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<p>JOURNEY TO GREATER HEIGHTSANNUAL R EPO RT 2 0 1 0</p> <p>Our Core Values Our VisionAs the first home-grown publicly listed independent company in the Philippine petroleum industry, we will be:Integrity We adhere to the highest standards of ethics and conduct. Our reputation defines who we are. Excellence We strive to be better in everything we do. Service All stakeholders are our customers, thus we provide unrivaled customer experience. Innovation We believe that change is constant. We challenge convention with fresh, better, and more valuable products, services and ideas. Teamwork We value relationships. We achieve our goals through collaborative efforts, recognizing the contribution of team members and respecting each others opinions and ideas. Stewardship We nurture our resources responsibly.</p> <p>The market leader in the retail business among independent oil players by the end of 2012</p> <p>Our MissionMake Phoenix Fuels Life an experience.- We value our customers by delivering excellent service - We honor and develop business relations with our stakeholders - We deliver attractive returns to our shareholders - We enrich the quality of life of our people and their families, while creating opportunities to maximize the potential of each individual - We take social responsibility to heart by building programs to nurture the environment and welfare of the communities we serve</p> <p>About the Cover The journeys we remember are those that lift our emotions whether from the warm smiles of new friends, views that take ones breath away, pleasant service on the road, or long-awaited embrace from loved ones. Throughout these journeys, Phoenix is at your side. This reports theme describes the banner year that our Company achieved in 2010. It captures the optimism we feel as we work harder to make Phoenix bigger and better. Join us as we journey to greater heights.</p> <p>Contents2 3 4 7 8 9 18 22 24 26 28 32 33 34 40 77 Corporate Profile Financial Highlights Message to Shareholders from the Chairman and President and CEO Operations Overview from the Chief Operating Officer Product List Review of Operations Corporate Social Responsibility Board of Directors Corporate Governance Management Team Managements Discussion and Analysis of Financial Conditions Statement of Managements Responsibility for Financial Statements Report of Independent Auditors Consolidated Financial Statements Notes to Consolidated Financial Statements Corporate Offices</p> <p>Corporate ProfilePhoenix Petroleum Philippines, Inc. is the fastest growing independent oil company today with an expanding network of operations nationwide. It was incorporated in May 2002 in Davao City as a family business under the name Davao Oil Terminal Services Corporation (DOTSCO). It began operations in its current form in January 2004, distributing petroleum products to various commercial entities in Mindanao. In August 2006, the company was officially renamed to Phoenix Petroleum Philippines, Inc. Today, Phoenix Petroleum is engaged in the business of trading refined petroleum products and lubricants, operation of oil depots and storage facilities, and allied services. Its products and services are distributed and marketed under the Phoenix Fuels Life trademark. The company has depots in Davao City, Davao del Norte, Aklan, Surigao, Zamboanga, and Batangas. The Davao and Batangas depots are ISO 9001-certified for quality system standards. The 50-million-liter Batangas depot is located at the Phoenix Petroterminal and Industrial Park, which was bought out from Bacnotan Industrial Park Corp. in 2009. From these depots, the companys own fleet of trucks delivers products to a growing number of retail and commercial customers. In the next years, more depots will be constructed to serve as the backbone of the retail network and the terminaling and storage business of the company.</p> <p>The first Phoenix retail station opened on June 2005 in Davao. The network gradually widened to over 50 stations in 2007, all in southern Mindanao. In 2008, Phoenix Petroleum began expanding to Luzon. At the end of 2010, Phoenix stations numbered 161 all over the country, with 123 in Mindanao, 5 in Visayas, and 33 in Luzon. Phoenix Petroleum also supplies to commercial and industrial clients, primarily to the airline, shipping, fishing, mining, power and transportation sectors. Since September 2004, the company has been the exclusive logistics partner of Cebu Pacific, the largest national carrier in the Philippines. Phoenix services all refueling requirements of Cebu Pacific in Mindanao, as well as regional flights from Mactan, Cebu. Phoenix has built up its brand to represent passion, vitality, and energy. The company was represented in past campaigns by world boxing champion Manny Pacquiao, who is also a Phoenix station dealer, and by popular actress Marian Rivera. Phoenix was the first in the industry to introduce a toll-free number for franchising, 1-800-10PNX-FUEL, in 2009. In July 11, 2007, Phoenix Petroleum under the symbol PNX launched its initial public offering, becoming the first independent oil company to be listed in the Philippine Stock Exchange after the oil deregulation law was passed in 1998. Since 2009, government pension fund Social Security System has invested in the company by purchasing 9.6% of the capital outstanding stock. Driven by passion and performance, Phoenix Petroleum is all set to become the leading independent oil company in the country by 2012.