(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.

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.

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

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.

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

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

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,‖

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.

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

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

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

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

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

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

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

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.

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

Consolidated CNPF 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

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

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

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

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.

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

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%

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:

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

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

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

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.

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

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)

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

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

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

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

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

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

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

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

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

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

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

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

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)

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

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

38

SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF CNPF

The following table sets forth the summary financial information for the Company and should be read

in conjunction with the auditors’ reports and the 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 and Results of Operations of the Consolidated Financial Information

of CNPF‖. The summary financial information presented below as of and for the year ended December

31, 2013 was derived from the audited consolidated financial statements of the Company prepared in

accordance with PFRS. Our independent auditor for the years ended December 31, 2013 was Navarro

Amper & Co. The Company’s summary financial information below should not be considered

indicative of the results of future operations. STATEMENTS OF FINANCIAL POSITION

As of December 31, 2013

₱

Assets

Current Assets

Cash and cash equivalents 437,964,907

Trade and other receivables – net 1,034,062,591

Due from related parties 218,003,202

Inventories – net 1,602,019,351

Prepayments and other current assets 120,151,134

Total Current Assets 3,412,201,185

Non-Current Assets

Trademarks 40,000,000

Property, plant and equipment – net 1,036,419,999

Deferred tax assets 18,726,312

Retirement benefit asset 23,643

Other non-current assets 17,491,128

Total Non-current Assets 1,112,661,082

TOTAL ASSETS 4,524,862,267

Liabilities and Equity

Current Liabilities

Loans payable 2,214,600,002

Trade and other payables 524,689,323

Income tax payable 735,451

Due to related parties 240,632,032

Total Current Liabilities 2,980,656,808

Equity

Share capital 1,500,000,000

Currency translation adjustment 14,308,241

Other reserves 30,628,942

Deficit (731,724)

1,544,205,459

TOTAL LIABILITIES AND EQUITY 4,524,862,267

39

STATEMENT OF COMPREHENSIVE INCOME

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

in ₱

Revenue 1,421,621,604

Cost of Goods Sold 1,306,758,259

Gross Profit 114,863,345

Other Income 29,417,788

144,281,133

Operating Expenses 136,423,625

Other Expenses 2,189,825

Finance Costs 11,332,127

149,945,577

Loss Before Tax (5,664,444)

Income Tax Benefit 4,517,204

Loss for the Period (1,147,240)

Other comprehensive income

Item that will be reclassified subsequently to profit or loss

Currency translation adjustments 14,308,241

Item that will not be reclassified subsequently to profit or

loss

Effect of remeasurement of retirement benefit obligation 415,516

14,723,757

Total comprehensive income 13,576,517

Basic and Diluted Earnings Per Share (0,0008)

40

STATEMENT OF CASH FLOWS

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

in ₱

Cash Flows from Operating Activities (5,664,444)

Loss before tax

Adjustments for:

Depreciation and amortization 8,217,174

Finance costs 11,,332,127

Loss on inventory obsolescence 4,462,318

Loss on disposal of land 1,816,723

Retirement benefit expense 2,094,690

Interest income 495,102

Operating cash flow before working capital changes 22,753,690

Decrease (Increase) in:

Trade and other receivables 3,925,763

Due from related parties (213,678,171)

Inventories 787,768,399

Prepayments and other current assets 5,313,290

Other non-current assets 1,838,164

Decrease in trade and other payables (545,989,226)

Exchange differences on translating operating assets and

liabilities (21,415,425)

Cash generated from operations 40,516,484

Contribution to the retirement fund (1,753,543)

Income tax paid (22,608,962)

Net cash from operating activities 16,153,979

Cash Flows from Investing Activities

Acquisitions of property, plant and equipment (344,877,181)

Proceeds from sale of land 79,701,949

Interest income received (495,102)

Net cash used in investing activities (265,670,334)

Cash Flows from Financing Activities

Proceeds from issuance of share capital 1,500,000,000

Net receipts from related parties 129,865,038

Net repayment of loans (195,999,998)

Finance costs paid (11,332,127)

Net cash from financing activities 1,422,532,913

Acquisition of subsidiaries (net of cash acquired) (735,051,651)

Cash and Cash Equivalents, End 437,964,907

41

RISK FACTORS

An investment in the Offer Shares involves a number of risks. The price of securities can and does

fluctuate, and any individual security is likely to experience upward or downward movements and may

even become valueless. There is an inherent risk that losses may be incurred rather than profit made as

a result of buying and selling securities. Past performance is not indicative of future performance and

results, and there may be a large difference between the buying price and the selling price of the Offer

Shares. Investors should carefully consider all the information contained in this Prospectus, including

the risk factors described below, before deciding to invest in the Offer Shares. The occurrence of any of

the following events, or other events not currently anticipated, could have a material adverse effect on

the Company’s business, financial condition and results of operations and cause the market price of

the Offer Shares to decline. All or part of an investment in the Offer Shares could be lost.

The means by which the Company intends to address the risk factors discussed herein are principally

presented in this section and under the captions ―Business,‖ ―Management’s Discussion and Analysis

of Financial Condition and Results of Operations,‖ ―Industry,‖ and ―Board of Directors and Senior

Management—Corporate Governance‖ of this Prospectus. This risk factor discussion does not purport

to disclose all of the risks and other significant aspects of investing in the Offer Shares. Investors

should undertake independent research and study the trading of securities before commencing any

trading activity. Investors should seek professional advice regarding any aspect of the securities such

as the nature of risks involved in the trading of securities, and specifically those of high-risk securities.

Investors may request publicly available information on the Common Shares and the Company from

the SEC.

The risk factors discussed in this section are of equal importance and are only separated into

categories for ease of reference.

RISKS RELATING TO THE 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 production operations depend upon adequate supplies of raw materials which are

procured both within and outside of the Philippines. Raw material prices are affected by a

number of factors, including but not limited to changes in the global or regional levels of

supply and demand, weather conditions, customs and import duties and government controls.

In particular, CNPF‘s primary tuna production operations are affected by the availability and

price of tuna, which is a key raw material for its canned and processed fish segment and its

tuna export segment. To ensure the sustainability of the global tuna population, various

government authorities worldwide have implemented a number of regulations, including

restrictions on fishing capacity and prohibiting the use of certain fishing methods during

certain times of the year. Such governmental regulations have impacted the global supply of

tuna, which in turn impacts tuna prices. Tuna prices have increased in recent years from an

average price of US$1,526 per ton in 2011 to US$1,954 per ton in 2012. Similarly, the

Philippine Bureau of Fisheries and Aquatic Resources imposes a three month ban on sardines

fishing from the beginning of December to the end of February as part of an effort to ensure a

sustainable domestic sardines population and to encourage responsible production of canned

sardines. The sardines fishing ban limits domestic sardines supply during the three-month

period and domestic canned sardines producers resort to alternative sources such as higher

cost imported sardines. The prices of other raw materials used in CNPF‘s principal

businesses, including tin cans, meat and milk powder, have also fluctuated from time to time.

42

Although CNPF actively monitors the availability and prices of raw materials, there can be no

assurance that raw materials will be supplied in adequate quantities or at the required quality

to meet CNPF‘s production requirements, or that these raw materials will not be subject to

significant price fluctuations in the future. CNPF may only have a limited ability to hedge

against commodity prices and any hedging activities may not be as effective as planned.

Moreover, market prices of raw materials could increase significantly and there is no

assurance that such increases can be passed on to the consumers. Any significant shortages or

material increase in the market price of key raw materials could have a material adverse effect

on CNPF‘s business, financial condition and results of operations.

Aside from actively monitoring raw materials availability and prices, it has been CNPF‘s

policy to maintain a network of specialty ingredient suppliers that develop new ingredient

substitutes to mitigate raw materials disruption of supply.

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.

Competitive pressure requires CNPF to regularly introduce new products and product

extensions in order to maintain its market share. CNPF may suffer a decrease in sales if its

product portfolio does not track new dietary trends and other consumer sentiments, or

compete effectively with the pricing and product offerings of its competitors. However,

launching new products and product extensions requires significant capital expenditures to

cover advertising and promotional costs, research and development initiatives, and other

operating costs associated with the production and introduction of such products. CNPF‘s

financial condition and results of operation may be materially and adversely affected if any

product launches are unsuccessful.

The success of new products and product extensions depend on various factors, including the

availability of discretionary income, which may be tied to prices of other consumer goods, as

well as varying consumption preferences in different geographic regions. In addition, the

success of CNPF‘s new products and new product extensions may be affected by competitors‘

activities. The timing of product launches, pricing and advertising efforts of competitors may

also impact CNPF‘s sales of new products. In the past, CNPF has introduced new products

and product extensions which were unsuccessful and there can be no guarantee that CNPF

will be able to introduce new products successfully in the future. If CNPF cannot successfully

introduce new products and new product extensions, its business, financial condition and

results of operations may be materially and adversely affected.

CNPF, its independent advisers, and experienced marketers continuously conduct extensive

consumer and product research to increase the likelihood of successful product launches.

Actual or alleged contamination or deterioration of, or safety concerns about, CNPF’s

food products or similar products produced by third parties could give rise to product

liability claims and harm CNPF’s reputation.

CNPF‘s success depends largely upon consumers‘ perception of the quality of its products,

and CNPF‘s business could be adversely affected by the actual or alleged contamination or

deterioration of its products, or of similar products produced by third parties. A risk of

contamination or deterioration of CNPF‘s food products exists at each stage of the production

cycle, including the purchase and delivery of perishable raw materials, the processing and

packaging of food products, the stocking and delivery of the finished products to customers,

and the storage and display of finished products at the points of final sale. In particular, CNPF

43

has little, if any, control over handling procedures once its products have been dispatched for

distribution and is, therefore, particularly vulnerable to problems in this phase. Even an

inadvertent distribution of contaminated products may constitute a violation of law and may

lead to increased risk of exposure to product liability claims, product recalls, increased

scrutiny and penalties, including injunctive relief and plant closures by regulatory authorities,

as well as adverse publicity, which could exacerbate the associated negative consumer

reaction. In addition, reports or allegations of inadequate quality control with respect to

similar food products produced by other manufacturers may negatively affect the sales of

CNPF‘s products.

If CNPF‘s food products are found, or alleged, to have suffered contamination or

deterioration, regardless of whether such products were under its control, such problems

could harm the reputation of CNPF‘s products and/or increase regulatory scrutiny, and could

have a significant impact on the sales of CNPF‘s products. While no material product liability

claim has been filed against CNPF, any such product liability claim, whether or not

successful, could damage the reputation of CNPF and its products, which may have a material

adverse effect on CNPF‘s business, financial condition and results of operations.

CNPF invests in quality control systems, procedures and organization that span the entire

supply chain to ensure product safety. All of CNPF‘s manufacturing facilities comply with

BFAD regulations and a significant majority of CNPF‘s products are manufactured from

factories that are compliant with HACCP regulations. HACCP is an internationally

recognized system of food safety and contamination prevention.

Competition in CNPF’s businesses may adversely affect its financial condition and

results of operations.

CNPF faces competition in all segments of its businesses, both in the Philippine market and in

the international markets in which it operates. The Philippine food industry in general is

highly competitive. Although the degree of competition and principal competitive factors

vary among the different product categories in which CNPF participates, CNPF believes that

key competitive factors include price, product quality, brand awareness and loyalty,

distribution network, foreign competition, proximity of distribution outlets to customers,

product extensions (such as different flavors and packaging) and the introduction of new

products.

In the Philippines, CNPF‘s competitors consist primarily of other large domestic corporations

and, in certain cases, large multinational corporations. Competition in the Philippines is

expected to increase due to the emergence of new domestic food companies and the potential

entry of major foreign food companies. Certain of CNPF‘s international and domestic

competitors may have substantially greater financial resources than CNPF. CNPF‘s tuna

export segment also faces competition overseas from both domestic and international

companies. CNPF may not be able to compete effectively against its competitors, which could

have a material adverse impact on its business, financial condition and results of operations.

Despite being the leading player in their respective product categories, CNPF works toward

continuously improving its products and processes to stay competitive.

CNPF relies on the strength of its brands.

CNPF is dependent on the strength of its brands and the continued success and growth of its

business depend upon CNPF‘s ability to protect and promote its brands through marketing

and promotional efforts. If its marketing or advertising campaigns failed or were deemed to

44

be inappropriate, the goodwill built over the years by its respective brands, as well as its

business reputation, may be negatively affected. If CNPF fails to successfully protect and

promote its brands, the market perception of its products may deteriorate which may have a

material adverse effect on CNPF‘s business, financial condition, results of operations and

prospects.

CNPF has a dedicated team of marketing professionals working closely with highly

competent advertising and research agencies to safeguard and enhance the Company‘s brands.

This team follows established guidelines to ensure consistency and effectiveness of

positioning and message. CNPF has received numerous marketing awards and industry

citations.

Consolidation of distribution channels in the Philippines may adversely affect CNPF’s

financial condition and results of operations.

The Philippine retail market has historically been highly fragmented among numerous small

neighborhood stores, groceries and traditional wet markets. Small neighborhood stores

service limited geographical areas and purchase relatively small quantities of CNPF‘s

products from distributors and larger supermarkets. In recent years, larger supermarket chains

and wholesale retailers have begun to gain significant market share in the Philippines.

In 2012, based on data from AC Nielsen, supermarkets were a significant distribution channel

for CNPF products, accounting for aggregate distribution of approximately 50% of canned

tuna, 32% of canned sardines, 54% of canned corned meat, 58% of canned luncheon meat,

48% of condensed and evaporated milk and 79% of full cream powdered milk sold by CNPF

during the year. See ―Business – Marketing and Distribution‖. There is a risk that CNPF‘s

business may become concentrated in fewer, larger customers, which could increase the

relative bargaining power of these customers. There is no assurance that supermarkets or one

of these larger customers will not exert downward pressure on wholesale prices of CNPF‘s

products, which could have a material adverse effect CNPF‘s business, financial condition

and results of operations.

CNPF fosters collaborative relationships with trade partners. The Company‘s scale, portfolio

of strong brands and years of relationship building allow it to have constructive and fair

agreements with customers on levels of trade investments.

CNPF relies on key suppliers for certain raw materials and the failure by such suppliers

to adhere to and perform contractual obligations may adversely affect CNPF’s business

and results of operations.

CNPF relies on key suppliers for certain raw materials. For example, CNPF purchases a

significant portion of its tin can requirements from third-party suppliers. In particular, for the

period ended December 31, 2013, CNPF sourced approximately 65% of its total tin can

requirements from a single supplier. If one or more of CNPF‘s suppliers fail to provide raw

materials in sufficient quantities or at satisfactory quality levels, CNPF‘s raw material supply

and production process could be negatively impacted. CNPF would be required to meet any

consequent supply shortfall through other suppliers whose prices may be higher than those of

CNPF‘s original suppliers. In addition, there can be no guarantee that CNPF would be able to

obtain the services of alternative suppliers or otherwise meet any consequent supply shortfall

in a timely manner or at all, which could have a material adverse impact on CNPF‘s business,

financial condition and results of operations.

45

CNPF has a policy of maintaining a sufficient inventory of key materials. In addition, the

Company maintains a network of suppliers for most critical materials to allow for sourcing

flexibility.

CNPF has a limited history as a separate entity.

Although CNPF‘s businesses have been established for some time, CNPF was incorporated

only on October 25, 2013. CNPF acquired its subsidiaries and businesses as part of the

corporate restructuring of certain of the Century Group‘s business interests. In this regard,

CNPF faces a number of risks, uncertainties and challenges relating to its ability to integrate

its various operations, develop and successfully execute its overall business strategy, retain

qualified senior management and employees and develop its own administrative and other

supporting infrastructure to replace some of the services which CCC currently provides to

CNPF‘s business segments. Failure to successfully integrate its various business operations or

develop its administrative infrastructure could have a material adverse impact on CNPF‘s

business, financial condition and results of operations.

In addition, the pro forma consolidated financial information of CNPF for the year 2013

included elsewhere in this Prospectus are not necessarily indicative of the operating results or

financial position that would have been achieved had the corporate restructuring been

completed prior to such periods. See ― – Risks relating to presentation of information in this

Prospectus – The pro forma financial information included herein may not be indicative of

actual results‖ for further information.

Although CNPF is a new entity, it has been fully operational as an ongoing business effective

January 1, 2014 as CNPF merely took over existing facilities, employees and operations;

hence, there was no disruption in operations.

CNPF generally does not have long-term contracts with its customers, and it is subject

to uncertainties and variability in demand and product mix.

As is common in the consumer goods business, CNPF does not have long-term contracts with

its customers and, consequently, its revenues are subject to short-term variability resulting

from the seasonality of, and other fluctuations in, demand for its products. CNPF‘s customers

have no obligation to place new orders with it following the expiration of their current

obligations, and may cancel, reduce or delay orders for a variety of reasons. The level and

timing of orders placed by CNPF‘s customers may vary due to a number of factors including:

seasonality and other fluctuations in demand for CNPF‘s products;

the competitiveness of CNPF‘s selling prices in the industry;

customer satisfaction with the level of service CNPF provides; and

customers‘ inventory management.

CNPF has not experienced significant cancellations of, and reductions and delays in, its

customers‘ orders in the past.

CNPF maintains good and mutually beneficial relationships with its customers by providing

reasonable terms of sale and payment and ensuring that customers‘ needs are addressed in a

timely manner.

CNPF is exposed to the credit risks of its customers, and delays or defaults in payment

by its customers could have a material adverse effect on CNPF’s financial condition,

results of operations and liquidity.

46

CNPF is exposed to the credit risk of its customers, and defaults on material payments owed

to CNPF by customers could significantly reduce CNPF‘s operating cash flows and liquidity,

as well as have a material adverse effect on its financial condition and results of operations.

Some of CNPF‘s customers could also experience cash flow difficulties or become subject to

liquidation, which could in turn lead to CNPF being unable to collect payments or

experiencing long delays in collection.

CNPF‘s account receivables are typically non-interest bearing and are generally on 30-day

terms. As at December 31, 2013, over 83% of the account receivables of CNPF were due

within 30 days. There is no assurance that CNPF‘s exposure to the risk of delayed payments

from its customers or defaults in payment by its customers will not increase, or that it will not

experience losses or cash flow constraints as a result, which could have a material adverse

impact on its business, financial condition and results of operations.

Before extending credit, CNPF conducts a systematic credit investigation of its customers.

The Company also has a policy of requiring security or collateral, in the form of bank

guarantees and letters of credit, from certain customers.

Any infringement or failure to protect CNPF’s trademarks and proprietary rights could

materially and adversely affect its business.

CNPF is a licensee of various brand names, related trademarks and other intellectual property

rights to prepare, package, advertise, distribute and sell its products, including Century Tuna,

555 Sardines, Century Quality, Blue Bay Tuna, Fresca, Argentina, 555 Carne Norte, Swift,

Wow, Lucky 7, Shanghai, Angel, Kaffe de Oro, Birch Tree and Home Pride. Maintaining the

licenses for and protection of these brands and intellectual property rights is important to

maintaining CNPF‘s distinctive corporate and market identities. If third parties sell products

that use counterfeit versions of CNPF‘s brands or otherwise look like CNPF brands,

consumers may confuse CNPF products with products that are inferior. This could negatively

impact CNPF‘s brand image and sales. Any failure to protect CNPF‘s proprietary rights may

significantly harm CNPF‘s competitive position, which, in turn, could materially and

adversely affect CNPF‘s business, financial condition, results of operations and prospects, as

well as CNPF‘s reputation.

CNPF‘s licensed brands are registered and kept current in all applicable jurisdictions. While

instances of trademark infringement have been immaterial in the past, the Company will not

hesitate to prosecute any cases of trademark infringement in the future.

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.

As part of its expansion plans, CNPF intends to evaluate acquisition opportunities in the

Philippines and internationally and may make any such acquisitions in the future if suitable

opportunities arise. This may require significant investments which may not result in

favorable returns. Acquisitions involve risks associated with unforeseen contingent risks or

latent liabilities relating to these businesses that may only become apparent after the

acquisition is finalized, such as difficulties associated with integration and management of

operations and systems, integration and retention of key personnel, co-ordination of sales and

marketing efforts and diversion of management‘s attention from other ongoing business

concerns. CNPF‘s growth will depend on its ability to manage successfully the expansion of

its operations and integrate the operations of acquired businesses. There can be no assurance

47

that any such expansion or acquisition will be a success, or that it would not present any of

the challenges described in ―— CNPF’s international operations may present operating,

financial and legal challenges, particularly in countries where CNPF has little or no

experience‖ below. If CNPF‘s growth strategy, including any third party acquisitions, is

unsuccessful, its business, financial condition and results of operations may be materially and

adversely affected.

Over the past 15 years, CNPF has acquired and successfully integrated brands such as Blue

Bay, Birch Tree, Swift, Home Pride and Kaffe de Oro into its businesses. CNPF‘s acquisition

process involves extensive due diligence, assessment of the Company‘s ability to profitably

operate and generate a return on the price paid, as well as an evaluation of the Company‘s

ability to fund the acquisition.

CNPF also intends to expand production and distribution of its product categories

internationally. CNPF may experience losses in the expansion of its international operations if

it is unable to successfully introduce products which appeal to local customers‘ preferences

and establish relationships with reliable distributors, sales agents and wholesalers. In addition,

CNPF may be subject to higher operating costs and price constraints in overseas markets such

as China and Vietnam where CNPF has affiliate offices, which may have an adverse effect on

its operating income and profitability.

To minimize exposure and capital outlay for international expansion, CNPF initially appoints

distributors in newly entered markets. Where no suitable distributor can be appointed, the

Company may establish a sales office. Production facilities in a new territory will be

established only when a critical mass of business is already reasonably assured.

CNPF may be subject to labor unrest, slowdowns and increased wage costs.

CNPF is subject to a variety of national and local laws and regulations, including those

relating to labor. CNPF has in the past, and may in the future, be required to defend against

labor claims. While CNPF has not experienced significant labor disruptions or disputes in the

past and CNPF generally considers its labor relations to be good, there can be no assurance

that it will not experience future disruptions to its operations due to disputes or other issues

with its employees. In addition, any changes in labor laws and regulations could result in

CNPF having to incur substantial additional costs to comply with increased minimum wage

and other labor laws. Any of these events may materially and adversely affect CNPF‘s

business, financial condition and results of operations.

CNPF manages these risks by adopting policies to ensure a healthy working environment for

its employees that are at minimum in compliance with national and local laws and regulations.

CNPF is effectively controlled by the Po family and their interests may differ from the

interests of other shareholders.

As of the date of this Prospectus, the Po family beneficially owns approximately 100% of the

issued share capital of CCC, which beneficially owns approximately 100% of the issued share

capital of CNPF. CCC‘s ownership of the issued share capital of CNPF would decrease to

89.7% upon consummation of the Offer. Members of the Po family also serve as CNPF‘s

directors and executive officers. As a result, the Po family effectively controls CNPF,

including CNPF‘s management, policies and business, through its ability to control actions

that require majority shareholder approval and through its representatives on CNPF‘s Board.

Furthermore, this concentration of voting power may discourage or prevent a change in

48

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

receive a premium for the Common Shares as part of a sale of CNPF.

Members of the Po family, who either individually or collectively have controlled CNPF

since its inception, have private interests in a number of companies either alone or together

with other family members. The respective businesses or activities of these companies and of

companies that are part of the Century Group engage in certain business activities which

compete with those of CNPF. There is nothing to prevent companies that are controlled by the

Po family from engaging in activities that compete directly with CNPF‘s businesses. There

can also be no assurance that the Po family will not take advantage of business opportunities

that may otherwise be attractive to CNPF. The interests of the Po family and CCC, as CNPF‘s

controlling shareholders, may differ significantly from CNPF‘s interests or the interests of

other shareholders, and there can be no assurance that the Po family and CCC will exercise

influence over CNPF in a manner that is in the best interests of CNPF‘s other shareholders.

CNPF has significant commercial transactions with certain companies in the Century Group.

See ―Related Party Transactions‖. CNPF expects that it will continue to enter into

transactions with companies directly or indirectly controlled by or associated with CCC and

the Po family. These transactions may involve potential conflicts of interest which could be

detrimental to CNPF and/or its shareholders. There can be no assurance that CNPF‘s related

party transactions will not have a material adverse impact on its business, financial condition

and results of operations.

CNPF has adopted a Manual of Corporate Governance that to ensure that its business,

including related party transactions, are conducted with transparency and to protect minority

investors.

CNPF’s international sales may present operating, financial and legal challenges,

particularly in countries where CNPF has little or no experience.

CNPF currently sells its products through affiliate offices in China and Vietnam, and it

intends to further expand sales in these regions. These international operations, particularly in

countries where CNPF has little or no experience, may be subject to inherent risks including

uncertain legal environments, different consumer preferences, unexpected or difficult

regulatory, licensing or administration requirements, tariffs and other trade barriers,

difficulties in training and retraining staff and managing foreign operations, potentially

adverse tax consequences and difficulties in transferring earnings to CNPF‘s operations in the

Philippines.

In addition, CNPF‘s international sales of products will be influenced, to a significant degree,

by political, economic and social developments in the countries in which it operates. CNPF is

subject to the risks inherent in conducting business across national boundaries, any one of

which could adversely affect its business. These risks include but are not limited to:

general economic downturns;

currency exchange rate fluctuations or imposition of foreign exchange

controls;

governmental policies, laws or regulations, including increased protectionism

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

uncertainty regarding, or different levels of, protection of CNPF‘s intellectual

property;

49

international incidents, including war or acts of terrorism;

government instability; and

nationalization of assets.

Any adverse economic, political or social developments in the countries in which CNPF sells

its products could adversely affect its business, financial condition and results of operations.

While the Company has customers across North America, Europe, Asia, Australia, and the

Middle East, the Company‘s largest customers by volume are in developed and stable

economies of these regions.

CNPF’s existing insurance policies and self-insurance measures may not be sufficient to

cover the full extent of any losses.

CNPF may not be fully insured against, and insurance may not be available for, losses caused

by accidents, natural disasters, breakdowns or other events that could affect the facilities and

processes used by its businesses. For example, CNPF does not carry business interruption

insurance and self-insures against this risk. Any losses caused by events against which it is

not fully insured could result in a decline in production, adverse publicity, and significant

expenditure of resources to address such losses, and would have a material and adverse effect

on its business, financial condition and results of operations.

Any accident at CNPF‘s operations and facilities could result in significant losses. It could

suffer a decline in production, receive adverse publicity and be forced to invest significant

resources in addressing such losses, both in terms of time and money. There is no assurance

that there will not be work-related or other accidents in the future. Furthermore, there is no

assurance that amicable settlements will be secured in the event of accidents or that accidents

will not result in litigation or regulatory action against CNPF. Such events could materially

and adversely affect its financial condition and results of operations.

CNPF conducts a quarterly review to ensure that all insurable assets of the Company are

adequately covered at the right valuation.

CNPF’s businesses and operations are substantially dependent upon key executives.

CNPF has relied and will continue to rely significantly on the continued individual and

collective contributions of its senior management team. Some members of CNPF‘s

management are leaders or members of certain key industry associations in the Philippines,

and CNPF believes it benefits from those relationships and expertise. If any of CNPF‘s senior

management are unable or unwilling to continue in their present positions, or if they join a

competitor or form a competing business, CNPF may not be able to replace them easily, and

its business, financial condition, results of operations and prospects could be materially and

adversely affected.

To mitigate the risk of departing key managers, the Company‘s succession planning process

has identified members of management that can temporarily assume additional

responsibilities arising from departing managers until suitable successors can be recruited.

Problems may develop among partners of joint ventures operated by CNPF, which may

result in disruptions to these businesses.

50

The businesses of some of CNPF‘s subsidiaries and associates are conducted through joint

ventures of CCC, such as Century International (China) Company Limited and Century

Shanghai Trading Company, joint ventures between CCC and Thai Union Manufacturing

Company, Ltd.

Cooperation among the joint venture partners on business decisions is crucial to the sound

operation and financial success of these joint venture companies. Although CNPF believes it

good relationships are maintained with joint venture partners and there have been no instance

of major disagreements or defaults by either party on their obligations, there is no assurance

that these relationships will be sustained in the future or that problems will not develop.

CNPF hopes to mitigate this risk by conducting extensive due diligence on all prospective

business partners, fostering collaborative relationships, and ensuring that these business

partners have the same values and objectives as the Company‘s.

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.

In the year ended December 31, 2013, CNPF‘s operations in the Philippines accounted for

69% of its net sales. Historically, results of operations have been influenced, and will

continue to be influenced, to a significant degree by the general state of the Philippine

economy. Much of the demand for CNPF‘s core product categories are directly linked to the

purchasing power of Filipino consumers and demand for these products tends to decline

during economic downturns when consumers‘ disposable incomes decline. As a result,

CNPF‘s income and results of operations depend, to a significant extent, on the performance

of the Philippine economy. In the past, the Philippines has experienced periods of slow or

negative growth, high inflation, significant devaluation of the peso and the imposition of

exchange controls.

For the year ended December 31, 2013, Philippine GDP growth rate accelerated to 7.2%,

compared to growth rate of 6.8% in the year ended December 31, 2012, and GNP growth rate

accelerated to 7.5% in the year ended December 31, 2013, from 6.5% in year ended

December 31, 2012. Any deterioration in the economic conditions in the Philippines may

adversely affect consumer sentiment and lead to a reduction in demand for CNPF‘s products.

There can be no assurance that current or future Governments will adopt economic policies

conducive to sustaining economic growth.

A decline in the value of the Peso against the U.S. dollar and other currencies would

increase many of CNPF’s costs.

CNPF has foreign exchange exposure primarily associated with fluctuations in the value of

the Peso against the U.S. dollar and other foreign currencies. The substantial majority of

CNPF‘s revenues are denominated in Pesos, while certain of its expenses, particularly its raw

material costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars.

On the other hand,

Any future depreciation of the Peso against the U.S. dollar could adversely affect CNPF‘s

business, financial condition and results of operations.

51

While Peso devaluation has a negative impact on imported materials, it positively impacts the

Company‘s export business and increases the purchasing power of Overseas Filipino Workers

(―OFW‖) families.

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

CNPF.

The Philippines has from time to time experienced political and military instability and acts of

terrorism. In the last few years, there has been political instability in the Philippines, including

impeachment proceedings against two former presidents and the chief justice of the Supreme

Court of the Philippines, public and military protests arising from alleged misconduct by

previous administrations. In addition, there is no guarantee that acts of election-related

violence will not occur in the future and such events could negatively impact the Philippine

economy. The Philippines has also been subject to a number of terrorist attacks since 2000.

The Philippine army has been in conflict with the Abu Sayyaf organization which has been

identified as being responsible for kidnapping and terrorist activities in the Philippines. An

unstable political environment, whether due to the imposition of emergency executive rule,

martial law or widespread popular demonstrations or rioting, could negatively affect the

general economic conditions and operating environment in the Philippines, which could have

a material adverse effect on CNPF‘s business, financial condition and results of operations.

RISKS RELATING TO THE OFFER AND THE OFFER SHARES

The Offer Shares may not be a suitable investment for all investors.

Each prospective investor in the Offer Shares must determine the suitability of that

investment in light of its own circumstances. In particular, each prospective investor should:

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

Company and its businesses, the merits and risks of investing in the Offer Shares and

the information contained in this Prospectus;

have access to, and knowledge of, appropriate analytical tools to evaluate, in the

context of its particular financial situation, an investment in the Offer Shares and the

impact the Offer Shares will have on its overall investment portfolio;

have sufficient financial resources and liquidity to bear all the risks of an investment

in the Offer Shares, including where the currency for purchasing and receiving

dividends on the Offer Shares is different from the potential investor‘s currency;

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

be able to evaluate (either alone or with the help of a financial advisor) possible

scenarios for economic, interest rate and other factors that may affect its investment

in the Offer Shares and its ability to bear the applicable risks.

There can be no guarantee that the Offer Shares will be listed on the PSE.

Purchasers of Offer Shares will be required to pay for such Offer Shares on the Offer

Settlement Date, which is expected to be on or about May 6, 2014. Because the Listing Date

is scheduled to occur after both the Offer Settlement Date, there can be no guarantee that

listing will occur on the anticipated Listing Date or at all. Delays in the admission and the

commencement of trading in shares on the PSE have occurred in the past. If the PSE does not

52

admit the Offer Shares onto the PSE, the market for the Offer Shares will be illiquid and

shareholders may not be able to trade the Offer Shares. This may materially and adversely

affect the value of the Offer Shares.

There has been no prior market for the Common Shares, so there may be no liquidity in

the market for the Offer Shares and the price of the Offer Shares may fall.

As there has been no prior trading in the Common Shares, there can be no assurance that an

active market for the Offer Shares will develop following the Offer or, if developed, that such

market will be sustained.

The Offer Price has been determined after taking into consideration a number of factors

including, but not limited to, the Company‘s prospects, the market prices for shares of

companies engaged in related businesses similar to the Company‘s and prevailing market

conditions. The price at which the Common Shares will trade on the PSE at any point in time

after the Offer may vary significantly from the Offer Price.

The market price of the Common Shares may be volatile, which could cause the value of

investors’ investments in the Company to decline.

The market price of securities can and does fluctuate, and it is impossible to predict whether

the price of the Common Shares will rise or fall or even lose all of its value. The market price

of Common Shares could be affected by several factors, including:

general market, political and economic conditions;

changes in earnings estimates and recommendations by financial analysts;

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

particular;

the market value of the assets of the Company;

changes to Government policy, legislation or regulations; and

general operational and business risks.

In addition, many of the risks described elsewhere in this Prospectus could materially and

adversely affect the market price of the Common Shares.

In part as a result of the global economic downturn, the global equity markets have

experienced price and volume volatility that has affected the share prices of many companies.

Share prices for many companies have experienced wide fluctuations that have often been

unrelated to the operating performance of those companies. Fluctuations such as these may

adversely affect the market price of the Common Shares.

Future sales of Common Shares in the public market could adversely affect the

prevailing market price of the Common Shares and Shareholders may experience

dilution in their holdings.

In order to finance the expansion of the Company‘s business and operations, the Board will

consider the funding options available to them at the time, which may include the sale of

additional Common Shares from the treasury or the issuance of new Common Shares. If

additional funds are raised through the sale or issuance of new equity or equity-linked

securities by the Company other than on a pro rata basis to existing shareholders, the

percentage ownership of the shareholders may be reduced, shareholders may experience

53

subsequent dilution and/or such securities may have rights, preferences and privileges senior

to those of the Offer Shares. Further, the market price of the Common Shares could decline as

a result of future sales of substantial amounts of Common Shares in the public market or the

issuance of new Common Shares, or the perception that such sales, transfers or issuances may

occur. This could also materially and adversely affect the prevailing market price of the

Common Shares or the Company‘s ability to raise capital in the future at a time and at a price

it deems appropriate.

Investors may incur immediate and substantial dilution as a result of purchasing Offer

Shares.

The issue price of the Common Shares in the Offer may be substantially higher than the net

tangible book value of net assets per share of the Company‘s outstanding Common Shares.

Therefore, purchasers of Offer Shares may experience immediate and substantial dilution and

the Company‘s existing shareholders may experience a material increase in the net tangible

book value of net assets per share of the Common Shares they own. See ―Dilution‖.

The Company may be unable to pay dividends on the Common Shares.

There is no assurance that the Company can or will declare dividends on the Common Shares

in the future. Future dividends, if any, will be at the discretion of the Board and will depend

upon the Company‘s future results of operations and general financial condition, capital

requirements, its ability to receive dividends and other distributions and payments from its

subsidiaries, foreign exchange rates, legal, regulatory and contractual restrictions, loan

obligations and loan covenants, including loan obligations and loan covenants of its

subsidiaries, and other factors the Board may deem relevant. See ―Dividends and Dividend

Policy‖.

RISKS RELATING TO THE PRESENTATION OF INFORMATION IN THIS

PROSPECTUS

The Prospectus contains forward-looking statements that are, by their nature, subject to

significant risks and uncertainties.

These forward-looking statements include, without limitation, statements relating to known

and unknown risks; uncertainties and other factors that may cause the Company‘s actual

results, performance or achievements to be materially different from expected future results;

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

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

Company‘s present and future business strategies and the environment in which the Company

will operate in the future. Important factors that could cause actual results, performance or

achievements to differ materially from those in the forward-looking statements include,

among other things, the Company‘s ability to successfully implement its current and future

strategies, the Company‘s ability to anticipate and respond to local and regional trends, and

the Company‘s ability to successfully manage its future business, financial condition, results

of operations and cash flow.

The pro forma financial information included herein may not be indicative of actual

results.

The Company has included, examined and reviewed pro forma consolidated financial

information elsewhere in this Prospectus because it believes that such information is

54

important to an investor‘s understanding of the Company‘s expected presentation of its results

of operations after the consolidation of GTC and SMDC and the Company‘s acquisition of

certain assets of CCC, PMCI and CSC. The pro forma consolidated results of operations

included herein are necessarily based on certain assumptions, including those identified in the

notes to the pro forma consolidated financial statements, and such information is not

necessarily indicative of the operating results that would have been achieved had the

acquisition of these assets been completed prior to such periods, nor is it indicative of future

operating results, and should not be relied upon as being so indicative. The Company‘s pro

forma statements should also be read in conjunction with the historical performance of its

wholly owned subsidiaries, GTC and SMDC, as well as information on the Company‘s track

record of building brands into household names, solid management experience, and dominant

market shares – all of which can be found in other parts of this Prospectus.

Certain information contained herein is derived from unofficial publications.

Certain information in this Prospectus relating to the Philippines and the industries in which

the Company competes, including statistics relating to market size, is derived from various

Government and private publications. This Prospectus also contains industry information

based on publicly available third-party sources. Industry publications generally state that the

information they contain has been obtained from sources believed to be reliable but that the

accuracy and completeness of that information is not guaranteed. Similarly, industry forecasts

and market research, including those contained or extracted herein, have not been

independently verified by the Company and may not be accurate, complete, up-to-date or

consistent with other information compiled within or outside the Philippines. Prospective

investors are cautioned accordingly.

The section of this Prospectus entitled “Industry” was not independently verified by the

Company or the Joint Lead Underwriters, and the sources therein may not be

completely independent or independent at all.

The section of this Prospectus entitled ―Industry‖ was prepared from available public sources

to provide an overview of the industries in which the Company‘s businesses operate, in

particular the canned and processed fish and meat industries and the dairy industry. The

reports cited in this section were not prepared nor independently verified by the Company or

the Joint Lead Underwriters, or any of their respective affiliates or advisors. The information

contained in this section may not be consistent with other information regarding the

Philippine canned and processed fish and meat industries and the dairy industry. This section

does not present the opinions of the Company, the Joint Lead Underwriters or any of their

respective affiliates. Much of the information set out in this section is based on estimates,

judgments, opinions and beliefs of the named sources therein and should be regarded as

indicative only and treated with the appropriate caution.

55

USE OF PROCEEDS

The Company intends to use the net proceeds from the Offer for the payment of financial

obligations, capital expenditures to increase production capacity and cost efficiency, working

capital and/or potential acquisitions. Further details on the proposed use of proceeds are set

forth below:

Use of Proceeds

Estimated

Amounts Percentage Estimated Timing

(₱ millions)

Payment of Financial Obligations 1,290 44.6% 2nd Quarter 2014

Capital Expenditures to Increase

Production Capacity and Cost Efficiency

729 25.2% 2nd Quarter 2014

Tin Can Manufacturing Factory 457.6

Dairy and Mix Factory 132.0

Plant Improvement and Maintenance 106.5

Upgrade of IT Systems 32.9

Working Capital and/or Potential

Acquisitions

872 30.2% 2014 to 1st Quarter 2015

Estimated Net Proceeds .............................. 2,891.3 100.0%

Working Capital Requirements and/or Potential Acquisitions

The Company expects a need for additional Working Capital as more investments in accounts

receivable – trade and inventory assets are seen necessary as a result of an anticipated

upswing in sales and market share, given the Company‘s intensified marketing and sales

initiatives for its canned tuna, canned sardine, canned meat, and dairy and mixes businesses.

The Company also has a strong track record of expanding product offerings through

successful acquisitions of strong but undervalued local brands. The Company remains open to

similar opportunistic brand acquisitions, including entering into new segments and unlocking

market potentials of regional brands. The Company likewise expects to use a portion of the

net proceeds from the Offer for the potential acquisition of new brands and/or branded food

companies to penetrate new market segments. However, as of date, the Company has neither

definitively identified the targeted brands and/or branded food companies nor negotiated any

terms for acquisition with anybody.

Capital Expenditures

The Company will use a portion the net proceeds to fund capital expenditures that will

improve cost efficiencies and achieve higher profitability in the future. A major project in the

list of capital expenditure projects is the establishment of a tin can factory in General Santos

City that will effectively reduce the tin can costs for the Company‘s domestic canned tuna

production. The tin can factory's building costs ₱98 million, machinery and major equipment

cost ₱303.6 million, and lab and other miscellaneous equipment ₱56 million. The new facility

is planned to have an output capacity of at least two hundred million tin cans a year,

56

supplying between 25% to 30% of the company‘s tin can requirements, and is expected to be

completed and commercially operational by end of 2014.

The funds will also be used to complete the Company‘s new dairy and mixes plant facility

located in Taguig City. The completion of building will cost ₱52 million. Various equipment

such as mixing tanks, homogenizer, quality assurance and laboratory equipment will cost ₱80

million. The completion of this new facility is expected to further increase dairy production

from 5,500 cases per day to 11,000 cases per day.

The third major capital expenditure project would be the enhancement of the Company‘s IT

system. The Company plans to invest in (i) a demand planning software to improve the

Company‘s demand planning and forecasting and supply replenishment capabilities and (ii)

cloud hosting, disaster recovery and application management services to save on hardware

investments and maintenance expenses, ensure business continuity, and enhance IT data

security. These IT projects would enable the Company‘s management to focus on further

growing the business.

The rest of the Company‘s capital expenditures consist of various equipment replacements

and maintenance projects needed by the Company‘s business units to sustain their respective

plant capacities, efficiencies in manufacturing operations, and product quality standards.

Examples of these projects are coal-fired boiler equipment overhaul, steamer equipment

overhaul, fishmeal building and warehouse repair, and fishmeal decanter equipment

replacement, labeling and packaging equipment replacement, and replacement of sludge

pump for waste water treatment, among others.

Payments of Financial Obligations

During 2013, the Company‘s principal sources of liquidity were internally generated cash

from operations and short–term bank loans. Requirements funded by short-term bank loans

were for purchases of raw materials and inventory, working capital requirements, including

account receivables.

The Company intends to use majority of the net proceeds to settle short-term financial

obligations with Metropolitan Bank & Trust Company, Bank of the Philippine Islands, BDO

Unibank, Inc., ANZ Bank, and Security Bank Corporation. These borrowings consist of

various revolving bank promissory notes with maturity dates varying from 60 to 90 days with

interest rate of approximately 2.5% to 3.5% per annum which were incurred primarily to fund

growth in accounts receivable-trade given expanding sales revenues.

Creditor Amount of Loan

Average Yearly

Interest Rate Purpose

(₱ millions)

Metropolitan Bank and Trust

Company

224.0 2.5% Working Capital

Bank of the Philippine Islands 631.7 2.5% Working Capital

BDO Unibank, Inc. 79.9 2.5% Working Capital

ANZ Bank 262.0 2.5% Working Capital

Security Bank Corporation 92.4 2.5% Working Capital

Total 1,290

57

None of the proceeds shall be used to reimburse any officer, director, employee or

shareholder for services rendered, assets previously transferred, or money loaned or

advanced.

The proposed use of proceeds described above represents a best estimate of the use of the net

proceeds of the Offer based on the Company‘s current plans and expenditures. The actual

amount and timing of disbursement of the net proceeds from the Offer for the uses stated

above will depend on various factors which include, among others, changing market

conditions or new information regarding the cost or feasibility of the Company‘s expansion

plans. The Company‘s cost estimates may change as it develops its plans, and actual costs

may be different from its budgeted costs, including due to changes in the exchange rate

between the Philippine Peso and the U.S. dollar. To the extent that the net proceeds from the

Offer are not immediately applied to the above purposes, the Company will invest the net

proceeds in interest-bearing short-term demand deposits and/or money market instruments,

and/or repay existing debt. Aside from underwriting and selling fees, the Joint Lead

Underwriters will not receive any of the net proceeds from the Offer.

Based on the Offer Price of ₱13.75 per Offer Share, the total proceeds from the Offer, the

estimated total expenses for the Offer and the estimated net proceeds from the Offer will be:

Estimated

Amounts

(₱ millions)

Total proceeds from the Offer ............................................................................. 3,157.8

Expenses

Underwriting and selling fees for the Offer Shares (including fees to be paid to the

Joint Lead Underwriters and PSE Trading Participants) ........................................

................................................................................................................................ 57.6

SEC registration, filing and research fees, taxes to be paid by the Company, and

PSE listing and processing fee................................................................................ 30.6

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

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

46.9

IPO Tax and Others ................................................................................................ 131.4

Total estimated expenses ...................................................................................... 266.5

Estimated net proceeds from the Offer .............................................................. 2,891.3

In the event of any material deviation or adjustment in the planned use of proceeds, the

Company shall inform its shareholders, the SEC and the PSE in writing at least 30 days

before such deviation or adjustment is implemented. Any material or substantial adjustments

to the use of proceeds, as indicated above, will be approved by the Company‘s Board of

Directors and disclosed to the SEC and the PSE. In addition, the Company shall submit via

the PSE‘s Electronic Disclosure Generation Technology system or PSE EDGE the following

disclosures to ensure transparency in the use of proceeds:

(i) any disbursements made in connection with the planned use of proceeds from the

Offer;

58

(ii) Quarterly Progress Report on the application of the proceeds from the Offer on or

before the first 15 days of the following quarter; the Quarterly Progress Report should

be certified by the Company‘s Chief Financial Officer or Treasurer and external

auditor;

(iii) annual summary of the application of the proceeds on or before January 31 of the

following year; the annual summary report should be certified by the Company‘s

Chief Financial Officer or Treasurer and external auditor;

(iv) approval by the Company‘s Board of Directors of any reallocation on the planned use

of proceeds, or of any change in the work program; the disbursement or

implementation of such reallocation must be disclosed by the Company at least 30

days prior to the actual disbursement or implementation; and

(v) a comprehensive report on the progress of its business plans on or before the first 15

days of the following quarter.

The quarterly and annual reports required in items (ii) and (iii) above must include a detailed

explanation of any material variances between the actual disbursements and the planned use

of proceeds in the work program or the Prospectus, if any. The detailed explanation must also

state that the Company‘s Board of Directors has given its approval as required in item (iv)

above.

The Company shall submit an external auditor‘s certification on the accuracy of the

information reported by the Company to the PSE in the Company‘s quarterly and annual

reports as required in items (ii) and (iii) above.

59

PLAN OF DISTRIBUTION

The 229,654,404 Offer Shares shall be offered by the Company to investors, through the Joint

Lead Underwriters. The 45,930,800 Offer Shares (or 20% of the Offer Shares) are being

offered to all of the PSE Trading Participants and 22,965,400 Offer Shares (or 10% of the

Offer Shares) are being offered to the LSIs in the Philippines. The remaining 160,758,204

Offer Shares (or 70% of the Offer Shares) are being offered by the Joint Lead Underwriters to

the QIBs and to the general public. Prior to the closing of the Offer, any Offer Shares not

taken up by the PSE Trading Participants and LSIs shall be distributed by the Joint Lead

Underwriters to their clients or to the general public. In the event that there are Offer Shares

that remain unsubscribed at the end of the Offer, the Joint Lead Underwriters shall subscribe

to the balance pursuant to the terms and conditions of the Underwriting Agreement between

the Company and the Joint Lead Underwriters.

Underwriting Commitments

The Offer will be underwritten at the Offer Price and in connection therewith, an

Underwriting Agreement will be entered into on or before the commencement of the Offer,

between the Company and the Joint Lead Underwriters, whereby the Joint Lead Underwriters

agree to underwrite the 229,654,404 Offer Shares to be offered, subject to agreement between

the Joint Lead Underwriters on any clawback, clawforward or other such mechanism, on a

firm commitment basis.

The Joint Lead Underwriters have committed to underwrite the entire Offer. The amount

allocated to each Joint Lead Underwriter is as follows:

Bank Amount

(in ₱ millions )

%

BDO Capital & Investment Corp. 1,052.6 33.33

BPI Capital Corp. 1,052.6 33.33

First Metro Investment Corp. 1,052.6 33.33

Total 3,157.8 100.00

The underwriting fee is based on the final nominal amount of the Offer Shares to be issued.

There is no arrangement for the Joint Lead Underwriters to return to the Company any unsold

Offer Shares. The Underwriting Agreement may be terminated in certain circumstances prior

to payment of the net proceeds of the Offer Shares being made to the Company. There is no

arrangement as well giving the Joint Lead Underwriters the right to designate or nominate

member(s) to the Board of Directors of the Company.

The Joint Lead Underwriters are all duly licensed by the SEC to engage in underwriting or

distribution of the Offer Shares. The Joint Lead Underwriters may, from time to time, engage

in transactions with and perform services in the ordinary course of its business for the

Company or other members of the Century Pacific Group of which the Company forms a

part.

