2017 was another year of achievement for Pilipinas Shell. Amidst strong competition and a planned refinery maintenance shutdown, we produced higher earnings, generated more cash and further strengthened our balance sheet. We continue to deliver on our commitments through robust cash generation, prudent cost management, and disciplined capital allocation.
Robust Cash Generation
At the end of 2017, Pilipinas Shell posted Php 10.4 billion net earnings, 39% higher than the previous year. Return on Equity (ROE) and Return on Average Capital Employed (ROACE) stood at 25% and 27%, respectively. Our performance was mainly driven by strong retail volume growth and high premium fuel penetration – a clear demonstration of the strength of the Shell brand. Cash from operations increased 29%, reaching Php 10.9 billion, which was more than sufficient to cover dividend payments and planned investments, totaling Php 6.8 billion. Retained earnings (excluding re-measurement gains) increased by Php 7.7 billion
Prudent Cost Management
Operating expenses increased by 6.1% to Php 13.9 billion, reflecting mainly the growth of our retail network offset by controlled advertising spend and lower overheads.
Our integrated supply chain greatly contributed to our cost competitiveness, with cost savings from our investment in the North Mindanao Import Facility surpassing initial estimates by more than 50%.
Disciplined Capital Allocation
We use a robust global methodology in screening our capital investment decisions. As we pursue both fuel and non-fuel opportunities, we continue to expand our retail network while maintaining its industry-leading efficiency. In 2017, we opened 66 new stations and 37 Select stores, which accounted for most of the 51% capital spend allocated to Retail. Over the medium-term, we plan to introduce 50-70 new stations and 15-20 Select stores per year. We also continued to invest in strengthening and optimising our supply chain, including Php 463.8 million in 2017 for the construction of our new bitumen production facility.
Average capital employed increased to Php 53.2 billion while gearing decreased to 18%.
Our three C’s – cash generation, cost management and capital discipline – enabled our strong financial performance and robust capital structure in 2016 and 2017. These are the key financial strategies that will allow us to grow the business and reward our shareholders and stakeholders in the coming years as we tailor PSPC into a world-class investment.
Jose Jerome R. Pascual III
Chief Financial Officer
Pilipinas Shell Petroleum Corporation