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TRAIN law crushes Petron's earnings in Q1 2019

MANILA, Philippines – The Tax Reform for Acceleration and Inclusion (TRAIN) law derailed the growth prospects of Petron, the country's largest oil refining and marketing company, with its consolidated net income plunging by 77.6% to P1.3 billion in the 1st quarter of 2019.

This is compared to the P5.8 billion recorded in the same period last year.

Petron said on Tuesday, May 7, that the implementation of the 2nd phase of the TRAIN law and rising crude prices drastically dragged down its earnings.

Its consolidated revenues stood at P124.6 billion, down by 4% from the same quarter last year, as volumes in Philippine operations declined by 5% following the implementation of the controversial law. 

A total of P4.50 per liter in excise tax plus value-added tax (VAT) are carried by fuel prices.

"On a quarterly basis, this increase translated to around P8 billion in excise taxes and P1 billion in VAT," Petron said.

The company also noted that the TRAIN law created a "price advantage" for importers, since refiners like Petron maintain higher inventory in crude form, which is immediately taxed upon production.

"Importers however maintain inventories as finished products which give them the advantage for at least 30 days. Compounding this challenge is the declining refining margins in the region, which penalized Philippine operations by P3.3 billion in the 1st quarter," Petron said.

Given the lower margins, Petron president and chief executive officer Ramon Ang said "efforts to manage risks and strengthen [the company's] presence in key areas were implemented."

"We remain focused on completing major expansion projects that will further cement our leadership in the industry," added Ang.

"We fully understand that long-term growth will always be threatened by inherent risks, and these investments will ensure our continued growth and profitability in the future."

Earlier this year, Petron was booted out of the 30-member Philippine Stock Exchange index and replaced by Enrique Razon's Bloomberry Resorts.

While earnings were gloomy, Petron continued to expand its network of stations as it opened 40 new stations from January to March. Petron still has the most gas stations in the country.

The company also said it will soon commission its new lube oil blending plant, which will boost its lubes business and improve operating efficiencies and margines. 

Petron also said that its polypropylene plant expansion is nearing completion, which will give it better margins. – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.

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