PTT GLOBAL CHEMICAL PUBLIC COMPANY LIMITED AND SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 2021 NOTES TO THE FINANCIAL STATEMENTS - 94 - 33. NET DERIVATIVE GAIN (LOSS) Net derivative gain (loss) for the years ended December 31, 2021 and 2020 were as follows: Unit : Million Baht Consolidated financial statements Separate financial statements 2021 2020 2021 2020 Gain (loss) from financial derivatives (4,502) 693 (3,612) 153 Gain (loss) from commodity derivatives (1,440) 476 (1,360) 476 Total (5,942) 1,169 (4,972) 629 Foreign currency risk The Group is exposed to foreign currency fluctuations risk in financial assets and liabilities and the gross profit (Product to Feed margin - P2F) of the Group that is referenced in foreign currency. Therefore, the Group has a policy in place to manage those risks by emphasizing the natural hedge on assets and liabilities held in foreign currency and the gross profit (P2F) of the Group that is referenced in foreign currency. Moreover, the Group uses derivative hedges to mitigate the residual risk by entering into foreign currency forward contracts in accordance with the framework approved by the Risk Management Committee of the Group. The derivative financial instruments will result in gain (loss) from derivatives which will be offset against the gross profit (P2F), which is a hedged item, in order to maintain the Group’s net profit at the exchange rate specified in the business plan as follows: - In the event that the Thai Baht appreciates more than the exchange rate in the foreign currency forward contracts, there will be gain on derivative. Meanwhile, the gross profit (P2F) which the Group received in cash will decrease due to the appreciation of the Thai Baht. - On the contrary, in the event that the Thai Baht depreciates more than the exchange rate in foreign currency forward contracts, there will be loss on derivative. Meanwhile, the gross profit (P2F) which the Group received in cash will increase due to the depreciation of the Thai Baht. Overall, the derivative hedge can mitigate the impact from fluctuations in foreign currency to the Group’s performance. Commodity price risk The Group is exposed to commodity price risk which may occur from purchases and sales. The Group mitigates risk by closely monitoring market situation, feedstock price and product price to appropriately adjust sales and production plans through our value chain amid fluctuating market situations. Moreover, the Group primarily applies derivative and forward contracts to hedge the commodity prices, in order to protect crude oil price and spread in accordance with the framework approved by the Risk Management Committee of the Group, which are not lower than the business plan levels. Those hedging transactions will cause in gain (loss) from derivatives which will be offset against crude oil and product prices, to maintain the Group’s gross profit and net profit stability as the business plan are as follows: - In the event that the crude oil price or spread is less than the forward contracts, there will be gain on derivative. Meanwhile, the gross profit which the Group received in cash will decrease due to the decrease in the crude oil price or spread. - On the contrary, in the event that the crude oil price or spread is more than the forward contracts, there will be loss on derivative. Meanwhile, the gross profit which the Group received in cash will increase due to the increase in the crude oil price or spread. Overall, the commodity price risk hedging by using the forward contracts and/or the derivative hedge can mitigate the impact of Group’s performance from price and spread fluctuations. 326 PTT GLOBAL CHEMICAL PUBLIC COMPANY LIMITED Form 56-1 One Report 2021
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