Petron Corporation (PCOR) Earnings Call Transcript & Summary

[Presentation] Ladies and gentlemen, meeting will come to order. Mr. Secretary, were notices to the stockholders duly sent?

Yes, I confirm, Mr. Chairman.

Do we have a quorum?

Mr. Chairman, we have a quorum. There are present at this meeting in person, by attendance advice e-mailed to company and by proxy about 77.894% of the total outstanding capital stock of the company. For the record, the Chairman of this meeting, Mr. Ramon S. Ang, holds proxies for 78.078% of the outstanding common shares of the company, and he is voting in favor of all corporate actions in the agenda submitted for approval in this meeting or in accordance with validated proxies. Mr. Chairman, we acknowledge the attendance of all our directors whose names and photos are now shown on the screen. We likewise acknowledge the attendance of the company's executive officers and R.G. Manabat & Co., KPMG, the external auditor for the year 2020. We advise the stockholders that after the management's report, questions and comments e-mailed to our dedicated e-mail address for the meeting, [email protected], will be read and addressed. [Operator Instructions]

The full agenda of this meeting is presented on the screen.

The rationale and brief explanation of each agenda item are provided in the notice and agenda in the definitive information statement. Permit us to explain the voting procedure for this meeting. Each common share is entitled to one vote. A simple majority vote of the stockholders holding common shares where a quorum is present will be needed for the approval of the minutes of the previous stockholders' meeting, the ratification of all acts of the Board of Directors and management since the last Annual Stockholders Meeting in 2020, the appointment of the external auditor of the company for 2021, the ratification of external auditors' fees and the ratification of the directors' fees. In the election of directors, the 15 nominees to get the highest votes shall be deemed duly elected as directors. Under the express provisions of the company's bylaws, cumulative voting is allowed in the election of directors. Thus, a stockholder may distribute his votes per share to as many persons as there are directors to be elected; or he may accumulate his shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of shares he has; or he may distribute them on the same principle as -- among as many candidates as he shall see fit provided that the total number of votes cast by him shall not exceed the number of shares he owns as shown in the books of the company multiplied by the whole number of directors to be elected.

First item on the agenda is the approval of the minutes of the last AGM held on June 2, 2020. Copies of the minutes has been posted in the Petron website.

Mr. Chairman, I move that the minutes of the Annual Stockholders' Meeting held on June 2, 2020, be approved.

Second the motion.

Movement seconded. Next item on the agenda is the presentation of the management's report for 2020. Manny?

