The Prospectus is being displayed in the website to make the Prospectus accessible

to more investors. The Philippine Stock Exchange, Inc. (PSE) assumes no

responsibility for the correctness of any statements made or opinions or reports
expressed in the Prospectus. Furthermore, the PSE makes no representation as to
the completeness of the Prospectus and disclaims any liability whatsoever for any
loss arising from or in reliance in whole or in part on the contents of the Prospectus.

The information in this Preliminary Prospectus is subject to completion and amendment in the final prospectus. No offer or invitation shall be made or
received, and no agreement shall be made, on the basis of this document, to purchase or subscribe for any Offer Shares.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 04, 2014
STRICTLY CONFIDENTIAL

Century Pacific Food, Inc.

(Incorporated in the Republic of the Philippines)

Primary Offer of 229,654,404 Common Shares

Offer Price of up to 14.50 per Offer Share
to be listed and traded on the Main Board of The Philippine Stock Exchange, Inc.

Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners

BDO Capital & Investment

Corporation

BPI Capital Corporation

First Metro Investment

Corporation

Financial Adviser

Evercore Asia Limited

The date of this Prospectus is []

THE PHILIPPINES SECURITIES AND EXCHANGE COMMISSION HAS

NOT APPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS
IS
ACCURATE
OR
COMPLETE.
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
AND SHOULD BE REPORTED IMMEDIATELY TO THE PHILIPPINES
SECURITIES AND EXCHANGE COMMISSION.

Century Pacific Food, Inc.

7th Floor, Centerpoint Building
Julia Vargas corner Garnet Street
Ortigas Center
1605 Pasig City, Metro Manila
Philippines
Telephone Number: + (632) 633 85 55
Corporate Website: www.centurypacific.com.ph
This Prospectus relates to the offer and sale of 229,654,404 new common shares by way of
primary offer (the Offer), with a par value of 1.00 per share (the Offer Shares), of
Century Pacific Food, Inc., a corporation organized under Philippine law (the Company,
CNPF, or the Issuer) to be listed and traded in the Main Board of The Philippine Stock
Exchange, Inc. (the PSE). The trading symbol of the Company shall be CNPF. See Plan
of Distribution.
The Offer Shares shall be offered at a price of up to 14.50 per Offer Share (the Offer
Price). The determination of the Offer Price is further discussed on page 64 of this
Prospectus and was determined through a book-building process, as well as discussions
between the Company and BDO Capital & Investment Corporation (BDO Capital), BPI
Capital Corporation (BPI Capital), and First Metro Investment Corporation (First Metro),
collectively, the Joint Issue Managers, Joint Lead Underwriters, and Joint Bookrunners or
simply, the Joint Lead Underwriters. A total of 2,229,654,404 Common Shares will be
outstanding after the Offer. The Offer Shares will comprise up to 10.30% of the outstanding
Common Shares after the Offer.
Pursuant to its amended articles of incorporation, the Company has an authorized amount of
capital stock of 6,000,000,000.00 divided into 6,000,000,000 Common Shares with a par
value of 1.00 per share, of which 2,000,000,000 Common Shares are outstanding as of the
date of this Prospectus. The Offer Shares shall be Common Shares of the Company.
The Company will be listed on the Main Board of the PSE. As a newly incorporated
company, CNPF will be relying on the track record of its wholly owned subsidiaries, General
Tuna Corp. (GTC) and Snow Mountain Dairy Corp. (SMDC). In this respect, both GTC
and SMDC, satisfy the requirements of the PSE Revised Listing Rules i.e., that such
subsidiary (i) must have a cumulative consolidated earnings before interest, taxes,
depreciation, and amortization (EBITDA), excluding non-recurring items, of at least 50
million for three full fiscal years immediately preceding the application for listing, (ii) a
minimum EBITDA of 10 million for each of the three fiscal years, and (iii) must further be
engaged in materially the same businesses and must have a proven track record of
management throughout the last three years prior to the filing of the application. With
SMDCs EBITDA of approximately 26 million, 39 million and 67 million for 2011, 2012
and 2013, respectively and GTCs EBITDA of approximately 196 million, 244 million and
286 million for 2011, 2012 and 2013, respectively, CNPFs subsidiaries are in full
compliance with the financial requirements. Moreover, GTC and SMDC have both been in
existence and operating since 1997 and 2001, respectively and have had a proven track record
of management since then. The PSE Revised Listing Rules prohibit CNPF from divesting its
shareholdings in GTC and SMDC for a period of three years from the date the Offer Shares
are listed on the PSE; provided that the prohibition shall not apply if the divestment is
approved by a majority of CNPFs shareholders.
The total proceeds to be raised by the Company from the sale of the Offer Shares will be up to
approximately 3,330.0 million. The estimated net proceeds to be raised by the Company

from the sale of the Offer Shares (after deducting estimated fees and expenses payable by the
Company of approximately 278.5 million) will be approximately 3,051.5 million. The
Company intends to use the proceeds it receives from the Offer for payment of financial
obligations, capital expenditures to increase production capacity and cost efficiency, working
capital and/or potential acquisitions. For a more detailed discussion on the proceeds from the
Offer and the Companys proposed use of proceeds, please see Use of Proceeds beginning
on page 55 of this Prospectus.
The Joint Lead Underwriters (as defined below) will receive a transaction fee from the
Company equivalent to 1.5% of the gross proceeds from the sale of the Offer Shares. These
are inclusive of the amounts to be paid to other participating underwriters and selling agents
and exclusive of the amounts to be paid to the PSE Trading Participants, where applicable.
For a more detailed discussion on the fees to be received by the Joint Lead Underwriters,
please see Plan of Distribution beginning on page 59 of this Prospectus.
Each holder of Common Shares will be entitled to such dividends as may be declared by the
Companys Board of Directors (the Board or Board of Directors), provided that any share
dividends declaration requires the approval of shareholders holding at least two-thirds of its
total outstanding capital stock. The Corporation Code of the Philippines, Batas Pambansa
Blg. 68 (the Philippine Corporation Code), has defined outstanding capital stock as the
total shares of stock (Shares) issued to subscribers or stockholders, whether paid in full or
not, except for treasury shares. Dividends may be declared only from the Companys
unrestricted retained earnings. The Company has approved a dividend policy of maintaining
an annual cash and/or share dividend pay-out of up to 30% of its net income from the
preceding year, subject to the requirements of applicable laws and regulations, the terms and
conditions of its outstanding bonds and loan facilities, and the absence of circumstances that
may restrict the payment of such dividends, such as where the Company undertakes major
projects and developments. The Companys Board may, at any time, modify the Companys
dividend policy depending upon the Companys capital expenditure plans and/or any terms of
financing facilities entered into to fund its current and future operations and projects. The
Company can give no assurance that it will pay any dividends in the future. See Dividends
and Dividend Policy.
45,930,800 Offer Shares (or 20% of the Offer Shares) are being offered to all of the trading
participants of the PSE (the PSE Trading Participants) and 22,965,400 Offer Shares (or
10% of the Offer Shares) are being offered to local small investors (the Local Small
Investors or LSIs) in the Philippines. The remaining 160,758,204 Offer Shares (or 70% of
the Offer Shares) are being offered by the Joint Lead Underwriters to the Qualified
Institutional Buyers (the QIBs) and to the general public. Prior to the closing of the Offer,
any Offer Shares not taken up by the PSE Trading Participants and Local Small Investors
shall be distributed by the Joint Lead Underwriters to their clients or to the general public.
The Joint Lead Underwriters firmly underwrite any shares left unsubscribed after the Offer.
For a more detailed discussion of the underwriting commitment of the Joint Lead
Underwriters, see Plan of Distribution on page 59 of this Prospectus.
All of the Common Shares to be sold pursuant to the Offer have identical rights and
privileges. The Common Shares may be owned by any person or entity regardless of
citizenship or nationality, subject to the nationality limits under Philippine law. The
Philippine Constitution and related statutes set forth restrictions on foreign ownership for
companies engaged in certain activities. The Company currently does not own any land in the
Philippines but if the Company acquires land in the future, its foreign shareholdings may not
exceed 40% of its issued and outstanding voting capital shares. See Philippine Foreign
Exchange and Foreign Ownership Controls.

ii

Before making an investment decision, investors should carefully consider the risks
associated with an investment in the Common Shares. These risks include:
1. Risks relating to the Companys business

CNPFs financial performance may be materially and adversely affected by

fluctuations in prices or disruption in the supply of key raw materials;
CNPFs sales growth depends on successful introduction of new products and new
product extensions, which is subject to consumer preference and other market factors
at the time of introduction;
Actual or alleged contamination or deterioration of, or safety concerns about, CNPFs
food products or similar products produced by third parties could give rise to product
liability claims and harm CNPFs reputation;
Competition in CNPFs businesses may adversely affect its financial condition and
results of operations;
CNPF relies on the strength of its brands;
Consolidation of distribution channels in the Philippines may adversely affect
CNPFs financial condition and results of operations;
CNPF relies on key suppliers for certain raw materials and the failure by such
suppliers to adhere to and perform contractual obligations may adversely affect
CNPFs business and results of operations;
CNPF has a limited history as a separate entity;
CNPF generally does not have long-term contracts with its customers, and it is
subject to uncertainties and variability in demand and product mix;
CNPF is exposed to the credit risks of its customers, and delays or defaults in
payment by its customers could have a material adverse effect on CNPFs financial
condition, results of operations and liquidity;
Any infringement or failure to protect CNPFs trademarks and proprietary rights
could materially and adversely affects its business;
CNPFs strategy of growth, including acquisitions, entering new product categories
and international expansion, may not always be successful or may entail significant
costs, which could adversely affect its business, financial condition and results of
operations;
CNPF may be subject to labor unrest, slowdowns and increased wage costs;
CNPF is effectively controlled by the Po family and their interests may differ from
the interests of other shareholders;
CNPFs international operations may present operating, financial and legal
challenges, particularly in countries where CNPF has little or no experience;
CNPFs existing insurance policies and self-insurance measures may not be sufficient
to cover the full extent of any losses;
CNPFs businesses and operations are substantially dependent upon key executives;
and
Problems may develop among partners of joint ventures operated by CNPF, which
may result in disruptions to these businesses.

2. Risks relating to the Philippines

The substantial majority of CNPFs income is derived from sales in the Philippines
and, therefore, a slowdown in economic growth in the Philippines could materially
adversely affect CNPFs financial condition and results of operation;
A decline in the value of the Peso against the U.S. dollar and other currencies would
increase many of CNPFs costs; and

iii

Any political instability or acts of terrorism in the Philippines may adversely affect
CNPF.

3. Risks relating to the Offer and the Offer Shares

The Offer Shares may not be suitable investments for all investors;
There can be no guarantee that the Offer Shares will be listed on the PSE;
There has been no prior market for the Common Shares, so there may be no liquidity
in the market for the Offer Shares and the price of the Offer Shares may fall;
The market price of the Common Shares may be volatile, which could cause the value
of investors investments in the Company to decline;
Future sales of Common Shares in the public market could adversely affect the
prevailing market price of the Common Shares and Shareholders may experience
dilution in their holdings;
Investors may incur immediate and substantial dilution as a result of purchasing Offer
Shares; and
The Company may be unable to pay dividends on the Common Shares.

4. Risks relating to certain statistical information in this Prospectus

The Prospectus contains forward-looking statements that are, by their nature, subject
to significant risks and uncertainties.
The pro forma financial information included herein may not be indicative of actual
results;
Certain information contained herein is derived from unofficial publications; and
The section of this Prospectus entitled Industry was not independently verified by
the Company or the Joint Lead Underwriters, and the sources therein may not be
completely independent or independent at all.

Please refer to the section entitled Risk Factors beginning on page 35 of this Prospectus,
which, while not intended to be an exhaustive enumeration of all risks, must be considered in
connection with a purchase of the Offer Shares.
The information contained in this Prospectus relating to the Company and its operations has
been supplied by the Company, unless otherwise stated herein. To the best of its knowledge
and belief, the Company, which has taken reasonable care to ensure that such is the case,
confirms that the information contained in this Prospectus relating to it and its operations is
correct, and that there is no material misstatement or omission of fact which would make any
statement in this Prospectus misleading in any material respect and that the Company hereby
accepts full and sole responsibility for the accuracy of the information contained in this
Prospectus with respect to the same.
An application for listing of the Common Shares was approved on March 26, 2014 by the
board of directors of the PSE, subject to the fulfillment of certain listing conditions. The PSE
assumes no responsibility for the correctness of any statements made or opinions expressed in
this Prospectus. The PSE makes no representation as to its completeness and expressly
disclaims any liability whatsoever for any loss arising from reliance on the entire or any part
of this Prospectus. Such approval for listing is permissive only and does not constitute a
recommendation or endorsement of the Common Shares by the PSE or the Securities and
Exchange Commission of the Philippines (the SEC).
Prior to the Offer, there has been no public market for the Common Shares. Accordingly,
there has been no market price for the Common Shares derived from day-to-day trading.

iv

An application has been made to the SEC to register the Offer Shares under the provisions of
the Securities Regulation Code of the Philippines (Republic Act (R.A.) No. 8799) (the
SRC).
A REGISTRATION STATEMENT RELATING TO THE OFFER SHARES HAS
BEEN FILED WITH THE SEC BUT HAS NOT YET BEEN DECLARED
EFFECTIVE. NO OFFER TO BUY THE OFFER SHARES CAN BE ACCEPTED
AND NO PART OF THE PURCHASE PRICE CAN BE ACCEPTED OR RECEIVED
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND
ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT
OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO
NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. AN
INDICATION OF INTEREST IN RESPONSE HERETO INVOLVES NO
OBLIGATION OR COMMITMENT OF ANY KIND. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY OFFER SHARES.
The Offer Shares are offered subject to receipt and acceptance of any order by the Company
and subject to its right to reject any order in whole or in part. It is expected that the Offer
Shares will be delivered in book-entry form against payment to the Philippine Depository and
Trust Corporation (the PDTC) on or about [], 2014.
By:
Christopher T. Po
President and Chief Executive Officer

No representation or warranty, express or implied, is made by the Company or the Joint Lead
Underwriters, regarding the legality of an investment in the Offer Shares under any legal,
investment or similar laws or regulations. No representation or warranty, express or implied,
is made by the Joint Lead Underwriters as to the accuracy or completeness of the information
herein and nothing contained in this Prospectus is, or shall be relied upon as, a promise or
representation by the Joint Lead Underwriters. The contents of this Prospectus are not
investment, legal or tax advice. Prospective investors should consult their own counsel,
accountant and other advisors as to legal, tax, business, financial and related aspects of a
purchase of the Offer Shares. In making any investment decision regarding the Offer Shares,
prospective investors must rely on their own examination of the Company and the terms of
the Offer, including the merits and risks involved. Any reproduction or distribution of this
Prospectus, in whole or in part, and any disclosure of its contents or use of any information
herein for any purpose other than considering an investment in the Offer Shares is prohibited.
No person has been authorized to give any information or to make any representations other
than those contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company or the
Joint Lead Underwriters. This Prospectus does not constitute an offer to sell or the solicitation
of an offer to purchase any securities other than the Offer Shares or an offer to sell or the
solicitation of an offer to purchase such securities by any person in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale of the Offer Shares offered hereby shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date hereof.
Certain statistical information and forecasts in this Prospectus relating to the Philippines and
other data used in this Prospectus were obtained or derived from internal surveys, industry
forecasts, market research, governmental data, publicly available information and/or industry
publications. Industry publications generally state that the information they contain has been
obtained from sources believed to be reliable. However, there is no assurance that such
information is accurate or complete. Similarly, internal surveys, industry forecasts, market
research, governmental data, publicly available information and/or industry publications have
not been independently verified by the Company or the Joint Lead Underwriters and may not
be accurate, complete, up-to-date, balanced or consistent with other information compiled
within or outside the Philippines.
The Company reserves the right to withdraw the offer and sale of Offer Shares at any time,
and Joint Lead Underwriters reserve the right to reject any commitment to subscribe for the
Offer Shares in whole or in part and to allot to any prospective purchaser less than the full
amount of the Offer Shares sought by such purchaser. If the Offer is withdrawn or
discontinued, the Company shall subsequently notify the SEC and the PSE. The Joint Lead
Underwriters and certain related entities may acquire for their own account a portion of the
Offer Shares.
Each offeree of the Offer Shares, by accepting delivery of this Prospectus, agrees to the
foregoing.
Forward-Looking Statements
This Prospectus contains forward-looking statements that are, by their nature, subject to
significant risks and uncertainties. These forward-looking statements include, without
limitation, statements relating to:

known and unknown risks;

vi

uncertainties and other factors that may cause the Companys actual results,
performance or achievements to be materially different from expected future results;
and

performance or achievements expressed or implied by forward-looking statements.

Such forward-looking statements are based on numerous assumptions regarding the

Companys present and future business strategies and the environment in which the Company
will operate in the future. Important factors that could cause some or all of the assumptions
not to occur or cause actual results, performance or achievements to differ materially from
those in the forward-looking statements include, among other things:

the Companys ability to successfully implement its current and future strategies;

the Companys ability to anticipate and respond to local and regional trends,
including demand for canned and processed fish, meat and dairy products or other
future products the Company may offer;

the Companys ability to successfully manage its future business, financial condition,
results of operations and cash flow;

the Companys ability to secure additional financing and manage its capital structure
and dividend policy;

the condition of, and changes in, the relationship of the Company with the Philippine
Food and Drug Administration (Philippine FDA), the Philippine Bureau of Internal
Revenue (BIR) or other Philippine regulatory authorities or licensors;

general political, social and economic conditions in the Philippines;

regional geopolitical dynamics involving the Philippines and/or its neighbors;

the condition of and changes in the Philippine, Asian or global economies;

changes in interest rates, inflation rates and the value of the Peso against the U.S.
dollar and other currencies;

changes to the laws, regulations and policies applicable to or affecting the Company;

competition in the Philippine food processing and food distribution industries;

legal or regulatory proceedings in which the Company is or may become involved;

and

uncontrollable events, such as war, civil unrest or acts of international or domestic

terrorism, the outbreak of contagious diseases, accidents and natural disasters.

Additional factors that could cause the Companys actual results, performance or
achievements to differ materially from forward-looking statements include, but are not
limited to, those disclosed under Risk Factors and elsewhere in this Prospectus. These
forward-looking statements speak only as of the date of this Prospectus. The Company and
Joint Lead Underwriters expressly disclaim any obligation or undertaking to release, publicly
or otherwise, any updates or revisions to any forward-looking statement contained herein to

vii

reflect any change in the Companys expectations with regard thereto or any change in events,
conditions, assumptions or circumstances on which any statement is based.
This Prospectus includes statements regarding the Companys expectations and projections
for future operating performance and business prospects. The words believe, plan,
expect, anticipate, estimate, project, intend, seek, target, aim, may, will,
would, could, and similar words identify forward-looking statements. In addition, all
statements other than statements of historical facts included in this Prospectus are forwardlooking statements. Statements in this Prospectus as to the opinions, beliefs and intentions of
the Company accurately reflect in all material respects the opinions, beliefs and intentions of
its management as to such matters as of the date of this Prospectus, although the Company
gives no assurance that such opinions or beliefs will prove to be correct or that such intentions
will not change. This Prospectus discloses, under the section Risk Factors and elsewhere,
important factors that could cause actual results to differ materially from the Companys
expectations. All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in their entirety
by the above cautionary statements.
The Joint Lead Underwriters have exercised due diligence in ascertaining that all material
representations contained in this Prospectus, including its amendments and supplements, are
true and correct and that no material information was omitted, which was necessary in order
to make the statements contained in said documents not misleading.

viii

TABLE OF CONTENTS
Page

GLOSSARY OF TERMS........................................................................................................3
SUMMARY ............................................................................................................................7
SUMMARY OF THE OFFER ..............................................................................................21
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION.................28
SUMMARY COMBINED FINANCIAL INFORMATION..................................................31
SUMMARY PARENT FINANCIAL INFORMATION OF CNPF ......................................35
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF CNPF .......................38
RISK FACTORS ...................................................................................................................41
USE OF PROCEEDS ............................................................................................................55
PLAN OF DISTRIBUTION ..................................................................................................59
DIVIDENDS AND DIVIDEND POLICY ............................................................................63
DETERMINATION OF THE OFFER PRICE ......................................................................64
DILUTION ............................................................................................................................66
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION .................68
SELECTED COMBINED FINANCIAL INFORMATION ..................................................72
SELECTED PARENT FINANCIAL INFORMATION OF CNPF .......................................76
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CNPF ........................79
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION OF CNPF .......................................................................82
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMBINED FINANCIAL
INFORMATION FOR GTC AND SMDC .......................................................................98
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OF CNPF (PARENT).....................................................................................................113
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE CONSOLIDATED FINANCIAL
INFORMATION OF CNPF ...........................................................................................116
BUSINESS ..........................................................................................................................127
INDUSTRY.........................................................................................................................158
REGULATORY ..................................................................................................................174
BOARD OF DIRECTORS AND SENIOR MANAGEMENT ............................................183
PRINCIPAL SHAREHOLDERS ........................................................................................192

MATERIAL CONTRACTS ................................................................................................195

RELATED PARTY TRANSACTIONS ..............................................................................196
DESCRIPTION OF THE SHARES ....................................................................................198
THE PHILIPPINE STOCK MARKET ...............................................................................206
PHILIPPINE TAXATION ..................................................................................................212
PHILIPPINE FOREIGN EXCHANGE AND FOREIGN OWNERSHIP CONTROLS ......218
LEGAL MATTERS ............................................................................................................220
INDEPENDENT AUDITORS ............................................................................................221
INDEX TO FINANCIAL STATEMENTS ......................................................................... F-1

GLOSSARY OF TERMS
In this Prospectus, unless the context otherwise requires, the following terms shall have the
meanings set forth below.

BFAR

Bureau of Fisheries and Aquatic Resources

BIR

The Philippine Bureau of Internal Revenue

Board of Directors or Board

The Board of Directors of the Company

BOC

The Philippine Bureau of Customs

BSP

Bangko Sentral ng Pilipinas, the central bank of the

Philippines

CCC

Century Canning Corporation

Century Group

Century Canning Corporation, together with its subsidiaries

and affiliates

CIO

Chief Information Officer of the Company

Common Shares

Common shares of the Company with par value of 1.00 per

share

Company or CNPF

Century Pacific Food, Inc., incorporated on October 25,

2013 in the Philippines; references to the Company or CNPF
include references to its subsidiaries, unless the context
otherwise provides

Corporation Code or
Philippine Corporation
Code

The Corporation Code of the Philippines, Batas Pambansa

Blg. 68

CSC

Columbus Seafoods Corporation

DA

Department of Agriculture

Director(s)

the Director(s) of the Company

DTI

Department of Trade and Industry

DOH

Department of Health

EBIT

Net operating income before interest and tax as calculated

by the Company and as presented in this Prospectus

ECC

Environmental Compliance Certificate

EIS

Environmental Impact Statement

EMB

Environmental Management Bureau

FARMC

Fisheries and Aquatic Resources Management Councils

GDP

Gross Domestic Product

GMP

Good Manufacturing Practices

GNP

Gross National Product

GTC

General Tuna Corporation

HACCP

Hazard Analysis Critical Control Point

Halal

An Arabic term which means allowed, lawful, legal, or

permissible under the Shariah (Islamic Law).

HDMF

Home Development Mutual Fund

IEE

Initial Environmental Examination

IFRS

International Financial Reporting Standards

IPO Tax

The tax on sale, barter, exchange or other disposition

through an IPO of shares of stock in closely held
corporations as provided under Section 127 of the Tax Code

IRO

Investor Relations Officer of the Company

ITH

Income Tax Holiday

LGU

Local Government Unit

Listing Date

the date of listing and when trading of the Common Shares

commences on The Philippine Stock Exchange, Inc.

LSI

Local Small Investors

Moodys

Moodys Investors Service

MPO

Rule on Minimum Public Ownership

MT

Metric Ton

Navarro Amper & Co.

Member of Deloitte Touche Tohmatsu Limited

NHIP

National Health Insurance Program

NMIS

National Meat Inspection Service

Offer

The offer and issuance of the Offer Shares

Offer Price

Up to 14.50 per Offer Share

Offer Shares

229,654,404 new Common Shares

Offer Settlement Date

On or about 06 May 2014

OFWs

Overseas Filipino Workers

PCD

Philippine Central Depository

PHP or P

Philippine Peso

PDS

Philippine Dealing System

PDTC

The Philippine Depository & Trust Corporation

PFRS

Philippine Financial Reporting Standards

PHIC

Philippine Health Insurance Corporation

Philippine FDA

Philippine Food and Drug Administration

Philippine Labor Code

Presidential Decree No. 442, as amended.

PMCI

The Pacific Meat Company, Inc.

PNP

Philippine National Police

PSA

Philippine Standards on Auditing

PSE

The Philippine Stock Exchange, Inc.

PSE Trading Participants

All trading participants of the PSE

QIB or Qualified
Institutional Buyer

Qualified buyers within the meaning of Section 10.1(l) of

the SRC

R.A.

Republic Act

ROS

Return on Sale

SCCP

Securities Clearing Corporation of the Philippines

SEC

Securities and Exchange Commission

SKU

stock keeping unit; a stores or catalogs product and service

identification code, often portrayed as a machine-readable
bar code that helps the item to be tracked for inventory

SMDC

Snow Mountain Dairy Corporation

SSOP

Standard Sanitation Operating Procedure

sq. m.

Square meter(s)

SRC

Securities Regulation Code of the Philippines

Tax Code

National Internal Revenue Code of 1997 of the Philippines

(Republic Act No. 9337) and its implementing rules, as

amended
US$

United States Dollar

US FDA

United States Food and Drug Administration

VAT

Value-added tax

SUMMARY
The following summary is qualified in its entirety by, and is subject to, the more detailed information
presented in this Prospectus, including the Companys pro forma consolidated financial statements and
related notes included elsewhere in this Prospectus. Capitalized terms not defined in this summary are
defined in the Glossary of Terms, Risk Factors, Business or elsewhere in this Prospectus.

Overview
CNPF traces its history from the Century Group, a leading branded food company primarily
engaged in the development, processing, marketing and distribution of processed fish and
meat, as well as processed dairy products in the Philippines.
In October 2013, the Century Group began to undertake a general corporate reorganization
transaction. Prior to the corporate restructuring, the companys businesses were operated by
different companies:
Seafood

Century Canning Corporation (CCC) incorporated on December 12, 1978 handled the
Groups sales and distribution for canned and processed tuna, sardines and bangus. Products
are marketed under 555 for sardines, Century Tuna and 555 for tuna. Columbus Seafood
Corporation (CSC), incorporated on December 20, 1994, operated the manufacturing plant
for the sardines. General Tuna Corporation (GTC), incorporated on March 10, 1997,
operated the tuna processing both for local and export sales.
Meat

The Pacific Meat Company, Inc. (PMCI), incorporated on June 28, 1994, manufactured
canned and frozen processed meat under the brand names Argentina, Swift and 555.
Dairy

Snow Mountain Dairy Corporation (SMDC), incorporated on February 14, 2001, handles
the dairy and sinigang mixes under the brands of Birch Tree, Angel, Home Pride and Kaffe de
Oro.
In order to streamline and rationalize the Groups operations, the business operations of CCC,
CSC and PMCI were folded into CNPF, the listing vehicle. The business operations of CCC
and CSC were folded into CNPF under the canned and processed fish segment. The canned
meat business operations of PMCI were folded into CNPF under the canned meat segment.
SMDC, handling the dairy and mixes segment, and GTC, handling the private label canned,
pouched and frozen tuna products for export, were retained as separate corporate entities as
wholly-owned subsidiaries of CNPF.As a result, the pro forma financial statements of CNPF
are a product of the combination of the businesses of CCC, PMCI, CSC, GTC and SMDC.
With this operating history spanning the last 35 years, CNPF has established a strong brand
and product portfolio through, and supported by, continuous product innovation and
acquisition of brands from third parties. Its brands are well-recognized in the Philippines and
include 555 for sardines, Century Tuna and 555 for tuna, Argentina and Swift for canned
meats and Angel and Birch Tree for canned and powdered milk. CNPF was the largest
producer of canned foods in the Philippines in terms of retail value according to Euromonitor
data for February 2013. The quality of CNPFs products has been recognized by numerous

consumer and industry association awards. For example, Century Tuna received the Trusted
Brand Award from Readers Digest in 2011, 2012 and 2013 and Argentina Corned Beef
received the same award in 2012 and 2013. As of December 31, 2013, CNPF offered 283
products which can be found in 3,772 modern retail outlets, approximately 225,168 directly
served general trade outlets and 330,749 indirectly served points of sale, totaling over
559,689 points of sale throughout the Philippines.
CNPF operates five production facilities and distributes its products through 14 distribution
centers strategically located across the Philippines. CNPF distributes its products directly to
retailers, as well as through third-party distributors. As at December 31, 2013, CNPF
maintained 200 manufacturer direct-to-retail accounts reaching 3,772 retail outlets in the
Philippines. In addition, as at December 31, 2013, CNPF held distribution agreements with 39
distributors, reaching approximately 225,168 retail outlets ranging from supermarkets to sarisari stores. Furthermore, as of December 31, 2013, CNPF exports both private label and
branded products, which are distributed across North America, Europe, Asia, Australia, and
the Middle East.
For the year ended December 31, 2013, CNPFs net revenue was 19,023 million. CNPFs
net profit after tax for the same period was 743.9 million.
Business Segments
CNPFs business operations are divided into four main business segments: canned and
processed fish, canned meat, dairy and mixes and tuna export.
The canned and processed fish segment produces a variety of tuna, sardine and other fish and
seafood-based products. CNPFs key brands in the canned and processed fish segment include
Century Tuna, 555, Blue Bay and Fresca.
The canned meat segment produces corned beef, meatloaf and a variety of other meat-based
products. Key brands in this segment include Argentina, Wow and Swift.
The dairy and mixes segment primarily comprises canned milk, powdered milk and other
dairy products, as well as coffee mixes and sinigang mix. Key brands include Angel, Birch
Tree, Kaffe de Oro and Home Pride.
CNPF also produces private label canned, pouched and frozen tuna products for export to
major overseas markets including North America, Europe, Asia, Australia, and the Middle
East. In addition, CNPFs branded products are also exported to overseas markets and are
distributed across North America, Europe, Asia, Australia, and the Middle East.

For the year ended December 31, 2013, the contribution of each business segment to CNPFs
total revenue, based on CNPFs pro forma consolidated financial information as of and for the
year ended December 31, 2013, is as follows:

Year ended December 31, 2013

(in millions)
% of
Net
% of
Revenue
Total
Income
Total
Canned and Processed Fish

7,014

36.9

137

18.4

Canned Meat

4,598

24.2

360

48.4

Dairy and Mixes

1,548

8.1

45

6.0

Tuna Export

5,863

30.8

210

28.2

(8)

(1)

744

100.0

Other Segment Income (CNPF)

Total

19,023

100.0

The abovementioned revenue and net income were derived from the historical audited
separate financial statements of the Company, GTC, SMDC, CCC, PMCI and CSC then
adjusted to give the pro forma effect of the consolidation of the businesses of the said
companies as shown in the table below:
Year ended
December 31,
2013 (in
millions)

Acquisitions
CNPF

GTC

SMDC

CSC

PMCI

CCC

Total before
Pro Forma
Adjustments

Net sales

5,863

1,556

1,633

5,063

5,505

19,620

(597)

19,023

Cost of Sales

5,623

1,222

1,420

3,932

4,071

16,269

(572)

15,697

Gross profit

240

334

213

1,130

1,434

3,351

(25)

3,326

13

127

35

24

859

1,058

(882)

176

13

367

334

248

1,154

2,293

4,409

(907)

3,502

30

148

275

160

763

1,366

2,743

(328)

2,415

49

25

52

131

(19)

112

14

14

(17)

166

57

78

363

875

1,521

(561)

960

Other Income
Operating
profit
Operating
expenses
Finance cost
Other
Expense
Profit (loss)
before tax

Pro forma
Adjustments

Pro forma
Consolidated

Income tax
expense
Profit after
tax

(5)

28

15

25

105

48

217

(1)

216

(12)

138

42

52

257

827

1,304

(560)

744

Pro forma adjustments were made to the December 31, 2013 historical consolidated financial
information of the Company and its subsidiaries (GTC and SMDC), and the acquired
businesses (CSC, PMCI, CCC), which include the following:

Consolidation of the Company and its subsidiaries (GTC and SMDC) and elimination of
investment and equity amounting to 1.137 million.

Recognition of identified assets and liabilities of CCC, CSC and PMCI and the related
operations as well as the accumulated earnings as of December 31, 2013. The difference
between the balance of the assets acquired and liabilities assumed was recognized in
retained earnings.

Elimination of frozen processed meat business from PMCI.

Elimination of intercompany and inter-business transactions and account balances.

Elimination of cash dividends from GTC and SMDC amounting to 382 million and gain
from the sale of shares of stocks of GTC and SMDC between CCC and the Company

Recognition of rental expense in relation to the land and office spaces that were not sold
to the Company and elimination of depreciation related to aforementioned assets.

Re-computation of income tax to include the effects of the pro forma adjustments.

CCC and CSC (Canned and Processed Fish). Net sales from the canned and processed fish
business segment totaled 7,013.8 million, or 37% of total CNPF sales, for the year ended
December 31, 2013. Of these sales, canned tuna and milkfish contributed 5,380.8 million
while canned sardine accounted for 1,633.0 million. Gross profit for the segment totaled
1,659.2 million, or a gross profit rate of 24%. This gross profit consisted of 1,383.4 million
from canned tuna and milkfish and 275.8 million for canned sardine. Net income for the
segment totaled 136.5 million, or an equivalent segment return on sales of 2%. Of this
segment net income, 158.8 million was shared by canned tuna and milkfish while 161.4
million was from canned sardine.
GTC (Tuna Export). Net sales from the tuna export business segment totaled 5,862.7
million. This represented 31% of total CNPF sales and comprised sales of canned tuna,
pouched tuna and frozen loins to the private-label export market. Gross profit was 301.6
million, or a segment gross profit rate of 5%. Net income totaled 209.6 million for a segment
return on sales of 4%.
PMCI (Canned Meat). Net sales from the canned meat business were 4,598.6 million for the
year ended December 31, 2013, which represented 24% share of the total CNPF sales. Net
sales included sales to the modern trade accounts, general trade accounts, food service
accounts and export accounts for canned products including corned beef, meat loaves, readyto-eat viands. Gross profit for canned meat was 1,040 million, or a segment gross profit rate
of 31%. Net income for canned meat totaled 360.1 million, or a return on sales of 8%.
SMDC (Dairy and Mixes). Net sales from the dairy and mixes business was 1,548 million
for the year ended December 31, 2013, which represents 8% share of the total CPF sales. Net
sales includes sales of evaporated milk, condensed milk, creamers, full cream powdered milk,
flavour mixes and 3-in-1 coffee products. Gross profit for the segment amounted to 325.5

10

million for an equivalent gross profit rate of 21%. Net income totaled 45.5 million, or a 3%
return on sales ratio.
Competitive Strengths
The Company believes that the following are its key business strengths:
Established market leadership positions with iconic, well-recognized and trusted brands
The Company is the largest producer of canned foods in the Philippines in terms of retail
value according to Euromonitor data for February 2013. In addition, the Companys brands
have established market-leading positions within each of their respective segments. For
example, based on data from AC Nielsen, in 2012, the Company was the market leader in the
Philippines in domestic canned tuna, with a market share of 87% by sales. In addition, based
on AC Nielsen data as of August 2013, the Company was the market leader in corned beef
with a market share of 42.5% by sales and the market leader in meat loaf with a market share
of 25.6% by sales.

Several of the Companys brands have a long heritage and are well-recognized and trusted
brands in the Philippines. The Company believes that customers associate its brands with
health and quality. Such brands include Century Tuna which was launched in 1986, Argentina
Corned Beef which was launched in 1995 and Angel which was launched in 2002. The
Company has also grown its brand portfolio through brand acquisitions, including the
acquisition of Blue Bay in 2001, Birch Tree in 2003, Kaffe de Oro and Home Pride in 2008
and Swift in 2012. As a result of the heritage and strength of the Companys brands as well as
their high standards of quality, the Company has won a number of industry, consumer and
marketing awards including the Agora Awards Marketing Company of the Year Award for
Century Canning Corporation (2011) and the Trusted Brand Award by Readers Digest for
Century Tuna (2011, 2012 and 2013) and Argentina Corned Beef (2012 and 2013).
The Company continues to enhance brand recognition among consumers by consistently
maintaining high product quality, as well as through active and targeted marketing and
promotional campaigns such as using well-recognized celebrities to endorse its products. The
Company believes that its well-recognized brands have allowed it to develop strong customer
loyalty resulting in repeat purchases that provide it with greater pricing power relative to its
competitors.
Furthermore, the Company believes that the established reputations and market-leading
positions of its brands provide a strong platform to maintain and grow its market shares
through new products, product line extensions and expansion of its distribution networks.
Multi-category, multi-brand product portfolio catering to different customer tastes and
price points
The Company has a diverse product portfolio with multiple product lines across fish, meats
and dairy. As of December 31, 2013, the Company had a portfolio comprising 128 SKUs for

11

tuna products, 101 SKUs for canned meat products, 25 SKUs for sardine products and 29
SKUs for dairy and mixes products. The Company produces numerous product variants to
cater to different customer tastes. For example, the Company produces chicken, pork and
tuna-based vienna sausages to capture the full range of consumer preferences for this product.
In addition, the Company packages its products in different sizes to target different customer
price points. This diverse product portfolio allows it to capture a larger share of the
consumers' wallets and provides broader avenues for future growth, both within and across its
key product categories. In addition, this also reduces its dependence on any single product
category or brand, and makes the Company more resilient to changes in the competitive
landscape or price fluctuations in raw material that may impact one product category more
than another.
In addition, leveraging on the Company's strong reputation and recognition for product
quality, the Company has also developed a multi-brand strategy within each product segment
that allows it to broaden its reach to customers more easily than its competitors. Within each
of its product segments, the Company offers a wide portfolio of brands and products to meet a
diverse range of consumer tastes, preferences and price points allowing for a comprehensive
coverage of the Filipino consumer market. For example, in the canned tuna segment, the
Century Tuna brand targets the up-market canned tuna consumer whereas the 555 Tuna brand
is aimed at the budget or cost-conscious canned tuna consumer. This allows the Company to
broaden its customer base and capture the benefits from growth in disposable income from a
larger proportion of the population. In addition, this segmentation allows the Company to
target consumers in different regions with different demographics with the right brand, as
well as react quickly and opportunistically to changes in consumer preferences and to act
defensively against any action by competitors.

The Companys diverse product portfolio also provides marketing and product synergies
across segments. For example, product recipes and formulations achieved through internal
research and development are shared across product segments. In addition, international best
practices implemented in the tuna export segment are shared across the Companys various
production lines, improving production processes and enhancing product quality.
Strong track record of product innovation and successful introduction of new products
Product innovation and development has been an important element in the Companys
business strategy and has been crucial to the Companys success. The Company has
demonstrated strong innovative capabilities as shown by its consistent track record of
launching new products to address changing consumer needs and preferences. For example,
the Company differentiates its products from plain canned tuna/meat by developing new
flavors and dishes that are designed and packaged as ready-to-eat meals. In particular, the
Companys ready-to-eat dishes use tuna as the main ingredient in traditionally beef, pork and

12

chicken-based dishes such as kaldereta, adobo and afritada to increase consumers acceptance
of the product while providing consumers with a healthier alternative. In the dairy segment,
the Company has successfully introduced two-in-one products such as Angel Kremdensada (a
combination of all-purpose cream and condensed milk) and Angel KremQueso (a combination
of all-purpose cream and cheese) to provide convenient and cost-effective options for
consumers. In addition to innovative products, the Company has noticed a shift in preference
from canned products to flexible packaging or products sealed in pouches. In response, the
Company has started to produce pouched tuna products.

Furthermore, the Company has a strong ability to bring its products to the market using
innovative marketing strategies. The Companys marketing campaigns are jointly developed
between its highly experienced in-house marketing team and independent creative agencies.
The Company employs the use of celebrity endorsements in its marketing strategies to link
each product to the intended branding message. Over the years the Company has launched
numerous successful marketing campaigns, including a focused marketing campaign for
Argentina Corned Beef, which became the leading brand in its segment. The Company views
its ability to market its products as a critical success factor and invests heavily in advertising
and endorsements. The Companys ability to develop new products and successfully bring
them to the market allows the Company to further segment each product category and tailor it
to consumers tastes and preferences, preventing product commoditization.
Extensive market penetration through multi-channel distribution network
The Company operates and manages one of the most extensive distribution networks across
the Philippines, with its products available in every major city, creating a significant
competitive advantage.

13

The Company has developed strong relationships directly with retailers, including modern
and general trade stores, as well as through third-party distributors. Approximately 58% of the
Companys distribution is through modern trade and approximately 42% is through general
trade. As of December 31, 2013, the Companys modern trade coverage holds 200 direct
accounts and 3,772 outlets, comprising national retail chains with outlets across the
Philippines, such as Robinsons Supermarkets, SM Supermarkets, Metro department stores,
Puregold and 7-Eleven, as well as regional retailers. The Companys general trade coverage
has grown significantly from approximately 70,000 outlets in 2010 to approximately 225,168
outlets including sari-sari stores, wet markets, wholesalers and regional supermarkets in
2013. The Company operates 14 distribution centers, allowing the Company to respond
quickly to changes in customer demand.

In addition, the Company employs its own sales and distribution force consisting of
approximately 159 personnel, including sales administration and support functions. The
Company believes that employing a majority of its sales force in-house has resulted in a
relatively higher level of motivation and incentivization among its employees that has
contributed to the strong growth in the sales of the Companys products. This arrangement

14

also enables the Company to work closely with its customers and develop strong relationships
with them. The Company continually seeks ways to expand the reach of its distribution
network, especially in the Mindanao and Visayas regions. The Company believes that its
multi-channel distribution network and its strong relationships with customers has allowed it
to maximize customer reach and has been one of the key factors to its success in building and
developing its market-leading positions.
CNPFs extensive distribution network is supported by its strategically located production
facilities. The Companys tuna processing facility, with an installed capacity of 360 MT per
day as of December 31, 2013, is located in General Santos, Mindanao, which is the heart of
the Philippine tuna industry as it is geographically adjacent to two large tuna fishing grounds,
the Western Pacific Ocean and the waters between Southern Philippines and Indonesia. In
addition, one of the Companys sardine processing facilities, with an installed capacity of 200
MT per day as of December 31, 2013, is located in Zamboanga, which is the center of the
Philippine sardine industry. The proximity to the source of supply ensures the availability of
fresh fish, a critical element in maintaining a high quality product and lowering the
Companys logistics costs. The Companys meat processing plant and milk and mixes plant,
located in Laguna and Taguig, respectively, are also strategically located close to major
markets, which reduces the cost of transporting products to customers. The Companys meat
processing plant has an installed capacity of 194 MT per day as of December 31, 2013 while
the Companys milk and mixes plant has an installed capacity of 11,000 cases per day as of
December 31, 2013.
Highly scalable export business that supplies processed tuna to leading international
companies and distributes branded products to high growth markets
The Companys export business, comprising private label processed tuna as well as branded
products, is complementary to its domestic business as it helps increase scale and reduce
costs, increasing the Companys competitiveness. An additional benefit of the scalability of
the export business is that it allows the export business to focus on quality and achieve higher
margins.
The Company has developed a reputation in the international food manufacturing community
as a reliable and trusted partner. It has supplied some of the largest food manufacturers
globally, including Chicken of the Sea, Bumblebee Foods LLC, Subway, Princes, Rio Mare,
Hagoromo, Hoko and California Garden. The Company is constantly looking to enter into
additional agreements with potential partners. The Company believes that supplying leading
global food manufacturers in some of the most stringently regulated markets in the world
represents an endorsement of the quality of the Companys products.
The Company currently supplies to brands and retailers in five continents and covers major
markets including North America, Europe, Asia and Australia, and the Middle East, broken
down as follows:
2013
North America

2012
% of total exports

2011

7%

12%

38%

Europe

44%

16%

16%

Asia and Australia

49%

67%

40%

0%

5%

6%

Middle East

15

The Company was the leading Philippine exporter of canned tuna and frozen tuna loin
products for the year ended December 31, 2013, with a market share of 34% according to data
from the Philippine Bureau of Customs (the BOC).
The Company also distributes its branded products internationally, particularly to China and
Vietnam, through its affiliates. Century International (China) Company Limited and Century
Shanghai Trading Company, joint ventures between CCC and Thai Union Manufacturing
Company, Ltd., as well as Century Pacific Vietnam Company, a wholly owned subsidiary of
CCC, have headquarters in Beijing, Shanghai, and Vietnam, respectively. These offices
distribute the Companys branded products to major cities in the region. The Companys
products are carried by retailers such as Carrefour, Walmart, Tesco Hymall, Metro and
Auchan, among others. As of December 31, 2013, the Companys private label and branded
products are distributed across North America, Europe, Asia, Australia, and the Middle East.
CNPF has earned a number of international accreditations for food safety and quality. CNPF
has been accredited by the US FDA, the Canadian Food Inspection Agency, the British Retail
Consortium, the European Union, the Orthodox Union and the Islamic Dawah Council. In
addition, all of CNPFs processing facilities apply the Hazard Analysis and Critical Control
Points (the HACCP) plan, a management system which addresses food safety through the
analysis and control of biological, chemical and physical hazards from raw material
production, procurement and handling to manufacturing, distribution and consumption of the
finished product
Experienced and dedicated management team
The Company is led by an experienced and dedicated management team with a proven track
record of success. Members of the senior management team have an average of over 25 years
of industry experience, including experience working in large, multinational corporations in
the food industry. The management team is well accustomed to the Philippine operating
environment and has effectively managed the Company both in times of strong economic
growth as well as through periods of economic downturn and political instability. The
strength and depth of the experience of the Companys management team have been
demonstrated by their successful implementation of a range of efficiency programs and
product innovations, which has resulted in continued profitability and market leadership for
the Company over the years. In addition, management team has a proven track record of
turning previously under-promoted and neglected brands, such as Birch Tree and Blue Bay,
into successful brands by applying the Companys strategies, such as proper branding and
extensive national distribution coverage.
The Company believes that members of its management team are highly regarded in the
industry, and they hold a variety of leadership positions in food industry organizations, such
as the Sardine Association of the Philippines, the Philippine Association of Meat Processors
Inc., the Tuna Canners Association of the Philippines. The management teams industry
leadership positions also create a valuable local business network for the Company.
Strategies
The Company seeks to strengthen its leading market position in the Philippines and expand its
business operations by implementing the following business strategies:

16

Actively develop and manage product and brand portfolios to target different price
points and respond to emerging market trends
The Company has a history of driving growth through new and innovative products,
capitalizing on emerging market trends and introducing extensions of successful product
lines. The Company will continue growing its existing product categories and deliver
innovative products under trusted brands and the Company is committed to developing and
expanding its product categories to meet evolving consumer tastes and preferences. In
addition, the Company will continue to market different brands to target different consumer
price points. For example, the Company believes that there are growth opportunities in the
canned meat market and plans to target the premium segment through the development of the
Swift brand.
The Company also intends to continuously review its product offerings to rationalize
unprofitable products from its portfolio. To enhance the stability of its revenue stream and
profit margins, the Company plans to increase the percentage of sales of products that have
performed well and which the Company believes will continue to do so. For example, as
Philippine consumers have become more health conscious, the Companys marketing strategy
has evolved to highlight the health benefits of Century Tuna and to present the Companys
ready-to-eat tuna viands as healthier alternatives to traditional beef, pork and chicken-based
dishes. The Company has also noticed a shift in consumer preference from canned products to
products in sealed pouches or flexible packaging. The Company has pre-empted this shift in
preference and has developed the capability to produce pouched products. The Company
intends to increase its product offerings in pouched or flexible packaging, which the
Company believes will develop new product segments and further penetrate the ready-to-eat
meal segment.
In addition, the Company is ranked second in the Philippine condensed/evaporated milk
market and third in the Philippine all-purpose cream segment, according to AC Nielsen. The
Company sees a strong growth opportunity for the dairy market and has developed various
initiatives to grow its dairy business. For example, the Company has responded to changing
consumer preferences and plans to develop ready-to-drink products. The Company also plans
to continue aggressively promoting the Angel and Birch Tree brands through marketing
campaigns within the next two years. In particular, the Company plans to grow the Angel
brand through improved formulations, smaller packaging sizes for more budget-conscious
consumers and achieving a market leading position in the two-in-one product platform for
canned milk and cream. For the Birch Tree brand, the Company intends to expand into adult
and childrens milk segments through powdered milk, flavored milk drinks and other product
formats.
Expand distribution network to capitalize on growing retail segments and target
customers in high growth segments
The Company plans to capitalize on rapidly growing retail segments such as 24-hour
convenience trade and modern trade channels, and to expand its distribution network,
targeting to reach 250,000 directly served points of sale in 2014. In particular, the Company
plans to expand its distribution network in the Philippines by increasing the number of retail
outlets that its regional sales force services directly. At the same time, the Company is
working with its distributors to increase its penetration of general trade outlets, particularly in
more remote areas such as Mindanao and the Visayas. In addition, there are regions in the
Philippines such as Central Visayas where the Company is not the market leader due the
incumbency of regional market leaders. However, the Company believes that with sustained
presence through a well-developed distribution network in those regions, the Company will

17

be able to gain market share in those areas. The Company believes that the Philippine market
is still underserved in certain product categories and there are growth opportunities to
improve its distribution network. The Company plans to penetrate these underserved areas by
reaching out to a greater number of smaller informal retailers such as sari-sari stores and wet
markets.
Another area the Company has identified as a growth avenue is the food service segment.
While sales to food service customers, such as, but not limited to, Jollibee, KFC, Starbucks
and 7-Eleven, contributed less than 3% of the Companys total revenue for the year ended
December 31, 2013, the Company believes there are significant opportunities to work closely
with customers and expand existing relationships, as well as establish relationships with a
wider range of customers in this segment. The Company understands the needs of its food
service customers and proactively suggests new products or recipes suited for such
customers business. As its food service customers continue to expand their business, the
Company intends to further collaborate with such customers and increase its sales in this
segment.
Enter into new product categories
In addition to growing and developing its existing product and brand portfolio, the Company
plans to enter into new product categories. The Company believes its competitive strengths
and deep understanding of the Philippine market provide significant advantages when
entering into new product categories. In 2014, the Company plans to start marketing and
distributing beverage products, such as coconut water, by leveraging on the Companys
extensive distribution network and experienced sales and marketing personnel. The
Companys marketing strategy will highlight the health benefits of these beverage products in
line with the Companys health and wellness theme and will enable the Company to penetrate
new product categories.
The Company also entered into a distribution agreement with Kapal Api of Indonesia in
November 16, 2012 to distribute Kapal Apis coffee products in the Philippines. Kapal Api is
an Indonesian company engaged in, among others, the operation of a coffee plantation, the
production of non-dairy creamer, the production of espresso machines, and the distribution of
coffee and coffee products.
Optimize export business to further penetrate the private label export market and
increase presence of branded products in overseas markets
As the current leading tuna exporter in the Philippines, the Company is well positioned to
increase its market share in the export business. The Company intends to increase the number
of partners for its private label export business in order to gain greater scale and better
capitalize on economies of scale. The Company believes this should further improve profit
margins of its export business.
The Company currently distributes its branded products across North America, Europe, Asia,
Australia, and the Middle East. The Company has noticed increasing brand awareness among
Filipino communities around the world and similar demands from Latino communities. While
overseas Filipino communities were the initial target customer base for its branded exports,
the Company has seen growing demand for its products in mainstream markets as the
Company continues to build the presence of its branded products in overseas markets. The
Company intends to capitalize on this trend and has started to sell its branded products to
Walmart, Albertsons and Kroger in the US, as well as negotiate with other retailers to have its
products sold in Asian food sections of their stores. The Company plans to enter into

18

distribution agreements with several other large retailers in North America likely within the
next 12 months.
Opportunistic acquisition and development of strong regional brands
The Company has a proven track record of turning previously under-promoted and neglected
brands into market leading brands by applying its strategies, such as proper marketing and
extensive national distribution coverage. For example, Birch Tree was a strong brand in the
Philippines in the 1970s but lost significant market share as it did not receive marketing
support for many years prior to the Companys acquisition of the brand in 2003. After
acquiring the brand, the Company initially relied on its distribution network to increase the
penetration of Birch Tree products in modern and general trade outlets. The Company then
supported the brand through a strategic marketing campaign. Through the Companys efforts,
the Birch Tree brand was able to grow to 22.0% market share in the full cream milk powder
segment as of July 2011, according to AC Nielsen. The Company will continue to seize
acquisition opportunities and acquire brands opportunistically to penetrate new market
segments. Examples include the Century Groups recent acquisition of Swift from RFM
Corporation in 2012, which allowed the Century Group to compete in the premium canned
meats segment, and the Century Groups acquisition of the Home Pride and Kaffe De Oro
brands in 2008.

Cost improvements through backward integration, streamlined logistics and costengineering

The Company is focused on increasing the efficiency of its existing operations and
implementing targeted cost-saving initiatives in its businesses. In particular, the Company
intends to implement cost improvements through backward integration. The Company
sources the majority of its requirements from third-party suppliers. However, the Company
will be building a second tin can manufacturing facility which, upon completion by the end of
2014, is expected to produce approximately 25% to 30% of the Companys tin can
requirements. By producing a significant portion of its tin can requirements internally, the
Company will be able to improve its profit margins by sourcing the tin cans at cost and
reducing logistics costs associated with purchasing from third-party suppliers.
In addition, the Companys research and development team is an integral part of the
continued effort to identify cost improvements while maintaining high product quality
standards. For example, the Companys research and development team has been able to
increase the use of alternative raw materials, such as soy-based proteins, to lower production
costs for certain products. The Company estimates that research and development costs
accounts for less than 1% of its revenues.
The Company continues to periodically review and streamline its inter-island logistics
network in order to improve operational and cost efficiencies. For example, the Company

19

plans to curtail the operations of or consolidate under-utilized depots and warehouses thereby
reducing costs while maintaining appropriate service coverage. The Company is also able to
leverage on its economies of scale to further rationalize its production and distribution costs.
Realizing savings through cost reduction initiatives will improve the Companys profit
margins and enable the Company to continue growing its portfolios of brands and products.
Risks of Investing
Before making an investment decision, investors should carefully consider the risks
associated with an investment in the Offer Shares. These risks include:

risks relating to the Companys business;

risks relating to the Philippines;
risks relating to the Offer and the Offer Shares; and
risks relating to certain statistical information in this Prospectus.

Please refer to the section entitled Risk Factors which, while not intended to be an
exhaustive enumeration of all risks, must be considered in connection with a purchase of the
Offer Shares.
Corporate Information
The Company is a Philippine corporation with its registered office and principal executive
offices located at 7th Floor, Centerpoint Building, Julia Vargas corner Garnet Street, Ortigas
Center, 1605 Pasig City, Metro Manila, Philippines. The Companys telephone number is +
(632) 633 8855 and its fax number is + (632) 637 2499. Its corporate website is
www.centurypacific.com.ph. The information on the Companys website is not incorporated
by reference into, and does not constitute part of, this Prospectus.
Investor Relations Office
The Investor Relations Office will be tasked with (a) the creation and implementation of an
investor relations program that reaches out to all shareholders and informs them of corporate
activities and (b) the formulation of a clear policy for accurately, effectively and sufficiently
communicating and relating relevant information to the Companys stakeholders as well as to
the broader investor community.
Giovanna M. Vera, heads the Companys Investor Relations Office and serves as the
Companys designated Investor Relations Officer (IRO). The Companys Chief
Information Officer (CIO) is Oscar A. Pobre, who is also the Chief Financial Officer. The
IRO will also be responsible for ensuring that the Companys shareholders have timely and
uniform access to official announcements, disclosures and market-sensitive information
relating to the Company. As the Companys officially designated spokesperson, the IRO will
be responsible for receiving and responding to investor and shareholder queries. In addition,
the IRO will oversee most aspects of the Companys shareholder meetings, press conferences,
investor briefings, management of the investor relations portion of the Companys website
and the preparation of its annual reports. The IRO will also be responsible for conveying
information such as the Companys policy on corporate governance and corporate social
responsibility, as well as other qualitative aspects of the Companys operations and
performance. The Companys Investor Relations Office will be located in 7th Floor,
Centerpoint Building, Julia Vargas corner Garnet Street, Ortigas Center, 1605 Pasig City,
Metro Manila, Philippines. The Companys Investor Relations Officer, may be contacted at
investorrelations@centurypacific.com.ph or + (632) 633 8855.

20

SUMMARY OF THE OFFER

Issuer .................................................

Century Pacific Food, Inc., a corporation organized

under Philippine law. The trading symbol shall be
CNPF

Joint Issue Managers, Joint Lead

Underwriters,
and
Joint
Bookrunners .....................................

BDO Capital & Investment Corporation

BPI Capital Corporation
First Metro Investment Corporation

The Offer ...........................................

Offer of 229,654,404 new Common Shares to be

issued and offered by the Company
45,930,800 Offer Shares (or 20% of the Offer
Shares) are being allocated to all of the PSE Trading
Participants at the Offer Price and 22,965,400 Offer
Shares (or 10% of the Offer Shares) are being
allocated at the Offer Price to LSIs. The remaining
160,758,204 Offer Shares (or 70% of the Offer
Shares) are being allocated to the QIBs and the
general public through the Joint Lead Underwriters.

Offer Price.........................................

Up to 14.50 per Offer Share.

Offer Period ......................................

The Offer Period shall commence at 9:00 a.m.,

Manila time, on April 23, 2014 and end at 12:00
noon, Manila time, on April 29, 2014. The
Company and the Joint Lead Underwriters reserve
the right to extend or terminate the Offer Period
with the approval of the SEC and the PSE.
Applications must be received by the receiving
agent by 12:00 noon Manila time on April 29, 2014.
Applications received thereafter or without the
required documents will be rejected. Applications
shall be considered irrevocable upon submission to
a participating PSE Trading Participant or the Joint
Lead Underwriters, and shall be subject to the terms
and conditions of the Offer as stated in this
Prospectus and in the application. The actual
purchase of the Offer Shares shall become effective
only upon the actual listing of the Offer Shares on
the PSE and upon the obligations of the Joint Lead
Underwriters under the Underwriting Agreement
becoming unconditional and not being suspended,
terminated or cancelled on or before the Listing
Date in accordance with the provisions of such
agreement.

Eligible Investors ..............................

The Offer Shares may be purchased by any natural

21

person of legal age residing in the Philippines,

regardless of nationality, or any corporation,
association, partnership, trust account, fund or entity
residing in and organized under the laws of the
Philippines and/or licensed to do business in the
Philippines, regardless of nationality, subject to the
Companys right to reject an application or reduce
the number of Offer Shares applied for subscription
or purchase if the same will cause the Company to
be in breach of the Philippine ownership
requirements under relevant Philippine laws.
Use of Proceeds .................................

The Company intends to use the net proceeds from

the Offer for the payment of financial obligations,
capital expenditures to increase production capacity
and cost efficiency, working capital and/or potential
acquisitions. See Use of Proceeds for additional
details of how the total net proceeds are expected to
be applied.

Minimum Subscription ....................

Each application must be for a minimum of 500

Offer Shares, and thereafter, in multiples of 100
Offer Shares. Applications for multiples of any
other number of Shares may be rejected or adjusted
to conform to the required multiple, at the
Companys discretion.

Lock-up .............................................

The PSE rules require an applicant company to

cause its existing shareholders owning at least 10%
of the outstanding shares of the company not to sell,
assign or in any manner dispose of their shares for a
period of 365 days after the listing of the shares. A
total of 1,999,999,993 Common Shares held by
Century Canning Corporation will be subject to
such
365-day
lock-up.
See
Principal
Shareholders and Plan of DistributionLockUp.
In addition, if there is any issuance of shares or
securities (i.e., private placements, asset for shares
swap or a similar transaction) or instruments which
lead to issuance of shares or securities (i.e.,
convertible bonds, warrants or a similar instrument)
completed and fully paid for within 180 days prior
to the start of the offer period, and the transaction
price is lower than that of the offer price in the
initial public offering, all shares or securities availed
of shall be subject to a lock-up period of at least 365
days from full payment of the aforesaid shares or
securities. Two Common Shares, one held by
Johnip Cua and one held by Fernan Lukban (both of
whom are Independent Directors of the Company)

22

will be subject to such 365-day lock-up.

To implement this lock-up requirement, the PSE
requires the applicant company to lodge the shares
with the PDTC through a Philippine Central
Depository (PCD) participant for the electronic
lock-up of the shares or to enter into an escrow
agreement with the trust department or custodian
unit of an independent and reputable financial
institution. See Principal Shareholders and Plan
of DistributionLock-Up.
Listing and Trading..........................

The Companys application for the listing of the

Common Shares was approved by the PSE on
March 26, 2014. All of the Common Shares in issue
or to be issued, including the Offer Shares, are
expected to be listed on the PSE on or about May 6,
2014 under the symbol and company alias CNPF.
Trading of the Shares that are not subject to lock-up
is expected to commence on the same date. See
Description of the Shares on page 198 of this
Prospectus.

Dividends...........................................

The Company has approved a dividend policy of

maintaining an annual cash and/or share dividend
pay-out of up to 30% of its net income from the
preceding year, subject to the requirements of
applicable laws and regulations, the terms and
conditions of its outstanding bonds and loan
facilities, and the absence of circumstances that may
restrict the payment of such dividends, such as
where the Company undertakes major projects and
developments. Dividends must be approved by the
Board (and shareholders in case of a share dividend
declaration) and may be declared only from
unrestricted retained earnings of the Company. The
Companys Board may, at any time, modify the
Companys dividend policy depending upon the
Companys capital expenditure plans and/or any
terms of financing facilities entered into to fund its
current and future operations and projects. The
Company can give no assurance that it will pay any
dividends in the future. See Dividends and
Dividend Policy.

Refunds for the Offer .......................

In the event that the number of Offer Shares to be

received by an applicant, as confirmed by the Joint
Lead Underwriters, is less than the number covered
by its application, or if an application is rejected by
the Company, then the Joint Lead Underwriters
shall refund, without interest, within five banking
days from the end of the offer period, all or a

23

portion of the payment corresponding to the number

of Offer Shares wholly or partially rejected. All
refunds shall be made through the receiving agent
with whom the applicant has filed the application, at
the applicants risk.
Registration and Lodgment of
Shares with PDTC......................

The Offer Shares are required to be lodged with the

PDTC. The applicant must provide the information
required for the PDTC lodgment of the Offer
Shares. The Offer Shares will be lodged with the
PDTC at least two days prior to the Listing Date.
The applicant may request to receive share
certificates evidencing such applicants investment
in the Offer Shares through his/her broker after the
Listing Date. Any expense to be incurred by such
issuance of certificates shall be borne by the
applicant.

Registration of Foreign Investments

The BSP requires that investments in shares of stock

funded by inward remittance of foreign currency be
registered with the BSP if the foreign exchange
needed to service capital repatriation or dividend
remittance will be sourced from the Philippine
banking system. The registration with the BSP of all
foreign investments in the Offer Shares shall be the
responsibility of the foreign investor. See
Philippine Foreign Exchange and Foreign
Ownership Controls.

Restriction
on
Issuance
and
Disposal of Shares ......................

Existing shareholders who own an equivalent of at

least 10% of the Companys issued and outstanding
Common Shares after the Offer are required under
the revised listing rules of the PSE applicable to
companies applying for listing on the PSE Main
Board, not to sell, assign or otherwise dispose of
their Common Shares for a minimum of 365 days
after the Listing Date. See Lock-up above,
Principal
Shareholders,
and
Plan
of
DistributionLock-Up.
Except for the issuance of Offer Shares pursuant to
the Offer or Common Shares for distribution by way
of stock dividends and certain option grants and
issuances under employee incentive schemes, the
PSE is expected to require the Company, as a
condition to the listing of the Common Shares, not
to issue new shares in capital or grant any rights to
or issue any securities convertible into or
exchangeable for, or otherwise carrying rights to
acquire or subscribe to, any shares in its capital or
enter into any arrangement or agreement whereby
any new shares or any such securities may be issued

24

for a period of 180 days after the Listing Date.

Procedure for Application ...............

Application forms and signature cards may be

obtained from the Joint Lead Underwriters or from
any participating PSE Trading Participants.
Applicants shall complete the application form,
indicating all pertinent information such as the
applicants name, address, taxpayers identification
number, citizenship and all other information as
may be required in the application form. Applicants
shall undertake to sign all documents and to do all
necessary acts to enable them to be registered as
holders of Offer Shares. Failure to complete the
application form may result in the rejection of the
application.
If the applicant is a corporation, partnership or trust
account, the application must be accompanied by
the following documents:

a certified true copy of the applicants latest

articles of incorporation and by-laws (or
articles of partnership in the case of a
partnership)
and
other
constitutive
documents (each as amended to date) duly
certified by its corporate secretary (or
managing partner in the case of a
partnership);

a certified true copy of the applicants SEC

certificate of registration or certificate of
filing amended articles of incorporation or
by-laws, as the case may be, duly certified
by its corporate secretary (or managing
partner in the case of a partnership); and

a duly notarized corporate secretarys

certificate (or certificate of the managing
partner in the case of a partnership) setting
forth the resolution of the applicants board
of directors or equivalent body authorizing
the purchase of the Offer Shares indicated
in the application, identifying the
designated signatories authorized for the
purpose, including his or her specimen
signature, and certifying the percentage of
the applicants capital or capital stock held
by Philippine Nationals. Foreign corporate
and institutional applicants who qualify as
Eligible Investors, in addition to the
documents listed above, are required to
submit in quadruplicate, a representation

25

and warranty stating that their purchase of

the Offer Shares to which their application
relates will not violate the laws of their
jurisdictions
of
incorporation
or
organization, and that they are allowed,
under such laws, to acquire, purchase and
hold the Offer Shares.
Payment Terms for the Offer ..........

The purchase price must be paid in full in Pesos

upon the submission of the duly completed and
signed application form and signature card together
with the requisite attachments. Payment for the
Offer Shares shall be made either by: (i) a personal
or corporate check drawn against an account with a
BSP authorized bank at any of its branches located
in Metro Manila; or (ii) a managers or cashiers
check issued by an authorized bank. All checks
should be made payable to Century Pacific IPO,
crossed Payees Account Only, and dated the
same date as the application. The applications and
the related payments will be received at any of the
offices of the Joint Lead Underwriters, the receiving
agent, or the selling agents.

Acceptance
or
Rejection
of
Applications for the Offer ................

Application to Subscribe forms are subject to

confirmation by the Joint Lead Underwriters and the
final approval of the Company. The Company and
the Joint Lead Underwriters reserve the right to
accept, reject or scale down the number and amount
of Offer Shares covered by any application. The
Company and the Joint Lead Underwriters have the
right to reallocate available Offer Shares in the
event that the Offer Shares are insufficient to satisfy
the total applications received. The Offer Shares
will be allotted in such a manner as the Company
and the Joint Lead Underwriters may, in their sole
discretion, deem appropriate, subject to distribution
guidelines of the PSE. Applications with checks
dishonored upon first presentation and Application
to Subscribe forms which do not comply with
terms of the Offer will be automatically rejected.
Notwithstanding the acceptance of any Application
to Subscribe forms, the actual subscription of the
Offer Shares by the applicant will be effective only
upon the listing of the Offer Shares at the PSE.

Expected Timetable ..........................

The timetable of the Offer is expected to be as

follows:

Notice of final Offer Price to the April 21, 2014

SEC and PSE .............................................................................................
PSE

Trading

26

Participants

April 23 to

Commitment Period ...................................................................................

April 25, 2014

Local Small Investor Offer Period .............................................................

April 23 to
April 29, 2014

Joint Lead Underwriters Offer

April 23 to
Period.........................................................................................................
April 29, 2014

Listing Date and commencement

May 6, 2014
of trading on the PSE .................................................................................

27

SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following tables set forth the summary pro forma consolidated financial information for the
Company and should be read in conjunction with the auditors reports and the Companys pro forma
consolidated financial statements, including the notes thereto, included elsewhere in this Prospectus
and the section entitled Managements Discussion and Analysis of Financial Condition and Results of
Operations. The summary pro forma consolidated financial information presented below as of and for
the year ended December 31, 2013 was derived from the historical audited separate financial
statements of the Company, GTC, SMDC, CCC, PMCI and CSC, adjusted to give pro forma effect to (i)
the consolidation of GTC and SMDC into the Company and (ii) the Companys acquisition of certain
assets of CCC, PMCI and CSC, as if such acquisitions occurred prior to January 1, 2013. The pro
forma consolidated financial information was prepared in accordance with the Companys
assumptions which are described in the pro forma consolidated financial statements and reviewed by
Navarro Amper & Co. in accordance with PSA.
The pro forma adjustments are based upon available information and certain assumptions that the
Company believes are reasonable under the circumstances. The summary pro forma financial
information does not purport to represent what the results of operations of the Company and its
subsidiaries would actually have been had the acquisitions in fact occurred prior to January 1, 2013,
nor do they purport to project the results of operations of the Company and its subsidiaries for any
future period or date. For additional information regarding financial information presented in this
Prospectus, see Presentation of Financial Information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
For the year ended
December 31,2013

Net Sales
Cost of Sales

P 19,023,053,067
15,696,776,711

Gross Profit
Other income

3,326,276,356
175,816,427

Operating Profit

3,502,092,783

Operating Expenses
Finance Costs
Other Expenses

2,415,239,219
112,450,206
14,054,392
960,348,966

Profit Before Tax

Income Tax Expense

216,431,762

Profit for the Year

743,917,203

Earnings per share

Basic and Diluted Earnings per Share

0.50

28

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

For the year ended
December 31,2013

ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories - net
Prepayments and other current assets

804,394,733
2,330,891,620
3,714,229,160
176,749,347

Total Current Assets

7,026,264,859

Non-current Assets
Property and equipment - net
Intangible asset
Deferred tax assets
Other non-current asset

1,046,775,177
40,000,000
21,747,988
23,856,636

Total Non-current Assets

1,132,379,800

TOTAL ASSETS

8,158,644,659

LIABILITIES AND EQUITY

Current Liabilities
Loans payable - current portion
Trade and other payables
Income tax payable

2,717,300,002
2,535,491,858
51,835,544

Total Current Liabilities

5,304,627,404

Non-current Liabilities
Retirement benefit obligation
Deferred tax liability

13,948,453
1,418,347

Total Non-current Liabilities

15,366,800

Total Liabilities

5,319,994,203

Equity
Share capital
Retained earnings
Currency translation adjustment

1,500,000,000
1,319,302,557
19,347,898

Total Equity
TOTAL LIABILITIES AND EQUITY

2,838,650,455
8,158,644,659

29

CONSOLIDATED STATEMENT OF CASH FLOWS

As at
December 31,2013

Cash Flows from Operating Activities

Profit before tax
Adjustments for:
Depreciation and amortization
Finance costs
Reversal of impairment of trade and other receivables
Reversal of allowance for decline in value of inventories
Loss on decline in value of inventories
Loss on disposal and write-off of property, plant and equipment
Retirement benefit expense
Impairment loss on trade and other receivables
Interest income
Operating cash flows before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Prepayments and other current assets
Other non-current assets
Increase (decrease) in:
Trade and other payables
Other non-current liabilities
Exchange differences on translating operating assets and liabilities
Cash generated from operations
Contributions to retirement fund
Income taxes paid

960,348,966
193,394,847
112,450,206
(6,637,186)
(10,357,008)
4,462,318
3,095,250
9,313,787
4,066,287
(10,233,586)
1,259,903,881
(1,057,485,998)
2,056,567,104
144,222,116
5,176,498
(1,135,882,333)
(64,936,440)
7,019,430
1,214,584,259
(8,427,173)
(221,080,459)

Net cash from operating activities

985,076,626

Cash flows from Investing Activities

Acquisitions of property, plant and equipment
Interest received
Proceeds from sale of property, plant and equipment

(341,809,091)
10,233,586
79,701,950

Net cash used in investing activities

(251,873,555)

Cash flows from Financing Activities

Net repayments of loans
Finance costs paid

(555,847,139)
(112,450,206)

Net cash from (used in) financing activities

(668,297,345)

Net Increase in Cash and Cash Equivalents

Cash and Cash Equivalents, Beginning

64,905,726
739,489,007

Cash and Cash Equivalents, End

804,394,733

30

SUMMARY COMBINED FINANCIAL INFORMATION

The following tables set forth the summary combined financial information for GTC and SMDC and
should be read in conjunction with the auditors reports and GTCs and SMDCs combined financial
statements, including the notes thereto, included elsewhere in this Prospectus and the section entitled
Managements Discussion and Analysis of Financial Condition and Results of Operations. The
combined financial information presented below as of and for the years ended December 31, 2011,
2012 and 2013 was derived from the audited financial statements of GTC and SMDC prepared in
accordance with PFRS. Our independent auditor for the years ended December 31, 2011, 2012 and
2013 was Punongbayan & Araullo. The summary financial information below should not be
considered indicative of the results of future operations.
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31

2013

2012

2011

Net Sales

7,419,053,435

5,524,019,169

4,750,208,315

Cost of Sales

6,845,193,581

4,932,025,037

4,319,887,738

Gross Profit

573,859,854

591,994,132

430,320,577

(123,791,507)

(47,624,275)

(30,825,991)

697,651,361

639,618,407

461,146,568

423,708,762

428,936,981

286,067,972

51,022,887

54,969,013

73,111,252

474,717,978

483,905,994

359,179,224

222,919,712

155,712,413

101,967,344

43,630,444

44,365,573

35,490,963

179,289,268

111,346,840

66,476,381

Other income (Expense)

Operating Expenses
Finance Costs

Profit Before Tax

Income Tax Expense
Profit for the Year

31

COMBINED STATEMENTS OF FINANCIAL POSITION

For the Years Ended December 31
2013

2012

2011

ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories - net
Prepayments and other current assets
Total Current Assets
Non-current Assets
Property and equipment - net
Intangible asset
Deferred tax asset - net
Retirement benefit asset
Other non-current assets
Total Non-current Assets

413,666,069
1,237,379,984
1,602,019,351
93,714,160
3,346,779,564

127,701,664
470,734,174
2,278,202,558
105,358,317
2,981,996,713

115,870,640
475,292,082
2,258,999,999
93,385,763
2,943,548,484

813,489,320
40,000,000
13,412,011
23,643
17,491,130
884,416,104
4,231,195,668

705,451,217
40,000,000
5,893,298
0
30,291,475
781,635,990
3,763,632,703

804,683,273
40,000,000
3,356,275
0
32,851,701
880,891,249
3,824,439,733

2,214,600,002
524,500,261
735,451
0
240,632,032
2,980,467,746

1,380,700,025
781,997,088
14,391,579
0
447,157,151
2,624,245,843

1,057,000,017
729,640,474
10,596,444
76,086,020
855,038,566
2,728,361,521

0
0
0
0
2,980,467,746

14,999,984
0
99,336
15,099,320
2,639,345,163

74,999,988
150,383,200
536,100
225,919,288
2,954,280,809

1,000,000,000
137,298,180
0
32,291,024
81,138,718
1,250,727,922
4,231,195,668

540,625,000
137,298,180
195,883,200
(34,952,774)
285,433,934
1,124,287,540
3,763,632,703

540,625,000
137,298,180
0
18,420,279
173,815,465
870,158,924
3,824,439,733

LIABILITIES AND EQUITY

Current Liabilities
Loans payable - current portion
Trade and other payables
Income tax payable
Dividends payable
Due to a related party
Total Current Liabilities
Non-current Liabilities
Loans payable - net of current
portion
Deposits for future stock subscription
Other non-current liabilities
Total Non-current Liabilities
Equity
Share capital
Share Premium
Deposit on future stock subscription
Currency translation adjustments
Retained earnings
Total equity

32

COMBINED STATEMENTS OF CASH FLOWS

For the Years Ended December 31
2013

2012

2011

Cash flows from Operating Activities

Profit before tax

222,919,712

155,712,413

101,967,344

129,957,909

127,172,487

120,786,676

Finance costs

51,022,887

54,969,013

73,111,252

Reversal of impairment of trade and other

receivables

(6,408,185)

Loss on decline in value of inventories

4,462,318

Loss on disposal and write-off of property, plant

and equipment

3,095,250

1,184,961

Retirement benefit expense

2,094,690

2,078,420

2,391,146

941,848

3,701,034

3,299,076

(9,272,387)

(3,081,186)

(996,688)

398,814,042

340,552,181

301,743,767

(761,179,473)

1,365,409

62,847,331

671,720,889

(19,202,559)

(21,643,946)

Prepayments and other current assets

11,644,156

(11,972,554)

(6,236,403)

Other non-current assets

12,800,346

2,560,227

(2,669,466)

(257,496,827)

52,356,614

204,566,019

31,863,679

(36,892,013)

3,966,858

Cash generated from operations

108,166,812

328,767,305

542,574,160

Contributions to retirement fund

(1,753,543)

(2,022,250)

(3,861,603)

(64,182,843)

(43,468,263)

(18,448,070)

42,230,426

283,276,792

520,264,487

(272,921,095)

(73,254,775)

(109,620,285)

9,272,387

3,081,186

996,688

79,701,949

4,639,040

(183,946,759)

(70,173,589)

(103,984,557)

818,900,000

263,700,000

(26,500,011)

(219,688,175)

(380,503,166)

(310,665,962)

45,500,000

263,491,800

(384,000,000)

(75,000,000)

Adjustments for:
Depreciation and amortization

Impairment loss on trade and other receivables

Interest income
Operating cash flows before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories

Increase (decrease) in trade and other payables

Exchange differences on translating operating
assets and liabilities

Income taxes paid

Net cash from operating activities
Cash flows from Investing Activities
Net additions to property and equipment
Interest received
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Cash flows from Financing Activities
Net proceeds from (repayments of) loans
Net repayments of due to related parties
Receipt of deposits for future stock subscription
Proceeds from issuance of shares
Payment of dividends

33

Finance costs paid

(51,022,887)

(54,969,013)

(73,111,252)

Net cash from (used in) financing activities

427,680,738

(201,272,179)

(410,277,225)

Net Increase in Cash and Cash Equivalents

285,964,405

11,831,024

6,002,706

Cash and Cash Equivalents, Beginning

127,701,664

115,870,640

109,867,934

Cash and Cash Equivalents, End

413,666,069

127,701,664

115,870,640

34

SUMMARY PARENT FINANCIAL INFORMATION OF CNPF

The following table sets forth the summary financial information for the Company and should be read
in conjunction with the auditors reports and the Companys financial statements, including the notes
thereto, included elsewhere in this Prospectus and the section entitled Managements Discussion and
Analysis of Financial Condition of CNPF. The summary financial information presented below for
the period October 25, 2013 to December 31, 2013 was derived from the audited financial statements
of the Company prepared in accordance with PFRS. Our independent auditor for the years ended
December 31, 2013 was Navarro Amper & Co. The Companys summary financial information
below should not be considered indicative of the results of future operations.

STATEMENT OF COMPREHENSIVE INCOME

For the period
October 25, 2013 to
December 2013

Other Income
Rental income

13,112,333

Interest income

73,295
13,185,628

Other Operating Expenses

Taxes and licenses
Depreciation expense
Professional fees

19,727,899
7,129,783
3,360,000

Supplies

189,062
30,406,744

Loss Before Tax

Income tax benefit

(17,221,116)
5,188,323

Net Loss After Tax

(12,032,793)

35

STATEMENTS OF FINANCIAL POSITION

As of December 31, 2013

ASSETS
Current assets
Cash .....................................................

24,298,838

Due from related parties .......................

14,685,813

Input value-added tax - net ...................

26,436,975

Total current assets ...............................

65,421,627

Non-current assets
Investment in subsidiaries ....................

1,194,615,640

Property and equipment - net ................

222,930,679

Deferred tax assets ................................

5,188,323

Total non-current assets

1,422,734,642
1,488,156,269

LIABILITIES AND EQUITY

Current liabilities
Other current liabilities .........................

189,062

Equity
Capital stock .........................................

1,500,000,000

Deficit ..................................................

(12,032,793)
1,487,967,207
1,488,156,269

36

STATEMENT OF CASH FLOWS

For the period October 25, 2013 to
December 2013

Cash Flows from Operating Activities

Loss before tax
Adjustments for:
Depreciation expense
Interest income

(17,221,116)
7,129,783
(73,295)

Operating cash flow before working capital changes

Increase in:
Due from related parties
Input value-added tax - net
Other payables

(10,164,628)

Net cash used in operating activities

(51,098,355)

(14,685,814)
(26,436,975)
189,062

Cash Flows from Investing Activities

Acquisition of investments in subsidiaries
Acquisition of property and equipment
Interest received

(1,194,615,640)
(230,060,462)
73,295

Net cash used in investing activities

(1,424,602,807)

Cash Flows from a Financing Activity

Issuance of capital stock

1,500,000,000

Cash, End

24,298,838

37

SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF CNPF

The following table sets forth the summary financial information for the Company and should be read
in conjunction with the auditors reports and the Companys financial statements, including the notes
thereto, included elsewhere in this Prospectus and the section entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations of the Consolidated Financial Information
of CNPF. The summary financial information presented below as of and for the year ended December
31, 2013 was derived from the audited consolidated financial statements of the Company prepared in
accordance with PFRS. Our independent auditor for the years ended December 31, 2013 was Navarro
Amper & Co. The Companys summary financial information below should not be considered
indicative of the results of future operations.
STATEMENTS OF FINANCIAL POSITION
As of December 31, 2013

Assets
Current Assets
Cash and cash equivalents
Trade and other receivables net
Due from related parties
Inventories net
Prepayments and other current assets
Total Current Assets

437,964,907
1,034,062,591
218,003,202
1,602,019,351
120,151,134
3,412,201,185

Non-Current Assets
Trademarks
Property, plant and equipment net
Deferred tax assets
Retirement benefit asset
Other non-current assets
Total Non-current Assets

40,000,000
1,036,419,999
18,726,312
23,643
17,491,128
1,112,661,082
4,524,862,267

Liabilities and Equity

Current Liabilities
Loans payable
Trade and other payables
Income tax payable
Due to related parties
Total Current Liabilities

2,214,600,002
524,689,323
735,451
240,632,032
2,980,656,808

Equity
Share capital
Currency translation adjustment
Other reserves
Deficit

1,500,000,000
14,308,241
30,628,942
(731,724)
1,544,205,459
4,524,862,267

38

STATEMENT OF COMPREHENSIVE INCOME

For the period October 25, 2013 to December 31, 2013
in
Revenue
Cost of Goods Sold
Gross Profit
Other Income

1,421,621,604
1,306,758,259
114,863,345
29,417,788
144,281,133

Operating Expenses
Other Expenses
Finance Costs

136,423,625
2,189,825
11,332,127
149,945,577

Loss Before Tax

Income Tax Benefit
Loss for the Period

(5,664,444)
4,517,204
(1,147,240)

Other comprehensive income

Item that will be reclassified subsequently to profit or loss
Currency translation adjustments
Item that will not be reclassified subsequently to profit or
loss
Effect of remeasurement of retirement benefit obligation
Total comprehensive income
Basic and Diluted Earnings Per Share

39

14,308,241

415,516
14,723,757
13,576,517
(0,0008)

STATEMENT OF CASH FLOWS

For the period October 25, 2013 to December 31, 2013
in
Cash Flows from Operating Activities
Loss before tax
Adjustments for:
Depreciation and amortization
Finance costs
Loss on inventory obsolescence
Loss on disposal of land
Retirement benefit expense
Interest income
Operating cash flow before working capital changes
Decrease (Increase) in:
Trade and other receivables
Due from related parties
Inventories
Prepayments and other current assets
Other non-current assets
Decrease in trade and other payables
Exchange differences on translating operating assets and
liabilities
Cash generated from operations
Contribution to the retirement fund
Income tax paid
Net cash from operating activities
Cash Flows from Investing Activities
Acquisitions of property, plant and equipment
Proceeds from sale of land
Interest income received
Net cash used in investing activities

(5,664,444)

8,217,174
11,,332,127
4,462,318
1,816,723
2,094,690
495,102
22,753,690
3,925,763
(213,678,171)
787,768,399
5,313,290
1,838,164
(545,989,226)
(21,415,425)
40,516,484
(1,753,543)
(22,608,962)
16,153,979

(344,877,181)
79,701,949
(495,102)
(265,670,334)

Cash Flows from Financing Activities

Proceeds from issuance of share capital
Net receipts from related parties
Net repayment of loans

1,500,000,000
129,865,038
(195,999,998)
(11,332,127)
1,422,532,913
(735,051,651)
437,964,907

Finance costs paid

Net cash from financing activities
Acquisition of subsidiaries (net of cash acquired)
Cash and Cash Equivalents, End

40

RISK FACTORS
An investment in the Offer Shares involves a number of risks. The price of securities can and does
fluctuate, and any individual security is likely to experience upward or downward movements and may
even become valueless. There is an inherent risk that losses may be incurred rather than profit made as
a result of buying and selling securities. Past performance is not indicative of future performance and
results, and there may be a large difference between the buying price and the selling price of the Offer
Shares. Investors should carefully consider all the information contained in this Prospectus, including
the risk factors described below, before deciding to invest in the Offer Shares. The occurrence of any of
the following events, or other events not currently anticipated, could have a material adverse effect on
the Companys business, financial condition and results of operations and cause the market price of
the Offer Shares to decline. All or part of an investment in the Offer Shares could be lost.
The means by which the Company intends to address the risk factors discussed herein are principally
presented in this section and under the captions Business, Managements Discussion and Analysis
of Financial Condition and Results of Operations, Industry, and Board of Directors and Senior
ManagementCorporate Governance of this Prospectus. This risk factor discussion does not purport
to disclose all of the risks and other significant aspects of investing in the Offer Shares. Investors
should undertake independent research and study the trading of securities before commencing any
trading activity. Investors should seek professional advice regarding any aspect of the securities such
as the nature of risks involved in the trading of securities, and specifically those of high-risk securities.
Investors may request publicly available information on the Common Shares and the Company from
the SEC.
The risk factors discussed in this section are of equal importance and are only separated into
categories for ease of reference.

RISKS RELATING TO THE COMPANYS BUSINESS

CNPFs financial performance may be materially and adversely affected by fluctuations
in prices or disruption in the supply of key raw materials.
CNPFs production operations depend upon adequate supplies of raw materials which are
procured both within and outside of the Philippines. Raw material prices are affected by a
number of factors, including but not limited to changes in the global or regional levels of
supply and demand, weather conditions, customs and import duties and government controls.
In particular, CNPFs primary tuna production operations are affected by the availability and
price of tuna, which is a key raw material for its canned and processed fish segment and its
tuna export segment. To ensure the sustainability of the global tuna population, various
government authorities worldwide have implemented a number of regulations, including
restrictions on fishing capacity and prohibiting the use of certain fishing methods during
certain times of the year. Such governmental regulations have impacted the global supply of
tuna, which in turn impacts tuna prices. Tuna prices have increased in recent years from an
average price of US$1,526 per ton in 2011 to US$1,954 per ton in 2012. Similarly, the
Philippine Bureau of Fisheries and Aquatic Resources imposes a three month ban on sardines
fishing from the beginning of December to the end of February as part of an effort to ensure a
sustainable domestic sardines population and to encourage responsible production of canned
sardines. The sardines fishing ban limits domestic sardines supply during the three-month
period and domestic canned sardines producers resort to alternative sources such as higher
cost imported sardines. The prices of other raw materials used in CNPFs principal
businesses, including tin cans, meat and milk powder, have also fluctuated from time to time.

41

Although CNPF actively monitors the availability and prices of raw materials, there can be no
assurance that raw materials will be supplied in adequate quantities or at the required quality
to meet CNPFs production requirements, or that these raw materials will not be subject to
significant price fluctuations in the future. CNPF may only have a limited ability to hedge
against commodity prices and any hedging activities may not be as effective as planned.
Moreover, market prices of raw materials could increase significantly and there is no
assurance that such increases can be passed on to the consumers. Any significant shortages or
material increase in the market price of key raw materials could have a material adverse effect
on CNPFs business, financial condition and results of operations.
Aside from actively monitoring raw materials availability and prices, it has been CNPFs
policy to maintain a network of specialty ingredient suppliers that develop new ingredient
substitutes to mitigate raw materials disruption of supply.
CNPFs sales growth depends on successful introduction of new products and new
product extensions, which is subject to consumer preference and other market factors at
the time of introduction.
Competitive pressure requires CNPF to regularly introduce new products and product
extensions in order to maintain its market share. CNPF may suffer a decrease in sales if its
product portfolio does not track new dietary trends and other consumer sentiments, or
compete effectively with the pricing and product offerings of its competitors. However,
launching new products and product extensions requires significant capital expenditures to
cover advertising and promotional costs, research and development initiatives, and other
operating costs associated with the production and introduction of such products. CNPFs
financial condition and results of operation may be materially and adversely affected if any
product launches are unsuccessful.
The success of new products and product extensions depend on various factors, including the
availability of discretionary income, which may be tied to prices of other consumer goods, as
well as varying consumption preferences in different geographic regions. In addition, the
success of CNPFs new products and new product extensions may be affected by competitors
activities. The timing of product launches, pricing and advertising efforts of competitors may
also impact CNPFs sales of new products. In the past, CNPF has introduced new products
and product extensions which were unsuccessful and there can be no guarantee that CNPF
will be able to introduce new products successfully in the future. If CNPF cannot successfully
introduce new products and new product extensions, its business, financial condition and
results of operations may be materially and adversely affected.
CNPF, its independent advisers, and experienced marketers continuously conduct extensive
consumer and product research to increase the likelihood of successful product launches.
Actual or alleged contamination or deterioration of, or safety concerns about, CNPFs
food products or similar products produced by third parties could give rise to product
liability claims and harm CNPFs reputation.
CNPFs success depends largely upon consumers perception of the quality of its products,
and CNPFs business could be adversely affected by the actual or alleged contamination or
deterioration of its products, or of similar products produced by third parties. A risk of
contamination or deterioration of CNPFs food products exists at each stage of the production
cycle, including the purchase and delivery of perishable raw materials, the processing and
packaging of food products, the stocking and delivery of the finished products to customers,
and the storage and display of finished products at the points of final sale. In particular, CNPF

42

has little, if any, control over handling procedures once its products have been dispatched for
distribution and is, therefore, particularly vulnerable to problems in this phase. Even an
inadvertent distribution of contaminated products may constitute a violation of law and may
lead to increased risk of exposure to product liability claims, product recalls, increased
scrutiny and penalties, including injunctive relief and plant closures by regulatory authorities,
as well as adverse publicity, which could exacerbate the associated negative consumer
reaction. In addition, reports or allegations of inadequate quality control with respect to
similar food products produced by other manufacturers may negatively affect the sales of
CNPFs products.
If CNPFs food products are found, or alleged, to have suffered contamination or
deterioration, regardless of whether such products were under its control, such problems
could harm the reputation of CNPFs products and/or increase regulatory scrutiny, and could
have a significant impact on the sales of CNPFs products. While no material product liability
claim has been filed against CNPF, any such product liability claim, whether or not
successful, could damage the reputation of CNPF and its products, which may have a material
adverse effect on CNPFs business, financial condition and results of operations.
CNPF invests in quality control systems, procedures and organization that span the entire
supply chain to ensure product safety. All of CNPFs manufacturing facilities comply with
BFAD regulations and a significant majority of CNPFs products are manufactured from
factories that are compliant with HACCP regulations. HACCP is an internationally
recognized system of food safety and contamination prevention.
Competition in CNPFs businesses may adversely affect its financial condition and
results of operations.
CNPF faces competition in all segments of its businesses, both in the Philippine market and in
the international markets in which it operates. The Philippine food industry in general is
highly competitive. Although the degree of competition and principal competitive factors
vary among the different product categories in which CNPF participates, CNPF believes that
key competitive factors include price, product quality, brand awareness and loyalty,
distribution network, foreign competition, proximity of distribution outlets to customers,
product extensions (such as different flavors and packaging) and the introduction of new
products.
In the Philippines, CNPFs competitors consist primarily of other large domestic corporations
and, in certain cases, large multinational corporations. Competition in the Philippines is
expected to increase due to the emergence of new domestic food companies and the potential
entry of major foreign food companies. Certain of CNPFs international and domestic
competitors may have substantially greater financial resources than CNPF. CNPFs tuna
export segment also faces competition overseas from both domestic and international
companies. CNPF may not be able to compete effectively against its competitors, which could
have a material adverse impact on its business, financial condition and results of operations.
Despite being the leading player in their respective product categories, CNPF works toward
continuously improving its products and processes to stay competitive.
CNPF relies on the strength of its brands.
CNPF is dependent on the strength of its brands and the continued success and growth of its
business depend upon CNPFs ability to protect and promote its brands through marketing
and promotional efforts. If its marketing or advertising campaigns failed or were deemed to

43

be inappropriate, the goodwill built over the years by its respective brands, as well as its
business reputation, may be negatively affected. If CNPF fails to successfully protect and
promote its brands, the market perception of its products may deteriorate which may have a
material adverse effect on CNPFs business, financial condition, results of operations and
prospects.
CNPF has a dedicated team of marketing professionals working closely with highly
competent advertising and research agencies to safeguard and enhance the Companys brands.
This team follows established guidelines to ensure consistency and effectiveness of
positioning and message. CNPF has received numerous marketing awards and industry
citations.
Consolidation of distribution channels in the Philippines may adversely affect CNPFs
financial condition and results of operations.
The Philippine retail market has historically been highly fragmented among numerous small
neighborhood stores, groceries and traditional wet markets. Small neighborhood stores
service limited geographical areas and purchase relatively small quantities of CNPFs
products from distributors and larger supermarkets. In recent years, larger supermarket chains
and wholesale retailers have begun to gain significant market share in the Philippines.
In 2012, based on data from AC Nielsen, supermarkets were a significant distribution channel
for CNPF products, accounting for aggregate distribution of approximately 50% of canned
tuna, 32% of canned sardines, 54% of canned corned meat, 58% of canned luncheon meat,
48% of condensed and evaporated milk and 79% of full cream powdered milk sold by CNPF
during the year. See Business Marketing and Distribution. There is a risk that CNPFs
business may become concentrated in fewer, larger customers, which could increase the
relative bargaining power of these customers. There is no assurance that supermarkets or one
of these larger customers will not exert downward pressure on wholesale prices of CNPFs
products, which could have a material adverse effect CNPFs business, financial condition
and results of operations.
CNPF fosters collaborative relationships with trade partners. The Companys scale, portfolio
of strong brands and years of relationship building allow it to have constructive and fair
agreements with customers on levels of trade investments.
CNPF relies on key suppliers for certain raw materials and the failure by such suppliers
to adhere to and perform contractual obligations may adversely affect CNPFs business
and results of operations.
CNPF relies on key suppliers for certain raw materials. For example, CNPF purchases a
significant portion of its tin can requirements from third-party suppliers. In particular, for the
period ended December 31, 2013, CNPF sourced approximately 65% of its total tin can
requirements from a single supplier. If one or more of CNPFs suppliers fail to provide raw
materials in sufficient quantities or at satisfactory quality levels, CNPFs raw material supply
and production process could be negatively impacted. CNPF would be required to meet any
consequent supply shortfall through other suppliers whose prices may be higher than those of
CNPFs original suppliers. In addition, there can be no guarantee that CNPF would be able to
obtain the services of alternative suppliers or otherwise meet any consequent supply shortfall
in a timely manner or at all, which could have a material adverse impact on CNPFs business,
financial condition and results of operations.

44

CNPF has a policy of maintaining a sufficient inventory of key materials. In addition, the
Company maintains a network of suppliers for most critical materials to allow for sourcing
flexibility.
CNPF has a limited history as a separate entity.
Although CNPFs businesses have been established for some time, CNPF was incorporated
only on October 25, 2013. CNPF acquired its subsidiaries and businesses as part of the
corporate restructuring of certain of the Century Groups business interests. In this regard,
CNPF faces a number of risks, uncertainties and challenges relating to its ability to integrate
its various operations, develop and successfully execute its overall business strategy, retain
qualified senior management and employees and develop its own administrative and other
supporting infrastructure to replace some of the services which CCC currently provides to
CNPFs business segments. Failure to successfully integrate its various business operations or
develop its administrative infrastructure could have a material adverse impact on CNPFs
business, financial condition and results of operations.
In addition, the pro forma consolidated financial information of CNPF for the year 2013
included elsewhere in this Prospectus are not necessarily indicative of the operating results or
financial position that would have been achieved had the corporate restructuring been
completed prior to such periods. See Risks relating to presentation of information in this
Prospectus The pro forma financial information included herein may not be indicative of
actual results for further information.
Although CNPF is a new entity, it has been fully operational as an ongoing business effective
January 1, 2014 as CNPF merely took over existing facilities, employees and operations;
hence, there was no disruption in operations.
CNPF generally does not have long-term contracts with its customers, and it is subject
to uncertainties and variability in demand and product mix.
As is common in the consumer goods business, CNPF does not have long-term contracts with
its customers and, consequently, its revenues are subject to short-term variability resulting
from the seasonality of, and other fluctuations in, demand for its products. CNPFs customers
have no obligation to place new orders with it following the expiration of their current
obligations, and may cancel, reduce or delay orders for a variety of reasons. The level and
timing of orders placed by CNPFs customers may vary due to a number of factors including:

seasonality and other fluctuations in demand for CNPFs products;

the competitiveness of CNPFs selling prices in the industry;
customer satisfaction with the level of service CNPF provides; and
customers inventory management.

CNPF has not experienced significant cancellations of, and reductions and delays in, its
customers orders in the past.
CNPF maintains good and mutually beneficial relationships with its customers by providing
reasonable terms of sale and payment and ensuring that customers needs are addressed in a
timely manner.
CNPF is exposed to the credit risks of its customers, and delays or defaults in payment
by its customers could have a material adverse effect on CNPFs financial condition,
results of operations and liquidity.

