Petron Corporation (PCOR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to this afternoon's Institutional Investors' Briefing for Petron Corporation's Series 4 preferred shares offering. I am [ Nyan Lin Zhao ] and I will be your host for this afternoon's presentation. So before we begin, we would like to acknowledge the presence of our senior management from Petron Corporation. So we have with us Mr. Lubin Nepomuceno, General Manager.

Good afternoon, everyone.

Also with us today is Mr. Emmanuel Erana, Senior Vice President and Chief Finance Officer.

Good afternoon, everyone.

We also have Mr. Albertito Sarte, Vice President, Deputy Chief Finance Officer and Treasurer. And finally, we have Mr. Erich Pe Lim, Manager, Investor Relations Officer.

Good afternoon.

Thank you, everyone, for being with us. So for today's program, the company flow will be as follows: We'll be going through the company and industry overview, the key company highlights, [indiscernible] ESG overview and going through the transaction overview. At the end of the presentation, we will have a Q&A session at an open forum. [Operator Instructions] So to kick off this afternoon's meeting, I would like to call on Mr. Michael Chong, Managing Director of Origination and Client Coverage of China Bank Capital Corporation, to deliver the opening remarks.

Hi, [ Nyan ]. Good afternoon, ladies and gentlemen. On behalf of Petron Corporation, we are very pleased to welcome you to today's Institutional Investors' Briefing for the company's proposed preferred shares offering. [indiscernible] greater mobilization of the economy. Since recovering from the pandemic lockdown, the importance in demand for fuel has never been more pronounced. As the country's only refinery and the largest integrated player in the downstream oil industry, we are confident that Petron is very much well positioned to fuel the reopening of our economy. Notwithstanding the geopolitical conflicts affecting this industry, Petron's recovery remains on track and is committed to providing its consumers quality fuel products in the Philippines where it ranks first in terms of retail market share and in Malaysia where it ranks third in terms of retail market share. Already being the leader in the industry, you may ask, what is next for Petron? Petron recognizes that its impact goes far beyond its market ranking. Petron continues to provide total customer solutions to its community of stakeholders, especially now the traffic on the road has resumed. Not only has the company exhibited its ability to recover from the impact of the pandemic, but also remains a reliable partner for its stakeholders alongside an enhanced focus on ESG initiatives. By the end of this presentation, we hope you will gain an even deeper appreciation of a company that has cemented its long-standing leadership in an industry that serves as our country's backbone to recovery and growth. Once again, good afternoon, everyone, and we hope for your strong participation in this milestone issuance.

Thank you, Chong. And now I would like to call on Petron Corporation's Investor Relations Officer, Mr. Erich Pe Lim, to tell us more about the company, it's strength and financial highlights.