Good afternoon, everyone. Welcome to the 2021 Petron Annual Stockholders' Meeting. Despite our current circumstances, we remain committed to sharing with you virtually last year's progress with your safety as our priority. 2020 proved to be a very challenging year. Due to the coronavirus pandemic, global demand for crude oil fell by 9.12% from 99.7 to 91 million barrels per day due to the series of lockdowns and movement restrictions across the globe. The benchmark to buy crude averaged lower throughout 2020 compared to 2019, marking its lowest point in April at only $20.39 per barrel. Regional refining margins, which already saw a steep decline in 2019, also remained weak during the period. Despite the numerous challenges we encountered, we were mindful to cushion the impact of the pandemic on our business. We pursued cost-savings efforts and did our best to rise above this unprecedented obstacle. Thus, we were able to bring our company back to profitability by the second half of 2020. Our net income from July to December stood at PHP 2.8 billion, a modest recovery from the huge losses in the first half. Our full year performance, however, still bore the economic impact of the pandemic. We ended the year with consolidated revenues of PHP 286 billion, 44% lower than 2019's PHP 514.4 billion. Combined sales volumes from both our Philippine and Malaysian operations went down 27% to 78.6 million barrels from 107 million barrels in the previous year. Our full year net loss amounted to PHP 11.4 billion for 2020 from our 2019 net income of PHP 2.3 billion. The results from last 2 quarters of 2020 fueled our optimism as we entered 2021. We continued to show positive results, reporting a consolidated net income of PHP 1.73 billion for the first quarter of 2021, a significant jump from a PHP 4.9 billion net loss for the same period last year. This is despite the 21% gap in our sales in our sales volume and the lower consolidated revenues at PHP 83.3 billion from last year's PHP 104.62 billion. We have yet to completely overcome the effects of the pandemic as restrictions continue to be implemented worldwide but hopeful of gradual recovery evident in the upward trajectory of our volume and income performance. We remain focused in our pursuit of growth and expansion. We continued to increase our service stations in strategic areas and focused on improving our existing stations to better serve our customers. More Gasul and Fiesta branch stores were opened, and our Lubes distribution network was expanded. We also strengthened our presence in popular e-commerce websites and apps for added convenience. Our Car Care Center outlets likewise continue to provide top-quality automotive services with a total of 46 outlets nationwide, 4 of which were opened in 2020. While there were challenges in refinery operations and its viability, our refinery in Bataan also served as our main import facility, which ensured stable and reliable supply of petroleum products during the pandemic. We continue to extensively pursue various efficiency and margin enhancement programs to optimize Petron's refinery assets and plan to resume refinery operation by the second half of this year. In December, our Bataan refinery was granted approval as a registered enterprise by the Authority of the Freeport Area of Bataan. This will benefit the company through better timing of payment and accurate tax base for value-added tax. As we continued our mission of fueling journeys, we took the necessary measures to ensure the safety of all our stakeholders. Most of our terminals were recognized by their local government units and national government agencies for their commitment to health, safety, environmental consciousness as well as their positive impact to local communities. Our service stations remain a safe place for our customers as our personnel strictly adhere to protocols and are always armed with the necessary PPEs, such as face masks and face shields. Our terminal facilities and offices employ a QR-based health monitoring system. At the same time, the minimum health and safety guidelines are strictly enforced. Prioritizing the safety and well-being of our people, flexible work arrangements for our employees were implemented. They are also provided with shuttle services and sanitizing materials at work and are regularly tested through the RT-PCR method. Petron Malaysia remained on the path of growth with new stations, facility expansions, partnerships and innovation. In 2020, we expanded our retail network with 25 new service stations. We collaborated with Food Panda to enable our customers to purchase items from our Treats store online. Petron also became the first oil company in Malaysia to accept MyDebit card at fuel pumps. We are also on track to complete the construction and commissioning of our Diesel Hydrotreater and Marine Import Facility by the first quarter of 2021. Safety at all facilities was insured through the implementation of a company-wide business continuity plan. Our Petron Malaysia also focused on its commitment to fuel change and progress. The company, together with its employees, volunteers and other partners, mobilized to help frontliners and communities during the pandemic. Amidst the pandemic, Petron has been helping multiple sectors in surviving this crisis as well. We continued to support 3,200 Tulong Aral scholars nationwide. To our medical frontline workers, we provided, e-Fuel Cards, personal protective equipment and other donations. Within our communities, we were able to provide financial support for over 1,300 TAP scholars nationwide as well as relief assistance to our extended workforce and host communities. Through our vast network, we created access to quality food items through the San Miguel food trucks, Kadiwa rolling stores and our Treats stores especially at the height of the pandemic last year. Our service station dealers as well as our lubes and LPG distributors likewise undertook their respective CSR efforts by extending assistance to station personnel, frontliners and communities. While 2020 has certainly been unique and unpredictable, Petron strived to remain true to its mission of service and excellence. You can count on us as your Kasabay sa Lakbay no matter how long or difficult the journey may be. To our valued shareholders, we thank you for your trust and support. Let us move forward renewed and strengthened by all that we have learned in the past year. Thank you for joining us this afternoon. Stay safe.

The Chair will now entertain questions.

Mr. Chairman, we will start with the questions submitted in advance. [Operator Instructions]

We received questions related to dividends and stockholder benefits from [ Mr. Andrew Mondragon ] of Bacoor, Cavite and [ Mr. Jose Wilfrido Oca ] of Parañaque. We forwarded these questions to SMC Stock Transfer Services for their appropriate action. [Foreign Language] Next question. "It's good to hear that Petron already posted positive income in fourth quarter 2020 and first quarter 2021. Are you projecting that this trend will continue for the rest of the year?"

Yes. We certainly believe it will continue to deliver a good performance unless there is a strict lockdown again. Thank you.

Is Petron considering permanently shutting down its refinery, similar to what Shell did last year?"

Unlike Shell, Petron is a modern refinery which we have upgraded only about 5 years ago. And the refinery is very competitive. And we see no reason for us to shut down the refinery. In fact, we are set to reset -- to restart the refinery this coming June. And we -- unless there's a hard lockdown and the volume drops down tremendously, the refinery is a very viable business. Thank you.

Next question. "What was the impact of the COVID-19 pandemic in the overall performance of Petron in 2020?"

Pandemic has brought down the volume of Petron. Revenue-wise, we are down practically 44% decline, and the volume drops by 27%. With that kind of number, no company can survive that. Luckily, Petron's balance sheet is very strong, and we have prepared a company to be able to weather this kind of storm. So rest assured that this company will survive and will make good return for everyone. Thank you.

Next question. [Foreign Language]

Yes. In fact, [Foreign Language]. We provided free PCR testing to everyone. [Foreign Language], most of them are work from home. They're receiving full salary, full bonuses, full benefit. And I don't think other companies are able to give this kind of treatment to the employees of Petron. So I think [Foreign Language]

That would be all, Mr. Chairman. Thank you.

Mr. Chairman, I move to close the open forum.

I second the motion.

Move is seconded, motions carried. Next item on the agenda is the ratification of all acts and proceeding of the Board of Directors and Corporate Officer since the last AGM held on June 2, 2020 until today.

