Shell Pilipinas 2021-25 Strategy

TITLE :  PILIPINAS SHELL 2021-25 STRATEGY

 

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[Angel Castillo starts speaking]

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Good Day everyone! I am Angel Castillo, your Investor Relations Manager. Welcome to Pilipinas Shell Strategy Day. Today, we will share our 2020 performance followed by our strategic priorities from 2021 - 2025. 

We will also have Q&A at the end so please feel free to start typing in your queries in the question box at the right side of your screen.

In Shell, we treat safety with utmost importance. So allow me to conduct a safety briefing. First of all, please do not drive while attending this call. Please be mindful of your surroundings. If you are using an earpiece make sure that you’re able to hear alarms and can continue to be conscious of potential hazards.Kindly take note of the nearest exit in case of emergency. In case of an earthquake, do not panic and remember the golden rules: duck, cover, and hold. Once clear, proceed to the nearest exit. Finally, keep your emergency numbers within reach. 

Without further ado, let me now call on our CEO, Mr. Cesar Romero

[Angel Castillo passes audio to Cesar Romero]

[Cesar Romero starts speaking]

Thank you very much Angel. 2020 was indeed a very challenging year for Shell, nonetheless I hope the circumstances of the year has allowed us to demonstrate the resilience of our company as we pursued our strategy objectives of care, continuity, and cash. I also hope that we were able to demonstrate the decisiveness of our company as we took very bold decisions to ensure not just the viability of the company but also to position it better for the long run. 

For the full year 2020, we would like to record a net loss of over 16B pesos. Having said that, close to 12 billion pesos of that is associated with our refinery as we’ve made that difficult decision of transforming our refinery from a manufacturing facility to a world-class import facility.However around six (6) billion of that is non-cash as that was related to the right down of the asset. The balance is attributable to our demolition, remediation expenses, plus other contractual penalties. You may also recall we had a massive inventory loss the first half of the year brought about by the collapse of good oil prices. If you remove the refinery once-offs and inventory losses, happy to share with you that the company still posted a core earnings of four hundred million pesos. Before I hand over to Rey for more details of our financial performance, I would like to take you to the slide that we’ve regularly shared with you during our quarterly performance. 

In this slide you would see how our volume performance performed or behaved depending on the nature of the quarantine measure imposed. You could see here that at the most severe quarantine measure happening in the second quarter our volume was really significantly impacted particularly on the marketing side. However, you could see here that as the quarantine measures were relaxed, our volume gradually moved in sync with the quarantine measures. This is quite an important slide for us because it actually plays a big role in the financial performance of our company not just for 2020 but moving forward. So with that as background, I would like to hand over to Rey for more details on the financials. Rey, over to you.

[Cesar Romero passes audio to Rey Abillo]

[Rey Abillo starts speaking]

Thank you very much Cesar and Good Day ladies and gentlemen.I’m Rey Abillo, Vice President for finance, Chief Financial Officer and I’m pleased to join you today.

Like what our president mentioned earlier, 2020 was indeed a very challenging year. Our EBITDA performance for the full year, adjusted for COSA stands at a loss of 9.7B pesos and that’s primarily driven by one-off refinery costs or charges that we have to take in 2020. Having said that however, let me emphasize the agility that we have demonstrated in facing a very difficult business environment. We ceased refinery operations in May of last year to caution the impact of the press refining margins in the region. In addition, despite the drastic decline in demand due to mobility restrictions we delivered a remarkable core EBITDA performance of about 12 Billion Pesos. That is comparable against our 2017 or 2018 levels. Thanks to the strength and resilience of our marketing businesses which successfully implemented our bounce back strategies in the country. Equally remarkable is how we were able to almost double our combined OPEX and CAPEX savings delivery for the year as part of our cash preservation measures. We delivered a total of 3.9 billion pesos of savings compared to our target of two (2) billion pesos. 

Moving on, one of the bright spots of 2020 is the strength of our balance sheet. From a negative CFFO in the first half of the year we ended 2020 with a very strong CFFO performance of 5.9 billion pesos. In terms of investments we deliberately reduced our CAPEX target by 1 Billion Pesos as part of our cash preservation measures. In totality, we invested 3.1 Billion Pesos last year to further expand our retail footprint and supply chain network. The negative ROACE for the year that you can see on the screen is driven primarily by one-off refinery charges and we expect a strong rebound in the coming years. And last but not the least, we ended 2020 with a very manageable net debt position of 15.7 Billion Pesos, this is a significant improvement compared to our Q3 2020 levels and we expect it to reduce or improve further as we thrive in the new normal. That’s all at this point and let me hand it back to Cesar.

