Recent dynamic market changes and uncertain business environments have placed a sharp focus on digital transformation (DX). DX initiatives must clearly align with business strategies and have a clear vision of where, and how, they add value in terms of enhanced profitability, capital efficiency and license to operate. Focusing on enhanced profitability, we start with a simple refresh of the “Profit & Loss” or income statement and demonstrate how it is impacted by DX initiatives, thereby demonstrating how money is made and lost. These general concepts are reinforced with several real-life examples across the upstream, refining and bulk chemical sectors. Through this exercise, conclusions are drawn on where DX has the greatest immediate impact.

1. Mark Routt
Chief Economist—Americas
KBC (A Yokogawa Company)
November 11, 2020
An Economic X-Ray
of Digital Transformation
(DX)

2. If you don’t know where you
are going, you might end up
someplace else.”
“
Yogi Berra
New York Yankees Catcher

3. Agenda
1. Generic ‘P&L’ Explained
2. Business Environment Today
3. Real Company P&Ls
 Upstream
 Chemicals
 Refiners
4. How to Impact the Business
5. Conclusions

4.  A summary of revenue/income, costs/expenses
over some time period
 Also called an ‘Income Statement’
 The time horizon is typically three months, or full financial year
 Reveals a company's ability to make a profit
 To make a meaningful economic Digital Transformation
(DX) impact, you need to know where, but also how to:
 Increase revenue
 Reduce costs
 Or both
Financial Scorecard: Profit & Loss (P&L) Statement
…and by
how much

5. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD Millions
Gross Earnings
made in the period
Olin

6. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD Millions
Direct costs of materials and
labor plus indirect costs like
distribution and sales force
Olin

7. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD Millions
All other costs—most
typically General (G) and
Administration (A)
Olin

8. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD Millions
Unusual expenses,
operating and non-operating
expenses, affiliates
Olin

9. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD Millions
Includes costs of debt and
loan obligations
Olin

10. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD Millions
The thing you are fighting for
Olin

11. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD MillionsOlin

12. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 20
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,6$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,7$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,8$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 4$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,4$
F Cost All other expenses 139% 86$ 36$ -32% 58$ $
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,3$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 3$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,0$
Jan-Dec
USD Millions
Jan-Dec
USD MillionsOlin

13. P&L Explained
Source: https://www.wsj.com/market-data/quotes
OLN WLK
Column Type Description 2019 2018 2019 2018
A Revenue Sales/Revenue -12% 6,110$ 6,946$ -6% 8,118$ 8,635$
B Cost Cost of Goods Sold (COGS) incl. Depreciation & Amortization -7% 5,408$ 5,828$ 3% 6,967$ 6,749$
C = A-B Gross Income -37% 702$ 1,118$ -39% 1,151$ 1,886$
D Cost Selling, General, Admin (SG&A) Expenses -3% 413$ 425$ 3% 458$ 445$
E = C-D Earnings Before Interest Taxes (EBIT) -58% 289$ 693$ -52% 693$ 1,441$
F Cost All other expenses 139% 86$ 36$ -32% 58$ 85$
G Cost Interest Expense -2% 245$ 250$ 20$ -$
H = E-F-G Cost Before Tax Income -110% (42)$ 407$ -55% 615$ 1,356$
I Cost Income Tax -124% (26)$ 109$ -64% 108$ 300$
J =H-I Consolidated Net Income -105% (16)$ 298$ -52% 507$ 1,056$
Jan-Dec
USD Millions
Jan-Dec
USD MillionsOlin

14. Today’s Energy Market Business Environment
Lower revenue
means you have to
reduce costs, but
also continuously
improve efficiencies
 UpstreamOil / Gas
 Faltering short-term hydrocarbon demand
 Massive ‘over-supply’ relative to demand
 Refining
 Reduced and uneven fuels demand
 Product demand mix dramatically uneven; jet vs diesel vs gasoline
 Petrochemicals (olefins & aromatics)
 Demand is relatively firm
 New capacity stranding older assets
 Commonalities
 Time matters
 Aging workforce
 Low carbon Environmental, Social and Governance (ESG) pressure