60

Allocation to the Trading Participants of the PSE and Local Small Investor Program

Pursuant to the rules of the PSE, the Company will make available 45,930,800 Offer Shares

comprising 20% of the Offer for distribution to PSE Trading Participants. The total number of

Offer Shares allocated to the 135 PSE Trading Participants will be distributed following the

procedures indicated in the implementing guidelines for the Offer Shares to be distributed by

the PSE. Each PSE Trading Participant will be allocated a total of 340,200 Offer Shares. The

balance of 3,800 Offer Shares will be allocated by the PSE to the PSE Trading Participants.

PSE Trading Participants who take up the Offer Shares shall be entitled to a selling fee of 1%

of the Offer Shares taken up and purchased by the relevant trading participant. The selling

fee, less a withholding tax of 10%, will be paid to the PSE Trading Participants within ten

(10) banking days after the Listing Date.

The PSE Trading Participants may be allowed to subscribe for their dealer accounts provided

that, if they opt to sell the Offer Shares to the clients during the Offer period, it must be at a

price not higher than the Offer Price per share. Likewise, the trading participants are

prohibited from selling the Offer Shares during the period after the Offer period and prior to

the Listing Date.

The balance of the Offer Shares allocated but not taken up by the PSE Trading Participants

will be distributed among the Joint Lead Underwriters to their clients or to the general public.

A total of 22,965,400 Offer Shares, or 10% of the Offer, shall be made available to Local

Small Investors. Local Small Investors is defined as a subscriber to the Offer who is willing to

subscribe to a maximum of 1,800 Offer Shares under the LSI program. Should the total

demand for the Offer Shares in the LSI program exceed the maximum allocation, the Joint

Lead Underwriters shall allocate the Offer Shares by balloting.

The balance of the Offer Shares allocated but not taken up by the Local Small Investors will

be distributed by the Joint Lead Underwriters to their clients or to the general public.

The Joint Lead Underwriters

BDO Capital is the wholly-owned investment bank subsidiary of BDO Unibank, Inc. BDO

Capital is a full-service investment house primarily involved in securities underwriting and

trading, loan syndication, financial advisory, private placement of debt and equity securities,

project finance, and direct equity investment. Incorporated in December 1998, BDO Capital

commenced operations in March 1999.

BPI Capital is a wholly-owned subsidiary of Bank of the Philippine Islands. BPI Capital is a

licensed investment house focused on corporate finance and securities distribution business. It

began operations in December 1994. BPI Capital Corporation has an investment house

license.

Founded in 1972, First Metro Investment Corporation is a leading investment bank in the

country with over 40 years of service in the development of the Philippine capital markets. It

is the investment banking arm of the Metrobank Group, one of the largest financial

conglomerates in the country. It provides high-quality investment banking and financial

services through its strategic business units – Investment Banking, Financial Markets,

Investment Advisory and Trust. With assets of around ₱85 billion as of November 30, 2013,

it is the largest investment bank in the country today. First Metro has been ranked among the

61

Top 11 Philippine Companies and among the Best ASEAN 100 Companies based on Relative

Wealth Added Index by New York-based management consulting firm, Stern Stewart & Co.

In 2009, 2011 and 2013, First Metro was awarded the Best Bond House in the Philippines by

Finance Asia. In the last five years, First Metro was also awarded the Best Bond House by

The Asset Magazine of Hong Kong. In 2012, it was recognized by Finance Asia as the Best

Equity House in the Philippines. In 2013, it was awarded as one of the Top 10 Best Managed

Companies and Top 10 Best Investor Relations by Finance Asia.

Underwriters’ Compensation

The Joint Lead Underwriters shall receive from the Company a fee equivalent to 1.5% of the

gross proceeds of the Offer, which shall be inclusive of the amounts to be paid to other

participating underwriters and selling agents and exclusive of the amounts to be paid to the

PSE Trading Participants, where applicable. The underwriting fees shall be withheld by the

Joint Lead Underwriters from the proceeds of the Offer.

None of the Joint Lead Underwriters have any other business relationships with Company.

None of BDO Capital, BPI Capital or First Metro is represented in the Company‘s Board of

Directors. Neither is there a provision in the Underwriting Agreement, which would entitle

the Joint Lead Underwriters to representation in the Company‘s Board of Directors as part of

their compensation for underwriting services. However, the Company has existing credit lines

with BDO Unibank, Inc., Bank of the Philippine Islands, and Metrobank, which are the parent

companies of BDO Capital, BPI Capital and First Metro, respectively.

Subscription Procedures

On or before April 25, 2014, the PSE Trading Participants shall submit to the designated

representative of the PSE Listing Department their respective firm orders and commitments to

purchase Offer Shares. Offer Shares not taken up by PSE Trading Participants will be

distributed by the Joint Lead Underwriters directly to their clients and the general public and

whatever remains will be purchased by the Joint Lead Underwriters.

With respect to the Local Small Investors (―LSI‖), all applications to purchase or subscribe

for the Offer Shares must be evidenced by a duly accomplished and completed application

form. An application to purchase Offer Shares shall not be deemed as a duly accomplished

and completed application unless submitted with all required relevant information and

applicable supporting documents to the Joint Lead Underwriters or such other financial

institutions that may be invited to manage the LSI program. Payment for the Offer Shares

must be made upon submission of the duly completed application form.

Lodgement of Shares

All of the Offer Shares are or shall be lodged with the PDTC and shall be issued to the

investors in scripless form. They may maintain the Offer Shares in scripless form or opt to

have the stock certificates issued to them by requesting an upliftment of the relevant Offer

Shares from the PDTC‘s electronic system after the closing of the Offer.

62

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.

In addition, if there is any issuance of shares or securities (i.e., private placements, asset for

shares swap or a similar transaction) or instruments which leads to issuance of shares or

securities (i.e., convertible bonds, warrants or a similar instrument) done and fully paid for

within 180 days prior to the start of the offer period, and the transaction price is lower than

that of the offer price in the initial public offering, all shares or securities availed of shall be

subject to a lock-up period of at least 365 days from full payment of the aforesaid shares or

securities. Two Common Shares, one held by Johnip Cua and one held by Fernan Lukban

(both of whom are Independent Directors of the Company) will be subject to such 365-day

lock-up.

To implement this lock-up requirement, the PSE requires the applicant company to lodge the

shares with the PDTC through a PCD participant for the electronic lock-up of the shares or to

enter into an escrow agreement with the trust department or custodian unit of an independent

and reputable financial institution. Under the PSE rules, the lock-up requirement shall be

stated in the articles of incorporation of the Company.

Selling Restrictions

No securities, except of a class exempt under Section 9 of the SRC or unless sold in any

transaction exempt under Section 10 thereof, shall be sold or distributed by any person within

the Philippines, unless such securities shall have been registered with the SEC on Form 12-1

and the registration statement has been declared effective by the SEC.

63

DIVIDENDS AND DIVIDEND POLICY

CNPF

The Company is authorized under Philippine law to declare dividends, subject to certain

requirements. The payment of dividends, either in the form of cash or shares, will depend

upon the Company‘s earnings, cash flow and financial condition, among other factors. The

Company may declare dividends only out of its unrestricted retained earnings. These

represent the net accumulated earnings of the Company with its unimpaired capital, which are

not appropriated for any other purpose. The Company may pay dividends in cash, by the

distribution of property, or by the issue of shares. Dividends paid in cash or property are

subject to the approval by the Board of Directors. Dividends paid in the form of additional

shares are subject to approval by both the Board of Directors and at least two-thirds of the

outstanding share capital of the shareholders at a shareholders‘ meeting called for such

purpose.

The Company has approved a dividend policy of maintaining an annual cash and/or share

dividend pay-out of up to 30% of its net profit from the preceding year, subject to the

requirements of applicable laws and regulations, the terms and conditions of its outstanding

bonds and loan facilities, and the absence of circumstances that may restrict the payment of

such dividends, such as where the Company undertakes major projects and developments.

Dividends must be approved by the Board (and shareholders in case of a share dividend

declaration) and may be declared only from the unrestricted retained earnings of the

Company. The Company‘s Board of Directors 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.

GTC and SMDC

The Board of Directors and the shareholders of GTC and SMDC approved a dividend policy

of maintaining an annual cash and/or share dividend pay-out of up to 70% of its net profit

from the preceding year, subject to the requirements of applicable laws and regulations, the

terms and conditions of its outstanding bonds and loan facilities, and the absence of

circumstances that may restrict the payment of such dividends. Dividends must be approved

by GTC and SMDC‘s respective boards (and shareholders in case of a share dividend

declaration) and shall be declared and paid out only from GTC and SMDC‘s respective

unrestricted retained earnings. The Board of Directors of GTC and SMDC may, at any time,

modify the dividend policy depending on its evaluation of following factors:

The level of GTC and SMDC‘s cash earnings, return on equity and retained earnings

The results of business operations and financial conditions at the end of the year in

respect of which the dividends is to be paid

The expected future financial performance of GTC and SMDC

The projected level of GTC and SMDC‘s capital expenditures and other investment

and development plans

Restrictions of payment of dividends that may be imposed by any of GTC and

SMDC‘s respective financing arrangements and current and prospective debt service

requirements

Such other factors as the Board deems appropriate

64

DETERMINATION OF THE OFFER PRICE

The Offer Price has been set at ₱13.75 per Offer Share. The Offer Price was determined

through a book-building process and discussions between the Company and the Joint Lead

Underwriters. Since the Company and the Common Shares have not been listed on any stock

exchange, there is no market information for the Common Shares and there has been no

market price for the Common Shares derived from day-to-day trading.

The factors considered in determining the Offer Price are, among others, the Company‘s

ability to generate earnings and cash flow, its short and long-term prospects, the level of

demand from institutional investors, overall market conditions at the time of launch and the

market price of listed comparable companies. The Offer Price may not have any correlation to

the actual book value of the Offer Shares.

65

CAPITALIZATION AND INDEBTEDNESS

The following table sets out the Company‘s debt, shareholders‘ equity and capitalization as at

December 31, 2013, and as adjusted to reflect (i) the subscription by CCC to an additional

500,000,000 Common Shares on February 8, 2014 and (ii) the sale of 229,654,404 Offer

Shares at the Offer Price of ₱13.75 per Offer Share. The table should be read in conjunction

with the Company‘s pro forma financial statements and the notes thereto, included in this

Prospectus beginning on page F-1. Other than as described below, there has been no material

change in the Company‘s capitalization since December 31, 2013.

Pro Forma as

of December

31, 2013(1)

Pre-Offer

Adjustments (2)

IPO

Adjustments (2)

Pro Forma

Post Offer

(₱ in millions)

Total debt(3)

.............................................. 2,717.3 2,717.3

Equity:

Share Capital ............................................. 1,500.0 500.0 229.7 2,229.7

Share premium .......................................... 2,661.6 2,661.6

Retained earnings ...................................... 1,319.3 1,319.3

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

Currency translation adjustment ................ 19.3 19.3

Deposit for future stock

subscription ...............................................

-

Total equity .............................................. 2,838.7 500.0 2,891.3 6,229.9

Total capitalization and

indebtedness .............................................

5,556.0 500.0 2,891.3 8,947.2

Notes:

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

(2) Various equity transactions subsequent to December 31, 2013 consist of (i) the subscription by CCC to an additional

500,000,000 Common Shares on February 8, 2014 and (ii) the sale of the Offer Shares.

(3) Total debt comprises of loans payable.

66

DILUTION

The Company will offer 229,654,404 Offer Shares to the public at the Offer Price, which will

be substantially higher than the adjusted book value per share of the outstanding Common

Shares, which will result in an immediate material dilution of the new investors‘ equity

interest in the Company. The net book value attributable to the Company‘s Common Shares,

based on the Company‘s pro forma financial statements as of December 31, 2013 was

₱2,838.7 million. After giving effect to the issuance of 500,000,000 new common shares to

CCC as disclosed in Note 31, starting on page 39 of the pro forma consolidated financial

statements, the pro forma net book value pre-Offer will be ₱3,338.7 million,1 while the net

book value per Common Share will be ₱1.67. The net book value attributable to the

Company‘s Common Shares represents the amount of the Company‘s total equity attributable

to equity holders of the Company. The Company‘s net book value per Common Share is

computed by dividing the pro forma net book value attributable to the Company‘s Common

Shares by the 2,000,000,000 pre-Offer issued and outstanding shares.2

Dilution in pro forma book value per share to investors of the Offer Shares represents the

difference between the Offer Price and the pro forma book value per share immediately

following the completion of the Offer.

After taking into account the issuance of 500,000,000 new common shares and the sale of

229,654,404 Offer Shares at the Offer Price of ₱13.75 per Offer Share and after deduction of

the underwriting discounts and commissions and estimated offering expenses of the Offer

payable by the Company, the Company‘s pro forma book value after the Offer would

approximate ₱6,229.9 million, or ₱2.79 per Common Share. This represents an immediate

increase in net book value of ₱1.12 per Common Share to existing shareholders, and an

immediate dilution of ₱10.96 per Common Share to investors of the Offer Shares at the Offer

Price of ₱13.75.

The following table illustrates dilution on a per share basis based on an Offer of 229,654,404

Offer Shares at an Offer Price of ₱13.75 per Offer Share:

Offer Price per Offer Share

₱13.75

Pro forma net book value per Common Share as of December 31, 2013 (pre-

Offer)3

₱1.67

Increase in net book value per Common Share ₱1.12

Pro forma net book value per Common Share after the Offer ₱2.79

Dilution to investors of the Offer Shares ₱10.96

The following table sets forth the shareholdings and percentage of Common Shares

outstanding of existing and new shareholders of the Company immediately after completion

of an Offer of 229,654,404 Offer Shares:

Common Shares

Number %

Existing shareholders .................................................................... 2,000,000,000 89.7%

New investors ................................................................................ 229,654,404 10.3%

Total............................................................................................... 2,229,654,404 100.0%

67

Notes:

(1) The pro forma net book value is derived from the sum of the net book value of the

Company as of December 31, 2013 and the effect of the issuance of 500,000,000 new

common shares to CCC at a par value of ₱1.00 per share.

(2) Total number of issued and outstanding common shares used to compute per share

values (pre-Offer) is 2,000,000,000, at a par value of ₱1.00 per share, composed of

1,500,000,000 issued and outstanding shares as of December 31, 2013 and the

issuance of 500,000,000 new common shares to CCC as disclosed in Note 31,

starting on page 40 of the pro forma consolidated financial statements.

(3) Pro forma net book value per share takes into account the number of issued and

outstanding shares pre-Offer on account of the issuance of 500,000,000 new common

shares to CCC.

68

SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following tables set forth selected pro forma consolidated financial information for the Company

and should be read in conjunction with the auditors’ reports and the 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 of the Pro Forma Consolidated Financial Information of CNPF‖. The selected pro forma

consolidated financial information presented below as of and for the year ended December 31, 2013

was derived from the historical audited separate financial statements of the Company, GTC, SMDC,

CCC, PMCI and CSC, adjusted to give pro forma effect to (i) the consolidation of GTC and SMDC into

the Company and (ii) the 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

69

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

70

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

71

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Year Ended

December 31, 2013

Share

Currency

Translation Retained

Capital Adjustments Earnings Total

Balance, January 1,

2013

₱1,500,000,000

₱(41,721,477) ₱ 581,576,206 ₱2,039,854,728

Profit for the year

-

-

743,917,203

743,917,203

Other comprehensive

income

-

61,069,376

(6,190,852)

54,878,524

Balance, December

31, 2013 ₱1,500,000,000 ₱ 19,347,898 ₱ 1,319,302,557 ₱2,838,650,456

72

SELECTED COMBINED FINANCIAL INFORMATION

The following tables set forth the summary combined financial information for GTC and SMDC and

should be read in conjunction with the auditors’ reports and 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 of the

Combined Financial Information for GTC and SMDC‖. The combined financial information presented

below as of and for the years ended December 31, 2011, 2012 and 2013 was derived from the audited

financial statements of GTC and SMDC prepared in accordance with PFRS. Our independent auditor

for the years ended December 31, 2011, 2012 and 2013 was Punongbayan & Araullo. The summary

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

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31

2013 2012 2011

₱

Net Sales 7,419,053,435 5,524,019,169 4,750,208,315

Cost of Sales 6,845,193,581 4,932,025,037 4,319,887,738

Gross Profit 573,859,854 591,994,132 430,320,577

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

73

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

74

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

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)

75

Net Increase in Cash and Cash Equivalents 285,964,405 11,831,024 6,002,706

Cash and Cash Equivalents, Beginning 127,701,664 115,870,640 109,867,934

Cash and Cash Equivalents, End 413,666,069 127,701,664 115,870,640

COMBINED STATEMENTS OF CHANGES IN EQUITY

Share

Capital

Share

Premium

Deposits for

Future stock

Subscription

Currency

Translation

Adjustments

Retained

Earnings Total

Balance, January 1, 2011 327,896,060 137,298,180 – 17,866,631 357,568,024 840,628,895

Issuance of shares during the year

37,500,000 – – – – 37,500,000

Cash dividends – – – – (75,000,000) (75,000,000)

Stock dividends 175,228,940 – – – (175,228,940) –

Profit for the year – – – – 66,476,381 66,476,381

Other comprehensive

income

– – – 553,648 – 553,648

Balance, December 31,

2011

540,625,000 137,298,180 – 18,420,279 173,815,465 870,158,924

Reclassification from debt to equity

– – 150,383,200 – – 150,383,200

Additional deposits for future stock subscription

– – 45,500,000 – – 45,500,000

Profit for the year – – – – 111,346,840 111,346,840

Other comprehensive income

– – – (53,373,052) 271,629 (53,101,423)

Balance, December 31,

2012

540,625,000 137,298,180 195,883,200 (34,952,773) 285,433,933 1,124,287,540

Issuance of shares during the year

459,375,000 – (195,883,200) – – 263,491,800

Cash dividends – – – – (384,000,000) (384,000,000)

Profit for the year – – – – 179,289,268 179,289,268

Other comprehensive income

– – – 67,243,798 415,516 67,659,314

Balance, December 31,

2013

1,000,000,000 137,298,180 – 32,291,025 81,138,718 1,250,727,922

76

SELECTED PARENT FINANCIAL INFORMATION OF CNPF

The following table sets forth the selected financial information for the Company and should be read in

conjunction with the auditors’ reports and the 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 selected financial information presented below for the

period October 25, 2013 to December 31, 2013 was derived from the audited financial statements of

the Company prepared in accordance with PFRS. Our independent auditor for the years ended

December 31, 2013 was Navarro Amper & Co. The 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)

77

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

78

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

79

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CNPF

The following table sets forth the selected financial information for the Company and should be read in

conjunction with the auditors’ reports and the 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 and Results of Operations of the Consolidated Financial Information

of CNPF‖. The selected financial information presented below as of and for the year ended December

31, 2013 was derived from the audited consolidated financial statements of the Company prepared in

accordance with PFRS. Our independent auditor for the years ended December 31, 2013 was Navarro

Amper & Co. The Company’s summary financial information below should not be considered

indicative of the results of future operations. STATEMENTS OF FINANCIAL POSITION

As of December 31, 2013

₱

Assets

Current Assets

Cash and cash equivalents 437,964,907

Trade and other receivables – net 1,034,062,591

Due from related parties 218,003,202

Inventories – net 1,602,019,351

Prepayments and other current assets 120,151,134

Total Current Assets 3,412,201,185

Non-Current Assets

Trademarks 40,000,000

Property, plant and equipment – net 1,036,419,999

Deferred tax assets 18,726,312

Retirement benefit asset 23,643

Other non-current assets 17,491,128

Total Non-current Assets 1,112,661,082

TOTAL ASSETS 4,524,862,267

Liabilities and Equity

Current Liabilities

Loans payable 2,214,600,002

Trade and other payables 524,689,323

Income tax payable 735,451

Due to related parties 240,632,032

Total Current Liabilities 2,980,656,808

Equity

Share capital 1,500,000,000

Currency translation adjustment 14,308,241

Other reserves 30,628,942

Deficit (731,724)

1,544,205,459

TOTAL LIABILITIES AND EQUITY 4,524,862,267

80

STATEMENT OF COMPREHENSIVE INCOME

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

in ₱

Revenue 1,421,621,604

Cost of Goods Sold 1,306,758,259

Gross Profit 114,863,345

Other Income 29,417,788

144,281,133

Operating Expenses 136,423,625

Other Expenses 2,189,825

Finance Costs 11,332,127

149,945,577

Loss Before Tax (5,664,444)

Income Tax Benefit 4,517,204

Loss for the Period (1,147,240)

Other comprehensive income

Item that will be reclassified subsequently to profit or loss

Currency translation adjustments 14,308,241

Item that will not be reclassified subsequently to profit or

loss

Effect of remeasurement of retirement benefit obligation 415,516

14,723,757

Total comprehensive income 13,576,517

Basic and Diluted Earnings Per Share (0,0008)

81

STATEMENT OF CASH FLOWS

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

₱

Cash Flows from Operating Activities (5,664,444)

Loss before tax

Adjustments for:

Depreciation and amortization 8,217,174

Finance costs 11,,332,127

Loss on inventory obsolescence 4,462,318

Loss on disposal of land 1,816,723

Retirement benefit expense 2,094,690

Interest income 495,102

Operating cash flow before working capital changes 22,753,690

Decrease (Increase) in:

Trade and other receivables 3,925,763

Due from related parties (213,678,171)

Inventories 787,768,399

Prepayments and other current assets 5,313,290

Other non-current assets 1,838,164

Decrease in trade and other payables (545,989,226)

Exchange differences on translating operating assets and

liabilities (21,415,425)

Cash generated from operations 40,516,484

Contribution to the retirement fund (1,753,543)

Income tax paid (22,608,962)

Net cash from operating activities 16,153,979

Cash Flows from Investing Activities

Acquisitions of property, plant and equipment (344,877,181)

Proceeds from sale of land 79,701,949

Interest income received (495,102)

Net cash used in investing activities (265,670,334)

Cash Flows from Financing Activities

Proceeds from issuance of share capital 1,500,000,000

Net receipts from related parties 129,865,038

Net repayment of loans (195,999,998)

Finance costs paid (11,332,127)

Net cash from financing activities 1,422,532,913

Acquisition of subsidiaries (net of cash acquired) (735,051,651)

Cash and Cash Equivalents, End 437,964,907

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

₱

Cash Flows from Operating Activities (5,664,444)

Loss before tax

82

Adjustments for:

Depreciation and amortization 8,217,174

Finance costs 11,,332,127

Loss on inventory obsolescence 4,462,318

Loss on disposal of land 1,816,723

Retirement benefit expense 2,094,690

Interest income 495,102

Operating cash flow before working capital changes 22,753,690

Decrease (Increase) in:

Trade and other receivables 3,925,763

Due from related parties (213,678,171)

Inventories 787,768,399

Prepayments and other current assets 5,313,290

Other non-current assets 1,838,164

Decrease in trade and other payables (545,989,226)

Exchange differences on translating operating assets and

liabilities (21,415,425)

Cash generated from operations 40,516,484

Contribution to the retirement fund (1,753,543)

Income tax paid (22,608,962)

Net cash from operating activities 16,153,979

Cash Flows from Investing Activities

Acquisitions of property, plant and equipment (344,877,181)

Proceeds from sale of land 79,701,949

Interest income received (495,102)

Net cash used in investing activities (265,670,334)

Cash Flows from Financing Activities

Proceeds from issuance of share capital 1,500,000,000

Net receipts from related parties 129,865,038

Net repayment of loans (195,999,998)

Finance costs paid (11,332,127)

Net cash from financing activities 1,422,532,913

Acquisition of subsidiaries (net of cash acquired) (735,051,651)

Cash and Cash Equivalents, End 437,964,907

83

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF THE PRO FORMA CONSOLIDATED

FINANCIAL INFORMATION OF CNPF

The following discussion of CNPF’s recent financial results should be read in conjunction with

CNPF’s pro forma consolidated financial statements and notes thereto contained in this Prospectus

and the section entitled ―Selected Pro Forma Financial Information‖. The Company’s pro forma

consolidated financial statements are in part supported by the historical performance of its wholly

owned subsidiaries, GTC and SMDC, as presented in their 2011-2013 audited combined financial

statements. The Company believes that the presentation of the 2013 pro forma consolidated financial

statements, taken together with the rest of this Prospectus, would provide prospective investors with

sufficient insight into the growth potential of the Company.

CNPF’s pro forma consolidated financial information as of and for the year ended December 31, 2013

was derived from the historical audited separate financial statements of the Company, GTC, SMDC,

CCC, PMCI and CSC, adjusted to give pro forma effect to (i) the consolidation of GTC and SMDC into

the Company and (ii) the 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.

This discussion contains forward-looking statements and reflects the current views of CNPF with

respect to future events and financial performance. Actual results may differ materially from those

anticipated in these forward-looking statements as a result of certain factors such as those set forth in

the section entitled ―Risk Factors‖ and elsewhere in this Prospectus.

The pro forma financial statements included in this Prospectus and on which the discussions in this

section are based should not be considered indicative of actual results. See ―Risk Factors – Risks

relating to the presentation of information in this Prospectus – The pro forma financial information

included herein may not be indicative of actual results‖.

OVERVIEW

CNPF traces its history from the Century Group, a leading branded food company primarily

engaged in the development, processing, marketing and distribution of processed fish and

meat, as well as processed dairy products in the Philippines.

In October 2013, the Century Group began to undertake a general corporate reorganization

transaction. Prior to the corporate restructuring, the 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.

84

Meat

The Pacific Meat Company, Inc. (―PMCI‖), incorporated on June 28, 1994, manufactured

canned and processed meat under the brand names Argentina, Swift and 555.

Dairy

Snow Mountain Dairy Corporation (―SMDC‖) incorporated on February 14, 2001, handles

the dairy and sinigang mixes under the brands of Birch Tree, Angel, Home Pride and Kaffe de

Oro.

In order to streamline and rationalize the 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

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, totalling over 559,689 points of sale throughout the

Philippines. CNPF operates five production facilities and distributes its products through 14

distribution centers strategically located across the Philippines. CNPF distributes its products

directly to retailers, as well as through third-party distributors. As at December 31, 2013,

CNPF maintained 200 manufacturer direct-to-retail accounts reaching 3,772 retail outlets in

the Philippines. In addition, as at December 31, 2013, CNPF held distribution agreements

with 39 distributors, reaching approximately 225,168 retail outlets ranging from supermarkets

to sari-sari stores. Furthermore, as of December 31, 2013, CNPF exports both private label

and branded products, which are distributed across North America, Europe, Asia, Australia,

and the Middle East.

For the year ended December 31, 2013, CNPF‘s net revenue was ₱19,023 million. CNPF‘s

net profit for the same periods 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.

85

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

across North America, Europe, Asia, Australia, and the Middle East.

For the year ended December 31, 2013, the contribution of each business segment to CNPF‘s

total revenue and net income 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

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 and

adjusted to give the pro forma effect of the consolidation of the businesses of the said

companies as shown in the table below:

Year ended

December 31,

2013 (in ₱

millions)

Acquisitions Total before

Pro Forma

Adjustments

Pro forma

Adjustments

Pro forma

Consolidated CNPF 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

86

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

87

million for an equivalent gross profit rate of 21%. Net income totalled ₱41.8 million, or a 3%

return on sales ratio.

FACTORS AFFECTING RESULTS OF OPERATIONS

CNPF’s results of operations are affected by a variety of factors. Set out below is a discussion

of the most significant factors that have affected CNPF’s results in the past and which CNPF

expects to affect its financial results in the future. Factors other than those set out below

could also have a significant impact on CNPF’s results of operations and financial condition

in the future. See ―Risk Factors‖.

Raw Materials Costs and Product Prices

CNPF depends on raw materials, including certain critical raw materials such as tuna, meat,

tin cans and powdered milk, most of which are procured from third parties from both within

and outside the Philippines. These materials are subject to price volatility caused by a number

of factors, including changes in global supply and demand, foreign exchange rate fluctuations,

weather conditions and government regulations and controls. In addition, CNPF‘s ability to

obtain raw materials is affected by a number of factors beyond its control, including natural

disasters, governmental laws and policies, and interruptions in production by suppliers.

Changes in the prices of raw materials will necessarily affect CNPF‘s cost of sales and may

affect the pricing of CNPF‘s products. Changes in prices may also affect consumer demand,

as CNPF‘s consumers are generally price sensitive. While CNPF believes it has been able to

successfully pass on price increases historically to its customers, there is no assurance that

any future increases in cost of sales can be fully passed on to consumers. As a result, any

material increase in the market price of raw materials could have a material adverse effect on

CNPF‘s operating margins, which may affect its financial position and operating

performance.

Economic, Social and Political Conditions in the Philippines

While CNPF has operations outside the Philippines, all of CNPF‘s assets as of December 31,

2013 were located in the Philippines, and approximately 69% of its revenues for the year

ended December 31, 2013, were derived from its operations in the Philippines. As a result,

CNPF‘s business, financial condition, results of operations and prospects are substantially

influenced by economic and political conditions in the Philippines. Although the Philippine

economy has experienced stable growth in recent years, the Philippine economy has in the

past experienced periods of slow or negative growth, high inflation, significant devaluation of

the Peso, and has been significantly affected by economic volatilities in the Asia-Pacific

region. Also, in the past, there have been periods of political instability in the Philippines,

including impeachment proceedings against two former presidents and the chief justice of the

Supreme Court of the Philippines, and public and military protests arising from alleged

misconduct by previous administrations. Sales of most of CNPF‘s products are directly

related to the strength of the Philippine economy (including overall growth levels and interest

rates) and tend to decline during economic downturns. Any deterioration in the Philippine

economy, including a significant deterioration in the value of the Peso, may adversely affect

consumer sentiment and lead to a reduction in demand for CNPF‘s products.

Competition

CNPF faces competition in the Philippines as well as in the other countries in which it

distributes its products. It competes with a number of multi-national, national, regional and

local competitors. Although certain of CNPF‘s products have significant market shares in the

88

Philippines and in many cases are market leaders in their respective product categories, CNPF

expects to face increasing competition as it continues to grow its business. Competitive

factors generally affecting CNPF‘s businesses include price, product quality, brand awareness

and customer loyalty, distribution coverage, customer service and the ability to effectively

respond to shifting consumer tastes and preferences. For a more detailed discussion on

competition, please see ―Business‖ beginning on page 129 of this Prospectus, and ―Industry‖

beginning on page 160 of this Prospectus

Seasonality

CNPF‘s sales are affected by seasonality in customer purchase patterns. In the Philippines,

most food products, including those produced by CNPF, experience increased sales during the

Christmas season. As a result, seasonality could affect CNPF‘s financial condition and results

of operations from one quarter to another, particularly in relation to the fourth quarter of each

year.

Introduction of New Products and Marketing Initiatives

CNPF believes that many consumer food products are impulse and discretionary purchases,

which are particularly sensitive to competitive pressures. A key element in maintaining its

market share in the highly competitive Philippine food market has been for CNPF to

continuously introduce new products and product extensions.

In addition to introducing new products, CNPF has undertaken marketing initiatives using

organized advertising campaigns to differentiate its products and further expand market share.

CNPF devotes significant expenditures to support advertising and branding, including funding

for advertising campaigns, such as television commercials and radio and print advertisements.

CNPF‘s advertising and promotion costs accounted for a significant proportion of total

revenue, comprising 3% for the year ended December 31, 2013.

The development and introduction of new products and the use of marketing initiatives can

substantially increase CNPF‘s operating costs. Although CNPF believes that these higher

costs are justified by increased sales from new and existing products, there is typically a delay

between the incurrence of these costs and any such sales. Furthermore, CNPF cannot be

assured of when, if ever, these expenditures will result in increased revenues.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that are both (i) relevant to the presentation of CNPF’s

financial condition and results of operations and (ii) require management’s most difficult,

subjective or complex judgments, often as a result of the need to make estimates about the

effect of matters that are inherently uncertain. As the number of variables and assumptions

affecting the possible future resolution of the uncertainties increase, those judgments become

even more subjective and complex.

For information on CNPF‘s significant accounting policies and significant accounting

judgments and estimates, see Note 6, starting on Page 9 of the audited financial statements of

CNPF as parent included elsewhere in this Prospectus.

89

DESCRIPTION OF KEY LINE ITEMS

Sale of Goods

CNPF, GTC and SMDC derive their net sales from sale of goods to their customers less value

added tax (―VAT‖) and sales returns and allowances. GTC customers consist of importer-

brand owners, food producers and retailers, traders and agents in the international tuna

market. CNPF and SMDC customers include largely customer accounts serving the modern

trade, general trade and food service channels of the domestic market. In addition, CNPF and

SMDC have customers that serve the export market.

Cost of goods sold

CNPF‘s, GTC‘s and SMDC‘s cost of goods sold consists primarily of cost of goods available

for sale (i.e. inventory at the beginning of the year plus additional stocks from production and

purchases during the year) less inventory at the end of the year. The cost elements comprising

cost of goods sold include raw materials and packaging materials cost plus conversion costs.

Conversion costs consist of direct labor cost, utilities expense, and manufacturing overhead

expense.

Operating Expenses (Income)

CNPF‘s, GTC‘s and SMDC‘s operating expenses comprise primarily of salaries and wages

and other staff costs, advertising and promotions cost, freight and distribution expenses, other

selling and market expenses, depreciation, repairs and maintenance expenses, and other

administrative expenses.

Other Income (Expense)

Other income (expense) consists primarily of interest expense and other financing charges,

investment income, foreign exchange gain (loss), inventory loss, and other miscellaneous

income and expenses.

Income Tax Expense

Income tax expense comprises current income tax expense and deferred income tax expense.

Trade Receivables

Trade receivables are recorded at fair value plus transaction less provisions for impairment

loss, and are primarily from sales with an average credit term of 30 to 45 days. Impairment

loss is provided when there is objective evidence that the Company will not be able to collect

from specific customers certain amounts due to it in accordance with the original terms of the

receivables. The amount of the impairment loss is determined based on evaluation of

available facts and circumstances, including but not limited to, the length of the Company‘s

relationship with the customers, the customers‘ current credit status based on known market

forces, average age of the accounts, collection experience and historical loss perspective.

Inventories

Inventories comprise primarily of raw materials, work-in-process goods and finished goods.

These are booked at the lower of cost and net realizable value. Cost is determined using the

first-in, first-out method. Finished goods and work-in process include the cost of raw

90

materials, direct labor and a proportion of manufacturing overhead based on normal operating

capacity. Raw material costs include all costs attributable to acquisition such as the purchase

price, import duties and other taxes that are not subsequently recoverable from taxing

authorities.

Inventories are derecognized when sold or otherwise disposed of.

Trade Payable

Trade payables comprise of obligations to suppliers incurred in the ordinary course of

business. These are recognized at fair value and subsequently measured at amortized cost

during the period when the goods or services are received or rendered.

Net Sales

The Company‘s net sales was ₱19,023.1 million for the year ended December 31, 2013.

The breakdown for each business segment is as follows:

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. This included sales of

branded products under the Century, 555, Blue Bay, Fresca and Lucky 7 labels to

both the domestic and export market.

Tuna Export. Net sales from the tuna export business segment totalled ₱5,801

million. This represented 31% of total CNPF sales and comprised canned tuna,

pouched tuna and frozen loins to the private-label export market.

Canned Meat. Net sales from the canned meat business were ₱4,638.1 million for the

year ended December 31, 2013, which represents 24% of total CNPF sales. Net sales

represents sales to the modern trade accounts, general trade accounts, food service

accounts and export accounts for canned products including corned beef, meat loaves,

and ready-to-eat viands under the Argentina, Swift, 555, Wow, Lucky 7, and Shanghai

labels.

Dairy and Mixes. Net sales from the dairy and mixes business were ₱1,556.4 million

for the year ended December 31, 2013, which represents 8% of the total CNPF sales.

Net sales includes sales of evaporated milk, condensed milk, creamers, full cream

powdered milk, flavor mixes and 3-in-1 coffee products under the Angel, Birch Tree,

Home Pride and Kaffe de Oro brands.

Cost of sales

The Company‘s cost of sales was ₱15,696.8 million for the year ended December 31, 2013,

which represents 82.5% of net sales, primarily comprised of: (1) cost of raw materials; (2)

cost of packaging; and (3) conversion costs.

The breakdown for each business segment is as follows:

Canned and Processed Fish. The canned and processed fish business recorded a cost

of sales of ₱5,375.3 million for the year ended December 31, 2013, which represents

91

a 34% share of the total CNPF cost of sales and a 76% cost ratio to total canned and

processed fish segment net sales.

Tuna Export. The tuna export business registered a cost of sales of ₱5,540.3 million

for the year ended December 31, 2013, which represents a 35% share of total CNPF

cost of sales and a 96% cost ratio to total tuna export net sales.

Canned Meat. The cost of sales for the canned meat business amounted to ₱3,558.6

million for the year ended December 31, 2013, which represents a 23% share of

CNPF‘s total cost of sales and a 77% cost ratio to total canned meat segment net

sales.

Dairy and Mixes. The dairy and mixes business recorded a cost of sales ₱1,222.4

million for the year ended December 31, 2013, which represents an 8% share of

CNPF‘s total cost of sales and a 79% cost ratio to total dairy and mixes net sales.

Gross profit

As a result of the foregoing, the Company‘s total gross profit was ₱3,326.3 million for the

year ended December 31, 2013, which translates to 17% of net sales. The following table

summarizes the breakdown of the Company‘s revenues, cost of sales, and gross profit

between its three business segments:

Canned and

Processed Fish

Tuna Export Canned Meat Dairy and Mixes Total CNPF

₱ Mill % of

Sales ₱ Mill

% of

Sales ₱ Mill

% of

Sales ₱ Mill

% of

Sales ₱ Mill

% of

Sales

Net 7,027.52 100% 5,801.07 100% 4,638.10 100% 1,556.36 100% 19,023.05 100%

Sales

Cost

of

Sales

5,375.35 76% 5,540.35 96% 3,558.62 77% 1,222.45 79% 15,696.78 83%

Gross

Profit 1,652.18 24% 260.72 4% 1,079.48 23% 333.90 21% 3,326.28 17%

Other Income

For the year ended December 31, 2013, the Company‘s other income totaled ₱175.8 million,

which translates to 0.9% ratio to total net sales. The breakdown of other income by business

segment includes ₱47.3 million or 0.7% ratio to sales for the canned and processed fish

business, ₱106.1 million or 1.8% ratio to sales for the tuna export business, ₱22.3 million or

0.5% ratio to sales for the canned meat business, and ₱0.1 million or a negligible ratio to sales

for the dairy and mixes business.

Operating expenses

CNPF operating expenses were ₱2,415.2 million for the year ended December 31, 2013,

which represents 13% of total net sales. Operating expenses consists of selling and

distribution expenses, marketing expenses such as advertising and promotions, and general

and administrative expenses. The breakdown of operating expenses by business segment is set

forth below:

92

Canned and

Processed Fish

Tuna Export Canned Meat Dairy and Mixes Total CNPF

₱ Mill % of

Sales ₱ Mill

% of

Sales ₱ Mill

% of

Sales ₱ Mill

% of

Sales ₱ Mill

% of

Sales

Net 7,027.52 100 5,801.07 100 4,638.10 100 1,556.36 100 19,023.05 100

Sales

Operating

Expenses 1,334.0 19% 148.4 3% 657.50 14% 275.31783 18% 2,415.24 13%

Finance Costs

The Company‘s finance cost totaled ₱112.4 million, or 0.6% of total net sales for the year

ended December 31, 2013. The breakdown of this finance cost by business segment reflects

canned/processed fish at ₱55.6 million, or 0.8% of segment sales; export tuna at ₱49.4 million

or 0.8%; canned meat at ₱5.8 million or 0.1% of segment sales; and dairy and mixes at ₱1.6

million or 0.1% of segment sales.

Other Expense

The Company‘s other expense account totaled ₱14.0 million, representing 0.1% of total

CNPF sales for the year ended December 31, 2013. The breakdown of other expense by

business segment would include canned/processed fish – at ₱6.9 million, or 0.1% of segments

sales; tuna export – at ₱3.2 million, or 0.1% of segment sales; and canned meat – at ₱3.9

million, or 0.1% of segment sales.

Income Tax Expense

Income tax expense totaled ₱216.4 million or 1.1% of total CNPF sales for year ended

December 31, 2013. The effective tax was 23% compared to the standard corporate tax rate of

30%, primarily due to the difference between taxable profit and net profit where the former

reflects adjustments to exclude items of income or expense that are taxable or deductible in

other years, or are subjected to lower income tax rate or income tax holiday (―ITH‖), or are

never taxable or deductible. Canned and processed fish incurred income tax expense of ₱91.2

million for a tax rate of 30%. Tuna export incurred income tax expense of ₱28.3 million for a

tax rate of 17%. Canned meat had an income tax expense of ₱81.6 million for a tax rate of

19%. Dairy and mixes business incurred an income tax expense of ₱15.3 million for a tax rate

of 27%.

Net Profit for the Period

As a result of the foregoing, the Company‘s total net profit for the year ended December 31,

2013 was ₱743.9 million, or a return on sales (―ROS‖) ratio of 3.9%. Canned and preserved

fish business registered ₱211.7 million, or 3.0% ROS. Tuna exports registered ₱137.5

million, or 2.4% ROS. Canned meat registered ₱352.9 million, or 7.6% ROS. Finally, dairy

and mixes registered ₱41.8 million, or 2.7% ROS.

93

LIQUIDITY AND CAPITAL RESOURCES

The Company‘s principal liquidity requirements are for purchases of raw materials and

inventory, working capital requirements, and capital expenditures for plant maintenance and

production efficiency.

The Company‘s principal sources of liquidity are from internally generated cash from

operations and short-term bank loans. For the year ended December 31, 2013, the Company

had, on a pro forma consolidated basis, total current assets of ₱7,026 million, of which cash

and cash equivalents accounted for 11% or ₱804 million. This was against the Company‘s

total current liabilities of ₱5,305 million, 48% of which (or ₱2,535 million) were non-interest

bearing trade payables.

The Company expects a growth in its working capital due to increased sales and market share

expansion. Moving forward, the Company expects to fund these requirements from its

operating cash flows, borrowings and proceeds of the Offer. The Company intends to use a

portion of the proceeds from the Offer to partially pay off short-term debt financing

arrangements and to support working capital requirements. See ―Use of Proceeds‖ beginning

on page 55 of this Prospectus.

The Company may also, from time to time, seek other sources of funding, which may include

debt or equity financing, depending on its financing needs and market conditions. In the

course of conducting its business, the Company has, and will continue, to incur short-term 60-

90 days revolving credit lines from several banking institutions at an average interest rate of

2.5% to 3.5% per annum. CNPF expects that its principal uses of cash for fiscal year 2014

will be for payment of financial obligations, capital expenditures to increase production

capacity and cost efficiency, working capital and/or potential acquisitions.

The following table sets forth the selected information from the Company‘s pro forma

consolidated statement of cash flows for the period indicated:

For the year ended

December 31, 2013

(in ₱ millions)

Cash from operating activities .......................................................................... 985

Cash used in investing activities....................................................................... (252)

Cash used in financing activities ..................................................................... (668)

Net increase in cash and cash equivalents ....... 65

Cash and cash equivalents

Beginning of year .................................................................................... 739

End of year .............................................................................................. 804

Net Cash flow from operating activities

CNPF‘s pro forma net cash from operating activities was ₱985.1 million for the year ended

December 31, 2013. The primary source of cash was ₱1,259.9 million from operating cash

flows before working capital changes, ₱2,056.6 million decrease in inventories, ₱144.2

million decrease in prepayment and other current assets, ₱5.2 million decrease in other non-

current assets, and ₱7.0 million from translating operating assets and liabilities. Cash used in

operations included ₱1,057.5 million increase in trade and other receivables, ₱1,135.9 million

decrease in trade and other payables, and ₱64.9 million decrease in other non-current

liabilities, ₱8.4 million for retirement fund contributions, and income tax payments of ₱221

million.

94

Cash flows used in investing activities

Cash flow used in investing activities for the year ended December 31, 2013 was ₱251.9

million. This was primarily attributable to additions in property, plant and equipment ₱341.8

million, offset by ₱10.2 million interest received and ₱79.7 million proceeds from the sale of

property, plant and equipment.

Cash flow used in financing activities

Cash flow used in financing activities for the year ended December 31, 2013 was ₱668.3

million. This was primarily attributable payments of borrowings and interest expense of

₱555.8 million and ₱112.5 million, respectively.

Capital Expenditures

The Company regularly invests in capital expenditures to support on-going maintenance and

capacity utilization of its property, plant and equipment.

CNPF‘s pro forma capital expenditures for the year ended December 31, 2013 were ₱342

million. The table below sets forth the components of the pro forma capital expenditures of

CNPF for 2013, together with its budgeted capital expenditures for 2014. This is a forward-

looking statement. See ―Forward-Looking Statements‖ beginning on page vi. 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.

For the years ended December

31

(in ₱ millions)

2013 2014

Buildings/Land /Leasehold improvements ....... 3 162

Machineries & equipment ............................... 120 487

Construction in progress .................................. 188

Other fixed assets ............................................ 30 80

Total capital expenditures ............................. 342 729

CNPF (pro forma) has historically sourced funding for capital expenditures through internal

cash generation and provisions for working capital.

The Company will use the net proceeds as well to fund capital expenditures that will improve

cost efficiencies and achieve higher profitability in the future. CNPF (pro forma) has

budgeted ₱729 million for capital expenditures for 2014. See ―Use of Proceeds‖ beginning on

page 55 of this Prospectus.

The figures in CNPF‘s capital expenditure plans are based on management‘s estimates and

have not been appraised by an independent organization. In addition, CNPF‘s capital

expenditure plans are subject to a number of variables, including availability of financing on

acceptable terms, the identification of new projects and potential acquisitions, and

macroeconomic factors such as the Philippine‘s economic performance and interest rates.

There can be no assurance that GTC and SMDC will execute their capital expenditure plans

as contemplated at or below estimated costs.

95

Contractual Obligations and Commitments

The following table sets forth the Company‘s contractual obligations and commitments as of

December 31, 2013:

Contractual Obligations and Commitments

Principal Payments Due by Period

(in ₱ millions)

Total 2014

2015-

2018

After

2018

Interest-bearing loans and borrowings ............. 2,717 2,717

Trade and other payables .................................. 2,535 2,535

Dividends payable ...........................................

Advances from related parties .........................

Other long-term liabilities ................................ 0 0

Total ................................................................. 5,252 5,252

The discussion above contains forward-looking statements. See ―Forward-Looking

Statements‖ beginning on page vi. Additional factors that could cause the 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.

Debt Obligations and Facilities

CNPF‘s total amount of pro forma short-term debt as of December 31, 2013 was ₱2,717

million which was comprised of notes payable. There is no the pro-forma long-term debt.

The following table sets forth CNPF‘s pro forma total consolidated indebtedness as of the

periods indicated:

As of

December 31,

2013

(in ₱ millions)

Short-term debt ....................................................................................................... 2,717.3

Long-term debt ............................................................................................... …... 0.0

Total ....................................................................................................................... 2,717.3

CNPF intends to repay, with proceeds from the Offer, existing indebtedness of up to ₱1,290

million relating to loans with terms of 60 to 90 days with annual interest rate average 2.5% to

3.5% per annum which were incurred primarily to fund growth in accounts receivable-trade

given expanding sales revenues. See ―Use of Proceeds‖ beginning on page 55 of this

Prospectus.

96

Off-Balance Sheet Arrangements

As of December 31, 2013, CNPF did not have any off-balance sheet arrangements.

KEY PERFORMANCE INDICATORS

The following are the major performance measures used by CNPF as a whole and its business

segments for 2013:

Total Sales

This represents total revenues generated from sales of the Company‘s three business

segments: canned and processed fish (including tuna export), canned meat, and dairy and

mixes. Sale of goods to customers are less VAT and sales returns and allowances. The

Company considers this to be a measure of volume and growth.

Gross Profit Margin (%)

This represents the portion of revenues remaining after deducting cost of sales. The Company

considers this to be a measure of its pricing strategy and financial health.

.

Before Tax Return on Sales (%)

This represents the ratio of net income before interest and tax against total sales. The

Company considers this to be a measure of its operational efficiency and profit for every unit

sold.

Return on Equity (%)

This represents the ratio of net income and shareholder equity. The Company considers this to

be a measure of the its bottom line profitability.

Current Ratio (x)

This represents the amount of total current assets as a multiple of total current liabilities. The

Company considers this to be a measure of its liquidity and ability to pay short-term

obligations.

Total CNPF For the year

ended

December 31,

2013

Total Sales

Gross Profit Margin (%) ........................................................................................

₱ 19,023

17%

Before Tax Return on Sales (%) ............................................................................ 5%

Return on Equity (%) ............................................................................................ 26%

Current Ratio (x) ................................................................................................... 1.32

97

Canned and Processed Fish

For the year

ended

December 31,

2013

Total Sales

Gross Profit Margin (%) ........................................................................................