[Rey Abillo passes audio to Cesar Romero]

[Cesar Romero starts speaking]

Thank you very much Rey. So ladies and gentlemen that concludes our short presentation about our full year 2020 performance. I know that many of you are curious about what happens next so we’d like to share with you our outlook and our aspirations for 2021 and 2022. 

During this period, we hope to see a reset and refocused Pilipinas Shell Petroleum Corporation. We hope that our volumes will grow in line with the Philippines economic growth as we see fuels going back to pre-covid levels by 2022. Aviation will be slightly later as we expect aviation volumes to go back to pre-covid levels by 2024. Of course, this will all be contingent on how the economy responds to the COVID pandemic measures that the government has instituted. 

Because of the transformation of our refinery into an import facility, we expect to see more ratable financial results. We hope to remove variability coming from inventory gains or losses and from refining margins with this conversion. As you could see from this slide, we experienced as much as a 10 Billion Pesos swing both in inventory losses and refining margins when we were still operating as a refinery. We hope to benefit from some provisions of the CREATE bill, most notably the lowering of the corporate income taxes from 30% to 25%. During this period, we hope to generate sufficient cash flow from operations to fully fund all of our CAPEX and dividends. We also expect to bring back our debt levels to pre-COVID levels some time in 2022. 

Finally, dividend has always been our top priority, and to enable us to do this, we hope to go back to positive retained earnings as soon as we can and we will continue to aspire and look for ways to continue rewarding shareholders with our dividends. 

So ladies and gentlemen thank you. That concludes our outlook for 2021 and 2022. Before we proceed with sharing with you our strategic priorities for the next five years, please allow me to share with you a short video that will show how we continue to partner with the Filipino nation in nation building.

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[Cesar Romero starts speaking]

We now go to the segment where we will share with you our strategic priorities for the next five years. For those of you who have been with us since our IPO you will recall that we shared with you our strategy for 2016 up to 2021. Therefore, we feel that now is the right time, especially following our major change in our supply chain strategy, to share with you why Pilipinas Shell Petroleum Corporation continues to be an attractive investment case especially those who seek stable dividends. 

First of all, the Philippines continue to be an attractive market with strong market fundamentals. Pilipinas Shell also has a strong footprint and history in the Philippines. This allows us to be in a good position to capture the opportunities from the attractive fundamentals of the country. We continue to have a very robust marketing strategies and as I’ve said this will be supported by a world-class supply chain. We also continue to be a member, a strong member, of the Shell group of companies worldwide and together with that we intend to do our share in contributing towards Shell’s aspiration to be a net-zero carbon business by 2050. We take pride in our strong corporate governance and world class talent development and finally, we maintain our attractive dividend policy of aspiring to give you a minimum of 75% percent payout of prior year’s net income. 

Going to the first point, we believe that the Philippines continues to be one of the fastest rising economies globally. As you could see here, from a study by HSBC, the Philippines will be the 16th largest economy in GDP by 2050. And during the prior years, you’ve seen our GDP growth in anywhere between the six to seven percent and we expect that following the challenges of 2020, the next five years will see a GDP growth for the country in the same order of magnitude.This will be supported by a very aggressive infrastructure program where a thousand plus kilometers of road are expected to be built. The country has indeed suffered one of the longest lockdown globally, which has led us to a larger contraction in 2020 but happy to share with you that the government plans to fully support the growth of the economy by injecting a stimulus program of as much as six and a half percent of GDP. 

Focusing a little bit more on the oil and energy industry, we expect petroleum demand to increase threefold over the next twenty-five years. This is supported by the lower level of motorisation compared to our ASEAN peers. You could see here that we only have about eleven (11) vehicles per one hundred (100) population compared to a similar market for example like Thailand with as much as sixty (60) vehicles per hundred (100) population.We also expect the country to remain deregulated and that this is quite an advantage for us because the prices are really driven by a supply and demand and that our marketing strategies and efficiencies should allow us to compete freely and capture the benefits of this deregulated status. The country continues to experience increasing level of affluence as the middle class continues. But as i join a conclusion to this slide i would like to draw your attention to a study by Nielsen which we believe will benefit us most, and that is ‘to win in the new normal, the company must have a strong trust level.’ and I’ll come back to this feature later.

