Pilipinas Shell (SHLPH) begins to recover but unable to fund capital expenditures with long-term loans

Pilipinas Shell Petroleum Corporation (SHLPH) incurred a net loss of 13.9 Billion Pesos for the nine-month period ending September 30, 2020 (9M20). The net loss includes P7.5 billion in impairment of refinery assets and other one-off costs related to the cessation of the refinery operations and accounts for 54.1% of reported net loss.

But the 3rd Quarter (3Q20) showed recovery for SHLPH.  Without the impairment charge of 7.5 Billion Pesos, SHLPH would have reported a net income of 0.4 Billion Pesos during the 3Q20. Gross profit for the 3Q20 would have been 1.2 Billion Pesos if impairment charge of 7.5 Billion Pesos is excluded from the cost of sales.

The recovery during the 3Q20 also shows up in the cash flow from operations. For the nine-month period ending September 30, 2020 SHLPH generated a small cash from operations of 0.6 Billion Pesos.  That indicates that during the 3Q20 SHLPH was able to generate cash of 3.9 Billion Pesos from operations. That cash generation at the 3Q20 recovered the cash burned for operations of 3.3 Billion Pesos during the first half of the year.

During the 3Q20 spent 3.3 Billion Pesos of capital expenditures presumably to transform the refinery into a world-class import terminal.  Total capital expenditures for the nine-month period totals to 5.1 Billion Pesos.  For those capital expenditures SHLPH failed to secure long-term borrowings to fund those capital expenditures.  Those capital expenditures were funded with short-term loans.  SHLPH ended the 9M20 with loans payable in the near term of 18.4 Billion Pesos.  That amount is almost double the amount of short-term loans at the start of the year. SHLPH must fund capital expenditures with long-term loans to ease short-term liquidity concerns.

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Disclaimer and Disclosure: This analysis is an independent viewpoint on publicly traded stocks in the Philippine market.  Accuretti Systems Inc. trades stocks in the Philippine market.

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