Thank you for the kind introduction, [ Nyan ]. Good afternoon to all. First off, we would like to express our thanks to everyone for your time and interest in the company. For the benefit of everyone in this room, some of which might be new to the Petron story, we would like to make a brief presentation of the company. For those of you who are already familiar with us, this would serve as an update on key operating figures as well as recent company initiatives and strategies. Let me now proceed with an overview of the company and the industry. Petron Corporation is an integrated oil refining and marketing company with operations in both the Philippines and Malaysia. We are the market leader in the Philippines, while we are the third largest player in Malaysia. We have refineries in both areas of operation with a nameplate capacity of 180,000 barrels per day in the Philippines and 88,000 barrels per day in Port Dickson, Malaysia. Coming from our refineries, petroleum products are shipped to a network of storage terminals with 40 in the Philippines and 10 in Malaysia for eventual deliveries to our combined network of more than 2,600 service stations and various industrial customers. Having started in 1957, Petron has a long-standing history and growth track record. Since then, we have grown from strength to strength and matured into one of the key players in the region, enjoying leading market positions in the Philippines and Malaysia. Moving now to the overview of the industry. As the global economy recovers and moves forward from the unprecedented effects of the pandemic, mobility, economic activity and, subsequently, oil demand continues to improve. This is seen in the green dotted box where oil demand in non-OECD countries have already returned and actually exceeded pre-pandemic levels in the past years, a trend that is seen to continue in the year ahead. This is also supported by projections from the IMF, which sees sustained growth for both the Philippines and Malaysia. Our growth strategy is hinged on 6 main initiatives. First would be to maximize the production of our complex refinery where we have already shifted production in recent years and producing low-margin fuel oils to higher-margin products and carbon neutral petrochemicals. This is as we continue to assess the viability of further upgrading the refinery to get the most of its production capability and value generation. Second would be to ensure reliability and efficiency of our refinery to reduce production costs and maximize its profitability. We are looking to invest in new receiving and storage terminals, improving existing facilities and optimizing our existing network. Third is to maximize volume growth and further increase market share in the downstream oil markets in the Philippines and Malaysia while we continue to work in introducing new products with superior qualities, expand our lube distribution network, grow our nonfuel business and further our personal training to provide a better and differentiated service. Fourth is to continue to invest in our digital offerings like the Petron app which would allow us to continue to position Petron as a premium brand and maintain and further strengthen our established positions in the Philippines and Malaysia. Fifth, we also continue to evaluate possible selective acquisition opportunities within and outside the Philippines, which will create synergies to our existing business. And last, but not the least, Petron is also committed to be a force for change and good. The company aims to contribute not only to the nation, but also our stakeholders as well as the communities where we operate, protecting the environment in all our facilities by integrating ESG programs into each aspect of our core business practices. From there, let's now move to the key company highlights. Petron has continued to be the leading integrated refining and marketing player in the Philippines and Malaysia through the following. Let me now go through each one of them. Petron continues to lead the Philippine oil industry, most recently evidenced from a retail market share of 33.5%. This is more than 1/3 of the country's retail oil market in terms of sales volume. This, likewise, is more than any other single player in the industry. We remain #1 not only in retail, but also in the industrial segment as our dominant position across these segments are enabled by more than 1,900 retail service stations nationwide, more than 1,500 LPG branch stores and more than 550 direct industrial account customers. Petron's leading position in the Philippines is supported by the most extensive logistics network in the Philippine oil industry. This distribution system includes 40 terminals and airport installations, which reaches most key points in the country. Given the challenges of distribution in an archipelago, this capability plays a strategic role in sustaining our leadership position. The distribution network capably supports our service stations as well as serve strategic industries such as power generation, manufacturing, mining and agribusiness, among others. Additionally, Petron supplies jet fuel to international and domestic carriers at key airports in the Philippines. The Philippines and Malaysia continue to be markets that provide favorable economic environments to support energy and petroleum product demand growth. According to the IMF, both countries economies are projected to show a 5% GDP growth for the former and 4.4% for the latter in 2023. Furthermore, fuel consumption has historically been highly correlated to GDP per capita, providing large fuel consumption upside potential for Petron's operations in both countries. The Philippines operates under a free market scheme with movements in regional prices and FX reflected in the pump on a weekly basis. Malaysia, on the other hand, operates under a regulated environment and implements an automatic pricing mechanism that provides stable returns to fuel retailers. Now both countries are importers of petroleum products and as such, oil refiners like Petron benefit from this supply shortfall. Philippines and Malaysia historically imports at least 50% of its petroleum product demand. This, of course, is expected to increase further when demand expands. Petron's network of service stations in the Philippines and Malaysia offers differentiated and comprehensive service to customers. Our service stations provide a one-stop service experience to travelers on the road, offering various amenities that help generate nonfuel revenues and improve traffic in the service stations. We have synergistic tie-ups with our principal shareholder, San Miguel Corporation, who utilizes our expansive station network. In Malaysia, we have been able to replicate the successful Philippine business model as our retail business markets not only fuel but LPG and lube products augmented by almost 300 of our own Treats convenient stores. Aside from the one-stop shop experience to road travelers earlier mentioned, we also offer a loyalty program that complements well with our retail business. We are committed to continue to upgrade our loyalty program and offer new and diverse offerings to cater to the unique needs of our customers. As the year-end of 2022, we have more than 8 million Petron value cards issued in the Philippines and 3 million active loyalty cards in Malaysia. We also successfully launched the Petron app, companion to the everyday Filipino motorists. In addition to providing features that maximize customer experience, the Petron app has also played a vital role in shaping our marketing decisions to cater to the various needs of our customers. Using the transactional data from the app, we are able to categorize current holders into segments based on their purchase behaviors to launch strategic promotional activities, product offerings and targeted loyalty programs with the objective of increasing throughput and upselling higher value products. With a differentiated