45

CNPF is exposed to the credit risk of its customers, and defaults on material payments owed
to CNPF by customers could significantly reduce CNPFs operating cash flows and liquidity,
as well as have a material adverse effect on its financial condition and results of operations.
Some of CNPFs customers could also experience cash flow difficulties or become subject to
liquidation, which could in turn lead to CNPF being unable to collect payments or
experiencing long delays in collection.
CNPFs account receivables are typically non-interest bearing and are generally on 30-day
terms. As at December 31, 2013, over 83% of the account receivables of CNPF were due
within 30 days. There is no assurance that CNPFs exposure to the risk of delayed payments
from its customers or defaults in payment by its customers will not increase, or that it will not
experience losses or cash flow constraints as a result, which could have a material adverse
impact on its business, financial condition and results of operations.
Before extending credit, CNPF conducts a systematic credit investigation of its customers.
The Company also has a policy of requiring security or collateral, in the form of bank
guarantees and letters of credit, from certain customers.
Any infringement or failure to protect CNPFs trademarks and proprietary rights could
materially and adversely affect its business.
CNPF is a licensee of various brand names, related trademarks and other intellectual property
rights to prepare, package, advertise, distribute and sell its products, including Century Tuna,
555 Sardines, Century Quality, Blue Bay Tuna, Fresca, Argentina, 555 Carne Norte, Swift,
Wow, Lucky 7, Shanghai, Angel, Kaffe de Oro, Birch Tree and Home Pride. Maintaining the
licenses for and protection of these brands and intellectual property rights is important to
maintaining CNPFs distinctive corporate and market identities. If third parties sell products
that use counterfeit versions of CNPFs brands or otherwise look like CNPF brands,
consumers may confuse CNPF products with products that are inferior. This could negatively
impact CNPFs brand image and sales. Any failure to protect CNPFs proprietary rights may
significantly harm CNPFs competitive position, which, in turn, could materially and
adversely affect CNPFs business, financial condition, results of operations and prospects, as
well as CNPFs reputation.
CNPFs licensed brands are registered and kept current in all applicable jurisdictions. While
instances of trademark infringement have been immaterial in the past, the Company will not
hesitate to prosecute any cases of trademark infringement in the future.
CNPFs strategy of growth, including acquisitions, entering new product categories and
international expansion, may not always be successful or may entail significant costs,
which could adversely affect its business, financial condition and results of operations.
As part of its expansion plans, CNPF intends to evaluate acquisition opportunities in the
Philippines and internationally and may make any such acquisitions in the future if suitable
opportunities arise. This may require significant investments which may not result in
favorable returns. Acquisitions involve risks associated with unforeseen contingent risks or
latent liabilities relating to these businesses that may only become apparent after the
acquisition is finalized, such as difficulties associated with integration and management of
operations and systems, integration and retention of key personnel, co-ordination of sales and
marketing efforts and diversion of managements attention from other ongoing business
concerns. CNPFs growth will depend on its ability to manage successfully the expansion of
its operations and integrate the operations of acquired businesses. There can be no assurance

46

that any such expansion or acquisition will be a success, or that it would not present any of
the challenges described in CNPFs international operations may present operating,
financial and legal challenges, particularly in countries where CNPF has little or no
experience below. If CNPFs growth strategy, including any third party acquisitions, is
unsuccessful, its business, financial condition and results of operations may be materially and
adversely affected.
Over the past 15 years, CNPF has acquired and successfully integrated brands such as Blue
Bay, Birch Tree, Swift, Home Pride and Kaffe de Oro into its businesses. CNPFs acquisition
process involves extensive due diligence, assessment of the Companys ability to profitably
operate and generate a return on the price paid, as well as an evaluation of the Companys
ability to fund the acquisition.
CNPF also intends to expand production and distribution of its product categories
internationally. CNPF may experience losses in the expansion of its international operations if
it is unable to successfully introduce products which appeal to local customers preferences
and establish relationships with reliable distributors, sales agents and wholesalers. In addition,
CNPF may be subject to higher operating costs and price constraints in overseas markets such
as China and Vietnam where CNPF has affiliate offices, which may have an adverse effect on
its operating income and profitability.
To minimize exposure and capital outlay for international expansion, CNPF initially appoints
distributors in newly entered markets. Where no suitable distributor can be appointed, the
Company may establish a sales office. Production facilities in a new territory will be
established only when a critical mass of business is already reasonably assured.
CNPF may be subject to labor unrest, slowdowns and increased wage costs.
CNPF is subject to a variety of national and local laws and regulations, including those
relating to labor. CNPF has in the past, and may in the future, be required to defend against
labor claims. While CNPF has not experienced significant labor disruptions or disputes in the
past and CNPF generally considers its labor relations to be good, there can be no assurance
that it will not experience future disruptions to its operations due to disputes or other issues
with its employees. In addition, any changes in labor laws and regulations could result in
CNPF having to incur substantial additional costs to comply with increased minimum wage
and other labor laws. Any of these events may materially and adversely affect CNPFs
business, financial condition and results of operations.
CNPF manages these risks by adopting policies to ensure a healthy working environment for
its employees that are at minimum in compliance with national and local laws and regulations.
CNPF is effectively controlled by the Po family and their interests may differ from the
interests of other shareholders.
As of the date of this Prospectus, the Po family beneficially owns approximately 100% of the
issued share capital of CCC, which beneficially owns approximately 100% of the issued share
capital of CNPF. CCCs ownership of the issued share capital of CNPF would decrease to
89.7% upon consummation of the Offer. Members of the Po family also serve as CNPFs
directors and executive officers. As a result, the Po family effectively controls CNPF,
including CNPFs management, policies and business, through its ability to control actions
that require majority shareholder approval and through its representatives on CNPFs Board.
Furthermore, this concentration of voting power may discourage or prevent a change in

47

control or other business combinations, which could deprive investors of an opportunity to

receive a premium for the Common Shares as part of a sale of CNPF.
Members of the Po family, who either individually or collectively have controlled CNPF
since its inception, have private interests in a number of companies either alone or together
with other family members. The respective businesses or activities of these companies and of
companies that are part of the Century Group engage in certain business activities which
compete with those of CNPF. There is nothing to prevent companies that are controlled by the
Po family from engaging in activities that compete directly with CNPFs businesses. There
can also be no assurance that the Po family will not take advantage of business opportunities
that may otherwise be attractive to CNPF. The interests of the Po family and CCC, as CNPFs
controlling shareholders, may differ significantly from CNPFs interests or the interests of
other shareholders, and there can be no assurance that the Po family and CCC will exercise
influence over CNPF in a manner that is in the best interests of CNPFs other shareholders.
CNPF has significant commercial transactions with certain companies in the Century Group.
See Related Party Transactions. CNPF expects that it will continue to enter into
transactions with companies directly or indirectly controlled by or associated with CCC and
the Po family. These transactions may involve potential conflicts of interest which could be
detrimental to CNPF and/or its shareholders. There can be no assurance that CNPFs related
party transactions will not have a material adverse impact on its business, financial condition
and results of operations.
CNPF has adopted a Manual of Corporate Governance that to ensure that its business,
including related party transactions, are conducted with transparency and to protect minority
investors.
CNPFs international sales may present operating, financial and legal challenges,
particularly in countries where CNPF has little or no experience.
CNPF currently sells its products through affiliate offices in China and Vietnam, and it
intends to further expand sales in these regions. These international operations, particularly in
countries where CNPF has little or no experience, may be subject to inherent risks including
uncertain legal environments, different consumer preferences, unexpected or difficult
regulatory, licensing or administration requirements, tariffs and other trade barriers,
difficulties in training and retraining staff and managing foreign operations, potentially
adverse tax consequences and difficulties in transferring earnings to CNPFs operations in the
Philippines.
In addition, CNPFs international sales of products will be influenced, to a significant degree,
by political, economic and social developments in the countries in which it operates. CNPF is
subject to the risks inherent in conducting business across national boundaries, any one of
which could adversely affect its business. These risks include but are not limited to:

general economic downturns;

currency exchange rate fluctuations or imposition of foreign exchange

controls;

governmental policies, laws or regulations, including increased protectionism

affecting import and export duties and quotas or customs and tariffs;

uncertainty regarding, or different levels of, protection of CNPFs intellectual

property;

48

international incidents, including war or acts of terrorism;

government instability; and

nationalization of assets.

Any adverse economic, political or social developments in the countries in which CNPF sells
its products could adversely affect its business, financial condition and results of operations.
While the Company has customers across North America, Europe, Asia, Australia, and the
Middle East, the Companys largest customers by volume are in developed and stable
economies of these regions.
CNPFs existing insurance policies and self-insurance measures may not be sufficient to
cover the full extent of any losses.
CNPF may not be fully insured against, and insurance may not be available for, losses caused
by accidents, natural disasters, breakdowns or other events that could affect the facilities and
processes used by its businesses. For example, CNPF does not carry business interruption
insurance and self-insures against this risk. Any losses caused by events against which it is
not fully insured could result in a decline in production, adverse publicity, and significant
expenditure of resources to address such losses, and would have a material and adverse effect
on its business, financial condition and results of operations.
Any accident at CNPFs operations and facilities could result in significant losses. It could
suffer a decline in production, receive adverse publicity and be forced to invest significant
resources in addressing such losses, both in terms of time and money. There is no assurance
that there will not be work-related or other accidents in the future. Furthermore, there is no
assurance that amicable settlements will be secured in the event of accidents or that accidents
will not result in litigation or regulatory action against CNPF. Such events could materially
and adversely affect its financial condition and results of operations.
CNPF conducts a quarterly review to ensure that all insurable assets of the Company are
adequately covered at the right valuation.
CNPFs businesses and operations are substantially dependent upon key executives.
CNPF has relied and will continue to rely significantly on the continued individual and
collective contributions of its senior management team. Some members of CNPFs
management are leaders or members of certain key industry associations in the Philippines,
and CNPF believes it benefits from those relationships and expertise. If any of CNPFs senior
management are unable or unwilling to continue in their present positions, or if they join a
competitor or form a competing business, CNPF may not be able to replace them easily, and
its business, financial condition, results of operations and prospects could be materially and
adversely affected.
To mitigate the risk of departing key managers, the Companys succession planning process
has identified members of management that can temporarily assume additional
responsibilities arising from departing managers until suitable successors can be recruited.
Problems may develop among partners of joint ventures operated by CNPF, which may
result in disruptions to these businesses.

49

The businesses of some of CNPFs subsidiaries and associates are conducted through joint
ventures of CCC, such as Century International (China) Company Limited and Century
Shanghai Trading Company, joint ventures between CCC and Thai Union Manufacturing
Company, Ltd.
Cooperation among the joint venture partners on business decisions is crucial to the sound
operation and financial success of these joint venture companies. Although CNPF believes it
good relationships are maintained with joint venture partners and there have been no instance
of major disagreements or defaults by either party on their obligations, there is no assurance
that these relationships will be sustained in the future or that problems will not develop.
CNPF hopes to mitigate this risk by conducting extensive due diligence on all prospective
business partners, fostering collaborative relationships, and ensuring that these business
partners have the same values and objectives as the Companys.
RISKS RELATING TO THE PHILIPPINES
The substantial majority of CNPFs income is derived from sales in the Philippines and,
therefore, a slowdown in economic growth in the Philippines could materially adversely
affect CNPFs financial condition and results of operation.
In the year ended December 31, 2013, CNPFs operations in the Philippines accounted for
69% of its net sales. Historically, results of operations have been influenced, and will
continue to be influenced, to a significant degree by the general state of the Philippine
economy. Much of the demand for CNPFs core product categories are directly linked to the
purchasing power of Filipino consumers and demand for these products tends to decline
during economic downturns when consumers disposable incomes decline. As a result,
CNPFs income and results of operations depend, to a significant extent, on the performance
of the Philippine economy. In the past, the Philippines has experienced periods of slow or
negative growth, high inflation, significant devaluation of the peso and the imposition of
exchange controls.
For the year ended December 31, 2013, Philippine GDP growth rate accelerated to 7.2%,
compared to growth rate of 6.8% in the year ended December 31, 2012, and GNP growth rate
accelerated to 7.5% in the year ended December 31, 2013, from 6.5% in year ended
December 31, 2012. Any deterioration in the economic conditions in the Philippines may
adversely affect consumer sentiment and lead to a reduction in demand for CNPFs products.
There can be no assurance that current or future Governments will adopt economic policies
conducive to sustaining economic growth.
A decline in the value of the Peso against the U.S. dollar and other currencies would
increase many of CNPFs costs.
CNPF has foreign exchange exposure primarily associated with fluctuations in the value of
the Peso against the U.S. dollar and other foreign currencies. The substantial majority of
CNPFs revenues are denominated in Pesos, while certain of its expenses, particularly its raw
material costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars.
On the other hand,
Any future depreciation of the Peso against the U.S. dollar could adversely affect CNPFs
business, financial condition and results of operations.

50

While Peso devaluation has a negative impact on imported materials, it positively impacts the
Companys export business and increases the purchasing power of Overseas Filipino Workers
(OFW) families.
Any political instability or acts of terrorism in the Philippines may adversely affect
CNPF.
The Philippines has from time to time experienced political and military instability and acts of
terrorism. In the last few years, there has been political instability in the Philippines, including
impeachment proceedings against two former presidents and the chief justice of the Supreme
Court of the Philippines, public and military protests arising from alleged misconduct by
previous administrations. In addition, there is no guarantee that acts of election-related
violence will not occur in the future and such events could negatively impact the Philippine
economy. The Philippines has also been subject to a number of terrorist attacks since 2000.
The Philippine army has been in conflict with the Abu Sayyaf organization which has been
identified as being responsible for kidnapping and terrorist activities in the Philippines. An
unstable political environment, whether due to the imposition of emergency executive rule,
martial law or widespread popular demonstrations or rioting, could negatively affect the
general economic conditions and operating environment in the Philippines, which could have
a material adverse effect on CNPFs business, financial condition and results of operations.
RISKS RELATING TO THE OFFER AND THE OFFER SHARES
The Offer Shares may not be a suitable investment for all investors.
Each prospective investor in the Offer Shares must determine the suitability of that
investment in light of its own circumstances. In particular, each prospective investor should:

have sufficient knowledge and experience to make a meaningful evaluation of the

Company and its businesses, the merits and risks of investing in the Offer Shares and
the information contained in this Prospectus;

have access to, and knowledge of, appropriate analytical tools to evaluate, in the
context of its particular financial situation, an investment in the Offer Shares and the
impact the Offer Shares will have on its overall investment portfolio;

have sufficient financial resources and liquidity to bear all the risks of an investment
in the Offer Shares, including where the currency for purchasing and receiving
dividends on the Offer Shares is different from the potential investors currency;

understand and be familiar with the behavior of any relevant financial markets; and

be able to evaluate (either alone or with the help of a financial advisor) possible
scenarios for economic, interest rate and other factors that may affect its investment
in the Offer Shares and its ability to bear the applicable risks.

There can be no guarantee that the Offer Shares will be listed on the PSE.
Purchasers of Offer Shares will be required to pay for such Offer Shares on the Offer
Settlement Date, which is expected to be on or about May 6, 2014. Because the Listing Date
is scheduled to occur after both the Offer Settlement Date, there can be no guarantee that
listing will occur on the anticipated Listing Date or at all. Delays in the admission and the
commencement of trading in shares on the PSE have occurred in the past. If the PSE does not

51

admit the Offer Shares onto the PSE, the market for the Offer Shares will be illiquid and
shareholders may not be able to trade the Offer Shares. This may materially and adversely
affect the value of the Offer Shares.
There has been no prior market for the Common Shares, so there may be no liquidity in
the market for the Offer Shares and the price of the Offer Shares may fall.
As there has been no prior trading in the Common Shares, there can be no assurance that an
active market for the Offer Shares will develop following the Offer or, if developed, that such
market will be sustained.
The Offer Price has been determined after taking into consideration a number of factors
including, but not limited to, the Companys prospects, the market prices for shares of
companies engaged in related businesses similar to the Companys and prevailing market
conditions. The price at which the Common Shares will trade on the PSE at any point in time
after the Offer may vary significantly from the Offer Price.
The market price of the Common Shares may be volatile, which could cause the value of
investors investments in the Company to decline.
The market price of securities can and does fluctuate, and it is impossible to predict whether
the price of the Common Shares will rise or fall or even lose all of its value. The market price
of Common Shares could be affected by several factors, including:

general market, political and economic conditions;

changes in earnings estimates and recommendations by financial analysts;

changes in market valuations of listed shares in general and other retail shares in
particular;

the market value of the assets of the Company;

changes to Government policy, legislation or regulations; and

general operational and business risks.

In addition, many of the risks described elsewhere in this Prospectus could materially and
adversely affect the market price of the Common Shares.
In part as a result of the global economic downturn, the global equity markets have
experienced price and volume volatility that has affected the share prices of many companies.
Share prices for many companies have experienced wide fluctuations that have often been
unrelated to the operating performance of those companies. Fluctuations such as these may
adversely affect the market price of the Common Shares.
Future sales of Common Shares in the public market could adversely affect the
prevailing market price of the Common Shares and Shareholders may experience
dilution in their holdings.
In order to finance the expansion of the Companys business and operations, the Board will
consider the funding options available to them at the time, which may include the sale of
additional Common Shares from the treasury or the issuance of new Common Shares. If
additional funds are raised through the sale or issuance of new equity or equity-linked
securities by the Company other than on a pro rata basis to existing shareholders, the
percentage ownership of the shareholders may be reduced, shareholders may experience

52

subsequent dilution and/or such securities may have rights, preferences and privileges senior
to those of the Offer Shares. Further, the market price of the Common Shares could decline as
a result of future sales of substantial amounts of Common Shares in the public market or the
issuance of new Common Shares, or the perception that such sales, transfers or issuances may
occur. This could also materially and adversely affect the prevailing market price of the
Common Shares or the Companys ability to raise capital in the future at a time and at a price
it deems appropriate.
Investors may incur immediate and substantial dilution as a result of purchasing Offer
Shares.
The issue price of the Common Shares in the Offer may be substantially higher than the net
tangible book value of net assets per share of the Companys outstanding Common Shares.
Therefore, purchasers of Offer Shares may experience immediate and substantial dilution and
the Companys existing shareholders may experience a material increase in the net tangible
book value of net assets per share of the Common Shares they own. See Dilution.
The Company may be unable to pay dividends on the Common Shares.
There is no assurance that the Company can or will declare dividends on the Common Shares
in the future. Future dividends, if any, will be at the discretion of the Board and will depend
upon the Companys future results of operations and general financial condition, capital
requirements, its ability to receive dividends and other distributions and payments from its
subsidiaries, foreign exchange rates, legal, regulatory and contractual restrictions, loan
obligations and loan covenants, including loan obligations and loan covenants of its
subsidiaries, and other factors the Board may deem relevant. See Dividends and Dividend
Policy.
RISKS RELATING TO THE PRESENTATION OF INFORMATION IN THIS
PROSPECTUS
The Prospectus contains forward-looking statements that are, by their nature, subject to
significant risks and uncertainties.
These forward-looking statements include, without limitation, statements relating to known
and unknown risks; uncertainties and other factors that may cause the Companys actual
results, performance or achievements to be materially different from expected future results;
and performance or achievements expressed or implied by forward-looking statements.
Such forward-looking statements are based on numerous assumptions regarding the
Companys present and future business strategies and the environment in which the Company
will operate in the future. Important factors that could cause actual results, performance or
achievements to differ materially from those in the forward-looking statements include,
among other things, the Companys ability to successfully implement its current and future
strategies, the Companys ability to anticipate and respond to local and regional trends, and
the Companys ability to successfully manage its future business, financial condition, results
of operations and cash flow.
The pro forma financial information included herein may not be indicative of actual
results.
The Company has included, examined and reviewed pro forma consolidated financial
information elsewhere in this Prospectus because it believes that such information is

53

important to an investors understanding of the Companys expected presentation of its results

of operations after the consolidation of GTC and SMDC and the Companys acquisition of
certain assets of CCC, PMCI and CSC. The pro forma consolidated results of operations
included herein are necessarily based on certain assumptions, including those identified in the
notes to the pro forma consolidated financial statements, and such information is not
necessarily indicative of the operating results that would have been achieved had the
acquisition of these assets been completed prior to such periods, nor is it indicative of future
operating results, and should not be relied upon as being so indicative. The Companys pro
forma statements should also be read in conjunction with the historical performance of its
wholly owned subsidiaries, GTC and SMDC, as well as information on the Companys track
record of building brands into household names, solid management experience, and dominant
market shares all of which can be found in other parts of this Prospectus.
Certain information contained herein is derived from unofficial publications.
Certain information in this Prospectus relating to the Philippines and the industries in which
the Company competes, including statistics relating to market size, is derived from various
Government and private publications. This Prospectus also contains industry information
based on publicly available third-party sources. Industry publications generally state that the
information they contain has been obtained from sources believed to be reliable but that the
accuracy and completeness of that information is not guaranteed. Similarly, industry forecasts
and market research, including those contained or extracted herein, have not been
independently verified by the Company and may not be accurate, complete, up-to-date or
consistent with other information compiled within or outside the Philippines. Prospective
investors are cautioned accordingly.
The section of this Prospectus entitled Industry was not independently verified by the
Company or the Joint Lead Underwriters, and the sources therein may not be
completely independent or independent at all.
The section of this Prospectus entitled Industry was prepared from available public sources
to provide an overview of the industries in which the Companys businesses operate, in
particular the canned and processed fish and meat industries and the dairy industry. The
reports cited in this section were not prepared nor independently verified by the Company or
the Joint Lead Underwriters, or any of their respective affiliates or advisors. The information
contained in this section may not be consistent with other information regarding the
Philippine canned and processed fish and meat industries and the dairy industry. This section
does not present the opinions of the Company, the Joint Lead Underwriters or any of their
respective affiliates. Much of the information set out in this section is based on estimates,
judgments, opinions and beliefs of the named sources therein and should be regarded as
indicative only and treated with the appropriate caution.

54

USE OF PROCEEDS
The Company intends to use the net proceeds from the Offer for the payment of financial
obligations, capital expenditures to increase production capacity and cost efficiency, working
capital and/or potential acquisitions. Further details on the proposed use of proceeds are set
forth below:

Estimated
Amounts

Use of Proceeds

Percentage

Estimated Timing

1,290

42.3%

2nd Quarter 2014

729

23.9%

2nd Quarter 2014

1,032.5

33.8%

2014 to 1st Quarter 2015

3,051.5

100.0%

( millions)
Payment of Financial Obligations
Capital
Expenditures
to
Increase
Production Capacity and Cost Efficiency
Tin Can Manufacturing Factory

457.6

Dairy and Mix Factory

132.0

Plant Improvement and Maintenance

106.5

Upgrade of IT Systems
Working
Capital
Acquisitions

and/or

32.9
Potential

Estimated Net Proceeds .............................

Working Capital Requirements and/or Potential Acquisitions

The Company expects a need for additional Working Capital as more investments in accounts
receivable trade and inventory assets are seen necessary as a result of an anticipated
upswing in sales and market share, given the Companys intensified marketing and sales
initiatives for its canned tuna, canned sardine, canned meat, and dairy and mixes businesses.
The Company also has a strong track record of expanding product offerings through
successful acquisitions of strong but undervalued local brands. The Company remains open to
similar opportunistic brand acquisitions, including entering into new segments and unlocking
market potentials of regional brands. The Company likewise expects to use a portion of the
net proceeds from the Offer for the potential acquisition of new brands and/or branded food
companies to penetrate new market segments. However, as of date, the Company has neither
definitively identified the targeted brands and/or branded food companies nor negotiated any
terms for acquisition with anybody.
Capital Expenditures
The Company will use a portion the net proceeds to fund capital expenditures that will
improve cost efficiencies and achieve higher profitability in the future. A major project in the
list of capital expenditure projects is the establishment of a tin can factory in General Santos
City that will effectively reduce the tin can costs for the Companys domestic canned tuna
production. The tin can factory's building costs 98 million, machinery and major equipment
cost 303.6 million, and lab and other miscellaneous equipment 56 million. The new facility
is planned to have an output capacity of at least two million tin cans a year, supplying

55

between 25% to 30% of the companys tin can requirements, and is expected to be completed
and commercially operational by end of 2014.
The funds will also be used to complete the Companys new dairy and mixes plant facility
located in Taguig City. The completion of building will cost 52 million. Various equipment
such as mixing tanks, homogenizer, quality assurance and laboratory equipment will cost 80
million. The completion of this new facility is expected to further increase dairy production
from 5,500 cases per day to 11,000 cases per day.
The third major capital expenditure project would be the enhancement of the Companys IT
system. The Company plans to invest in (i) a demand planning software to improve the
Companys demand planning and forecasting and supply replenishment capabilities and (ii)
cloud hosting, disaster recovery and application management services to save on hardware
investments and maintenance expenses, ensure business continuity, and enhance IT data
security. These IT projects would enable the Companys management to focus on further
growing the business.
The rest of the Companys capital expenditures consist of various equipment replacements
and maintenance projects needed by the Companys business units to sustain their respective
plant capacities, efficiencies in manufacturing operations, and product quality standards.
Examples of these projects are coal-fired boiler equipment overhaul, steamer equipment
overhaul, fishmeal building and warehouse repair, and fishmeal decanter equipment
replacement, labeling and packaging equipment replacement, and replacement of sludge
pump for waste water treatment, among others.
Payments of Financial Obligations
During 2013, the Companys principal sources of liquidity were internally generated cash
from operations and shortterm bank loans. Requirements funded by short-term bank loans
were for purchases of raw materials and inventory, working capital requirements, including
account receivables.
The Company intends to use majority of the net proceeds to settle short-term financial
obligations with Metropolitan Bank & Trust Company, Bank of the Philippine Islands, BDO
Unibank, Inc., ANZ Bank, and Security Bank Corporation. These borrowings consist of
various revolving bank promissory notes with maturity dates varying from 60 to 90 days with
interest rate of approximately 2.5% to 3.5% per annum which were incurred primarily to fund
growth in accounts receivable-trade given expanding sales revenues.
None of the proceeds shall be used to reimburse any officer, director, employee or
shareholder for services rendered, assets previously transferred, or money loaned or
advanced.
The proposed use of proceeds described above represents a best estimate of the use of the net
proceeds of the Offer based on the Companys current plans and expenditures. The actual
amount and timing of disbursement of the net proceeds from the Offer for the uses stated
above will depend on various factors which include, among others, changing market
conditions or new information regarding the cost or feasibility of the Companys expansion
plans. The Companys cost estimates may change as it develops its plans, and actual costs
may be different from its budgeted costs, including due to changes in the exchange rate
between the Philippine Peso and the U.S. dollar. To the extent that the net proceeds from the
Offer are not immediately applied to the above purposes, the Company will invest the net
proceeds in interest-bearing short-term demand deposits and/or money market instruments,

56

and/or repay existing debt. Aside from underwriting and selling fees, the Joint Lead
Underwriters will not receive any of the net proceeds from the Offer.
Based on the Offer Price of 14.50 per Offer Share, the total proceeds from the Offer, the
estimated total expenses for the Offer and the estimated net proceeds from the Offer will be:

Estimated
Amounts
( millions)
Total proceeds from the Offer ...........................................................................

3,330.0

Expenses
Underwriting and selling fees for the Offer Shares (including fees to be paid to the
Joint Lead Underwriters and PSE Trading Participants) .......................................
............................................................................................................................

60.4

SEC registration, filing and research fees, taxes to be paid by the Company, and
PSE listing and processing fee .............................................................................

31.7

Estimated professional fees (including legal, accounting, and financial advisory

fees) ....................................................................................................................

48.2

IPO Tax and Others .............................................................................................

138.3

Total estimated expenses ...................................................................................

278.5

Estimated net proceeds from the Offer .............................................................

3,051.5

In the event of any material deviation or adjustment in the planned use of proceeds, the
Company shall inform its shareholders, the SEC and the PSE in writing at least 30 days
before such deviation or adjustment is implemented. Any material or substantial adjustments
to the use of proceeds, as indicated above, will be approved by the Companys Board of
Directors and disclosed to the SEC and the PSE. In addition, the Company shall submit via
the PSEs Electronic Disclosure Generation Technology system or PSE EDGE the following
disclosures to ensure transparency in the use of proceeds:
(i)

any disbursements made in connection with the planned use of proceeds from the
Offer;

(ii)

Quarterly Progress Report on the application of the proceeds from the Offer on or
before the first 15 days of the following quarter; the Quarterly Progress Report should
be certified by the Companys Chief Financial Officer or Treasurer and external
auditor;

(iii)

annual summary of the application of the proceeds on or before January 31 of the

following year; the annual summary report should be certified by the Companys
Chief Financial Officer or Treasurer and external auditor;

(iv)

approval by the Companys Board of Directors of any reallocation on the planned use
of proceeds, or of any change in the work program; the disbursement or
implementation of such reallocation must be disclosed by the Company at least 30
days prior to the actual disbursement or implementation; and

57

(v)

a comprehensive report on the progress of its business plans on or before the first 15
days of the following quarter.

The quarterly and annual reports required in items (ii) and (iii) above must include a detailed
explanation of any material variances between the actual disbursements and the planned use
of proceeds in the work program or the Prospectus, if any. The detailed explanation must also
state that the Companys Board of Directors has given its approval as required in item (iv)
above.
The Company shall submit an external auditors certification on the accuracy of the
information reported by the Company to the PSE in the Companys quarterly and annual
reports as required in items (ii) and (iii) above.

58

PLAN OF DISTRIBUTION
The 229,654,404 Offer Shares shall be offered by the Company to investors, through the Joint
Lead Underwriters. The 45,930,800 Offer Shares (or 20% of the Offer Shares) are being
offered to all of the PSE Trading Participants and 22,965,400 Offer Shares (or 10% of the
Offer Shares) are being offered to the LSIs in the Philippines. The remaining 160,758,204
Offer Shares (or 70% of the Offer Shares) are being offered by the Joint Lead Underwriters to
the QIBs and to the general public. Prior to the closing of the Offer, any Offer Shares not
taken up by the PSE Trading Participants and LSIs shall be distributed by the Joint Lead
Underwriters to their clients or to the general public. In the event that there are Offer Shares
that remain unsubscribed at the end of the Offer, the Joint Lead Underwriters shall subscribe
to the balance pursuant to the terms and conditions of the Underwriting Agreement between
the Company and the Joint Lead Underwriters.
Underwriting Commitments
The Offer will be underwritten at the Offer Price and in connection therewith, an
Underwriting Agreement will be entered into on or before the commencement of the Offer,
between the Company and the Joint Lead Underwriters, whereby the Joint Lead Underwriters
agree to underwrite the 229,654,404 Offer Shares to be offered, subject to agreement between
the Joint Lead Underwriters on any clawback, clawforward or other such mechanism, on a
firm commitment basis.
The Joint Lead Underwriters have committed to underwrite the entire Offer. The amount
allocated to each Joint Lead Underwriter is as follows:
Bank

Amount

(in millions )
BDO Capital & Investment Corp.

[1,110.0]

33.33

BPI Capital Corp.

[1,110.0]

33.33

First Metro Investment Corp.

[1,110.0]

33.33

Total

[3,330.0]

100.00

The underwriting fee is based on the final nominal amount of the Offer Shares to be issued.
There is no arrangement for the Joint Lead Underwriters to return to the Company any unsold
Offer Shares. The Underwriting Agreement may be terminated in certain circumstances prior
to payment of the net proceeds of the Offer Shares being made to the Company. There is no
arrangement as well giving the Joint Lead Underwriters the right to designate or nominate
member(s) to the Board of Directors of the Company.
The Joint Lead Underwriters are all duly licensed by the SEC to engage in underwriting or
distribution of the Offer Shares. The Joint Lead Underwriters may, from time to time, engage
in transactions with and perform services in the ordinary course of its business for the
Company or other members of the Century Pacific Group of which the Company forms a
part.

59

Allocation to the Trading Participants of the PSE and Local Small Investor Program
Pursuant to the rules of the PSE, the Company will make available 45,930,800 Offer Shares
comprising 20% of the Offer for distribution to PSE Trading Participants. The total number of
Offer Shares allocated to the 135 PSE Trading Participants will be distributed following the
procedures indicated in the implementing guidelines for the Offer Shares to be distributed by
the PSE. Each PSE Trading Participant will be allocated a total of 340,200 Offer Shares. The
balance of 3,800 Offer Shares will be allocated by the PSE to the PSE Trading Participants.
PSE Trading Participants who take up the Offer Shares shall be entitled to a selling fee of 1%
of the Offer Shares taken up and purchased by the relevant trading participant. The selling
fee, less a withholding tax of 10%, will be paid to the PSE Trading Participants within ten
(10) banking days after the Listing Date.
The PSE Trading Participants may be allowed to subscribe for their dealer accounts provided
that, if they opt to sell the Offer Shares to the clients during the Offer period, it must be at a
price not higher than the Offer Price per share. Likewise, the trading participants are
prohibited from selling the Offer Shares during the period after the Offer period and prior to
the Listing Date.
The balance of the Offer Shares allocated but not taken up by the PSE Trading Participants
will be distributed among the Joint Lead Underwriters to their clients or to the general public.
A total of 22,965,400 Offer Shares, or 10% of the Offer, shall be made available to Local
Small Investors. Local Small Investors is defined as a subscriber to the Offer who is willing to
subscribe to a maximum of 1,700 Offer Shares under the LSI program. Should the total
demand for the Offer Shares in the LSI program exceed the maximum allocation, the Joint
Lead Underwriters shall allocate the Offer Shares by balloting.
The balance of the Offer Shares allocated but not taken up by the Local Small Investors will
be distributed by the Joint Lead Underwriters to their clients or to the general public.
The Joint Lead Underwriters
BDO Capital is the wholly-owned investment bank subsidiary of BDO Unibank, Inc. BDO
Capital is a full-service investment house primarily involved in securities underwriting and
trading, loan syndication, financial advisory, private placement of debt and equity securities,
project finance, and direct equity investment. Incorporated in December 1998, BDO Capital
commenced operations in March 1999.
BPI Capital is a wholly-owned subsidiary of Bank of the Philippine Islands. BPI Capital is a
licensed investment house focused on corporate finance and securities distribution business. It
began operations in December 1994. BPI Capital Corporation has an investment house
license.
Founded in 1972, First Metro Investment Corporation is a leading investment bank in the
country with over 40 years of service in the development of the Philippine capital markets. It
is the investment banking arm of the Metrobank Group, one of the largest financial
conglomerates in the country. It provides high-quality investment banking and financial
services through its strategic business units Investment Banking, Financial Markets,
Investment Advisory and Trust. With assets of around 85 billion as of November 30, 2013,
it is the largest investment bank in the country today. First Metro has been ranked among the

60

Top 11 Philippine Companies and among the Best ASEAN 100 Companies based on Relative
Wealth Added Index by New York-based management consulting firm, Stern Stewart & Co.
In 2009, 2011 and 2013, First Metro was awarded the Best Bond House in the Philippines by
Finance Asia. In the last five years, First Metro was also awarded the Best Bond House by
The Asset Magazine of Hong Kong. In 2012, it was recognized by Finance Asia as the Best
Equity House in the Philippines. In 2013, it was awarded as one of the Top 10 Best Managed
Companies and Top 10 Best Investor Relations by Finance Asia.
Underwriters Compensation
The Joint Lead Underwriters shall receive from the Company a fee equivalent to 1.5% of the
gross proceeds of the Offer, which shall be inclusive of the amounts to be paid to other
participating underwriters and selling agents and exclusive of the amounts to be paid to the
PSE Trading Participants, where applicable. The underwriting fees shall be withheld by the
Joint Lead Underwriters from the proceeds of the Offer.
None of the Joint Lead Underwriters have any other business relationships with Company.
None of BDO Capital, BPI Capital or First Metro is represented in the Companys Board of
Directors. Neither is there a provision in the Underwriting Agreement, which would entitle
the Joint Lead Underwriters to representation in the Companys Board of Directors as part of
their compensation for underwriting services. However, the Company has existing credit lines
with BDO Unibank, Inc., Bank of the Philippine Islands, and Metrobank, which are the parent
companies of BDO Capital, BPI Capital and First Metro, respectively.
Subscription Procedures
On or before April 25, 2014, the PSE Trading Participants shall submit to the designated
representative of the PSE Listing Department their respective firm orders and commitments to
purchase Offer Shares. Offer Shares not taken up by PSE Trading Participants will be
distributed by the Joint Lead Underwriters directly to their clients and the general public and
whatever remains will be purchased by the Joint Lead Underwriters.
With respect to the Local Small Investors (LSI), all applications to purchase or subscribe
for the Offer Shares must be evidenced by a duly accomplished and completed application
form. An application to purchase Offer Shares shall not be deemed as a duly accomplished
and completed application unless submitted with all required relevant information and
applicable supporting documents to the Joint Lead Underwriters or such other financial
institutions that may be invited to manage the LSI program. Payment for the Offer Shares
must be made upon submission of the duly completed application form.
Lodgement of Shares
All of the Offer Shares are or shall be lodged with the PDTC and shall be issued to the
investors in scripless form. They may maintain the Offer Shares in scripless form or opt to
have the stock certificates issued to them by requesting an upliftment of the relevant Offer
Shares from the PDTCs electronic system after the closing of the Offer.

61

Lock-up
The PSE rules require an applicant company to cause its existing shareholders owning at least
10% of the outstanding shares of the Company not to sell, assign or in any manner dispose of
their shares for a period of 365 days after the listing of the shares. A total of 1,999,999,993
Common Shares held by Century Canning Corporation will be subject to such 365-day lockup.
In addition, if there is any issuance of shares or securities (i.e., private placements, asset for
shares swap or a similar transaction) or instruments which leads to issuance of shares or
securities (i.e., convertible bonds, warrants or a similar instrument) done and fully paid for
within 180 days prior to the start of the offer period, and the transaction price is lower than
that of the offer price in the initial public offering, all shares or securities availed of shall be
subject to a lock-up period of at least 365 days from full payment of the aforesaid shares or
securities. Two Common Shares, one held by Johnip Cua and one held by Fernan Lukban
(both of whom are Independent Directors of the Company) will be subject to such 365-day
lock-up.
To implement this lock-up requirement, the PSE requires the applicant company to lodge the
shares with the PDTC through a PCD participant for the electronic lock-up of the shares or to
enter into an escrow agreement with the trust department or custodian unit of an independent
and reputable financial institution. Under the PSE rules, the lock-up requirement shall be
stated in the articles of incorporation of the Company.
Selling Restrictions
No securities, except of a class exempt under Section 9 of the SRC or unless sold in any
transaction exempt under Section 10 thereof, shall be sold or distributed by any person within
the Philippines, unless such securities shall have been registered with the SEC on Form 12-1
and the registration statement has been declared effective by the SEC.

62

DIVIDENDS AND DIVIDEND POLICY

CNPF
The Company is authorized under Philippine law to declare dividends, subject to certain
requirements. The payment of dividends, either in the form of cash or shares, will depend
upon the Companys earnings, cash flow and financial condition, among other factors. The
Company may declare dividends only out of its unrestricted retained earnings. These
represent the net accumulated earnings of the Company with its unimpaired capital, which are
not appropriated for any other purpose. The Company may pay dividends in cash, by the
distribution of property, or by the issue of shares. Dividends paid in cash or property are
subject to the approval by the Board of Directors. Dividends paid in the form of additional
shares are subject to approval by both the Board of Directors and at least two-thirds of the
outstanding share capital of the shareholders at a shareholders meeting called for such
purpose.
The Company has approved a dividend policy of maintaining an annual cash and/or share
dividend pay-out of up to 30% of its net profit from the preceding year, subject to the
requirements of applicable laws and regulations, the terms and conditions of its outstanding
bonds and loan facilities, and the absence of circumstances that may restrict the payment of
such dividends, such as where the Company undertakes major projects and developments.
Dividends must be approved by the Board (and shareholders in case of a share dividend
declaration) and may be declared only from the unrestricted retained earnings of the
Company. The Companys Board of Directors may, at any time, modify the Companys
dividend policy, depending upon the Companys capital expenditure plans and/or any terms
of financing facilities entered into to fund its current and future operations and projects. The
Company can give no assurance that it will pay any dividends in the future.
GTC and SMDC
The Board of Directors and the shareholders of GTC and SMDC approved a dividend policy
of maintaining an annual cash and/or share dividend pay-out of up to 70% of its net profit
from the preceding year, subject to the requirements of applicable laws and regulations, the
terms and conditions of its outstanding bonds and loan facilities, and the absence of
circumstances that may restrict the payment of such dividends. Dividends must be approved
by GTC and SMDCs respective boards (and shareholders in case of a share dividend
declaration) and shall be declared and paid out only from GTC and SMDCs respective
unrestricted retained earnings. The Board of Directors of GTC and SMDC may, at any time,
modify the dividend policy depending on its evaluation of following factors:
The level of GTC and SMDCs cash earnings, return on equity and retained earnings
The results of business operations and financial conditions at the end of the year in
respect of which the dividends is to be paid
The expected future financial performance of GTC and SMDC
The projected level of GTC and SMDCs capital expenditures and other investment
and development plans
Restrictions of payment of dividends that may be imposed by any of GTC and
SMDCs respective financing arrangements and current and prospective debt service
requirements
Such other factors as the Board deems appropriate

63

DETERMINATION OF THE OFFER PRICE

The Offer Price has been set at up to 14.50 per Offer Share. The Offer Price was determined
through a book-building process and discussions between the Company and the Joint Lead
Underwriters. Since the Company and the Common Shares have not been listed on any stock
exchange, there is no market information for the Common Shares and there has been no
market price for the Common Shares derived from day-to-day trading.
The factors considered in determining the Offer Price are, among others, the Companys
ability to generate earnings and cash flow, its short and long-term prospects, the level of
demand from institutional investors, overall market conditions at the time of launch and the
market price of listed comparable companies. The Offer Price may not have any correlation to
the actual book value of the Offer Shares.

64

CAPITALIZATION AND INDEBTEDNESS

The following table sets out the Companys debt, shareholders equity and capitalization as at
December 31, 2013, and as adjusted to reflect (i) the subscription by CCC to an additional
500,000,000 Common Shares on February 8, 2014 and (ii) the sale of 229,654,404 Offer
Shares at the Offer Price of up to 14.50 per Offer Share. The table should be read in
conjunction with the Companys pro forma financial statements and the notes thereto,
included in this Prospectus beginning on page F-1. Other than as described below, there has
been no material change in the Companys capitalization since December 31, 2013.

Pro Forma as
of December
31, 2013(1)

Pre-Offer
Adjustments

IPO
Adjustments

(2)

(2)

Pro Forma
Post Offer

( in millions)
Total debt(3) .............................................

2,717.3

2,717.3

Equity:
Share Capital ............................................

1,500.0

500.0

Share premium .........................................

Retained earnings .....................................

229.7

2,229.7

2,821.9

2,821.9

1,319.3

1,319.3

Currency translation adjustment................

19.3

19.3

Deposit
for
future
stock
subscription ..............................................

Total equity .............................................

2,838.7

500.0

3,051.5

6,390.2

Total
capitalization
and
indebtedness ............................................

5,556.0

500.0

3,051.5

9,107.5

Balancing figures ......................................

Notes:
(1)

Based on pro forma consolidated financial statements as of December 31, 2013.

(2)

Various equity transactions subsequent to December 31, 2013 consist of (i) the subscription by CCC to an additional
500,000,000 Common Shares on February 8, 2014 and (ii) the sale of the Offer Shares.

(3)

Total debt comprises of loans payable.

65

DILUTION

The Company will offer 229,654,404 Offer Shares to the public at the Offer Price, which will
be substantially higher than the adjusted book value per share of the outstanding Common
Shares, which will result in an immediate material dilution of the new investors equity
interest in the Company. The net book value attributable to the Companys Common Shares,
based on the Companys pro forma financial statements as of December 31, 2013 was
2,838.7 million. After giving effect to the issuance of 500,000,000 new common shares to
CCC as disclosed in Note 31, starting on page 39 of the pro forma consolidated financial
statements, the pro forma net book value pre-Offer will be 3,338.7 million,1 while the net
book value per Common Share will be 1.67. The net book value attributable to the
Companys Common Shares represents the amount of the Companys total equity attributable
to equity holders of the Company. The Companys net book value per Common Share is
computed by dividing the pro forma net book value attributable to the Companys Common
Shares by the 2,000,000,000 pre-Offer issued and outstanding shares.2
Dilution in pro forma book value per share to investors of the Offer Shares represents the
difference between the Offer Price and the pro forma book value per share immediately
following the completion of the Offer.
After taking into account the issuance of 500,000,000 new common shares and the sale of
229,654,404 Offer Shares at the Offer Price of up to 14.50 per Offer Share and after
deduction of the underwriting discounts and commissions and estimated offering expenses of
the Offer payable by the Company, the Companys pro forma book value after the Offer
would approximate 6,390.2 million, or 2.87 per Common Share. This represents an
immediate increase in net book value of 1.20 per Common Share to existing shareholders,
and an immediate dilution of 11.63 per Common Share to investors of the Offer Shares at
the Offer Price of 14.50.
The following table illustrates dilution on a per share basis based on an Offer of 229,654,404
Offer Shares at an Offer Price of up to 14.50 per Offer Share:
Offer Price per Offer Share (up to)
Pro forma net book value per Common Share as of December 31, 2013 (preOffer)3
Increase in net book value per Common Share
Pro forma net book value per Common Share after the Offer
Dilution to investors of the Offer Shares

14.50
1.67
1.20
2.87
11.63

The following table sets forth the shareholdings and percentage of Common Shares
outstanding of existing and new shareholders of the Company immediately after completion
of an Offer of 229,654,404 Offer Shares:
Common Shares
Number
Existing shareholders ....................................................................
2,000,000,000
New investors ................................................................................229,654,404
2,229,654,404
Total ..............................................................................................

66

%
89.7%
10.3%
100.0%

Notes:
(1)

The pro forma net book value is derived from the sum of the net book value of the
Company as of December 31, 2013 and the effect of the issuance of 500,000,000 new
common shares to CCC at a par value of 1.00 per share.

(2)

Total number of issued and outstanding common shares used to compute per share
values (pre-Offer) is 2,000,000,000, at a par value of 1.00 per share, composed of
1,500,000,000 issued and outstanding shares as of December 31, 2013 and the
issuance of 500,000,000 new common shares to CCC as disclosed in Note 31,
starting on page 40 of the pro forma consolidated financial statements.

(3)

Pro forma net book value per share takes into account the number of issued and
outstanding shares pre-Offer on account of the issuance of 500,000,000 new common
shares to CCC.

67

SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following tables set forth selected pro forma consolidated financial information for the Company
and should be read in conjunction with the auditors reports and the Companys pro forma
consolidated financial statements, including the notes thereto, included elsewhere in this Prospectus
and the section entitled Managements Discussion and Analysis of Financial Condition and Results of
Operations of the Pro Forma Consolidated Financial Information of CNPF. The selected pro forma
consolidated financial information presented below as of and for the year ended December 31, 2013
was derived from the historical audited separate financial statements of the Company, GTC, SMDC,
CCC, PMCI and CSC, adjusted to give pro forma effect to (i) the consolidation of GTC and SMDC into
the Company and (ii) the Companys acquisition of certain assets of CCC, PMCI and CSC, as if such
acquisitions occurred prior to January 1, 2013. The pro forma consolidated financial information was
prepared in accordance with the Companys assumptions which are described in the pro forma
consolidated financial statements and reviewed by Navarro Amper & Co. in accordance with PSA.
The pro forma adjustments are based upon available information and certain assumptions that the
Company believes are reasonable under the circumstances. The summary pro forma financial
information does not purport to represent what the results of operations of the Company and its
subsidiaries would actually have been had the acquisitions in fact occurred prior to January 1, 2013,
nor do they purport to project the results of operations of the Company and its subsidiaries for any
future period or date. For additional information regarding financial information presented in this
Prospectus, see Presentation of Financial Information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
For the year ended
December 31,2013

Net Sales
Cost of Sales

P 19,023,053,067
15,696,776,711

Gross Profit
Other income

3,326,276,356
175,816,427

Operating Profit

3,502,092,783

Operating Expenses
Finance Costs
Other Expenses

2,415,239,219
112,450,206
14,054,392

Profit Before Tax

Income Tax Expense

960,348,966
216,431,762

Profit for the Year

743,917,203

Earnings per share

Basic and Diluted Earnings per Share

0.50

68

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

For the year ended
December 31,2013

ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories - net
Prepayments and other current assets

804,394,733
2,330,891,620
3,714,229,160
176,749,347

Total Current Assets

7,026,264,859

Non-current Assets
Property and equipment - net
Intangible asset
Deferred tax assets
Other non-current asset

1,046,775,177
40,000,000
21,747,988
23,856,636

Total Non-current Assets

1,132,379 ,800

TOTAL ASSETS

8,158,644,659

LIABILITIES AND EQUITY

Current Liabilities
Loans payable - current portion
Trade and other payables
Income tax payable

2,717,300,002
2,535,491,858
51,835,544

Total Current Liabilities

5,304,627,404

Non-current Liabilities
Retirement benefit obligation
Deferred tax liability

13,948,453
1,418,347

Total Non-current Liabilities

15,366,800

Total Liabilities

5,319,994,203

Equity
Share capital
Retained earnings
Currency translation adjustment

1,500,000,000
1,319,302,557
19,347,898

Total Equity

2,838,650,455

TOTAL LIABILITIES AND EQUITY

8,158,644,659

69

CONSOLIDATED STATEMENT OF CASH FLOWS

As at
December 31,2013

Cash Flows from Operating Activities

Profit before tax
Adjustments for:
Depreciation and amortization
Finance costs
Reversal of impairment of trade and other receivables
Reversal of allowance for decline in value of inventories
Loss on decline in value of inventories
Loss on disposal and write-off of property, plant and equipment
Retirement benefit expense
Impairment loss on trade and other receivables
Interest income
Operating cash flows before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Prepayments and other current assets
Other non-current assets
Increase (decrease) in:
Trade and other payables
Other non-current liabilities
Exchange differences on translating operating assets and liabilities
Cash generated from operations
Contributions to retirement fund
Income taxes paid

960,348,966
193,394,847
112,450,206
(6,637,186)
(10,357,008)
4,462,318
3,095,250
9,313,787
4,066,287
(10,233,586)
1,259,903,881
(1,057,485,998)
2,056,567,104
144,222,116
5,176,498
(1,135,882,333)
(64,936,440)
7,019,430
1,214,584,259
(8,427,173)
(221,080,459)

Net cash from operating activities

985,076,626

Cash flows from Investing Activities

Acquisitions of property, plant and equipment
Interest received
Proceeds from sale of property, plant and equipment

(341,809,091)
10,233,586
79,701,950

Net cash used in investing activities

(251,873,555)

Cash flows from Financing Activities

Net repayments of loans
Finance costs paid

(555,847,139)
(112,450,206)

Net cash from (used in) financing activities

(668,297,345)

Net Increase in Cash and Cash Equivalents

Cash and Cash Equivalents, Beginning

64,905,726
739,489,007

Cash and Cash Equivalents, End

804,394,733

70

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Year Ended
December 31, 2013

Currency
Translation
Adjustments

Share
Capital
Balance, January 1,
2013
Profit for the year
Other comprehensive
income
Balance, December
31, 2013

Retained
Earnings

Total

1,500,000,000

(41,721,477)

581,576,206

2,039,854,728

743,917,203

743,917,203

61,069,376

(6,190,852)

54,878,524

1,500,000,000

19,347,898

1,319,302,557

2,838,650,455

71

SELECTED COMBINED FINANCIAL INFORMATION

The following tables set forth the summary combined financial information for GTC and SMDC and
should be read in conjunction with the auditors reports and GTCs and SMDCs combined financial
statements, including the notes thereto, included elsewhere in this Prospectus and the section entitled
Managements Discussion and Analysis of Financial Condition and Results of Operations of the
Combined Financial Information for GTC and SMDC. The combined financial information presented
below as of and for the years ended December 31, 2011, 2012 and 2013 was derived from the audited
financial statements of GTC and SMDC prepared in accordance with PFRS. Our independent auditor
for the years ended December 31, 2011, 2012 and 2013 was Punongbayan & Araullo. The summary
financial information below should not be considered indicative of the results of future operations.
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31

2013

2012

2011

Net Sales

7,419,053,435

5,524,019,169

4,750,208,315

Cost of Sales

6,845,193,581

4,932,025,037

4,319,887,738

Gross Profit

573,859,854

591,994,132

430,320,577

(123,791,507)

(47,624,275)

(30,825,991)

697,651,361

639,618,407

461,146,568

423,708,762

428,936,981

286,067,972

51,022,887

54,969,013

73,111,252

474,717,978

483,905,994

359,179,224

222,919,712

155,712,413

101,967,344

43,630,444

44,365,573

35,490,963

179,289,268

111,346,840

66,476,381

Other income (Expense)

Operating Expenses
Finance Costs

Profit Before Tax

Income Tax Expense
Profit for the Year

72

COMBINED STATEMENTS OF FINANCIAL POSITION

For the Years Ended December 31
2013

2012

2011

ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories - net
Prepayments and other current assets
Total Current Assets
Non-current Assets
Property and equipment - net
Intangible asset
Deferred tax asset - net
Retirement benefit asset
Other non-current assets
Total Non-current Assets

413,666,069
1,237,379,984
1,602,019,351
93,714,160
3,346,779,564

127,701,664
470,734,174
2,278,202,558
105,358,317
2,981,996,713

115,870,640
475,292,082
2,258,999,999
93,385,763
2,943,548,484

813,489,320
40,000,000
13,412,011
23,643
17,491,130
884,416,104
4,231,195,668

705,451,217
40,000,000
5,893,298
0
30,291,475
781,635,990
3,763,632,703

804,683,273
40,000,000
3,356,275
0
32,851,701
880,891,249
3,824,439,733

2,214,600,002
524,500,261
735,451
0
240,632,032
2,980,467,746

1,380,700,025
781,997,088
14,391,579
0
447,157,151
2,624,245,843

1,057,000,017
729,640,474
10,596,444
76,086,020
855,038,566
2,728,361,521

0
0
0
0
2,980,467,746

14,999,984
0
99,336
15,099,320
2,639,345,163

74,999,988
150,383,200
536,100
225,919,288
2,954,280,809

1,000,000,000
137,298,180
0
32,291,024
81,138,718
1,250,727,922
4,231,195,668

540,625,000
137,298,180
195,883,200
(34,952,774)
285,433,934
1,124,287,540
3,763,632,703

540,625,000
137,298,180
0
18,420,279
173,815,465
870,158,924
3,824,439,733

LIABILITIES AND EQUITY

Current Liabilities
Loans payable - current portion
Trade and other payables
Income tax payable
Dividends payable
Due to a related party
Total Current Liabilities
Non-current Liabilities
Loans payable - net of current
portion
Deposits for future stock subscription
Other non-current liabilities
Total Non-current Liabilities
Equity
Share capital
Share Premium
Deposit on future stock subscription
Currency translation adjustments
Retained earnings
Total equity

73

COMBINED STATEMENTS OF CASH FLOWS

For the Years Ended December 31
2013

2012

2011

Cash flows from Operating Activities

Profit before tax

222,919,712

155,712,413

101,967,344

129,957,909

127,172,487

120,786,676

Finance costs

51,022,887

54,969,013

73,111,252

Reversal of impairment of trade and other receivables

(6,408,185)

Loss on decline in value of inventories

4,462,318

Loss on disposal and write-off of property, plant and

equipment

3,095,250

1,184,961

Retirement benefit expense

2,094,690

2,078,420

2,391,146

941,848

3,701,034

3,299,076

(9,272,387)

(3,081,186)

(996,688)

398,814,042

340,552,181

301,743,767

(761,179,473)

1,365,409

62,847,331

671,720,889

(19,202,559)

(21,643,946)

Prepayments and other current assets

11,644,156

(11,972,554)

(6,236,403)

Other non-current assets

12,800,346

2,560,227

(2,669,466)

(257,496,827)

52,356,614

204,566,019

31,863,679

(36,892,013)

3,966,858

Cash generated from operations

108,166,812

328,767,305

542,574,160

Contributions to retirement fund

(1,753,543)

(2,022,250)

(3,861,603)

(64,182,843)

(43,468,263)

(18,448,070)

42,230,426

283,276,792

520,264,487

(272,921,095)

(73,254,775)

(109,620,285)

9,272,387

3,081,186

996,688

79,701,949

4,639,040

(183,946,759)

(70,173,589)

(103,984,557)

818,900,000

263,700,000

(26,500,011)

(219,688,175)

(380,503,166)

(310,665,962)

Adjustments for:
Depreciation and amortization

Impairment loss on trade and other receivables

Interest income
Operating cash flows before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories

Increase (decrease) in trade and other payables

Exchange differences on translating operating assets and
liabilities

Income taxes paid

Net cash from operating activities
Cash flows from Investing Activities
Net additions to property and equipment
Interest received
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Cash flows from Financing Activities
Net proceeds from (repayments of) loans
Net repayments of due to related parties
Receipt of deposits for future stock subscription

45,500,000

263,491,800

(384,000,000)

(75,000,000)

Finance costs paid

(51,022,887)

(54,969,013)

(73,111,252)

Net cash from (used in) financing activities

427,680,738

(201,272,179)

(410,277,225)

Proceeds from issuance of shares

Payment of dividends

74

Net Increase in Cash and Cash Equivalents

285,964,405

11,831,024

6,002,706

Cash and Cash Equivalents, Beginning

127,701,664

115,870,640

109,867,934

Cash and Cash Equivalents, End

413,666,069

127,701,664

115,870,640

COMBINED STATEMENTS OF CHANGES IN EQUITY

Share
Capital

Share
Premium

Deposits for
Future stock
Subscription

Currency
Translation
Adjustments

Retained
Earnings

Total

327,896,060

137,298,180

17,866,631

357,568,024

840,628,895

37,500,000

37,500,000

Cash dividends

(75,000,000)

(75,000,000)

Stock dividends

Balance, January 1, 2011

Issuance of shares during
the year

175,228,940

(175,228,940)

Profit for the year

66,476,381

66,476,381

Other
income

553,648

553,648

31,

540,625,000

137,298,180

18,420,279

173,815,465

870,158,924

Reclassification from debt

to equity

150,383,200

150,383,200

Additional deposits for

future stock subscription

45,500,000

45,500,000

Profit for the year

111,346,840

111,346,840

Other
income

(53,373,052)

271,629

(53,101,423)

31,

540,625,000

137,298,180

195,883,200

(34,952,773)

285,433,933

1,124,287,540

Issuance of shares during

the year

459,375,000

(195,883,200)

263,491,800

Cash dividends

(384,000,000)

(384,000,000)

Profit for the year

179,289,268

179,289,268

Other
income

67,243,798

415,516

67,659,314

31, 1,000,000,000

137,298,180

32,291,025

81,138,718

1,250,727,922

Balance,
2011

Balance,
2012

Balance,
2013

comprehensive
December

comprehensive
December

comprehensive
December

75

SELECTED PARENT FINANCIAL INFORMATION OF CNPF

The following table sets forth the selected financial information for the Company and should be read in
conjunction with the auditors reports and the Companys financial statements, including the notes
thereto, included elsewhere in this Prospectus and the section entitled Managements Discussion and
Analysis of Financial Condition of CNPF. The selected financial information presented below for the
period October 25, 2013 to December 31, 2013 was derived from the audited financial statements of
the Company prepared in accordance with PFRS. Our independent auditor for the years ended
December 31, 2013 was Navarro Amper & Co. The Companys summary financial information

below should not be considered indicative of the results of future operations.

STATEMENT OF COMPREHENSIVE INCOME
For the period
October 25, 2013 to
December 2013

Other Income
Rental income

13,112,333

Interest income

73,295
13,185,628

Other Operating Expenses

Taxes and licenses
Depreciation expense
Professional fees

19,727,899
7,129,783
3,360,000

Supplies

189,062
30,406,744

Loss Before Tax

Income tax benefit

(17,221,116)
5,188,323

Net Loss After Tax

(12,032,793)

76

STATEMENTS OF FINANCIAL POSITION

As of December 31, 2013

ASSETS
Current assets
Cash .....................................................

24,298,838

Due from related parties .......................

14,685,814

Input value-added tax - net ...................

26,436,975

Total current assets ...............................

65,421,627

Non-current assets
Investment in subsidiaries ....................

1,194,615,640

Property and equipment - net ................

222,930,679

Deferred tax assets ................................

5,188,323

Total non-current assets

1,422,734,642
1,488,156,269

LIABILITIES AND EQUITY

Current liabilities
Other current liabilities .........................

189,062

Equity
Capital stock .........................................

1,500,000,000

Deficit ..................................................

(12,032,793)
1,487,967,207
1,488,156,269

77

STATEMENT OF CASH FLOWS

For the period October 25, 2013 to
December 2013

Cash Flows from Operating Activities

Loss before tax
Adjustments for:
Depreciation expense
Interest income

(17,221,116)
7,129,783
(73,295)

Operating cash flow before working capital changes

Increase in:
Due from related parties
Input value-added tax - net
Other payables

(10,164,628)

Net cash used in operating activities

(51,098,355)

(14,685,814)
(26,436,975)
189,062

Cash Flows from Investing Activities

Acquisition of investments in subsidiaries
Acquisition of property and equipment
Interest received

(1,194,615,640)
(230,060,462)
73,295

Net cash used in investing activities

(1,424,602,807)

Cash Flows from a Financing Activity

Issuance of capital stock

1,500,000,000

Cash, End

24,298,838

78

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CNPF

The following table sets forth the selected financial information for the Company and should be read in
conjunction with the auditors reports and the Companys financial statements, including the notes
thereto, included elsewhere in this Prospectus and the section entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations of the Consolidated Financial Information
of CNPF. The selected financial information presented below as of and for the year ended December
31, 2013 was derived from the audited consolidated financial statements of the Company prepared in
accordance with PFRS. Our independent auditor for the years ended December 31, 2013 was Navarro
Amper & Co. The Companys summary financial information below should not be considered
indicative of the results of future operations.
STATEMENTS OF FINANCIAL POSITION
As of December 31, 2013

Assets
Current Assets
Cash and cash equivalents
Trade and other receivables net
Due from related parties
Inventories net
Prepayments and other current assets
Total Current Assets

437,964,907
1,034,062,591
218,003,202
1,602,019,351
120,151,134
3,412,201,185

Non-Current Assets
Trademarks
Property, plant and equipment net
Deferred tax assets
Retirement benefit asset
Other non-current assets
Total Non-current Assets

40,000,000
1,036,419,999
18,726,312
23,643
17,491,128
1,112,661,082
4,524,862,267

Liabilities and Equity

Current Liabilities
Loans payable
Trade and other payables
Income tax payable
Due to related parties
Total Current Liabilities

2,214,600,002
524,689,323
735,451
240,632,032
2,980,656,808

Equity
Share capital
Currency translation adjustment
Other reserves
Deficit

1,500,000,000
14,308,241
30,628,942
(731,724)
1,544,205,459
4,524,862,267

79

STATEMENT OF COMPREHENSIVE INCOME

For the period October 25, 2013 to December 31, 2013
in
Revenue
Cost of Goods Sold
Gross Profit
Other Income

1,421,621,604
1,306,758,259
114,863,345
29,417,788
144,281,133

Operating Expenses
Other Expenses
Finance Costs

136,423,625
2,189,825
11,332,127
149,945,577

Loss Before Tax

Income Tax Benefit
Loss for the Period

(5,664,444)
4,517,204
(1,147,240)

Other comprehensive income

Item that will be reclassified subsequently to profit or loss
Currency translation adjustments
Item that will not be reclassified subsequently to profit or
loss
Effect of remeasurement of retirement benefit obligation
Total comprehensive income
Basic and Diluted Earnings Per Share

80

14,308,241

415,516
14,723,757
13,576,517
(0,0008)

STATEMENT OF CASH FLOWS

For the period October 25, 2013 to December 31, 2013

Cash Flows from Operating Activities

Loss before tax
Adjustments for:
Depreciation and amortization
Finance costs
Loss on inventory obsolescence
Loss on disposal of land
Retirement benefit expense
Interest income
Operating cash flow before working capital changes
Decrease (Increase) in:
Trade and other receivables
Due from related parties
Inventories
Prepayments and other current assets
Other non-current assets
Decrease in trade and other payables
Exchange differences on translating operating assets and
liabilities
Cash generated from operations
Contribution to the retirement fund
Income tax paid
Net cash from operating activities
Cash Flows from Investing Activities
Acquisitions of property, plant and equipment
Proceeds from sale of land
Interest income received
Net cash used in investing activities

(5,664,444)

8,217,174
11,,332,127
4,462,318
1,816,723
2,094,690
495,102
22,753,690
3,925,763
(213,678,171)
787,768,399
5,313,290
1,838,164
(545,989,226)
(21,415,425)
40,516,484
(1,753,543)
(22,608,962)
16,153,979

(344,877,181)
79,701,949
(495,102)
(265,670,334)

Cash Flows from Financing Activities

Proceeds from issuance of share capital
Net receipts from related parties
Net repayment of loans

1,500,000,000
129,865,038
(195,999,998)
(11,332,127)
1,422,532,913
(735,051,651)
437,964,907

Finance costs paid

Net cash from financing activities
Acquisition of subsidiaries (net of cash acquired)
Cash and Cash Equivalents, End

81

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF THE PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION OF CNPF
The following discussion of CNPFs recent financial results should be read in conjunction with
CNPFs pro forma consolidated financial statements and notes thereto contained in this Prospectus
and the section entitled Selected Pro Forma Financial Information. The Companys pro forma
consolidated financial statements are in part supported by the historical performance of its wholly
owned subsidiaries, GTC and SMDC, as presented in their 2011-2013 audited combined financial
statements. The Company believes that the presentation of the 2013 pro forma consolidated financial
statements, taken together with the rest of this Prospectus, would provide prospective investors with
sufficient insight into the growth potential of the Company.
CNPFs pro forma consolidated financial information as of and for the year ended December 31, 2013
was derived from the historical audited separate financial statements of the Company, GTC, SMDC,
CCC, PMCI and CSC, adjusted to give pro forma effect to (i) the consolidation of GTC and SMDC into
the Company and (ii) the Companys acquisition of certain assets of CCC, PMCI and CSC, as if such
acquisitions occurred prior to January 1, 2013. The pro forma consolidated financial information was
prepared in accordance with the Companys assumptions which are described in the pro forma
consolidated financial statements and reviewed by Navarro Amper & Co. in accordance with PSA.
This discussion contains forward-looking statements and reflects the current views of CNPF with
respect to future events and financial performance. Actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors such as those set forth in
the section entitled Risk Factors and elsewhere in this Prospectus.
The pro forma financial statements included in this Prospectus and on which the discussions in this
section are based should not be considered indicative of actual results. See Risk Factors Risks
relating to the presentation of information in this Prospectus The pro forma financial information
included herein may not be indicative of actual results.

OVERVIEW
CNPF traces its history from the Century Group, a leading branded food company primarily
engaged in the development, processing, marketing and distribution of processed fish and
meat, as well as processed dairy products in the Philippines.
In October 2013, the Century Group began to undertake a general corporate reorganization
transaction. Prior to the corporate restructuring, the companys businesses were operated by
different companies:
Seafood

Century Canning Corporation (CCC), incorporated on December 12, 1978, handled the
Groups sales and distribution for canned and processed tuna, sardines and bangus. Products
are marketed under 555 for sardines, Century Tuna and 555 for tuna. Columbus Seafood
Corporation (CSC), incorporated on December 20, 1994, operated the manufacturing plant
for the sardines. General Tuna Corporation (GTC), incorporated on March 10, 1997,
operated the tuna processing both for local and export sales.

82

Meat

The Pacific Meat Company, Inc. (PMCI), incorporated on June 28, 1994, manufactured
canned and processed meat under the brand names Argentina, Swift and 555.
Dairy

Snow Mountain Dairy Corporation (SMDC) incorporated on February 14, 2001, handles
the dairy and sinigang mixes under the brands of Birch Tree, Angel, Home Pride and Kaffe de
Oro.
In order to streamline and rationalize the Groups operations, the business operations of CCC,
CSC and PMCI were folded into CNPF, the listing vehicle. The business operations of CCC
and CSC were folded into CNPF under the canned and processed fish segment. The canned
meat business operations of PMCI were folded into CNPF under the canned meat segment.
SMDC, handling the dairy and mixes segment, and GTC, handling the private label canned,
pouched and frozen tuna products for export, were retained as separate corporate entities as
wholly-owned subsidiaries of CNPF. As a result, the pro forma financial statements of CNPF
are a product of the combination of the businesses of CCC, PMCI, CSC, GTC and SMDC.
With this operating history spanning the last 35 years, CNPF has established a strong brand
and product portfolio through, and supported by, continuous product innovation and
acquisition of brands from third parties. Its brands are well-recognized in the Philippines and
include 555 for sardines, Century Tuna and 555 for tuna, Argentina and Swift for canned
meats and Angel and Birch Tree for canned and powdered milk. CNPF was the largest
producer of canned foods in the Philippines in terms of retail value according to Euromonitor
data for February 2013.The quality of CNPFs products has been recognized by numerous
consumer and industry association awards. For example, Century Tuna received the Trusted
Brand Award from Readers Digest in 2011, 2012 and 2013 and Argentina Corned Beef
received the same award in 2012 and 2013.
As of December 31, 2013, CNPF offered 283 products which can be found in 3,772 modern
retail outlets, approximately 225,168 directly served general trade outlets and 330,749
indirectly served points of sale, totalling over 559,689 points of sale throughout the
Philippines. CNPF operates five production facilities and distributes its products through 14
distribution centers strategically located across the Philippines. CNPF distributes its products
directly to retailers, as well as through third-party distributors. As at December 31, 2013,
CNPF maintained 200 manufacturer direct-to-retail accounts reaching 3,772 retail outlets in
the Philippines. In addition, as at December 31, 2013, CNPF held distribution agreements
with 39 distributors, reaching approximately 225,168 retail outlets ranging from supermarkets
to sari-sari stores. Furthermore, as of December 31, 2013, CNPF exports both private label
and branded products, which are distributed across North America, Europe, Asia, Australia,
and the Middle East.
For the year ended December 31, 2013, CNPFs net revenue was 19,023 million. CNPFs
net profit for the same periods was 743.9 million.
Business Segments
CNPFs business operations are divided into four main business segments: canned and
processed fish, canned meat, dairy and mixes and tuna export.

83

The canned and processed fish segment produces a variety of tuna, sardine and other fish and
seafood-based products. CNPFs key brands in the canned and processed fish segment include
Century Tuna, 555, Blue Bay and Fresca.
The canned meat segment produces corned beef, meatloaf and a variety of other meat-based
products. Key brands in this segment include Argentina, Wow and Swift.
The dairy and mixes segment primarily comprises canned milk, powdered milk and other
dairy products, as well as coffee mixes and sinigang mix. Key brands include Angel, Birch
Tree, Kaffe de Oro and Home Pride.
CNPF also produces private label canned, pouched and frozen tuna products for export to
major overseas markets including North America, Europe, Asia, Australia, and the Middle
East. In addition, CNPFs branded products are also exported to overseas markets and are
across North America, Europe, Asia, Australia, and the Middle East.
For the year ended December 31, 2013, the contribution of each business segment to CNPFs
total revenue and net income is as follows:

Year ended December 31, 2013

(in millions)
% of
Net
% of
Revenue
Total
Income
Total
Canned and Processed Fish

7,014

36.9

137

18.4

Canned Meat

4,598

24.2

360

48.4

Dairy and Mixes

1,548

8.1

45

6.0

Tuna Export

5,863

30.8

210

28.2

(8)

(1)

744

100.0

Other Segment Income (CNPF)

Total

19,023

100.0

The abovementioned revenue and net income were derived from the historical audited
separate financial statements of the Company, GTC, SMDC, CCC, PMCI and CSC and
adjusted to give the pro forma effect of the consolidation of the businesses of the said
companies as shown in the table below:
Year ended
December 31,
2013 (in
millions)

Acquisitions
CNPF

GTC

SMDC

CSC

PMCI

CCC

Total before
Pro Forma
Adjustments

Net sales

5,863

1,556

1,633

5,063

5,505

19,620

(597)

19,023

Cost of Sales

5,623

1,222

1,420

3,932

4,071

16,269

(572)

15,697

Gross profit

240

334

213

1,130

1,434

3,351

(25)

3,326

13

127

35

24

859

1,058

(882)

176

13

367

334

248

1,154

2,293

4,409

(907)

3,502

30

148

275

160

763

1,366

2,743

(328)

2,415

49

25

52

131

(19)

112

Other Income
Operating
profit
Operating
expenses
Finance cost
Other
Expense
Profit (loss)

Pro forma
Adjustments

Pro forma
Consolidated

14

14

(17)

166

57

78

363

875

1,521

(561)

960

84

before tax
Income tax
expense
Profit after
tax

(5)

28

15

25

105

48

217

(1)

216

(12)

138

42

52

257

827

1,304

(560)

744

Pro forma adjustments were made to the December 31, 2013 historical consolidated financial
information of the Company and its subsidiaries (GTC and SMDC), and the acquired
businesses (CSC, PMCI, CCC) which include the following:

Consolidation of the Company and its subsidiaries (GTC and SMDC) and elimination of
investment and equity amounting to 1.137 million.

Recognition of identified assets and liabilities of CCC, CSC and PMCI and the related
operations as well as the accumulated earnings as of December 31, 2013. The difference
between the balance of the assets acquired and liabilities assumed was recognized in
retained earnings.

Elimination of frozen processed meat business from PMCI.

Elimination of intercompany and inter-business transactions and account balances.

Elimination of cash dividends from GTC and SMDC amounting to 382 million and gain
from the sale of shares of stocks of GTC and SMDC between CCC and the Company

Recognition of rental expense in relation to the land and office spaces that were not sold
to the Company and elimination of depreciation related to aforementioned assets.

Re-computation of income tax to include the effects of the pro forma adjustments.

CCC and CSC (Canned and Processed Fish). Net sales from the canned and processed fish
business segment totaled 7,013.8 million, or 37% of total CNPF sales, for the year ended
December 31, 2013. Of these sales, canned tuna and milkfish contributed 5,380.8 million
while canned sardine accounted for 1,633.0 million. Gross profit for the segment totaled
1,659.2 million, or a gross profit rate of 24%. This gross profit consisted of 1,383.4 million
from canned tuna and milkfish and 275.8 million for canned sardine. Net income for the
segment totaled 136.5 million, or an equivalent segment return on sales of 3%. Of this
segment net income, 158.8 million was shared by canned tuna and milkfish while 161.4
million was from canned sardine.
GTC (Tuna Export). Net sales from the tuna export business segment totaled 5,862.7
million. This represented 31% of total CNPF sales and comprised sales of canned tuna,
pouched tuna and frozen loins to the private-label export market. Gross profit was 301.6
million, or a segment gross profit rate of 4%. Net income totaled 209.6 million for a segment
return on sales of 2%.
PMCI (Canned Meat). Net sales from the canned meat business were 4,598.6 million for the
year ended December 31, 2013, which represented 24% share of the total CNPF sales. Net
sales included sales to the modern trade accounts, general trade accounts, food service
accounts and export accounts for canned products including corned beef, meat loaves, readyto-eat viands. Gross profit for canned meat was 1,0405 million, or a segment gross profit
rate of 23%. Net income for canned meat totaled 360.1 million, or a return on sales of 8%.
SMDC (Dairy and Mixes). Net sales from the dairy and mixes business was 1,548 million
for the year ended December 31, 2013, which represents 8% share of the total CPF sales. Net
sales includes sales of evaporated milk, condensed milk, creamers, full cream powdered milk,
flavour mixes and 3-in-1 coffee products. Gross profit for the segment amounted to 325.5

85

million for an equivalent gross profit rate of 21%. Net income totaled 41.8 million, or a 3%
return on sales ratio.
FACTORS AFFECTING RESULTS OF OPERATIONS
CNPFs results of operations are affected by a variety of factors. Set out below is a discussion
of the most significant factors that have affected CNPFs results in the past and which CNPF
expects to affect its financial results in the future. Factors other than those set out below
could also have a significant impact on CNPFs results of operations and financial condition
in the future. See Risk Factors.
Raw Materials Costs and Product Prices
CNPF depends on raw materials, including certain critical raw materials such as tuna, meat,
tin cans and powdered milk, most of which are procured from third parties from both within
and outside the Philippines. These materials are subject to price volatility caused by a number
of factors, including changes in global supply and demand, foreign exchange rate fluctuations,
weather conditions and government regulations and controls. In addition, CNPFs ability to
obtain raw materials is affected by a number of factors beyond its control, including natural
disasters, governmental laws and policies, and interruptions in production by suppliers.
Changes in the prices of raw materials will necessarily affect CNPFs cost of sales and may
affect the pricing of CNPFs products. Changes in prices may also affect consumer demand,
as CNPFs consumers are generally price sensitive. While CNPF believes it has been able to
successfully pass on price increases historically to its customers, there is no assurance that
any future increases in cost of sales can be fully passed on to consumers. As a result, any
material increase in the market price of raw materials could have a material adverse effect on
CNPFs operating margins, which may affect its financial position and operating
performance.
Economic, Social and Political Conditions in the Philippines
While CNPF has operations outside the Philippines, all of CNPFs assets as of December 31,
2013 were located in the Philippines, and approximately 69% of its revenues for the year
ended December 31, 2013, were derived from its operations in the Philippines. As a result,
CNPFs business, financial condition, results of operations and prospects are substantially
influenced by economic and political conditions in the Philippines. Although the Philippine
economy has experienced stable growth in recent years, the Philippine economy has in the
past experienced periods of slow or negative growth, high inflation, significant devaluation of
the Peso, and has been significantly affected by economic volatilities in the Asia-Pacific
region. Also, in the past, there have been periods of political instability in the Philippines,
including impeachment proceedings against two former presidents and the chief justice of the
Supreme Court of the Philippines, and public and military protests arising from alleged
misconduct by previous administrations. Sales of most of CNPFs products are directly
related to the strength of the Philippine economy (including overall growth levels and interest
rates) and tend to decline during economic downturns. Any deterioration in the Philippine
economy, including a significant deterioration in the value of the Peso, may adversely affect
consumer sentiment and lead to a reduction in demand for CNPFs products.
Competition
CNPF faces competition in the Philippines as well as in the other countries in which it
distributes its products. It competes with a number of multi-national, national, regional and
local competitors. Although certain of CNPFs products have significant market shares in the

86

Philippines and in many cases are market leaders in their respective product categories, CNPF
expects to face increasing competition as it continues to grow its business. Competitive
factors generally affecting CNPFs businesses include price, product quality, brand awareness
and customer loyalty, distribution coverage, customer service and the ability to effectively
respond to shifting consumer tastes and preferences. For a more detailed discussion on
competition, please see Business beginning on page 127 of this Prospectus, and Industry
beginning on page 158 of this Prospectus
Seasonality
CNPFs sales are affected by seasonality in customer purchase patterns. In the Philippines,
most food products, including those produced by CNPF, experience increased sales during the
Christmas season. As a result, seasonality could affect CNPFs financial condition and results
of operations from one quarter to another, particularly in relation to the fourth quarter of each
year.
Introduction of New Products and Marketing Initiatives
CNPF believes that many consumer food products are impulse and discretionary purchases,
which are particularly sensitive to competitive pressures. A key element in maintaining its
market share in the highly competitive Philippine food market has been for CNPF to
continuously introduce new products and product extensions.
In addition to introducing new products, CNPF has undertaken marketing initiatives using
organized advertising campaigns to differentiate its products and further expand market share.
CNPF devotes significant expenditures to support advertising and branding, including funding
for advertising campaigns, such as television commercials and radio and print advertisements.
CNPFs advertising and promotion costs accounted for a significant proportion of total
revenue, comprising 3% for the year ended December 31, 2013.
The development and introduction of new products and the use of marketing initiatives can
substantially increase CNPFs operating costs. Although CNPF believes that these higher
costs are justified by increased sales from new and existing products, there is typically a delay
between the incurrence of these costs and any such sales. Furthermore, CNPF cannot be
assured of when, if ever, these expenditures will result in increased revenues.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are both (i) relevant to the presentation of CNPFs
financial condition and results of operations and (ii) require managements most difficult,
subjective or complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. As the number of variables and assumptions
affecting the possible future resolution of the uncertainties increase, those judgments become
even more subjective and complex.
For information on CNPFs significant accounting policies and significant accounting
judgments and estimates, see Note 6, starting on Page 9 of the audited financial statements of
CNPF as parent included elsewhere in this Prospectus.

87

DESCRIPTION OF KEY LINE ITEMS

Sale of Goods
CNPF, GTC and SMDC derive their net sales from sale of goods to their customers less value
added tax (VAT) and sales returns and allowances. GTC customers consist of importerbrand owners, food producers and retailers, traders and agents in the international tuna
market. CNPF and SMDC customers include largely customer accounts serving the modern
trade, general trade and food service channels of the domestic market. In addition, CNPF and
SMDC have customers that serve the export market.
Cost of goods sold
CNPFs, GTCs and SMDCs cost of goods sold consists primarily of cost of goods available
for sale (i.e. inventory at the beginning of the year plus additional stocks from production and
purchases during the year) less inventory at the end of the year. The cost elements comprising
cost of goods sold include raw materials and packaging materials cost plus conversion costs.
Conversion costs consist of direct labor cost, utilities expense, and manufacturing overhead
expense.
Operating Expenses (Income)
CNPFs, GTCs and SMDCs operating expenses comprise primarily of salaries and wages
and other staff costs, advertising and promotions cost, freight and distribution expenses, other
selling and market expenses, depreciation, repairs and maintenance expenses, and other
administrative expenses.
Other Income (Expense)
Other income (expense) consists primarily of interest expense and other financing charges,
investment income, foreign exchange gain (loss), inventory loss, and other miscellaneous
income and expenses.
Income Tax Expense
Income tax expense comprises current income tax expense and deferred income tax expense.
Trade Receivables
Trade receivables are recorded at fair value plus transaction less provisions for impairment
loss, and are primarily from sales with an average credit term of 30 to 45 days. Impairment
loss is provided when there is objective evidence that the Company will not be able to collect
from specific customers certain amounts due to it in accordance with the original terms of the
receivables. The amount of the impairment loss is determined based on evaluation of
available facts and circumstances, including but not limited to, the length of the Companys
relationship with the customers, the customers current credit status based on known market
forces, average age of the accounts, collection experience and historical loss perspective.
Inventories
Inventories comprise primarily of raw materials, work-in-process goods and finished goods.
These are booked at the lower of cost and net realizable value. Cost is determined using the
first-in, first-out method. Finished goods and work-in process include the cost of raw

88

materials, direct labor and a proportion of manufacturing overhead based on normal operating
capacity. Raw material costs include all costs attributable to acquisition such as the purchase
price, import duties and other taxes that are not subsequently recoverable from taxing
authorities.
Inventories are derecognized when sold or otherwise disposed of.
Trade Payable
Trade payables comprise of obligations to suppliers incurred in the ordinary course of
business. These are recognized at fair value and subsequently measured at amortized cost
during the period when the goods or services are received or rendered.

Canned and Processed Fish. Net sales from the canned and processed fish business
segment totaled 7,013.8 million, or 37% of total CNPF sales, for the year ended
December 31, 2013. Of these sales, canned tuna and milkfish contributed 5,380.8
million while canned sardine accounted for 1,633.0 million. This included sales of
branded products under the Century, 555, Blue Bay, Fresca and Lucky 7 labels to
both the domestic and export market.

Tuna Export. Net sales from the tuna export business segment totaled 5,862.7
million. This represented 31% of total CNPF sales and comprised canned tuna,
pouched tuna and frozen loins to the private-label export market.

Canned Meat. Net sales from the canned meat business were 4,598.6 million for the
year ended December 31, 2013, which represents 24% of total CNPF sales. Net sales
represents sales to the modern trade accounts, general trade accounts, food service
accounts and export accounts for canned products including corned beef, meat loaves,
and ready-to-eat viands under the Argentina, Swift, 555, Wow, Lucky 7, and Shanghai
labels.

Dairy and Mixes. Net sales from the dairy and mixes business were 1,548.0 million
for the year ended December 31, 2013, which represents 8% of the total CNPF sales.
Net sales includes sales of evaporated milk, condensed milk, creamers, full cream
powdered milk, flavour mixes and 3-in-1 coffee products under the Angel, Birch
Tree, Home Pride and Kaffe de Oro brands.

Cost of sales
The Companys cost of sales was 15,696.8 million for the year ended December 31, 2013,
which represents 82.5% of net sales, primarily comprised of: (1) cost of raw materials; (2)
cost of packaging; and (3) conversion costs.
The breakdown for each business segment is as follows:

Canned and Processed Fish. The canned and processed fish business recorded a cost
of sales of 5,354.6 million for the year ended December 31, 2013, which represents
a 34% share of the total CNPF cost of sales and a 76% cost ratio to total canned and
processed fish segment net sales.

Tuna Export. The tuna export business registered a cost of sales of 5,561.1 million
for the year ended December 31, 2013, which represents a 35% share of total CNPF
cost of sales and a 95% cost ratio to total tuna export net sales.

89

Canned Meat. The cost of sales for the canned meat business amounted to 3,558.6
million for the year ended December 31, 2013, which represents a 23% share of
CNPFs total cost of sales and a 77% cost ratio to total canned meat segment net
sales.

Dairy and Mixes. The dairy and mixes business recorded a cost of sales 1,222.5
million for the year ended December 31, 2013, which represents an 8% share of
CNPFs total cost of sales and a 79% cost ratio to total dairy and mixes net sales.

Gross profit
As a result of the foregoing, the Companys total gross profit was 3,326.3 million for the
year ended December 31, 2013, which translates to 17% of net sales. The following table
summarizes the breakdown of the Companys revenues, cost of sales, and gross profit
between its three business segments:
Canned and
Processed Fish

Tuna Export

Canned Meat

Dairy and Mixes

Total CNPF

Mill

% of
Sales

Mill

% of
Sales

Mill

% of
Sales

Mill

% of
Sales

Mill

7,013.8

100%

5,862.7

100%

4,598.6

100%

1,547.98

100
%

19,023.0
5

Cost of
Sales

5,354.6

77%

5,561.1

95%

3,558.6

77%

1,222.45

79%

15,696.7
8

83%

Gross
Profit

1,659.22

23%

301.58

5%

1,039.95

28%

325.53

21%

3,326.28

17%

Net
Sales

% of
Sale
s
100
%

Other Income
For the year ended December 31, 2013, the Companys other income totaled 175.8 million,
which translates to 0.9% ratio to total net sales. The breakdown of other income by business
segment includes 47.3 million or 0.7% ratio to sales for the canned and processed fish
business, 106.1 million or 1.8% ratio to sales for the tuna export business, 22.3 million or
0.5% ratio to sales for the canned meat business, and 0.1 million or a negligible ratio to sales
for the dairy and mixes business.
Operating expenses
CNPF operating expenses were 2,415.2 million for the year ended December 31, 2013,
which represents 13% of total net sales. Operating expenses consists of selling and
distribution expenses, marketing expenses such as advertising and promotions, and general
and administrative expenses. The breakdown of operating expenses by business segment is set
forth below:

90

Canned and
Processed Fish

Net
Sales

Operating
Expenses

Tuna Export

Canned Meat

Dairy and
Mixes
% of
Mill
Sales

Mill

% of
Sales

Mill

% of
Sales

Mill

% of
Sales

7,013.8

100

5,862.7

100

4,598.6

100

1,548

1,334.0

19%

148.4

3%

657.50

14%

275.31
783

Total CNPF
Mill

% of
Sales

100

19,02
3.05

100

18%

2,415.
24

13%

Finance Costs
The Companys finance cost totaled 112.4 million, or 0.6% of total net sales for the year
ended December 31, 2013. The breakdown of this finance cost by business segment reflects
canned/processed fish at 55.6 million, or 0.8% of segment sales; export tuna at 49.4 million
or 0.8%; canned meat at 5.8 million or 0.1% of segment sales; and dairy and mixes at 1.6
million or 0.1% of segment sales.
Other Expense
The Companys other expense account totaled 14.0 million, representing 0.1% of total
CNPF sales for the year ended December 31, 2013. The breakdown of other expense by
business segment would include canned/processed fish at 6.9 million, or 0.1% of segments
sales; tuna export at 3.2 million, or 0.1% of segment sales; and canned meat at 3.9
million, or 0.1% of segment sales.
Income Tax Expense
Income tax expense totaled 216.4 million or 1.1% of total CNPF sales for year ended
December 31, 2013. The effective tax was 23% compared to the standard corporate tax rate of
30%, primarily due to the difference between taxable profit and net profit where the former
reflects adjustments to exclude items of income or expense that are taxable or deductible in
other years, or are subjected to lower income tax rate or income tax holiday (ITH), or are
never taxable or deductible. Canned and processed fish incurred income tax expense of 90.7
million for a tax rate of 30%. Tuna export incurred income tax expense of 28.3 million for a
tax rate of 17%. Canned meat had an income tax expense of 81.3 million for a tax rate of
19%. Dairy and mixes business incurred an income tax expense of 15.3 million for a tax rate
of 27%.
Net Profit for the Period
As a result of the foregoing, the Companys total net profit for the year ended December 31,
2013 was 743.9 million, or a return on sales (ROS) ratio of 3.9%. Canned and preserved
fish business registered 136.5 million, or 1.9% ROS. Tuna exports registered 209.6
million, or 3.0% ROS. Canned meat registered 360.0 million, or 7.8% ROS. Finally, dairy
and mixes registered 45.5 million, or 2.9% ROS.

91

LIQUIDITY AND CAPITAL RESOURCES

The Companys principal liquidity requirements are for purchases of raw materials and
inventory, working capital requirements, and capital expenditures for plant maintenance and
production efficiency.
The Companys principal sources of liquidity are from internally generated cash from
operations and short-term bank loans. For the year ended December 31, 2013, the Company
had, on a pro forma consolidated basis, total current assets of 7,026 million, of which cash
and cash equivalents accounted for 11% or 804 million. This was against the Companys
total current liabilities of 5,305 million, 48% of which (or 2,535 million) were non-interest
bearing trade payables.
The Company expects a growth in its working capital due to increased sales and market share
expansion. Moving forward, the Company expects to fund these requirements from its
operating cash flows, borrowings and proceeds of the Offer. The Company intends to use a
portion of the proceeds from the Offer to partially pay off short-term debt financing
arrangements and to support working capital requirements. See Use of Proceeds beginning
on page 55 of this Prospectus.
The Company may also, from time to time, seek other sources of funding, which may include
debt or equity financing, depending on its financing needs and market conditions. In the
course of conducting its business, the Company has, and will continue, to incur short-term 6090 days revolving credit lines from several banking institutions at an average interest rate of
2.5% to 3.5% per annum. CNPF expects that its principal uses of cash for fiscal year 2014
will be for payment of financial obligations, capital expenditures to increase production
capacity and cost efficiency, working capital and/or potential acquisitions.
The following table sets forth the selected information from the Companys pro forma
consolidated statement of cash flows for the period indicated:
For the year ended
December 31, 2013
(in millions)
Cash from operating activities .........................................................................
985
Cash used in investing activities ......................................................................
(252)
Cash used in financing activities ....................................................................
(668)
Net increase in cash and cash equivalents .......
65
Cash and cash equivalents
Beginning of year ...................................................................................
739
804
End of year .............................................................................................
Net Cash flow from operating activities
CNPFs pro forma net cash from operating activities was 985.1 million for the year ended
December 31, 2013. The primary source of cash was 1,259.9 million from operating cash
flows before working capital changes, 2,056.6 million decrease in inventories, 144.2
million decrease in prepayment and other current assets, 5.2 million decrease in other noncurrent assets, and 7.0 million from translating operating assets and liabilities. Cash used in
operations included 1,057.5 million increase in trade and other receivables, 1,135.9 million
decrease in trade and other payables, and 64.9 million decrease in other non-current
liabilities, 8.4 million for retirement fund contributions, and income tax payments of 221
million.

92

Cash flows used in investing activities

Cash flow used in investing activities for the year ended December 31, 2013 was 251.9
million. This was primarily attributable to additions in property, plant and equipment 341.8
million, offset by 10.2 million interest received and 79.7 million proceeds from the sale of
property, plant and equipment.
Cash flow used in financing activities
Cash flow used in financing activities for the year ended December 31, 2013 was 668.3
million. This was primarily attributable payments of borrowings and interest expense of
555.8 million and 112.5 million, respectively.
Capital Expenditures
The Company regularly invests in capital expenditures to support on-going maintenance and
capacity utilization of its property, plant and equipment.
CNPFs pro forma capital expenditures for the year ended December 31, 2013 were 342
million. The table below sets forth the components of the pro forma capital expenditures of
CNPF for 2013, together with its budgeted capital expenditures for 2014. This is a forwardlooking statement. See Forward-Looking Statements beginning on page vi. Additional
factors that could cause the Companys actual results, performance or achievements to differ
materially from forward-looking statements include, but are not limited to, those disclosed
under Risk Factors and elsewhere in this Prospectus.

Buildings/Land /Leasehold improvements .......

Machineries & equipment ...............................
Construction in progress ..................................
Other fixed assets ............................................
Total capital expenditures..............................

For the years ended December

31
(in millions)
2013
2014
3
162
120
487
188
30
80
342

729

CNPF (pro forma) has historically sourced funding for capital expenditures through internal
cash generation and provisions for working capital.
The Company will use the net proceeds as well to fund capital expenditures that will improve
cost efficiencies and achieve higher profitability in the future. CNPF (pro forma) has
budgeted 729 million for capital expenditures for 2014. See Use of Proceeds beginning on
page 55 of this Prospectus.
The figures in CNPFs capital expenditure plans are based on managements estimates and
have not been appraised by an independent organization. In addition, CNPFs capital
expenditure plans are subject to a number of variables, including availability of financing on
acceptable terms, the identification of new projects and potential acquisitions, and
macroeconomic factors such as the Philippines economic performance and interest rates.
There can be no assurance that GTC and SMDC will execute their capital expenditure plans
as contemplated at or below estimated costs.

93

Contractual Obligations and Commitments

The following table sets forth the Companys contractual obligations and commitments as of
December 31, 2013:
Contractual Obligations and Commitments
Principal Payments Due by Period
(in millions)
2015After
Total
2014
2018
2018
Interest-bearing loans and borrowings .............. 2,717
2,717
Trade and other payables .................................. 2,535
2,535
Dividends payable ...........................................
Advances from related parties .........................
Other long-term liabilities ................................
0
0
Total ................................................................
5,252
5,252
The discussion above contains forward-looking statements. See Forward-Looking
Statements beginning on page vi. Additional factors that could cause the Companys actual
results, performance or achievements to differ materially from forward-looking statements
include, but are not limited to, those disclosed under Risk Factors and elsewhere in this
Prospectus.
Debt Obligations and Facilities
CNPFs total amount of pro forma short-term debt as of December 31, 2013 was 2,717
million which was comprised of notes payable. There is no the pro-forma long-term debt.
The following table sets forth CNPFs pro forma total consolidated indebtedness as of the
periods indicated:
As of
December 31,
2013
(in millions)
Short-term debt......................................................................................................
Long-term debt .............................................................................................. ...

2,717.3
0.0

Total ....................................................................................................................

2,717.3

CNPF intends to repay, with proceeds from the Offer, existing indebtedness of up to 1,290
million relating to loans with terms of 60 to 90 days with annual interest rate average 2.5% to
3.5% per annum which were incurred primarily to fund growth in accounts receivable-trade
given expanding sales revenues. See Use of Proceeds beginning on page 55 of this
Prospectus.

94

Off-Balance Sheet Arrangements

As of December 31, 2013, CNPF did not have any off-balance sheet arrangements.
KEY PERFORMANCE INDICATORS
The following are the major performance measures used by CNPF as a whole and its business
segments for 2013:
Total Sales
This represents total revenues generated from sales of the Companys three business
segments: canned and processed fish (including tuna export), canned meat, and dairy and
mixes. Sale of goods to customers are less VAT and sales returns and allowances. The
Company considers this to be a measure of volume and growth.
Gross Profit Margin (%)
This represents the portion of revenues remaining after deducting cost of sales. The Company
considers this to be a measure of its pricing strategy and financial health.
.
Before Tax Return on Sales (%)
This represents the ratio of net income before interest and tax against total sales. The
Company considers this to be a measure of its operational efficiency and profit for every unit
sold.
Return on Equity (%)
This represents the ratio of net income and shareholder equity. The Company considers this to
be a measure of the its bottom line profitability.
Current Ratio (x)
This represents the amount of total current assets as a multiple of total current liabilities. The
Company considers this to be a measure of its liquidity and ability to pay short-term
obligations.
Total CNPF

For the year

ended
December 31,
2013

Total Sales
19,023
Gross Profit Margin (%) .......................................................................................
17%
5%
Before Tax Return on Sales (%) ...........................................................................
26%
Return on Equity (%) ...........................................................................................
1.32
Current Ratio (x) ..................................................................................................

95

For the year

ended
December 31,
2013

Canned and Processed Fish

Total Sales
Gross Profit Margin (%) .......................................................................................
Before Tax Return on Sales (%) ...........................................................................
Current Ratio (x) ..................................................................................................

7,014
24%
3%
1.56

For the years

ended
December 31,
2013

Canned Meat

Total Sales
Gross Profit Margin (%) .......................................................................................
Before Tax Return on Sales (%) ...........................................................................
Current Ratio (x) ..................................................................................................

4,599
23%
10%
1.33

For the years

ended
December 31,
2013

Dairy and Mixes

Total Sales
Gross Profit Margin (%) .......................................................................................
Before Tax Return on Sales (%) ...........................................................................
Current Ratio (x) ..................................................................................................

1,548
21%
4%
1.85

For the years

ended
December 31,
2013

Export Tuna

Total Sales
Gross Profit Margin (%) .......................................................................................
Before Tax Return on Sales (%) ...........................................................................
Current Ratio (x) ..................................................................................................

96

5,863
5%
4%
1.07

QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISKS

CNPF is exposed to various types of market risks in the ordinary course of business,
including foreign exchange rate risk, commodity price risk, credit risk and liquidity risk.
Commodity Price Risk
CNPFs commodity price risk exposure primarily results from the use of commodities as raw
materials in its production processes. In particular, the supply and prices of fish are subject to
seasonality and there is limited fish-catching activity from November to March of the
following year. To reduce its exposure to increased fish prices during this time, CNPF
typically builds up sufficient inventories of finished products by October of each year to
minimize the need to purchase fish at increased prices. CNPF currently does not have a
commodity price hedging policy.
Foreign Exchange Rate Risk
CNPFs foreign exchange rate risk arises primarily from the fluctuations in exchange rate that
arise between the Philippine Peso and the U.S. dollar. The substantial majority of CNPFs
revenues are denominated in Pesos, while certain of its expenses, particularly its raw material
costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars. In
addition, CNPF is exposed to foreign exchange risk through its export of private label tuna
and its branded products. To hedge its exposure to exchange rate fluctuations, CNPF enters
into a forward contract for each export order to secure the expected profit at time of delivery.
See Risk Factors Risks Relating to the Companys Business CNPF is exposed to foreign
exchange risk, Risk Factors Risks Relating to the Philippines Volatility in the value of
the Peso against the U.S. dollar and other currencies could adversely affect CNPFs
business and Exchange Rates.
Credit Risk
CNPFs exposure to credit risk relates primarily to its trade and other receivables. Generally,
CNPFs maximum credit exposure in the event of customers and counterparties failure to
perform their obligations is the total carrying amount of the financial asset as shown on the
statement of financial position. To minimize its credit risk, CNPF evaluates customer credit,
receivables and payment habits for all major customers on a quarterly basis.
Liquidity Risk
CNPF is exposed to the possibility that adverse changes in the business environment or its
operations could result in substantially higher working capital requirements and consequently,
a difficulty in financing additional working capital. CNPF manages its liquidity risk by
monitoring its cash position and maintaining credit lines from financial institutions that
exceed projected financing requirements for working capital.

97

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF THE COMBINED FINANCIAL
INFORMATION FOR GTC AND SMDC
The following discussion of the combined GTC and SMDCs recent financial results should be read in
conjunction with the auditors reports, the selected combined financial information for GTC and
SMDC, and the corresponding notes thereto, contained in this Prospectus and the section entitled
Selected Combined Financial Information for GTC and SMDC.
The combined financial information of GTC and SMDC as of and for the years ended December 31,
2011, 2012 and 2013 was derived from the audited financial statements of GTC and SMDC prepared
in accordance with PFRS and audited by Punongbayan & Araullo.
This discussion contains forward-looking statements and reflects the current views of GTC and SMDC
with respect to future events and financial performance. Actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors such as those set forth in
the section entitled Risk Factors and elsewhere in this Prospectus.

OVERVIEW
GTC and SMDC are wholly-owned subsidiaries of CNPF. GTC is engaged in the
manufacture and export of private label canned, pouched and frozen tuna products for exports
to markets in North America, Europe, Africa and Asia. SMDC is in the dairy and mixes
business, and produces and markets liquid milk products, powdered milk products, coffee mix
and sinigang mix largely for the domestic market.
GTC was incorporated in 1997, and currently operates a 360-metric ton capacity state-of-theart tuna processing facility in General Santos City. GTC is the Philippines largest exporter of
processed tuna products with 34% share of total Philippines tuna exports, based on the
Philippine Bureau of Customs data for full year 2013. With operational strategy targeted
toward product competitiveness and international standards and building strong customer
relationships, GTC has increasingly grown its exports for products like canned tuna, pouched
tuna and vacuum-packed frozen loin products. These tuna products, which are made from
choice premium quality skipjack and yellow fin fish materials, are offered by GTC in various
retail and institutional pack styles with the tuna material processed into flakes, chunks or solid
form using either oil or brine as packing medium. GTC has supply arrangements with leading
global manufacturers including Chicken of the Sea, Bumblebee Foods LLC, Subway, Princes,
Hagoromo, Hoko, California Garden and Rio Mare. GTCs tuna processing facility conforms
to global standards for food production through its accreditations with the International Food
Standard, U.S. Food and Drug Administration, British Retail Consortium, European Union
and Canadian Food Inspection Agency.
SMDC has been in the dairy business since 2001, and through the years, has continually
expanded its product portfolio using the Angel and Birch Tree brands in product segments
such as evaporated milk, condensed milk, full cream milk powder and all-purpose cream. In
2008, SMDC diversified into the coffee mix line through the Kaffe de Oro brand and sinigang
flavoring mixes line through the Home Pride brand. Sustained brand equity, product
innovation, value for money pricing, marketing niching strategy, and distribution investments
have made the SMDC brands own the third largest milk market share in the domestic market
amidst the traditional approach of its competitors. SMDC operates a newly-built canned milk
and cream processing plant with an installed capacity of 11,000 cases per day in Taguig,
Metro Manila.

98

For the years ended December 31, 2011, 2012 and 2013, the respective contributions of GTC
and SMDC to the combined total revenue and net income are as follows:
For the years ended December 31,
(in millions)
2011
Revenue

2012
% of
Total

2013
% of
Total

Revenue

Revenue

% of
Total

GTC

3,470.7

73

3,803.6

69

5,862.7

79

SMDC

1,279.5

27

1,720.4

31

1,548

21

Total

4,750.2

100

5,524.0

100

7,410.7

100

For the years ended December 31,

(in millions)
2011
Net
Income

2012
% of
Total

Net
Income

2013
% of
Total

Net Income

% of
Total

58.2

88

92.1

83

136.5

75

SMDC

8.3

12

19.3

17

45.5

25

Total

66.5

100

111.3

100

182.0

100

GTC

Note: GTCs Statement of Income expressed in US Dollar is translated to Peso using BSPs average USD to Peso
exchange rate for the period.

