UNIVERSITY OF SOUTHEASTERN PHILIPPINES

College of Governance and Business

FINANCIAL MANAGEMENT

PHOENIX PETROLEUM PHILIPPINES, INC.

Financial Management

BA 206

8:00-10:00 AM (SATURDAY)

November 19, 2016

Submitted by:

BASCONES, FLORDELIZA E.

BELTRAN, MARK JEYSON

COQUILLA, MARISSEANNE ELAINE

DADIS, RAUL

MEDINA, ARVIN

MURILLO, JUNIL LOUELL

Submitted to:

PROF. ANGELO JADRAQUE, MM, CPA

I. Company Profile
Phoenix Petroleum is an independent oil player incorporated in May 2002 as a Davao,
Philippines-based fuels wholesaler under the name Davao Oil Terminal Services Corp
(DOTSCO).

Phoenix Petroleum Philippines, Inc. (PNX) is the leading independent and fastest-growing oil
company in the Philippines. Since its first station in 2005 in Davao, it has expanded
nationwide to build a wide network of retail stations and commercial and industrial clients.
Its business covers the trading of refined petroleum products and lubricants to retail and
commercial channels, operation of oil depots, storage and transport services. Its integrated
logistic services include hauling and into-plane services of Jet-A1 fuels to airports and
airlines and refueling of aircraft in key cities.

The Company’s products are services are distributed and marketed under the Phoenix Fuels
Life trademark.

Phoenix Petroleum is a publicly-listed company on the Philippine Stock Exchange since July
2007, the only oil company to do so after the Oil Deregulation Law was passed in 1998.
The Company has been recognized by various award-giving bodies for its leadership,
marketing, and CSR programs.

Ranked 31st in the country’s Top 1,000 Corporations as of 2013, Phoenix Petroleum is today
the number one independent oil company in the Philippines.

Phoenix Petroleum is the exclusive supplier of aviation fuel for low-cost carrier Cebu Pacific
in Mindanao.

It is described as "one of the country’s most aggressive independent oil companies" having
reached a core net income of P427 million in 2010, compared to its P178 million earnings in
2009.

In 2012, Phoenix is the seventh top importer in the country having remitted P4.7 billion in
import taxes to the government. [6] Phoenix reportedly ended the first quarter of 2013 with
325 retail stations. [7] The revenue of Phoenix in the first quarter of 2013 increased from P8.3
billion last year to P10.3 billion this year.
Milestones

2002

 The company that was to be known as Phoenix Petroleum is incorporated as

a family business in Davao City

 2004

 Launches operations in current form. Begins distributing petroleum products

to various commercial entities in Mindanao.

 Becomes the exclusive logistics partner of Cebu Pacific, the largest domestic
airline operator in the country, in all its Mindanao destinations. Phoenix would
eventually supply majority of Cebu Pacific's fuel requirements nationwide.

 2005

 Opens first retail station in Digos City in June, with 5 stations by year-end

 2006

 Company is officially renamed to Phoenix Petroleum Philippines, Inc.

 Expands product line by introducing lubricants

 20 stations by year-end, all in southern Mindanao

 Ranks 570th among country’s Top 10,000 Corporations based on revenue

 2007

 On July 11, launches successful initial public offering under the symbol PNX.
Phoenix becomes the first independent oil company to be listed in the
Philippine Stock Exchange after the Oil Deregulation Law was passed in
1998.

 2008

 Opens 75th station nationwide and first Manila station in Marikina in October

 2009

 100th Phoenix station opens in General Santos City in February with world
boxing champion Manny Pacquiao as dealer and brand ambassador

 Acquires the Bacnotan Industrial Park Corp., owner of Batangas Union

Industrial Park, in March as part of Luzon expansion program. In July, the 60-
hectare BUIP is inaugurated as Phoenix Petroterminal and Industrial Park. It
houses the largest Phoenix depot yet.

 Opens Cebu station in March, the first in Visayas

 Ends the year with 120 stations opened around the Philippines
  Ranks 211th in the Philippine Top 10,000 Corporations

 2010

 Opens 150th station in Liloan, Cebu in October

 Ranked top 84th corporation in the Philippines.

2011

 In November, inaugurates the company’s most modern terminal facility yet at

Cagayan de Oro.