one-stop experience, the extensive network of our loyalty card program and the Petron app, we believe that we have been able to foster brand loyalty to further strengthen our position in both markets. Moving now to our refining assets. Petron constantly strives to further improve production of higher margin by-products and petrochemicals. Our investments have significantly enhanced our Philippine refineries' competitiveness with our complexity index higher than most refineries in the region. In particular, the recent RMP-2 investment enables us to further enhance our operational efficiencies and convert all carbon-intensive fuel oil production into high-margin fuels and carbon-neutral petrochemicals. Going forward, we will continue to strive to achieve further operational excellence as in the case of the new power plant, which now replaces some of our old and less energy efficient generators in the refinery. The said new power plant will not only be more energy efficient, but will also allow greater incremental power and steam as well as enable Petron to convert the output previously used as refinery fuel into high-value products. We have, likewise, established a strong presence in the Malaysian space as the third largest player in its downstream sector. The business we acquired in Malaysia constitutes a strong base from which we have expanded our retail market share to more than 21%, an increase of 5 percentage points from when we entered the space a decade ago. The marketing assets include a network of more than 750 service stations augmented by almost 300 convenience stores, 10 product terminals and various LPG facilities. Going forward, we aim to continue to further increase our market share by constructing new service stations and expanding our retail network. We also have a very strong presence in the aviation sector as Petron is one of the 3 major jet fuel suppliers at the Kuala Lumpur International Airport and KLIA2. Now our success has been achieved by having an experienced team of managers and employees with substantial and relevant experience in refining and marketing operations, all skilled in managing the various aspects of the business. This is evident in the average tenor of the company employees, which is now at almost 10 years. Lastly, one of the largest and most diversified conglomerates in the Philippines, which generates almost 5% of the country's GDP, is a principal shareholder, a relationship that maximizes and realizes opportunities and internal and external synergies. We'll now move on to the discussion surrounding our financials. The following is a brief snapshot of the market environment from 2020 to present. With the unexpected onslaught of the COVID-19 pandemic, Dubai Crude fell sharply by more than 60% in April of 2020 from its January price as the pandemic unraveled. Demand destruction caused by unprecedented lockdowns affected mobility and global trade, subsequently causing crude prices and refining margins to drop to 25-year record low levels. Since then, factors such as increasing mobility of various populations, further opening of economies, OPEC actively managing the market and supply chain disruptions exacerbated by geopolitical issues such as the ongoing Russia-Ukraine war has caused a surge in crude oil prices and record high refining margins in the first half of 2022. Since then, however, prices have corrected and the second semester of the year unfolded. This is as decade high inflation kicked in and interest rates shored, amplifying concerns of a global economic slowdown. Nevertheless, and despite of this correction, year-on-year prices still remained healthy as Dubai Crude ended the year almost 40% up. Gasoline refining margins were likewise up by 40% and diesel margins tripled compared to the same period last year, a rare occurrence that Petron was not only ready, but able to capitalize on by increasing its refinery utilization and production. Following on from the previous slide, we will now be touching upon the company's financial and operating performance. Given the aforementioned favorable market factors, coupled with a consistent and strong increase in sales volume, recovering demand and weaning pandemic concerns, the company recorded a notable performance in 2022. The company's Philippine and Malaysian operations sold a total of 112 million barrels during the year, up 37% from 2021's 82 million. Sales volume exhibited double-digit growth across all major trades with Petron's commercial sales posting a stellar increase of 30% as more industries, including aviation travel, rebounded from the pandemic's impact. Petron's retail business, likewise, managed an uptake of more than 25%, fueled by the strong sales of its premium gasoline and diesel fuels. Other products such as LPG, lubes and jet fuel, likewise, showed strong growth year-on-year. This resulted to an EBITDA of PHP 33 billion, significantly better than 2021's PHP 27 billion. Subsequently, the company's profits for the year reached PHP 6.7 billion, almost 10% stronger than the same period last year. To close, the following is a brief story of the company's various initiatives in the realm of ESG. As the Philippines' lone refiner and steadfast partner, Petron is and will always be committed to fueling the country's growth, transformation and progress. To our refinery and the country's largest oil distribution network, the company will ensure energy security by not only aligning to the country's national development agenda, but also to its journey towards a cleaner and more sustainable environmental landscape in the years to come. This is, likewise, in line with the upcoming group-wide ESG framework of the San Miguel Group where all its businesses will be aligned towards a unified target that is not only easily accessible and transparent, but also based on domestic and international ESG standards. As we provide the country's fuel and energy needs, we are committed to operate sustainably by minimizing our environmental impact, most especially our carbon footprint. We are regularly and carefully monitoring our emissions years before it was mandated, and are proactively managing our emissions. We have done this by creating a road map to effectively reduce our GHG emissions by measuring, monitoring and meeting set targets. This is already evident as our GHG emissions last year have already been reduced by more than 5% from baseline, and we will continue in these efforts as we endeavor to reduce operational greenhouse gases by as much as 25% or roughly 1/4 less of baseline in the next 3 years. Our fuel terminals and depots have, likewise, already accomplished a notable 11.25% reduction in its emissions and is aiming for the lofty goal of being carbon neutral by 2027. This is specifically for terminals and depot operations. These undertakings are supported and complemented by various efforts such as carbon sequestration through decades of numerous reforestation programs where we have already planted 1 million trees on over 1,000 hectares. Other initiatives revolve around the promotion of energy efficiency by utilizing solar energy and LED lighting and, finally, transitioning to cleaner and carbon-neutral products. Through the years, Petron has not only contributed to nation building, but has also gone to the grassroots levels to contribute positively to the communities where it is present, not only protecting the environment, but also taking care of the people around it. This is through various programs providing scholarships, schools, clinics and health care communities all around the country, while at the same time, fully cognizant to its responsibilities to its stakeholders by exercising good governance. Petron actively integrates ESG initiatives with its core business practices such that its plans and programs will have true meaningful and inclusive social and environmental impacts. With this, I end the presentation today and wish all of you a good day ahead. Thank you very much.