</p> <p>2010 PPPI ANNUAL REPORT</p> <p>02</p> <p>Financial HighlightsP-H-O-E-N-I-X PETROLEUM PHILIPPINES, INC. AND SUBSIDIARIES(A Subsidiary of P-H-O-E-N-I-X Petroleum Holdings Inc.) SUMMARY AND HIGHLIGHTS Year 2007-2010 (All amounts expressed in millions, unless otherwise stated) Income Statement Data: Revenues Cost of Sales and Services Net Income-TOTAL Net Income-Excluding Non-Recurring Income EBITDA Balance Sheet Data: Current Asset Non-current Asset Total Assets Current Liabilities Total Liabilities Stockholders' Equity Bank Debts Financial Ratios Current Ratio1 Debt to Equity 2 Return on Equity 3 Return on Assets 4 Return on Sales Net Book Value Per Share 5 Earnings Per Share 6 Earnings Per Share-Core 7 Stock Information: (Figures in millions except per share) Weighted Average No. of Shares Number of Shares Issued Total Number of Shares OutstandingYear End Market Capitalization-Year End Stock Price-Closing (Year End) Treasury Stock-Shares 2007 2,364 2,097 122 122 149 763 430 1,192 532 626 567 45016,000 14,000 12,000 10,00 8,000 6,000 4,000 2,000 0</p> <p>2008 4,615 4,194 150 150 230 1,457 911 2,368 1,582 1,677 691 904</p> <p>2009 5,873 5,181 751 178 365 2,919 2,085 5,003 2,661 3,475 1,529 2,277 1.1 : 1 2.27 : 1 67.71% 20.39% 12.80% 5.76 3.48 0.83</p> <p>2010 14,792 13,477 427 427 818 4,871 2,771 7,641 4,394 5,180 2,461 3,409 1.11 : 1 2.1 : 1 21.41% 6.76% 2.89% 6.53 1.43 1.43</p> <p>Revenues</p> <p>Cost of Sales</p> <p>2007 2008 2009 2010 Amount (in Millions Php)</p> <p>1.43 : 1 0.92 : 1 1.1 : 1 2.43 : 1 32.19% 23.91% 14.40% 8.44% 5.18% 3.26% 3.91 3.75 0.94 0.91 0.94 0.91</p> <p>900 800 700 600 500 400 300 200 100 0</p> <p>EBITDA</p> <p>Net Income</p> <p>2007 2008 2009 2010 Amount (in Millions Php)</p> <p>130.39 145.00</p> <p>165.31 188.00</p> <p>215.84 269.16</p> <p>288.97 376.82</p> <p>145.00 184.15 265.31 376.82 695.60 1,884.12 4,657.56 3.70 7.00 12.36 3.85 3.85 0.00</p> <p>Notes: 1 - Total current assets divided by current liabilities 2 - Total liabilities divided by tangible net worth 3 - Net income divided by average total stockholders equity 4 - Net income divided by average total assets 5 - Total stockholders equity divided by the total number of shares issued and outstanding 6 - Net income after tax divided by weighted average number of outstanding common shares 7 - Net income after tax (Excluding Non-Recurring Income) divided by weighted average number of outstanding common shares</p> <p>8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Total Assets Total Liabilities Stockholders Equity</p> <p>2007 2008 2009 2010 Amount (in Millions Php)</p> <p>20 PP ANNU REPO</p> <p>0</p> <p>Message to ShareholdersFrom the Chairman and President and CEO2010 PPPI ANNUAL REPORT</p> <p>Our successes as well as challenges inspire us to do more as we strive to become a significant player in the industry.</p> <p>04</p> <p>Gaining higher groundAfter a volatile 2009, the global and local economy was on its way to recovery in 2010. Coming from just 0.9% growth in 2009, the Philippine economy expanded 7.3% in 2010, its strongest performance since 1986. The recovery was boosted by growth in the service sector, higher remittances from overseas workers, rise in private consumption, government consumption, and investments, and upturn in the agriculture sector. The price of WTI crude at the start of the year was $81.59 and ended at $91.44. MOPS diesel initially traded at $84.97 and reached $103.75 at years end, an increase of 22% of petroleum products year-on-year. In the Philippines, more people bought cars. Vehicle sales grew 27.2% to around 169,000 units, exceeding the 1996 pre-Asian financial crisis high of 162,000 units. The auto industry expects further growth in 2011. Record car sales helped push petroleum demand up at least 5.4% in 2010, from 53.3 million barrels (MMB) to 56.2 MMB, or an average daily requirement of 310.5 MB. We took advantage of these positive factors to fuel our growth and bring us closer to our goal of becoming the leading independent oil company in retail by 2012. We focused on retail and logistics expansion, increasing bank credit lines, supply efficiency, organizational development, and brand awareness. From opening our first station in 2005 to 120 stations in 2009, we now have 161 Phoenix stations around the country. 