₱ 7,028

24%

Before Tax Return on Sales (%) ............................................................................ 4%

Current Ratio (x) ................................................................................................... 1.56

Canned Meat For the years

ended

December 31,

2013

Total Sales

Gross Profit Margin (%) ........................................................................................

₱ 4,638

23%

Before Tax Return on Sales (%) ............................................................................ 9%

Current Ratio (x) ................................................................................................... 1.26

Dairy and Mixes For the years

ended

December 31,

2013

Total Sales

Gross Profit Margin (%) ........................................................................................

₱ 1,556

21%

Before Tax Return on Sales (%) ............................................................................ 4%

Current Ratio (x) ................................................................................................... 1.85

Export Tuna For the years

ended

December 31,

2013

Total Sales

Gross Profit Margin (%) ........................................................................................

₱ 5,801

4%

Before Tax Return on Sales (%) ............................................................................ 3%

Current Ratio (x) ................................................................................................... 1.07

98

QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISKS

CNPF is exposed to various types of market risks in the ordinary course of business,

including foreign exchange rate risk, commodity price risk, credit risk and liquidity risk.

Commodity Price Risk

CNPF‘s commodity price risk exposure primarily results from the use of commodities as raw

materials in its production processes. In particular, the supply and prices of fish are subject to

seasonality and there is limited fish-catching activity from November to March of the

following year. To reduce its exposure to increased fish prices during this time, CNPF

typically builds up sufficient inventories of finished products by October of each year to

minimize the need to purchase fish at increased prices. CNPF currently does not have a

commodity price hedging policy.

Foreign Exchange Rate Risk

CNPF‘s foreign exchange rate risk arises primarily from the fluctuations in exchange rate that

arise between the Philippine Peso and the U.S. dollar. The substantial majority of CNPF‘s

revenues are denominated in Pesos, while certain of its expenses, particularly its raw material

costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars. In

addition, CNPF is exposed to foreign exchange risk through its export of private label tuna

and its branded products. To hedge its exposure to exchange rate fluctuations, CNPF enters

into a forward contract for each export order to secure the expected profit at time of delivery.

See ―Risk Factors – Risks Relating to the Company’s Business – CNPF is exposed to foreign

exchange risk‖, ―Risk Factors – Risks Relating to the Philippines – Volatility in the value of

the Peso against the U.S. dollar and other currencies could adversely affect CNPF’s

business‖ and ―Exchange Rates‖.

Credit Risk

CNPF‘s exposure to credit risk relates primarily to its trade and other receivables. Generally,

CNPF‘s maximum credit exposure in the event of customers‘ and counterparties‘ failure to

perform their obligations is the total carrying amount of the financial asset as shown on the

statement of financial position. To minimize its credit risk, CNPF evaluates customer credit,

receivables and payment habits for all major customers on a quarterly basis.

Liquidity Risk

CNPF is exposed to the possibility that adverse changes in the business environment or its

operations could result in substantially higher working capital requirements and consequently,

a difficulty in financing additional working capital. CNPF manages its liquidity risk by

monitoring its cash position and maintaining credit lines from financial institutions that

exceed projected financing requirements for working capital.

99

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF THE COMBINED FINANCIAL

INFORMATION FOR GTC AND SMDC

The following discussion of the combined GTC and SMDC’s recent financial results should be read in

conjunction with the auditors’ reports, the selected combined financial information for GTC and

SMDC, and the corresponding notes thereto, contained in this Prospectus and the section entitled

―Selected Combined Financial Information for GTC and SMDC‖.

The combined financial information of GTC and SMDC as of and for the years ended December 31,

2011, 2012 and 2013 was derived from the audited financial statements of GTC and SMDC prepared

in accordance with PFRS and audited by Punongbayan & Araullo.

This discussion contains forward-looking statements and reflects the current views of GTC and SMDC

with respect to future events and financial performance. Actual results may differ materially from those

anticipated in these forward-looking statements as a result of certain factors such as those set forth in

the section entitled ―Risk Factors‖ and elsewhere in this Prospectus.

OVERVIEW

GTC and SMDC are wholly-owned subsidiaries of CNPF. GTC is engaged in the

manufacture and export of private label canned, pouched and frozen tuna products for exports

to markets in North America, Europe, Africa and Asia. SMDC is in the dairy and mixes

business, and produces and markets liquid milk products, powdered milk products, coffee mix

and sinigang mix largely for the domestic market.

GTC was incorporated in 1997, and currently operates a 360-metric ton capacity state-of-the-

art tuna processing facility in General Santos City. GTC is the Philippines‘ largest exporter of

processed tuna products with 34% share of total Philippines tuna exports, based on the

Philippine Bureau of Customs data for full year 2013. With operational strategy targeted

toward product competitiveness and international standards and building strong customer

relationships, GTC has increasingly grown its exports for products like canned tuna, pouched

tuna and vacuum-packed frozen loin products. These tuna products, which are made from

choice premium quality skipjack and yellow fin fish materials, are offered by GTC in various

retail and institutional pack styles with the tuna material processed into flakes, chunks or solid

form using either oil or brine as packing medium. GTC has supply arrangements with leading

global manufacturers including Chicken of the Sea, Bumblebee Foods LLC, Subway, Princes,

Hagoromo, Hoko, California Garden and Rio Mare. GTC‘s tuna processing facility conforms

to global standards for food production through its accreditations with the International Food

Standard, U.S. Food and Drug Administration, British Retail Consortium, European Union

and Canadian Food Inspection Agency.

SMDC has been in the dairy business since 2001, and through the years, has continually

expanded its product portfolio using the Angel and Birch Tree brands in product segments

such as evaporated milk, condensed milk, full cream milk powder and all-purpose cream. In

2008, SMDC diversified into the coffee mix line through the Kaffe de Oro brand and sinigang

flavoring mixes line through the Home Pride brand. Sustained brand equity, product

innovation, value for money pricing, marketing niching strategy, and distribution investments

have made the SMDC brands own the third largest milk market share in the domestic market

amidst the traditional approach of its competitors. SMDC operates a newly-built canned milk

and cream processing plant with an installed capacity of 11,000 cases per day in Taguig,

Metro Manila.

100

For the years ended December 31, 2011, 2012 and 2013, the respective contributions of GTC

and SMDC to the combined total revenue and net income are as follows:

For the years ended December 31,

(in ₱ millions)

2011 2012 2013

Revenue

% of

Total Revenue

% of

Total Revenue

% of

Total

GTC 3,470.7 73 3,803.6 69 5,862.7 79

SMDC 1,279.5 27 1,720.4 31 1,556.4 21

Total 4,750.2 100 5,524.0 100 7,419.1 100

For the years ended December 31,

(in ₱ millions)

2011 2012 2013

Net

Income

% of

Total

Net

Income

% of

Total Net Income

% of

Total

GTC 58.2 88 92.1 83 137.5 75

SMDC 8.3 12 19.3 17 41.8 25

Total 66.5 100 111.3 100 179.3 100

Note: GTC’s Statement of Income expressed in US Dollar is translated to Peso using BSP’s average USD to Peso

exchange rate for the period.

FACTORS AFFECTING RESULTS OF OPERATIONS

GTC’s and SMDC’s combined results of operations are affected by a variety of factors. Set

out below is a discussion of the most significant factors that have affected GTC’s and

SMDC’s combined results in the past and which GTC and SMDC expect to affect its

combined financial results in the future. Factors other than those set out below could also

have a significant impact on GTC and SMDC’s combined results of operations and financial

condition in the future. See ―Risk Factors‖.

Raw Materials Costs and Product Prices

GTC uses skipjack and yellow fin tuna as main raw materials for production. These fish

materials, which are procured from both local and foreign fish catcher suppliers operating in

the Western Pacific Ocean, are processed into finished products using customized packing

medium ingredient materials such as soya oil, sunflower oil, olive oil, brine and sauces.

Packaging materials include tin cans, pouches, frozen loin PE nylon shrinkable vacuum bags,

and cartons.

SMDC‘s principal production materials are instant full cream milk powder, skimmed milk

powder, buttermilk powder, non-dairy creamer, vegetable oil, sugar and tin cans. Milk

101

materials are sourced mostly through direct importation from Europe, the United States,

Australia and New Zealand.

As experienced by GTC and SMDC, these materials are subject to price volatility caused by a

number of factors, including changes in global supply and demand, foreign exchange rate

fluctuations, weather conditions and government regulations and controls. In addition, GTC‘s

and SMDC‘s ability to obtain raw materials is affected by a number of factors beyond their

control, including natural disasters, governmental laws and policies, and interruptions in

production by suppliers.

Changes in the prices of raw materials have necessarily affected GTC‘s and SMDC‘s cost of

sales and management‘s decision in the pricing of GTC and SMDC products. Changes in

prices have also affected consumer demand, as both GTC and SMDC consumers and

customers are generally price sensitive. For the last three years, 2011 to 2013, GTC and

SMDC have been able to successfully pass on some or all cost increases to their customers

via selling price increases, particularly in product segments where GTC and SMDC have

relatively strong market positions. However, GTC and SMDC believe there is no assurance

that any future increases in cost of sales can always be fully passed on to consumers. As a

result, any material increase in the market price of raw materials could have a material

adverse effect on GTC‘s and SMDC‘s operating margins and sales volumes, which may

affect overall financial position and operating performance.

Competition

GTC faces competition from tuna exporters not only from the Philippines but also from other

tuna exporting countries such as Thailand, Indonesia, Ecuador, Spain and Seychelles. Given

the commodity-like nature of tuna products, selling prices and raw material tuna fish cost

generally move in similar patterns. In 2011, 2012 and 2013, tuna fish prices have continually

risen due to declining catches, and, as a result, canned tuna prices have moved on an upward

trend as well, adversely causing a slowdown in consumer demand in major tuna importing

countries. In an increasingly competitive tuna export market, an important element in

maintaining export market share for GTC has been GTC‘s ability to sustain its strong image

of reliability and consistency in supplying to its customers premium quality tuna products at

competitive prices and building a long lasting customer relationship.

SMDC competes with a number of multi-national, national, regional and local competitors in

the Philippine market. In terms of market share, SMDC is in a market challenger position

against two large multinational dairy companies. The competitive factors generally affecting

SMDC‘s business include price, product quality and innovation, brand awareness and

customer loyalty, distribution coverage and customer service. A major factor to sustain

business growth for SMDC in 2011, 2012 and 2013 was SMDC‘s ability to spot and tap

market opportunities amidst changing consumer tastes and preferences. Through a marketing

niching strategy, SMDC has continued the market development of its Kremdensada product,

which is a first-in-the-market 2-in-1 cream product launched in 2010. The 2-in-1 cream

product is a product that combines the goodness of all-purpose cream and condensed milk in

one can and offers its consumers savings in cost, high quality taste and convenience in

preparation.

Seasonality

GTC‘s and SMDC‘s sales are affected by seasonality in customer purchase patterns. In the

Philippines, most food products, including those produced by SMDC, experience increased

sales during the Christmas season and summer months as consumers use the milk products for

creaming beverages, desserts, cooking and baking applications. In European export tuna

102

markets, the highest consumption period is the summer months while in North America, tuna

sales are year-round. As a result, seasonality could affect GTC and SMDC‘s net sales and

operating results and cause them to continue to vary from quarter to quarter during the

operating year.

Introduction of New Products and Marketing Initiatives

GTC and SMDC believe that many consumer food products are impulse and discretionary

purchases, and therefore particularly sensitive to competitive pressures. A key element in

maintaining their market share in the highly competitive markets in which they operate has

been for GTC and SMDC to continuously introduce new products and product extensions.

In years 2011 to 2103, the rising cost of tuna fish material caused canned tuna prices to rise in

a similar pattern, affecting export market demand and creating greater competitive pressures

among tuna exporters. In response to changing market conditions, GTC shifted a portion of its

manufacturing capability into frozen loin production to enter the tuna loin market where there

was growing demand for frozen tuna loins among tuna canneries operating in high-labor cost

countries.

SMDC introduced new products like the KremQueso 370 ml product in 2012, Angel All

Purpose Creamer 370 ml, and Angel Evaporated Liquid Creamer 145 ml in 2013 as part of

its continuing strategy to satisfy consumer needs and preferences, increase product

differentiation, and maximize market shares and plant capacity utilization.

The development and introduction of new products and the use of marketing initiatives can

substantially increase not just the revenue but also operating costs. SMDC believes that these

higher costs are justified by increased sales from new and existing products, although there is

typically a delay between the incurrence of these costs and any such sales; and that it cannot

be assured of when, if ever, these expenditures will result in increased revenues.

Economic, Social and Political Conditions in the Philippines

GTC‘s and SMDC‗s business, financial condition, results of operations and prospects are

substantially influenced by economic and political conditions in the Philippines. Sales of most

of GTC and SMDC products are directly related to the strength of the Philippine economy

(including overall growth levels, foreign exchange rates, fuel oil prices, and interest rates) and

tend to decline during economic downturns. Any deterioration in the Philippine economy,

including a significant appreciation in the value of the Peso relative to the U.S. dollar

overseas Filipino worker remittances, may adversely affect consumer sentiment and lead to a

reduction in demand for SMDC products. A significant devaluation or appreciation of the

Peso similarly affects the export demand for GTC products.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that are both (i) relevant to the presentation of GTC

and SMDC’s combined financial condition and results of operations and (ii) require

management’s most difficult, subjective or complex judgments, often as a result of the need to

make estimates about the effect of matters that are inherently uncertain. As the number of

variables and assumptions affecting the possible future resolution of the uncertainties

increase, those judgments become even more subjective and complex.

103

For information on GTC and SMDC‘s significant accounting policies and significant

accounting judgments and estimates, see Notes 4 & 5 of the combined audited financial

statements of GTC and SMDC included elsewhere in this Prospectus.

DESCRIPTION OF KEY LINE ITEMS

Sale of Goods

Each of GTC and SMDC derives its net sales from sale of goods to its customers less VAT

and sales returns and allowances. GTC customers consist of importer-brand owners, food

producers and retailers, traders and agents. SMDC customers include modern trade accounts

such as supermarkets, groceries, and convenience stores; general trade accounts such as

company distributors and large wholesalers distributing to sari-sari store and wet market

stores; food service accounts such as hotels, restaurants, caterers, bakeshops, and food

commissaries; and export accounts such as direct importers and exporter-distributors, and

exporter consolidators.

Cost of goods sold

GTC‘s and SMDC‘s cost of goods sold consists primarily of cost of goods available for sale

(i.e. inventory at the beginning of the year plus additional stocks from production and

purchases during the year) less inventory at the end of the year. The cost elements comprising

cost of goods sold include raw materials and packaging materials cost plus conversion costs

consisting of direct labor cost, utilities expense, and manufacturing overhead expense.

Operating Expenses (Income)

GTC‘s and SMDC‘s operating expenses comprise primarily of salaries and wages and other

staff costs, advertising and promotions cost, freight and other selling expenses, depreciation,

repairs and maintenance expenses, foreign currency losses related to conversion of

transactional to functional currency, and other administrative expenses.

Other Income (Expense)

Other income (expense) consists primarily of interest expense and other financing charges,

investment income, foreign exchange gain (loss), and other miscellaneous income and

expenses.

Income Tax Expense

Income tax expense comprises current income tax expense and deferred income tax expense.

RESULTS OF OPERATIONS

Year ended December 31, 2013 compared to year ended December 31, 2012

Sale of Goods

GTC and SMDC registered a combined net sale of goods of ₱7,419 million for the year ended

December 31, 2013, an increase of 34% from the ₱5,524 million recorded for the year ended

December 31, 2012. The principal reasons for this increase were as follows:

104

GTC’s Tuna Export

Net sales in tuna export business were ₱5,863 million in fiscal year 2013, representing a 54%

increase from the ₱3,804 million recorded in fiscal year 2012. This increase in net sales

primarily reflected the effect of higher volumes and higher selling prices in fiscal year 2013,

arising from strong export shipments for tuna products to Europe and parts of Asia. The Peso

depreciation against the U.S. dollar likewise boosted export competitiveness and Peso selling

prices during the year.

SMDC’s Dairy and Mixes

Net sales in the dairy and mixes business were ₱1.5 million in fiscal year 2013, which

represented a 9.5% decrease from the ₱1,720 million net sales recorded in fiscal year 2012.

This decrease is due to lower sales volume. Fiscal year 2012 had higher than average sales

performance due to export orders from Thailand, whose market supply for evaporated milk

products was operationally disrupted by the flood calamity that hit Bangkok, Thailand. In

2013, this export sales opportunity ended as the Thai milk market supply returned to normal

conditions. Another key factor slowing down sales in 2013 was the short term transitional

effect of changes made in CNPF‘s sales distributor program. CNPF‘s distributor program

called for a correction of the distributors‘ excessive trade inventory levels via improvements

in warehouse stock management, and required the distributors to re-channel freed up working

capital resources for use instead in expanding and deepening distribution activities.

Cost of goods sold

GTC and SMDC‘s combined cost of goods sold increased by 39% to ₱6,845 million for the

year ended December 31, 2013 from ₱4,932 million for the year ended December 31, 2012,

primarily due to higher volume and higher costs of raw materials used.

GTC’s Tuna Export

The cost of goods sold for the tuna export business amounted to ₱5,561.1 million for fiscal

year 2013, which represented a 60% increase from cost of goods sold of ₱3,512 million for

fiscal year 2012. The increase in cost of goods sold principally reflected the higher share of

fish cost to total production cost from 63% in 2012 to 76% in 2013. Share of total materials

cost to total product cost was 84% in 2013 versus 77% in 2012.

SMDC’s Dairy and Mixes

The cost of goods sold for the dairy and mixes business amounted to ₱1,222 million for the

year ended December 31, 2013, which represented a 14% decrease from cost of goods sold of

₱1,420 million for the year ended December 31, 2012. The decrease in cost of goods sold

primarily reflected the impact of lower purchase prices for key raw materials namely – milk

powder, ingredients and packaging materials. Reduction in variable overhead cost cushioned

cost inflation of raw materials. Share of total materials cost to total product cost was 91.8% in

2013 versus 91.2% in 2012.

Gross profit

As a result of the foregoing, the combined GTC and SMDC gross profit decreased by 3% to

₱574 million for the year ended December 31, 2013 from ₱592 million for the year ended

December 31, 2012. Of this gross profit for fiscal year 2013, GTC contributed ₱301.6 million

105

while SMDC contributed ₱325.5 million versus ₱291 million and ₱301 million, respectively,

in fiscal year 2012.

Operating expenses (income)

GTC‘s and SMDC‘s combined operating expenses decreased by 1% to ₱424 million for the

year ended December 31, 2013 from ₱429 million for the year ended December 31, 2012.

The principal reasons for the decrease are as follows:

GTC’s Tuna Export

GTC‘s operating expenses decreased by 5% to ₱148 million for the year ended December 31,

2013 from ₱155 million for the year ended December 31, 2012 largely due to effects of

higher sales volume on freight expenses and selling expenses, which was offset by higher

administrative expenses specifically foreign currency losses in translating transactional to

functional currency, and higher taxes and licenses arising largely from the sale of land

property to Century Canning Corporation.

SMDC’s Dairy and Mixes

SMDC‘s operating expenses increased by 0.4% to ₱275 million for the year ended December

31, 2013 from ₱274 million for the year ended December 31, 2012. The subtle increase was

primarily due to lower advertising and promotion expense and lower forwarding and

warehousing expense which were partially offset by increase in trade marketing expenses and

increase in taxes and licenses and management fees relating to the share issuances to Century

Canning Corporation.

Other Income (Expense)

GTC and SMDC had a combined net other income of ₱73 million in 2013 in its Other Income

(Expense) account. This includes ₱51 million interest cost, ₱21 million other revenues from

the rental of GTC‘s plant facility to Century Canning Corporation, ₱91 million foreign

currency gains and ₱9 million of miscellaneous income offset by bank charges and loss on

sale of assets. In 2012, the combined Other Income and expense registered a net other

expense of ₱7 million. This includes ₱55 million interest cost, other revenues also from plant

rental amounting ₱21 million, other revenues from charging of share in storage rental of ₱25

million, ₱0.4 million foreign currency transactional gain and a net other miscellaneous

expense of ₱2 million.

Tax Expense

The combined income tax expense for GTC and SMDC decreased by 2% to ₱43.6 million for

the year ended December 31, 2013, from ₱44.4 million for the year ended December 31,

2012, as a result of higher reported operating income from both business segments. GTC‘s

provision for income tax expense for 2013 given an operating income of ₱118 million was

₱28 million, which was lower than 2012‘s income tax expense of ₱37 million. The lower

income tax expense in 2013 was due to the higher share of frozen loin products to GTC‘s total

income which was covered by the income tax holiday incentives granted by the Board of

Investments for frozen loin exports sales. SMDC‘s provision for income tax in 2013 was ₱15

million, higher than 2012 income tax expense of ₱7 million, due to higher reported operating

income.

106

Net Profit

As a result of the foregoing, SMDC‘s and GTC‘s combined net profit after tax increased by

61% to ₱179 million the year ended December 31, 2013 from ₱111 million for the year ended

December 31, 2012. Of this 2013 combined net income after tax, GTC contributed ₱138

million while SMDC shared ₱42 million. This compared with 2012 net income after of ₱92

million for GTC and ₱19 million for SMDC.

Year ended December 31, 2012 compared to year ended December 31, 2011

Sale of Goods

GTC and SMDC registered a combined net sale of goods of ₱5,524 million for fiscal year

2012, an increase of ₱774 million, or 16%, from the ₱4,750 million net sales recorded in

fiscal year 2011. Of this increase in net sales, GTC accounted for ₱333 million while SMDC

accounted for ₱441 million. The principal reasons for this increase in net sales for GTC and

SMDC were as follows:

GTC’s Tuna Export

Net sales in tuna export business were ₱3,804 million in fiscal year 2012, representing an

increase of 10% from the ₱3,471 million recorded in fiscal year 2011. This increase in net

sales reflected the higher sales volumes and higher selling prices of tuna products exported.

Fiscal year 2012 marked GTC‘s move to shift portions of its production capacities toward the

higher value, higher margin products. A further boost to GTC‘s 2012 net sales was fishmeal

product, which increased its net sales to ₱254 million from ₱121 million in 2011 largely due

to improved fishmeal production output.

SMDC’s Dairy and Mixes

Net sales in dairy and mixes business were ₱1,720 million in fiscal year 2012, an increase of

₱441 million, or 34%, over fiscal year 2011. Two contributing factors to sales growth in 2012

over 2011 were the (1) increased domestic sales of SMDC‘s newly-launched 2-in-1 creamer

products and evaporated liquid creamer products and (2) export of evaporated milk products

to the Thai market which experienced supply disruptions for the product due to the huge flood

calamity that hit the city of Bangkok.

Cost of goods sold

The combined cost of goods sold for GTC and SMDC totaled ₱4,932 million in fiscal year

2012, or an increase of ₱612 million, or 14%, over the ₱4,320 million recorded in 2011. The

principal reasons for this increase were as follows:

GTC’s Tuna Export

GTC‘s cost of goods sold totaled ₱3,512 million in fiscal year 2012, representing a 9%

increase from the ₱3,232 million recorded in fiscal year 2011. Higher sales volume and high

unit production cost per case were key factors to the increase in cost of goods sold. High fish

cost, ingredients materials cost and direct labor cost associated with frozen tuna loin

production were key factors to higher unit cost of sales in 2012.

107

SMDC’s Dairy and Mixes

SMDC‘s cost of goods sold amounted ₱1,420 million in fiscal year 2012, or 30%, increase

from the ₱1,088 million recorded in fiscal year 2011. This increase reflected the cost of sales

effect of higher sales volume as well as the lower product cost in 2012 attributable to lower

purchase prices for milk powder materials.

Gross profit

As a result of the foregoing, the combined gross profit for GTC and SMDC was ₱592 million

for the year ended December 31, 2012, an increase of ₱162 million, or 38%, from ₱430

million for the year ended December 31, 2011. Of this gross profit for fiscal year 2012, GTC

contributed ₱291 million while SMDC contributed ₱301 million.

Operating expenses

GTC‘s and SMDC‘s combined operating expenses increased by ₱143 million, or 50%, to

₱429 million for the year ended December 31, 2012 from the ₱286 million recorded for the

year ended December 31, 2011. Of this increase, GTC accounted for ₱49 million while

SMDC contributed ₱94 million. The principal reasons for these increases in operating

expenses of GTC and SMDC are as follows:

GTC‘s operating expenses for fiscal year 2012 totaled ₱155 million, a 46% increase from the

₱106 million recorded for fiscal year 2011. The increase in GTC‘s operating expenses is

attributed to a ₱10 million decrease in selling expenses which was fully offset by the foreign

currency loss (from transactional to functional) of ₱42 million

SMDC‘s operating expenses for fiscal year 2012 totaled ₱274 million, a ₱94 million, or 52%,

increase from the ₱180 million recorded for fiscal year 2011. The increase in SMDC‘s

operating expenses is largely due to a ₱46 million increase in spending on advertising and

promotions and trade marketing activities in order to boost sales revenues and consumer

brand awareness. Contributing as well to higher operating expenses is an increase of ₱34

million on freight and delivery expenses as a result of servicing higher volume of customer

orders. Fixed administrative expenses in 2012 increased by ₱2 million as compared to 2011.

Other Expense (Income)

GTC‘s and SMDC‘s combined net other expense was ₱7 million in 2012 consisting of ₱34

million interest cost, ₱4 million of bank charges, ₱15 million of foreign currency loss, and

₱46 million other revenues from the rental of a portion of GTC‘s plant facility to Century

Canning Corporation. In 2011, GTC and SMDC had a combined net other expense of ₱42

million, the composition of which was ₱26 million interest cost, ₱37 million foreign currency

loss, ₱7 million bank charges, ₱2 million other financing charges, ₱18 million of rental

revenues and ₱ 12 million of miscellaneous income.

Tax Expense

Income tax in 2012 was ₱44 million, an increase of ₱9 million from ₱35 million in 2011. Of

total income tax expense in 2012, GTC accounted for ₱37 million or an increase of ₱5 million

from ₱32 million in 2011. SDMC on the other hand accounted for ₱7 million of total income

tax expense in 2012, or ₱3 million higher than 2011.

108

Net Profit

As a result of the factors discussed above, the combined net profit after tax for GTC and

SMDC was ₱111 million in 2012, which was ₱45 million higher than 2011. Of this combined

net profit after tax in 2012, GTC contributed ₱92 million, or an increase of ₱34 million from

2011, while SMDC shared ₱19 million, or an increase of ₱11 million from 2011.

109

LIQUIDITY AND CAPITAL RESOURCES

For the years ended December 31, 2011, 2012 and 2013, GTC‘s and SMDC‘s principal

sources of liquidity were internally generated funds from operations and bank loans which

were sufficient to meet requirements for working capital and additions to property, plant and

equipment. As at December 31, 2011, 2012 and 2013, GTC and SMDC reported combined

cash and cash equivalents of ₱115.9 million, ₱127.7 million and ₱413.7 million, respectively.

Collectively, GTC and SMDC expect that their principal uses of cash for fiscal year 2014 will

be ₱1,671.0 million for payment of short term loans, ₱176.0 million for capital expenditures,

and ₱423.8 million to improve working capital position. Their source of cash will primarily

be operating cash flows and proceeds of the Offer. GTC and SMDC may also from time to

time seek other sources of funding, which may include debt or equity financing, depending on

their financing needs and market conditions.

The following table sets forth selected information from the combined financial information

for GTC and SMDC, particularly, the statements of cash flows for the periods indicated:

For the year ended December 31,

(in ₱ millions)

2011 2012 2013

Cash from (used in) operating activities .................. 520.3 283.3 42.2

Cash from (used in) investing activities .................. (104.0) (70.2) (183.9)

Cash from (used in) financing activities .................. (410.3) (201.3) 427.7

Net increase (decrease) in cash and cash

equivalents ............................................................... 6.0 11.8 285.9

Cash and cash equivalents

Beginning of year ............................................ 109.9 115.9 127.7

End of year ...................................................... 115.9 127.7 413.7

Cash Flow

Cash flow from (used in) operating activities

Net cash from operating activities is primarily affected by net cash generated from operations

and changes in net working capital requirements. GTC‘s and SMDC‘s combined net cash

from (used in) operating activities were ₱520.3 million, ₱283.3 million, and ₱42.2 million for

the years ended December 31, 2011, 2012, and 2013, respectively.

In 2011, the primary source of cash was ₱301.7 million from operating cash flows before

working capital changes, ₱62.8 million from decrease in trade and other receivables, ₱2.7

million from increase in other non-current assets, and ₱204.7 million from increase in trade

and other payables. Cash used in operations included ₱21.6 million for additional inventories,

₱6.2 million for increase in prepayments to suppliers and other current assets, an addition of

₱3.9 million from translating operating assets and liabilities, ₱3.9 million for retirement fund

contributions, and income tax payments of ₱18.4 million.

In 2012, the primary source of cash was ₱340.5 million from operating cash flows before

working capital changes plus reduction of ₱1.4 million in trade and other receivables,

decrease of ₱2.6 million in other non-current assets, and increase in trade and other payables

of ₱52.4 million. Cash used in operations also includes ₱19.2 million for additional

110

inventories, ₱12 million for increase in prepayments to suppliers and other current assets, a

reduction of ₱36.9 million from translating operating assets and liabilities, ₱2.0 million for

retirement fund contributions, and ₱43.5 million on income tax payments.

In 2013, the primary source of cash was ₱398.8 million from operating cash flow, ₱671.7

million from decrease in inventories and a decrease in other non-current assets of ₱12.8

million. Cash used in operations included ₱761.2 million for increases in trade and other

receivables (largely GTC export receivables) and ₱11.6 million from decrease in prepayment

and other current assets. Other operating uses of cash were ₱257.5 million for reduction of

trade and other payables, an addition of ₱31.9 million from translating operating assets and

liabilities, ₱1.8 million for retirement fund contributions, and ₱64.2 million for income taxes.

Cash flows from (used in) investing activities

Cash flow from (used in) investing activities for the years ended December 31, 2011, 2012

and 2013 were (₱104 million), (₱70.2 million) and (₱183.9 million), respectively. In 2011,

cash flow used in investing activities was primarily due to ₱109.6 million worth of additions

to property, plant and equipment, mostly in GTC, and ₱4.6 million proceeds from sales of

property. In 2012, cash flow used in investing activities was ₱73.3 million for additional plant

and equipment largely for GTC‘s frozen loin operations and ₱3.1 million of interest received

from temporary investment and regular cash in bank balances. In 2013, cash flow used in

investing activities was ₱272.9 million additions to property, plant, and equipment primarily

due to SMDC transfer of plant location, ₱9.3 million of interest received from temporary

investment and ₱79.7 million proceeds of sale of property.

Cash flow from (used in) financing activities

Cash flow from (used in) financing activities for the years ended December 31, 2011, 2012

and 2013 were (₱410.3 million), (₱201.3 million) and ₱427.7 million, respectively. In 2011,

cash flow used in financing activities was primarily for repayment of related party payables of

₱310.7 million, ₱26.5 million reductions of loan, and ₱73.1 million for interest payments. In

2012, cash flow used in financing activities consisted of a repayment of ₱380.5 million for

related party payable, ₱263.7 million net proceeds, ₱45.5 million receipt of deposits for future

stock subscription, ₱75.0 million payment of dividends and ₱55 million for interest payments.

In 2013, cash flow provided by financing activities consisted of ₱818.9 million in loans,

₱263.5 million from proceeds of issuance of shares, ₱219.7 million used for repayment of

related party payable, ₱384.0 million for payment of dividends and ₱51.0 million for interest

payment.

Capital Expenditures

GTC‘s and SMDC‘s combined capital expenditures for the years ended December 31, 2011,

2012 and 2013 were ₱109.6 million, ₱73.3 million, and ₱272.9 million, respectively. The

table below sets forth the components of the combined capital expenditures of GTC and

SMDC in 2011, 2012, and 2013, together with their budgeted capital expenditures for 2014.

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

beginning on page vi. Additional factors that could cause the 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.

111

For the years ended December 31,

(in ₱ millions)

2011

2012

2013

2014

(budgeted)

Leasehold, Bldg., Bldg., and Land

improvements ..........................................................

14.0

8.2

3.0 64.7

Machineries, equipment, furniture and

fixtures ....................................................................

68.0

37.0

95.2 98.1

Construction in progress ......................................... 27.6

27.6

171.5 0

Other equipment ..................................................... 0.0

0.4

3.2 13.2

Total capital expenditures .................................... 109.6 73.2 272.9 176.0

GTC accounted the majority of the aforementioned capital expenditures. During the fiscal

years 2011, 2012 and 2013, where its capital expenditures totaled ₱109.6 million, ₱76.6

million, and ₱121.1 million, respectively, GTC upgraded its manufacturing plant in General

Santos City, investing in frozen loin production equipment, steam boiler machinery, and

labelling-casing equipment, to expand and diversify output capacity to meet growing demand

volumes. GTC also invested in a tin can manufacturing plant, also in General Santos City, to

vertically integrate its production requirements for 307 tin cans and lower its tin can cost.

SMDC‘s capital expenditure in 2013 amounted to ₱151.8 million, mainly for its relocation

and expansion of its milk and mixes plant facility in Taguig City, Metro Manila.

GTC and SMDC have historically sourced funding for capital expenditures through internally

generated cash from operations.

GTC and SMDC have budgeted ₱43.3 million and ₱132.7 million, respectively, or a

combined total of ₱176.0 million, for capital expenditures for 2014. The planned capital

expenditures for 2014 are essentially a part of the continuing strategic programs to optimize

cost and capacities. GTC and SMDC expect to fund their budgeted capital expenditures

principally through a portion of the proceeds of the Offer.

The figures in GTC‘s and SMDC‘s capital expenditure plans are based on management‘s

estimates and have not been appraised by an independent organization. In addition, GTC and

SMDC‘s capital expenditure plans are subject to a number of variables depending on the

overall macro-economic and business conditions, identification of potential new projects and

acquisitions, and management‘s view of GTC and SMDC‘s liquidity, financial condition and

results of operations. There can be no assurance that GTC and SMDC will execute their

capital expenditures program as planned.

112

Contractual Obligations and Commitments

The following table sets forth GTC‘s and SMDC‘s combined contractual obligations and

commitments as of December 31, 2013:

Contractual Obligations and Commitments

Principal Payments Due by Period

(in ₱ millions)

Total 2014 2015-18 After

2018

Interest-bearing loans and borrowings...................... 2,214.6 2,214.6

Trade and other payables .......................................... 524.5 525.2

Income tax payable ................................................... 0.7 0.0

Dividends payable ...................................................

Advances from related parties ................................. 240.6 240.6

Other long-term liabilities ........................................ 0 0

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

2,980.4 2,980.5

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

Statements" beginning on page vi. 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.

Debt Obligations and Facilities

GTC‘s and SMDC‘s combined short-term debt and no long-term debt as of December 31,

2013 was ₱2,214.6 million. The short-term debt was comprised of revolving 90-day

promissory notes with various commercial banks, namely – Bank of Philippine Islands,

Banco de Oro, ANZ Bank, Security Bank & Trust Company, and Metropolitan Bank & Trust

Company. On the other hand, the long-term debt was the remaining portion of a five-year

long term loan facility with the Metropolitan Bank & Trust Co. that fully matures on February

27, 2014.

The following table sets forth GTC and SMDC‘s combined total indebtedness as of the

periods indicated:

As of December 31,

(₱ millions)

2011 2012 2013

Short-term debt .............................................................................. 1,057.0 1,380.7 2,214.6

Long-term debt ......................................................................…... 75.0 15.0 0.0

Total .............................................................................................. 1,132.0 1,395.7 2,214.6

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

million relating to the short term loans and long term loan which bear interest rates of 2.5%

and 4.5%, respectively, with the proceeds from the Offer.

Off-Balance Sheet Arrangements

As of December 31, 2013, GTC and SMDC did not have any off-balance sheet arrangements.

113

KEY PERFORMANCE INDICATORS

The following are the major performance measures used by GTC and SMDC for 2011, 2012 and 2013.

For the years ended December 31,

2011 2012 2013

Gross Profit Margin (%) ................................................................. 9.1% 10.7% 7.7%

Return on Sales (%) ........................................................................ 1.4% 2.0% 2.4%

Debt-to-Equity Ratio (x) ................................................................. 3.40x 2.34x 2.38x

Current Ratio (x) ............................................................................ 1.08x 1.14x 1.12x

Return on Equity (%)...................................................................... 7.6% 9.9% 14.3%

Notes:

1 Gross Profit Margin = Gross Profit / Net Sales

2 Return on Sales = Net Income After Tax / Net Sales

3 Debt-to-Equity = Total Liabilities /Shareholders’ Equity

4 Current Ratio = Current Assets / Current Liabilities

5 Return on equity = Net Income After Tax / Shareholders’ Equity

QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISKS

GTC and SMDC are exposed to certain types of market risks in the ordinary course of

business, including commodity price risk, foreign exchange rate risk, interest rate risk, credit

risk and liquidity risk.

Commodity Price Risk

GTC‘s and SMDC‘s commodity price risk exposure primarily results from the use of

commodities such as fish and milk as raw materials in their production processes. In

particular, the supply and prices of fish and milk are subject to seasonality changes due to

weather and climate changes, global supply and demand, fishing and environmental

regulatory controls. To reduce commodity price risk, GTC and SMDC typically build up

sufficient inventories of finished products and raw materials to minimize the pressure to

purchase the raw material at increased prices or to avoid market supply disruptions.

Whenever management deems justifiable, GTC and SMDC enter into short term forward

supply arrangements with suppliers to lock in purchase price and supply.

Foreign Exchange Rate Risk

GTC‘s and SMDC‘s foreign exchange rate risk arises primarily from the fluctuations in

exchange rate that arise between the Peso and the U.S. dollar. A substantial majority of

GTC‘s revenues are mainly denominated in U.S. dollars given the export nature of GTC‘s

business. SMDC on the other hand focuses mainly on the domestic market and, as such,

SMDC revenues are mainly Peso denominated. Certain expenses of GTC and SMDC are

denominated in U.S. dollars, or based on prices determined in U.S. dollars. GTC and SMDC

maintain and prepare their accounting records and financial statements in Pesos, although for

statutory reporting purposes, GTC‘s financial statements are converted to U.S. dollars. To

mitigate the impact of foreign exchange risk, GTC tries to match its U.S. dollar revenue

inflows with its U.S. dollar expense outflows when possible and appropriate. GTC enters into

a forward contract for each export order to secure the expected profit at time of delivery.

SMDC on the other hand enters into forward contracts for its forward importation purchases

114

when management deems appropriate. See ―Risk Factors – Risks Relating to the Company’s

Business – CNPF is exposed to foreign exchange risk‖, ―Risk Factors – Risks Relating to the

Philippines – Volatility in the value of the Peso against the U.S. dollar and other currencies

could adversely affect CNPF’s business‖ and ―Exchange Rates‖.

Credit Risk

GTC‘s and SMDC‘s exposure to credit risk primarily relates to their trade and other

receivables. Generally, GTC‘s and SMDC‘s maximum credit exposure in the event of

customers‘ and counterparties‘ failure to perform their obligations is the total carrying amount

of the financial asset as shown on the statement of financial position. To minimize their credit

risk, credit exposures to customers are evaluated on an ongoing basis. Customer receivables

and payment habits for all customers are monitored and evaluated to ensure customer

creditworthiness is maintained at all times and the credit limits set is appropriate to the

expected business volumes to be generated. To the huge distributor-customers, bank

guarantees are required for the credit amounts to be extended.

Liquidity Risk

GTC and SMDC are exposed to the possibility that adverse changes in the business

environment or their operations could result in substantially higher working capital

requirements and consequently, a difficulty in financing additional working capital. GTC and

SMDC manage their liquidity risk by monitoring and forecasting their cash position and

maintaining credit lines from financial institutions that exceed projected financing

requirements for working capital.

115

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

OF CNPF (PARENT)

The following discussion of CNPF’s recent parent financial results should be read in conjunction with

the auditors’ reports, selected parent financial information of CNPF, and the corresponding notes

thereto, contained in this Prospectus and the section entitled ―Selected Parent Financial Information

of CNPF‖.

The selected parent financial information of the Company as of and for the period from October 25 to

December 31, 2013 was derived from the audited financial statements of the Company prepared in

accordance with PFRS and audited by Navarro Amper & Co.

This discussion contains forward-looking statements and reflects the current views of CNPF with

respect to future events and financial performance. Actual results may differ materially from those

anticipated in these forward-looking statements as a result of certain factors such as those set forth in

the section entitled ―Risk Factors‖ and elsewhere in this Prospectus.

FINANCIAL POSITION

Assets

The following table sets out selected components of CNPF‘s parent assets as of December 31,

2013:

As of

December 31,

2013

(in ₱ millions)

Current Assets

Cash ....................................................................................................................... …... 24.3

Due from related parties ......................................................................................... …... 14.7

Input value-added tax - net ..................................................................................... …... 26.4

Non-current Assets

Investment in subsidiaries ...................................................................................... …... 1,194.6

Property, plant and equipment - net ....................................................................... …... 222.9

Deferred tax assets ................................................................................................. …... 5.2

Total Assets ....................................................................................................................... 1,488.1

CNPF had total assets of ₱1,488.1 million as of December 31, 2013 and is primarily

composed of the items discussed in detail below.

Cash amounted to ₱24.3 million as of December 31, 2013 and comprises 1.6% of total assets.

The primary sources of cash for the period were the issuance of share capital of ₱1,500.0

million.

Due from related parties amounted to ₱14.7 million as of December 31, 2013 and comprises

1.0% of total assets. Due from related parties represents outstanding rental income receivables

from related parties including parent company CCC, and fellow subsidiaries – CSC and

PMCI. Rental income was derived from the lease agreement entered into with the said related

parties for the rental of CNPF‘s equipment for two months from November 1, 2013 to

December 31, 2013.

116

Input value added tax amounted to ₱26.4 million as of December 31, 2013 and comprises

1.8% of total assets. Input value added tax (VAT) is presented net of Output VAT of ₱1.6

million, and consists of Input VAT of ₱24.9 million arising from acquisition of depreciable

assets in 2013 which will be claimed against Output VAT over five years.

Investment in subsidiaries amounted to ₱1,194.6 million as of December 31, 2013 and is

comprised of investments in GTC and SMDC. These investments make up 80.3% of total

assets. On October 31, 2013, CNPF acquired from CCC all the rights, title and interest of

CCC in GTC and SMDC.

Property, plant and equipment amounted to ₱222.9 million as of December 31, 2013 and is

comprised of assets such as office, furniture, machinery, equipment and software,

transportation and delivery equipment that were purchased from related parties including

CCC, PMCI and CCC on October 31, 2013. The assets have useful lives ranging from two to

15 years depending on asset type. Property, plant and equipment comprise 15% of total assets.

Deferred tax assets amounted to ₱5.2 million as of December 31, 2013 and comprise 0.3% of

total assets. Deferred tax assets represent the tax benefits arising from the CNPF‘s net

operating loss for the period ended December 31, 2013.

Liabilities and Equity

The following table sets out selected components of CNPF‘s parent liabilities and equity as of

December 31, 2013:

As of

December 31, 2013

(in ₱ millions)

Current Liabilities

Accrued and other payables ................................................................................... …... 0.2

Equity

Capital stock ........................................................................................................... …... 1,500.0

Deficit .................................................................................................................... …... (12.0)

Total Liabilities and Equity ............................................................................................. 1,488.2

Accrued and other payables amounted to ₱0.2 million as of December 31, 2013, and pertain

to supplies and other miscellaneous liabilities. Accrued and other payables comprise 100% of

total liabilities and 0.01% of total liabilities and equity.

Capital stock amounted to ₱1,500.0 million as of December 31, 2013, which is equivalent to

1,500.0 million shares at a par value of ₱1.00 per share. Capital stock represents one class of

common shares with voting rights and a right to dividends.

Deficit amounted to ₱12.0 million as of December 31, 2013 and represents the excess of

organizational expenses over revenue income based on accrual accounting.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 2013, CNPF‘s principal sources of liquidity were from

internal funds from issuance of share capital. As at December 31, 2013, CNPF had cash of

₱24.3 million. CNPF expects that its principal uses of cash for fiscal year 2014 will be for its

operating assets and liabilities, capital expenditure, dividend payment and investment

requirements. As such, CNPF expects to source its funding needs for the next twelve months

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from its operating cash flows, borrowings, additional share subscription from its parent

company shareholder, and proceeds of the Offer. It may also seek other sources of funding,

which may include debt or equity financings, depending on its financing needs and market

conditions.

118

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF THE CONSOLIDATED FINANCIAL

INFORMATION OF CNPF

The following discussion of CNPF’s recent consolidated financial results should be read in

conjunction with the auditors’ reports, selected consolidated financial information of CNPF,

and the corresponding notes thereto, contained in this Prospectus and the section entitled

―Selected Consolidated Financial Information of CNPF‖.

The selected parent financial information of the Company as of and for the period from

October 25 to December 31, 2013 was derived from the audited financial statements of the

Company prepared in accordance with PFRS and audited by Navarro Amper & Co.

This discussion contains forward-looking statements and reflects the current views of CNPF

with respect to future events and financial performance. Actual results may differ materially

from those anticipated in these forward-looking statements as a result of certain factors such

as those set forth in the section entitled ―Risk Factors‖ and elsewhere in this Prospectus.

OVERVIEW

CNPF is a wholly-owned subsidiary of Century Canning Corporation. It was incorporated on

October 25, 2013 and organized to own and operate the canned and processed fish, canned

meat, dairy and mixes and tuna export businesses of the Century Group.

On October 31, 2013, CNPF acquired from CCC all rights, title and interest of CCC in GTC

and SMDC. At the same time, CNPF likewise purchased the property, plant and equipment

assets of the canned tuna business of CCC, canned sardines business of CSC, and canned

meat business of PMCI with the purpose of eventually assuming the said business operations

of CCC, CSC and PMCI. On January 1, 2014, CNPF acquired the inventories of CCC and

CSC and canned meat business of PMCI, absorbed the organizational workforce and business

operating systems of CCC, CSC and PMCI, and hereon assumed the operations of the

businesses.

CNPF traces its historical track record of business performance from the Century Group. It

looks back to 1978 when Ricardo S. Po established CCC to venture into the canned tuna

export business, and in the subsequent years, continued to expand and diversify into other

businesses. CCC then entered the canned sardine business in 1983, the domestic canned tuna

business in 1987, the canned meat business under PMCI in 1994, and the dairy and mixes

business under SMDC in 2001. Amidst these growth initiatives, CCC saw the benefits of

strategic business unit focus. Hence, CCC spun off its canned sardine business into a separate

business entity, CSC, in 1994 and similarly, its canned tuna export business into GTC in

1997.

CNPF prides itself with these businesses whose performances are highlighted by strong multi-

brand and multi-product portfolio, dominant market shares and loyal consumer following,

strong trade distribution infrastructure, and stably growing and profitable operations.

For the period ended October 25, 2013 to December 31, 2013, as CNPF transitioned with its

general corporate re-structuring transaction, CNPF‘s revenue and net income performance,

representing the consolidated results of operations for its subsidiaries, GTC and SMDC,

including CNPF operations as stand-alone parent company, is as follows:

119

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

(in ₱ millions)

Revenue

% of Total

Net Income

% of Total

GTC

1,044.2

73%

11.5

1,045%

SMDC 377.4 27% 2.5 227%

CNPF -15.1 -1,372%

Total

1,421.6

100%

-1.1

-100%

Note: GTC’s Statement of Income expressed in US Dollar is translated to Peso using BSP’s

average USD to Peso exchange rate for the period.

FACTORS AFFECTING RESULTS OF OPERATIONS

CNPF’s consolidated results of operations are affected by a variety of factors. Set out below

is a discussion of the most significant factors that have affected CNPF’s consolidated results

in the past and which CNPF expects to affect its consolidated financial results in the future.

Factors other than those set out below could also have a significant impact on CNPF’s

consolidated results of operations and financial condition in the future. See ―Risk Factors‖.

Raw Materials Costs and Product Prices

CNPF relies on supply of critical raw materials such as tuna, milk, and tin cans, most of

which are procured from third parties from both within and outside the Philippines. As

experienced, these materials are subject to price volatility caused by a number of factors,

including changes in global supply and demand, foreign exchange rate fluctuations, weather

conditions and government regulations and controls. In addition, CNPF‘s ability to obtain raw

materials is affected by a number of factors beyond its control, including natural disasters,

governmental laws and policies, and interruptions in production by suppliers.

Changes in the prices of raw materials will necessarily affect CNPF‘s cost of sales and may

affect the pricing of CNPF‘s products. Changes in prices may also affect consumer demand,

as CNPF‘s consumers are generally price sensitive. While CNPF believes it has been able to

successfully pass on price increases historically to its customers, there is no assurance that

any future increases in cost of sales can be fully passed on to consumers. As a result, any

material increase in the market price of raw materials could have a material adverse effect on

CNPF‘s operating margins, which may affect its financial position and operating

performance.