Just to re-introduce ourselves and introduce ourselves to those who are hearing about us for the first time.Pilipinas Shell Petroleum Corporation is a marketing led energy company supported by a world-class supply chain with 107 years experience in the Philippines. The big difference in how we introduce ourselves now actually would come in three (3) items. The first one is indeed in the supply chain. As I shared earlier, we are moving our supply chain from a fully manufactured business to a fully imported business and by the end of the period we aspire to grow our MR capable terminals from three (3) to five (5). The other major change in strategy is our change of business from retail to mobility and you’ll hear more of that later from our Vice President for Retail. And last but not the least, the next major change in strategy or strategic priority, is our focus on lower carbon operations and the introduction of our lower carbon products and services. Of course, with no disregard to ensuring that there is supply security from our existing products. This will all be enabled by digitalisation and we hope to share more of this with you as our various corporate officers introduce to you their various segments. 

One item that we’re quite proud of is that we are number one (1) in areas where it matters. So we are number one (1) in our trust rating all across the Shell group and the highest in the Philippines versus our industry peers. If you may recall from the slide earlier, winning in the new normal entails and will require a high level of trust. And happy to share with you, we are number one (1) in trust rating across our peers in the Philippines. We are also the most preferred fuels brand in the Philippines with the brand share of preference rating of 37% which is one the highest in the Shell group worldwide. We are also the most efficient fuel retail network in the country. Our stations pump double that of the industry average. And finally, last but not the least, we are the first to offer carbon offset opportunities for our customers in the Philippines. 

So with that short introduction about the opportunities in the Philippines and who we are, allow me now to share with you our strategic priorities for the periods 2021 - 2025. First and foremost, we hope to continue generating cash at very competitive returns. We hope to grow our volume anywhere between 60-70% of GDP while maintaining our V-Power penetration of about 30%. Again, this is one of the highest penetration levels of V-Power across Shell operations worldwide. We will also continue to push our premium products in the B2B segment. With greater focus on NFR, we expect to grow our NFR profits to a greater than 15% growth per annum. Thus, we aspire that we will be able to deliver clean earnings growth higher than GDP from the periods 2022 to 2025. As a consequence, we will be able to maintain our dividend policy of a minimum of 75% of prior year’s adjusted NIAT. 

We will maintain our disciplined capital expansion and cost management. As I’ve said earlier, we hope to be able to generate enough cash flow to fully finance circa three to four billion of CAPEX per annum. Similar to the levels that we’ve always invested over the last five years. However, of interest would be where this CAPEX is deployed. With the transformation of our refinery we will now be able to deploy as much as 60% of this CAPEX in our highly profitable retail business and 40% to improve the efficiency of our supply chain. So our retail sites now called mobility sites will have an increased aspiration for growth you may recall we were committed to growing anywhere between 50 - 70%, oh sorry constructing 50 - 70% new sites per annum which we delivered on over the last five years. This time around we are hoping to increase it to anywhere between 60 - 80 new sites per annum average until 2025. We expect to increase our convenience retailing offer with 550 select stores and close to 900 vehicle servicing offers by 2025. Finally, we will continue to invest in our world-class supply chain with an aspiration to have 5-MR import terminals nationwide. Target gearing during this period is also expected to hover anywhere between 20% - 30% level. 

Finally, we hope to maintain our leading position in corporate governance, talent management and progressively move towards our low carbon operations and again we will share more of that later.

Would just like to conclude this slide by saying that all of these aspirations are anchored on certain key market assumptions. And if you indulge me, I would just like to walk you through them. First of all, as I’ve said, we are expecting and hoping that the demand will go back to pre-covid levels by 2022. We also assumed that in line with government projections we will see a GDP growth rate of anywhere between six to seven growth percent per annum until 2025. We also hope that the market will continue to be deregulated and finally, energy demand will continue to rise due to strong vehicle growth and continued household spending. 