FACTORS AFFECTING RESULTS OF OPERATIONS

GTCs and SMDCs combined results of operations are affected by a variety of factors. Set
out below is a discussion of the most significant factors that have affected GTCs and
SMDCs combined results in the past and which GTC and SMDC expect to affect its
combined financial results in the future. Factors other than those set out below could also
have a significant impact on GTC and SMDCs combined results of operations and financial
condition in the future. See Risk Factors.
Raw Materials Costs and Product Prices
GTC uses skipjack and yellow fin tuna as main raw materials for production. These fish
materials, which are procured from both local and foreign fish catcher suppliers operating in
the Western Pacific Ocean, are processed into finished products using customized packing
medium ingredient materials such as soya oil, sunflower oil, olive oil, brine and sauces.
Packaging materials include tin cans, pouches, frozen loin PE nylon shrinkable vacuum bags,
and cartons.
SMDCs principal production materials are instant full cream milk powder, skimmed milk
powder, buttermilk powder, non-dairy creamer, vegetable oil, sugar and tin cans. Milk

99

materials are sourced mostly through direct importation from Europe, the United States,
Australia and New Zealand.
As experienced by GTC and SMDC, these materials are subject to price volatility caused by a
number of factors, including changes in global supply and demand, foreign exchange rate
fluctuations, weather conditions and government regulations and controls. In addition, GTCs
and SMDCs ability to obtain raw materials is affected by a number of factors beyond their
control, including natural disasters, governmental laws and policies, and interruptions in
production by suppliers.
Changes in the prices of raw materials have necessarily affected GTCs and SMDCs cost of
sales and managements decision in the pricing of GTC and SMDC products. Changes in
prices have also affected consumer demand, as both GTC and SMDC consumers and
customers are generally price sensitive. For the last three years, 2011 to 2013, GTC and
SMDC have been able to successfully pass on some or all cost increases to their customers
via selling price increases, particularly in product segments where GTC and SMDC have
relatively strong market positions. However, GTC and SMDC believe there is no assurance
that any future increases in cost of sales can always be fully passed on to consumers. As a
result, any material increase in the market price of raw materials could have a material
adverse effect on GTCs and SMDCs operating margins and sales volumes, which may
affect overall financial position and operating performance.
Competition
GTC faces competition from tuna exporters not only from the Philippines but also from other
tuna exporting countries such as Thailand, Indonesia, Ecuador, Spain and Seychelles. Given
the commodity-like nature of tuna products, selling prices and raw material tuna fish cost
generally move in similar patterns. In 2011, 2012 and 2013, tuna fish prices have continually
risen due to declining catches, and, as a result, canned tuna prices have moved on an upward
trend as well, adversely causing a slowdown in consumer demand in major tuna importing
countries. In an increasingly competitive tuna export market, an important element in
maintaining export market share for GTC has been GTCs ability to sustain its strong image
of reliability and consistency in supplying to its customers premium quality tuna products at
competitive prices and building a long lasting customer relationship.
SMDC competes with a number of multi-national, national, regional and local competitors in
the Philippine market. In terms of market share, SMDC is in a market challenger position
against two large multinational dairy companies. The competitive factors generally affecting
SMDCs business include price, product quality and innovation, brand awareness and
customer loyalty, distribution coverage and customer service. A major factor to sustain
business growth for SMDC in 2011, 2012 and 2013 was SMDCs ability to spot and tap
market opportunities amidst changing consumer tastes and preferences. Through a marketing
niching strategy, SMDC has continued the market development of its Kremdensada product,
which is a first-in-the-market 2-in-1 cream product launched in 2010. The 2-in-1 cream
product is a product that combines the goodness of all-purpose cream and condensed milk in
one can and offers its consumers savings in cost, high quality taste and convenience in
preparation.
Seasonality
GTCs and SMDCs sales are affected by seasonality in customer purchase patterns. In the
Philippines, most food products, including those produced by SMDC, experience increased
sales during the Christmas season and summer months as consumers use the milk products for
creaming beverages, desserts, cooking and baking applications. In European export tuna

100

markets, the highest consumption period is the summer months while in North America, tuna
sales are year-round. As a result, seasonality could affect GTC and SMDCs net sales and
operating results and cause them to continue to vary from quarter to quarter during the
operating year.
Introduction of New Products and Marketing Initiatives
GTC and SMDC believe that many consumer food products are impulse and discretionary
purchases, and therefore particularly sensitive to competitive pressures. A key element in
maintaining their market share in the highly competitive markets in which they operate has
been for GTC and SMDC to continuously introduce new products and product extensions.
In years 2011 to 2103, the rising cost of tuna fish material caused canned tuna prices to rise in
a similar pattern, affecting export market demand and creating greater competitive pressures
among tuna exporters. In response to changing market conditions, GTC shifted a portion of its
manufacturing capability into frozen loin production to enter the tuna loin market where there
was growing demand for frozen tuna loins among tuna canneries operating in high-labor cost
countries.
SMDC introduced new products like the KremQueso 370 ml product in 2012, Angel All
Purpose Creamer 370 ml, and Angel Evaporated Liquid Creamer 145 ml in 2013 as part of
its continuing strategy to satisfy consumer needs and preferences, increase product
differentiation, and maximize market shares and plant capacity utilization.
The development and introduction of new products and the use of marketing initiatives can
substantially increase not just the revenue but also operating costs. SMDC believes that these
higher costs are justified by increased sales from new and existing products, although there is
typically a delay between the incurrence of these costs and any such sales; and that it cannot
be assured of when, if ever, these expenditures will result in increased revenues.
Economic, Social and Political Conditions in the Philippines
GTCs and SMDCs business, financial condition, results of operations and prospects are
substantially influenced by economic and political conditions in the Philippines. Sales of most
of GTC and SMDC products are directly related to the strength of the Philippine economy
(including overall growth levels, foreign exchange rates, fuel oil prices, and interest rates) and
tend to decline during economic downturns. Any deterioration in the Philippine economy,
including a significant appreciation in the value of the Peso relative to the U.S. dollar
overseas Filipino worker remittances, may adversely affect consumer sentiment and lead to a
reduction in demand for SMDC products. A significant devaluation or appreciation of the
Peso similarly affects the export demand for GTC products.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are both (i) relevant to the presentation of GTC
and SMDCs combined financial condition and results of operations and (ii) require
managements most difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. As the number of
variables and assumptions affecting the possible future resolution of the uncertainties
increase, those judgments become even more subjective and complex.

101

For information on GTC and SMDCs significant accounting policies and significant
accounting judgments and estimates, see Notes 4 & 5 of the combined audited financial
statements of GTC and SMDC included elsewhere in this Prospectus.
DESCRIPTION OF KEY LINE ITEMS
Sale of Goods
Each of GTC and SMDC derives its net sales from sale of goods to its customers less VAT
and sales returns and allowances. GTC customers consist of importer-brand owners, food
producers and retailers, traders and agents. SMDC customers include modern trade accounts
such as supermarkets, groceries, and convenience stores; general trade accounts such as
company distributors and large wholesalers distributing to sari-sari store and wet market
stores; food service accounts such as hotels, restaurants, caterers, bakeshops, and food
commissaries; and export accounts such as direct importers and exporter-distributors, and
exporter consolidators.
Cost of goods sold
GTCs and SMDCs cost of goods sold consists primarily of cost of goods available for sale
(i.e. inventory at the beginning of the year plus additional stocks from production and
purchases during the year) less inventory at the end of the year. The cost elements comprising
cost of goods sold include raw materials and packaging materials cost plus conversion costs
consisting of direct labor cost, utilities expense, and manufacturing overhead expense.
Operating Expenses (Income)
GTCs and SMDCs operating expenses comprise primarily of salaries and wages and other
staff costs, advertising and promotions cost, freight and other selling expenses, depreciation,
repairs and maintenance expenses, foreign currency losses related to conversion of
transactional to functional currency, and other administrative expenses.
Other Income (Expense)
Other income (expense) consists primarily of interest expense and other financing charges,
investment income, foreign exchange gain (loss), and other miscellaneous income and
expenses.
Income Tax Expense
Income tax expense comprises current income tax expense and deferred income tax expense.
RESULTS OF OPERATIONS
Year ended December 31, 2013 compared to year ended December 31, 2012
Sale of Goods
GTC and SMDC registered a combined net sale of goods of 7,419 million for the year ended
December 31, 2013, an increase of 34% from the 5,524 million recorded for the year ended
December 31, 2012. The principal reasons for this increase were as follows:
GTCs Tuna Export

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Net sales in tuna export business were 5,863 million in fiscal year 2013, representing a 54%
increase from the 3,804 million recorded in fiscal year 2012. This increase in net sales
primarily reflected the effect of higher volumes and higher selling prices in fiscal year 2013,
arising from strong export shipments for tuna products to Europe and parts of Asia. The Peso
depreciation against the U.S. dollar likewise boosted export competitiveness and Peso selling
prices during the year.
SMDCs Dairy and Mixes
Net sales in the dairy and mixes business were 1,5 million in fiscal year 2013, which
represented a 9.5% decrease from the 1,720 million net sales recorded in fiscal year 2012.
This decrease is due to lower sales volume. Fiscal year 2012 had higher than average sales
performance due to export orders from Thailand, whose market supply for evaporated milk
products was operationally disrupted by the flood calamity that hit Bangkok, Thailand. In
2013, this export sales opportunity ended as the Thai milk market supply returned to normal
conditions. Another key factor slowing down sales in 2013 was the short term transitional
effect of changes made in CNPFs sales distributor program. CNPFs distributor program
called for a correction of the distributors excessive trade inventory levels via improvements
in warehouse stock management, and required the distributors to re-channel freed up working
capital resources for use instead in expanding and deepening distribution activities.
Cost of goods sold
GTC and SMDCs combined cost of goods sold increased by 39% to 6,845 million for the
year ended December 31, 2013 from 4,932 million for the year ended December 31, 2012,
primarily due to higher volume and higher costs of raw materials used.
GTCs Tuna Export
The cost of goods sold for the tuna export business amounted to 5,561.1 million for fiscal
year 2013, which represented a 60% increase from cost of goods sold of 3,512 million for
fiscal year 2012. The increase in cost of goods sold principally reflected the higher share of
fish cost to total production cost from 63% in 2012 to 76% in 2013. Share of total materials
cost to total product cost was 84% in 2013 versus 77% in 2012.
SMDCs Dairy and Mixes
The cost of goods sold for the dairy and mixes business amounted to 1,222 million for the
year ended December 31, 2013, which represented a 14% decrease from cost of goods sold of
1,420 million for the year ended December 31, 2012. The decrease in cost of goods sold
primarily reflected the impact of lower purchase prices for key raw materials namely milk
powder, ingredients and packaging materials. Reduction in variable overhead cost cushioned
cost inflation of raw materials. Share of total materials cost to total product cost was 91.8% in
2013 versus 91.2% in 2012.
Gross profit
As a result of the foregoing, the combined GTC and SMDC gross profit decreased by 3% to
574 million for the year ended December 31, 2013 from 592 million for the year ended
December 31, 2012. Of this gross profit for fiscal year 2013, GTC contributed 301.6 million
while SMDC contributed 325.5 million versus 291 million and 301 million, respectively,
in fiscal year 2012.

103

Operating expenses (income)

GTCs and SMDCs combined operating expenses decreased by 1% to 424 million for the
year ended December 31, 2013 from 429 million for the year ended December 31, 2012.
The principal reasons for the decrease are as follows:
GTCs Tuna Export
GTCs operating expenses decreased by 5% to 148 million for the year ended December 31,
2013 from 155 million for the year ended December 31, 2012 largely due to effects of
higher sales volume on freight expenses and selling expenses, which was offset by higher
administrative expenses specifically foreign currency losses in translating transactional to
functional currency, and higher taxes and licenses arising largely from the sale of land
property to Century Canning Corporation.
SMDCs Dairy and Mixes
SMDCs operating expenses increased by 0.4% to 275 million for the year ended December
31, 2013 from 274 million for the year ended December 31, 2012. The subtle increase was
primarily due to lower advertising and promotion expense and lower forwarding and
warehousing expense which were partially offset by increase in trade marketing expenses and
increase in taxes and licenses and management fees relating to the share issuances to Century
Canning Corporation.
Other Income (Expense)
GTC and SMDC had a combined net other income of 73 million in 2013 in its Other Income
(Expense) account. This includes 51 million interest cost, 21 million other revenues from
the rental of GTCs plant facility to Century Canning Corporation, 91 million foreign
currency gains and 9 million of miscellaneous income offset by bank charges and loss on
sale of assets. In 2012, the combined Other Income and expense registered a net other
expense of 7 million. This includes 55 million interest cost, other revenues also from plant
rental amounting 21 million, other revenues from charging of share in storage rental of 25
million, 15.4 million foreign currency transactional gain and a net other miscellaneous
expense of 2 million.
Tax Expense
The combined income tax expense for GTC and SMDC decreased by 2% to 43.6 million for
the year ended December 31, 2013, from 44.4 million for the year ended December 31,
2012, as a result of higher reported operating income from both business segments. GTCs
provision for income tax expense for 2013 given an operating income of 118 million was
28 million, which was lower than 2012s income tax expense of 37 million. The lower
income tax expense in 2013 was due to the higher share of frozen loin products to GTCs total
income which was covered by the income tax holiday incentives granted by the Board of
Investments for frozen loin exports sales. SMDCs provision for income tax in 2013 was 15
million, higher than 2012 income tax expense of 7 million, due to higher reported operating
income.
Net Profit
As a result of the foregoing, SMDCs and GTCs combined net profit after tax increased by
61% to 179 million the year ended December 31, 2013 from 111 million for the year ended

104

December 31, 2012. Of this 2013 combined net income after tax, GTC contributed 138
million while SMDC shared 42 million. This compared with 2012 net income after of 92
million for GTC and 19 million for SMDC.
Year ended December 31, 2012 compared to year ended December 31, 2011
Sale of Goods
GTC and SMDC registered a combined net sale of goods of 5,524 million for fiscal year
2012, an increase of 774 million, or 16%, from the 4,750 million net sales recorded in
fiscal year 2011. Of this increase in net sales, GTC accounted for 333 million while SMDC
accounted for 441 million. The principal reasons for this increase in net sales for GTC and
SMDC were as follows:
GTCs Tuna Export
Net sales in tuna export business were 3,804 million in fiscal year 2012, representing an
increase of 10% from the 3,471 million recorded in fiscal year 2011. This increase in net
sales reflected the higher sales volumes and higher selling prices of tuna products exported.
Fiscal year 2012 marked GTCs move to shift portions of its production capacities toward the
higher value, higher margin products. A further boost to GTCs 2012 net sales was fishmeal
product, which increased its net sales to 254 million from 121 million in 2011 largely due
to improved fishmeal production output.
SMDCs Dairy and Mixes
Net sales in dairy and mixes business were 1,720 million in fiscal year 2012, an increase of
441 million, or 34%, over fiscal year 2011. Two contributing factors to sales growth in 2012
over 2011 were the (1) increased domestic sales of SMDCs newly-launched 2-in-1 creamer
products and evaporated liquid creamer products and (2) export of evaporated milk products
to the Thai market which experienced supply disruptions for the product due to the huge flood
calamity that hit the city of Bangkok.
Cost of goods sold
The combined cost of goods sold for GTC and SMDC totaled 4,932 million in fiscal year
2012, or an increase of 612 million, or 14%, over the 4,320 million recorded in 2011. The
principal reasons for this increase were as follows:
GTCs Tuna Export
GTCs cost of goods sold totaled 3,512 million in fiscal year 2012, representing a 9%
increase from the 3,232 million recorded in fiscal year 2011. Higher sales volume and high
unit production cost per case were key factors to the increase in cost of goods sold. High fish
cost, ingredients materials cost and direct labor cost associated with frozen tuna loin
production were key factors to higher unit cost of sales in 2012.
SMDCs Dairy and Mixes
SMDCs cost of goods sold amounted 1,420 million in fiscal year 2012, or 30%, increase
from the 1,088 million recorded in fiscal year 2011. This increase reflected the cost of sales
effect of higher sales volume as well as the lower product cost in 2012 attributable to lower
purchase prices for milk powder materials.

105

Gross profit
As a result of the foregoing, the combined gross profit for GTC and SMDC was 592 million
for the year ended December 31, 2012, an increase of 162 million, or 38%, from 430
million for the year ended December 31, 2011. Of this gross profit for fiscal year 2012, GTC
contributed 291 million while SMDC contributed 301 million.
Operating expenses
GTCs and SMDCs combined operating expenses increased by 143 million, or 50%, to
429 million for the year ended December 31, 2012 from the 286 million recorded for the
year ended December 31, 2011. Of this increase, GTC accounted for 49 million while
SMDC contributed 94 million. The principal reasons for these increases in operating
expenses of GTC and SMDC are as follows:
GTCs operating expenses for fiscal year 2012 totaled 155 million, a 46% increase from the
106 million recorded for fiscal year 2011. The increase in GTCs operating expenses is
attributed to a 10 million decrease in selling expenses which was fully offset by the foreign
currency loss (from transactional to functional) of 42 million
SMDCs operating expenses for fiscal year 2012 totaled 274 million, a 94 million, or 52%,
increase from the 180 million recorded for fiscal year 2011. The increase in SMDCs
operating expenses is largely due to a 46 million increase in spending on advertising and
promotions and trade marketing activities in order to boost sales revenues and consumer
brand awareness. Contributing as well to higher operating expenses is an increase of 34
million on freight and delivery expenses as a result of servicing higher volume of customer
orders. Fixed administrative expenses in 2012 increased by 2 million as compared to 2011.
Other Expense (Income)
GTCs and SMDCs combined net other expense was 7 million in 2012 consisting of 34
million interest cost, 4 million of bank charges, 15 million of foreign currency loss, and
46 million other revenues from the rental of a portion of GTCs plant facility to Century
Canning Corporation. In 2011, GTC and SMDC had a combined net other expense of 42
million, the composition of which was 26 million interest cost, 37 million foreign currency
loss, 7 million bank charges, 2 million other financing charges, 18 million of rental
revenues and 12 million of miscellaneous income.
Tax Expense
Income tax in 2012 was 44 million, an increase of 9 million from 35 million in 2011. Of
total income tax expense in 2012, GTC accounted for 37 million or an increase of 5 million
from 32 million in 2011. SDMC on the other hand accounted for 7 million of total income
tax expense in 2012, or 3 million higher than 2011.
Net Profit
As a result of the factors discussed above, the combined net profit after tax for GTC and
SMDC was 111 million in 2012, which was 45 million higher than 2011. Of this combined
net profit after tax in 2012, GTC contributed 92 million, or an increase of 34 million from
2011, while SMDC shared 19 million, or an increase of 11 million from 2011.

106

LIQUIDITY AND CAPITAL RESOURCES

For the years ended December 31, 2011, 2012 and 2013, GTCs and SMDCs principal
sources of liquidity were internally generated funds from operations and bank loans which
were sufficient to meet requirements for working capital and additions to property, plant and
equipment. As at December 31, 2011, 2012 and 2013, GTC and SMDC reported combined
cash and cash equivalents of 115.9 million, 127.7 million and 413.7 million, respectively.
Collectively, GTC and SMDC expect that their principal uses of cash for fiscal year 2014 will
be 1,671.0 million for payment of short term loans, 176.0 million for capital expenditures,
and 423.8 million to improve working capital position. Their source of cash will primarily
be operating cash flows and proceeds of the Offer. GTC and SMDC may also from time to
time seek other sources of funding, which may include debt or equity financing, depending on
their financing needs and market conditions.
The following table sets forth selected information from the combined financial information
for GTC and SMDC, particularly, the statements of cash flows for the periods indicated:
For the year ended December 31,
(in millions)
2011
2012
2013
Cash from (used in) operating activities .................
Cash from (used in) investing activities .................
Cash from (used in) financing activities .................
Net increase (decrease) in cash and cash
equivalents ............................................................
Cash and cash equivalents
Beginning of year ..........................................
End of year ....................................................

520.3
(104.0)
(410.3)

283.3
(201.3)

42.2
(183.9)
427.7

6.0

11.8

285.9

109.9
115.9

115.9
127.7

127.7
413.7

(70.2)

Cash Flow
Cash flow from (used in) operating activities
Net cash from operating activities is primarily affected by net cash generated from operations
and changes in net working capital requirements. GTCs and SMDCs combined net cash
from (used in) operating activities were 520.3 million, 283.3 million, and 42.2 million for
the years ended December 31, 2011, 2012, and 2013, respectively.
In 2011, the primary source of cash was 301.7 million from operating cash flows before
working capital changes, 62.8 million from decrease in trade and other receivables, 2.7
million from increase in other non-current assets, and 204.7 million from increase in trade
and other payables. Cash used in operations included 21.6 million for additional inventories,
6.2 million for increase in prepayments to suppliers and other current assets, an addition of
3.9 million from translating operating assets and liabilities, 3.9 million for retirement fund
contributions, and income tax payments of 18.4 million.
In 2012, the primary source of cash was 340.5 million from operating cash flows before
working capital changes plus reduction of 1.4 million in trade and other receivables,
decrease of 2.6 million in other non-current assets, and increase in trade and other payables
of 52.4 million. Cash used in operations also includes 19.2 million for additional

107

inventories, 12 million for increase in prepayments to suppliers and other current assets, a
reduction of 36.9 million from translating operating assets and liabilities, 2.0 million for
retirement fund contributions, and 43.5 million on income tax payments.
In 2013, the primary source of cash was 398.8 million from operating cash flow, 671.7
million from decrease in inventories and a decrease in other non-current assets of 12.8
million. Cash used in operations included 761.2 million for increases in trade and other
receivables (largely GTC export receivables) and 11.6 million from decrease in prepayment
and other current assets. Other operating uses of cash were 257.5 million for reduction of
trade and other payables, an addition of 31.9 million from translating operating assets and
liabilities, 1.8 million for retirement fund contributions, and 64.2 million for income taxes.
Cash flows from (used in) investing activities
Cash flow from (used in) investing activities for the years ended December 31, 2011, 2012
and 2013 were (104 million), (70.2 million) and (183.9 million), respectively. In 2011,
cash flow used in investing activities was primarily due to 109.6 million worth of additions
to property, plant and equipment, mostly in GTC, and 4.6 million proceeds from sales of
property. In 2012, cash flow used in investing activities was 73.3 million for additional plant
and equipment largely for GTCs frozen loin operations and 3.1 million of interest received
from temporary investment and regular cash in bank balances. In 2013, cash flow used in
investing activities was 272.9 million additions to property, plant, and equipment primarily
due to SMDC transfer of plant location, 9.3 million of interest received from temporary
investment and 79.7 million proceeds of sale of property.
Cash flow from (used in) financing activities
Cash flow from (used in) financing activities for the years ended December 31, 2011, 2012
and 2013 were (410.3 million), (201.3 million) and 427.7 million, respectively. In 2011,
cash flow used in financing activities was primarily for repayment of related party payables of
310.7 million, 26.5 million reductions of loan, and 73.1 million for interest payments. In
2012, cash flow used in financing activities consisted of a repayment of 380.5 million for
related party payable, 263.7 million net proceeds, 45.5 million receipt of deposits for future
stock subscription, 75.0 million payment of dividends and 55 million for interest payments.
In 2013, cash flow provided by financing activities consisted of 818.9 million in loans,
263.5 million from proceeds of issuance of shares, 219.7 million used for repayment of
related party payable, 384.0 million for payment of dividends and 51.0 million for interest
payment.
Capital Expenditures
GTCs and SMDCs combined capital expenditures for the years ended December 31, 2011,
2012 and 2013 were 109.6 million, 73.3 million, and 272.9 million, respectively. The
table below sets forth the components of the combined capital expenditures of GTC and
SMDC in 2011, 2012, and 2013, together with their budgeted capital expenditures for 2014.
The discussion involves forward-looking statements. See "Forward-Looking Statements"
beginning on page vi. Additional factors that could cause the Companys actual results,
performance or achievements to differ materially from forward-looking statements include,
but are not limited to, those disclosed under Risk Factors and elsewhere in this Prospectus.

108

For the years ended December 31,

(in millions)
2011
Leasehold, Bldg., Bldg., and Land
14.0
improvements .........................................................
Machineries, equipment, furniture and
68.0
fixtures ..................................................................
Construction in progress ........................................ 27.6

2012

3.0

2014
(budgeted)
64.7

95.2

98.1

171.5

3.2

13.2

272.9

176.0

2013

8.2
37.0
27.6

Other equipment ....................................................

0.0

Total capital expenditures .................................... 109.6

0.4
73.2

GTC accounted the majority of the aforementioned capital expenditures. During the fiscal
years 2011, 2012 and 2013, where its capital expenditures totaled 109.6 million, 76.6
million, and 121.1 million, respectively, GTC upgraded its manufacturing plant in General
Santos City, investing in frozen loin production equipment, steam boiler machinery, and
labelling-casing equipment, to expand and diversify output capacity to meet growing demand
volumes. GTC also invested in a tin can manufacturing plant, also in General Santos City, to
vertically integrate its production requirements for 307 tin cans and lower its tin can cost.
SMDCs capital expenditure in 2013 amounted to 151.8 million, mainly for its relocation
and expansion of its milk and mixes plant facility in Taguig City, Metro Manila.
GTC and SMDC have historically sourced funding for capital expenditures through internally
generated cash from operations.
GTC and SMDC have budgeted 43.3 million and 132.7 million, respectively, or a
combined total of 176.0 million, for capital expenditures for 2014. The planned capital
expenditures for 2014 are essentially a part of the continuing strategic programs to optimize
cost and capacities. GTC and SMDC expect to fund their budgeted capital expenditures
principally through a portion of the proceeds of the Offer.
The figures in GTCs and SMDCs capital expenditure plans are based on managements
estimates and have not been appraised by an independent organization. In addition, GTC and
SMDCs capital expenditure plans are subject to a number of variables depending on the
overall macro-economic and business conditions, identification of potential new projects and
acquisitions, and managements view of GTC and SMDCs liquidity, financial condition and
results of operations. There can be no assurance that GTC and SMDC will execute their
capital expenditures program as planned.

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Contractual Obligations and Commitments

The following table sets forth GTCs and SMDCs combined contractual obligations and
commitments as of December 31, 2013:
Contractual Obligations and Commitments
Principal Payments Due by Period
(in millions)
Total
2014
2015-18
After
2018
Interest-bearing loans and borrowings.....................
2,214.6
2,214.6
Trade and other payables ........................................524.5
525.2
Income tax payable ................................................. 0.7
0.0
Dividends payable .................................................
Advances from related parties ................................240.6
240.6
Other long-term liabilities ....................................... 0
0
2,980.4
Total ......................................................................

2,980.5

The discussion above involves forward-looking statements. See "Forward-Looking

Statements" beginning on page vi. Additional factors that could cause the Companys actual
results, performance or achievements to differ materially from forward-looking statements
include, but are not limited to, those disclosed under Risk Factors and elsewhere in this
Prospectus.
Debt Obligations and Facilities
GTCs and SMDCs combined short-term debt and no long-term debt as of December 31,
2013 was 2,214.6 million. The short-term debt was comprised of revolving 90-day
promissory notes with various commercial banks, namely Bank of Philippine Islands,
Banco de Oro, ANZ Bank, Security Bank & Trust Company, and Metropolitan Bank & Trust
Company. On the other hand, the long-term debt was the remaining portion of a five-year
long term loan facility with the Metropolitan Bank & Trust Co. that fully matures on February
27, 2014.
The following table sets forth GTC and SMDCs combined total indebtedness as of the
periods indicated:
As of December 31,
( millions)
2011
2012
2013
Short-term debt ............................................................................ 1,057.0
1,380.7
2,214.6
Long-term debt ................................................................... ...
75.0
15.0
0.0
1,132.0
1,395.7
2,214.6
Total ...........................................................................................

Collectively, GTC and SMDC intend to repay existing indebtedness of up to 1,671.0

million relating to the short term loans and long term loan which bear interest rates of 2.5%
and 4.5%, respectively, with the proceeds from the Offer.
Off-Balance Sheet Arrangements
As of December 31, 2013, GTC and SMDC did not have any off-balance sheet arrangements.

110

KEY PERFORMANCE INDICATORS

The following are the major performance measures used by GTC and SMDC for 2011, 2012 and 2013.
For the years ended December 31,
2011
2012
2013
Gross Profit Margin (%) ...............................................................
Return on Sales (%) ......................................................................
Debt-to-Equity Ratio (x) ...............................................................
Current Ratio (x) ..........................................................................
Return on Equity (%) ....................................................................

9.1%
1.4%
3.40x
1.08x
7.6%

10.7%
2.0%
2.34x
1.14x
9.9%

7.7%
2.4%
2.38x
1.12x
14.3%

Notes:
1
2
3
4
5

Gross Profit Margin = Gross Profit / Net Sales

Return on Sales = Net Income After Tax / Net Sales
Debt-to-Equity = Total Liabilities /Shareholders Equity
Current Ratio = Current Assets / Current Liabilities
Return on equity = Net Income After Tax / Shareholders Equity

QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISKS

GTC and SMDC are exposed to certain types of market risks in the ordinary course of
business, including commodity price risk, foreign exchange rate risk, interest rate risk, credit
risk and liquidity risk.
Commodity Price Risk
GTCs and SMDCs commodity price risk exposure primarily results from the use of
commodities such as fish and milk as raw materials in their production processes. In
particular, the supply and prices of fish and milk are subject to seasonality changes due to
weather and climate changes, global supply and demand, fishing and environmental
regulatory controls. To reduce commodity price risk, GTC and SMDC typically build up
sufficient inventories of finished products and raw materials to minimize the pressure to
purchase the raw material at increased prices or to avoid market supply disruptions.
Whenever management deems justifiable, GTC and SMDC enter into short term forward
supply arrangements with suppliers to lock in purchase price and supply.
Foreign Exchange Rate Risk
GTCs and SMDCs foreign exchange rate risk arises primarily from the fluctuations in
exchange rate that arise between the Peso and the U.S. dollar. A substantial majority of
GTCs revenues are mainly denominated in U.S. dollars given the export nature of GTCs
business. SMDC on the other hand focuses mainly on the domestic market and, as such,
SMDC revenues are mainly Peso denominated. Certain expenses of GTC and SMDC are
denominated in U.S. dollars, or based on prices determined in U.S. dollars. GTC and SMDC
maintain and prepare their accounting records and financial statements in Pesos, although for
statutory reporting purposes, GTCs financial statements are converted to U.S. dollars. To
mitigate the impact of foreign exchange risk, GTC tries to match its U.S. dollar revenue
inflows with its U.S. dollar expense outflows when possible and appropriate. GTC enters into
a forward contract for each export order to secure the expected profit at time of delivery.
SMDC on the other hand enters into forward contracts for its forward importation purchases
111

when management deems appropriate. See Risk Factors Risks Relating to the Companys
Business CNPF is exposed to foreign exchange risk, Risk Factors Risks Relating to the
Philippines Volatility in the value of the Peso against the U.S. dollar and other currencies
could adversely affect CNPFs business and Exchange Rates.
Credit Risk
GTCs and SMDCs exposure to credit risk primarily relates to their trade and other
receivables. Generally, GTCs and SMDCs maximum credit exposure in the event of
customers and counterparties failure to perform their obligations is the total carrying amount
of the financial asset as shown on the statement of financial position. To minimize their credit
risk, credit exposures to customers are evaluated on an ongoing basis. Customer receivables
and payment habits for all customers are monitored and evaluated to ensure customer
creditworthiness is maintained at all times and the credit limits set is appropriate to the
expected business volumes to be generated. To the huge distributor-customers, bank
guarantees are required for the credit amounts to be extended.
Liquidity Risk
GTC and SMDC are exposed to the possibility that adverse changes in the business
environment or their operations could result in substantially higher working capital
requirements and consequently, a difficulty in financing additional working capital. GTC and
SMDC manage their liquidity risk by monitoring and forecasting their cash position and
maintaining credit lines from financial institutions that exceed projected financing
requirements for working capital.

112

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

OF CNPF (PARENT)
The following discussion of CNPFs recent parent financial results should be read in conjunction with
the auditors reports, selected parent financial information of CNPF, and the corresponding notes
thereto, contained in this Prospectus and the section entitled Selected Parent Financial Information
of CNPF.
The selected parent financial information of the Company as of and for the period from October 25 to
December 31, 2013 was derived from the audited financial statements of the Company prepared in
accordance with PFRS and audited by Navarro Amper & Co.
This discussion contains forward-looking statements and reflects the current views of CNPF with
respect to future events and financial performance. Actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors such as those set forth in
the section entitled Risk Factors and elsewhere in this Prospectus.

FINANCIAL POSITION
Assets
The following table sets out selected components of CNPFs parent assets as of December 31,
2013:
As of
December 31,
2013
(in millions)
Current Assets
Cash .................................................................................................................... ...
Due from related parties ...................................................................................... ...
Input value-added tax - net .................................................................................. ...
Non-current Assets
Investment in subsidiaries.................................................................................... ...
Property, plant and equipment - net ..................................................................... ...
Deferred tax assets .............................................................................................. ...

1,194.6
222.9
5.2

Total Assets ....................................................................................................................

1,488.1

24.3
14.7
26.4

CNPF had total assets of 1,488.1 million as of December 31, 2013 and is primarily
composed of the items discussed in detail below.
Cash amounted to 24.3 million as of December 31, 2013 and comprises 1.6% of total assets.
The primary sources of cash for the period were the issuance of share capital of 1,500.0
million.
Due from related parties amounted to 14.7 million as of December 31, 2013 and comprises
1.0% of total assets. Due from related parties represents outstanding rental income receivables
from related parties including parent company CCC, and fellow subsidiaries CSC and
PMCI. Rental income was derived from the lease agreement entered into with the said related
parties for the rental of CNPFs equipment for two months from November 1, 2013 to
December 31, 2013.

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Input value added tax amounted to 26.4 million as of December 31, 2013 and comprises
1.8% of total assets. Input value added tax (VAT) is presented net of Output VAT of 1.6
million, and consists of Input VAT of 24.9 million arising from acquisition of depreciable
assets in 2013 which will be claimed against Output VAT over five years.
Investment in subsidiaries amounted to 1,194.6 million as of December 31, 2013 and is
comprised of investments in GTC and SMDC. These investments make up 80.3% of total
assets. On October 31, 2013, CNPF acquired from CCC all the rights, title and interest of
CCC in GTC and SMDC.
Property, plant and equipment amounted to 222.9 million as of December 31, 2013 and is
comprised of assets such as office, furniture, machinery, equipment and software,
transportation and delivery equipment that were purchased from related parties including
CCC, PMCI and CCC on October 31, 2013. The assets have useful lives ranging from two to
15 years depending on asset type. Property, plant and equipment comprise 15% of total assets.
Deferred tax assets amounted to 5.2 million as of December 31, 2013 and comprise 0.3% of
total assets. Deferred tax assets represent the tax benefits arising from the CNPFs net
operating loss for the period ended December 31, 2013.
Liabilities and Equity
The following table sets out selected components of CNPFs parent liabilities and equity as of
December 31, 2013:
As of
December 31, 2013
(in millions)
Current Liabilities
Accrued and other payables ................................................................................. ...
Equity
Capital stock........................................................................................................ ...
Deficit ................................................................................................................. ...

1,500.0
(12.0)

Total Liabilities and Equity...........................................................................................

1,488.2

0.2

Accrued and other payables amounted to 0.2 million as of December 31, 2013, and pertain
to supplies and other miscellaneous liabilities. Accrued and other payables comprise 100% of
total liabilities and 0.01% of total liabilities and equity.
Capital stock amounted to 1,500.0 million as of December 31, 2013, which is equivalent to
1,500.0 million shares at a par value of 1.00 per share. Capital stock represents one class of
common shares with voting rights and a right to dividends.
Deficit amounted to 12.0 million as of December 31, 2013 and represents the excess of
organizational expenses over revenue income based on accrual accounting.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2013, CNPFs principal sources of liquidity were from
internal funds from issuance of share capital. As at December 31, 2013, CNPF had cash of
24.3 million. CNPF expects that its principal uses of cash for fiscal year 2014 will be for its
operating assets and liabilities, capital expenditure, dividend payment and investment
requirements. As such, CNPF expects to source its funding needs for the next twelve months

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from its operating cash flows, borrowings, additional share subscription from its parent
company shareholder, and proceeds of the Offer. It may also seek other sources of funding,
which may include debt or equity financings, depending on its financing needs and market
conditions.

115

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF THE CONSOLIDATED FINANCIAL
INFORMATION OF CNPF
The following discussion of CNPFs recent consolidated financial results should be read in
conjunction with the auditors reports, selected consolidated financial information of CNPF,
and the corresponding notes thereto, contained in this Prospectus and the section entitled
Selected Consolidated Financial Information of CNPF.
The selected parent financial information of the Company as of and for the period from
October 25 to December 31, 2013 was derived from the audited financial statements of the
Company prepared in accordance with PFRS and audited by Navarro Amper & Co.
This discussion contains forward-looking statements and reflects the current views of CNPF
with respect to future events and financial performance. Actual results may differ materially
from those anticipated in these forward-looking statements as a result of certain factors such
as those set forth in the section entitled Risk Factors and elsewhere in this Prospectus.
OVERVIEW
CNPF is a wholly-owned subsidiary of Century Canning Corporation. It was incorporated on
October 25, 2013 and organized to own and operate the canned and processed fish, canned
meat, dairy and mixes and tuna export businesses of the Century Group.
On October 31, 2013, CNPF acquired from CCC all rights, title and interest of CCC in GTC
and SMDC. At the same time, CNPF likewise purchased the property, plant and equipment
assets of the canned tuna business of CCC, canned sardines business of CSC, and canned
meat business of PMCI with the purpose of eventually assuming the said business operations
of CCC, CSC and PMCI. On January 1, 2014, CNPF acquired the inventories of CCC and
CSC and canned meat business of PMCI, absorbed the organizational workforce and business
operating systems of CCC, CSC and PMCI, and hereon assumed the operations of the
businesses.
CNPF traces its historical track record of business performance from the Century Group. It
looks back to 1978 when Ricardo S. Po established CCC to venture into the canned tuna
export business, and in the subsequent years, continued to expand and diversify into other
businesses. CCC then entered the canned sardine business in 1983, the domestic canned tuna
business in 1987, the canned meat business under PMCI in 1994, and the dairy and mixes
business under SMDC in 2001. Amidst these growth initiatives, CCC saw the benefits of
strategic business unit focus. Hence, CCC spun off its canned sardine business into a separate
business entity, CSC, in 1994 and similarly, its canned tuna export business into GTC in
1997.
CNPF prides itself with these businesses whose performances are highlighted by strong multibrand and multi-product portfolio, dominant market shares and loyal consumer following,
strong trade distribution infrastructure, and stably growing and profitable operations.
For the period ended October 25, 2013 to December 31, 2013, as CNPF transitioned with its
general corporate re-structuring transaction, CNPFs revenue and net income performance,
representing the consolidated results of operations for its subsidiaries, GTC and SMDC,
including CNPF operations as stand-alone parent company, is as follows:

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For the Period October 25, 2013 to December 31, 2013

(in millions)
Revenue

% of Total

Net Income

% of Total

GTC
SMDC
CNPF

1,044.2
377.4

73%
27%

11.5
2.5
-15.1

1,045%
227%
-1,372%

Total

1,421.6

100%

-1.1

-100%

Note: GTCs Statement of Income expressed in US Dollar is translated to Peso using BSPs
average USD to Peso exchange rate for the period.
FACTORS AFFECTING RESULTS OF OPERATIONS
CNPFs consolidated results of operations are affected by a variety of factors. Set out below
is a discussion of the most significant factors that have affected CNPFs consolidated results
in the past and which CNPF expects to affect its consolidated financial results in the future.
Factors other than those set out below could also have a significant impact on CNPFs
consolidated results of operations and financial condition in the future. See Risk Factors.
Raw Materials Costs and Product Prices

CNPF relies on supply of critical raw materials such as tuna, milk, and tin cans, most of
which are procured from third parties from both within and outside the Philippines. As
experienced, these materials are subject to price volatility caused by a number of factors,
including changes in global supply and demand, foreign exchange rate fluctuations, weather
conditions and government regulations and controls. In addition, CNPFs ability to obtain raw
materials is affected by a number of factors beyond its control, including natural disasters,
governmental laws and policies, and interruptions in production by suppliers.
Changes in the prices of raw materials will necessarily affect CNPFs cost of sales and may
affect the pricing of CNPFs products. Changes in prices may also affect consumer demand,
as CNPFs consumers are generally price sensitive. While CNPF believes it has been able to
successfully pass on price increases historically to its customers, there is no assurance that
any future increases in cost of sales can be fully passed on to consumers. As a result, any
material increase in the market price of raw materials could have a material adverse effect on
CNPFs operating margins, which may affect its financial position and operating
performance.
Economic, Social and Political Conditions in the Philippines

While CNPF has operations outside the Philippines with 79% of its revenues derived from
exports operations for the two month period ending December 31, 2013, all of CNPFs assets
are located in the Philippines. As a result, CNPFs business, financial condition, results of
operations and prospects are substantially influenced by Philippine macro-economic and
political conditions. Although the Philippine economy has experienced stable growth in
recent years, the Philippine economy has in the past experienced periods of slow or negative
growth, high inflation, significant devaluation of the Peso, and has been significantly affected
by economic volatilities in the Asia-Pacific region. Sales of most of CNPFs products are
directly related to the strength of the Philippine economy (including overall growth levels,

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foreign currency exchange rates, and interest rates) and tend to decline or rise during
economic downturns. For example, any significant deterioration in the value of the Peso may
benefit export sales for CNPFs tuna products as Peso deterioration effectively lowers
CNPFs export prices in comparison to competitors from other countries. On the other hand,
however, the Peso deterioration may adversely affect the dairy and mixes business as the cost
of its products imported milk raw material increases with the deterioration of the Peso value
and creates undue pressure on selling prices and margins.
Competition
CNPF faces competition in the Philippines as well as in the other countries in which it
distributes its products. It competes with a number of multi-national, national, regional and
local competitors. Although certain of CNPFs products have significant market shares in the
Philippines and in many cases are market leaders in their respective product categories, CNPF
expects to face increasing competition as it continues to grow its business. Competitive
factors generally affecting CNPFs businesses include price, product quality, brand awareness
and customer loyalty, distribution coverage, customer service and the ability to effectively
respond to shifting consumer tastes and preferences. For a more detailed discussion on
competition, please see Business beginning on page 127 of this Prospectus, and Industry
beginning on page 158 of this Prospectus.
Seasonality
CNPFs sales are affected by seasonality in customer purchase patterns. In the Philippines,
most food products, including those produced by CNPF, experience increased sales during the
Christmas season. As a result, seasonality could affect CNPFs financial condition and results
of operations from one quarter to another, particularly in relation to the fourth quarter of each
year.
Introduction of New Products and Marketing Initiatives
CNPF believes that many consumer food products are impulse and discretionary purchases,
which are particularly sensitive to competitive pressures. A key element in maintaining its
market share in the highly competitive Philippine food market has been for CNPF to
continuously introduce new products and product extensions.
In addition to introducing new products, CNPF has undertaken marketing initiatives using
organized advertising campaigns to differentiate its products and further expand market share.
CNPF devotes significant expenditures to support advertising and branding, including funding
for advertising campaigns, such as television commercials and radio and print advertisements.
CNPFs subsidiary, SMDC, spent 6% of its total revenue for advertising and promotion costs
for the year ended December 31, 2013.
The development and introduction of new products and the use of marketing initiatives can
substantially increase CNPFs operating costs. Although CNPF believes that these higher
costs are justified by increased sales from new and existing products, there is typically a delay
between the incurrence of these costs and any such sales. Furthermore, CNPF cannot be
assured of when, if ever, these expenditures will result in increased revenues.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are both (i) relevant to the presentation of CNPFs
financial condition and results of operations and (ii) require managements most difficult,

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subjective or complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. As the number of variables and assumptions
affecting the possible future resolution of the uncertainties increase, those judgments become
even more subjective and complex.
For information on CNPFs significant accounting policies and significant accounting
judgments and estimates, see Note 6 starting on Page 21 of the consolidated audited financial
statements of included elsewhere in this Prospectus.
DESCRIPTION OF KEY LINE ITEMS

Sale of Goods
CNPFs subsidiary, SMDC, derives its sales from the sale of dairy and mixes products to
domestic customers while GTC derives its sales from exports of canned tuna, pouch tuna and
some frozen loins products to international markets. Such sales of SMDC and GTC are net of
value added tax (VAT) and sales returns and allowances.
Cost of goods sold
CNPFs, GTCs and SMDCs cost of goods sold consists primarily of cost of goods available
for sale (i.e. inventory at the beginning of the year plus additional stocks from production and
purchases during the year) less inventory at the end of the year. The cost elements comprising
cost of goods sold include raw materials and packaging materials cost plus conversion costs.
Conversion costs consist of direct labour cost, utilities expense, and manufacturing overhead
expense.
Operating Expenses
CNPFs, GTCs and SMDCs operating expenses comprise primarily of salaries and wages
and other staff costs, advertising and promotions cost, freight and distribution expenses, other
selling and market expenses, depreciation, repairs and maintenance expenses, and other
administrative expenses.
Other Income (Expense)
Other income (expense) would comprise rental income, interest income, foreign currency
gains (loss), inventory loss, and other miscellaneous income and expenses. Specifically on
rental income, CNPF derived rental revenues from the lease back of property, plant and
equipment to where CNPF acquired the said assets from, that is, its parent CCC and fellow
subsidiaries PMCI and CSC. This lease back arrangement is specifically only for the duration
of the corporate re-structuring period, October 25, 2013 to December 31, 2013. Other income
and expenses are income and expenses generated outside the normal course of business.
Finance Costs
CNPFs finance costs consist of interest expense, bank charges and other financing related
charges.
Income Tax Expense
Income tax expense comprises current income tax expense and deferred income tax expense.

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Trade Receivables
Trade receivables are recorded at fair value plus transaction less provisions for impairment
loss, and are primarily from sales with an average credit term of 30 to 45 days. Impairment
loss is provided when there is objective evidence that the Company will not be able to collect
from specific customers certain amounts due to it in accordance with the original terms of the
receivables. The amount of the impairment loss is determined based on evaluation of
available facts and circumstances, including but not limited to, the length of the Companys
relationship with the customers, the customers current credit status based on known market
forces, average age of the accounts, collection experience and historical loss perspective.
Inventories
Inventories comprise primarily of raw materials, work-in-process goods and finished goods.
These are booked at the lower of cost and net realizable value. Cost is determined using the
first-in, first-out method. Finished goods and work-in process include the cost of raw
materials, direct labour and a proportion of manufacturing overhead based on normal
operating capacity. Raw material costs include all costs attributable to acquisition such as the
purchase price, import duties and other taxes that are not subsequently recoverable from
taxing authorities. Inventories are derecognized when sold or otherwise disposed of.
Trade Payable
Trade payables comprise of obligations to suppliers incurred in the ordinary course of
business. These are recognized at fair value and subsequently measured at amortized cost
during the period when the goods or services are received or rendered.
RESULTS OF OPERATIONS
Sale of Goods
CNPF consolidated sales for the period October 25, 2013 to December 31, 2013 totaled
1,421.6 million. This comprised the combined sales of 1,044.2 million from GTC and
377.4 million from SMDC. GTC sales comprised of 953.9 million export sales of privatelabel tuna and Century branded products purchased from related party parent CCC plus 90.4
million fishmeal sales to the domestic market.. SMDC sales consisted of sales of products
under the Angel, Birch Tree, Home Pride and Kaffe de Oro labels to the domestic market.
Cost of goods sold
CPFIs consolidated cost of goods sold was 1,306.8 million, or 92% of consolidated sales,
for the period October 25 to December 31, 2013. Cost of goods included raw materials cost of
490.4 million, direct labor cost of 39.3 million, factory overhead of 109.0 million, and net
changes in finished goods inventory of 668.1 million. Raw materials consisted of fish, milk,
ingredients and packaging materials.
Gross profit
As a result of the foregoing, CNPF consolidated financial statements showed the consolidated
gross profit of 114.9 million for the period October 25 to December 31, 2013.

120

Other income
CNPF consolidated other income totaled 29.5 million for the period October 25, 2013 to
December 31, 2013. It is comprised largely of rental earnings of 16.6 million which came
from revenues earned from 1) GTCs lease arrangement with CCCs domestic tuna business
for the use of a portion of GTCs tuna production facility in General Santos City and 2)
CNPFs property, plant and equipment lease to fellow subsidiaries, PMCI and CSC. The lease
arrangement which CNPF had with CSC and PMCI was only for the corporate re-structuring
period prior to the full assumption of the canned sardine business of CSC and canned meat
business of PMCI on January 1, 2014. The other components of other income included
foreign currency gain of 6.2 million, interest income of 0.5 million, and other
miscellaneous income of 6.2 million.
Operating Expenses
CNPFs consolidated operating expenses were 136.4 million for the period October 25 to
December 31, 2013. The top five operating expenses, which accounted for 77% of total
consolidated operating expenses, included freight and handling cost at 47.1 million, taxes
and licenses at 21.5 million, management fees at 17.1 million, advertising expenses at
11.8 million, and merchandiser expenses at 8.0 million. The rest of operating expenses
included depreciation, rent, inventory losses, legal and professional fees, salaries and wages,
and various other operating expenses.
Other Expense
CNPFs other expenses totaled 2.2 million largely representing 1.9 million loss on disposal
of land for the period October 25, 2013 to December 31, 2013.
Finance Cost
CNPFs consolidated finance cost amounted to 11.3 million. It consisted of 10.0 million in
interest expense and 1.3 million in bank charges and other finance cost related expenses.
Net Profit
CNPFs consolidated net loss for the period October 25, 2013 to December 31, 2013 was 1.1
million. GTC and SMDC contributed net profits of 11.4 million and 2.5 million,
respectively. These profits from GTC and SMDC were offset by CNPFs net loss of 12.0
million. CNPF recorded a deferred tax benefit of 4.5 million.
FINANCIAL POSITION
Assets
CNPFs consolidated financial statements, net of eliminations, showed total assets of
4,524.9 million as of December 31, 2013. GTC and SMDC accounted for 3,342.1 million
and 889.7 million, respectively, of these total assets while CNPF shared the balance of
293.1 million.
Total consolidated assets were comprised of 3,412.2 million current assets and 1,112.7
million non-current assets. By major asset classification, GTC shared 2,667.5 million in
current assets and 674.6 million in non-current assets while SMDC contributed 679.3
million in current assets and 210.4 million in non-current assets. CNPF had 65.4 million in

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current assets and 227.7 million in non-current assets. CNPFs non-current asset is net of
elimination of investments in subsidiaries and is comprised of property, plant and equipment
assets acquired from the canned tuna business of CCC, canned sardine business of CSC and
canned meat business of PMCI on October 31, 2013.
Ninety percent, or 3,074.1 million, of CNPFs consolidated total current assets as of
December 31, 2013 consisted of 438.0 million cash, 1,034.1 million trade and other
receivables, and 1,602.0 million inventories. The balance of ten percent of is comprised of
receivables from related parties and other current assets.
Ninety three (93%), or 1,036.4 million, of CNPFs total consolidated non-current assets as
of December 31, 2013 is made up of property, plant and equipment assets which is broken
down as follows: 53% plant, machinery and equipment, 21% buildings and building
improvements, 17% construction in progress, and 9% consisting of office furniture, fixtures
and equipment, laboratory tools and equipment and transportation and delivery equipment.
Other non-current assets as of December 31, 2013 would consist of trademarks, deferred tax
assets, and other non-current assets with a total value of 76.2 million.
Liabilities and Equity
Total consolidated liabilities amounted to 2,980.7 million. Its main components were loans
payable of 2,214.6 million, or a 74% share of the total liabilities and trade and other payable
of 524.7 million, or a share of 18%. The balance of 8% of total liabilities were due to related
parties payables and income tax payable amounting 241.4 million.
Total liabilities by business segment reflected GTC accounting for 2,597.8 million, SMDC
for 382.7 million, and parent CNPF for 0.2 million.
Total consolidated equity amounted to 1,544.2 million as of December 31, 2013. This split
up into 1,500.0 million in share capital, 14.3 million in currency translation adjustment,
other reserves of 30.6 million, and deficit of 0.7 million. Share capital is all ordinary
shares. CNPF has a total authorized capital of 6,000,000 ordinary shares at 1 par value.

LIQUIDITY AND CAPITAL RESOURCES

For the period October 25, 2013 to December 31, 2013, CNPFs principal sources of liquidity
were largely cash generated from financing activities and partly cash flow from operating
activities. The table below sets forth the cash movement for period:

For the Period

October 25, 2013 to December 31,
2013 (in million)
Cash from (used in) operating activities

16.2

Cash from (used in) investing activities

-265.7

Cash used for acquisition of subsidiaries

-735.1

Cash from (used in) financing activities

1,422.5

Net increase (decrease) in cash and cash

122

437.9

equivalents
Cash and cash equivalent beginning of year

0.0

Cash and cash equivalent end of year

437.9

Cash from financing activities largely came from the issuance of share capital amounting
1,500 million. Cash was used primarily to acquire the shares of stocks of GTC and SMDC
from CCC valued at 1,194.6 million and to purchase as well the property, plant and
equipment assets of the canned tuna business of CCC, canned sardine business of CSC and
canned meat business of PMCI worth 230.1 million for the purpose of assuming the
operations of the said businesses in January 1, 2014.
Other sources of cash during the period were 22.7 million of operating cash flow (i.e. net
loss plus effect of accrual accounting) and 17.7 million of cash freed up from the reduction
in net working capital. Cash freed up from decreases in inventory, trade receivables, other
current assets and non-current assets totaled 798.8 million but this was partially offset by a
781.1 million decrease in trade payables, related party payables and foreign exchange
effects. Other operating uses of cash were contributions to retirement fund and income tax
paid totalling 24.3 million.
Investing activities included largely the use of cash of 344.9 million for acquisition of
property, plant and equipment, partially offset by 79.7 million of proceeds from the sale of
land by GTC to CCC.
With the foregoing cash movement, CNPFs consolidated cash position at the end of
December 31, 2013 stood at 437.9 million.
Capital Expenditures
The capital expenditures of CNPF for the period October 25, 2013 to December 31, 2013
totaled 344.9 million. Set forth below is the breakdown of capital expenditures for CNPF:
For the Period
October 25, 2013 to December 31,
2013
(in million)
Amount
Building & Building/Land
Improvements
Plant, Machinery & Equipment

% of Total

22.2
199.9

6.4
58.0

Office Furniture, Fixtures & Equipment

Laboratory Tools & Equipment

48.2
10.5

14.0
3.0

Transportation & Delivery Equipment

Construction in Progress

24.5
39.6

7.1
11.5

344.9

100.0

Total Capital Expenditures

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Contractual Obligations and Commitments

The following table sets forth CNPFs consolidated contractual obligations and commitments
as of December 31, 2013:
Contractual Obligations and Commitments
Principal Payments Due by Period
(in millions)
Total
2014
2015After
18
2018
Interest-bearing
loans
borrowings
Trade and other payables
Income tax payable
Dividends payable
Due to related parties
Other long-term liabilities

and

Total

2,214.6
524.7
0.7

2,214.6
524.7
0.7

240.6

240.6

2,980.6

2,980.6

The aforementioned contractual obligations and commitments will all mature in 2014.
The interest-bearing loans and borrowings, totaling 2,214.6 million, consist mostly 60 to 90
days term revolving promissory notes and unsecured borrowings obtained from local banks
with annual interest rates averaging 2.5% to 3.5%. Included in this loan balance is a 15.0
million remaining portion of a five year term loan under GTC which will mature on February
27, 2014. The breakdown of the loan by business segment is GTC at 1,999.6 million and
SMDC at 215.0 million.
Trade and other non-trade payables are generally on a 30 to 90 days term and bear no interest
charges. Due to related parties payables are basically inter-company advances and
transactions considered part of the normal course of business and settled within the year.
CNPF, GTC and SMDC have a combined total available credit lines of least 6,000 million.
These credit lines can be drawn for working capital and capital expenditure needs.
Subsequent events after December 31, 2013 included the acquisition by CNPF of the
inventories of the canned tuna operations of CCC, canned meat business of PMCI and canned
sardine business of CSC on January 1, 2014. Further on February 6, 2014, CNPF received
additional subscription from CCC for 500,000,000 shares at 1 per share or 500 million.
Said subscription was paid on the same date and the shares were issued on February 8, 2014.
CNPF believes that its existing cash and credit lines, together with cash generated from
operations and the proceeds of the Offer, will be sufficient to finance its working capital and
capital expenditure needs for 2014.
Off-Balance Sheet Arrangements
As of December 31, 2013, CNPF did not have any off-balance sheet arrangements.

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KEY PERFORMANCE INDICATORS

The following are the major performance measures used by CNPF for the period October 25
to December 31, 2013.
For the period
October 25 to December 31, 2013
Gross Profit Margin (%) .......................................................
Return on Sales (%) ..............................................................
Debt-to-Equity Ratio (x).......................................................
Current Ratio (x) ..................................................................
Return on Equity (%) ...........................................................

8.1%
0.0%
1.93x
1.14x
0.0%

Notes:
1
2
3
4
5

Gross Profit Margin = Gross Profit / Net Sales

Return on Sales = Net Income After Tax / Net Sales
Debt-to-Equity = Total Liabilities /Shareholders Equity
Current Ratio = Current Assets / Current Liabilities
Return on equity = Net Income After Tax / Shareholders Equity

QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISKS

CNPF is exposed to various types of market risks in the ordinary course of business,
including foreign exchange rate risk, commodity price risk, credit risk and liquidity risk.
Commodity Price Risk
CNPFs commodity price risk exposure primarily results from the use of commodities as raw
materials in its production processes. In particular, the supply and prices of fish are subject to
seasonality and there is limited fish-catching activity from November to March of the
following year. To reduce its exposure to increased fish prices during this time, CNPF
typically builds up sufficient inventories of finished products by October of each year to
minimize the need to purchase fish at increased prices. CNPF currently does not have a
commodity price hedging policy.
Foreign Exchange Rate Risk
CNPFs foreign exchange rate risk arises primarily from the fluctuations in exchange rate that
arise between the Philippine Peso and the U.S. dollar. The substantial majority of CNPFs
revenues are denominated in Pesos, while certain of its expenses, particularly its raw material
costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars. In
addition, CNPF is exposed to foreign exchange risk through its export of private label tuna
and its branded products. To hedge its exposure to exchange rate fluctuations, CNPF enters
into a forward contract for each export order to secure the expected profit at time of delivery.
See Risk Factors Risks Relating to the Companys Business CNPF is exposed to foreign
exchange risk, Risk Factors Risks Relating to the Philippines Volatility in the value of
the Peso against the U.S. dollar and other currencies could adversely affect CNPFs
business and Exchange Rates.

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Credit Risk
CNPFs exposure to credit risk relates primarily to its trade and other receivables. Generally,
CNPFs maximum credit exposure in the event of customers and counterparties failure to
perform their obligations is the total carrying amount of the financial asset as shown on the
statement of financial position. To minimize its credit risk, CNPF ensure it transacts only with
creditworthy customers. CNPF continuously monitors and evaluates customer credit,
receivables and payment habits for all major customers to mitigate credit risk..
Liquidity Risk
CNPF is exposed to the possibility that adverse changes in the business environment or its
operations could result in substantially higher working capital requirements and consequently,
a difficulty in financing additional working capital. CNPF manages its liquidity risk by
monitoring its cash position and maintaining credit lines from financial institutions that
exceed projected financing requirements for working capital.

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BUSINESS
OVERVIEW
CNPF traces its history to the Century Group, a leading branded food company primarily
engaged in the development, processing, marketing and distribution of processed fish and
meat, as well as processed dairy products in the Philippines.
With the Century Groups operating history spanning the last 35 years, CNPF has established
a strong brand and product portfolio through, and supported by, continuous product
innovation and acquisition of brands from third parties. Its brands are well-recognized in the
Philippines and include 555 for sardines, Century Tuna and 555 for tuna, Argentina and Swift
for canned meats and Angel and Birch Tree for canned and powdered milk. CNPF was the
largest producer of canned foods in the Philippines in terms of retail value according to
Euromonitor data for February 2013.
The quality of CNPFs products has been recognized by numerous consumer and industry
association awards. For example, Century Tuna received the Trusted Brand Award from
Readers Digest in 2011, 2012 and 2013 and Argentina Corned Beef received the same award
in 2012 and 2013. As of December 31, 2013, CNPF offered 283 products which can be found
in 3,772 modern retail outlets, approximately 225,168 directly served general trade outlets
and 330,749 indirectly served points of sale, totaling over 559,689 points of sale throughout
the Philippines.
CNPF operates five production facilities and distributes its products through 14 distribution
centers strategically located across the Philippines. CNPF distributes its products directly to
retailers, as well as through third-party distributors. As at December 31, 2013, CNPF
maintained 200 manufacturer direct-to-retail accounts reaching 3,772 retail outlets in the
Philippines. In addition, as at December 31, 2013, CNPF held distribution agreements with 39
distributors, reaching approximately 225,168 retail outlets ranging from supermarkets to sarisari stores. Furthermore, as of December 31, 2013, CNPF exports both private label and
branded products which are distributed across North America, Europe, Asia, Australia, and
the Middle East.
For the years ended December 31, 2013, CNPFs net revenue was 19,023 million. CNPFs
net profit for the same periods was 743.9 million.
Business Segments
CNPFs business operations are divided into four main business segments: canned and
processed fish, canned meat, dairy and mixes and tuna export.
The canned and processed fish segment produces a variety of tuna, sardine and other fish and
seafood-based products. CNPFs key brands in the canned and processed fish segment include
Century Tuna, 555, Blue Bay and Fresca.
The canned meat segment produces corned beef, meatloaf and a variety of other meat-based
products. Key brands in this segment include Argentina, Wow and Swift.
The dairy and mixes segment primarily comprises canned milk, powdered milk and other
dairy products, as well as coffee mixes and sinigang mix. Key brands include Angel, Birch
Tree, Kaffe de Oro and Home Pride.

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CNPF also produces private label canned, pouched and frozen tuna products for export to
major overseas markets including North America, Europe, Asia, Australia, and the Middle
East. In addition, CNPFs branded products are also exported to overseas markets and are
distributed across North America, Europe, Asia, Australia, and the Middle East. For the years
ended December 31, 2013, the contribution of each business segment to CNPFs total revenue
is as follows:
Year ended December 31, 2013
(in millions)
% of
Net
% of
Revenue
Total
Income
Total
Canned and Processed Fish

7,014

36.9

137

18.4

Canned Meat

4,598

24.2

360

48.4

Dairy and Mixes

1,548

8.1

45

6.0

Tuna Export

5,863

30.8

210

28.2

(8)

(1)

744

100.0

Other Segment Income (CNPF)

Total

19,023

100.0

The abovementioned revenue and net income were derived from the historical audited
separate financial statements of the Company, GTC, SMDC, CCC, PMCI and CSC then
adjusted to give the pro forma effect of the consolidation of the businesses of the said
companies as shown in the table below:
Year ended
December 31,
2013 (in
millions)

Acquisitions
CNPF

GTC

SMDC

CSC

PMCI

CCC

Total before
Pro Forma
Adjustments

Net sales

5,863

1,556

1,633

5,063

5,505

19,620

(597)

19,023

Cost of Sales

5,623

1,222

1,420

3,932

4,071

16,269

(572)

15,697

Gross profit
Other Income
Operating
profit
Operating
expenses
Finance cost
Other
Expense
Profit (loss)
before tax
Income tax
expense
Profit after
tax

Pro forma
Adjustments

Pro forma
Consolidated

240

334

213

1,130

1,434

3,351

(25)

3,326

13

127

35

24

859

1,058

(882)

176

13

367

334

248

1,154

2,293

4,409

(907)

3,502

30

148

275

160

763

1,366

2,743

(328)

2,415

49

25

52

131

(19)

112

14

14

(17)

166

57

78

363

875

1,521

(561)

960

(5)

28

15

25

105

48

217

(1)

216

(12)

138

42

52

257

827

1,304

(560)

744

Pro forma adjustments were made to the December 31, 2013 historical consolidated financial
information of the Company and its subsidiaries (GTC and SMDC), and the acquired
businesses (CSC, PMCI, CCC) which include the following:

Consolidation of the Company and its subsidiaries (GTC and SMDC) and elimination of
investment and equity amounting to 1.137 million.

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Recognition of identified assets and liabilities of CCC, CSC and PMCI and the related
operations as well as the accumulated earnings as of December 31, 2013. The difference
between the balance of the assets acquired and liabilities assumed was recognized in
retained earnings.

Elimination of frozen processed meat business from PMCI.

Elimination of intercompany and inter-business transactions and account balances.

Elimination of cash dividends from GTC and SMDC amounting to 382 million and gain
from the sale of shares of stocks of GTC and SMDC between CCC and the Company

Recognition of rental expense in relation to the land and office spaces that were not sold
to the Company and elimination of depreciation related to aforementioned assets.

Re-computation of income tax to include the effects of the pro forma adjustments.

CCC and CSC (Canned and Processed Fish). Net sales from the canned and processed fish
business segment totaled 7,013.8 million, or 37% of total CNPF sales, for the year ended
December 31, 2013. Of these sales, canned tuna and milkfish contributed 5,380.8 million
while canned sardine accounted for 1,633.0 million. Gross profit for the segment totaled
1,659.2 million, or a gross profit rate of 24%. This gross profit consisted of 1,383.4 million
from canned tuna and milkfish and 275.8 million for canned sardine. Net income for the
segment totaled 136.5 million, or an equivalent segment return on sales of 3%. Of this
segment net income, (24.8) million was shared by canned tuna and milkfish while 161.4
million was from canned sardine.
GTC (Tuna Export). Net sales from the tuna export business segment totaled 5,862.7
million. This represented 31% of total CNPF sales and comprised sales of canned tuna,
pouched tuna and frozen loins to the private-label export market. Gross profit was 301.6
million, or a segment gross profit rate of 5%. Net income totaled 209.6 million for a segment
return on sales of 4%.
PMCI (Canned Meat). Net sales from the canned meat business were 4,598.6 million for the
year ended December 31, 2013, which represented 24% share of the total CNPF sales. Net
sales included sales to the modern trade accounts, general trade accounts, food service
accounts and export accounts for canned products including corned beef, meat loaves, readyto-eat viands. Gross profit for canned meat was 1,040 million, or a segment gross profit rate
of 23%. Net income for canned meat totaled 360.1 million, or a return on sales of 8%.
SMDC (Dairy and Mixes). Net sales from the dairy and mixes business was 1,548 million
for the year ended December 31, 2013, which represents 8% share of the total CPF sales. Net
sales includes sales of evaporated milk, condensed milk, creamers, full cream powdered milk,
flavour mixes and 3-in-1 coffee products. Gross profit for the segment amounted to 325.5
million for an equivalent gross profit rate of 21%. Net income totaled 45.4 million, or a 3%
return on sales ratio.
HISTORY AND CORPORATE STRUCTURE
CNPF was incorporated on October 25, 2013 to own and operate the canned and processed
fish, canned meat, dairy and mixes and tuna export businesses of the Century Group. The
history of these businesses and CNPFs recent corporate restructuring is described below.

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Corporate History
Richard S. Po, the founder of the Century Group, started a canned tuna export business
through the establishment of CCC in 1978. By 1983, CCC had become the leading canned
tuna exporter in the Philippines. That same year, the Century Group entered the canned
sardine business with the launch of 555 Sardines. In 1986, the Century Group launched
Century Tuna, developing the canned tuna market in the Philippines. The Century Group then
entered the canned meat industry with the launch of Argentina Corned Beef in 1995 and
Argentina Beef Loaf in 1996. The Century Group continued to expand its product offerings
with the acquisition of Blue Bay in 2001. The Century Group entered the milk business with
the launch of Angel in 2002 and the acquisition of Birch Tree in 2003. The Century Group has
continued to diversify its product and brand portfolio, with the acquisition of the Home Pride
and Kaffe de Oro brands in 2008, launch of Angel coffee creamer in 2009, launch of Angel
Kremdensada and Wow in 2010 and the acquisition of the Swift brand and related assets in
2012.
Corporate Restructuring
CNPF traces its history from the Century Group, a leading branded food company primarily
engaged in the development, processing, marketing and distribution of processed fish and
meat, as well as processed dairy products in the Philippines.
In October 2013, the Century Group began to undertake a general corporate reorganization
transaction. Prior to the corporate restructuring, the companys businesses were operated by
different companies:
Seafood

Century Canning Corporation (CCC) incorporated on December 12, 1978 handled the
Groups sales and distribution for canned and processed tuna, sardines and bangus. Products
are marketed under 555 for sardines, Century Tuna and 555 for tuna. Columbus Seafood
Corporation (CSC), incorporated on December 20, 1994, operated the manufacturing plant
for the sardines. General Tuna Corporation (GTC), incorporated on March 10, 1997,
operated the tuna processing both for local and export sales.
Meat

The Pacific Meat Company, Inc. (PMCI), incorporated on June 28, 1994, manufactured
canned and frozen processed meat under the brand names Argentina, Swift and 555.
Dairy

Snow Mountain Dairy Corporation (SMDC), incorporated on February 14, 2001, handles
the dairy and sinigang mixes under the brands of Birch Tree, Angel, Home Pride and Kaffe de
Oro.
In order to streamline and rationalize the Groups operations, the business operations of CCC,
CSC and PMCI were folded into CNPF, the listing vehicle. The business operations of CCC
and CSC were folded into CNPF under the canned and processed fish segment. The canned
meat business operations of PMCI were folded into CNPF under the canned meat segment.
SMDC, handling the dairy and mixes segment, and GTC, handling the private label canned,
pouched and frozen tuna products for export, were retained as separate corporate entities as

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wholly-owned subsidiaries of CNPF.As a result, the pro forma financial statements of CNPF
are a product of the combination of the businesses of CCC, PMCI, CSC, GTC and SMDC.
On October 31, 2013, CNPF acquired all of the outstanding shares of GTC and SMDC, as
well as certain fixed assets of CCC, PMCI and CSC. All applicable taxes relating to the
transfer of assets and shares of GTC and SMDC have been paid and the Company is currently
awaiting BIR issuance of the Certificate Authorizing Registration for the purchase of the
shares. A number of additional transactions are being undertaken as part of the restructuring
plan, including the following:

CNPF entered into separate agreements with each of CCC, PMCI and CSC to effect
the transfer of employees associated with the business segments being restructured.
Pursuant to such agreements, CNPF assumed the obligations of CCC, PMCI and CSC
with respect to retirement and other benefits which have accrued to the employees
based on their seniority or years of service. The employees were transferred to CNPF
with effect from January 1, 2014.

CNPF entered into an inventory purchase agreement pursuant to which CNPF

acquired the inventories of CCC, PMCI and CSC as at December 31, 2013.

Certain permits and licenses, which have been granted by the Philippine FDA
(formerly the Bureau of Food and Drug) to CCC, PMCI and CSC and which are
relevant to the business segments being restructured, are being transferred or assigned
to CNPF in accordance with Philippine FDA regulations.

Certain material contracts, including contracts for the supply of raw materials, are
being assigned or novated by CCC, PMCI or CSC, as applicable, to CNPF. For
suppliers who do not have formal supply contracts with CCC, PMCI or CSC, a notice
was sent informing all such suppliers that with effect from January 1, 2014, CNPF
will take over the operation of the various business segments being restructured.

CNPF entered into licensing agreements with certain companies owned and
controlled by the Po family for the use of certain trademarks and brand names which
are currently licensed to CCC, PMCI and CSC. See Intellectual Property below for
further details.

As of the date of this Prospectus, apart from securing issuance of some of the above permits
and licenses, all material transactions relative to the corporate reorganizing have been
completed.
As a result of the foregoing corporate restructuring, CNPF now has two subsidiaries; namely,
SMDC and GTC. SMDC was incorporated on February 14, 2001 to engage in the business of
manufacture, sale and distribution of all kinds of milk and dairy products, fruits and vegetable
juices and other milk or dairy preparations, among others. On the other hand, GTC was
incorporated on March 10, 1997 to engage in the business of trading, manufacturing,
preserving, processing, canning, packing, importing and exporting all kinds of food and food
products, including fish, seafood, and other marine products. SMDC and GTC are each
currently capitalized at 500,000,000.
As a newly incorporated company, CNPF will also be relying on the track record of its wholly
owned subsidiaries, GTC and SMDC. In this respect, both GTC and SMDC, satisfy the
requirements of the PSE Revised Listing Rules i.e., that such subsidiary (i) must have a
cumulative consolidated earnings before interest, taxes, depreciation, and amortization

131

(EBITDA), excluding non-recurring items, of at least 50 million for three full fiscal years
immediately preceding the application for listing, (ii) a minimum EBITDA of 10 million for
each of the three fiscal years, and (iii) must further be engaged in materially the same
businesses and must have a proven track record of management throughout the last three
years prior to the filing of the application. With SMDCs EBITDA of approximately 26
million, 38 million and 38 million for 2011, 2012 and 2013, respectively and GTCs
EBITDA of approximately 268 million, 299 million and 355 million for 2011, 2012 and
2013, respectively, CNPFs subsidiaries are in full compliance with the financial
requirements. Moreover, GTC and SMDC have been in existence since 1997 and 2001
respectively and have had a proven track record of management since then. The PSE Revised
Listing Rules prohibit CNPF from divesting its shareholdings in GTC and SMDC for a period
of three years from the date the Offer Shares are listed on the PSE; provided that the
prohibition shall not apply if the divestment is approved by a majority of CNPFs
shareholders.
The corporate reorganization has brought about operational and administrative efficiencies,
such as reduction in administrative overhead and headcount reduction.
CNPF and its subsidiaries, GTC and SMDC, have not been subject to: (i) any bankruptcy,
receivership or similar proceedings or (ii) ay material reclassification, merger, consolidation
or purchase or sale of a significant amount of assets.
The following chart provides an overview of the relevant business segments of the Century
Group prior to the completion of corporate restructuring:

132

The chart below provides an overview of CNPFs corporate structure including its major
operating subsidiaries as at December 31, 2013, after the corporate restructuring:

COMPETITIVE STRENGTHS
CNPF believes its principal competitive strengths comprise the following:
Established market leadership positions with iconic, well-recognized and trusted brands
The Company is the largest producer of canned foods in the Philippines in terms of retail
value according to Euromonitor data for February 2013. In addition, the Companys brands
have established market-leading positions within each of their respective segments. For
example, based on data from AC Nielsen, in 2012, the Company was the market leader in the
Philippines in domestic canned tuna, with a market share of 87% by sales. In addition, based
on AC Nielsen data as of August 2013, the Company was the market leader in corned beef
with a market share of 42.5% by sales and the market leader in meat loaf with a market share
of 25.6% by sales.
Several of the Companys brands have a long heritage and are well-recognized and trusted
brands in the Philippines. The Company believes that customers associate its brands with
health and quality. Such brands include Century Tuna which was launched in 1986, Argentina
Corned Beef which was launched in 1995 and Angel which was launched in 2002. The
Company has also grown its brand portfolio through brand acquisitions, including the
acquisition of Blue Bay in 2001, Birch Tree in 2003, Kaffe de Oro and Home Pride in 2008
and Swift in 2012. As a result of the heritage and strength of the Companys brands as well as
their high standards of quality, the Company has won a number of industry, consumer and
marketing awards including the Agora Awards Marketing Company of the Year Award for

133

Century Canning Corporation (2011) and the Trusted Brand Award by Readers Digest for
Century Tuna (2011, 2012 and 2013) and Argentina Corned Beef (2012 and 2013).
The Company continues to enhance brand recognition among consumers by consistently
maintaining high product quality, as well as through active and targeted marketing and
promotional campaigns such as using well-recognized celebrities to endorse its products. The
Company believes that its well-recognized brands have allowed it to develop strong customer
loyalty resulting in repeat purchases that provide it with greater pricing power relative to its
competitors.
Furthermore, the Company believes that the established reputations and market-leading
positions of its brands provide a strong platform to maintain and grow its market shares
through new products, product line extensions and expansion of its distribution networks.
Multi-category, multi-brand product portfolio catering to different customer tastes and
price points
The Company has a diverse product portfolio with multiple product lines across fish, meats
and dairy. As of December 31, 2013, the Company had a portfolio comprising 128 SKUs for
tuna products, 101 SKUs for canned meat products, 25 SKUs for sardine products and 29
SKUs for dairy and mixes products. The Company produces numerous product variants to
cater to different customer tastes. For example, the Company produces chicken, pork and
tuna-based vienna sausages to capture the full range of consumer preferences for this product.
In addition, the Company packages its products in different sizes to target different customer
price points. This diverse product portfolio allows it to capture a larger share of the
consumers' wallets and provides broader avenues for future growth, both within and across its
key product categories. In addition, this also reduces its dependence on any single product
category or brand, and makes the Company more resilient to changes in the competitive
landscape or price fluctuations in raw material that may impact one product category more
than another.
In addition, leveraging on the Company's strong reputation and recognition for product
quality, the Company has also developed a multi-brand strategy within each product segment
that allows it to broaden its reach to customers more easily than its competitors. Within each
of its product segments, the Company offers a wide portfolio of brands and products to meet a
diverse range of consumer tastes, preferences and price points allowing for a comprehensive
coverage of the Filipino consumer market. For example, in the canned tuna segment, the
Century Tuna brand targets the up-market canned tuna consumer whereas the 555 Tuna brand
is aimed at the budget or cost-conscious canned tuna consumer. This allows the Company to
broaden its customer base and capture the benefits from growth in disposable income from a
larger proportion of the population. In addition, this segmentation allows the Company to
target consumers in different regions with different demographics with the right brand, as
well as react quickly and opportunistically to changes in consumer preferences and to act
defensively against any action by competitors.
The Companys diverse product portfolio also provides marketing and product synergies
across segments. For example, product recipes and formulations achieved through internal
research and development are shared across product segments. In addition, international best
practices implemented in the tuna export segment are shared across the Companys various
production lines, improving production processes and enhancing product quality.

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Strong track record of product innovation and successful introduction of new products
Product innovation and development has been an important element in the Companys
business strategy and has been crucial to the Companys success. The Company has
demonstrated strong innovative capabilities as shown by its consistent track record of
launching new products to address changing consumer needs and preferences. For example,
the Company differentiates its products from plain canned tuna/meat by developing new
flavors and dishes that are designed and packaged as ready-to-eat meals. In particular, the
Companys ready-to-eat dishes use tuna as the main ingredient in traditionally beef, pork and
chicken-based dishes such as kaldereta, adobo and afritada to increase consumers acceptance
of the product while providing consumers with a healthier alternative. In the dairy segment,
the Company has successfully introduced two-in-one products such as Angel Kremdensada (a
combination of all-purpose cream and condensed milk) and Angel KremQueso (a combination
of all-purpose cream and cheese) to provide convenient and cost-effective options for
consumers. In addition to innovative products, the Company has noticed a shift in preference
from canned products to flexible packaging or products sealed in pouches. In response, the
Company has started to produce pouched tuna products.
Furthermore, the Company has a strong ability to bring its products to market using
innovative marketing strategies. The Companys marketing campaigns are jointly developed
between its highly experienced in-house marketing team and independent creative agencies.
The Company employs the use of celebrity endorsements in its marketing strategies to link
each product to the intended branding message. Over the years the Company has launched
numerous successful marketing campaigns, including a focused marketing campaign for
Argentina Corned Beef, which became the leading brand in its segment. The Company views
its ability to market its products as a critical success factor and invests heavily in advertising
and endorsements. The Companys ability to develop new products and successfully bring
them to market allows the Company to further segment each product category and tailor it to
consumers tastes and preferences, preventing product commoditization.
Extensive market penetration through multi-channel distribution network
The Company operates and manages one of the most extensive distribution networks across
the Philippines, with its products available in every major city, creating a significant
competitive advantage. The Company has developed strong relationships directly with
retailers, including modern and general trade stores, as well as through third-party
distributors. Approximately 58% of the Companys distribution is through modern trade and
approximately 42% is through general trade. As of December 31, 2013, the Companys
modern trade coverage holds 200 direct accounts and 3,772 outlets, comprising national retail
chains with outlets across the Philippines, such as Robinsons Supermarkets, SM
Supermarkets, Metro department stores, Puregold and 7-Eleven, as well as regional retailers.
The Companys general trade coverage has grown significantly from approximately 70,000
outlets in 2010 to approximately 225,168 outlets including sari-sari stores, wet markets,
wholesalers and regional supermarkets in 2013. The Company operates 14 distribution
centers, allowing the Company to respond quickly to changes in customer demand.
In addition, the Company employs its own sales and distribution force consisting of
approximately 159 personnel, including sales administration and support functions, starting
from January 1, 2014 upon completion of the corporate restructuring. The Company believes
that employing a majority of its sales force in-house has resulted in a relatively higher level of
motivation and incentivization among its employees that has contributed to the strong growth
in the sales of the Companys products. This arrangement also enables the Company to work
closely with its customers and develop strong relationships with them. The Company

135

continually seeks ways to expand the reach of its distribution network, especially in the
Mindanao and Visayas regions. The Company believes that its multi-channel distribution
network and its strong relationships with customers has allowed it to maximize customer
reach and has been one of the key factors to its success in building and developing its marketleading positions.
CNPFs extensive distribution network is supported by its strategically located production
facilities. The Companys tuna processing facility is located in General Santos, Mindanao,
which is the heart of the Philippine tuna industry as it is geographically adjacent to two large
tuna fishing grounds, the Western Pacific Ocean and the waters between Southern Philippines
and Indonesia. In addition, one of the Companys sardine processing facilities, with an
installed capacity of 200 MT per day as of December 31, 2013, is located in Zamboanga,
which is the center of the Philippine sardine industry. The proximity to the source of supply
ensures the availability of fresh fish, a critical element in maintaining a high quality product
and lowering the Companys logistics costs. The Companys meat processing plant and milk
and mixes plant, located in Laguna and Taguig, respectively, are also strategically located
close to major markets, which reduces the cost of transporting products to customers.
Highly scalable export business that supplies processed tuna to leading international
companies and distributes branded products to high growth markets
The Companys export business, comprising private label processed tuna as well as branded
products, is complementary to its domestic business as it helps increase scale and reduce
costs, increasing the Companys competitiveness. An additional benefit of the scalability of
the export business is that it allows the export business to focus on quality and achieve higher
margins.
The Company has developed a reputation in the international food manufacturing community
as a reliable and trusted partner. It has supplied some of the largest food manufacturers
globally, including Chicken of the Sea, Bumblebee Foods LLC, Subway, Princes, Rio Mare,
Hagoromo, Hoko and California Garden. The Company is constantly looking to enter into
additional agreements with potential partners. The Company believes that supplying leading
global food manufacturers in some of the most stringently regulated markets in the world
represents an endorsement of the quality of the Companys products.
The Companys export business operates an efficient and competitive business model with
growing revenue and profitability due to penetration of new markets and signing of new copartners. The Company currently supplies to brands and retailers in five continents and covers
major markets including North America, Europe, Asia and Australia, and the Middle East,
broken down as follows:
2013
North America

2012
% of total exports

2011

7%

12%

38%

Europe

44%

16%

16%

Asia and Australia

49%

67%

40%

0%

5%

6%

Middle East

136

The Company was the leading Philippine exporter of canned tuna and frozen tuna loin
products for the year ended December 31, 2013, with a market share of 34% according to data
from the Philippine Bureau of Customs.
The Company also distributes its branded products internationally, particularly to China and
Vietnam, through its affiliates. Century International (China) Company Limited and Century
Shanghai Trading Company, joint ventures between the Company and Thai Union
Manufacturing Company, Ltd., as well as Century Pacific Vietnam Company, a wholly
owned subsidiary of CCC, have headquarters in Beijing, Shanghai, and Vietnam,
respectively. These offices distribute the Companys branded products to major cities in the
region. The Companys products are carried by retailers such as Carrefour, Walmart, Tesco
Hymall, Metro and Auchan, among others. As of December 31, 2013, the Companys private
label and branded products are distributed across North America, Europe, Asia, Australia, and
the Middle East.
Experienced and dedicated management team
The Company is led by an experienced and dedicated management team with a proven track
record of success. Members of the senior management team have an average of over 25 years
of industry experience, including experience working in large, multinational corporations in
the food industry. The management team is well accustomed to the Philippine operating
environment and has effectively managed the Company both in times of strong economic
growth as well as through periods of economic downturn and political instability. The
strength and depth of the experience of the Companys management team have been
demonstrated by their successful implementation of a range of efficiency programs and
product innovations, which has resulted in continued profitability and market leadership for
the Company over the years. In addition, management team has a proven track record of
turning previously under-promoted and neglected brands, such as Birch Tree and Blue Bay,
into successful brands by applying the Companys strategies, such as proper branding and
national distribution coverage.
The Company believes that the members of its management team are highly regarded in the
industry, and they hold a variety of leadership positions in food industry organizations, such
as the Sardine Association of the Philippines, the Philippine Association of Meat Processors
Inc., the Tuna Canners Association of the Philippines. The management teams industry
leadership positions also create a valuable local business network for the Company.
BUSINESS STRATEGIES
The Company seeks to strengthen its leading market position in the Philippines and expand its
business operations by implementing the following business strategies:
Actively develop and manage product and brand portfolios to target different price
points and respond to emerging market trends
The Company has a history of driving growth through new and innovative products,
capitalizing on emerging market trends and introducing extensions of successful product
lines. The Company will continue growing its existing product categories and deliver
innovative products under trusted brands and the Company is committed to developing and
expanding its product categories to meet evolving consumer tastes and preferences. In
addition, the Company will continue to market different brands to target different consumer
price points. For example, the Company believes that there are growth opportunities in the

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canned meat market and plans to target the premium segment through the development of the
Swift brand.
The Company also intends to continuously review its product offerings to rationalize
unprofitable products from its portfolio. To enhance the stability of its revenue stream and
profit margins, the Company plans to increase the percentage of sales of products that have
performed well and which the Company believes will continue to do so. For example, as
Philippine consumers have become more health conscious, the Companys marketing strategy
has evolved to highlight the health benefits of Century Tuna and to present the Companys
ready-to-eat tuna viands as healthier alternatives to traditional beef, pork and chicken-based
dishes. The Company has also noticed a shift in consumer preference from canned products to
products in sealed pouches or flexible packaging. The Company has pre-empted this shift in
preference and has developed the capability to produce pouched products. The Company
intends to increase its product offerings in pouched or flexible packaging, which the
Company believes will develop new product segments and further penetrate the ready-to-eat
meal segment.
In addition, the Company is ranked second in the Philippine condensed/evaporated milk
market and third in the Philippine all-purpose cream segment, according to AC Nielsen. The
Company views the dairy market as a strong growth opportunity and has developed various
initiatives to grow its dairy business. For example, the Company has responded to changing
consumer preferences and plans to develop ready-to-drink products. The Company also plans
to continue aggressively promoting the Angel and Birch Tree brands through marketing
campaigns within the next two years. In particular, the Company plans to grow the Angel
brand through improved formulations, smaller packaging sizes for more budget-conscious
consumers and achieving a market leading position in the two-in-one product platform for
canned milk and cream. For the Birch Tree brand, the Company intends to expand into adult
and childrens milk segments through powdered milk, flavored milk drinks and other product
formats.
Expand distribution network to capitalize on growing retail segments and target
customers in high growth segments
The Company plans to capitalize on rapidly growing retail segments such as 24-hour
convenience trade and modern trade channels, and to expand its distribution network,
targeting to reach 250,000 directly served points of sale in 2014. In particular, the Company
plans to expand its distribution network in the Philippines by increasing the number of retail
outlets that its regional sales force services directly. At the same time, the Company is
working with its distributors to increase its penetration of general trade outlets, particularly in
more remote areas such as Mindanao and the Visayas. In addition, there are regions in the
Philippines such as Central Visayas where the Company is not the market leader due the
incumbency of regional market leaders. However, the Company believes that with sustained
presence through a well-developed distribution network in those regions, the Company will
be able to gain market share in those areas. The Company believes that the Philippine market
is still underserved in certain product categories and there are growth opportunities to
improve its distribution network. The Company plans to penetrate these underserved areas by
reaching out to a greater number of smaller informal retailers such as sari-sari stores and wet
markets.
Another area the Company has identified as a growth avenue is the food service segment.
While sales to food service customers, such as, but not limited to, Jollibee, KFC, Starbucks
and 7-Eleven, contributed less than 3% of the Companys total revenue for the year ended
December 31, 2013, the Company believes there are significant opportunities to work closely

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with customers and expand existing relationships, as well as establish relationships with a
wider range of customers in this segment. The Company understands the needs of its food
service customers and proactively suggests new products or recipes suited for such
customers business. As its food service customers continue to expand their business, the
Company intends to further collaborate with such customers and increase its sales in this
segment.
Enter into new product categories
In addition to growing and developing its existing product and brand portfolio, the Company
plans to enter into new product categories. The Company believes its competitive strengths
and deep understanding of the Philippine market provide significant advantages when
entering into new product categories. In 2014, the Company plans to start marketing and
distributing beverage products, such as coconut water, by leveraging on the Companys
extensive distribution network and experienced sales and marketing personnel. The
Companys marketing strategy will highlight the health benefits of these beverage products in
line with the Companys health and wellness theme, thus enabling the Company to penetrate
new product categories.
The Company also entered into a distribution agreement with Kapal Api of Indonesia on
November 16, 2012 to distribute Kapal Apis coffee products in the Philippines. Kapal Api is
an Indonesian company engaged in, among others, the operation of a coffee plantation, the
production of non-dairy creamer, the production of espresso machines, and the distribution of
coffee and coffee products.
Optimize export business to further penetrate the private label export market and
increase presence of branded products in overseas markets
As the current leading tuna exporter in the Philippines, the Company is well positioned to
increase its market share in the export business. The Company intends to increase the number
of partners for its private label export business in order to gain greater scale and better
capitalize on economies of scale. The Company believes this should further improve profit
margins of its export business.
The Company currently distributes its branded products across North America, Europe, Asia,
Australia, and the Middle East. The Company has noticed increasing brand awareness among
Filipino communities around the world and similar demands from Latino communities. While
overseas Filipino communities were the initial target customer base for its branded exports,
the Company has seen growing demand for its products in mainstream markets as the
Company continues to build the presence of its branded products in overseas markets. The
Company intends to capitalize on this trend and has started to sell its branded products to
Walmart, Albertsons and Kroger in the US, as well as negotiate with other retailers to have its
products sold in Asian food sections of their stores. The Company plans to enter into
distribution agreements with several other large retailers in North America in the near future
and likely within the next 12 months.
Opportunistic acquisition and development of strong regional brands
The Company has a proven track record of turning previously under-promoted and neglected
brands into market leading brands by applying its strategies, such as proper marketing and
extensive national distribution coverage. For example, Birch Tree was a strong brand in the
Philippines in the 1970s but lost significant market share as it did not receive marketing
support for many years prior to the Companys acquisition of the brand in 2003. After

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acquiring the brand, the Company initially relied on its distribution network to increase the
penetration of Birch Tree products in modern and general trade outlets. The Company then
supported the brand through a strategic marketing campaign. Through the Companys efforts,
the Birch Tree brand was able to grow to 22.0% market share in the full cream milk powder
segment as of July 2011, according to AC Nielsen. The Company will continue to seize
acquisition opportunities and acquire brands opportunistically to penetrate new market
segments. Examples include the Century Groups recent acquisition of Swift from RFM
Corporation in 2012 which allowed the Century Group to compete in the premium canned
meats segment, and the Century Groups acquisition of the Home Pride and Kaffe De Oro
brands in 2008.
Cost improvements through backward integration, streamline logistics and costengineering
The Company is focused on increasing the efficiency of its existing operations and
implementing targeted cost-saving initiatives in its businesses. In particular, the Company
intends to implement cost improvements through backward integration. The Company
sources the majority of its requirements from third-party suppliers. However, the Company
will be building a second tin can manufacturing facility which, upon completion by the end of
2014, is expected to produce approximately 25% to 30% of the Companys tin can
requirements. By producing a significant portion of its tin cans requirements internally, the
Company will be able to improve its profit margins by sourcing tin cans at cost and reducing
logistics costs associated with purchasing from third-party suppliers.
In addition, the Companys research and development team is an integral part of the
continued effort to identify cost improvements while maintaining high product quality
standards. For example, the Companys research and development team has been able to
increase the use of alternative raw materials, such as soy-based proteins, to lower production
costs for certain products. The Company estimates that research and development costs
accounts for less than 1% of its revenues.
The Company is also able to leverage its economies of scale to further rationalize its
production and distribution costs. Realizing savings through cost reduction initiatives will
improve the Companys profit margins and enable the Company to continue growing its
portfolios of brands and products.
PRODUCTS
CNPF produces and distributes a wide range of food products including canned and processed
fish, canned meat and dairy and mixes for the domestic market, as well as processed tuna for
the export market. CNPFs brand portfolio includes some of the most well-known brands in
the Philippines, such as Argentina for corned beef, Century Tuna for canned tuna, 555 for
canned sardines and Birch Tree and Angel for milk and dairy products.
Canned and Processed Fish
Prior to the corporate restructuring, the companys businesses were operated by different
companies. CCC, incorporated on December 12, 1978, handled the Groups sales and
distribution for canned and processed tuna, sardines and bangus. Products are marketed under
555 for sardines, Century Tuna and 555 for tuna. Columbus Seafood Corporation (CSC),
incorporated on December 20, 1994 operated the manufacturing plant for the sardines.

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In order to streamline and rationalize the Groups operations, CNPF was incorporated and the
business operations of CCC and CSC were folded into CNPF under the canned and processed
fish segment.
Brands and Products
The 555 brand for canned sardines was introduced in the Philippines in 1983. Since then,
CNPFs canned and processed fish product offerings have expanded to include canned tuna,
canned sardines, canned mackerel, frozen milkfish, gourmet milkfish, pouched tuna, corned
tuna and other packaged fish and seafood products. The table below sets forth information
regarding the product lines in CNPFs canned and processed fish segment

Brand

Indicative
retail price
(P/tin)

Products

Target market

Bangus (milkfish) in a variety of flavors,

fried sardines, bangus sisig, boneless
bangus, bangus tocino and canned
salmon

183.00
(450g); 48.30
(184g)

AB

Tuna in a variety of flavors, tuna loaf,

tuna mayo spread, corned tuna,

26.00 (155g);
32.50 (180g)

ABC

Tuna in a variety of flavors and sardines

23.00 (155g
tuna); 15.10
(155g sardine)

DE

Sardines, tuna, mackerel and squid in a

variety of flavors

23.00 (155g
tuna); 14.00
(155g sardine)

DE

Tuna in a variety of flavors

21.23 (175g)

DE

Sardines

13.75 (155g
sardine)

DE

Century Quality

Century Tuna

Blue Bay

555

Fresca

Lucky 7

According to AC Nielsen, in 2012, CNPF had market shares of 87% in canned tuna and
15.3% in canned sardines, and was the largest producer of canned fish products in the
Philippines in terms of retail value. For the year ended December 31, 2013, the canned and
processed fish segment was the largest contributor to CNPFs revenue, with segment revenue
of 7,014 million, representing 37% of total combined revenue of the company.

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CNPFs canned and processed fish products are distributed in the Philippines to both retail
and food service outlets. Sales of CNPFs canned and processed fish products to retail outlets
accounted for approximately 96% of total segment sales for the year ended December 31,
2013, while sales to food service outlets accounted for approximately 4% of total segment
sales for the same period.
Tuna products are CNPFs most significant products, accounting for 59%of total revenue for
the year ended December 31, 2013. CNPFs tuna products are primarily sold under the
Century Tuna, 555 Tuna, Fresca and Blue Bay brands. The Century Tuna brand was the
leading canned tuna brand in terms of both retail value and sales volume in the Philippines in
2012 according to AC Nielsen. The 555 Tuna brand targets budget conscious consumers
looking for affordable and high quality canned and processed fish products. Blue Bay is
positioned as a regional brand and its products primarily comprise traditional canned tuna.
Fresca is a regional value brand which offers a mix of traditional canned tuna and ready-toeat tuna viands, as well as pouched tuna products. In addition to traditional canned tuna and
tuna viands, CNPF also offers processed tuna products such as corned tuna, tuna loaf, tuna
sausage and tuna mayo spread.
CNPF also offers packaged seafood based on farmed and cultured species under the Century
Quality brand. Products include canned bangus (milkfish), fried sardines, canned salmon, and
bangus tocino. For the year ended December 31, 2013, revenues of the Companys canned
and processed fish products were 7,014 million.
CNPFs top brands in the canned and processed fish segment are Century Tuna and 555,
which collectively accounted for 84% of CNPFs total canned and processed fish revenue for
the year ended December 31, 2013.
Production and Raw Materials
Raw materials used in the canned and processed fish segment include tuna, sardines, tin cans,
soya oil and vegetables. CNPF primarily sources such raw materials from third-party
suppliers. In particular, CNPF sources tuna and sardines from major domestic and
international fishing operators with whom CNPF has had a long history of cooperation.
Tin cans are used across all of CNPFs business segments. For the year ended December 31,
2013, usage of packaging materials, of which tin cans constitute the majority, accounted for
13% of CNPFs total production cost. While the majority of CNPFs tin can requirement is
purchased from third-party suppliers, CNPF currently owns and operates one tin can
manufacturing facility with installed capacity of 4.5 million cans per month as of December
31, 2013. Through this facility, CNPF is able to produce approximately 5% of its total tin can
requirements. The Company plans on constructing an additional tin can manufacturing
facility, which will be located directly adjacent to the current facility. The new facility is
expected to have an installed capacity of 700 cans per minute. Upon completion of the second
tin can manufacturing facility by the end of 2014, CNPF expects to provide approximately
25% to 30% of its tin can requirements through its own facilities.
As of the date of this Prospectus, CNPF owns one tuna processing plant in General Santos
City, one sardine processing plant with an installed capacity of 200 MT per day as of
December 31, 2013 in Zamboanga City and a second sardine processing plant with an
installed capacity of 45 MT per day as of December 31, 2013 in Cavite province. The table
below sets out key operating information for CNPFs fish processing facilities as of the date
of this Prospectus.

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Facility Type

Location

Size

Tuna Processing Plant

General Santos City

52,626 sq. m.

Sardine Processing Plant

Zamboanga City

38,000 sq. m.

Sardine Processing Plant

Cavite

2,500 sq. m.

The facilities operate six days per week, with two 12-hour shifts (inclusive of a one-hour
break per shift) per day.
The typical process for producing CNPFs tuna products begins with the loading and
receiving of tuna, which is then sorted, weighed and washed. The tuna is then steamed and
cooled before being further cleaned and de-boned. Once this steaming and cleaning process is
completed, the tuna is packaged into cans or pouches before being steamed a second time.
Then the product is cooled, labeled, packaged and prepared for shipment. The production
process for CNPFs sardine products is similar, except that the products are only steamed
once after they have already been packaged into cans. The production workflows for tuna and
sardines, respectively, are illustrated below.
Tuna Process Workflow

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Sardines Process Workflow

CNPFs tuna and sardine processing plants follow strict quality control standards. The quality
control system incorporates the HACCP plan, which is a regulatory requirement for all food
manufacturing businesses. CNPF also implements additional quality control programs
including GMP, SSOP, and pest control management. Quality standards and parameters are
established for each step of the production process to ensure the safety and quality of the
products. In addition, all finished products pass through an x-ray, which is able to detect any
foreign contaminants.
CNPF engages third-party contractors for certain aspects of its production processes. In the
canned and processed fish segment, CNPF typically outsources the production of new
products, particularly when CNPF believes there is a market opportunity for the new product
but the expected initial demand and production volume is relatively low. CNPF moves the
production of new products in-house once production volume reaches a certain scale.
Competition
Based on data from Euromonitor and certain internal assumptions and calculations, CNPF
believes that it is the largest producer of canned and processed fish products in the
Philippines, with an estimated market share of approximately 54% as at end 2012. According
to data from AC Nielsen, in 2012, CNPF had approximately 87% market share in canned tuna
and approximately 15.3% market share in canned sardines in the Philippines in terms of retail
value.
In the canned and processed fish segment, CNPF competes on quality, customer service,
distribution network and price. CNPF is the leading company in the canned tuna segment. In
the canned sardines segment, CNPF competes with major domestic canned and processed fish
producers such as Liberty Gold, Maunlad Canning Corporation, Universal Canning,
Incorporated and Mega Fishing Corporation, as well as numerous regional and local canned
foods processors. To maintain its leading market position, CNPF intends to, among other
measures, continue emphasizing the healthy image associated with Century Tuna while
introducing different product sizes targeted towards more budget-conscious consumers.

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Canned Meat
Prior to the corporate restructuring, PMCI, which was incorporated on June 28, 1994,
manufactured canned and frozen processed meat under the brand names Argentina, Swift and
555.
In order to streamline and rationalize the Groups operations, CNPF was incorporated and the
canned meat business operations of PMCI were folded into CNPF under the canned meat
segment.
Brands and Products
The Argentina brand corned beef was launched in 1995. CNPFs canned meat product
offerings have since expanded to include corned meat, meat loaf, beef loaf and sausages,
among others. The table below sets forth information regarding the product lines in CNPFs
canned meat segment.

Brand

Indicative
retail price
(P/tin)

Products

Target market

Corned beef, meat loaf, beef loaf and

vienna sausages

62.00
(210g)

Corned beef, meat loaf, beef loaf,

Chinese style luncheon meat, liver
spread, vienna sausages and spaghetti
sauce

33.30
(175g CB)

Chinese style luncheon meat

28.00
(165g)

Canned meat in a variety of flavors; meat

loaf and beef loaf

24.00
(150g CN)

DE

Ready-to-eat viands in a variety of

flavors

21.60
(150g)

DE

Corned beef, meat loaf, beef loaf

13.25
(150g)

DE

ABC

Swift

Argentina

Shanghai

555

Wow

Lucky 7

According to AC Nielsen, as at December 31, 2012, CNPF had market shares of 41.6% in the
corned beef segment and 25.5% in the meat/beef loaf segment, and was the largest producer

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of canned meat products in the Philippines. For the year ended December 31, 2013, the
canned meat segment was the third largest contributor to CNPFs revenue, generating
segment revenue of 4,598.6 million, representing 24% of the total CNPF combined revenue.
CNPFs canned meat products are distributed in the Philippines to both retail and food service
outlets. CNPF
The main product line in the canned meat segment is the Argentina line of products, which
includes canned corned beef, canned meat loaf, canned beef loaf, canned chicken loaf, canned
luncheon meat, canned sausages, canned spaghetti meat sauce, canned liver spreads, hotdogs
and canned sisig. As at August 2013, CNPFs Argentina brand is the leading brand in the
Philippine canned meat market in terms of sales volume (in kilograms) according to AC
Nielsen. According to CNPFs internal data, during the year ended December 31, 2012,
Philippine consumers consumed 2.1 tins per capita annually of the Argentina brand making it
the second best selling product among all of CNPFs product lines based on an annual tins per
capita basis.
As a part of CNPFs business strategy to leverage its brand recognition and target consumers
across various income levels, it offers affordable and high quality canned meat products under
its Lucky 7 brand to budget conscious consumers. In addition, CNPF offers its Chinese
luncheon meat products under the Shanghai label. In 2008, CNPF launched the Wow brand,
which is the newest brand in the canned meat segment, primarily offers ready-to-eat viands in
a variety of flavors. In 2012, the Company acquired the Swift brand and selected assets from
RFM Corporation.
For the year ended December 31, 2013, sales volume, by cases, of the Companys canned
meat products was 5.4 million, which amounted to revenue of 4,599million.
The top brand in CNPFs canned meat segment is Argentina, which accounted for more than
50% of total segment revenues for the year ended December 31, 2013.
Production and Raw Materials
Raw materials used in the canned meat segment include beef, pork, chicken, protein and
spices. CNPF primarily sources such raw materials from a network of domestic and
international suppliers.
CNPF leases and operates one meat processing plant located in Laguna. The facility has an
area of 14,500 sq. m. and an installed capacity of 194 MT per day as of December 31, 2013.
The production process of CNPFs corned beef and meat loaf products typically starts with
frozen meat being cut, weighed and cured. For the corned beef products, the meat is parboiled
before being hashed and mixed with other ingredients. Meat loaf products are directly
chopped with curing salts and other ingredients without being parboiled. Then, the meat
mixtures are canned and heated to commercial sterility before being cooled and packed. The
finished products typically have an incubation period of 14 days. Then, the products are
labeled, packed and sealed before being shipped or warehoused for distribution. The
production workflow for corned beef and meat loaf, respectively, are illustrated below.