Economic, Social and Political Conditions in the Philippines

While CNPF has operations outside the Philippines with 79% of its revenues derived from

exports operations for the two month period ending December 31, 2013, all of CNPF‘s assets

are located in the Philippines. As a result, CNPF‘s business, financial condition, results of

operations and prospects are substantially influenced by Philippine macro-economic and

political conditions. Although the Philippine economy has experienced stable growth in

recent years, the Philippine economy has in the past experienced periods of slow or negative

growth, high inflation, significant devaluation of the Peso, and has been significantly affected

by economic volatilities in the Asia-Pacific region. Sales of most of CNPF‘s products are

directly related to the strength of the Philippine economy (including overall growth levels,

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foreign currency exchange rates, and interest rates) and tend to decline or rise during

economic downturns. For example, any significant deterioration in the value of the Peso may

benefit export sales for CNPF‘s tuna products as Peso deterioration effectively lowers

CNPF‘s export prices in comparison to competitors from other countries. On the other hand,

however, the Peso deterioration may adversely affect the dairy and mixes business as the cost

of its products‘ imported milk raw material increases with the deterioration of the Peso value

and creates undue pressure on selling prices and margins.

Competition

CNPF faces competition in the Philippines as well as in the other countries in which it

distributes its products. It competes with a number of multi-national, national, regional and

local competitors. Although certain of CNPF‘s products have significant market shares in the

Philippines and in many cases are market leaders in their respective product categories, CNPF

expects to face increasing competition as it continues to grow its business. Competitive

factors generally affecting CNPF‘s businesses include price, product quality, brand awareness

and customer loyalty, distribution coverage, customer service and the ability to effectively

respond to shifting consumer tastes and preferences. For a more detailed discussion on

competition, please see ―Business‖ beginning on page 129 of this Prospectus, and ―Industry‖

beginning on page 160 of this Prospectus.

Seasonality

CNPF‘s sales are affected by seasonality in customer purchase patterns. In the Philippines,

most food products, including those produced by CNPF, experience increased sales during the

Christmas season. As a result, seasonality could affect CNPF‘s financial condition and results

of operations from one quarter to another, particularly in relation to the fourth quarter of each

year.

Introduction of New Products and Marketing Initiatives

CNPF believes that many consumer food products are impulse and discretionary purchases,

which are particularly sensitive to competitive pressures. A key element in maintaining its

market share in the highly competitive Philippine food market has been for CNPF to

continuously introduce new products and product extensions.

In addition to introducing new products, CNPF has undertaken marketing initiatives using

organized advertising campaigns to differentiate its products and further expand market share.

CNPF devotes significant expenditures to support advertising and branding, including funding

for advertising campaigns, such as television commercials and radio and print advertisements.

CNPF‘s subsidiary, SMDC, spent 6% of its total revenue for advertising and promotion costs

for the year ended December 31, 2013.

The development and introduction of new products and the use of marketing initiatives can

substantially increase CNPF‘s operating costs. Although CNPF believes that these higher

costs are justified by increased sales from new and existing products, there is typically a delay

between the incurrence of these costs and any such sales. Furthermore, CNPF cannot be

assured of when, if ever, these expenditures will result in increased revenues.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that are both (i) relevant to the presentation of CNPF’s

financial condition and results of operations and (ii) require management’s most difficult,

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subjective or complex judgments, often as a result of the need to make estimates about the

effect of matters that are inherently uncertain. As the number of variables and assumptions

affecting the possible future resolution of the uncertainties increase, those judgments become

even more subjective and complex.

For information on CNPF‘s significant accounting policies and significant accounting

judgments and estimates, see Note 6 starting on Page 21 of the consolidated audited financial

statements of included elsewhere in this Prospectus.

DESCRIPTION OF KEY LINE ITEMS

Sale of Goods

CNPF‘s subsidiary, SMDC, derives its sales from the sale of dairy and mixes products to

domestic customers while GTC derives its sales from exports of canned tuna, pouch tuna and

some frozen loins products to international markets. Such sales of SMDC and GTC are net of

value added tax (―VAT‖) and sales returns and allowances.

Cost of goods sold

CNPF‘s, GTC‘s and SMDC‘s cost of goods sold consists primarily of cost of goods available

for sale (i.e. inventory at the beginning of the year plus additional stocks from production and

purchases during the year) less inventory at the end of the year. The cost elements comprising

cost of goods sold include raw materials and packaging materials cost plus conversion costs.

Conversion costs consist of direct labour cost, utilities expense, and manufacturing overhead

expense.

Operating Expenses

CNPF‘s, GTC‘s and SMDC‘s operating expenses comprise primarily of salaries and wages

and other staff costs, advertising and promotions cost, freight and distribution expenses, other

selling and market expenses, depreciation, repairs and maintenance expenses, and other

administrative expenses.

Other Income (Expense)

Other income (expense) would comprise rental income, interest income, foreign currency

gains (loss), inventory loss, and other miscellaneous income and expenses. Specifically on

rental income, CNPF derived rental revenues from the lease back of property, plant and

equipment to where CNPF acquired the said assets from, that is, its parent CCC and fellow

subsidiaries PMCI and CSC. This lease back arrangement is specifically only for the duration

of the corporate re-structuring period, October 25, 2013 to December 31, 2013. Other income

and expenses are income and expenses generated outside the normal course of business.

Finance Costs

CNPF‘s finance costs consist of interest expense, bank charges and other financing related

charges.

Income Tax Expense

Income tax expense comprises current income tax expense and deferred income tax expense.

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Trade Receivables

Trade receivables are recorded at fair value plus transaction less provisions for impairment

loss, and are primarily from sales with an average credit term of 30 to 45 days. Impairment

loss is provided when there is objective evidence that the Company will not be able to collect

from specific customers certain amounts due to it in accordance with the original terms of the

receivables. The amount of the impairment loss is determined based on evaluation of

available facts and circumstances, including but not limited to, the length of the Company‘s

relationship with the customers, the customers‘ current credit status based on known market

forces, average age of the accounts, collection experience and historical loss perspective.

Inventories

Inventories comprise primarily of raw materials, work-in-process goods and finished goods.

These are booked at the lower of cost and net realizable value. Cost is determined using the

first-in, first-out method. Finished goods and work-in process include the cost of raw

materials, direct labour and a proportion of manufacturing overhead based on normal

operating capacity. Raw material costs include all costs attributable to acquisition such as the

purchase price, import duties and other taxes that are not subsequently recoverable from

taxing authorities. Inventories are derecognized when sold or otherwise disposed of.

Trade Payable

Trade payables comprise of obligations to suppliers incurred in the ordinary course of

business. These are recognized at fair value and subsequently measured at amortized cost

during the period when the goods or services are received or rendered.

RESULTS OF OPERATIONS

Sale of Goods

CNPF consolidated sales for the period October 25, 2013 to December 31, 2013 totaled

₱1,421.6 million. This comprised the combined sales of ₱1,044.2 million from GTC and

₱377.4 million from SMDC. GTC sales comprised of ₱953.9 million export sales of private-

label tuna and Century branded products purchased from related party parent CCC plus ₱90.4

million fishmeal sales to the domestic market. SMDC sales consisted of sales of products

under the Angel, Birch Tree, Home Pride and Kaffe de Oro labels to the domestic market.

Cost of goods sold

CNPF‘s consolidated cost of goods sold was ₱1,306.8 million, or 92% of consolidated sales,

for the period October 25 to December 31, 2013. Cost of goods included raw materials cost of

₱490.4 million, direct labor cost of ₱39.3 million, factory overhead of ₱109.0 million, and net

changes in finished goods inventory of ₱668.1 million. Raw materials consisted of fish, milk,

ingredients and packaging materials.

Gross profit

As a result of the foregoing, CNPF consolidated financial statements showed the consolidated

gross profit of ₱114.9 million for the period October 25 to December 31, 2013.

123

Other income

CNPF consolidated other income totaled ₱29.5 million for the period October 25, 2013 to

December 31, 2013. It is comprised largely of rental earnings of ₱16.6 million which came

from revenues earned from 1) GTC‘s lease arrangement with CCC‘s domestic tuna business

for the use of a portion of GTC‘s tuna production facility in General Santos City and 2)

CNPF‘s property, plant and equipment lease to fellow subsidiaries, PMCI and CSC. The lease

arrangement which CNPF had with CSC and PMCI was only for the corporate re-structuring

period prior to the full assumption of the canned sardine business of CSC and canned meat

business of PMCI on January 1, 2014. The other components of other income included

foreign currency gain of ₱6.2 million, interest income of ₱0.5 million, and other

miscellaneous income of ₱6.2 million.

Operating Expenses

CNPF‘s consolidated operating expenses were ₱136.4 million for the period October 25 to

December 31, 2013. The top five operating expenses, which accounted for 77% of total

consolidated operating expenses, included freight and handling cost at ₱47.1 million, taxes

and licenses at ₱21.5 million, management fees at ₱17.1 million, advertising expenses at

₱11.8 million, and merchandiser expenses at ₱8.0 million. The rest of operating expenses

included depreciation, rent, inventory losses, legal and professional fees, salaries and wages,

and various other operating expenses.

Other Expense

CNPF‘s other expenses totaled ₱2.2 million largely representing ₱1.9 million loss on disposal

of land for the period October 25, 2013 to December 31, 2013.

Finance Cost

CNPF‘s consolidated finance cost amounted to ₱11.3 million. It consisted of ₱10.0 million in

interest expense and ₱1.3 million in bank charges and other finance cost related expenses.

Net Profit

CNPF‘s consolidated net loss for the period October 25, 2013 to December 31, 2013 was ₱1.1

million. GTC and SMDC contributed net profits of ₱11.4 million and ₱2.5 million,

respectively. These profits from GTC and SMDC were offset by CNPF‘s net loss of ₱12.0

million. CNPF recorded a deferred tax benefit of ₱4.5 million.

FINANCIAL POSITION

Assets

CNPF‘s consolidated financial statements, net of eliminations, showed total assets of

₱4,524.9 million as of December 31, 2013. GTC and SMDC accounted for ₱3,342.1 million

and ₱889.7 million, respectively, of these total assets while CNPF shared the balance of

₱293.1 million.

Total consolidated assets were comprised of ₱3,412.2 million current assets and ₱1,112.7

million non-current assets. By major asset classification, GTC shared ₱2,667.5 million in

current assets and ₱674.6 million in non-current assets while SMDC contributed ₱679.3

million in current assets and ₱210.4 million in non-current assets. CNPF had ₱65.4 million in

124

current assets and ₱227.7 million in non-current assets. CNPF‘s non-current asset is net of

elimination of investments in subsidiaries and is comprised of property, plant and equipment

assets acquired from the canned tuna business of CCC, canned sardine business of CSC and

canned meat business of PMCI on October 31, 2013.

Ninety percent, or ₱3,074.1 million, of CNPF‘s consolidated total current assets as of

December 31, 2013 consisted of ₱438.0 million cash, ₱1,034.1 million trade and other

receivables, and ₱1,602.0 million inventories. The balance of ten percent of is comprised of

receivables from related parties and other current assets.

Ninety three (93%), or ₱1,036.4 million, of CNPF‘s total consolidated non-current assets as

of December 31, 2013 is made up of property, plant and equipment assets which is broken

down as follows: 53% plant, machinery and equipment, 21% buildings and building

improvements, 17% construction in progress, and 9% consisting of office furniture, fixtures

and equipment, laboratory tools and equipment and transportation and delivery equipment.

Other non-current assets as of December 31, 2013 would consist of trademarks, deferred tax

assets, and other non-current assets with a total value of ₱76.2 million.

Liabilities and Equity

Total consolidated liabilities amounted to ₱2,980.7 million. Its main components were loans

payable of ₱2,214.6 million, or a 74% share of the total liabilities and trade and other payable

of ₱524.7 million, or a share of 18%. The balance of 8% of total liabilities were due to related

parties payables and income tax payable amounting ₱241.4 million.

Total liabilities by business segment reflected GTC accounting for ₱2,597.8 million, SMDC

for ₱382.7 million, and parent CNPF for ₱0.2 million.

Total consolidated equity amounted to ₱1,544.2 million as of December 31, 2013. This split

up into ₱1,500.0 million in share capital, ₱14.3 million in currency translation adjustment,

other reserves of ₱30.6 million, and deficit of ₱0.7 million. Share capital is all ordinary

shares. CNPF has a total authorized capital of 6,000,000 ordinary shares at ₱1 par value.

LIQUIDITY AND CAPITAL RESOURCES

For the period October 25, 2013 to December 31, 2013, CNPF‘s principal sources of liquidity

were largely cash generated from financing activities and partly cash flow from operating

activities. The table below sets forth the cash movement for period:

For the Period

October 25, 2013 to December 31,

2013 (in ₱ million)

Cash from (used in) operating activities 16.2

Cash from (used in) investing activities -265.7

Cash used for acquisition of subsidiaries -735.1

Cash from (used in) financing activities 1,422.5

Net increase (decrease) in cash and cash 437.9

125

equivalents

Cash and cash equivalent beginning of year 0.0

Cash and cash equivalent end of year 437.9

Cash from financing activities largely came from the issuance of share capital amounting

₱1,500 million. Cash was used primarily to acquire the shares of stocks of GTC and SMDC

from CCC valued at ₱1,194.6 million and to purchase as well the property, plant and

equipment assets of the canned tuna business of CCC, canned sardine business of CSC and

canned meat business of PMCI worth ₱230.1 million for the purpose of assuming the

operations of the said businesses in January 1, 2014.

Other sources of cash during the period were ₱22.7 million of operating cash flow (i.e. net

loss plus effect of accrual accounting) and ₱17.7 million of cash freed up from the reduction

in net working capital. Cash freed up from decreases in inventory, trade receivables, other

current assets and non-current assets totaled ₱798.8 million but this was partially offset by a

₱781.1 million decrease in trade payables, related party payables and foreign exchange

effects. Other operating uses of cash were contributions to retirement fund and income tax

paid totalling ₱24.3 million.

Investing activities included largely the use of cash of ₱344.9 million for acquisition of

property, plant and equipment, partially offset by ₱79.7 million of proceeds from the sale of

land by GTC to CCC.

With the foregoing cash movement, CNPF‘s consolidated cash position at the end of

December 31, 2013 stood at ₱437.9 million.

Capital Expenditures

The capital expenditures of CNPF for the period October 25, 2013 to December 31, 2013

totaled ₱344.9 million. Set forth below is the breakdown of capital expenditures for CNPF:

For the Period

October 25, 2013 to December 31,

2013

(in ₱ million)

Amount % of Total

Building & Building/Land

Improvements 22.2 6.4

Plant, Machinery & Equipment 199.9 58.0

Office Furniture, Fixtures & Equipment 48.2 14.0

Laboratory Tools & Equipment 10.5 3.0

Transportation & Delivery Equipment 24.5 7.1

Construction in Progress 39.6 11.5

Total Capital Expenditures 344.9 100.0

126

Contractual Obligations and Commitments

The following table sets forth CNPF‘s consolidated contractual obligations and commitments

as of December 31, 2013:

The aforementioned contractual obligations and commitments will all mature in 2014.

The interest-bearing loans and borrowings, totaling ₱2,214.6 million, consist mostly 60 to 90

days term revolving promissory notes and unsecured borrowings obtained from local banks

with annual interest rates averaging 2.5% to 3.5%. Included in this loan balance is a ₱15.0

million remaining portion of a five year term loan under GTC which will mature on February

27, 2014. The breakdown of the loan by business segment is GTC at ₱1,999.6 million and

SMDC at ₱215.0 million.

Trade and other non-trade payables are generally on a 30 to 90 days term and bear no interest

charges. Due to related parties payables are basically inter-company advances and

transactions considered part of the normal course of business and settled within the year.

CNPF, GTC and SMDC have a combined total available credit lines of least ₱6,000 million.

These credit lines can be drawn for working capital and capital expenditure needs.

Subsequent events after December 31, 2013 included the acquisition by CNPF of the

inventories of the canned tuna operations of CCC, canned meat business of PMCI and canned

sardine business of CSC on January 1, 2014. Further on February 6, 2014, CNPF received

additional subscription from CCC for 500,000,000 shares at ₱1 per share or ₱500 million.

Said subscription was paid on the same date and the shares were issued on February 8, 2014.

CNPF believes that its existing cash and credit lines, together with cash generated from

operations and the proceeds of the Offer, will be sufficient to finance its working capital and

capital expenditure needs for 2014.

Off-Balance Sheet Arrangements

As of December 31, 2013, CNPF did not have any off-balance sheet arrangements.

Contractual Obligations and Commitments

Principal Payments Due by Period

(in ₱ millions)

Total 2014 2015-

18

After

2018

Interest-bearing loans and

borrowings

2,214.6 2,214.6

Trade and other payables 524.7 524.7

Income tax payable 0.7 0.7

Dividends payable

Due to related parties 240.6 240.6

Other long-term liabilities

Total

2,980.6 2,980.6

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KEY PERFORMANCE INDICATORS

The following are the major performance measures used by CNPF for the period October 25

to December 31, 2013.

For the period

October 25 to December 31, 2013

Gross Profit Margin (%) ........................................................ 8.1%

Return on Sales (%) ............................................................... 0.0%

Debt-to-Equity Ratio (x)........................................................ 1.93x

Current Ratio (x) ................................................................... 1.14x

Return on Equity (%) ............................................................ 0.0%

Notes:

1 Gross Profit Margin = Gross Profit / Net Sales

2 Return on Sales = Net Income After Tax / Net Sales

3 Debt-to-Equity = Total Liabilities /Shareholders’ Equity

4 Current Ratio = Current Assets / Current Liabilities

5 Return on equity = Net Income After Tax / Shareholders’ Equity

QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISKS

CNPF is exposed to various types of market risks in the ordinary course of business,

including foreign exchange rate risk, commodity price risk, credit risk and liquidity risk.

Commodity Price Risk

CNPF‘s commodity price risk exposure primarily results from the use of commodities as raw

materials in its production processes. In particular, the supply and prices of fish are subject to

seasonality and there is limited fish-catching activity from November to March of the

following year. To reduce its exposure to increased fish prices during this time, CNPF

typically builds up sufficient inventories of finished products by October of each year to

minimize the need to purchase fish at increased prices. CNPF currently does not have a

commodity price hedging policy.

Foreign Exchange Rate Risk

CNPF‘s foreign exchange rate risk arises primarily from the fluctuations in exchange rate that

arise between the Philippine Peso and the U.S. dollar. The substantial majority of CNPF‘s

revenues are denominated in Pesos, while certain of its expenses, particularly its raw material

costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars. In

addition, CNPF is exposed to foreign exchange risk through its export of private label tuna

and its branded products. To hedge its exposure to exchange rate fluctuations, CNPF enters

into a forward contract for each export order to secure the expected profit at time of delivery.

See ―Risk Factors – Risks Relating to the Company’s Business – CNPF is exposed to foreign

exchange risk‖, ―Risk Factors – Risks Relating to the Philippines – Volatility in the value of

the Peso against the U.S. dollar and other currencies could adversely affect CNPF’s

business‖ and ―Exchange Rates‖.

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Credit Risk

CNPF‘s exposure to credit risk relates primarily to its trade and other receivables. Generally,

CNPF‘s maximum credit exposure in the event of customers‘ and counterparties‘ failure to

perform their obligations is the total carrying amount of the financial asset as shown on the

statement of financial position. To minimize its credit risk, CNPF ensure it transacts only with

creditworthy customers. CNPF continuously monitors and evaluates customer credit,

receivables and payment habits for all major customers to mitigate credit risk.

Liquidity Risk

CNPF is exposed to the possibility that adverse changes in the business environment or its

operations could result in substantially higher working capital requirements and consequently,

a difficulty in financing additional working capital. CNPF manages its liquidity risk by

monitoring its cash position and maintaining credit lines from financial institutions that

exceed projected financing requirements for working capital.

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BUSINESS

OVERVIEW

CNPF traces its history to the Century Group, a leading branded food company primarily

engaged in the development, processing, marketing and distribution of processed fish and

meat, as well as processed dairy products in the Philippines.

With the Century Group‘s 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 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 years ended December 31, 2013, CNPF‘s net revenue was ₱19,023 million. CNPF‘s

net profit for the same periods 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.

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CNPF also produces private label canned, pouched and frozen tuna products for export to

major overseas markets including North America, Europe, Asia, Australia, and the Middle

East. In addition, CNPF‘s branded products are also exported to overseas markets and are

distributed across North America, Europe, Asia, Australia, and the Middle East. For the years

ended December 31, 2013, the contribution of each business segment to CNPF‘s total revenue

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

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

Consolidated CNPF 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

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

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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

million for an equivalent gross profit rate of 21%. Net income totalled ₱41.8 million, or a 3%

return on sales ratio.

HISTORY AND CORPORATE STRUCTURE

CNPF was incorporated on October 25, 2013 to own and operate the canned and processed

fish, canned meat, dairy and mixes and tuna export businesses of the Century Group. The

history of these businesses and CNPF‘s recent corporate restructuring is described below.

Corporate History

Richard S. Po, the founder of the Century Group, started a canned tuna export business

through the establishment of CCC in 1978. By 1983, CCC had become the leading canned

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tuna exporter in the Philippines. That same year, the Century Group entered the canned

sardine business with the launch of 555 Sardines. In 1986, the Century Group launched

Century Tuna, developing the canned tuna market in the Philippines. The Century Group then

entered the canned meat industry with the launch of Argentina Corned Beef in 1995 and

Argentina Beef Loaf in 1996. The Century Group continued to expand its product offerings

with the acquisition of Blue Bay in 2001. The Century Group entered the milk business with

the launch of Angel in 2002 and the acquisition of Birch Tree in 2003. The Century Group has

continued to diversify its product and brand portfolio, with the acquisition of the Home Pride

and Kaffe de Oro brands in 2008, launch of Angel coffee creamer in 2009, launch of Angel

Kremdensada and Wow in 2010 and the acquisition of the Swift brand and related assets in

2012.

Corporate Restructuring

CNPF traces its history from the Century Group, a leading branded food company primarily

engaged in the development, processing, marketing and distribution of processed fish and

meat, as well as processed dairy products in the Philippines.

In October 2013, the Century Group began to undertake a general corporate reorganization

transaction. Prior to the corporate restructuring, the 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.

On October 31, 2013, CNPF acquired all of the outstanding shares of GTC and SMDC, as

well as certain fixed assets of CCC, PMCI and CSC. All applicable taxes relating to the

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transfer of assets and shares of GTC and SMDC have been paid and the Company is currently

awaiting BIR issuance of the Certificate Authorizing Registration for the purchase of the

shares. A number of additional transactions are being undertaken as part of the restructuring

plan, including the following:

CNPF entered into separate agreements with each of CCC, PMCI and CSC to effect

the transfer of employees associated with the business segments being restructured.

Pursuant to such agreements, CNPF assumed the obligations of CCC, PMCI and CSC

with respect to retirement and other benefits which have accrued to the employees

based on their seniority or years of service. The employees were transferred to CNPF

with effect from January 1, 2014.

CNPF entered into an inventory purchase agreement pursuant to which CNPF

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

Certain permits and licenses, which have been granted by the Philippine FDA

(formerly the Bureau of Food and Drug) to CCC, PMCI and CSC and which are

relevant to the business segments being restructured, are being transferred or assigned

to CNPF in accordance with Philippine FDA regulations.

Certain material contracts, including contracts for the supply of raw materials, are

being assigned or novated by CCC, PMCI or CSC, as applicable, to CNPF. For

suppliers who do not have formal supply contracts with CCC, PMCI or CSC, a notice

was sent informing all such suppliers that with effect from January 1, 2014, CNPF

will take over the operation of the various business segments being restructured.

CNPF entered into licensing agreements with certain companies owned and

controlled by the Po family for the use of certain trademarks and brand names which

are currently licensed to CCC, PMCI and CSC. See ―Intellectual Property‖ below for

further details.

As of the date of this Prospectus, apart from securing issuance of some of the above permits

and licenses, all material transactions relative to the corporate reorganizing have been

completed.

As a result of the foregoing corporate restructuring, CNPF now has two subsidiaries; namely,

SMDC and GTC. SMDC was incorporated on February 14, 2001 to engage in the business of

manufacture, sale and distribution of all kinds of milk and dairy products, fruits and vegetable

juices and other milk or dairy preparations, among others. On the other hand, GTC was

incorporated on March 10, 1997 to engage in the business of trading, manufacturing,

preserving, processing, canning, packing, importing and exporting all kinds of food and food

products, including fish, seafood, and other marine products. SMDC and GTC are each

currently capitalized at ₱500,000,000.

As a newly incorporated company, CNPF will also be relying on the track record of its wholly

owned subsidiaries, GTC and SMDC. In this respect, both GTC and SMDC, satisfy the

requirements of the PSE Revised Listing Rules i.e., that such subsidiary (i) must have a

cumulative consolidated earnings before interest, taxes, depreciation, and amortization

(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 ₱26

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million, ₱38 million and ₱38 million for 2011, 2012 and 2013, respectively and GTC‘s

EBITDA of approximately ₱268 million, ₱299 million and ₱355 million for 2011, 2012 and

2013, respectively, CNPF‘s subsidiaries are in full compliance with the financial

requirements. Moreover, GTC and SMDC have been in existence since 1997 and 2001

respectively and have had a proven track record of management since then. The PSE Revised

Listing Rules prohibit CNPF from divesting its shareholdings in GTC and SMDC for a period

of three years from the date the Offer Shares are listed on the PSE; provided that the

prohibition shall not apply if the divestment is approved by a majority of CNPF‘s

shareholders.

The corporate reorganization has brought about operational and administrative efficiencies,

such as reduction in administrative overhead and headcount reduction.

CNPF and its subsidiaries, GTC and SMDC, have not been subject to: (i) any bankruptcy,

receivership or similar proceedings or (ii) ay material reclassification, merger, consolidation

or purchase or sale of a significant amount of assets.

The following chart provides an overview of the relevant business segments of the Century

Group prior to the completion of corporate restructuring:

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The chart below provides an overview of CNPF‘s corporate structure including its major

operating subsidiaries as at December 31, 2013, after the corporate restructuring:

COMPETITIVE STRENGTHS

CNPF believes its principal competitive strengths comprise the following:

Established market leadership positions with iconic, well-recognized and trusted brands

The Company is the largest producer of canned foods in the Philippines in terms of retail

value according to Euromonitor data for February 2013. In addition, the 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

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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

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.

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Strong track record of product innovation and successful introduction of new products

Product innovation and development has been an important element in the 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

chicken-based dishes such as kaldereta, adobo and afritada to increase consumers‘ acceptance

of the product while providing consumers with a healthier alternative. In the dairy segment,

the Company has successfully introduced two-in-one products such as Angel Kremdensada (a

combination of all-purpose cream and condensed milk) and Angel KremQueso (a combination

of all-purpose cream and cheese) to provide convenient and cost-effective options for

consumers. In addition to innovative products, the Company has noticed a shift in preference

from canned products to flexible packaging or products sealed in pouches. In response, the

Company has started to produce pouched tuna products.

Furthermore, the Company has a strong ability to bring its products to market using

innovative marketing strategies. The 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 market allows the Company to further segment each product category and tailor it to

consumers‘ tastes and preferences, preventing product commoditization.

Extensive market penetration through multi-channel distribution network

The Company operates and manages one of the most extensive distribution networks across

the Philippines, with its products available in every major city, creating a significant

competitive advantage. The Company has developed strong relationships directly with

retailers, including modern and general trade stores, as well as through third-party

distributors. Approximately 58% of the 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, starting

from January 1, 2014 upon completion of the corporate restructuring. The Company believes

that employing a majority of its sales force in-house has resulted in a relatively higher level of

motivation and incentivization among its employees that has contributed to the strong growth

in the sales of the Company‘s products. This arrangement also enables the Company to work

closely with its customers and develop strong relationships with them. The Company

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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 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.

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‘s export business operates an efficient and competitive business model with

growing revenue and profitability due to penetration of new markets and signing of new co-

partners. 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%

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The Company was the leading Philippine exporter of canned tuna and frozen tuna loin

products for the year ended December 31, 2013, with a market share of 34% according to data

from the Philippine Bureau of Customs.

The Company also distributes its branded products internationally, particularly to China and

Vietnam, through its affiliates. Century International (China) Company Limited and Century

Shanghai Trading Company, joint ventures between the Company and Thai Union

Manufacturing Company, Ltd., as well as Century Pacific Vietnam Company, a wholly

owned subsidiary of CCC, have headquarters in Beijing, Shanghai, and Vietnam,

respectively. These offices distribute the 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.

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

national distribution coverage.

The Company believes that the members of its management team are highly regarded in the

industry, and they hold a variety of leadership positions in food industry organizations, such

as the Sardine Association of the Philippines, the Philippine Association of Meat Processors

Inc., the Tuna Canners‘ Association of the Philippines. The management team‘s industry

leadership positions also create a valuable local business network for the Company.

BUSINESS STRATEGIES

The Company seeks to strengthen its leading market position in the Philippines and expand its

business operations by implementing the following business strategies:

Actively develop and manage product and brand portfolios to target different price

points and respond to emerging market trends

The Company has a history of driving growth through new and innovative products,

capitalizing on emerging market trends and introducing extensions of successful product

lines. The Company will continue growing its existing product categories and deliver

innovative products under trusted brands and the Company is committed to developing and

expanding its product categories to meet evolving consumer tastes and preferences. In

addition, the Company will continue to market different brands to target different consumer

price points. For example, the Company believes that there are growth opportunities in the

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canned meat market and plans to target the premium segment through the development of the

Swift brand.

The Company also intends to continuously review its product offerings to rationalize

unprofitable products from its portfolio. To enhance the stability of its revenue stream and

profit margins, the Company plans to increase the percentage of sales of products that have

performed well and which the Company believes will continue to do so. For example, as

Philippine consumers have become more health conscious, the 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 views the dairy market as a strong growth opportunity and has developed various

initiatives to grow its dairy business. For example, the Company has responded to changing

consumer preferences and plans to develop ready-to-drink products. The Company also plans

to continue aggressively promoting the Angel and Birch Tree brands through marketing

campaigns within the next two years. In particular, the Company plans to grow the Angel

brand through improved formulations, smaller packaging sizes for more budget-conscious

consumers and achieving a market leading position in the two-in-one product platform for

canned milk and cream. For the Birch Tree brand, the Company intends to expand into adult

and 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

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

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with customers and expand existing relationships, as well as establish relationships with a

wider range of customers in this segment. The Company understands the needs of its food

service customers and proactively suggests new products or recipes suited for such

customers‘ business. As its food service customers continue to expand their business, the

Company intends to further collaborate with such customers and increase its sales in this

segment.

Enter into new product categories

In addition to growing and developing its existing product and brand portfolio, the Company

plans to enter into new product categories. The Company believes its competitive strengths

and deep understanding of the Philippine market provide significant advantages when

entering into new product categories. In 2014, the Company plans to start marketing and

distributing beverage products, such as coconut water, by leveraging on the 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, thus enabling the Company to penetrate

new product categories.

The Company also entered into a distribution agreement with Kapal Api of Indonesia on

November 16, 2012 to distribute Kapal 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

distribution agreements with several other large retailers in North America in the near future

and likely within the next 12 months.

Opportunistic acquisition and development of strong regional brands

The Company has a proven track record of turning previously under-promoted and neglected

brands into market leading brands by applying its strategies, such as proper marketing and

extensive national distribution coverage. For example, Birch Tree was a strong brand in the

Philippines in the 1970s but lost significant market share as it did not receive marketing

support for many years prior to the Company‘s acquisition of the brand in 2003. After

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acquiring the brand, the Company initially relied on its distribution network to increase the

penetration of Birch Tree products in modern and general trade outlets. The Company then

supported the brand through a strategic marketing campaign. Through the 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, streamline 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 cans requirements internally, the

Company will be able to improve its profit margins by sourcing tin cans at cost and reducing

logistics costs associated with purchasing from third-party suppliers.

In addition, the 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 is also able to leverage its economies of scale to further rationalize its

production and distribution costs. Realizing savings through cost reduction initiatives will

improve the Company‘s profit margins and enable the Company to continue growing its

portfolios of brands and products.

PRODUCTS

CNPF produces and distributes a wide range of food products including canned and processed

fish, canned meat and dairy and mixes for the domestic market, as well as processed tuna for

the export market. CNPF‘s brand portfolio includes some of the most well-known brands in

the Philippines, such as Argentina for corned beef, Century Tuna for canned tuna, 555 for

canned sardines and Birch Tree and Angel for milk and dairy products.

Canned and Processed Fish

Prior to the corporate restructuring, the company‘s businesses were operated by different

companies. 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.

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In order to streamline and rationalize the Group‘s operations, CNPF was incorporated and the

business operations of CCC and CSC were folded into CNPF under the canned and processed

fish segment.

Brands and Products

The 555 brand for canned sardines was introduced in the Philippines in 1983. Since then,

CNPF‘s canned and processed fish product offerings have expanded to include canned tuna,

canned sardines, canned mackerel, frozen milkfish, gourmet milkfish, pouched tuna, corned

tuna and other packaged fish and seafood products. The table below sets forth information

regarding the product lines in CNPF‘s canned and processed fish segment

Brand Products

Indicative

retail price

(P/tin) Target market

Century Quality

Bangus (milkfish) in a variety of flavors,

fried sardines, bangus sisig, boneless

bangus, bangus tocino and canned

salmon

₱183.00

(450g); ₱48.30

(184g)

AB

Century Tuna

Tuna in a variety of flavors, tuna loaf,

tuna mayo spread, corned tuna,

₱26.00 (155g);

₱32.50 (180g)

ABC

Blue Bay

Tuna in a variety of flavors and sardines ₱23.00 (155g

tuna); ₱15.10

(155g sardine)

DE

555

Sardines, tuna, mackerel and squid in a

variety of flavors

₱23.00 (155g

tuna); ₱14.00

(155g sardine)

DE

Fresca

Tuna in a variety of flavors ₱21.23 (175g) DE

Lucky 7

Sardines ₱13.75 (155g

sardine)

DE

According to AC Nielsen, in 2012, CNPF had market shares of 87% in canned tuna and

15.3% in canned sardines, and was the largest producer of canned fish products in the

Philippines in terms of retail value. For the year ended December 31, 2013, the canned and

processed fish segment was the largest contributor to CNPF‘s revenue, with segment revenue

of ₱7,014 million, representing 37% of total combined revenue of the company.

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CNPF‘s canned and processed fish products are distributed in the Philippines to both retail

and food service outlets. Sales of CNPF‘s canned and processed fish products to retail outlets

accounted for approximately 96% of total segment sales for the year ended December 31,

2013, while sales to food service outlets accounted for approximately 4% of total segment

sales for the same period.

Tuna products are CNPF‘s most significant products, accounting for 59% of total revenue for

the year ended December 31, 2013. CNPF‘s tuna products are primarily sold under the

Century Tuna, 555 Tuna, Fresca and Blue Bay brands. The Century Tuna brand was the

leading canned tuna brand in terms of both retail value and sales volume in the Philippines in

2012 according to AC Nielsen. The 555 Tuna brand targets budget conscious consumers

looking for affordable and high quality canned and processed fish products. Blue Bay is

positioned as a regional brand and its products primarily comprise traditional canned tuna.

Fresca is a regional value brand which offers a mix of traditional canned tuna and ready-to-

eat tuna viands, as well as pouched tuna products. In addition to traditional canned tuna and

tuna viands, CNPF also offers processed tuna products such as corned tuna, tuna loaf, tuna

sausage and tuna mayo spread.

CNPF also offers packaged seafood based on farmed and cultured species under the Century

Quality brand. Products include canned bangus (milkfish), fried sardines, canned salmon, and

bangus tocino. For the year ended December 31, 2013, revenues of the Company‘s canned

and processed fish products were ₱7,014 million.

CNPF‘s top brands in the canned and processed fish segment are Century Tuna and 555,

which collectively accounted for 84% of CNPF‘s total canned and processed fish revenue for

the year ended December 31, 2013.

Production and Raw Materials

Raw materials used in the canned and processed fish segment include tuna, sardines, tin cans,

soya oil and vegetables. CNPF primarily sources such raw materials from third-party

suppliers. In particular, CNPF sources tuna and sardines from major domestic and

international fishing operators with whom CNPF has had a long history of cooperation.

Tin cans are used across all of CNPF‘s business segments. For the year ended December 31,

2013, usage of packaging materials, of which tin cans constitute the majority, accounted for

13% of CNPF‘s total production cost. While the majority of CNPF‘s tin can requirement is

purchased from third-party suppliers, CNPF currently owns and operates one tin can

manufacturing facility with installed capacity of 4.5 million cans per month as of December

31, 2013. Through this facility, CNPF is able to produce approximately 5% of its total tin can

requirements. The Company plans on constructing an additional tin can manufacturing

facility, which will be located directly adjacent to the current facility. The new facility is

expected to have an installed capacity of 700 cans per minute. Upon completion of the second

tin can manufacturing facility by the end of 2014, CNPF expects to provide approximately

25% to 30% of its tin can requirements through its own facilities.

As of the date of this Prospectus, CNPF owns one tuna processing plant in General Santos

City, one sardine processing plant with an installed capacity of 200 MT per day as of

December 31, 2013 in Zamboanga City and a second sardine processing plant with an

installed capacity of 45 MT per day as of December 31, 2013 in Cavite province. The table

below sets out key operating information for CNPF‘s fish processing facilities as of the date

of this Prospectus.

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Facility Type Location Size

Tuna Processing Plant General Santos City 52,626 sq. m.

Sardine Processing Plant Zamboanga City 38,000 sq. m.

Sardine Processing Plant Cavite 2,500 sq. m.

The facilities operate six days per week, with two 12-hour shifts (inclusive of a one-hour

break per shift) per day.

The typical process for producing CNPF‘s tuna products begins with the loading and

receiving of tuna, which is then sorted, weighed and washed. The tuna is then steamed and

cooled before being further cleaned and de-boned. Once this steaming and cleaning process is

completed, the tuna is packaged into cans or pouches before being steamed a second time.

Then the product is cooled, labeled, packaged and prepared for shipment. The production

process for CNPF‘s sardine products is similar, except that the products are only steamed

once after they have already been packaged into cans. The production workflows for tuna and

sardines, respectively, are illustrated below.

Tuna Process Workflow

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Sardines Process Workflow

CNPF‘s tuna and sardine processing plants follow strict quality control standards. The quality

control system incorporates the HACCP plan, which is a regulatory requirement for all food

manufacturing businesses. CNPF also implements additional quality control programs

including GMP, SSOP, and pest control management. Quality standards and parameters are

established for each step of the production process to ensure the safety and quality of the

products. In addition, all finished products pass through an x-ray, which is able to detect any

foreign contaminants.

CNPF engages third-party contractors for certain aspects of its production processes. In the

canned and processed fish segment, CNPF typically outsources the production of new

products, particularly when CNPF believes there is a market opportunity for the new product

but the expected initial demand and production volume is relatively low. CNPF moves the

production of new products in-house once production volume reaches a certain scale.

Competition

Based on data from Euromonitor and certain internal assumptions and calculations, CNPF

believes that it is the largest producer of canned and processed fish products in the

Philippines, with an estimated market share of approximately 54% as at end 2012. According

to data from AC Nielsen, in 2012, CNPF had approximately 87% market share in canned tuna

and approximately 15.3% market share in canned sardines in the Philippines in terms of retail

value.

In the canned and processed fish segment, CNPF competes on quality, customer service,

distribution network and price. CNPF is the leading company in the canned tuna segment. In

the canned sardines segment, CNPF competes with major domestic canned and processed fish

producers such as Liberty Gold, Maunlad Canning Corporation, Universal Canning,

Incorporated and Mega Fishing Corporation, as well as numerous regional and local canned

foods processors. To maintain its leading market position, CNPF intends to, among other

measures, continue emphasizing the healthy image associated with Century Tuna while

introducing different product sizes targeted towards more budget-conscious consumers.

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Canned Meat

Prior to the corporate restructuring, PMCI, which was incorporated on June 28, 1994,

manufactured canned and frozen processed meat under the brand names Argentina, Swift and

555.

In order to streamline and rationalize the Group‘s operations, CNPF was incorporated and the

canned meat business operations of PMCI were folded into CNPF under the canned meat

segment.

Brands and Products

The Argentina brand corned beef was launched in 1995. CNPF‘s canned meat product

offerings have since expanded to include corned meat, meat loaf, beef loaf and sausages,

among others. The table below sets forth information regarding the product lines in CNPF‘s

canned meat segment.

Brand Products

Indicative

retail price

(P/tin) Target market

Swift

Corned beef, meat loaf, beef loaf and

vienna sausages ₱62.00

(210g)

ABC

Argentina

Corned beef, meat loaf, beef loaf,

Chinese style luncheon meat, liver

spread, vienna sausages and spaghetti

sauce

₱33.30

(175g CB)

C

Shanghai

Chinese style luncheon meat ₱28.00

(165g)

C

555

Canned meat in a variety of flavors; meat

loaf and beef loaf ₱24.00

(150g CN)

DE

Wow

Ready-to-eat viands in a variety of

flavors ₱21.60

(150g)

DE

Lucky 7

Corned beef, meat loaf, beef loaf ₱13.25

(150g)

DE

According to AC Nielsen, as at December 31, 2012, CNPF had market shares of 41.6% in the

corned beef segment and 25.5% in the meat/beef loaf segment, and was the largest producer

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of canned meat products in the Philippines. For the year ended December 31, 2013, the

canned meat segment was the third largest contributor to CNPF‘s revenue, generating

segment revenue of ₱4,598.6 million, representing 24% of the total CNPF combined revenue.

CNPF‘s canned meat products are distributed in the Philippines to both retail and food service

outlets. CNPF

The main product line in the canned meat segment is the Argentina line of products, which

includes canned corned beef, canned meat loaf, canned beef loaf, canned chicken loaf, canned

luncheon meat, canned sausages, canned spaghetti meat sauce, canned liver spreads, hotdogs

and canned sisig. As at August 2013, CNPF‘s Argentina brand is the leading brand in the

Philippine canned meat market in terms of sales volume (in kilograms) according to AC

Nielsen. According to CNPF‘s internal data, during the year ended December 31, 2012,

Philippine consumers consumed 2.1 tins per capita annually of the Argentina brand making it

the second best selling product among all of CNPF‘s product lines based on an annual tins per

capita basis.

As a part of CNPF‘s business strategy to leverage its brand recognition and target consumers

across various income levels, it offers affordable and high quality canned meat products under

its Lucky 7 brand to budget conscious consumers. In addition, CNPF offers its Chinese

luncheon meat products under the Shanghai label. In 2008, CNPF launched the Wow brand,

which is the newest brand in the canned meat segment, primarily offers ready-to-eat viands in

a variety of flavors. In 2012, the Company acquired the Swift brand and selected assets from

RFM Corporation.

For the year ended December 31, 2013, sales volume, by cases, of the Company‘s canned

meat products was 5.4 million, which amounted to revenue of ₱4,599 million.

The top brand in CNPF‘s canned meat segment is Argentina, which accounted for more than

50% of total segment revenues for the year ended December 31, 2013.

Production and Raw Materials

Raw materials used in the canned meat segment include beef, pork, chicken, protein and

spices. CNPF primarily sources such raw materials from a network of domestic and

international suppliers.

CNPF leases and operates one meat processing plant located in Laguna. The facility has an

area of 14,500 sq. m. and an installed capacity of 194 MT per day as of December 31, 2013.

The production process of CNPF‘s corned beef and meat loaf products typically starts with

frozen meat being cut, weighed and cured. For the corned beef products, the meat is parboiled

before being hashed and mixed with other ingredients. Meat loaf products are directly

chopped with curing salts and other ingredients without being parboiled. Then, the meat

mixtures are canned and heated to commercial sterility before being cooled and packed. The

finished products typically have an incubation period of 14 days. Then, the products are

labeled, packed and sealed before being shipped or warehoused for distribution. The

production workflow for corned beef and meat loaf, respectively, are illustrated below.

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Corned Beef Process Workflow

Meat Loaf Process Workflow

CNPF‘s canned meat segment has implemented quality control procedures which comply

with relevant legislation and industry best practices. The meat processing plant has been

certified by the Philippine National Meat Inspection Service for GMP and HACCP

compliance. The plant has also received HALAL certification from the Islamic Dawah of the

Philippines.

CNPF engages third-party contractors for certain aspects of its production processes. In the

canned meat segment, CNPF typically outsources production of certain products when

CNPF‘s internal production capacity is insufficient to meet customer demand.

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Competition

Based on data from Euromonitor, CNPF is the largest producer of canned meat products in

the Philippines, with an estimated market share of approximately 37% as at December 31,

2012. According to data from AC Nielsen, as of August 2013, CNPF had approximately

42.5% market share in corned beef market and approximately 25.6% market share in meat

loaf and beef loaf in the Philippines.

In the canned meat segment, CNPF competes on quality, customer service, distribution

network and price. CNPF competes with major domestic producers such as San Miguel

PureFoods Company, Inc. and CDO Foodsphere, Inc., as well as numerous regional and local

meat processors. To maintain its leading market position, CNPF intends to, among other

measures, promote the Swift brand to participate in the premium canned meat segment and

increase the market share of its canned meat products regionally in areas such as Mindanao

and the Visayas.

Dairy and Mixes

Brands and Products

CNPF‘s dairy and mixes business is operated through SMDC, a wholly-owned subsidiary

incorporated in 2001. CNPF‘s dairy line includes liquid milk products and powdered milk

products such as evaporated milk, evaporated condensed milk, all-purpose cream, coffee

creamer and full cream milk powder. All of CNPF‘s dairy products are marketed under the

Angel brand except for full cream milk powder, which is marketed under the Birch Tree

brand. CNPF also produces coffee mix under the Kaffe de Oro brand and sinigang mix under

the Home Pride brand. The table below sets forth information regarding the product lines in

CNPF‘s dairy and mixes segment.

Brand Products

Indicative

retail price

(P/tin) Target market

Dairy

Angel

Evaporated liquid creamer, evaporated

filled milk, Kremdensada, sweetened

condensed filled milk, condensada and

coffee creamer

₱24.30

(410mL evap)

BCD

Birch Tree

Full cream milk powder ₱104.70

(300g)

BC

Mixes

Home Pride

Sinigang Mix ₱3.80 (10g) CDE

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Kaffe de Oro

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

sugar-free)

₱4.00 (18g) CD

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

evaporated/condensed milk and 9.3% in all-purpose cream, and was the third largest producer

of canned milk products in the Philippines. According to AC Nielsen, as of July 2011, CNPF

also had 22.0% market share in full cream milk. For the year ended December 31, 2013, the

dairy and mixes segment generated segment revenue of ₱1,548 million, representing 8% of

the total CNPF combined revenue.

CNPF‘s dairy and mixes products are distributed in the Philippines to both retail and food

service outlets. CNPF

The primary brand for CNPF‘s canned milk products is Angel, whose product lines include

filled milk, liquid creamer, sweetened condensed milk, coffee creamer, and Angel

Kremdensada, which is a combination of all-purpose cream and condensed milk. As of 2013,

Angel was the second best-selling milk brand in terms of volume in the Philippines according

to AC Nielsen data. In 2003, CNPF acquired the Birch Tree brand whose sole product is

powdered milk made from 100% cow‘s milk with no added sugar and no added vegetable oil.

In line with CNPF‘s strategy of diversifying its product lines to offer consumers a wide range

of product choices, CNPF acquired the Home Pride and Kaffe de Oro brands in 2008, which

expanded CNPF‘s product mix to include sinigang mixes through the Home Pride brand and

Kaffe de Oro Stick 3-in-1 coffee mixes through the Kaffe de Oro brand.

Production and Raw Materials

Raw materials used in the dairy and mixes segment include powdered milk, tin cans,

vegetable oil, sugar and emulsifiers. CNPF primarily sources powdered milk from

international third-party suppliers and traders such as Fonterra Co-operative Group Limited

and DanAsia, Inc.

CNPF owns and operates one dairy processing plant located in Taguig, Metro Manila. The

facility has an area of 10,000 sq. m. and has an installed capacity of 11,000 cases per day as

of December 31, 2013.

The production process for CNPF‘s canned dairy products begins with preparation of raw

materials, followed by the combination of milk powders, stabilizers and other dry ingredients

in a mixing tank. The mixture is then pasteurized, homogenized and cooled before being

standardized with water and buffering salt. Once this process is completed, the milk products

are filled into cans and re-heated to commercial sterility. The cans are finally labeled and

packaged. Typically, packaged products have an incubation period of 14 days before being

shipped or warehoused for distribution.

An internal quality control system is implemented at CNPF‘s dairy processing plant to ensure

compliance with industry best practices. The dairy processing plant is in compliance with

HACCP and GMP standards. In addition, the plant‘s internal quality control system has

adopted the principles of ISO 2000.

CNPF engages third-party contractors for certain aspects of its production processes. In the

dairy and mixes segment, CNPF outsources the production of condensada to toll

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manufacturers. In addition, CNPF purchases its mixes in bulk and engages third-party

manufacturers to package the products for distribution. CNPF also outsources the packaging

of powdered milk for Birch Tree products.

Canned Dairy Process Workflow

Competition

According to AC Nielsen, as of December 31, 2012, CNPF had market shares of 8.5% and

9.3% in evaporated/condensed milk, and all-purpose cream, respectively. As of July 2011, the

latest period data was available, CNPF‘s market share in full-cream milk powder was 22%.

