Shell Pilipinas Corp. swung to a P2.7-billion net loss in the first half as higher fuel costs, inventory losses, and squeezed margins battered earnings despite stronger revenues and positive free cash flow.

The company said Monday the result reversed the P965.3-million net income posted in the same period last year. During the period, core earnings likewise fell into the red, with Shell Pilipinas recording a P1.9-billion core net loss, down from a P1.98-billion core profit a year earlier.

Net sales rose 28.8 percent to P146.97 billion from P114.14 billion as elevated pump prices boosted revenues. But the cost of sales climbed at a faster rate, by 36.1 percent, to P140.46 billion from P103.23 billion, putting pressure on profitability.

Shell Pilipinas said rapidly rising product costs outpaced domestic pricing adjustments during the period, compressing margins as higher costs could not always be fully or immediately reflected in retail and commercial prices.

The company was also hit by softer demand for premium fuels as high pump prices weighed on consumers.

“The first half tested the resilience of energy supply chains across the industry. Our priority was clear: keep fuel available, support our customers and trade partners, and help keep the Philippine economy moving,” Shell Pilipinas President and CEO Lorelie Quiambao Osial said.

Volatility in global energy markets intensified amid the Middle East conflict, which heightened concerns over energy security and fuel availability across Asia, particularly in import-dependent countries such as the Philippines.

The sharp rise in oil prices and a weaker peso increased pressure on fuel costs and working capital, while uncertainty over potential supply disruptions further complicated the operating environment.

Shell Pilipinas said its reported net loss included around P1 billion in inventory holding losses after oil prices retreated from earlier peaks. These losses were partly offset by about P600 million in one-off gains from the sale of remaining crude inventory and related items.

Despite the earnings setback, the company generated P2.4 billion in free cash flow in the first half, allowing it to maintain liquidity and supply reliability during the volatile period.

Shell Pilipinas said it tapped its integrated supply chain and local terminal network and coordinated with government and industry stakeholders to maintain product availability and support customer affordability.

The company also participated in the public utility vehicle fuel discount program, with one of the broadest mobility site nominations among industry participants.

Notably, the company's performance across its businesses was mixed.

Commercial Fuels volume grew by 4 percent, supported by stronger demand from the power sector and reseller channel, and reached a record monthly volume in June.

Mobility volumes, however, declined by 4 percent as high pump prices dampened consumer demand. The Lubricants business provided earnings support, aided by continued customer demand and the expansion of the Shell Flagship Workshop network.

Shell Pilipinas said market conditions began improving in late May and through June as fuel prices moderated and mobility recovered.

“As we move into the second half, our focus is to restore profitability, strengthen cash generation, and further improve Shell Pilipinas’ competitiveness,” Osial said.

The company is now focusing on restoring profitability through disciplined cost and working-capital management, margin recovery, reliable supply execution and improved competitiveness across its portfolio.

It also plans to continue pursuing its Defend, Grow, Deliver strategy, with priorities centered on cash, returns and growth.