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Corned Beef Process Workflow

Meat Loaf Process Workflow

CNPFs canned meat segment has implemented quality control procedures which comply
with relevant legislation and industry best practices. The meat processing plant has been
certified by the Philippine National Meat Inspection Service for GMP and HACCP
compliance. The plant has also received HALAL certification from the Islamic Dawah of the
Philippines.
CNPF engages third-party contractors for certain aspects of its production processes. In the
canned meat segment, CNPF typically outsources production of certain products when
CNPFs internal production capacity is insufficient to meet customer demand.

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Competition
Based on data from Euromonitor, CNPF is the largest producer of canned meat products in
the Philippines, with an estimated market share of approximately 37% as at December 31,
2012. According to data from AC Nielsen, as of August 2013, CNPF had approximately
42.5% market share in corned beef market and approximately 25.6% market share in meat
loaf and beef loaf in the Philippines.
In the canned meat segment, CNPF competes on quality, customer service, distribution
network and price. CNPF competes with major domestic producers such as San Miguel
PureFoods Company, Inc. and CDO Foodsphere, Inc., as well as numerous regional and local
meat processors. To maintain its leading market position, CNPF intends to, among other
measures, promote the Swift brand to participate in the premium canned meat segment and
increase the market share of its canned meat products regionally in areas such as Mindanao
and the Visayas.
Dairy and Mixes
Brands and Products
CNPFs dairy and mixes business is operated through SMDC, a wholly-owned subsidiary
incorporated in 2001. CNPFs dairy line includes liquid milk products and powdered milk
products such as evaporated milk, evaporated condensed milk, all-purpose cream, coffee
creamer and full cream milk powder. All of CNPFs dairy products are marketed under the
Angel brand except for full cream milk powder, which is marketed under the Birch Tree
brand. CNPF also produces coffee mix under the Kaffe de Oro brand and sinigang mix under
the Home Pride brand. The table below sets forth information regarding the product lines in
CNPFs dairy and mixes segment.

Brand

Products

Indicative
retail price
(P/tin)

Target market

Dairy
Evaporated liquid creamer, evaporated
filled milk, Kremdensada, sweetened
condensed filled milk, condensada and
coffee creamer

24.30
(410mL evap)

Full cream milk powder

104.70
(300g)

Sinigang Mix

3.80 (10g)

BCD

Angel
BC

Birch Tree
Mixes

Home Pride

148

CDE

Kaffe De Oro 3-in-1 Stick (regular and

sugar-free)

4.00 (18g)

CD

Kaffe de Oro

According to AC Nielsen, as of 2012, CNPF had market shares of 8.5% in

evaporated/condensed milk and 9.3% in all-purpose cream, and was the third largest producer
of canned milk products in the Philippines. According to AC Nielsen, as of July 2011, CNPF
also had 22.0% market share in full cream milk. For the year ended December 31, 2013, the
dairy and mixes segment generated segment revenue of 1,548 million, representing 8% of
the total CNPF combined revenue.
CNPFs dairy and mixes products are distributed in the Philippines to both retail and food
service outlets. CNPF
The primary brand for CNPFs canned milk products is Angel, whose product lines include
filled milk, liquid creamer, sweetened condensed milk, coffee creamer, and Angel
Kremdensada, which is a combination of all-purpose cream and condensed milk. As of 2013,
Angel was the second best-selling milk brand in terms of volume in the Philippines according
to AC Nielsen data. In 2003, CNPF acquired the Birch Tree brand whose sole product is
powdered milk made from 100% cows milk with no added sugar and no added vegetable oil.
In line with CNPFs strategy of diversifying its product lines to offer consumers a wide range
of product choices, CNPF acquired the Home Pride and Kaffe de Oro brands in 2008, which
expanded CNPFs product mix to include sinigang mixes through the Home Pride brand and
Kaffe de Oro Stick 3-in-1 coffee mixes through the Kaffe de Oro brand.
Production and Raw Materials
Raw materials used in the dairy and mixes segment include powdered milk, tin cans,
vegetable oil, sugar and emulsifiers. CNPF primarily sources powdered milk from
international third-party suppliers and traders such as Fonterra Co-operative Group Limited
and DanAsia, Inc.
CNPF owns and operates one dairy processing plant located in Taguig, Metro Manila. The
facility has an area of 10,000 sq. m. and has an installed capacity of 11,000 cases per day as
of December 31, 2013.
The production process for CNPFs canned dairy products begins with preparation of raw
materials, followed by the combination of milk powders, stabilizers and other dry ingredients
in a mixing tank. The mixture is then pasteurized, homogenized and cooled before being
standardized with water and buffering salt. Once this process is completed, the milk products
are filled into cans and re-heated to commercial sterility. The cans are finally labeled and
packaged. Typically, packaged products have an incubation period of 14 days before being
shipped or warehoused for distribution.
An internal quality control system is implemented at CNPFs dairy processing plant to ensure
compliance with industry best practices. The dairy processing plant is in compliance with
HACCP and GMP standards. In addition, the plants internal quality control system has
adopted the principles of ISO 2000.
CNPF engages third-party contractors for certain aspects of its production processes. In the
dairy and mixes segment, CNPF outsources the production of condensada to toll

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manufacturers. In addition, CNPF purchases its mixes in bulk and engages third-party
manufacturers to package the products for distribution. CNPF also outsources the packaging
of powdered milk for Birch Tree products.
Canned Dairy Process Workflow

Competition
According to AC Nielsen, as of December 31, 2012, CNPF had market shares of 8.5% and
9.3% in evaporated/condensed milk, and all-purpose cream, respectively. As of July 2011, the
latest period data was available, CNPFs market share in full-cream milk powder was 22%.
In CNPFs dairy and mixes business, CNPF competes on quality, customer service,
distribution network and price. Major competitors include domestic dairy companies such as
Alaska and Nestle. In addition, Kaffe de Oro products compete with domestic and
international brands such as Nestls Nescaf, San Miguel Corporations San Mig Coffee and
Universal Robina Corporations Blend 45. Home Pride sinigang mix competes with domestic
and international brands such as Unilever N.V.s Knorr and Mama Sita's Holding Co. Inc.s
Mama Sita.
To increase its market share in the dairy segment, CNPF plans to build the Angel and Birch
Tree brands through sustained investment in advertising and promotion and distribution. In
addition, CNPF plans to grow the Angel brand through improved formulations, smaller
packaging sizes for more budget-conscious consumers and achieving a market leading
position in the two-in-one product platform for canned milk and cream. Furthermore, CNPF
plans to grow the Birch Tree brand by expanding into the adult and childrens milk segments
through powdered milk, flavored milk drinks and other product formats.
Tuna Export
Brands and Products
Through its wholly-owned subsidiary, GTC, CNPF manufactures private label canned,
pouched and frozen tuna products for export to markets in North America, Europe, Africa and
Asia. Canned tuna is the primary export product, accounting for approximately 75% of

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CNPFs total tuna exports as at December 31, 2013. Major customers for CNPFs private
label tuna exports include Chicken of the Sea, Bumble Bee Foods, LLC and Subway in North
America, Princes, Rio Mare and Carrefour in Europe, and Hagoromo, Hoko and California
Garden in Japan and the Middle East.
Exported tuna products are produced in General Santos City in the same fully accredited
processing facilities that produce CNPFs tuna products for the Philippine market. For the
year ended December 31, 2013, the tuna export segment generated segment revenue of
5,862.7 million, or 31% of total CNPF combined revenue.
Competition
In CNPFs tuna export business, CNPF competes primarily on product quality. CNPF has
established long-term relationships with customers in this segment, in some cases spanning
decades, and believes that the goodwill and loyalty of its customers enhances its competitive
position in the tuna export market. According to data from the Philippine Bureau of Customs
(BOC), as at December 31, 2013, CNPF held a 34% market share of the Philippine tuna
export business, making it the market leader. CNPFs biggest canned and processed fish
export competitor is PhilBest Canning Corporation, which held a 30% market share as at
December 31, 2013, according to the BOC. The remaining market shares are divided among
Alliance Select Foods International Inc., Ocean Canning Corporation, Seatrade Canning
Corporation and Celebes Canning Corporation, each of which held 10% or less of the market
share during the same period. CNPF also faces increasing competition from foreign tuna
processors such as Thai Union Group.
MARKETING, SALES AND DISTRIBUTION
Marketing
CNPF advertises through various media outlets in the Philippines, including television, radio,
newspaper, magazines and billboards to promote brand awareness for its various product
lines. CNPFs brand portfolio includes some of the most recognized brands in the Philippine
food industry, including Century, Argentina, 555, Angel and Birch Tree. Employing celebrity
spokespersons, CNPFs advertising team has delivered a series of intuitive and appealing adcampaigns to enhance brand recognition. CNPF supplements these initiatives with
promotional activities such as product bundling and sampling, and through its presence in
social media networks.
In addition, CNPF makes certain that its brands and products are under a general health &
wellness theme in order to fully promote its products benefits and attract health conscious
consumers. For example, CNPF builds brand awareness through sponsorships and events such
as the Century Tuna Superbods competition, highlighting the health and wellness benefits of
their tuna products.
CNPF has tailored marketing plans for each one of its product lines across all of its product
categories. Based on micro-level and macro-level research of consumer habits and purchasing
trends conducted in-house and by third-party research agencies, CNPF identifies the target
consumer segment for each product and develops a marketing campaign to best reach the
target consumer. For example, in the all-purpose cream category, Angel Kremdensada is
marketed on a platform of value for money, convenience and taste, and the marketing
message positions the brand as a trusted product which offers taste, savings and convenience
for inexperienced cooks. Angel All-Purpose Creamer, on the other hand, is marketed on a
platform of superior taste and the marketing message positions the brand as a trusted product

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which delivers superior taste and texture for experienced cooks at an affordable price.
Customized marketing strategies for each product enable CNPF to optimize brand positioning
and effectively convey its marketing messages to consumers.
CNPF has established dedicated business unit marketing teams across its various product
segments. CNPF also engages third-party advertising agencies for some of its marketing
campaigns.
Distribution
Domestic Distribution
Modern trade channels such as supermarkets and grocery stores account for more than 50% of
total sales for nearly all of CNPFs domestic product categories. CNPFs products are also
sold through general trade channels, including wet markets and sari-sari stores. CNPF
generally distributes its products directly to modern retail outlets and relies on third-party
distributors to distribute its products to wet markets and sari-sari stores. CNPF works closely
with its third-party distributors to increase penetration of general trade outlets, including
ensuring that distributors have access to the full range of CNPF products and are able to offer
the optimal product mix to general trade retailers. As the majority of domestic retail sales and
food services sales are made directly by the manufacturer, CNPF is able to reduce its
distribution costs and establish long-term relationships directly with retail customers. In
addition, CNPF is able to limit exposure to common risks associated with third-party
distributors by not being overly reliant on third-party distributors for its sales.
As at December 31, 2013, CNPF maintained 200 manufacturer direct-to-retail accounts
reaching 3,772 retail outlets ranging from hypermarkets to convenience stores. In addition, as
at December 31, 2013, CNPF held distribution agreements with 39 distributors reaching
approximately 225,168 retail outlets ranging from supermarkets to sari-sari stores. With
respect to its food services sales, CNPF served approximately 1,000 food outlets, maintained
100 manufacturer direct-to-customer accounts and 950 distributor-to-customer agreements as
at December 31, 2013.
As at December 31, 2013, CNPF leased 14 distribution depots and warehouses strategically
located throughout the Philippines. The map below shows the location of CNPFs distribution
depots and warehouses.

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NW Luzon

NE Luzon

Central Luzon
Metro Manila
Calabarzon/Mimaropa

Bicol Region

West Visayas I
West Visayas II
Central Visayas
North Mindanao
Zamboanga Peninsula

Davao Region
SOCCKSARGEN
Eastern Visayas

From these distribution depots and warehouses, CNPFs products are delivered to its
customers by third-party trucking companies. Under the contracts between CNPF and thirdparty trucking companies, the risk of loss is typically borne by the trucking company once the
products leave CNPFs loading docks. In addition, the trucking companies are typically
required to arrange appropriate insurance for goods during transit and/or provide a bond as
guarantee for any damage or loss arising from the contractors performance of its obligations.
International Distribution
While distribution is primarily through third-party distributors, the Company also distributes
its branded products, particularly to high growth markets such as China and Vietnam, through
its affiliates.
Century International (China) Company Limited and Century (Shanghai) Trading Company,
joint ventures between CCC and Thai Union Manufacturing Company, Ltd., as well as
Century Pacific Vietnam Company, a wholly owned subsidiary of CCC, have headquarters in
Beijing, Shanghai, and Vietnam respectively. These offices distribute the Companys branded
products to major cities in the region. The Companys products are carried by retailers such
as Carrefour, Walmart, Tesco Hymall, Metro and Auchan, among others. As of December 31,
2013, the Companys private label and branded products are distributed across the United
States, Europe, Asia, Australia, and the Middle East.
Customers
CNPFs retail outlet customers in the Philippines include hypermarkets, supermarkets,
grocery stores and convenience stores. CNPFs products are also sold to wet markets and
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sari-sari stores through distributors. CNPF also sells its products to various food service
customers in the Philippines directly and through distributors. CNPFs food service customers
include quick service and full service restaurants, pizza chains, industrial and institutional
accounts. CNPF also provides customized products to various national and local chain
accounts in the food service segment.
QUALITY CONTROL, HEALTH, SAFETY AND ENVIRONMENTAL MATTERS
CNPF is subject to a number of laws and regulations relating to the protection of the
environment and human health and safety, including those governing food safety, air
emissions, water and wastewater discharges, and odor emissions and the management and
disposal of hazardous materials.
CNPF applies its quality standards uniformly across all of its production facilities and quality
assurance personnel conduct periodic operational audits. CNPF seeks to reduce the risk of
contamination of its products through strict sanitation procedures and constant monitoring and
response. CNPF conducts quality analysis and quality control on each batch of products.
CNPF also conducts can-cutting, or opening of cans at random for product quality control, on
a monthly basis.
CNPF has earned a number of international accreditations for food safety and quality. CNPF
has been accredited by the US FDA, the Canadian Food Inspection Agency, the British Retail
Consortium, the European Union, the Orthodox Union and the Islamic Dawah Council. In
addition, all of CNPFs processing facilities apply the HACCP plan, a management system
which addresses food safety through the analysis and control of biological, chemical and
physical hazards from raw material production, procurement and handling to manufacturing,
distribution and consumption of the finished product. CNPFs HACCP accreditation is
renewed on an annual basis and CNPF is subject to periodic safety audits. Furthermore,
CNPFs tuna processing facility has been certified by International Featured Standard (Food),
a globally recognized standard for auditing retailer and wholesaler branded food product
suppliers.
As at December 31, 2013, CNPF is in material compliance with applicable health, safety and
environmental laws. Expenses incurred by the Company for purposes of complying with
environmental laws consist primarily of investments in waste treatment and payments for
government regulatory fees that are standard in the industry. See Regulatory for a more
detailed discussion of applicable health, safety and environmental laws.
Sustainability Efforts and Marine Wildlife Protection
CNPF is committed to the improved conservation and management of all tuna species. CNPF
sources tuna only from companies or fishing vessels that conform to the regulations
implemented by their respective regional fisheries management organizations. CNPFs tuna
suppliers have adopted bycatch (i.e. fish or other animals unintentionally caught in a fishery
while intending to catch other fish) avoidance and mitigation measures that conform to
international best practices. CNPF also supports and invests in tuna fishery improvement and
conservation initiatives to sustain livelihoods while minimizing environmental impact.
In addition, CNPF has implemented a documentation system which enables CNPF to trace the
fishing vessels, the fishing grounds and fishing gear associated with its fish supplies. This
system ensures that CNPF does not purchase tuna caught by vessels known or listed for
illegal, unregulated or unreported practices endangering marine mammals such as dolphins. In
addition, CNPF has been accredited as Dolphin Safe by the Earth Island Institute, an

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independent company that monitors tuna catchers and processing companies globally to
ensure that catching methods do not harm any dolphins and protect the ecosystem and
inspects processing plants to ensure that only tuna caught using dolphin-friendly methods are
processed in CNPFs facilities. CNPF also refrains from doing business with companies or
fishing vessels associated with shark fishing.
CNPFs tuna business has received a number of environmental awards in recognition of
CNPFs commitment to environmental protection and sustainability efforts. Recent awards
include WWF Environmental Leadership awards for 2012 and 2013.
EMPLOYEES
After the completion of the corporate restructuring on January 1, 2014, CNPF has 9,664
employees. The table below presents a breakdown of CNPF employees by function:
No. of Employees
Executive

23

Managerial

123

Supervisory

302
9,216(1)

Rank and File

Total
(1)

9,664

includes contractual and cooperative workers.

CNPF has no plans of hiring any significant number of employees in the next 12-month
period.
CNPF is not unionized and believes that it has a good relationship with its employees. CNPF
complies with minimum compensation and benefits standards as well as all other applicable
labor and employment regulations. In accordance with Philippine retirement pay law under
R.A. No. 7641, the Company also provides estimated minimum retirement benefits. The
Company has in place internal control system and risk management procedures to monitor its
continued compliance with labor, employment and other applicable regulations.
PROPERTY
As at December 31, 2013, CNPF does not own land. CNPF leases several properties,
including the Companys head office in Pasig City, Metro Manila and its meat processing
facility in Laguna, among others. The relevant lease agreements are typically for a term of 10
years at the prevailing market rates in their respective areas, renewable upon mutual
agreement of the parties.
None of the leased premises is mortgaged or encumbered. The Company does not plan to
acquire any property in the next 12 months.
INTELLECTUAL PROPERTY
Brands, trademarks, patents and other related intellectual property rights relating to CNPFs
principal product are either registered or pending registration in the Philippines and the
foreign countries in which CNPF sells, or intends to sell, its products. Trademarks and other

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intellectual property rights are important in the aggregate because brand name recognition is a
key factor in the success of many of CNPFs product lines.
CNPF uses its other brand names and trademarks under licenses from the Century Group and
other companies owned and controlled by the Po family. These licensing agreements are
generally for ten-year terms and are renewable based on mutual agreement. The agreements
typically provide for re-negotiation of terms between the parties every five years. CNPF pays
a nominal fee for the use of such brand names and trademarks
As of the date of this Prospectus, CNPF has not had any significant disputes with respect to
any of its trademarks or other intellectual property rights.
RESEARCH AND DEVELOPMENT
CNPF believes that its continued success depends in part on its ability to be innovative and
responsive to consumer preferences and local and international market conditions. CNPF
continuously expands its existing product lines through the development, reformulation and
testing of new products. The research team collaborates with CNPFs marketing personnel to
develop new products based on micro-level and macro-level research of consumer
preferences and spending habits, as well as consumer feedback on existing products.
To enhance productivity, efficiency, reduce costs and strengthen its competitiveness, CNPF
engages in research and development to identify cost improvements that can be made to its
production processes. For example, research and development efforts have enabled CNPF
enhance the flavor of its products without increasing cost. CNPF has also been able to lower
the production costs and sales price of certain products through the use of alternative raw
materials such as soy-based proteins while maintaining the products taste and quality. In
addition, CNPF is able to reduce costs through labor-saving enhancements to its production
process and through adjustments to packaging, such as optimizing the thickness of tin cans.
CNPF researches new processes and tests new equipment on a regular basis to maintain and
improve the quality of its food products and enhance the efficiency of its production
processes. Although new products and production processes are primarily developed
internally, CNPF has also purchased new technologies and processes from independent
research and development facilities.
INFORMATION TECHNOLOGY
The Company believes that its current management information systems streamline its
operations and enhance the overall organizational efficiency. CNPF utilizes ERPLN software,
by Infor, for enterprise resource planning and reporting. ERPLN is comprised of multiple
modules enhancing various operational functionalities including maintaining centralized
charts of accounts and financial balances, generating and monitoring sales invoices and credit
notes, managing all cash related transactions such as payments to and receipts from business
partners, registering and monitoring of fixed assets, handling and replenishing goods for
warehouses.
In addition, CNPF uses Cognos, by IBM, to consolidate ERPLN data from across its business
divisions. ERPLN data is uploaded to the Cognos financial database on a daily basis to
generate financial reports to enhance managements business analytics capabilities.

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INSURANCE
CNPF carries insurance of the types and in amounts that are customary in the food processing
and distribution industry and that it believes will reasonably protect its interests, including
earthquake and flood insurance. CNPFs facilities and inventories are insured with Charter
Ping An Insurance Corporation, New India Assurance Company. PNB General Insurance
Corporation, UCPB General Insurance Company, MAA General Insurance Company,
Philippine British and Stronghold Insurance Company with a total insured value of
approximately 10 Billion. CNPF does not carry business interruption insurance and selfinsures against this risk.
LEGAL PROCEEDINGS
From time to time, CNPF and its subsidiaries may be involved in litigation or proceedings
arising in the ordinary course of business. As of the date of this Prospectus, neither CNPF nor
any of its subsidiaries are involved in, or the subject of, any legal proceedings which, if
determined adversely to CNPF or the relevant subsidiarys interests, would have a material
adverse effect on the business or financial position of CNPF or any of its subsidiaries.

157

INDUSTRY
OVERVIEW OF THE PHILIPPINE ECONOMY
The Philippine economy experienced steady growth with real GDP expanding at a compound
annual growth rate (CAGR) of 4.8% from 2008 to 2012. According to the Economist
Intelligence Unit (EIU), real GDP is expected to grow from U.S.$145.2 billion to
U.S.$195.6 billion from 2012 to 2017, representing a CAGR of 6.1%, supported by factors
such as increasing job creation and employment, increasing overseas remittances and an
expansion of exports. In May 2013, Standard & Poors upgraded the credit rating of the
Philippines from BB+ to BBB-, citing the countrys strengthening external profile, the
moderating inflation, and the governments declining reliance on foreign currency debt,
indicating an overall rise in confidence in the Philippine economy. In October 2013, Moodys
Investors Service (Moodys) also upgraded the rating of the Philippines from Ba1 to
Baa3 and assigned a positive outlook to the rating. According to Moodys, the factors that
prompted the upgrade were the sustainability of the countrys robust economic performance,
ongoing fiscal and debt consolidation, stability of the Philippines funding conditions,
political stability and improved governance.
The following chart sets out the expected real GDP development in the Philippines from 2008
to 2017.

Source: EIU

These factors have also enabled Philippine GDP growth to overtake that of other Southeast
Asian economies. The following chart compares the 2012 GDP growth rate of the Philippines
as compared to other emerging economies.

Source: EIU, BMI

The Philippine economy is largely driven by domestic private consumption, which, according
to EIU, accounted for 72% of the GDP in 2012. Consumer spending/capita in the Philippines

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grew at a CAGR of 7.6% between 2008 and 2012. This growth was even stronger between
2010 and 2012 with a CAGR of 12.1%.
The following chart sets out the expected growth in consumer spending/capita (U.S.$) in the
Philippines from 2008 to 2016.

Source: EIU

Further, the Philippine private consumption as a percentage of GDP for 2012 has surpassed
that of other Southeast Asian economies.
The following chart sets out the private consumption as a percentage of GDP for the
Philippines as compared to other Southeast Asian countries in 2012.

Source: Global Insight

Key drivers of the Philippine domestic consumption have been rising personal disposal
income, a burgeoning middle-income class and a young demographic composition.
Rising personal disposable income and burgeoning middle-income class in the
Philippines
One of the key drivers for strong domestic consumption growth has been the rapid growth of
personal disposable income and the continually expanding middle-income class, defined as
households with annual disposable income of between US5,000 and US$50,000. According
to EIU, per capita personal disposable income in the Philippines grew at a CAGR of 4.8%
between 2008 and 2012 and is expected to expand at a CAGR of 5.4% between 2012 and
2017. As a direct result of rising disposable income, the percentage of middle-income
households increased from 45% in 2008 to 53% in 2012 and is expected to increase to 64%
by 2017. The growth in personal disposable income and emergence of a burgeoning middleincome class is expected to provide a strong foundation for the future consumption growth in
the Philippines.

159

The following charts set out the expected per capita personal disposable income in the
Philippines from 2008 to 2017 and the percentage of middle-income households from 2008 to
2017, respectively.
Growing proportion of middle-income
class

Personal disposable income (US$)

1.3%

1.9%

45%

53%

3.2%

2,067.7
1,588.1

1,317.6

54%
2008

2012

2017E

2008
Household income

64%

45%

33%

2012
<5,000

2017E
5,000-50,000

>50,000

Source: EIU

Philippine population
Approximately 62% of the Philippine population of over 96 million belongs to the
economically active age bracket of 15 to 64 years old. In addition, the proportion of
population in the economically active age bracket is expected to steadily increase over the
coming years, from 61.6% in 2012 to 62.9% in 2017.
The following charts set out the expected population split (by age) in the Philippines and the
growth of economically active population from 2008 to 2017, respectively.
Population split (by age)

Growing economically active population

65 &
above
3.8%

0-14
years
34.6%

15-64
years
61.6%
Total (2012) = 96.4 million

Source: IHS Global Insight

PHILIPPINE CANNED/PRESERVED FOOD INDUSTRY

According to Euromonitor, the Philippine canned/preserved food industry is the largest

market compared to the other Southeast Asian countries. It has experienced strong growth in
recent years and has significant growth potential for the future. Canned/preserved food is
popular among consumers because of its affordability and its ability to be readily served as
meals.

160

The following chart shows the Philippine canned/preserved food consumption per capita
(US$ in millions) versus that of other Southeast Asian economies in 2012.

Source: Euromonitor

The following chart shows the Philippine canned/preserved food consumption per capita
(US$) versus that of other countries in 2012.

Significant growth
potential

Source: Euromonitor

According to Euromonitor, canned/preserved food sales in the Philippines increased from

25.1 billion in 2008 to 33.3 billion in 2012, representing a CAGR of 7.3%. This is expected
to grow to 43.6 billion in 2016 at a CAGR of 7.0% from 2012 to 2016.

Sales in billions Ps

The following chart shows the expected sales value of Philippine canned/preserved food from
2008 to 2016.

50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

25.1

2008

26.9

2009

28.8

2010

33.3

31.0

2011

2012

Source: Euromonitor

161

35.5

2013E

38.0

2014E

40.7

2015E

43.6

2016E

Canned/preserved fish/seafood dominates the market, comprising 42% of the sales value in
2012 and 47% by the total volume sold. This is followed by the canned/preserved meat/meat
products category, comprising of 30% of total sales value and 22% of total sales volume in
2012.
2012 breakdown of sales by value

2012 breakdown of sales by volume

Source: Euromonitor

Canned/preserved fish/seafood
The Philippine canned/preserved fish/seafood segment has demonstrated strong growth due to
the growing health consciousness of Filipinos. Fish/seafood is perceived as healthy due to its
Omega-3 content, lower calorie content and low, or zero, cholesterol. According to
Euromonitor, canned/preserved fish/seafood sales in the Philippines increased from 10.5
billion in 2008 to 14.0 billion in 2012, representing a CAGR of 7.5%. This is expected to
grow to 18.2 billion in 2016 at a CAGR of 6.8% from 2012 to 2016.
The following chart shows the expected sales value of Philippine canned/preserved
fish/seafood from 2008 to 2016.

Source: Euromonitor

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According to Euromonitor, CNPF, Liberty Gold Fruit and Maunlad Canning are the top
three canned/preserved fish/seafood market players in the Philippines accounting for 86% of
the retail sales in 2012.
The ranking of the top players in the Philippines canned/preserved fish/sea food market by
sales in 2012 is as follows.
Ranking

Company

Market share

CNPF

54%

Liberty Gold Fruit Company, Inc.

19%

Maunlad Canning Corporation

13%

Source: Euromonitor

The sizes of Philippine domestic canned sardines and canned tuna markets in 2012 are as
follows:
20.0

17.2

Ps billion

15.0
10.0

6.5

5.0

Canned sardines

Canned tuna

Source: AC Nielsen

Domestic canned tuna

The Philippines ranks 5th in tuna catch and 3rd in canned tuna production worldwide.
According to AC Nielsen, the Philippine domestic canned tuna market is segmented into three
basic products:
Traditional: Basic Tuna flakes in either oil or water. Century Tuna leads this sub-segment.
Viands: Tuna is used as protein source of ready-to-eat meals such as Afritada, Mechado,
Adobo, etc. 555 Tuna is the leading brand in Viands.
Corned tuna: This format is tuna and soy protein extenders made similar to corned beef.
Because it is a fish, it is perceived to be a healthier alternative to corned beef and corned meat
products. San Marino is the leader in corned tuna.
According to AC Nielsen, Viands are the most popular form of tuna, however, corned tuna is
gaining importance due to its health benefits. Viands contributed 57% to the domestic canned
tuna category, traditional tuna contributed 26% and corned tuna had a contribution of 16% in
2012. CNPF dominates the domestic canned tuna market with its brands accounting for 87%
of the market.
The ranking of the top players in the Philippine domestic canned tuna market in 2012 by sales
is as follows:

163

Ranking
1
2

Company

Market share

CNPF
CDO Foodsphere, Inc.

87%
13%

Source: AC Nielsen

Domestic canned sardines

According to AC Nielsen, the Philippine domestic canned sardine market is the most popular
amongst the other canned/preserved fish/seafood categories, mainly because of its
affordability as a protein-rich food and is popular among the lower socio-economic classes.
Apart from being low priced, it is readily available from modern retail grocery stores to the
neighborhood sari-sari stores. The Zamboanga Peninsula is considered as the countrys
sardine capital. The harvesting and processing of this fish has contributed substantially to the
regional economy.
Maunlad, with its Youngstown brand dominates this market with its sales accounting for 26%
of the market share, followed by Goldfish with 18% and CNPF with 15%.
The ranking of the top players in the Philippine domestic canned sardine market in 2012 by
sales is as follows:
Ranking
1
2
3

Company
Maunlad Canning Corporation
Goldfish
CNPF

Market share
26%
18%
15%

Source: AC Nielsen

Canned/preserved meat and meat products

The Philippine canned/preserved meat and meat products segment has experienced strong
growth in recent years and is expected to continue to do so going forward. The sales size of
canned/preserved meat and meat products is smaller than that of canned/preserved
fish/seafood although growth rates are expected to be slightly higher, in part due to faster
development of new products. According to Euromonitor, canned/preserved meat/meat
products sales in the Philippines increased from 7.5 billion in 2008 to 9.8 billion in 2012,
representing a CAGR of 6.9%. This is expected to grow to 13.0 billion in 2016 at a CAGR
of 7.3% from 2012 to 2016.
The following chart shows the sales value of Philippine canned/preserved meat and meat
products from 2008 to 2016.

164

Source: Euromonitor

According to Euromonitor, CNPF, PureFoods-Hormel, Company, Inc. and CDO Foodsphere,

Inc. are the top three canned/preserved meat and meat products market players in the
Philippines accounting for 80% of the retail sales during 2012.
The ranking of the top players in the Philippines by sales in 2012 is as follows.
Ranking

Company

Market share

CNPF

37%

PureFoods-Hormel Company, Inc

30%

CDO Foodsphere, Inc.

13%

Source: Euromonitor

The respective sizes of the Philippine domestic corned meat, luncheon meat and vienna
sausage markets in 2012 are as follows:

Source: AC Nielsen

Corned meat

Corned meat has been a staple for years in the Philippines and continues to generate demand.
According to AC Nielsen, this is the most popular segment in the canned/preserved meat and
meat products category. According to Euromonitor, the new variants of corned meat are also
set to stimulate demand among the middle-income households in the future. CNPF dominates
this market with its sales accounting for 43% of the market driven by the market leader
Argentina corned meat. Argentina has been the market leader for the last 16 years.

165

The ranking of the top players in the Philippine domestic corned meat market as at August
2013 by sales is as follows:
Ranking
1
2
3

Company
CNPF
CDO Foodsphere, Inc.
PureFoods-Hormel Company, Inc

Market share
43%
22%
13%

Source: AC Nielsen

Luncheon meat

The Philippine luncheon meat segment is expected to experience high growth in the coming
years. This is mainly due to the growing business process outsourcing industry. Convenience
is a major market driver as more working adults are likely to demand luncheon meat products
such as emulsified loaves that they could quickly prepare at home.
According to AC Nielsen, CNPF dominates the emulsified loaves market with 26% market
share. The ranking of the top players in the Philippine emulsified loaves market as at August
2013 by sales is as follows:
Ranking
1
2
3

Company

Market share

CNPF
Hormel
CDO Foodsphere, Inc.

26%
10%
10%

Source: AC Nielsen

Vienna sausage

The Philippine Vienna sausage segment is also set to achieve high growth in the coming years
due to its convenience in preparation.
According to AC Nielsen, CNPF dominates the vienna sausage market with 28% market
share.
The ranking of the top players in the Philippine vienna sausage market as of June 2012 is as
follows:
Ranking
1
2
3

Company

Market share

CNPF
Libbys
PureFoods-Hormel Company, Inc

28%
25%
13.9%

Source: AC Nielsen

Distribution channels
The distribution of canned/preserved food is primarily through supermarkets, which
accounted for a 52% share of retail value sales in 2012, followed by other grocery retailers
(traditional neighborhood stores) with a 23% share. Another important channel, independent
small grocers, often located in wet markets, accounted for a 18% share. Hypermarkets make
up the balance, with a 7% share.

166

The following chart sets forth the relative percentages of different distribution channels for
canned/preserved food industry in the Philippines, based on retail sales in 2012.
Retail sales in 2012 by distribution channel (as % of total retail sales)

Source: Euromonitor

Key trends
Economy brands gaining momentum
Economy brands, which are priced lower than the major competitors, are gaining importance
in the Philippines as value for money is an important consideration when purchasing
products. Further, canned/processed foods affordability and ease of storage allow it to be
distributed effortlessly in sari-sari stores. This makes it a popular choice for lower- and
middle-income households.
Innovative products
Manufacturers have started to introduce more innovative products, in order to appeal to a
wider base of middle- and high-income consumers. Evolving from simple canned sardines,
tuna and corned beef, they have widened their lines through the addition of variants such as
corned tuna, tuna paella, mackerel steaks and milkfish. These new products are instrumental
in generating demand from middle- and high-income consumers, who are searching for new
products to try. The wide variety of products available in the local market encourages more
frequent consumption. More innovative variants also appeal to younger and more adventurous
consumers, who demand on-the-go meals.
Domestic vs. imported brands
Domestic manufacturers dominate canned/preserved food due to their long-standing presence
in the market and understanding of the tastes and preferences of local consumers. In 2011,
local companies held more than 70% of the retail value sales of canned/preserved food. On
the other hand, imported brands like Spam and Campbells are also popular, though they cater
to a smaller consumer base, consisting of people who are willing to pay a higher price for
perceived higher-quality products.
Marketing and promotional strategies
Manufacturers are adopting aggressive marketing and promotional strategies to generate more
demand. Generally, Filipinos are willing to try brands which are endorsed by high-profile
celebrities. Thus manufacturers continue to invest in and benefit from celebrity endorsements.
Advertisements via the printed media, radio and television remain important in the promotion
of canned/preserved food. Blog sites and social media are quickly becoming a key to
advertise products and influence consumers. As such, bloggers are usually invited to product
launches. With an increasing level of internet penetration in the Philippines, consumers are
increasingly looking to bloggers for reviews and recommendations.

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Brand differentiation
Brand differentiation has been a key strategy in the local competitive landscape, creating
different brand images to suit the profile of the target audience. For instance, CNPFs Century
Tuna is intended to appeal to people who are conscious about their physical appearance, while
555 is promoted as an affordable dish. Differentiation through advertising campaigns
allowed companies to set themselves apart and, at the same time, prevent product
commoditization.
Packaging
Packaging is also very important in the Philippine canned/preserved food industry, as it often
dictates the pricing scheme used by manufacturers. Small packaging, such as 100g packages,
has gained wider importance as consumers have shown a preference for affordable brands.
Other important packaging developments are the use of pouches instead of metal food cans
and easy-open cans for convenience.
TUNA EXPORTS
According to Euromonitor, the global fish/seafood export market has continued to grow
overtime. Health and wellness is the primary driver of seafood consumption as seafood is a
healthier alternative to meat.
The following chart shows the CAGR in expenditure of fish and seafood from 2008 to 2012.

Source: Euromonitor

According to the Food and Agriculture Organization, moderate demand, low supplies and
rising prices have been the features of the global tuna market in 2013. Tuna prices have
increased further for delivery to Asian canners, indicating lower supplies than current
demand. Following this trend, canned tuna prices are also increasing. With the high skipjack
prices, many tuna packers have started adjusting their selling prices or reducing the product
content to absorb increasing production costs.
The canned tuna consumption has been declining in the United States over the years, which is
apparent in the declining imports, which dropped by 14.3% in volume in 2012. The import
value (U.S.$761.3 million), however, went up by 5.8% as a result of increasing tuna prices
worldwide.

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Rising canned tuna prices have prompted EU importers to look for cheaper alternatives,
including products from African, Caribbean, and Pacific countries that have 0% import duty.
Thus, in 2012, canned tuna supplies from Cte dIvoire and Papua New Guinea to the EU
increased by 31% and 38.5% respectively, which somewhat offset lower imports from
Thailand (-44.3%) and the Philippines (-7.8%). The overall imports of canned/preserved tuna
into the EU in 2012 were only down by 3.5% in quantity, but the value went up by more than
14.4% over that of 2011, amounting to 447,579 tons valued at U.S.$2.5 billion.
In early 2003, the EU agreed to increase the annual import quota for pre-cooked tuna loins to
22,000 tons from 15,000 tons at zero duty for three years. European canners, mainly in Spain,
quickly took almost all the allotted duty-free quota within the first quarter of the year, mainly
from Thailand, Vietnam, China, Indonesia and the Philippines.
Philippine tuna export industry
According to the BOC, the total market size of the Philippine tuna export producers market
had reached U.S.$330 million in December 2013. Out of this, EU is the biggest importer of
Philippine tuna.
The following chart sets out the export share by country destination as of year-end 2013.

Source: BOC

According to BOC, canned tuna is the highest sub-category of tuna that is exported. EU is the
countrys biggest export market for canned tuna. Philippine canned tuna exports to the EU are
estimated to increase by about 64% by 2014, once it gains duty-free access to the 28-nation
trade bloc under the enhanced Generalized Scheme of Preferences (GSP Plus Program).
The following chart sets out the export share by product mix as of year-end 2013.

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Source: BOC

According to BOC, CNPF and Philbest are the top two exporters of tuna in the Philippines
accounting for 64.4% of tuna exports.
The ranking of the top players in the Philippines by tuna export share in 2013 is as given
below.
Ranking

Company

Market share

CNPF

34.2%

Philbest Canning Corporation

30.2%

Ocean Canning Corporation

10.2%

Alliance Select Foods International, Inc.

9.3%

Seatrade Development Canning Corporation

8.7%

Celebes Canning Corporation

7.4%

Source: BOC

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PHILIPPINE OTHER DAIRY PRODUCTS INDUSTRY

According to Euromonitor, the sales of dairy products in the Philippines increased from 43.6
billion in 2008 to 55.6 billion in 2012, representing a CAGR of 6.3%. This is expected to
grow to 67.1 billion in 2016 at a CAGR of 4.8% from 2012 to 2016.
The following chart shows the expected sales value of Philippine dairy segment from 2008 to
2016.

Source: Euromonitor

Powder milk dominates the dairy market comprising 53% of the sales value and 28% by the
sales volume in 2012. The breakdown of the dairy market in the Philippines by products is
given below.
2012 breakdown of sales by value

2012 breakdown of sales by volume

Cream Others
Milk
4%
0%
5%

Flavored
milk drinks
6%
Condensed/
evaporated
milk
15%

Milk
12%

Cream Others
0%
6%

Powder
milk
28%

Flavored
milk drinks
13%

Powder milk
53%

Flavored
powder milk
drinks
17%

Flavored
powder milk
drinks
14%

Condensed
/evaporated
milk
27%

Source: Euromonitor

The Philippine other dairy products segment includes condensed/evaporated milk, coffee
whiteners and cream. According to Euromonitor, cheaper brands have started gaining
momentum in the market since 2012. High inflation rates coupled with increasing prices of
dairy in the global market are encouraging more consumers to purchase cheaper products
such as Krem-Top, Carnation Condensada and Angel Evaporada. The other dairy products
sales in the Philippines increased from 8.5 billion in 2008 to 10.9 billion in 2012,
representing a CAGR of 6.4%. This is expected to grow to 13.5 billion in 2016 at a CAGR
of 5.5% from 2012 to 2016.
The following chart shows the expected sales value of Philippine other dairy products from
2008 to 2016.

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Source: Euromonitor

Supermarkets and hypermarkets are the key distribution channels for the Philippine other
dairy products. Manufactures, however, are adapting to smaller-sized packaging to encourage
more sales through sari-sari stores.
The following chart sets forth the relative percentages of different distribution channels for
the other dairy products segment in the Philippines, based on retail sales in 2012.
Retail sales in 2012 by distribution channel (as % of total retail sales)

Source: Euromonitor

According to AC Nielsen, the condensed/evaporated milk segment is led by Alaska with 60%
market share by sales and the all-purpose cream segment is led by Nestl with 70% market
share by sales.
The following table gives the ranking of the top players in the condensed/evaporated milk
market by retail value for 2012.
Ranking
1
2

Company
Alaska Milk Corporation
CNPF

Market share
72%
8%

Source: AC Nielsen

The following table gives a breakdown of the all-purpose cream segment brand share by retail
value for 2012.
Ranking
1

Company
Nestl S.A.

172

Market share
70%

2
3

Alaska Milk Corporation

CNPF

18%
9%

Source: AC Nielsen

The following table gives a breakdown of the all-purpose cream segment brand share by retail
value as of July 2011.
Ranking
1
2
3

Company
Nestl S.A.
CNPF
Fonterra Brands Philippines

Source: AC Nielsen; July 2011 is latest period data was made available

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Market share
65%
22%
12%

REGULATORY
HEALTH AND CONSUMER PROTECTION
The Food, Drug and Cosmetics Act
The Food, Drug and Cosmetics Act (R.A. No. 3720), as amended by E.O. 175 and the Food
and Drug Administration Act of 2009 (R.A. No. 9711), seeks to ensure that safe and quality
food is available in the Philippines, and regulates the production, sale, and trade of food to
protect the health of the citizens. The Food and Drug Administration (Philippine FDA) is
the governmental agency tasked to implement the Food, Drug and Cosmetics Act.
Under the Food, Drug and Cosmetics Act, the following acts, among others, are prohibited:

the manufacture, importation, exportation, sale, offering for sale, distribution,

transfer, non-consumer use, promotion, advertising, or sponsorship of any health
product that is adulterated, unregistered or misbranded. (Health product means
food, drugs, cosmetics, devices, biologicals, vaccines, in-vitro diagnostic reagents,
and household/urban hazardous substances. On the other hand, Food means any
processed substance which is intended for human consumption and includes drink for
man, beverages, chewing gum and any substances which have been used as an
ingredient in the manufacture, preparation or treatment of food.);
the adulteration or misbranding of any health product;
the refusal to permit entry to or inspection of premises or vehicles or to allow samples
to be collected for the purposes authorized under the Food, Drug and Cosmetics Act;
the alteration, mutilation, destruction, obliteration, or removal of the whole or any
part of the labeling of, or the doing of any other act with respect to health products if
such act is done while the article is held for sale (whether or not the first sale) and
results in the article being adulterated or misbranded;
the manufacture, importation, exportation, sale, offering for sale, distribution,
transfer, non-consumer use, promotion, advertisement, or sponsorship of any health
product which, although requiring registration, is not registered with the Philippine
FDA;
the manufacture, importation, exportation, transfer or distribution of any food,
cosmetic or household/urban hazardous substance by any natural or juridical person
without the license to operate from the Philippine FDA; and
the sale, offering for sale, importation, exportation, distribution, or transfer of any
health product beyond its expiration or expiry date, if applicable.

Any person who commits any of the prohibited acts stated above shall, upon conviction,
suffer the penalty of imprisonment ranging from one (1) year but not more than ten (10) years
or a fine of not less than 50,000.00 but not more than 500,000.00, or both, at the discretion
of the court. If the offender is a manufacturer, importer or distributor of any health product,
the penalty of at least five (5) years imprisonment but not more than ten (10) years and a fine
of at least 500,000.00 but not more than 5,000,000.00 shall be imposed. Further, an
additional fine of 1% of the economic value/cost of the violative product or violation, or
1,000.00, whichever is higher, shall be imposed for each day of continuing violation.
Furthermore, health products found in violation of the provisions of the Food, Drug and
Cosmetics Act and other relevant laws, rules and regulations may be seized and held in
custody pending proceedings, without a hearing or court order, when the director general of
the Philippine FDA has reasonable cause to believe from facts found by him or an authorized

174

officer or employee of the Philippine FDA that such health products may cause injury or
prejudice to the consuming public.
Designated officers or employees of the Department of Health (DOH), for purposes of
enforcing of the Food, Drug and Cosmetics Act, are authorized to enter, at reasonable hours,
any factory, warehouse, or establishment in which food, drugs, devices, or cosmetics are
manufactured, processed, packed, or held for introduction into domestic commerce and to
inspect, in a reasonable manner, such factory, warehouse, establishment, or vehicle and all
pertinent equipment, finished or unfinished materials, containers, and labeling therein.
When there is a finding of prohibited actions and determination of the persons liable thereto,
after notice and hearing, the director-general may impose one or more of the following
administrative penalties: (1) the cancellation of any authorization which may have been
granted by the Philippine FDA, or suspension of the validity thereof which shall not exceed 1
year, (2) a fine of not less than 50,000.00 but not more than 500,000.00, and (c) the
destruction and/or appropriate disposition of the subject health product and/or closure of the
establishment for any violation of the Food, Drug and Cosmetics Act.
The Company has no pending material case in relation to the Food, Drug and Cosmetics Act,
as amended by E.O. 175 and the Food and Drug Administration Act of 2009.
The Consumer Act
The Consumer Act (R.A. No. 7394) establishes quality and safety standards with respect to
the composition, contents, packaging, and advertisement of food products. It is directed to
achieve the following objectives: (1) to protect consumers against hazards to health and
safety, (2) to protect consumers against deceptive, unfair, and unconscionable sales acts and
practices, (3) to provide consumers information and education to facilitate sound choice and
the proper exercise of rights, (4) to provide consumers with adequate rights and means of
redress, and (5) to involve consumer representatives in the formulation of social and
economic policies.
The Consumer Act, in furtherance of its objectives, regulates the use of weights and
measures, advertisements and sales promotions, labeling and packaging, credit transactions,
and product and service warranties of food products. It prohibits, among other acts, the
adulteration and misbranding of food products and the manufacture, importation, exportation,
sale, offering for sale, distribution, and transfer of food products that are adulterated or
misbranded or do not conform to applicable consumer product quality or safety standards. A
food is deemed adulterated if, among others, it contains any poisonous or deleterious
substance, it is prepared, packed, or held under unsanitary conditions, it contains substances
to increase its bulk or weight, reduce its quality or strength, or make it appear better or of
greater value than it is, or its damage or inferiority is concealed in any manner.
The Consumer Act imposes a penalty of imprisonment of not less than one year but not more
than five years, or a fine of not less than 5,000.00 but not more than 10,000.00, or both, at
the discretion of the court. The chairman of the board of directors, president, general
manager, partners, and persons directly responsible for the offense, if committed by a
juridical person, shall be penalized.
The implementing agencies tasked to enforce the Consumer Act are the DOH, the Department
of Agriculture (DA), and the Department of Trade and Industry (DTI).
The Company has no pending material case in relation to the Consumer Act.

175

The Food Safety Act

The Food Safety Act of 2013 (R.A. No. 10611) seeks to strengthen the food safety regulatory
system in the Philippines by principally delineating the mandates and responsibilities of the
concerned government agencies. The National Dairy Authority, National Meat Inspection
Service (NMIS), and Bureau of Fisheries and Aquatic Resources under the DA are the
government agencies responsible for the development and enforcement of food safety
standards and regulations in the primary production and post harvest stages for milk, meats,
and fish, respectively, while the Philippine FDA under the DOH is responsible for the safety
of processed and pre-packaged foods. The Food Safety Act created the Food Safety
Regulation Coordinating Board to monitor and coordinate the performance and
implementation of the mandates of the government agencies under the law.
Under the Food Safety Act, food business operators or those who undertake to carry out any
of the stages of the food supply chain are held principally responsible in ensuring that their
products satisfy the requirements of the law and that control systems are in place to prevent,
eliminate, or reduce risks to consumers.
For the enforcement of the Food Safety Act, the food safety regulatory agencies are
authorized to perform regular inspection of food business operators taking into consideration
the (1) compliance with mandatory safety standards, (2) implementation of the HACCP or the
science-based system that identifies, evaluates, and controls hazards for food safety at critical
points, (3) good manufacturing practices, and (4) other requirements of regulations.
The Food Safety Act prohibits, among others, the following acts:

refusal of access to pertinent records or entry of inspection officers of the food safety
regulatory agencies;
production, handling or manufacturing for sale, offering for sale, distribution in
commerce, or importation of any food or food product, which is declared as banned
or is not in conformity with applicable quality or safety standard;
Adulteration, misbranding, mislabeling, false advertisement of any food product
which misleads the consumers and carry out any other acts contrary to good
manufacturing practices;
Operation of a food business without the appropriate authorization

For the first conviction of any of the prohibited acts under the Food Safety Act, a fine of not
less than 50,000.00 but not more than 100,000.00 and suspension of appropriate
authorization for one month shall be imposed. For the second conviction, a fine of not less
than 100,000.00 but not more than 200,000.00 and suspension for three months shall be
imposed. For the third conviction, a fine of not less than 200,000.00 but not more than
300,000.00 and suspension for six months shall be imposed. The penalties shall be also be
imposed when the violation results in the physical injuries or death of a person.
The Company has no pending material case in relation to the Food Safety Act.
The Philippine Fisheries Code
The Philippine Fisheries Code (R.A. No. 8550) declares food security as the overriding
consideration in the utilization, management, development, conservation, and protection of
fishery resources in order to provide the food needs of the population. It regulates the conduct
of fishery activities for the conservation, protection, and sustained management of the

176

countrys fishery and aquatic resources, poverty alleviation and the provision of
supplementary livelihood among municipal fisherfolk, improvement of productivity of
aquaculture, optimal utilization of off-shore and deep-sea resources, and upgrading of postharvest technology.
Under the Fisheries Code, all post-harvest facilities such as fish processing plants, ice plants
and cold storages, fish ports/landings and other fishery business establishments must register
with and be licensed by the LGUs which shall prescribe minimum standards for such
facilities.
The Fisheries Code regulates the exportation of fishery products whenever such exportation
affects domestic food security and production. The exportation of live fish shall be prohibited
except those which are hatched or propagated in accredited hatcheries and ponds. Fishery
products may be imported only upon certification by the DA that the importation is necessary
and all the requirements of the Fisheries Code and existing rules and regulations have been
complied with. Importation for canning or processing purposes may be allowed without the
certification, provided, a permit is secured from the DA. No person shall import and/or export
fishery products of whatever size, stage or form for any purpose without securing a permit
from the DA.
Any importation or exportation of fish or fisheries species in violation of the Fisheries Code
shall be punished by eight years of imprisonment, a fine of 80,000.00 and destruction of live
fishery species or forfeiture of non-lived fishery species. Any violator shall be banned from
being members or stockholders of companies engaged in fisheries.
The Bureau of Fisheries and Aquatic Resources (BFAR) under the DA sets policies and
formulates standards for the effective, efficient, and economical operation of the fishing
industry and exercises overall supervision over functions and activities of all offices and
instrumentalities and other offices related to fisheries. The BFAR is responsible for the
establishment and implementation of an inspection system for the import and export of fish
and fishery or aquatic products and fish processing establishments in order to ensure product
quality and safety.
The Fisheries and Aquatic Resources Management Councils (FARMCs) formed in the
national and local levels by fisherfolk organizations, cooperatives, and non-government
organizations in localities assist in the preparation of fishery development plans and
enforcement of fishery laws, rules, and regulations.
For the purposes of enforcement of the Philippine Fisheries Code, the law enforcement
officers of the DENR, the Philippine Navy, Philippine Coast Guard, Philippine National
Police (PNP), PNP-Maritime Command, law enforcement officers of the local government
units, and other government enforcement agencies, are authorized to enforce the Code and
other fishery laws, rules and regulations
The Company has no pending material case in relation to the Philippine Fisheries Code.
The Meat Inspection Code
The Meat Inspection Code (R.A. No. 9296), as amended, applies to all meat establishments
where food animals are slaughtered, prepared, processed, handled, packed or stored or sold. It
establishes safety and quality standards for meats derived from domestic animals slaughtered
for human consumption, including pork, beef, and chicken meat products. The NMIS, a
specialized regulatory service attached to the DA, serves as the national controlling authority
tasked with implementing policies, programs, guidelines, and rules and regulations pertaining

177

to meat inspection and meat hygiene to ensure meat safety and quality from farm to table. On
the other hand, the local government units, in accordance with existing laws, policies, rules
and regulations, and quality and safety standards of the DA, have the authority to regulate the
construction, management, and operation of slaughterhouses, meat inspection, and meat
transport within their respective jurisdictions, and to collect fees and charges in connection
therewith.
The Meat Inspection Code requires the inspection of food animals and the carcasses and parts
thereof that are capable of use as human food. Only meat or meat products that have passed
inspection and have been marked may be sold, offered for sale, or transported. The Meat
Inspection Code also provides for the inspection of slaughterhouses, poultry dressing plants,
and meat shops to ensure compliance with existing laws, policies, and safety standards.
All meat establishments are required to adopt good manufacturing practices and sanitation
standard operating procedures programs for the production, storage, and distribution of meat
products and to comply with all pollution control and environmental laws and regulations
relating to the disposal of carcasses and parts thereof.
Any meat or meat products which is placed or packed in any can, pot, tin, canvas, other
receptacle or covering must be properly labeled, under the supervision of an inspector. The
label shall state that the contents thereof have been "Inspected and Passed". No examination
and inspection of sealed meat and meat products shall be deemed to be complete until such
products have been sealed or enclosed. No meat and meat products shall be sold or offered for
sale by any person, firm or corporation, under any name or other marking or labeling which is
false or misleading, or in any container of a misleading form or size. Established trade names
and other marking and labeling and containers which are not false or misleading and
approved by the secretary of the DA are permitted.
Under the Meat and Inspection Code, the following acts, among others, are prohibited:

slaughter any food animal or prepare meat or meat product in any meat establishment
except in compliance with the requirements of the Meat and Inspection Code;
slaughter or handle in connection with slaughter, any food animal in a manner not
considered humane;
sell, transport, offer or receive for sale or transportation in commerce carcasses or
parts thereof, meat or meat product required to be inspected, unless they have been so
inspected and passed;
do any act while they are being transported in commerce or held for sale, which is
intended to cause or has the effect of causing such articles to be adulterated or
misbranded.

Any person, who commits any of the prohibited acts or violates any of the Meat Inspection
Code, shall be punished by imprisonment of not less than six (6) years and one (1) day but not
more than twelve (12) years or a fine of not less than 100,000.00 but not more than
1,000,000.00 or both such fine and imprisonment. The offender is obliged to pay to the
concerned consumer whatever damage may have been suffered by the latter as a consequence
of the unlawful act. In addition, the NMIS and the LGUs imposes administrative fines and
penalties.
Further, a cease and desist order may be issued by the secretary of the DA to any person, firm,
or corporation engaged, in the business of slaughtering food animals, or preparing, freezing,
packaging, storing, or labeling any carcasses or parts or products of carcasses for use as
human food, found to be in violation of any of the provisions of the Meat and Inspection

178

Code, should the continued operation of the said entity, pose risks to public health and
endanger the animal population.
The Company has no pending material case in relation to the Meat Inspection Code.
The Price Act
The Price Act (R.A. No. 7581) provides for price controls for basic necessities and prime
commodities in certain situations. Basic necessities include rice, corn, bread, fish, dried and
canned fish and other marine products, fresh vegetables, pork, beef, poultry, milk, coffee,
cooking oil, salt, laundry soap, and detergents while prime commodities include flour, dried,
processed and canned pork, beef and poultry meat, other dairy products, toilet soap, paper,
school supplies, electrical supplies, and batteries, among others. Under the Price Act, the
prices of basic commodities are automatically frozen in areas declared as disaster areas, under
emergency or martial law or in a state or rebellion or war. Unless lifted by the President of the
Philippines, prices shall remain the same for a maximum of 60 days. The President of the
Philippines may likewise impose a price ceiling on basic necessities and prime commodities
in cases of calamities, emergencies, price manipulation, or when the prevailing prices have
risen to unreasonable levels.
The Price Act considers it unlawful for any person habitually engaged in the production,
manufacture, importation, storage, transport, distribution, sale, or other methods of
disposition of goods to engage in price manipulation of any basic necessity or prime
commodity through cartels, hoarding, or profiteering.
The DA, DENR, DOH, and the DTI are the implementing agencies responsible for the
enforcement of the provisions of the Price Act. The implementing government agencies of the
Price Act are granted the authority thereunder to issue suggested retail prices, whenever
necessary, for certain basic necessities and/or prime commodities for the information and
guidance of concerned trade, industry, and consumer sectors.
The Company has no pending material case in relation to the Price Act.
ENVIRONMENTAL LAWS
Philippine Environmental Impact Statement System
The Philippine Environmental Impact Statement System was established by virtue of
Presidential Decree 1586. Development projects that are classified by law as environmentally
critical or projects within statutorily defined environmentally critical areas are required to
obtain an Environmental Compliance Certificate (ECC) prior to project construction and
operation. Through its regional offices or through the Environmental Management Bureau
(EMB), the DENR determines whether a project is environmentally critical or located in an
environmentally critical area. As a prerequisite for the issuance of an ECC, an
environmentally critical project is required to submit an Environmental Impact Statement
(EIS) to the EMB while a project in an environmentally critical area is generally required to
submit an Initial Environmental Examination (IEE) to the proper DENR regional office,
without prejudice to the power of the DENR to require a more detailed EIS.
The EIS refers to both the document and the environmental impact assessment of a project,
including a discussion of direct and indirect consequences to human welfare and ecology as
well as environmental integrity. The IEE refers to the document and the study describing the
environmental impact, including mitigation and enhancement measures, for projects in
environmentally critical areas.

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While the terms and conditions of an EIS or an IEE may vary from project to project, at a
minimum, they contain all relevant information regarding the environmental effects of a
project. The entire process of organization, administration and assessment of the effects of
any project on the quality of the physical, biological and socio-economic environment as well
as the design of appropriate preventive, mitigating and enhancement measures is known as
the EIS system. The EIS system successfully culminates in the issuance of an ECC. The ECC
is a government certification that (1) the proposed project or undertaking will not cause a
significant negative environmental impact, (2) the proponent has complied with all the
requirements of the EIS system, and (3) the proponent is committed to implement its
approved environmental management plan in the EIS or, if an IEE was required, that it will
comply with the mitigation measures suggested therein. The ECC contains specific measures
and conditions that the project proponent must undertake before and during the operation of a
project, and in some cases, during the abandonment phase of the project to mitigate identified
environmental impact.
Project proponents that prepare an EIS are required to establish an Environmental Guarantee
Fund (EGF) when the ECC is issued to projects determined by the DENR to pose
significant public risks to life, health, property and the environment. The EGF is intended to
answer for damages caused by such projects as well as any rehabilitation and restoration
measures. Project proponents that prepare an EIS are mandated to include a commitment to
establish an Environmental Monitoring Fund (EMF) when an ECC is eventually issued.
The EMF shall be used to support activities of a multi-partite monitoring team that will be
organized to monitor compliance with the ECC and applicable laws, rules, and regulations.
The Company incurs expenses for the purposes of complying with environmental laws that
consist primarily of payments for government regulatory fees.
In certain instances, the EMB may determine and issue a certification that a certain project is
not covered by the EIS System and an ECC is not required. Consequently, a Certificate of
Non-Coverage (CNC) may be issued in lieu of an ECC.
The Company has no pending material case in relation to the Philippine Environmental
Impact Statement System.
Toxic Substances, Hazardous and Nuclear Wastes Control Act
The Toxic Substances, Hazardous and Nuclear Wastes Control Act (R.A. No. 6969) mandates
control and management of import, manufacture, process, distribution, use, transport,
treatment and disposal of toxic substances and hazardous and nuclear wastes. It seeks to
protect public health and the environment from unreasonable risks posed by these substances.
Hazardous Waste Generators, i.e. persons (natural or juridical) who generate or produce
hazardous wastes, through any commercial, industrial or trade activities, are required to
register with the EMB Regional Office having jurisdiction over the location of the waste
generator. A DENR I.D. Number shall be issued upon registration.
This is a one-time permit unless there is a change in the hazardous wastes produced.
The Company has no pending material case in relation to the Toxic Substances, Hazardous
and Nuclear Wastes Control Act.
Clean Air Act

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The Clean Air Act of 1999 focuses primarily on pollution prevention and provides for a
comprehensive management program for air pollution.
Consistent with the policies of the Clean Air Act, all stationary sources of air pollution that
have the potential to emit 100 tons per year or more of any regulated air pollutant, or when
required under the ECC, must secure an Authority to Construct and Permit to Operate from
the EMB prior to commencement of construction or operation.
The Authority to Construct and Permit to Operate is a one-time permit while the permit to
operate must be renewed yearly.
The Company has no pending material case in relation to the Clean Air Act.
LABOR LEGISLATION
The Labor Code
The Philippine Labor Code and other statutory enactments provide the minimum benefits that
employers must grant to their employees, which include certain social security benefits, such
as benefits mandated by the Social Security Act of 1997 (R.A. No. 8282), the National Health
Insurance Act of 1995 (R.A. No. 7875), as amended, and the Home Development Fund Law
of 2009 (R.A. No. 9679).
Under the Social Security Act of 1997, social security coverage is compulsory for all
employees under 60 years of age. An employer is obligated to deduct and withhold from each
employee's monthly salary, wage, compensation or earnings, the employee's contribution; and
the employer, for its part, makes a counterpart contribution for the employee, and remits both
amounts to the Social Security System (SSS). This enables the employees to claim their
pension, death benefits, permanent disability benefits, funeral benefits, sickness benefits and
maternity-leave benefits. The Social Security Act of 1997 imposes penal sanctions if an
employer fails to remit the contributions to the SSS. For corporate employers, the penalty is
imposed on its president and members of the board of directors.
The National Health Insurance Act created the National Health Insurance Program (NHIP)
to provide health insurance coverage and ensure affordable and accessible health care services
to all Filipino citizens. Under the law, all members of the SSS are automatically members of
the NHIP. The Philippine Health Insurance Corporation (PhilHealth) administers the NHIP,
and an employer is required to deduct and withhold the contributions from the employees
salary, wage or earnings, make a counterpart contribution for the employee, and remit both
amounts to PhilHealth. The NHIP will then subsidize personal health services required by the
employee subject to certain terms and conditions under the law. The National Health
Insurance Act likewise imposes penal sanctions if an employer does not remit the
contributions to PhilHealth. For corporate employers, the penalty is imposed on its president
and members of the board of directors.
The Home Development Fund Law (R.A. No. 9679) or the Pag-IBIG Fund Law, created the
Home Development Mutual Fund (HDMF), a national savings program as well as a fund to
provide for affordable shelter financing to Filipino workers. Coverage under the HDMF is
compulsory for all SSS members and their employers. Under the law, an employer must
deduct and withhold 2% of the employee's monthly compensation, up to a maximum of
5,000.00, and likewise make a counterpart contribution of 2% of the employee's monthly
compensation, and remit the contributions to the HDMF. The Pag-IBIG Fund Law also
imposes penal sanctions if the employer does not remit the contributions to the HDMF.

181

The Philippine Labor Code provides that, in the absence of a retirement plan provided by
their employers, private-sector employees who have reached 60 years of age or more, but not
beyond 65 years of age, the compulsory retirement age for private-sector employees without a
retirement plan, and who have rendered at least five years of service in an establishment, may
retire and receive a minimum retirement pay equivalent to one-half month's salary for every
year of service, with a fraction of at least six months being considered as one whole year. For
the purpose of computing the retirement pay, "one-half month's salary" shall include all of the
following: fifteen days salary based on the latest salary rate; in addition, one-twelfth of the
thirteenth month pay and the cash equivalent of five days of service incentive leave pay.
Other benefits may be included in the computation of the retirement pay upon agreement of
the employer and the employee or if provided in a collective bargaining agreement.
The Company has no pending material case in relation to the Labor Code.

182

BOARD OF DIRECTORS AND SENIOR MANAGEMENT

The overall management and supervision of the Company is undertaken by the Companys
Board of Directors. The Companys executive officers and management team cooperate with
its Board by preparing appropriate information and documents concerning the Companys
business operations, financial condition and results of operations for its review. Pursuant to
the Companys articles of incorporation, the Board shall consist of seven members, of which
two are independent directors. A majority of the directors were elected at the Companys
annual shareholders meeting on October 28, 2013 and will hold office until their successors
have been duly elected and qualified. The Companys annual shareholders meetings are held
in June. The table sets forth each member of the Companys Board and its executive officers
as of December 31, 2013.
Name
Ricardo S. Po, Sr.
Ricardo T. Po, Jr.
Christopher T. Po

Age
82
45
43

Nationality
Filipino
Filipino
Filipino

Teodoro T. Po

44

Filipino

Leonardo T. Po
Oscar A. Pobre

36
57

Filipino
Filipino

Manuel Z. Gonzalez

48

Filipino

Johnip Cua
Fernan Lukban
Gregory Banzon

57
53
49

Filipino
Filipino
Filipino

Edwin Africa

43

Filipino

Rex Agarrado

57

Filipino

Teddy Kho

50

Filipino

Ronald Agoncillo

37

Filipino

Cezar Cruz, Jr.

58

Filipino

Emerson Villarante

48

Filipino

Position
Chairman Emeritus
Vice Chairman
Chairman, President and Chief
Executive Officer
Vice Chairman, Executive Vice
President, and Chief Operating Officer
Director and Treasurer
Chief Financial Officer and Chief
Information Officer
Corporate Secretary and Compliance
Officer
Independent Director
Independent Director
Vice President General Manager
(Canned and Processed Fish, Tuna
Division)
Vice President General Manager
(Dairy and Mixes)
Vice President General Manager
(Canned Meat)
Vice President General Manager
(Tuna Export)
Vice President Head of Sales, Trade
Marketing and Demand Planning
Vice President General Manager
(Canned and Processed Fish, Sardines
Division)
Vice President Human Resources
and Corporate Affairs

Ricardo S. Po, Sr., Chairman Emeritus of the Company, is the founder and chairman of
CCC. A self-made entrepreneur, he started his professional career as a journalist, then moved
on to advertising where he started and managed Cathprom Advertising Co., and later became
a stock broker. He founded the Century Group in 1978 when he started CCC and grew it to
become of one of the largest canned food companies in the Philippines. Mr. Po, Sr. was
awarded Masters in Business Administration by the University of Santo Tomas in 2006.

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Ricardo Gabriel T. Po, Jr. was elected Vice Chairman of the Company on October 28,
2013. He served as the Executive Vice President and Chief Operating Officer of CCC from
1990-2006 and became the Vice Chairman of its board of directors in 2006 and continues to
hold that position. He graduated magna cum laude from Boston University with a Bachelor of
Science degree in Business Management in 1990. He also took the Executive Program
(Owner-President Management Program) at Harvard Business School in 2000. He is also a
Member of the Board of Directors and serves on the Executive Committee of Arthaland
Corporation, a property developer listed on the PSE as well as the Vice Chairman of IP EGame Ventures, Inc, a consumer, new media, and gaming company.
Christopher T. Po was elected Chairman, President, and Chief Executive Officer the
Company on October 28, 2013. He concurrently serves as Chairman and Chief Executive
Officer of CCC. Prior to joining CCC, he was Managing Director for Guggenheim Partners, a
US financial services firm, where he was in charge of the firm's Hong Kong office.
Previously, he was a Management Consultant at McKinsey and Company working with
companies in the Asian region. He also worked as the Head of Corporate Planning for JG
Summit Holdings, a Philippine-based conglomerate with interests in food, real estate,
telecom, airlines, and retail. He graduated summa cum laude from Wharton School and
College of Engineering of the University of Pennsylvania with dual degrees in Economics
(finance concentration) and applied science (systems engineering) in 1991. He holds a
Masters degree in Business Administration from the Harvard University Graduate School of
Business Administration. Mr. Christopher Po is a member of the Board of Arthaland
Corporation and Isla Gas and is a member of the Board of Trustees of WWF-Philippines and
is the President of the CPG-RSPo Foundation.
Teodoro T. Po was elected Vice Chairman, Executive Vice President, and Chief Operating
Officer of the Company on October 28, 2013. He is also a Member of the Board of Directors
of CCC. Since 1990, Mr. Teodoro Po has held various positions in CCC. He became the
Chief Operating Officer in 2006 and continues to hold that position. He graduated summa
cum laude from Boston University with a Bachelor of Science degree in Manufacturing
Engineering in 1990. He also completed the Executive Education Program (Owner/ President
Management Program) at Harvard Business School.
Leonardo Arthur T. Po was elected as the Treasurer of the Company on October 28, 2013.
He also serves as Executive Director of CCC and the General Manager for its Emerging
Business Units. He is also an Independent Director of IPVG Corp. Mr. Leonardo Po
graduated magna cum laude from Boston University with a degree in Business
Administration in 2001 and has since acquired an extensive business experience in the
marketing and operations of quick-serve restaurants, food service and fast moving consumer
goods.
Oscar A. Pobre was elected as Chief Financial Officer of the Company on October 28, 2013.
He is also the Companys Chief Information Officer. He also serves as Vice President for
Finance and Chief Financial Officer of CCC and has held this position since August 2000. He
first joined CCC as Director for Finance and Controllership Group in August 1994. Prior to
CCC, Mr. Pobre had 17 years of experience in finance, starting as Assistant Analyst with the
Manila Electric Company. He progressed with his career to be Division Chief for Subsidiary
Operations Comptrollership Group for Human Settlements Development Corporation,
Finance Manager for Commander Drug Corporation, Budget & Cost Department Manager for
Dole Philippines, Inc., Corporate Planning Manager for RFM Corporation, and Corporate
Controller for Cosmos Bottling Corporation. Mr. Pobre graduated from the Ateneo de Manila
University with a Bachelor of Science degree in Business Management and holds a Master in
Business Management degree from the Asian Institute of Management.
184

Manuel Z. Gonzalez is the Corporate Secretary and Compliance Officer of the Company. He
is also a Senior Partner in the Martinez Vergara Gonzalez & Serrano Law Office since 2006
up to the present. Atty. Gonzalez was formerly a partner with the Picazo Buyco Tan Fider &
Santos Law Office until 2006. Atty. Gonzalez has been involved in corporate practice and has
extensive experience in securities, banking and finance law. Atty. Gonzalez serves as Director
and Corporate Secretary to many corporations including to companies in the Century Pacific
Group since 1995, Nomura Securities Philippines since 2006 and ADP Philippines, Inc. since
2010. Atty. Gonzalez graduated cum laude with a Bachelor of Arts degree in Political Science
and Economics from New York University and he has also received a Bachelor of Laws from
the University of the Philippines, College of Law.
Johnip Cua is an Independent Director of the Company and has extensive experience in the
consumer goods and marketing industries. Mr. Cua served as the President and General
Manager of Procter & Gamble Philippines from 1995-2006. Prior to that, Mr. Cua held a
number of positions at Procter & Gamble, including Manager of Product Development and
Project Supply at Procter & Gamble Taiwan and Category Manager of Procter & Gamble
Philippines. Mr. Cua currently serves as Chairman and President of Taibrews Corporation and
as a member of the boards of directors of various corporations, including BDO Private Bank,
MacroAsia Corporation and STI Education Systems Holdings, Inc., among others. Mr. Cua
has received a number of awards, including Agora Awards Outstanding Achievement in
Marketing Management (1998) and Procter & Gamble Global Marketing Organizations
Passionate Leadership Award (2006). Mr. Cua holds a Bachelor of Science degree in
Chemical Engineering from the University of the Philippines.
Fernan Lukban is an Independent Director of the Company. He is a well-recognized
consultant in family business, strategy, entrepreneurship and governance. Mr. Lukban holds
undergraduate degrees in Engineering (Mechanical and Industrial from De La Salle
University, Manila) and graduate degrees in Economics (MSc in Industrial Economics from
the Center for Research & Communication, now University of Asia & the Pacific) and in
business (MBA from IESE, Barcelona, Spain). He spent much of his early professional years
in academia, helping establish the University of Asia & the Pacific where he currently
participates as a consultant, mentor and guest lecturer. He is a founding fellow of the Institute
of Corporate Directors, an International Fellow of the Australian Institute of Company
Directors and an Independent Director of Pancake House, Inc. and Arthaland Corporation
Gregory Banzon was appointed as the Vice President General Manager (Canned and
Processed Fish, Tuna Division) of the Company on October 28, 2013. He served three years
as the General Manager and Business Unit Head at the Century Group. Prior to the Century
Group, Mr. Banzon had 22 years of experience in various general management, marketing
and sales roles including Vice President Marketing of Johnson & Johnson ASEAN, Country
General Manager of Johnson & Johnson Indonesia, and General Manager at RFM. Mr.
Banzon graduated from De La Salle University with a Bachelors degree in Commerce
(Marketing).
Edwin Raymond Africa recently joined the Company on April 1, 2014 as Vice President
General Manager (Dairy and Mixes). Prior to joining the Company, Mr. Africa had 23 years
of experience in various marketing, advertising and brand management roles at Pepsico
Malaysia/Singapore from 2006-2012, Pepsico Asia Pacific from 2004 to 2005, Proctor &
Gamble Asia from 1998 to 2001, Proctor & Gamble Taiwan from 1996 to 1998 and Proctor &
Gamble Philippines from 1991 to 1996. Mr. Africa graduated from Ateneo de Manila
University in 1991 with a degree in Bachelor of Science in Management Engineering.

185

Rex Agarrado was appointed as Vice President General Manager (Canned Meat) of the
Company on October 28, 2013. He joined the Century Group in 1998 and served seven years
as General Manager of PMCI. Prior to the Century Group, Mr. Agarrado had 18 years of
experience in various technical and manufacturing roles at San Miguel, RFM, Quaker and
California Manufacturing Corporation. He also serves as Director of the Philippine
Association of Meat Processors, Inc., for which he was previously President. Mr. Agarrado
graduated from the University of Philippines Los Baos with a Bachelor of Science in Food
Technology and he completed the Management Development Program from the Asian
Institute of Management.
Teddy Kho was appointed as Vice President General Manager (Tuna Export) of the
Company on October 28, 2013. He served three years as Business Unit Head of GTC. Prior to
GTC, Mr. Kho had 21 years of experience in various management, operations and technical
roles including President and General Manager of San Miguel Foods Vietnam and Plant
Manager of San Miguel Hoecheong. Mr. Kho graduated from Adamson University with a
Bachelor of Science in Chemical Engineering and completed the Management Development
Program from the Asian Institute of Management.
Ronald Agoncillo was appointed as Vice President Head of Sales, Trade Marketing and
Demand Planning of the Company on October 28, 2013. He joined the Century Group in
2008 and served four years as Head of Sales Division. Prior to the Century Group, he had
eight years of experience in sales management roles at National Sales and Cadbury. He also
has experience in various customer development roles at Unilever Indonesia and Philippines
and engineering and logistics roles at 3M, Shell and San Miguel. Mr. Agoncillo graduated
from De La Salle University with a Bachelor of Science in Industrial Management
Engineering.
Cezar Cruz, Jr. was appointed as Vice President General Manager (Canned and Processed
Fish, Sardines Division) of the Company on October 28, 2013. He joined the Century Group
in 2006 and served 3 years as Business Unit Head Sardines Business. Prior to the Century
Group, he had 29 years of experience in various technical, operations and business
development roles at San Miguel and RFM. He currently serves as the President of the
Sardine Association of the Philippines. Mr. Cruz Jr. graduated from the University of the
Philippines with a Bachelor of Science in Electrical Engineering.
Emerson Villarante was appointed as Vice President Human Resources and Corporate of
Affairs of the Company on October 28, 2013. He served seven years as Head of Human
Resources and Organizational Development at the Century Group. Prior to the Century
Group, he held various roles in human resources management including Vice President of
Human Resources for Bechtel and Alan. Mr. Villarante graduated from the University of
Santo Tomas with a Bachelor of Arts in Behavioral Science and holds a Masters in
Management from the Asian Institute of Management.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS OF DIRECTORS AND
EXECUTIVE OFFICERS
To the best of the Companys knowledge and belief and after due inquiry, none of the
Companys directors, nominees for election as director, or executive officer have in the fiveyear period prior to the date of this Prospectus: (1) had any petition filed by or against any
business of which such person was a general partner or executive officer either at the time of
the bankruptcy or within a two-year period of that time; (2) have been convicted by final
judgment in a criminal proceeding, domestic or foreign, or have been subjected to a pending
judicial proceeding of a criminal nature, domestic or foreign, excluding traffic violations and

186

other minor offenses; (3) have been the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic
or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting
their involvement in any type of business, securities, commodities or banking activities; or (4)
have been found by a domestic or foreign court of competent jurisdiction (in a civil action),
the SEC or comparable foreign body, or a domestic or foreign exchange or other organized
trading market or self-regulatory organization, to have violated a securities or commodities
law or regulation, such judgment having not been reversed, suspended, or vacated.
CORPORATE GOVERNANCE
The Board approved the Companys Corporate Governance Manual (the Manual) during
the meeting of the Board of Directors on November 25, 2013. The Manual assists the
Company in monitoring and assessing its level of compliance with leading practices on good
corporate governance as specified in pertinent SEC circulars. Aside from establishing
specialized committees to aid in complying with the principles of good corporate governance,
the Manual also outlines specific investors rights and protections and enumerates particular
duties expected from the Board members, officers and employees. It also features a disclosure
system which highlights adherence to the principles of transparency, accountability and
fairness. A compliance officer is tasked with the formulation of specific measures to
determine the level of compliance with the Manual by the Board members, officers and
employees. There has been no deviation from the Manuals standards as of the date of this
Prospectus.
COMMITTEES OF THE BOARD
The Board created and appointed Board members to each of the committees set forth below.
Each member of the respective committees named below holds office as of the date of this
Prospectus and will serve until his successor is elected and qualified.
Audit Committee
The Companys Audit Committee is responsible for assisting its Board in its fiduciary
responsibilities by providing an independent and objective assurance to its management and
shareholders of the continuous improvement of its risk management systems, business
operations and the proper safeguarding and use of its resources and assets. The Audit
Committee provides a general evaluation of and assistance in the overall improvement of its
risk management, control and governance processes. The Audit Committee must comprise at
least three members of the Board, who shall preferably have accounting and finance
backgrounds, at least one of whom shall be an independent director and another with audit
experience. The Audit Committee chairman shall be an independent director.
The Audit Committee has the following functions:
(A)

provide oversight of managements activities in managing credit, market, liquidity,

operational, legal and other risks of the Company. This function shall include regular
receipt from management of information on risk exposures and risk management
activities;

(B)

perform oversight functions over the Companys internal and external auditors. It
should ensure that the internal and external auditors act independent from each other
and that both auditors are given unrestricted access to all records, properties and
personnel to enable them to perform their respective audit functions;

187

(C)

review the annual internal audit plan to ensure its conformity with the objectives of
the Company. The plan shall include the audit scope, resources and budget necessary
to implement it;

(D)

prior to the commencement of an audit, discuss with the external auditor the nature,
scope and expenses of the audit, and ensure proper coordination if more than one
audit firm is involved in the activity to secure proper coverage and minimize
duplication of efforts;

(E)

organize an internal audit department, and consider, when necessary and desirable,
the appointment of an independent internal auditor and the terms and conditions of its
engagement and removal;

(F)

monitor and evaluate the adequacy and effectiveness of the Companys internal
control system including financial reporting control and information technology
security;

(G)

review the reports submitted by the internal and external auditors;

(H)

review the quarterly, half-year and annual financial statements before their
submission to the Board, with particular focus on the following matters: any
change(s) in accounting policies and practices; major judgment areas; significant
adjustments resulting from the audit; going concern assumptions; compliance with
accounting standards; and compliance with tax, legal and regulatory requirements;

(I)

coordinate, monitor and facilitate compliance with laws, rules and regulations;

(J)

evaluate and determine the non-audit work, if any, of the external auditor, and review
periodically the non-audit fee paid to the external auditor in relation to its significance
to the total annual income of the external auditor and to the Companys overall
consultancy expenses. The Audit Committee shall disallow any non-audit work that
will conflict with its duties as an external auditor or may pose a threat to its
independence. The non-audit work, if allowed, should be disclosed in the Companys
annual report; and

(K)

establish and identify the reporting line of the Companys internal auditor to enable
him to properly fulfill his duties and responsibilities. He shall functionally report
directly to the Audit Committee.

The Audit Committee shall ensure that the Companys internal auditor in the performance of
its work shall be free from interference by outside parties.
In addition, the Audit Committee shall be tasked to prepare the Audit Committee Charter (the
Charter) which shall contain, among others, its purpose, membership, structure, operations,
reporting process, resources and other relevant information. The Charter shall specify how the
Audit Committee shall perform its oversight functions as prescribed by the Revised Code of
Corporate Governance (the Code).
In the preparation of the Charter, the Audit Committee shall strictly observe the requirements
of the Code and other applicable laws and regulations in the Philippines, and shall align the
Charter with the best practices and standards as provided for in any or combination of the
reference guides indicated in SEC Memorandum Circular No. 4, Series of 2012.

188

Upon approval by the Audit Committee of the Audit Committee Charter, the same shall be
submitted for the approval of the Board.
Within one year from listing date, the Audit Committee shall assess its performance, as
prescribed by and pursuant to SEC Memorandum Circular No. 4, Series of 2012.
Remuneration and Compensation Committee
The Remuneration and Compensation Committee comprises at least three members, one of
whom shall be an independent director. It ensures that the compensation policies and
practices are consistent with the corporate culture, strategy and business environment under
which the Company operates. It is responsible for objectively recommending a formal and
transparent framework of remuneration and evaluation for the members of the Board and the
Companys key executives to enable the directors and officers to run the Company
successfully. It evaluates and recommends to the Board incentives and other equity-based
plans designed to attract and retain qualified and competent individuals.
Nomination Committee
The Companys Nomination Committee is responsible for providing its shareholders with an
independent and objective evaluation and assurance that the membership of the Board is
competent and will foster the Companys long-term success and secure its competitiveness.
The Nomination Committee must comprise at least three members, one of whom should be an
independent director. The Nomination Committee reports directly to the Board and is required
to meet at least two times a year.
Executive Committee
The Corporate Governance Manual provides for the creation of an executive committee to be
composed of five members appointed by the Board from time to time. Under the Manual, the
Chairman of the Board shall act as ex-officio Chairman of the Executive Committee, the
President as Vice-Chairman, and three other members shall sit as members of the committee.
The Executive Committee shall have the following powers and functions: (i) to advise and
assist the officers of the Company in all matters concerning its interest and the management
of its business, and (ii) whenever the Board is not in session, to exercise all the powers of the
Board which may be delegated to it by the Board.
EVALUATION SYSTEM AND COMPLIANCE
As part of its system for monitoring and assessing compliance with the Manual and the SEC
Code of Corporate Governance, each committee is required to report regularly to the Board of
Directors and the Manual is subject to quarterly review. The Compliance Officer is
responsible for determining and measuring compliance with the Manual and the SEC Code of
Corporate Governance. Any violation of the Companys Corporate Governance Manual shall
subject the responsible officer or employee to the following penalties:

For a first violation, the offender shall be reprimanded.

For a second violation, suspension from office shall be imposed on the offender. The
duration of suspension shall depend on the gravity of the violation. This penalty shall
not apply to the members of the Board of Directors.

189

For a third violation, the maximum penalty of removal from office shall be imposed
on the offender. In case the offender is a member of the Board of Directors, the
provisions of Section 28 of the Philippine Corporation Code shall be observed.

EXECUTIVE COMPENSATION SUMMARY

Compensation
As a newly incorporated company, CNPF has not yet paid or accrued compensation during
the last two calendar years. For this calendar year, CNPF estimates that the total
compensation to be paid to its top five highly compensated executive officers and to its
officers and directors as a group unnamed will be as follows:

Name & Position

Year

Estimated
Salary

Estimated Bonus
millions

Christopher T. Po (President & CEO)

2014

31.8

5.6

2014

41.8

7.4

Teodoro T. Po (EVP & COO)

Oscar A. Pobre (CFO & CIO)
Rex E. Agarrado (VP & GM)
Gregory H. Banzon (VP & GM)
Aggregate compensation paid to all officers
and directors as a group unnamed

Standard Arrangements
Other than payment of reasonable per diem as may be determined by the Board for every
meeting, there are no standard arrangements pursuant to which directors of the Company are
compensated, or were compensated, directly or indirectly, for any services provided as a
director and for their committee participation or special assignments for 2011 up to the
present.
Other Arrangements
There are no other arrangements pursuant to which any director of the Company was
compensated, or to be compensated, directly or indirectly, during 2013 for any service
provided as a director.
FAMILY RELATIONSHIPS
Mr. Ricardo S. Po, Sr., Chairman Emeritus, is the father of Ricardo T. Po, Jr., Vice Chairman;
Christopher T. Po, Chairman, President and Chief Executive Officer; Teodoro T. Po, Vice
Chairman, Executive Vice President, and Chief Operating Officer; and Leonardo T. Po,
Treasurer.
Teodoro T. Po, Vice Chairman, Executive Vice President, and Chief Operating Officer, is the
brother-in-law of Manuel Z. Gonzalez, Corporate Secretary.
Aside from the foregoing, there are no family relationships between any Directors and any
members of the Companys senior management as of the date of this Prospectus.

190

EMPLOYMENT CONTRACTS
As of the date of this Prospectus, the Company has no special employment contracts with the
named executive officers.
WARRANTS AND OPTIONS OUTSTANDING
As of the date of this Prospectus, there are no outstanding warrants or options held by the
President, the CEO, the named executive officers, and all officers and directors as a group.
SIGNIFICANT EMPLOYEES
There is no one particular employee, not an executive officer, who is expected to make a
significant contribution to the business of the Company on his own.

191

PRINCIPAL SHAREHOLDERS
SHAREHOLDERS
The following table sets forth the largest shareholders of the Company as of the date of this
Prospectus.
Number of
Common Shares
held prior to the
Offer
1,999,999,993
1
1
1
1
1
1
1

Name of Shareholder
Century Canning Corporation
Ricardo S. Po, Sr.
Ricardo T. Po, Jr.
Christopher T. Po
Teodoro T. Po
Leonardo T. Po
Johnip Cua
Fernan Lukban

% of total
outstanding
Common Shares
prior to the offer
100%
nil
nil
nil
nil
nil
nil
nil

Century Canning Corporation is the Companys largest shareholder and, as of the date of this
Prospectus, directly owns 1,999,999,993 Common Shares, or approximately 100% of the
Companys issued and outstanding share capital. As of the date of this Prospectus, the
Company has a total of eight shareholders, with the Po family beneficially owning
approximately 100% of the issued common share capital of the Company.
The PSE rules require an applicant company to cause its existing shareholders owning at least
10% of the outstanding shares of the Company not to sell, assign or in any manner dispose of
their shares for a period of 365 days after the listing of the shares on the PSE. In addition, if
there is any issuance of shares or securities (i.e., private placements, asset for shares swap or a
similar transaction) or instruments which lead to issuance of shares or securities (i.e.,
convertible bonds, warrants or a similar instrument) done and fully paid for within 180 days
prior to the start of the offer period, and the transaction price is lower than that of the offer
price in the initial public offering, all shares or securities availed of shall be subject to a lockup period of at least 365 days from full payment of the aforesaid shares or securities. To
implement this lock-up requirement, the PSE requires the applicant company to lodge the
shares with the PDTC through a PCD participant for the electronic lock-up of the shares or to
enter into an escrow agreement with the trust department or custodian unit of an independent
and reputable financial institution.
The following shareholder is covered by the 365-day lock-up requirement, from listing of the
Offer Shares:
Name of Shareholder

Number of Common Shares held

Century Canning Corporation

1,999,999,993

% of total outstanding Common

Shares prior to the offer
100%

The following shareholders are covered by the 365-day lock-up requirement, from full
payment of their shares:
Name of Shareholder

Number of Common Shares held

Johnip Cua

192

% of total outstanding Common

Shares prior to the offer
nil

Fernan Lukban

nil

SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS

The table below sets forth the security ownership of certain record and beneficial owners of
more than 5% of the Companys voting securities as of the date of this Prospectus
Name of Beneficial
Owner and
Relationship with
Record Owner

Name and Address

of Record Owners
Century
Canning
Corporation

Century Canning
Corporation

Citizenship
Filipino

No. of Common
Shares Held

% of Total
Outstanding
Shares

1,999,999,993

100%

As of the date of this Prospectus, the Company does not have any foreign
shareholders.SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth the ownership of directors and management of the Companys
Common Shares as of the date of this Prospectus.

Name of Beneficial
Owner

Title of Class
Common
Common
Common
Common
Common
Common
Common

Ricardo S. Po, Sr.

Ricardo T. Po, Jr.
Christopher T. Po
Teodoro T. Po
Leonardo T. Po
Johnip Cua
Fernan Lukban

Amount and Nature of

Beneficial Ownership
1 qualifying share
1 qualifying share
1 qualifying share
1 qualifying share
1 qualifying share
1 qualifying share
1 qualifying share

Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino

% of Total
Outstanding
Shares
Nil
Nil
Nil
Nil
Nil
Nil
Nil

Total: 7 shares

The chart below shows the dilution of the Companys principal shareholders as a result of the
Offer.

Name of Shareholder

% of total
% of total
Number of subscribed shareholding before shareholding after
Common Shares
the Offer
the Offer

Century Canning Corporation

1,999,999,993

100%

89.7%

Total ..........................................................

1,999,999,993

100%

89.7%

Voting Trust Holders of 5% or more

There were no persons holding more than 5% of a class of shares of the Company under a
voting trust or similar agreement as of the date of this Prospectus.

193

CHANGE IN CONTROL
As of the date of this Prospectus, there are no arrangements which may result in a change in
control of the Company.

194

MATERIAL CONTRACTS
Trademark Licensing Agreement
The Company licenses the trademarks being used in its business from related parties such as
The Pacific Meat Company, Inc., Centennial Global and Mr. Ricardo S. Po, Sr. These
Trademark Licensing Agreements are valid for an initial period of 10 years effective from
January 1, 2014, with the terms and conditions being re-negotiable after the fifth year. Under
the agreements, CNPF pays the licensor a nominal fee of US$100 as a licensing fee and an
annual minimum royalty fee of US$100 per product sold under the brand.
Distribution Agreements
The Company appoints exclusive distributors to sell its products in designated regions
throughout the Philippines. Distributorship agreements are entered into with third party
distributors generally for an initial term of one year, which is automatically renewed on a
yearly basis, unless terminated in accordance with the relevant agreement. The distributors
are paid distribution fees in an amount equivalent to 6% to 8% of the list price of the goods
sold, depending on the type of products and the distributor involved.
Lease Agreements
The Company leases its 1,610 sq. m. head office in the Centerpoint Building, Ortigas Center,
Pasig City from Century Canning Corporation. The lease is for a term of 10 years effective
from January 1, 2014, with the Company paying a monthly rental of 402,500, subject to
escalation at the rate of 5% every two years. An additional 340 sq. m. office space in the same
building is also leased from Rian Realty Corporation with a monthly rental of 170,000,
subject to escalation at the rate of 5% every two years.
In addition, the Company also leases the following properties for its production facilities:

a 30,644 sq. m. property in Bagumbayan, Taguig City from Century Canning

Corporation for its milk processing plant, warehouse and research & development.
Monthly rental is 1,021,500, subject to a 5% escalation every two years; and
a 30,078 sq. m. property in Talisayan, Zamboanga from Rian Realty for the sardines
production. Monthly rental is 96,000 with a 5% escalation every two years.

Endorsement and Advertising Contracts

In the course of creating brand awareness for its products, the Company has over the years
entered into contracts with several talents, including local celebrities, to endorse its products.
These contracts have varied terms and different considerations depending on the scope of
work needed.
Short-term Loans
In the course of conducting its business, the Company has, and will continue, to incur shortterm 60-90 days revolving credit lines from several banking institutions at an average interest
rate of 2.5% to 3.5% per annum. Proceeds of these loans are used for working capital
purposes.

195

RELATED PARTY TRANSACTIONS

The Company and its subsidiaries, in their ordinary course of business, engage in transactions
with affiliates. The Companys policy with respect to related party transactions is to ensure
that these transactions are entered into on terms comparable to those available from unrelated
third parties.
The Company has the following major transactions with related parties.

The Company is the licensee of various brand names used in its business and
operations. The licensor are several related companies beneficially owned and
controlled by the Po family.

The Company leases office spaces (the fifth, seventh, eighth and nineteenth floors of
the Centerpoint Building in Pasig City, Metro Manila) from CCC. The Company also
leases a 30,078 sq. m. property in Zamboanga from Rian Realty, a 52,628 sq. m.
property in General Santos City from CCC, and a 30,644 sq. m. property in Taguig
from CCC. The Company subleases 10,000 sq. m. of this property in Taguig for its
dairy operations.

In the normal course of business, the Company transacts with companies that are considered
related parties. A summary of the Companys transactions and outstanding balances with
related parties as at and for the period ended December 31, 2013 is set out below.

Category

Notes

Outstanding
Receivable /
(Payable)

Amounts

Terms

Condition

in
Parent
CCC
Acquisition of
assets
Acquisition of
GTC and
SMDC

80,521,529

Payable on
demand;
Settled in cash
Payable on
demand;

Payable on
demand;
Settled in cash

Non-interest
bearing
No
impairment
Non-interest
bearing
Unsecured

Payable on
demand;
Settled in cash
Payable on
demand;
Settled in cash

Non-interest
bearing No
impairment
Non-interest
bearing
Unsecured

Payable on

Non-interest

Settled in cash
b

Rental income
Fellow Subsidiary
CSC

1,194,615,640

5,551,151

6,217,289

Acquisition of
assets

73,894,637

Rental income

4,443,787

3,491,483

PMCI
Acquisition of

75,644,296

196

Non-interest
bearing No
impairment

assets

Rental income

2,117,395

4,977,042

demand;
Settled in cash
Payable on
demand;
Settled in cash

bearing No
impairment
Non-interest
bearing
Unsecured

a. As disclosed in Notes 1 and 9, the Company purchased all rights, title and interest in and
to the assets used in the ordinary course of business of CCC, PMCI and CSC such as
office, furniture, machinery, equipment and software, transportation and delivery
equipment.
b. As disclosed in Notes 1 and 8, the Company acquired from CCC, any and all rights, title
and interest of CCC in GTC and SMDC.
c. On October 31, 2013, the Company entered into a lease agreement with CCC, CSC and
PMCI for the rental of the Companys equipment for two months from November 1, 2013
to December 31, 2013 with a total rental fee of 13,112,333. The Companys outstanding
receivables include VAT on the rental income.
The Company or its related parties have no material transaction with parties that fall outside
the definition related parties under SFA/IAS No. 24 that are not available for other, more
clearly independent parties on an arms length basis.

197

DESCRIPTION OF THE SHARES

The shares to be offered shall be Common Shares of the Company.
Pursuant to its amended articles of incorporation, the Company has an authorized amount of
capital stock of 6,000,000,000 divided into 6,000,000,000 Common Shares with a par value
of 1.00 per share, of which 2,000,000,000 Common Shares are outstanding as of the date of
this Prospectus. The Offer Shares shall be Common Shares of the Company.
The Offer Shares shall be offered at a price of up to 14.50 per Offer Share (the Offer
Price). The determination of the Offer Price is further discussed on page 64 of this
Prospectus. A total of 2,229,654,404 Common Shares will be outstanding after the Offer. The
Offer Shares will comprise up to 10.30% of the outstanding Common Shares after the Offer.
Objects and Purposes
The Company has been organized primarily to engage in the business of manufacturing, and
its articles of incorporation state that its primary purpose is to buy and sell on a wholesale
basis, process, preserve, can, pack, manufacture, produce, distribute, import and export, and
deal in all kinds of food products, such as but not limited to fish, seafood, and other marine
products, cattle, hog and other animals and animal products, fruits, vegetables and other
agricultural crops and produce of land, including by-products thereof, and for such purpose,
to acquire, construct, own, lease, charter, establish, maintain and operate canneries, factories,
plants, vessels, cold storage, refrigerators, refrigerated vehicles and vessels, warehouses, and
other machineries, equipment, apparatus and appliance as may be required in the conduct of
its business .
Under Philippine law, a corporation may invest its funds in any other corporation or business
or for any purpose other than the primary purpose for which it was organized when approved
by a majority of the board of directors of such corporation and ratified by the shareholders
representing at least two-thirds of the outstanding capital shares, at a shareholders meeting
duly called for the purpose. However, where the investment by the corporation is reasonably
necessary to accomplish its primary purpose, the approval of the shareholders shall not be
necessary.
Share Capital
A Philippine corporation may issue common or preferred shares, or such other classes of
shares with such rights, privileges or restrictions as may be provided for in the articles of
incorporation and by-laws of the corporation.
Under Philippine law, the shares of a corporation may either be with or without a par value.
All of the Common Shares currently issued have a par value of 1.00 per share. In the case of
par value shares, where a corporation issues shares at a price above par, whether for cash or
otherwise, the amount by which the subscription price exceeds the par value is credited to an
account designated as additional paid-in capital or paid-in surplus.
Subject to approval by the SEC, a corporation may increase or decrease its authorized capital
shares, provided that the change is approved by a majority of the board of directors of such
corporation and shareholders representing at least two-thirds of the issued and outstanding
capital shares of the corporation voting at a shareholders meeting duly called for the purpose.

198

A corporation is empowered to acquire its own shares for a legitimate corporate purpose,
provided that the corporation has unrestricted retained earnings or surplus profits sufficient to
pay for the shares to be acquired. Examples of instances in which the corporation is
empowered to purchase its own shares are: when the elimination of fractional shares arising
out of share dividends is necessary or desirable, the purchase of shares of dissenting
shareholders exercising their appraisal right (as discussed below) and the collection or
compromise of an indebtedness arising out of an unpaid subscription. When a corporation
repurchases its own shares, the shares become treasury shares, which may be resold at a price
fixed by the board of directors of such corporation.
Voting Rights
Under the Companys amended articles of incorporation, the owners or holders of Common
Shares have full voting rights. However, the Philippine Corporation Code provides that voting
rights cannot be exercised with respect to shares declared by the board of directors as
delinquent, treasury shares, or if the shareholder has elected to exercise his right of appraisal
as discussed below.
Pre-Emptive Rights
The Philippine Corporation Code confers pre-emptive rights on the existing shareholders of a
Philippine corporation which entitle such shareholders to subscribe to all issues or other
dispositions of shares of any class by the corporation in proportion to their respective
shareholdings, regardless of whether the shares proposed to be issued or otherwise disposed
of are identical to the shares held. A Philippine corporation may, however, provide for the
denial of these pre-emptive rights in its articles of incorporation. Likewise, shareholders who
are entitled to such pre-emptive rights may waive the same through a written instrument to
that effect.
The amended articles of incorporation of the Company deny the pre-emptive rights of its
shareholders to subscribe to any or all dispositions of any class of shares.
Derivative Rights
Philippine law recognizes the right of a shareholder to institute proceedings on behalf of the
corporation in a derivative action in circumstances where the corporation itself is unable or
unwilling to institute the necessary proceedings to redress wrongs committed against the
corporation or to vindicate corporate rights as, for example, where the directors of the
corporation themselves are the malefactors.
Appraisal Rights
The Philippine Corporation Code grants a shareholder a right of appraisal and demand
payment of the fair value of his shares in certain circumstances where he has dissented and
voted against a proposed corporate action, including:

an amendment of the articles of incorporation which has the effect of adversely

affecting the rights attached to his shares or of authorizing preferences in any respect
superior to those of outstanding shares of any class;

the extension of the term of corporate existence;

199

the sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or
substantially all the assets of the corporation;

a merger or consolidation; and

investment by the corporation of funds in any other corporation or business or for any
purpose other than the primary purpose for which it was organized.

In any of these circumstances, the dissenting shareholder may require the corporation to
purchase its shares at a fair value, which, in default of agreement, is determined by three
disinterested persons, one of whom shall be named by the shareholder, one by the
corporation, and the third by the two thus chosen. Regional Trial Courts will, in the event of a
dispute, determine any question about whether a dissenting shareholder is entitled to this right
of appraisal. From the time the shareholder makes a demand for payment until the corporation
purchases such shares, all rights accruing on the shares, including voting and dividend rights,
shall be suspended, except the right of the shareholder to receive the fair value of such shares.
No payment shall be made to any dissenting shareholder unless the corporation has
unrestricted retained earnings sufficient to support the purchase of the shares of the dissenting
shareholders.
Board of Directors
Unless otherwise provided by law or in the articles of incorporation, the corporate powers of
the Company are exercised, its business is conducted, and its property is controlled by the
Board. Pursuant to its articles of incorporation, as amended, the Company shall have seven
Directors, two of whom are independent Directors within the meaning set forth in Section 38
of the SRC. The Board shall be elected during each regular meeting of shareholders, at which
shareholders representing at least a majority of the issued and outstanding capital shares of
the Company are present, either in person or by proxy.
Directors may only act collectively; individual directors have no power as such. Four
directors, which is a majority of the Directors, constitute a quorum for the transaction of
corporate business. In general, every decision of a majority of the quorum duly assembled as
a Board is valid as a corporate act.
Any vacancy created by the death, resignation or removal of a director prior to expiration of
such directors term shall be filled by a vote of at least a majority of the remaining members
of the Board, if still constituting a quorum, Otherwise, the vacancy must be filled by the
shareholders at a meeting duly called for the purpose. Any director elected in this manner by
the Board shall serve only for the unexpired term of the director whom such director replaces
and until his successor is duly elected and qualified.
Shareholders Meetings
Annual or Regular Shareholders Meetings
The Philippine Corporation Code requires all Philippine corporations to hold an annual
meeting of shareholders for corporate purposes including the election of directors. The bylaws of the Company provide for annual meetings every June 30 of each year to be held at the
principal office of the Company and at such hour as specified in the notice.

