May 13, 2005

KSP: Bastusan na! (version 2)

This version is dedicated to people who prefer to read in English. The way I argued my case was also different. :)

"Petron profit up 10.7% in Q1." (PDI, 05/13/2005) Gee, what a surprise (sarcasm intended). Every time Petron increases its pump prices, it always reasons out that the company is experiencing "losses" which it needs to recover. But we have always known better. Petron's, and practically every other oil company's, operations have been really profitable, and as this news item proves, it is actually getting even MORE profitable despite the country's economic crisis.

Of course, Petron was quick to point out that the main reason for the increase in the company's profit was increased operating efficiency, which allowed its operating expenses to go down from P1.39 billion to P1.26 billion. I beg to disagree. I say that the real main reason for the increase was their unabated increase in selling price. Let us have fun with some numbers so that I can prove my point.

According to Petron, its sales volume for Q1 2005 fell 9.9 percent to 11.85 million barrels. This means that for Q1 2004, its sales volume was roughly 13.15 million barrels (11.85 million barrels divided by 90.1 percent). With P786 million in total net profit, we could compute that the net profit per barrel sold for Q1 2004 was P59.77 (P786 million divided by 13.15 million barrels).

For Q1 2005, the total net profit was P870 million, and net profit per barrel was P73.42 (P870 million divided by 11.85 million barrels). Comparing with the Q1 2004 data, we can see that the net profit per barrel increased by P13.65 (P73.42 minus P59.77).

How much of this increase was brought about by increased operating efficiency? Well, there was an increase in total operating income of P130 million (P1.39 billion minus P1.26 billion) due to the decrease in operating expenses. Using the average net income to operating income ratio of Petron for the last three years, which was roughly 56%, we can compute that the P130 million savings contributed around P72.8 million (P130 million multiplied by 56%) to total net income. On a per barrel basis, increased operating efficiency accounted only for P6.18 (P72.8 million divided by 11.85 million barrels) of the increase in net profit per barrel.

This means that there was an increase in net profit per barrel of P7.51 (P13.65 minus P6.18) which was not due to increased operating efficiency. Under conventional accounting rules, since we already isolated the effect of the decrease in operating expenses, the most likely source of the P7.51 increase in net profit would be an increase in gross profit. Gross profit is equal to selling price minus the manufacturing-related cost per barrel. So an increase in gross profit can be caused by an increase in selling price and / or a decrease in cost.

A decrease in manufacturing cost is not likely for two reasons. First, the raw materials cost has increased because of the rise in the purchase price of crude oil in the world market. Second, the decrease in sales volume most likely means there was also a decrease in production volume. This means that fixed manufacturing costs were most likely spread out to less units, thereby increasing the fixed costs that would be absorbed by each barrel.

So that leaves us with one explanation. The P7.15 unaccounted increase in net profit per barrel was most likely caused by an increase in selling price. And this is not too hard to believe, considering that total sales revenue increased 19.7 percent while sales volume decreased 9.9 percent.

"This (increase in net profit) reflects the progress we are making in our efforts to improve our operating efficiency." said Petron public affairs manager Virginia Ruivivar. Sadly, Mam Ruivivar, whatever spin you put into it, the numbers Petron itself provided tell the truth. Petron unashamedly profited from its price increases, while we, the consumers, suffered.


jhay said...

galing nyo naman sir... kaso mukhang iilan lang sa pilipinas ang nakakaintindi nyan... di naman kasi maiintindihan ng "common people" yung mga figures na yan... pero bakit ang gobyerno na dapat na mas nakakaalam nyan at dapat sanang nangingialam na sa mga petroleum companies dahil sa krisis na kinakaharap natin ngayon ay sadya yatang nagtatanga-tangahan at walang ginagawang hakbang para masolusyunan ang harapang pangbabastos ng mga oil companies na yan... o tanga lang talaga sila...

Deepu George V said...

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