So with that, I’d like to turn you over to Randy. Randy, over to you.

[Cesar Romero passes audio to Randy del Valle]

[Randy del Valle starts speaking]

Thank you very much Cesar. 

Hello everyone! I’m Randy Del Valle, the Vice President for Mobility business. Retail, our proven cash generator business over the years will now evolve to become a mobility business. This is for us to evolve towards the need of the Filipino consumers and community. Building on, on our strength in fuels we will be more competitive, fit for the future, and be more customer-centric. For this business, we will be shifting from being known as a gas station to a mobility station serving the needs of the Filipino consumers. This would cater not just for cars, trucks, bus, and standard vehicle but we will have offers in e-mobility, offer our bikers, cyclist, and even pedestrian customers. This will also cover people not moving like those working from home as we now have delivery services.

So let me share with you our plans in mobility. To reach out to more Filipinos the focus is on increasing the mobility sites in the country. We will be building 60-80 new sites per year to reach more than 1,500 mobility sites by 2025. Alongside the increase in the site count, in line with the economic growth, we will continue to renovate our sites to ensure we serve the mobility needs of our customers . We will aim to four (4) percent fuels volume in CAGR. We will also aim to hit 30% premium fuels penetration, this is led by the best fuels in the country V-Power, we will support this with targeted marketing activities and leveraging customer loyalty towards high quality fuels. Also, with our very strong market position and high brand share preference in the country, as shared by Cesar a while ago, we are confident to transform and elevate each customer’s journey from driving to a fuel station to a mobility lifestyle destination providing the best customer experience. Our fleet solutions business will also be the key in this growth serving the needs of our B2B drivers. This will enable all of these new offers to improve the yield of our network. With new and more offers that’s more relevant for Filipinos. And just imagine how we can do this and implement this across our big network of more than 1,000 mobility stations. Low carbon operations is also very very important, so as we build more sites as we renovate more sites we will be investing on solar panels, green walls, and improve the operations to reduce the carbon footprint of our sites. 

Next on, is about our digital focus in Pilipinas Shell. Shell Go+ connects customers and improve their experience by providing a platform for customer to earn and pay how they want and where they want and make it contactless. This would push more for our mobility products whether its fuels, non-fuels towards more promotions and share our brand story to customers through our enhanced communications via this app. We will also have some brand partners where they can get exciting and exclusive rewards from other establishments and their offers. In the last three (3) months since we launched this the loyalty volume increased by 13% by having more than hundred thousand digital registration with a highly engaged rate. Trip spend also increased through bundled offers and fuels and non-fuels offers. This is a success story, a best-in-class loyalty program that we plan to capitalize since this is what the Filipinos want. 

Over the next few quarters, we are targeting to really reach one million members to further expand our digital reach. This will give us more powerful insights to our customer and then serving the with new proposition that they like. And on top of this, we will also offer digital offers and payment towards new offers and delivery platform for our non-fuels business. 

So speaking of non-fuels. We will invest more on this offer. This will complete the customer journey providing products and services, for customers to energize them, to care for their needs and for their vehicles. We aim to grow profitably with 15% annual growth in convenience retail profits until 2025 by growing our footprint and offering more than 550 select stores by 2025. And each of the Shell owned sites will have this offering by this year. For the NFR coverage, convenience retail which includes the Shell Select Stores and Deli2Go offerings will increase income level by 8 times versus 2020. 

The full vehicle servicing which includes the Car care, Shell Helix Oil Change+ Facilities, car wash, and moto-care will double servicing profits versus 2020. And the co-locator business will also double the income profit vs. 2020. This is with our key local and global retail partner brands that serve quick service restaurants and lifestyle shops. Each mobility station will be customer centric to specific-location in the country to serve what they want now and the future. This will be enabled with new formats to have excellent customer experience. Hope you can get a glimpse of our exciting mobility business in Pilipinas Shell as we help shape the mobility future of the country.

So now, I’ll pass you to Dennis.

[Randy del Valle passes audio to Dennis Javier]

[Dennis Javier starts speaking]

Thank you Randy! And Good Day to all of you. Let me introduce myself, I’m Dennis Javier, the Vice President for commercial fuels and allow me to cover the five year strategy for the commercial b2b business. 