200

Special Shareholders Meeting

Special meetings of shareholders, for any purpose or purposes, may at any time be called by
either the President or a majority of the Board of Directors, whenever he or they shall deem it
necessary.
Notice of Shareholders Meeting
Whenever shareholders are required or permitted to take any action at a meeting, a written
notice of the meeting shall be given which shall state the place, date and time of the meeting,
and the purpose or purposes for which the meeting is called. The Company by-laws provide
that notices of the time and place of the annual and special meetings of the shareholders shall
be given either by mailing the same enclosed in a postage-prepaid envelope, addressed to
each shareholder of record at the address left by such shareholder with the Secretary of the
Corporation, or at his last known post-office address, or by delivering the same to him in
person, at least one week before the date set for such meeting. Notice to any special meeting
must state, among others, the matters to be taken up in the said meeting, and no other business
shall be transacted at such meeting except by consent of all the shareholders present, entitled
to vote. No notice of meeting need be published in any newspaper, except when necessary to
comply with the special requirements of the Philippine Corporation Code. Shareholders
entitled to vote may, by written consent, waive notice of the time, place and purpose of any
meeting of shareholders and any action taken at such meeting pursuant to such waiver shall be
valid and binding. When the meeting of the shareholders is adjourned to another time or
place, notice of the adjourned meeting need not be provided so long as the time and place to
which the meeting is adjourned are announced at the meeting at which the adjournment is
taken. At the reconvened meeting, any business may be transacted that might have been
transacted on the original date of the meeting.
Quorum
Unless otherwise provided by an existing shareholders agreement or by law, in all regular or
special meeting of shareholders, a majority of the outstanding capital shares must be present
or represented in order to constitute a quorum, except in those cases where the Philippine
Corporation Code provides a greater percentage vis--vis the total outstanding capital shares.
If no quorum is constituted, the meeting shall be adjourned until the requisite amount of
shares shall be presented.
Meetings of the shareholders shall be presided over by the Chairman of the Board, or, in his
absence, by absence chairman to be chosen by the Board of Directors. The Corporate
Secretary, or, in his absence, any person appointed by the chairman of the meeting, shall act
as secretary of such meeting.
Voting
At all meetings of shareholders, a holder of Common Shares may vote in person or by proxy,
for each share held by such shareholder. Each Common Share is equal in all respects to every
other Common Share. All the Common Shares have full voting and dividend rights.
Fixing Record Dates
Under existing SEC rules, cash dividends declared by corporations whose shares are listed on
the PSE shall have a record date which shall not be less than 10 or more than 30 days from
the date of declaration. With respect to share dividends, the record date shall not be less than

201

10 or more than 30 days from the date of shareholder approval; provided, however, that the
record date set shall not be less than 10 trading days from receipt by the PSE of the notice of
declaration of share dividends. In the event that share dividends are declared in connection
with an increase in the authorized capital shares, the corresponding record date shall be fixed
by the SEC.
Matters Pertaining to Proxies
Shareholders may vote at all meetings the number of shares registered in their respective
names, either in person or by proxy duly given in writing and duly presented to the Corporate
Secretary at least 10 days before the meeting. Unless otherwise provided in the proxy, it shall
be valid only for the meeting at which it has been presented to the Corporate Secretary.
Proxies should comply with the relevant provisions of the Philippine Corporation Code, the
SRC, the Implementing Rules and Regulations of the SRC (as amended), and regulations
issued by the SEC.
Dividends
The Common Shares have full dividend rights. Dividends on the Companys Common
Shares, if any, are paid in accordance with Philippine law. Dividends are payable to all
shareholders on the basis of outstanding Common Shares held by them, each Common Share
being entitled to the same unit of dividend as any other Common Share. Dividends are
payable to shareholders whose names are recorded in the stock and transfer book as of the
record date fixed by the Companys Board of Directors. The PSE has an established
mechanism for distribution of dividends to beneficial owners of Common Shares which are
traded through the PSE which are lodged with the PCD Nominee as required for scripless
trading.
Under Philippine law, a corporation can only declare dividends to the extent that it has
unrestricted retained earnings that represent the undistributed earnings of the corporation
which have not been allocated for any managerial, contractual or legal purposes and which
are free for distribution to the shareholders as dividends. A corporation may pay dividends in
cash, by the distribution of property or by the issuance of shares. Dividends may be declared
by the board of directors except for share dividends which may only be declared and paid
with the approval of shareholders representing at least two-thirds of the issued and
outstanding capital shares of the corporation voting at a shareholders meeting duly called for
the purpose.
The Philippine Corporation Code generally requires a Philippine corporation with retained
earnings in excess of 100% of its paid-in capital to declare and distribute as dividends the
amount of such surplus. However, a Philippine corporation may retain all or any portion of
such surplus in the following cases: (1) when justified by definite expansion plans approved
by the board of directors of the corporation; (2) when the required consent of any financing
institution or creditor to such distribution has not been secured; (3) when retention is
necessary under special circumstances, such as when there is a need for special reserves for
probable contingencies; or (4) when the non-distribution of dividends is consistent with the
policy or requirement of a Government office. Philippine corporations whose securities are
listed on any shares exchange are required to maintain and distribute an equitable balance of
cash and share dividends, consistent with the needs of shareholders and the demands for
growth or expansion of the business.

202

The Company has approved a dividend policy of maintaining an annual cash and/or share
dividend pay-out of up to 30% of its net profit from the preceding year, subject to the
requirements of applicable laws and regulations, the terms and conditions of its outstanding
bonds and loan facilities, and the absence of circumstances that may restrict the payment of
such dividends, such as where the Company undertakes major projects and developments.
Dividends must be approved by the Board and may be declared only from the unrestricted
retained earnings of the Company. The Companys Board of Directors may, at any time,
modify the Companys dividend policy, depending upon the Companys capital expenditure
plans and/or any terms of financing facilities entered into to fund its current and future
operations and projects. The Company can give no assurance that it will pay any dividends in
the future.
Preferred shares may be issued from time to time in one or more series as the Board of
Directors, through a resolution, may determine, and authority has been expressly granted to
the Board of Directors to establish and designate each particular series of preferred shares, to
fix the number of shares to be included in each of such series, and to determine the dividend
rate, price, amount of participation, and other terms and conditions of each such shares, which
resolution(s) shall thereupon be deemed a part of these articles of incorporation.
Transfer of Shares and Share Register
All transfers of shares on the PSE shall be effected by means of a book-entry system. Under
the book-entry system of trading and settlement, a registered shareholder shall transfer legal
title over the shares to a nominee, but retains beneficial ownership over the shares. The
transfer of legal title is done by surrendering the stock certificate representing the shares to
participants of the PDTC System (i.e., brokers and custodian banks) that, in turn, lodge the
same with the PCD Nominee Corporation, a corporation wholly-owned by the PDTC (the
PCD Nominee). A shareholder may request upliftment of the shares from the PDTC, in
which case a stock certificate will be issued to the shareholder and the shares registered in the
shareholders name in the books of the Company. See The Philippine Stock Market.
Philippine law does not require transfers of the Common Shares to be effected on the PSE,
but any off-exchange transfers will subject the transferor to a capital gains tax that may be
significantly greater than the share transfer tax applicable to transfers effected on the PSE.
See Philippine Taxation. All transfers of shares on the PSE must be effected through a
licensed stockbroker in the Philippines.
There is no provision in the Companys Articles of Incorporation and By-Laws, as amended,
which may delay, deter, or prevent a change in control in the Company.
Issues of Shares
Subject to otherwise applicable limitations, the Company may issue additional Common
Shares to any person for consideration deemed fair by the Board, provided that such
consideration shall not be less than the par value of the issued Common Shares. No share
certificates shall be issued to a subscriber until the full amount of the subscription together
with interest and expenses (in case of delinquent Common Shares) has been paid and proof of
payment of the applicable taxes shall have been submitted to the Companys Corporate
Secretary. Under the PSE Rules, only fully-paid shares may be listed on the PSE.

203

Recent sales of unregistered or exempt securities (including recent issuance of securities

constituting an exempt transaction)
On February 8, 2014, Century Canning Corporation subscribed for an additional 500,000,000
Common Shares at the aggregate subscription price of 500,000,000.00, thereby increasing
its shareholdings in the Company from 1,499,999,993 Common Shares to 1,999,999,993
Common Shares. No commission or other remuneration was paid or given directly or
indirectly in connection with such subscription. Other than as described herein, there have
been no sales of unregistered or exempt securities, or any issuances of securities constituting
an exempt transaction.
The sale of capital stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly in connection with
the sale of such capital stock is a transaction exempt from registration under Section 10.1(e)
of the SRC, and no notice or confirmation of exemption is required to be filed for such
transaction.
Share Certificates
Certificates representing the Common Shares will be issued in such denominations as
shareholders may request, except that certificates will not be issued for fractional shares.
Shareholders wishing to split their certificates may do so upon application to the Companys
share transfer agent, BDO Unibank, Inc. Trust Banking Group, which will maintain the
share register. Common Shares may also be lodged and maintained under the book-entry
system of the PDTC. See The Philippine Stock Market.
Fundamental Matters
The Philippine Corporation Code provides that certain significant acts may only be
implemented with shareholders approval. The following require the approval of shareholders
representing at least two-thirds of the issued and outstanding capital shares (including nonvoting preferred shares) of the corporation in a meeting duly called for the purpose:

amendment of the articles of incorporation;

removal of directors;

sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part
of the assets of the corporation;

investment of corporate funds in any other corporation or business or for any purpose
other than the primary purpose for which the corporation was organized;

declaration or issuance of share dividends;

delegation to the board of directors of the power to amend or repeal by-laws or adopt
new by-laws;

merger or consolidation;

dissolution;

an increase or decrease in capital shares;

ratification of a contract of a directors or officer with the corporation;

extension or shortening of the corporate term;

creation or increase of bonded indebtedness; and

204

management contracts with related parties;

The approval of shareholders holding a majority of the outstanding capital shares of a

Philippine corporation, including the non-voting preferred shares, is required for the adoption
or amendment of the by-laws of such corporation.
Accounting and Auditing Requirements
Philippine stock corporations are required to file copies of their annual financial statements
with the SEC. In addition, public corporations are required to file quarterly financial
statements (for the first three quarters) with the SEC. Those corporations whose shares are
listed on the PSE are additionally required to file said quarterly and annual financial
statements with the PSE. Shareholders are entitled to request copies of the most recent
financial statements of the corporation which include a statement of financial position as of
the end of the most recent tax year and a profit and loss statement for that year. Shareholders
are also entitled to inspect and examine the books and records that the corporation is required
by law to maintain.
The Board is required to present to shareholders at every annual meeting a financial report of
the operations of the Company for the preceding year. This report is required to include
audited financial statements.

205

THE PHILIPPINE STOCK MARKET

The information presented in this section has been extracted from publicly available
documents which have not been prepared or independently verified by the Company, the Joint
Lead Underwriters or any of their respective subsidiaries, affiliates or advisors in connection
with the offer and sale of the Offer Shares.
Brief History
The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was
organized in 1927, and the Makati Stock Exchange, which began operations in 1963. Each
exchange was self-regulating, governed by its respective Board of Governors elected annually
by its members.
Several steps initiated by the Philippine government have resulted in the unification of the
two bourses into the PSE. The PSE was incorporated in 1992 by officers of both the Makati
and the Manila Stock Exchanges. In March 1994, the licenses of the two exchanges were
revoked. While the PSE maintains two trading floors, one in Makati City and the other in
Pasig City, these floors are linked by an automated trading system, which integrates all bid
and ask quotations from the bourses.
In June 1998, the SEC granted the Self-Regulatory Organization status to the PSE, allowing it
to impose rules as well as implement penalties on erring trading participants and listed
companies. On August 8, 2001, the PSE completed its demutualization, converting from a
non-stock member-governed institution into a stock corporation in compliance with the
requirements of the SRC. The PSE had an authorized capital stock of 97.8 million shares, of
which 61,258,733 shares were subscribed and fully paid-up as of June 30, 2013. Each of the
184 member-brokers was granted 50,000 common shares of the new PSE at a par value of
1.00 per share. In addition, a trading right evidenced by a Trading Participant Certificate
was immediately conferred on each member broker allowing the use of the PSEs trading
facilities. As a result of the demutualization, the composition of the PSE Board of Governors
was changed, requiring the inclusion of seven brokers and eight non-brokers, one of whom is
the President.
On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as
part of a series of reforms aimed at strengthening the securities industry.
Classified into financial, industrial, holding firms, property, services, and mining and oil
sectors, companies are listed either on the PSEs Main Board or the Small, Medium and
Emerging Board. Previously, the PSE allowed listing on the First Board, Second Board or the
Small, Medium and Enterprises Board. As a result of the issuance by the PSE of
Memorandum No. CN-No. 2013-0023 dated June 6, 2013, revisions to the PSE Listing Rules
were made. Among such changes are the removal of the Second Board listing and the
requirement that lock-up rules be embodied in the articles of the incorporation of the issuer.
Each index represents the numerical average of the prices of component shares. The PSE has
an index, referred to as the PHISIX, which as at the date thereof reflects the price movements
of selected shares listed on the PSE, based on traded prices of shares from the various sectors.
The PSE shifted from full market capitalization to free float market capitalization effective
April 3, 2006, simultaneous with the migration to the free float index and the renaming of the
PHISIX to PSEi. The PSEi is composed of shares of 30 selected companies listed on the PSE.

206

With the increasing calls for good corporate governance, the PSE has adopted an online daily
disclosure system to improve the transparency of listed companies and to protect the investing
public.
The table below sets out movements in the composite index as of the last business day of each
calendar year from 1995 to 2013, and the most recent month end in 2014, and shows the
number of listed companies, market capitalization, and value of shares traded for the same
period:

Year

1995 ...................................
1996 ...................................
1997 ...................................
1998 ...................................
1999 ...................................
2000 ...................................
2001 ...................................
2002 ...................................
2003 ...................................
2004 ...................................
2005 ...................................
2006 ...................................
2007 ...................................
2008 ...................................
2009 ...................................
2010 ...................................
2011 ...................................
2012 ...................................
2013 ...................................
As of February 28, 2014

Composite
Index at
Closing

Number of
Listed
Companies

2,594.2
3,170.6
1,869.2
1,968.8
2,142.9
1,494.5
1,168.1
1,018.4
1,442.4
1,822.8
2,096.0
2,982.5
3,621.6
1,872.9
3,052.7
4,201.1
4,372.0
5,812.7
5,889.83
6,424.99

205
216
221
222
225
229
231
234
236
235
237
239
244
246
248
253
245
254
257
258

Aggregate
Market
Capitalization

Combined
Value of
Turnover

(in billions)

(in billions)

1,545.7
2,121.1
1,251.3
1,373.7
1,936.5
2,576.5
2,141.4
2,083.2
2,973.8
4,766.3
5,948.4
7,173.2
7,977.6
4,069.2
6,029.1
8,866.1
8,697.0
10,952.7
11,931.3
12,682.3

379.0
668.8
586.2
408.7
781.0
357.7
159.6
159.7
145.4
206.6
383.5
572.6
1,338.3
763.9
994.2
1,207.4
1,422.6
1,771.7
2,546.2
268.6

Source: PSE

Trading
The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers.
To trade, bid or ask prices are posted on the PSEs electronic trading system. A buy (or sell)
order that matches the lowest asked (or highest bid) price is automatically executed. Buy and
sell orders received by one broker at the same price are crossed at the PSE at the indicated
price. Payment of purchases of listed securities must be made by the buyer on or before the
third trading day (the settlement date) after the trade.
Beginning January 2, 2012, trading on the PSE starts at 9:30 a.m. until 12:00 p.m., when there
will be a one and a half hour lunch break. In the afternoon, trading resumes at 1:30 p.m. and
ends at 3:30 p.m., with a 10-minute extension during which transactions may be conducted,
provided that they are executed at the last traded price and are only for the purpose of

207

completing unfinished orders. Trading days are Monday to Friday, except legal holidays and
days when the BSP clearing house is closed.
Minimum trading lots range from 5 to 1,000,000 shares depending on the price range and
nature of the security traded. Odd-sized lots are traded by brokers on a board specifically
designed for odd-lot trading.
To maintain stability in the stock market, daily price swings are monitored and regulated.
Under current PSE regulations, when the price of a listed security moves up by 50% or down
by 50% in one day (based on the previous closing price or last posted bid price, whichever is
higher), the price of that security is automatically frozen by the PSE, unless there is an
official statement from the company or a government agency justifying such price fluctuation,
in which case the affected security can still be traded but only at the frozen price. If the issuer
fails to submit such explanation, a trading halt is imposed by the PSE on the listed security
the following day. Resumption of trading shall be allowed only when the disclosure of the
company is disseminated, subject again to the trading ban.
Non-Resident Transactions
When the purchase/sale of Philippine shares involves a non-resident, whether the transaction
is effected in the domestic or foreign market, it will be the responsibility of the securities
dealer/broker to register the transaction with the BSP. The local securities dealer/broker shall
file with the BSP, within three business days from the transaction date, an application in the
prescribed registration form. After compliance with other required undertakings, the BSP
shall issue a Certificate of Registration. Inward foreign investments in PSE-listed securities
are registered with the investors designated custodian bank on behalf of the BSP. Under BSP
rules, all registered foreign investments in securities including profits and dividends, net of
taxes and charges, may be repatriated.
Settlement
The Securities Clearing Corporation of the Philippines (SCCP) is a wholly-owned
subsidiary of the PSE, and was organized primarily as a clearance and settlement agency for
SCCP-eligible trades executed through the facilities of the PSE. SCCP received its permanent
license to operate on January 17, 2002. It is responsible for:

synchronizing the settlement of funds and the transfer of securities through Delivery
versus Payment clearing and settlement of transactions of Clearing Members, who
are also Trading Participants of the PSE;

guaranteeing the settlement of trades in the event of a Trading Participants default

through the implementation of its Fails Management System and administration of
the Clearing and Trade Guaranty Fund; and

performance of Risk Management and Monitoring to ensure final and irrevocable

settlement.

SCCP settles PSE trades on a three-day rolling settlement environment, which means that
settlement of trades takes place three trading days after transaction date (T+3). The
deadline for settlement of trades is 12:00 n.n. of T+3. Securities sold should be in scripless
form and lodged under the book-entry system of the PDTC. Each PSE Broker maintains a
Cash Settlement Account with one of the five existing Settlement Banks of SCCP, which are
BDO Unibank, Inc., Rizal Commercial Banking Corporation, Metropolitan Bank and Trust

208

Company, Deutsche Bank and Unionbank of the Philippines. Payment for securities bought
should be in good, cleared funds and should be final and irrevocable. Settlement is presently
on a broker level.
SCCP implemented its Central Clearing and Central Settlement system on May 29, 2006.
CCCS employs multilateral netting, whereby the system automatically offsets buy and
sell transactions on a per issue and a per flag basis to arrive at a net receipt or a net delivery
security position for each Clearing Member. All cash debits and credits are also netted into a
single net cash position for each Clearing Member. Novation of the original PSE trade
contracts occurs, and SCCP stands between the original trading parties and becomes the
Central Counterparty to each PSE-eligible trade cleared through it.
Scripless Trading
In 1995, the PDTC (formerly the Philippine Central Depository, Inc.), was organized to
establish a central depository in the Philippines and introduce scripless or book-entry trading
in the Philippines. On December 16, 1996, the PDTC was granted a provisional license by the
SEC to act as a central securities depository.
All listed securities at the PSE have been converted into book-entry settlement in the PDTC.
The depository service of the PDTC provides the infrastructure for lodgment (deposit) and
upliftment (withdrawal) of securities, pledge of securities, securities lending and borrowing
and corporate actions including shareholders meetings, dividend declarations and rights
offerings. The PDTC also provides depository and settlement services for non-PSE trades of
listed equity securities. For transactions on the PSE, the security element of the trade will be
settled through the book-entry system, while the cash element will be settled through the
current settlement banks, BDO Unibank, Inc., Rizal Commercial Banking Corporation,
Metropolitan Bank and Trust Company, Deutsche Bank and Unionbank of the Philippines.
In order to benefit from the book-entry system, securities must be immobilized into the PDTC
system through a process called lodgment. Lodgment is the process by which shareholders
transfer legal title (but not beneficial title) over their shares in favor of the PCD Nominee
Corporation (PCD Nominee), a corporation wholly-owned by the PDTC, whose sole
purpose is to act as nominee and legal title holder of all shares lodged in the PDTC.
Immobilization is the process by which the warrant or share certificates of lodging holders
are cancelled by the transfer agent and the corresponding transfer of beneficial ownership of
the immobilized shares in the account of the PCD Nominee through the PDTC participant
will be recorded in the issuing corporations registry. This trust arrangement between the
participants and PDTC through the PCD Nominee is established by and explained in the
PDTC Rules and Operating Procedures approved by the SEC. No consideration is paid for the
transfer of legal title to the PCD Nominee. Once lodged, transfers of beneficial title of the
securities are accomplished via book-entry settlement.
Under the current PDTC system, only participants (e.g. brokers and custodians) will be
recognized by the PDTC as the beneficial owners of the lodged equity securities. Thus, each
beneficial owner of shares, through his participant, will be the beneficial owner to the extent
of the number of shares held by such participant in the records of the PCD Nominee. All
lodgments, trades and uplifts on these shares will have to be coursed through a participant.
Ownership and transfers of beneficial interests in the shares will be reflected, with respect to
the participants aggregate holdings, in the PDTC system, and with respect to each beneficial
owners holdings, in the records of the participants. Beneficial owners are thus advised that in
order to exercise their rights as beneficial owners of the lodged shares, they must rely on their
participant-brokers and/or participant-custodians.

209

Any beneficial owner of shares who wishes to trade his interests in the shares must course the
trade through a participant. The participant can execute PSE trades and non-PSE trades of
lodged equity securities through the PDTC system. All matched transactions in the PSE
trading system will be fed through the SCCP, and into the PDTC system. Once it is
determined on the settlement date (T+3) that there are adequate securities in the securities
settlement account of the participant-seller and adequate cleared funds in the settlement bank
account of the participant-buyer, the PSE trades are automatically settled in the SCCP Central
Clearing and Central Settlement system, in accordance with the SCCP and PDTC Rules and
Operating Procedures. Once settled, the beneficial ownership of the securities is transferred
from the participant-seller to the participant-buyer without the physical transfer of stock
certificates covering the traded securities.
The difference between the depository and the registry would be on the recording of
ownership of the shares in the issuing corporations books. In the depository set-up, shares
are simply immobilized, wherein customers certificates are cancelled and a confirmation
advice is issued in the name of PCD Nominee to confirm new balances of the shares lodged
with the PDTC. Transfers among/between broker and/or custodian accounts, as the case may
be, will only be made within the book-entry system of the PDTC. However, as far as the
issuing corporation is concerned, the underlying certificates are in the PCD Nominees name.
In the registry set-up, settlement and recording of ownership of traded securities will already
be directly made in the corresponding issuing companys transfer agents books or system.
Likewise, recording will already be at the beneficiary level (whether it be a client or a
registered custodian holding securities for its clients), thereby removing from the broker its
current de facto custodianship role.
Amended Rule on Lodgment of Securities
On June 24, 2009, the PSE apprised all listed companies and market participants through
Memorandum No. 2009-0320 that commencing on July 1, 2009, as a condition for the listing
and trading of the securities of an applicant company, the applicant company shall
electronically lodge its registered securities with the PDTC or any other entity duly
authorized by the SEC, without any jumbo or mother certificate in compliance with the
requirements of Section 43 of the SRC. In compliance with the foregoing requirement, actual
listing and trading of securities on the scheduled listing date shall take effect only after
submission by the applicant company of the documentary requirements stated in the amended
rule on Lodgment of Securities of the PSE.
Pursuant to the said amendment, the PDTC issued an implementing procedure in support
thereof to wit:

For a new company to be listed at the PSE as of July 1, 2009, the usual procedure
will be observed but the transfer agent of the company shall no longer issue a
certificate to PCD Nominee but shall issue a Registry Confirmation Advice, which
shall be the basis for the PDTC to credit the holdings of the depository participants on
the listing date.

On the other hand, for an existing listed company, the PDTC shall wait for the advice
of the transfer agent that it is ready to accept surrender of PCD Nominee jumbo
certificates and upon such advice the PDTC shall surrender all PCD Nominee jumbo
certificates to the transfer agent for cancellation. The transfer agent shall issue a
Registry Confirmation Advice to PDTC evidencing the total number of shares
registered in the name of PCD Nominee in the listed companys registry as of
confirmation date.
210

Issuance of Stock Certificates for Certificated Shares

On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply
with PDTC through his broker or custodian-participant for a withdrawal from the book-entry
system and return to the conventional paper-based settlement. If a shareholder wishes to
withdraw his shareholdings from the PDTC system, the PDTC has a procedure of upliftment
under which PCD Nominee will transfer back to the shareholder the legal title to the shares
lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the
PDTC for the uplifting of the shares lodged under the name of the PCD Nominee. The
transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering
the new number of shares lodged under PCD Nominee. The expenses for upliftment are on
the account of the uplifting shareholder.
Upon the issuance of stock certificates for the shares in the name of the person applying for
upliftment, such shares shall be deemed to be withdrawn from the PDTC book-entry
settlement system, and trading on such shares will follow the normal process for settlement of
certificated securities. The expenses for upliftment of the shares into certificated securities
will be charged to the person applying for upliftment. Pending completion of the upliftment
process, the beneficial interest in the shares covered by the application for upliftment is
frozen and no trading and book-entry settlement will be permitted until the relevant stock
certificates in the name of the person applying for upliftment shall have been issued by the
relevant companys transfer agent.

211

PHILIPPINE TAXATION
The following is a discussion of the material Philippine tax consequences of the acquisition,
ownership and disposition of the Common Shares. This general description does not purport
to be a comprehensive description of the Philippine tax aspects of the Common Shares and no
information is provided regarding the tax aspects of acquiring, owning, holding or disposing
of the Common Shares under applicable tax laws of other applicable jurisdictions and the
specific Philippine tax consequence in light of particular situations of acquiring, owning,
holding and disposing of the Common Shares in such other jurisdictions. This discussion is
based upon laws, regulations, rulings, and income tax conventions (treaties) in effect at the
date of this Prospectus. The tax treatment applicable to a holder of the Common Shares may
vary depending upon such holders particular situation, and certain holders may be subject to
special rules not discussed below. This summary does not purport to address all tax aspects
that may be important to a holder of the Common Shares. Prospective investors of the
Common Shares are urged to consult their own tax advisors as to the particular tax
consequences of the ownership and disposition of the Common Shares, including the
applicability and effect of any local or foreign tax laws.
As used in this section, the term resident alien refers to an individual whose residence is
within the Philippines and who is not a citizen of the Philippines; a non-resident alien is an
individual whose residence is not within the Philippines and who is not a citizen of the
Philippines. A non-resident alien who is actually within the Philippines for an aggregate
period of more than 180 days during any calendar year is considered a non-resident alien
doing business in the Philippines. A non-resident alien who is actually within the Philippines
for an aggregate period of 180 days or less during any calendar year is considered a nonresident alien not doing business in the Philippines. A resident foreign corporation is a
non-Philippine corporation engaged in trade or business within the Philippines; and a nonresident foreign corporation is a non-Philippine corporation not engaged in trade or business
within the Philippines. The term dividends under this section refers to cash or property
dividends. Tax Code means the Philippine National Internal Revenue Code of 1997, as
amended.
Taxes on Dividends on the Shares
Individual Philippine citizens and resident aliens are subject to a final tax on dividends
derived from the Common Shares at the rate of 10%, which tax shall be withheld by the
Company.
Non-resident alien individuals engaged in trade or business in the Philippines are subject to a
final withholding tax on dividends derived from the Common Shares at the rate of 20% on the
gross amount thereof, subject to applicable preferential tax rates under tax treaties in force
between the Philippines and the country of domicile or residence of such non-resident alien
individual. A non-resident alien individual not engaged in trade or business in the Philippines
is subject to a final withholding tax on dividends derived from the Common Shares at the rate
of 25% of the gross amount, subject to applicable preferential tax rates under tax treaties in
force between the Philippines and the country of domicile or residence of such non-resident
alien individual.
The term non-resident holder means a holder of the Common Shares:

who is an individual who is neither a citizen nor a resident of the Philippines or an

entity which is a foreign corporation not engaged in trade or business in the
Philippines; and

212

should a tax treaty be applicable, whose ownership of the Common Shares is not
effectively connected with a fixed base or a permanent establishment in the
Philippines.

Dividends derived by domestic corporations (i.e. corporations created or organized in the

Philippines or under its laws) and resident foreign corporations from the Common Shares
shall not be subject to tax.
Dividends received from a domestic corporation by a non-resident foreign corporation are
generally subject to final withholding tax at the rate of 30%, subject to applicable preferential
tax rates under tax treaties in force between the Philippines and the country of domicile of
such non-resident foreign corporation. The 30% rate for dividends paid to non-resident
foreign corporations with countries of domicile having no tax treaty with the Philippines may
be reduced to a special 15% rate if:

the country in which the non-resident foreign corporation is domiciled imposes no

taxes on foreign sourced dividends; or

the country in which the non-resident foreign corporation is domiciled allows a credit
against the tax due from the non-resident foreign corporation for taxes deemed to
have been paid in the Philippines equivalent to 15%.

The BIR has prescribed, through an administrative issuance, procedures for the availment of
tax treaty relief. The application for tax treaty relief has to be filed with the BIR by the nonresident holder of the Common Shares (or its duly authorized representative) prior to the first
taxable event, or prior to the first and only time the income tax payor is required to withhold
the tax thereon or should have withheld taxes thereon had the transaction been subject to tax.
The requirements for a tax treaty relief application in respect of dividends are set out in the
applicable tax treaty and BIR Form No. 0901-D. These include proof of tax residence in the
country that is a party to the tax treaty. Proof of residence consists of a consularized
certification from the tax authority of the country of residence of the non-resident holder of
Common Shares which states that the non-resident holder is a tax resident of such country
under the applicable tax treaty. If the non-resident holder of Common Shares is a juridical
entity, authenticated certified true copies of its articles of incorporation or association issued
by the proper government authority should also be submitted to the BIR in addition to the
certification of its residence from the tax authority of its country of residence.
If tax at the regular rate is withheld by the Company instead of the reduced rates applicable
under a treaty, the non-resident holder of the Common Shares may file a claim for refund
from the BIR. However, because the refund process in the Philippines requires the filing of an
administrative claim and the submission of supporting information, and may also involve the
filing of a judicial appeal, it may be impractical to pursue obtaining such a refund. Moreover,
in view of the requirement of the BIR that an application for tax treaty relief be filed prior to
the first taxable event as previously stated, the non-resident holder of Common Shares may
not be able to successfully pursue a claim for refund if such an application is not filed before
such deadline.
Stock dividends distributed pro rata to any holder of shares are not subject to Philippine
income tax. However, the sale, exchange or disposition of shares received as share dividends
by the holder is subject to either capital gains tax and documentary stamp tax (if the sale is
made outside the facilities of the PSE) or stock transaction tax (if the sale is made through the
facilities of the PSE).

213

Tax Treaties
The following table lists some of the countries with which the Philippines has tax treaties and
the tax rates currently applicable to non-resident holders who are residents of those countries:
Country

Canada .......................................................................
France ........................................................................
Germany ....................................................................
Japan .........................................................................
Singapore ...................................................................
United Kingdom ........................................................
United States .............................................................
Notes:
(1)
(2)
(3)
(4)

(5)

(6)
(7)

(8

(9)

(10)

Dividends
(%)

Capital Gains Tax

Due on
Disposition of
Common Shares
Outside the PSE
(%)

25(1)
15(2)
15(3)
15(4)
25(5)
25(6)
25(7)

Exempt(8)
Exempt(8)
5/10(9)
Exempt(8)
Exempt(8)
Exempt(10)
Exempt(8)

15% if the recipient company controls at least 10% of the voting power of the company paying the
dividends.
10% if the recipient company (excluding a partnership) holds directly at least 10% of the voting shares
of the company paying the dividends.
10% if the recipient company (excluding a partnership) owns directly at least 25% of the capital of the
company paying the dividends.
10% if the recipient company holds directly at least 10% of either the voting shares of the company
paying the dividends or of the total shares issued by that company during the period of six months
immediately preceding the date of payment of the dividends.
15% if during the part of the paying companys taxable year which precedes the date of payment of
dividends and during the whole of its prior taxable year at least 15% of the outstanding shares of the
voting shares of the paying company were owned by the recipient company.
15% if the recipient company is a company which controls directly or indirectly at least 10% of the
voting power of the company paying the dividends.
20% if during the part of the paying corporations taxable year which precedes the date of payment of
dividends and during the whole of its prior taxable year, at least 10% of the outstanding shares of the
voting shares of the paying corporation were owned by the recipient corporation. Notwithstanding the
rates provided under the Republic of the Philippines-United States Treaty, residents of the United States
may avail of the 15% withholding tax rate under the tax-sparing clause of the Tax Code provided certain
conditions are met.
Capital gains are taxable only in the country where the seller is a resident, provided the shares are not
those of a corporation, the assets of which consist principally of real property situated in the
Philippines, in which case the sale is subject to Philippine taxes.
Under the tax treaty between the Philippines and Germany, capital gains from the alienation of shares of
a Philippine corporation may be taxed in the Philippines irrespective of the nature of the assets of the
Philippine corporation. Tax rates are 5% on the net capital gains realized during the taxable year not in
excess of 100,000 and 10% on the net capital gains realized during the taxable year in excess of
100,000.
Under the tax treaty between the Philippines and the United Kingdom, capital gains on the sale of the
shares of Philippine corporations are subject to tax only in the country where the seller is a resident,
irrespective of the nature of the assets of the Philippine corporation.

214

In order for an exemption under a tax treaty to be recognized, an application for tax treaty
relief on capital gains tax on the sale of shares must be filed by the income recipient before
the deadline for the filing of the documentary stamp tax return, which is the fifth day from the
end of the month when the document transferring ownership was executed.
The requirements for a tax treaty relief application in respect of capital gains tax on the sale of
shares are set out in the applicable tax treaty and BIR Form No. 0901-C. These include proof
of residence in the country that is a party to the tax treaty. Proof of residence consists of a
consularized certification from the tax authority of the country of residence of the seller of
shares which provides that the seller is a resident of such country under the applicable tax
treaty. If the seller is a juridical entity, authenticated certified true copies of its articles of
incorporation or association issued by the proper government authority should also be
submitted to the BIR in addition to the certification of its residence from the tax authority of
its country of residence.
Sale, Exchange or Disposition of Shares through an Initial Public Offering (IPO)
The sale, barter, exchange or other disposition through an IPO of shares in closely held
corporations is subject to an IPO Tax at the rates below based on the gross selling price or
gross value in money of the shares sold, bartered, exchanged or otherwise disposed in
accordance with the proportion of shares sold, bartered, exchanged or otherwise disposed to
the total outstanding shares after the listing in the local stock exchange:
Up to 25% .................................................................................................................4%
Over 25% but not over 33 13%.................................................................................2%
Over 33 13% .............................................................................................................1%
A closely held corporation means any corporation at least 50% in value of outstanding
capital shares or at least 50% of the total combined voting power of all classes of shares
entitled to vote is owned directly or indirectly by or for not more than 20 individuals.
The IPO Tax for the Offer shall be paid by the Company.
Sale, Exchange or Disposition of Shares after the IPO
Capital gains tax, if sale was made outside the PSE
Net capital gains realized by a resident or non-resident other than a dealer in securities during
each taxable year from the sale, exchange or disposition of shares outside the facilities of the
PSE, unless an applicable treaty exempts such gains from tax or provides for preferential
rates, are subject to tax as follows: 5.0% on gains not exceeding 100,000 and 10.0% on
gains over 100,000. An application for tax treaty relief must be filed (and approved) by the
Philippine tax authorities to obtain an exemption under a tax treaty. Such application must be
filed before the deadline for the filing of the documentary stamp tax return. Otherwise, the tax
treaty exemption cannot be availed of. The transfer of shares shall not be recorded in the
books of the Company unless the BIR certifies that the capital gains and documentary stamp
taxes relating to the sale or transfer have been paid or, where applicable, tax treaty relief has
been confirmed by the International Tax Affairs Division of the BIR in respect of the capital
gains tax or other conditions have been met.

215

Taxes on transfer of shares listed and traded at the PSE

A sale or other disposition of shares through the facilities of the PSE by a resident or a nonresident holder, other than a dealer in securities, is subject to a stock transaction tax at the rate
of 0.5% of the gross selling price or gross value in money of the shares sold or otherwise
disposed, unless an applicable treaty exempts such sale from said tax. This tax is required to
be collected by and paid to the Government by the selling stockbroker on behalf of his client.
The stock transaction tax is classified as a percentage tax in lieu of a capital gains tax. Under
certain tax treaties, the exemptions from capital gains tax discussed herein may not be
applicable to stock transaction tax.
In addition, VAT of 12.0% is imposed on the commission earned by the PSE-registered
broker, and is generally passed on to the client.
The PSE issued Memorandum CN-No. 2012-0046 dated August 22, 2012, which provides
that immediately after December 31, 2012, the SEC shall impose a trading suspension for a
period of not more than six months, on shares of a listed company that has not complied with
the Rule on Minimum Public Ownership (MPO) which requires listed companies to
maintain a minimum percentage of listed securities held by the public at 10% of the listed
companies issued and outstanding shares at all times. Consequently, the sale of such listed
companys shares during the trading suspension may be effected only outside the trading
system of the PSE and shall be subject to capital gains tax and documentary stamp tax.
Furthermore, if the fair market value of the shares of stock sold is greater than the
consideration or the selling price, the amount by which the fair market value of the shares
exceeds the selling price shall be deemed a gift that is subject to donors tax under Section
100 of the Tax Code.
On November 7, 2012, the BIR issued Revenue Regulations No. 16-2012 which provides that
the sale, barter, transfer, and/or assignment of shares of listed companies that fail to meet the
MPO requirement after December 31, 2012 will be subject to capital gains tax and
documentary stamp tax. It also requires publicly listed companies to submit public ownership
reports to the BIR within 15 days after the end of each quarter.
Prospective purchasers of the Offer Shares should obtain their own tax advice in respect of
their investment in relation to these developments.
Documentary Stamp Taxes on Shares
The original issue of shares is subject to documentary stamp tax of 1.00 on each 200 par
value, or fraction thereof, of the shares issued. On the other hand, the transfer of shares is
subject to a documentary stamp tax at a rate of 0.75 on each 200, or fractional part thereof,
of the par value of the Common Shares. The documentary stamp tax is imposed on the person
making, signing, issuing, accepting or transferring the document and is thus payable either by
the vendor or the purchaser of the Common Shares.
However, the sale, barter or exchange of Common Shares should they be listed and traded
through the PSE are exempt from documentary stamp tax. In addition, the borrowing and
lending of securities executed under the securities borrowing and lending program of a
registered exchange, or in accordance with regulations prescribed by the appropriate
regulatory authority, are likewise exempt from documentary stamp tax. However, the
securities borrowing and lending agreement should be duly covered by a master securities
borrowing and lending agreement acceptable to the appropriate regulatory authority, and
should be duly registered and approved by the BIR.

216

Estate and Gift Taxes

The transfer of the Common Shares upon the death of a registered holder to his heirs by way
of succession, whether such an individual was a citizen of the Philippines or an alien,
regardless of residence, will be subject to Philippine estate tax at progressive rates ranging
from 5% to 20% if the net estate is over 200,000.
Individual registered holders, whether or not citizens or residents of the Philippines, who
transfer shares by way of gift or donation, will be liable for Philippine donors tax on such
transfers at progressive rates ranging from 2% to 15% if the total net gifts made during the
calendar year exceed 100,000. The rate of tax with respect to net gifts made to a stranger
(one who is not a brother, sister, spouse, ancestor, lineal descendant or relative by
consanguinity within the fourth degree of relationship) is a flat rate of 30%. Corporate
registered holders are also liable for Philippine donors tax on such transfers, but the rate of
tax with respect to net gifts made by corporate registered holders is always at a flat rate of
30%.
Estate and gift taxes will not be collected in respect of intangible personal property, such as
shares, (1) if the deceased at the time of death, or the donor at the time of donation, was a
citizen and resident of a foreign country which at the time of his death or donation did not
impose a transfer tax of any character in respect of intangible personal property of citizens of
the Philippines not residing in that foreign country, or (2) if the laws of the foreign country of
which the deceased or the donor was a citizen and resident at the time of his death or donation
allow a similar exemption from transfer or death taxes of every character or description in
respect of intangible personal property owned by citizens of the Philippines not residing in
that foreign country.
Corporate Income Tax
In general, a tax of 30% is imposed upon the taxable net income of a domestic corporation
from all sources (within and outside the Philippines) pursuant to the Tax Code.

217

PHILIPPINE FOREIGN EXCHANGE AND

FOREIGN OWNERSHIP CONTROLS
Under current BSP regulations, an investment in listed securities (such as the Common
Shares) must be registered with the BSP if the foreign exchange needed to service the
repatriation of capital and the remittance of dividends, profits and earnings derived from such
shares is to be sourced from the Philippine banking system. If the foreign exchange required
to service capital repatriation or dividend remittance is sourced outside the Philippine banking
system, registration is not required. Current BSP Circular No. 471 (Series of 2005), as
amended, however, subjects foreign exchange dealers and money changers to R.A. No. 9160
(the Anti-Money Laundering Act of 2001, as amended) and requires these nonbank sources of
foreign exchange to require foreign exchange buyers to submit supporting documents in
connection with their application to purchase foreign exchange for purposes of capital
repatriation and remittance of dividends.
The application for registration may be done directly with the BSP or through a custodian
bank duly designated by the foreign investor. A custodian bank may be an authorized agent
bank1 or an offshore banking unit registered with the BSP to act as such and appointed by the
investor to register the investment, hold shares for the investor, and represent the investor in
all necessary actions in connection with his investments in the Philippines. Applications for
registration must be accompanied by: (i) purchase invoice, subscription agreement and proof
of listing on the PSE (either or both); (ii) credit advice or bank certificate showing the amount
of foreign currency inwardly remitted and converted into Pesos through an authorized agent
bank; and (iii) transfer instructions from the stockbroker or dealer, as the case may be.
Upon registration of the investment, proceeds of divestments, or dividends of registered
investments are repatriable or remittable immediately and in full through the Philippine
banking system, net of applicable tax, without need of BSP approval. Capital repatriation of
investments in listed securities is permitted upon presentation of the BSP registration
document and the brokers sales invoice, at the exchange rate prevailing at the time of
purchase of the foreign exchange from the banking system. Remittance of dividends is
permitted upon presentation of: (1) the BSP registration document; (2) the cash dividends
notice from the PSE and the Philippine Central Depository printout of cash dividend payment
or computation of interest earned; (3) copy of secretarys sworn statement on the board
resolution covering the dividend declaration and (4) detailed computation of the amount
applied for in the format prescribed by the BSP. Pending reinvestment or repatriation,
divestment proceeds, as well as dividends of registered investments, may be lodged
temporarily in interest-bearing deposit accounts with any authorized agent bank. Interest
earned thereon, net of taxes, may also be remitted in full. Remittance of divestment proceeds
or dividends of registered investments may be reinvested in the Philippines. The reinvestments shall be registered with the BSP or the investors custodian bank if the foreign
exchange needed to service the repatriation of capital and the remittance of dividends, profits
and earnings derived from such re-investments is to be sourced from the Philippine banking
system.
The foregoing is subject to the power of the BSP, through the Monetary Board, with the
approval of the President of the Philippines, to suspend temporarily or restrict the availability
of foreign exchange, require licensing of foreign exchange transactions or require delivery of

The term authorized agent bank refers to all categories of banks, except offshore banking units, duly
licensed by the BSP.

218

foreign exchange to the BSP or its designee during an exchange crisis, when an exchange
crisis is imminent, or in times of national emergency.
The registration with the BSP of all foreign investments in any Common Shares received in
exchange for Offer Shares shall be the responsibility of the foreign investor.
Foreign Ownership Controls
The Company does not currently own real estate. However, if the Company acquires real
estate in the future, it would be subject to nationality restrictions found under the Philippine
Constitution and other laws limiting land ownership to Philippine Nationals. The term
Philippine National as defined under the R.A. No. 7042, as amended, shall mean a citizen
of the Philippines, a domestic partnership or association wholly-owned by citizens of the
Philippines or a corporation organized under the laws of the Philippines of which at least
60.0% of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines, or a corporation organized abroad and registered to do business in the
Philippines under the Philippine Corporation Code of which 60.0% of the capital stock
outstanding and entitled to vote is wholly-owned by Filipinos or a trustee of funds for pension
or other employee retirement or separation benefits, where the trustee is a Philippine National
and at least 60.0% of the fund will accrue to the benefit of Philippine Nationals.
As of the date of this Prospectus, approximately 100% of the total outstanding capital stock of
the Company is held by Philippine Nationals.

219

LEGAL MATTERS
Certain legal matters as to Philippine law relating to the Offer will be passed upon by
Martinez Vergara Gonzalez & Serrano, legal counsel to the Company, and Romulo Mabanta
Buenaventura Sayoc & de los Angeles, legal counsel to the Joint Lead Underwriters.
Each of the foregoing legal counsel has neither shareholdings in the Company nor any right,
whether legally enforceable or not, to nominate persons or to subscribe for securities in the
Company. None of the legal counsel will receive any direct or indirect interest in the
Company or in any securities thereof (including options, warrants or rights thereto) pursuant
to or in connection with the Offer.

220

INDEPENDENT AUDITORS
The combined historical financial statements of GTC and SMDC as of and for the years
ended December 31, 2011, 2012, and 2013 were audited by Punongbayan & Araullo, a
member firm within Grant Thornton International Ltd., and the pro forma consolidated
financial statements of the Company for the year ended December 31, 2013 were examined
by, Navarro Amper & Co., a member firm within Deloitte Touche Tohmatsu Limited,
independent auditors, in accordance with PSA, as stated in their reports appearing herein.
Navarro Amper & Co., has acted as the Companys external auditor since January 16, 2014
Francis Albalate is the current audit partner for the Company and has served as such since
January 2014. The Company has not had any material disagreements on accounting and
financial disclosures with its current external auditor for the same periods or any subsequent
interim period. Navarro Amper & Co. has neither shareholdings in the Company nor any
right, whether legally enforceable or not, to nominate persons or to subscribe for the securities
of the Company. Navarro Amper & Co. will not receive any direct or indirect interest in the
Company or its securities (including options, warrants or rights thereto) pursuant to or in
connection with the Offer. The foregoing is in accordance with the Code of Ethics for
Professional Accountants in the Philippines set by the Board of Accountancy and approved by
the Professional Regulation Commission.
The following table sets out the aggregate fees for 2013 for professional services rendered by
Navarro Amper & Co. and Punongbayan & Araullo, excluding fees directly related to the
Offer.

2013
in thousands
Audit and Audit-Related Fees(1) .........................
Total ...................................................................
(1)

9,100
9,100

Audit and Audit-Related Fees. This category includes the audit of annual financial statements,
review of interim financial statements and services that are normally provided by the
independent auditor in connection with statutory and regulatory filings or engagements for
those calendar years.
The fees presented above include out-of-pocket expenses incidental to the independent
auditors work, the amounts of which do not exceed 15% of the agreed-upon engagement fees.
Except for the abovementioned services, the independent auditors provided no other type of
services.

In relation to the audit of the Companys annual financial statements, the Companys
Corporate Governance Manual, which was approved by the Board of Directors on November
25, 2013, provides that the audit committee shall, among other activities (i) evaluate
significant issues reported by the external auditors in relation to the adequacy, efficiency and
effectiveness of policies, controls, processes and activities of the Company; (ii) ensure that
other non-audit work provided by the external auditors are not in conflict with their functions
as external auditors; and (iii) ensure the compliance of the Company with acceptable auditing
and accounting standards and regulations.

221

The audit committee consists of three members of the Board of Directors, at least one of
whom is an independent director, including the chairman of the committee. The audit
committee, with respect to an external audit:

Reviews the independent auditors audit plan discusses scope, staffing, reliance
upon management and the internal audit department, general audit approach, and
coverage provided to any significant areas of concern that the audit committee may
have.

Reviews and confirms the independence of the external auditors on relationships by

obtaining statements from the auditors on the relationships between the auditors and
the Company, including non-audit services, and discussing the relationships with the
auditors.

Prior to publishing the year-end earnings, discusses the results of the audit with the
independent auditors.

On an annual basis, the audit committee reviews and discusses with the independent
auditors all significant relationships they have with the Company that could impair
the auditors independence.

On a regular basis, the audit committee meets separately with the external auditors to
discuss any matters that the committee or auditors believe should be discussed
privately.

222

CENTURY PACIFIC FOOD, INC.

Centerpoint Building
Julia Vargas Avenue Ortigas Center
1605 Pasig City, Metro Manila
Philippines
JOINT LEAD UNDERWRITERS
BDO Capital & Investment
Corporation
20/F South Tower,
BDO Corporate Center
7899 Makati Avenue
Makati City 0726, Philippines

BPI Capital Corporation

8th Floor, BPI Building
6768 Ayala Avenue
Makati City 1226, Philippines

First Metro Investment Corporation

45/F GT Tower International
Ayala Avenue, Makati City, Philippines

FINANCIAL ADVISER
Evercore Asia Limited
Suite 1405-1407, 14th Floor
Two Exchange Square
Central
Hong Kong
LEGAL COUNSEL TO CENTURY PACIFIC FOOD, INC.
Martinez Vergara Gonzalez & Serrano
Suite 2401, The Orient Square
F. Ortigas Jr. Road, Ortigas Center
1600 Pasig City, Metro Manila
Philippines

LEGAL COUNSEL TO THE JOINT LEAD UNDERWRITERS

Romulo Mabanta Buenaventura Sayoc & de los Angeles
21st Floor, Philamlife Tower
8767 Paseo de Roxas
1226 Makati City, Philippines

INDEPENDENT AUDITORS
Navarro Amper & Co.
19th Floor, Net Lima Plaza
5th Avenue corner 26th Street
Bonifacio Global City
1634 Taguig City, Philippines

INDEX TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORTS

Audited Pro Forma Consolidated Financial Statements of CNPF as of and for the year ended
December 31, 2013
Page
Independent Auditors Assurance Report on the Compilation of Pro Forma Financial
Information included in the Prospectus F-4
Pro Forma Consolidated Statement of Financial Position F-7
Pro Forma Consolidated Statement of Comprehensive Income... F-8
Pro Forma Consolidated Statement of Changes in Equity F-9
Pro Forma Consolidated Statement of Cash Flows.. F-10
Audited Parent Financial Statements of CNPF as of December 31, 2013 and for the period October
25, 2013 to December 31, 2013
Page
Independent Auditors Report... F-51
Statement of Financial Position F-53
Statement of Comprehensive Income... F-54
Statement of Changes in Equity F-55
Statement of Cash Flows.. F-56
Independent Auditors Report on Supplementary Schedule. F-87
Supplementary Schedules. F-88
Audited Consolidated Financial Statements of CNPF as of December 31, 2013 and for the period
October 25, 2013 to December 31, 2013
Page
Statement of Managements Responsibility. F-97
Independent Auditors Report... F-100
Statement of Financial Position F-102
Statement of Comprehensive Income... F-103
Statement of Changes in Equity F-104
Statement of Cash Flows.. F-105
Independent Auditors Report on Supplementary Schedule. F-159
Supplementary Schedules. F-160
Combined Financial Statements of GTC and SMDC for the years ended December 31, 2013, 2012
and 2011
Page
Practitioners Compilation Report F-170
Statement of Financial Position F-172
Statement of Comprehensive Income... F-173
Statement of Changes in Equity F-174
Statement of Cash Flows.. F-175
Audited Financial Statements of GTC for the years ended December 31, 2013, 2012, and 2011
Statement of Managements Responsibility.
Independent Auditors Report..
Statement of Financial Position as of December 31, 2013 and 2012...

F-1

Page
F-215
F-217
F-220

Statement of Comprehensive Income for the years ended December 31, 2013 and 2012...
Statement of Changes in Equity for the years ended December 31, 2013 and 2012
Statement of Cash Flows for the years ended December 31, 2013 and 2012..
Independent Auditors Report..
Statement of Financial Position as of December 31, 2012 and 2011...
Statement of Comprehensive Income for the years ended December 31, 2012 and 2011...
Statement of Changes in Equity for the years ended December 31, 2012 and 2011
Statement of Cash Flows for the years ended December 31, 2012 and 2011...

F-221
F-222
F-223
F-273
F-276
F-277
F-278
F-279

Audited Financial Statements of SMDC for the years ended December 31, 2013, 2012, and 2011
Page
Statement of Managements Responsibility. F-320
Independent Auditors Report.. F-322
Statement of Financial Position as of December 31, 2013 and 2012... F-325
Statement of Comprehensive Income for the years ended December 31, 2013 and 2012... F-326
Statement of Changes in Equity for the years ended December 31, 2013 and 2012 F-327
Statement of Cash Flows for the years ended December 31, 2013 and 2012.. F-328
Independent Auditors Report.. F-377
Statement of Financial Position as of December 31, 2012 and 2011... F-380
Statement of Comprehensive Income for the years ended December 31, 2012 and 2011... F-381
Statement of Changes in Equity for the years ended December 31, 2012 and 2011 F-382
Statement of Cash Flows for the years ended December 31, 2012 and 2011... F-383

F-2

F-3

F-4

F-5

F-6

F-7

F-8

F-9

F-10

F-11

F-12

F-13

F-14

F-15

F-16

F-17

F-18

F-19

F-20

F-21

F-22

F-23

F-24

F-25

F-26

F-27

F-28

F-29

F-30

F-31

F-32

F-33

F-34

F-35

F-36

F-37

F-38

F-39

F-40

F-41

F-42

F-43

F-44

F-45

F-46

F-47

F-48

F-49

CENTURY PACIFIC FOOD, INC.

(A Wholly Owned Subsidiary of Century Canning Corporation)

Financial Statements
December 31, 2013

and
Independent Auditors Report

Suite 505, Centerpoint Building, Julia Vargas St.,

Ortigas Center Pasig City,
Metro Manila, Philippines

F-50

F-51

F-52

F-53

F-54

F-55

F-56

F-57

F-58

F-59

F-60

F-61

F-62

F-63

F-64

F-65

F-66

F-67

F-68

F-69

F-70

F-71

F-72

F-73

F-74

F-75

F-76

F-77

F-78

F-79

CENTURY PACIFIC FOOD, INC.

(A Wholly Owned Subsidiary of Century Canning Corporation)
List of Effective Standards and Interpretations under the Philippine Financial Reporting Standards
(PFRS)
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as of December 31, 2013
Framework for the Preparation and Presentation of Financial
Statements
Conceptual Framework Phase A: Objectives and qualitative
characteristics

Adopted

Not
Not
Adopted Applicable

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1
(Revised)

First-time Adoption of Philippine Financial Reporting

Standards

Amendments to PFRS 1 and PAS 27: Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or
Associate

Amendments to PFRS 1: Additional Exemptions for

First-time Adopters

Amendment to PFRS 1: Limited Exemption from

Comparative PFRS 7 Disclosures for First-time Adopters

Amendments to PFRS 1: Severe Hyperinflation and

Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PFRS 1, First-Time Adoption of

PFRS

Annual Improvements to PFRSs 2011-2013 Cycle Amendments to PFRS 1, First-time Adoption of

International Financial Reporting Standards (Changes to
the Basis for Conclusions only)*
PFRS 2

Share-based Payment

Amendments to PFRS 2: Vesting Conditions and

Cancellations

Amendments to PFRS 2: Group Cash-settled Sharebased Payment Transactions

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 2:Definition of Vesting

Condition*
PFRS 3
(Revised)

Business Combinations

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 3, Business Combinations

(with consequential amendments to other standards)*

Annual Improvements to PFRSs 2011-2013 Cycle -



g0
F-80

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Not
Not
Adopted Applicable

Amendments to PFRS 3: Scope of Exception for Joint

Ventures*
PFRS 4

Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

PFRS 5

Non-current Assets Held for Sale and Discontinued

Operations

PFRS 6

Exploration for and Evaluation of Mineral Resources

PFRS 7

Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets - Effective Date and Transition

Amendments to PFRS 7: Improving Disclosures about

Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of

Financial Assets

Amendments to PFRS 7: Disclosures Offsetting

Financial Assets and Financial Liabilities

Amendments to PFRS 7: Mandatory Effective Date of

PFRS 9 and Transition Disclosures*
PFRS 8

PFRS 9*

PFRS 10

Operating Segments

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 8: Aggregation of Operating

Segments and Reconciliation of the Total of the Reportable
Segments' Assets to the Entity's Assets*

Financial Instruments

Amendments to PFRS 9: Mandatory Effective Date of

PFRS 9 and Transition Disclosures

Amendments to PFRS 9: Hedge accounting and

Removal of Mandatory effective date of IFRS 9

Consolidated Financial Statements

Amendments to PFRS 10: Consolidated Financial

Statement: Transition Guidance

Amendments to PFRS 10:Transition Guidance and

Investment Entities*
PFRS 11

PFRS 12

Joint Arrangements

Amendments to PFRS 1: Joint Arrangements:

Transition Guidance

Disclosure of Interests in Other Entities



g0
F-81

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013
Amendments to PFRS 12: Disclosure of Interests in
Other Entities: Transition Guidance

Adopted

Amendments to PFRS 12: Transition Guidance and

Investment Entities*
PFRS 13

Fair Value Measurement

Not
Not
Adopted Applicable

3
3

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 13: Fair Value Measurement
(Amendments to the Basis of Conclusions Only, with
Consequential Amendments to the Bases of Conclusions of
Other Standards)*

Annual Improvements to PFRSs 2011-2013 Cycle Amendments to PFRS 13: Portfolio Exception*

Philippine Accounting Standards

PAS 1
(Revised)

Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on
Liquidation

Amendments to PAS 1: Presentation of Items of Other

Comprehensive Income

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 1: Presentation of Financial

Statements

PAS 2

Inventories

PAS 7

Statement of Cash Flows

PAS 8

Accounting Policies, Changes in Accounting Estimates and

Errors

PAS 10

Events after the Reporting Period

PAS 11

Construction Contracts

PAS 12

Income Taxes

3
3

Amendment to PAS 12 - Deferred Tax: Recovery of

Underlying Assets
PAS 16

Property, Plant and Equipment

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 16, Property, Plant and
Equipment

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PAS 16: Revaluation Method Proportionate Restatement of Accumulated Depreciation*

PAS 17

Leases

PAS 18

Revenue

PAS 19

Employee Benefits (2011)



g0
F-82

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Not
Not
Adopted Applicable

(Amended)
PAS 20

Accounting for Government Grants and Disclosure of

Government Assistance

PAS 21

The Effects of Changes in Foreign Exchange Rates

3
3

Amendment: Net Investment in a Foreign Operation

PAS 23
(Revised)

Borrowing Costs

PAS 24
(Revised)

Related Party Disclosures

PAS 26

Accounting and Reporting by Retirement Benefit Plans

PAS 27
(Amended)

Separate Financial Statements

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PAS 24: Key Management Personnel*

3
3
3

Amendments to PAS 27: Transition Guidance and

Investment Entities*

PAS 28
(Amended)

Investments in Associates and Joint Ventures

PAS 29

Financial Reporting in Hyperinflationary Economies

PAS 31

Interests in Joint Ventures

PAS 32

Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on
Liquidation

Amendment to PAS 32: Classification of Rights Issues

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 32, Financial Instruments:
Presentation

Amendments to PAS 32: Offsetting Financial Assets

and Financial Liabilities*

PAS 33

Earnings per Share

PAS 34

Interim Financial Reporting

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 34, Interim Financial Reporting

PAS 36

Impairment of Assets

PAS 37

Provisions, Contingent Liabilities and Contingent Assets

PAS 38

Intangible Assets

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PAS 38: Revaluation Method Proportionate Restatement of Accumulated Amortization*
PAS 39

Financial Instruments: Recognition and Measurement



g0
F-83

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

PAS 40

Not
Not
Adopted Applicable

Amendments to PAS 39: Transition and Initial

Recognition of Financial Assets and Financial Liabilities

Amendments to PAS 39: Cash Flow Hedge Accounting

of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets Effective Date and Transition

Amendments to Philippine Interpretation IFRIC9

and PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

Investment Property

Annual Improvements to PFRSs 2011-2013 Cycle Amendments to PAS 40: Clarifying the Interrelationship
of IFRS 3 and IAS 40 When Classifying Property as
Investment Property or Owner-Occupied Property*
PAS 41

Adopted

Agriculture

Philippine Interpretations
IFRIC 1

Changes in Existing Decommissioning, Restoration and

Similar Liabilities

IFRIC 2

Members' Share in Co-operative Entities and Similar

Instruments

IFRIC 4

Determining Whether an Arrangement Contains a Lease

IFRIC 5

Rights to Interests arising from Decommissioning,

Restoration and Environmental Rehabilitation Funds

IFRIC 6

Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic Equipment

IFRIC 7

Applying the Restatement Approach under PAS 29

Financial Reporting in Hyperinflationary Economies

IFRIC 8

Scope of PFRS 2

IFRIC 9

Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation IFRIC9

and PAS 39: Embedded Derivatives

IFRIC 10

Interim Financial Reporting and Impairment

IFRIC 11

PFRS 2- Group and Treasury Share Transactions

IFRIC 12

Service Concession Arrangements

IFRIC 13

Customer Loyalty Programmes

IFRIC 14

The Limit on a Defined Benefit Asset, Minimum Funding



g0
F-84

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Not
Not
Adopted Applicable

Requirements and their Interaction

Amendments to Philippine Interpretations IFRIC- 14,
Prepayments of a Minimum Funding Requirement

IFRIC 16

Hedges of a Net Investment in a Foreign Operation

IFRIC 17

Distributions of Non-cash Assets to Owners

IFRIC 18

Transfers of Assets from Customers

IFRIC 19

Extinguishing Financial Liabilities with Equity

Instruments

IFRIC 20

Stripping Costs in the Production Phase of a Surface Mine

IFRIC 21*

Levies

SIC-7

Introduction of the Euro

SIC-10

Government Assistance - No Specific Relation to Operating

Activities

SIC-15

Operating Leases - Incentives

SIC-25

Income Taxes - Changes in the Tax Status of an Entity or

its Shareholders

SIC-27

Evaluating the Substance of Transactions Involving the

Legal Form of a Lease

SIC-29

Service Concession Arrangements: Disclosures.

SIC-31

Revenue - Barter Transactions Involving Advertising

Services

SIC-32

Intangible Assets - Web Site Costs

PIC Q&A
No. 2006-01

Revenue Recognition for Sales of Property Units Under PreCompletion Contracts

PIC Q&A
Valuation of Bank Real and Other Properties Acquired
No. 2007-03 (ROPA)

PIC Q&A
Accounting for Government Loans with Low Interest Rates
No. 2008-02 under the Amendments to PAS 20

PIC Q&A
No. 2010-02

Basis of Preparation of Financial Statements

PIC Q&A
No. 2010-03

Current/non-current Classification of a Callable Term

Loan

PIC Q&A
No. 2011-02

Common Control Business Combinations

PIC Q&A
No. 2011-03

Accounting for Inter-company Loans

PIC Q&A
No. 2011-04

Costs of Public Offering of Shares

PIC Q&A
No. 2011-05

Fair Value or Revaluation as Deemed Cost



g0
F-85

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Not
Not
Adopted Applicable

PIC Q&A
No. 2011-06

Acquisition of Investment Properties Asset Acquisition or

Business Combination?

PIC Q&A
No. 2012-01

Application of the Pooling of Interests Method for Business

Combinations of Entities under Common Control in
Consolidated Financial Statements

PIC Q&A
No. 2012-02

Cost of a New Building Constructed on Site of a Previous

Building

*These are the new and revised accounting standards and interpretations that are effective after the reporting period ended
December 31, 2013. The Company will adopt these standards and interpretations when these become effective.



g0
F-86

F-87

F-88

F-89

F-90

F-91

F-92

F-93

F-94

F-95

F-96

F-97

F-98

CENTURY PACIFIC FOOD, INC.

AND SUBSIDIARIES

(A Wholly Owned Subsidiary of Century Canning Corporation)

Consolidated Financial Statements
December 31, 2013

and
Independent Auditors Report

Suite 505, Centerpoint Building, Julia Vargas St.,

Ortigas Center Pasig City,
Metro Manila, Philippines

F-99

F-100

F-101

F-102

F-103

F-104

F-105

F-106

F-107

F-108

F-109

F-110

F-111

F-112

F-113

F-114

F-115

F-116

F-117

F-118

F-119

F-120

F-121

F-122

F-123

F-124

F-125

F-126

F-127

F-128

F-129

F-130

F-131

F-132

F-133

F-134

F-135

F-136

F-137

F-138

F-139

F-140

F-141

F-142

F-143

F-144

F-145

F-146

F-147

F-148

F-149

F-150

F-151

CENTURY PACIFIC FOOD, INC. AND SUBSIDIARIES

(A Wholly Owned Subsidiary of Century Canning Corporation)
List of Effective Standards and Interpretations under the Philippine Financial Reporting Standards
(PFRS)
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as of December 31, 2013
Framework for the Preparation and Presentation of Financial
Statements
Conceptual Framework Phase A: Objectives and qualitative
characteristics

Adopted

Not
Not
Adopted Applicable

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1
(Revised)

First-time Adoption of Philippine Financial Reporting

Standards

Amendments to PFRS 1 and PAS 27: Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or
Associate

Amendments to PFRS 1: Additional Exemptions for

First-time Adopters

Amendment to PFRS 1: Limited Exemption from

Comparative PFRS 7 Disclosures for First-time Adopters

Amendments to PFRS 1: Severe Hyperinflation and

Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PFRS 1, First-Time Adoption of

PFRS

Annual Improvements to PFRSs 2011-2013 Cycle Amendments to PFRS 1, First-time Adoption of

International Financial Reporting Standards (Changes to
the Basis for Conclusions only)*
PFRS 2

Share-based Payment

Amendments to PFRS 2: Vesting Conditions and

Cancellations

Amendments to PFRS 2: Group Cash-settled Sharebased Payment Transactions

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 2:Definition of Vesting

Condition*
PFRS 3
(Revised)

Business Combinations

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 3, Business Combinations

(with consequential amendments to other standards)*

Annual Improvements to PFRSs 2011-2013 Cycle -


g0
F-152

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Amendments to PFRS 3: Scope of Exception for Joint

Ventures*
PFRS 4

Not
Not
Adopted Applicable
3

Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

PFRS 5

Non-current Assets Held for Sale and Discontinued

Operations

PFRS 6

Exploration for and Evaluation of Mineral Resources

PFRS 7

Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets - Effective Date and Transition

Amendments to PFRS 7: Improving Disclosures about

Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of

Financial Assets

Amendments to PFRS 7: Disclosures Offsetting

Financial Assets and Financial Liabilities

Amendments to PFRS 7: Mandatory Effective Date of

PFRS 9 and Transition Disclosures*
PFRS 8

PFRS 9*

PFRS 10

Operating Segments

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 8: Aggregation of Operating

Segments and Reconciliation of the Total of the Reportable
Segments' Assets to the Entity's Assets*

Financial Instruments

Amendments to PFRS 9: Mandatory Effective Date of

PFRS 9 and Transition Disclosures

Amendments to PFRS 9: Hedge accounting and

Removal of Mandatory effective date of IFRS 9

Consolidated Financial Statements

Amendments to PFRS 10: Consolidated Financial

Statement: Transition Guidance

Amendments to PFRS 10:Transition Guidance and

Investment Entities*
PFRS 11

PFRS 12

Joint Arrangements

Amendments to PFRS 1: Joint Arrangements:

Transition Guidance

Disclosure of Interests in Other Entities


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PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Not
Not
Adopted Applicable

Amendments to PFRS 12: Disclosure of Interests in

Other Entities: Transition Guidance

Amendments to PFRS 12: Transition Guidance and

Investment Entities*
PFRS 13

Fair Value Measurement

3
3

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PFRS 13: Fair Value Measurement
(Amendments to the Basis of Conclusions Only, with
Consequential Amendments to the Bases of Conclusions of
Other Standards)*

Annual Improvements to PFRSs 2011-2013 Cycle Amendments to PFRS 13: Portfolio Exception*

Philippine Accounting Standards

PAS 1
(Revised)

Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on
Liquidation

Amendments to PAS 1: Presentation of Items of Other

Comprehensive Income

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 1: Presentation of Financial

Statements

PAS 2

Inventories

PAS 7

Statement of Cash Flows

PAS 8

Accounting Policies, Changes in Accounting Estimates and

Errors

PAS 10

Events after the Reporting Period

PAS 11

Construction Contracts

PAS 12

Income Taxes

3
3

Amendment to PAS 12 - Deferred Tax: Recovery of

Underlying Assets
PAS 16

Property, Plant and Equipment

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 16, Property, Plant and
Equipment

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PAS 16: Revaluation Method Proportionate Restatement of Accumulated Depreciation*

PAS 17

Leases

PAS 18

Revenue

PAS 19

Employee Benefits (2011)


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PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Not
Not
Adopted Applicable

(Amended)
PAS 20

Accounting for Government Grants and Disclosure of

Government Assistance

PAS 21

The Effects of Changes in Foreign Exchange Rates

3
3

Amendment: Net Investment in a Foreign Operation

PAS 23
(Revised)

Borrowing Costs

PAS 24
(Revised)

Related Party Disclosures

PAS 26

Accounting and Reporting by Retirement Benefit Plans

PAS 27
(Amended)

Separate Financial Statements

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PAS 24: Key Management Personnel*

Amendments to PAS 27: Transition Guidance and

Investment Entities*

PAS 28
(Amended)

Investments in Associates and Joint Ventures

PAS 29

Financial Reporting in Hyperinflationary Economies

PAS 31

Interests in Joint Ventures

PAS 32

Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on
Liquidation

Amendment to PAS 32: Classification of Rights Issues

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 32, Financial Instruments:
Presentation

Amendments to PAS 32: Offsetting Financial Assets

and Financial Liabilities*

PAS 33

Earnings per Share

PAS 34

Interim Financial Reporting

Annual Improvements to PFRSs 2009-2011 Cycle Amendments to PAS 34, Interim Financial Reporting

PAS 36

Impairment of Assets

PAS 37

Provisions, Contingent Liabilities and Contingent Assets

PAS 38

Intangible Assets

Annual Improvements to PFRSs 2010-2012 Cycle Amendments to PAS 38: Revaluation Method Proportionate Restatement of Accumulated Amortization*
PAS 39

Financial Instruments: Recognition and Measurement

3
3


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PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

PAS 40

Not
Not
Adopted Applicable

Amendments to PAS 39: Transition and Initial

Recognition of Financial Assets and Financial Liabilities

Amendments to PAS 39: Cash Flow Hedge Accounting

of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets Effective Date and Transition

Amendments to Philippine Interpretation IFRIC9

and PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

Investment Property

Annual Improvements to PFRSs 2011-2013 Cycle Amendments to PAS 40: Clarifying the Interrelationship
of IFRS 3 and IAS 40 When Classifying Property as
Investment Property or Owner-Occupied Property*
PAS 41

Adopted

Agriculture

Philippine Interpretations
IFRIC 1

Changes in Existing Decommissioning, Restoration and

Similar Liabilities

IFRIC 2

Members' Share in Co-operative Entities and Similar

Instruments

IFRIC 4

Determining Whether an Arrangement Contains a Lease

IFRIC 5

Rights to Interests arising from Decommissioning,

Restoration and Environmental Rehabilitation Funds

IFRIC 6

Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic Equipment

IFRIC 7

Applying the Restatement Approach under PAS 29

Financial Reporting in Hyperinflationary Economies

IFRIC 8

Scope of PFRS 2

IFRIC 9

Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation IFRIC9

and PAS 39: Embedded Derivatives

IFRIC 10

Interim Financial Reporting and Impairment

IFRIC 11

PFRS 2- Group and Treasury Share Transactions

IFRIC 12

Service Concession Arrangements

IFRIC 13

Customer Loyalty Programmes

IFRIC 14

The Limit on a Defined Benefit Asset, Minimum Funding


g0
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PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013

Adopted

Not
Not
Adopted Applicable

Requirements and their Interaction

Amendments to Philippine Interpretations IFRIC- 14,
Prepayments of a Minimum Funding Requirement

IFRIC 16

Hedges of a Net Investment in a Foreign Operation

IFRIC 17

Distributions of Non-cash Assets to Owners

IFRIC 18

Transfers of Assets from Customers

IFRIC 19

Extinguishing Financial Liabilities with Equity

Instruments

IFRIC 20

Stripping Costs in the Production Phase of a Surface Mine

IFRIC 21*

Levies

SIC-7

Introduction of the Euro

SIC-10

Government Assistance - No Specific Relation to Operating

Activities

SIC-15

Operating Leases - Incentives

SIC-25

Income Taxes - Changes in the Tax Status of an Entity or

its Shareholders

SIC-27

Evaluating the Substance of Transactions Involving the

Legal Form of a Lease

SIC-29

Service Concession Arrangements: Disclosures.

SIC-31

Revenue - Barter Transactions Involving Advertising

Services

SIC-32

Intangible Assets - Web Site Costs

PIC Q&A
No. 2006-01

Revenue Recognition for Sales of Property Units Under PreCompletion Contracts

PIC Q&A
Valuation of Bank Real and Other Properties Acquired
No. 2007-03 (ROPA)

PIC Q&A
Accounting for Government Loans with Low Interest Rates
No. 2008-02 under the Amendments to PAS 20

PIC Q&A
No. 2010-02

Basis of Preparation of Financial Statements

PIC Q&A
No. 2010-03

Current/non-current Classification of a Callable Term

Loan

PIC Q&A
No. 2011-02

Common Control Business Combinations

PIC Q&A
No. 2011-03

Accounting for Inter-company Loans

PIC Q&A
No. 2011-04

Costs of Public Offering of Shares

PIC Q&A
No. 2011-05

Fair Value or Revaluation as Deemed Cost

3
3
3


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F-157

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS
Effective as of December 31, 2013
PIC Q&A
No. 2011-06

Acquisition of Investment Properties Asset Acquisition or

Business Combination?

PIC Q&A
No. 2012-01

Application of the Pooling of Interests Method for Business

Combinations of Entities under Common Control in
Consolidated Financial Statements

PIC Q&A
No. 2012-02

Cost of a New Building Constructed on Site of a Previous

Building

Adopted

Not
Not
Adopted Applicable
3

*These are the new and revised accounting standards and interpretations that are effective after the reporting period ended
December 31, 2013. The company will adopt these standards and interpretations when these become effective.


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F-158

F-159

F-160

F-161

F-162

F-163

F-164

F-165

F-166

F-167

F-168

GENERAL TUNA CORPORATION

AND SNOW MOUNTAIN DAIRY
CORPORATION
(Wholly Owned Subsidiaries of Century Pacific
Food, Inc.)
Combined Financial Statements
December 31, 2013, 2012 and 2011
and
Practitioners Compilation Report

Suite 505, Centerpoint Building, Julia Vargas St.

Ortigas Center Pasig City, Metro Manila, Philippines

F-169

F-170

F-171

F-172

F-173

F-174

F-175

F-176

F-177

F-178

F-179

F-180

F-181

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F-183

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F-189

F-190

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F-192

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F-194

F-195

F-196

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F-198

F-199

F-200

F-201

F-202

F-203

F-204

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F-209

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F-214

F-215

F-216

F-217

F-218

F-219

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2013 AND 2012

(With Corresponding Figures as at January 1, 2012)

(Amounts in United States Dollars)

DRAFT 03-08-14
(FOR FINALIZATION)

December 31,
2012
(As Restated
see Note 2)

December 31,
2013

Notes

January 1,
2012
(As Restated
see Note 2)

A S S E T S
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables - net
Inventories - net
Prepayments and other current assets

5
6
7
8

Total Current Assets

NON-CURRENT ASSETS
Property, plant and equipment - net
Deferred tax assets - net
Post-employment benefit asset
Other non-current assets

9
16
15
10

Total Non-current Assets

TOTAL ASSETS

8,207,080
21,580,586
29,210,571
1,060,578

2,203,548
4,619,685
44,845,549
973,640

2,060,127
5,948,373
38,674,777
750,169

60,058,815

52,642,422

47,433,446

14,615,741
225,144
348,490

16,626,268
143,069
10,434
665,352

17,632,274
76,404
2,664
692,415

15,189,375

17,445,123

18,403,757

75,248,190

70,087,545

65,837,203

45,021,840
8,212,842
16,559
5,238,586

33,518,645
10,868,961
349,378
4,085,368

24,062,102
9,372,685
241,223
1,732,062
10,006,670

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Interest-bearing loans
Trade and other payables
Income tax payable
Dividends payable
Due to related parties

11
12
19
17

58,489,827

Total Current Liabilities

NON-CURRENT LIABILITIES
Post-employment benefit obligation
Interest-bearing loans

13,479

15
11

Total Non-current Liabilities

Total Liabilities

EQUITY
Capital stock
Additional paid-in capital
Revaluation reserves
Retained earnings

19

19

Total Equity

TOTAL LIABILITIES AND EQUITY

45,414,742

364,148

1,707,339

13,479

364,148

1,707,339

58,503,306

49,186,500

47,122,081

11,333,722
3,296,386
24,336 )
2,139,112

11,333,722
3,296,386
18,613
6,252,324

11,333,722
3,296,386
13,532
4,071,482

16,744,884

20,901,045

18,715,122

75,248,190

See Notes to Financial Statements.

F-220

48,822,352

70,087,545

65,837,203

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in United States Dollars)

DRAFT 03-08-14
(FOR FINALIZATION)
2013

Notes
SALE OF GOODS

COST OF GOODS SOLD

13, 17

GROSS PROFIT
OTHER OPERATING EXPENSES
(INCOME)
Administrative expenses
Selling expenses
Other income
Other expenses

13
13
6, 17

13

OPERATING PROFIT
FINANCE COSTS

14

FINANCE INCOME

14

PROFIT BEFORE TAX

TAX EXPENSE

2012
(As Restated
see Note 2)

16

NET PROFIT

138,119,221

90,072,393

132,466,117

83,175,582

5,653,104

6,896,811

1,844,935
1,651,007
706,550 ) (
75,075

2,500,647
1,162,392
1,100,454 )
48,306

2,864,467

2,610,891

2,788,637

4,285,920

1,163,262 ) (

1,298,160 )

2,281,886

69,038

3,907,261

3,056,798

667,482

875,956

3,239,779

2,180,842

OTHER COMPREHENSIVE INCOME (LOSS)

Item that will not be reclassified
subsequently to profit or loss
Actuarial gain (loss) on post-employment benefits
Tax expense (income) on remeasurements of

10,251 )
3,075

post-employment benefit obligation

(

See Notes to Financial Statements.

F-221

2,178 )

7,176 )

TOTAL COMPREHENSIVE INCOME

7,259

3,232,603

5,081

2,185,923

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in United States Dollars)

DRAFT 03-08-14
(FOR FINALIZATION)
Capital Stock

Notes
Balance at January 1, 2013
As previously reported
Prior period adjustment
As restated

$
2

$
2

11,333,722

11,333,722

11,333,722

35,773

3,296,386

3,296,386

(
(

($

35,773

7,388,764 ) (

7,388,764 )
-

3,239,779
7,176 )
3,232,603

(
3,239,779

2,139,112

4,059,761
11,721
4,071,482

22,241 )
22,241 )

16,744,884

18,725,642
10,520 )
18,715,122

2,180,842
5,081
5,081

($

20,904,698
3,653 )
20,901,045

35,773

3,239,779

24,336 )

(
(

Total

35,773

7,176 )
7,176 )

F-222

6,238,817
13,507
6,252,324

35,773

See Notes to Financial Statements.

3,296,386

Retained
Earnings

17,160 )
17,160 )

35,773 )

11,333,722

(
(

3,296,386

35,773
-

Total comprehensive income

Net profit for the year
Actuarial gain on post-employment benefit

3,296,386

Balance at December 31, 2013

Balance at December 31, 2012

3,296,386
-

11,333,722

Total comprehensive income

Net profit for the year
Actuarial loss on post-employment benefit

Balance at January 1, 2012

As previously reported
Prior period adjustment
As restated

Transaction with owners

Cash dividend
Disposal of land carried at revalued amount

11,333,722

Revaluation Reserves
Revaluation
Net Actuarial Loss on
Increment on Land
Retirement Benefit

Additional
Paid-in Capital

17,160 )

2,180,842
5,081
2,185,923

2,180,842
$

6,252,324

20,901,045

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in United States Dollars)

DRAFT 03-08-14
(FOR FINALIZATION)
2013

Notes

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax
Adjustments for:
Depreciation
Unrealized foreign currency loss (gain)
Interest expense
Loss on sale and derecognition of property and equipment
Interest income
Operating profit before working capital changes
Decrease (increase) in trade and other receivables
Decrease (increase) in inventories
Increase in prepayments and other current assets
Decrease (increase) in post-employment benefit asset
Decrease in other non-current assets
Increase (decrease) in trade and other payables
Increase in post-employment benefit obligation
Cash generated from operations
Income taxes paid

14
9
5

3,907,261
2,837,514
2,243,620 )
1,069,892
72,921
38,266 )
5,605,702
16,907,952 )
15,634,978
679,299 )
10,434
322,695
2,026,068 )
13,479
1,973,969
335,243 )

9
14

2012
(As Restated
see Note 2)

(
(
(

3,056,798
2,729,259
371,426
816,041
-

67,561 )
6,905,963
2,349,988
6,170,772 )
763,979 )
232 )
30,556
875,219

(
(
(

3,226,743
262,994 )

1,638,726

Net Cash From Operating Activities

CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisitions of property, plant and equipment
Proceeds from sale of land
Interest received

2,726,974 ) (
1,827,066
38,266

Net Cash Used in Investing Activities

CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from interest-bearing loans
Repayments of interest-bearing loans
Advances from related parties
Repayments of advances from related parties
Payment of cash dividends
Interest paid

17
19

(
(
(

Net Cash From (Used in) Financing Activities

NET INCREASE IN CASH AND CASH EQUIVALENTS
Effect of Exchange Rate Changes on Cash and Cash Equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS AT END OF YEAR

See Notes to Financial Statements.

F-223

1,724,761 )
67,561

861,642 ) (

(
17

2,963,749

1,657,200 )

127,040,117
114,550,370 )
12,669,366
11,516,148 )
7,388,764 )
1,058,939 )

(
(
(

26,946,980
19,711,804 )
16,616,604
22,537,906 )
1,732,062 )
763,925 )

5,195,262

1,182,113 )

5,972,346

124,436

31,186

18,985

2,203,548

2,060,127

8,207,080

2,203,548

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012

(With Corresponding Figures as at January 1, 2012)

(Amounts in United States Dollars)

1.

CORPORATE INFORMATION

1.1 Incorporation and Operations

General Tuna Corporation (the Company) was incorporated in the Philippines and
registered with the Securities and Exchange Commission (SEC) on March 10, 1997.
It is engaged in manufacturing and exporting private label canned, pouched and frozen
tuna products.
The Company is a subsidiary of Century Canning Corporation (CCC) until
October 31, 2013 when CCC transferred for a consideration its 100% ownership interest
in the Company to Century Pacific Food, Inc. (CPFI or the new parent company). This
transfer of ownership is part of the corporate reorganization undertaken by the Century
Pacific Group (the Group) within which CCC is the parent company. CPFI is the newly
incorporated wholly owned subsidiary of CCC, which is now the Companys ultimate
parent company. It is incorporated and domiciled in the Philippines and will soon be
operating as a food manufacturing company in 2014. CCC is engaged in manufacturing
and distribution of canned tuna products for the Philippine Market.
The Companys registered office is located at 32 Arturo Drive, Bagumbayan, Taguig,
Metro Manila and the Companys processing plant is located at Brgy. Tambler, General
Santos City. The registered office of CPFI is located at Centerpoint Building, Julia Vargas
Street, Ortigas Center, Pasig City.

1.2 Approval of Financial Statements

The financial statements of the Company for the year ended December 31, 2013
(including the comparative financial statements for the year ended December 31, 2012 and
the corresponding figures as at January 1, 2012) were authorized for issue by the
Companys Board of Directors (BOD) on March 7, 2014.

F-224

-2-

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these
financial statements are summarized below and in the succeeding pages. The policies have
been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards
The financial statements of the Company have been prepared in accordance with
Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial
Reporting Standards Council (FRSC) from the pronouncements issued by the
International Accounting Standards Board (IASB).
The financial statements have been prepared using the measurement bases specified by
PFRS for each type of asset, liability, income and expense. The measurement bases
are more fully described in the accounting policies in the succeeding pages.
(b) Presentation of Financial Statements
The financial statements are presented in accordance with Philippine Accounting
Standard (PAS) 1, Presentation of Financial Statements. The Company presents all items of
income and expense in a single statement of comprehensive income.
The Company presents a third statement of financial position as at the beginning of
the preceding period when it applies an accounting policy retrospectively, or makes a
retrospective restatement or reclassification of items that has a material effect on the
information in the statement of financial position at the beginning of the preceding
period. The related notes to the third statement of financial position are not
required to be disclosed.
The Companys adoption of PAS 19 (Revised), Employee Benefits, resulted in
retrospective restatements on certain accounts in the comparative financial
statements for December 31, 2012 and in the corresponding figures as at
January 1, 2012 [see Note 2.2(a)(ii)]. Accordingly, the Company presents a third
statement of financial position as of January 1, 2012 without the related notes, except
for the disclosures required under PAS 8, Accounting Polices, Changes in Accounting
Estimates and Errors.
(c) Functional and Presentation Currency
These financial statements are presented in United States (U.S.) dollars, the Companys
functional and presentation currency, and all values represent absolute amounts except
when otherwise indicated.
Items included in the financial statements of the Company are measured using its
functional currency. Functional currency is the currency of the primary economic
environment in which the Company operates.

F-225

-3-

2.2 Adoption of New and Amended PFRS

(a) Effective in 2013 that are Relevant to the Company
In 2013, the Company adopted for the first time the following new PFRS, revisions,
amendments and annual improvements thereto that are relevant to the Company and
effective for financial statements for the annual periods beginning on or after
July 1, 2012 or January 1, 2013:
PAS 1 (Amendment)
PAS 19 (Revised)
PFRS 7 (Amendment)
PFRS 13
Annual Inprovements

: Presentation of Financial Statements Presentation of Items of Other

Comprehensive Income
: Employee Benefits
: Financial Instruments: Disclosures
Offsetting Financial Assets and
Financial Liabilities
: Fair Value Measurement
: Annual Improvements to PFRS
(2009 2011 Cycle)

Discussed below are the relevant information about these new, revised and amended
standards.
(i)

PAS 1 (Amendment), Financial Statements Presentation - Presentation of Items of Other

Comprehensive Income (effective from July 1, 2012). The amendment requires an
entity to group items presented in other comprehensive income into those that,
in accordance with other PFRS: (a) will not be reclassified subsequently to
profit or loss, and, (b) will be reclassified subsequently to profit or loss when
specific conditions are met. Management determined that the amendment did
not significantly affect the financial statements as its comprehensive income is
only comprised of actuarial gains and losses on retirement benefit obligation
which are not reclassified to profit or loss.

(ii)

PAS 19 (Revised), Employee Benefits (effective from January 1, 2013). The

revision made a number of changes as part of the improvements throughout
the standard. The main changes relate to defined benefit plans as follows:

eliminates the corridor approach under the existing guidance of PAS 19

and requires an entity to recognize all actuarial gains and losses arising in
the reporting period;

streamlines the presentation of changes in plan assets and liabilities

resulting in the disaggregation of changes into three main components of
service costs, net interest on net defined benefit obligation or asset, and
remeasurement; and,

enhances disclosure requirements, including information about the

characteristics of defined benefit plans and the risks that entities, through
participation in those plans are exposed to.

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The Companys adoption of PAS 19 (Revised) resulted in the retrospective

adjustment of the post-employment benefit obligation to record the previously
unrecognized net actuarial losses with the corresponding recognition of reserve
in equity for such net actuarial losses including those previously recognized in
profit or loss and accumulated in Retained Earnings.
The restatement of certain line items in the statements of financial position as
at December 31, 2012 and the corresponding figures as at January 1, 2012 as a
result of the above adjustments are summarized below.
As Previously
Reported

Notes

Prior Period
Adjustment

As Restated

December 31, 2012

Changes in assets:
Post-employment
benefit asset
Deferred tax assets - net

15.2
16

Net Effect on Assets

15,652 ($
141,504
($

Changes in equity:
Revaluation reserves
Retained earnings

Net Effect on Equity

35,773 ($
6,238,817
($

5,218) $
1,565

10,434
143,069

3,653)
17,160 ) $
13,507

18,613
6,252,324

3,653)

January 1, 2012
Changes in assets:
Post-employment
benefit asset
Deferred tax assets - net

Net Effect on Assets

17,692 ($
71,896
($

Changes in equity:
Revaluation reserves
Retained earnings

Net Effect on Equity

35,773 ($
4,059,761 (
($

15,028 ) $
4,508

2,664
76,404

10,520 )
22,241 ) $
11,721 )

13,532
4,071,482

10,520 )

The adoption of PAS19 (Revised) did not have material impact on the
Companys statement of comprehensive income and statement of cash flows
for the year ended December 31, 2012.

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(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures Offsetting Financial Assets

and Financial Liabilities (effective from January 1, 2013). The amendment
requires qualitative and quantitative disclosures relating to gross and net
amounts of recognized financial instruments that are set-off in accordance with
PAS 32, Financial Instruments: Presentation. The amendment also requires
disclosure of information about recognized financial instruments which are
subject to enforceable master netting arrangements or similar agreements, even
if they are not set-off in the statement of financial position, including those
which do not meet some or all of the offsetting criteria under PAS 32 and
amounts related to a financial collateral. These disclosures allow financial
statement users to evaluate the effect or potential effect of netting
arrangements, including rights of set-off associated with recognized financial
assets and financial liabilities on the entitys statement of financial position.
The adoption of this amendment did not result in any significant changes in
the Companys disclosures on its financial statements as it has no master
netting arrangements; however, potential offsetting arrangements are disclosed
in Note 21.3.
Other than the additional disclosures presented in Note 21.3, the application of
this new standard had no significant impact on the amounts recognized in the
financial statements.
(iv) PFRS 13, Fair Value Measurement (effective from January 1, 2013). This new
standard clarifies the definition of fair value and provides guidance and
enhanced disclosures about fair value measurements. The requirements under
this standard do not extend the use of fair value accounting but provide
guidance on how it should be applied to both financial instrument items and
non-financial items for which other PFRS require or permit fair value
measurements or disclosures about fair value measurements, except in certain
circumstances. The amendment applies prospectively from annual period
beginning January 1, 2013, hence, disclosure requirements need not be
presented in the comparative information in the first year of application.
Nevertheless, other than the additional disclosure presented in Note 21, the
application of this new standards had no significant effect on the amount
recognized in the financial statements.

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(v)

2009 - 2011 Annual Improvements to PFRS. Annual improvement to PFRS

(2009-2011 Cycle) made minor amendments to a number of PFRS. Among
those improvements, the following are relevant to the Company:
(a) PAS 1 (Amendment), Presentation of Financial Statements - Clarification of the
Requirements for Comparative Information. The amendment clarifies that a
statement of financial position as at the beginning of the preceding period
(third statement of financial position) is required when an entity applies an
accounting policy retrospectively, or makes a retrospective restatement or
reclassification of items that has a material effect on the information in the
third statement of financial position. The amendment specifies that other
than disclosure of certain specified information in accordance with PAS 8
related notes to the third statement of financial position are not required
to be presented.
Consequent to the Companys adoption of PAS 19 (Revised) in the
current year which resulted in retrospective restatement of the prior years
financial statements, the Company has presented a third statement of
financial position as at January 1, 2012 without the related notes, except
for the disclosure requirements of PAS 8.
(b) PAS 16 (Amendment), Property, Plant and Equipment - Classification of Servicing
Equipment. The amendment addresses a perceived inconsistency in the
classification requirements for servicing equipment which resulted in
classifying servicing equipment as part of inventory when it is used for
more than one period. It clarifies that items such as spare parts, stand-by
equipment and servicing equipment shall be recognized as property, plant
and equipment when they meet the definition of property, plant and
equipment, otherwise, these are classified as inventory. This amendment
had no impact on the Companys financial statements since it has been
recognizing those servicing equipment in accordance with the recognition
criteria under PAS 16.
(c) PAS 32 (Amendment), Financial Instruments Presentation Tax Effect of
Distributions to Holders of Equity Instruments. The amendment clarifies that
the consequences of income tax relating to distributions to holders of an
equity instrument and to transaction costs of an equity transaction shall be
accounted for in accordance with PAS 12. Accordingly, income tax
relating to distributions to holders of an equity instrument is recognized in
profit or loss while income tax related to the transaction costs of an equity
transaction is recognized in equity. This amendment had no effect on the
Companys financial statements as it has been recognizing the effect of
distributions to holders of equity instruments and transaction costs of an
equity transaction in accordance with PAS 12.

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(b) Effective in 2013 that are not Relevant to the Company

The following amendments became effective for annual periods beginning on or after
January 1, 2013 but are not relevant to the Companys financial statements:
PPRS 1 (Amendment)
PFRS 10
PFRS 11
PFRS 12
PAS 27 (Revised)
PAS 28 (Revised)
PFRS 10, PFRS 11 and
PFRS 12 (Amendment)
Annual Improvements
PAS 34 (Amendment)

: First-time Adoption of PFRS

Government Loans
: Consolidated Financial Statements
: Joint Arrangements
: Disclosure of Interests in Other Entities
: Separate Financial Statements
: Investments in Associate and Joint Venture
: Amendments to PFRS 10, 11 and 12 Transition Guidance to
PFRS 10, 11 and 12
: Interim Financial Reporting Interim
Financial Reporting and Segment
Information for Total Assets and
Liabilities
: First-time Adoption of PFRS Repeated
Application of PFRS 1 and Borrowing
Cost

PPRS 1 (Amendment)
Philippine Interpretation
International Financial
Reporting Interpretation
Committee 20

: Stripping Costs in the Production Phase

of a Surface Mine

(c) Effective Subsequent to 2013 but not Adopted Early

There are new PFRS, amendments, annual improvements and interpretations to
existing standards that are effective for periods subsequent to 2013. Management has
initially determined the following pronouncements, which the Company will apply in
accordance with their transitional provisions, to be relevant to its financial statements:
(i)

PAS 19 (Amendment), Employee Benefits - Defined Benefit Plans - Employee

Contributions (effective from January 1, 2014). The amendment clarifies that if
the amount of the contributions from employees or third parties is dependent on
the number of years of service, an entity shall attribute the contributions to
periods of service using the same attribution method (i.e., either using the plans
contribution formula or on a straight-line basis) for the gross benefit.
Management has initially determined that this amendment will have no impact
on the Companys financial statements since there are no plans of future
contribution from third parties.

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(ii)

PAS 32 (Amendment), Financial Instruments: Presentation - Offsetting Financial Assets

and Financial Liabilities (effective from January 1, 2014). The amendment
provides guidance to address inconsistencies in applying the criteria for
offsetting financial assets and financial liabilities. It clarifies that a right of set-off
is required to be legally enforceable, in the normal course of business; in the
event of default; and in the event of insolvency or bankruptcy of the entity and
all of the counterparties. The amendment also clarifies the principle behind net
settlement and provided characteristics of a gross settlement system that would
satisfy the criterion for net settlement. The Company does not expect this
amendment to have a significant impact on its financial statements.

(iii) PAS 36 (Amendment), Impairment of Assets - Recoverable Amount Disclosures for Nonfinancial Assets (effective from January 1, 2014). The amendment clarifies that
the requirements for the disclosure of information about the recoverable amount
of assets or cash-generating units is limited only to the recoverable amount of
impaired assets that is based on fair value less cost of disposal. It also
introduces an explicit requirement to disclose the discount rate used in
determining impairment (or reversals) where recoverable amount based on fair
value less cost of disposal is determined using a present value technique.
Management will reflect in its subsequent years financial statements the changes
arising from this relief on disclosure requirements.
(iv) PAS 39 (Amendment), Financial Instruments: Recognition and Measurement Novation
of Derivatives and Continuation of Hedge Accounting (effective January 1, 2014). The
amendment provides some relief from the requirements on hedge accounting by
allowing entities to continue the use of hedge accounting when a derivative is
novated to a clearing counterparty resulting in termination or expiration of the
original hedging instrument as a consequence of laws and regulations, or the
introduction thereof. As the Company neither enters into transactions involving
derivative instruments nor it applies hedge accounting, the amendment will not
have any impact on the financial statements.
(v)

PFRS 9, Financial Instruments: Classification and Measurement (effective from

January 1, 2015). This is the first part of a new standard on financial instruments
that will replace PAS 39, Financial Instruments: Recognition and Measurement, in its
entirety. The first phase of the standard was issued on November 2009 and
October 2010 and contains new requirements and guidance for the classification,
measurement and recognition of financial assets and financial liabilities. It
requires financial assets to be classified into two measurement categories:
amortized cost or fair value. Debt instruments that are held within a business
model whose objective is to collect the contractual cash flows that represent
solely payments of principal and interest on the principal outstanding are
generally measured at amortized cost. All other debt instruments and equity
instruments are measured at fair value. In addition, PFRS 9 allows entities to
make an irrevocable election to present subsequent changes in the fair value of
an equity instrument that is not held for trading in other comprehensive income.
The accounting for embedded derivatives in host contracts that are financial
assets is simplified by removing the requirement to consider whether or not they
are closely related, and, in most arrangement, does not require separation from
the host contract.

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For liabilities, the standard retains most of the PAS 39 requirements which
include amortized cost accounting for most financial liabilities, with bifurcation
of embedded derivatives. The main change is that, in case where the fair value
option is taken for financial liabilities, the part of a fair value change due to the
liabilitys credit risk is recognized in other comprehensive income rather than in
profit or loss, unless this creates an accounting mismatch.
In November 2013, the IASB has published amendments to International
Financial Reporting Standard (IFRS) 9 that contain new chapter and model on
hedge accounting that provides significant improvements principally by aligning
hedge accounting more closely with the risk management activities undertaken
by entities when hedging their financial and non-financial risk exposures. The
amendment also now requires changes in the fair value of an entitys own debt
instruments caused by changes in its own credit quality to be recognized in other
comprehensive income rather in profit or loss. It also includes the removal of
the January 1, 2015 mandatory effective date of IFRS 9.
To date, the remaining chapter of IFRS 9 and PFRS 9 dealing with impairment
methodology is still being completed. Further, the IASB is currently discussing
some limited modifications to address certain application issues regarding
classification of financial assets and to provide other considerations in
determining business model.
The Company does not expect to implement and adopt PFRS 9 until its effective
date. In addition, management is currently assessing the impact of PFRS 9 on the
financial statements of the Company and it plans to conduct a comprehensive
study of the potential impact of this standard prior to its mandatory adoption
date to assess the impact of all changes.
(vi) Annual Improvements to PFRS. Annual improvements to PFRS (2010-2012
Cycle) and PFRS (2011-2013 Cycle) made minor amendments to a number of
PFRS, which are effective for annual period beginning on or after July 1, 2014.
Among those improvements, the following amendments are relevant to the
Company but management does not expect a material impact on the Companys
financial statements:
Annual Improvements to PFRS (2010-2012 Cycle)
(a) PAS 16 (Amendment), Property, Plant and Equipment Classification of
Servicing Equipment. The amendment addresses a perceived inconsistency
in the classification requirements for servicing equipment which resulted
in classifying servicing equipment as part of inventory when it is used for
more than one period. It clarifies that items such as spare parts, stand-by
equipment and servicing equipment shall be recognized as property, plant
and equipment when they meet the definition of property, plant and
equipment, otherwise, these are classified as inventory. This amendment
had no impact on the Companys financial statements since it has been
recognizing those servicing equipment in accordance with the recognition
criteria under PAS 16.

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(b) PAS 24 (Amendment), Related Party Disclosures. The amendment clarifies

the entity providing key management services to a reporting entity is
deemed to be a related party of the latter. It also requires and clarifies that
the amounts incurred by the reporting entity for key management
personnel services that are provided by a separate management entity
should be disclosed in the financial statements, and not the amounts of
compensation paid or payable by the key management entity to its
employees or directors.
(c) PFRS 13 (Amendment), Fair Value Measurement. The amendment, through
a revision only in the basis of conclusion of PFRS 13, clarifies that issuing
PFRS 13 and amending certain provisions of PFRS 9 and PAS 39 related
to discounting of financial instruments, did not remove the ability to
measure short-term receivables and payables with no stated interest rate
on an undiscounted basis, when the effect of not discounting is
immaterial.
Annual Improvements to PFRS (2011-2013 Cycle)
PFRS 13 (Amendment), Fair Value Measurement. The amendment clarifies that the
scope of the exception for measuring the fair value of a group of financial assets
and financial liabilities on a net basis (the portfolio exception) applies to all
contracts within the scope of, and accounted for in accordance with PAS 39 or
PFRS 9, regardless of whether they meet the definitions of financial assets or
financial liabilities as defined in PAS 32.

