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Cnpf final prospectus

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Cnpf final prospectus

  1. 1. (Incorporated in the Republic of the Philippines) Primary Offer of 229,654,404 Common Shares Offer Price of ₱13.75 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 21 April 2014 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.
  2. 2. i 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 ₱13.75 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 SMDC‘s EBITDA of approximately ₱27 million, ₱39 million and ₱68 million for 2011, 2012 and 2013, respectively and GTC‘s EBITDA of approximately ₱269 million, ₱299 million and ₱336 million for 2011, 2012 and 2013, respectively, CNPF‘s 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 CNPF‘s shareholders.
  3. 3. ii The total proceeds to be raised by the Company from the sale of the Offer Shares will be approximately ₱3,157.8 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 ₱266.5 million) will be approximately ₱2,891.3 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 Company‘s 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 Company‘s 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 Company‘s 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 Company‘s Board may, at any time, modify the Company‘s dividend policy depending upon the Company‘s 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
  4. 4. iii 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‖. 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 Company’s business  CNPF‘s financial performance may be materially and adversely affected by fluctuations in prices or disruption in the supply of key raw materials;  CNPF‘s 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, CNPF‘s food products or similar products produced by third parties could give rise to product liability claims and harm CNPF‘s reputation;  Competition in CNPF‘s 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 CNPF‘s 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 CNPF‘s 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 CNPF‘s financial condition, results of operations and liquidity;  Any infringement or failure to protect CNPF‘s trademarks and proprietary rights could materially and adversely affects its business;  CNPF‘s 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;  CNPF‘s international operations may present operating, financial and legal challenges, particularly in countries where CNPF has little or no experience;  CNPF‘s existing insurance policies and self-insurance measures may not be sufficient to cover the full extent of any losses;  CNPF‘s 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.
  5. 5. iv 2. Risks relating to the Philippines  The substantial majority of CNPF‘s income is derived from sales in the Philippines and, therefore, a slowdown in economic growth in the Philippines could materially adversely affect CNPF‘s 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 CNPF‘s costs; and  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
  6. 6. vi 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;  uncertainties and other factors that may cause the Company‘s actual results, performance or achievements to be materially different from expected future results; and
  7. 7. vii  performance or achievements expressed or implied by forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company‘s 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 Company‘s ability to successfully implement its current and future strategies;  the Company‘s 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 Company‘s ability to successfully manage its future business, financial condition, results of operations and cash flow;  the Company‘s 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 Company‘s 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 reflect any change in the Company‘s 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 Company‘s 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,‖
  8. 8. viii ―could,‖ and similar words identify forward-looking statements. In addition, all statements other than statements of historical facts included in this Prospectus are forward-looking 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 Company‘s 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.
  9. 9. 1 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 MANAGEMENT‘S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF CNPF .......................................................................83 MANAGEMENT‘S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMBINED FINANCIAL INFORMATION FOR GTC AND SMDC .......................................................................99 MANAGEMENT‘S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF CNPF (PARENT) .....................................................................................................115 MANAGEMENT‘S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE CONSOLIDATED FINANCIAL INFORMATION OF CNPF............................................................................................118 BUSINESS ...........................................................................................................................129 INDUSTRY..........................................................................................................................160 REGULATORY...................................................................................................................176 BOARD OF DIRECTORS AND SENIOR MANAGEMENT............................................185 PRINCIPAL SHAREHOLDERS.........................................................................................194
  10. 10. 2 MATERIAL CONTRACTS.................................................................................................197 RELATED PARTY TRANSACTIONS ..............................................................................198 DESCRIPTION OF THE SHARES.....................................................................................200 THE PHILIPPINE STOCK MARKET................................................................................208 PHILIPPINE TAXATION ...................................................................................................214 PHILIPPINE FOREIGN EXCHANGE AND FOREIGN OWNERSHIP CONTROLS .....220 LEGAL MATTERS .............................................................................................................222 INDEPENDENT AUDITORS.............................................................................................223 INDEX TO FINANCIAL STATEMENTS...........................................................................F-1
  11. 11. 3 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
  12. 12. 4 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 Moody’s Moody‘s 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 ₱13.75 per Offer Share Offer Shares 229,654,404 new Common Shares Offer Settlement Date On or about 06 May 2014
  13. 13. 5 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 store‘s or catalog‘s 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
  14. 14. 6 (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
  15. 15. 7 SUMMARY The following summary is qualified in its entirety by, and is subject to, the more detailed information presented in this Prospectus, including the Company’s 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 company‘s businesses were operated by different companies: Seafood Century Canning Corporation (―CCC‖) incorporated on December 12, 1978 handled the Group‘s 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 Group‘s 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 CNPF‘s products has been recognized by numerous
  16. 16. 8 consumer and industry association awards. For example, Century Tuna received the Trusted Brand Award from Reader‘s 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 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, CNPF‘s net revenue was ₱19,023 million. CNPF‘s net profit after tax for the same period was ₱743.9 million. Business Segments CNPF‘s 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. CNPF‘s 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, CNPF‘s branded products are also exported to overseas markets and are distributed across North America, Europe, Asia, Australia, and the Middle East.