Our goals in five years will be two-fold. Firstly, deliver a five percent volume growth year on year. And we want to be the preferred energy partner across the sectors that we choose to focus on. Ofcourse, subsumed in these goals is our aim to maintain our long-term relationships with the top Philippine conglomerates. Many of them have been our business partners for the last five-ten years. In fact, a few of them, more than ten years with us. The key strategy for us is differentiation, we will achieve this through our products and services. We will be more creative and innovative than ever before. The strategy moves us away from playing a mere pricing game which can lead to a lot of lost value. And we don’t want that. We will deliver these goals through a few critical growth levels. One, customer centricity, here we will put our resources in generating new insights and developing new customer offers and energy solutions in line with the group’s energy transition goals. This will mean working closely with the other functions within PSPC, working together as one PSPC team, and we’ll create a variety of energy solutions for our customers. Secondly, we want to grow our customer portfolio we will continue to grow both our direct and indirect channels we will do this via further embedding a hunting culture and ensuring a robust pipeline of prospects. Growing our base business also means a reduction in unit operating cost and thereby making us more competitive in the market. Number three, digitalisation, we will embark on projects that make us more efficient and has customer interaction. Digitalisation will be key to our future. And number four, premium product growth, we will continue to leverage on our insights and develop better premium products to increase our penetration rates. Premium products are and will continue to be key to our margin growth. And lastly but not the least, supply capability, together with the Tabangao transformation into a full import terminal we will further strengthen our fuels logistics footprint across the country. This is a key enabler to both commercial fuels and aviation. I think you will hear more about this in a few minutes. Well, this is the brief coverage for our commercial B2B business. Thank you for this opportunity and let me hand it over to the next speaker, Steve.

[Dennis Javier passes audio to Steve Quila]

[Steve Quila starts speaking]

Thank you very much Dennis and Good Day Everyone! I am Steve Quila, Vice President for Lubricants in the Philippines. 

Continuing under the backdrop for growth and being the preferred energy partner in our focus sectors, our specialities business will continue to be a key player in the nation’s build build build agenda and shall do so by focusing on premium and differentiated product sales such as Shell Instapave and Shell Bitumen FreshAir to maintain market leadership in the sustainability product category. Also of key importance is increasing storage capabilities utilizing Tabangao, our world-class import facility, to ensure that we are able to cater to an expanding road network paving these roads of the future working very closely with key stakeholders in the industry. 

For our lubricants business, we have a very strong brand as we are the number one lubricants supplier globally for the fourteenth year in the row. Domestically, we have an industry leading brand share preference across key categories in the passenger car, motorcycle, and diesel-engine sectors. We shall capitalize on this by focusing on selling more premium synthetic products as the original equipment manufacturers shift more of their demand to higher quality standards. We are the only ones utilizing the gas to liquid technology for our base oils which is the purest and cleanest raw material, a clear differentiator. Our premium product penetration and mix is an industry best of about 30% which we shall look to continue. We will focus on expanding our reach in the consumer market by making ourselves more accessible to our nation by way of our distributor network. And we shall improve customer experience not only by selling better products but also upskilling the very important influencer network such as our mechanics and trade business owners. We will maintain our market share leadership in the industrial sector. Not only defending our strong business base but winning new opportunities by continuing to tailor-fit our propositions relevant for our customers present and future needs in line with the energy transition. 

Lastly, we’ve held several digital dirsts and campaigns over the last few months which have proven to be very successful in terms of reach, efficiency, and yield and we’ve embedded more of these in our plans moving forward as part of the new business norm. 

Thank you very much and at this point i now pass you on to Wesley.

[Steve Quila passes audio to Wesley Stuart]

[Wesley Stuart starts speaking]

Thank you Steve, and Good day everyone. I’m Wesley Stewart, Vice President Trading and Supply Chain Operations and I want to share a bit with you where we’re headed with the supply chain. 