 With terminals and depots in key islands nationwide, Phoenix Petroleum now
has the largest storage capacity among local independent oil companies.

 Expands retail network to 220 stations

 2012

 Rolls out new vision: To be an indispensable partner in the journey of

everyone whose life we touch.

 Acquires Chelsea Shipping Corporation

 Joins the Philippine Business for Social Progress (PBSP), the largest
corporate-led, non-profit social development foundation in the Philippines.

 Becomes a signatory to the Integrity Pledge, a formal and concrete

expression of commitment by companies to abide by ethical business
practices.

 2013

 Network expands to 368 stations nationwide

 Ranks 31st among country's Top 1,000 Corporations

2014

 Expands network to 418 stations nationwide. Several large stations are

becoming a one-stop destination with well-known locators in fast food and
quick service restaurants, convenience stores, car maintenance, and other
services.

 Launches Pinoy Tsuper Hero, a first of its kind advocacy program, to

recognize and empower Filipino drivers

2015

 Grows to 454 stations nationwide

 Phoenix depots reach a safety milestone with 1.69 million safe man hours
reached for the period of January to December 2015
  Awarded as Outstanding Filipino Franchise in Retail-Large Store category in
the 2015 Franchise Excellence Awards (FEA) by the Philippine Franchise
Association

2016

 Joins the Philippine Basketball Association (PBA) with the Phoenix Fuel
Masters team
II. Industry background.
Industry and company The Philippine oil industry has gone through massive changes over
the past fifteen years. From a government-regulated industry with just three players
beginning in the 1970s, it is now in a fully-deregulated environment with over 60 participants
through the entry of new players.

Phoenix Petroleum Phils is one of the main beneficiaries of the significant change in the
regulatory environment. Industry background Prior to the deregulation of the industry, it was
the government that set the local prices of all petroleum products sold locally from 1973
onwards. Furthermore, after a period of consolidation in the 1970s the oil marketing industry
was also just limited to three players: Caltex Phils (now called Chevron Texaco Phils),
Pilipinas Shell and the government-owned Philippine National Oil Company (PNOC). These
companies are known in the industry as the “Big Three” and these three entities were not
just petroleum product marketers but also had their own refineries.

The service stations of PNOC were under the brand name Petron and the marketing arm
became a publiclylisted company when Petron had its IPO in September 1994. Since the
Philippines imports 99% of its petroleum requirements, significant increases in the price of
petroleum products are always particularly hard on the country.

To address the shocks of the oil crises in the 1970s, the government of President Ferdinand
Marcos (1965-1986) set up the Oil Price Stabilization Fund (OPSF). The rationale for the
OPSF was to cushion and help ride out the effects of the volatility in global petroleum prices
in the local market. In times of low crude oil prices, the OPSF would be replenished and
during times of rising crude oil prices, the oil companies would draw on the fund to smoothen
out local pump prices.

However, the use of the OPSF was highly politicized with the government incurring
substantial budget deficits as it tried to defer price increases to avoid public protests. What
would happen then was a massive increase in local pump prices when the government could
no longer hold off price increases. It can be said that some of the coup attempts in the 1980s
during the administration of President Corazon Aquino (1986-1992) tried to ride on public
indignation (through several general strikes) during one such incident when pump prices of
gasoline went up by 50% overnight from P14 to P21 per litre.

Moreover, some administrations had also drawn on the OPSF when it was in surplus to fund
non-oil-related expenditures. It was during the administration of President Fidel Ramos
(1992-1998) when there were moves to deregulate certain industries such as the power,
telecommunications, banking and oil. For the oil industry, the deregulation is merely a return
to the state of the industry prior to 1973. The current deregulated environment is actually the
Philippines’ second attempt in deregulating the industry.

Prior to the current set-up, Congress had passed a law (RA 8180) in 1996 that had
deregulated the industry. However, the Supreme Court had declared the law unconstitutional
because of three provisions in the law: 1) the 4% tariff differential between crude and
finished oil products; 2) provisions on predatory pricing; and, 3) the imposition of minimum
60-day inventory requirements. The Supreme Court declared that these provisions
unconstitutional as these were detrimental to competition by giving undue advantages to the
existing oil companies.