In CNPF‘s dairy and mixes business, CNPF competes on quality, customer service,

distribution network and price. Major competitors include domestic dairy companies such as

Alaska and Nestle. In addition, Kaffe de Oro products compete with domestic and

international brands such as Nestlé‘s Nescafé, San Miguel Corporation‘s San Mig Coffee and

Universal Robina Corporation‘s Blend 45. Home Pride sinigang mix competes with domestic

and international brands such as Unilever N.V.‘s Knorr and Mama Sita's Holding Co. Inc.‘s

Mama Sita.

To increase its market share in the dairy segment, CNPF plans to build the Angel and Birch

Tree brands through sustained investment in advertising and promotion and distribution. In

addition, CNPF plans to grow the Angel brand through improved formulations, smaller

packaging sizes for more budget-conscious consumers and achieving a market leading

position in the two-in-one product platform for canned milk and cream. Furthermore, CNPF

plans to grow the Birch Tree brand by expanding into the adult and children‘s milk segments

through powdered milk, flavored milk drinks and other product formats.

Tuna Export

Brands and Products

Through its wholly-owned subsidiary, GTC, CNPF manufactures private label canned,

pouched and frozen tuna products for export to markets in North America, Europe, Africa and

Asia. Canned tuna is the primary export product, accounting for approximately 75% of

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CNPF‘s total tuna exports as at December 31, 2013. Major customers for CNPF‘s private

label tuna exports include Chicken of the Sea, Bumble Bee Foods, LLC and Subway in North

America, Princes, Rio Mare and Carrefour in Europe, and Hagoromo, Hoko and California

Garden in Japan and the Middle East.

Exported tuna products are produced in General Santos City in the same fully accredited

processing facilities that produce CNPF‘s tuna products for the Philippine market. For the

year ended December 31, 2013, the tuna export segment generated segment revenue of

₱5,862.7 million, or 31% of total CNPF combined revenue.

Competition

In CNPF‘s tuna export business, CNPF competes primarily on product quality. CNPF has

established long-term relationships with customers in this segment, in some cases spanning

decades, and believes that the goodwill and loyalty of its customers enhances its competitive

position in the tuna export market. According to data from the Philippine Bureau of Customs

(―BOC‖), as at December 31, 2013, CNPF held a 34% market share of the Philippine tuna

export business, making it the market leader. CNPF‘s biggest canned and processed fish

export competitor is PhilBest Canning Corporation, which held a 30% market share as at

December 31, 2013, according to the BOC. The remaining market shares are divided among

Alliance Select Foods International Inc., Ocean Canning Corporation, Seatrade Canning

Corporation and Celebes Canning Corporation, each of which held 10% or less of the market

share during the same period. CNPF also faces increasing competition from foreign tuna

processors such as Thai Union Group.

MARKETING, SALES AND DISTRIBUTION

Marketing

CNPF advertises through various media outlets in the Philippines, including television, radio,

newspaper, magazines and billboards to promote brand awareness for its various product

lines. CNPF‘s brand portfolio includes some of the most recognized brands in the Philippine

food industry, including Century, Argentina, 555, Angel and Birch Tree. Employing celebrity

spokespersons, CNPF‘s advertising team has delivered a series of intuitive and appealing ad-

campaigns to enhance brand recognition. CNPF supplements these initiatives with

promotional activities such as product bundling and sampling, and through its presence in

social media networks.

In addition, CNPF makes certain that its brands and products are under a general ‗health &

wellness‘ theme in order to fully promote its products‘ benefits and attract health conscious

consumers. For example, CNPF builds brand awareness through sponsorships and events such

as the Century Tuna Superbods competition, highlighting the health and wellness benefits of

their tuna products.

CNPF has tailored marketing plans for each one of its product lines across all of its product

categories. Based on micro-level and macro-level research of consumer habits and purchasing

trends conducted in-house and by third-party research agencies, CNPF identifies the target

consumer segment for each product and develops a marketing campaign to best reach the

target consumer. For example, in the all-purpose cream category, Angel Kremdensada is

marketed on a platform of value for money, convenience and taste, and the marketing

message positions the brand as a trusted product which offers taste, savings and convenience

for inexperienced cooks. Angel All-Purpose Creamer, on the other hand, is marketed on a

platform of superior taste and the marketing message positions the brand as a trusted product

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which delivers superior taste and texture for experienced cooks at an affordable price.

Customized marketing strategies for each product enable CNPF to optimize brand positioning

and effectively convey its marketing messages to consumers.

CNPF has established dedicated business unit marketing teams across its various product

segments. CNPF also engages third-party advertising agencies for some of its marketing

campaigns.

Distribution

Domestic Distribution

Modern trade channels such as supermarkets and grocery stores account for more than 50% of

total sales for nearly all of CNPF‘s domestic product categories. CNPF‘s products are also

sold through general trade channels, including wet markets and sari-sari stores. CNPF

generally distributes its products directly to modern retail outlets and relies on third-party

distributors to distribute its products to wet markets and sari-sari stores. CNPF works closely

with its third-party distributors to increase penetration of general trade outlets, including

ensuring that distributors have access to the full range of CNPF products and are able to offer

the optimal product mix to general trade retailers. As the majority of domestic retail sales and

food services sales are made directly by the manufacturer, CNPF is able to reduce its

distribution costs and establish long-term relationships directly with retail customers. In

addition, CNPF is able to limit exposure to common risks associated with third-party

distributors by not being overly reliant on third-party distributors for its sales.

As at December 31, 2013, CNPF maintained 200 manufacturer direct-to-retail accounts

reaching 3,772 retail outlets ranging from hypermarkets to convenience stores. In addition, as

at December 31, 2013, CNPF held distribution agreements with 39 distributors reaching

approximately 225,168 retail outlets ranging from supermarkets to sari-sari stores. With

respect to its food services sales, CNPF served approximately 1,000 food outlets, maintained

100 manufacturer direct-to-customer accounts and 950 distributor-to-customer agreements as

at December 31, 2013.

As at December 31, 2013, CNPF leased 14 distribution depots and warehouses strategically

located throughout the Philippines. The map below shows the location of CNPF‘s distribution

depots and warehouses.

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From these distribution depots and warehouses, CNPF‘s products are delivered to its

customers by third-party trucking companies. Under the contracts between CNPF and third-

party trucking companies, the risk of loss is typically borne by the trucking company once the

products leave CNPF‘s loading docks. In addition, the trucking companies are typically

required to arrange appropriate insurance for goods during transit and/or provide a bond as

guarantee for any damage or loss arising from the contractor‘s performance of its obligations.

International Distribution

While distribution is primarily through third-party distributors, the Company also distributes

its branded products, particularly to high growth markets such as China and Vietnam, through

its affiliates.

Century International (China) Company Limited and Century (Shanghai) Trading Company,

joint ventures between CCC and Thai Union Manufacturing Company, Ltd., as well as

Century Pacific Vietnam Company, a wholly owned subsidiary of CCC, have headquarters in

Beijing, Shanghai, and Vietnam respectively. These offices distribute the 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 the United

States, Europe, Asia, Australia, and the Middle East.

Customers

CNPF‘s retail outlet customers in the Philippines include hypermarkets, supermarkets,

grocery stores and convenience stores. CNPF‘s products are also sold to wet markets and

SOCCKSARGEN

Bicol Region Calabarzon/Mimaropa

Metro Manila

Central Luzon

NE Luzon NW Luzon

North Mindanao

Eastern Visayas

West Visayas I

Zamboanga Peninsula Davao Region

West Visayas II

Central Visayas

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sari-sari stores through distributors. CNPF also sells its products to various food service

customers in the Philippines directly and through distributors. CNPF‘s food service customers

include quick service and full service restaurants, pizza chains, industrial and institutional

accounts. CNPF also provides customized products to various national and local chain

accounts in the food service segment.

QUALITY CONTROL, HEALTH, SAFETY AND ENVIRONMENTAL MATTERS

CNPF is subject to a number of laws and regulations relating to the protection of the

environment and human health and safety, including those governing food safety, air

emissions, water and wastewater discharges, and odor emissions and the management and

disposal of hazardous materials.

CNPF applies its quality standards uniformly across all of its production facilities and quality

assurance personnel conduct periodic operational audits. CNPF seeks to reduce the risk of

contamination of its products through strict sanitation procedures and constant monitoring and

response. CNPF conducts quality analysis and quality control on each batch of products.

CNPF also conducts can-cutting, or opening of cans at random for product quality control, on

a monthly basis.

CNPF has earned a number of international accreditations for food safety and quality. CNPF

has been accredited by the US FDA, the Canadian Food Inspection Agency, the British Retail

Consortium, the European Union, the Orthodox Union and the Islamic Dawah Council. In

addition, all of CNPF‘s processing facilities apply the HACCP plan, a management system

which addresses food safety through the analysis and control of biological, chemical and

physical hazards from raw material production, procurement and handling to manufacturing,

distribution and consumption of the finished product. CNPF‘s HACCP accreditation is

renewed on an annual basis and CNPF is subject to periodic safety audits. Furthermore,

CNPF‘s tuna processing facility has been certified by International Featured Standard (Food),

a globally recognized standard for auditing retailer and wholesaler branded food product

suppliers.

As at December 31, 2013, CNPF is in material compliance with applicable health, safety and

environmental laws. Expenses incurred by the Company for purposes of complying with

environmental laws consist primarily of investments in waste treatment and payments for

government regulatory fees that are standard in the industry. See ―Regulatory‖ for a more

detailed discussion of applicable health, safety and environmental laws.

Sustainability Efforts and Marine Wildlife Protection

CNPF is committed to the improved conservation and management of all tuna species. CNPF

sources tuna only from companies or fishing vessels that conform to the regulations

implemented by their respective regional fisheries management organizations. CNPF‘s tuna

suppliers have adopted bycatch (i.e. fish or other animals unintentionally caught in a fishery

while intending to catch other fish) avoidance and mitigation measures that conform to

international best practices. CNPF also supports and invests in tuna fishery improvement and

conservation initiatives to sustain livelihoods while minimizing environmental impact.

In addition, CNPF has implemented a documentation system which enables CNPF to trace the

fishing vessels, the fishing grounds and fishing gear associated with its fish supplies. This

system ensures that CNPF does not purchase tuna caught by vessels known or listed for

illegal, unregulated or unreported practices endangering marine mammals such as dolphins. In

addition, CNPF has been accredited as ―Dolphin Safe‖ by the Earth Island Institute, an

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independent company that monitors tuna catchers and processing companies globally to

ensure that catching methods do not harm any dolphins and protect the ecosystem and

inspects processing plants to ensure that only tuna caught using dolphin-friendly methods are

processed in CNPF‘s facilities. CNPF also refrains from doing business with companies or

fishing vessels associated with shark fishing.

CNPF‘s tuna business has received a number of environmental awards in recognition of

CNPF‘s commitment to environmental protection and sustainability efforts. Recent awards

include WWF Environmental Leadership awards for 2012 and 2013.

EMPLOYEES

After the completion of the corporate restructuring on January 1, 2014, CNPF has 9,664

employees. The table below presents a breakdown of CNPF employees by function:

No. of Employees

Executive 23

Managerial 123

Supervisory 302

Rank and File 9,216(1)

Total 9,664

(1) includes contractual and cooperative workers.

CNPF has no plans of hiring any significant number of employees in the next 12-month

period.

CNPF is not unionized and believes that it has a good relationship with its employees. CNPF

complies with minimum compensation and benefits standards as well as all other applicable

labor and employment regulations. In accordance with Philippine retirement pay law under

R.A. No. 7641, the Company also provides estimated minimum retirement benefits. The

Company has in place internal control system and risk management procedures to monitor its

continued compliance with labor, employment and other applicable regulations.

PROPERTY

As at December 31, 2013, CNPF does not own land. CNPF leases several properties,

including the Company‘s head office in Pasig City, Metro Manila and its meat processing

facility in Laguna, among others. The relevant lease agreements are typically for a term of 10

years at the prevailing market rates in their respective areas, renewable upon mutual

agreement of the parties.

None of the leased premises is mortgaged or encumbered. The Company does not plan to

acquire any property in the next 12 months.

INTELLECTUAL PROPERTY

Brands, trademarks, patents and other related intellectual property rights relating to CNPF‘s

principal product are either registered or pending registration in the Philippines and the

foreign countries in which CNPF sells, or intends to sell, its products. Trademarks and other

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intellectual property rights are important in the aggregate because brand name recognition is a

key factor in the success of many of CNPF‘s product lines.

CNPF uses its other brand names and trademarks under licenses from the Century Group and

other companies owned and controlled by the Po family. These licensing agreements are

generally for ten-year terms and are renewable based on mutual agreement. The agreements

typically provide for re-negotiation of terms between the parties every five years. CNPF pays

a nominal fee for the use of such brand names and trademarks

As of the date of this Prospectus, CNPF has not had any significant disputes with respect to

any of its trademarks or other intellectual property rights.

RESEARCH AND DEVELOPMENT

CNPF believes that its continued success depends in part on its ability to be innovative and

responsive to consumer preferences and local and international market conditions. CNPF

continuously expands its existing product lines through the development, reformulation and

testing of new products. The research team collaborates with CNPF‘s marketing personnel to

develop new products based on micro-level and macro-level research of consumer

preferences and spending habits, as well as consumer feedback on existing products.

To enhance productivity, efficiency, reduce costs and strengthen its competitiveness, CNPF

engages in research and development to identify cost improvements that can be made to its

production processes. For example, research and development efforts have enabled CNPF

enhance the flavor of its products without increasing cost. CNPF has also been able to lower

the production costs and sales price of certain products through the use of alternative raw

materials such as soy-based proteins while maintaining the products‘ taste and quality. In

addition, CNPF is able to reduce costs through labor-saving enhancements to its production

process and through adjustments to packaging, such as optimizing the thickness of tin cans.

CNPF researches new processes and tests new equipment on a regular basis to maintain and

improve the quality of its food products and enhance the efficiency of its production

processes. Although new products and production processes are primarily developed

internally, CNPF has also purchased new technologies and processes from independent

research and development facilities.

INFORMATION TECHNOLOGY

The Company believes that its current management information systems streamline its

operations and enhance the overall organizational efficiency. CNPF utilizes ERPLN software,

by Infor, for enterprise resource planning and reporting. ERPLN is comprised of multiple

modules enhancing various operational functionalities including maintaining centralized

charts of accounts and financial balances, generating and monitoring sales invoices and credit

notes, managing all cash related transactions such as payments to and receipts from business

partners, registering and monitoring of fixed assets, handling and replenishing goods for

warehouses.

In addition, CNPF uses Cognos, by IBM, to consolidate ERPLN data from across its business

divisions. ERPLN data is uploaded to the Cognos financial database on a daily basis to

generate financial reports to enhance management‘s business analytics capabilities.

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INSURANCE

CNPF carries insurance of the types and in amounts that are customary in the food processing

and distribution industry and that it believes will reasonably protect its interests, including

earthquake and flood insurance. CNPF‘s facilities and inventories are insured with Charter

Ping An Insurance Corporation, New India Assurance Company. PNB General Insurance

Corporation, UCPB General Insurance Company, MAA General Insurance Company,

Philippine British and Stronghold Insurance Company with a total insured value of

approximately ₱10 Billion. CNPF does not carry business interruption insurance and self-

insures against this risk.

LEGAL PROCEEDINGS

From time to time, CNPF and its subsidiaries may be involved in litigation or proceedings

arising in the ordinary course of business. As of the date of this Prospectus, neither CNPF nor

any of its subsidiaries are involved in, or the subject of, any legal proceedings which, if

determined adversely to CNPF or the relevant subsidiary‘s interests, would have a material

adverse effect on the business or financial position of CNPF or any of its subsidiaries.

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INDUSTRY

OVERVIEW OF THE PHILIPPINE ECONOMY

The Philippine economy experienced steady growth with real GDP expanding at a compound

annual growth rate (―CAGR‖) of 4.8% from 2008 to 2012. According to the Economist

Intelligence Unit (―EIU‖), real GDP is expected to grow from U.S.$145.2 billion to

U.S.$195.6 billion from 2012 to 2017, representing a CAGR of 6.1%, supported by factors

such as increasing job creation and employment, increasing overseas remittances and an

expansion of exports. In May 2013, Standard & Poor‘s upgraded the credit rating of the

Philippines from ―BB+‖ to ―BBB-―, citing the country‘s strengthening external profile, the

moderating inflation, and the government‘s declining reliance on foreign currency debt,

indicating an overall rise in confidence in the Philippine economy. In October 2013, Moody‘s

Investors Service (―Moody‘s‖) also upgraded the rating of the Philippines from ―Ba1‖ to

―Baa3‖ and assigned a positive outlook to the rating. According to Moody‘s, the factors that

prompted the upgrade were the sustainability of the country‘s robust economic performance,

ongoing fiscal and debt consolidation, stability of the Philippines‘ funding conditions,

political stability and improved governance.

The following chart sets out the expected real GDP development in the Philippines from 2008

to 2017.

Source: EIU

These factors have also enabled Philippine GDP growth to overtake that of other Southeast

Asian economies. The following chart compares the 2012 GDP growth rate of the Philippines

as compared to other emerging economies.

Source: EIU, BMI

The Philippine economy is largely driven by domestic private consumption, which, according

to EIU, accounted for 72% of the GDP in 2012. Consumer spending/capita in the Philippines

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grew at a CAGR of 7.6% between 2008 and 2012. This growth was even stronger between

2010 and 2012 with a CAGR of 12.1%.

The following chart sets out the expected growth in consumer spending/capita (U.S.$) in the

Philippines from 2008 to 2016.

Source: EIU

Further, the Philippine private consumption as a percentage of GDP for 2012 has surpassed

that of other Southeast Asian economies.

The following chart sets out the private consumption as a percentage of GDP for the

Philippines as compared to other Southeast Asian countries in 2012.

Source: Global Insight

Key drivers of the Philippine domestic consumption have been rising personal disposal

income, a burgeoning middle-income class and a young demographic composition.

Rising personal disposable income and burgeoning middle-income class in the

Philippines

One of the key drivers for strong domestic consumption growth has been the rapid growth of

personal disposable income and the continually expanding middle-income class, defined as

households with annual disposable income of between US5,000 and US$50,000. According

to EIU, per capita personal disposable income in the Philippines grew at a CAGR of 4.8%

between 2008 and 2012 and is expected to expand at a CAGR of 5.4% between 2012 and

2017. As a direct result of rising disposable income, the percentage of middle-income

households increased from 45% in 2008 to 53% in 2012 and is expected to increase to 64%

by 2017. The growth in personal disposable income and emergence of a burgeoning middle-

income class is expected to provide a strong foundation for the future consumption growth in

the Philippines.

162

The following charts set out the expected per capita personal disposable income in the

Philippines from 2008 to 2017 and the percentage of middle-income households from 2008 to

2017, respectively.

Personal disposable income (US$)

Growing proportion of middle-income

class

1,317.6 1,588.1

2,067.7

2008 2012 2017E

54% 45%33%

45%53%

64%

1.3% 1.9% 3.2%

2008 2012 2017E

<5,000 5,000-50,000 >50,000Household income

Source: EIU

Philippine population

Approximately 62% of the Philippine population of over 96 million belongs to the

economically active age bracket of 15 to 64 years old. In addition, the proportion of

population in the economically active age bracket is expected to steadily increase over the

coming years, from 61.6% in 2012 to 62.9% in 2017.

The following charts set out the expected population split (by age) in the Philippines and the

growth of economically active population from 2008 to 2017, respectively.

Population split (by age) Growing economically active population

0-14 years34.6%

15-64 years61.6%

65 & above3.8%

Total (2012) = 96.4 million

Source: IHS Global Insight

PHILIPPINE CANNED/PRESERVED FOOD INDUSTRY

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

market compared to the other Southeast Asian countries. It has experienced strong growth in

recent years and has significant growth potential for the future. Canned/preserved food is

popular among consumers because of its affordability and its ability to be readily served as

meals.

163

The following chart shows the Philippine canned/preserved food consumption US$ in

millions) versus that of other Southeast Asian economies in 2012.

Source: Euromonitor

The following chart shows the Philippine canned/preserved food consumption per capita

(US$) versus that of other countries in 2012.

Source: Euromonitor

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

₱25.1 billion in 2008 to ₱33.3 billion in 2012, representing a CAGR of 7.3%. This is expected

to grow to ₱43.6 billion in 2016 at a CAGR of 7.0% from 2012 to 2016.

The following chart shows the expected sales value of Philippine canned/preserved food from

2008 to 2016.

25.126.9

28.831.0

33.335.5

38.040.7

43.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Sale

s in

bill

ions P

s

Source: Euromonitor

Significant growth

potential

164

Canned/preserved fish/seafood dominates the market, comprising 42% of the sales value in

2012 and 47% by the total volume sold. This is followed by the canned/preserved meat/meat

products category, comprising of 30% of total sales value and 22% of total sales volume in

2012.

2012 breakdown of sales by value

2012 breakdown of sales by volume

Source: Euromonitor

Canned/preserved fish/seafood

The Philippine canned/preserved fish/seafood segment has demonstrated strong growth due to

the growing health consciousness of Filipinos. Fish/seafood is perceived as healthy due to its

Omega-3 content, lower calorie content and low, or zero cholesterol. According to

Euromonitor, canned/preserved fish/seafood sales in the Philippines increased from ₱10.5

billion in 2008 to ₱14.0 billion in 2012, representing a CAGR of 7.5%. This is expected to

grow to ₱18.2 billion in 2016 at a CAGR of 6.8% from 2012 to 2016.

The following chart shows the expected sales value of Philippine canned/preserved

fish/seafood from 2008 to 2016.

Source: Euromonitor

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According to Euromonitor, CNPF, Liberty Gold Fruit and Maunlad Canning are the top

three canned/preserved fish/seafood market players in the Philippines accounting for 86% of

the retail sales in 2012.

The ranking of the top players in the Philippines canned/preserved fish/sea food market by

sales in 2012 is as follows.

Ranking Company Market share

1 CNPF 54%

2 Liberty Gold Fruit Company, Inc. 19%

3 Maunlad Canning Corporation 13% Source: Euromonitor

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

follows:

17.2

6.5

-

5.0

10.0

15.0

20.0

Canned sardines Canned tuna

Ps b

illio

n

Source: AC Nielsen

Domestic canned tuna

The Philippines ranks 5th in tuna catch and 3

rd in canned tuna production worldwide.

According to AC Nielsen, the Philippine domestic canned tuna market is segmented into three

basic products:

Traditional: Basic Tuna flakes in either oil or water. Century Tuna leads this sub-segment.

Viands: Tuna is used as protein source of ready-to-eat meals such as Afritada, Mechado,

Adobo, etc. 555 Tuna is the leading brand in Viands.

Corned tuna: This format is tuna and soy protein extenders made similar to corned beef.

Because it is a fish, it is perceived to be a healthier alternative to corned beef and corned meat

products. San Marino is the leader in corned tuna.

According to AC Nielsen, Viands are the most popular form of tuna, however, corned tuna is

gaining importance due to its health benefits. Viands contributed 57% to the domestic canned

tuna category, traditional tuna contributed 26% and corned tuna had a contribution of 16% in

2012. CNPF dominates the domestic canned tuna market with its brands accounting for 87%

of the market.

The ranking of the top players in the Philippine domestic canned tuna market in 2012 by sales

is as follows:

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Ranking Company Market share

1 CNPF 87%

2 CDO Foodsphere, Inc. 13%

Source: AC Nielsen

Domestic canned sardines

According to AC Nielsen, the Philippine domestic canned sardine market is the most popular

amongst the other canned/preserved fish/seafood categories, mainly because of its

affordability as a protein-rich food and is popular among the lower socio-economic classes.

Apart from being low priced, it is readily available from modern retail grocery stores to the

neighborhood sari-sari stores. The Zamboanga Peninsula is considered as the country‘s

sardine capital. The harvesting and processing of this fish has contributed substantially to the

regional economy.

Maunlad, with its Youngstown brand dominates this market with its sales accounting for 26%

of the market share, followed by Goldfish with 18% and CNPF with 15%.

The ranking of the top players in the Philippine domestic canned sardine market in 2012 by

sales is as follows:

Ranking Company Market share

1 Maunlad Canning Corporation 26%

2 Goldfish 18%

3 CNPF 15%

Source: AC Nielsen

Canned/preserved meat and meat products

The Philippine canned/preserved meat and meat products segment has experienced strong

growth in recent years and is expected to continue to do so going forward. The sales size of

canned/preserved meat and meat products is smaller than that of canned/preserved

fish/seafood although growth rates are expected to be slightly higher, in part due to faster

development of new products. According to Euromonitor, canned/preserved meat/meat

products sales in the Philippines increased from ₱7.5 billion in 2008 to ₱9.8 billion in 2012,

representing a CAGR of 6.9%. This is expected to grow to ₱13.0 billion in 2016 at a CAGR

of 7.3% from 2012 to 2016.

The following chart shows the sales value of Philippine canned/preserved meat and meat

products from 2008 to 2016.

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Source: Euromonitor

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

Inc. are the top three canned/preserved meat and meat products market players in the

Philippines accounting for 80% of the retail sales during 2012.

The ranking of the top players in the Philippines by sales in 2012 is as follows.

Ranking Company Market share

1 CNPF 37%

2 PureFoods-Hormel Company, Inc. 30%

3 CDO Foodsphere, Inc. 13%

Source: Euromonitor

The respective sizes of the Philippine domestic corned meat, luncheon meat and vienna

sausage markets in 2012 are as follows:

Source: AC Nielsen

Corned meat

Corned meat has been a staple for years in the Philippines and continues to generate demand.

According to AC Nielsen, this is the most popular segment in the canned/preserved meat and

meat products category. According to Euromonitor, the new variants of corned meat are also

set to stimulate demand among the middle-income households in the future. CNPF dominates

this market with its sales accounting for 43% of the market driven by the market leader

Argentina corned meat. Argentina has been the market leader for the last 16 years.

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The ranking of the top players in the Philippine domestic corned meat market as at August

2013 by sales is as follows:

Ranking Company Market share

1 CNPF 43%

2 CDO Foodsphere, Inc. 22%

3 PureFoods-Hormel Company, Inc. 13% Source: AC Nielsen

Luncheon meat

The Philippine luncheon meat segment is expected to experience high growth in the coming

years. This is mainly due to the growing business process outsourcing industry. Convenience

is a major market driver as more working adults are likely to demand luncheon meat products

such as emulsified loaves that they could quickly prepare at home.

According to AC Nielsen, CNPF dominates the emulsified loaves market with 26% market

share. The ranking of the top players in the Philippine emulsified loaves market as at August

2013 by sales is as follows:

Ranking Company Market share

1 CNPF 26%

2 Hormel 10%

3 CDO Foodsphere, Inc. 10%

Source: AC Nielsen

Vienna sausage

The Philippine Vienna sausage segment is also set to achieve high growth in the coming years

due to its convenience in preparation.

According to AC Nielsen, CNPF dominates the vienna sausage market with 28% market

share.

The ranking of the top players in the Philippine vienna sausage market as of June 2012 is as

follows:

Ranking Company Market share

1 CNPF 28%

2 Libby‘s 25%

3 PureFoods-Hormel Company, Inc. 13.9%

Source: AC Nielsen

Distribution channels

The distribution of canned/preserved food is primarily through supermarkets, which

accounted for a 52% share of retail value sales in 2012, followed by ―other‖ grocery retailers

(traditional neighborhood stores) with a 23% share. Another important channel, independent

small grocers, often located in wet markets, accounted for a 18% share. Hypermarkets make

up the balance, with a 7% share.

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The following chart sets forth the relative percentages of different distribution channels for

canned/preserved food industry in the Philippines, based on retail sales in 2012.

Retail sales in 2012 by distribution channel (as % of total retail sales)

Source: Euromonitor

Key trends

Economy brands gaining momentum

Economy brands, which are priced lower than the major competitors, are gaining importance

in the Philippines as value for money is an important consideration when purchasing

products. Further, canned/processed food‘s affordability and ease of storage allow it to be

distributed effortlessly in sari-sari stores. This makes it a popular choice for lower- and

middle-income households.

Innovative products

Manufacturers have started to introduce more innovative products, in order to appeal to a

wider base of middle- and high-income consumers. Evolving from simple canned sardines,

tuna and corned beef, they have widened their lines through the addition of variants such as

corned tuna, tuna paella, mackerel steaks and milkfish. These new products are instrumental

in generating demand from middle- and high-income consumers, who are searching for new

products to try. The wide variety of products available in the local market encourages more

frequent consumption. More innovative variants also appeal to younger and more adventurous

consumers, who demand on-the-go meals.

Domestic vs. imported brands

Domestic manufacturers dominate canned/preserved food due to their long-standing presence

in the market and understanding of the tastes and preferences of local consumers. In 2011,

local companies held more than 70% of the retail value sales of canned/preserved food. On

the other hand, imported brands like Spam and Campbell‘s are also popular, though they cater

to a smaller consumer base, consisting of people who are willing to pay a higher price for

perceived higher-quality products.

Marketing and promotional strategies

Manufacturers are adopting aggressive marketing and promotional strategies to generate more

demand. Generally, Filipinos are willing to try brands which are endorsed by high-profile

celebrities. Thus manufacturers continue to invest in and benefit from celebrity endorsements.

Advertisements via the printed media, radio and television remain important in the promotion

of canned/preserved food. Blog sites and social media are quickly becoming a key to

advertise products and influence consumers. As such, bloggers are usually invited to product

launches. With an increasing level of internet penetration in the Philippines, consumers are

increasingly looking to bloggers for reviews and recommendations.

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Brand differentiation

Brand differentiation has been a key strategy in the local competitive landscape, creating

different brand images to suit the profile of the target audience. For instance, CNPF‘s Century

Tuna is intended to appeal to people who are conscious about their physical appearance, while

555 is promoted as an ―affordable dish‖. Differentiation through advertising campaigns

allowed companies to set themselves apart and, at the same time, prevent product

commoditization.

Packaging

Packaging is also very important in the Philippine canned/preserved food industry, as it often

dictates the pricing scheme used by manufacturers. Small packaging, such as 100g packages,

has gained wider importance as consumers have shown a preference for affordable brands.

Other important packaging developments are the use of pouches instead of metal food cans

and easy-open cans for convenience.

TUNA EXPORTS

According to Euromonitor, the global fish/seafood export market has continued to grow

overtime. Health and wellness is the primary driver of seafood consumption as seafood is a

healthier alternative to meat.

The following chart shows the CAGR in expenditure of fish and seafood from 2008 to 2012.

Source: Euromonitor

According to the Food and Agriculture Organization, moderate demand, low supplies and

rising prices have been the features of the global tuna market in 2013. Tuna prices have

increased further for delivery to Asian canners, indicating lower supplies than current

demand. Following this trend, canned tuna prices are also increasing. With the high skipjack

prices, many tuna packers have started adjusting their selling prices or reducing the product

content to absorb increasing production costs.

The canned tuna consumption has been declining in the United States over the years, which is

apparent in the declining imports, which dropped by 14.3% in volume in 2012. The import

value (U.S.$761.3 million), however, went up by 5.8% as a result of increasing tuna prices

worldwide.

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Rising canned tuna prices have prompted EU importers to look for cheaper alternatives,

including products from African, Caribbean, and Pacific countries that have 0% import duty.

Thus, in 2012, canned tuna supplies from Côte d‘Ivoire and Papua New Guinea to the EU

increased by 31% and 38.5% respectively, which somewhat offset lower imports from

Thailand (-44.3%) and the Philippines (-7.8%). The overall imports of canned/preserved tuna

into the EU in 2012 were only down by 3.5% in quantity, but the value went up by more than

14.4% over that of 2011, amounting to 447,579 tons valued at U.S.$2.5 billion.

In early 2003, the EU agreed to increase the annual import quota for pre-cooked tuna loins to

22,000 tons from 15,000 tons at zero duty for three years. European canners, mainly in Spain,

quickly took almost all the allotted duty-free quota within the first quarter of the year, mainly

from Thailand, Vietnam, China, Indonesia and the Philippines.

Philippine tuna export industry

According to the BOC, the total market size of the Philippine tuna export producers market

had reached U.S.$330 million in December 2013. Out of this, EU is the biggest importer of

Philippine tuna.

The following chart sets out the export share by country destination as of year-end 2013.

Source: BOC

According to BOC, canned tuna is the highest sub-category of tuna that is exported. EU is the

country‘s biggest export market for canned tuna. Philippine canned tuna exports to the EU are

estimated to increase by about 64% by 2014, once it gains duty-free access to the 28-nation

trade bloc under the enhanced Generalized Scheme of Preferences (GSP Plus Program).

The following chart sets out the export share by product mix as of year-end 2013.

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Source: BOC

According to BOC, CNPF and Philbest are the top two exporters of tuna in the Philippines

accounting for 64.4% of tuna exports.

The ranking of the top players in the Philippines by tuna export share in 2013 is as given

below.

Ranking Company Market share

1 CNPF 34.2%

2 Philbest Canning Corporation 30.2%

4 Ocean Canning Corporation 10.2%

3 Alliance Select Foods International, Inc. 9.3%

5 Seatrade Development Canning Corporation 8.7%

6 Celebes Canning Corporation 7.4%

Source: BOC

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PHILIPPINE OTHER DAIRY PRODUCTS INDUSTRY

According to Euromonitor, the sales of dairy products in the Philippines increased from ₱43.6

billion in 2008 to ₱55.6 billion in 2012, representing a CAGR of 6.3%. This is expected to

grow to ₱67.1 billion in 2016 at a CAGR of 4.8% from 2012 to 2016.

The following chart shows the expected sales value of Philippine dairy segment from 2008 to

2016.

Source: Euromonitor

Powder milk dominates the dairy market comprising 53% of the sales value and 28% by the

sales volume in 2012. The breakdown of the dairy market in the Philippines by products is

given below.

2012 breakdown of sales by value

Powder milk53%

Flavored powder milk

drinks17%

Condensed/evaporated

milk15%

Flavored milk drinks

6%

Milk5%

Cream4%

Others0%

2012 breakdown of sales by volume

Powder milk28%

Condensed/evaporated

milk27%

Flavored powder milk

drinks14%

Flavored milk drinks

13%

Milk12%

Cream6%

Others0%

Source: Euromonitor

The Philippine other dairy products segment includes condensed/evaporated milk, coffee

whiteners and cream. According to Euromonitor, cheaper brands have started gaining

momentum in the market since 2012. High inflation rates coupled with increasing prices of

dairy in the global market are encouraging more consumers to purchase cheaper products

such as Krem-Top, Carnation Condensada and Angel Evaporada. The other dairy products

sales in the Philippines increased from ₱8.5 billion in 2008 to ₱10.9 billion in 2012,

representing a CAGR of 6.4%. This is expected to grow to ₱13.5 billion in 2016 at a CAGR

of 5.5% from 2012 to 2016.

The following chart shows the expected sales value of Philippine other dairy products from

2008 to 2016.

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Source: Euromonitor

Supermarkets and hypermarkets are the key distribution channels for the Philippine other

dairy products. Manufactures, however, are adapting to smaller-sized packaging to encourage

more sales through sari-sari stores.

The following chart sets forth the relative percentages of different distribution channels for

the other dairy products segment in the Philippines, based on retail sales in 2012.

Retail sales in 2012 by distribution channel (as % of total retail sales)

Source: Euromonitor

According to AC Nielsen, the condensed/evaporated milk segment is led by Alaska with 60%

market share by sales and the all-purpose cream segment is led by Nestlé with 70% market

share by sales.

The following table gives the ranking of the top players in the condensed/evaporated milk

market by retail value for 2012.

Ranking Company Market share

1 Alaska Milk Corporation 72%

2 CNPF 8%

Source: AC Nielsen

The following table gives a breakdown of the all-purpose cream segment brand share by retail

value for 2012.

Ranking Company Market share

1 Nestlé S.A. 70%

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2 Alaska Milk Corporation 18%

3 CNPF 9% Source: AC Nielsen

The following table gives a breakdown of the all-purpose cream segment brand share by retail

value as of July 2011.

Ranking Company Market share

1 Nestlé S.A. 65%

2 CNPF 22%

3 Fonterra Brands Philippines 12% Source: AC Nielsen; July 2011 is latest period data was made available

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REGULATORY

HEALTH AND CONSUMER PROTECTION

The Food, Drug and Cosmetics Act

The Food, Drug and Cosmetics Act (R.A. No. 3720), as amended by E.O. 175 and the Food

and Drug Administration Act of 2009 (R.A. No. 9711), seeks to ensure that safe and quality

food is available in the Philippines, and regulates the production, sale, and trade of food to

protect the health of the citizens. The Food and Drug Administration (―Philippine FDA‖) is

the governmental agency tasked to implement the Food, Drug and Cosmetics Act.

Under the Food, Drug and Cosmetics Act, the following acts, among others, are prohibited:

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

transfer, non-consumer use, promotion, advertising, or sponsorship of any ―health

product‖ that is adulterated, unregistered or misbranded. (―Health product‖ means

food, drugs, cosmetics, devices, biologicals, vaccines, in-vitro diagnostic reagents,

and household/urban hazardous substances. On the other hand, ―Food‖ means any

processed substance which is intended for human consumption and includes drink for

man, beverages, chewing gum and any substances which have been used as an

ingredient in the manufacture, preparation or treatment of food.);

the adulteration or misbranding of any health product;

the refusal to permit entry to or inspection of premises or vehicles or to allow samples

to be collected for the purposes authorized under the Food, Drug and Cosmetics Act;

the alteration, mutilation, destruction, obliteration, or removal of the whole or any

part of the labeling of, or the doing of any other act with respect to health products if

such act is done while the article is held for sale (whether or not the first sale) and

results in the article being adulterated or misbranded;

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

transfer, non-consumer use, promotion, advertisement, or sponsorship of any health

product which, although requiring registration, is not registered with the Philippine

FDA;

the manufacture, importation, exportation, transfer or distribution of any food,

cosmetic or household/urban hazardous substance by any natural or juridical person

without the license to operate from the Philippine FDA; and

the sale, offering for sale, importation, exportation, distribution, or transfer of any

health product beyond its expiration or expiry date, if applicable.

Any person who commits any of the prohibited acts stated above shall, upon conviction,

suffer the penalty of imprisonment ranging from one (1) year but not more than ten (10) years

or a fine of not less than ₱50,000.00 but not more than ₱500,000.00, or both, at the discretion

of the court. If the offender is a manufacturer, importer or distributor of any health product,

the penalty of at least five (5) years imprisonment but not more than ten (10) years and a fine

of at least ₱500,000.00 but not more than ₱5,000,000.00 shall be imposed. Further, an

additional fine of 1% of the economic value/cost of the violative product or violation, or

₱1,000.00, whichever is higher, shall be imposed for each day of continuing violation.

Furthermore, health products found in violation of the provisions of the Food, Drug and

Cosmetics Act and other relevant laws, rules and regulations may be seized and held in

custody pending proceedings, without a hearing or court order, when the director general of

the Philippine FDA has reasonable cause to believe from facts found by him or an authorized

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officer or employee of the Philippine FDA that such health products may cause injury or

prejudice to the consuming public.

Designated officers or employees of the Department of Health (―DOH‖), for purposes of

enforcing of the Food, Drug and Cosmetics Act, are authorized to enter, at reasonable hours,

any factory, warehouse, or establishment in which food, drugs, devices, or cosmetics are

manufactured, processed, packed, or held for introduction into domestic commerce and to

inspect, in a reasonable manner, such factory, warehouse, establishment, or vehicle and all

pertinent equipment, finished or unfinished materials, containers, and labeling therein.

When there is a finding of prohibited actions and determination of the persons liable thereto,

after notice and hearing, the director-general may impose one or more of the following

administrative penalties: (1) the cancellation of any authorization which may have been

granted by the Philippine FDA, or suspension of the validity thereof which shall not exceed 1

year, (2) a fine of not less than ₱50,000.00 but not more than ₱500,000.00, and (c) the

destruction and/or appropriate disposition of the subject health product and/or closure of the

establishment for any violation of the Food, Drug and Cosmetics Act.

The Company has no pending material case in relation to the Food, Drug and Cosmetics Act,

as amended by E.O. 175 and the Food and Drug Administration Act of 2009.

The Consumer Act

The Consumer Act (R.A. No. 7394) establishes quality and safety standards with respect to

the composition, contents, packaging, and advertisement of food products. It is directed to

achieve the following objectives: (1) to protect consumers against hazards to health and

safety, (2) to protect consumers against deceptive, unfair, and unconscionable sales acts and

practices, (3) to provide consumers information and education to facilitate sound choice and

the proper exercise of rights, (4) to provide consumers with adequate rights and means of

redress, and (5) to involve consumer representatives in the formulation of social and

economic policies.

The Consumer Act, in furtherance of its objectives, regulates the use of weights and

measures, advertisements and sales promotions, labeling and packaging, credit transactions,

and product and service warranties of food products. It prohibits, among other acts, the

adulteration and misbranding of food products and the manufacture, importation, exportation,

sale, offering for sale, distribution, and transfer of food products that are adulterated or

misbranded or do not conform to applicable consumer product quality or safety standards. A

food is deemed adulterated if, among others, it contains any poisonous or deleterious

substance, it is prepared, packed, or held under unsanitary conditions, it contains substances

to increase its bulk or weight, reduce its quality or strength, or make it appear better or of

greater value than it is, or its damage or inferiority is concealed in any manner.

The Consumer Act imposes a penalty of imprisonment of not less than one year but not more

than five years, or a fine of not less than ₱5,000.00 but not more than ₱10,000.00, or both, at

the discretion of the court. The chairman of the board of directors, president, general

manager, partners, and persons directly responsible for the offense, if committed by a

juridical person, shall be penalized.

The implementing agencies tasked to enforce the Consumer Act are the DOH, the Department

of Agriculture (―DA‖), and the Department of Trade and Industry (―DTI‖).

The Company has no pending material case in relation to the Consumer Act.

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The Food Safety Act

The Food Safety Act of 2013 (R.A. No. 10611) seeks to strengthen the food safety regulatory

system in the Philippines by principally delineating the mandates and responsibilities of the

concerned government agencies. The National Dairy Authority, National Meat Inspection

Service (―NMIS‖), and Bureau of Fisheries and Aquatic Resources under the DA are the

government agencies responsible for the development and enforcement of food safety

standards and regulations in the primary production and post-harvest stages for milk, meats,

and fish, respectively, while the Philippine FDA under the DOH is responsible for the safety

of processed and pre-packaged foods. The Food Safety Act created the Food Safety

Regulation Coordinating Board to monitor and coordinate the performance and

implementation of the mandates of the government agencies under the law.

Under the Food Safety Act, food business operators or those who undertake to carry out any

of the stages of the food supply chain are held principally responsible in ensuring that their

products satisfy the requirements of the law and that control systems are in place to prevent,

eliminate, or reduce risks to consumers.

For the enforcement of the Food Safety Act, the food safety regulatory agencies are

authorized to perform regular inspection of food business operators taking into consideration

the (1) compliance with mandatory safety standards, (2) implementation of the HACCP or the

science-based system that identifies, evaluates, and controls hazards for food safety at critical

points, (3) good manufacturing practices, and (4) other requirements of regulations.

The Food Safety Act prohibits, among others, the following acts:

refusal of access to pertinent records or entry of inspection officers of the food safety

regulatory agencies;

production, handling or manufacturing for sale, offering for sale, distribution in

commerce, or importation of any food or food product, which is declared as banned

or is not in conformity with applicable quality or safety standard;

Adulteration, misbranding, mislabeling, false advertisement of any food product

which misleads the consumers and carry out any other acts contrary to good

manufacturing practices;

Operation of a food business without the appropriate authorization

For the first conviction of any of the prohibited acts under the Food Safety Act, a fine of not

less than ₱50,000.00 but not more than ₱100,000.00 and suspension of appropriate

authorization for one month shall be imposed. For the second conviction, a fine of not less

than ₱100,000.00 but not more than ₱200,000.00 and suspension for three months shall be

imposed. For the third conviction, a fine of not less than ₱200,000.00 but not more than

₱300,000.00 and suspension for six months shall be imposed. The penalties shall be also be

imposed when the violation results in the physical injuries or death of a person.

The Company has no pending material case in relation to the Food Safety Act.

The Philippine Fisheries Code

The Philippine Fisheries Code (R.A. No. 8550) declares food security as the overriding

consideration in the utilization, management, development, conservation, and protection of

fishery resources in order to provide the food needs of the population. It regulates the conduct

of fishery activities for the conservation, protection, and sustained management of the

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country‘s fishery and aquatic resources, poverty alleviation and the provision of

supplementary livelihood among municipal fisherfolk, improvement of productivity of

aquaculture, optimal utilization of off-shore and deep-sea resources, and upgrading of post-

harvest technology.

Under the Fisheries Code, all post-harvest facilities such as fish processing plants, ice plants

and cold storages, fish ports/landings and other fishery business establishments must register

with and be licensed by the LGUs which shall prescribe minimum standards for such

facilities.

The Fisheries Code regulates the exportation of fishery products whenever such exportation

affects domestic food security and production. The exportation of live fish shall be prohibited

except those which are hatched or propagated in accredited hatcheries and ponds. Fishery

products may be imported only upon certification by the DA that the importation is necessary

and all the requirements of the Fisheries Code and existing rules and regulations have been

complied with. Importation for canning or processing purposes may be allowed without the

certification, provided, a permit is secured from the DA. No person shall import and/or export

fishery products of whatever size, stage or form for any purpose without securing a permit

from the DA.

Any importation or exportation of fish or fisheries species in violation of the Fisheries Code

shall be punished by eight years of imprisonment, a fine of ₱80,000.00 and destruction of live

fishery species or forfeiture of non-lived fishery species. Any violator shall be banned from

being members or stockholders of companies engaged in fisheries.

The Bureau of Fisheries and Aquatic Resources (―BFAR‖) under the DA sets policies and

formulates standards for the effective, efficient, and economical operation of the fishing

industry and exercises overall supervision over functions and activities of all offices and

instrumentalities and other offices related to fisheries. The BFAR is responsible for the

establishment and implementation of an inspection system for the import and export of fish

and fishery or aquatic products and fish processing establishments in order to ensure product

quality and safety.

The Fisheries and Aquatic Resources Management Councils (―FARMCs‖) formed in the

national and local levels by fisherfolk organizations, cooperatives, and non-government

organizations in localities assist in the preparation of fishery development plans and

enforcement of fishery laws, rules, and regulations.

For the purposes of enforcement of the Philippine Fisheries Code, the law enforcement

officers of the DENR, the Philippine Navy, Philippine Coast Guard, Philippine National

Police (―PNP‖), PNP-Maritime Command, law enforcement officers of the local government

units, and other government enforcement agencies, are authorized to enforce the Code and

other fishery laws, rules and regulations

The Company has no pending material case in relation to the Philippine Fisheries Code.

The Meat Inspection Code

The Meat Inspection Code (R.A. No. 9296), as amended, applies to all meat establishments

where food animals are slaughtered, prepared, processed, handled, packed or stored or sold. It

establishes safety and quality standards for meats derived from domestic animals slaughtered

for human consumption, including pork, beef, and chicken meat products. The NMIS, a

specialized regulatory service attached to the DA, serves as the national controlling authority

tasked with implementing policies, programs, guidelines, and rules and regulations pertaining

180

to meat inspection and meat hygiene to ensure meat safety and quality from farm to table. On

the other hand, the local government units, in accordance with existing laws, policies, rules

and regulations, and quality and safety standards of the DA, have the authority to regulate the

construction, management, and operation of slaughterhouses, meat inspection, and meat

transport within their respective jurisdictions, and to collect fees and charges in connection

therewith.

The Meat Inspection Code requires the inspection of food animals and the carcasses and parts

thereof that are capable of use as human food. Only meat or meat products that have passed

inspection and have been marked may be sold, offered for sale, or transported. The Meat

Inspection Code also provides for the inspection of slaughterhouses, poultry dressing plants,

and meat shops to ensure compliance with existing laws, policies, and safety standards.

All meat establishments are required to adopt good manufacturing practices and sanitation

standard operating procedures programs for the production, storage, and distribution of meat

products and to comply with all pollution control and environmental laws and regulations

relating to the disposal of carcasses and parts thereof.

Any meat or meat products which is placed or packed in any can, pot, tin, canvas, other

receptacle or covering must be properly labeled, under the supervision of an inspector. The

label shall state that the contents thereof have been "Inspected and Passed". No examination

and inspection of sealed meat and meat products shall be deemed to be complete until such

products have been sealed or enclosed. No meat and meat products shall be sold or offered for

sale by any person, firm or corporation, under any name or other marking or labeling which is

false or misleading, or in any container of a misleading form or size. Established trade names

and other marking and labeling and containers which are not false or misleading and

approved by the secretary of the DA are permitted.

Under the Meat and Inspection Code, the following acts, among others, are prohibited:

slaughter any food animal or prepare meat or meat product in any meat establishment

except in compliance with the requirements of the Meat and Inspection Code;

slaughter or handle in connection with slaughter, any food animal in a manner not

considered humane;

sell, transport, offer or receive for sale or transportation in commerce carcasses or

parts thereof, meat or meat product required to be inspected, unless they have been so

inspected and passed;

do any act while they are being transported in commerce or held for sale, which is

intended to cause or has the effect of causing such articles to be adulterated or

misbranded.