2.3 Financial Assets

Financial assets are recognized when the Company becomes a party to the contractual
terms of the financial instrument. Financial assets other than those designated and
effective as hedging instruments are classified into the following categories: financial
assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity
investments and available-for-sale (AFS) financial assets. Financial assets are assigned to
the different categories by management on initial recognition, depending on the purpose
for which the investments were acquired.
Regular purchases and sales of financial assets are recognized on their trade date. All
financial assets that are not classified as at FVTPL are initially recognized at fair value plus
any directly attributable transaction costs.
The Companys financial assets are generally categorized as loans and receivables and are
presented as Cash and Cash Equivalents and Trade and Other Receivables in the
statement of financial position. Cash and cash equivalents are defined as cash on hand,
demand deposits and short-term, highly liquid investments readily convertible to known
amounts of cash and which are subject to insignificant risk of changes in value.
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise when the Company provides
money, goods or services directly to a debtor with no intention of trading the receivables.
They are included in current assets, except for maturities greater than 12 months after the
end of the reporting period which are classified as non-current assets.

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Loans and receivables are subsequently measured at amortized cost using the effective
interest method, less impairment losses, if any. Impairment loss is provided when there is
objective evidence that the Company will not be able to collect all amounts due to it in
accordance with the original terms of the receivables. The amount of the impairment loss
is determined as the difference between the assets carrying amount and the present value
of estimated future cash flows (excluding future credit losses that have not been incurred),
discounted at the financial assets original effective interest rate or current effective interest
rate determined under the contract if the loan has a variable interest rate.
All income and expenses, excluding impairment losses and foreign currency exchange
losses or gains and other gains or losses that relate to operating activities, relating to
financial assets that are recognized in profit or loss are presented as part of Finance Costs
or Finance Income in the statement of comprehensive income.
Non-compounding interest and other cash flows resulting from holding financial assets
are recognized in profit or loss when earned, regardless of how the related carrying
amount of financial assets is measured.
The financial assets are derecognized when the contractual rights to receive cash flows
from the financial instruments expire and substantially all of the risks and rewards of
ownership have been transferred to another party.

2.4 Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined
using the weighted-average method. Finished goods and work-in-process include the cost
of raw materials, direct labor and a proportion of manufacturing overheads based on
normal operating capacity. The cost of raw materials include all costs directly attributable
to acquisition, such as the purchase price, import duties and other taxes that are not
subsequently recoverable from taxing authorities.
Net realizable value is the estimated selling price in the ordinary course of business, less
the estimated costs of completion and the estimated costs necessary to make the sale. Net
realizable value of raw materials is the current replacement cost.

2.5 Property, Plant and Equipment

Property, plant and equipment, except land which is stated at fair value, are stated at cost
less accumulated depreciation, and any impairment in value.
The cost of an asset comprises its purchase price and directly attributable costs of bringing
the asset to working condition for its intended use. Expenditures for additions, major
improvements and renewals are capitalized; expenditures for repairs and maintenance are
charged to expense as incurred.
Following initial recognition of at cost, land is carried at revalued amounts which are the
fair values at the date of the revaluation, as determined by independent appraisers, less and
any accumulated impairment losses.
Revalued amounts are fair market values determined based on appraisals by external
professional valuer once every two years or more frequently if market factors indicate a
material change in fair value.

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Any revaluation surplus is recognized in other comprehensive income and credited to the
Revaluation Reserves account in the statement of changes in equity. Any revaluation
deficit directly offsetting a previous surplus in the same asset is charged to other
comprehensive income to the extent of any revaluation surplus in equity relating to this
asset and the remaining deficit, if any, is recognized in profit or loss. Upon disposal of
land, amounts included in Revaluation Reserves relating to them are transferred to
Retained Earnings.
Depreciation is computed on the straight-line basis over the estimated useful lives of the
assets as follows:
Buildings
Machinery and equipment
Land improvements
Transportation and delivery equipment

15 years
10 years
10 years
5 years

Fully depreciated assets are retained in the accounts until these are no longer in use. No
further charge for depreciation is made in respect of those accounts.
Construction-in-progress represents properties under construction and is stated at cost.
This includes cost of construction, applicable borrowing cost (see Note 2.15) and other
direct costs. The account is not depreciated until such time that the assets are completed
and available for use.
An assets carrying amount is written down immediately to its recoverable amount if the
assets carrying amount is greater than its estimated recoverable amount (see Note 2.13).
The residual values and estimated useful lives of property, plant and equipment are
reviewed, and adjusted if appropriate, at the end of each reporting period.
An item of property, plant and equipment, including the related accumulated depreciation
and impairment losses, is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising
on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in profit or loss in the year the
item is derecognized.

2.6 Prepayments and Other Assets

Prepayments and other current assets pertain to other resources controlled by the
Company as a result of past events. They are recognized in the financial statements when
it is probable that the future economic benefits will flow to the entity and the asset has a
cost or value that can be measured reliably.
Other recognized assets of similar nature, where future economic benefits are expected
to flow to the Company beyond one year after the end of the reporting period or in the
normal operating cycle of the business, if longer, are classified as non-current assets.

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2.7 Financial Liabilities

Financial liabilities, which include interest-bearing loans, trade and other payables
(except tax related payables), due to related parties and dividends payable, are recognized
when the Company becomes a party to the contractual terms of the instrument. All
interest-related charges incurred on financial liability that relate to financing activities and
are not capitalized are recognized as an expense in profit or loss under the caption Finance
Costs in the statement of comprehensive income.
Interest-bearing loans are raised for support of short-term or long-term funding of
operations. Finance charges, including premiums payable on settlement or redemption
and direct issue costs, are charged to profit or loss on an accrual basis using the effective
interest method and are added to the carrying amount of the instrument to the extent that
these are not settled in the period in which they arise.
Trade and other payables, due to related parties and dividends payable are recognized
initially at their fair values and subsequently measured at amortized cost, using effective
interest method for maturities beyond one year, less settlement payments.
Dividends payable to shareholders are recognized as financial liabilities upon declaration
by the Company.
Financial liabilities are classified as current liabilities if payment is due to be settled within
one year or less after the end of the reporting period (or in the normal operating cycle of
the business, if longer), or the Company does not have an unconditional right to defer
settlement of the liability for at least 12 months after the end of the reporting period.
Otherwise, these are presented as non-current liabilities.
Financial liabilities are derecognized from the statement of financial position only when
the obligations are extinguished either through discharge, cancellation or expiration. The
difference between the carrying amount of the financial liability derecognized and the
consideration paid or payable is recognized in profit or loss.

2.8 Offsetting Financial Instruments

Financial assets and liabilities are offset and the resulting net amount is reported in the
statement of financial position when there is a legally enforceable right to set-off the
recognized amounts and there is an intention to settle on a net basis, or realize the asset
and settle the liability simultaneously.

2.9 Provisions and Contingencies

Provisions are recognized when present obligations will probably lead to an outflow of
economic resources and they can be estimated reliably even if the timing or amount of the
outflow may still be uncertain. A present obligation arises from the presence of a legal or
constructive obligation that has resulted from past events.

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Provisions are measured at the estimated expenditure required to settle the present
obligation, based on the most reliable evidence available at the end of the reporting period,
including the risks and uncertainties associated with the present obligation. Where there
are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. When time
value of money is material, long-term provisions are discounted to their present values
using a pretax rate that reflects market assessments and the risks specific to the obligation.
The increase in provision due to passage of time is recognized as interest expense.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the
current best estimate.
In those cases where the possible outflow of economic resource as a result of present
obligations is considered improbable or remote, or the amount to be provided for cannot
be measured reliably, no liability is recognized in the financial statements. Similarly,
possible inflows of economic benefits to the Company that do not yet meet the
recognition criteria of an asset are considered contingent assets, hence, are not recognized
in the financial statements. On the other hand, any reimbursement that the Company can
be virtually certain to collect from a third party with respect to the obligation is recognized
as a separate asset not exceeding the amount of the related provision.

2.10 Revenue and Expense Recognition

Revenue comprises revenue from the sale of goods measured by reference to the fair value
of consideration received or receivable by the Company for goods supplied, excluding
value-added tax (VAT) and trade discounts.
Revenue is recognized to the extent that the revenue can be reliably measured; it is
probable that the economic benefits will flow to the Company; and the costs incurred or
to be incurred can be measured reliably. The following specific recognition criteria must
also be met before revenue is recognized:
(a)

Sale of goods Revenue is recognized when the risks and rewards of ownership of the
goods have passed to the buyer. This is generally when the customer has taken
undisputed delivery of goods.

(b)

Interest income Revenue is recognized as the interest accrues taking into account the
effective yield on the asset.

Costs and expenses are recognized in the statement of comprehensive income upon
receipt of goods and/or utilization of service or at the date they are incurred. Finance
costs are reported on an accrual basis, except capitalized borrowing costs which are
included as part of the cost of the related qualifying assets (see Notes 2.5 and 2.15).

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2.11 Leases
The Company accounts for its leases as follows:
(a) Company as Lessee
Leases which do not transfer to the Company substantially all the risks and benefits
of ownership of the asset are classified as operating leases. Operating lease payments
(net of any incentive received from the lessor) are recognized as expense in profit or
loss on a straight-line basis over the lease term. Associated costs, such as repairs and
maintenance and insurance, are expensed as incurred.
(b) Company as Lessor
Leases which do not transfer to the lessee substantially all the risks and benefits of
ownership of the assets are classified as operating leases. Lease income from operating
leases is recognized in profit or loss on a straight-line basis over the lease term.
The Company determines whether an arrangement is, or contains, a lease based on the
substance of the arrangement. It makes an assessment of whether the fulfillment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset.

2.12 Foreign Currency Transactions and Translation

The accounting records of the Company are maintained in U.S. dollars. Foreign currency
transactions during the year are translated into the functional currency at exchange rates
which approximate those prevailing on transaction dates.
Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies that arise from financing activities are presented as part
of Finance Costs in the statement of comprehensive income.

2.13 Impairment of Non-financial Assets

The Companys property, plant and equipment and other non-financial assets are tested
for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable.
For purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). As a result, some assets
are tested individually for impairment and some are tested at cash-generating unit level.
Impairment loss is recognized for the amount by which the assets or cash-generating
units carrying amount exceeds its recoverable amounts which is the higher of its fair value
less costs to sell and its value-in-use. In determining value-in-use, management estimates
the expected future cash flows from each cash-generating unit and determines the suitable
interest rate in order to calculate the present value of those cash flows.
All assets are subsequently reassessed for indications that an impairment loss previously
recognized may no longer exist. An impairment loss is reversed if the assets or cash
generating units recoverable amount exceeds its carrying amount.
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2.14 Employee Benefits

The Company provides post-employment benefits to employees through a defined benefit
plan, as well as a defined contribution plan.
(a) Defined Benefits Plan
A defined benefit plan is a post-employment plan that defines an amount of
post-employment benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and salary. The legal
obligation for any benefits from this kind of post-employment plan remains with the
Company, even if plan assets for funding the defined benefit plan have been
acquired. Plan assets may include assets specifically designated to a long-term
benefit fund, as well as qualifying insurance policies. The Companys
post-employment defined benefit pension plan covers all regular full-time employees.
The liability recognized in the statement of financial position for a defined benefit
plan is the present value of the defined benefit obligation at the end of the reporting
period less the fair value of plan assets. The defined benefit obligation is calculated
annually by independent actuaries using the projected unit credit method. The
present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using a discount rate derived from the interest rates
of a zero coupon government bonds as published by Philippine Dealing and
Exchange Corporation, that are denominated in the currency in which the benefits
will be paid and that have terms to maturity approximating to the terms of the
related post-employment liability.
Remeasurements, comprising of actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions and the return on plan assets
(excluding amount included in net interest) are reflected immediately in the
statement of financial position with a charge or credit recognized in other
comprehensive income in the period in which they arise. Net interest is calculated
by applying the discount rate at the beginning of the period, taking account of any
changes in the net defined benefit liability or asset during the period as a result of
contributions and benefit payments. Net interest is reported as part of Finance
Costs or Finance Income account in the statement of profit or loss.
Past-service costs are recognized immediately in profit or loss in the period of a plan
amendment.
(b) Defined Contribution Plan
A defined contribution plan is a post-employment plan under which the Company
pays fixed contributions into an independent entity. The Company has no legal or
constructive obligations to pay further contributions after payment of the fixed
contribution. The contributions recognized in respect of defined contribution plans
are expensed as they fall due. Liabilities and assets may be recognized if underpayment
or prepayment has occurred and are included in current liabilities or current assets as
they are normally of a short-term nature.

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(c) Termination Benefits

Termination benefits are payable when employment is terminated by the Company
before the normal retirement date, or whenever an employee accepts voluntary
redundancy in exchange for these benefits. The Company recognizes termination
benefits at the earlier of when it can no longer withdraw the offer of such benefits and
when it recognizes costs for a restructuring that is within the scope of PAS 37,
Provision, Contingent Liabilities and Contingent Assets, and involves the payment of
termination benefits. In the case of an offer made to encourage voluntary redundancy,
the termination benefits are measured based on the number of employees expected to
accept the offer. Benefits falling due more than 12 months after the reporting period
are discounted to their present value.
(d) Compensated Absences
Compensated absences are recognized for the number of paid leave days
(including holiday entitlement) remaining at the end of the reporting period. They
are included in the Trade and Other Payables account at the undiscounted amount
that the Company expects to pay as a result of the unused entitlement.

2.15 Borrowing Costs

Borrowing costs are recognized as expenses in the period in which they are incurred,
except to the extent that they are capitalized. Borrowing costs that are directly attributable
to the acquisition, construction or production of a qualifying asset (i.e., an asset that takes a
substantial period of time to get ready for its intended use or sale) are capitalized as part of
cost of such asset. The capitalization of borrowing costs commences when expenditures
for the asset and borrowing costs are being incurred and activities that are necessary to
prepare the asset for its intended use or sale are in progress. Capitalization ceases when
substantially all such activities are complete.
Investment income earned on the temporary investment of specific borrowings pending
their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalization.

2.16 Income Taxes

Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax
not recognized in other comprehensive income or directly in equity, if any.
Current tax assets or liabilities comprise those claims from, or obligations to, fiscal
authorities relating to the current or prior reporting period, that are uncollected or unpaid
at the end of the reporting period. They are calculated according to the tax rates and tax
laws applicable to the fiscal periods to which they relate, based on the taxable profit for
the year. All changes to current tax assets or liabilities are recognized as a component of
tax expense in profit or loss.

F-240

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Deferred tax is accounted for using the liability method, on temporary differences at the
end of the reporting period between the tax base of assets and liabilities and their carrying
amounts for financial reporting purposes. Under the liability method, with certain
exceptions, deferred tax liabilities are recognized for all taxable temporary differences and
deferred tax assets are recognized for all deductible temporary differences and the
carryforward of unused tax losses and unused tax credits to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences can
be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting
period and are recognized to the extent that it has become probable that future taxable
profit will be available to allow such deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
in the period when the asset is realized or the liability is settled provided such tax rates
have been enacted or substantively enacted at the end of the reporting period.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is probable that sufficient taxable profit will be available
to allow all or part of the deferred tax asset to be utilized.
The measurement of deferred tax liabilities and assets reflects the tax consequences that
would follow from the manner in which the Company expects, at the end of the reporting
period, to recover or settle the carrying amount of its assets and liabilities. For purposes
of measuring deferred tax liabilities and deferred tax assets for investment properties that
are measured using the fair value model, the carrying amounts of such properties are
presumed to be recovered entirely through sale, unless the presumption is rebutted, that is,
when the investment property is depreciable and is held within the business model whose
objective is to consume substantially all of the economic benefits embodied in the
investment property over time, rather than through sale.
Most changes in deferred tax assets or liabilities are recognized as a component of tax
expense in profit or loss, except to the extent that it relates to items recognized in other
comprehensive income or directly in equity. In this case, the tax is also recognized in
other comprehensive income or directly in equity, respectively.
The Company establishes liabilities for probable and estimable assessments by Bureau of
Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent a
reasonable provision for taxes ultimately expected to be paid and may need to be adjusted
over time as more information becomes available.
Deferred tax assets liabilities are offset if the Company has a legally enforceable right to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same
entity and the same taxation authority.

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2.17 Related Party Relationships and Transactions

Related party transactions are transfers of resources, services or obligations between the
Company and its related parties, regardless whether a price is charged.
Parties are considered to be related if one party has the ability to control the other party or
exercise significant influence over the other party in making financial and operating
decisions. These parties include: (a) individuals owning, directly or indirectly through one
or more intermediaries, control or are controlled by, or under common control with the
Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the Company that gives them significant influence over the Company and
close members of the family of any such individual; and, (d) the Companys retirement
plan.
In considering each possible related party relationship, attention is directed to the
substance of the relationship and not merely on the legal form.

2.18 Equity
Capital stock represents the nominal value of shares that have been issued.
Additional paid-in capital includes any premium received on the issuance of capital
stock. Any transaction costs associated with the issuance of shares are deducted from
additional paid-in capital, net of any related income tax benefits.
Revaluation reserves comprise gains and losses due to the revaluation of land and
remeasurements of post-employment defined benefit obligation or asset, specifically
actuarial gains and losses.
Retained earnings represent all current and prior period results of operations as reported
in the profit or loss section of the statements of comprehensive income, reduced by the
amount of dividends declared.

2.19 Events after the End of the Reporting Period

Any post-year-end event that provides additional information about the Companys
financial position at the end of the reporting period (adjusting event) is reflected in the
financial statements. Post-year-end events that are not adjusting events, if any, are
disclosed when material to the financial statements.

F-242

- 20 -

3.

SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Companys financial statements prepared in accordance with PFRS require
management to make judgments and estimates that affect amounts reported in the
financial statements and related notes. Judgments and estimates are continually evaluated
and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. Actual results may
ultimately vary from these estimates.

3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Companys accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the financial statements:
(a) Distinction between Operating and Finance Leases
The Company has entered into various lease agreements as a lessee. Critical
judgment was exercised by management to distinguish each lease agreement as either
an operating or finance lease by looking at the transfer or retention of significant risk
and rewards of ownership of the properties covered by the agreements. Failure to
make the right judgment will result in either overstatement or understatement of asset
and liabilities. Based on managements judgment such leases were determined to be
operating leases.
(b) Recognition of Provisions and Contingencies
Judgment is exercised by management to distinguish between provisions and
contingencies. Policies on recognition and disclosure of provision and contingencies
are discussed in Note 2.9 and relevant disclosures in contingencies are presented in
Note 20.

3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year:
(a) Impairment of Trade and Other Receivables
Adequate amount of allowance for impairment is provided for specific and group of
accounts, where objective evidence of impairment exists. The Company evaluates
these accounts based on available facts and circumstances, including, but not limited
to, the length of the Companys relationship with the customers, the customers
current credit status based on third party credit reports and known market forces, the
average age of accounts, collection experience and historical loss experience.
Based on the analysis done by management, certain receivables were identified to be
impaired. The carrying value of trade and other receivables and analysis of allowance
for impairment on such financial assets are shown in Note 6.

F-243

- 21 -

(b) Determining Net Realizable Value of Inventories

In determining the net realizable value of inventories, management takes into account
the most reliable evidence available at the dates the estimates are made. The future
realization of the carrying amounts of inventories as presented in Note 7 is affected
by price changes in different market segments. These are considered key sources of
estimation, especially that such inventories are substantially perishable in nature and
highly affective by temperature and other environmental conditions, uncertainty and
may cause significant adjustments to the Companys inventories within the next
financial year.
(c)

Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment, except
land, based on the period over which the assets are expected to be available for use.
The estimated useful lives of property, plant and equipment are reviewed periodically
and are updated if expectations differ from previous estimates due to physical wear
and tear, technical or commercial obsolescence and legal or other limits on the use of
the assets.
The carrying amounts of property, plant and equipment are analyzed in Note 9.
Based on managements assessment as at December 31, 2013, there is no change in
estimated useful lives of property, plant and equipment during the year. Actual
results, however, may vary due to changes in estimates brought about by changes in
factors mentioned above.

(d) Determining the Fair Value of Land

The Companys land is carried at revalued amount at the end of the reporting period.
In determining the fair value of the land, the Company engages the services of
professional and independent appraisers. The fair value is determined by reference to
market-based evidence, which is the amount for which the asset could be exchanged
between a knowledgeable willing buyer and seller in an arms length transaction as at
the valuation date. Such amount is influenced by different factors including the
location and specific characteristics of the property (e.g., size, features, and capacity),
quantity of comparable properties available in the market, and economic condition
and behaviour of the buying parties.
A significant change in these elements may affect prices and the value of the asset.
The amounts of revaluation and fair value gain recognized on land are disclosed in
Note 9.
(e)

Determining Recoverable Amount of Deferred Tax Assets

The Company reviews its deferred tax assets at the end of the reporting period and
reduces the carrying amount to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be
utilized. The carrying value of deferred tax assets as at December 31, 2013 and 2012
which the management assessed to be probable of being fully utilized within the next
two to three years is disclosed in Note 16.

F-244

- 22 -

(f)

Impairment of Non-financial Assets

The Companys policy on estimating the impairment of non-financial assets is
discussed in detail in Note 2.13. Though management believes that the assumptions
used in the estimation of fair values reflected in the financial statements are
appropriate and reasonable, significant changes in these assumptions may materially
affect the assessment of recoverable values and any resulting impairment loss could
have a material adverse effect on the results of operations. No impairment loss was
recognized on the Companys non-financial assets in 2013 and 2012.

(g)

Valuation of Post-employment Benefits

The determination of the Companys obligation and cost of post-employment defined
benefit are dependent on the selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions include, among others, discount rates
and salary increase rates. In accordance with PFRS, actual results that differ from the
assumptions are accumulated and amortized over future periods and, therefore,
generally affect the recognized expense and recorded obligation in such future
periods.
The amount of retirement benefit obligation (asset) and expense and an analysis of
the movements in the estimated present value of post-employment benefit obligation
and fair value of plan assets are presented in Note 15.2.

4.

RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company is exposed to certain financial risks which result from both its operating
and investing activities. The Companys risk management is coordinated with its parent
company, in close cooperation with the BOD, and focuses on actively securing the
Companys short-to-medium term cash flows by minimizing the exposure to financial
markets.
The Company does not engage in the trading of financial assets for speculative purposes
nor does it write options. The most significant financial risks to which the Company is
exposed to are described below.

4.1 Market Risk

The Company is exposed to market risk through its use of financial instruments and
specifically to currency risk and interest risk which result from both its operating and
investing activities.
(a) Foreign Currency Risk
Most of the Companys transactions are carried out in U.S. Dollars, its functional
currency. Exposures to currency exchange rates arise from the interest-bearing loans
from local banks, trade and other payables and due to related parties which are
primarily denominated in Philippine peso. The Company also holds Philippine
peso-denominated cash.

F-245

- 23 -

To mitigate the Companys exposure to foreign currency risk, non-U.S. dollar cash
flows are regularly monitored. Foreign currency denominated financial assets and
liabilities (in Philippine pesos), translated into U.S. dollars at the closing rate are as
follows:
2012

2013
Short-term exposure:
Financial assets
Financial liabilities

$
(
(

Long-term exposure
Financial liabilities

22,143,055 $
53,444,704) (
31,301,649) (
-

Total exposure

($

2,095,713
48,472,975 )
46,377,262 )
364,148 )

31,301,649) ( $

46,741,410 )

The sensitivity of the net results in regards to the Companys financial assets and
financial liabilities and the U.S. dollar Philippine peso exchange rate assumes a
+/-23.7% and +/-15.9% change of the U.S. dollar/Philippine peso exchange rate in
2013 and 2012, respectively.
These percentages have been determined based on the average market volatility in
exchange rates, using standard deviation, in the previous 12 months, estimated at
99% level of confidence. The sensitivity analysis is based on the Companys foreign
currency financial instruments held at the end of each reporting period, with effect
estimated from the beginning of the year.
If the Philippine peso had strengthened against the U.S. dollar, then this would have
the following impact:
2012

2013
Profit before tax
Equity

22,255,472
15,578,830

22,295,653
15,606,957

If the Philippine peso had weakened against the U.S. dollar, then this would have a
reverse impact by the same amounts as above.
The exchange rates used to translate Philippine peso-denominated financial assets and
liabilities to U.S. dollars at December 31, 2013 and December 31, 2012 was P44.41:$1
and P41.19:$1, respectively. The Company actively monitors the volatility of the
foreign currency exchange rates to manage its foreign currency exposure.
Exposures to foreign currency exchange rates vary during the year depending on the
volume of overseas transactions. Nonetheless, the analysis above is considered to be
representative of the Companys currency risk.
(b) Interest Rate Risk
The Company has limited exposure to changes in market interest rates through its
interest-bearing loans and cash and cash equivalents, which are mostly short-term and
are subject to variable interest rates. These financial instruments have historically
shown small or measured changes in interest rates. All other financial assets and
liabilities have fixed rates.
F-246

- 24 -

4.2 Credit Risk

Credit risk is the risk that a counter party may fail to discharge an obligation to a
Company. The Company is exposed to this risk with respect to certain financial
instruments arising from selling goods to customers, including related parties, and placing
deposits and short term placements with banks.
The Company continuously monitors defaults of customers and other counterparties, if
any identified either individually or by group, and incorporate this information into its
credit risk controls. Where available at a reasonable cost, external credit ratings and/or
reports on customers and other counterparties are obtained and used. The Companys
policy is to deal only with creditworthy counterparties. In addition, for a significant
proportion of sales, advance payments are received to mitigate credit risk.
Generally, the maximum credit risk exposure of financial assets is the carrying amount of
the financial assets as shown on the face of the statements of financial position
(or in the detailed analysis provided in the notes to the financial statements), as
summarized below.
Notes
Cash and cash equivalents
Trade and other
Receivables - net

2012

2013
$

8,205,166

4,619,685

20,158,886
$

28,364,052

2,201,727

6,821,412

The Companys management considers that all the above financial assets that are not
impaired or past due for each reporting period are of good credit quality.
a. Cash and Cash Equivalents
As part of Company policy, bank deposits are only maintained with reputable financial
institutions. Cash in banks which are insured by the Philippine Deposit Insurance
Corporation (PDIC) up to a maximum coverage of P500,000 ( approximately $11,259) per
depositor per banking institution, as provided for under Republic Act No. 9576, Charter of
PDIC, are still subject to credit risk.
b. Trade and Other Receivables
In respect of trade and other receivables, the Company is exposed to significant credit risk
exposure to a single counterparty. As of December 31, 2013, 25% of its trade receivable is
from a single counterparty. To mitigate the risk, the Company has policies in place to
ensure that goods are sold to customers with an appropriate credit history. Based on
historical information about customer default rates, management consider the credit
quality of trade receivables that are not past due or impaired to be good. There was no
significant credit risk exposure to a single counterparty as of December 31, 2012.

F-247

- 25 -

Financial assets that are past due but not impaired are as follows:
2012

2013
Less than one year
More than one year

2,485,213
-

1,566,491
259

2,485,213

1,566,750

4.3 Liquidity Risk

The ability of the Company to finance its operations and to meet obligations as these
become due is extremely crucial to its viability as a business entity. The Company adopts a
prudent liquidity risk management where it maintains sufficient cash to meet trade and
other short-term payables as they fall due.
The Company manages its liquidity needs by carefully monitoring scheduled debt servicing
payments for long-term financial liabilities as well as cash outflows due in a
day-to-day business. Liquidity needs are monitored in various time bands, on a
day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.
Long-term liquidity needs for a six-month and one-year period are identified monthly.
Funding for long-term liquidity needs is additionally secured by an adequate amount of
committed credit facilities and the ability to sell long-term financial assets.
As at December 31, 2013, the Companys financial liabilities have contractual maturities
which are presented below.
Within
6 Months
Interest-bearing loans
Trade and other payables
Due to related parties

6 to 12
Months

45,155,961
8,199,726
5,238,586

58,594,273

This compares to the maturity of the Companys financial liabilities as at

December 31, 2012 as follows:
Within
6 Months
Interest-bearing loans
Trade and other payables
Due to related parties

6 to 12
Months

33,577,830
10,868,961
4,085,368

48,532,159

370,986
370,986

The above contractual maturities reflect the gross cash flows, which may differ from the
carrying values of the liabilities at the end of each of the reporting periods.

F-248

- 26 -

5.

CASH AND CASH EQUIVALENTS

The breakdown of this account is as follows:
2012

2013
Cash on hand
Cash in bank
Short term placements

1,914
4,259,113
3,946,053

1,821
2,201,727
-

8,207,080

2,203,548

Cash in banks generally earn interest at rates based on daily bank deposit rates.
Short-term placements are made for varying periods between 30 to 90 days and earn
effective interest ranging from 1.63% to 2.25% for both periods.
6.

TRADE AND OTHER RECEIVABLES

This account (see also Note 4.2) is composed of the following:
Note
Trade receivables
Deposits on purchase
Others

15,367,209 $
1,421,700
4,813,866
21,602,775
22,189) (

21,580,586

17.2

Allowance for impairment

2012

2013

4,737,828
26,140
4,763,968
144,283 )
4,619,685

Trade receivables are usually due within 30 to 45 days and do not bear any interest. All
trade and other receivables are subject to credit risk exposure.
Deposit on purchase pertains to the Companys advance payment to suppliers.
All of the Companys trade and other receivables have been reviewed for indicators of
impairment. Certain receivables were identified to be impaired, hence, adequate
amounts of allowance for impairment have been recognized. The Company recognized
impairment losses of $22,189 in 2013 and $75,500 in 2012 and presented them as part of
Impairment loss on trade and other receivables under Administrative Expenses in the
statements of comprehensive income (see Note 13).

F-249

- 27 -

A reconciliation of the allowance for impairment at the beginning and end of 2013 and
2012 is shown below.
Note
Balance at beginning
of year
Reversal of impairment
Impairment losses

$
(
13

Balance at end of year

2012

2013

144,283 $
144,283)
22,189
22,189

68,783
75,500
144,283

In 2013, the Company recognized reversal of allowance for impairment on certain

accounts amounting to P144,283 (nil in 2012) and presented it as part of Other income
under Other Operating Expenses (Income) in the 2013 statement of comprehensive
income.
7.

INVENTORIES
Details of inventories are shown below.
Note
Finished goods:
At cost
At net realizable value

2012

2013
$

13
Raw and packaging
materials
Spare parts, supplies
and others
$

13,256,275
2,570,888
15,827,163

10,268,611
176,170
10,444,781

12,476,580

33,344,561

906,828

1,056,207

29,210,571

44,845,549

The inventory write-down amounting to $623,851 in 2013 and $291,319 in 2012 are
included under changes in finished goods inventories and is presented as part of Cost of
Goods Sold in the statements of comprehensive income, as the Company considers the
write-down to be normal in its operations.
Cost of inventories charge to operation in 2013 and 2012 is analyzed in Note 13.

F-250

- 28 -

8.

PREPAYMENTS AND OTHER CURRENT ASSETS

The composition of this account is shown below.
2012

2013
Tax credit certificates (TCC)
from the Bureau of
Customs (BOC)
Prepaid insurance
Prepaid rent
Others

1,004,460
9,579
337
46,202

937,542
12,385
363
23,350

1,060,578

973,640

TCC from the BOC are granted to the Bureau of Investment (BOI) registered companies
and are given for taxes and duties paid on raw materials used for the manufacture of their
export products. The Company can offset their TCC against tax liabilities other than
withholding tax or be converted to a cash refund.
9.

PROPERTY, PLANT AND EQUIPMENT

The gross carrying amounts and accumulated depreciation of property, plant and
equipment at the beginning and end of 2013 and 2012 are shown below.
At Fair Value
Land
December 31, 2013
Cost
Accumulated depreciation

Carrying amounts

December 31, 2012

Cost
Revaluation increment
Accumulated depreciation

Carrying amounts
January 1, 2012
Cost
Revaluation increment
Accumulated depreciation
Carrying amounts

Buildings
$
(

1,827,066
35,773
-

9,098,002
4,785,580 )

Land
Improvements
$
(

$ 4,312,422

$ 8,600,943
4,209,932 )

1,418,673
1,228,433 )

190,240

1,388,173
1,187,432 )

At Cost
Transportation
and Delivery
Equipment

Machinery
and
Equipment

ConstructioninProgress

Total

26,955
$
26,955 ) (

22,550,974
13,099,155 )

661,260 $ 33,755,864
(
19,140,123 )

9,451,819

661,260

26,955
$
26,955 ) (

20,344,632
10,878,290 )

705,335 $ 32,893,104
35,773
(
16,302,609 )

9,466,342

705,335

1,862,839

$ 4,391,011

200,741

1,827,066
35,773
-

$ 8,069,346
(
3,571,941 )

1,379,635
1,146,789 )

77,729
$
77,729 ) (

19,452,356
8,839,962 )

426,790 $ 31,232,922
35,773
(
13,636,421 )

1,862,839

$ 4,497,405

232,864

10,612,394

426,790

$ 14,615,741

$ 16,626,268

$ 17,632,274

A reconciliation of the carrying amounts of property, plant and equipment at the

beginning and end of 2013 and 2012, is shown below.
At Fair Value
Land
Balance at January 1, 2013,
net of accumulated depreciation
Additions
Disposals
Derecogntion
Reclassifications
Depreciation charges for the year
Carrying amounts
Balance at January 1, 2012,
net of accumulated depreciation
Additions
Disposals
Reclassifications
Depreciation and charges for the year
Carrying amounts

$
(

$
$

Buildings

1,862,839
$ 4,391,011
1,862,839 )
497,059
(
575,648 )
-

Land
Improvements
$

At Cost
Transportation
and Delivery
Equipment

200,741
30,500
41,001 )

Machinery
and
Equipment

9,466,342
$
2,101,663
37,148 )
141,827 (
2,220,865 )

705,335 $ 16,626,268
594,811
2,726,974
(
1,862,839 )
(
37,148 )
638,886 )
(
2,837,514 )

9,451,819

661,260

(
(

190,240

1,862,839
-

$ 4,497,405
184,229
347,368
(
637,991 )

232,846
8,538
40,643 )

1,862,839

$ 4,391,011

200,741

F-251

Total

$ 4,312,422

ConstructioninProgress

(
(
$

10,612,394
$
860,486
1,508 )
45,595 (
2,050,625 )
9,466,342

$ 14,615,741

426,790 $ 17,632,274
671,508
1,724,761
(
1,508 )
392,963 )
(
2,729,259 )
705,335

16,626,268

- 29 -

Construction-in-progress pertains to the accumulated costs incurred on the ongoing

construction of a new building and installation of machinery and equipment as part of
the Companys expansion program (see Note 20.3). In 2013 and 2012, portion of
construction-in-progress amounting to $638,886 and $392,963, respectively, were completed
and transferred by the Company to their proper account classification.
The Company did not capitalize any borrowing cost related to their general borrowings in
2013 and 2012, since management determined that the effect is not material to the financial
statements.
On October 15, 2013, the Companys land with a carrying value of $1,862,839 as at the date
of sale was sold to CCC at its original cost of $1,827,066. Consequently, loss on disposal of
land of $35,773 is recognized and shown as part of Loss on disposal of property and
equipment under Other Expenses in the 2013 statement of comprehensive income
(see Note 13). The corresponding revaluation reserve of $35,773, carried in equity is
transferred directly to the Retained Earnings.
The amount of depreciation (see Note 13) is allocated as follows:
2012

2013
Cost of goods sold
Administrative expenses

2,695,638 $
141,876

2,837,514

2,550,836
178,423
2,729,259

Fully depreciated assets with total original cost of $4,635,448 and $3,887,265 as at
December 31, 2013 and 2012 respectively, are still being used in operations. Certain
machinery with net book value of $37,148 was no longer in use; hence, derecognized as at
December 31, 2013.
10.

OTHER NON-CURRENT ASSETS

Other non-current assets are summarized below:
Note
Input VAT
Others

24.1(b)

F-252

2012

2013
$

331,784 $
16,706

348,490

663,655
1,697
665,352

- 30 -

11.

INTEREST-BEARING LOANS
The short-term and long-term interest-bearing loans, which are collateralized by a
continuing joint suretyship of certain stockholders and a corporate guarantee of CCC
(see Note 20), are broken down as follows:
2012

2013
in PHP
Short-term
Long-term

in USD

inPHP

in USD

P1,984,600,000
15,000,000

44,684,109 P 1,320,700,000
337,731
75,000,000

32,062,051
1,820,742

P1,999,600,000

45,021,840 P 1,395,700,000

33,882,793

These loans were originally availed in Philippine peso and are presented in the
statements of financial positions as follows:
2012

2013
Current
Non-current

45,021,840
-

33,518,645
364,148

45,021,840

33,882,793

Short-term loans consist of several borrowings from local banks which mature within
14 to 30 days and bear annual interest rates ranging from 2.50% to 2.65% in 2013 and
2.25% to 4.75% in 2012.
Only the Companys long-term loan is subject to a condition that requires the Company
to meet certain financial ratios such as debt-to-equity ratio (not to exceed 2.5:1) and
current ratio (of at least 1.0:1). In the event of default or non-compliance with any of
the provisions of the loan agreement, the bank-creditor may (by written notice) either
declare the loan terminated or declare the entire unpaid principal amount and interest of
the loan due and demandable. The loan covenant has been consistently complied with
by the Company but not as of December 31, 2013 (see Note 22). However, on
February 27, 2014, complying with the long-term loans prescribed
bank-scheduled-amortization, the Company has fully paid the remaining principal
amount, denominated in Philippine peso, and included in current liabilities as at
December 31, 2013 amounting to P15,000,000 (or approximately $337,731) without
additional burden of penalties that the local bank could have imposed had the loan
covenant conditions were applied. As such, the Company had foregone obtaining a
bank loan waiver effective December 31, 2013. The Companys management assessed
that obtaining such waiver is academic, in the absence of a written notice issued by the
bank, as full payment and non-imposition of any bank penalties has cured any breach of
the loan covenant.
Interest expense charged to operations amounted to $1,069,892 in 2013 and $816,041 in
2012 and presented as part of Finance Costs in the statements of comprehensive income
(see Note 14). The unpaid balance of interest amounting to $64,678 and $52,116 as at
December 31, 2013 and 2012, respectively, is presented as part of Accrued Expenses
under the Trade and Other Payables account in the statements of financial position
(see Note 12).

F-253

- 31 -

12.

TRADE AND OTHER PAYABLES

This account consists of:
Notes
Trade payables
Accrued expenses
Others

2012

2013
$

11
17.1, 17.3
17.5

4,430,772
1,407,665

1,076,944

2,374,405
$

8,212,842

9,020,599
771,418

10,868,961

Accrued expenses include the current portion of the Companys obligations to its
employees and service providers that are expected to be settled within 12 months from the
end of the reporting period. These liabilities arise mainly from the accrual of various
expenses such as rent, freight, interest on loans and payroll at the end of the period.
Others payable also include liabilities to various agencies and regulatory bodies.
13.

COSTS AND OPERATING EXPENSES BY NATURE

The details of costs and operating expenses by nature are shown below.
Notes
Raw materials used
Changes in finished goods
inventories
7
Outside services
17.5
Rent
20.1
Depreciation
9
Gas, fuel and oil
Supplies
Communication, light and water
Freight
Salaries and employee benefits
15
Taxes and licenses
24.1(c)
Insurance
Repairs and maintenance
Loss on disposal of property
and equipment
9
Commissions
Impairment losses
on trade and other receivables
6
Foreign currency losses net
Miscellaneous

$
(

115,802,914

62,956,137
1,531,579
5,852,420
4,100,160
2,729,259
2,156,957
1,989,322
1,315,590
1,117,023
1,134,103
299,395
175,994
170,374

5,382,382)
7,376,689
5,070,682
2,837,514
2,382,700
2,255,899
1,686,203
1,587,318
1,145,041
356,812
249,003
213,316

72,921
63,689

45,369
75,500
989,185
248,560

22,189
296,626
$ 136,037,134

F-254

2012

2013

86,886,927

- 32 -

These expenses are classified in the statements of comprehensive income as follows:

2012

2013
Cost of goods sold
Administrative expenses
Selling expenses
Other expenses

132,466,117
1,844,935
1,651,007
75,075

83,175,582
2,500,647
1,162,392
48,306

$ 136,037,134

86,886,927

Cost of goods sold consists of the following:

Note
Finished goods at
beginning of year
Cost of goods manufactured:
Raw materials used
Direct labor
Manufacturing overhead

Total goods available for sale

Finished goods at end of year

10,444,781

132,466,117

11,976,360
62,956,137
4,505,777
14,182,089
81,644,003
93,620,363
10,444,781 )

115,802,914
5,584,209
16,461,376
137,848,499
148,293,280
15,827,163 ) (
$

14.

2012

2013

83,175,582

FINANCE COSTS AND INCOME

The details of these accounts are presented below.
Notes

2012

2013

14.1 Finance Costs

Interest expense
Bank charges
Foreign currency losses - net

11

1,069,892
93,370

816,041
109,693
372,426
1,298,160

1,163,262

2,243,620
37,612

14.2 Finance Income

Foreign currency gain - net
Interest income
Net interest income from
plan asset

15.2

67,561
1,477

654
$

2,281,886

69,038

The foreign currency gains and losses are recognized in profit or loss; none are recognized
in other comprehensive income.

F-255

- 33 -

15.

EMPLOYEE BENEFITS

15.1 Salaries and Employee Benefits

Expenses recognized for salaries and employee benefits (see Notes 13 and 17.7) are
presented below.
2012

2013
Short-term benefits
Post-employment benefits

1,102,315
42,726

1,093,927
40,176

1,145,041

1,134,103

15.2 Post-employment Defined Benefit Plan

(a)

Characteristics of the Defined Benefit Plan

The Company maintains a partially funded, tax-qualified, non-contributory
post-employment benefit plan that is being administered by a trustee bank covering
all regular full-time employees.
The normal retirement age is 60 with a minimum of 5 years of credited service. The
plan also provides for an early retirement at age 50 with a minimum of 10 years of
credited service and late retirement after age 60, both subject to the approval of the
Companys BOD. Normal retirement benefit is an amount equivalent to 100% of
the final monthly covered compensation (average monthly basic salary during the
last 12 months of credited service) for every year of credited service.

(b)

Explanation of Amounts Presented in the Financial Statements

Actuarial valuations are made annually to update the retirement benefit costs and the
amount of contributions. All amounts presented below are based on the actuarial
valuation report obtained from an independent actuary in 2013 including the
comparative year which has been restated in line with the adoption of
PAS 19 (Revised), see Note 2.2(a)(ii).
The amounts of post-employment defined benefit obligation recognized in the
statements of financial position are determined as follows:
2012

2013
Present value of the obligation
Fair value of plan assets
Under (over) funded
Effect of asset ceiling

$
(

F-256

415,197 $
401,718 ) (
13,479 (
-

396,926
408,017 )
11,091 )
657

($

10,434 )

13,479

- 34 -

The movements in present value of the post-employment benefit obligation are as

follows:
2012

2013
Balance at beginning of year
Current service
Interest costs
Remeasurements actuarial loss (gain):
Changes in financial assumptions
Experience adjustments
Benefits paid by the plan
Effect of foreign currency
exchange rate changes
Balance at end of year

396,926
42,726
24,491

(
(

31,307
30,796)
28,898)

20,559)
$

415,197

314,055
40,176
20,346
22,349

396,926

The movement in the fair value of plan assets is presented below.

2012

2013
Balance at beginning of year
$
Interest income
Contributions paid into the plan
Benefits paid by the plan
(
Remeasurement- return on plan assets (
Effect of foreign currency
exchange rate changes
(

408,017
25,145
29,248
28,898)
11,445 )

Balance at end of year

401,718

316,719
21,823
35,762
7,430
26,283

20,349)
$

408,017

Actual return on plan assets amounted to $9,509 in 2013 and $29,335 in 2012.
The composition of the fair value of total plan assets at the end of the reporting
period by category is shown below.
2012

2013
Cash and cash equivalents
Debt instruments :
Government bonds
Other bonds
Others

38,967

247,340
80,175
37,293

244,566
87,333
30,852
$

401,718

43,209

408,017

Plan assets do not comprise any of the Companys own financial instruments or any
of its assets occupied and/or used in its operations.

F-257

- 35 -

The components of amounts recognized in profit or loss and in other

comprehensive income in respect of the defined benefit post-employment plan are
as follows:
2012

2013
Reported in profit or loss:
Current service costs
Net interest income

42,726
$
654 ) (

42,072

$
(

31,307
30,796)

11,445)

Reported in other comprehensive income:

Actuarial gains (losses) arising
from changes in:
Financial assumptions
Experience adjustments
Return on plan assets (excluding
amounts included in
net interest expense)
Actuarial gain (loss) on change on the
effect of the asset ceiling test
Tax income (expense)

683
3,075
($

7,176)

40,176
1,477 )
38,699

7,430

(
(

171)
2,178)
$

5,081

Current service cost is allocated and presented in the statements of profit or loss
under the following accounts:
Note
Cost of goods sold
Administrative expenses

13

2012

2013
$

35,024
7,384

34,150
6,026

42,726

40,176

The net interest income is included in the caption Finance Income (see Note 14.2)
and the amount recognized in other comprehensive income is included under item
that will not be reclassified subsequently to profit or loss.
In determining the amounts of the defined benefit post-employment obligation, the
following significant actuarial assumptions were used:

Discount rates
Expected rate of salary increases

2013

2012

4.37%
3.00%

6.29%
4.00%

Assumptions regarding future mortality experience are based on published statistics

and mortality tables. The average remaining working lives of an individual retiring at
the age of 65 is 22 for both males and females.

F-258

- 36 -

These assumptions were developed by management with the assistance of an

independent actuary. Discount factors are determined close to the end of each
reporting period by reference to the interest rates of a zero coupon government
bonds with terms to maturity approximating to the terms of the post-employment
obligation. Other assumptions are based on current actuarial benchmarks and
managements historical experience.
(c)

Risks Associated with the Retirement Plan

The plan exposes the Company to actuarial risks such as investment risk, interest
rate risk, longevity risk and salary risk.
(i) Investment and Interest Risks
The present value of the defined benefit obligation is calculated using a discount
rate determined by reference to market yields of government bonds. Generally, a
decrease in the interest rate of a reference government bonds will increase the plan
obligation. However, this will be partially offset by an increase in the return on the
plans investments in debt securities and if the return on plan asset falls below this
rate, it will create a deficit in the plan. Currently, the plan is composed of
investment in cash and cash equivalents, corporate and government debt securities.
(ii) Longevity and Salary Risks
The present value of the defined benefit obligation is calculated by reference to the
best estimate of the mortality of the plan participants both during and after their
employment, and to their future salaries. Consequently, increases in the life
expectancy and salary of the plan participants will result in an increase in the plan
obligation.

(d)

Other Information
The information on the sensitivity analysis for certain significant actuarial
assumptions, the Companys asset-liability matching strategy, and the timing and
uncertainty of future cash flows related to the retirement plan are described below.
(i) Sensitivity Analysis
The sensitivity of the defined benefit obligation to changes in the weighted principal
assumptions is shown below.
Impact on Defined Benefit Obligation
Change in
Increase in
Decrease in
Assumption
Assumption
Assumption
Discount rate
Salary increase rate

+/-1%
+/-1%

F-259

($

29,020 ) $
28,153 (

32,051
26,163 )

- 37 -

The sensitivity analysis is based on a change in an assumption while holding all other
assumptions constant. This analysis may not be representative of the actual change
in the defined benefit obligation as it is unlikely that the change in assumptions
would occur in isolation of one another as some of the assumptions may be
correlated. Furthermore, in presenting the above sensitivity analysis, the present
value of the defined benefit obligation has been calculated using the projected unit
credit method at the end of the reporting period, which is the same as that applied in
calculating the defined benefit obligation recognized in the statements of financial
position.
The methods and types of assumptions used in preparing the sensitivity analysis did
not change compared to the previous years.
(ii) Asset-liability Matching Strategies
The Company has no specific matching strategy between the plan assets and the plan
liabilities. However, concentration on government and corporate debt instruments,
are evident to align securing the principal value of plan assets from volatility or high
risk in loss of value.
(iii) Funding Arrangements and Expected Contributions
The plan is currently underfunded by $13,479 based on the latest actuarial valuation
but the Company does not expect any contribution to the retirement benefit plan in
2014. While there are no minimum funding requirement in the country, the size of
the underfunding may pose a cash flow risk in about 6 years time when a significant
number of employees is expected to retire.
The maturity profile of undiscounted expected benefit payments from the plan
follows:
Between 1 to 5 years
Between 6 to 10 years

7,530
111,318

118,848

The weighted average duration of the defined benefit obligation at the end of the
reporting period is 9.5 years.

F-260

- 38 -

16.

TAXES
The major components of tax expense as reported in profit or loss:
Note
Reported in profit or loss:
Current tax expense:
Regular corporate income tax
(RCIT) at 30%
Final taxes at 20% and 7.5%

2012

2013

18

Deferred tax income relating

to reversal of temporary
differences

931,329
13,249
944,578

82,075) (

Reported in other comprehensive income

Deferred tax expense (income)
relating to reversal of
temporary differences

742,366
7,191
749,557

68,622)

667,482

875,956

3,075

($

2,178)

The reconciliation of tax on pretax profit computed at the applicable statutory rates to tax
expense reported in the statements of comprehensive income profit is as follows:
2012

2013
Tax on pretax profit at 30%
Adjustment for income subjected
to lower income tax rates
Tax effects of:
Income subjected to
income tax holiday (ITH)
Non-taxable income
Non-deductible expenses

1,172,178

3,595) (

(
(

462,218)
44,608) (
5,725

Tax expense

667,482

917,039
7,019)
40,549)
6,485

875,956

The net deferred tax assets relate to the following:

Statement of Comprehensive Income
Other
Profit or loss
Comprehensive Income
2013
2012
2013
2012

Statements of
Financial Position
2013
2012
Allowance for inventory
write-down
Unrealized foreign currency
loss (gain)
Past service cost
Allowance for impairment
Post-employment benefit
obligation (asset)
Net Deferred Tax Assets
Deferred Tax
Expense (Income)

87,396 ($

91,479) ( $

12,273 ) $

23,690 (
12,171
6,362

108 ) (
15,625
43,285

23,797) (
3,454
36,923 (

42,652 )
3,765
22,543 )

4,046 (

3,130 ) (

7,176)

5,081

178,875

225,144

3,075 (

2,178 )

3,075 ( $

2,178 )

143,069
($

F-261

82,075 ) ( $

68,622 ) $

- 39 -

The Company is subject to the minimum corporate income tax (MCIT) which is
computed at 2% of gross income, as defined under the tax regulations, or RCIT,
whichever is higher. No MCIT was reported in 2013 and 2012 as the RCIT was higher
than MCIT in both years.
In 2013 and 2012, the Company opted to claim itemized deductions.
17.

RELATED PARTY TRANSACTIONS

The Companys related parties include its ultimate parent, parent, entities under common
ownership, the Companys key management personnel and others as described in
Note 2.17.
A summary of the Companys transaction with related parties:
Related Party
Category
Ultimate Parent Company
Purchase of goods
Accommodation of purchases
Advances
Management and consultancy
services
Lease Services

December 31, 2013

Amount of
Receivable
Transactions
(Payable)

Notes
17.1
17.2
17.4

17.5
17.3

December 31, 2012

Amount of
Receivable
Transactions
(Payable)

1,451,775 ($
5,535,725
1,153,218 (

1,011,289) $
5,238,586 ) (

993,893 ($
11,702,675
5,921,302 ) (

753,813 (
489,057

210,744 )
125,035

438,395 (
1,092,821

149,555 )
-

2,242,496

45,539

Related Parties Under

Common Ownership
Accommodation of Purchases

17.2

7,856,250

Key Management Personnel

Compensation

17.7

42,447

4,577,777
-

700,010 )
4,085,368 )

Details of foregoing transaction are as follows:

17.1 Purchase of Goods

The Company buys frozen and canned fish inventories from CCC which are then
exported at cost. Purchases from CCC amounted to $1,451,775 in 2013 and $993,893 in
2012, which are presented as part of Cost of Good Sold in the statement of
comprehensive income. The outstanding payable to CCC in relation to these purchases of
goods amounts to $1,011,289 and $700,010 as at December 31, 2013 and 2012,
respectively, and presented as part of Others under the Trade and Other Payables account
in the statements of financial position (see Note 12).

17.2 Accommodation of Purchases

In normal course of the Companys operation, the Company accommodates purchases of
raw material fish inventories and other raw materials for CCC and Columbus Seafoods
Corporation (CSC), a related party under common ownership. The total amount of
purchases made on behalf of these related parties amounted to $13,391,975 in 2013 and
$13,945,171 in 2012. The outstanding balance of such transactions amounts to $4,577,777
as at December 31, 2013 (nil as at December 31, 2012), and is presented as part of Others
under Trade and Other Receivables in the 2013 statement of financial position
(see Note 6).

F-262

- 40 -

The Company did not recognize any allowance for impairment on those receivables in
both years, as these are settled in the normal course of operating cycle and none remains
as long-outstanding in any given year.

17.3 Lease Services

In 2012, the Company entered into a new agreement with CCC to lease a portion of plant,
machinery and equipment and cold storage located in Brgy. Tambler, General Santos City.
Both leases shall be from January 1, 2012 onwards and will continue to be in effect unless
sooner terminated. Rentals amounted to $489,057 in 2013 and $1,092,821 in 2012. As of
December 31, 2013, the outstanding liability arising from this transaction amounts to
$125,035 (nil as of December 31, 2012) and is presented as part of part of Others under
the Trade and Other Payable account in the 2013 statement of financial position
(see Note 12).

17.4 Advances from Related Parties

In the normal course of business, the Company obtains advances from CCC and Pacific
Meat Company Incorporated (PMCI), a related party under common ownership, for
working capital requirements and other purposes. The balance of these advances from
related parties as at December 31, 2013 and 2012 is presented as Due to Related Parties in
the statements of financial position. Advances from related parties are unsecured,
noninterest-bearing and repayable within 12 months.

Balance at beginning of year

Additions
Repayments

$
(

Balance at end of year

2013

2012

4,085,368 $
12,669,366
11,516,148) (

10,006,670
16,616,604
22,537,906)

4,085,368

5,238,586

17.5 Management and Consultancy Fees

Beginning 2011, in addition to key management personnel compensation incurred, the
Company entered into an agreement to allow CCC to allocate and charge common
corporate expenses to its subsidiaries. The management and consultancy fees incurred by
the Company amounted to $753,813 in 2013 and $438,395 in 2012. These are presented
as part of Outside Services under Administrative Expenses (see Note 13). The Companys
outstanding liability arising from this agreement amounted to $210,744 and $149,555 as at
December 31, 2013 and 2012, respectively, and is presented as part of Others under the
Trade and Other Payables account in the statement of financial position and is expected to
be settled in 2014 (see Note 12).

F-263

- 41 -

17.6 Financial Guarantees

The Company, jointly and severally with its related parties, entered into a cross-corporate
guarantee arrangement with various local banks to secure the short-term loan availments
of its related parties. The total guaranteed outstanding loan balance (denominated in
Philippine peso) amounts to P2,514,700,000 (or approximately $56,619,534) and
P1,447,400,000 (or approximately $35,137,891) as at December 31, 2013 and 2012,
respectively. The Company did not record the allocated share in exposure measured at fair
value (or gross cash outflows) of the guarantee liability because the Companys
management believes and in coordination with the BOD of the Companys ultimate
parent company that probability of default in paying the Companys related parties
respective borrowings is low. There has been no credit default by any related parties nor
of the Company.

17.7 Key Management Personnel Compensation

The compensation of key management personnel including the members of Executive
Committee and department heads (see Note 15.1), for employee services is shown below:
2012

2013
Short-term benefits
Post-employment benefits

38,249
4,198

41,136
4,303

42,447

45,539

The key management personnel compensation is in line with the agreement entered into
by the Company with CCC relating to management and consultancy fees (see Note 17.5).
18.

REGISTRATION WITH BOI

On September 25, 2012, the BOI approved the Companys application for registration as a
new expanding export producer of frozen tuna loins on a non-pioneer status. The
Company is entitled to ITH for a period of three years beginning February 1, 2013 using
the projects ability to contribute to the economys development pursuant to Article 7 of
Executive Order 226 based on the following parameters: (1) projects net value added;
(2) job generation; (3) multiplier effect; and (4) measured capacity.

19.

EQUITY

19.1 Capital Stock

As at December 31, 2013, the Company has only one stockholder owning 100 or more
shares of the Companys capital stock.

19.2 Retained Earnings

On September 30, 2013, the BOD approved the declaration of cash dividend amounting
to P320,000,000 (or approximately $7,388,764) for distribution to stockholders of record
as of September 30, 2013. The related dividend was paid in full on November 19, 2013.

F-264

- 42 -

20.

COMMITMENTS AND CONTINGENCIES

20.1 Operating Leases

The Company is a lessee under several short-term lease contracts with renewal options.
The usual term of the lease contract extends to one year that usually ends in December.
The amount of rent expense which is recognized as part of Manufacturing overhead under
Cost of Goods Sold in the statements of comprehensive income amounted to $5,070,682
and $4,100,160, respectively, in 2013 and 2012 (see Note 13).
As of December 31, 2013 and 2012, the future minimum lease payments under these lease
agreements amounted to $4,217,330 and $3,583,273, respectively.

20.2 Financial Guarantees

The Company together with its related parties has financial guarantees amounting to
$56,619,534 and $35,137,891 for the loan obtained by various related parties from various
local banks (see Note 17.6).

20.3 Capital Commitments

As at December 31, 2013, the Company has construction in progress with an accumulated
cost of $661,260. The construction relates to a new building in connection with the
Companys plant expansion. The construction is expected to be completed in 2014
and has remaining estimated costs to complete of P21,290,451 ($479,407) as at
December 31, 2013.

20.4 Credit Facilities

As at December 31, 2013, the Company together with its related parties has short term
loan credit facilities from various local banks under corporate cross guarantee arrangement
(see Note 17.6). As at December 31, 2013, the unused credit facilities amounts to
$59,589,769.

20.5 Others
There are other commitments, litigations and contingent liabilities that arise in the normal
course of the Companys operations which are not reflected in the accompanying financial
statements. As at December 31, 2013, management is of the opinion that losses, if any,
from these commitments and contingencies will not have a material effect on the
Companys financial statements.

F-265

- 43 -

21.

CATEGORIES, FAIR VALUE MEASUREMENTS AND OFFSETTING OF

FINANCIAL ASSETS AND FINANCIAL LIABILITIES

21.1

Carrying Amounts and Fair Values by Category

The carrying amounts and fair values of the categories of assets and liabilities presented in
the statements of financial position are shown below.
Notes

December 31, 2012

Carrying
Fair
Values
Values

December 31, 2013

Carrying
Fair
Values
Values

Financial Assets
Loans and receivables:
Cash
Trade and other
receivables net

5
6

8,207,080 $

8,207,080

2,203,548 $

2,203,548

4,619,685

4,619,685

20,158,886

20,158,886

$ 28,365,966 $

28,365,966

6,823,233 $

6,823,233

$ 45,021,840 $
8,199,726

45,021,840
8,199,726

$ 33,518,645 $
7,285,945

33,518,645
7,285,945

Financial Liabilities
Financial liabilities at
amortized cost:
Current:
Interest-bearing loans
Trade and other payables
Advances from
related parties
Non-current
Interest-bearing loans

11
12
17.4

5,238,586

11

$ 58,460,152 $

5,238,586
58,460,152

4,085,368

4,085,368

364,148

364,148

$ 45,254,106 $

45,254,106

See Notes 2.3 and 2.7 for a description of the accounting policies for each category of
financial instrument. A description of the Companys risk management objectives and
policies for financial instruments is provided in Note 4.
Management considered the carrying amounts of these financial instruments to approximate
their fair values as at December 31, 2013 and 2012.

21.2 Fair Value Hierarchy

In accordance with PFRS 13, the fair value of financial assets and liabilities and
non-financial assets which are measured at fair value on a recurring or non-recurring basis
and those assets and liabilities not measured at fair value but for which fair value is disclosed
in accordance with other relevant PFRS, are categorized into three levels based on the
significance of inputs used to measure the fair value. The fair value hierarchy has the
following levels:
a) Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities that an entity can access at the measurement date;
b) Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and,
c) Level 3: inputs for the asset or liability that are not based on observable market
data (unobservable inputs).
The level within which the asset or liability is classified is determined based on the lowest
level of significant input to the fair value measurement.

F-266

- 44 -

For purposes of determining the market value at Level 1, a market is regarded as active if
quoted prices are readily and regularly available from an exchange, dealer, broker, industry
group, pricing service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arms length basis.
The Company has no financial assets and financial liabilities measured at fair value or that
are not carried at fair value but are required to be disclosed as at December 31, 2013 and
2012. For financial asset and financial liabilities measured at amortized cost management
considers that their carrying amounts approximate their fair values (see Note 21.1).

21.3 Offsetting of Financial Assets and Financial Liabilities

The Company has no financial assets and financial liabilities which are presented as net as
at December 31, 2013 and 2012. Currently, certain financial assets and financial liabilities
are settled on a gross basis, except for certain transactions where the customer also
supplies certain raw materials to the Company and wherein such amounts can be settled
on a net basis upon the approval of both parties. As such, the Companys related
outstanding receivables amounting to $5.1 million can be offset by the amount of related
outstanding liabilities of $1.2 million as of December 31, 2013. There was no similar
transaction source of potential offsetting in 2012.
22.

CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Companys capital management objectives are:

To ensure the Companys ability to continue as a going concern;

To meet maturing obligation to creditors; and,
To provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity as presented
on the face of the statements of financial position. The Company is required to meet a
certain level of debt-to-equity ratio. With the declaration of cash dividend as of
September 30, 2013 (see Note 19) the Companys equity account as at December 31, 2013
significantly declined. As a result, the Company breached the level set forth in the
long-term loan agreement. However, the subsequent full settlement of the loan balance as
of February 27, 2014 cured bank imposed penalties, if any (see Note 11).
Capital for the reporting periods under review is summarized as follows:
2013
Total liabilities
Total equity

Debt-to-equity ratio

2012

58,503,306
16,744,884

$ 49,186,500
20,901,045

3.49 : 1

2.35 : 1

The Company sets the amount of capital in proportion to its overall financing structure,
i.e., equity and financial liabilities. The Company manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and the risk characteristics
of the underlying assets.

F-267

- 45 -

23.

SUPPLEMENTARY INFORMATION ON STATEMENT OF FINANCIAL

POSITION AND COMPREHENSIVE INCOME
The Companys financial statements are presented in U.S. dollars, its functional currency.
The following information, which shows amounts of the Companys statements of
financial position and statements of comprehensive income in Philippine pesos, is
presented for purposes of providing supplementary information to certain users and is not
intended to be a presentation in accordance with PFRS. Under this supplemental
information, transactions denominated in Philippines pesos were presented using the
amounts at the dates of the transactions, while transactions denominated in U.S. dollars
were translated using appropriate exchange rates. Foreign currency gains and losses are
not translated.
Statements of Financial Position
2013

2012

Current assets
Non-current assets

P 2,651,407,165
606,584,984

P 2,194,606,531
674,726,869

Total Assets

P 3,257,992,149

P 2,869,333,400

P 2,598,351,018
-

P 2,011,090,293
14,355,250

2,598,351,018

2,025,445,543

659,641,131

843,887,857

P 3,257,992,149

P 2,869,333,400

2013

2012

ASSETS

LIABILITIES AND EQUITY

Current liabilities
Non-current liabilities
Total Liabilities
Equity
Total Liabilities and Equity

Statements of Comprehensive Income

Revenue net
Cost of goods sold
Other operating expenses
and other charges
Tax expense

P 5,923,105,471
P 3,793,036,607
5,551,720,786) ( 3,575,252,766)
205,169,853) (
29,979,210) (

(
(

Net profit

136,235,622

93,713,393)
37,198,563)
P

86,871,885

The translation into Philippine pesos should not be construed as a representation that the
U.S. dollar amounts could be converted into Philippine Peso amounts or at any other rates
of exchange.

F-268

- 46 -

24.

SUPPLEMENTARY INFORMATION REQUIRED BY THE BUREAU OF

INTERNAL REVENUE
Presented below is the supplementary information which is required by the Bureau of
Internal Revenue (BIR) under its existing revenue regulations to be disclosed as part of
the notes to financial statements. This supplementary information is not a required
disclosure under PFRS.

24.1 Requirements under Revenue Regulations (RR) 15-2010

The information on taxes, duties and license fees paid or accrued during the taxable year
required under RR 15-2010 issued on November 25, 2010 are as follows:
(a) Output VAT
In 2013, the Company declared output VAT as follows:
In Philippine Pesos
Output
Tax Base
VAT
VATable sales
Zero-rated sales
Exempt sales

In U.S. Dollars
Output
Tax Base
VAT

204,527,796 P
5,447,951,376
913,078,125

24,543,336
-

P 6,565,557,297 P

24,543,336

4,605,030 $
122,662,930
20,558,340
147,826,300 $

552,604
552,604

The Companys zero-rated and VAT zero-rated and exempt sales/receipt were determined
pursuant to Section 106(A)(2)(a), Zero-rated VAT on Export Sale of Goods, and Section 109,
VAT Exempt Transactions, of the 1997 National Internal Revenue Code, as amended. The
tax bases are included as part of Sales of Goods in the 2013 statement of comprehensive
income.
Total output VAT paid during the year amounting to P13,138,511 ($295,842) net of
allowable input VAT.
(b) Input Value-added Tax
The movements in Input VAT in 2013 are summarized below.
In Philippine
Pesos
Balance at beginning of year
Goods for resale/manufacture
or further processing
Capital goods subject to amortization
Services lodged under cost of goods sold
Claims for tax credit/refund
Applied against output VAT
Foreign currency adjustment
Balance at end of year

P 27,337,273 $

(
(

581,015
897,722
6,048,961
8,725,287) (
11,403,825 ) (
(
P 14,735,859

F-269

In U.S.
Dollars
663,655
13,081
20,213
136,195
196,454 )
256,762 )
48,145 )
$

331,784

- 47 -

The balance of Input VAT amounting to P14,735,859 ($331,784) as at December 31, 2013
is presented as part of Other Non-current Assets in the 2013 statement of financial
position (see Note 10).
(c)

Taxes on Importation

In 2013, the total landed cost of the Companys imported inventory for the use in business
amounted to P4,485,108,643 ($105,658,759). This amount includes customs duties and
tariff fees of P539,022 ($12,698).
(d) Excise Tax
The Company did not have any transactions in 2013 which are subject to excise tax.
(e)

Documentary Stamp Tax (DST)

In 2013, the total DST paid and accrued by the Company on loan instruments amounted
to P9,382,081 ($221,020).
(f)

Taxes and Licenses

The details of taxes and licenses for the year 2013 are broken down as follows:
Philippine
Pesos
DST
Business tax
Real estate tax
Miscellaneous

U.S.
Dollars

9,382,081
2,638,576
2,092,098
1,033,565

221,020
62,159
49,285
24,348

15,146,320

356,812

The amounts of taxes and licenses for the year 2013 are presented as part of Taxes and
licenses under Administrative Expenses in the 2013 statement of comprehensive income
(see Note 13).
(g)

Withholding Taxes

The details of total withholding taxes for the year ended December 31, 2013
are shown below.
Philippine
Pesos
Expanded
Compensation and benefits
Final

F-270

U.S.
Dollars

25,507,685
3,376,105
537,104

574,316
76,014
12,093

29,420,894

662,423

- 48 -

(h) Deficiency Tax Assessment and Tax Cases

As at December 31, 2013, the Company does not have any deficiency tax assessment with
the BIR or tax cases outstanding or pending in courts or bodies outside of the BIR in any
of the open years.

24.2 Requirements under RR 19-2011

RR 19-2011 requires schedules of taxable revenues and other non-operating income,
costs of sales and services, and itemized deductions, to be disclosed in the notes to
financial statements.
The amounts of taxable revenues and income, and deductible costs and expenses
presented below are based on relevant tax regulations issued by the BIR, hence, may not
be the same as the amounts reflected in the 2013 statement of comprehensive income.
(a) Taxable Revenues
The composition of the Companys taxable revenues arising from sale of goods for the
year ended December 31, 2013 is presented below.
U.S. Dollar
Exempt
Regular rate

$
$

Philippine Peso

69,650,674
68,468,547

P 2,972,532,223
2,922,081,741

138,119,221

P 5,894,613,964

Exempt transactions were determined pursuant to the guidelines on the issuance of

certification to BOI-registered Company per Revenue Memorandum Order 9-2000, Tax
Treatment of treatment of Sales of Goods, Properties and Services made by VAT-registered supplier to
BOI-registered Manufacturers-Exporters with 100% Export Sales.
(b) Deductible Costs of Sale
Deductible costs of sales at regular tax rate for the year ended December 31, 2013
comprises the following:
Exempt
U.S. Dollar
Philippine Peso
Finished goods
at beginning of year
Cost of goods
manufactured
Total goods available
for sale
Finished goods at end
of year

8,180,447

222,375,120

Regular Rate
U.S. Dollar
Philippine Peso
$

7,646,716

207,866,300

61,883,318

2,775,279,130

67,956,287

3,033,202,048

70,063,765

2,997,654,250

75,603,003

3,241,068,348

4,053,874

180,048,758

11,773,289

522,898,873

66,009,891

P 2,817,605,493

F-271

$ 63,829,714

P 2,718,169,475

- 49 -

(c)

Taxable Non-operating and Other Income

The details of taxable non-operating and other income in 2013 which are subject to regular
tax rate are shown below.
Philippine
Pesos
Rental income
Others

U.S.
Dollars

20,760,000
178,585

489,057
4,207

20,938,585

493,264

(d) Itemized Deductions

The amounts of itemized deductions at regular tax rate for the year ended
December 31, 2013 are as follows:
Exempt
U.S. Dollar
Philippine Peso
Freight
Interest
Outside services
Taxes and licenses
Salaries and employee
benefits
Depreciation and
amortization
Bank charges
Commissions
Losses
Bad debts
Rent
Supplies
Insurance
Communication, light
and water
Miscellaneous

549,024
513,748
428,937
161,588

Regular Rate
U.S. Dollar
Philippine Peso

23,668,348 $
22,147,618
18,491,416
6,966,040

1,009,306
525,097
501,392
188,883

43,711,747
22,741,268
21,714,630
8,180,280

152,526

5,390,358

178,290

6,395,369

64,251
45,361
22,029
26,850
10,048
3,505
3,180
2,559

3,092,741
1,955,516
949,657
1,146,939
433,189
151,087
137,103
110,336

75,104
46,363
40,497
23,301
11,746
4,097
3,718
2,992

3,631,832
2,007,932
1,753,867
999,903
508,698
177,422
161,001
129,568

1,888
40,929

81,380
1,775,192

2,207
44,550

95,566
1,918,570

2,026,423

F-272

86,496,920

2,657,543

114,127,653

F-273

F-274

F-275

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Canning Corporation)

STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2012, 2011 AND 2010

(Amounts in United States Dollars)

DRAFT (For Discussion Purpose Only)

2011
(As Restated See Notes 2 and 19)

2012

Notes

2010
(As Restated See Note 2)

A S S E T S
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables - net
Inventories
Other current assets

5
6
7

Total Current Assets

NON-CURRENT ASSETS
Property, plant and equipment - net
Deferred tax assets - net
Retirement benefit asset
Other non-current assets

9
16
15
10

Total Non-current Assets

TOTAL ASSETS

2,203,548
4,619,685
44,845,549
973,640

2,060,127
5,948,373
38,674,777
750,169

1,868,391
7,538,536
32,269,026
833,048

52,642,422

47,433,446

42,509,001

16,626,268
141,504
15,652
665,352

17,632,274
71,896
17,692
692,415

17,714,576
223,373
27,096
830,171

17,448,776

18,414,277

18,795,216

70,091,198

65,847,723

61,304,217

33,518,645
10,868,961
349,378
4,085,368

24,062,102
9,372,685
241,223
1,732,062
10,006,670

23,322,320
4,951,619
10,839,318

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Interest-bearing loans
Trade and other payables
Income tax payable
Dividends payable
Advances from related parties

11
12
19
17

Total Current Liabilities

NON-CURRENT LIABILITY
Interest-bearing loan

11

Total Liabilities
EQUITY
Capital stock
Additional paid-in capital
Revaluation reserves
Retained earnings

19

19

Total Equity

TOTAL LIABILITIES AND EQUITY

48,822,352

45,414,742

39,113,257

364,148

1,707,339

3,076,222

49,186,500

47,122,081

42,189,479

11,333,722
3,296,386
35,773
6,238,817

11,333,722
3,296,386
35,773
4,059,761

7,286,958
3,296,386
35,773
8,495,621

20,904,698

18,725,642

19,114,738

70,091,198

See Notes to Financial Statements.

F-276

65,847,723

61,304,217

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Canning Corporation)

STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in United States Dollars)

2012

Notes
SALE OF GOODS

17

COST OF GOODS SOLD

13

GROSS PROFIT
OPERATING EXPENSES (INCOME)
Administrative expenses
Selling expenses
Other income
Other expenses

13
13
17

13

OPERATING PROFIT
FINANCE COSTS

14

FINANCE INCOME

90,072,393

6,895,309

5,521,474

1,511,770
1,162,392
1,100,454 )
48,306

1,320,698
1,129,637
685,627 )
27,357

1,622,014

1,792,065

5,273,295

3,729,409

2,286,830

1,676,528
(

19,797 )

3,054,026

2,072,678

874,970

729,712

2,179,056

1,342,966

16

OTHER COMPREHENSIVE INCOME

TOTAL COMPREHENSIVE INCOME

See Notes to Financial Statements.

F-277

80,131,155
74,609,681

67,561 )

NET PROFIT

83,177,084

PROFIT BEFORE TAX

TAX EXPENSE

2011
(As Restated See Notes 2 and 19)

2,179,056

1,342,966

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Canning Corporation)

STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in United States Dollars)

DRAFT (For Discussion Purpose Only)

Capital Stock

Notes
Balance at January 1, 2012
As previously reported
Prior period adjustment
As restated
Net profit for the year

Balance at January 1, 2011

Cash dividend
Stock dividend
Net profit for the year
Balance at December 31, 2011

11,333,722
11,333,722
-

11,333,722

2, 19

Balance at December 31, 2012

Additional
Paid-in Capital

19
19

3,296,386
3,296,386
-

3,296,386

7,286,958
4,046,764
-

3,296,386
-

11,333,722

3,296,386

See Notes to Financial Statements.

F-278

Retained
Earnings

Revaluation
Reserves

35,773
-

4,916,992
$
857,231 ) (
4,059,761
2,179,056

19,582,873
857,231 )
18,725,642
2,179,056

6,238,817

20,904,698

8,495,621
$
1,732,062 ) (
4,046,764 )
1,342,966

19,114,738
1,732,062 )
1,342,966

4,059,761

18,725,642

(
35,773

35,773

35,773
-

(
(

35,773

Total

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Canning Corporation)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in United States Dollars)

DRAFT (For Discussion Purpose Only)
2012

Notes

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax
Adjustments for:
Depreciation
Unrealized foreign currency loss
Interest expense
Finance income
Loss on retirement of property and equipment
Operating profit before working capital changes
Decrease in trade and other receivables
Increase in inventories
Decrease (increase) in other current assets
Decrease in retirement benefit asset
Decrease in other non-current assets
Increase in trade and other payables
Cash generated from operations
Income taxes paid

3,054,026
2,729,259
1,361,096
816,041
67,561 )
1,508
7,894,369
1,360,818
6,170,772 )
765,487 )
2,040
30,556
875,219
3,226,743
262,994 )

9
14
5

2011

(
(

2,702,678
2,461,014
867,227
605,044
19,797 )
27,358
6,643,524
1,584,338
7,035,751 )
47,701
9,404
136,926
2,859,741
4,245,883
128,421 )

2,963,749

Net Cash From Operating Activities

CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisitions of property, plant and equipment
Interest received
Proceeds from sale of property, plant and equipment

4,117,462

1,724,761 )
67,561

2,494,151 )
19,797
88,081

1,657,200 )

2,386,273 )

(
(
(
(

8,691,770
5,921,302 )
1,732,062 )
1,456,594 )
763,925 )

756,164
690,564 )

(
(

1,385,265 )
229,794 )

1,182,113 )

1,549,459 )

Net Cash Used in Investing Activities

CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from short-term interest-bearing loans
Repayments of advances from related parties
Payment of dividends declared in prior year
Repayments of long-term interest-bearing loans
Interest paid

19

Net Cash Used in Financing Activities

NET INCREASE IN CASH AND CASH EQUIVALENTS
Effect of Exchange Rate Changes on Cash and Cash Equivalents
BEGINNING OF YEAR CASH AND CASH EQUIVALENTS

END OF YEAR CASH AND CASH EQUIVALENTS

124,436

181,730

18,985

10,006

2,060,127

1,868,391

2,203,548

Supplemental Information on Non-cash Investing and Financing Activities:

1) In 2011, the Company issued common shares amounting to $4,046,764 as stocks dividends (see Note 19); declared cash dividend
amounting to $1,732,062 which remained unpaid as at December 31, 2011 (see Note 19).
2) In the same year, the Company transferred certain available-for-sale financial assets to its parent company amounting to $185,370
as payment for certain advances from the parent company (see Note 17.2)

See Notes to Financial Statements.

F-279

2,060,127

DRAFT (For Discussion

Purpose Only)
GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Canning Corporation)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

(Amounts in United States Dollars)

1.

CORPORATE INFORMATION
General Tuna Corporation (the Company) was incorporated in the Philippines and
registered with the Securities and Exchange Commission (SEC) on March 10, 1997.
It is presently engaged in manufacturing and exporting private label canned, pouched and
frozen tuna products.
The Company is a wholly owned subsidiary of Century Canning Corporation (CCC or the
parent company), a company incorporated and domiciled in the Philippines. CCC is
presently engaged in the manufacturing and distribution of canned tuna products for the
Philippine market.
The registered office, which is also the principal place of business, of CCC and the
Company is located at 32 Arturo Drive, Bagumbayan, Taguig, Metro Manila and the
Companys processing plant is located at Brgy. Tambler, General Santos City.
The financial statements of the Company for the year ended December 31, 2012
(including the comparatives for the year ended December 31, 2011) were authorized for
issue by the Companys Vice President for Finance on April 12, 2013.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these
financial statements are summarized below and in the succeeding pages. The policies have
been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards
The financial statements of the Company have been prepared in accordance with
Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial
Reporting Standards Council (FRSC) from the pronouncements issued by the
International Accounting Standards Board (IASB).
The financial statements have been prepared using the measurement bases specified by
PFRS for each type of asset, liability, income and expense. The measurement bases
are more fully described in the accounting policies in the succeeding pages.

F-280

-2-

DRAFT (For Discussion

Purpose Only)

(b) Presentation of Financial Statements

The financial statements are presented in accordance with Philippine Accounting
Standard (PAS) 1, Presentation of Financial Statements. The Company presents all items of
income and expense in a single statement of comprehensive income.
Two comparative periods are presented for the statement of financial position when
the Company applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or reclassifies items in the financial
statements. In 2012, the Company restated its 2011 financial statements to reclassify
the amount of cold storage rentals, which was inadvertently included as part of the
Companys inventoriable costs in 2011, should be expensed outright as the said
expense is not directly related to the cost of its inventories.
(c) Functional and Presentation Currency
These financial statements are presented in United States (U.S.) Dollars, the
Companys functional and presentation currency, and all values represent absolute
amounts except when otherwise indicated.
Items included in the financial statements of the Company are measured using its
functional currency. Functional currency is the currency of the primary economic
environment in which the Company operates.

2.2 Adoption of New and Amended PFRS

(a) Effective in 2012 that are Relevant to the Company
In 2012, the Company adopted the following amendments to PFRS that are relevant
to the Company and effective for financial statements for the annual periods beginning
on or after July 1, 2011 or January 1, 2012:
PFRS 7 (Amendment)
PAS 12 (Amendment)

: Financial Instruments: Disclosures

Transfers of Financial Assets
: Income Taxes Deferred Tax:
Recovery of Underlying Assets

Discussed below are the relevant information about these amended standards.
(i)

PFRS 7 (Amendment), Financial Instruments: Disclosures Transfers of Financial

Assets. The amendment requires additional disclosures that will allow users of
financial statements to understand the relationship between transferred financial
assets that are not derecognized in their entirety and the associated liabilities;
and, to evaluate the nature of, and risk associated with any continuing
involvement of the reporting entity in financial assets that are derecognized in
their entirety. The Company did not transfer any financial asset involving this
type of arrangement; hence, the amendment did not result in any significant
change in the Companys disclosures in its financial statements.

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PAS 12 (Amendment), Income Taxes Deferred Tax: Recovery of Underlying Assets.

The amendment introduces a rebuttable presumption that the measurement of a
deferred tax liability or asset that arises from investment property measured at
fair value under PAS 40, Investment Property, should reflect the tax consequence of
recovering the carrying amount of the asset entirely through sale. The
presumption is rebutted for depreciable investment property (e.g., building) that
is held within a business model whose objective is to consume substantially all of
the economic benefits embodied in the asset over time, rather than through sale.
Moreover, Standing Interpretation Committee 21, Income Taxes Recovery of
Revalued Non-Depreciable Assets, is accordingly withdrawn and is incorporated
under PAS 12 requiring that deferred tax on non-depreciable assets that are
measured using the revaluation model in PAS 16, Property, Plant and Equipment,
should always be measured on a sale basis of the asset. The amendment has no
significant impact on the Companys financial statements as the Company has no
investment property while the Companys land classified as property, plant and
equipment which is measured at fair value is taxable with the same rate
regardless of whether these assets will be sold or used in operation.

(b) Effective in 2012 that is not Relevant to the Company

Of the amendments to PFRS that are effective in 2012 only PFRS 1, First-time Adoption
of PFRS, is not relevant to the Company.
(c) Early Adoption of Philippine Accounting Standard 1 (Amendment), Presentation of Financial
Statements
In the preparation of the 2012 financial statements, the Company adopted early the
amendment made to PAS 1, issued by the IASB and adopted by the FRSC as part of
the Annual Improvements to PFRS 2009-2011 Cycle, which will be effective for the
annual period beginning on or after January 1, 2013. The amendment clarifies that
when an entity applies an accounting policy retrospectively or makes a retrospective
restatement or reclassification of items in its financial statements that has a material
effect on the information in the statement of financial position at the beginning of the
preceding period (i.e., opening statement of financial position), it shall present a third
statement of financial position as at the beginning of that preceding period. Other
than disclosures of certain specified information as described below, related notes to
the opening statement of financial position are not required to be presented.

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(d) Effective Subsequent to 2012 but not Adopted Early

There are new PFRS, amendments, annual improvements and interpretations to
existing standards that are effective for periods subsequent to 2012. Management has
initially determined the following pronouncements, which the Company will apply in
accordance with their transitional provisions, to be relevant to its financial statements:
(i)

PAS 1 (Amendment), Financial Statements Presentation Presentation of Items of Other

Comprehensive Income (effective from July 1, 2012). The amendment requires an
entity to group items presented in other comprehensive income into those that,
in accordance with other PFRSs: (a) will not be reclassified subsequently to
profit or loss and (b) will be reclassified subsequently to profit or loss when
specific conditions are met. The Companys management does not expect this
amendment to have an impact on the Companys financial statements as the
Company does not have any transaction recognized in other comprehensive
income.

(ii)

PAS 19 (Revised), Employee Benefits (effective from January 1, 2013). The revision
made a number of changes as part of the improvements throughout the
standard. The main changes relate to defined benefit plans as follows:

eliminates the corridor approach under the existing guidance of PAS 19

and requires an entity to recognize all actuarial gains and losses arising in
the reporting period;

streamlines the presentation of changes in plan assets and liabilities

resulting in the disaggregation of changes into three main components of
service costs, net interest on net defined benefit obligation or asset, and
remeasurement; and,

enhances disclosure requirements, including information about the

characteristics of defined benefit plans and the risks that entities are
exposed to through participation in those plans.

Currently, the Company is using the corridor approach and its unrecognized
actuarial loss as at December 31, 2012 amounts to $4,450 which will be
retrospectively recognized as loss in other comprehensive income in 2013
(see Note 15.2).
(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures Offsetting Financial Assets
and Financial Liabilities (effective from January 1, 2013). The amendment requires
qualitative and quantitative disclosures relating to gross and net amounts of
recognized financial instruments that are set-off in accordance with PAS 32,
Financial Instruments: Presentation. The amendment also requires disclosure of
information about recognized financial instruments which are subject to
enforceable master netting arrangements or similar agreements, even if they are
not set-off in the statement of financial position, including those which do not
meet some or all of the offsetting criteria under PAS 32 and amounts related to a
financial collateral. These disclosures will allow financial statement users to
evaluate the effect or potential effect of netting arrangements, including rights of
set-off associated with recognized financial assets and financial liabilities on the
entitys financial position. The Company has initially assessed that the adoption
of the amendment will not have a significant impact on its financial statements.
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(iv) PFRS 13, Fair Value Measurement (effective from January 1, 2013). This standard
aims to improve consistency and reduce complexity by providing a precise
definition of fair value and a single source of fair value measurement and
disclosure requirements for use across PFRS. The requirements do not extend
the use of fair value accounting but provide guidance on how it should be
applied where its use is already required or permitted by other standards.
Management is in the process of reviewing its valuation methodologies for
conformity with the new requirements and has yet to assess the impact of the
new standard on the Companys financial statements.
(v)

PAS 32 (Amendment), Financial Instruments: Presentation Offsetting Financial Assets

and Financial Liabilities (effective from January 1, 2014). The amendment
provides guidance to address inconsistencies in applying the criteria for
offsetting financial assets and financial liabilities. It clarifies that a right of
set-off is required to be legally enforceable, in the normal course of business; in
the event of default; and in the event of insolvency or bankruptcy of the entity
and all of the counterparties. The amendment also clarifies the principle behind
net settlement and provided characteristics of a gross settlement system that
would satisfy the criterion for net settlement. The Company does not expect
this amendment to have a significant impact on its financial statements.

(vi) PFRS 9, Financial Instruments: Classification and Measurement (effective from

January 1, 2015). This is the first part of a new standard on financial instruments
that will replace PAS 39, Financial Instruments: Recognition and Measurement, in its
entirety. This chapter covers the classification and measurement of financial
assets and financial liabilities and it deals with two measurement categories for
financial assets: amortized cost and fair value. All equity instruments will be
measured at fair value while debt instruments will be measured at amortized cost
only if the entity is holding it to collect contractual cash flows which represent
payment of principal and interest.
The accounting for embedded derivatives in host contracts that are financial
assets is simplified by removing the requirement to consider whether or not they
are closely related, and, in most arrangement, does not require separation from
the host contract.
For liabilities, the standard retains most of the PAS 39 requirements which
include amortized cost accounting for most financial liabilities, with bifurcation
of embedded derivatives. The main change is that, in case where the fair value
option is taken for financial liabilities, the part of a fair value change due to an
entitys own credit risk is recorded in other comprehensive income rather than in
profit or loss, unless this creates an accounting mismatch.
To date, other chapters of PFRS 9 dealing with impairment methodology and
hedge accounting are still being completed.
Further, in November 2011, the IASB tentatively decided to consider making
limited modifications to International Financial Reporting Standard 9s financial
asset classification model to address certain application issues.

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The Company does not expect to implement and adopt PFRS 9 until its effective
date. In addition, management is currently assessing the impact of PFRS 9 on
the financial statements of the Company and it plans to conduct a
comprehensive study of the potential impact of this standard prior to its
mandatory adoption date to assess the impact of all changes.
(vii) 2009-2011 Annual Improvements to PFRS. Annual improvements to PFRS
(2009-2011 Cycle) made minor amendments to a number of PFRS, which are
effective for annual periods beginning on or after January 1, 2013. Among those
improvements, the following amendments are relevant to the Company but
management does not expect a material impact on the Companys financial
statements:
(a) PAS 16 (Amendment), Property, Plant and Equipment Classification of
Servicing Equipment. The amendment addresses a perceived inconsistency
in the classification requirements for servicing equipment which resulted
in classifying servicing equipment as part of inventory when it is used for
more than one period. It clarifies that items such as spare parts, stand-by
equipment and servicing equipment shall be recognized as property, plant
and equipment when they meet the definition of property, plant and
equipment, otherwise, these are classified as inventory.
(b) PAS 32 (Amendment), Financial Instruments Presentation Tax Effect of
Distributions to Holders of Equity Instruments. The amendment clarifies that
the consequences of income tax relating to distributions to holders of an
equity instrument and to transaction costs of an equity transaction shall be
accounted for in accordance with PAS 12. Accordingly, income tax
relating to distributions to holders of an equity instrument is recognized in
profit or loss while income tax related to the transaction costs of an equity
transaction is recognized in equity.

2.3 Financial Assets

Financial assets are recognized when the Company becomes a party to the contractual
terms of the financial instrument. Financial assets other than those designated and
effective as hedging instruments are classified into the following categories: financial
assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity
investments and available-for-sale (AFS) financial assets. Financial assets are assigned to
the different categories by management on initial recognition, depending on the purpose
for which the investments were acquired. Regular purchases and sales of financial assets
are recognized on their trade date. All financial assets that are not classified as at FVTPL
are initially recognized at fair value plus any directly attributable transaction costs.
Financial assets carried at FVTPL are initially recorded at fair value and related transaction
costs are recognized in profit or loss.
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise when the Company provides
money, goods or services directly to a debtor with no intention of trading the receivables.
They are included in current assets, except for maturities greater than 12 months after the
end of the reporting period which are classified as non-current assets.

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Loans and receivables are subsequently measured at amortized cost using the effective
interest method for maturities extending beyond one year, less any impairment losses.
Any change in their value is recognized in profit or loss. Impairment loss is provided
when there is objective evidence that the Company will not be able to collect all amounts
due to it in accordance with the original terms of the receivables. The amount of the
impairment loss is determined as the difference between the assets carrying amount and
the present value of estimated cash flows.
The Companys financial assets categorized as loans and receivables are presented as Cash
and Cash Equivalents and Trade and Other Receivables (except Deposit on purchases) in
the statement of financial position. Cash and cash equivalents are defined as cash on
hand, demand deposits and short-term, highly liquid investments readily convertible to
known amounts of cash and which are subject to insignificant risk of changes in value.
All income and expenses, excluding impairment losses and foreign currency exchange
losses related to trade and other receivables, relating to financial assets that are recognized
in profit or loss are presented as part of Finance Costs or Finance Income in the
statement of comprehensive income.
Non-compounding interest and other cash flows resulting from holding financial assets
are recognized in profit or loss when earned, regardless of how the related carrying
amount of financial assets is measured.
Derecognition of financial assets occurs when the rights to receive cash flows from the
financial instruments expire and substantially all of the risks and rewards of ownership
have been transferred.

2.4 Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined
using the weighted-average method. Finished goods and work-in-process include the cost
of raw materials, direct labor and a proportion of manufacturing overheads based on
normal operating capacity. The cost of raw materials include all costs directly attributable
to acquisition, such as the purchase price, import duties and other taxes that are not
subsequently recoverable from taxing authorities.
Net realizable value is the estimated selling price in the ordinary course of business, less
the estimated costs of completion and the estimated costs necessary to make the sale. Net
realizable value of raw materials is the current replacement cost.

2.5 Property, Plant and Equipment

Property and equipment, except land which is stated at fair value, are stated at cost less
accumulated depreciation, and any impairment in value.
The cost of an asset comprises its purchase price and directly attributable costs of bringing
the asset to working condition for its intended use. Expenditures for additions, major
improvements and renewals are capitalized; expenditures for repairs and maintenance are
charged to expense as incurred.

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Depreciation is computed on the straight-line basis over the estimated useful lives of the
assets as follows:
Buildings
Machinery and equipment
Land improvements
Transportation and delivery equipment

15 years
10 years
10 years
5 years

Fully depreciated assets are retained in the accounts until these are no longer in use. No
further charge for depreciation is made in respect of those accounts.
Construction-in-progress represents properties under construction and is stated at cost.
This includes cost of construction, applicable borrowing cost and other direct costs
(see Note 2.15). The account is not depreciated until such time that the assets are
completed and available for use.
An assets carrying amount is written down immediately to its recoverable amount if the
assets carrying amount is greater than its estimated recoverable amount
(see Note 2.13).
The residual values and estimated useful lives of property, plant and equipment are
reviewed, and adjusted if appropriate, at the end of each reporting period.
An item of property, plant and equipment, including the related accumulated depreciation
and any impairment losses, is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising
on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in profit or loss in the year the
item is derecognized.

2.6 Other Assets

Other assets pertain to other resources controlled by the Company as a result of past
events. They are recognized in the financial statements when it is probable that the future
economic benefits will flow to the entity and the asset has a cost or value that can be
measured reliably.
Other recognized assets of similar nature, where future economic benefits are expected to
flow to the Company beyond one year after the end of the reporting period (or in the
normal operating cycle of the business, if longer), are classified as non-current assets.

2.7 Financial Liabilities

Financial liabilities, which include interest-bearing loans, trade and other payables
[except output value-added tax (VAT) and other taxes payable], advances from a
stockholder and dividend payable are recognized when the Company becomes a party to
the contractual terms of the instrument. These are recognized initially at their fair values
and subsequently measured at amortized cost, using the effective interest method for
maturities beyond one year, less settlement payments. All interest-related charges incurred
on financial liability are recognized as an expense in profit or loss under the caption
Finance Costs in the statement of comprehensive income.

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Interest-bearing loans are raised for support of short-term or long-term funding of

operations. Finance charges, including premiums payable on settlement or redemption
and direct issue costs, are charged to profit or loss on an accrual basis using the effective
interest method and are added to the carrying amount of the instrument to the extent that
these are not settled in the period in which they arise.
Dividend payable to shareholders are recognized as financial liabilities when the dividends
are approved by the Companys Board of Directors (BOD).
Financial liabilities are derecognized from the statement of financial position only when
the obligations are extinguished either through discharge, cancellation or expiration.

2.8 Offsetting Financial Instruments

Financial assets and liabilities are offset and the resulting net amount is reported in the
statement of financial position when there is a legally enforceable right to set-off the
recognized amounts and there is an intention to settle on a net basis, or realize the asset
and settle the liability simultaneously.

2.9 Provisions and Contingencies

Provisions are recognized when present obligations will probably lead to an outflow of
economic resources and they can be estimated reliably even if the timing or amount of the
outflow may still be uncertain. A present obligation arises from the presence of a legal or
constructive obligation that has resulted from past events.
Provisions are measured at the estimated expenditure required to settle the present
obligation, based on the most reliable evidence available at the end of the reporting period,
including the risks and uncertainties associated with the present obligation. Where there
are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. When time
value of money is material, long-term provisions are discounted to their present values
using a pretax rate that reflects market assessments and the risks specific to the obligation.
The increase in provision due to passage of time is recognized as interest expense.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the
current best estimate.
In those cases where the possible outflow of economic resource as a result of present
obligations is considered improbable or remote, or the amount to be provided for cannot
be measured reliably, no liability is recognized in the financial statements. Similarly,
possible inflows of economic benefits to the Company that do not yet meet the
recognition criteria of an asset are considered contingent assets, hence, are not recognized
in the financial statements. On the other hand, any reimbursement that the Company can
be virtually certain to collect from a third party with respect to the obligation is recognized
as a separate asset not exceeding the amount of the related provision.

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2.10 Revenue and Expense Recognition

Revenue comprises revenue from the sale of goods measured by reference to the fair value
of consideration received or receivable by the Company for goods supplied, excluding
VAT and trade discounts.
Revenue is recognized to the extent that the revenue can be reliably measured; it is
probable that the economic benefits will flow to the Company; and the costs incurred or
to be incurred can be measured reliably. The following specific recognition criteria must
also be met before revenue is recognized:
(a)

Sale of goods Revenue is recognized when the risks and rewards of ownership of the
goods have passed to the buyer. This is generally when the buyer has taken
undisputed delivery of goods.

(b)

Interest Income Revenue is recognized as the interest accrues taking into account the
effective yield on the asset.

Costs and expenses are recognized in the statement of comprehensive income upon
receipt of goods and/or utilization of service or at the date they are incurred. Finance
costs are reported on an accrual basis, except capitalized borrowing costs which are
included as part of the cost of the related qualifying assets (see Note 2.15).

2.11 Leases
(a) Company as Lessee
Leases which do not transfer to the Company substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Operating lease payments
(net of any incentive received from the lessor) are recognized as expense in profit or
loss on a straight-line basis over the lease term. Associated costs, such as repairs and
maintenance and insurance, are expensed as incurred.
(b) Company as Lessor
Leases which do not transfer to the lessee substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Lease income from operating
leases is recognized in profit or loss on a straight-line basis over the lease term.
The Company determines whether an arrangement is, or contains, a lease based on
the substance of the arrangement. It makes an assessment of whether the fulfillment
of the arrangement is dependent on the use of a specific asset or assets and the
arrangement conveys a right to use the asset.

2.12 Foreign Currency Transactions and Translation

The accounting records of the Company are maintained in U.S. Dollars. Foreign currency
transactions during the year are translated into the functional currency at exchange rates
which approximate those prevailing on transaction dates.

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Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are presented in the statement of comprehensive
income as part of Finance Costs in the statement of comprehensive income.

2.13 Impairment of Non-financial Assets

The Companys property, plant and equipment and other non-financial assets are tested
for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable.
For purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). As a result, some assets
are tested individually for impairment and some are tested at cash-generating unit level.
Impairment loss is recognized for the amount by which the assets or cash-generating
units carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of fair value, reflecting market conditions less costs to sell and value in use, based
on an internal discounted cash flows evaluation. Impairment loss is charged pro rata to
the other assets in the cash-generating unit.
All assets are subsequently reassessed for indications that an impairment loss previously
recognized may no longer exist and the carrying amount of the asset is adjusted to the
recoverable amount resulting in the reversal of the impairment loss.

2.14 Employee Benefits

(a) Defined Benefits Plan
Post-employment benefits are provided to employees through a defined benefit plan.
A defined benefit plan is a post-employment plan that defines an amount of
post-employment benefit that an employee will receive on retirement, usually dependent
on one or more factors such as age, years of service and salary. The legal obligation for
any benefits from this kind of post-employment plan remains with the Company, even if
plan assets for funding the defined benefit plan have been acquired. Plan assets may
include assets specifically designated to a long-term benefit fund, as well as qualifying
insurance policies. The Companys post-employment defined benefit pension plan covers
all regular full-time employees.
The liability recognized in the statement of financial position for a defined benefit
plan is the present value of the defined benefit obligation (DBO) at the end of the
reporting period less the fair value of plan assets, together with adjustments for
unrecognized actuarial gains or losses and past service costs. The DBO is calculated
annually by independent actuaries using the projected unit credit method. The present
value of the DBO is determined by discounting the estimated future cash outflows using a
discount rate derived from the interest rates of a zero coupon government bonds as
published by Philippine Dealing and Exchange Corporation, that are denominated in the
currency in which the benefits will be paid and that have terms to maturity approximating
to the terms of the related post-employment liability.

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Actuarial gains and losses are not recognized as an income or expense unless the total
unrecognized gain or loss exceeds 10% of the greater of the obligation and related plan
assets. The amount exceeding this 10% corridor is charged or credited to profit or loss
over the employees expected average remaining working lives. Actuarial gains and losses
within the 10% corridor are disclosed separately. Past service costs are recognized
immediately in profit or loss, unless the changes to the pension plan are conditional on the
employees remaining in service for a specified period of time (the vesting period).
In this case, the past service costs are amortized on a straight-line basis over the vesting
period.
(b) Termination Benefits
Termination benefits are payable when employment is terminated by the Company before
the normal retirement date, or whenever an employee accepts voluntary redundancy in
exchange for these benefits.
The Company recognizes termination benefits when it is demonstrably committed to
either: (a) terminating the employment of current employees according to a detailed formal
plan without possibility of withdrawal; or (b) providing termination benefits as a result of
an offer made to encourage voluntary redundancy. Benefits falling due more than
12 months after the end of the reporting period are discounted to present value.
(c)

Compensated Absences

Compensated absences are recognized for the number of paid leave days (including
holiday entitlement) remaining at the end of the reporting period. They are included in the
Trade and Other Payables account at the undiscounted amount that the Company expects
to pay as a result of the unused entitlement.

2.15 Borrowing Costs

Borrowing costs are recognized as expenses in the period in which they are incurred,
except to the extent that they are capitalized. Borrowing costs that are directly attributable
to the acquisition, construction or production of a qualifying asset (i.e., an asset that takes a
substantial period of time to get ready for its intended use or sale) are capitalized as part of
cost of such asset. The capitalization of borrowing costs commences when expenditures
for the asset and borrowing costs are being incurred and activities that are necessary to
prepare the asset for its intended use or sale are in progress. Capitalization ceases when
substantially all such activities are complete.

2.16 Income Taxes

Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax
not recognized in other comprehensive income or directly in equity, if any.
Current tax assets or liabilities comprise those claims from, or obligations to, fiscal
authorities relating to the current or prior reporting period, that are uncollected or unpaid
at the end of the reporting period. They are calculated according to the tax rates and tax
laws applicable to the fiscal periods to which they relate, based on the taxable profit for
the year. All changes to current tax assets or liabilities are recognized as a component of
tax expense in profit or loss.

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Deferred tax is accounted for using the liability method, on temporary differences at the
end of the reporting period between the tax base of assets and liabilities and their carrying
amounts for financial reporting purposes. Under the liability method, with certain
exceptions, deferred tax liabilities are recognized for all taxable temporary differences and
deferred tax assets are recognized for all deductible temporary differences and the
carryforward of unused tax losses and unused tax credits to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences can
be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting
period and are recognized to the extent that it has become probable that future taxable
profit will be available to allow such deferred tax assets to be recovered.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is probable that sufficient taxable profit will be available
to allow all or part of the deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the period when the asset is realized or the liability is settled provided such tax rates have
been enacted or substantively enacted at the end of the reporting period.
Most changes in deferred tax assets or liabilities are recognized as a component of tax
expense in profit or loss. Only changes in deferred tax assets or liabilities that relate to
items recognized in other comprehensive income or directly in equity are recognized in
other comprehensive income or directly in equity, respectively.
Deferred tax assets and deferred tax liabilities are offset if the Company has a legally
enforceable right to set-off current tax assets against current tax liabilities and the deferred
taxes relate to the same entity and the same taxation authority.
The Company establishes liabilities for probable and estimable assessments by Bureau of
Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent a
reasonable provision for taxes ultimately expected to be paid and may need to be adjusted
over time as more information becomes available.