Mr. Chairman, the material items approved by the Board of Directors or the Executive Committee since the 2020 Annual Stockholders' Meeting include those in the list attached as Annex B to the definitive information statement earlier distributed to the stockholders.

Mr. Chairman, I move that the following resolution be approved: resolve that all acts, resolutions and proceedings of the Board of Directors and corporate officers of the company since the Annual Meeting of the Stockholders on June 2, 2020, as set forth in the minutes of the meeting of the Board of Directors and the Executive Committee be approved, confirmed and ratified.

I second the motion.

Movement seconded. Motion is carried. Next item on the agenda is the nomination for the position of external auditor of the company. And the ratification of its fee. May I call on the secretary to recommend?

Mr. Chairman, the Audit Committee after its evaluation is recommending the appointment of the accounting firm of R.G. Manabat & Co., KPMG, as external auditors for year 2021 and the ratification of KPMG's fees for the preparation of the 2020 and the 2021 audited financial statements of the company and its subsidiaries.

May I request Secretary Teves, the Audit Committee Chairman, to report?

Mr. Chairman, I confirm. Thank you.

The Chair will now entertain a motion.

Mr. Chairman, I move that the accounting firm, R.G. Manabat and KPMG be registered and designated as external auditors of the company for 2021.

I second the motion.

Motion having been duly made and seconded is carried.

Mr. Chairman, I further move that KPMG's fees as presented be ratified.

I second the motion, Mr. Chairman.

Motion having been duly made and seconded is carried. We shall now proceed to the election of the directors. The Corporate Secretary will read the nominees for election to the Board.

Mr. Chairman, the nominees for elections of the Board of Directors are Ramon S. Ang, Lubin B. Nepomuceno, Estelito P. Mendoza, Jose P. de Jesus, Ron W. Haddock, Mirzan Mahathir, Aurora T. Calderon, Francis H. Jardeleza, Virgilio S. Jacinto, Nelly Favis-Villafuerte, Horacio C. Ramos, John Paul L. Ang, Independent Directors Artemio V. Panganiban, Margarito B. Teves and Carlos Jericho L. Petilla.

In the information statement which we circulated at this meeting, the 3 nominees for the election as independent director are mentioned. They are Art Panganiban, Secretary Teves and Petilla. This is in accordance with the mandatory requirement by SEC of electing independent directors.

Thank you, Mr. Chairman. As discussed in the definitive information statement distributed for this meeting, Independent Director Retired Chief Justice Artemio V. Panganiban has been serving the company as independent director for more than 9 years beyond the term limits of independent directors. In accordance with the manual on corporate governance of the company, the Corporate Governance Committee evaluated the independence of Director Panganiban and determined that he possesses all the qualifications and none of the disqualifications to act as independent director of the company. In accordance with the manual on corporate governance of the company and upon endorsement of the Corporate Governance Committee of the company, the Board of Directors found that the independence of Director Panganiban has not been diminished or impaired by his long service as a member of the Board of Directors, and it has full confidence that Director Panganiban will continue acting as an independent director with the same zeal, diligence and vigor as when first elected. Therefore, the Board of Directors has approved and endorsed for the vote of the stockholders of the company the election of the 15 nominees, including Director Panganiban as an independent director, pursuant to the corporate governance manual of the company.

Can I request Independent Director Teves of the Corporate Governance Committee to please confirm?

Mr. Chairman, I confirm. Thank you.

Mr. Chairman, considering that the number of directors to be elected is 15 and there are only 15 nominees, I move to dispense with the balloting. Thank you.

Motion having been duly made and seconded is carried.

Mr. Chairman, for the same reason [Audio Gap]

I second the motion.

Motion have been duly made and seconded is carried. 15 nominees are declared duly elected members of the Board of Directors of the company. On behalf of your Board of Directors, I thank all of you for your vote of confidence. Next item on the agenda is the ratification of the directors' fee for 2021. May I call on Secretary to report on the recommendation of the Corporate Governance Committee?

Thank you, Mr. Chairman. After evaluation and based on the recommendation of management and in accordance with the corporate governance manual of the company, the Corporate Governance Committee recommended the payment of directors' fees for 2021 in the amount of $16.455 million, and the Board of Directors approved the same.

Can I request Independent Director Teves of the Corporate Governance Committee to please confirm?

Mr. Chairman, I confirm. Thank you.

Thank you, Director Teves. The Chair will now entertain a motion.

Mr. Chairman, I move that directors' fees for 2021 be approved and ratified.

I second the motion.

There being no objection, the motion having been duly made and seconded, is carried. Does anyone have any matter or business to present to this assembly? If none, the Chair will now entertain a motion to adjourn.

Mr. Chairman, I move that the meeting be adjourned.

I second the motion, Mr. Chairman.

Meeting is adjourned. Thank you.