Thank you, Erich. And now to discuss the transaction overview, we would like to call on Ms. Sandy Dimayuga, Vice President of PCCI Capital.

Thank you, [ Nyan ], for that introduction, and I'll just go through the transaction overview. Next slide, please. So for the party to the transaction, the issuer is Petron Corporation; the sole issue manager is China Bank Capital Corporation; joint lead underwriters and joint book runners are Bank of Commerce, China Bank Capital Corporation, Philippine Commercial Capital, Inc., PNB Capital and Investment Corporation and SB Capital Investment Corporation. Counsel to the issuer is Picazo Buyco Tan Fider & Santos. And counsel to the underwriters is SyCip Salazar Hernandez & Gatmaitan. The stock transfer agent and receiving agent is SMC Stock Transfer Service Corporation. The independent auditor is R.G. Manabat and Company, and the listing is in the Main Board of the Philippine Stock Exchange, Inc. Next slide, please. Now as for the indicative terms and conditions. The issuer is Petron Corporation and the issue are cumulative, deferrable, nonvoting, nonparticipating, nonconvertible, redeemable, peso-denominated perpetual preferred shares or the Series 4 preferred shares. The issue size is PHP 20 billion with an oversubscription option of up to PHP 10 billion. These issue size of 20 million preferred -- Series 4 preferred shares with an oversubscription option of up to 10 million Series E preferred shares to be offered into the series as follows: Noncallable until the second year and 6-month anniversary from issue date or the Series 4A; noncallable until the third anniversary from issue date or the Series 4B; and noncallable until the fifth anniversary from issue date or the Series 4C. The issuer has the discretion to reduce the issue size, allocate the offer among the Series 4A, 4B and 4C based on the book building process or may opt to allocate the entire offer to a single series. The par value is PHP 1 per share and the offer price is PHP 1,000 per share. Now as for the structure, for the Series 4A, the benchmark rate is the 4-year BVAL rate with a marketing spread of 75 to 110 basis points. Option to redeem all, but not in part of outstanding shares on the second year and 6-month anniversary from the issue date or any dividend payment date after the 2-year and 6-month anniversary of the issue date. For the Series 4B, the benchmark rate is a 5-year BVAL rate, the marketing spread is 85 to 120 basis points. Option to redeem all but not in part of outstanding shares on the third anniversary of the issue date or any dividend payment date after the third anniversary of the issue date. And for the Series 4C, the benchmark rate is the 7-year BVAL rate, the marketing spread is 110 to 145 basis points options to redeem but not in part of the outstanding shares on the fifth anniversary of the issue date or any dividend payment date after the fifth anniversary of the issue date. Next slide, please. For the dividend step-up date, for Series 4A, it's on the fourth anniversary of the issue date. If not redeemed on the fourth anniversary of issue date, the dividend rate will adjust to the higher of the initial dividend rate or the 5-year Philippine peso BVAL rate plus 325 basis points -- excuse me. For the Series 4B, dividend step-up date is the fifth anniversary of the issue date. If not redeemed on the fifth anniversary of the issue date, the dividend rate will adjust to the higher of the initial dividend rate or the 7-year peso -- Philippine peso BVAL rate plus 325 basis points. And for the Series 4C, the dividend step-up date is the seventh anniversary of the issue date. And if not redeemed at the seventh anniversary of the issue date, the dividend rate will adjust to the higher of the initial dividend rate or the 10-year Philippine peso BVAL rate plus 325 basis points. Use of proceeds. Net proceeds of the Series 4 preferred shares are used primarily for the partial redemption of the 2018 Senior Perpetual Capital Securities, partial refinancing of the PHP 7 billion retail bonds, refinancing of existing indebtedness and purchase of crude oil. As for dividend payment, cash dividends will be payable starting September 5, 2023, and every March 5, June 5, September 5 and December 5 of each year. Each dividend payment date being the last day of each 3-month period following the listing date, as and if declared by the Board of Directors in accordance with the terms and conditions of the Series 4 preferred shares. The dividends of the Series 4 preferred shares will be calculated on a 30 to 360 day basis. If the dividend payment date is not a business day, dividends will be paid on the next succeeding business day without adjustment as to the amount of dividends to be paid. Form and titled as scripless, and taxation is dividend income subject to 10% of the final withholding tax for Philippine citizens and tax exempt for domestic corporations. Listing is on the Main Board of the Philippine Stock Exchange, and governing law is Philippine Law. Now for the indicative timetable, summarized as such: On May 18, 2023, the initial dividend rate setting date. On May 19, both the announcement of the initial dividend rate and allocation and receipt of permit to sell. May 22 to 26, 2023, offer period. And June 5 is the issue and listing date. That's all for the indicative timetable.

