PILIPINAS SHELL PETROLEUM CORPORATION (SHLPH)

Company Update

As the oil and energy sectors were classified as essential services during the ECQ, SHLPH was
able to continue its business operations nationwide. Despite this, the Company’s bottomline had
been affected by the pandemic as crude prices reached record-lows due to the breakdown of
production cut discussions between OPEC and Russia and product prices in the global and
regional market decline, pre-tax inventory holding losses for the Company, reach P8.34Bn for
the 2nd quarter of 2020.

For the 1H2020, net sales decreased by P35.6Bn, or 32.5% YoY primarily due to decline in
global oil prices which resulted to a lower average pump prices in the country, and lower
marketing volumes due to community lockdowns imposed by the government to prevent the
spread of the pandemic.

With the decrease in net sales, coupled with the increase in finance expenses brought by lower
forex gains, SHLPH posted a net loss amounting to P6.7Bn for the 1H2020.

In the last week of May 2020, the shutdown of the Company’s refinery operations had been
implemented. With the price of fuel products lower than or almost equal to the cost of refining
crude oil, permanently shutting down its refinery operations in Tabangao and transforming the
facility into a world-class full import terminal was seen to optimize asset portfolio and enhance
cost and supply chain competitiveness.

Our View

We do not see the transformation of the refinery facility to a full import terminal to negatively
affect SHLPH. As the Company’s management emphasized, the move was done as it is no
longer economically viable for them to operate the refinery.

According to the Department of Energy, the demand for petroleum products declined by 20 to
30 percent in March, and by as much as 60 to 70 percent in April during the imposition of the
enhanced community quarantine, compared to February 2020 levels. In addition, there had
been a continuous decline in global oil price earlier this year. Prices of fuel products declined
significantly, practically falling to the cost of refining crude.

These circumstances resulted in SHLPH’s massive losses, as it ended the first half of 2020 with
P6.7B net loss, compared to P3.7B income in the same period last year.

We see the move to halt its refinery operations to potentially ease margin pressure in the event
of another dip in global oil prices. Through importing, rather than refining crude, margins are
protected since the volatility of global crude price will be eliminated.
On the supply side, we also do not see much of an impact as SHLPH has several supply
sources. Among them is SHLPH’s refinery in Singapore which is among the biggest in the world.
The Batangas refinery is relatively small, which could produce around 100,000 barrels/day
compared with other refineries which could produce more than 1,000,000 barrels per day.

Full effect of the Company’s move to change its business model in its financials however, is yet
to be seen in the next reporting periods.

Financial Summary

BALANCE SHEET (in Mn Php) 2017 2018 2019 1Q20 1H20

Total Current Assets 45,876.3 40,778.6 47,469.4 34,087.7 28,865.4

Total Non-current assets 36,000.8 39,387.8 55,450.0 59,324.3 59,577.5

TOTAL ASSETS 81,877.1 80,166.4 102,919.4 93,412.0 88,442.9

Total Current Liabilities 31,235.0 28,456.7 39,453.3 34,980.9 31,208.2

Total Non-current Liabilities 8,506.6 12,737.8 23,637.9 24,138.6 24,154.8

TOTAL LIABILITIES 39,741.6 41,194.5 63,091.2 59,119.5 55,363.0

TOTAL EQUITY 42,135.4 38,971.8 39,828.3 34,292.5 33,079.8

TOTAL LIABILITIES AND EQUITY 81,877.0 80,166.3 102,919.5 93,412.0 88,442.8

PROFIT AND LOSS STATEMENT (In Mn Php) 2017 2018 2019 1Q20 1H20
NET SALES 169,476 218,869 218,403 48,377 74,035
INCOME FROM OPERATIONS 13,034 8,492 9,390 (7,415) (8,688)
INCOME BEFORE INCOME TAX 13,760 7,292 8,021 (7,894) (9,637)
PROVISION FOR INCOME TAX 3,392 2,216 2,400 (2,348) (2,896)
NET INCOME 10,368 5,076 5,621 (5,546) (6,741)

OTHER COMPREHENSIVE INCOME 1,536 95 198 10 (7)

TOTAL COMPREHENSIVE INCOME 11,904 5,171 5,819 (5,536) (6,749)

Basic and diluted EPS 6.4 3.2 3.5 (3.4) (4.2)

CASHFLOW STEMENT (In Mn Php) 2017 2018 2019 1Q20 1H20
Net Cash from Operating Activities 10,931.5 14,143.5 6,897.1 (2,977.3) (3,290.3)
Net Cash used in Investing Activities (4,539.8) (4,291.5) (4,903.2) (1,662.4) (3,106.3)
Net Cash from Financing Activities (4,468.7) (11,719.9) (1,670.2) 3,659.4 2,388.0
Net increase (decrease) in cash 1,923.0 (1,867.9) 323.7 (980.3) (4,008.6)
Effect of exchange rate changes on cash (34.1) 159.7 0.0 0.0 0.0
Cash at beginning of year 4,274.3 6,163.3 4,455.1 4,778.9 4,778.9
Cash at end of year 6,163.2 4,455.1 4,778.8 3,798.6 770.3