Any person, who commits any of the prohibited acts or violates any of the Meat Inspection

Code, shall be punished by imprisonment of not less than six (6) years and one (1) day but not

more than twelve (12) years or a fine of not less than ₱100,000.00 but not more than

₱1,000,000.00 or both such fine and imprisonment. The offender is obliged to pay to the

concerned consumer whatever damage may have been suffered by the latter as a consequence

of the unlawful act. In addition, the NMIS and the LGUs imposes administrative fines and

penalties.

Further, a cease and desist order may be issued by the secretary of the DA to any person, firm,

or corporation engaged, in the business of slaughtering food animals, or preparing, freezing,

packaging, storing, or labeling any carcasses or parts or products of carcasses for use as

human food, found to be in violation of any of the provisions of the Meat and Inspection

181

Code, should the continued operation of the said entity, pose risks to public health and

endanger the animal population.

The Company has no pending material case in relation to the Meat Inspection Code.

The Price Act

The Price Act (R.A. No. 7581) provides for price controls for basic necessities and prime

commodities in certain situations. Basic necessities include rice, corn, bread, fish, dried and

canned fish and other marine products, fresh vegetables, pork, beef, poultry, milk, coffee,

cooking oil, salt, laundry soap, and detergents while prime commodities include flour, dried,

processed and canned pork, beef and poultry meat, other dairy products, toilet soap, paper,

school supplies, electrical supplies, and batteries, among others. Under the Price Act, the

prices of basic commodities are automatically frozen in areas declared as disaster areas, under

emergency or martial law or in a state or rebellion or war. Unless lifted by the President of the

Philippines, prices shall remain the same for a maximum of 60 days. The President of the

Philippines may likewise impose a price ceiling on basic necessities and prime commodities

in cases of calamities, emergencies, price manipulation, or when the prevailing prices have

risen to unreasonable levels.

The Price Act considers it unlawful for any person habitually engaged in the production,

manufacture, importation, storage, transport, distribution, sale, or other methods of

disposition of goods to engage in price manipulation of any basic necessity or prime

commodity through cartels, hoarding, or profiteering.

The DA, DENR, DOH, and the DTI are the implementing agencies responsible for the

enforcement of the provisions of the Price Act. The implementing government agencies of the

Price Act are granted the authority thereunder to issue suggested retail prices, whenever

necessary, for certain basic necessities and/or prime commodities for the information and

guidance of concerned trade, industry, and consumer sectors.

The Company has no pending material case in relation to the Price Act.

ENVIRONMENTAL LAWS

Philippine Environmental Impact Statement System

The Philippine Environmental Impact Statement System was established by virtue of

Presidential Decree 1586. Development projects that are classified by law as environmentally

critical or projects within statutorily defined environmentally critical areas are required to

obtain an Environmental Compliance Certificate (―ECC‖) prior to project construction and

operation. Through its regional offices or through the Environmental Management Bureau

(―EMB‖), the DENR determines whether a project is environmentally critical or located in an

environmentally critical area. As a prerequisite for the issuance of an ECC, an

environmentally critical project is required to submit an Environmental Impact Statement

(―EIS‖) to the EMB while a project in an environmentally critical area is generally required to

submit an Initial Environmental Examination (―IEE‖) to the proper DENR regional office,

without prejudice to the power of the DENR to require a more detailed EIS.

The EIS refers to both the document and the environmental impact assessment of a project,

including a discussion of direct and indirect consequences to human welfare and ecology as

well as environmental integrity. The IEE refers to the document and the study describing the

environmental impact, including mitigation and enhancement measures, for projects in

environmentally critical areas.

182

While the terms and conditions of an EIS or an IEE may vary from project to project, at a

minimum, they contain all relevant information regarding the environmental effects of a

project. The entire process of organization, administration and assessment of the effects of

any project on the quality of the physical, biological and socio-economic environment as well

as the design of appropriate preventive, mitigating and enhancement measures is known as

the EIS system. The EIS system successfully culminates in the issuance of an ECC. The ECC

is a government certification that (1) the proposed project or undertaking will not cause a

significant negative environmental impact, (2) the proponent has complied with all the

requirements of the EIS system, and (3) the proponent is committed to implement its

approved environmental management plan in the EIS or, if an IEE was required, that it will

comply with the mitigation measures suggested therein. The ECC contains specific measures

and conditions that the project proponent must undertake before and during the operation of a

project, and in some cases, during the abandonment phase of the project to mitigate identified

environmental impact.

Project proponents that prepare an EIS are required to establish an Environmental Guarantee

Fund (―EGF‖) when the ECC is issued to projects determined by the DENR to pose

significant public risks to life, health, property and the environment. The EGF is intended to

answer for damages caused by such projects as well as any rehabilitation and restoration

measures. Project proponents that prepare an EIS are mandated to include a commitment to

establish an Environmental Monitoring Fund (―EMF‖) when an ECC is eventually issued.

The EMF shall be used to support activities of a multi-partite monitoring team that will be

organized to monitor compliance with the ECC and applicable laws, rules, and regulations.

The Company incurs expenses for the purposes of complying with environmental laws that

consist primarily of payments for government regulatory fees.

In certain instances, the EMB may determine and issue a certification that a certain project is

not covered by the EIS System and an ECC is not required. Consequently, a Certificate of

Non-Coverage (―CNC‖) may be issued in lieu of an ECC.

The Company has no pending material case in relation to the Philippine Environmental

Impact Statement System.

Toxic Substances, Hazardous and Nuclear Wastes Control Act

The Toxic Substances, Hazardous and Nuclear Wastes Control Act (R.A. No. 6969) mandates

control and management of import, manufacture, process, distribution, use, transport,

treatment and disposal of toxic substances and hazardous and nuclear wastes. It seeks to

protect public health and the environment from unreasonable risks posed by these substances.

Hazardous Waste Generators, i.e. persons (natural or juridical) who generate or produce

hazardous wastes, through any commercial, industrial or trade activities, are required to

register with the EMB Regional Office having jurisdiction over the location of the waste

generator. A DENR I.D. Number shall be issued upon registration.

This is a one-time permit unless there is a change in the hazardous wastes produced.

The Company has no pending material case in relation to the Toxic Substances, Hazardous

and Nuclear Wastes Control Act.

Clean Air Act

183

The Clean Air Act of 1999 focuses primarily on pollution prevention and provides for a

comprehensive management program for air pollution.

Consistent with the policies of the Clean Air Act, all stationary sources of air pollution that

have the potential to emit 100 tons per year or more of any regulated air pollutant, or when

required under the ECC, must secure an Authority to Construct and Permit to Operate from

the EMB prior to commencement of construction or operation.

The Authority to Construct and Permit to Operate is a one-time permit while the permit to

operate must be renewed yearly.

The Company has no pending material case in relation to the Clean Air Act.

LABOR LEGISLATION

The Labor Code

The Philippine Labor Code and other statutory enactments provide the minimum benefits that

employers must grant to their employees, which include certain social security benefits, such

as benefits mandated by the Social Security Act of 1997 (R.A. No. 8282), the National Health

Insurance Act of 1995 (R.A. No. 7875), as amended, and the Home Development Fund Law

of 2009 (R.A. No. 9679).

Under the Social Security Act of 1997, social security coverage is compulsory for all

employees under 60 years of age. An employer is obligated to deduct and withhold from each

employee's monthly salary, wage, compensation or earnings, the employee's contribution; and

the employer, for its part, makes a counterpart contribution for the employee, and remits both

amounts to the Social Security System (―SSS‖). This enables the employees to claim their

pension, death benefits, permanent disability benefits, funeral benefits, sickness benefits and

maternity-leave benefits. The Social Security Act of 1997 imposes penal sanctions if an

employer fails to remit the contributions to the SSS. For corporate employers, the penalty is

imposed on its president and members of the board of directors.

The National Health Insurance Act created the National Health Insurance Program (―NHIP‖)

to provide health insurance coverage and ensure affordable and accessible health care services

to all Filipino citizens. Under the law, all members of the SSS are automatically members of

the NHIP. The Philippine Health Insurance Corporation (―PhilHealth‖) administers the NHIP,

and an employer is required to deduct and withhold the contributions from the employee‘s

salary, wage or earnings, make a counterpart contribution for the employee, and remit both

amounts to PhilHealth. The NHIP will then subsidize personal health services required by the

employee subject to certain terms and conditions under the law. The National Health

Insurance Act likewise imposes penal sanctions if an employer does not remit the

contributions to PhilHealth. For corporate employers, the penalty is imposed on its president

and members of the board of directors.

The Home Development Fund Law (R.A. No. 9679) or the Pag-IBIG Fund Law, created the

Home Development Mutual Fund (―HDMF‖), a national savings program as well as a fund to

provide for affordable shelter financing to Filipino workers. Coverage under the HDMF is

compulsory for all SSS members and their employers. Under the law, an employer must

deduct and withhold 2% of the employee's monthly compensation, up to a maximum of

₱5,000.00, and likewise make a counterpart contribution of 2% of the employee's monthly

compensation, and remit the contributions to the HDMF. The Pag-IBIG Fund Law also

imposes penal sanctions if the employer does not remit the contributions to the HDMF.

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The Philippine Labor Code provides that, in the absence of a retirement plan provided by

their employers, private-sector employees who have reached 60 years of age or more, but not

beyond 65 years of age, the compulsory retirement age for private-sector employees without a

retirement plan, and who have rendered at least five years of service in an establishment, may

retire and receive a minimum retirement pay equivalent to one-half month's salary for every

year of service, with a fraction of at least six months being considered as one whole year. For

the purpose of computing the retirement pay, "one-half month's salary" shall include all of the

following: fifteen days salary based on the latest salary rate; in addition, one-twelfth of the

thirteenth month pay and the cash equivalent of five days of service incentive leave pay.

Other benefits may be included in the computation of the retirement pay upon agreement of

the employer and the employee or if provided in a collective bargaining agreement.

The Company has no pending material case in relation to the Labor Code.

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BOARD OF DIRECTORS AND SENIOR MANAGEMENT

The overall management and supervision of the Company is undertaken by the Company‘s

Board of Directors. The Company‘s executive officers and management team cooperate with

its Board by preparing appropriate information and documents concerning the Company‘s

business operations, financial condition and results of operations for its review. Pursuant to

the Company‘s articles of incorporation, the Board shall consist of seven members, of which

two are independent directors. A majority of the directors were elected at the Company‘s

annual shareholders meeting on October 28, 2013 and will hold office until their successors

have been duly elected and qualified. The Company‘s annual shareholders‘ meetings are held

in June. The table sets forth each member of the Company‘s Board and its executive officers

as of December 31, 2013.

Name Age Nationality Position

Ricardo S. Po, Sr. 82 Filipino Chairman Emeritus

Ricardo T. Po, Jr. 45 Filipino Vice Chairman

Christopher T. Po 43 Filipino Chairman, President and Chief

Executive Officer

Teodoro T. Po 44 Filipino Vice Chairman, Executive Vice

President, and Chief Operating Officer

Leonardo T. Po 36 Filipino Director and Treasurer

Oscar A. Pobre 57 Filipino Chief Financial Officer and Chief

Information Officer

Manuel Z. Gonzalez 48 Filipino Corporate Secretary and Compliance

Officer

Johnip Cua 57 Filipino Independent Director

Fernan Lukban 53 Filipino Independent Director

Gregory Banzon 49 Filipino Vice President – General Manager

(Canned and Processed Fish, Tuna

Division)

Edwin Africa 43 Filipino Vice President – General Manager

(Dairy and Mixes)

Rex Agarrado 57 Filipino Vice President – General Manager

(Canned Meat)

Teddy Kho 50 Filipino Vice President – General Manager

(Tuna Export)

Ronald Agoncillo 37 Filipino Vice President – Head of Sales, Trade

Marketing and Demand Planning

Cezar Cruz, Jr. 58 Filipino Vice President – General Manager

(Canned and Processed Fish, Sardines

Division)

Emerson Villarante 48 Filipino Vice President – Human Resources

and Corporate Affairs

Ricardo S. Po, Sr., Chairman Emeritus of the Company, is the founder and chairman of

CCC. A self-made entrepreneur, he started his professional career as a journalist, then moved

on to advertising where he started and managed Cathprom Advertising Co., and later became

a stock broker. He founded the Century Group in 1978 when he started CCC and grew it to

become of one of the largest canned food companies in the Philippines. Mr. Po, Sr. was

awarded Masters in Business Administration by the University of Santo Tomas in 2006.

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Ricardo Gabriel T. Po, Jr. was elected Vice Chairman of the Company on October 28,

2013. He served as the Executive Vice President and Chief Operating Officer of CCC from

1990-2006 and became the Vice Chairman of its board of directors in 2006 and continues to

hold that position. He graduated magna cum laude from Boston University with a Bachelor of

Science degree in Business Management in 1990. He also took the Executive Program

(Owner-President Management Program) at Harvard Business School in 2000. He is also a

Member of the Board of Directors and serves on the Executive Committee of Arthaland

Corporation, a property developer listed on the PSE as well as the Vice Chairman of IP E-

Game Ventures, Inc., a consumer, new media, and gaming company.

Christopher T. Po was elected Chairman, President, and Chief Executive Officer the

Company on October 28, 2013. He concurrently serves as Chairman and Chief Executive

Officer of CCC. Prior to joining CCC, he was Managing Director for Guggenheim Partners, a

US financial services firm, where he was in charge of the firm's Hong Kong office.

Previously, he was a Management Consultant at McKinsey and Company working with

companies in the Asian region. He also worked as the Head of Corporate Planning for JG

Summit Holdings, a Philippine-based conglomerate with interests in food, real estate,

telecom, airlines, and retail. He graduated summa cum laude from Wharton School and

College of Engineering of the University of Pennsylvania with dual degrees in Economics

(finance concentration) and applied science (systems engineering) in 1991. He holds a

Masters degree in Business Administration from the Harvard University Graduate School of

Business Administration. Mr. Christopher Po is a member of the Board of Arthaland

Corporation and Isla Gas and is a member of the Board of Trustees of WWF-Philippines and

is the President of the CPG-RSPo Foundation.

Teodoro T. Po was elected Vice Chairman, Executive Vice President, and Chief Operating

Officer of the Company on October 28, 2013. He is also a Member of the Board of Directors

of CCC. Since 1990, Mr. Teodoro Po has held various positions in CCC. He became the

Chief Operating Officer in 2006 and continues to hold that position. He graduated summa

cum laude from Boston University with a Bachelor of Science degree in Manufacturing

Engineering in 1990. He also completed the Executive Education Program (Owner/ President

Management Program) at Harvard Business School.

Leonardo Arthur T. Po was elected as the Treasurer of the Company on October 28, 2013.

He also serves as Executive Director of CCC and the General Manager for its Emerging

Business Units. He is also an Independent Director of IPVG Corp. Mr. Leonardo Po

graduated magna cum laude from Boston University with a degree in Business

Administration in 2001 and has since acquired an extensive business experience in the

marketing and operations of quick-serve restaurants, food service and fast moving consumer

goods.

Oscar A. Pobre was elected as Chief Financial Officer of the Company on October 28, 2013.

He is also the Company‘s Chief Information Officer. He also serves as Vice President for

Finance and Chief Financial Officer of CCC and has held this position since August 2000. He

first joined CCC as Director for Finance and Controllership Group in August 1994. Prior to

CCC, Mr. Pobre had 17 years of experience in finance, starting as Assistant Analyst with the

Manila Electric Company. He progressed with his career to be Division Chief for Subsidiary

Operations Comptrollership Group for Human Settlements Development Corporation,

Finance Manager for Commander Drug Corporation, Budget & Cost Department Manager for

Dole Philippines, Inc., Corporate Planning Manager for RFM Corporation, and Corporate

Controller for Cosmos Bottling Corporation. Mr. Pobre graduated from the Ateneo de Manila

University with a Bachelor of Science degree in Business Management and holds a Master in

Business Management degree from the Asian Institute of Management.

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Manuel Z. Gonzalez is the Corporate Secretary and Compliance Officer of the Company. He

is also a Senior Partner in the Martinez Vergara Gonzalez & Serrano Law Office since 2006

up to the present. Atty. Gonzalez was formerly a partner with the Picazo Buyco Tan Fider &

Santos Law Office until 2006. Atty. Gonzalez has been involved in corporate practice and has

extensive experience in securities, banking and finance law. Atty. Gonzalez serves as Director

and Corporate Secretary to many corporations including to companies in the Century Pacific

Group since 1995, Nomura Securities Philippines since 2006 and ADP Philippines, Inc. since

2010. Atty. Gonzalez graduated cum laude with a Bachelor of Arts degree in Political Science

and Economics from New York University and he has also received a Bachelor of Laws from

the University of the Philippines, College of Law.

Johnip Cua is an Independent Director of the Company and has extensive experience in the

consumer goods and marketing industries. Mr. Cua served as the President and General

Manager of Procter & Gamble Philippines from 1995-2006. Prior to that, Mr. Cua held a

number of positions at Procter & Gamble, including Manager of Product Development and

Project Supply at Procter & Gamble Taiwan and Category Manager of Procter & Gamble

Philippines. Mr. Cua currently serves as Chairman and President of Taibrews Corporation and

as a member of the boards of directors of various corporations, including BDO Private Bank,

MacroAsia Corporation and STI Education Systems Holdings, Inc., among others. Mr. Cua

has received a number of awards, including Agora Awards‘ Outstanding Achievement in

Marketing Management (1998) and Procter & Gamble Global Marketing Organization‘s

Passionate Leadership Award (2006). Mr. Cua holds a Bachelor of Science degree in

Chemical Engineering from the University of the Philippines.

Fernan Lukban is an Independent Director of the Company. He is a well-recognized

consultant in family business, strategy, entrepreneurship and governance. Mr. Lukban holds

undergraduate degrees in Engineering (Mechanical and Industrial from De La Salle

University, Manila) and graduate degrees in Economics (MSc in Industrial Economics from

the Center for Research & Communication, now University of Asia & the Pacific) and in

business (MBA from IESE, Barcelona, Spain). He spent much of his early professional years

in academia, helping establish the University of Asia & the Pacific where he currently

participates as a consultant, mentor and guest lecturer. He is a founding fellow of the Institute

of Corporate Directors, an International Fellow of the Australian Institute of Company

Directors and an Independent Director of Pancake House, Inc. and Arthaland Corporation

Gregory Banzon was appointed as the Vice President – General Manager (Canned and

Processed Fish, Tuna Division) of the Company on October 28, 2013. He served three years

as the General Manager and Business Unit Head at the Century Group. Prior to the Century

Group, Mr. Banzon had 22 years of experience in various general management, marketing

and sales roles including Vice President – Marketing of Johnson & Johnson ASEAN, Country

General Manager of Johnson & Johnson Indonesia, and General Manager at RFM. Mr.

Banzon graduated from De La Salle University with a Bachelors degree in Commerce

(Marketing).

Edwin Raymond Africa recently joined the Company on April 1, 2014 as Vice President –

General Manager (Dairy and Mixes). Prior to joining the Company, Mr. Africa had 23 years

of experience in various marketing, advertising and brand management roles at Pepsico –

Malaysia/Singapore from 2006-2012, Pepsico Asia Pacific from 2004 to 2005, Proctor &

Gamble Asia from 1998 to 2001, Proctor & Gamble Taiwan from 1996 to 1998 and Proctor &

Gamble Philippines from 1991 to 1996. Mr. Africa graduated from Ateneo de Manila

University in 1991 with a degree in Bachelor of Science in Management Engineering.

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Rex Agarrado was appointed as Vice President – General Manager (Canned Meat) of the

Company on October 28, 2013. He joined the Century Group in 1998 and served seven years

as General Manager of PMCI. Prior to the Century Group, Mr. Agarrado had 18 years of

experience in various technical and manufacturing roles at San Miguel, RFM, Quaker and

California Manufacturing Corporation. He also serves as Director of the Philippine

Association of Meat Processors, Inc., for which he was previously President. Mr. Agarrado

graduated from the University of Philippines Los Baños with a Bachelor of Science in Food

Technology and he completed the Management Development Program from the Asian

Institute of Management.

Teddy Kho was appointed as Vice President – General Manager (Tuna Export) of the

Company on October 28, 2013. He served three years as Business Unit Head of GTC. Prior to

GTC, Mr. Kho had 21 years of experience in various management, operations and technical

roles including President and General Manager of San Miguel Foods Vietnam and Plant

Manager of San Miguel Hoecheong. Mr. Kho graduated from Adamson University with a

Bachelor of Science in Chemical Engineering and completed the Management Development

Program from the Asian Institute of Management.

Ronald Agoncillo was appointed as Vice President – Head of Sales, Trade Marketing and

Demand Planning of the Company on October 28, 2013. He joined the Century Group in

2008 and served four years as Head of Sales Division. Prior to the Century Group, he had

eight years of experience in sales management roles at National Sales and Cadbury. He also

has experience in various customer development roles at Unilever Indonesia and Philippines

and engineering and logistics roles at 3M, Shell and San Miguel. Mr. Agoncillo graduated

from De La Salle University with a Bachelor of Science in Industrial Management

Engineering.

Cezar Cruz, Jr. was appointed as Vice President – General Manager (Canned and Processed

Fish, Sardines Division) of the Company on October 28, 2013. He joined the Century Group

in 2006 and served 3 years as Business Unit Head – Sardines Business. Prior to the Century

Group, he had 29 years of experience in various technical, operations and business

development roles at San Miguel and RFM. He currently serves as the President of the

Sardine Association of the Philippines. Mr. Cruz Jr. graduated from the University of the

Philippines with a Bachelor of Science in Electrical Engineering.

Emerson Villarante was appointed as Vice President – Human Resources and Corporate of

Affairs of the Company on October 28, 2013. He served seven years as Head of Human

Resources and Organizational Development at the Century Group. Prior to the Century

Group, he held various roles in human resources management including Vice President of

Human Resources for Bechtel and Alan. Mr. Villarante graduated from the University of

Santo Tomas with a Bachelor of Arts in Behavioral Science and holds a Masters in

Management from the Asian Institute of Management.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS OF DIRECTORS AND

EXECUTIVE OFFICERS

To the best of the Company‘s knowledge and belief and after due inquiry, none of the

Company‘s directors, nominees for election as director, or executive officer have in the five-

year period prior to the date of this Prospectus: (1) had any petition filed by or against any

business of which such person was a general partner or executive officer either at the time of

the bankruptcy or within a two-year period of that time; (2) have been convicted by final

judgment in a criminal proceeding, domestic or foreign, or have been subjected to a pending

judicial proceeding of a criminal nature, domestic or foreign, excluding traffic violations and

189

other minor offenses; (3) have been the subject of any order, judgment, or decree, not

subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic

or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting

their involvement in any type of business, securities, commodities or banking activities; or (4)

have been found by a domestic or foreign court of competent jurisdiction (in a civil action),

the SEC or comparable foreign body, or a domestic or foreign exchange or other organized

trading market or self-regulatory organization, to have violated a securities or commodities

law or regulation, such judgment having not been reversed, suspended, or vacated.

CORPORATE GOVERNANCE

The Board approved the Company‘s Corporate Governance Manual (the ―Manual‖) during

the meeting of the Board of Directors on November 25, 2013. The Manual assists the

Company in monitoring and assessing its level of compliance with leading practices on good

corporate governance as specified in pertinent SEC circulars. Aside from establishing

specialized committees to aid in complying with the principles of good corporate governance,

the Manual also outlines specific investor‘s rights and protections and enumerates particular

duties expected from the Board members, officers and employees. It also features a disclosure

system which highlights adherence to the principles of transparency, accountability and

fairness. A compliance officer is tasked with the formulation of specific measures to

determine the level of compliance with the Manual by the Board members, officers and

employees. There has been no deviation from the Manual‘s standards as of the date of this

Prospectus.

COMMITTEES OF THE BOARD

The Board created and appointed Board members to each of the committees set forth below.

Each member of the respective committees named below holds office as of the date of this

Prospectus and will serve until his successor is elected and qualified.

Audit Committee

The Company‘s Audit Committee is responsible for assisting its Board in its fiduciary

responsibilities by providing an independent and objective assurance to its management and

shareholders of the continuous improvement of its risk management systems, business

operations and the proper safeguarding and use of its resources and assets. The Audit

Committee provides a general evaluation of and assistance in the overall improvement of its

risk management, control and governance processes. The Audit Committee must comprise at

least three members of the Board, who shall preferably have accounting and finance

backgrounds, at least one of whom shall be an independent director and another with audit

experience. The Audit Committee chairman shall be an independent director.

The Audit Committee has the following functions:

(A) provide oversight of management‘s activities in managing credit, market, liquidity,

operational, legal and other risks of the Company. This function shall include regular

receipt from management of information on risk exposures and risk management

activities;

(B) perform oversight functions over the Company‘s internal and external auditors. It

should ensure that the internal and external auditors act independent from each other

and that both auditors are given unrestricted access to all records, properties and

personnel to enable them to perform their respective audit functions;

190

(C) review the annual internal audit plan to ensure its conformity with the objectives of

the Company. The plan shall include the audit scope, resources and budget necessary

to implement it;

(D) prior to the commencement of an audit, discuss with the external auditor the nature,

scope and expenses of the audit, and ensure proper coordination if more than one

audit firm is involved in the activity to secure proper coverage and minimize

duplication of efforts;

(E) organize an internal audit department, and consider, when necessary and desirable,

the appointment of an independent internal auditor and the terms and conditions of its

engagement and removal;

(F) monitor and evaluate the adequacy and effectiveness of the Company‘s internal

control system including financial reporting control and information technology

security;

(G) review the reports submitted by the internal and external auditors;

(H) review the quarterly, half-year and annual financial statements before their

submission to the Board, with particular focus on the following matters: any

change(s) in accounting policies and practices; major judgment areas; significant

adjustments resulting from the audit; going concern assumptions; compliance with

accounting standards; and compliance with tax, legal and regulatory requirements;

(I) coordinate, monitor and facilitate compliance with laws, rules and regulations;

(J) evaluate and determine the non-audit work, if any, of the external auditor, and review

periodically the non-audit fee paid to the external auditor in relation to its significance

to the total annual income of the external auditor and to the Company‘s overall

consultancy expenses. The Audit Committee shall disallow any non-audit work that

will conflict with its duties as an external auditor or may pose a threat to its

independence. The non-audit work, if allowed, should be disclosed in the Company‘s

annual report; and

(K) establish and identify the reporting line of the Company‘s internal auditor to enable

him to properly fulfill his duties and responsibilities. He shall functionally report

directly to the Audit Committee.

The Audit Committee shall ensure that the Company‘s internal auditor in the performance of

its work shall be free from interference by outside parties.

In addition, the Audit Committee shall be tasked to prepare the Audit Committee Charter (the

―Charter‖) which shall contain, among others, its purpose, membership, structure, operations,

reporting process, resources and other relevant information. The Charter shall specify how the

Audit Committee shall perform its oversight functions as prescribed by the Revised Code of

Corporate Governance (the ―Code‖).

In the preparation of the Charter, the Audit Committee shall strictly observe the requirements

of the Code and other applicable laws and regulations in the Philippines, and shall align the

Charter with the best practices and standards as provided for in any or combination of the

reference guides indicated in SEC Memorandum Circular No. 4, Series of 2012.

191

Upon approval by the Audit Committee of the Audit Committee Charter, the same shall be

submitted for the approval of the Board.

Within one year from listing date, the Audit Committee shall assess its performance, as

prescribed by and pursuant to SEC Memorandum Circular No. 4, Series of 2012.

Remuneration and Compensation Committee

The Remuneration and Compensation Committee comprises at least three members, one of

whom shall be an independent director. It ensures that the compensation policies and

practices are consistent with the corporate culture, strategy and business environment under

which the Company operates. It is responsible for objectively recommending a formal and

transparent framework of remuneration and evaluation for the members of the Board and the

Company‘s key executives to enable the directors and officers to run the Company

successfully. It evaluates and recommends to the Board incentives and other equity-based

plans designed to attract and retain qualified and competent individuals.

Nomination Committee

The Company‘s Nomination Committee is responsible for providing its shareholders with an

independent and objective evaluation and assurance that the membership of the Board is

competent and will foster the Company‘s long-term success and secure its competitiveness.

The Nomination Committee must comprise at least three members, one of whom should be an

independent director. The Nomination Committee reports directly to the Board and is required

to meet at least two times a year.

Executive Committee

The Corporate Governance Manual provides for the creation of an executive committee to be

composed of five members appointed by the Board from time to time. Under the Manual, the

Chairman of the Board shall act as ex-officio Chairman of the Executive Committee, the

President as Vice-Chairman, and three other members shall sit as members of the committee.

The Executive Committee shall have the following powers and functions: (i) to advise and

assist the officers of the Company in all matters concerning its interest and the management

of its business, and (ii) whenever the Board is not in session, to exercise all the powers of the

Board which may be delegated to it by the Board.

EVALUATION SYSTEM AND COMPLIANCE

As part of its system for monitoring and assessing compliance with the Manual and the SEC

Code of Corporate Governance, each committee is required to report regularly to the Board of

Directors and the Manual is subject to quarterly review. The Compliance Officer is

responsible for determining and measuring compliance with the Manual and the SEC Code of

Corporate Governance. Any violation of the Company‘s Corporate Governance Manual shall

subject the responsible officer or employee to the following penalties:

For a first violation, the offender shall be reprimanded.

For a second violation, suspension from office shall be imposed on the offender. The

duration of suspension shall depend on the gravity of the violation. This penalty shall

not apply to the members of the Board of Directors.

192

For a third violation, the maximum penalty of removal from office shall be imposed

on the offender. In case the offender is a member of the Board of Directors, the

provisions of Section 28 of the Philippine Corporation Code shall be observed.

EXECUTIVE COMPENSATION SUMMARY

Compensation

As a newly incorporated company, CNPF has not yet paid or accrued compensation during

the last two calendar years. For this calendar year, CNPF estimates that the total

compensation to be paid to its top five highly compensated executive officers and to its

officers and directors as a group unnamed will be as follows:

Name & Position Year

Estimated

Salary Estimated Bonus

₱ millions

Christopher T. Po (President & CEO) 2014 31.8 5.6

Teodoro T. Po (EVP & COO)

Oscar A. Pobre (CFO & CIO)

Rex E. Agarrado (VP & GM)

Gregory H. Banzon (VP & GM)

Aggregate compensation paid to all officers

and directors as a group unnamed 2014 41.8 7.4

Standard Arrangements

Other than payment of reasonable per diem as may be determined by the Board for every

meeting, there are no standard arrangements pursuant to which directors of the Company are

compensated, or were compensated, directly or indirectly, for any services provided as a

director and for their committee participation or special assignments for 2011 up to the

present.

Other Arrangements

There are no other arrangements pursuant to which any director of the Company was

compensated, or to be compensated, directly or indirectly, during 2013 for any service

provided as a director.

FAMILY RELATIONSHIPS

Mr. Ricardo S. Po, Sr., Chairman Emeritus, is the father of Ricardo T. Po, Jr., Vice Chairman;

Christopher T. Po, Chairman, President and Chief Executive Officer; Teodoro T. Po, Vice

Chairman, Executive Vice President, and Chief Operating Officer; and Leonardo T. Po,

Treasurer.

Teodoro T. Po, Vice Chairman, Executive Vice President, and Chief Operating Officer, is the

brother-in-law of Manuel Z. Gonzalez, Corporate Secretary.

Aside from the foregoing, there are no family relationships between any Directors and any

members of the Company‘s senior management as of the date of this Prospectus.

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EMPLOYMENT CONTRACTS

As of the date of this Prospectus, the Company has no special employment contracts with the

named executive officers.

WARRANTS AND OPTIONS OUTSTANDING

As of the date of this Prospectus, there are no outstanding warrants or options held by the

President, the CEO, the named executive officers, and all officers and directors as a group.

SIGNIFICANT EMPLOYEES

There is no one particular employee, not an executive officer, who is expected to make a

significant contribution to the business of the Company on his own.

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PRINCIPAL SHAREHOLDERS

SHAREHOLDERS

The following table sets forth the largest shareholders of the Company as of the date of this

Prospectus.

Name of Shareholder

Number of

Common Shares

held prior to the

Offer

% of total

outstanding

Common Shares

prior to the offer

Century Canning Corporation 1,999,999,993 100%

Ricardo S. Po, Sr. 1 nil

Ricardo T. Po, Jr. 1 nil

Christopher T. Po 1 nil

Teodoro T. Po 1 nil

Leonardo T. Po 1 nil

Johnip Cua 1 nil

Fernan Lukban 1 nil

Century Canning Corporation is the Company‘s largest shareholder and, as of the date of this

Prospectus, directly owns 1,999,999,993 Common Shares, or approximately 100% of the

Company‘s issued and outstanding share capital. As of the date of this Prospectus, the

Company has a total of eight shareholders, with the Po family beneficially owning

approximately 100% of the issued common share capital of the Company.

The PSE rules require an applicant company to cause its existing shareholders owning at least

10% of the outstanding shares of the Company not to sell, assign or in any manner dispose of

their shares for a period of 365 days after the listing of the shares on the PSE. In addition, if

there is any issuance of shares or securities (i.e., private placements, asset for shares swap or a

similar transaction) or instruments which lead to issuance of shares or securities (i.e.,

convertible bonds, warrants or a similar instrument) done and fully paid for within 180 days

prior to the start of the offer period, and the transaction price is lower than that of the offer

price in the initial public offering, all shares or securities availed of shall be subject to a lock-

up period of at least 365 days from full payment of the aforesaid shares or securities. To

implement this lock-up requirement, the PSE requires the applicant company to lodge the

shares with the PDTC through a PCD participant for the electronic lock-up of the shares or to

enter into an escrow agreement with the trust department or custodian unit of an independent

and reputable financial institution.

The following shareholder is covered by the 365-day lock-up requirement, from listing of the

Offer Shares:

Name of Shareholder Number of Common Shares held

% of total outstanding Common

Shares prior to the offer

Century Canning Corporation 1,999,999,993 100%

The following shareholders are covered by the 365-day lock-up requirement, from full

payment of their shares:

Name of Shareholder Number of Common Shares held

% of total outstanding Common

Shares prior to the offer

Johnip Cua 1 nil

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Fernan Lukban 1 nil

SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS

The table below sets forth the security ownership of certain record and beneficial owners of

more than 5% of the Company‘s voting securities as of the date of this Prospectus

Name and Address

of Record Owners

Name of Beneficial

Owner and

Relationship with

Record Owner Citizenship

No. of Common

Shares Held

% of Total

Outstanding

Shares

Century Canning

Corporation

Century Canning

Corporation

Filipino 1,999,999,993 100%

As of the date of this Prospectus, the Company does not have any foreign shareholders.

SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT

The following table sets forth the ownership of directors and management of the Company‘s

Common Shares as of the date of this Prospectus.

Title of Class

Name of Beneficial

Owner

Amount and Nature of

Beneficial Ownership Citizenship

% of Total

Outstanding

Shares

Common Ricardo S. Po, Sr. 1 qualifying share Filipino Nil

Common Ricardo T. Po, Jr. 1 qualifying share Filipino Nil

Common Christopher T. Po 1 qualifying share Filipino Nil

Common Teodoro T. Po 1 qualifying share Filipino Nil

Common Leonardo T. Po 1 qualifying share Filipino Nil

Common Johnip Cua 1 qualifying share Filipino Nil

Common Fernan Lukban 1 qualifying share Filipino Nil

Total: 7 shares

The chart below shows the dilution of the Company‘s principal shareholders as a result of the

Offer.

Name of Shareholder

Number of subscribed

Common Shares

% of total

shareholding before

the Offer

% of total

shareholding after

the Offer

Century Canning Corporation 1,999,999,993 100% 89.7%

Total ......................................................... 1,999,999,993 100% 89.7%

Voting Trust Holders of 5% or more

There were no persons holding more than 5% of a class of shares of the Company under a

voting trust or similar agreement as of the date of this Prospectus.

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CHANGE IN CONTROL

As of the date of this Prospectus, there are no arrangements which may result in a change in

control of the Company.

197

MATERIAL CONTRACTS

Trademark Licensing Agreement

The Company licenses the trademarks being used in its business from related parties such as

The Pacific Meat Company, Inc., Centennial Global and Mr. Ricardo S. Po, Sr. These

Trademark Licensing Agreements are valid for an initial period of 10 years effective from

January 1, 2014, with the terms and conditions being re-negotiable after the fifth year. Under

the agreements, CNPF pays the licensor a nominal fee of US$100 as a licensing fee and an

annual minimum royalty fee of US$100 per product sold under the brand.

Distribution Agreements

The Company appoints exclusive distributors to sell its products in designated regions

throughout the Philippines. Distributorship agreements are entered into with third party

distributors generally for an initial term of one year, which is automatically renewed on a

yearly basis, unless terminated in accordance with the relevant agreement. The distributors

are paid distribution fees in an amount equivalent to 6% to 8% of the list price of the goods

sold, depending on the type of products and the distributor involved.

Lease Agreements

The Company leases its 1,610 sq. m. head office in the Centerpoint Building, Ortigas Center,

Pasig City from Century Canning Corporation. The lease is for a term of 10 years effective

from January 1, 2014, with the Company paying a monthly rental of ₱402,500, subject to

escalation at the rate of 5% every two years. An additional 340 sq. m. office space in the same

building is also leased from Rian Realty Corporation with a monthly rental of ₱170,000,

subject to escalation at the rate of 5% every two years.

In addition, the Company also leases the following properties for its production facilities:

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

Corporation for its milk processing plant, warehouse and research & development.

Monthly rental is ₱1,021,500, subject to a 5% escalation every two years; and

a 30,078 sq. m. property in Talisayan, Zamboanga from Rian Realty for the sardines

production. Monthly rental is ₱96,000 with a 5% escalation every two years.

Endorsement and Advertising Contracts

In the course of creating brand awareness for its products, the Company has over the years

entered into contracts with several talents, including local celebrities, to endorse its products.

These contracts have varied terms and different considerations depending on the scope of

work needed.

Short-term Loans

In the course of conducting its business, the Company has, and will continue, to incur short-

term 60-90 days revolving credit lines from several banking institutions at an average interest

rate of 2.5% to 3.5% per annum. Proceeds of these loans are used for working capital

purposes.

198

RELATED PARTY TRANSACTIONS

The Company and its subsidiaries, in their ordinary course of business, engage in transactions

with affiliates. The Company‘s policy with respect to related party transactions is to ensure

that these transactions are entered into on terms comparable to those available from unrelated

third parties.

The Company has the following major transactions with related parties.

The Company is the licensee of various brand names used in its business and

operations. The licensor are several related companies beneficially owned and

controlled by the Po family.

The Company leases office spaces (the fifth, seventh, eighth and nineteenth floors of

the Centerpoint Building in Pasig City, Metro Manila) from CCC. The Company also

leases a 30,078 sq. m. property in Zamboanga from Rian Realty, a 52,628 sq. m.

property in General Santos City from CCC, and a 30,644 sq. m. property in Taguig

from CCC. The Company subleases 10,000 sq. m. of this property in Taguig for its

dairy operations.

In the normal course of business, the Company transacts with companies that are considered

related parties. A summary of the Company‘s transactions and outstanding balances with

related parties as at and for the period ended December 31, 2013 is set out below.

Category

Notes Amounts

Outstanding

Receivable /

(Payable)

Terms

Condition

in ₱

Parent

CCC

Acquisition of

assets a 80,521,529 -

Payable on

demand; Settled in

cash

Non-interest

bearing No

impairment

Acquisition of

GTC and SMDC

Payable on

demand;

Non-interest

bearing

b 1,194,615,640 - Settled in cash No impairment

Rental income c 5,551,151 6,217,289

Payable on

demand; Settled in

cash

Non-interest

bearing

Unsecured

Fellow Subsidiary

CSC

Acquisition of

assets a 73,894,637 -

Payable on

demand; Settled in

cash

Non-interest

bearing No

impairment

Rental income c 4,443,787 3,491,483

Payable on

demand; Settled in

cash

Non-interest

bearing

Unsecured

PMCI

Acquisition of

assets a 75,644,296 -

Payable on

demand; Settled in

cash

Non-interest

bearing No

impairment

199

Rental income c 2,117,395 4,977,042

Payable on

demand; Settled in

cash

Non-interest

bearing

Unsecured

a. As disclosed in Notes 1 and 9, the Company purchased all rights, title and interest in and

to the assets used in the ordinary course of business of CCC, PMCI and CSC such as

office, furniture, machinery, equipment and software, transportation and delivery

equipment.

b. As disclosed in Notes 1 and 8, the Company acquired from CCC, any and all rights, title

and interest of CCC in GTC and SMDC.

c. On October 31, 2013, the Company entered into a lease agreement with CCC, CSC and

PMCI for the rental of the Company‘s equipment for two months from November 1, 2013

to December 31, 2013 with a total rental fee of ₱13,112,333. The Company‘s outstanding

receivables include VAT on the rental income.

The Company or its related parties have no material transaction with parties that fall outside

the definition ―related parties‖ under SFA/IAS No. 24 that are not available for other, more

clearly independent parties on an arm‘s length basis.

200

DESCRIPTION OF THE SHARES

The shares to be offered shall be Common Shares of the Company.

Pursuant to its amended articles of incorporation, the Company has an authorized amount of

capital stock of ₱6,000,000,000 divided into 6,000,000,000 Common Shares with a par value

of ₱1.00 per share, of which 2,000,000,000 Common Shares are outstanding as of the date of

this Prospectus. The Offer Shares shall be Common Shares of the Company.

The Offer Shares shall be offered at a price of ₱13.75 per Offer Share (the ―Offer Price‖). The

determination of the Offer Price is further discussed on page 64 of this Prospectus. A total of

2,229,654,404 Common Shares will be outstanding after the Offer. The Offer Shares will

comprise 10.30% of the outstanding Common Shares after the Offer.

Objects and Purposes

The Company has been organized primarily to engage in the business of manufacturing, and

its articles of incorporation state that its primary purpose is to buy and sell on a wholesale

basis, process, preserve, can, pack, manufacture, produce, distribute, import and export, and

deal in all kinds of food products, such as but not limited to fish, seafood, and other marine

products, cattle, hog and other animals and animal products, fruits, vegetables and other

agricultural crops and produce of land, including by-products thereof, and for such purpose,

to acquire, construct, own, lease, charter, establish, maintain and operate canneries, factories,

plants, vessels, cold storage, refrigerators, refrigerated vehicles and vessels, warehouses, and

other machineries, equipment, apparatus and appliance as may be required in the conduct of

its business .

Under Philippine law, a corporation may invest its funds in any other corporation or business

or for any purpose other than the primary purpose for which it was organized when approved

by a majority of the board of directors of such corporation and ratified by the shareholders

representing at least two-thirds of the outstanding capital shares, at a shareholders‘ meeting

duly called for the purpose. However, where the investment by the corporation is reasonably

necessary to accomplish its primary purpose, the approval of the shareholders shall not be

necessary.

Share Capital

A Philippine corporation may issue common or preferred shares, or such other classes of

shares with such rights, privileges or restrictions as may be provided for in the articles of

incorporation and by-laws of the corporation.

Under Philippine law, the shares of a corporation may either be with or without a par value.

All of the Common Shares currently issued have a par value of ₱1.00 per share. In the case of

par value shares, where a corporation issues shares at a price above par, whether for cash or

otherwise, the amount by which the subscription price exceeds the par value is credited to an

account designated as additional paid-in capital or paid-in surplus.

Subject to approval by the SEC, a corporation may increase or decrease its authorized capital

shares, provided that the change is approved by a majority of the board of directors of such

corporation and shareholders representing at least two-thirds of the issued and outstanding

capital shares of the corporation voting at a shareholders‘ meeting duly called for the purpose.

201

A corporation is empowered to acquire its own shares for a legitimate corporate purpose,

provided that the corporation has unrestricted retained earnings or surplus profits sufficient to

pay for the shares to be acquired. Examples of instances in which the corporation is

empowered to purchase its own shares are: when the elimination of fractional shares arising

out of share dividends is necessary or desirable, the purchase of shares of dissenting

shareholders exercising their appraisal right (as discussed below) and the collection or

compromise of an indebtedness arising out of an unpaid subscription. When a corporation

repurchases its own shares, the shares become treasury shares, which may be resold at a price

fixed by the board of directors of such corporation.

Voting Rights

Under the Company‘s amended articles of incorporation, the owners or holders of Common

Shares have full voting rights. However, the Philippine Corporation Code provides that voting

rights cannot be exercised with respect to shares declared by the board of directors as

delinquent, treasury shares, or if the shareholder has elected to exercise his right of appraisal

as discussed below.

Pre-Emptive Rights

The Philippine Corporation Code confers pre-emptive rights on the existing shareholders of a

Philippine corporation which entitle such shareholders to subscribe to all issues or other

dispositions of shares of any class by the corporation in proportion to their respective

shareholdings, regardless of whether the shares proposed to be issued or otherwise disposed

of are identical to the shares held. A Philippine corporation may, however, provide for the

denial of these pre-emptive rights in its articles of incorporation. Likewise, shareholders who

are entitled to such pre-emptive rights may waive the same through a written instrument to

that effect.

The amended articles of incorporation of the Company deny the pre-emptive rights of its

shareholders to subscribe to any or all dispositions of any class of shares.

Derivative Rights

Philippine law recognizes the right of a shareholder to institute proceedings on behalf of the

corporation in a derivative action in circumstances where the corporation itself is unable or

unwilling to institute the necessary proceedings to redress wrongs committed against the

corporation or to vindicate corporate rights as, for example, where the directors of the

corporation themselves are the malefactors.

Appraisal Rights

The Philippine Corporation Code grants a shareholder a right of appraisal and demand

payment of the fair value of his shares in certain circumstances where he has dissented and

voted against a proposed corporate action, including:

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

affecting the rights attached to his shares or of authorizing preferences in any respect

superior to those of outstanding shares of any class;

the extension of the term of corporate existence;

202

the sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or

substantially all the assets of the corporation;

a merger or consolidation; and

investment by the corporation of funds in any other corporation or business or for any

purpose other than the primary purpose for which it was organized.

In any of these circumstances, the dissenting shareholder may require the corporation to

purchase its shares at a fair value, which, in default of agreement, is determined by three

disinterested persons, one of whom shall be named by the shareholder, one by the

corporation, and the third by the two thus chosen. Regional Trial Courts will, in the event of a

dispute, determine any question about whether a dissenting shareholder is entitled to this right

of appraisal. From the time the shareholder makes a demand for payment until the corporation

purchases such shares, all rights accruing on the shares, including voting and dividend rights,

shall be suspended, except the right of the shareholder to receive the fair value of such shares.

No payment shall be made to any dissenting shareholder unless the corporation has

unrestricted retained earnings sufficient to support the purchase of the shares of the dissenting

shareholders.

Board of Directors

Unless otherwise provided by law or in the articles of incorporation, the corporate powers of

the Company are exercised, its business is conducted, and its property is controlled by the

Board. Pursuant to its articles of incorporation, as amended, the Company shall have seven

Directors, two of whom are independent Directors within the meaning set forth in Section 38

of the SRC. The Board shall be elected during each regular meeting of shareholders, at which

shareholders representing at least a majority of the issued and outstanding capital shares of

the Company are present, either in person or by proxy.

Directors may only act collectively; individual directors have no power as such. Four

directors, which is a majority of the Directors, constitute a quorum for the transaction of

corporate business. In general, every decision of a majority of the quorum duly assembled as

a Board is valid as a corporate act.

Any vacancy created by the death, resignation or removal of a director prior to expiration of

such director‘s term shall be filled by a vote of at least a majority of the remaining members

of the Board, if still constituting a quorum, Otherwise, the vacancy must be filled by the

shareholders at a meeting duly called for the purpose. Any director elected in this manner by

the Board shall serve only for the unexpired term of the director whom such director replaces

and until his successor is duly elected and qualified.

Shareholders’ Meetings

Annual or Regular Shareholders’ Meetings

The Philippine Corporation Code requires all Philippine corporations to hold an annual

meeting of shareholders for corporate purposes including the election of directors. The by-

laws of the Company provide for annual meetings every June 30 of each year to be held at the

principal office of the Company and at such hour as specified in the notice.

203

Special Shareholders’ Meeting

Special meetings of shareholders, for any purpose or purposes, may at any time be called by

either the President or a majority of the Board of Directors, whenever he or they shall deem it

necessary.