123 are located in Mindanao, 5 in Visayas, and 33 in Luzon. Our network market share in southern Mindanao has grown from 21% to 24%, making us the largest oil player in the region in terms of network, and approximately 3.8% nationwide. By volume, our share has grown from 1.21% to 2.5%. Together, independent oil companies account for 21.2% of the market. Beyond opening more stations, we made sure of their improved efficiency. Consequently, volume per retail station increased. We also acquired more commercial and industrial customers. Volume per account has grown as well. A bigger network and increased efficiency have resulted in a 127% increase in fuel sales volume. This, along with the 13% average increase in fuel selling prices compared to 2009, substantially contributed to our revenue growth. In 2010 we made significant improvements to our supply chain. From less than 20% oil importation, 90% of our supply now is comprised of imports from the region, making our cost very competitive in the market. We continue to expand our depots and terminals to support our wider network. In April we opened our Zamboanga depot, and are increasing capacities of our depots in Davao City and Calaca, Batangas. From a year ago, our total depot capacity has increased from 68.5 million liters to 95.6 million liters. In 2011, we will more than double our existing depot capacities including opening new ones in Luzon, Visayas, and Mindanao. All these will enable us to reach more customers. The continuous investment in our retail stations, depot facilities, and logistics infrastructure brought up our companys total assets to P7.7 billion in 2010, up 53% from 2009. We also intensified our brand and marketing initiatives through more promotions, multimedia exposures, and partnerships with sports leagues and motorcycle groups. All these efforts have generated outstanding results for your company. Consolidated revenues reached P14.79 billion, an increase of 152% over P5.87 billion in 2009, and up 526% from P2.36 billion in 2007, the year we went public. Sales to commercial accounts make up 55% of our revenue, with retail at 35% and sales to airlines at 10%. Geographically, in 2010, revenue from Luzon, at 51%, overtook that of Visayas-Mindanao for the first time due to large growth on commercial and airline accounts. The growing retail business in Luzon also contributed to the increase. Our strategy to expand into the countrys biggest market is bearing fruit. We will continue to expand our network in Luzon, where 71% of fuels in the country is consumed. Operating expenses increased 65% in 2010 as a result of the increasing volume and ongoing expansion and growth of the Groups organizational build-out and business operations. Our capital expenditure reached P767 million, up 7% from P719 million of 2009 and 37% from P526 million of 2008. All our efforts resulted in a substantial growth in net recurring income, which rose 140% to P427 million from P178 million in 2009. Our financial ratios show our growth. Return on Equity in 2010 is 21.41% from 67.71% in 2009 inclusive of the nonrecurring income booked in 2009. Debt to Equity improved to 2.1:1 from 2.27:1. Core earnings per share increased to P1.43 from P0.83, based on weighted average shares and accounting the 40% stock dividend distributed in October.</p> <p>20 PP ANNUA REPO</p> <p>0</p> <p>Total shareholders equity grew to P2.461 billion at the end of the year as against P1.53 billion in 2009. This is a result of the successful sale of preferred shares worth P500 million in September, and the significant increase in core net earnings. The stock market rewarded our performance with a substantial increase in our share price. From P7.00 at the start of the year, it moved up to P12.36 at years end, giving a 76% return year-on-year. PNX market capitalization now stands at P4.66 billion from P1.88 billion the year before. Consistent Since we started, our growth has been consistent, with 2010 our biggest year yet. From 2007 onwards, volume and revenue have increased an average of 79% and 83% respectively. Core net income has grown an average of 61% over four years. From a ranking of 570th among the top corporations in the country, we moved up to 211th in 2009. Our performance proves that we can execute on our plans and exceed our goals. It makes us more confident about the future of our company. The demand for petroleum products is expected to grow from 4-5% each year over the next two to three years, with more vehicles sold and more cars registered. From 2011 to 2013, we are setting a P3.1 billion capital expenditure budget for our expansion. We will put up more retail stations and build more depots and expand current capacities. We will expand our market for lubricants and strengthen brand awareness. As an independent oil company, we recognize the importance of establishing a brand. Through the years we have built up the Phoenix Fuels Life brand into one that represents passion, vitality, and energy. We are laying the groundwork for a more aggressive brand campaign in 2011 as we aim to make Phoenix a part of more Filipinos lives. Within the company, we continue to nurture talent. Our team has the passion to perform and the focus to reach our vision. It is also a team with a heart for service and the community. We are b...</p>

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