15. Today’s Energy Market Business Environment
Petrochemical demand is
firm on increased safety
and disposable product
demand, but newer
capacity additions
challenge older capacity to
operate as efficiently as
possible
 UpstreamOil / Gas
 Faltering short-term hydrocarbon demand
 Massive ‘over-supply’ relative to demand
 Refining
 Reduced and uneven fuels demand
 Product demand mix dramatically uneven; jet vs diesel vs gasoline
 Petrochemicals (olefins & aromatics)
 Demand is relatively firm
 New capacity stranding older assets
 Commonalities
 Time matters
 Aging workforce
 Low carbon Environmental, Social and Governance (ESG) pressure

16. Today’s Energy Market Business Environment
Petrochemical demand is
firm on increased safety
and disposable product
demand, but newer
capacity additions
challenge older capacity to
operate as efficiently as
possible
 UpstreamOil / Gas
 Faltering short-term hydrocarbon demand
 Massive ‘over-supply’ relative to demand
 Refining
 Reduced and uneven fuels demand
 Product demand mix dramatically uneven; jet vs diesel vs gasoline
 Petrochemicals (olefins & aromatics)
 Demand is relatively firm
 New capacity stranding older assets
 Commonalities
 Time matters
 Aging workforce
 Low carbon Environmental, Social and Governance (ESG) pressure

17. Today’s Energy Market Business Environment
 UpstreamOil / Gas
 Faltering short-term hydrocarbon demand
 Massive ‘over-supply’ relative to demand
 Refining
 Reduced and uneven fuels demand
 Product demand mix dramatically uneven; jet vs diesel vs gasoline
 Petrochemicals (olefins & aromatics)
 Demand is relatively firm
 New capacity stranding older assets
 Commonalities
 Time matters
 Aging workforce
 Low carbon Environmental, Social and Governance (ESG) pressure
 Timing matters—surviving
the short-term is different
from excelling in the long
term
 Capturing corporate
knowledge also has a
value—doing more with less
 Low carbon may mean lower
near-term economic returns
while repositioning for the
future

18. Corporate Goals Functional Goals Levers
Reliability and
Maintenance (RAM)
Remote Operations
Center (ROC)
Digital PIP and Twin
Digital Supply Chain
Digital Energy Mgmt
Reliability and
Maintenance (RAM)
Digital Supply Chain
Digital PIP and Twin
KBC
Offerings
Performance
Maintain License
to Operate
Organizational
Effectiveness
Organizational
Footprint
Institutional Bench
Strength
HSSE Excellence
Behavioral Safety
Process Safety
Regulatory
Compliance
Regulatory and
Enterprise Risk
Increase Margins
Increase Revenue
Increase Asset
Availability
Reliability
Operational
Discipline
Balance Supply/
Demand
Feedstock and
Yield Optimization
Integration
Decrease Expense
Reduce Variable
Costs
Energy
Non-Energy
Reduce Fixed
Costs
Maintenance
Allocated
Overhead
Optimize Capital
Employed
Reduce Working
Capital
Inventory Mgmt
Cash Mgmt
Maximise
Investment Return
Capital Projects
Project QA/QC
KBC’s Framework for Creating Sustainable Value
Be in
Business
Stay in
Business

19. Refining P&L Examples
VLO PSX
Description Valero 2019 2018 Phillips 66 2019 2018
Sales/Revenue -7% 108,317$ 117,033$ -3% 107,443$ 111,269$
Cost of Goods Sold (COGS) including
Depreciation and Amortization
-7% 103,510$ 111,389$ -2% 102,128$ 104,125$
Gross Income -15% 4,807$ 5,644$ -26% 5,315$ 7,144$
Selling, General, Admin (SG&A) Expenses -6% 868$ 925$ -1% 2,090$ 2,102$
Earnings Before Interest Taxes (EBIT) -17% 3,939$ 4,719$ -36% 3,225$ 5,042$
All other income/expenses including affiliate equity -73% 84$ 306$ -51% (1,411)$ (2,907)$
Interest Expense 454$ 470$ 458$ 504$
Before Tax Income -14% 3,401$ 3,943$ -44% 4,178$ 7,445$
Income Tax 702$ 879$ 801$ 1,572$
Consolidated Net Income -12% 2,699$ 3,064$ -42% 3,377$ 5,873$
Jan–Dec
USD Millions
Jan–Dec
USD Millions
Source: https://www.wsj.com/market-data/quotes