Okay. Thank you, Sandy. So now that ends our brief presentation. We will now open the floor for questions. Again, we have here representatives from the issuer as well as the joint lead underwriters to address audience questions. [Operator Instructions]. Okay. So I think we have here a few, starting off, I guess, addressed to the company. Can you please give us some color on how is it being the sole refiner in the past couple of years? Any recent developments on it?

I'll take that one. At the onset of the pandemic, it's unprecedented impact and effect to the performance of the company was undeniably negative. We suffered from record inventory losses due to external market factors that ultimately affected our profitability. Like various countries, including the Philippines, it recovered. Economic activity and mobility improved, which subsequently translated to recovery of prices of crude and finished petroleum products. Due to various supply and demand side factors coupled with geopolitical tensions, margins have recovered and actually have hit record highs last year. Being the sole refinery amongst all industry players domestically, we are the ones that captured this refining margins as we ramped up our utilization. The other players in the industries are mostly importers. The very recent exit of Shell made us the sole refinery here in the Philippines. We've seen prices of [ trucks ] or margins of products from an average of $11 for MOGAS in 2021 increased to as much as at its highest the second quarter of 2022 at $35. Spot prices now in 2023 March -- month of March is now at $22.90. For Diesel, from a low of $8.39 per barrel, it went up in the second quarter to as much as $52. Spot prices for 2023, as of March, is also at about $22.92. When market sentiment improves and inflation-related concerns dissipate, economic activity will normalize and demand would further progress. We will not only be there once again to capitalize on this, but we'll, likewise, be there to ensure energy security and supply crucial for the country's recovery from the pandemic, as we enter now a new phase of economic growth. Various improvements and operational efficiencies have been implemented in the refinery even after the major upgrade done during the RMP-2. One example would be its crude diversification, which improved or increased the crude [ oil ], which has proactively and continuously been expanded, tweaked and optimized, resulting to more robust adaptive and higher-margin products. This diversification has allowed us to look at more or higher margin products like diesel. When the months where it was at its highest margins, we were able to get the crude that would produce more of the diesel component. Likewise, our refinery operations people were able to maximize the production of diesel, considering that mobility as far as the air travel was constrained, much of the jet fuel were [ fluxed ] into diesel. So we were able to maximize and increase our diesel production. Another major improvement we have done here is the construction and recent completion of the RSFF B3. The new power plant will generate incremental power and steam and therefore, be able to supply the grid. Likewise, the refinery efficiency has been improved. Whereas in the past, we would use fuel oil to fire our very own 50-year-old thermal plants. We have replaced this with this new facility and we've been able to convert the fuel oil into more higher productive or higher value products. And to consider this new facility, it is environmentally friendly as it is more energy efficient than the old thermal plant it replaced.