2020 was a pivotal year in ensuring the sustainability and competitiveness of our integrated business. The decision to shift away from a part-refining and a part-importing supply chain, to a full import supply chain is a start to the delivery of our goal to become a more affordable, reliable, and customer-centric world-class supply chain. One where we continue to leverage Shell as a single-market interface to aid us with securing quality fuels to meet the needs of our market. So you’d ask the question, what is a world-class supply chain? A world-class supply chain is resilient to the changes in the market, it’s facilities are strategically positioned to meet the needs of our business today and well into the future, It’s tank farm, shipping, and road transport assets afford great flexibility. It’s facilities are capable of handling a broad range of vessels which enable simultaneous discharge and loading activities and most importantly it is operated in a safe and environmentally considerate manner. Our supply chain development plans will see us spend some one billion Pesos per annum in CAPEX as we seek to both transform our Tabangao site and increase our number of strategically situated MR-capable terminals from three to five over the next few years. These actions will deliver year on year, structural savings as noted,of some 850 million pesos this year and 600 million pesos over the next two to three years.

So if i can share a bit more about the Tabangao conversion. It’s clear that shutting down the Tabangao processing units and converting them to a full-time import facility puts us in a much more advantaged position. In the short-term, the benefits of the Tabangao transformation are: reduced capital, reduced OPEX exposure, a lessening of the negative impact to PSPC profitability that comes from variability and product pricing, improved inventory requirements, and lastly growth.

To share a bit more detail about all of those, the reduced capital is derived from us moving away from a more costly refinery asset upgrade and maintenance regime, to a more focused spending pattern to enhance just our tank farm activities and create flexibility at our terminals. This support will put us in a match more 

strategic position through our locations nationwide. 

The reduction in OPEX is derived from transitioning away from manpower heavy refining to more cost-effective operations across our growing terminal facilities base. The actions that will be taken to help lessen PSPC’s profitability stems from a stripping out the significant volatility that we historically saw in the area of inventory gains and losses in refinery margins. That impact too often was experienced as a disadvantage in recent years. Inventory gain loss variability has been as material as 6.8 billion Pesos while refinery margin depression has resulted in as much as a 5 billion Peso impact in recent years. You know, I mentioned improved inventory positioning as well. Our lower inventory requirements going forward mean less working capital for us and hit some more efficient use of cash for the enterprise. We have always been and will remain compliant to the country’s minimum inventory requirements but we won’t find ourselves needing to carry tremendous volumes of fuel. However, despite the fact that I’ve shared our inventory position will improve, you can rest assured that we will be able to assure supply security to our marketing colleagues and marketing class business 24/7. 

Lastly, the area of growth, the demand supply imbalance in the refining business shows negative value in cash outlook despite significant cost savings made. The losses from the refinery clouded the performances of our marketing businesses in the past. The Transformation of Tabangao now enables us on further improving our efficiency and operational excellence. On an equally important manner, we are also introducing best practice sustainability efforts in gearing up for a low carbon operation in the future. 

You know, in closing we are confident and excited about our new supply chain strategy which is centered on delivery of an affordable and reliable supply chain to support our marketing business partners into the future. 

With that, let me hand it over to Serge.

[Wesley Stuart passes audio to Serge Bernal]

[Serge Bernal starts speaking]

Thank you Wesley, Hello everyone. I am Serge Bernal the Vice President for Corporate Relations.

The world and the country are becoming more aware and more critical of climate change. With the accelerated pace towards energy transition our commitment is to lead the Philippines’ energy industry towards low-carbon footprint enabled by world class technology and expertise. We aspire to be an industry leader in innovative low carbon and carbon offset products moving to low carbon operations while complying with government environmental operational requirements. We aim to reduce our energy consumption in our mobility stations by more than 30%. Among the initiatives LED lights will be used throughout the stations and power will be complemented by solar panels. We will also use more eco-bricks as building materials but more on that later. 

We are rolling out best practices on sustainability including on-board telematics in our fleet business and vapor recovery technology in our loading operations. With the closure of our refinery operations, we reduced the Tabangao Facility’s greenhouse gas emissions by up to 50%. We are step by step moving towards low carbon operations. Investing today to build a sustainable supply chain of the future. 

In Shell, we believe that everybody has a role to play in sustainability. Previously, I’ve shown how we will change our operations, we will take this a step further to our customers and in the areas where we operate. The transition to low carbon world is an opportunity, and we are in the best position in the industry to capture this. In fact, we are the first to offer low carbon and carbon offset products in the Philippines. Carbon offset programs are now offered in Fleet solutions and in our lubes business. This will soon be made available for all our other marketing businesses. For our consumers, we started offering low carbon products from oils that run their cars and even to the roads we use. So in effect, engines run more efficiently on environment friendly roads. Moreover, we are keenly considering to enter the carbon market’s business through high-quality independently verified nature-based projects. We are taking opportunities in the sustainability space to be more competitive and resilient. We lead the industry in step with society and demand towards a low carbon future. We will support in any way we can to deliver Royal Dutch Shell’s target on net zero emissions by 2050 or sooner. 