  17. 17. 9 For the year ended December 31, 2013, the contribution of each business segment to CNPF‘s total revenue, based on CNPF‘s 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) Revenue % of Total Net Income % of Total Canned and Processed Fish 7,028 36.9 212 28.5 Canned Meat 4,638 24.4 353 47.4 Dairy and Mixes 1,556 8.2 42 5.6 Tuna Export 5,801 30.5 137 18.5 Other Segment Income (―CNPF‖) Total 19,023 100.0 744 100.0 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 Total before Pro Forma Adjustments Pro forma Adjustments Pro forma ConsolidatedCNPF GTC SMDC CSC PMCI CCC 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 Other Income 13 127 0 35 24 859 1,058 (882) 176 Operating profit 13 367 334 248 1,154 2,293 4,409 (907) 3,502 Operating expenses 30 148 275 160 763 1,366 2,743 (328) 2,415 Finance cost - 49 2 3 25 52 131 (19) 112 Other Expense - 3 - 7 4 - 14 - 14 Profit (loss) before tax (17) 166 57 78 363 875 1,521 (561) 960
  18. 18. 10 Income tax expense (5) 28 15 25 105 48 217 (1) 216 Profit after tax (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 totalled ₱7,027.5 million, or 37% of total CNPF sales, for the year ended December 31, 2013. Of these sales, canned tuna and milkfish contributed ₱5,394.5 million while canned sardine accounted for ₱1,633.0 million. Gross profit for the segment totalled ₱1,652.2 million, or a gross profit rate of 24%. This gross profit consisted of ₱1,439.4 million from canned tuna and milkfish and ₱212.8 million for canned sardine. Net income for the segment totalled ₱211.7 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 ₱52.9 million was from canned sardine. GTC (Tuna Export). Net sales from the tuna export business segment totalled ₱5,801 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 ₱260.7 million, or a segment gross profit rate of 4%. Net income totalled ₱137.5 million for a segment return on sales of 2%. PMCI (Canned Meat). Net sales from the canned meat business were ₱4,638.1 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, ready- to-eat viands. Gross profit for canned meat was ₱1,079.5 million, or a segment gross profit rate of 23%. Net income for canned meat totalled ₱353.0 million, or a return on sales of 8%. SMDC (Dairy and Mixes). Net sales from the dairy and mixes business was ₱1,556.4 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 ₱333.9
  19. 19. 11 million for an equivalent gross profit rate of 21%. Net income totalled ₱41.8 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 Company‘s 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 Company‘s 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 Company‘s 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 Reader‘s 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
  20. 20. 12 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 Company‘s 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 Company‘s 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 Company‘s business strategy and has been crucial to the Company‘s 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 Company‘s ready-to-eat dishes use tuna as the main ingredient in traditionally beef, pork and
  21. 21. 13 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 Company‘s 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 Company‘s 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.
