Pilipinas Shell Petroleum Corp. on Wednesday reported a first-quarter loss of P5.5 billion after global oil prices collapsed amid government restrictions of economic activities to contain the spread of the coronavirus pandemic.
“Our first-quarter loss is disappointing given our robust overall performance last year and the strong marketing delivery from the start of 2020 up until mid-March. We will overcome this challenge the same way we surmounted the various crises and upheavals during our 106-year legacy in the Philippines,” Pilipinas Shell president and chief executive Cesar Romero said in a statement.
Pilipinas Shell said the first-quarter performance lagged behind the P2.4-billion income it earned in the same period last year. It achieved an 11-percent growth in profit by end 2019.
Inventory holding losses, net of taxes, reached P5.6 billion in the first quarter as crude oil prices continued their downward decline.
The Taal Volcano eruption caused the cancellation of flights, displacement of affected residents and disruption of the movement of goods and services in the first quarter. Economic activity ground to a halt when the enhanced community quarantine was implemented over Luzon and other parts of the country starting mid-March.
“We have taken prompt action to reinforce the financial strength and resilience of our business, leveraging on the flexibility of our supply chain and prudent balance sheet management over the past years. This way, we can ensure continuing care and support for the health and safety of our employees, business partners and society as a whole, as we continue to provide the country’s fuel and energy needs now and in the long term,” Romero said.
The company announced it would temporarily shut down its 110,000-barrel-per-day refinery in Batangas starting mid-May in response to the drastic decline in local product demand and significant deterioration of regional refining margins due to the COVID-19 pandemic.
Pilipinas Shell said it has the flexibility to switch from refinery production to full import of petroleum products to maintain the uninterrupted supply of high-quality Shell fuels.
“The refinery will nonetheless maintain readiness to start-up immediately should economic factors and market demand pick up,” it said.
The company said it remained financially resilient despite the crisis as it built a strong balance sheet over the last few years through disciplined capital allocation and strong operational cashflows.
Pilipinas Shell said it implemented cash conservation measures and aggressive working capital management in response to the drastic decline in demand during the pandemic.
From P500 million operating expense savings announced in March, the management team doubled the target savings to P1 billion from various cash preservation initiatives.
Planned capital expenditure for the year was reduced by 25 percent or over P1 billion. In line with measures taken by the Shell group, Pilipinas Shell employees would not receive discretionary performance-related bonuses for their 2020 performance, the company said.
Pilipinas Shell said it would delay its dividend decision to the next board meeting to give the company sufficient time to assess the implementation of its recovery strategy once the ECQ is lifted.
The company said the lack of a vaccine against the COVID-19 virus means economies worldwide would continue to operate in uncertainty.
It said given the evolving nature of the pandemic and the fluidity of the situation, it would be difficult to reasonably forecast the magnitude and recovery pace across the markets that Pilipinas Shell operates in.
“The industry is in a crisis of uncertainty and multiple variables are at play. While we cannot predict what will happen, we are embracing the current reality and embedding our plans to thrive in this crisis. We have recovery strategies in place across all our businesses. We will continue to make the hard decisions to protect cash flow and liquidity through cash preservation and generation measures and enhance financial resilience by further strengthening our balance sheet. It is our continuing aspiration to become a world-class investment case and we are poised to seize opportunities as the world enters the ‘new normal’,” said Romero.