As proof positive of our firm commitment to low carbon operations, we’ve recently opened the very first Shell Helix OilChange+ made from ecobricks. Bricks that are made from upcycled plastics including used lubricant bottles. This is the first of its kind in the Philippines and in the world. From this particular building in Bulacan, we’ve avoided over 6,000 kilograms of carbon dioxide, 13,250 Shell Helix lubes bottles were used in the construction, in total we’ve prevented about 1.2 metric tons of plastic going into our landfills. Truly a testament to circular economy. These are the types of sustainable innovations that we are investing in to increase our cost competitiveness and more importantly move towards a low carbon footprint year on year. 

Through the years, we have moved from purely philanthropic donations to strategic social investments that are both relevant to the business and in the communities which we operate. Our social investment priority themes revolve on community skills and enterprise development, STEM education, access to energy, and road safety. Our programs address societal issues that affect our business, supports social impact management, and helps us earn our societal license to operate. In times of national disasters, we also support disaster response. Pilipinas Shell is one of founding members of UN Global Compact Network Philippines or GCNP since 2016 and is among the country’s thought leaders in pursuing sustainable business. We are recognized as a partner in nation building for our contribution to the UN sustainable development goals. Powering progress means being a partner in nation building. We have been doing this for the lst 38 years through our social arm, Pilipinas Shell Foundation Incorporated and we continue to do so as we continue the Philippines move forward. 

Thank you very much. Let me now hand you over to Erwin.

[Serge Bernal passes audio to Erwin Orocio]

[Erwin Orocio starts speaking]

Thank you Serge. Good day ladies and gentlemen, I am Erwin Orocio, Managing Counsel and Chief Compliance Officer. At Shell, equally important to what we do is how we do it and rest assured that the Pilipinas Shell Management team is committed to engaging business ethically. That is with our core values of honesty, integrity, and respect for people. Every Shell employee is guided by the long standing Shell general business principles and the various policies and practices which flows from these. This also means that we are committed to the dictates of good corporate governance. A show not only for our full compliance to the disclosure requirements of the Philippine Stock Exchange and securities and exchange commission but also by the best in class closures that we have become known for. This is made possible by the robust corporate governance framework that we have put in place and enhanced and will continue to improve. It is, for this reason that the legal team regularly issues reminders on trading restrictions and request information at the end of each month as to any trade, that directors and officers may have concluded on Pilipinas Shell shares. The directors and officers have faithfully abided by these. This only emphasises the point that like sustainability, everyone has a role to play in corporate governance. From the shareholders who are invited to submit nominations at the start of each year, the board, the board committees, the c-suite, management, corporate audit and assurance, and external auditors. Amongst the numerous corporate governance mechanisms, I invite your attention to the bottom left corner of the slide where there is mention of Global Helpline. Employees and external stakeholders have the ability to raise ethical concerns without risk of retaliation to an independent third party specialist. 

As they say, the proof of the pudding is in the eating and I am happy to share that Pilipinas Shell was conferred the best energy corporate governance Philippines 2020 by Capital Finance Institute.

Cesar.

[Erwin Orocio passes audio to Cesar Romero]

[Cesar Romero starts speaking]

Thank you, Erwin.

We continue to be a developer of world class talent. As can be seen by this slide, we feature a number of our staff winning awards both regionally, globally, within, and outside of Shell as they demonstrate their various capabilities and their various functions. As a consequence, we are a net exporter of talent to the global Sell family. We have more Filipinos doing global and regional roles in and out of the Philippines compared to the number of expatriates we have in the country. Year on year we aspire to maintain our top quarteral performance on company reputation, employee engagement, and employee retention for PSPC’s turnover rate is better than that of our peers. Internationally within the Shell family, we are recognized as a diverse, engaged workforce, that are capable and well positioned to deliver our strategy. 