We have another question addressed to the company. Can you please share your outlook and insights on how prices will be for the rest of 2023?

Good afternoon. In the last week, Dubai has been trading at $75 to $80 per barrel. And for much of the last 6 months, the headlines that were actually affecting prices are just two: first one being whether China products should be attained recovery from the impact of COVID-19 as fast as it was projected. And on the other hand, the recessionary fears as the U.S. and Europe try to solve their inflation problems. But if you -- if we talk about fundamentals and basic demand and supply, actually, the situation in the market is tight, tight enough to support the prices as they are right now. And so from a perspective of a possible forecast, if you ask most of our market consultants, the indication being given is that by perhaps late third quarter, early fourth quarter 2023, they still see a price range of about $80 to $90 as 2023 ends. Thank you.

There's another question for the company. What is the CapEx outlook for 2023 and the years ahead? Can you please give us more color on the company's key capital expenditure [ assets ]?

In total, we are looking at an amount of about PHP 10 billion to PHP 15 billion worth of CapEx for the year and onwards. These projects will be financed mainly from internally generated cash provided by operating activities. The company will continue to build and improve service stations, identify high-growth and high-volume sites to support fuel demand growth. We're looking at about PHP 1 billion to PHP 1.5 billion in 2023, and we're targeting 40 to 45 stations. We're also looking at retail network expansion programs for our LPG and lube segments, estimate of about PHP 300 million to PHP 400 million per year. Upgrade of our logistics capability with programs such as the recent [ power plant ] acquisitions and continuous expansion of our storage capacities in the vicinity of PHP 2 billion to PHP 3 billion per year. Refinery-related projects are the propylene transfer line from our refinery to our polypropylene plant and also the CME plant, the coco-methyl ester plant. Both will fetch probably PHP 1.2 billion for each of the projects. In Malaysia, the company will continue to construct new service stations and expand its retail network at PHP 2 billion to PHP 4 billion per year. We are planning to complete also 45 stations in Malaysia for this year. The company also likewise plans for further improving its logistics and logistics capability -- logistics and storage facility with new terminals such as the one that is being built in [indiscernible], which is at its early stage of construction. This is a build lease agreement with annual lease payments for the next 30 years. That's all. Thank you.

All right. For the next question, again, addressed to the company. With the volatility in prices for both crude oil and refining margins, as seen in the latter part of 2022 and as illustrated in your presentation, can you please discuss a little bit more the impact of global oil prices on the revenue and margins of the company?

For this year -- well, the broad statement is we are expecting to continue to grow in 2023. To begin with, we expect less volatility. It's still very volatile in the market, especially when we talk about prices. But relatively speaking, we hope to be -- we hope to see a market less volatile than 2022. And second, in this year, we hope to complete the recovery of our volumes, therefore, be able to attain the same levels pre-pandemic. And this is significant both on the retail segment of the company and the aviation industry. So we expect this to happen during the year. Now if we look at the markets that we serve, that's Malaysia and Philippines, two main expectations are in place: one that we hope to recover fully our retail volumes and actually grow more than the pre-pandemic level. And in the case of the Philippines, having been now the lone refiner in the country, we expect to gain strength in supplying the aviation segment. And as early as today, we see this happening. And so we expect full recovery of the aviation industry within the year. And we also believe that the levels of refining margins will continue to be healthy such that we will be able to support higher crude brands, both in the Philippines and in Malaysia. So overall, that should give us better results even if you compare it to 2022.

All right. The next question we have is in relation to the offer. So please discuss where the use of proceeds for the issuance of the Series 4 preferred shares will be used for?

This is Albert. Well, in terms of the use of proceeds, bulk of the proceeds will be used to redeem the U.S. dollar perpetual capital securities that has an optional redemption date in July of this year. So we have allocated around PHP 14 billion for that particular purpose. And then another PHP 4 billion is allocated for the redemption of a peso bond, it's actually maturing sometime in July. Now the balance will be used for working capital or for the purchase of crude.

All right. Again, in relation to the company, how does Petron mitigate its adverse contribution to air emissions and GHG?