  22. 22. 14 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 Company‘s distribution is through modern trade and approximately 42% is through general trade. As of December 31, 2013, the Company‘s 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 Company‘s 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 Company‘s products. This arrangement
  23. 23. 15 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. CNPF‘s extensive distribution network is supported by its strategically located production facilities. The Company‘s 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 Company‘s 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 Company‘s logistics costs. The Company‘s 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 Company‘s meat processing plant has an installed capacity of 194 MT per day as of December 31, 2013 while the Company‘s 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 Company‘s 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 Company‘s 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 Company‘s 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 2012 2011 % of total exports North America 7% 12% 38% Europe 44% 16% 16% Asia and Australia 49% 67% 40% Middle East 0% 5% 6%
  24. 24. 16 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 Company‘s branded products to major cities in the region. The Company‘s products are carried by retailers such as Carrefour, Walmart, Tesco Hymall, Metro and Auchan, among others. As of December 31, 2013, the Company‘s 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 CNPF‘s 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 Company‘s 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 Company‘s 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 team‘s 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:
  25. 25. 17 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 Company‘s marketing strategy has evolved to highlight the health benefits of Century Tuna and to present the Company‘s 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 children‘s 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
  26. 26. 18 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 Company‘s 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 Company‘s extensive distribution network and experienced sales and marketing personnel. The Company‘s marketing strategy will highlight the health benefits of these beverage products in line with the Company‘s 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 Api‘s 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
  27. 27. 19 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 Company‘s 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 Company‘s 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 Group‘s 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 Group‘s acquisition of the Home Pride and Kaffe De Oro brands in 2008. Cost improvements through backward integration, streamlined logistics and cost- engineering 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 Company‘s 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 Company‘s 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 Company‘s 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
  28. 28. 20 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 Company‘s 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 Company‘s 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 Company‘s 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 Company‘s 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 Company‘s stakeholders as well as to the broader investor community. Giovanna M. Vera, heads the Company‘s Investor Relations Office and serves as the Company‘s designated Investor Relations Officer (―IRO‖). The Company‘s 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 Company‘s shareholders have timely and uniform access to official announcements, disclosures and market-sensitive information relating to the Company. As the Company‘s 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 Company‘s shareholder meetings, press conferences, investor briefings, management of the investor relations portion of the Company‘s website and the preparation of its annual reports. The IRO will also be responsible for conveying information such as the Company‘s policy on corporate governance and corporate social responsibility, as well as other qualitative aspects of the Company‘s operations and performance. The Company‘s 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 Company‘s Investor Relations Officer, may be contacted at investorrelations@centurypacific.com.ph or + (632) 633 8855.
  29. 29. 21 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.......................................... ₱13.75 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
  30. 30. 22 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 Company‘s 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 Company‘s 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 Distribution—Lock- Up‖. 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)
  31. 31. 23 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 Distribution—Lock-Up‖. Listing and Trading........................... The Company‘s 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 200 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 Company‘s Board may, at any time, modify the Company‘s dividend policy depending upon the Company‘s 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