With this, may I hand over to Rey.

[Cesar Romero passes audio to Rey Abillo]

[Rey Abillo starts speaking]

Thank you Caesar. 

My colleagues and the management presented exciting plans we have in store for the next five years. And now it’s my pleasure to translate how these plans into a very competitive investment case, particularly in terms of our investments in the future while ensuring financial delivery today and in the near term. 

Firstly, let me talk about the economic prospects in the country. Like what Caesar mentioned at the beginning of the session, the Philippines with a strong macroeconomic and market fundamentals will continue to grow strongly at 6 to 6.5% per annum. Still one of the fastest in the region. And I firmly believe that the company is strongly positioned to capture the resulting recovery of energy demand and as well as the growth in consumer spending. As a result we project our volumes to grow by 60-70% of GDP levels while our core earnings will grow at least, at GDP growth rates from 2022 to 2025. This translates to a very strong cash generation of 16 - 17 billion Pesos by 2025. And if we compare against our pre-covid average of 10 billion Pesos per annum, that is actually equivalent to growing by 60 to 70% in five years. This is enabled by a strong business integration harnessing the strength of our mobility and commercial businesses underpinned by a best in class supply chain network across the country.

Another driver of this strong cash generation is the improvement or reduction in our cash conversion cycle. Now that we don’t have to carry crude oil inventory in our systems. One feature of being a world-class investment case is the ratability of our performance, like what Wesley mentioned a while ago, we have removed our exposure from refining margins and we have reduced our variability from inventory holding gains and losses. What it means is that going forward, our results will be more predictable and easier to understand. Now with good governance and management, we will continue with our disciplined capital approach through investments in new mobility sites of 60 - 80 per year, investments in our existing mobility network to further enhance our yield, and investments in our supply chain to further strengthen our footprint. This translates to a CAPEX of 3 to 4 billion Pesos by 2025, 60% for mobility and 40% for supply chain. Now as we generate more cash and invest for the future we will also take this opportunity to further strengthen our balance sheet and manage our gearing levels. As what we have seen during this pandemic, having a resilient balance sheet particularly in our sector is very important in managing volatility. Therefore, we will be reducing our net debt levels gradually and aim at achieving pre-covid gearing of 18 to 22% by 2025. All these initiatives taken in consideration will give us a leading return on average capital employed or ROACE of at least 25% a testament or reflection of the top grade portfolio of businesses and assets that we have in the company. Now this strong financial plan that i just mentioned paves the way for providing meaningful and effective dividends to our shareholders. We remain committed in our dividend payout policy of minimum 75% of prior year’s net income after tax. And moving forward, we expect our dividends to be more resilient and will increase as the company grows subject of course to board approval. In summary, we will make our choices in line with our strategy. We will pursue leading shareholder returns built upon a very strong balance sheet and underpinned by highly cash generative assets that are fit for the future.

Thanks very much and now I hand it back to Cesar.

[Rey Abillo passes audio to Cesar Romero]

[Cesar Romero starts speaking]

Thank you very much Rey.

So there you have it ladies and gentlemen, straight from our management team. We hope that we were able to share with you why we remain and why we believe we are a very attractive investment proposition for shareholders. We hope we were able to share with you why we believe we are positioned to capture strongly the economic prospects of the country. We are not starting from scratch, we have been here for 107 years and are therefore very confident that we will be able to leverage our strong history coupled with our innovative nature being part of the wider Shell family. As we leave 2020 behind, we look forward to a refocused and re-energized Pilipinas Shell Petroleum Corporation as we pursue our aspirations for 2021 to 2025, and beyond. 

We believe that we will continue to power progress for the Filipinos by capturing the country’s energy and mobility requirements through world-class and innovative offerings. This ladies and gentlemen will drive the creation of shareholder value and make the future of energy for the Philippines. Thank you very much and have a good day.

[Cesar Romero ends presentation]

[Angel Castillo starts sharing reminders]

Thank you Cesar. 

Ladies and gents this concludes our full year 2020 and Strategy Day presentation. 

We will now move on to Q&A but for now we will pause for around a minute and to wait for all your questions to come in. Again, you may type in your queries on the question box on the right side of your screen.

[Angel Castillo ends speaking]

[Sound of Shell Starts]

Instrumental music plays

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