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Name of Company: Petron Corporation

Product/Services Offered: Petroleum products, including LPG,


gasoline, diesel, jet fuel, kerosene, industrial fuel
oil, solvents, asphalts and mixed xylene

Type of Industry: Oil Refinery

Address of Head Office: SMC Head Office Complex 40 San Miguel Ave.
Mandaluyong City

Company History

Petron was incorporated in the Philippines on December 22, 1966 as


Esso Philippines Inc. Petron was renamed Petrophil Corporation in
1974 when the Philippine National Oil Company (PNOC) acquired it. In
1985, Petrophil and Bataan Refinery Corporation (formerly, the
Standard Vacuum Refining Corporation) were merged with Petrophil
Corporation as the surviving corporation. The Company changed its
corporate name to Petron Corporation in 1988. The Companys
original 50-year corporate term would expire on December 22, 2016. At
its meeting held on November 12, 2012, the Board of Directors
approved the extension of the corporate term of the Company for
another 50 years and the relevant amendment of the Companys Articles.
This proposed amendment was ratified by the stockholders at the
annual stockholders meeting held on May 21, 2013. On September 13,
2013, the SEC approved the amendment of the Companys Articles by
extending the corporate term of the Company for another 50 years from
and after December 22, 2016. The three (3) principal common
shareholders of the Company are SEA Refinery Corporation (SEA
Refinery) (50.10%), San Miguel Corporation (SMC) (18.16%), and
the Petron Corporation Employees Retirement Plan (PCERP) (7.80%).
SEA Refinery is wholly-owned by SMC. SMC thus holds an aggregate
68.26% ownership of the common shares of the Company.

Results of Operations

Petron Corporation sustained strong performance in 2016 with


consolidated net income of P10.82 billion which is 73% higher than the
previous year. The companys improved result was driven by the growth
in sales volume, operational effiecieny coupled with increased
production run resulting in better yields, as well as effective risk
management. Consolidated Sales Volume increased by 6% to a record
high of 104.3 million barrels (MBB) from 98.0 MMB in 2015. The growth
was attributable from aggressive service station network expansion,
various marketing initiatives and greater participation in key industries
such as power generation and aviation. Net Sales declined by 5% due to
lower average selling prices. TCost of Goods Sold declined by 7% from
the previous year prompted by lower cost of crude and imported finished
products partially countered by the cost of incremental volume sold.
Selling and Administrative Expenses increased by 5% traced to a higher
service stations related expenses, warehousing and terminalling fees
and accrual of retirement benefits. Net Financing Cost and Other
Charges went up to 9.42 billion pesos from 8.21 billion in 2015 due to
the absence of capitalized interest from RMP2 project financing, The
increase in interest expense was tempered by lower market to market
losses on outstanding commodity hedge positions, reduced swap costs
on foreign currency hedges and lower bank charges. Income tax
expense dropped by 3% from the previous year upon the availment of
the income tax holiday incentive of RMP2.

Petron Corporation Income Statement for the years ended

Amounts in Million Pesos 2016 2015 2014


Total Revenue 343,840 360,178 482,535

Gross Profit 37,715 31,444 19,131

Operating Income 14,378 9,925 3,813

Net Income 10,822 6,270 3,009

Financial Position:

As of end 2016, Petrons consolidated assets grew by 8% from the


previous year due to additional fixed assets acquired during the year and
higher inventories. Cash and cash equivalents was reduced by 8% from
the previous year as funds generated from the operations were used to
pay both short and long term loans, interest, dividends and distributions
and capital investments. Financial assets at fair value through profit or
loss dropped from 509 million to 221 million, attributed to lower
marked-to-market gains on outstanding commodity hedges. The value
of Inventories - net grew to 44.15 billion from 2015s 20.82 billion due to
higher volume and cost of crude oil and finished products by end of 2016.
Other current assets decreased by 6%, with the utilization of the Parent
Companys value added tax credit certificates in payment of taxes.
Available-for-sale financial assets decreased by 23% than the previous
year traced mainly to the maturity of investment in corporate bonds held
by an insurance subsidiary. Property, plant and equipment - net stood at
176.60 billion, 9% more than the 161.60 billion level as of the end of
2015 brought about by the acquisition of the 140-megawatt solid duel
fired power plant. The sale of a parcel of land by real estate subsidiary
resulted in decline in Investment property-net. Deferred tax assets
decreased by 8% essentially on accountof Petron Malaysias lower
deductible temporary differences. Other non current assets decreased
due to the collection of advances to Petron Corporation Employee
Retirement Plan. Short term loans were lower by 9% with the net
paymentof loans during the year. Liabilities for crude oil and petroleum
products increased by 84% on account of higher volume and cost of
crude oil and finished products as of end 2016. Trade and other payables
significantly increased due to outstanding payables to contractors and
suppliers. Derivative liabilities moved up chiefly due to the increase in
MTM commodity hedging losses partly offset by the decline in MTM
losses on currency hedges. Income tax payable ballooned from
183million to 626million due to PMs higher taxes payable on reported
taxable earnings in 2016. Long term debt - net rose by 10% with the
issuance of the 20billion retail bonds in October 2016 partly offset by the
repayment of existing loans. Retirement benefits liability droppped by
40% mainly caused by the recognition of re-measurement gains on plan
assets. Deferred tax liabilities surged by 23% prompted by the timing
differences generated by the accelerated depreciation of the Parent
Companys RMP2. Other noncurrent liabilities climbed by 6% driven by
higher LPG cylinder deposits. The negative balance of Equity reserves
declined triggered by the re-measurement gains on plan asset.

Petron Corporation Balance Sheet for the years ended

Amounts in Million Pesos 2016 2015 2014

Total Assets 318,893 294,267 391,324

Total Liabilities 234,402 211,638 293,992

Total Equity 84,491 82,629 97,332

Cash Flows

The Companys operation internally generated cash of P37.06 billion


was partly used to pay for interests and taxes, netting an inflow of
P29.27 billion. The excess cash from operations were used to fund the
acquisition of additional property, plant and equipment, and for settling
short-term and long-term loans, dividends and distributions. Net
decrease in cash and cash equivalents during 2016 amounted to
P1.55billion.

Petron Corporation Cash Flow Summary for the years ended:

Amounts in Million Pesos 2016 2015 2014

Operating inflows 29,269.00 8,468.00 (737.00)

Investing outflows (19,165.00) (14,592.00) (4,336.00)

Financing outflows (12,025.00) (66,343.00) 45,165.00

Conclusion:

Petron Corporations sales to the Philippine domestic market grew by


14.7%. The retail sector which accounts for 44% of sales, grew by 5.0%
This growth is attributed to new station builds, aggressive dealer
account solicitation, and various marketing programs that attracted
more motorists to Petron stations, supported by a robust economy.
Gross Domestic Product expanded year-on-year by 6.8% in 2016, faster
than the 5.9% growth rate in 2015 for oil refinery industry. Growth was
driven by strong household consumption and growth in capital
investment.

In my opinion, it is worth investing in Petron Corporation and would


advise my friends and family to invest in the company for long term
investment. Given that its financial position is stable and was able to
sustain strong performance with its net income. Domestic oil demand
also remained strong with still low retail oil prices encouraging travel,
strong vehicle sales and usage. Industrial sectors such as manufacturing
and construction businesses are also known for being heavy oil users.