2.17 Related Party Relationships and Transactions

Related party transactions are transfers of resources, services or obligations between the
Company and its related parties, regardless whether a price is charged.
Parties are considered to be related if one party has the ability to control the other party or
exercise significant influence over the other party in making financial and operating
decisions. These parties include: (a) individuals owning, directly or indirectly through one
or more intermediaries, control or are controlled by, or under common control with the
Company; (b) associates; and, (c) individuals owning, directly or indirectly, an interest in
the voting power of the Company that gives them significant influence over the Company
and close members of the family of any such individual.
In considering each possible related party relationship, attention is directed to the
substance of the relationship and not merely on the legal form.

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2.18 Equity
Capital stock represents the nominal value of shares that have been issued.
Additional paid-in capital includes any premium received on the issuance of capital
stock. Any transaction costs associated with the issuance of shares are deducted from
additional paid-in capital, net of any related income tax benefits.
Revaluation reserves comprise gains and losses due to the revaluation of land.
Retained earnings represent all current and prior period results of operations as reported
in the profit or loss section of the statements of comprehensive income.

2.19 Events After the End of the Reporting Period

Any post-year-end event that provides additional information about the Companys
financial position at the end of the reporting period (adjusting event) is reflected in the
financial statements. Post-year-end events that are not adjusting events, if any, are
disclosed when material to the financial statements.
3.

SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Companys financial statements prepared in accordance with PFRS require
management to make judgments and estimates that affect amounts reported in the
financial statements and related notes. Judgments and estimates are continually evaluated
and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. Actual results may
ultimately vary from these estimates.

3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Companys accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the financial statements:
(a) Distinction between Operating and Finance Leases
The Company has entered into various lease agreements as a lessee. Critical
judgment was exercised by management to distinguish each lease agreement as either
an operating or finance lease by looking at the transfer or retention of significant risk
and rewards of ownership of the properties covered by the agreements. Failure to
make the right judgment will result in either overstatement or understatement of asset
and liabilities. Based on managements judgment such leases were determined to be
operating leases.
(b) Recognition of Provisions and Contingencies
Judgment is exercised by management to distinguish between provisions and
contingencies. Policies on recognition and disclosure of provision and contingencies
are discussed in Note 2.9 and relevant disclosures of contingencies are presented in
Notes 20.

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DRAFT (For Discussion

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Costing of Inventories
In determining cost, management uses judgment in properly allocating the labor and
overhead between the cost of inventories on hand (finished goods and
work-in-process) and cost of goods sold. The Company currently allocates
production overhead on the basis of units produced. However, the amount of costs
charged to finished goods and work-in-process inventories would differ if the
Company utilized a different allocation base. Changes in allocated cost would affect
the carrying cost of inventories and could potentially affect the valuation based on
lower of cost and net realizable value.

3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year:
(a) Impairment of Trade and Other Receivables
Adequate amount of allowance for impairment is provided for specific and group of
accounts, where objective evidence of impairment exists. The Company evaluates
these accounts based on available facts and circumstances, including, but not limited
to, the length of the Companys relationship with the customers, the customers
current credit status based on third party credit reports and known market forces, the
average age of accounts, collection experience and historical loss experience.
Based on the analysis done by management, certain receivables were identified to be
impaired. The carrying value of trade and other receivables and analysis of allowance
for impairment on such financial assets are shown in Note 6.
(b) Determining Net Realizable Value of Inventories
In determining the net realizable value of inventories, management takes into account
the most reliable evidence available at the dates the estimates are made. The future
realization of the carrying amounts of inventories as presented in Note 7 is affected
by price changes in different market segments. These are considered key sources of
estimation, especially that such inventories are substantially perishable in nature and
highly affective by temperature and other environmental conditions, uncertainty and
may cause significant adjustments to the Companys inventories within the next
financial year.
(c)

Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment, except
land, based on the period over which the assets are expected to be available for use.
The estimated useful lives of property, plant and equipment are reviewed periodically
and are updated if expectations differ from previous estimates due to physical wear
and tear, technical or commercial obsolescence and legal or other limits on the use of
the assets.

F-294

- 16 -

DRAFT (For Discussion

Purpose Only)

The carrying amounts of property, plant and equipment are analyzed in Note 9.
Based on managements assessment as at December 31, 2012, there is no change in
estimated useful lives of property, plant and equipment during the year. Actual
results, however, may vary due to changes in estimates brought about by changes in
factors mentioned above.
(d) Determining the Fair Value of Land
The Companys land is carried at revalued amount at the end of the reporting period.
In determining the fair value of the land, the Company engages the services of
professional and independent appraisers. The fair value is determined by reference to
market-based evidence, which is the amount for which the asset could be exchanged
between a knowledgeable willing buyer and seller in an arms length transaction as at
the valuation date. Such amount is influenced by different factors including the
location and specific characteristics of the property (e.g., size, features, and capacity),
quantity of comparable properties available in the market, and economic condition
and behaviour of the buying parties. A significant change in these elements may
affect prices and the value of the asset. The amounts of revaluation and fair value
gain recognized on land are disclosed in Note 9.
(e)

Determining Recoverable Amount of Deferred Tax Assets

The Company reviews its deferred tax assets at the end of the reporting period and
reduces the carrying amount to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be
utilized. The carrying value of deferred tax assets as at December 31, 2012 and 2011
which the management assessed to be probable of being utilized within the next two
to three years is disclosed in Note 16.

(f)

Impairment of Non-financial Assets

The Companys policy on estimating the impairment of non-financial assets is
discussed in detail in Note 2.13. Though management believes that the assumptions
used in the estimation of fair values reflected in the financial statements are
appropriate and reasonable, significant changes in these assumptions may materially
affect the assessment of recoverable values and any resulting impairment loss could
have a material adverse effect on the results of operations. No impairment loss was
recognized on the Companys non-financial assets in 2012 and 2011.

(g)

Valuation of Post-employment Benefits

The determination of the Companys obligation and cost of post-employment defined
benefit is dependent on the selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions include, among others, discount rates,
expected return on plan assets and salary increase rate. In accordance with PFRS,
actual results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect the recognized expense and recorded
obligation in such future periods.
The amount of retirement benefit obligation (asset) and expense and an analysis of the
movements in the estimated present value of retirement benefit obligation (asset) are
presented in Note 15.2.

F-295

DRAFT (For Discussion

Purpose Only)

- 17 -

4.

RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company is exposed to certain financial risks which result from both its operating
and investing activities. The Companys risk management is coordinated with its parent
company, in close cooperation with the BOD, and focuses on actively securing the
Companys short-to-medium term cash flows by minimizing the exposure to financial
markets.
The Company does not engage in the trading of financial assets for speculative purposes
nor does it write options. The most significant financial risks to which the Company is
exposed to are described below.

4.1 Market Risk

The Company is exposed to market risk through its use of financial instruments and
specifically to currency risk and interest risk which result from both its operating and
investing activities.
(a) Foreign Currency Risk
Most of the Companys transactions are carried out in U.S. Dollars, its functional
currency. Exposures to currency exchange rates arise from the interest-bearing loans
from local banks, trade and other payables and due to a related party which are
primarily denominated in Philippine peso. The Company also holds Philippine
peso-denominated cash.
To mitigate the Companys exposure to foreign currency risk, non-U.S. dollar cash
flows are regularly monitored.
Foreign currency denominated financial assets and liabilities (in Philippine pesos),
translated into U.S. dollars at the closing rate are as follows:
2012
Short-term exposure:
Financial assets
Financial liabilities

2011

2,095,713 $
48,472,975) (

2,722,256
45,270,647 )

46,377,262) (

42,548,391 )

Long-term exposure
Financial liabilities

364,148) (

1,707,339 )

Net exposure

($

46,741,410) ( $

44,255,730 )

The sensitivity of the net results in regards to the Companys financial assets and
financial liabilities and the U.S. dollar Philippine peso exchange rate assumes a
+/-15.90% and +/-16.23% change of the U.S. dollar/Philippine peso exchange rate in
2012 and 2011, respectively. These percentages have been determined based on the
average market volatility in exchange rates, using standard deviation, in the previous
12 months, estimated at 99% level of confidence. The sensitivity analysis is based on
the Companys foreign currency financial instruments held at the end of each reporting
period, with effect estimated from the beginning of the year.

F-296

DRAFT (For Discussion

Purpose Only)

- 18 -

If the Philippine peso had strengthened against the U.S. dollar, then this would have
the following impact:
2011

2012
Profit before tax
Equity

7,431,884
5,202,319

7,182,705
4,886,443

If the Philippine peso had weakened against the U.S. dollar, then this would have a
reverse impact by the same amounts as above.
The exchange rates used to translate Philippine peso denominated financial assets
and liabilities to U.S. dollars at December 31, 2012 and 2011 was P41.19:$1 and
P43.93:$1, respectively. The Company actively monitors the volatility of the foreign
currency exchange rates to manage its foreign currency exposure.
Exposures to foreign currency exchange rates vary during the year depending on the
volume of overseas transactions. Nonetheless, the analysis above is considered to be
representative of the Companys currency risk.
(b) Interest Rate Risk
The Company has limited exposure to changes in market interest rates through its
interest-bearing loans and cash and cash equivalents, which are subject to variable
interest rates. These financial instruments have historically shown small or measured
changes in interest rates. All other financial assets and liabilities have fixed rates.

4.2 Credit Risk

Generally, the maximum credit risk exposure of financial assets is the carrying amount of
the financial assets as shown on the face of the statements of financial position
(or in the detailed analysis provided in the notes to the financial statements), as
summarized below.
Notes
Cash and cash equivalents
Trade and other receivables

5
6

2011

2012
$
$

2,201,717
4,619,685

2,058,243
5,446,965

6,823,233

7,507,092

As part of Company policy, bank deposits are only maintained with reputable financial
institutions. Cash in banks which are insured by the Philippine Deposit Insurance
Corporation (PDIC) up to a maximum coverage of (P500,000) per depositor per banking
institution, as provided for under Republic Act No. 9576, Charter of PDIC, are still subject
to credit risk.
Trade and other receivables, as presented above, exclude deposit on purchases of $501,407
as of December 31, 2011. There was no outstanding balance of deposit on purchases as
of December 31, 2012.

F-297

DRAFT (For Discussion

Purpose Only)

- 19 -

The Company continuously monitors defaults of customers and other counterparties,

identified either individually or by group, and incorporate this information into its credit
risk controls. Where available at a reasonable cost, external credit ratings and/or reports
on customers and other counterparties are obtained and used. The Companys policy is to
deal only with creditworthy counterparties. In addition, for a significant proportion of
sales, advance payments are received to mitigate credit risk.
The Companys management considers that all the above financial assets that are not
impaired or past due for each reporting period are off good credit quality.
In respect of trade and other receivables, the Company is not exposed to any significant
credit risk exposure to any single counterparty or any group of counterparties having
similar characteristics.
Financial assets that are past due but not impaired are as follows:
2011

2012
Less than one year
More than one year

144,024
259

51,756
16,065

144,283

67,821

The fair value of these short-term financial assets is not individually determined as the
carrying amount is a reasonable approximation of fair value.

4.3 Liquidity Risk

The ability of the Company to finance its operations and to meet obligations as these
become due is extremely crucial to its viability as a business entity. The Company adopts a
prudent liquidity risk management where it maintains sufficient cash to meet trade and
other short-term payables as they fall due.
The Company manages its liquidity needs by carefully monitoring scheduled debt servicing
payments for long-term financial liabilities as well as cash outflows due in a
day-to-day business. Liquidity needs are monitored in various time bands, on a
day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.
Long-term liquidity needs for a six-month and one-year period are identified monthly.
Funding for long-term liquidity needs is additionally secured by an adequate amount of
committed credit facilities and the ability to sell long-term financial assets.
As at December 31, 2012, the Companys financial liabilities have contractual maturities
which are presented below.
Current
Within
6 to 12
6 Months
Months
Interest-bearing loans
Trade and other payables
Advances from related parties

Non-current
1 to 5
Years

33,518,645 $
10,868,961
4,085,368

364,148 $
-

48,769,974 $

364,148 $

F-298

DRAFT (For Discussion

Purpose Only)

- 20 -

This compares to the maturity of the Companys financial liabilities as at

December 31, 2011 as follows:
Current
Within
6 to 12
6 Months
Months
Interest-bearing loans
Advances from related parties
Trade and other payables
Dividend payable

Non-current
1 to 5
Years

24,062,102 $
10,006,670
9,372,685
1,732,062

1,365,871 $
-

341,468
-

45,173,519 $

1,365,871 $

341,468

The above contractual maturities reflect the gross cash flows, which may differ from the
carrying values of the liabilities at the end of each of the reporting periods.
5.

CASH AND CASH EQUIVALENTS

The breakdown of this account is as follows:
2011

2012
Cash on hand
Cash in bank
Short-term placements

1,821
2,201,727
-

1,884
1,990,884
67,359

2,203,548

2,060,127

Cash in banks generally earn interest at rates based on daily bank deposit rates.
Short-term placements are made for varying periods of between 15 to 30 days and earn
effective interest ranging from 2.8% to 4.0% in both years. Interest income earned
amounting to $67,561 and $ 19,797 in 2012 and 2011, respectively and presented as
Finance Income in the statement of comprehensive income.
6.

TRADE AND OTHER RECEIVABLES

This account (see also Note 4.2) is composed of the following:

Trade receivables
Deposit on purchases
Others
Allowance for impairment

2012

2011

4,737,828 $
26,140
4,763,968
144,283) (

4,949,098
501,407
566,651
6,017,156
68,783 )

4,619,685

F-299

5,948,373

DRAFT (For Discussion

Purpose Only)

- 21 -

Trade receivables are usually due within 30 to 45 days and do not bear any interest. All
trade and other receivables are subject to credit risk exposure. However, the Company
does not identify specific concentrations of credit risk with regard to trade and other
receivables as the amounts recognized resemble a large number of receivables from
various customers and counterparties.
Deposit on purchases pertains to advances made to suppliers for goods ordered. This is
applied against billings from the suppliers upon the completion of such order;
accordingly, not considered as financed assets (see also Note 4.2).
All of the Companys trade and other receivables have been reviewed for indicators of
impairment. Certain receivables were identified to be impaired, hence, adequate
amounts of allowance for impairment have been recognized. The Company recognized
impairment losses on certain trade receivables amounting $75,500 in 2012 and $68,783 in
2011 and presented them as part of Impairment Loss on Trade and Other Receivables
under Administrative Expense in the statements of comprehensive income
(see Note 13).
A reconciliation of the allowance for impairment at the beginning and end of 2012 and
2011 is shown below.
Note
Balance at beginning
of year
Impairment losses

$
13

Balance at end of year

7.

2011

2012

68,783
75,500

144,283

68,783
68,783

INVENTORIES
Details of inventories are shown below.
Note
Finished goods:
At cost
At net realizable value

2011

2012
$

13
Raw and packaging
materials
Spare parts, supplies
and others
$

10,268,611
176,170

11,439,866
536,494

10,444,781

11,976,360

33,344,561

25,674,768

1,056,207

1,023,649

44,845,549

38,674,777

Raw and packaging materials include inventories amounting to $1,557,305 that are in
transit as at December 31, 2011 (Nil as at December 31, 2012).

F-300

DRAFT (For Discussion

Purpose Only)

- 22 -

The inventory write-down amounting to $291,319 in 2012 and 249,395 in 2011,

is presented as part of Cost of Goods Sold in the statements comprehensive income.
8.

OTHER CURRENT ASSETS

The composition of this account is shown below.
2011

2012
Tax credit certificates from
Bureau of Customs
Prepaid insurance
Prepaid rent
Others

9.

937,542
12,385
363
23,350

711,973
14,839
340
23,017

973,640

750,169

PROPERTY, PLANT AND EQUIPMENT

The gross carrying amounts and accumulated depreciation of property, plant and
equipment at the beginning and end of 2012 and 2011 are shown below.
At Fair Value
Land
December 31, 2012
Cost
Revaluation increment
Accumulated depreciation
Carrying value
December 31, 2011
Cost
Revaluation increment
Accumulated depreciation
Carrying value
January 1, 2011
Cost
Revaluation increment
Accumulated depreciation
Carrying value

1,827,066
35,773
-

1,862,839

1,827,066
35,773
-

Buildings

$ 8,600,943
4,209,932 )
$

Land
Improvements
$
(

4,391,011

$ 8,069,346
3,571,941 )

1,388,173
1,187,432 )

200,741

1,379,635
1,146,789 )

At Cost
Transportation
and Delivery
Equipment
$

26,955
$
26,955 ) (

1,862,839

$ 4,497,405

232,846

1,827,066
35,773
-

$ 7,608,630
(
3,018,450 )

1,333,668
1,080,559 )

1,862,839

$ 4,590,180

253,109

F-301

Machinery
and
Equipment

(
$

ConstructioninProgress

Total

20,344,632
10,878,290 )

705,335 $ 32,893,104
35,773
(
16,302,609 )

9,466,342

705,335

77,729
$
77,729 ) (

19,452,356
8,839,962 )

426,790 $ 31,232,922
35,773
(
13,636,421 )

10,612,394

426,790

18,991,805
8,189,586 )

192,981 $ 30,085,238
35,773
(
12,406,435 )

10,802,219

192,981

131,088
$
117,840 ) (
13,248

$ 16,626,268

$ 17,632,274

$ 17,714,576

DRAFT (For Discussion

Purpose Only)

- 23 -

A reconciliation of the carrying amounts of property, plant and equipment at the

beginning and end of 2012 and 2011, is shown below.
At Fair Value
Land
Balance at January 1, 2012,
net of accumulated depreciation
Additions
Disposals
Reclassifications
Depreciation charges for the year
Carrying value
Balance at January 1, 2011,
net of accumulated depreciation
Additions
Disposals
Reclassifications
Depreciation and charges for the year
Carrying value

1,862,839
-

Buildings
$ 4,497,405
184,229
347,368
(
637,991 )

1,862,839

1,862,839
-

$ 4,590,180
287,626
47,505 )
231,886
(
564,782 )

1,862,839

$ 4,497,405

Land
Improvements
$

200,741

253,109
31,384
1,006 )
20,785
71,426 )

13,248
$
8,313 ) (
4,935 ) (

10,802,219
$
1,547,647
58,615 )
141,014 (
1,819,871 )

192,981 $ 17,714,576
627,494
2,494,151
(
115,439 )
393,685 )
(
2,461,014 )

10,612,394

426,790

(
$

232,846

(
(
$

10,612,394
$
860,486
1,508 )
45,595 (
2,050,625 )

Total

ConstructioninProgress

Machinery
and
Equipment

232,846
8,538
40,643 )

4,391,011

At Cost
Transportation
and Delivery
Equipment

9,466,342

426,790 $ 17,632,274
671,508
1,724,761
(
1,508 )
392,963 )
(
2,729,259 )
705,335

$ 16,626,268

17,632,274

Construction-in-progress pertains to the accumulated costs incurred on the ongoing

construction of a new building and installation of machinery and equipment as part of
the Companys expansion program (see Note 20.3). In 2012 and 2011, portion of
construction-in-progress amounting to $392,963 and $393,685, respectively, were completed
and reclassified by the Company to their proper account classification.
In 2012 and 2011, managements assessment showed that the fair value of the land, carried
at revalued amount, did not materially change. Accordingly, no fair value gain or loss was
recognized.
The amount of depreciation (see Note 13) is allocated as follows:
2011

2012
Cost of goods sold
Administrative expenses

2,550,836
178,423

2,381,301
79,713

2,729,259

2,461,014

Fully depreciated assets with total original cost of $3,887,265 and $3,047,799 as at
December 31, 2012 and 2011 are still being used in operations.
10.

OTHER NON-CURRENT ASSETS

Other non-current assets are summarized below:
Note
Input VAT
Others

24.1(b)

F-302

2011

2012
$

663,655
1,697

685,132
7,283

665,352

692,415

DRAFT (For Discussion

Purpose Only)

- 24 -

11.

INTEREST-BEARING LOANS
The short-term and long-term interest-bearing loans [denominated in Philippine pesos
(PHP)], which are collateralized by a continuing suretyship of certain stockholders and a
corporate guarantee of CCC are broken down as follows:
2011

2012
inPHP
Short-term
Long-term

inUSD

in PHP

inUSD

P1,320,700,000
75,000,000

32,062,051
1,820,742

P 997,000,000
135,000,000

22,696,230
3,073,211

P1,395,700,000

33,882,793

P 1,132,000,000

25,769,441

Short-term loans consist of several borrowings from local banks which mature within
14 to 30 days and bear annual interest rates ranging from 2.25% to 4.75% in 2012 and
3.25% to 3.60% in 2011.
Long-term loan pertains to a five year loan with an original principal amount of
$6,219,421 (P300,000,000) obtained on February 27, 2009 from a local commercial bank.
The loan is payable quarterly and bears an annual interest of 7.51%. The long-term loan
is subject to a condition that requires the Company to meet certain financial ratios such
as debt-to-equity ratio (not to exceed 2.5:1) and current ratio (at least 1.0:1).
In the event of default or non-compliance with any of the provisions of the loan
agreement, the bank-creditor may (by written notice) either declare the loan terminated
or declare the entire unpaid principal amount and interest of the loan due and
demandable. As at December 31, 2012, the Company has complied with all the
covenants set forth in the loan agreement (see Note 22).
Interest-bearing loans are presented in the in statements of financial positions as follows:
2011

2012
Current
Non-current

33,518,645
364,148

24,062,102
1,707,339

33,882,793

25,769,441

Interest expense charged to operations amounted to $816,041 in 2012 and $605,044 in

2011 and presented as part of Finance Costs in the statements of comprehensive income
(see Note 14). The unpaid balance of interest amounting to $52,116 and $49,307 as at
December 31, 2012 and 2011, respectively, is presented as part of Accrued Expenses
under the Trade and Other Payables account in the statements of financial position
(see Note 12).

F-303

DRAFT (For Discussion

Purpose Only)

- 25 -

12.

TRADE AND OTHER PAYABLES

This account consists of:
Notes
Trade payables
Accrued expenses
Others

2011

2012
$

9,020,599
771,418
1,076,944

8,127,123
542,242
703,320

10,868,961

9,372,685

11
17.3

Accrued expenses include the current portion of the Companys obligations to its
employees and service providers that are expected to be settled within 12 months from the
end of the reporting period. These liabilities arise mainly from the accrual of various
expenses such as rent, freight, interest on loans and payroll at the end of the period.
The carrying amount of trade and other payables, which are expected to be settled within
the next 12 months from the end of the reporting period, is a reasonable approximation of
fair value.
Others payable include liabilities to various agencies and regulatory bodies.
13.

COSTS AND OPERATING EXPENSES BY NATURE

The details of costs and operating expenses by nature are shown below.
Notes
Raw materials used
Outside services
Rent
Depreciation and amortization
Gas, fuel and oil
Supplies
Changes in finished goods
inventories
Communication, light and water
Salaries and employee benefits
Freight
Taxes and licenses
Insurance
Repairs and maintenance
Impairment loss
on trade receivables
Commissions
Miscellaneous

$
17.3
20.1
9

15
24.1

F-304

2011

2012
62,956,137
5,852,420
4,100,160
2,729,259
2,156,957
1,989,322

54,166,359
4,744,437
2,297,001
2,461,014
2,195,909
1,568,378

1,531,579
1,315,590
1,135,913
1,117,023
299,395
175,994
170,374

5,388,109
963,208
1,097,485
1,282,947
244,361
113,946
140,078

75,500
45,369
248,560

68,783
84,781
270,577

85,899,552

77,087,373

DRAFT (For Discussion

Purpose Only)

- 26 -

These expenses are classified in the statements of comprehensive income as follows:

2011

2012
Cost of goods sold
Administrative expenses
Selling expenses
Other expenses

83,177,084
1,511,770
1,162,392
48,306

74,609,681
1,320,698
1,129,637
27,357

85,899,552

77,087,373

Cost of goods sold for the years ended December 31, 2012 and 2011 consist of the
following:
Note
Finished goods at
beginning of year
Cost of goods manufactured:
Raw materials used
Direct labor
Manufacturing overhead

Total goods available for sale

Finished goods at end of year

11,976,360

83,177,084

17,412,482
54,166,359
3,475,044
11,532,156
69,173,559
86,586,041
11,976,360 )

62,956,137
4,505,777
14,183,591
81,645,505
93,621,865
10,444,781) (
$

14.

2011

2012

74,609,681

FINANCE COSTS
The details of finance costs are presented below.
Note
Foreign currency losses
Interest expense
Bank charges
Other finance charges

1,361,096
816,041
109,693
-

858,018
605,044
166,205
47,261

2,286,830

1,676,528

11

F-305

2011

2012

DRAFT (For Discussion

Purpose Only)

- 27 -

15.

EMPLOYEE BENEFITS

15.1 Salaries and Employee Benefits

Expenses recognized for salaries and employee benefits (see Note 13) are presented below.
2011

2012
Short-term benefits
Post-employment benefits

1,093,928
41,985

1,016,197
81,288

1,135,913

1,097,485

15.2 Post-employment Defined Benefit

The Company maintains a fully funded, tax qualified, noncontributory retirement plan that
is being administered by a trustee bank covering all regular full-time employees.
The amount of retirement benefit asset recognized in the statements of financial position
is determined as follows:
2011

2012
Present value of the obligation
Fair value of plan assets
Excess of plan assets
Unrecognized actuarial losses
Effect of foreign currency
exchange rate changes

(
(
(

396,926
$
408,017 ) (
11,091 ) (
4,450 ) (

111 )

($

15,652 ) ( $

314,055
317,069 )
3,014 )
14,886 )
208
17,692 )

The movements in present value of the retirement benefit obligation are as follows:
2011

2012
Balance at beginning of year
Current service and interest costs
Actuarial loss
Benefits paid by the plan
Effect of foreign currency
exchange rate changes

Balance at end of year

F-306

314,055
60,499
-

185,465
52,953
95,099
17,453)

22,372

2,009 )

396,926

314,055

DRAFT (For Discussion

Purpose Only)

- 28 -

The movement in the fair value of plan assets is presented below.

2011

2012
Balance at beginning of year
Expected return on plan assets
Contribution paid into the plan
Benefits paid by the plan
Actuarial loss
Effect of foreign currency
exchange rate changes

Balance at end of year

317,069
29,335
35,762
-

$
(
(

251,842
35,167
71,778
17,453 )
23,089 )

25,851

1,176 )
$

408,017

317,069

Actual return on plan assets were $29,335 in 2012 and $12,078 in 2011.
The major categories of plan assets as a percentage of the fair value of total plan assets are
as follows:

Cash
Government securities
Debt instruments
Others

2012

2011

10.59%
60.62%
19.65%
9.14%

8.34%
46.30%
35.73%
9.63%

Presented below are the historical information related to the present value of the
retirement benefit obligation, fair value of plan assets and excess or deficit in the plan.
2011

2010

2009

$ 396,926 $
408,017

314,055 $
317,069

185,465 $
251,842

182,218 $ 245,560
169,637
89,119

11,091) ($

3,014 ) ($

66,377 ) $

12,581 $ 156,441

2012
Present value of the obligation
Fair value of plan assets
Deficit (excess) in the plan
Experience adjustments
arising on plan liabilities
Experience adjustments
arising on plan assets

($

2008

8,080 $

2,738 $

23,089 $

3,042 $

The amounts of retirement benefits expense recognized in the profit or loss are as follows:
2011

2012
Current service costs
Interest costs
Expected return on plan assets
Net actuarial loss recognized
during the year

$
(

F-307

40,176 $
20,323
29,335 ) (

37,657
15,296
35,167 )

10,821

63,502

41,985

81,288

DRAFT (For Discussion

Purpose Only)

- 29 -

The amounts of retirement benefits expense are allocated as follows:

Note
Cost of goods sold
Administrative expenses

2011

2012

13

33,866
8,119

67,359
13,929

41,985

81,288

For the determination of the retirement benefit asset, obligation and related expenses, the
following actuarial assumptions were used:

Discount rates
Expected rate of return on plan assets
Expected rate of salary increases

2012

2011

6.29%
8.81%
4.00%

6.22%
6.00%
4.00%

Assumptions regarding future mortality are based on published statistics and mortality
tables. The average life expectancy of an individual retiring at the age of 60 is 18 for males
and 20 for females.
16.

TAXES
The major components of tax expense as reported in profit or loss:
2011

2012
Current tax expense:
Regular corporate income tax
(RCIT) at 30%
Final taxes at 20% and 7.5%
Deferred tax expense (income) relating
to origination of temporary
differences

874,970

574,892
3,343
578,235

151,477

69,608 )
$

F-308

931,329
13,249
944,578

729,712

DRAFT (For Discussion

Purpose Only)

- 30 -

The reconciliation of tax on pretax profit computed at the applicable statutory rates to tax
expense reported in the statements of comprehensive income profit is as follows:
2011

2012
Tax on pretax profit at 30%
Adjustment for income subjected
to lower income tax rates
Tax effects of:
Non-taxable income
Non-deductible expenses
Reversal of deferred tax asset

916,208

7,019 ) (

2,596)

40,704 ) (
6,485

65,504)
1,736
174,272

Tax expense

621,804

874,970

729,712

The net deferred tax assets relate to the following as at December 31:
Statements of
Financial Position
2012
2011
Allowance for inventory
write-down
Allowance for impairment
Past service cost
Retirement benefit asset
Unrealized foreign currency
loss (gain)
Net Deferred Tax Assets
Deferred Tax Expense (Income)

87,396 $
43,178
15,626
4,696 )

$
(

141,504

Statements of
Comprehensive Income
2012
2011

75,123 ( $
20,635 (
19,391
2,813

12,273) $
22,543) (
3,765 (
7,509 (

46,066 ) (

46,066)

109,574
20,635 )
812 )
2,813 )
66,163

71,896
($

69,608) $

151,477

The Company is subject to the MCIT which is computed at 2% of gross income, as

defined under the tax regulations, or RCIT, whichever is higher. No MCIT was reported
in 2012 and 2011 as the RCIT was higher than MCIT in both years.
In 2012 and 2011, the Company opted to claim itemized deductions.

F-309

DRAFT (For Discussion

Purpose Only)

- 31 -

17.

RELATED PARTY TRANSACTIONS

The Companys related parties include its parent, entities under common ownership, the
Companys key management personnel and others as described below. The following are
the transactions of the Company with related parties:

Related Party
Category
Parent
Sale of goods
Management and consultancy
Services
Advances
Lease services

2012
Outstanding
Amount of
Receivable
Transactions
(Payable)

Notes
17.1
17.3
17.2
17.1

$
(

11,702,675

438,395
5,921,302 ) (
1,092,821

380,231

2011
Outstanding
Amount of
Receivable
Transactions
(Payable)
$

7,188,460

149,555
4,085,368) (
-

351,142
832,648 ) (
415,578

10,006,670 )
-

Related Parties Under

Common Ownership
Sale of goods

17.1

2,242,496

96,606

Key Management Personnel

Compensation

17.5

45,539

42,574

17.1 Sale of Goods and Services

The Company sells raw material fish inventories to CCC and Columbus Seafoods
Corporation (CSC), a related party under common ownership. Outstanding balance in
relation to sale of goods amounts to $380,231 as at December 31, 2012 (nil in 2011).
In 2012, the Company entered into a new agreement with CCC to lease a portion of plant,
machinery and equipment and cold storage located in Brgy. Tambler, General Santos City.
Both leases shall be from January 1, 2012 onwards and will continue to be in effect unless
sooner terminated. Rentals are fully collected by the Company as at December 31, 2012.
Amount of
Transactions
2012
2011
Parent company:
Sale of goods
Rental of facilities

Columbus Seafoods Corporation

Sale of goods

2,242,496
$

F-310

11,702,675 $
1,092,821
12,795,496

15,037,992 $

7,188,460
415,578
7,604,038
96,606
7,700,644

DRAFT (For Discussion

Purpose Only)

- 32 -

17.2 Advances from Related Parties

In the normal course of business, the Company obtains advances from CCC and Pacific
Meat Company Incorporated (PMCI), a related party under common ownership, for
working capital requirements and other purposes. The balance of Advances from Related
Parties amounts to $4,085,368 and $10,006,670 as at December 31, 2012 and 2011,
respectively. Advances from related parties are unsecured, noninterest-bearing and
repayable within 12 months.
2011

2012
Balance at beginning of year

Net repayments during the year

Transfer of AFS financial assets
Balance at end of year

10,006,670

5,921,302) (
(

(
$

4,085,368

10,839,318
647,278)
185,370)
10,006,670

In 2011, the Compnay paid certain advances from CCC by transferring all of its AFS
financial assets to CCC. The AFS financial assets were transferred at their carrying
amounts and because there is no available fair value at the time of transfer, no gain or loss
was recognized. There was no similar transaction in 2012.

17.3 Consultancy and Management Fees

Beginning 2011, in addition to key management personnel compensation incurred, the
Company entered into an agreement to allow CCC to allocate and charge common
corporate expenses to its subsidiaries. The consultancy and management fee incurred by
the Company amounted to $438,395 and $351,142 in 2012 and 2011, respectively. This
amount is presented as part of Outside Services (see Note 13). As at December 31, 2012,
the Company has $149,555 outstanding liability arising from this agreement and is
presented as part of Others under the Trade and Other Payables account in the 2012
statement of financial position and is expected to be settled in 2013 (see Note 12).

17.4 Financial Guarantees

The Company, together with its related parties, has entered into a cross-corporate
guarantee for the short-term loan obtained by CCC and PMCI from various local banks.
The outstanding balance of loan amounts to P1,447,400,000 ($35,137,891) and
P1,910,400,000 ( $43,489,346) as at December 31, 2012 and 2011, respectively. The
Company did not record the fair value of the guarantee liability because of the low
probability of CCC and PMCIs default in paying their respective borrowings.

17.5 Key Management Personnel Compensations

The short-term employee benefits of the key management personnel amounted to $45,539
in 2012 and $42,574 in 2011 and are included as part of Employee Benefits in the
statements of comprehensive income. The increase in the key management personnel
compensation was in line with the agreement entered into by the Company with CCC
relating to consultancy and management fees (see Note 17.3).

F-311

DRAFT (For Discussion

Purpose Only)

- 33 -

18.

REGISTRATION WITH THE BOARD OF INVESTMENTS (BOI)

On September 25, 2012, the BOI approved the Companys registration as a new
expanding export producer of frozen tuna loins on a non-pioneer status. The Company is
entitled to ITH for a period of three years beginning February 1, 2013 using the projects
ability to contribute to the economys development pursuant to Article 7 of Executive
Order 226 based on the following parameters in this order: (1) projects net value added;
(2) job generation; (3) multiplier effect; and (4) measured capacity.

19.

EQUITY

19.1 Capital Stock

Capital stock consists of common shares with details as follows:
Shares
Authorized P10 par value

2012

2011

50,000,000

50,000,000

50,000,000

32,477,106

Amount
2012

2011

Issued and outstanding:

Balance at beginning of year
Issuances during the year

Balance at end of year

50,000,000

Balance at end of year (in U.S. dollars)

500,000,000 P 324,771,060

500,000,000 P

500,000,000

11,333,722 $

11,333,722

17,522,894
50,000,000

175,228,940

As at December 31, 2012, the Company has six stockholders owning 100 or more shares
each of the Companys capital stock.

19.2 Dividend Declaration

On December 6, 2011, the BOD approved the declaration of cash dividend of $1,732,062
(P75,000,000) for distribution to stockholders of record as at the same date. The related
dividend was paid in full in 2012. On the same date, the BOD approved the declaration
of stock dividend of $4,046,764 (P175,228,940) which is equivalent to 17,522,894 common
shares in favor of all its existing stockholders of record as at December 31, 2011. The
Company did not declare any cash or stock dividend in 2012.

19.3 Prior Period Adjustments

In 2012, the Companys management determined that the amount of cold storage rentals,
which was inadvertently included as part of the Companys inventoriable costs in 2011,
should be expensed outright as the said expense is not directly related to the cost of its
inventories. Accordingly, the balance of Retained Earnings as at January 1, 2012 has been
restated from the amount previously reported to recognize the effects such change.
The restatement resulted in a decrease in the amount of the previously reported Retained
Earnings by $857,231 as of January 1, 2012 and decrease in previously reported net profit
by the same amount in 2011.

F-312

- 34 -

DRAFT (For Discussion

Purpose Only)

This prior period adjustment have the following effects on certain accounts in the
statements of financial position as at December 31, 2011 and statements of
comprehensive income for the year then ended.
As Previously
Reported

As Restated

Changes in Net Assets Inventories

$ 39,532,008

($

857,231 )

$ 38,674,777

Changes in Profit or Loss:

Cost of Goods Sold
Finance Costs net

$ 73,695,228
1,665,940

$
(

866,440
9,209 )

$ 74,561,668
1,656,731

($

857,231 )

Effect on Retained Earnings

20.

Prior Period
Adjustment

COMMITMENTS AND CONTINGENCIES

20.1 Operating Leases

The Company is a lessee under several short-term lease contracts with renewal options.
The usual term of the lease contract extends to one year that usually ends in December.
The amount of rent expense which is recognized as part of Manufacturing overhead under
Cost of Goods Sold in the statements of comprehensive income amounted to $4,100,160
and $2,297,001, respectively, in 2012 and 2011 (see Note 13).
As of December 31, 2012 and 2011, the future minimum lease payments under these lease
agreements amounted to $3,583,273 and $3,195,928, respectively.

20.2 Financial Guarantees

As at December 31, 2012, the Company together with its related parties has financial
guarantees amounting to $35,137,891 for the loan obtained by CCC and PMCI from
various local banks (see Note 17.4).

20.3 Capital Commitments

As at December 31, 2012, the Company has construction in progress totaling $705,335.
The construction relates to a new building in connection with the Companys plant
expansion. The construction is expected to be completed in 2013 and has remaining
estimated costs to complete of P55,648,048 ($1,310,294) as at December 31, 2012.

20.4 Credit Facilities

As at December 31, 2012, the Company has unused credit facilities with two local banks
amounting to $207,564,575. Also, the Company has continuing surety with related parties
on several credit facilities with a local bank which was fully utilized as at
December 31, 2012. These credit facilities will expire in 2013.

F-313

DRAFT (For Discussion

Purpose Only)

- 35 -

20.5 Others
There are other commitments, litigations and contingent liabilities that arise in the normal
course of the Companys operations which are not reflected in the accompanying financial
statements. As at December 31, 2012, management is of the opinion that losses, if any,
from these commitments and contingencies will not have a material effect on the
Companys financial statements.
21.

CATEGORIES AND FAIR VALUES OF FINANCIAL ASSETS AND

LIABILITIES
The carrying amounts and fair values of the categories of assets and liabilities presented in
the statements of financial position are shown below.
Notes

2011

2012
Carrying
Values

Carrying
Values

Fair
Values

Fair
Values

Financial Assets
Cash and cash equivalents
Trade and
other receivables net

2,060,127 $

2,060,127

5,446,965

5,446,965

7,507,092 $

7,507,092

33,518,645
10,868,962
-

$ 24,062,102 $
9,372,685
1,732,062

24,062,102
9,372,685
1,732,062

4,085,368

4,085,368

10,006,670

10,006,670

364,148

364,148

1,707,339

1,707,339

2,203,548 $

2,203,548

4,619,685

4,619,685

6,823,233 $

6,823,233

33,518,645 $
10,868,962
-

18
11

Financial Liabilities
Current:
Interest-bearing loans
Trade and other payables
Dividends payable
Advances from
related parties
Non-current
Interest-bearing loans

11
12

$ 48,837,123 $

48,837,123

$ 47,122,081 $

47,122,081

See Notes 2.3 and 2.7 for a description of the accounting policies for each category of
financial instrument. A description of the Companys risk management objectives and
policies for financial instruments is provided in Note 4.
The Company has no financial instruments that are carried at fair values in the statement
of financial position as of December 31, 2012 and 2011, hence no fair value hierarchy
disclosure is presented.
22.

CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Companys capital management objectives are:

To ensure the Companys ability to continue as a going concern;

To meet maturing obligation to creditors; and,
To provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk.

F-314

DRAFT (For Discussion

Purpose Only)

- 36 -

The Company monitors capital on the basis of the carrying amount of equity as presented
on the face of the statements of financial position. Capital for the reporting periods under
review is summarized as follows:
2011

2012
Total liabilities
Total equity

49,186,501
20,904,698

$ 47,122,081
18,725,642

2.35

2.52

Debt-to-equity ratio

The Company sets the amount of capital in proportion to its overall financing structure,
i.e., equity and financial liabilities. The Company manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and the risk characteristics
of the underlying assets.
23.

SUPPLEMENTARY INFORMATION ON STATEMENT OF FINANCIAL

POSITION AND COMPREHENSIVE INCOME
The Companys financial statements are presented in U.S. dollars, its functional currency.
The following information, which shows amounts of the Companys statements of
financial position and statements of comprehensive income in Philippine pesos, is
presented for purposes of providing supplementary information to certain users and is not
intended to be a presentation in accordance with PFRS. Under this supplemental
information, transactions denominated in Philippines pesos were presented using the
amounts at the dates of the transactions, while transactions denominated in U.S. dollars
were translated using appropriate exchange rates. Foreign currency gains and losses are
not translated.
Statements of Financial Position
2012

2011

ASSETS
Current assets
Non-current assets

2,194,606,531 P
674,726,869

2,070,893,799
755,014,918

Total Assets

2,869,333,400 P

2,825,908,717

2,011,090,293 P
14,355,250

1,993,892,745
75,000,000

2,025,445,543

2,068,892,745

843,887,857

757,015,972

LIABILITIES AND EQUITY

Current liabilities
Non-current liabilities
Total Liabilities
Equity
Total Liabilities and Equity

F-315

2,869,333,400 P

2,825,908,717

DRAFT (For Discussion

Purpose Only)

- 37 Statements of Comprehensive Income

Revenue net
Cost of goods sold
Other operating expenses
and other charges
Tax expense

P
(

2012

2011

3,793,036,607 P
3,575,252,766) (

3,468,026,827
3,307,175,759 )

93,713,393) (
37,198,563) (

(
(

Net profit

86,871,885 P

118,190,628 )
31,702,294 )
10,958,146

The translation into Philippine pesos should not be construed as a representation that the
U.S. dollar amounts could be converted into Philippine Peso amounts or at any other rates
of exchange.
24.

SUPPLEMENTARY INFORMATION REQUIRED BY THE BUREAU OF

INTERNAL REVENUE
Presented below is the supplementary information which is required by the Bureau of
Internal Revenue (BIR) under its existing revenue regulations to be disclosed as part of
the notes to financial statements. This supplementary information is not a required
disclosure under PFRS.

24.1 Requirements under Revenue Regulations (RR) 15-2010

The information on taxes, duties and license fees paid or accrued during the taxable year
required under RR 15-2010 issued on November 25, 2010 are as follows:
(a) Output VAT
In 2012, the Company declared output VAT as follows:
In Philippine Pesos
Output
Tax Base
VAT
VATable sales
Zero-rated sales
Exempt sales

In U.S. Dollars
Output
Tax Base
VAT

47,847,911 P
3,539,169,480
844,879,945

5,741,740
-

P 4,431,897,336 P

5,741,740

1,133,250 $
83,823,193
20,010,496
104,966,939 $

135,990
135,990

The Companys zero-rated and VAT exempt sales/receipt were determined pursuant to
Section 106A, VAT on Export Sales of Goods or Properties, and Section 109, VAT Exempt
Transactions, of Revenues in the 2012 statement of comprehensive income.
The tax bases are included as part of Sale of Goods and as part of Other Charges, with
respect to other operating income, in the 2012 statement of comprehensive income. The
tax bases for other operating income are based on the Companys gross receipts for the
year, hence, may not be the same with the amounts accrued in the 2012 statement of
comprehensive income.

F-316

- 38 -

DRAFT (For Discussion

Purpose Only)

(a) Input Value-Added Tax

The movements in Input VAT in 2012 are summarized below.
In Philippine
Pesos
Balance at beginning of year
Goods for resale/manufacture
or further processing
Capital goods subject to amortization
Services lodged under cost of goods sold
Claims for tax credit/refund
Applied against output VAT
Foreign currency adjustment

In U.S.
Dollars

P 30,096,474

(
(

Balance at end of year

3,450,628
3,755,406
3,120,188
7,343,674) (
5,741,749 ) (
P 27,337,273

685,132
81,726
88,945
73,900
173,931 )
135,990 )
43,873

663,655

The balance of Input VAT amounting to P27,337,273 ($663,655) as at December 31, 2012
is presented as part of Other Non-current Assets in the 2012 statement of financial
position (see Note 10).
(b) Taxes on Importation
In 2012, the total landed cost of the Companys imported inventory for the use in business
amounted to P3,081,938,799 ($72,993,948). This amount includes customs duties and
tariff fees of P194,521,081 ($4,607,120).
(c) Excise Tax
The Company did not have any transactions in 2012 which are subject to excise tax.
(d) Documentary Stamp Tax (DST)
In 2012, the total DST paid and accrued by the Company on loan instruments amounted
to P7,765,845 ($183,930).
(e) Taxes and Licenses
The details of taxes and licenses for the year 2012 are broken down as follows:
In Philippine
Pesos
DST
Business tax
Real estate tax
Miscellaneous

In U.S.
Dollars

7,765,845
2,422,464
1,718,428
734,208

183,930
57,375
40,700
17,390

12,640,945

299,395

The amounts of taxes and licenses for the year 2012 are presented as part of Taxes and
licenses under Administrative Expenses in the 2012 statement of comprehensive income
(see Note 14).

F-317

- 39 -

DRAFT (For Discussion

Purpose Only)

(f) Withholding Taxes

The details of total withholding taxes for the year ended December 31, 2012
are shown below.
In Philippine
Pesos
Expanded
Compensation and benefits

In U.S.
Dollars

345,334
3,237,682

8,179
76,683

3,583,016

84,862

The Company has no transactions in 2012 which are subject to final tax.
(g) Deficiency Tax Assessment and Tax Cases
As at December 31, 2012, the Company does not have any deficiency tax assessments with
the BIR or tax cases outstanding or pending in courts or bodies outside of the BIR in any
of the open years.

24.2 Requirements under RR 19-2011

RR 19-2011 requires schedules of taxable revenues and other non-operating income,
costs of sales and services, and itemized deductions, to be disclosed in the notes to
financial statements.
The amounts of taxable revenues and income, and deductible costs and expenses
presented below are based on relevant tax regulations issued by the BIR, hence, may not
be the same as the amounts reflected in the 2012 statement of comprehensive income.
(a) Taxable Revenues
The Companys sale of goods for the year ended December 31, 2012 which are subject to
regular tax rate amounted to P3,793,036,607 ($90,072,393).
(b) Deductible Costs of Sales
Deductible costs of sales at regular tax rate for the year ended December 31, 2012
comprises the following:
In Philippine
Pesos
Finished goods at beginning of the year
Cost of goods manufactured
Total goods available for sale
Finished goods at end of year

P
(

549,042,798 $
3,455,451,388
4,004,494,186
430,241,420 ) (

P 3,574,252,766

F-318

In U.S.
Dollars

11,976,360
81,621,821
93,598,181
10,444,781 )
83,153,400

- 40 -

(c)

DRAFT (For Discussion

Purpose Only)

Taxable Non-operating and Other Income

The details of taxable non-operating and other income in 2012 which are subject to regular
tax rate are shown below.
In Philippine
Pesos
Rental income
Others

In U.S.
Dollars

48,851,651
9,023,354

1,092,821
213,713

57,875,005

1,306,534

(d) Itemized Deductions

The amounts of itemized deductions at regular tax rate for the year ended
December 31, 2012 are as follows:
In Philippine
Pesos
Freight and handling
Interest
Other outside services
Salaries and allowances
Taxes and licenses
Depreciation and amortization
Commissions
Communication, light and water
Office supplies
Insurance
Rental
Miscellaneous

F-319

In U.S.
Dollars

47,162,798
33,542,104
20,338,231
13,407,188
12,640,945
8,171,695
1,915,551
658,242
403,049
235,953
208,000
6,900,366

1,117,024
794,425
481,699
317,542
299,395
178,423
45,369
15,590
9,546
5,588
4,926
163,431

P 145,584,122

3,432,958

F-320

F-321

F-322

F-323

F-324

SNOW MOUNTAIN DAIRY CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2013 AND 2012

(With Corresponding Figures as of January 1, 2012)

(Amounts in Philippine Pesos)

December 31,
2012
(As Restated see Note 2)

December 31,
2013

Notes

January 1,
2012
(As Restated see Note 2)

ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables - net
Inventories
Prepayments and other current assets

5
6
7
8

Total Current Assets

NON-CURRENT ASSETS
Property, plant and equipment - net
Post-employment benefit asset
Deferrex tax asset - net
Other non-current assets

9
15
16
10

Total Non-current Assets

TOTAL ASSETS

49,156,818
278,899,837
304,661,051
46,609,648

36,933,115
280,440,109
430,924,704
65,252,136

25,373,381
213,991,953
560,094,395
60,432,337

679,327,354

813,550,064

859,892,066

164,345,799
622,299
3,412,465
42,013,295

22,055,547
42,884,295

31,704,177
42,435,295

210,393,858

64,939,842

74,139,472

889,721,212

878,489,906

934,031,538

159,735,096
215,000,000
7,965,473

334,282,846
278,872,672

317,917,167
415,465,566

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans
Due to related parties

11
12
18

382,700,569

Total Current Liabilities

NON-CURRENT LIABILITY
Post-employment benefit obligation

17
17
2, 15
17

529,133

653,124

382,700,569

613,684,651

734,035,857

500,000,000
4,800 )
7,025,443

40,625,000
195,883,200
956,799 )
29,253,854

40,625,000
150,383,200
1,013,863 )
10,001,344

507,020,643

Net Equity

TOTAL LIABILITIES AND EQUITY

733,382,733

15

Total Liabilities
EQUITY
Capital stock
Deposits for future stock subscriptions
Other reserve
Retained earnings

613,155,518

889,721,212

See Notes to Financial Statements.

F-325

264,805,255

878,489,906

199,995,681

934,031,538

SNOW MOUNTAIN DAIRY CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in Philippine Pesos)

2013

Notes
SALE OF GOODS

18

COST OF GOODS SOLD

13

GROSS PROFIT
OTHER OPERATING EXPENSES (INCOME)
Selling expenses
Marketing expenses
Administrative expenses
Other income

1,556,358,881

333,904,678

300,750,116

128,583,164
111,648,759
35,085,906
14,681 )

131,551,269
119,270,662
23,467,373
128,616 )

13
13
13

16

NET PROFIT

275,303,148

274,160,688

58,601,530

26,589,428

1,531,854

PROFIT BEFORE TAX

OTHER COMPREHENSIVE INCOME

Item that will not be reclassified
subsequently to profit or loss
Remeasurement of post-employment
defined benefits obligation
Deferred tax income

38,089 )

57,069,676

26,627,517

15,298,087

7,375,007

41,771,589

19,252,510

949,942
2,057

15
16

57,064
-

951,999

TOTAL COMPREHENSIVE INCOME

See Notes to Financial Statements.

F-326

1,720,370,574
1,419,620,458

14

TAX EXPENSE

1,222,454,203

OPERATING PROFIT
FINANCE COSTS (INCOME) Net

2012
(As Restated see Note 2)

42,723,588

57,064

19,309,574

SNOW MOUNTAIN DAIRY CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in Philippine Pesos)

Capital Stock

Notes
Balance at January 1, 2013
As previously reported
Prior period adjustments
As restated
Transactions with owners
Issuance of shares during the year
Cash dividend

Deposits for
Future Stock
Subscriptions

40,625,000
40,625,000

Transaction with owner

Conversion of advances from parent
during the year

Total comprehensive income

Net profit for the period
Other comprehensive income for the year
Remeasurement of post-employment
benefits obligation

Balance at December 31, 2012

195,883,200

Retained Earnings

(
(

P
956,799 )
956,799 )

29,434,712
180,858 )
29,253,854

Total

265,942,912
1,137,657 )
264,805,255

263,491,800
64,000,000 )
199,491,800

17

459,375,000

195,883,200 )

15

Balance at December 31, 2013

Balance at January 1, 2012

As previously reported
Prior period adjustments
As restated

195,883,200
-

195,883,200 )

500,000,000

40,625,000

P
-

15

(P

150,383,200
150,383,200

40,625,000

951,999
42,723,588

10,125,138
123,794 )
10,001,344

(P

41,771,589

7,025,443

507,020,643

201,133,338
1,137,657 )
199,995,681

57,064
57,064

195,883,200

41,771,589

See Notes to Financial Statements.

F-327

1,013,863 )
1,013,863 )

41,771,589

4,800 )

(
(

45,500,000
45,500,000

64,000,000 )
64,000,000 )

951,999
951,999

(
(

40,625,000

17

459,375,000

Total comprehensive income

Net profit for the year
Other comprehensive income for the year
Remeasurement of post-employment
benefits obligation, net of tax

Other Reserve

956,799 )

45,500,000
45,500,000

19,252,510

19,252,510

19,252,510

57,064
19,309,574

29,253,854

264,805,255

SNOW MOUNTAIN DAIRY CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in Philippine Pesos)

2013

Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation and amortization
Finance costs
Finance income
Impairment losses
Operating profit before working capital changes
Decrease (increase) in trade and other receivables
Decrease in inventories
Increase in prepayments and other current assets
Increase in post-employment benefit asset
Decrease (increase) in other non-current assets
Increase (decrease) in trade and other payables
Cash generated from operations
Income taxes paid

P
9
14
14
6

2012
(As Restated see Note 2.2)

57,069,676
9,515,021
1,646,343
114,489 )

68,116,551
1,540,271
126,263,653
47,754 )
201,490 )
871,000
174,547,750 )
21,994,481
18,253 )

(
(
(
(

11,919,169
149,281
187,370 )
512,760
39,021,357
45,243,422 )
100,110,346
4,819,799 )
92,183 )
449,000 )
16,365,682
104,892,981
33,159 )

(
(
(
(

21,976,228

Net Cash From Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment
Interest received

Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of interest-bearing loans
Repayments of due to related parties
Repayment of interest-bearing loans
Proceeds from issuance of shares
Advances from related parties
Payment of cash dividend
Interest paid

12
18
12
17
18
17

26,627,517

104,859,822

151,805,272 )
114,489

2,270,539 )
187,370

151,690,783 )

2,083,169 )

540,000,000
527,630,340 )
325,000,000 )
263,491,800
256,723,141
64,000,000 )
1,646,343 )

(
(

(
(

141,938,258

Net Cash From (Used in) Financing Activities

91,092,894 )
124,025 )

91,216,919 )

NET INCREASE IN CASH AND CASH EQUIVALENTS

12,223,703

11,559,734

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR

36,933,115

25,373,381

CASH AND CASH EQUIVALENTS

AT END OF YEAR

49,156,818

Supplemental Information on Non-cash Financing Activities:

1) In 2013, the Company issued to Century Canning Corporation (CCC) 19,588,320 shares of stock, at par value,
which is equivalent to P195,883,200, upon application of the total balance of its deposits for future stock
subscription as full payment for its subscription (see Note 17).
2) In 2012, the Company and CCC agreed to convert portion of the Companys advances from CCC amounting to
P45,500,000 to deposit for future stock subscription (see Note 17).

See Notes to Financial Statements.

F-328

36,933,115

SNOW MOUNTAIN DAIRY CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 and 2012

(Amounts in Philippine Pesos)

1.

CORPORATE INFORMATION
Snow Mountain Dairy Corporation (the Company) was incorporated in the Philippines
and registered with the Philippine Securities and Exchange Commission (SEC) on
February 14, 2001. It started commercial operations in November 2002. The Company
is engaged in producing, canning, freezing, preserving, refining, packing, buying and
selling at wholesale and retail, food products including all kinds of milk and dairy
products, fruits and vegetable juices and other milk or dairy preparations and
by-products.
The Company is a subsidiary of Century Canning Corporation (CCC) until
October 31, 2013 when CCC transferred for a consideration its 100% ownership interest
in the Company to Century Pacific Food, Inc. (CPFI or the new parent company) as part
of the corporate reorganization undertaken by the Century Pacific Group (the Group)
within which CCC is the parent company (see also Note 17.1). CPFI is a newly
incorporated subsidiary of CCC, which is now the Companys ultimate parent company.
CCC is engaged in the manufacture and distribution of canned tuna products for the
Philippine market. CPFI will soon operate as a food manufacturing company.
On January 7, 2014, the Board of Directors resolved to amend the Companys articles of
incorporation due to the change in the address of its registered office, which is also its
principal place of business, from No.48 Amang Rodriguez Avenue, Ignacio Complex,
Manggahan, Pasig City to 32 Arturo Drive, Bagumbayan, Taguig, Metro Manila as part of
the Companys expansion activities (see Note 9). The amendment was accordingly
approved by the SEC on February 26, 2014. The ultimate parent and parent companys
registered office, which is also their principal place of business, is located at Suite 505
Centerpoint Building, Julia Vargas St., Ortigas Center, Pasig City.
The financial statements of the Company for the year ended December 31, 2013
(including the comparatives financial statements for December 31, 2012 and the
corresponding figures as of January 1, 2012) were authorized for issue by the Companys
Board of Directors on March 7, 2014.

F-329

-2-

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these
financial statements are summarized below and in the succeeding pages. The policies
have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards (PFRS)
The financial statements of the Company have been prepared in accordance with
PFRS. PFRS are adopted by the Financial Reporting Standards Council from the
pronouncements issued by the International Accounting Standards Board (IASB).
The financial statements have been prepared using the measurement bases
specified by PFRS for each type of asset, liability, income and expense. The
measurement bases are more fully described in the accounting policies that follow.
(b) Presentation of Financial Statements
The financial statements are presented in accordance with Philippine Accounting
Standards (PAS) 1, Presentation of Financial Statements. The Company presents all items
of income and expenses and other comprehensive income in a single statement of
comprehensive income.
The Company presents a third statement of financial position as at the beginning of
the preceding period when it applies an accounting policy retrospectively, or makes a
retrospective restatement or reclassification of items that has a material effect on the
information in the statement of financial position at the beginning of the preceding
period. The related notes to the third statement of financial position are not
required to be disclosed.
The Companys adoption of PAS 19 (Revised), Employee Benefits, resulted in material
retrospective restatements on certain accounts in the comparative
financial statements for December 31, 2012 and in the corresponding figures as
of January 1, 2012 [see Note 2(a)(ii)]. Accordingly, the Company presents a third
statement of financial position as at January 1, 2012 without the related notes, except
for the disclosures required under PAS 8, Accounting Policies, Changes in Accounting
Estimates and Errors.
(c)

Functional and Presentation Currency

These financial statements are presented in Philippine pesos, the Companys
functional and presentation currency, and all values represent absolute amounts
except when otherwise indicated.
Items included in the financial statements are measured using its functional currency,
the currency of the primary economic environment in which the Company operates.

F-330

-3-

2.2 Adoption of New and Amended PFRS

(a) Effective in 2013 that is Relevant to the Company
In 2013, the Company adopted for the first time the following new, amendments,
revision and improvements to PFRS that are relevant to the Company and effective
for financial statements for the annual periods beginning on or after July 1, 2012 or
January 1, 2013:
PAS 1 (Amendment)

PAS 19 (Revised)
PFRS 7 (Amendment)

:
:

PFRS 13
Annual Improvements

:
:

Financial Statements Presentation

Presentation of Items of Other
Comprehensive Income
Employee Benefits
Financial Instrument: Disclosures
Offsetting Financial Assets and
Financial Liabilities
Fair Value Measurement
Annual Improvements to PFRS
(2009 2011 Cycle)

Discussed below are the relevant information about these new, amended and revised
standards and the corresponding impact in the Companys financial statements.
(i)

PAS 1 (Amendment), Financial Statements Presentation Presentation of Items of

Other Comprehensive Income (effective from July 1, 2012). The amendment
requires an entity to group items presented in other comprehensive income
into those that, in accordance with other PFRS: (a) will not be reclassified
subsequently to profit or loss, and, (b) will be reclassified subsequently to
profit or loss when specific conditions are met. The amendment has been
applied retrospectively, hence, the presentation of other comprehensive
income has been modified to reflect the changes. Management determined
that the amendment did not significantly affect the financial statements as its
other comprehensive income is only comprised of actuarial gains and losses
on post-employment defined benefit obligation, an item which is not
reclassified subsequently to profit or loss.

(ii)

PAS 19 (Revised 2011), Employee Benefits (effective from January 1, 2013). The
revision made a number of changes as part of the improvements throughout
the standard. The main changes relate to defined benefit plans as follows:
eliminates the corridor approach and requires the recognition of
remeasurements (including actuarial gains and losses) arising in the
reporting period in other comprehensive income;
changes the measurement and presentation of certain components of the
defined benefit cost. The net amount in profit or loss is affected by the
removal of the expected return on plan assets and interest cost
components and their replacement by a net interest expense or income
based on the net defined benefit liability or asset; and,
enhances disclosure requirements, including information about the
characteristics of defined benefit plans and the risks that entities are
exposed to through participation in those plans.
F-331

-4-

The Company has applied PAS 19 (Revised) retrospectively in accordance with

its transitional provision. Consequently, it restated the previous years
presented. An analysis of the effect of the adjustments on the specific assets,
liabilities, and equity components affected is presented below.
As Previously
Reported

Prior Period
Adjustment

As Restated

December 31, 2012

Change in asset and liability:

Post-employment benefit asset
Post-employment benefit
obligation

608,524 ( P
(

608,524 )

529,133 ) (

529,133 )

( P

Total decrease in equity

Changes in equity:
Retained earnings
Other reserve

29,434,712 ( P
(
( P

Total decrease in equity

1,137,657 )

180,858 ) P
956,799 ) (

29,253,854
956,799 )

1,137,657 )

January 1, 2012

Change in asset and liability:

Post-employment benefit asset
Post-employment
benefit obligation

484,533 ( P
-

( P

Total decrease in equity

Changes in equity:
Retained earnings
Other reserve

10,125,138 ( P
(
-

( P

Total decrease in equity

484,533 )

653,124 ) (

653,124 )

1,137,657 )

123,794 ) P
1,013,863 ) (

10,001,344
1,013,863 )

1,137,657 )

The effect of the prior period adjustments arising from the adoption of PAS 19
(Revised) on certain line items of the statements of comprehensive income and
statements of cash flows for the year ended December 31, 2012 is not material;
accordingly, the analyses were no longer presented.

F-332

-5-

(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures Offsetting Financial Assets

and Financial Liabilities (effective from January 1, 2013). The amendment requires
qualitative and quantitative disclosures relating to gross and net amounts of
recognized financial instruments that are set-off in accordance with PAS 32,
Financial Instruments: Presentation. The amendment also requires disclosure of
information about recognized financial instruments which are subject to
enforceable master netting arrangements or similar agreements, even if they are
not set-off in the statement of financial position, including those which do not
meet some or all of the offsetting criteria under PAS 32 and amounts related to a
financial collateral. These disclosures will allow financial statement users to
evaluate the effect or potential effect of netting arrangements, including rights of
set-off associated with recognized financial assets and financial liabilities on the
entitys financial position. This amendment did not have a significant impact on
the Companys financial statements as the Company has no and does not expect
to have offsetting arrangements (see Note 20).
(iv)

PFRS 13, Fair Value Measurement (effective from January 1, 2013). This new
standard clarifies the definition of fair value and provides guidance and enhanced
disclosures about fair value measurements. The requirements under the this
standard do not extend the use of fair value accounting but provide guidance on
how it should be applied to both financial instrument items and non-financial
items for which other PFRS require or permit fair value measurements or
disclosures about fair value measurements, except in certain circumstances. The
amendment applies prospectively from annual periods beginning January 1, 2013;
hence, disclosure requirements need not be resented in the comparative
information in the first year of application.
Other than the additional disclosures presented in Note 21, the application of
this new standard had no significant impact in the amounts recognized in the
financial statements.

(v) 2009-2011 Annual Improvements to PFRS. Annual improvements to PFRS

(2009-2011 Cycle) made minor amendments to a number of PFRS, which are
effective for annual periods beginning on or after January 1, 2013. Among those
improvements, the following amendments are relevant to the Company:
(a) PAS 1 (Amendment), Presentation of Financial Statements Clarification of the
Requirements for Comparative Information. The amendment clarifies that a
statement of financial position as at the beginning of the preceding period
(third statement of financial position) is required when an entity applies an
accounting policy retrospectively, or makes a retrospective restatement or
reclassification of items that has a material effect on the information in the
third statement of financial position. The amendment specifies that other
than disclosure of certain specified information in accordance with PAS 8,
Accounting Policies, Changes in Accounting Estimates and Errors, related notes to
the third statement of financial position are not required to be presented.
Consequent to the Companys adoption of PAS 19 (Revised) in the
current year, which resulted in retrospective restatement of the prior years
financial statements, the Company has presented a third statement of
financial position as at January 1, 2012 without the related notes, except
for the disclosure requirements of PAS 8, as allowed under this
amendment to PAS 1.

F-333

-6-

(b) PAS 16 (Amendment), Property, Plant and Equipment Classification of

Servicing Equipment. The amendment addresses a perceived inconsistency
in the classification requirements for servicing equipment which resulted
in classifying servicing equipment as part of inventory when it is used for
more than one period. It clarifies that items such as spare parts, stand-by
equipment and servicing equipment shall be recognized as property, plant
and equipment when they meet the definition of property, plant and
equipment, otherwise, these are classified as inventory. This amendment
has no significant effect on the financial statements since the Company
has already been applying the classification requirements of this
amendment for the abovementioned spare parts and equipment in
accordance with the recognition criteria under PAS 16.
(c) PAS 32 (Amendment), Financial Instruments : Presentation Tax Effect of
Distributions to Holders of Equity Instruments. The amendment clarifies that
the consequences of income tax relating to distributions to holders of an
equity instrument and to transaction costs of an equity transaction shall be
accounted for in accordance with PAS 12. Accordingly, income tax
relating to distributions to holders of an equity instrument is recognized in
profit or loss while income tax related to the transaction costs of an equity
transaction is recognized in equity. The adoption of this amendment did
not have an impact on the Companys financial statements as the
Companys accounting policy on tax effect of transactions involving
equity instruments is in accordance with the amendment.
(b) Effective in 2013 that are not Relevant to the Company
The following new PFRS, amendments and annual improvements to existing
standards are mandatory for accounting periods beginning on after January 1, 2013
but are not relevant to the Companys financial statements:
PAS 27 (Amendment)
PAS 28 (Amendment)

:
:

PFRS 1 (Amendment)

PFRS 10
PFRS 11
PFRS 12

:
:
:

PFRS 10, 11 and PFRS 12

(Amendment)

Philippine Interpretation
International Financial
Reporting Interpretations
Committee 20
:

F-334

Separate Financial Statements

Investment in Associate and Joint
Venture
First-time Adoption of PFRS
Government Loans
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other
Entities
Amendments to PFRS 10, 11 and 12
Transition Guidance to
PFRS 10, 11 and 12

Stripping Costs in the Production

Phase of a Surface Mine

-7-

Annual Improvements
2009-2011 Cycle
PFRS 1 (Amendment)

PAS 34 (Amendment)

First-time Adoption of PFRS

Repeated Application of PFRS 1
and Borrowing Cost
Interim Financial Reporting Interim
Financial Reporting and
Segment Information for Total
Assets and Liabilities

(c) Effective Subsequent to 2013 but not Adopted Early

There are new PFRS, amendments and annual improvements to existing standards
that are effective for periods subsequent to 2013. Management has initially
determined the following pronouncements, which the Company will apply in
accordance with their transitional provisions, to be relevant to its financial
statements:
(i)

PAS 19 (Amendment), Employee Benefits Defined Benefit Plans Employee

Contributions (effective from January 1, 2014). The amendment clarifies that if
the amount of the contributions from employees or third parties is dependent
on the number of years of service, an entity shall attribute the contributions to
periods of service using the same attribution method (i.e., either using the
plans contribution formula or on a straight-line basis) for the gross benefit.
Management has initially determined that this amendment will have no impact
on the Companys financial statements.

(ii) PAS 32 (Amendment), Financial Instruments: Presentation Offsetting Financial

Assets and Financial Liabilities (effective from January 1, 2014). The
amendment provides guidance to address inconsistencies in applying the
criteria for offsetting financial assets and financial liabilities. It clarifies that a
right of set-off is required to be legally enforceable, in the normal course of
business; in the event of default; and in the event of insolvency or bankruptcy
of the entity and all of the counterparties. The amendment also clarifies the
principle behind net settlement and provided characteristics of a gross
settlement system that would satisfy the criterion for net settlement. The
Company does not expect this amendment to have a significant impact on its
financial statements.
(iii) PAS 36 (Amendment), Impairment of Assets Recoverable Amount Disclosures for
Non-financial Assets (effective from January 1, 2014). The amendment clarifies
that the requirements for the disclosure of information about the recoverable
amount of assets or cash-generating units is limited only to the recoverable
amount of impaired assets that is based on fair value less cost of disposal. It
also introduces an explicit requirement to disclose the discount rate used in
determining impairment (or reversals) where recoverable amount based on
fair value less cost of disposal is determined using a present value technique.
Management will reflect in its subsequent years financial statements the
changes arising from this relief on disclosure requirements.

F-335

-8-

(iv) PAS 39 (Amendment), Financial Instruments: Recognition and

Measurement Novation of Derivatives and Continuation of Hedge Accounting
(effective January 1, 2014). The amendment provides some relief from the
requirements on hedge accounting by allowing entities to continue the use of
hedge accounting when a derivative is novated to a clearing counterparty
resulting in termination or expiration of the original hedging instrument as a
consequence of laws and regulations, or the introduction thereof. As the
Company neither enters into transactions involving derivative instruments nor
it applies hedge accounting, the amendment will not have any impact on the
financial statements.
(v) PFRS 9, Financial Instruments: Classification and Measurement. This is the first part
of a new standard on financial instruments that will replace PAS 39, Financial
Instruments: Recognition and Measurement, in its entirety. The first phase of the
standard was issued on November 2009 and October 2010 and contains new
requirements and guidance for the classification, measurement and
recognition of financial assets and financial liabilities. It requires financial
assets to be classified into two measurement categories: amortized cost or fair
value. Debt instruments that are held within a business model whose
objective is to collect the contractual cash flows that represent solely
payments of principal and interest on the principal outstanding are generally
measured at amortized cost. All other debt instruments and equity
instruments are measured at fair value. In addition, PFRS 9 allows entities to
make an irrevocable election to present subsequent changes in the fair value
of an equity instrument that is not held for trading in other comprehensive
income.
The accounting for embedded derivatives in host contracts that are financial
assets is simplified by removing the requirement to consider whether or not
they are closely related, and, in most arrangement, does not require separation
from the host contract.
For liabilities, the standard retains most of the PAS 39 requirements which
include amortized cost accounting for most financial liabilities, with
bifurcation of embedded derivatives. The main change is that, in case where
the fair value option is taken for financial liabilities, the part of a fair value
change due to the liabilitys credit risk is recognized in other comprehensive
income rather than in profit or loss, unless this creates an accounting
mismatch.
In November 2013, the IASB has published amendments to International
Financial Reporting Standard (IFRS) 9 that contain new chapter and model
on hedge accounting that provides significant improvements principally by
aligning hedge accounting more closely with the risk management activities
undertaken by entities when hedging their financial and non-financial risk
exposures. The amendment also now requires changes in the fair value of an
entitys own debt instruments caused by changes in its own credit quality to be
recognized in other comprehensive income rather in profit or loss. It also
includes the removal of the January 1, 2015 mandatory effective date of
IFRS 9.

F-336

-9-

To date, the remaining chapter of IFRS 9 and PFRS 9 dealing with

impairment methodology is still being completed. Further, the IASB is
currently discussing some limited modifications to address certain application
issues regarding classification of financial assets and to provide other
considerations in determining business model.
The Company does not expect to implement and adopt PFRS 9 until its
effective date. In addition, management is currently assessing the impact of
PFRS 9 on the financial statements of the Company and it plans to conduct a
comprehensive study of the potential impact of this standard prior to its
mandatory adoption date to assess the impact of all changes.
(vi) Annual Improvements to PFRS. Annual improvements to PFRS (2010-2012
Cycle) and PFRS (2011-2013 Cycle) made minor amendments to a number of
PFRS, which are effective for annual periods beginning on or after
July 1, 2014. Among those improvements, the following amendments are
relevant to the Company but management does not expect a material impact
on the Companys financial statements:
Annual Improvements to PFRS (2010-2012 Cycle)
(a) PAS 16 (Amendment), Property, Plant and Equipment and PAS 38
(Amendment), Intangible Assets. The amendments clarify that when an
item of property, plant and equipment, and intangible assets is revalued,
the gross carrying amount is adjusted in a manner that is consistent with
a revaluation of the carrying amount of the asset.
(b) PAS 24 (Amendment), Related Party Disclosures. The amendment clarifies
that entity providing key management services to a reporting entity is
deemed to be a related party of the latter. It also requires and clarifies
that the amounts incurred by the reporting entity for key management
personnel services that are provided by a separate management entity
should be disclosed in the financial statements, and not the amounts of
compensation paid or payable by the key management entity to its
employees or directors.
(c) PFRS 13 (Amendment), Fair Value Measurement. The amendment,
through a revision only in the basis of conclusion of PFRS 13, clarifies
that issuing PFRS 13 and amending certain provisions of PFRS 9 and
PAS 39 related to discounting of financial instruments, did not remove
the ability to measure short-term receivables and payables with no stated
interest rate on an undiscounted basis, when the effect of not discounting
is immaterial.
Annual Improvement to PFRS (2011-2013 Cycle)
PFRS 13 (Amendment), Fair Value Measurement. The amendment clarifies that
the scope of the exception for measuring the fair value of a group of financial
assets and financial liabilities on a net basis (the portfolio exception) applies to
all contracts within the scope of, and accounted for in accordance with,
PAS 39 or PFRS 9, regardless of whether they meet the definitions of
financial assets or financial liabilities as defined in PAS 32.

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2.3 Financial Assets

Financial assets are recognized when the Company becomes a party to the contractual
terms of the financial instrument. Financial assets other than those designated and
effective as hedging instruments are classified into the following categories: financial
assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity
investments and available-for-sale financial assets. Financial assets are assigned to the
different categories by management on initial recognition, depending on the purpose for
which the investments were acquired.
Regular purchases and sales of financial assets are recognized on their trade date. All
financial assets that are not classified as at FVTPL are initially recognized at fair value
plus any directly attributable transaction costs. Financial assets carried at FVTPL are
initially recorded at fair value and related transaction costs that are recognized in profit or
loss.
The financial assets category that is relevant to the Company is loans and receivables.
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise when the Company
provides money, goods or services directly to a debtor with no intention of trading the
receivables. They are included in current assets, except for maturities greater than
12 months after the end of the reporting period which are classified as non-current assets.
Loans and receivables are subsequently measured at amortized cost using the effective
interest method, less impairment loss, if any. Impairment loss is provided when there is
objective evidence that the Company will not be able to collect all amounts due to it in
accordance with the original terms of the receivables. The amount of the impairment
loss is determined as the difference between the assets carrying amount and the present
value of estimated cash flows (excluding future credit losses that have not been incurred),
discounted at the financial assets original effective interest rate or current effective
interest rate determined under the contract if the loan has a variable interest rate.
The Companys financial assets categorized as loans and receivables are presented as
Cash and Cash Equivalents, Trade and Other Receivables (except deposit on purchases)
and as part of Other Non-current Assets, with respect to security deposits included
therein, in the statement of financial position. Cash and cash equivalents include cash on
hand, demand deposits and short-term, highly liquid investments with original maturities
of three months or less, readily convertible to known amounts of cash and which are
subject to insignificant risk of changes in value.
All income and expenses, excluding those that relate to operating activities, relating to
financial assets that are recognized in profit or loss in the statement of comprehensive
income.
Non-compounding interest, and other cash flows resulting from holding financial assets
are recognized in profit or loss when earned, regardless of how the related carrying
amount of financial assets is measured.
Derecognition of financial assets occurs when the rights to receive cash flows from the
financial instruments expire or are transferred and substantially all of the risks and
rewards of ownership have been transferred to another party.

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2.4 Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined
using the first-in, first-out method. Finished goods and work-in-process include the cost
of raw materials, direct labor and a proportion of manufacturing overhead based on
normal operating capacity. The cost of raw materials include all costs directly attributable
to acquisitions, such as the purchase price, import duties and other taxes that are not
subsequently recoverable from taxing authorities.
Net realizable value is the estimated selling price in the ordinary course of business, less
the estimated costs of completion and the estimated costs necessary to make the sale.
Net realizable value of raw materials is the current replacement cost.

2.5 Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and
amortization and any impairment in value.
The cost of an asset comprises its purchase price and directly attributable costs of
bringing the asset to working condition for its intended use. Expenditures for additions,
major improvements and renewals are capitalized; expenditures for repairs and
maintenance are charged to expense as incurred.
Depreciation is computed on a straight-line basis over the estimated useful lives of the
assets as follows:

Plant, machinery and equipment

Laboratory tools and equipment

2 to 10 years
1 to 10 years

Leasehold improvements are amortized over the term of the lease or the useful lives of
the assets of 1 to 10 years, whichever is shorter.
Construction-in-progress represents properties undergoing construction. It is stated at
cost which includes cost of construction, applicable borrowing costs (see Note 2.15) and
other direct costs. This account is not depreciated until such time that the assets are
completed and available for use.
Fully depreciated assets are retained in the accounts until these are no longer in use. No
further charge for depreciation is made in respect of those accounts.
An assets carrying amount is written down immediately to its recoverable amount if the
assets carrying amount is greater than its estimated recoverable amount (see Note 2.13).
The residual values and estimated useful lives of property, plant and equipment are
reviewed, and adjusted if appropriate, at the end of each reporting period.
An item of property, plant and equipment, including related accumulated depreciation
and amortization and impairment losses, if any, is derecognized upon disposal or when
no future economic benefits are expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the item) is included in the
statement of comprehensive income in the period the item is derecognized.

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2.6 Prepayments and Other Assets

Prepayment and other assets pertain to the other resources controlled by the Company as
a result of past events. They are recognized in the financial statements when it is
probable that the future economic benefits will flow to the entity and the asset has a cost
or value that can be measured reliably.
Other recognized assets of similar nature, where future economic benefits are expected
to flow to the Company beyond one year after the end of the reporting period (or in the
normal operating cycle of the business, if longer), are classified as non-current assets.

2.7 Trademarks
The cost of trademarks is the amount of cash or cash equivalents paid or the fair value of
the other considerations given up to acquire the trademark. The Companys trademark is
not amortized but tested for impairment annually [see Notes 2.13 and 3.1(a)].

2.8 Financial Liabilities

Financial liabilities of the Company include trade and other payables (except tax-related
liabilities) and due to related parties which are recognized when the Company becomes a
party to the contractual terms of the instrument. All interest-related charges incurred on
a financial liability that relates to financing activities are recognized as an expense in profit
or loss under the caption Finance Costs (Income) net in the statement of
comprehensive income.
Financial liabilities are recognized initially at their fair value and subsequently measured at
amortized cost, using effective interest method for maturities of more than one year, less
settlement payments.
Financial liabilities are classified as current liabilities if payment is due to be settled within
one year or less after the end of the reporting period (or in the normal operating cycle of
the business, if longer), or the Company does not have an unconditional right to defer
settlement of liability for at least 12 months after the end of the reporting period.
Otherwise, these are presented as non-current liabilities.
Financial liabilities are derecognized from the statement of financial position only when
the obligations are extinguished either through discharge, cancellation or expiration. The
difference between the carrying amount of the financial liability derecognized and the
consideration paid or payable is recognized in profit or loss.

2.9 Offsetting Financial Instruments

Financial assets and liabilities are offset and the resulting net amount is reported in the
statement of financial position when there is a legally enforceable right to set off the
recognized amounts and there is an intention to settle on a net basis, or realize the asset
and settle the liability simultaneously.

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2.10 Provisions and Contingencies

Provisions are recognized when present obligations will probably lead to an outflow of
economic resources and they can be estimated reliably even if the timing or amount of
the outflow may still be uncertain. A present obligation arises from the presence of a
legal or constructive obligation that has resulted from past events.
Provisions are measured at the estimated expenditure required to settle the present
obligation, based on the most reliable evidence available at the end of the reporting
period, including the risks and uncertainties associated with the present obligation.
Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole.
When time value of money is material, long-term provisions are discounted to their
present values using a pretax rate that reflects market assessments and the risks specific to
the obligation. The increase in the provision due to passage of time is recognized as
interest expense. The provisions are reviewed at the end of each reporting period and
adjusted to reflect the current best estimate.
In those cases where the possible outflow of economic resource as a result of present
obligations is considered improbable or remote, or the amount to be provided for cannot
be measured reliably, no liability is recognized in the financial statements. Similarly,
possible inflows of economic benefits to the Company that do not yet meet the
recognition criteria of an asset are considered contingent assets, hence, are not recognized
in the financial statements. On the other hand, any reimbursement that the Company
can be virtually certain to collect from a third party with respect to the obligation is
recognized as a separate asset not exceeding the amount of the related provision.

2.11 Revenue and Expense Recognition

Revenue comprises of revenue from the sale of goods measured by reference to the fair
value of consideration received or receivable by the Company for goods sold excluding
value-added tax (VAT) and any trade discounts.
Revenue is recognized to the extent that the revenue can be reliably measured; it is
probable that the economic benefits will flow to the Company; and the costs incurred or
to be incurred can be measured reliably. In addition, the following specific recognition
criteria must also be met before revenue is recognized:
(a) Sale of goods Revenue is recognized when the risks and rewards of ownership of the
goods have passed to the buyer, i.e. generally when the customer has acknowledged
delivery of goods.
(b) Interest income Recognized as the interest accrues taking into account the effective
yield on the asset.
Costs and expenses are recognized in profit or loss upon receipt of goods, utilization of
services or at the date they are incurred. All finance costs are reported in profit or loss on
an accrual basis, except capitalized borrowing costs which are included as part of the cost
of the related qualifying asset (see Note 2.15).

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2.12 Leases Company as Lessee

Leases which do not transfer to the Company substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Operating lease payments are
recognized as expense in the statement of comprehensive income on a straight-line basis
over the lease term. Associated costs, such as repairs and maintenance and insurance, are
expensed as incurred.
The Company determines whether an arrangement is, or contains, a lease based on the
substance of the arrangement. It makes an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset.

2.13 Impairment of Non-financial Assets

The Companys trademarks, having an indefinite useful life, are tested for impairment
annually. Property, plant and equipment and other non-financial assets are tested for
impairment whenever events or changes in circumstances indicate that the carrying
amount of those assets may not be recoverable.
For purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating unit). As a result, assets are
tested for impairment either individually or at the cash-generating unit level.
Impairment loss is recognized for the amount by which the assets or cash-generating
units carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of fair value, reflecting market conditions less costs to sell, and value in use, based
on an internal evaluation of discounted cash flow. Impairment loss is charged pro-rata to
other assets in the cash-generating unit.
All assets are subsequently reassessed for indications that an impairment loss previously
recognized may no longer exist. An impairment loss is reversed if the assets or cash
generating units recoverable amount exceeds its carrying amount.

2.14 Employee Benefits

(a) Defined Benefit Plan
The Company provides post-employment benefits to employees through a defined
benefit plan.
A defined benefit plan is a post-employment plan that defines an amount of
post-employment benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and salary. The legal
obligation for any benefits from this kind of post-employment plan remains with the
Company, even if plan assets for funding the defined benefit plan have been
acquired. Plan assets may include assets specifically designated to a long-term
benefit fund, as well as qualifying insurance policies. The Companys defined benefit
post-employment plan covers all regular full-time employees. The pension plan is
tax-qualified, non-contributory and administered by a trustee.

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The liability recognized in the statement of financial position for a defined benefit
plan is the present value of the defined benefit obligation (DBO) at the end of the
reporting period less the fair value of plan assets. The DBO is calculated every other
year by independent actuaries using the projected unit credit method. The present
value of the DBO is determined by discounting the estimated future cash outflows
using a discount rate derived from the interest rate of a zero coupon government
bonds as published by Philippine Dealing and Exchange Corporation that are
denominated in the currency in which the benefits will be paid and that have terms
of maturity approximating to the terms of the related post-employment liability.
Remeasurements, comprising of actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions and the return on plan assets
(excluding amount included in net interest) are reflected immediately in the
statement of financial position with a charge or credit recognized in other
comprehensive income in the period in which they arise. Net interest is calculated
by applying the discount rate at the beginning of the period, taking account of any
changes in the net defined benefit liability or asset during the period as a result of
contributions and benefit payments. Net interest is reported as part of Finance
Costs (Income) net account in the statement of profit or loss.
Past-service costs are recognized immediately in profit or loss in the period of any
plan amendment.
(b) Termination Benefits
Termination benefits are payable when employment is terminated by the Company
before the normal retirement date, or whenever an employee accepts voluntary
redundancy in exchange for these benefits. The Company recognizes termination
benefits at the earlier of when it can no longer withdraw the offer of such benefits
and when it recognizes costs for a restructuring that is within the scope of
PAS 37, Provision, Contingent Liabilities and Contingent Assets, and involves the payment
of termination benefits. In the case of an offer made to encourage voluntary
redundancy, the termination benefits are measured based on the number of
employees expected to accept the offer. Benefits falling due more than 12 months
after the reporting period are discounted to their present value.
(c) Compensated Absences
Compensated absences are recognized for the number of paid leave days
(including holiday entitlement) remaining at the end of the reporting period. They
are included in the Trade and Other Payables account in the statement of financial
position at the undiscounted amount that the Company expects to pay as a result of
the unused entitlement.

2.15 Borrowing Costs

Borrowing costs are recognized as expense in the period in which they are incurred,
except to the extent that they are capitalized. Borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying asset
(i.e., an asset that takes a substantial period of time to get ready for its intended use or
sale) are capitalized as part of the cost of such asset. The capitalization of borrowing
costs commences when expenditures for the asset and borrowing costs are being
incurred and activities that are necessary to prepare the asset for its intended use or sale
are in progress. Capitalization ceases when substantially all such activities are complete.
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Investment income earned on the temporary investment of specific borrowings pending

their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalization.

2.16 Foreign Currency Transactions and Translation

The accounting records of the Company are maintained in Philippine pesos. Foreign
currency transactions during the period are translated into the functional currency at
exchange rates which approximate those prevailing on transaction dates.
Foreign currency gains and losses resulting from the settlement of such transactions and
from the translation at period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the statement of comprehensive
income as part of profit or loss from operations.

2.17 Income Taxes

Tax expense recognized in profit or loss comprises the sum of deferred tax and current
tax not recognized in other comprehensive income or directly in equity, if any.
Current tax assets or liabilities comprise those claims from, or obligations to, fiscal
authorities relating to the current or prior reporting period, that are uncollected or unpaid
at the end of the reporting period. They are calculated using the tax rates and tax laws
applicable to the fiscal periods to which they relate, based on the taxable profit for the
period. All changes to current tax assets or liabilities are recognized as a component of
tax expense in profit or loss.
Deferred tax is accounted for using the liability method, on temporary differences at the
end of the reporting period between the tax base of assets and liabilities and their
carrying amounts for financial reporting purposes. Under the liability method, with
certain exceptions, deferred tax liabilities are recognized for all taxable temporary
differences and deferred tax assets are recognized for all deductible temporary differences
and the carryforward of unused tax losses and unused tax credits to the extent that it is
probable that taxable profit will be available against which the deductible temporary
differences can be utilized. Unrecognized deferred tax assets are reassessed at the end of
each reporting period and are recognized to the extent that it has become probable that
future taxable profit will be available to allow such deferred tax assets to be recovered.
The carrying amount of deferred tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
to in the period when the asset is realized or the liability is settled provided such tax rates
have been enacted or substantively enacted at the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that
would follow from the manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Most changes in deferred tax assets or liabilities are recognized as a component of tax
expense in profit or loss, except to the extent that it relates to items recognized in other
comprehensive income or directly in equity. In this case, the tax is also recognized in
other comprehensive income or directly in equity, respectively.
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Deferred tax assets and deferred tax liabilities are offset if the Company has a legally
enforceable right to set off current tax assets against current tax liabilities and the
deferred taxes related to the same entity and the same taxation authority.
The Company establishes liabilities for probable and estimable assessments by the Bureau
of Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent
a reasonable provision for taxes ultimately expected to be paid and may need to be
adjusted over time as more information becomes available.

2.18 Related Party Relationships and Transactions

Related party transactions are transfer of resources, services or obligations between the
Company and its related parties, regardless whether a price is charged.
Parties are considered to be related if one party has the ability to control the other party
or exercise significant influence over the other party in making financial and operating
decisions. These parties include: (a) individuals owning, directly or indirectly through one
or more intermediaries, control or are controlled by, or under common control with the
Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the Company that gives them significant influence over the Company
and close members of the family of any such individual; and, (d) the Companys
retirement plan.
In considering each possible related party relationship, attention is directed to the
substance of the relationship and not merely on the legal form.

2.19 Equity
Capital stock represents the nominal value of shares that have been issued.
Deposits for future stock subscriptions represent deposits from the parent company as
payment for future subscriptions.
Other reserve represents actuarial gains and losses arising from the remeasurements of
the Companys net post-employment defined benefit obligation (asset) [see Note 2(a)(ii)].
Retained earnings represent all current and prior period results of operations as reported
in the profit or loss section of the statement of comprehensive income reduced by the
amounts of dividend declared.

2.20 Events After the End of the Reporting Period

Any post-period-end event that provides additional information about the Companys
financial position at the end of the reporting period (adjusting event) is reflected in the
financial statements. Post-period-end events that are not adjusting events, if any, are
disclosed when material to the financial statements.

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3.

SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Companys financial statements prepared in accordance with PFRS require
management to make judgments and estimates that affect amounts reported in the
financial statements and related notes. Judgments and estimates are continually evaluated
and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. Actual results may
ultimately differ from these estimates.

3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Companys accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the financial statements:
(a) Determining the Useful Lives of Trademark
Under the Intellectual Property Code of the Philippines, the legal life of trademark is
10 years and may be perpetually renewed thereafter for another 10 years. However,
considering that the management does not expect any circumstances or events
which will cause it to decide not to renew its trademarks every 10 years, management
has taken the position that the useful lives of its trademarks are indefinite; hence the
related costs are not amortized but subjected to annual impairment testing
(see Notes 2.7 and 2.13). Changes in assumption and circumstances in the future
will substantially affect the financial statements of the Company, particularly the
carrying value of such asset.
No impairment loss on trademark was recognized in both periods based on
management evaluation. The carrying value of the Companys trademark as at
December 31, 2013 and 2012 is presented in Note 10.
(b) Distinction between Operating and Finance Leases
The Company has entered into various lease agreements as a lessee. Judgment was
exercised by management to distinguish each lease agreement as either an operating
or finance lease by looking at the transfer or retention of significant risk and rewards
of ownership of the properties covered by the agreements. Failure to make the right
judgment will result in either overstatement or understatement of assets and
liabilities. Based on managements judgment such leases were determined to be
operating leases.
(c) Recognition of Provisions and Contingencies
Judgment is exercised by management to distinguish between provisions and
contingencies. Accounting policies on recognition of provisions and contingencies
are discussed in Notes 2.10 and disclosure on relevant provision and contingencies
are presented in Note 19.

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3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial period:
(a) Impairment of Trade and Other Receivables
Adequate amount of allowance is made for specific and groups of accounts, where
objective evidence of impairment exists. The Company evaluates these accounts
based on available facts and circumstances, including, but not limited to, the length
of the Companys relationship with the customers, the customers current credit
status based on known market forces, average age of accounts, collection experience
and historical loss experience.
Based on the analysis done by management, certain receivables were identified to be
impaired and have been provided with adequate allowance for impairment. The
carrying value of trade and other receivables and the analysis of allowance for
impairment on such financial assets are shown in Note 6.
(b) Determining Net Realizable Value of Inventories
In determining the net selling prices of inventories, management takes into account
the most reliable evidence available at the times the estimates are made. It also takes
into consideration the obsolescence of the inventory in determining net realizable
value. The future realization of the carrying amounts of inventories as disclosed in
Note 7 is affected by price changes in different market segments. These aspects are
considered key sources of estimation uncertainty and may cause significant
adjustments to the Companys inventories within the next financial period.
Impairment loss on inventory amounting to P4.5 million relating to expired
inventories that were written down to net realizable value is recognized in 2013
(see Note 7). No similar writedown on inventories was made in 2012.
(c)

Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment based on
the period over which the assets are expected to be available for use. The estimated
useful lives of property, plant and equipment are reviewed periodically and are
updated if expectations differ from previous estimates due to physical wear and tear,
technical or commercial obsolescence and legal or other limits on the use of the
assets.
The carrying amounts of property, plant and equipment are analyzed in Note 9.
Based on managements assessment as at December 31, 2013 and 2012, there is no
change in estimated useful lives of property, plant and equipment during those
periods. Actual results, however, may vary due to changes in estimates brought
about by changes in factors mentioned above.

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(d) Determining Realizable Amount of Deferred Tax Assets

The Company reviews its deferred tax assets at the end of each reporting period and
reduces the carrying amount to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be
utilized. Management assessed that the deferred tax assets recognized as of
December 31, 2013 will be fully utilized in the coming years.
The details of deferred tax assets as of December 31, 2013 are disclosed in Note 16.
(e)

Impairment of Non-financial Assets

Except for trademarks with indefinite useful lives which are reviewed for
impairment annually or regularly, PFRS requires that an impairment review be
performed when certain impairment indicators are present. The Companys policy
on estimating the impairment of non-financial assets is discussed in detail in
Note 2.13. Though management believes that the assumptions used in the
estimation of fair values reflected in the financial statements are appropriate and
reasonable, significant changes in these assumptions may materially affect the
assessment of recoverable values and any resulting impairment loss could have a
material adverse effect on the results of operations.
No impairment loss on non-financial assets was recognized in 2013 and 2012.

(f)

Valuation of Post-employment Defined Benefit

The determination of the Companys obligation and cost of post-employment
defined benefit are dependent on the selection of certain assumptions used by
actuaries in calculating such amounts. Those assumptions include, among others,
discount rates and salary increase rates. In accordance with PFRS, actual results that
differ from the assumptions are accumulated and amortized over future periods and,
therefore, generally affect the recognized expense and recorded obligation in such
future periods.
The amount of post-employment benefit obligation (asset), related expense and an
analysis of the movements in the estimated present value of post-employment
benefit obligation and fair value of plan asset are presented in Note 15.2.

4.

RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company is exposed to certain financial risks in relation to financial instruments.
The Companys financial assets and liabilities by category are summarized in Note 20.
The main types of risks are market risk, credit risk and liquidity risk.
The Companys risk management is coordinated with its Board of Directors (BOD), and
focuses on actively securing the Companys short to medium-term cash flows by
minimizing the exposure to financial markets.

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The Company does not engage in the trading of financial assets for speculative purposes
nor does it write options. The most significant financial risks to which the Company is
exposed to are described below.

4.1 Credit Risk

Credit risk is the risk that a counterparty may fail to discharge an obligation to the
Company. The Company is exposed to this risk for various financial instruments arising
from selling goods to customers, including related parties, providing security deposits to
lessors, and placing deposits with banks.
The Company continuously monitors defaults of customers and other counterparties,
identified either individually or by group, and incorporate this information into its credit
risk controls. The Companys policy is to deal only with creditworthy counterparties.
Generally, the maximum credit risk exposure of financial assets is the carrying amount of
the financial assets as shown on the statements of financial position (or in detailed
analysis provided in the notes to the financial statements), as summarized below.
Notes

Cash and cash equivalents

Trade and
other receivables net
Security deposits

2012

2013

6
10

42,985,172

246,999,008
1,780,295

258,579,504
1,780,295

303,344,971

36,424,315

285,203,618

None of the Companys financial assets are secured by collateral or other credit
enhancements, except for cash and cash equivalents as described below.
(a) Cash and Cash Equivalents
The credit risk for cash and cash equivalents is considered negligible, since the
counterparties are reputable banks with high quality external credit ratings. Included in
the cash and cash equivalents are cash in banks and short-term placements. As part of
Company policy, bank deposits are only maintained with reputable financial institutions.
Cash in banks which are insured by the Philippine Deposit Insurance Corporation
(PDIC) up to a maximum coverage of P500,000 per depositor per banking institution, as
provided for under Republic Act (R.A.) No. 9576, Charter of PDIC, are still subject to
credit risk.
(b) Trade and Other Receivables
In respect of trade and other receivables, the Company is not exposed to any significant
credit risk exposure to any single counterparty or any group of counterparties having
similar characteristics. Trade receivables consist of a large number of customers in
various industries and geographical areas. Based on historical information about
customer default rates, management consider the credit quality of trade receivables that
are not past due or impaired to be good.

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Some of the financial assets, which are all trade receivables, are past due but unimpaired
as at the end of the reporting periods. Trade receivables that are past due but not
impaired are as follows:
2012

2013

Not more than three months

More than three months but not more
than six months

78,650,977

24,223,084

6,546,544

85,197,521

48,647,741

72,870,825

The fair value of these short-term financial assets is not individually determined as the
carrying amount is a reasonable approximation of fair value.

4.2 Liquidity Risk

The Company manages its liquidity needs by carefully monitoring scheduled debt
servicing payments for long-term financial liabilities as well as cash outflows due in
day-to-day business. Liquidity needs are monitored in various time bands, on a
day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.
Long-term liquidity needs for a 6-month and one-year period are identified monthly.
The Company maintains cash to meet its liquidity requirements for up to 60-day periods.
Funding for long-term liquidity needs is additionally secured by an adequate amount of
committed credit facilities and the ability to sell long-term financial assets.
As at December 31, 2013 and 2012, the Companys financial liabilities have contractual
maturities within six months or less.

4.3 Foreign Currency Risk

Most of the Companys transactions are carried out in Philippine pesos, its functional
currency. Exposures to currency exchange rates arise from the Companys overseas
purchases, which are denominated in United States (U.S.) dollars. The Company also
holds U.S. dollar-denominated cash in banks.
To mitigate the Companys exposure to foreign currency risk, non-Philippine peso cash
flows are monitored and settled within a short period, in the case of liabilities.
Accordingly, the Company does not have significant exposure to foreign currency
exchange rates.

F-350

- 23 -

5.

CASH AND CASH EQUIVALENTS

The breakdown of this account are as follows:
2012

2013
Cash in banks
Cash on hand
Short-term placements

42,985,172
6,171,646
-

35,381,811
508,800
1,042,504

49,156,818

36,933,115

Cash in banks generally earn interest at rates based on daily bank deposit rates.
Short-term placements are made for varying periods between 30 to 90 days and earn
effective interest ranging from 1.63% to 2.25% for both periods. Interest income earned
amounting to P91,267 in 2013 and P165,794 in 2012 is presented as part of Finance
Costs (Income) net in the statements of comprehensive income (see Note 14).
6.

TRADE AND OTHER RECEIVABLES

This account is composed of the following:
Notes

Trade receivables
Advances to suppliers
Others

18.1

257,171,099
P
17,509,562
11,072,931
285,753,592
6,853,755 ) (

278,899,837

7
(

Allowance for impairment

2012

2013

252,608,378
29,059,344
5,626,142
287,293,864
6,853,755 )
280,440,109

Trade receivables are usually due within 30 to 90 days and do not bear any interest.
The Companys trade and other receivables, which are subject to credit risk exposure
(see Note 4.1), have been reviewed for indicators of impairment. Certain trade
receivables were identified to be impaired; hence, adequate amount of allowance for
impairment has been recognized [see Note 3.2(a)].
A reconciliation of the allowance for impairment at the beginning and end of the years
ended December 31, 2013 and 2012 is shown below.
Note

Balance at beginning of year

Impairment loss
during the year

F-351

6,853,755

6,853,755

6,340,995
512,760

13

Balance at end of year

2012

2013

6,853,755

- 24 -

7.

INVENTORIES
Inventories at the end of December 31 2013 and 2012 are broken down as follows:
Note
At Cost:
Finished goods
Raw and packaging materials
Other supplies

At Net Realizable Value (NRV):

Finished goods
Raw and packaging materials
Allowance to writedown
inventory to NRV

13

2012

2013

172,179,775
127,469,371
5,011,905
304,661,051

314,973,334
109,877,664
6,073,706
430,924,704

4,143,035
319,283
4,462,318

4,462,318 )
-

304,661,051

430,924,704

The cost of inventories charged to operations for the years ended December 31, 2013
and 2012 are analysed in Note 13.
In 2013, the Companys management determined that certain raw materials and finished
goods may no longer be used in production nor the carrying amounts can be recovered
through sale. Accordingly, the Company recognized impairment loss on inventory
amounting to P4.5 million which is presented as Loss on inventory obsolescence under
Administrative Expenses in the 2013 statement of comprehensive income
[see Notes 3.2(b) and 13]. There was no loss on inventory obsolescence recognized in
2012.
The Company has a warehouse located in Tacloban City, Leyte. In November 2013, the
warehouse facility was destroyed by a typhoon that resulted in estimated inventory losses
of P2.8 million, which is equivalent to the claims filed with the insurance company. The
said claim is still outstanding as at December 31, 2013 and is presented as part of Others
under the Trade and Other Receivables in the 2013 statement of financial position
(see Note 6). There was no similar transaction in 2012.

F-352

- 25 -

8.

PREPAYMENTS AND OTHER CURRENT ASSETS

The composition of this account is shown below.
Note
Input VAT
Prepaid taxes
Others

2012

2013

23.1(b)

29,418,474
16,917,569
273,605

40,180,862
24,007,139
1,064,135

46,609,648

65,252,136

The Companys prepaid taxes represent taxes withheld by the Companys customers
amounting to P16,100,323 and P23,189,893 as at December 31, 2013 and 2012,
respectively, and tax credit certificates issued by the Bureau of Customs (BOC)
amounting to both P817,246 as at December 31, 2013 and 2012.
9.