  32. 32. 24 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 applicant‘s 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 applicant‘s 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 Company‘s 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 Distribution—Lock-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
  33. 33. 25 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 applicant‘s name, address, taxpayer‘s 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 applicant‘s 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 applicant‘s 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 secretary‘s certificate (or certificate of the managing partner in the case of a partnership) setting forth the resolution of the applicant‘s 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 applicant‘s 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
  34. 34. 26 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 manager‘s or cashier‘s check issued by an authorized bank. All checks should be made payable to ―Century Pacific IPO,‖ crossed ―Payee‘s 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 SEC and PSE .............................................................................................. April 21, 2014 PSE Trading Participants‘ April 23 to
  35. 35. 27 Commitment Period....................................................................................April 25, 2014 Local Small Investor Offer Period..............................................................April 23 to April 29, 2014 Joint Lead Underwriters‘ Offer Period.......................................................................................................... April 23 to April 29, 2014 Listing Date and commencement of trading on the PSE.................................................................................. May 6, 2014
  36. 36. 28 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 Company’s pro forma consolidated financial statements, including the notes thereto, included elsewhere in this Prospectus and the section entitled ―Management’s 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 Company’s 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 Company’s 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 P 19,023,053,067 Cost of Sales 15,696,776,711 Gross Profit 3,326,276,356 Other income 175,816,427 Operating Profit 3,502,092,783 Operating Expenses 2,415,239,219 Finance Costs 112,450,206 Other Expenses 14,054,392 Profit Before Tax 960,348,966 Income Tax Expense 216,431,762 Profit for the Year 743,917,203 Earnings per share Basic and Diluted Earnings per Share 0.50
  37. 37. 29 CONSOLIDATED STATEMENT OF FINANCIAL POSITION For the year ended December 31,2013 ₱ ASSETS Current Assets Cash and cash equivalents 804,394,733 Trade and other receivables 2,330,891,620 Inventories - net 3,714,229,160 Prepayments and other current assets 176,749,347 Total Current Assets 7,026,264,859 Non-current Assets Property and equipment - net 1,046,775,177 Intangible asset 40,000,000 Deferred tax assets 21,747,988 Other non-current asset 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 2,717,300,002 Trade and other payables 2,535,491,858 Income tax payable 51,835,544 Total Current Liabilities 5,304,627,404 Non-current Liabilities Retirement benefit obligation 13,948,453 Deferred tax liability 1,418,347 Total Non-current Liabilities 15,366,800 Total Liabilities 5,319,994,203 Equity Share capital 1,500,000,000 Retained earnings 1,319,302,557 Currency translation adjustment 19,347,898 Total Equity 2,838,650,455 TOTAL LIABILITIES AND EQUITY 8,158,644,659
  38. 38. 30 CONSOLIDATED STATEMENT OF CASH FLOWS As at December 31,2013 ₱ Cash Flows from Operating Activities Profit before tax 960,348,966 Adjustments for: Depreciation and amortization 193,394,847 Finance costs 112,450,206 Reversal of impairment of trade and other receivables (6,637,186) Reversal of allowance for decline in value of inventories (10,357,008) Loss on decline in value of inventories 4,462,318 Loss on disposal and write-off of property, plant and equipment 3,095,250 Retirement benefit expense 9,313,787 Impairment loss on trade and other receivables 4,066,287 Interest income (10,233,586) Operating cash flows before working capital changes 1,259,903,881 Decrease (increase) in: Trade and other receivables (1,057,485,998) Inventories 2,056,567,104 Prepayments and other current assets 144,222,116 Other non-current assets 5,176,498 Increase (decrease) in: Trade and other payables (1,135,882,333) Other non-current liabilities (64,936,440) Exchange differences on translating operating assets and liabilities 7,019,430 Cash generated from operations 1,214,584,259 Contributions to retirement fund (8,427,173) Income taxes paid (221,080,459) Net cash from operating activities 985,076,626 Cash flows from Investing Activities Acquisitions of property, plant and equipment (341,809,091) Interest received 10,233,586 Proceeds from sale of property, plant and equipment 79,701,950 Net cash used in investing activities (251,873,555) Cash flows from Financing Activities Net repayments of loans (555,847,139) Finance costs paid (112,450,206) Net cash from (used in) financing activities (668,297,345) Net Increase in Cash and Cash Equivalents 64,905,726 Cash and Cash Equivalents, Beginning 739,489,007 Cash and Cash Equivalents, End 804,394,733