20. Industry Sector P&Ls
Description 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
Sales/Revenue 9,671$ 9,379$ 4,583$ 4,734$ 108,317$ 117,033$ 107,443$ 111,269$ 6,110$ 6,946$ 8,118$ 8,635$
Cost of Goods Sold (COGS) incl. Depreciation &
Amortization
7,424$ 6,731$ 3,176$ 2,931$ 103,510$ 111,389$ 102,128$ 104,125$ 5,408$ 5,828$ 6,967$ 6,749$
Gross Income 2,247$ 2,648$ 1,407$ 1,803$ 4,807$ 5,644$ 5,315$ 7,144$ 702$ 1,118$ 1,151$ 1,886$
Selling, General, Admin (SG&A) Expenses 324$ 381$ 195$ 184$ 868$ 925$ 2,090$ 2,102$ 413$ 425$ 458$ 445$
Earnings Before Interest Taxes (EBIT) 1,923$ 2,267$ 1,212$ 1,619$ 3,939$ 4,719$ 3,225$ 5,042$ 289$ 693$ 693$ 1,441$
All other income/expenses inc. affiliate equity 815$ 890$ 225$ 322$ 84$ 306$ (1,411)$ (2,907)$ 86$ 36$ 58$ 85$
Interest Expense 121$ 126$ -$ -$ 454$ 470$ 458$ 504$ 245$ 250$ 20$ -$
Before Tax Income 987$ 1,251$ 987$ 1,297$ 3,401$ 3,943$ 4,178$ 7,445$ (42)$ 407$ 615$ 1,356$
Income Tax 234$ 281$ 213$ 307$ 702$ 879$ 801$ 1,572$ (26)$ 109$ 108$ 300$
Consolidated Net Income 753$ 970$ 774$ 990$ 2,699$ 3,064$ 3,377$ 5,873$ (16)$ 298$ 507$ 1,056$
Gross Profit Margin 20% 24% 26% 34% 4% 4% 3% 5% 5% 10% 9% 17%
Net Profit Margin 8% 10% 17% 21% 2% 3% 3% 5% 0% 4% 6% 12%
Olin (OLN) Westlake (WLK)
Upstream Exploration & Production Refining Chemicals
Pioneer (PXD) Continential Valero (VLO) Philipps 66 (PSX)
Notice the size difference of
revenue across the industry sectorsNotice the size difference of
revenue across the industry sectors
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21. DX is an Enabler to Achieve Business Priorities
TOP DIGITAL STRATEGY VALUE DRIVERS
Reduce
Production
Costs
Safe
Operations
Trade [Fixed]Capex for
Predictive[Variable] Opex
Talent
Shortages

22. Digital Solutions to Business Challenges
Digital Energy Management
The holistic and sustainable reduction of operating
costs and greenhouse gas (GHG) emissions
through innovative digital approaches
Remote Operations Centers
Centralization and co-location of key functions for
more efficient and effective system-wide operation
of asset portfolios
Digital Process Improvement Projects (PIPs)
and Digital Twin
Production optimization for profit improvement
using facility models that are operationalized with
real-time data that create digital twins and sustain
customer value
Value Chain (Asset and Supply Chain)
Optimization
Operationally resilientand flexible alignment
of feedstock and premium products with
market demand to adjust and exploit
market opportunities
Integrated Management Solutions
(Digital Roadmaps)
The holistic and disciplined way that all
digitalization initiatives should be planned
and executed to maximize outcomes

23. In Summary
Start with a plan
that will impact your
business in a
positive way
Then, execute
Know where your
‘lever points’ are
and what you are
trying to achieve
1 2 3

24. The names of corporations, organizations, products and logos herein are either registered trademarks or
trademarks of Yokogawa Electric Corporation and their respective holders.
Thank You!