PROPERTY, PLANT AND EQUIPMENT

The gross carrying amounts and accumulated depreciation and amortization of property,
plant and equipment at the beginning and end of the years ended December 31, 2013 and
2012, are shown below.
Plant,
Machinery and
Equipment
December 31, 2013
Cost
Accumulated
depreciation and
amortization

P 108,453,610

December 31, 2012

Cost
Accumulated
depreciation and
amortization

January 1, 2012
Cost
Accumulated
depreciation and
amortization
Net carrying amount

8,195,012

Leasehold
Improvements

Constructionin-Progress

15,753,041

P 145,137,943

13,952,121 )

P 145,137,943

164,345,799

125,734,333

4,818,838 ) (

14,030,762

3,376,174

1,800,920

P 106,608,328

5,020,726

14,105,279

86,677,856 ) (

Net carrying amount

94,422,848 ) (

Net carrying amount

Laboratory
Tools and
Equipment

4,323,334 ) (

12,677,596 )

Total

277,539,606

113,193,807 )

103,678,786 )

19,930,472

697,392

1,427,683

22,055,547

P 104,956,773

4,615,406

13,891,615

123,463,794

77,093,388 ) (

27,863,385

3,977,007 ) (

F-353

638,399

10,689,222 )

3,202,393

91,759,617 )

31,704,177

- 26 -

A reconciliation of the carrying amounts of property, plant and equipment at the

beginning and end of the years ended December 31, 2013 and 2012, is presented below.
Plant,
Machinery and
Equipment
Balance at
January 1, 2013,
net of accumulated
depreciation and
amortization
Additions
Depreciation and
amortization charges
for the year

Balance at
December 31, 2013, net
of accumulated
depreciation and
amortization
Balance at
January 1, 2012,
net of accumulated
depreciation and
amortization
Additions
Depreciation and
amortization charges
for the year
Balance at
December 31, 2012, net
of accumulated
depreciation and
amortization

19,930,472
1,845,282

Laboratory
Tools and
Equipment

697,392
3,174,286

7,744,992 ) (

Leasehold
Improvements

Constructionin-Progress

495,504 ) (

1,427,684
1,647,761

Total

145,137,943

1,274,525 )

22,055,548
151,805,272

9,515,021 )

14,030,762

3,376,174

1,800,920

P 145,137,943

164,345,799

27,863,385
1,651,555

638,399
405,320

3,202,393
213,664

31,704,177
2,270,539

9,584,468 ) (

19,930,472

346,327 ) (

697,392

1,988,374 )

1,427,683

11,919,169 )

22,055,547

Construction-in-progress pertains to the accumulated costs incurred on the ongoing

construction, which started in 2013, of the Companys new production plant and
administration building as part of the Companys expansion activities
(see Notes 1 and 19.2). As at December 31, 2013, the construction is not yet complete.
The cost of fully depreciated property, plant and equipment as at December 31, 2013 and
2012 which are still being used in operations amounts to P82,828,129 and P46,505,687,
respectively.
The Company did not capitalize any borrowing cost related to their general borrowings in
2013, since management determined that the effect is not material to the financial
statements.

F-354

- 27 -

The depreciation and amortization for the years ended December 31 is allocated as
follows (see Note 13):
2012

2013

Cost of goods sold

Administrative expenses

10.

9,317,311
197,710

11,345,333
573,836

9,515,021

11,919,169

OTHER NON-CURRENT ASSETS

This account consists of:
Note

Trademarks
Security deposits
Returnable containers

2012

2013

40,000,000
1,780,295
233,000

40,000,000
1,780,295
1,104,000

42,013,295

42,884,295

4.1

In July 2008, the Company purchased from General Milling Corporation (GMC) certain
trademarks owned and registered with the Intellectual Property Office under the name of
GMC. As discussed in Note 3.1(a), the Companys trademarks are subject to annual
impairment testing. No impairment losses were recognized for the years ended
December 31, 2013 and 2012 as the recoverable amounts of the trademarks were
determined to be higher than their carrying values.
Security deposits pertain to deposits required under the terms of the lease agreements of
the Company with certain lessors. The carrying amount of these deposits is a reasonable
approximation of its fair value based on managements assessment as at
December 31, 2013 and 2012.

F-355

- 28 -

11.

TRADE AND OTHER PAYABLES

The composition of this account is shown below.
Note
Trade payables
Accrued expenses
Others

18.4
18.3

2012

2013
P

134,974,596
19,389,701
5,370,799

328,397,554
2,591,982
3,293,310

159,735,096

334,282,846

Accrued expenses include obligations relating to trucking and shipment fee, consultancy
and management fee and salaries and employee benefits. Other payables consist of
various payables to government agencies which includes taxes and employers shares in
certain mandatory employee benefits.
Due to the short duration of trade and other payables, management considers the carrying
amounts to be a reasonable approximation of fair values.
12.

INTEREST-BEARING LOANS
On October 30, 2013, the Company obtained two unsecured interest-bearing loans from
a local bank for its working capital and capital expenditure requirements (see Note 19.2)
totalling to P540.0 million. These loans both bear fixed interest rate of 2.5% per annum
and are to be repaid on November 30, 2013. In November and December 2013, the
Company repaid a portion of these loans amounting to P325.0 million. The outstanding
balance of these unsecured interest-bearing loans as at December 31, 2013 is presented as
Interest-Bearing Loans in the 2013 statement of financial position.
Interest expense arising from these loans which amounted to P1.6 million is presented as
part of Finance costs under Finance Costs (Income) Net in the 2013 statement of
comprehensive income (see Note 14). There is no outstanding interest payable as of
December 31, 2013.

F-356

- 29 -

13.

COSTS AND EXPENSES BY NATURE

The details of costs and expenses by nature are shown below.
Notes

Milk and ingredients

Packaging and other materials
Changes in inventories of
finished goods
Advertisements
Outside services
18.3
Freight
Forwarding and other
warehousing fees
Merchandisers salary
Communication,
light and water
Salaries and employee benefits 15.1, 18.5
Rentals
18.4
Depreciation and amortization
9
Gas, fuel and oil
Taxes and licenses
23.1(f)
Supplies
Loss on inventory
obsolescence
7
Repairs and maintenance
Impairment loss
on trade receivables
6
Miscellaneous

2012
(As Restated)

2013

734,122,138
261,172,270

821,975,535
380,053,910

138,650,524
111,507,292
46,447,826
46,253,380

101,850,269
116,893,508
49,546,397
44,342,447

44,724,843
34,951,327

55,231,107
32,607,195

16,325,822
14,398,014
9,606,064
9,515,021
8,787,684
7,311,020
4,522,876

20,972,321
13,977,192
11,031,433
11,919,169
12,837,058
6,897,574
6,213,439

4,462,318
1,156,243

1,962,046

3,857,370

512,760
5,086,402

P 1,497,772,032

P 1,693,909,762

These expenses are classified in the statements of comprehensive income as follows:

Cost of goods sold

Selling expenses
Marketing expenses
Administrative expenses

F-357

2013

2012
(As Restated)

P 1,222,454,203
128,583,164
111,648,759
35,085,906

P 1,419,620,458
131,551,269
119,270,662
23,467,373

P 1,497,772,032

P 1,693,909,762

- 30 -

Cost of goods sold for the years ended December 31, 2013 and 2012 consist of the
following:
Notes
Raw and packaging
materials used:
Raw and packaging
materials at
beginning of year
Net purchases
during the year
Raw and packaging
materials at
end of year

109,877,664

1,013,207,042

Direct labor
Manufacturing overhead:
Outside services
Communication,
light and water
Rentals
Depreciation and
amortization
Indirect labor
Gas, fuel and oil
Supplies
Repairs and maintenance
Others

18.4
9
15.1

Total cost of goods manufactured

Finished goods at
beginning of year
Finished goods at
end of year

127,788,654 ) (
995,296,052

135,545,967

1,176,361,142

109,877,664 )
1,202,029,445

922,621

1,000,537

27,416,959

39,432,092

16,243,975
9,592,647

20,877,595
11,024,845

9,317,311
8,906,519
8,787,684
4,492,636
1,152,517
1,674,758
87,585,006

11,345,333
8,258,283
12,834,545
6,171,109
1,953,615
2,841,143
114,738,560

1,083,803,679

1,317,768,542

314,973,334

416,825,250

176,322,810 ) (

314,973,334 )

P 1,222,454,203

F-358

2012
(As Restated)

2013

P 1,419,620,458

- 31 -

14.

FINANCE COSTS (INCOME)

The details of Finance Costs (Income) net are presented below.
Notes

Finance costs
Finance income

15.

2012
(As Restated)

2013

12, 15.2
P
(
5

1,646,343
P
114,489 ) (

149,281
187,370 )

1,531,854 ( P

38,089 )

EMPLOYEE BENEFITS

15.1 Employee Benefits Expense

Expenses recognized for salaries and employee benefits are presented below.
Notes

Short-term benefits
Post-employment benefits

14,103,227
294,787

13,557,311
419,881

14,398,014

13,977,192

15.2
13

2012
(As Restated)

2013

The amount of employee benefits expense is allocated as follows:

Note

Cost of goods sold

Administrative expenses

2012
(As Restated)

2013

13

9,829,140
4,568,874

9,258,820
4,718,372

13

14,398,014

13,977,192

15.2 Post-employment Defined Benefit

(a) Characteristics of the Defined Benefit Plan
The Company maintains a fully funded, tax-qualified, non-contributory
post-employment benefit plan that is being administered by a trustee bank covering
all regular full-time employees.
The normal retirement age is 60 with a minimum of 5 years of credited service. The
plan also provides for an early retirement at age 50 with a minimum of 10 years of
credited service and late retirement after age 65, both subject to the approval of the
Companys BOD. Normal retirement benefit is an amount equivalent to 100% of
the final monthly covered compensation (average monthly basic salary during the
last 12 months of credited service) for every year of credited service.

F-359

- 32 -

(b) Explanation of Amounts Presented in the Financial Statements

Actuarial valuations are made every other year to update the retirement benefit costs
and the amount of contributions. All amounts presented below are based on the
actuarial valuation report obtained from an independent actuary in 2013 including
the comparative year which has been restated in line with the adoption of PAS 19
(Revised), see Note 2.2(a)(ii).
The amounts of post-employment benefit obligation (asset) recognized in the
statements of financial position are determined as follows:
2012
(As Restated)

2013
Present value of the obligation
Fair value of plan assets
Under (over) funded
Effect of asset ceiling

P
(
(

( P

2,560,525
P
3,212,678 ) (
652,153 )
29,854

622,299 )

3,379,996
2,850,863 )
529,133
-

529,133

The movements in the present value of the post-employment benefit obligation

recognized in the books are as follows:
2012
(As Restated)

2013

Balance at beginning of year

Current service cost
Interest expense
Remeasurements Actuarial losses
(gains) arising from:
changes in financial assumption
experience adjustments

2,560,525

2,802,558
419,881
157,557

427,968
1,700,522 )

Balance at end of year

3,379,996
294,787
158,296

3,379,996

The movements in the fair value of plan assets are presented below
[see also Note 15.2(b)].
2012
(As Restated)

2013
Balance at beginning of year
Contributions
Interest income
Return on plan assets (excluding
amounts included in net interest)

F-360

2,149,434
512,064
132,301
57,064

2,850,863

292,758 )

Balance at end of year

2,850,863
512,064
142,509

3,212,678

- 33 -

The composition of the fair value of plan assets as at December 31, 2013 and 2012
for each category and risk characteristics is shown below.
2012

2013
Cash and cash equivalents
Debt instruments - government bonds
Debt instruments - other bonds
Others

311,630
1,955,878
452,024
493,146

301,906
1,728,193
560,195
260,569

3,212,678

2,850,863

Except for cash and cash equivalents which have insignificant risk of changes in
value, the fair values of the above financial assets are determined based on quoted
market prices in active markets.
The plan assets do not comprise any of the Companys own financial instruments or
any of its assets occupied and/or used in its operations. It incurred a negative return
of P0.2 million in 2013 and positive return of P0.2 million in 2012.
The components of amounts recognized in profit or loss and in other
comprehensive income in respect of the defined benefit plan are as follows:
2012
(As Restated)

2013

Recognized in profit or loss:

Current service cost
Net interest expense

Recognized in other comprehensive income:

Actuarial losses (gains) arising from:
experience adjustments
changes in financial assumptions
Return of plan assets
(excluding amount included in
net interest expense)
Effect of asset ceiling

294,787
15,787

419,881
25,256

310,574

445,137

( P

1,700,522 )
427,968

292,758 (
29,854

( P

F-361

949,942 ) ( P

57,064 )
-

57,064 )

- 34 -

Current service cost is allocated and presented in the statements of comprehensive

income under the following accounts:
2012

2013
Cost of goods sold
Administrative expenses

261,689
33,098

363,309
56,572

294,787

419,881

Net interest expense is included in Finance Costs (Income) net account in the
statements of comprehensive income (see Note 14).
The amount recognized in other comprehensive income was classified as item that
will not be reclassified subsequently to profit or loss.
In determining the amounts of the post-employment benefit obligation, the
following significant actuarial assumptions were used:

Discount rates
Expected rate of salary increases

2013

2012

4.63%
3.00%

5.62%
2.00%

Assumptions regarding future mortality experience are based on published statistics

and mortality tables. The average remaining working lives of an individual retiring at
the age of 60 is 22 for males and 30 for females. These assumptions were developed
by management with the assistance of an independent actuary. Discount factors are
determined close to the end of each reporting period by reference to the interest
rates of a zero coupon bond government bonds with terms to maturity
approximating to the terms of the retirement obligation. Other assumptions are
based on current actuarial benchmarks and managements historical experience.
(c)

Risks Associated with the Retirement Plan

The plan exposes the Company to actuarial risks such as investment risk, interest
rate risk, longevity risk and salary risk.
(i) Investment and Interest Risk
The present value of the defined benefit obligation is calculated using a discount rate
determined by reference to market yields of government bonds. Generally, a
decrease in the interest rate of a reference government bond will increase the plan
obligation. However, this will be partially offset by an increase in the return on the
plans investments in debt securities and if the return on plan asset falls below this
rate, it will create a deficit in the plan. Currently, the plan has significant investment
in debt instruments.

F-362

- 35 -

(ii) Longevity and Salary Risks

The present value of the defined benefit obligation is calculated by reference to the
best estimate of the mortality of the plan participants both during and after their
employment and to their future salaries. Consequently, increases in the life
expectancy and salary of the plan participants will result in an increase in the plan
obligation.
(d) Other Information
The information on the sensitivity analysis for certain significant actuarial
assumptions, the Companys asset-liability matching strategy, and the timing and
uncertainty of future cash flows related to the retirement plan are described as
follows:
(i) Sensitivity Analysis
The following table summarizes the effects of changes in the significant actuarial
assumptions used in the determination of the defined benefit obligation as of
December 31, 2013:
Impact on post-employment define benefit obligation
Change in
Increase in
Decrease in
assumption
assumption
assumption

Salary increase rate

Discount rate

+9.3% to - 8.5%
+10.3% to - 9.1%

P
(

238,550 ( P
234,207 )

217,830 )
263,271

The sensitivity analysis in the foregoing table is based on a change in an assumption

while holding all other assumptions constant. This analysis may not be
representative of the actual change in the defined benefit obligation as it is unlikely
that the change in assumptions would occur in isolation of one another as some of
the assumptions may be correlated. Furthermore, in presenting the previous page
sensitivity analysis, the present value of the defined benefit obligation has been
calculated using the projected unit credit method at the end of the reporting period,
which is the same as that applied in calculating the defined benefit obligation liability
recognized in the statements of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did
not change compared to the previous years.
(ii) Asset-liability Matching Strategies
To efficiently manage the retirement plan, the Company ensures that the investment
positions are managed in accordance with its asset-liability matching strategy to
achieve that long-term investments are in line with the obligations under the
retirement scheme. This strategy aims to match the plan assets to the retirement
obligations by investing in long-term fixed interest securities (i.e., government or
corporate bonds) with maturities that match the benefit payments as they fall due
and in the appropriate currency. The Company actively monitors how the duration
and the expected yield of the investments are matching the expected cash outflows
arising from the retirement benefit obligations.

F-363

- 36 -

In view of this, investments are made in reasonably diversified portfolio congruent

to the level of credit risks identified on such investments, such that the failure of any
single investment will be minimized and would not have a material impact on the
overall level of assets.
A large portion of the plan assets as of December 31, 2013 and 2012 consists of debt
securities, although the Company also invests in cash and cash equivalents and other
forms of investments. The Company believes that the debt securities which mainly
represent government bond investments offer the best returns over the long term
with an acceptable level of risk.
There has been no change in the Companys strategies to manage its risks from
previous periods.
(iii) Funding Arrangements and Expected Contributions
The plan is currently overfunded by P0.6 million based on the latest actuarial
valuation. While there are no minimum funding requirement in the country,
expected retirement of significant number of employees may pose a cash flow risk in
about 12 years time.
The maturity profile of undiscounted expected benefits payments from the plan is
between 6 to 10 years amounting to P1.1 million.
The weighted average duration of the defined benefit obligation at the end of the
reporting period is 12 years.
16.

CURRENT AND DEFERRED TAXES

The components of tax expense as reported in profit or loss and other comprehensive
income are as follows:
2012

2013
Recognized in profit or loss:
Regular corporate income tax
(RCIT) at 30%
Final tax at 20% and 7.5%
Deferred tax income relating
to origination and reversal of
temporary difference

15,298,087

7,341,848
33,159
7,375,007
-

3,410,408 )

F-364

18,690,242
18,253
18,708,495

7,375,007

- 37 -

2012

2013
Recognized in other comprehensive income:
Recognition of previously
unrecognized DTA
Deferred tax expense for the year

( P

287,040 )
284,983

( P

2,057 )

A reconciliation of tax on pretax profit computed at the applicable statutory rates to tax
expense reported in the statements of comprehensive income is presented below.
2012

2013
Tax on pretax profit at 30%
Adjustment for income subjected to
lower income tax rates
Tax effects of:
Recognition of previously
unrecognized DTA
Non-deductible expenses
Unrecognized deductible
temporary difference
Application of previously
unrecognized DTA on minimum
corporate income tax (MCIT)

17,120,903
9,127 ) (

16,579 )

2,188,081 )
374,392

16,414
127,757

Tax Expense

7,988,255

15,298,087

740,840 )

7,375,007

The Company did not recognize deferred tax assets (as restated) related to the following
temporary differences as at December 31, 2012, since their recoverability and utilization
is not yet certain during that period based on the managements assessment.
Deferred tax assets:
Allowance for impairment loss
on trade and other receivables
Unamortized past service cost
Retirement benefit obligation
Deferred tax liabilities
Unrealized foreign currency gain

Unrecognized Net Deferred Tax Assets

F-365

2,056,127
267,537
158,739
2,482,403
7,282 )

2,475,121

- 38 -

However, based on the recent historical profitability analysis made in 2013 and positive
expectations on future results of the Companys operations, the Company recognized the
deferred tax assets related to the following temporary differences as at December 31,
2013:
Statement of Other
Comprehensive Income
Other
Comprehensive
Profit or Loss
Income

Statement of
Financial
Position
Deferred tax assets:
Allowance for impairment loss
on trade and other receivables
Allowance to write-down
inventory to NRV
Unamortized past service cost

Deferred tax liabilities:

Post-employment benefit asset
Prepayments
Unrealized foreign currency gain

Net Deferred Tax Assets

Net Deferred Tax Income

2,056,127

1,338,695
287,596
3,682,418

(
(
(
(

186,690 )
82,082 )
1,181 )
269,953 )
P

2,056,127

1,338,695
287,596
3,682,418

(
(
(
(

188,747 )
82,082 )
1,181 )
272,010 )

2,057
2,057

3,412,465
P

3,410,408

2,057

The Company is subject to MCIT which is computed at 2% of gross income, as defined

under tax regulations, or RCIT, whichever is higher. In 2013 and 2012, RCIT was higher
than MCIT.
As at December 31, 2012, the Company has fully utilized its MCIT amounting to
P740,840 which represents the total of MCIT incurred in 2011 (P133,950) and 2010
(P606,890).
For the years ended December 31, 2013 and 2012, the Company opted to claim itemized
deductions in computing its income tax due.

F-366

- 39 -

17.

EQUITY

17.1 Capital Stock

Capital stock consists of common shares with details as follows:
Shares

Authorized P10 par value:

Balance at beginning
of year
Increase during the year

2013

5,000,000
45,000,000

5,000,000
-

50,000,000
450,000,000

17.2

50,000,000
-

50,000,000

5,000,000

500,000,000

50,000,000

4,062,500

4,062,500

40,625,000

40,625,000

Balance at end of year

Issued and outstanding:
Balance at beginning
of year
Issuances during
the year:
Cash subscription
17.2
Application of deposit
for future stock
subscription
17.2
Collection of subscription
receivable
Balance at end of year
Subscribed:
Balance at beginning
of year
Additional subscription
during the year
Issued during the year
Balance at end of year
Subscription receivable:
Balance at beginning
of year
Collection
Balance at end of year

Amount

Note

2012

2012

2013

25,411,680

254,116,800

19,588,320

195,883,200

937,500
50,000,000

4,062,500

9,375,000
500,000,000

40,625,000

937,500

937,500

9,375,000

9,375,000

450,000,000
459,375,000 )
-

9,375,000

45,000,000
45,937,500 )
-

937,500

17.2

9,375,000 ) (

9,375,000 )

9,375,000
(

9,375,000 )

500,000,000

40,625,000

In 2013, apart from CCCs subscription to the increase in authorized capital stock paid by
way of application of its deposits for future stock subscription (see Note 17.2), it also
subscribed to additional shares amounting to P254.1 million, which was paid in cash by
CCC. The Company also collected its P9.4 million outstanding subscription receivable in
previous years.
In October 2013, CCC sold 100% of its ownership interest to CPFI (see Note 1).
As at December 31, 2013 and 2012, the Company has three stockholders owning 100 or
more shares each of the Companys capital stock.

F-367

- 40 -

17.2 Deposits for Future Stock Subscriptions

On October 18, 2012, the Company filed an application with the SEC for its proposed
increase in authorized capital stock from P50.0 million divided into 5,000,000 to
P500.0 million divided into 50,000,000 shares with the same par value per share of P10.
This was previously approved by the Companys BOD on December 6, 2011. In
compliance with the SECs rules relating to the foregoing, the Company applied a portion
of the parent companys advances to the Company amounting to P45,500,000
(see Note 18.2) and the parent companys previously recognized Deposits for Future
Stock Subscriptions amounting to P150,383,200 as subscription payments. As at
December 31, 2012, approval of the application is still pending with the SEC.
Accordingly, the subscription payments were presented as Deposits for Future Stock
Subscriptions in the 2012 statement of financial position.
Subsequently, on April 15, 2013, the SEC approved the Companys proposed increase in
authorized capital stock. Accordingly, on the same date, the Company issued 19,588,320
shares to CCC by applying its deposits on future stock subscription of P195,883,200 on
the subscription price which equals the par value of the shares; hence, no additional
paid-in-capital arose from this equity transaction.

17.3 Dividends Declaration

The BOD approved the declaration of cash dividend amounting to P64.0 million on
September 30, 2013 payable to stockholders of record as of September 30, 2013. The
cash dividend was fully settled in October 2013. There was no dividend declaration in
2012.
18.

RELATED PARTY TRANSACTIONS

The Companys related parties include its ultimate parent company, the Companys key
management personnel, related parties under common ownership and retirement plan
assets.
The summary of the Companys related party transactions is presented below.
2012

2013
Amount of
Transactions

Note
Related Parties Under
Common Ownership:
Sale of goods
Consultancy and
management fees
Advances
Rentals
Key Management
Personnel
Compensation

18.1
18.3
18.2
18.4

18.5

8,378,197
12,087,285 (
270,907,199 ) (
-

3,165,483

F-368

Outstanding
Receivable
(Payable)

8,334,584 )
7,965,473 ) (
-

Outstanding
Receivable
(Payable)

Amount of
Transactions

127,866,796
7,279,445 (
136,592,894 ) (
1,547,100 (

2,958,888

7,044,926
2,556,101 )
278,872,672 )
3,456,221 )

- 41 -

18.1 Sale of Goods

The Company sold finished goods inventories to CCC amounting to P8.4 million in 2013
and P127.9 million in 2012 which is presented as part of Sale of Goods in the statements
of comprehensive income. Outstanding balance in relation to the sale of goods as at
December 31, 2012 amounts to P7.0 million and is shown as part of Trade receivables
under the Trade and Other Receivables account in the 2012 statement of financial
position (see Note 6). There is no outstanding balance of receivable from this transaction
as at December 31, 2013.
Also, no impairment loss was recognized in both years on the Companys receivable from
parent company.

18.2 Advances from Related Parties

In the normal course of business, the Company obtains unsecured, noninterest-bearing
advances from related parties, including its parent company and entities under common
ownership, for working capital requirements and other purposes. Such advances are
presented as Due to Related Parties in the statements of financial position. Presented
below are the movement in the account.
Note
Balance at beginning of year
Additional borrowings
during the year
Repayments during the year
Applied as deposits for
future stock subscription

278,872,672

415,465,566

256,723,141
527,630,340 ) (

91,092,894 )

45,500,000 )

18.2

Balance at end of year

2012

2013

7,965,473

278,872,672

These are due on demand and normally repaid in cash.

18.3 Consultancy and Management Fees

The Company incurs management and consultancy fees based on an agreement between
CCC and the Company. Under the agreement, CCC can allocate and charge common
corporate expenses to its subsidiaries. The consultancy and management fees incurred
and paid by the Company for the years ended December 31, 2013 and 2012 amounted to
P12.1 million and P7.3 million, respectively, and is presented as part of Outside Services
under Administrative Expenses in the statements of comprehensive income
(see Note 13). The outstanding payables arising from these transactions amount to
P8.3 million and P2.6 million as at December 31, 2013 and 2012, respectively, are shown
as part of Accrued expenses under the Trade and Other Payables account in the
statements of financial position (see Note 11).

F-369

- 42 -

18.4 Rentals
For the year ended December 31, 2012, CCC leased out storage and production facilities
to the Company. In 2013, both parties agreed that the Company may use the facilities at
no cost to the Company. Rental expense incurred amounting to P1.5 million for the year
ended December 31, 2012 is presented as part of Rentals under Cost of Goods Sold in
the 2012 statement of comprehensive income (see Note 13). The outstanding payables
arising from these transactions amounts to P3.5 million as at December 31, 2012 and are
shown as part of Trade payables under the Trade and Other Payables account in the 2012
statement of financial position (see Note 11).

18.5 Key Management Personnel Compensations

The short-term employee benefits of the key management personnel amounted to
P3.2 million and P3.0 million for the years ended December 31, 2013 and 2012, are
included in Salaries and employee benefits presented as part of Administrative Expenses
in the statements of comprehensive income (see Note 13).

18.6 Retirement Plan

The Companys retirement plan for its post-employment defined benefit plan is
administered and managed by a trustee bank. The fair value and the composition of the
plan assets as well as details of the contributions of the Company and benefits paid out by
the plan as of December 31, 2013 and 2012 are presented in Note 15.2(b).
The retirement fund neither provides any guarantee or surety for any obligation of the
Company nor its investments covered by any restriction or liens.
19.

COMMITMENTS AND CONTINGENCIES

The following are the significant commitments and contingencies involving the
Company.

19.1 Credit Facilities

The Company has continuing surety with related parties on a P2,700,000,000 credit
facility with a major local bank and a P1,345,376,000 combined sub-limits through inter
corporate guarantee lines from other local banks.

19.2 Capital Commitments

As at December 31, 2013, the Company has construction-in-progress totalling
P145,137,943. The construction relates to the Companys new production plant in
Taguig City (see Note 9). The construction is expected to be completed in 2014 and has
remaining estimated costs to complete of P51,925,717 as at December 31, 2013 which is
partly financed by the interest-bearing loans obtained from a local bank on
October 30, 2013 (see Note 12).

F-370

- 43 -

19.3 Others
There are other commitments, guarantees, litigations and contingent liabilities that arise in
the normal course of the Companys operations which are not reflected in the
accompanying financial statements. As at December 31, 2013, management is of the
opinion that losses, if any, from these commitments and contingencies will not have a
material effect on the Companys financial statements.
20.

CATEGORIES AND OFFSETTING OF FINANCIAL ASSETS AND

LIABILITIES
The carrying amounts and fair values of the categories of assets and liabilities presented in
the statements of financial position are shown below.
2012

2013
Notes

Carrying Values

Fair Values

Carrying Values

Fair Values

Financial assets
Loans and receivables:
Cash and cash equivalents
Trade and other
receivables net
Security deposits

6
10

49,156,818

258,579,504
1,780,295

49,156,818

36,933,115

246,999,008
1,780,295

258,579,504
1,780,295

36,933,115
246,999,008
1,780,295

309,516,617

309,516,617

285,712,418

285,712,418

158,555,004
215,000,000
7,965,473

158,555,004
215,000,000
7,965,473

331,787,190
278,872,672

331,787,190
278,872,672

381,520,477

381,520,477

610,659,862

610,659,862

Financial Liabilities
At amortized cost:
Trade and other payables
Interest-bearing loans
Due to related parties

11
12
18

See Notes 2.3 and 2.8 for a description of the accounting policies for each category of
financial instrument. A description of the Companys risk management objectives and
policies for financial instruments is provided in Note 4.
The Company has no financial instrument offsetting arrangements in 2013 and 2012.

F-371

- 44 -

21.

FAIR VALUE MEASUREMENT AND DISCLOSURE

21.1 Fair Value Hierarchy

In accordance with PFRS 13, the fair value of financial assets and liabilities and
non-financial assets which are measured at fair value on a recurring or non-recurring basis
and those assets and liabilities not measured at fair value but for which fair value is
disclosed in accordance with other relevant PFRS, are categorized into three levels based
on the significance of inputs used to measure the fair value. The fair value hierarchy has
the following levels:
a)

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
that an entity can access at the measurement date;

b)

Level 2: inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from
prices); and,

c)

Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).

The level within which the asset or liability is classified is determined based on the lowest
level of significant input to the fair value measurement.
For purposes of determining the market value at Level 1, a market is regarded as active if
quoted prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service, or regulatory agency, and those prices represent actual and
regularly occurring market transactions on an arms length basis.
The Company has no financial assets and financial liabilities measured at fair value or that
are not carried at fair value but are required to be disclosed as at December 31, 2013 and
2012. For financial assets and financial liabilities measured at amortized cost
management consider that their carrying amounts approximate their fair value
(see Note 20).
22.

CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Companys capital management objectives are:

To ensure the Companys ability to continue as a going concern; and,

To provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity as presented
in the statements of financial position. Capital for the reporting periods under review is
summarized as follows:
2013
2012
Total liabilities
Total equity

382,700,569
507,020,643
0.75 : 1

Debt-to-equity ratio

F-372

613,684,651
264,805,255
2.32 : 1

- 45 -

The Company sets the amount of capital in proportion to its overall financing structure,
i.e., equity and liabilities. The Company manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and the risk
characteristics of the underlying assets.
23.

SUPPLEMENTARY INFORMATION REQUIRED BY THE BIR

Presented below is the supplementary information which is required by the BIR under its
existing revenue regulations to be disclosed as part of the notes to financial statements.
This supplementary information is not a required disclosure under PFRS.

23.1 Requirements under Revenue Regulations (RR) 15-2010

The information on taxes, duties and license fees paid or accrued during the taxable year
required under RR 15-2010 are as follows:
(a) Output VAT
The total revenue and corresponding VAT of the Company for 2013 is as follows:
Output
VAT

Tax Base

VATable sales
Zero-rated sales

P 1,551,915,037
4,443,844

186,229,804
-

P 1,556,358,881

186,229,804

The Companys VAT zero-rated sales/receipt were determined pursuant to Section

106(A)(2)(a), Zero-rated VAT on Export Sale of Goods, and Section 109, VAT Exempt
Transactions, of the 1997 National Internal Revenue Code.
The tax bases are presented as Sale of Goods in the 2013 statement of comprehensive
income.
There is no outstanding output VAT payable as of December 31, 2013.

F-373

- 46 -

(b) Input VAT

The movements in input VAT, which is presented as part of the Prepayments and Other
Current Assets (see Note 8), in 2013 are summarized below.
Balance at beginning of year
P
Input tax on imported goods
Goods for resale/manufacture
or further processing
Services lodged under other accounts
Services lodged under cost of goods sold
Capital goods not subject to amortization
(
Applied against output VAT

Balance at end of year

40,180,862
73,843,567

46,589,848
45,564,142
9,000,435
469,424
186,229,804 )
29,418,474

(c) Taxes on Importation

In 2013, the total landed cost of the Companys imported inventory for use in business
amounted to P615,363,047. This amount includes customs duties and tariff fees of
P6,320,868.
(d) Excise Tax
The Company does not have excise tax in 2013 since it does not have any transactions
which are subject to excise tax.
(e) Documentary Stamp Tax (DST)
In 2013, the Company incurred DST amounting to P2,250,000 [see Note 23.1(f)] in
connection with its increase in the authorized capital stock (see Note 17.2).
(f) Taxes and Licenses
The details of Taxes and licenses are broken down as follows:
Notes

Business tax
DST
Municipal license and permit
Miscellaneous

4,936,848
2,250,000
70,764
53,408

7,311,020

23.1(e)

13

The amounts of taxes and licenses are allocated as follows:

Cost of goods sold
Operating expenses

F-374

161,729
7,149,291

7,311,020

- 47 -

(g) Withholding Taxes

The details of total withholding taxes for the year ended December 31, 2013
are shown below.
Expanded
Compensation and benefits

13,965,214
1,785,175

15,750,389

The Company has no transaction in 2013 which are subject to final tax.
(h) Deficiency Tax Assessment and Tax Cases
As of December 31, 2013, the Company does not have any final deficiency tax
assessment from the BIR nor does it have tax cases outstanding or pending in courts or
bodies outside of the BIR in any of the open years.

23.2 Requirements under RR 19-2011

RR 19-2011 requires schedules of taxable revenues and other non-operating income,
costs of g, itemized deductions and other significant tax information, to be disclosed in
the notes to financial statements.
The amount of taxable revenues and income, and deductible costs and expenses
presented below are based on relevant tax regulations issued by the BIR, hence, may not
be the same as the amounts reflected in the 2013 statement of comprehensive income.
(a) Taxable Revenues
The Companys taxable revenues subject to regular tax rate for the year ended
December 31, 2013 amounted to P1,556,358,881.
(b) Deductible Cost of Goods Sold
Deductible cost of goods sold for the year ended December 31, 2013 which is subject to
regular tax rate comprises the following:
Finished goods at beginning of year
Cost of goods manufactured
Total goods available for sale
Finished goods at end of year

P
(

314,973,334
1,084,309,547
1,399,282,881
176,322,810 )

P 1,222,960,071

(c) Taxable Non-operating and Other Income

Taxable non-operating and other income which are subject to the regular tax rate
amounted to P58,240.

F-375

- 48 -

(d) Itemized Deductions

The amounts of itemized deductions for the year ended December 31, 2013 follow:
Advertisements
Freight
Forwarding and other warehousing fees
Merchandisers salary
Outside services
Taxes and licenses
Salaries and employee benefits
Finance costs
Depreciation and amortization
Communication, light and water
Supplies
Rentals
Repairs and maintenance
Miscellaneous

F-376

111,507,292
45,810,049
44,724,843
34,951,327
19,030,867
7,149,291
4,585,762
1,630,556
197,710
81,847
30,240
13,417
3,726
1,439,317

271,156,244

F-377

F-378

F-379

SNOW MOUNTAIN DAIRY CORPORATION

(A Subsidiary of Century Canning Corporation)

STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

2011

2012

Notes
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables - net
Inventories
Prepayments and other current assets

5
6
7

Total Current Assets

NON-CURRENT ASSETS
Property, plant and equipment - net
Retirement benefit asset
Other non-current assets

9
15
10

Total Non-current Assets

TOTAL ASSETS

36,933,115
251,380,765
459,984,049
65,252,136

25,373,381
213,991,953
560,094,395
60,432,337

813,550,065

859,892,066

22,055,547
608,524
42,884,295

31,704,177
484,533
42,435,295

65,548,366

74,624,005

879,098,431

934,516,071

334,282,849
278,872,672

317,917,167
415,465,566

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Trade and other payables
Due to related parties

11
17

Total Liabilities
EQUITY
Capital stock
Deposits for future stock subscriptions
Retained earnings

16
16

Net Equity

TOTAL LIABILITIES AND EQUITY

613,155,521

733,382,733

40,625,000
195,883,200
29,434,710

40,625,000
150,383,200
10,125,138

265,942,910

201,133,338

879,098,431

See Notes to Financial Statements.

F-380

934,516,071

SNOW MOUNTAIN DAIRY CORPORATION

(A Subsidiary of Century Canning Corporation)

STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

SALE OF GOODS

17

COST OF GOODS SOLD

12

GROSS PROFIT
OPERATING EXPENSES (INCOME)
Selling expenses
Marketing expenses
Administrative expenses
Other income

2011

2012

Notes

1,279,476,627

1,419,592,252

1,088,308,409

300,778,322

191,168,218

131,551,269
119,270,662
23,318,349
128,616 )

12
12
12

1,720,370,574

94,115,732
64,472,398
21,348,147
1,298,461 )

274,011,664

178,637,816

26,766,658

12,530,402

82,077

337,244

26,684,581

12,193,158

7,375,007

3,884,847

NET PROFIT

19,309,574

8,308,311

OTHER COMPREHENSIVE INCOME

OPERATING PROFIT
FINANCE COSTS - Net

13

PROFIT BEFORE TAX

TAX EXPENSE

15

TOTAL COMPREHENSIVE INCOME

19,309,574

See Notes to Financial Statements.

F-381

8,308,311

SNOW MOUNTAIN DAIRY CORPORATION

(A Subsidiary of Century Canning Corporation)

STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

CAPITAL STOCK
Balance at beginning of year
Issuance of shares during the year

2011

2012

Note
16

3,125,000
37,500,000

40,625,000

40,625,000

150,383,200
45,500,000
-

187,883,200
37,500,000 )

Balance at end of year

DEPOSITS FOR FUTURE STOCK

SUBSCRIPTIONS
Balance at beginning of year
Additional subscription during the year
Applied to subscription during the year

40,625,000
-

16

Balance at end of year

195,883,200

150,383,200

RETAINED EARNINGS
Balance at beginning of year
Net profit

10,125,136
19,309,574

1,816,827
8,308,311

Balance at end of year

29,434,710

10,125,138

TOTAL EQUITY

265,942,910

See Notes to Financial Statements.

F-382

201,133,338

SNOW MOUNTAIN DAIRY CORPORATION

(A Subsidiary of Century Canning Corporation)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax
Adjustments for:
Depreciation and amortization
Impairment losses
Finance costs
Finance income
Operating profit before working capital changes
Increase in trade and other receivables
Decrease in inventories
Increase in prepayments and other current assets
Increase in retirement benefit asset
Increase in other non-current assets
Increase in trade and other payables
Cash generated from operations
Interest received
Income taxes paid

2011

2012

Notes

P
9
6
13

13

11,919,168
512,760 )
124,025
187,370 )
38,027,644
44,217,902 )
100,110,346
4,819,799 )
123,991 )
449,000 )
16,365,682
104,892,980
187,370
33,159 )

(
(
(
(

26,684,581

14,192,440
319,869 )
261,567
158,321 )
26,168,975
6,919,250 )
261,135,452
9,841,291 )
225,788 )
542,180 )
10,144,512
279,920,430
158,321
27,844 )

(
(
(
(
(
(

280,050,907

105,047,191

Net Cash From Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment

12,193,158

2,270,538 )

57,221 )

17

(
(

91,092,894 )
124,025 )

(
(

282,232,333 )
261,567 )

91,216,919 )

282,493,900 )

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS

11,559,734

2,500,214 )

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR

25,373,381

CASH FLOWS FROM FINANCING ACTIVITIES

Repayments of due to related parties
Interest paid
Net Cash Used in Financing Activities

CASH AND CASH EQUIVALENTS

AT END OF YEAR

36,933,115

Supplemental Information on Non-cash Financing Activities:

1) In 2012, the Company and Century Canning Corporation (CCC) agreed to convert portion of
the Company's advances from CCC amounting to P45,500,000 to equity (see Note 16).
2) In December 2011, the Company issued 3,750,000 shares to a stockholder by applying the
stockholder's deposit for future stock subscription amounting to P37,500,000 (see Note 16).

See Notes to Financial Statements.

F-383

27,873,595

25,373,381

SNOW MOUNTAIN DAIRY CORPORATION

(A Subsidiary of Century Canning Corporation)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

1.

CORPORATE INFORMATION

1.1 Incorporation and Operations

Snow Mountain Dairy Corporation (the Company) was incorporated in the Philippines
and registered with the Philippine Securities and Exchange Commission (SEC) on
February 14, 2001. It started commercial operations in November 2002. The Company is
engaged in producing, canning, freezing, preserving, refining, packing, buying and selling
at wholesale and retail, food products including all kinds of milk and dairy products, fruits
and vegetable juices and other milk or dairy preparations and by-products.
In December 2011, the Company became a subsidiary of Century Canning Corporation
(CCC or the parent company), a company incorporated and domiciled in the Philippines.
CCC is presently engaged in manufacturing and distribution of canned tuna products for
the Philippine market.
The registered office of the Company, which is also its principal place of business, is
located at No. 48 Amang Rodriguez Avenue, Ignacio Complex, Manggahan, Pasig City.
CCCs registered office, which is also its principal place of business, is located at 32 Arturo
Drive, Bagumbayan, Taguig, Metro Manila.

1.2 Approval of Financial Statements

The financial statements of the Company for the year ended December 31, 2012
(including the comparatives for the year ended December 31, 2011) were authorized for
issue by the Companys Vice President for Finance on April 12, 2013.
2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these
financial statements are summarized below and in the succeeding pages. The policies
have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards
The financial statements of the Company have been prepared in accordance with
Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the
Financial Reporting Standards Council from the pronouncements issued
by the International Accounting Standards Board (IASB).

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The financial statements have been prepared using the measurement bases
specified by PFRS for each type of asset, liability, income and expenses. The
measurement bases are more fully described in the accounting policies that follow.
(b) Presentation of Financial Statements
The financial statements are presented in accordance with Philippine Accounting
Standards (PAS) 1, Presentation of Financial Statements. The Company presents all items
of income and expenses in a single statement of comprehensive income. Two
comparative periods are presented for the statement of financial position when the
Company applies an accounting policy retrospectively, makes a retrospective
restatement of items in its financial statements, or reclassifies items in the financial
statements.
(c)

Functional and Presentation Currency

These financial statements are presented in Philippine pesos, the Companys
functional and presentation currency, and all values represent absolute amounts
except when otherwise indicated.
Items included in the financial statements of the Company are measured using its
functional currency, the currency of the primary economic environment in which the
entity operates.

2.2 Adoption of New and Amended PFRS

(a) Effective in 2012 that is Relevant to the Company
In 2012, the Company adopted PFRS 7 (Amendment), Financial Instruments:
Disclosures Transfers of Financial Assets, effective for financial statements for the annual
periods beginning on or after July 1, 2011. The amendment requires additional
disclosures that will allow users of financial statements to understand the relationship
between transferred financial assets that are not derecognized in their entirety and the
associated liabilities; and, to evaluate the nature of, and risk associated with any
continuing involvement of the reporting entity in financial assets that are
derecognized in their entirety. The Company did not transfer any financial asset
involving this type of arrangement; hence, the amendment did not result in any
significant change in the Companys disclosures in its financial statements.
(b)

Effective in 2012 that are not Relevant to the Company

The following amendments and improvement to PFRS are mandatory for accounting
periods beginning on or after July 1, 2011 or January 1, 2012 but are not relevant to
the Companys financial statements:
PFRS 1 (Amendment)
PAS 12 (Amendment)

: First time adoption of PFRS

Severe Hyperinflation and Removal
of Fixed Date for First-time Adopters
: Income Taxes Deferred Tax:
Recovery of Underlying Assets

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(c)

Effective Subsequent to 2012 but not Adopted Early

There are new PFRS, amendments and annual improvements to existing standards
that are effective for periods subsequent to 2012. Management has initially
determined the following pronouncements, which the Company will apply in
accordance with their transitional provisions, to be relevant to its financial
statements:
(i)

PAS 1 (Amendment), Financial Statements Presentation Presentation of Items of

Other Comprehensive Income (effective from July 1, 2012). The amendment
requires an entity to group items presented in other comprehensive income
into those that, in accordance with other PFRSs: (a) will not be reclassified
subsequently to profit or loss and (b) will be reclassified subsequently to profit
or loss when specific conditions are met. The Companys management
expects that this will not change the current presentation of items in other
comprehensive income.

(ii) PAS 19 (Revised), Employee Benefits (effective from January 1, 2013). The
revision made a number of changes as part of the improvements throughout
the standard. The main changes relate to defined benefit plans as follows:

eliminates the corridor approach under the existing guidance of PAS 19

and requires an entity to recognize all actuarial gains and losses arising in
the reporting period;

streamlines the presentation of changes in plan assets and liabilities

resulting in the disaggregation of changes into three main components of
service costs, net interest on net defined benefit obligation or asset, and
remeasurement; and,

enhances disclosure requirements, including information about the

characteristics of defined benefit plans and the risks that entities are
exposed to through participation in those plans.

Currently, the Company is using the corridor approach and its unrecognized
actuarial loss as at December 31, 2012 which amounts to P1.1 million
(see Note 14.2) which will be retrospectively recognized as loss in other
comprehensive income in 2013.
(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures Offsetting Financial
Assets and Financial Liabilities (effective from January 1, 2013). The amendment
requires qualitative and quantitative disclosures relating to gross and net
amounts of recognized financial instruments that are set-off in accordance
with PAS 32, Financial Instruments: Presentation. The amendment also requires
disclosure of information about recognized financial instruments which are
subject to enforceable master netting arrangements or similar agreements,
even if they are not set-off in the statement of financial position, including
those which do not meet some or all of the offsetting criteria under PAS 32
and amounts related to a financial collateral. These disclosures will allow
financial statement users to evaluate the effect or potential effect of netting
arrangements, including rights of set-off associated with recognized financial
assets and financial liabilities on the entitys financial position. The Company
has initially assessed that the adoption of the amendment will not have a
significant impact on its financial statements.
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(iv) PFRS 13, Fair Value Measurement (effective from January 1, 2013). This
standard aims to improve consistency and reduce complexity by providing a
precise definition of fair value and a single source of fair value measurement
and disclosure requirements for use across PFRS. The requirements do not
extend the use of fair value accounting but provide guidance on how it should
be applied where its use is already required or permitted by other standards.
Management is in the process of reviewing its valuation methodologies for
conformity with the new requirements and has yet to assess the impact of the
new standard on the Companys financial statements.
(v) PAS 32 (Amendment), Financial Instruments: Presentation Offsetting Financial
Assets and Financial Liabilities (effective from January 1, 2014). The amendment
provides guidance to address inconsistencies in applying the criteria for
offsetting financial assets and financial liabilities. It clarifies that a right of setoff is required to be legally enforceable, in the normal course of business; in
the event of default; and in the event of insolvency or bankruptcy of the entity
and all of the counterparties. The amendment also clarifies the principle
behind net settlement and provided characteristics of a gross settlement
system that would satisfy the criterion for net settlement. The Company does
not expect this amendment to have a significant impact on its financial
statements.
(vi) PFRS 9, Financial Instruments: Classification and Measurement (effective from

January 1, 2015). This is the first part of a new standard on financial

instruments that will replace PAS 39, Financial Instruments: Recognition and
Measurement, in its entirety. This chapter covers the classification and
measurement of financial assets and financial liabilities and it deals with two
measurement categories for financial assets: amortized cost and fair value. All
equity instruments will be measured at fair value while debt instruments will
be measured at amortized cost only if the entity is holding it to collect
contractual cash flows which represent payment of principal and interest. The
accounting for embedded derivatives in host contracts that are financial assets
is simplified by removing the requirement to consider whether or not they are
closely related, and, in most arrangement, does not require separation from the
host contract.
For liabilities, the standard retains most of the PAS 39 requirements which
include amortized cost accounting for most financial liabilities, with
bifurcation of embedded derivatives. The main change is that, in case where
the fair value option is taken for financial liabilities, the part of a fair value
change due to an entitys own credit risk is recorded in other comprehensive
income rather than in profit or loss, unless this creates an accounting
mismatch.
To date, other chapters of PFRS 9 dealing with impairment methodology and
hedge accounting are still being completed.
Further, in November 2011, the IASB tentatively decided to consider making
limited modifications to International Financial Reporting Standard (IFRS) 9s
financial asset classification model to address certain application issues.

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The Company does not expect to implement and adopt PFRS 9 until its
effective date. In addition, management is currently assessing the impact of
PFRS 9 on the financial statements of the Company and it plans to conduct a
comprehensive study of the potential impact of this standard prior to its
mandatory adoption date to assess the impact of all changes.
(vii) 2009-2011 Annual Improvements to PFRS. Annual improvements to PFRS
(2009-2011 Cycle) made minor amendments to a number of PFRS, which are
effective for annual periods beginning on or after January 1, 2013. Among
those improvements, the following amendments are relevant to the Company
but management does not expect a material impact on the Companys
financial statements:
(a) PAS 1 (Amendment), Presentation of Financial Statements Clarification of the
Requirements for Comparative Information. The amendment clarifies the
requirements for presenting comparative information for the following:
Requirements for opening statement of financial position
If an entity applies an accounting policy retrospectively, or makes a
retrospective restatement or reclassification of items that has a material
effect on the information in the statement of financial position at the
beginning of the preceding period (i.e., opening statement of financial
position), it shall present such third statement of financial position.
Other than disclosure of certain specified information in accordance
with PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors,
related notes to the opening statement of financial position as at the
beginning of the preceding period are not required to be presented.
Requirements for additional comparative information beyond
minimum requirements
If an entity presented comparative information in the financial
statements beyond the minimum comparative information
requirements, the additional financial statements information should be
presented in accordance with PFRS including disclosure of
comparative information in the related notes for that additional
information. Presenting additional comparative information voluntarily
would not trigger a requirement to provide a complete set of financial
statements.
(b) PAS 16 (Amendment), Property, Plant and Equipment Classification of
Servicing Equipment. The amendment addresses a perceived inconsistency
in the classification requirements for servicing equipment which resulted
in classifying servicing equipment as part of inventory when it is used for
more than one period. It clarifies that items such as spare parts, stand-by
equipment and servicing equipment shall be recognized as property, plant
and equipment when they meet the definition of property, plant and
equipment, otherwise, these are classified as inventory.

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(c) PAS 32 (Amendment), Financial Instruments : Presentation Tax Effect of

Distributions to Holders of Equity Instruments. The amendment clarifies that
the consequences of income tax relating to distributions to holders of an
equity instrument and to transaction costs of an equity transaction shall be
accounted for in accordance with PAS 12. Accordingly, income tax
relating to distributions to holders of an equity instrument is recognized in
profit or loss while income tax related to the transaction costs of an equity
transaction is recognized in equity.

2.3 Financial Assets

Financial assets are recognized when the Company becomes a party to the contractual
terms of the financial instrument. Financial assets other than those designated and
effective as hedging instruments are classified into the following categories: financial
assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity
investments and available-for-sale financial assets. Financial assets are assigned to the
different categories by management on initial recognition, depending on the purpose for
which the investments were acquired.
Regular purchases and sales of financial assets are recognized on their trade date. All
financial assets that are not classified as at FVTPL are initially recognized at fair value
plus any directly attributable transaction costs. Financial assets carried at FVTPL are
initially recorded at fair value and related transaction costs that are recognized in profit or
loss.
The financial assets currently category relevant to the Company is loans and receivables.
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise when the Company
provides money, goods or services directly to a debtor with no intention of trading the
receivables. They are included in current assets, except for maturities greater than
12 months after the end of the reporting period which are classified as non-current assets.
Loans and receivables are subsequently measured at amortized cost using the effective
interest method for maturities extending beyond one year, less impairment losses. Any
change in their value is recognized in profit or loss. Impairment loss is provided when
there is objective evidence that the Company will not be able to collect all amounts due
to it in accordance with the original terms of the receivables. The amount of the
impairment loss is determined as the difference between the assets carrying amount and
the present value of estimated cash flows.
The Companys financial assets categorized as loans and receivables are presented as
Cash and Cash Equivalents, Trade and Other Receivables (except deposit on purchases)
and Other Non-current Assets, with respect to security deposits included therein, in the
statement of financial position. Cash and cash equivalents are defined as cash on hand,
demand deposits and short-term, highly liquid investments readily convertible to known
amounts of cash and which are subject to insignificant risk of changes in value.
All income and expenses, except impairment loss on trade and other receivables which is
considered administrative expense, relating to financial assets that are recognized in profit
or loss are presented as part of Finance Costs (Income) in the statement of
comprehensive income.

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Non-compounding interest, and other cash flows resulting from holding financial assets
are recognized in profit or loss when earned, regardless of how the related carrying
amount of financial assets is measured.
Derecognition of financial assets occurs when the rights to receive cash flows from the
financial instruments expire or are transferred and substantially all of the risks and
rewards of ownership have been transferred.

2.4 Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined
using the first-in, first-out method. Finished goods and work-in-process include the
cost of raw materials, direct labor and a proportion of manufacturing overhead based
on normal operating capacity. The cost of raw materials include all costs directly
attributable to acquisitions, such as the purchase price, import duties and other taxes
that are not subsequently recoverable from taxing authorities.
Net realizable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and the estimated costs necessary to make the
sale. Net realizable value of raw materials is the current replacement cost.

2.5 Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and
amortization and any impairment loss. The cost of an asset comprises its purchase price
and directly attributable costs of bringing the asset to working condition for its intended
use. Expenditures for additions, major improvements and renewals are capitalized;
expenditures for repairs and maintenance are charged to expense as incurred.
Depreciation is computed on a straight-line basis over the estimated useful lives of the
assets as follows and any impairment loss:
Plant, machinery and equipment
Laboratory tools and equipment

2 to 10 years
1 to 10 years

Leasehold improvements are amortized over the term of the lease or useful lives of the
assets of 1 to 10 years, whichever is shorter.
Fully depreciated assets are retained in the accounts until these are no longer in use. No
further charge for depreciation is made in respect of those accounts.
Construction-in-progress represents properties undergoing construction. It is stated at
cost which includes cost of construction, applicable borrowing cost (see Note 2.15) and
other direct costs. This account is not depreciated until such time that the assets are
completed and available for use.
An assets carrying amount is written down immediately to its recoverable amount if the
assets carrying amount is greater than its estimated recoverable amount (see Note 2.13).
The residual values and estimated useful lives of property, plant and equipment are
reviewed, and adjusted if appropriate, at the end of each reporting period.

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An item of property, plant and equipment, including related accumulated depreciation

and amortization and impairment losses, if any, is derecognized upon disposal or when
no future economic benefits are expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the item) is included in the
statement of comprehensive income in the year the item is derecognized.

2.6 Prepayments and Other Assets

Prepayment and other assets pertain to the other resources controlled by the Company as
a result of past events. They are recognized in the financial statements when it is
probable that the future economic benefits will flow to the entity and the asset has a cost
or value that can be measured reliably.
Other recognized assets of similar nature, where future economic benefits are expected
to flow to the Company beyond one year after the end of the reporting period (or in the
normal operating cycle of the business, if longer), are classified as non-current assets.

2.7 Trademarks
The cost of trademarks is the amount of cash or cash equivalents paid or the fair value of
the other considerations given up to acquire the trademark. The Companys trademark is
not amortized but tested for impairment annually [see Notes 2.13
and 3.1(a)].

2.8 Financial Liabilities

Financial liabilities of the Company include trade and other payables (excepts tax-related
liabilities) and due to related parties which are recognized when the Company becomes a
party to the contractual terms of the instrument. These are recognized initially at their
fair value and subsequently measured at amortized cost, using effective interest method
for maturities of more than one year less settlement payments. All interest-related
charges are recognized as an expense in profit or loss under the caption Finance Costs
(Income) in the statement of comprehensive income.
Financial liabilities are classified as current liabilities if payment is due to be settled within
one year or less after the end of the reporting period (or in the normal operating cycle of
the business, if longer), or the Company does not have an unconditional right to defer
settlement of liability for at least twelve months after the end of the reporting period.
Otherwise, these are presented as non-current liabilities.
Financial liabilities are derecognized from the statement of financial position only when
the obligations are extinguished either through discharge, cancellation or expiration.

2.9 Offsetting Financial Instruments

Financial assets and liabilities are offset and the resulting net amount is reported in the
statement of financial position when there is a legally enforceable right to set off the
recognized amounts and there is an intention to settle on a net basis, or realize the asset
and settle the liability simultaneously.

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2.10 Provisions and Contingencies

Provisions are recognized when present obligations will probably lead to an outflow of
economic resources and they can be estimated reliably even if the timing or amount of
the outflow may still be uncertain. A present obligation arises from the presence of a
legal or constructive obligation that has resulted from past events.
Provisions are measured at the estimated expenditure required to settle the present
obligation, based on the most reliable evidence available at the end of the reporting
period, including the risks and uncertainties associated with the present obligation.
Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole.
When time value of money is material, long-term provisions are discounted to their
present values using a pretax rate that reflects market assessments and the risks specific to
the obligation. The increase in the provision due to passage of time is recognized as
interest expense. The provisions are reviewed at the end of each reporting period and
adjusted to reflect the current best estimate.
In those cases where the possible outflow of economic resource as a result of present
obligations is considered improbable or remote, or the amount to be provided for cannot
be measured reliably, no liability is recognized in the financial statements. Similarly,
possible inflows of economic benefits to the Company that do not yet meet the
recognition criteria of an asset are considered contingent assets, hence, are not recognized
in the financial statements. On the other hand, any reimbursement that the Company
can be virtually certain to collect from a third party with respect to the obligation is
recognized as a separate asset not exceeding the amount of the related provision.

2.11 Revenue and Expense Recognition

Revenue comprise of revenue from the sale of goods are measured by reference to the
fair value of consideration received or receivable by the Company for goods sold
excluding vlue-added tax (VAT).
Revenue is recognized to the extent that the revenue can be reliably measured; it is
probable that the economic benefits will flow to the Company; and the costs incurred or
to be incurred can be measured reliably. In addition, the following specific recognition
criteria must also be met before revenue is recognized:
(a) Sale of goods Revenue is recognized when the risks and rewards of ownership of the
goods have passed to the buyer, i.e. generally when the customer has acknowledged
delivery of goods.
(b) Interest income Recognized as the interest accrues taking into account the effective
yield on the asset.
Costs and expenses are recognized in profit or loss upon receipt of goods and/or
utilization of services or at the date they are incurred. All finance costs are reported in
profit or loss on an accrual basis.

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2.12 Leases Company as Lessee

Leases, which do not transfer to the Company substantially all the risks and benefits of
ownership of the asset, are classified as operating leases. Operating lease payments are
recognized as expense in the statement of comprehensive income on a straight-line basis
over the lease term. Associated costs, such as repairs and maintenance and insurance, are
expensed as incurred.
The Company determines whether an arrangement is, or contains, a lease based on the
substance of the arrangement. It makes an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset.

2.13 Impairment of Non-financial Assets

The Companys trademarks, having an indefinite useful life, are tested for impairment
annually. Property, plant and equipment and other nonfinancial are tested for
impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable.
For purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating unit). As a result, assets are
tested for impairment either individually or at the cash-generating unit level.
Impairment loss is recognized for the amount by which the assets or cash-generating
units carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of fair value, reflecting market conditions less costs to sell, and value in use, based
on an internal evaluation of discounted cash flow. Impairment loss is charged pro-rata to
other assets in the cash-generating unit.
All assets are subsequently reassessed for indications that an impairment loss previously
recognized may no longer exist and the carrying amount of the asset is adjusted to the
recoverable amount resulting in the reversal of the impairment loss.

2.14 Employee Benefits

The Company provides post-employment benefits to employees through a defined
benefit plan.
(a) Post-employment Benefits
A defined benefit plan is a post-employment plan that defines an amount of
post-employment benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and salary. The
legal obligation for any benefits from this kind of post-employment plan remains
with the Company, even if plan assets for funding the defined benefit plan have
been acquired. Plan assets may include assets specifically designated to a
long-term benefit fund, as well as qualifying insurance policies. The Companys
post-employment defined benefit pension plan covers all regular full-time
employees. The pension plan is tax-qualified, noncontributory and administered by
a trustee bank.

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The assets recognized in the statement of financial position for post-employment

defined benefit pension plans is the present value of the defined benefit obligation
(DBO) at the end of the reporting period less the fair value of plan assets, together
with adjustments for unrecognized actuarial gains or losses and past service costs.
The DBO is calculated regularly by independent actuaries using the projected
unit credit method. The present value of the DBO is determined by discounting
the estimated future cash outflows using interest rates of high quality corporate
bonds that are denominated in the currency in which the benefits will be paid and
that have terms to maturity approximating to the terms of the related
post-employment liability.
Actuarial gains and losses are not recognized as an income or expense unless the
total unrecognized gain or loss exceeds 10% of the greater of the obligation and
related plan assets. The amount exceeding this 10% corridor is charged or credited
to profit or loss over the employees expected average remaining working lives.
Actuarial gains and losses within the 10% corridor are disclosed separately. Past
service costs are recognized immediately in profit or loss, unless the changes to the
post-employment plan are conditional on the employees remaining in service for a
specified period of time (the vesting period). In this case, the past-service costs are
amortized on a straight-line basis over the vesting period.
(b) Termination Benefits
Termination benefits are payable when employment is terminated by the Company
before the normal retirement date, or whenever an employee accepts voluntary
redundancy in exchange for these benefits. The Company recognizes termination
benefits when it is demonstrably committed to either: (a) terminating the
employment of current employees according to a detailed formal plan without
possibility of withdrawal; or (b) providing termination benefits as a result of an
offer made to encourage voluntary redundancy. Benefits falling due more than
12 months after the reporting period are discounted to present value.
(c) Compensated Absences
Compensated absences are recognized for the number of paid leave days
(including holiday entitlement) remaining at the end of the reporting period. They
are included in the Trade and Other Payables account in the statement of financial
position at the undiscounted amount that the Company expects to pay as a result of
the unused entitlement.

2.15 Borrowing Costs

Borrowing costs are recognized as expense in the period in which they are incurred,
except to the extent that they are capitalized. Borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying asset (i.e., an
asset that takes a substantial period of time to get ready for its intended use or sale) are
capitalized as part of the cost of such asset. The capitalization of borrowing costs
commences when expenditures for the asset and borrowing costs are being incurred and
activities that are necessary to prepare the asset for its intended use or sale are in
progress. Capitalization ceases when substantially all such activities are complete.

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2.16 Foreign Currency Transactions and Translation

The accounting records of the Company are maintained in Philippine pesos. Foreign
currency transactions during the year are translated into the functional currency at
exchange rates which approximate those prevailing on transaction dates.
Foreign currency gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the statement of comprehensive
income as part of profit or loss from operations.

2.17 Income Taxes

Tax expense recognized in profit or loss comprises the sum of deferred tax and current
tax not recognized in other comprehensive income or directly in equity, if any.
Current tax assets or liabilities comprise those claims from, or obligations to, fiscal
authorities relating to the current or prior reporting period, that are uncollected or unpaid
at the end of the reporting period. They are calculated using the tax rates and tax laws
applicable to the fiscal periods to which they relate, based on the taxable profit for the
year. All changes to current tax assets or liabilities are recognized as a component of tax
expense in profit or loss.
Deferred tax is accounted for using the liability method, on temporary differences at the
end of the reporting period between the tax base of assets and liabilities and their
carrying amounts for financial reporting purposes. Under the liability method, with
certain exceptions, deferred tax liabilities are recognized for all taxable temporary
differences and deferred tax assets are recognized for all deductible temporary differences
and the carryforward of unused tax losses and unused tax credits to the extent that it is
probable that taxable profit will be available against which the deductible temporary
differences can be utilized. Unrecognized deferred tax assets are reassessed at the end of
each reporting period and are recognized to the extent that it has become probable that
future taxable profit will be available to allow such deferred tax assets to be recovered.
The carrying amount of deferred tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
to the period when the asset is realized or the liability is settled provided such tax rates
have been enacted or substantively enacted at the end of the reporting period.
Most changes in deferred tax assets or liabilities are recognized as a component of tax
expense in profit or loss. Only changes in deferred tax assets or liabilities that relate to
items recognized in other comprehensive income or directly in equity are recognized in
other comprehensive income or directly in equity.
The Company establishes liabilities for probable and estimable assessments by the Bureau
of Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent
a reasonable provision for taxes ultimately expected to be paid and may need to be
adjusted over time as more information becomes available.

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2.18 Related Party Relationships and Transactions

Related party transactions are transfer of resources, services or obligations between the
Company and its related parties, regardless whether a price is charged.
Parties are considered to be related if one party has the ability to control the other party
or exercise significant influence over the other party in making financial and operating
decisions. These parties include: (a) individuals owning, directly or indirectly through one
or more intermediaries, control or are controlled by, or under common control with the
Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the Company that gives them significant influence over the Company
and close members of the family of any such individual; and, (d) the Companys
retirement plan.
In considering each possible related party relationship, attention is directed to the
substance of the relationship and not merely on the legal form.

2.19 Equity
Capital stock represents the nominal value of shares that have been issued.
Deposits for future stock subscriptions represent deposits from the parent company as
payment for future subscriptions.
Retained earnings represent all current and prior period results of operations as reported
in the profit or loss section of the statements of comprehensive income.

2.20 Events After the End of the Reporting Period

Any post-year-end event that provides additional information about the Companys
financial position at the end of the reporting period (adjusting event) is reflected in the
financial statements. Post-year-end events that are not adjusting events, if any, are
disclosed when material to the financial statements.
3.

SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Companys financial statements prepared in accordance with PFRS require
management to make judgments and estimates that affect amounts reported in the
financial statements and related notes. Judgments and estimates are continually evaluated
and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. Actual results may
ultimately differ from these estimates.

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3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Companys accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the financial statements:
(a) Determining the Useful Lives of Trademark
Under the Intellectual Property Code of the Philippines, the legal life of trademark is
10 years and may be renewed every other 10 years. However, considering that the
management does not expect any circumstances or events which will cause it to
decide not to renew its trademarks every 10 years, management has taken the
position that the useful lives of its trademarks is indefinite; hence its costs is not
amortized but subjected to annual impairment testing (see Note 2.7 and 2.13).
Changes in assumption and circumstances in the future will substantially affect the
financial statements of the Company, particularly the carrying value of assets.
No impairment loss on trademark was recognized in both years based on
management evaluation.
(b) Distinction between Operating and Finance Leases
The Company has entered into various lease agreements as a lessee. Judgment was
exercised by management to distinguish each lease agreement as either an operating
or finance lease by looking at the transfer or retention of significant risk and rewards
of ownership of the properties covered by the agreements. Failure to make the right
judgment will result in either overstatement or understatement of assets and
liabilities. Based on managements judgment such leases were determined to be
operating leases.
(c) Recognition of Provisions and Contingencies
Judgment is exercised by management to distinguish between provisions and
contingencies. Accounting policies on provisions and contingencies are discussed in
Notes 2.10 and relevant disclosures are presented in Note 18.

3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year:
(a) Impairment of Trade and Other Receivables
Adequate amount of allowance is made for specific and groups of accounts, where
objective evidence of impairment exists. The Company evaluates these accounts
based on available facts and circumstances, including, but not limited to, the length
of the Companys relationship with the customers, the customers current credit
status based on known market forces, average age of accounts, collection experience
and historical loss experience.
The carrying value of trade and other receivables and the analysis of allowance for
impairment on such financial assets are shown in Note 6.
F-397

- 15 -

(b) Determining Net Realizable Value of Inventories

In determining the net selling prices of inventories, management takes into account
the most reliable evidence available at the times the estimates are made. It also takes
into consideration the obsolescence of the inventory in determining net realizable
value. The future realization of the carrying amounts of inventories as disclosed in
Note 7 is affected by price changes in different market segments. These aspects are
considered key sources of estimation uncertainty and may cause significant
adjustments to the Companys inventories within the next financial year.
No impairment loss on inventory was recognized in both years based on
managements assessment..
(c)

Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment, except
land, based on the period over which the assets are expected to be available for use.
The estimated useful lives of property, plant and equipment are reviewed
periodically and are updated if expectations differ from previous estimates due to
physical wear and tear, technical or commercial obsolescence and legal or other
limits on the use of the assets.
The carrying amounts of property, plant and equipment are analyzed in Note 9.
Based on managements assessment as at December 31, 2012 and 2011 there is no
change in estimated useful lives of property, plant and equipment during those years.
Actual results, however, may vary due to changes in estimates brought about by
changes in factors mentioned above.

(d) Determining Recoverable Value of Deferred Tax Assets

The Company reviews its deferred tax assets at the end of each reporting period and
reduces the carrying amount to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be
utilized.
The Company did not recognize any deferred tax assets as at December 31, 2012 and
2011 as the management believes that it cannot realize the tax benefits from its
deductible temporary differences in the foreseeable future. The details of deferred
tax assets that were not recognized by the Company are disclosed in Note 15.
(e)

Impairment of Non-financial Assets

Except for trademarks with indefinite useful lives which are reviewed for
impairment annually or regularly, PFRS requires that an impairment review be
performed when certain impairment indicators are present. The Companys policy
on estimating the impairment of non-financial assets is discussed in detail in
Note 2.13. Though management believes that the assumptions used in the
estimation of fair values reflected in the financial statements are appropriate and
reasonable, significant changes in these assumptions may materially affect the
assessment of recoverable values and any resulting impairment loss could have a
material adverse effect on the results of operations.
No impairment loss on non-financial assets was recognized both in 2012 and 2011.

F-398

- 16 -

(f)

Valuation of Post-employment Defined Benefit

The determination of the Companys obligation and cost of post-employment
defined benefit are dependent on the selection of certain assumptions used by
actuaries in calculating such amounts. Those assumptions are described in
Note 14.2 and include, among others, discount rates, expected return on plan assets,
salary increase rate and employee turnover. In accordance with PFRS, actual results
that differ from the assumptions are accumulated and amortized over future periods
and therefore, generally affect the recognized expense and recorded obligation in
such future periods.
The amount of retirement benefit asset and expense and an analysis of the
movements in the estimated present value of retirement benefit asset are presented
in Note 14.2.

4.

RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company is exposed to certain financial risks in relation to financial instruments.
The Companys financial assets and liabilities by category are summarized in Note 19.
The main types of risks are market risk, credit risk and liquidity risk.
The Companys risk management is coordinated with its Board of Directors, and focuses
on actively securing the Companys short to medium-term cash flows by minimizing the
exposure to financial markets.
The Company does not engage in the trading of financial assets for speculative purposes
nor does it write options. The most significant financial risks to which the Company is
exposed to are described below.

4.1 Credit Risk

Credit risk is the risk that a counterparty may fail to discharge an obligation to the
Company. The Company is exposed to this risk for various financial instruments, for
example by granting loans and receivables to customers and placing deposits.
The Company continuously monitors defaults of customers and other counterparties,
identified either individually or by group, and incorporate this information into its credit
risk controls. The Companys policy is to deal only with creditworthy counterparties. In
addition, for a significant portion of sales, advance payments are received to mitigate
credit risk.
Generally, the maximum credit risk exposure of financial assets is the carrying amount of
the financial assets as shown on the statements of financial position (or in detailed
analysis provided in the notes to the financial statements), as summarized below.
Notes
Cash and cash equivalents
Trade and other
receivables net
Security deposits

5
6
10

36,933,115

25,373,381
211,381,610
1,780,295

254,367,946
1,780,295
P 293,081,356

F-399

2011

2012

238,535,286

- 17 -

(a) Cash and Cash Equivalents

The credit risk for cash and cash equivalents is considered negligible, since the
counterparties are reputable banks with high quality external credit ratings. Included in
the cash and cash equivalents are cash in banks and short-term placements. As part of
Company policy, bank deposits are only maintained with reputable financial institutions.
Cash in banks which are insured by the Philippine Deposit Insurance Corporation
(PDIC) up to a maximum coverage of P500,000 per depositor per banking institution, as
provided for under Republic Act (RA) No. 9576, Charter of PDIC, are still subject to credit
risk.
(b) Trade and Other Receivables
In respect of trade and other receivables, the Company is not exposed to any significant
credit risk exposure to any single counterparty or any group of counterparties having
similar characteristics. Trade receivables consist of a large number of customers in
various industries and geographical areas. Based on historical information about
customer default rates management consider the credit quality of trade receivables that
are not past due or impaired to be good.
Some of the unimpaired trade receivables are past due as at the end of the reporting
period. Trade receivables that are past due but not impaired are as follows:
2011

2012
Not more than three months
More than three months but not more
than six months

48,647,741

6,990,171

24,223,084
P

72,870,825

33,623,543

40,613,714

4.2 Liquidity Risk

The Company manages its liquidity needs by carefully monitoring scheduled debt
servicing payments for long-term financial liabilities as well as cash outflows due in
day-to-day business. Liquidity needs are monitored in various time bands, on a
day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.
Long-term liquidity needs for a 6-month and one-year period are identified monthly.
The Company maintains cash to meet its liquidity requirements for up to 60-day periods.
Funding for long-term liquidity needs is additionally secured by an adequate amount of
committed credit facilities and the ability to sell long-term financial assets.
In 2012 and 2011, the Companys financial liabilities have contractual maturities within
six months.

F-400

- 18 -

5.

CASH AND CASH EQUIVALENTS

The breakdown of this account as of December 31 follows:
2011

2012
Cash in banks
Cash on hand
Short-term placements

35,381,811
508,800
1,042,504

24,961,420
411,961
-

36,933,115

25,373,381

Cash in banks generally earn interest at rates based on daily bank deposit rates.
Short-term placements are made for varying periods of between 30 to 90 days and earn
effective interest ranging from 1.63% to 2.25% for both years. There was no
short-term placement as at December 31, 2011. Interest income earned amounting to
P165,794 and P139,218 in 2012 and 2011, respectively and presented as part of Finance
Costs - net in the statements of comprehensive income (see Note 13).
6.

TRADE AND OTHER RECEIVABLES

This account (see also Note 4.1) is composed of the following:
2011

2012
Trade receivables
Others

P 252,608,378 P 217,449,658
5,626,142
2,883,290
258,234,520
220,332,948
(
6,853,755 ) (
6,340,995 )

Allowance for impairment

P 251,380,765

P 213,991,953

Trade receivables are usually due within 30 to 90 days and do not bear any interest.
The Companys trade and other receivables, which are subject to credit risk exposure
(see Note 4.1), have been reviewed for indicators of impairment. Certain trade
receivables were identified to be impaired; hence, adequate amount of allowance for
impairment has been recorded.
A reconciliation of the allowance for impairment at the beginning and end of 2012 and
2011 is shown below.
Note
Balance at beginning of year
Impairment loss during the year
Balance at end of year

2011

2012
P

6,340,995
512,760

6,021,126
319,869

6,853,755

6,340,995

12

Due to their short duration, the net carrying amounts of trade and other receivables is a
reasonable approximation of fair values.

F-401

- 19 -

7.

INVENTORIES
All inventories at the end of 2012 and 2011 are stated at cost and are broken down as
follows:
Note

2012

2011

12
12

P 314,973,334
138,937,009

P 416,825,250
135,545,967

6,073,706

7,723,178

P 459,984,049

P 560,094,395

Finished goods
Raw materials
Packaging materials and
other supplies

Raw materials include items in transit amounting to P29,059,345 and P9,866,353 as at

December 31, 2012 and 2011, respectively. The cost of inventories charged to operations
in 2012 and 2011 are analysed in Note 12.
8.

PREPAYMENTS AND OTHER CURRENT ASSETS

The composition of this account is shown below.
Note
Input VAT
Prepaid taxes
Others

21.1(b)

2011

2012
P

40,180,862
24,007,117
1,064,157

40,794,187
18,462,173
1,175,977

65,252,136

60,432,337

The Companys prepaid taxes represent taxes withheld by the Companys customers
amounting to P23,189,873 and P17,644,949 as at December 31, 2012 and 2011,
respectively, and tax credit certificates issued by the Bureau of Customs (BOC)
amounting to P817,244 as at December 31, 2012 and 2011.

F-402

- 20 -

9.

PROPERTY, PLANT AND EQUIPMENT

The gross carrying amounts and accumulated depreciation and amortization of property,
plant and equipment at the beginning and end of 2012 and 2011, are shown below.
Plant,
Machinery and
Equipment
December 31, 2012
Cost
Accumulated
depreciation
and amortization

86,677,856 ) (
P

Constructionin-Progress

4,323,334 ) (

14,105,279

Total

12,677,596 )

P 125,734,333
(

103,678,786 )

697,392

1,427,683

P 104,956,773

4,615,406

13,891,615

P 123,463,794

77,093,388 ) (

3,977,007 ) (

10,689,222 )

27,863,385

638,399

3,202,393

91,088,979

4,124,558

11,155,442

Net carrying amount

5,020,726

Leasehold
Improvements

19,930,472

Net carrying amount

January 1, 2011
Cost
Accumulated
depreciation
and amortization

P 106,608,328

Net carrying amount

December 31, 2011
Cost
Accumulated
depreciation
and amortization

Laboratory
Tools and
Equipment

66,255,721 ) (
P

24,833,258

3,668,861 ) (
P

455,697

7,642,595 )
P

91,759,617 )
P

17,037,594
-

3,512,847

22,055,547

31,704,177

P 123,406,573
(

17,037,594

77,567,177 )
P

45,839,396

A reconciliation of the carrying amounts of property, plant and equipment at the

beginning and end of 2012 and 2011, is presented below.
Plant,
Machinery and
Equipment
Balance at
January 1, 2012,
net of accumulated
depreciation and
amortization
Additions
Depreciation and
amortization
charges for the year

Balance at
December 31, 2012,
net of accumulated
depreciation and
amortization
Balance at
January 1, 2011,
net of accumulated
depreciation and
amortization
Additions
Reclassification
Depreciation and
amortization
charges for the year
Balance at
December 31, 2011,
net of accumulated
depreciation and
amortization

Laboratory
Tools and
Equipment

27,863,385
1,651,554

9,584,467 ) (

638,399
405,321

Leasehold
Improvements

Constructionin-Progress

346,328 ) (

3,202,393
213,664
1,988,374 )

19,930,472

697,392

1,427,683

24,833,258
57,221
13,810,573

455,697
490,848

3,512,847
2,736,173

10,837,667 ) (

27,863,385

308,146 ) (

F-403

638,399

3,046,627 )

3,202,393

31,704,177
2,270,539
11,919,169 )

22,055,547

17,037,594 P
17,037,594 )

45,839,396
57,221
-

Total

14,192,440 )

31,704,177

- 21 -

In 2011, certain assets amounting to P17,037,594 were completed and, accordingly,

reclassified to their appropriate classification within the Property, Plant and Equipment
account.
The cost of fully depreciated property, plant and equipment as at December 31, 2012 and
2011 which are still being used in operations amounts to P46,505,687 and P34,513,265,
respectively.
The depreciation and amortization for the year is allocated as follows:
Note
Cost of goods sold
Administrative expenses
12
10.

2011

2012
P

11,345,333
573,835

12,636,367
1,556,073

11,919,168

14,192,440

OTHER NON-CURRENT ASSETS

This account consists of:
Note
Trademarks
Security deposits
Returnable containers

3.1(a)

2011

2012
P

40,000,000
1,780,295
1,104,000

40,000,000
1,780,295
655,000

42,884,295

42,435,295

In July 2008, the Company purchased from General Milling Corporation (GMC) certain
trademarks owned and registered with the Intellectual Property Office under the name of
GMC. As discussed in Note 3.1(a), the Companys trademarks are subject to annual
impairment testing. No impairment losses were recognized in 2012 and 2011 as the
recoverable amounts of the trademarks were determined to be higher than their carrying
values.
Security deposits pertain to deposits required under the terms of the lease agreements of
the Company with certain lessors (see Note 18.1). The carrying amount of these deposits
is a reasonable approximation of its fair value based on management assessment as at
December 31, 2012 and 2011.
11.

TRADE AND OTHER PAYABLES

The composition of this account is shown below.
Note

2012

2011

17.1

P 330,953,655
35,881
3,293,313

P 312,873,691
2,057,667
2,985,809

P 334,282,849

P 317,917,167

Trade payables
Accrued expenses
Others

F-404

- 22 -

Due to the short duration of trade and other payables, management considers the carrying
amounts to be a reasonable approximation of fair values.
12.

COSTS AND EXPENSES BY NATURE

The details of costs and expenses by nature are shown below.
Notes
Milk and ingredients
Packaging and other materials
Advertisements
Changes in inventories of
finished goods
Forwarding and other
warehousing fees
Outside services
Freight
Merchandisers salary
Communication, light and water
Salaries and employee benefits
Gas, fuel and oil
Depreciation and amortization
Rentals
Taxes and licenses
Supplies
Repairs and maintenance
Impairment loss
on trade receivables
Miscellaneous

7
17.2

14
9
17.1, 18.1
21.1(f)

2011

2012
821,975,535
380,053,910
116,893,508

721,790,335
240,054,709
64,317,897

101,851,916

47,779,399

55,231,107
49,546,397
44,342,447
32,607,195
20,972,321
13,945,384
12,837,058
11,919,168
11,031,433
6,897,574
6,213,439
1,960,399

35,247,175
40,106,072
30,783,423
28,526,805
12,742,850
12,357,164
70,133
14,192,440
10,914,244
6,124,444
178,326
1,259,265

512,760
4,940,981

319,869
1,480,136

P 1,693,732,532

P 1,268,244,686

These expenses are classified in the statements of comprehensive income as follows:

Cost of goods sold

Selling expenses
Marketing expenses
Administrative expenses

F-405

2012

2011

P 1,419,592,252
131,551,269
119,270,662
23,318,349

P 1,088,308,409
94,115,732
64,472,398
21,348,147

P 1,693,732,532

P 1,268,244,686

- 23 -

Cost of goods sold for the years ended December 31, 2012 and 2011 consist of the
following:
Notes
Raw materials used:
Raw materials at beginning
of year
Net purchases during the year
Raw materials at end
of year
Direct labor

135,545,967
1,205,420,487

138,937,009) (
1,202,029,445

14

Manufacturing overhead:
Outside services
Communication, light
and water
Depreciation and
amortization
Rentals
Indirect labor
Repairs and maintenance
Supplies
Gas, fuel and oil
Others

9
17.1, 18.1
14

Total cost of goods manufactured

Finished goods at beginning
of year
Finished goods at end of year

7
7

348,324,445
749,066,566
135,545,967 )
961,845,044

1,000,537

751,657

39,432,092

31,954,958

20,877,595

12,599,068

11,345,333
11,024,845
8,230,077
1,953,615
6,171,109
12,834,545
2,841,143
114,710,354
1,317,740,336

12,636,367
10,906,609
6,692,786
1,157,785
135,809
44,209
1,804,718
77,932,309
1,040,529,010
464,604,649
416,825,250)

416,825,250
314,973,334) (

P 1,419,592,252

13.

2011

2012

P 1,088,308,409

FINANCE COSTS (INCOME)

The details of Finance Costs (Income) are presented below.
Note
Finance income
Finance costs
Other finance charges

(P

F-406

2011

2012
187,370) (P
124,025
145,422
82,077

158,321 )
261,567
233,998
337,244

- 24 -

14.

EMPLOYEE BENEFITS

14.1 Employee Benefits Expense

Expenses recognized for salaries and employee benefits are presented below
(see Note 12).
2011

2012
Short-term benefits
Post-employment benefits

13,557,311
388,073

11,830,280
526,884

13,945,384

12,357,164

The amount of employee benefits expense is allocated as follows:

Note
Cost of goods sold
Administrative expenses

2011

2012

12
12

9,230,614
4,714,770

7,444,443
4,912,721

13,945,384

12,357,164

14.2 Post-employment Benefits

The Company maintains a partially funded, tax qualified, noncontributory post-employment
benefit plan that is being administered by a trustee bank covering all regular full-time
employees.
The amount of retirement benefit asset recognized in the statements of financial position
is determined as follows:

Present value of the obligation

Fair value of plan assets
Unfunded obligation
Unrecognized actuarial losses

2012

2011

3,379,996
P
2,850,863 ) (
529,133
1,137,657 ) (

2,802,558
2,149,434 )
653,124
1,137,657 )

(P

608,524 ) (P

484,533 )

(
(

The movement in the present value of the retirement benefit obligation is as follows:
2011

2012
Balance at beginning of year
Current service and interest costs
Benefits paid
Actuarial loss

Balance at end of year

F-407

2,802,558
577,438
3,379,996

2,260,245
620,721
475,028 )
396,620

2,802,558

- 25 -

The movement in the fair value of plan assets is presented below.

2011

2012
Balance at beginning of year
Contributions paid into the plan
Benefits paid
Actuarial loss
Expected return on plan assets

2,149,434
512,064
189,365

1,872,842
752,672
475,028 )
111,694 )
110,642

2,149,434

(
(

2,850,863

Actual return (loss) on plan assets were P189,365 in 2012 and (P1,052) in 2011.
As at December 31, 2012, the Company has no definite plan of funding its retirement
benefit plan in 2013.
The major categories of plan assets as a percentage of the fair value of total plan assets
are as follows:

Cash
Government securities
Debt instruments
Others

2012

2011

10.59%
60.62%
19.65%
9.14%

8.34%
46.30%
35.73%
9.63%

Presented below are the historical information related to the present value of the
retirement benefit obligation, fair value of plan assets and excess or deficit in the plan.

Present value of the obligation

Fair value of plan assets
Deficit in the plan

2010

2011

2012

2009

2008

P 3,379,996 P 2,802,558 P 2,260,245 P 1,907,108 P1,253,261

2,850,863
2,149,434
1,872,842
996,681
487,564
(P 529,133)( P 653,124 ) (P 387,403 ) (P 910,427) (P 765,697)

Experience adjustments
arising on plan liabilities

(P 449,976 ) P

(P 851,376) P

Experience adjustments
arising on plan assets

(P 111,694 ) P

(P

17,673) P

The amounts of post-employment benefits expense recognized in the statements of

comprehensive income are as follows:
2011

2012
Current service costs
Interest costs
Expected return on plan assets
Net actuarial loss recognized in the year

F-408

419,881 P
157,557
189,365) (
-

411,648
209,073
110,642)
16,805

388,073

526,884

- 26 -

The amounts of post-retirement benefits expense are allocated as follows:

2011

2012
Cost of goods sold
Administrative expenses

335,103
52,970

405,190
121,694

388,073

526,884

For the determination of the present value of retirement benefit obligation, fair value of
plan assets and related expense, the following actuarial obligation were used:

Expected rate of return on plan assets

Expected rate of salary increases
Discount rates

2012

2011

8.81%
2.00%
5.62%

9.25%
2.00%
5.50%

Assumptions regarding future mortality are based on published statistics and mortality
tables. The average remaining working life of an individual, male and female, retiring at
the age of 60 is 25 years.
15.

CURRENT AND DEFERRED TAXES

The components of tax expense (all are current) as reported in profit or loss are as follows:
2011

2012
Regular corporate income tax
(RCIT) at 30%
Excess of minimum corporate
income tax (MCIT) at 2%
over RCIT
Final tax at 20% and 7.5%

7,341,848

133,950
27,844

33,159
P

7,375,007

3,723,053

3,884,847

A reconciliation of tax on pretax profit computed at the applicable statutory rates to tax
expense reported in the statements of comprehensive income is presented below.
2011

2012
Tax on pretax profit at 30%
Adjustment for income subjected to
lower income tax rates
Tax effects of:
Application of previously
unrecognized DTA on MCIT
Unrecognized deductible
temporary difference
Non-deductible expenses
Unrecognized DTA on MCIT
Tax expense

P
(
(

P
F-409

8,005,374

3,657,947

16,579 ) (

13,922)

740,840 )

110,638
16,414
-

82,450
24,422
133,950

7,375,007

3,884,847

- 27 -

The Company did not recognize net deferred tax assets totalling to P2,133,825 and
P2,764,027 as at December 31, 2012 and 2011, respectively, since their recoverability and
utilization is unlikely at this time based on the assessment of management. The net
deferred tax assets not recognized as at December 31, 2012 and 2011 pertain to the
following:
2011

2012
Amount
Allowance for impairment loss P
Unamortized past service cost
MCIT
Retirement benefit assets
(
Unrealized foreign
currency gain
(
P

Amount

Tax Effect
2,056,127
P
267,537
182,557 ) (

6,853,755
P
891,788
608,524 ) (

7,112,747

6,340,995
P
928,294
740,840
484,533 ) (

7,282 ) (

24,272 ) (
P

1,902,299
278,489
740,840
145,360 )

40,803 ) (
P

2,133,825

Tax Effect

7,484,793

12,241 )
P

2,764,027

The Company is subject to MCIT which is computed at 2% of gross income, as defined

under tax regulations, or RCIT, whichever is higher. In 2012, RCIT was higher than
MCIT while MCIT was higher in 2011.
As at December 31, 2012, the Company has fully utilized its MCIT amounting to
P740,840 which represents that total of MCIT incurred in 2011 (P133,950) and 2010
(P606,890).
In 2012 and 2011, the Company opted to claim itemized deductions in computing for its
income tax due.
16.

EQUITY

16.1 Capital Stock

Capital stock consists of common shares with details as follows:
Shares
Authorized P10 par value

Amount
2011

2012

2012

2011

5,000,000

5,000,000

Issued and outstanding:

Balance at beginning of year

4,062,500

312,500

Issuances during the year

Balance at end of year

4,062,500

3,750,000
4,062,500

40,625,000

937,500

9,375,000

40,625,000 P

3,125,000
37,500,000
40,625,000

Subscribed:
Balance at beginning of year

937,500

Subscription during the year

3,750,000

Issuances during the year

Balance at end of year

937,500

Subscription receivable

3,750,000 )
937,500
(
P

9,375,000
37,500,000

(
9,375,000

37,500,000 )
9,375,000

9,375,000)(

9,375,000 )

40,625,000 P

40,625,000

As at December 31, 2012 and 2011, the Company has three stockholders owning 100 or
more shares each of the Companys capital stock.

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16.2 Deposits on Future Stock Subscriptions

On October 18, 2012, the Company filed an application with the SEC for its proposed
increase in authorized capital stock from P50.0 million divided into 5,000,000 to
P500.0 million divided into 50,000,000 shares with the same value per share of P10. This
was previously approved by the Companys BOD on December 6, 2011. In compliance
with the SECs rules relating to the foregoing, the Company applied a portion of the
parent companys advances to the Company amounting to P45,500,000 and the parent
companys previously recognized Deposits for Future Stock Subscriptions amounting to
P150,383,200 as subscription payments. As at December 31, 2012, approval of the
application is still pending with the SEC. Accordingly, the subscription payments were
presented as Deposits for Future Stock Subscriptions in the statements of financial
position.
In December 2011, the Company issued 3,750,000 shares to a stockholder by applying
deposits on future stock subscription amounting to P37,500,000 on the subscription price
which equals the par value of the shares, hence, no additional paid-in-capital was
recognized.
17.

RELATED PARTY TRANSACTIONS

A summary of the Companys related party transactions is presented below.

Parent:
Sale of goods
Consultancy and
management fees
Advances
Rentals

Note

2012
Outstanding
Amount of
Receivable
Transactions
(Payable)

17.1

P 127,866,796

17.3
17.2
17.4

2011
Outstanding
Amount of
Receivable
Transactions
(Payable)

7,044,926 P

17.2

8,663,615

Key Management Personnel

Compensation

17.5

2,958,888

5,088,473
290,895,948 ( 406,801,951)
1,986,476 (
1,986,476)

7,279,445 (
2,556,101)
127,929,279 ( 278,872,672)
1,547,100 (
3,456,221)

Related Parties Under

Common Ownership
Advances

8,663,615) (
2,748,221

8,663,615)
-

17.1 Sale of Goods

In 2012, the Company sold P127,866,796 (nil in 2011) worth of finished goods
inventories to CCC included in Sale of Goods in the 2012 statement of comprehensive
income. Outstanding balance in relation to the sale of goods as at December 31, 2012
amounts to P7.0 million and is shown as part of Trade Receivables under Trade and
Other Receivables account in the 2012 statement of financial position.

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17.2 Advances from Related Parties

In the normal course of business, the Company obtains unsecured, noninterest-bearing
advances from related parties, including stockholders and entities under common
ownership, for working capital requirements and other purposes. Such advances are
presented as Due to Related Parties in the statements of financial position and has an
outstanding balance of P278,872,672 and P415,465,566 as at December 31, 2012 and
2011, respectively. Presented below are the movements in the account.
Note
Balance at beginning of year
Repayments during the year
Applied as deposits for future
stock subscription
Additional borrowings
during the year

2012
(

16

P 415,465,566 P 697,697,899
91,092,394) ( 724,743,133)

45,500,000)
-

Balance at end of year

2011

P 278,872,672

442,510,800
P 415,465,566

17.3 Consultancy and Management Fees

The Company incurs management and consultancy fees based on an agreement between
CCC and the Company. Under the agreement, CCC can allocate and charge common
corporate expenses to its subsidiaries. The consultancy and management fees incurred
and paid by the Company amounted to P7,279,445 in 2012 and P5,088,473 in 2011 and is
presented as part of Outside Services under Administrative Expenses in the statements of
comprehensive income (see Note 12). As at December 31, 2012 and 2011, the Company
has no outstanding liability arising from this agreement.

17.4 Rentals
In 2012 and 2011, CCC leased out storage and production facilities to the Company.
Rental expense incurred amounting to P1,547,100 in 2012 and P1,986,476 in 2011 is
presented as part of Rentals under Cost of Goods Sold in the statements of
comprehensive income. The outstanding payables amounting to P3,456,221 and
P1,986,476 as at December 31, 2012 and 2011, respectively, arising from these
transactions are shown as part of Trade Payables under Trade and Other Payables
(see Note 11).

17.5 Key Management Personnel Compensations

The short-term employee benefits of the key management personnel amounted to
P2,958,888 in 2012 and P2,748,221 in 2011, and are included in the salaries and employee
benefits presented as part of Administrative expenses in the statements of comprehensive
income (see Note 12).

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- 30 -

18.

COMMITMENTS AND CONTINGENCIES

The following are the significant commitments and contingencies involving the
Company.

18.1 Operating Leases

The Company is a lessee under several short-term lease contracts with renewal options.
The usual term of the lease contract is one year that usually ends in December. The
amount of rent expense is allocated as follows:
Note
Cost of goods sold
Administrative expenses

2011

2012

12

11,024,845
6,588

10,906,609
7,635

11,031,433

10,914,244

As of December 31, 2012, the future minimum lease payments under these lease
agreements amounted to P7,052,625.

18.2 Credit Facilities

The Company has continuing surety with related parties on several credit facilities with
various local banks amounting to P250,000,000. These credit facilities will expire in 2013.

18.3 Others
There are other commitments, guarantees, litigations and contingent liabilities that arise in
the normal course of the Companys operations which are not reflected in the
accompanying financial statements. As at December 31, 2012, management is of the
opinion that losses, if any, from these commitments and contingencies will not have a
material effect on the Companys financial statements.
19.

CATEGORIES AND FAIR VALUES OF FINANCIAL ASSETS AND

LIABILITIES
The carrying amounts and fair values of the categories of assets and liabilities presented in
the statements of financial position are shown below.
Notes

2011

2012
Carrying Values

Fair Values

Carrying Values

Fair Values

Financial assets
Cash and cash equivalents

Trade and other receivables net

254,367,946

254,367,946

211,381,610

211,381,610

Security deposits

10

1,780,295

1,780,295

1,780,295

1,780,295

36,933,115 P

36,933,115 P

25,373,381 P 25,373,381

P 293,081,356 P 293,081,356 P 238,535,286 P 238,535,286

Financial Liabilities
Trade and other payables
Due to related parties

P 334,282,849 P 334,282,849 P 317,917,167 P 317,917,167

17

278,872,672

278,872,672

415,465,566

415,465,566

P 613,155,521 P 613,155,521 P 733,382,733 P 733,382,733

F-413

- 31 -

See Notes 2.3 and 2.8 for a description of the accounting policies for each category of
financial instrument. A description of the Companys risk management objectives and
policies for financial instruments is provided in Note 4.
There is no disclosure of fair value hierarchy as the Company does not have any
financial instruments valued at fair value in the statements of financial position as at
December 31, 2012 and 2011.
20.

CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Companys capital management objectives are:

To ensure the Companys ability to continue as a going concern; and,

To provide an adequate return to shareholders by pricing products and services
commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity as presented
in the statements of financial position. Capital for the reporting periods under review is
summarized as follows:
2011

2012
Total liabilities
Total equity

Debt-to-equity ratio

613,155,521 P
265,942,910
2.31:1

733,382,733
201,133,338
3.65:1

The Company sets the amount of capital in proportion to its overall financing structure,
i.e., equity and liabilities. The Company manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and the risk
characteristics of the underlying assets.
21.

SUPPLEMENTARY INFORMATION REQUIRED BY THE BUREAU OF

INTERNAL REVENUE
Presented in the succeeding pages is the supplementary information which is required by
the BIR under its existing revenue regulations to be disclosed as part of the notes to
financial statements. This supplementary information is not a required disclosure under
PFRS.

F-414

- 32 -

21.1 Requirements under Revenue Regulations (RR) 15-2010

The information on taxes, duties and license fees paid or accrued during the taxable
year required under RR 15-2010 issued on November 25, 2010 follows:
(a) Output VAT
In 2012, the Company declared output VAT on the sale of goods as follows:

Taxable sales
Zero-rated sales
Government related sales

Tax Base

Output
VAT

P 1,715,808,460
3,907,898
654,216

P 205,897,015
78,506

P1,720,370,574

P 205,975,521

The Companys VAT zero-rated sales/receipt were determined pursuant to Section

106(A)(2)(a), Zero-rated VAT on Export Sale of Goods, and Section 109, VAT Exempt
Transactions, of the 1997 National Internal Revenue Code.
The tax bases are presented as Sale of Goods in the 2012 statement of
comprehensive income.
There is no outstanding output VAT payable as of December 31, 2012.
(b) Input VAT
The movements in input VAT, which is presented as part of the Prepayments and
Other Current Assets account (see Note 8), in 2012 are summarized below.
Balance at beginning of year
Goods for resale/manufacture
or further processing
Services lodged under other accounts
Services lodged under cost of goods sold
Goods other than for resale
or manufacture
Capital goods not subject to amortization
Claims for tax credit/refund
and other adjustments
Input tax on imported goods
Applied against output VAT
Balance at end of year
(c)

P 40,794,187
77,249,604
29,,906,819
10,241,643
2,359,409
197,009

896,987
84,432,219
205,897,015 )
P 40,180,862

Taxes on Importation
In 2012, the total landed cost of the Companys imported inventory for use in
business amounted to P704,256,038. This amount includes customs duties and tariff
fees of P9,770,978.

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- 33 -

(d) Excise Tax

The Company did not have any transactions in 2012 subject to excise tax.
(e)

Documentary Stamp Tax

In 2012, the Company incurred documentary stamp tax (DST) on intercompany
advances amounting to P2,238,059.

(f)

Taxes and Licenses

Details of taxes and licenses which are presented under the Other Operating
Expenses account in the 2012 statement of comprehensive income are as follows:
Business tax
DST
Municipal license and permits
Miscellaneous

3,616,698
2,238,059
987,154
55,663

P 6,897,574
The amounts of taxes and licenses are allocated as follows:
Cost of goods sold
Operating expenses

59,987
6,852,957

P 6,897,574
(g)

Withholding Taxes
The details of total withholding taxes in 2012 are shown below.
Expanded
Compensation and benefits

P 14,682,941
1,503,978
P 16,186,919

The Company has no transaction in 2012 which are subject to final tax.
(h) Deficiency Tax Assessment and Tax Cases
As at December 31, 2012, the Company does not have any final deficiency tax
assessment with the BIR or tax cases outstanding or pending in courts or bodies
outside of the BIR in any of the open years.

21.2 Requirements under RR 19-2011

RR 19-2011 requires schedules of taxable revenues and other non-operating income,
costs of sales and services, itemized deductions and other significant tax information, to
be disclosed in the notes to financial statements.

F-416

- 34 -

The amounts of taxable revenues and income, and deductible costs and expenses
presented below are based on relevant tax regulations issued by the BIR, hence, may not
be the same as the amounts of revenues reflected in the 2012 statement of
comprehensive income.
(a) Taxable Revenues
The Companys taxable revenues subject to regular tax rate for the year ended
December 31, 2012 amounted to P1,720,370,574.
(b) Deductible Cost of Goods Sold
Deductible cost of goods sold for the year ended December 31, 2012 which is
subject to regular tax rate comprises the following:
Finished goods at beginning of the year
Cost of goods manufactured
Total goods available for sale
Finished goods at end of year

P 416,825,250
1,317,740,336
1,734,565,586
( 314,973,334 )
P 1,419,592,252

(c)

Taxable Non-operating and Other Income

Taxable non-operating and other income which are subject to the regular tax rate
amounted to P150,192.

(d) Itemized Deductions

The amounts of itemized deductions for the year ended December 31, 2011 follow:
Advertising
Forwarding and other warehousing fees
Freight
Merchandisers salary
Outside services
Taxes and licenses
Salaries and benefits
Depreciation
Communication, light and water
Interest
Supplies and materials
Repairs and maintenance
Rental
Fuel and oil
Miscellaneous

P 116,893,508
55,246,967
43,326,311
32,607,195
12,377,781
6,837,587
4,875,267
573,834
94,726
69,313
42,330
7,188
6,588
2,513
1,025,113
P 273,986,221

F-417