All right. I guess, I will take that question, [ Nyan ]. So with environmental stewardship not being actually one of the pillars of Petron sustainability policy, we actually aim to effectively measure and, I guess, more importantly, manage our environmental footprint. And we've been monitoring our carbon footprint for at least more than a decade now already and have actually managed the emissions of the company and the operational facilities that we have by basically a three-pronged approach. So the first one, and I guess the most important one is, of course, to limit our emissions. Now how have we been able to do so? We've done it basically through initiatives within our plants, the refinery and our terminals by activities such as, for example, the configuration and improvement in the operations of various processing units. I guess, the best example here is, I think, what LBN, or Mr. Nepomuceno, earlier touched on, which is the replacement of our old less energy-efficient thermal power plants with the more efficient cogen power plant that we're now utilizing. So for our refinery alone, we've actually already been able to reduce our carbon footprint, and we're happy to report that emissions in 2021 have been reduced by around 5% already compared to baseline. And we won't stop there. We're continuously aspiring to reduce it further, and we're looking at around a more than 20% reduction in our greenhouse gas emissions in around 3 to 4 years' time. So for our terminals and depots, on the other hand, its greenhouse gas emissions have actually been reduced by more than 10%. I think around 11.25% against baseline. And for the terminals and depots alone, we are actually looking at that lofty goal of being carbon neutral by around -- roughly around 2027, but that's specifically for our depots and terminals alone. Now the second part or the second prong of our strategy would be basically to capture the carbon or carbon sequestration, capture the emissions that we put out in the atmosphere. So how have we done that? We've actually planted more than 1 million trees in the past decade or so. We've adopted hectares and hectares, actually, of forest lands and even mangroves. And with that, we're actually targeting to plant around 750,000 more trees and mangroves nationwide in 2 to 3 years. The beauty -- just to give you a little color -- the beauty of adopting these sites or reforestation sites is that these areas are, of course, number one protected. And we could also monitor the growth and the health of these trees and mangroves. And with that, of course, comes the data that we need to see, engage, where we are in terms of our plans and programs for the environment and specifically for carbon sequestration. If we hit our targets in terms of our carbon sequestration program, we're actually looking at capturing at least around almost 10,000 tonnes of carbon per year. We're not stopping there. We're actually trying out different things. We're experimenting right now on the potential of carbon dioxide fixation using seaweeds and macroalgae, which, based on preliminary early studies, could sequester around 6x more than the carbon that could be captured for the same area of terrestrial forest. And then, of course, the last -- the third prong -- or the third approach would be to promote energy efficiency. Now again, how do we do that? We've actually already rolled out and are currently utilizing for years already, and we will continue to do so now, solar energy via installations of solar panels in our terminals, in our service stations and even in the refinery. And of course, we've also been using and continue to use -- will continue to use LED lighting in all our operating units. Just to share, depots alone, we're already able to use, I believe, around more than 14,000 kilowatt-hours of solar energy. And more than -- I believe, almost 400 of our stations already have also been equipped now with LED lighting, reducing henceforth its energy consumption and maintaining, of course, at the same time, operational efficiencies. And then lastly, finally, coinciding with a three-pronged approach, we also plan to, of course, continuously come out with cleaner and more carbon-neutral products through, of course, our biofuels initiative, which are, of course, known to be carbon neutral. Petron is in the process actually of putting up its own CME plant, which will, of course, further support our green energy initiative. We've also started transitioning some of our product -- refinery production slate from just purely fuels to actually petrochemicals, which are, as we know, not used as combustion fuels, hence not contributing to the reduction of -- sorry, contributing to the reduction of our GHG emissions. We're also, of course, likewise, studying the possibility of charging facilities in some of our service stations for EVs sooner, especially when we see that there's really more of a proliferation of these kinds of vehicles in the roads. So with all these initiatives well ingrained in our operations and the organization, we believe that, of course, our commitment to the environment and, of course, environmental stewardship and sustainability is well placed. And we will continue to thrive in the years to come. I hope that answers the question, [ Nyan ].

Thank you, Erich, for that very comprehensive explanation. Now I think we have one last question. Given the limited time we have, we can only accommodate one last question. I guess, this is in relation to the issuance. Kindly explain the rationale of the structure of the issuance?

