Petron's 3rd Quarter Earnings Down by 78%

October 29, 1999 PSE CIRCULAR FOR BROKERS NO. 2778-99 PRESS RELEASE PETRON CORPORATION OCTOBER 28, 1999 PETRON'S 3RD QUARTER EARNINGS DOWN BY 78% Petron reported a loss of P192 million for the month of September, which resulted in a 78 per cent drop in its net income for the third quarter. From P520 million in 1998, the company's third-quarter income fell to P113 million this year. The loss reflects a continued deterioration in performance since July, when earnings of P294 million slipped below the monthly average of P316 million for the first half of the year. This was followed by a substantial decline in August, when income for the month fell to P12 million. The decline was mainly due to crude cost under recoveries Petron has been sustaining since crude prices started increasing in March. The cost of crude has increased by over 120 per cent from $10 per barrel in February to nearly $22 per barrel last month. Because of competitive pressures and social concerns, product price adjustments have only amounted to 27 per cent, resulting in substantial under recoveries. The company has been taking measures to reduce costs in an effort to stem losses, but these cannot offset the rapid increase in crude costs. In terms of volumes, Petron registered total sales of 39.1 million barrels from January to September, lower by 12 per cent compared to last year's figure. This largely reflects the decline in fuel oil and diesel sales to NAPOCOR, which switched a significant portion of its fuel requirements to coal and other energy sources during the year. Sales to other domestic customers outsite of NAPOCOR actually grew by 10.6 per cent. In particular, gasoline and LPG sales show healthy growth rates of 11 per cent and 8 per cent, respectively. Despite the recent experience of poor profitability, the company's management believes that this is only a temporary and extraordinary situation and is confident that as crude prices stabilize in the international market, Petron's financial performance will improve. PETRON CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND UNAPPROPRIATED RETAINED EARNINGS For the Nine-Month Period Ending September 30, 1999 and 1998 (Amounts in Millions of Pesos) January to September 1999 1998 SALES 43,604 5,075 COST OF GOODS SOLD 37,595 39,015 GROSS PROFIT 6,009 6,060 OPERATING EXPENSES 2,689 2,465 INCOME FROM OPERATIONS 3,320 3,595 OTHER INCOME/(CHARGES) (160) 550 INCOME BEFORE INCOME TAX 3,160 4,145 PROVISION FOR INCOME TAX 1,141 1,314 NET INCOME BEFORE MINORITY INTEREST 2,019 2,831 EQUITY OF MINORITY INTEREST 7 7 NET INCOME AFTER MINORITY INTEREST 2,012 2,824 UNAPPROPRIATED RETAINED EARNINGS AT BEGINNING OF THE PERIOD 6,406 4,823 Cash dividend - P0.20 a share (1,875) - UNAPPROPRIATED RETAINED EARNINGS AT END OF PERIOD 6,543 7,647 PETRON CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Amounts in Millions of Pesos) As of 09/30/1999 12/31/1998 ASSETS Current Assets Cash and cash equivalents 10,752 7,985 Short-term investments 928 34 Receivables - net 7,290 5,665 Inventories - net 10,342 6,513 Other current assets 570 281 Total Current Assets 29,882 20,478 Property, Plant and Equipment 23,347 21,521 Investments 290 211 Other Assets 418 590 TOTAL ASSETS 53,937 42,800 LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities Short-term loans 20,644 11,617 Liabilities for crude oil and petroleum product importation 3,554 1,700 Account payable and accrued expenses 6,756 5,437 Total Current Liabilities 30,954 18,754 Non-current Liabilities 4,889 6,096 Total Liabilities 35,843 24,850 Capital Stock Authorized - 10,000,000,000 shares Par value-P1 per share Issued and outstanding 9,375 9,375 Retained Earnings Appropriated 2,136 2,136 Unappropriated 6,543 6,406 Accumulated Translation Adjustment 40 33 Total Stockholders' Equity 18,094 17,950 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 53,937 42,800 PETRON CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions of Pesos) January to September 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net income 2,012 2,824 Adjustments to reconcile net income to net cash provided by operating activities Provision for (benefit from) deferred income tax (255) 1,127 Net unrealized foreign exchange loss 894 675 Depreciation and amortization 1,188 825 Provisions for doubtful accounts, inventory obsolescence others 29 29 Changes in assets and liabilities Decrease (increase) in: Receivables - trade (3,573) 1,466 Inventories (3,829) (2,234) Other current assets (50) (63) Increase (Decrease) in: Liabilities for crude oil and petroleum product importation 1,811 (166) Accounts payable and accrued expenses 498 677 Other current liabilities 790 1 Net cash provided by (used in) operating activities (485) 5,161 CASH FLOWS FROM INVESTING ACTIVITIES Additions to Property, plant and equipment (2,786) (7,639) Reductions from (additions to): Short-term investments (892) 74 Long-term investments (70) 248 Decrease (increase) in: Receivables - others 2,020 147 Other assets 162 287 Net cash used in investing activities (1,566) (6,883) CASH FLOWS FROM INVESTING ACTIVITIES Payment of ING loan (1,610) (1,605) Net availment/(settlement) of short-term loans 8,076 (6,899) Cylinder Deposits Other 132 152 Payment of cash dividends (1,875) - Net cash provided by (used in) operating activities 4,723 (8,352) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 95 14 NET INCREASE/(DECREASE)ON CASH AND CASH EQUIVALENTS 2,767 (10,060) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 7,985 18,474 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 10,752 8,414 PETRON CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND UNAPPROPRIATED RETAINED EARNINGS For the Three-Month Period July to September 1999 and 1998 & For the Nine-Month Period January to September 1999 and 1998 (Amounts in Millions of Pesos) July to September January to September 1999 1998 1999 1998 SALES 16,368 14,185 43,604 45,075 COST OF GOODS SOLD 15,124 12,837 37,595 39,015 GROSS PROFIT 1,244 1,348 6,009 6,060 OPERATING EXPENSES 1,001 908 2,689 2,465 INCOME FROM OPERATIONS 243 440 3,320 3,595 OTHER INCOME/(CHARGES) (102) 266 (160) 550 INCOME BEFORE INCOME TAX 141 706 3,160 4,145 PROVISION FOR INCOME TAX 26 184 1,141 1,314 NET INCOME BEFORE MINORITY INTEREST 115 522 2,019 2,831 EQUITY OF MINORITY INTEREST 2 2 7 7 NET INCOME AFTER MINORITY INTEREST 113 520 2,012 2,824 UNAPPROPRIATED RETAINED EARNINGS AT BEGINNING OF THE PERIOD 8,305 7,127 6,406 4,823 Cash dividend - P0.20 a share (1,875) -(1,975) - UNAPPROPRIATED RETAINED EARNINGS AT END OF PERIOD 6,543 7,647 6,543 7,647 Earning per share 0.01 0.06 0.20 0.30