended terms Effectiveness in identifying overdue accounts Grace Period and Term Utilization Understanding Supply/Demand Balance Forecast Accuracy + x - KPI A/R Turnover Collection day Overdue A/R Inventory day Inventory turnover

EVA Value Tree : Drivers NOPAT WACC Invested Capital Cost of Debt After Tax Cost of Equity Proportion of Debt 1-Tax Rate Proportion of Equity Total Equity Total Capital RF RP b Total Debt Cost of Debt (Interest Rate) KPI Cost of fund Domestic Cost of fund International Total Cost of Funds - x + / RM b = Sensitivity of Stock Price to market RF = Risk free rate RP = Risk premium RM= Return of market Driver Understanding of global markets Loan portfolio management Understanding of currency markets Country Risks Currency hedging Negotiation skills Type and Maturity D/E Ratio EPS P/E Ratio DPS Dividend Payment Ratio Portfolio Management Understanding of Thailand capital market Stock market situation Good Governance

Agenda EVA Overview What is EVA ? Why EVA ? EVA Improvement EVA Value Tree & Key Value Drivers EVA-based Management Platform PTT Introduction PTT Practice EVA Key Success Factors & Benefit

The principle of EVA Governance is to integrate core management systems with EVA to foster long-term value creation Enterprise Value EVA-based Management Platform Illustrative Define Mission and Measures of Success Performance Mandate 3. Performance Management Process Assign decision rights Define accountabilities Monitor and report performance Adjust strategies or management to achieve outcomes Define Desired Outcomes 1. Strategic Planning Process EVA Develop Strategies Set goals Develop and value alternative strategies Select best strategy Set Targets, Milestones and KPIs Year 1 Year 2 Year 3 Year 4 Year 5 … EVA Improvement Illustrative EVA 4.Rewards Management Process Link rewards to performance outcomes Base rewards on cumulative performance to balance short- and long-term performance 2. Resource Allocation Process Year 1 Year 2 Year 3 Year 4 Year 5 Allocate Resources … Prepare budgets & fund projects to achieve strategy EVA Execute Strategy Inputs Outputs Copyright © 2004 by Stern Stewart & Co. All rights reserved

ความสำคัญ EVA ผลลัพธ์ EVA ที่ติดลบ ไม่ใช่เป็นตัวเบรก การลงทุน EVA เป็นตัววัดที่บริษัทชั้นนำต่าง ๆ ระดับโลกนำมาใช้วัด Performance ขององค์กร EVA เป็นตัวชี้ให้ทราบถึงต้นทุนที่แท้จริงขององค์กร EVA เป็นตัวชี้ให้เห็นถึงประสิทธิภาพในการบริหารงานขององค์กร ที่ทำให้มูลค่าขององค์กรเพิ่มขึ้นหรือลดลง EVA ทำให้ผู้บริหารให้ความสำคัญในเรื่องของการจัดการสินทรัพย์ EVA สะท้อนมูลค่าเพิ่มและราคาหุ้นขององค์กรนั้น ๆ ทำให้ผู้ถือหุ้นมีความมั่นใจ และสามารถคาดหวังการเติบโตอย่างยั่งยืน ผลลัพธ์ EVA ที่ติดลบ ไม่ใช่เป็นตัวเบรก การลงทุน แต่เป็นตัวชี้ให้ผู้บริหารเห็นความสำคัญในเรื่องการบริหาร ทรัพย์สินที่ลงทุนไปให้เกิดประสิทธิภาพสูงที่สุด