The Downstream Oil Industry Deregulation Act of 1998 (RA 8479) allowed market
competition and removed government control on the pricing, exportation, and importation of
petroleum products as well as the establishment of retail outlets, storage depots, ocean-
receiving facilities and refineries.

The revised law was essentially still the same version as the previous one but without the
unconstitutional provisions. This law also required the oil industry players to go public within
a certain period of time. Since the passage of the law, the Big Three have been able to get
deferments on this listing requirement and so far only one company has complied with this
provision.

The government’s role in the deregulated environment would be relegated to one of

monitoring price movements of local pump prices as well as imports and exports. Since
under this law there are no government subsidies and that the oil players let market forces
determine prices, the government would still at times use moral suasion on oil companies
not to increase their prices too rapidly. It also had used its influence in deferring oil price
increases through Petron as a 40% equity owner through PNOC, ie, Caltex and Shell would
not immediately raise prices if it knew that Petron would not raise its prices in the next few
days. Aside from the Big Three, there are more than 60 players in the deregulated oil
industry environment since 1998.

These are known in the industry as the “independent players.” Most of them are local firms
but there are some large foreign-owned firms such as PTT of Thailand, Petronas of
Malaysia, Liquigaz of the Netherlands and Total of France. We believe that the current
deregulated oil industry environment is here to stay. While there are still calls by some
sectors and the occasional Congressman for a repeal and/or review of RA 8479 from time to
time (especially during times when local pump prices are on the upswing), protests are no
longer mainstream and come mainly from the more militant groups. We believe that this is
due to more public acceptance of an environment where small incremental price changes
(either up or down) are the norm rather than large, lumpy ones.

The state of the industry The Philippines consumes slightly more than 310,000 barrels per
day (BPD) of petroleum products, up from 225,000 BPD in 2006. Around 50% of this
demand is addressed by the direct importation of finished petroleum products while the
balance of 50% is supplied by the production of finished petroleum products from the two
local refineries of Pilipinas Shell and Petron. In 1H2010 alone, Philippine demand for
petroleum products rose by 5.4% to 56.2m barrels (MMB).
III. MARKET SHARE
The major oil companies (Petron Corp., Chevron Phils. and Pilipinas Shell Petroleum Corp.)
got 57.0 percent market share of the total demand while the other industry players which
include PTT Philippine Corp. (PTTPC), Total Phils., Seaoil Corp., TWA, Phoenix, Liquigaz,
Petronas, Prycegas, Micro Dragon, Unioil, Isla Gas, Jetti, Eastern Corp., JS Union, JS Phils.
Corp., Petrotrade, South Pacific, Marubeni, SL Harbour, Perdido and Filoil Energy Co., as
well as the end users who imported directly most of their requirement captured 43.0 percent
of the mar ket (Fig. 3).

(source: Department of Energy 2015)

Meanwhile, the local refiners (Petron Corp. and Pilipinas Shell) captured 50.5 percent of the
total market demand while 49.5 percent was credited to direct importers/distributors.
IV. General Information Sheet (GIS) Details – Equity
Holdings and Officers.
(please see attached file for list of stockholders and theri
profile)
Corporate Group Structure

The map below shows the relationship between and among the company and its related
groups:
Executives and Senior Managers

Dennis A. Uy
President and Chief Executive Officer

Romeo B. de Guzman
Chief Operating Officer

Joseph John L. Ong

Chief Finance Officer

Joselito G. de Jesus
Deputy Chief Operating Officer

Chryss Alfonsus V. Damuy

Vice President for Finance

Alan Raymond T. Zorrilla

Vice President for External Affairs, Business Development, and Security

William M. Azarcon
Vice President for Operations, Transport, Aviations, and Engineering

Ericson S. Inocencio
Asst. Vice President for Sales Mega Manila

Roy O. Jimenez
Asst. Vice President for Sales North Mindanao

Norman T. Navarro
Asst. Vice President for Sales South Mindanao

Joven Jesus G. Mujar

Asst. Vice President for Lubricants Sales and Distribution

Ignacio B. Romero
Asst. Vice President for Technical Services and QAPD

Socorro T. Ermac-Cabreros
Asst. Vice President for Corporate Legal

Reynaldo A. Phala
Asst. Vice President for Treasury

Maria Rita A. Ros

Asst. Vice President for Supply

Alfredo Rogelio E. Reyes

Asst. Vice President for Information Technology
Ma. Celina I. Matias
Asst. Vice President for Brand and Marketing