Notice of Shareholders’ Meeting

Whenever shareholders are required or permitted to take any action at a meeting, a written

notice of the meeting shall be given which shall state the place, date and time of the meeting,

and the purpose or purposes for which the meeting is called. The Company by-laws provide

that notices of the time and place of the annual and special meetings of the shareholders shall

be given either by mailing the same enclosed in a postage-prepaid envelope, addressed to

each shareholder of record at the address left by such shareholder with the Secretary of the

Corporation, or at his last known post-office address, or by delivering the same to him in

person, at least one week before the date set for such meeting. Notice to any special meeting

must state, among others, the matters to be taken up in the said meeting, and no other business

shall be transacted at such meeting except by consent of all the shareholders present, entitled

to vote. No notice of meeting need be published in any newspaper, except when necessary to

comply with the special requirements of the Philippine Corporation Code. Shareholders

entitled to vote may, by written consent, waive notice of the time, place and purpose of any

meeting of shareholders and any action taken at such meeting pursuant to such waiver shall be

valid and binding. When the meeting of the shareholders is adjourned to another time or

place, notice of the adjourned meeting need not be provided so long as the time and place to

which the meeting is adjourned are announced at the meeting at which the adjournment is

taken. At the reconvened meeting, any business may be transacted that might have been

transacted on the original date of the meeting.

Quorum

Unless otherwise provided by an existing shareholders‘ agreement or by law, in all regular or

special meeting of shareholders, a majority of the outstanding capital shares must be present

or represented in order to constitute a quorum, except in those cases where the Philippine

Corporation Code provides a greater percentage vis-à-vis the total outstanding capital shares.

If no quorum is constituted, the meeting shall be adjourned until the requisite amount of

shares shall be presented.

Meetings of the shareholders shall be presided over by the Chairman of the Board, or, in his

absence, by absence chairman to be chosen by the Board of Directors. The Corporate

Secretary, or, in his absence, any person appointed by the chairman of the meeting, shall act

as secretary of such meeting.

Voting

At all meetings of shareholders, a holder of Common Shares may vote in person or by proxy,

for each share held by such shareholder. Each Common Share is equal in all respects to every

other Common Share. All the Common Shares have full voting and dividend rights.

Fixing Record Dates

Under existing SEC rules, cash dividends declared by corporations whose shares are listed on

the PSE shall have a record date which shall not be less than 10 or more than 30 days from

the date of declaration. With respect to share dividends, the record date shall not be less than

204

10 or more than 30 days from the date of shareholder approval; provided, however, that the

record date set shall not be less than 10 trading days from receipt by the PSE of the notice of

declaration of share dividends. In the event that share dividends are declared in connection

with an increase in the authorized capital shares, the corresponding record date shall be fixed

by the SEC.

Matters Pertaining to Proxies

Shareholders may vote at all meetings the number of shares registered in their respective

names, either in person or by proxy duly given in writing and duly presented to the Corporate

Secretary at least 10 days before the meeting. Unless otherwise provided in the proxy, it shall

be valid only for the meeting at which it has been presented to the Corporate Secretary.

Proxies should comply with the relevant provisions of the Philippine Corporation Code, the

SRC, the Implementing Rules and Regulations of the SRC (as amended), and regulations

issued by the SEC.

Dividends

The Common Shares have full dividend rights. Dividends on the Company‘s Common

Shares, if any, are paid in accordance with Philippine law. Dividends are payable to all

shareholders on the basis of outstanding Common Shares held by them, each Common Share

being entitled to the same unit of dividend as any other Common Share. Dividends are

payable to shareholders whose names are recorded in the stock and transfer book as of the

record date fixed by the Company‘s Board of Directors. The PSE has an established

mechanism for distribution of dividends to beneficial owners of Common Shares which are

traded through the PSE which are lodged with the PCD Nominee as required for scripless

trading.

Under Philippine law, a corporation can only declare dividends to the extent that it has

unrestricted retained earnings that represent the undistributed earnings of the corporation

which have not been allocated for any managerial, contractual or legal purposes and which

are free for distribution to the shareholders as dividends. A corporation may pay dividends in

cash, by the distribution of property or by the issuance of shares. Dividends may be declared

by the board of directors except for share dividends which may only be declared and paid

with the approval of shareholders representing at least two-thirds of the issued and

outstanding capital shares of the corporation voting at a shareholders‘ meeting duly called for

the purpose.

The Philippine Corporation Code generally requires a Philippine corporation with retained

earnings in excess of 100% of its paid-in capital to declare and distribute as dividends the

amount of such surplus. However, a Philippine corporation may retain all or any portion of

such surplus in the following cases: (1) when justified by definite expansion plans approved

by the board of directors of the corporation; (2) when the required consent of any financing

institution or creditor to such distribution has not been secured; (3) when retention is

necessary under special circumstances, such as when there is a need for special reserves for

probable contingencies; or (4) when the non-distribution of dividends is consistent with the

policy or requirement of a Government office. Philippine corporations whose securities are

listed on any shares exchange are required to maintain and distribute an equitable balance of

cash and share dividends, consistent with the needs of shareholders and the demands for

growth or expansion of the business.

205

The Company has approved a dividend policy of maintaining an annual cash and/or share

dividend pay-out of up to 30% of its net profit from the preceding year, subject to the

requirements of applicable laws and regulations, the terms and conditions of its outstanding

bonds and loan facilities, and the absence of circumstances that may restrict the payment of

such dividends, such as where the Company undertakes major projects and developments.

Dividends must be approved by the Board and may be declared only from the unrestricted

retained earnings of the Company. The Company‘s Board of Directors 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.

Preferred shares may be issued from time to time in one or more series as the Board of

Directors, through a resolution, may determine, and authority has been expressly granted to

the Board of Directors to establish and designate each particular series of preferred shares, to

fix the number of shares to be included in each of such series, and to determine the dividend

rate, price, amount of participation, and other terms and conditions of each such shares, which

resolution(s) shall thereupon be deemed a part of these articles of incorporation.

Transfer of Shares and Share Register

All transfers of shares on the PSE shall be effected by means of a book-entry system. Under

the book-entry system of trading and settlement, a registered shareholder shall transfer legal

title over the shares to a nominee, but retains beneficial ownership over the shares. The

transfer of legal title is done by surrendering the stock certificate representing the shares to

participants of the PDTC System (i.e., brokers and custodian banks) that, in turn, lodge the

same with the PCD Nominee Corporation, a corporation wholly-owned by the PDTC (the

―PCD Nominee‖). A shareholder may request upliftment of the shares from the PDTC, in

which case a stock certificate will be issued to the shareholder and the shares registered in the

shareholder‘s name in the books of the Company. See ―The Philippine Stock Market‖.

Philippine law does not require transfers of the Common Shares to be effected on the PSE,

but any off-exchange transfers will subject the transferor to a capital gains tax that may be

significantly greater than the share transfer tax applicable to transfers effected on the PSE.

See ―Philippine Taxation‖. All transfers of shares on the PSE must be effected through a

licensed stockbroker in the Philippines.

There is no provision in the Company‘s Articles of Incorporation and By-Laws, as amended,

which may delay, deter, or prevent a change in control in the Company.

Issues of Shares

Subject to otherwise applicable limitations, the Company may issue additional Common

Shares to any person for consideration deemed fair by the Board, provided that such

consideration shall not be less than the par value of the issued Common Shares. No share

certificates shall be issued to a subscriber until the full amount of the subscription together

with interest and expenses (in case of delinquent Common Shares) has been paid and proof of

payment of the applicable taxes shall have been submitted to the Company‘s Corporate

Secretary. Under the PSE Rules, only fully-paid shares may be listed on the PSE.

206

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

constituting an exempt transaction)

On February 8, 2014, Century Canning Corporation subscribed for an additional 500,000,000

Common Shares at the aggregate subscription price of ₱500,000,000.00, thereby increasing

its shareholdings in the Company from 1,499,999,993 Common Shares to 1,999,999,993

Common Shares. No commission or other remuneration was paid or given directly or

indirectly in connection with such subscription. Other than as described herein, there have

been no sales of unregistered or exempt securities, or any issuances of securities constituting

an exempt transaction.

The sale of capital stock of a corporation to its own stockholders exclusively, where no

commission or other remuneration is paid or given directly or indirectly in connection with

the sale of such capital stock is a transaction exempt from registration under Section 10.1(e)

of the SRC, and no notice or confirmation of exemption is required to be filed for such

transaction.

Share Certificates

Certificates representing the Common Shares will be issued in such denominations as

shareholders may request, except that certificates will not be issued for fractional shares.

Shareholders wishing to split their certificates may do so upon application to the Company‘s

share transfer agent, BDO Unibank, Inc. – Trust Banking Group, which will maintain the

share register. Common Shares may also be lodged and maintained under the book-entry

system of the PDTC. See ―The Philippine Stock Market‖.

Fundamental Matters

The Philippine Corporation Code provides that certain significant acts may only be

implemented with shareholders‘ approval. The following require the approval of shareholders

representing at least two-thirds of the issued and outstanding capital shares (including non-

voting preferred shares) of the corporation in a meeting duly called for the purpose:

amendment of the articles of incorporation;

removal of directors;

sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part

of the assets of the corporation;

investment of corporate funds in any other corporation or business or for any purpose

other than the primary purpose for which the corporation was organized;

declaration or issuance of share dividends;

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

new by-laws;

merger or consolidation;

dissolution;

an increase or decrease in capital shares;

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

extension or shortening of the corporate term;

creation or increase of bonded indebtedness; and

207

management contracts with related parties;

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

Philippine corporation, including the non-voting preferred shares, is required for the adoption

or amendment of the by-laws of such corporation.

Accounting and Auditing Requirements

Philippine stock corporations are required to file copies of their annual financial statements

with the SEC. In addition, public corporations are required to file quarterly financial

statements (for the first three quarters) with the SEC. Those corporations whose shares are

listed on the PSE are additionally required to file said quarterly and annual financial

statements with the PSE. Shareholders are entitled to request copies of the most recent

financial statements of the corporation which include a statement of financial position as of

the end of the most recent tax year and a profit and loss statement for that year. Shareholders

are also entitled to inspect and examine the books and records that the corporation is required

by law to maintain.

The Board is required to present to shareholders at every annual meeting a financial report of

the operations of the Company for the preceding year. This report is required to include

audited financial statements.

208

THE PHILIPPINE STOCK MARKET

The information presented in this section has been extracted from publicly available

documents which have not been prepared or independently verified by the Company, the Joint

Lead Underwriters or any of their respective subsidiaries, affiliates or advisors in connection

with the offer and sale of the Offer Shares.

Brief History

The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was

organized in 1927, and the Makati Stock Exchange, which began operations in 1963. Each

exchange was self-regulating, governed by its respective Board of Governors elected annually

by its members.

Several steps initiated by the Philippine government have resulted in the unification of the

two bourses into the PSE. The PSE was incorporated in 1992 by officers of both the Makati

and the Manila Stock Exchanges. In March 1994, the licenses of the two exchanges were

revoked. While the PSE maintains two trading floors, one in Makati City and the other in

Pasig City, these floors are linked by an automated trading system, which integrates all bid

and ask quotations from the bourses.

In June 1998, the SEC granted the Self-Regulatory Organization status to the PSE, allowing it

to impose rules as well as implement penalties on erring trading participants and listed

companies. On August 8, 2001, the PSE completed its demutualization, converting from a

non-stock member-governed institution into a stock corporation in compliance with the

requirements of the SRC. The PSE had an authorized capital stock of 97.8 million shares, of

which 61,258,733 shares were subscribed and fully paid-up as of June 30, 2013. Each of the

184 member-brokers was granted 50,000 common shares of the new PSE at a par value of

₱1.00 per share. In addition, a trading right evidenced by a ―Trading Participant Certificate‖

was immediately conferred on each member broker allowing the use of the PSE‘s trading

facilities. As a result of the demutualization, the composition of the PSE Board of Governors

was changed, requiring the inclusion of seven brokers and eight non-brokers, one of whom is

the President.

On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as

part of a series of reforms aimed at strengthening the securities industry.

Classified into financial, industrial, holding firms, property, services, and mining and oil

sectors, companies are listed either on the PSE‘s Main Board or the Small, Medium and

Emerging Board. Previously, the PSE allowed listing on the First Board, Second Board or the

Small, Medium and Enterprises Board. As a result of the issuance by the PSE of

Memorandum No. CN-No. 2013-0023 dated June 6, 2013, revisions to the PSE Listing Rules

were made. Among such changes are the removal of the Second Board listing and the

requirement that lock-up rules be embodied in the articles of the incorporation of the issuer.

Each index represents the numerical average of the prices of component shares. The PSE has

an index, referred to as the PHISIX, which as at the date thereof reflects the price movements

of selected shares listed on the PSE, based on traded prices of shares from the various sectors.

The PSE shifted from full market capitalization to free float market capitalization effective

April 3, 2006, simultaneous with the migration to the free float index and the renaming of the

PHISIX to PSEi. The PSEi is composed of shares of 30 selected companies listed on the PSE.

209

With the increasing calls for good corporate governance, the PSE has adopted an online daily

disclosure system to improve the transparency of listed companies and to protect the investing

public.

The table below sets out movements in the composite index as of the last business day of each

calendar year from 1995 to 2013, and the most recent month end in 2014, and shows the

number of listed companies, market capitalization, and value of shares traded for the same

period:

Year

Composite

Index at

Closing

Number of

Listed

Companies

Aggregate

Market

Capitalization

Combined

Value of

Turnover

(in ₱ billions) (in ₱ billions)

1995 .................................... 2,594.2 205 1,545.7 379.0

1996 .................................... 3,170.6 216 2,121.1 668.8

1997 .................................... 1,869.2 221 1,251.3 586.2

1998 .................................... 1,968.8 222 1,373.7 408.7

1999 .................................... 2,142.9 225 1,936.5 781.0

2000 .................................... 1,494.5 229 2,576.5 357.7

2001 .................................... 1,168.1 231 2,141.4 159.6

2002 .................................... 1,018.4 234 2,083.2 159.7

2003 .................................... 1,442.4 236 2,973.8 145.4

2004 .................................... 1,822.8 235 4,766.3 206.6

2005 .................................... 2,096.0 237 5,948.4 383.5

2006 .................................... 2,982.5 239 7,173.2 572.6

2007 .................................... 3,621.6 244 7,977.6 1,338.3

2008 .................................... 1,872.9 246 4,069.2 763.9

2009 .................................... 3,052.7 248 6,029.1 994.2

2010 .................................... 4,201.1 253 8,866.1 1,207.4

2011 .................................... 4,372.0 245 8,697.0 1,422.6

2012 .................................... 5,812.7 254 10,952.7 1,771.7

2013 .................................... 5,889.83 257 11,931.3 2,546.2

As of February 28, 2014 6,424.99 258 12,682.3 268.6

Source: PSE

Trading

The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers.

To trade, bid or ask prices are posted on the PSE‘s electronic trading system. A buy (or sell)

order that matches the lowest asked (or highest bid) price is automatically executed. Buy and

sell orders received by one broker at the same price are crossed at the PSE at the indicated

price. Payment of purchases of listed securities must be made by the buyer on or before the

third trading day (the settlement date) after the trade.

Beginning January 2, 2012, trading on the PSE starts at 9:30 a.m. until 12:00 p.m., when there

will be a one and a half hour lunch break. In the afternoon, trading resumes at 1:30 p.m. and

ends at 3:30 p.m., with a 10-minute extension during which transactions may be conducted,

provided that they are executed at the last traded price and are only for the purpose of

210

completing unfinished orders. Trading days are Monday to Friday, except legal holidays and

days when the BSP clearing house is closed.

Minimum trading lots range from 5 to 1,000,000 shares depending on the price range and

nature of the security traded. Odd-sized lots are traded by brokers on a board specifically

designed for odd-lot trading.

To maintain stability in the stock market, daily price swings are monitored and regulated.

Under current PSE regulations, when the price of a listed security moves up by 50% or down

by 50% in one day (based on the previous closing price or last posted bid price, whichever is

higher), the price of that security is automatically frozen by the PSE, unless there is an

official statement from the company or a government agency justifying such price fluctuation,

in which case the affected security can still be traded but only at the frozen price. If the issuer

fails to submit such explanation, a trading halt is imposed by the PSE on the listed security

the following day. Resumption of trading shall be allowed only when the disclosure of the

company is disseminated, subject again to the trading ban.

Non-Resident Transactions

When the purchase/sale of Philippine shares involves a non-resident, whether the transaction

is effected in the domestic or foreign market, it will be the responsibility of the securities

dealer/broker to register the transaction with the BSP. The local securities dealer/broker shall

file with the BSP, within three business days from the transaction date, an application in the

prescribed registration form. After compliance with other required undertakings, the BSP

shall issue a Certificate of Registration. Inward foreign investments in PSE-listed securities

are registered with the investor‘s designated custodian bank on behalf of the BSP. Under BSP

rules, all registered foreign investments in securities including profits and dividends, net of

taxes and charges, may be repatriated.

Settlement

The Securities Clearing Corporation of the Philippines (―SCCP‖) is a wholly-owned

subsidiary of the PSE, and was organized primarily as a clearance and settlement agency for

SCCP-eligible trades executed through the facilities of the PSE. SCCP received its permanent

license to operate on January 17, 2002. It is responsible for:

synchronizing the settlement of funds and the transfer of securities through Delivery

versus Payment clearing and settlement of transactions of Clearing Members, who

are also Trading Participants of the PSE;

guaranteeing the settlement of trades in the event of a Trading Participant‘s default

through the implementation of its Fails Management System and administration of

the Clearing and Trade Guaranty Fund; and

performance of Risk Management and Monitoring to ensure final and irrevocable

settlement.

SCCP settles PSE trades on a three-day rolling settlement environment, which means that

settlement of trades takes place three trading days after transaction date (―T+3‖). The

deadline for settlement of trades is 12:00 n.n. of T+3. Securities sold should be in scripless

form and lodged under the book-entry system of the PDTC. Each PSE Broker maintains a

Cash Settlement Account with one of the five existing Settlement Banks of SCCP, which are

BDO Unibank, Inc., Rizal Commercial Banking Corporation, Metropolitan Bank and Trust

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Company, Deutsche Bank and Unionbank of the Philippines. Payment for securities bought

should be in good, cleared funds and should be final and irrevocable. Settlement is presently

on a broker level.

SCCP implemented its Central Clearing and Central Settlement system on May 29, 2006.

CCCS employs multilateral netting, whereby the system automatically offsets ―buy‖ and

―sell‖ transactions on a per issue and a per flag basis to arrive at a net receipt or a net delivery

security position for each Clearing Member. All cash debits and credits are also netted into a

single net cash position for each Clearing Member. Novation of the original PSE trade

contracts occurs, and SCCP stands between the original trading parties and becomes the

Central Counterparty to each PSE-eligible trade cleared through it.

Scripless Trading

In 1995, the PDTC (formerly the Philippine Central Depository, Inc.), was organized to

establish a central depository in the Philippines and introduce scripless or book-entry trading

in the Philippines. On December 16, 1996, the PDTC was granted a provisional license by the

SEC to act as a central securities depository.

All listed securities at the PSE have been converted into book-entry settlement in the PDTC.

The depository service of the PDTC provides the infrastructure for lodgment (deposit) and

upliftment (withdrawal) of securities, pledge of securities, securities lending and borrowing

and corporate actions including shareholders‘ meetings, dividend declarations and rights

offerings. The PDTC also provides depository and settlement services for non-PSE trades of

listed equity securities. For transactions on the PSE, the security element of the trade will be

settled through the book-entry system, while the cash element will be settled through the

current settlement banks, BDO Unibank, Inc., Rizal Commercial Banking Corporation,

Metropolitan Bank and Trust Company, Deutsche Bank and Unionbank of the Philippines.

In order to benefit from the book-entry system, securities must be immobilized into the PDTC

system through a process called lodgment. Lodgment is the process by which shareholders

transfer legal title (but not beneficial title) over their shares in favor of the PCD Nominee

Corporation (―PCD Nominee‖), a corporation wholly-owned by the PDTC, whose sole

purpose is to act as nominee and legal title holder of all shares lodged in the PDTC.

―Immobilization‖ is the process by which the warrant or share certificates of lodging holders

are cancelled by the transfer agent and the corresponding transfer of beneficial ownership of

the immobilized shares in the account of the PCD Nominee through the PDTC participant

will be recorded in the issuing corporation‘s registry. This trust arrangement between the

participants and PDTC through the PCD Nominee is established by and explained in the

PDTC Rules and Operating Procedures approved by the SEC. No consideration is paid for the

transfer of legal title to the PCD Nominee. Once lodged, transfers of beneficial title of the

securities are accomplished via book-entry settlement.

Under the current PDTC system, only participants (e.g. brokers and custodians) will be

recognized by the PDTC as the beneficial owners of the lodged equity securities. Thus, each

beneficial owner of shares, through his participant, will be the beneficial owner to the extent

of the number of shares held by such participant in the records of the PCD Nominee. All

lodgments, trades and uplifts on these shares will have to be coursed through a participant.

Ownership and transfers of beneficial interests in the shares will be reflected, with respect to

the participant‘s aggregate holdings, in the PDTC system, and with respect to each beneficial

owner‘s holdings, in the records of the participants. Beneficial owners are thus advised that in

order to exercise their rights as beneficial owners of the lodged shares, they must rely on their

participant-brokers and/or participant-custodians.

212

Any beneficial owner of shares who wishes to trade his interests in the shares must course the

trade through a participant. The participant can execute PSE trades and non-PSE trades of

lodged equity securities through the PDTC system. All matched transactions in the PSE

trading system will be fed through the SCCP, and into the PDTC system. Once it is

determined on the settlement date (T+3) that there are adequate securities in the securities

settlement account of the participant-seller and adequate cleared funds in the settlement bank

account of the participant-buyer, the PSE trades are automatically settled in the SCCP Central

Clearing and Central Settlement system, in accordance with the SCCP and PDTC Rules and

Operating Procedures. Once settled, the beneficial ownership of the securities is transferred

from the participant-seller to the participant-buyer without the physical transfer of stock

certificates covering the traded securities.

The difference between the depository and the registry would be on the recording of

ownership of the shares in the issuing corporations‘ books. In the depository set-up, shares

are simply immobilized, wherein customers‘ certificates are cancelled and a confirmation

advice is issued in the name of PCD Nominee to confirm new balances of the shares lodged

with the PDTC. Transfers among/between broker and/or custodian accounts, as the case may

be, will only be made within the book-entry system of the PDTC. However, as far as the

issuing corporation is concerned, the underlying certificates are in the PCD Nominee‘s name.

In the registry set-up, settlement and recording of ownership of traded securities will already

be directly made in the corresponding issuing company‘s transfer agents‘ books or system.

Likewise, recording will already be at the beneficiary level (whether it be a client or a

registered custodian holding securities for its clients), thereby removing from the broker its

current ―de facto‖ custodianship role.

Amended Rule on Lodgment of Securities

On June 24, 2009, the PSE apprised all listed companies and market participants through

Memorandum No. 2009-0320 that commencing on July 1, 2009, as a condition for the listing

and trading of the securities of an applicant company, the applicant company shall

electronically lodge its registered securities with the PDTC or any other entity duly

authorized by the SEC, without any jumbo or mother certificate in compliance with the

requirements of Section 43 of the SRC. In compliance with the foregoing requirement, actual

listing and trading of securities on the scheduled listing date shall take effect only after

submission by the applicant company of the documentary requirements stated in the amended

rule on Lodgment of Securities of the PSE.

Pursuant to the said amendment, the PDTC issued an implementing procedure in support

thereof to wit:

For a new company to be listed at the PSE as of July 1, 2009, the usual procedure

will be observed but the transfer agent of the company shall no longer issue a

certificate to PCD Nominee but shall issue a Registry Confirmation Advice, which

shall be the basis for the PDTC to credit the holdings of the depository participants on

the listing date.

On the other hand, for an existing listed company, the PDTC shall wait for the advice

of the transfer agent that it is ready to accept surrender of PCD Nominee jumbo

certificates and upon such advice the PDTC shall surrender all PCD Nominee jumbo

certificates to the transfer agent for cancellation. The transfer agent shall issue a

Registry Confirmation Advice to PDTC evidencing the total number of shares

registered in the name of PCD Nominee in the listed company‘s registry as of

confirmation date.

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Issuance of Stock Certificates for Certificated Shares

On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply

with PDTC through his broker or custodian-participant for a withdrawal from the book-entry

system and return to the conventional paper-based settlement. If a shareholder wishes to

withdraw his shareholdings from the PDTC system, the PDTC has a procedure of upliftment

under which PCD Nominee will transfer back to the shareholder the legal title to the shares

lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the

PDTC for the uplifting of the shares lodged under the name of the PCD Nominee. The

transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering

the new number of shares lodged under PCD Nominee. The expenses for upliftment are on

the account of the uplifting shareholder.

Upon the issuance of stock certificates for the shares in the name of the person applying for

upliftment, such shares shall be deemed to be withdrawn from the PDTC book-entry

settlement system, and trading on such shares will follow the normal process for settlement of

certificated securities. The expenses for upliftment of the shares into certificated securities

will be charged to the person applying for upliftment. Pending completion of the upliftment

process, the beneficial interest in the shares covered by the application for upliftment is

frozen and no trading and book-entry settlement will be permitted until the relevant stock

certificates in the name of the person applying for upliftment shall have been issued by the

relevant company‘s transfer agent.

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PHILIPPINE TAXATION

The following is a discussion of the material Philippine tax consequences of the acquisition,

ownership and disposition of the Common Shares. This general description does not purport

to be a comprehensive description of the Philippine tax aspects of the Common Shares and no

information is provided regarding the tax aspects of acquiring, owning, holding or disposing

of the Common Shares under applicable tax laws of other applicable jurisdictions and the

specific Philippine tax consequence in light of particular situations of acquiring, owning,

holding and disposing of the Common Shares in such other jurisdictions. This discussion is

based upon laws, regulations, rulings, and income tax conventions (treaties) in effect at the

date of this Prospectus. The tax treatment applicable to a holder of the Common Shares may

vary depending upon such holder‘s particular situation, and certain holders may be subject to

special rules not discussed below. This summary does not purport to address all tax aspects

that may be important to a holder of the Common Shares. Prospective investors of the

Common Shares are urged to consult their own tax advisors as to the particular tax

consequences of the ownership and disposition of the Common Shares, including the

applicability and effect of any local or foreign tax laws.

As used in this section, the term ―resident alien‖ refers to an individual whose residence is

within the Philippines and who is not a citizen of the Philippines; a ―non-resident alien‖ is an

individual whose residence is not within the Philippines and who is not a citizen of the

Philippines. A non-resident alien who is actually within the Philippines for an aggregate

period of more than 180 days during any calendar year is considered a ―non-resident alien

doing business in the Philippines.‖ A non-resident alien who is actually within the Philippines

for an aggregate period of 180 days or less during any calendar year is considered a ―non-

resident alien not doing business in the Philippines.‖ A ―resident foreign corporation‖ is a

non-Philippine corporation engaged in trade or business within the Philippines; and a ―non-

resident foreign corporation‖ is a non-Philippine corporation not engaged in trade or business

within the Philippines. The term ―dividends‖ under this section refers to cash or property

dividends. ―Tax Code‖ means the Philippine National Internal Revenue Code of 1997, as

amended.

Taxes on Dividends on the Shares

Individual Philippine citizens and resident aliens are subject to a final tax on dividends

derived from the Common Shares at the rate of 10%, which tax shall be withheld by the

Company.

Non-resident alien individuals engaged in trade or business in the Philippines are subject to a

final withholding tax on dividends derived from the Common Shares at the rate of 20% on the

gross amount thereof, subject to applicable preferential tax rates under tax treaties in force

between the Philippines and the country of domicile or residence of such non-resident alien

individual. A non-resident alien individual not engaged in trade or business in the Philippines

is subject to a final withholding tax on dividends derived from the Common Shares at the rate

of 25% of the gross amount, subject to applicable preferential tax rates under tax treaties in

force between the Philippines and the country of domicile or residence of such non-resident

alien individual.

The term ―non-resident holder‖ means a holder of the Common Shares:

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

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

Philippines; and

215

should a tax treaty be applicable, whose ownership of the Common Shares is not

effectively connected with a fixed base or a permanent establishment in the

Philippines.

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

Philippines or under its laws) and resident foreign corporations from the Common Shares

shall not be subject to tax.

Dividends received from a domestic corporation by a non-resident foreign corporation are

generally subject to final withholding tax at the rate of 30%, subject to applicable preferential

tax rates under tax treaties in force between the Philippines and the country of domicile of

such non-resident foreign corporation. The 30% rate for dividends paid to non-resident

foreign corporations with countries of domicile having no tax treaty with the Philippines may

be reduced to a special 15% rate if:

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

taxes on foreign sourced dividends; or

the country in which the non-resident foreign corporation is domiciled allows a credit

against the tax due from the non-resident foreign corporation for taxes deemed to

have been paid in the Philippines equivalent to 15%.

The BIR has prescribed, through an administrative issuance, procedures for the availment of

tax treaty relief. The application for tax treaty relief has to be filed with the BIR by the non-

resident holder of the Common Shares (or its duly authorized representative) prior to the first

taxable event, or prior to the first and only time the income tax payor is required to withhold

the tax thereon or should have withheld taxes thereon had the transaction been subject to tax.

The requirements for a tax treaty relief application in respect of dividends are set out in the

applicable tax treaty and BIR Form No. 0901-D. These include proof of tax residence in the

country that is a party to the tax treaty. Proof of residence consists of a consularized

certification from the tax authority of the country of residence of the non-resident holder of

Common Shares which states that the non-resident holder is a tax resident of such country

under the applicable tax treaty. If the non-resident holder of Common Shares is a juridical

entity, authenticated certified true copies of its articles of incorporation or association issued

by the proper government authority should also be submitted to the BIR in addition to the

certification of its residence from the tax authority of its country of residence.

If tax at the regular rate is withheld by the Company instead of the reduced rates applicable

under a treaty, the non-resident holder of the Common Shares may file a claim for refund

from the BIR. However, because the refund process in the Philippines requires the filing of an

administrative claim and the submission of supporting information, and may also involve the

filing of a judicial appeal, it may be impractical to pursue obtaining such a refund. Moreover,

in view of the requirement of the BIR that an application for tax treaty relief be filed prior to

the first taxable event as previously stated, the non-resident holder of Common Shares may

not be able to successfully pursue a claim for refund if such an application is not filed before

such deadline.

Stock dividends distributed pro rata to any holder of shares are not subject to Philippine

income tax. However, the sale, exchange or disposition of shares received as share dividends

by the holder is subject to either capital gains tax and documentary stamp tax (if the sale is

made outside the facilities of the PSE) or stock transaction tax (if the sale is made through the

facilities of the PSE).

216

Tax Treaties

The following table lists some of the countries with which the Philippines has tax treaties and

the tax rates currently applicable to non-resident holders who are residents of those countries:

Country

Dividends

Capital Gains Tax

Due on

Disposition of

Common Shares

Outside the PSE

(%) (%)

Canada ........................................................................ 25(1)

Exempt(8)

France ......................................................................... 15(2)

Exempt(8)

Germany ..................................................................... 15(3)

5/10(9)

Japan ........................................................................... 15(4)

Exempt(8)

Singapore ..................................................................... 25(5)

Exempt(8)

United Kingdom ......................................................... 25(6)

Exempt(10)

United States ............................................................... 25(7)

Exempt(8)

Notes:

(1) 15% if the recipient company controls at least 10% of the voting power of the company paying the

dividends.

(2) 10% if the recipient company (excluding a partnership) holds directly at least 10% of the voting shares

of the company paying the dividends.

(3) 10% if the recipient company (excluding a partnership) owns directly at least 25% of the capital of the

company paying the dividends.

(4) 10% if the recipient company holds directly at least 10% of either the voting shares of the company

paying the dividends or of the total shares issued by that company during the period of six months

immediately preceding the date of payment of the dividends.

(5) 15% if during the part of the paying company’s taxable year which precedes the date of payment of

dividends and during the whole of its prior taxable year at least 15% of the outstanding shares of the

voting shares of the paying company were owned by the recipient company.

(6) 15% if the recipient company is a company which controls directly or indirectly at least 10% of the

voting power of the company paying the dividends.

(7) 20% if during the part of the paying corporation’s taxable year which precedes the date of payment of

dividends and during the whole of its prior taxable year, at least 10% of the outstanding shares of the

voting shares of the paying corporation were owned by the recipient corporation. Notwithstanding the

rates provided under the Republic of the Philippines-United States Treaty, residents of the United States

may avail of the 15% withholding tax rate under the tax-sparing clause of the Tax Code provided certain

conditions are met.

(8 Capital gains are taxable only in the country where the seller is a resident, provided the shares are not

those of a corporation, the assets of which consist principally of real property situated in the

Philippines, in which case the sale is subject to Philippine taxes.

(9) Under the tax treaty between the Philippines and Germany, capital gains from the alienation of shares of

a Philippine corporation may be taxed in the Philippines irrespective of the nature of the assets of the

Philippine corporation. Tax rates are 5% on the net capital gains realized during the taxable year not in

excess of ₱ 100,000 and 10% on the net capital gains realized during the taxable year in excess of ₱

100,000.

(10) Under the tax treaty between the Philippines and the United Kingdom, capital gains on the sale of the

shares of Philippine corporations are subject to tax only in the country where the seller is a resident,

irrespective of the nature of the assets of the Philippine corporation.

217

In order for an exemption under a tax treaty to be recognized, an application for tax treaty

relief on capital gains tax on the sale of shares must be filed by the income recipient before

the deadline for the filing of the documentary stamp tax return, which is the fifth day from the

end of the month when the document transferring ownership was executed.

The requirements for a tax treaty relief application in respect of capital gains tax on the sale of

shares are set out in the applicable tax treaty and BIR Form No. 0901-C. These include proof

of residence in the country that is a party to the tax treaty. Proof of residence consists of a

consularized certification from the tax authority of the country of residence of the seller of

shares which provides that the seller is a resident of such country under the applicable tax

treaty. If the seller is a juridical entity, authenticated certified true copies of its articles of

incorporation or association issued by the proper government authority should also be

submitted to the BIR in addition to the certification of its residence from the tax authority of

its country of residence.

Sale, Exchange or Disposition of Shares through an Initial Public Offering (“IPO”)

The sale, barter, exchange or other disposition through an IPO of shares in closely held

corporations is subject to an IPO Tax at the rates below based on the gross selling price or

gross value in money of the shares sold, bartered, exchanged or otherwise disposed in

accordance with the proportion of shares sold, bartered, exchanged or otherwise disposed to

the total outstanding shares after the listing in the local stock exchange:

Up to 25% ................................................................................................................... 4%

Over 25% but not over 33 1⁄3% ................................................................................. 2%

Over 33 1⁄3% .............................................................................................................. 1%

A ―closely held corporation‖ means any corporation at least 50% in value of outstanding

capital shares or at least 50% of the total combined voting power of all classes of shares

entitled to vote is owned directly or indirectly by or for not more than 20 individuals.

The IPO Tax for the Offer shall be paid by the Company.

Sale, Exchange or Disposition of Shares after the IPO

Capital gains tax, if sale was made outside the PSE

Net capital gains realized by a resident or non-resident other than a dealer in securities during

each taxable year from the sale, exchange or disposition of shares outside the facilities of the

PSE, unless an applicable treaty exempts such gains from tax or provides for preferential

rates, are subject to tax as follows: 5.0% on gains not exceeding ₱100,000 and 10.0% on

gains over ₱100,000. An application for tax treaty relief must be filed (and approved) by the

Philippine tax authorities to obtain an exemption under a tax treaty. Such application must be

filed before the deadline for the filing of the documentary stamp tax return. Otherwise, the tax

treaty exemption cannot be availed of. The transfer of shares shall not be recorded in the

books of the Company unless the BIR certifies that the capital gains and documentary stamp

taxes relating to the sale or transfer have been paid or, where applicable, tax treaty relief has

been confirmed by the International Tax Affairs Division of the BIR in respect of the capital

gains tax or other conditions have been met.

218

Taxes on transfer of shares listed and traded at the PSE

A sale or other disposition of shares through the facilities of the PSE by a resident or a non-

resident holder, other than a dealer in securities, is subject to a stock transaction tax at the rate

of 0.5% of the gross selling price or gross value in money of the shares sold or otherwise

disposed, unless an applicable treaty exempts such sale from said tax. This tax is required to

be collected by and paid to the Government by the selling stockbroker on behalf of his client.

The stock transaction tax is classified as a percentage tax in lieu of a capital gains tax. Under

certain tax treaties, the exemptions from capital gains tax discussed herein may not be

applicable to stock transaction tax.

In addition, VAT of 12.0% is imposed on the commission earned by the PSE-registered

broker, and is generally passed on to the client.

The PSE issued Memorandum CN-No. 2012-0046 dated August 22, 2012, which provides

that immediately after December 31, 2012, the SEC shall impose a trading suspension for a

period of not more than six months, on shares of a listed company that has not complied with

the Rule on Minimum Public Ownership (―MPO‖) which requires listed companies to

maintain a minimum percentage of listed securities held by the public at 10% of the listed

companies‘ issued and outstanding shares at all times. Consequently, the sale of such listed

company‘s shares during the trading suspension may be effected only outside the trading

system of the PSE and shall be subject to capital gains tax and documentary stamp tax.

Furthermore, if the fair market value of the shares of stock sold is greater than the

consideration or the selling price, the amount by which the fair market value of the shares

exceeds the selling price shall be deemed a gift that is subject to donor‘s tax under Section

100 of the Tax Code.

On November 7, 2012, the BIR issued Revenue Regulations No. 16-2012 which provides that

the sale, barter, transfer, and/or assignment of shares of listed companies that fail to meet the

MPO requirement after December 31, 2012 will be subject to capital gains tax and

documentary stamp tax. It also requires publicly listed companies to submit public ownership

reports to the BIR within 15 days after the end of each quarter.

Prospective purchasers of the Offer Shares should obtain their own tax advice in respect of

their investment in relation to these developments.

Documentary Stamp Taxes on Shares

The original issue of shares is subject to documentary stamp tax of ₱1.00 on each ₱200 par

value, or fraction thereof, of the shares issued. On the other hand, the transfer of shares is

subject to a documentary stamp tax at a rate of ₱0.75 on each ₱200, or fractional part thereof,

of the par value of the Common Shares. The documentary stamp tax is imposed on the person

making, signing, issuing, accepting or transferring the document and is thus payable either by

the vendor or the purchaser of the Common Shares.

However, the sale, barter or exchange of Common Shares should they be listed and traded

through the PSE are exempt from documentary stamp tax. In addition, the borrowing and

lending of securities executed under the securities borrowing and lending program of a

registered exchange, or in accordance with regulations prescribed by the appropriate

regulatory authority, are likewise exempt from documentary stamp tax. However, the

securities borrowing and lending agreement should be duly covered by a master securities

borrowing and lending agreement acceptable to the appropriate regulatory authority, and

should be duly registered and approved by the BIR.

219

Estate and Gift Taxes

The transfer of the Common Shares upon the death of a registered holder to his heirs by way

of succession, whether such an individual was a citizen of the Philippines or an alien,

regardless of residence, will be subject to Philippine estate tax at progressive rates ranging

from 5% to 20% if the net estate is over ₱200,000.

Individual registered holders, whether or not citizens or residents of the Philippines, who

transfer shares by way of gift or donation, will be liable for Philippine donor‘s tax on such

transfers at progressive rates ranging from 2% to 15% if the total net gifts made during the

calendar year exceed ₱100,000. The rate of tax with respect to net gifts made to a stranger

(one who is not a brother, sister, spouse, ancestor, lineal descendant or relative by

consanguinity within the fourth degree of relationship) is a flat rate of 30%. Corporate

registered holders are also liable for Philippine donor‘s tax on such transfers, but the rate of

tax with respect to net gifts made by corporate registered holders is always at a flat rate of

30%.

Estate and gift taxes will not be collected in respect of intangible personal property, such as

shares, (1) if the deceased at the time of death, or the donor at the time of donation, was a

citizen and resident of a foreign country which at the time of his death or donation did not

impose a transfer tax of any character in respect of intangible personal property of citizens of

the Philippines not residing in that foreign country, or (2) if the laws of the foreign country of

which the deceased or the donor was a citizen and resident at the time of his death or donation

allow a similar exemption from transfer or death taxes of every character or description in

respect of intangible personal property owned by citizens of the Philippines not residing in

that foreign country.

Corporate Income Tax

In general, a tax of 30% is imposed upon the taxable net income of a domestic corporation

from all sources (within and outside the Philippines) pursuant to the Tax Code.

220

PHILIPPINE FOREIGN EXCHANGE AND

FOREIGN OWNERSHIP CONTROLS

Under current BSP regulations, an investment in listed securities (such as the Common

Shares) must be registered with the BSP if the foreign exchange needed to service the

repatriation of capital and the remittance of dividends, profits and earnings derived from such

shares is to be sourced from the Philippine banking system. If the foreign exchange required

to service capital repatriation or dividend remittance is sourced outside the Philippine banking

system, registration is not required. Current BSP Circular No. 471 (Series of 2005), as

amended, however, subjects foreign exchange dealers and money changers to R.A. No. 9160

(the Anti-Money Laundering Act of 2001, as amended) and requires these nonbank sources of

foreign exchange to require foreign exchange buyers to submit supporting documents in

connection with their application to purchase foreign exchange for purposes of capital

repatriation and remittance of dividends.

The application for registration may be done directly with the BSP or through a custodian

bank duly designated by the foreign investor. A custodian bank may be an authorized agent

bank1 or an offshore banking unit registered with the BSP to act as such and appointed by the

investor to register the investment, hold shares for the investor, and represent the investor in

all necessary actions in connection with his investments in the Philippines. Applications for

registration must be accompanied by: (i) purchase invoice, subscription agreement and proof

of listing on the PSE (either or both); (ii) credit advice or bank certificate showing the amount

of foreign currency inwardly remitted and converted into Pesos through an authorized agent

bank; and (iii) transfer instructions from the stockbroker or dealer, as the case may be.

Upon registration of the investment, proceeds of divestments, or dividends of registered

investments are repatriable or remittable immediately and in full through the Philippine

banking system, net of applicable tax, without need of BSP approval. Capital repatriation of

investments in listed securities is permitted upon presentation of the BSP registration

document and the broker‘s sales invoice, at the exchange rate prevailing at the time of

purchase of the foreign exchange from the banking system. Remittance of dividends is

permitted upon presentation of: (1) the BSP registration document; (2) the cash dividends

notice from the PSE and the Philippine Central Depository printout of cash dividend payment

or computation of interest earned; (3) copy of secretary‘s sworn statement on the board

resolution covering the dividend declaration and (4) detailed computation of the amount

applied for in the format prescribed by the BSP. Pending reinvestment or repatriation,

divestment proceeds, as well as dividends of registered investments, may be lodged

temporarily in interest-bearing deposit accounts with any authorized agent bank. Interest

earned thereon, net of taxes, may also be remitted in full. Remittance of divestment proceeds

or dividends of registered investments may be reinvested in the Philippines. The re-

investments shall be registered with the BSP or the investor‘s custodian bank if the foreign

exchange needed to service the repatriation of capital and the remittance of dividends, profits

and earnings derived from such re-investments is to be sourced from the Philippine banking

system.

The foregoing is subject to the power of the BSP, through the Monetary Board, with the

approval of the President of the Philippines, to suspend temporarily or restrict the availability

of foreign exchange, require licensing of foreign exchange transactions or require delivery of

1 The term ―authorized agent bank‖ refers to all categories of banks, except offshore banking units, duly

licensed by the BSP.

221

foreign exchange to the BSP or its designee during an exchange crisis, when an exchange

crisis is imminent, or in times of national emergency.

The registration with the BSP of all foreign investments in any Common Shares received in

exchange for Offer Shares shall be the responsibility of the foreign investor.

Foreign Ownership Controls

The Company does not currently own real estate. However, if the Company acquires real

estate in the future, it would be subject to nationality restrictions found under the Philippine

Constitution and other laws limiting land ownership to Philippine Nationals. The term

―Philippine National‖ as defined under the R.A. No. 7042, as amended, shall mean a citizen

of the Philippines, a domestic partnership or association wholly-owned by citizens of the

Philippines or a corporation organized under the laws of the Philippines of which at least

60.0% of the capital stock outstanding and entitled to vote is owned and held by citizens of

the Philippines, or a corporation organized abroad and registered to do business in the

Philippines under the Philippine Corporation Code of which 60.0% of the capital stock

outstanding and entitled to vote is wholly-owned by Filipinos or a trustee of funds for pension

or other employee retirement or separation benefits, where the trustee is a Philippine National

and at least 60.0% of the fund will accrue to the benefit of Philippine Nationals.

As of the date of this Prospectus, approximately 100% of the total outstanding capital stock of

the Company is held by Philippine Nationals.

222

LEGAL MATTERS

Certain legal matters as to Philippine law relating to the Offer will be passed upon by

Martinez Vergara Gonzalez & Serrano, legal counsel to the Company, and Romulo Mabanta

Buenaventura Sayoc & de los Angeles, legal counsel to the Joint Lead Underwriters.

Each of the foregoing legal counsel has neither shareholdings in the Company nor any right,

whether legally enforceable or not, to nominate persons or to subscribe for securities in the

Company. None of the legal counsel will receive any direct or indirect interest in the

Company or in any securities thereof (including options, warrants or rights thereto) pursuant

to or in connection with the Offer.

223

INDEPENDENT AUDITORS

The combined historical financial statements of GTC and SMDC as of and for the years

ended December 31, 2011, 2012, and 2013 were audited by Punongbayan & Araullo, a

member firm within Grant Thornton International Ltd., and the pro forma consolidated

financial statements of the Company for the year ended December 31, 2013 were examined

by, Navarro Amper & Co., a member firm within Deloitte Touche Tohmatsu Limited,

independent auditors, in accordance with PSA, as stated in their reports appearing herein.

Navarro Amper & Co., has acted as the Company‘s external auditor since January 16, 2014

Francis Albalate is the current audit partner for the Company and has served as such since

January 2014. The Company has not had any material disagreements on accounting and

financial disclosures with its current external auditor for the same periods or any subsequent

interim period. Navarro Amper & Co. has neither shareholdings in the Company nor any

right, whether legally enforceable or not, to nominate persons or to subscribe for the securities

of the Company. Navarro Amper & Co. will not receive any direct or indirect interest in the

Company or its securities (including options, warrants or rights thereto) pursuant to or in

connection with the Offer. The foregoing is in accordance with the Code of Ethics for

Professional Accountants in the Philippines set by the Board of Accountancy and approved by

the Professional Regulation Commission.

The following table sets out the aggregate fees for 2013 for professional services rendered by

Navarro Amper & Co. and Punongbayan & Araullo, excluding fees directly related to the

Offer.

2013

₱ in thousands

Audit and Audit-Related Fees(1)

......................... 9,100

Total.................................................................... 9,100

(1) Audit and Audit-Related Fees. This category includes the audit of annual financial statements,

review of interim financial statements and services that are normally provided by the

independent auditor in connection with statutory and regulatory filings or engagements for

those calendar years.

The fees presented above include out-of-pocket expenses incidental to the independent

auditors’ work, the amounts of which do not exceed 15% of the agreed-upon engagement fees.

Except for the abovementioned services, the independent auditors provided no other type of

services.

In relation to the audit of the Company‘s annual financial statements, the Company‘s

Corporate Governance Manual, which was approved by the Board of Directors on November

25, 2013, provides that the audit committee shall, among other activities (i) evaluate

significant issues reported by the external auditors in relation to the adequacy, efficiency and

effectiveness of policies, controls, processes and activities of the Company; (ii) ensure that

other non-audit work provided by the external auditors are not in conflict with their functions

as external auditors; and (iii) ensure the compliance of the Company with acceptable auditing

and accounting standards and regulations.

224

The audit committee consists of three members of the Board of Directors, at least one of

whom is an independent director, including the chairman of the committee. The audit

committee, with respect to an external audit:

Reviews the independent auditors audit plan — discusses scope, staffing, reliance

upon management and the internal audit department, general audit approach, and

coverage provided to any significant areas of concern that the audit committee may

have.

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

obtaining statements from the auditors on the relationships between the auditors and

the Company, including non-audit services, and discussing the relationships with the

auditors.

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

independent auditors.

On an annual basis, the audit committee reviews and discusses with the independent

auditors all significant relationships they have with the Company that could impair

the auditors‘ independence.

On a regular basis, the audit committee meets separately with the external auditors to

discuss any matters that the committee or auditors believe should be discussed

privately.

CENTURY PACIFIC FOOD, INC.

Centerpoint Building

Julia Vargas Avenue Ortigas Center

1605 Pasig City, Metro Manila

Philippines

JOINT LEAD UNDERWRITERS

BDO Capital & Investment

Corporation

20/F South Tower,

BDO Corporate Center

7899 Makati Avenue

Makati City 0726, Philippines

BPI Capital Corporation

8th Floor, BPI Building

6768 Ayala Avenue

Makati City 1226, Philippines

First Metro Investment Corporation

45/F GT Tower International

Ayala Avenue, Makati City, Philippines

FINANCIAL ADVISER

Evercore Asia Limited

Suite 1405-1407, 14th Floor

Two Exchange Square

Central

Hong Kong

LEGAL COUNSEL TO CENTURY PACIFIC FOOD, INC.

Martinez Vergara Gonzalez & Serrano

Suite 2401, The Orient Square

F. Ortigas Jr. Road, Ortigas Center

1600 Pasig City, Metro Manila

Philippines

LEGAL COUNSEL TO THE JOINT LEAD UNDERWRITERS

Romulo Mabanta Buenaventura Sayoc & de los Angeles

21st Floor, Philamlife Tower

8767 Paseo de Roxas

1226 Makati City, Philippines

INDEPENDENT AUDITORS

Navarro Amper & Co.

