TITLE

PENINSULA GASOLINE CORPORATION

I. TIME CONTEXT

2007

II. PERSPECTIVE/ VIEWPOINT

Joan Sorevinas
Chairman and President of Peninsula Gasoline Corporation

III. STATEMENT OF THE PROBLEM

The Peninsula Gasoline Corporation incurred losses amounting to about P150,000
per day.

IV. STATEMENT OF OBJECTIVES

To pay the Peninsula Gasoline Corporation’s maturity bonds and tax liabilities for
at least 30% within 3 days.
.
V. AREAS OF CONSIDERATION

Strengths:
 The company was chosen by Caltron Philippines as the gas dealer.
 PGC started with one gas station and opened to more stations.
 It acquired 20 units of tanker trucks and engaged in the wholesale of
petroleum products in different areas in Cavite and nearby provinces.
 75% of the respondents are very much satisfied with the service provided
by the front liners.
Weaknesses:
 PGC incurred losses amounting to about P150,000 per day.
 The company's rate of return in 1997 dropped to a negative 7.25%, way below
the 12% return limit set by the government.
 PGC's capitalization relied heavily on it's creditors.
 The highest net income of P975 million in 2007 over the last three (3) years,
significantly reduced by the sharp increase in income tax expense.
 Customs officials ordered PGC to pay P10 million in deficiency taxes.
 The reduction of cost of goods sold by 1% was brought about by lower duty
paid landed cost per liter of crude into cost.
 The comparative top 5 key performance indicators show that PGC has low net
income and high debt compare to its competitors.
 The rising cost of spare parts has tremendous effect on the pricing strategy.
 Due to peak season (June to July), the gas patrons have to wait for about 30
minutes before they could attended to.
 The repair and service boys are sneaking extra fluids and lube oil to their
favorite customers, presumably to gain bigger tips.
 Ten repair rooms were found to have leaks while the reception areas needed
some repairs and renovation. Five service machines are already worn-out.
 Rank-and-file union has been pressing for salary increase.
 Company's biggest share in the budget is salaries and wages at 50%.

Opportunities:
 PGC's restructuring by splitting the company into two entities: Host Peninsula
Gasoline Corporation (HPGC) and Peninsula Philippines Inc. (PPI)
 World's demand for oil has increased sharply in recent years.
 In the light of uncontrollable oil price, the need to use the bio- fuel seems to
be the answer.
  25% commented that service could be improved if the company will adopt
more sophisticated electronic machines like computerized gasoline dispenser,
change oil, car wash, tune-up, alignment, and other related car services.

Threats:
 The timing and execution of the initial public offering will not be feasible as
of the moment because of the news that the Philippine equities market
officially entered a "bear market"
 The situation is coupled with the continuing threat of destabilization of the
PGMA government.
 PGC was compelled to jack-up prices to P65 per liter starting August 15,
2008.
 Under the Deregulation Law, oil companies are mandated to adjust their
monthly prices.
 Tight supplies have been aggravated by political instability, resource
mismanagement and weather.
 The possibility of staging a nationwide transport strike.
 The inflation rose 12.4% in July.

VI. ALTERNATIVE COURSE OF ACTION

ACA 1: Asset reduction strategy

Advantages:

 The Company will be able to sell 5 machines which are already

worn-out.
 If the amount earned from the sold machine, it will be an
additional amount for PGC to pay their maturity bonds and tax
liabilities.
 Disadvantages:
 If they immediately sell the machine, there's a chance that it can
still repair and it will use again.
 They lost their chance to maximize the usage of their assets.

ACA 2: Consolidation

Advantages:
 The partner firm of PGC will help them to improve the company's
financial performance and provide economies of scale.

Disadvantages
 There is an imbalance in level of expertise investment or assets
brought into the venture by the different partners.
 Different cultures and management styles result in poor integration
and cooperation

ACA 3: Asset Reduction cum Maximization Revenue

Advantages:
 They will able to sell their non-performing assets.
 They will able to maximize the use of their assets.
 The money earned from the asset reduction and asset
maximization, it will be an additional amount to pay the maturity
bonds and tax liabilities of PGC.
 The asset maximization will make the company's asset more
efficient and productive.
 Disadvantages:

 The asset maximization will tend to take advantage by the

maximum usage of assets such as equipment and manpower of the
company. Therefore, this result to malfunction or failure of
company's asset.

VII. CONCLUSION

Criteria ACA1 ACA2 ACA3

Availability of Funds 1 3 2

Increase Profit 1 2 3

Timeliness 2 1 3

Total 4 6 8

Legend: 3 being the highest, 1 the lowest

VIII. RECOMMENDATION
After a critical analization, we highly recommend the alternative course of action
3 which is the asset reduction cum maximization is the best solution for this case. It
can be a big help for the Peninsula gasoline corporation to pay all their debts for
consecutive years by selling their assets that can’t be of use for their company and
also by using this strategy, it can help for the company to be more efficient and
effective on their day to day operation.

IX. PLAN OF ACTION

ACTIVITIES PERSON/S RESPONSIBLE TIME FRAME

1. Conduct a meeting Joan Sobrevinas, BOD, VP 1 day
to flat form and Finance and HR
discuss the chosen
strategy
2. Know the approval Joan Sobrevinas 2 days
of the board of
director and Joan
Sobrevinas itself
3. Check, analyze and VP Finance, VP Operation 1 month
segregate the non- and HR
performing assets of
PGC
4. Look for potential Vic Neri 3 months
buyers of non-
performing assets
5. Assessing of Joan Sobrevinas 2 weeks
agreement between
the PGC and the
 buyers of assets
6. Actual Selling Joan Sobrevinas 1 week
process
7. Planning on how to Joan Sobrevinas, VP Finance, 1 week
maximize assets VP Operation and HR
8. Leasing their VP Finance, VP Operation 6 months and 3 weeks
equipment and and HR
buildings on
weekends 24 hours
open of the PGC’s
Gasoline Station
9. Evaluation of the Joan Sobrevinas 2 days
outcome of the cost
profitability
reduction and asset
maximization
10. Payment of their Josie Capul 2 days
10% tax liabilities
and maturity bonds