Celeste Marie G. Ong

Asst. Vice President for Human Resources

Debbie U. Rodolfo
Asst. Vice President for Customer Service and Corporate Communications

Board of Directors for 2016-2017

Domingo T. Uy
Chairman

Dennis A. Uy
Vice Chairman

Romeo B. de Guzman
Director

Atty. J.V. Emmanuel A. de Dios

Director

Atty. Socorro Ermac-Cabreros

Director

Paul G. Dominguez
Director

Joseph John L. Ong

Director

Cherylyn C. Uy
Director

Carolina Inez Angela S. Reyes

Director

Monico V. Jacob
Independent Director

Justice Consuelo Ynares Santiago

Independent Director
V. Disussion on the Profile of Stockholders.
(please see attached file)
Analysis of Financial Condition

Financial Condition
(As of December 31, 2015 versus December 31, 2014)

Total resources of the Group as of December 31, 2015 stood at Php 30.927 billion, higher by
24% compared to the Php 25.000 billion as of December 31, 2014. This is mainly due to
increase in Property, Plant and Equipment with the continuous expansion on retail station,
storage and including shipping assets. The increase in current assets mainly Cash and
Accounts Receivable also contributed to the total increase in assets.

Cash and cash equivalents increased by 194% from Php 556 million in December 31, 2014
to Php 1,632 million mainly due to the proceeds on the issuance of preferred shares.

The Group’s liquidity position continued to be strong with Current Assets amounting to Php
17,039 billion as of December 31, 2015, compared with Php 13.484 billion as of December
31, 2014. The increase in Cash and Trade and Other Receivables contributed to the
increase in Current Assets.

Trade and other receivables increased by 37%, from Php 7.855 billion as of December 31,
2014 to Php 10.810 billion as of December 31, 2015, which were mainly due to Company
receivable from various customers and suppliers. The Group continues to enhance its credit
policies to minimize overdue accounts.

Inventories declined by 8.09% at Php 2.638 billion as of December 31, 2015 from Php 2.871
billion as of December 31, 2014. Inventory volume in December 31, 2015 is higher
compared to December 31, 2014. However, the average unit price in 2015 year-end
inventory is lower by 46% compared to 2014 end year. The Company maintains an average
of one month worth of inventory to ensure stable supply in retail stations and
commercial/industrial clients.

Due to related parties in December 31, 2015 and December 31, 2014 was Php 12.261
million and Php 10.373 million respectively.

The increase of Php 1.887 million or 18% was due to charges made during the year.

Input taxes-net increased by 28% in December 31, 2015 was the result of accumulated input
taxes on capital expenditures as the company is still on expansion mode and the input taxes
on operating expenses.

Other current assets were at Php 639 million and Php 1,032 million as of December 31,
2015 and December 31, 2014 respectively. The decrease represents prepaid rentals on
leased retail service stations properties and depot sites, prepaid insurance, creditable
withholding taxes and other current assets.

As of December 31, 2015, the Group’s property and equipment, net of accumulated
depreciation, increased to Php 12.843 billion compared to Php 10.716 billion as of
December 31, 2014 due to investments in additional shipping vessels, depot capacity in
existing, and new sites. In the first quarter, the Group took delivery of a brand new marine
tanker for domestic use. Additional retail stations were also constructed and/ or under
construction in Luzon, Mindanao and Visayas as part of the Company’s objective to further
expand its retail network. The Company also has ongoing storage facility expansion.

Current and non-current Loans and Borrowings increased by 23% from Php 13.842 billion as of
December 31, 2014 to Php 3.843 billion as of December 31, 2015. The increase of Php 3.141 billion
was due to borrowings to finance capital expenditures and for working capital requirements.

Trade and other payables decreased by 4%, from Php 3.399 billion as of December 31, 2014 to Php
3.260 billion as of December 31, 2015. This is mainly due to lower prices of fuels inventory.

Total Stockholders’ Equity increased to Php 10.023 billion as of December 31, 2015 from Php 7.050
billion as of December 31, 2014 as a result of the Php 2 billion preferred shares issue plus the
period’s net income, net of the cash dividend declared and paid during the year for both common
shares and preferred shares.