[ Nyan ], I can take that. So Petron is offering a base issue size of PHP 20 billion with an overallotment option of up to PHP 10 billion preferred shares and three series. Series A (sic) [ Series 4A ], perpetual, non-call, 2.5 years with step-up on the fourth year from issue date. Series 4B, perpetual, non-call, 3 years with step-up on the fifth year from issue date. And series 4C, perpetual, non-call, 5 years with step-up on the seventh year from issue date. Though there is a call option earlier than the step-up date, note that the pricing from the -- for the initial dividend rate is based on the benchmark BVAL tenor for the step-up date, that is the 4-year BVAL for the Series 4A, the 5-year BVAL for the series 4B and a 7-year BVAL for the Series 4C. The structure provides Petron the flexibility to redeem the preferred shares in whole, but not as part, any subseries of Series 4 preferred shares earlier than their respective step-up date as part of its regular [indiscernible] management efforts. Note also that on the different stated step-up date, the initial dividend rate would step up to the higher of the initial dividend rate or either the 5-year, 7-year or 10-year BVAL plus 325 basis points step-up spread.

All right. Sorry, I think we can accommodate one last question. I think a majority of the questions are related to this. So I think we should address it. What is the outlook for the first quarter of 2023?

We still have two days before quarter end. But obviously, we still don't have the number. But I guess -- but in terms of outlook, I would probably say that the company is expected to deliver a strong financial performance for the first quarter of 2023. I think we will even surpass our plans or budgets given that we have seen increased mobility, which actually drove sales volumes up. Refining margins continue to be better actually compared to what we have planned as well. So we expect that the first quarter will be better than our plans despite the fact that we're seeing some level of inventory losses in the first quarter. Now -- but if you were to compare first quarter versus first quarter of last year, I think at best, we will be at par. The reason for that is, the first quarter results of 2022 was actually very, very good in the sense that it was primarily driven by inventory gains of around, I think, more than PHP 5 billion. Because if you recall, because of the Russian-Ukraine war, crude prices started to move up last year. And we saw the highest inventory gain actually in the first quarter of 2022, which eventually was wiped out in the second half of 2022. So if you were to compare Q1 2023, 2022, I think it will be flat at most or probably a little bit lower. But nonetheless, the full -- the number that we will disclose by first quarter of -- sorry, by May 15 this year is a good number, better than our plans.

Unfortunately, we don't have time to address all the other questions. For those that we failed to respond today -- this afternoon's meeting, please -- for those who ask, please feel free to reach out to your assigned joint lead underwriter, and we can explain further and help you with those questions and clarifications. So to close our briefing this afternoon, may we please call on Mr. Jed De Rivera, Head of Origination and Execution of PNB Capital Investment Corporation for some closing remarks.

Good afternoon, everyone, and thank you again for joining us today. On behalf of the joint lead underwriters and joint bookrunners, I would like to thank the Petron management team for providing us the opportunity to be a partner for this Series 4 preferred shares offering of up to PHP 30 billion. We are proud to be part of yet another landmark offering that will help Petron, one of the largest fuel suppliers in the Philippines, to grow even further and bolster its capabilities to provide services to the Filipino people. It is not often that we are provided an opportunity to invest in such a reputable [indiscernible] relatively active coupon rates. We all know the name, Petron, with 1,900 retail stations. Each of us motorists have been supported by the company on road at some point in our lives. Petron owns 1/3 of the retail market after all. And this is all enabled by no less than 28 terminals and 12 [indiscernible] truly an artery of the economy. Always want to fuel progress, the company is also poised to expand their nonfuel [indiscernible] volumes through various other offerings, convenience stores around and specialty shops. Upstream, Petron's recent investments [indiscernible], the only one in the country, has allowed the company to boost the production of higher margin fuel products and petrochemicals. Supportive global demand for oil and energy products are expected to provide an impetus for the key areas -- for strategic focus of Petron, and achieving these goals will help meet the needs of consumers and fuel the nation's strategic industries, all of which for a stronger and more resilient local economy. We, the joint lead underwriters and the joint bookrunners, are committed to support companies like Petron that strengthen our nation's economy as well as the industries that sustain its growth. With Petron's strong growth platform and significant contribution to the lives of the Filipino people, we look forward to your support as well. Thank you, and enjoy the rest of the day.

Thank you, Jed, and that ends our briefing for this afternoon. Again, thank you, everyone, for your time, and we look forward to your continued support. Enjoy the rest of the day.