  39. 39. 31 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 GTC’s and SMDC’s combined financial statements, including the notes thereto, included elsewhere in this Prospectus and the section entitled ―Management’s 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 Other income (Expense) (123,777,836) (47,624,275) (30,825,991) 697,637,690 639,618,407 461,146,568 Operating Expenses 423,695,091 428,936,981 286,067,972 Finance Costs 51,022,887 54,969,013 73,111,252 474,717,978 483,905,994 359,179,224 Profit Before Tax 222,919,712 155,712,413 101,967,344 Income Tax Expense 43,630,444 44,365,573 35,490,963 Profit for the Year 179,289,268 111,346,840 66,476,381
  40. 40. 32 COMBINED STATEMENTS OF FINANCIAL POSITION For the Years Ended December 31 2013 2012 2011 ₱ ASSETS Current Assets Cash and cash equivalents 413,666,069 127,701,664 115,870,640 Trade and other receivables 1,237,379,984 470,734,174 475,292,082 Inventories - net 1,602,019,351 2,278,202,558 2,258,999,999 Prepayments and other current assets 93,714,160 105,358,317 93,385,763 Total Current Assets 3,346,779,564 2,981,996,713 2,943,548,484 Non-current Assets Property and equipment - net 813,489,320 705,451,217 804,683,273 Intangible asset 40,000,000 40,000,000 40,000,000 Deferred tax asset - net 13,412,011 5,893,298 3,356,275 Retirement benefit asset 23,643 0 0 Other non-current assets 17,491,130 30,291,475 32,851,701 Total Non-current Assets 884,416,104 781,635,990 880,891,249 4,231,195,668 3,763,632,703 3,824,439,733 LIABILITIES AND EQUITY Current Liabilities Loans payable - current portion 2,214,600,002 1,380,700,025 1,057,000,017 Trade and other payables 524,500,261 781,997,088 729,640,474 Income tax payable 735,451 14,391,579 10,596,444 Dividends payable 0 0 76,086,020 Due to a related party 240,632,032 447,157,151 855,038,566 Total Current Liabilities 2,980,467,746 2,624,245,843 2,728,361,521 Non-current Liabilities Loans payable - net of current portion 0 14,999,984 74,999,988 Deposits for future stock subscription 0 0 150,383,200 Other non-current liabilities 0 99,336 536,100 Total Non-current Liabilities 0 15,099,320 225,919,288 2,980,467,746 2,639,345,163 2,954,280,809 Equity Share capital 1,000,000,000 540,625,000 540,625,000 Share Premium 137,298,180 137,298,180 137,298,180 Deposit on future stock subscription 0 195,883,200 0 Currency translation adjustments 32,291,024 (34,952,774) 18,420,279 Retained earnings 81,138,718 285,433,934 173,815,465 Total equity 1,250,727,922 1,124,287,540 870,158,924 4,231,195,668 3,763,632,703 3,824,439,733
  41. 41. 33 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 Adjustments for: Depreciation and amortization 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) 0 0 Loss on decline in value of inventories 4,462,318 0 0 Loss on disposal and write-off of property, plant and equipment 3,095,250 0 1,184,961 Retirement benefit expense 2,094,690 2,078,420 2,391,146 Impairment loss on trade and other receivables 941,848 3,701,034 3,299,076 Interest income (9,272,387) (3,081,186) (996,688) Operating cash flows before working capital changes 398,814,042 340,552,181 301,743,767 Decrease (increase) in: Trade and other receivables (761,179,473) 1,365,409 62,847,331 Inventories 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) Increase (decrease) in trade and other payables (257,496,827) 52,356,614 204,566,019 Exchange differences on translating operating assets and liabilities 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) Income taxes paid (64,182,843) (43,468,263) (18,448,070) Net cash from operating activities 42,230,426 283,276,792 520,264,487 Cash flows from Investing Activities Net additions to property and equipment (272,921,095) (73,254,775) (109,620,285) Interest received 9,272,387 3,081,186 996,688 Proceeds from sale of property, plant and equipment 79,701,949 0 4,639,040 Net cash used in investing activities (183,946,759) (70,173,589) (103,984,557) Cash flows from Financing Activities Net proceeds from (repayments of) loans 818,900,000 263,700,000 (26,500,011) Net repayments of due to related parties (219,688,175) (380,503,166) (310,665,962) Receipt of deposits for future stock subscription 0 45,500,000 0 Proceeds from issuance of shares 263,491,800 0 0 Payment of dividends (384,000,000) (75,000,000) 0
  42. 42. 34 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
  43. 43. 35 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 Company’s financial statements, including the notes thereto, included elsewhere in this Prospectus and the section entitled ―Management’s 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 Company’s 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 19,727,899 Depreciation expense 7,129,783 Professional fees 3,360,000 Supplies 189,062 30,406,744 Loss Before Tax (17,221,116) Income tax benefit 5,188,323 Net Loss After Tax (12,032,793)
  44. 44. 36 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
  45. 45. 37 STATEMENT OF CASH FLOWS For the period October 25, 2013 to December 2013 ₱ Cash Flows from Operating Activities Loss before tax (17,221,116) Adjustments for: Depreciation expense 7,129,783 Interest income (73,295) Operating cash flow before working capital changes (10,164,628) Increase in: Due from related parties (14,685,814) Input value-added tax - net (26,436,975) Other payables 189,062 Net cash used in operating activities (51,098,355) Cash Flows from Investing Activities Acquisition of investments in subsidiaries (1,194,615,640) Acquisition of property and equipment (230,060,462) Interest received 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

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