19th Floor, Net Lima Plaza

5th Avenue corner 26th Street

Bonifacio Global City

1634 Taguig City, Philippines

INDEX TO FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORTS

Audited Pro Forma Consolidated Financial Statements of CNPF as of and for the year ended

December 31, 2013

Page

Independent Auditor’s Assurance Report on the Compilation of Pro Forma Financial

Information included in the Prospectus……………………………………………………………

F-4

Pro Forma Consolidated Statement of Financial Position………………………………………… F-7

Pro Forma Consolidated Statement of Comprehensive Income…………………………………... F-8

Pro Forma Consolidated Statement of Changes in Equity………………………………………… F-9

Pro Forma Consolidated Statement of Cash Flows……………………………………………….. F-10

Audited Parent Financial Statements of CNPF as of December 31, 2013 and for the period October

25, 2013 to December 31, 2013

Page

Statement of Management’s Responsibility………………………………………………………. F-50

Independent Auditor’s Report……………………………………………………………………... F-53

Statement of Financial Position…………………………………………………………………… F-55

Statement of Comprehensive Income……………………………………………………………... F-56

Statement of Changes in Equity…………………………………………………………………… F-57

Statement of Cash Flows………………………………………………………………………….. F-58

Independent Auditor’s Report on Supplementary Schedules……………………………………. F-82

List of Effective Standards and Interpretations under the Philippine Financial Reporting

Standards (PFRS)…………………………………………………………………………………..

F-83

Independent Auditor’s Report on Supplementary Schedule………………………………………. F-90

Supplementary Schedules…………………………………………………………………………. F-91

Audited Consolidated Financial Statements of CNPF as of December 31, 2013 and for the period

October 25, 2013 to December 31, 2013

Page

Statement of Management’s Responsibility………………………………………………………. F-100

Independent Auditor’s Report……………………………………………………………………... F-103

Statement of Financial Position…………………………………………………………………… F-105

Statement of Comprehensive Income……………………………………………………………... F-106

Statement of Changes in Equity…………………………………………………………………… F-107

Statement of Cash Flows………………………………………………………………………….. F-108

Independent Auditor’s Report on Supplementary Schedules……………………………………. F-155

List of Effective Standards and Interpretations under the Philippine Financial Reporting

Standards (PFRS)…………………………………………………………………………………..

F-156

Independent Auditor’s Report on Supplementary Schedule………………………………………. F-163

Supplementary Schedules…………………………………………………………………………. F-164

Schedule of Financial Soundness Indicator……………………………………………………….. F-173

Combined Financial Statements of GTC and SMDC for the years ended December 31, 2013, 2012

and 2011

Page

Practitioner’s Compilation Report………………………………………………………………… F-175

Statement of Financial Position…………………………………………………………………… F-177

Statement of Comprehensive Income……………………………………………………………... F-178

F-1

Statement of Changes in Equity…………………………………………………………………… F-179

Statement of Cash Flows………………………………………………………………………….. F-180

Audited Financial Statements of GTC for the years ended December 31, 2013 and 2012

Page

Statement of Management’s Responsibility………………………………………………………. F-220

Independent Auditor’s Report…………………………………………………………………….. F-222

Statement of Financial Position…………………………………….……………………………... F-225

Statement of Comprehensive Income……………………………………………………………... F-226

Statement of Changes in Equity…………………………………………………………………… F-227

Statement of Cash Flows………………………………………………………………………….. F-228

Report of Independent Auditors to Accompany Supplementary Information Required by the

SEC Filed Separately from the Basic Financial Statements……………………………………….

F-278

Schedule of PFRS and Interpretations Adopted by the SEC and the Financial Reporting

Standards Council as of December 31, 2013………………………………………………………

F-279

Audited Financial Statements of GTC for the years ended December 31, 2012 and 2011

Page

Statement of Management’s Responsibility………………………………………………………. F-283

Independent Auditor’s Report…………………………………………………………………….. F-285

Statement of Financial Position…………………………………….……………………………... F-288

Statement of Comprehensive Income……………………………………………………………... F-289

Statement of Changes in Equity…………………………………………………………………… F-290

Statement of Cash Flows………………………………………………………………………….. F-291

Audited Financial Statements of SMDC for the years ended December 31, 2013 and 2012

Page

Statement of Management’s Responsibility………………………………………………………. F-332

Independent Auditor’s Report…………………………………………………………………….. F-334

Statement of Financial Position…………………………………….……………………………... F-337

Statement of Comprehensive Income……………………………………………………………... F-338

Statement of Changes in Equity…………………………………………………………………… F-339

Statement of Cash Flows………………………………………………………………………….. F-340

Report of Independent Auditors to Accompany Supplementary Information Required by the

SEC Filed Separately from the Basic Financial Statements……………………………………….

F-389

Schedule of PFRS and Interpretations Adopted by the SEC and the Financial Reporting

Standards Council as of December 31, 2013………………………………………………………

F-390

Audited Financial Statements of SMDC for the years ended December 31, 2012 and 2011

Page

Statement of Management’s Responsibility………………………………………………………. F-394

Independent Auditor’s Report…………………………………………………………………….. F-396

Statement of Financial Position…………………………………….……………………………... F-399

Statement of Comprehensive Income……………………………………………………………... F-400

Statement of Changes in Equity…………………………………………………………………… F-401

Statement of Cash Flows………………………………………………………………………….. F-402

F-2

F-3

F-4

F-5

F-6

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CENTURY PACIFIC FOOD, INC. (A Wholly Owned Subsidiary of Century Canning Corporation)

Financial Statements December 31, 2013

and Independent Auditors’ Report

Suite 505, Centerpoint Building, Julia Vargas St., Ortigas Center Pasig City, Metro Manila, Philippines

F-52

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CENTURY PACIFIC FOOD, INC. (A Wholly Owned Subsidiary of Century Canning Corporation)

List of Effective Standards and Interpretations under the Philippine Financial Reporting Standards (PFRS)

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1 (Revised)

First-time Adoption of Philippine Financial Reporting Standards

Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters

Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

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

Annual Improvements to PFRSs 2011-2013 Cycle - Amendments to PFRS 1, First-time Adoption of International Financial Reporting Standards (Changes to the Basis for Conclusions only)*

PFRS 2 Share-based Payment

Amendments to PFRS 2: Vesting Conditions and Cancellations

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions

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

PFRS 3 (Revised)

Business Combinations

Annual Improvements to PFRSs 2010-2012 Cycle - Amendments to PFRS 3, Business Combinations (with consequential amendments to other standards)*

Annual Improvements to PFRSs 2011-2013 Cycle -

F-83

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Amendments to PFRS 3: Scope of Exception for Joint Ventures*

PFRS 4 Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations

PFRS 6 Exploration for and Evaluation of Mineral Resources

PFRS 7 Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition

Amendments to PFRS 7: Improving Disclosures about Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets

Amendments to PFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities

Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures*

PFRS 8

Operating Segments

Annual Improvements to PFRSs 2010-2012 Cycle - Amendments to PFRS 8: Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments' Assets to the Entity's Assets*

PFRS 9* Financial Instruments

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and Transition Disclosures

Amendments to PFRS 9: Hedge accounting and Removal of Mandatory effective date of IFRS 9

PFRS 10 Consolidated Financial Statements

Amendments to PFRS 10: Consolidated Financial Statement: Transition Guidance

Amendments to PFRS 10:Transition Guidance and Investment Entities*

PFRS 11 Joint Arrangements

Amendments to PFRS 1: Joint Arrangements: Transition Guidance

PFRS 12 Disclosure of Interests in Other Entities

F-84

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Amendments to PFRS 12: Disclosure of Interests in Other Entities: Transition Guidance

Amendments to PFRS 12: Transition Guidance and Investment Entities*

PFRS 13

Fair Value Measurement

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

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

Philippine Accounting Standards

PAS 1 (Revised)

Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

Amendments to PAS 1: Presentation of Items of Other Comprehensive Income

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

PAS 2 Inventories

PAS 7 Statement of Cash Flows

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

PAS 10 Events after the Reporting Period

PAS 11 Construction Contracts

PAS 12 Income Taxes

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets

PAS 16 Property, Plant and Equipment

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

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

PAS 17 Leases

PAS 18 Revenue

PAS 19 Employee Benefits (2011)

F-85

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

(Amended)

PAS 20 Accounting for Government Grants and Disclosure of Government Assistance

PAS 21 The Effects of Changes in Foreign Exchange Rates

Amendment: Net Investment in a Foreign Operation

PAS 23 (Revised)

Borrowing Costs

PAS 24 (Revised)

Related Party Disclosures

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

PAS 26 Accounting and Reporting by Retirement Benefit Plans

PAS 27 (Amended)

Separate Financial Statements

Amendments to PAS 27: Transition Guidance and Investment Entities*

PAS 28 (Amended)

Investments in Associates and Joint Ventures

PAS 29 Financial Reporting in Hyperinflationary Economies

PAS 31 Interests in Joint Ventures

PAS 32 Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

Amendment to PAS 32: Classification of Rights Issues

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

Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities*

PAS 33 Earnings per Share

PAS 34 Interim Financial Reporting

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

PAS 36 Impairment of Assets

PAS 37 Provisions, Contingent Liabilities and Contingent Assets

PAS 38

Intangible Assets

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

PAS 39 Financial Instruments: Recognition and Measurement

F-86

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities

Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets – Effective Date and Transition

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

PAS 40

Investment Property

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

PAS 41 Agriculture

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments

IFRIC 4 Determining Whether an Arrangement Contains a Lease

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies

IFRIC 8 Scope of PFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

IFRIC 11 PFRS 2- Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding

F-87

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Requirements and their Interaction Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

IFRIC 21* Levies

SIC-7 Introduction of the Euro

SIC-10 Government Assistance - No Specific Relation to Operating Activities

SIC-15 Operating Leases - Incentives

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

SIC-29 Service Concession Arrangements: Disclosures.

SIC-31 Revenue - Barter Transactions Involving Advertising Services

SIC-32 Intangible Assets - Web Site Costs

PIC Q&A No. 2006-01

Revenue Recognition for Sales of Property Units Under Pre-Completion Contracts

PIC Q&A No. 2007-03

Valuation of Bank Real and Other Properties Acquired (ROPA)

PIC Q&A No. 2008-02

Accounting for Government Loans with Low Interest Rates under the Amendments to PAS 20

PIC Q&A No. 2010-02

Basis of Preparation of Financial Statements

PIC Q&A No. 2010-03

Current/non-current Classification of a Callable Term Loan

PIC Q&A No. 2011-02

Common Control Business Combinations

PIC Q&A No. 2011-03

Accounting for Inter-company Loans

PIC Q&A No. 2011-04

Costs of Public Offering of Shares

PIC Q&A No. 2011-05

Fair Value or Revaluation as Deemed Cost

F-88

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

PIC Q&A No. 2011-06

Acquisition of Investment Properties – Asset Acquisition or Business Combination?

PIC Q&A No. 2012-01

Application of the Pooling of Interests Method for Business Combinations of Entities under Common Control in Consolidated Financial Statements

PIC Q&A No. 2012-02

Cost of a New Building Constructed on Site of a Previous Building

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

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CENTURY PACIFIC FOOD, INC. AND SUBSIDIARIES

(A Wholly Owned Subsidiary of Century Canning Corporation)

Consolidated Financial Statements December 31, 2013

and Independent Auditors’ Report

Suite 505, Centerpoint Building, Julia Vargas St., Ortigas Center Pasig City, Metro Manila, Philippines

F-102

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CENTURY PACIFIC FOOD, INC. AND SUBSIDIARIES

(A Wholly Owned Subsidiary of Century Canning Corporation)

List of Effective Standards and Interpretations under the Philippine Financial Reporting Standards (PFRS)

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1 (Revised)

First-time Adoption of Philippine Financial Reporting Standards

Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters

Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

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

Annual Improvements to PFRSs 2011-2013 Cycle - Amendments to PFRS 1, First-time Adoption of International Financial Reporting Standards (Changes to the Basis for Conclusions only)*

PFRS 2 Share-based Payment

Amendments to PFRS 2: Vesting Conditions and Cancellations

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions

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

PFRS 3 (Revised)

Business Combinations

Annual Improvements to PFRSs 2010-2012 Cycle - Amendments to PFRS 3, Business Combinations (with consequential amendments to other standards)*

Annual Improvements to PFRSs 2011-2013 Cycle -

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PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Amendments to PFRS 3: Scope of Exception for Joint Ventures*

PFRS 4 Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations

PFRS 6 Exploration for and Evaluation of Mineral Resources

PFRS 7 Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition

Amendments to PFRS 7: Improving Disclosures about Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets

Amendments to PFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities

Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures*

PFRS 8

Operating Segments

Annual Improvements to PFRSs 2010-2012 Cycle - Amendments to PFRS 8: Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments' Assets to the Entity's Assets*

PFRS 9* Financial Instruments

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and Transition Disclosures

Amendments to PFRS 9: Hedge accounting and Removal of Mandatory effective date of IFRS 9

PFRS 10 Consolidated Financial Statements

Amendments to PFRS 10: Consolidated Financial Statement: Transition Guidance

Amendments to PFRS 10:Transition Guidance and Investment Entities*

PFRS 11 Joint Arrangements

Amendments to PFRS 1: Joint Arrangements: Transition Guidance

PFRS 12 Disclosure of Interests in Other Entities

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PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Amendments to PFRS 12: Disclosure of Interests in Other Entities: Transition Guidance

Amendments to PFRS 12: Transition Guidance and Investment Entities*

PFRS 13

Fair Value Measurement

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

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

Philippine Accounting Standards

PAS 1 (Revised)

Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

Amendments to PAS 1: Presentation of Items of Other Comprehensive Income

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

PAS 2 Inventories

PAS 7 Statement of Cash Flows

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

PAS 10 Events after the Reporting Period

PAS 11 Construction Contracts

PAS 12 Income Taxes

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets

PAS 16 Property, Plant and Equipment

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

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

PAS 17 Leases

PAS 18 Revenue

PAS 19 Employee Benefits (2011)

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PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

(Amended)

PAS 20 Accounting for Government Grants and Disclosure of Government Assistance

PAS 21 The Effects of Changes in Foreign Exchange Rates

Amendment: Net Investment in a Foreign Operation

PAS 23 (Revised)

Borrowing Costs

PAS 24 (Revised)

Related Party Disclosures

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

PAS 26 Accounting and Reporting by Retirement Benefit Plans

PAS 27 (Amended)

Separate Financial Statements

Amendments to PAS 27: Transition Guidance and Investment Entities*

PAS 28 (Amended)

Investments in Associates and Joint Ventures

PAS 29 Financial Reporting in Hyperinflationary Economies

PAS 31 Interests in Joint Ventures

PAS 32 Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

Amendment to PAS 32: Classification of Rights Issues

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

Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities*

PAS 33 Earnings per Share

PAS 34 Interim Financial Reporting

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

PAS 36 Impairment of Assets

PAS 37 Provisions, Contingent Liabilities and Contingent Assets

PAS 38

Intangible Assets

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

PAS 39 Financial Instruments: Recognition and Measurement

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PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities

Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets – Effective Date and Transition

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

PAS 40

Investment Property

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

PAS 41 Agriculture

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments

IFRIC 4 Determining Whether an Arrangement Contains a Lease

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies

IFRIC 8 Scope of PFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

IFRIC 11 PFRS 2- Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding

F-160

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

Requirements and their Interaction Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

IFRIC 21* Levies

SIC-7 Introduction of the Euro

SIC-10 Government Assistance - No Specific Relation to Operating Activities

SIC-15 Operating Leases - Incentives

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

SIC-29 Service Concession Arrangements: Disclosures.

SIC-31 Revenue - Barter Transactions Involving Advertising Services

SIC-32 Intangible Assets - Web Site Costs

PIC Q&A No. 2006-01

Revenue Recognition for Sales of Property Units Under Pre-Completion Contracts

PIC Q&A No. 2007-03

Valuation of Bank Real and Other Properties Acquired (ROPA)

PIC Q&A No. 2008-02

Accounting for Government Loans with Low Interest Rates under the Amendments to PAS 20

PIC Q&A No. 2010-02

Basis of Preparation of Financial Statements

PIC Q&A No. 2010-03

Current/non-current Classification of a Callable Term Loan

PIC Q&A No. 2011-02

Common Control Business Combinations

PIC Q&A No. 2011-03

Accounting for Inter-company Loans

PIC Q&A No. 2011-04

Costs of Public Offering of Shares

PIC Q&A No. 2011-05

Fair Value or Revaluation as Deemed Cost

F-161

 

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2013

Adopted Not Adopted

Not Applicable

PIC Q&A No. 2011-06

Acquisition of Investment Properties – Asset Acquisition or Business Combination?

PIC Q&A No. 2012-01

Application of the Pooling of Interests Method for Business Combinations of Entities under Common Control in Consolidated Financial Statements

PIC Q&A No. 2012-02

Cost of a New Building Constructed on Site of a Previous Building

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

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Audited Consolidated Financial Statements of CNPF

Schedule of Financial Soundness Indicator

As of December 31, 2013 and for the period October 25, 2013 to Decemeber 31, 2013

Formula Value

Current Ratio Total Current Assets / Total Current Liabilities 1.14

Solvency Ratio Net Income + Depreciation / Total Liabilities 0.00

Debt Ratio Total Liabilities / Total Assets 0.66

Debt to Equity Ratio Total Liabilities / Total Equity 1.93

Gross Profit Ratio Gross Profit / Revenue 8.08%

Net Profit Ratio Net Income / Revenue -0.08%

Return on Assets Net Income / Total Assets -0.03%

Return on Equity Net Income / Total Equity -0.07%

F-173

GENERAL TUNA CORPORATION AND SNOW MOUNTAIN DAIRY

CORPORATION (Wholly Owned Subsidiaries of Century Pacific

Food, Inc.)

Combined Financial Statements December 31, 2013, 2012 and 2011

and Practitioner’s Compilation Report

Suite 505, Centerpoint Building, Julia Vargas St. Ortigas Center Pasig City, Metro Manila, Philippines

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December 31, January 1,

2012 2012

December 31, (As Restated − (As Restated −

Notes 2013 see Note 2) see Note 2)

CURRENT ASSETS

Cash and cash equivalents 5 8,207,080 $ 2,203,548 $ 2,060,127 $

Trade and other receivables - net 6 21,580,586 4,619,685 5,948,373

Inventories - net 7 29,210,571 44,845,549 38,674,777

Prepayments and other current assets 8 1,060,578 973,640 750,169

Total Current Assets 60,058,815 52,642,422 47,433,446

NON-CURRENT ASSETS

Property, plant and equipment - net 9 14,615,741 16,626,268 17,632,274

Deferred tax assets - net 16 225,144 143,069 76,404

Post-employment benefit asset 15 - 10,434 2,664

Other non-current assets 10 348,490 665,352 692,415

Total Non-current Assets 15,189,375 17,445,123 18,403,757

TOTAL ASSETS 75,248,190 $ 70,087,545 $ 65,837,203 $

CURRENT LIABILITIES

Interest-bearing loans 11 45,021,840 $ 33,518,645 $ 24,062,102 $

Trade and other payables 12 8,212,842 10,868,961 9,372,685

Income tax payable 16,559 349,378 241,223

Dividends payable 19 - - 1,732,062

Due to related parties 17 5,238,586 4,085,368 10,006,670

Total Current Liabilities 58,489,827 48,822,352 45,414,742

NON-CURRENT LIABILITIES

Post-employment benefit obligation 15 13,479 - -

Interest-bearing loans 11 - 364,148 1,707,339

Total Non-current Liabilities 13,479 364,148 1,707,339

Total Liabilities 58,503,306 49,186,500 47,122,081

EQUITY

Capital stock 19 11,333,722 11,333,722 11,333,722

Additional paid-in capital 3,296,386 3,296,386 3,296,386

Revaluation reserves 2 24,336 )( 18,613 13,532

Retained earnings 19 2,139,112 6,252,324 4,071,482

Total Equity 16,744,884 20,901,045 18,715,122

TOTAL LIABILITIES AND EQUITY 75,248,190 $ 70,087,545 $ 65,837,203 $

STATEMENTS OF FINANCIAL POSITION

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

GENERAL TUNA CORPORATION

See Notes to Financial Statements.

LIABILITIES AND EQUITY

A S S E T S

DECEMBER 31, 2013 AND 2012

(Amounts in United States Dollars)

(With Corresponding Figures as at January 1, 2012)

DRAFT 03-08-14(FOR FINALIZATION)

F-225

2012

(As Restated −

Notes 2013 see Note 2)

SALE OF GOODS 138,119,221 $ 90,072,393 $

COST OF GOODS SOLD 13, 17 132,466,117 83,175,582

GROSS PROFIT 5,653,104 6,896,811

OTHER OPERATING EXPENSES

(INCOME)

Administrative expenses 13 1,844,935 2,500,647

Selling expenses 13 1,651,007 1,162,392

Other income 6, 17 706,550 )( 1,100,454 )(

Other expenses 13 75,075 48,306

2,864,467 2,610,891

OPERATING PROFIT 2,788,637 4,285,920

FINANCE COSTS 14 1,163,262 )( 1,298,160 )(

FINANCE INCOME 14 2,281,886 69,038

PROFIT BEFORE TAX 3,907,261 3,056,798

TAX EXPENSE 16 667,482 875,956

NET PROFIT 3,239,779 2,180,842

OTHER COMPREHENSIVE INCOME (LOSS)

Item that will not be reclassified

subsequently to profit or loss

Actuarial gain (loss) on post-employment benefits 10,251 )( 7,259

Tax expense (income) on remeasurements of

post-employment benefit obligation 3,075 2,178 )(

7,176 )( 5,081

TOTAL COMPREHENSIVE INCOME 3,232,603 $ 2,185,923 $

See Notes to Financial Statements.

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

STATEMENTS OF COMPREHENSIVE INCOME

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

GENERAL TUNA CORPORATION

(Amounts in United States Dollars)

DRAFT 03-08-14(FOR FINALIZATION)

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Additional Revaluation Net Actuarial Loss on Retained

Notes Capital Stock Paid-in Capital Increment on Land Retirement Benefit Earnings Total

Balance at January 1, 2013

As previously reported 11,333,722 $ 3,296,386 $ 35,773 $ - 6,238,817 $ 20,904,698 $

Prior period adjustment 2 - - - 17,160 )( 13,507 3,653 )(

As restated 11,333,722 3,296,386 35,773 17,160 )( 6,252,324 20,901,045

Transaction with owners

Cash dividend - - - - 7,388,764 )( 7,388,764 )(

Disposal of land carried at revalued amount 9 - - 35,773 )( - 35,773 -

Total comprehensive income

Net profit for the year - - - - 3,239,779 3,239,779

Actuarial loss on post-employment benefit - - - 7,176 )( - 7,176 )(

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

Balance at December 31, 2013 11,333,722 $ 3,296,386 $ - 24,336 )( $ 2,139,112 $ 16,744,884 $

Balance at January 1, 2012

As previously reported 11,333,722 $ 3,296,386 $ 35,773 $ - 4,059,761 $ 18,725,642 $

Prior period adjustment 2 - - - 22,241 )( 11,721 10,520 )(

As restated 11,333,722 3,296,386 35,773 22,241 )( 4,071,482 18,715,122

Total comprehensive income

Net profit for the year - - - - 2,180,842 2,180,842

Actuarial gain on post-employment benefit - - - 5,081 - 5,081

- - - 5,081 2,180,842 2,185,923

Balance at December 31, 2012 11,333,722 $ 3,296,386 $ 35,773 $ 17,160 )( $ 6,252,324 $ 20,901,045 $

See Notes to Financial Statements.

GENERAL TUNA CORPORATION

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

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Revaluation Reserves

(Amounts in United States Dollars)

DRAFT 03-08-14(FOR FINALIZATION)

$

$

$

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2012

(As Restated −

Notes 2013 see Note 2)

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 3,907,261 $ 3,056,798 $

Adjustments for:

Depreciation 9 2,837,514 2,729,259

Unrealized foreign currency loss (gain) 14 2,243,620 )( 371,426

Interest expense 14 1,069,892 816,041

Loss on sale and derecognition of property and equipment 9 72,921 -

Interest income 5 38,266 )( 67,561 )(

Operating profit before working capital changes 5,605,702 6,905,963

Decrease (increase) in trade and other receivables 16,907,952 )( 2,349,988

Decrease (increase) in inventories 15,634,978 6,170,772 )(

Increase in prepayments and other current assets 679,299 )( 763,979 )(

Decrease (increase) in post-employment benefit asset 10,434 232 )(

Decrease in other non-current assets 322,695 30,556

Increase (decrease) in trade and other payables 2,026,068 )( 875,219

Increase in post-employment benefit obligation 13,479 -

Cash generated from operations 1,973,969 3,226,743

Income taxes paid 335,243 )( 262,994 )(

Net Cash From Operating Activities 1,638,726 2,963,749

CASH FLOWS USED IN INVESTING ACTIVITIES

Acquisitions of property, plant and equipment 9 2,726,974 )( 1,724,761 )(

Proceeds from sale of land 9 1,827,066 -

Interest received 38,266 67,561

Net Cash Used in Investing Activities 861,642 )( 1,657,200 )(

CASH FLOWS USED IN FINANCING ACTIVITIES

Proceeds from interest-bearing loans 127,040,117 26,946,980

Repayments of interest-bearing loans 114,550,370 )( 19,711,804 )(

Advances from related parties 17 12,669,366 16,616,604

Repayments of advances from related parties 17 11,516,148 )( 22,537,906 )(

Payment of cash dividends 19 7,388,764 )( 1,732,062 )(

Interest paid 1,058,939 )( 763,925 )(

Net Cash From (Used in) Financing Activities 5,195,262 1,182,113 )(

NET INCREASE IN CASH AND CASH EQUIVALENTS 5,972,346 124,436

Effect of Exchange Rate Changes on Cash and Cash Equivalents 31,186 18,985

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,203,548 2,060,127

CASH AND CASH EQUIVALENTS AT END OF YEAR 8,207,080 $ 2,203,548 $

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

STATEMENTS OF CASH FLOWS

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

GENERAL TUNA CORPORATION

See Notes to Financial Statements.

(Amounts in United States Dollars)

DRAFT 03-08-14(FOR FINALIZATION)

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

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012

(With Corresponding Figures as at January 1, 2012) (Amounts in United States Dollars)

1. CORPORATE INFORMATION 1.1 Incorporation and Operations General Tuna Corporation (the Company) was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on March 10, 1997. It is engaged in manufacturing and exporting private label canned, pouched and frozen tuna products. The Company is a subsidiary of Century Canning Corporation (CCC) until October 31, 2013 when CCC transferred for a consideration its 100% ownership interest in the Company to Century Pacific Food, Inc. (CPFI or the new parent company). This transfer of ownership is part of the corporate reorganization undertaken by the Century Pacific Group (the Group) within which CCC is the parent company. CPFI is the newly incorporated wholly owned subsidiary of CCC, which is now the Company’s ultimate parent company. It is incorporated and domiciled in the Philippines and will soon be operating as a food manufacturing company in 2014. CCC is engaged in manufacturing and distribution of canned tuna products for the Philippine Market. The Company’s registered office is located at 32 Arturo Drive, Bagumbayan, Taguig, Metro Manila and the Company’s processing plant is located at Brgy. Tambler, General Santos City. The registered office of CPFI is located at Centerpoint Building, Julia Vargas Street, Ortigas Center, Pasig City. 1.2 Approval of Financial Statements The financial statements of the Company for the year ended December 31, 2013 (including the comparative financial statements for the year ended December 31, 2012 and the corresponding figures as at January 1, 2012) were authorized for issue by the Company’s Board of Directors (BOD) on March 7, 2014.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies that have been used in the preparation of these financial statements are summarized below and in the succeeding pages. The policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Preparation of Financial Statements (a) Statement of Compliance with Philippine Financial Reporting Standards

The financial statements of the Company have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial Reporting Standards Council (FRSC) from the pronouncements issued by the International Accounting Standards Board (IASB). The financial statements have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies in the succeeding pages.

(b) Presentation of Financial Statements

The financial statements are presented in accordance with Philippine Accounting Standard (PAS) 1, Presentation of Financial Statements. The Company presents all items of income and expense in a single statement of comprehensive income. The Company presents a third statement of financial position as at the beginning of the preceding period when it applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items that has a material effect on the information in the statement of financial position at the beginning of the preceding period. The related notes to the third statement of financial position are not required to be disclosed. The Company’s adoption of PAS 19 (Revised), Employee Benefits, resulted in retrospective restatements on certain accounts in the comparative financial statements for December 31, 2012 and in the corresponding figures as at January 1, 2012 [see Note 2.2(a)(ii)]. Accordingly, the Company presents a third statement of financial position as of January 1, 2012 without the related notes, except for the disclosures required under PAS 8, Accounting Polices, Changes in Accounting Estimates and Errors.

(c) Functional and Presentation Currency

These financial statements are presented in United States (U.S.) dollars, the Company’s functional and presentation currency, and all values represent absolute amounts except when otherwise indicated. Items included in the financial statements of the Company are measured using its functional currency. Functional currency is the currency of the primary economic environment in which the Company operates.

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2.2 Adoption of New and Amended PFRS

(a) Effective in 2013 that are Relevant to the Company

In 2013, the Company adopted for the first time the following new PFRS, revisions, amendments and annual improvements thereto that are relevant to the Company and effective for financial statements for the annual periods beginning on or after July 1, 2012 or January 1, 2013: PAS 1 (Amendment) : Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income PAS 19 (Revised) : Employee Benefits PFRS 7 (Amendment) : Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities PFRS 13 : Fair Value Measurement Annual Inprovements : Annual Improvements to PFRS (2009 – 2011 Cycle) Discussed below are the relevant information about these new, revised and amended standards. (i) PAS 1 (Amendment), Financial Statements Presentation - Presentation of Items of Other

Comprehensive Income (effective from July 1, 2012). The amendment requires an entity to group items presented in other comprehensive income into those that, in accordance with other PFRS: (a) will not be reclassified subsequently to profit or loss, and, (b) will be reclassified subsequently to profit or loss when specific conditions are met. Management determined that the amendment did not significantly affect the financial statements as its comprehensive income is only comprised of actuarial gains and losses on retirement benefit obligation which are not reclassified to profit or loss.

(ii) PAS 19 (Revised), Employee Benefits (effective from January 1, 2013). The

revision made a number of changes as part of the improvements throughout the standard. The main changes relate to defined benefit plans as follows: • eliminates the corridor approach under the existing guidance of PAS 19

and requires an entity to recognize all actuarial gains and losses arising in the reporting period;

• streamlines the presentation of changes in plan assets and liabilities

resulting in the disaggregation of changes into three main components of service costs, net interest on net defined benefit obligation or asset, and remeasurement; and,

• enhances disclosure requirements, including information about the characteristics of defined benefit plans and the risks that entities, through participation in those plans are exposed to.

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The Company’s adoption of PAS 19 (Revised) resulted in the retrospective adjustment of the post-employment benefit obligation to record the previously unrecognized net actuarial losses with the corresponding recognition of reserve in equity for such net actuarial losses including those previously recognized in profit or loss and accumulated in Retained Earnings. The restatement of certain line items in the statements of financial position as at December 31, 2012 and the corresponding figures as at January 1, 2012 as a result of the above adjustments are summarized below.

As Previously Prior Period Notes Reported Adjustment As Restated

December 31, 2012

Changes in assets: Post-employment benefit asset 15.2 $ 15,652 ($ 5,218 ) $ 10,434 Deferred tax assets - net 16 141,504 1,565 143,069 Net Effect on Assets ($ 3,653 ) Changes in equity: Revaluation reserves $ 35,773 ($ 17,160 ) $ 18,613 Retained earnings 6,238,817 13,507 6,252,324 Net Effect on Equity ($ 3,653 )

January 1, 2012

Changes in assets: Post-employment benefit asset $ 17,692 ($ 15,028 ) $ 2,664 Deferred tax assets - net 71,896 4,508 76,404 Net Effect on Assets ($ 10,520 ) Changes in equity: Revaluation reserves $ 35,773 ($ 22,241 ) $ 13,532 Retained earnings 4,059,761 ( 11,721 ) 4,071,482 Net Effect on Equity ($ 10,520 )

The adoption of PAS19 (Revised) did not have material impact on the Company’s statement of comprehensive income and statement of cash flows for the year ended December 31, 2012.

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(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (effective from January 1, 2013). The amendment requires qualitative and quantitative disclosures relating to gross and net amounts of recognized financial instruments that are set-off in accordance with PAS 32, Financial Instruments: Presentation. The amendment also requires disclosure of information about recognized financial instruments which are subject to enforceable master netting arrangements or similar agreements, even if they are not set-off in the statement of financial position, including those which do not meet some or all of the offsetting criteria under PAS 32 and amounts related to a financial collateral. These disclosures allow financial statement users to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with recognized financial assets and financial liabilities on the entity’s statement of financial position. The adoption of this amendment did not result in any significant changes in the Company’s disclosures on its financial statements as it has no master netting arrangements; however, potential offsetting arrangements are disclosed in Note 21.3. Other than the additional disclosures presented in Note 21.3, the application of this new standard had no significant impact on the amounts recognized in the financial statements.

(iv) PFRS 13, Fair Value Measurement (effective from January 1, 2013). This new standard clarifies the definition of fair value and provides guidance and enhanced disclosures about fair value measurements. The requirements under this standard do not extend the use of fair value accounting but provide guidance on how it should be applied to both financial instrument items and non-financial items for which other PFRS require or permit fair value measurements or disclosures about fair value measurements, except in certain circumstances. The amendment applies prospectively from annual period beginning January 1, 2013, hence, disclosure requirements need not be presented in the comparative information in the first year of application. Nevertheless, other than the additional disclosure presented in Note 21, the application of this new standards had no significant effect on the amount recognized in the financial statements.

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(v) 2009 - 2011 Annual Improvements to PFRS. Annual improvement to PFRS (2009-2011 Cycle) made minor amendments to a number of PFRS. Among those improvements, the following are relevant to the Company: (a) PAS 1 (Amendment), Presentation of Financial Statements - Clarification of the

Requirements for Comparative Information. The amendment clarifies that a statement of financial position as at the beginning of the preceding period (third statement of financial position) is required when an entity applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items that has a material effect on the information in the third statement of financial position. The amendment specifies that other than disclosure of certain specified information in accordance with PAS 8 related notes to the third statement of financial position are not required to be presented. Consequent to the Company’s adoption of PAS 19 (Revised) in the current year which resulted in retrospective restatement of the prior years’ financial statements, the Company has presented a third statement of financial position as at January 1, 2012 without the related notes, except for the disclosure requirements of PAS 8.

(b) PAS 16 (Amendment), Property, Plant and Equipment - Classification of Servicing Equipment. The amendment addresses a perceived inconsistency in the classification requirements for servicing equipment which resulted in classifying servicing equipment as part of inventory when it is used for more than one period. It clarifies that items such as spare parts, stand-by equipment and servicing equipment shall be recognized as property, plant and equipment when they meet the definition of property, plant and equipment, otherwise, these are classified as inventory. This amendment had no impact on the Company’s financial statements since it has been recognizing those servicing equipment in accordance with the recognition criteria under PAS 16.

(c) PAS 32 (Amendment), Financial Instruments – Presentation – Tax Effect of Distributions to Holders of Equity Instruments. The amendment clarifies that the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction shall be accounted for in accordance with PAS 12. Accordingly, income tax relating to distributions to holders of an equity instrument is recognized in profit or loss while income tax related to the transaction costs of an equity transaction is recognized in equity. This amendment had no effect on the Company’s financial statements as it has been recognizing the effect of distributions to holders of equity instruments and transaction costs of an equity transaction in accordance with PAS 12.

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(b) Effective in 2013 that are not Relevant to the Company

The following amendments became effective for annual periods beginning on or after January 1, 2013 but are not relevant to the Company’s financial statements: PPRS 1 (Amendment) : First-time Adoption of PFRS – Government Loans

PFRS 10 : Consolidated Financial Statements

PFRS 11 : Joint Arrangements PFRS 12 : Disclosure of Interests in Other Entities PAS 27 (Revised) : Separate Financial Statements PAS 28 (Revised) : Investments in Associate and Joint Venture PFRS 10, PFRS 11 and PFRS 12 (Amendment) : Amendments to PFRS 10, 11 and 12 - Transition Guidance to PFRS 10, 11 and 12 Annual Improvements

PAS 34 (Amendment) : Interim Financial Reporting – Interim Financial Reporting and Segment Information for Total Assets and Liabilities

PPRS 1 (Amendment) : First-time Adoption of PFRS – Repeated Application of PFRS 1 and Borrowing

Cost Philippine Interpretation

International Financial Reporting Interpretation Committee 20 : Stripping Costs in the Production Phase of a Surface Mine

(c) Effective Subsequent to 2013 but not Adopted Early

There are new PFRS, amendments, annual improvements and interpretations to existing standards that are effective for periods subsequent to 2013. Management has initially determined the following pronouncements, which the Company will apply in accordance with their transitional provisions, to be relevant to its financial statements: (i) PAS 19 (Amendment), Employee Benefits - Defined Benefit Plans - Employee

Contributions (effective from January 1, 2014). The amendment clarifies that if the amount of the contributions from employees or third parties is dependent on the number of years of service, an entity shall attribute the contributions to periods of service using the same attribution method (i.e., either using the plan’s contribution formula or on a straight-line basis) for the gross benefit. Management has initially determined that this amendment will have no impact on the Company’s financial statements since there are no plans of future contribution from third parties.

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(ii) PAS 32 (Amendment), Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (effective from January 1, 2014). The amendment provides guidance to address inconsistencies in applying the criteria for offsetting financial assets and financial liabilities. It clarifies that a right of set-off is required to be legally enforceable, in the normal course of business; in the event of default; and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendment also clarifies the principle behind net settlement and provided characteristics of a gross settlement system that would satisfy the criterion for net settlement. The Company does not expect this amendment to have a significant impact on its financial statements.

(iii) PAS 36 (Amendment), Impairment of Assets - Recoverable Amount Disclosures for Non-financial Assets (effective from January 1, 2014). The amendment clarifies that the requirements for the disclosure of information about the recoverable amount of assets or cash-generating units is limited only to the recoverable amount of impaired assets that is based on fair value less cost of disposal. It also introduces an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount based on fair value less cost of disposal is determined using a present value technique. Management will reflect in its subsequent years’ financial statements the changes arising from this relief on disclosure requirements.

(iv) PAS 39 (Amendment), Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting (effective January 1, 2014). The amendment provides some relief from the requirements on hedge accounting by allowing entities to continue the use of hedge accounting when a derivative is novated to a clearing counterparty resulting in termination or expiration of the original hedging instrument as a consequence of laws and regulations, or the introduction thereof. As the Company neither enters into transactions involving derivative instruments nor it applies hedge accounting, the amendment will not have any impact on the financial statements.

(v) PFRS 9, Financial Instruments: Classification and Measurement (effective from January 1, 2015). This is the first part of a new standard on financial instruments that will replace PAS 39, Financial Instruments: Recognition and Measurement, in its entirety. The first phase of the standard was issued on November 2009 and October 2010 and contains new requirements and guidance for the classification, measurement and recognition of financial assets and financial liabilities. It requires financial assets to be classified into two measurement categories: amortized cost or fair value. Debt instruments that are held within a business model whose objective is to collect the contractual cash flows that represent solely payments of principal and interest on the principal outstanding are generally measured at amortized cost. All other debt instruments and equity instruments are measured at fair value. In addition, PFRS 9 allows entities to make an irrevocable election to present subsequent changes in the fair value of an equity instrument that is not held for trading in other comprehensive income. The accounting for embedded derivatives in host contracts that are financial assets is simplified by removing the requirement to consider whether or not they are closely related, and, in most arrangement, does not require separation from the host contract.

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For liabilities, the standard retains most of the PAS 39 requirements which include amortized cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in case where the fair value option is taken for financial liabilities, the part of a fair value change due to the liability’s credit risk is recognized in other comprehensive income rather than in profit or loss, unless this creates an accounting mismatch. In November 2013, the IASB has published amendments to International Financial Reporting Standard (IFRS) 9 that contain new chapter and model on hedge accounting that provides significant improvements principally by aligning hedge accounting more closely with the risk management activities undertaken by entities when hedging their financial and non-financial risk exposures. The amendment also now requires changes in the fair value of an entity’s own debt instruments caused by changes in its own credit quality to be recognized in other comprehensive income rather in profit or loss. It also includes the removal of the January 1, 2015 mandatory effective date of IFRS 9. To date, the remaining chapter of IFRS 9 and PFRS 9 dealing with impairment methodology is still being completed. Further, the IASB is currently discussing some limited modifications to address certain application issues regarding classification of financial assets and to provide other considerations in determining business model. The Company does not expect to implement and adopt PFRS 9 until its effective date. In addition, management is currently assessing the impact of PFRS 9 on the financial statements of the Company and it plans to conduct a comprehensive study of the potential impact of this standard prior to its mandatory adoption date to assess the impact of all changes.

(vi) Annual Improvements to PFRS. Annual improvements to PFRS (2010-2012 Cycle) and PFRS (2011-2013 Cycle) made minor amendments to a number of PFRS, which are effective for annual period beginning on or after July 1, 2014. Among those improvements, the following amendments are relevant to the Company but management does not expect a material impact on the Company’s financial statements: Annual Improvements to PFRS (2010-2012 Cycle)

(a) PAS 16 (Amendment), Property, Plant and Equipment – Classification of

Servicing Equipment. The amendment addresses a perceived inconsistency in the classification requirements for servicing equipment which resulted in classifying servicing equipment as part of inventory when it is used for more than one period. It clarifies that items such as spare parts, stand-by equipment and servicing equipment shall be recognized as property, plant and equipment when they meet the definition of property, plant and equipment, otherwise, these are classified as inventory. This amendment had no impact on the Company’s financial statements since it has been recognizing those servicing equipment in accordance with the recognition criteria under PAS 16.

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(b) PAS 24 (Amendment), Related Party Disclosures. The amendment clarifies the entity providing key management services to a reporting entity is deemed to be a related party of the latter. It also requires and clarifies that the amounts incurred by the reporting entity for key management personnel services that are provided by a separate management entity should be disclosed in the financial statements, and not the amounts of compensation paid or payable by the key management entity to its employees or directors.

(c) PFRS 13 (Amendment), Fair Value Measurement. The amendment, through

a revision only in the basis of conclusion of PFRS 13, clarifies that issuing PFRS 13 and amending certain provisions of PFRS 9 and PAS 39 related to discounting of financial instruments, did not remove the ability to measure short-term receivables and payables with no stated interest rate on an undiscounted basis, when the effect of not discounting is immaterial.

Annual Improvements to PFRS (2011-2013 Cycle)

PFRS 13 (Amendment), Fair Value Measurement. The amendment clarifies that the scope of the exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis (the portfolio exception) applies to all contracts within the scope of, and accounted for in accordance with PAS 39 or PFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in PAS 32.

2.3 Financial Assets Financial assets are recognized when the Company becomes a party to the contractual terms of the financial instrument. Financial assets other than those designated and effective as hedging instruments are classified into the following categories: financial assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity investments and available-for-sale (AFS) financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. Regular purchases and sales of financial assets are recognized on their trade date. All financial assets that are not classified as at FVTPL are initially recognized at fair value plus any directly attributable transaction costs. The Company’s financial assets are generally categorized as loans and receivables and are presented as Cash and Cash Equivalents and Trade and Other Receivables in the statement of financial position. Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period which are classified as non-current assets.

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Loans and receivables are subsequently measured at amortized cost using the effective interest method, less impairment losses, if any. Impairment loss is provided when there is objective evidence that the Company will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment loss is determined as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate or current effective interest rate determined under the contract if the loan has a variable interest rate. All income and expenses, excluding impairment losses and foreign currency exchange losses or gains and other gains or losses that relate to operating activities, relating to financial assets that are recognized in profit or loss are presented as part of Finance Costs or Finance Income in the statement of comprehensive income.

Non-compounding interest and other cash flows resulting from holding financial assets are recognized in profit or loss when earned, regardless of how the related carrying amount of financial assets is measured. The financial assets are derecognized when the contractual rights to receive cash flows from the financial instruments expire and substantially all of the risks and rewards of ownership have been transferred to another party. 2.4 Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined using the weighted-average method. Finished goods and work-in-process include the cost of raw materials, direct labor and a proportion of manufacturing overheads based on normal operating capacity. The cost of raw materials include all costs directly attributable to acquisition, such as the purchase price, import duties and other taxes that are not subsequently recoverable from taxing authorities. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Net realizable value of raw materials is the current replacement cost. 2.5 Property, Plant and Equipment Property, plant and equipment, except land which is stated at fair value, are stated at cost less accumulated depreciation, and any impairment in value. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized; expenditures for repairs and maintenance are charged to expense as incurred. Following initial recognition of at cost, land is carried at revalued amounts which are the fair values at the date of the revaluation, as determined by independent appraisers, less and any accumulated impairment losses. Revalued amounts are fair market values determined based on appraisals by external professional valuer once every two years or more frequently if market factors indicate a material change in fair value.

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Any revaluation surplus is recognized in other comprehensive income and credited to the Revaluation Reserves account in the statement of changes in equity. Any revaluation deficit directly offsetting a previous surplus in the same asset is charged to other comprehensive income to the extent of any revaluation surplus in equity relating to this asset and the remaining deficit, if any, is recognized in profit or loss. Upon disposal of land, amounts included in Revaluation Reserves relating to them are transferred to Retained Earnings. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets as follows: Buildings 15 years Machinery and equipment 10 years Land improvements 10 years Transportation and delivery equipment 5 years Fully depreciated assets are retained in the accounts until these are no longer in use. No further charge for depreciation is made in respect of those accounts. Construction-in-progress represents properties under construction and is stated at cost. This includes cost of construction, applicable borrowing cost (see Note 2.15) and other direct costs. The account is not depreciated until such time that the assets are completed and available for use. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.13). The residual values and estimated useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at the end of each reporting period. An item of property, plant and equipment, including the related accumulated depreciation and impairment losses, is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the year the item is derecognized. 2.6 Prepayments and Other Assets Prepayments and other current assets pertain to other resources controlled by the Company as a result of past events. They are recognized in the financial statements when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. Other recognized assets of similar nature, where future economic benefits are expected to flow to the Company beyond one year after the end of the reporting period or in the normal operating cycle of the business, if longer, are classified as non-current assets.

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2.7 Financial Liabilities Financial liabilities, which include interest-bearing loans, trade and other payables (except tax related payables), due to related parties and dividends payable, are recognized when the Company becomes a party to the contractual terms of the instrument. All interest-related charges incurred on financial liability that relate to financing activities and are not capitalized are recognized as an expense in profit or loss under the caption Finance Costs in the statement of comprehensive income.

Interest-bearing loans are raised for support of short-term or long-term funding of operations. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent that these are not settled in the period in which they arise. Trade and other payables, due to related parties and dividends payable are recognized initially at their fair values and subsequently measured at amortized cost, using effective interest method for maturities beyond one year, less settlement payments. Dividends payable to shareholders are recognized as financial liabilities upon declaration by the Company. Financial liabilities are classified as current liabilities if payment is due to be settled within one year or less after the end of the reporting period (or in the normal operating cycle of the business, if longer), or the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. Otherwise, these are presented as non-current liabilities. Financial liabilities are derecognized from the statement of financial position only when the obligations are extinguished either through discharge, cancellation or expiration. The difference between the carrying amount of the financial liability derecognized and the consideration paid or payable is recognized in profit or loss.

2.8 Offsetting Financial Instruments Financial assets and liabilities are offset and the resulting net amount is reported in the statement of financial position when there is a legally enforceable right to set-off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. 2.9 Provisions and Contingencies Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive obligation that has resulted from past events.

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Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the end of the reporting period, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. When time value of money is material, long-term provisions are discounted to their present values using a pretax rate that reflects market assessments and the risks specific to the obligation. The increase in provision due to passage of time is recognized as interest expense. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Similarly, possible inflows of economic benefits to the Company that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements. On the other hand, any reimbursement that the Company can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset not exceeding the amount of the related provision. 2.10 Revenue and Expense Recognition Revenue comprises revenue from the sale of goods measured by reference to the fair value of consideration received or receivable by the Company for goods supplied, excluding value-added tax (VAT) and trade discounts. Revenue is recognized to the extent that the revenue can be reliably measured; it is probable that the economic benefits will flow to the Company; and the costs incurred or to be incurred can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: (a) Sale of goods – Revenue is recognized when the risks and rewards of ownership of the

goods have passed to the buyer. This is generally when the customer has taken undisputed delivery of goods.

(b) Interest income – Revenue is recognized as the interest accrues taking into account the effective yield on the asset.

Costs and expenses are recognized in the statement of comprehensive income upon receipt of goods and/or utilization of service or at the date they are incurred. Finance costs are reported on an accrual basis, except capitalized borrowing costs which are included as part of the cost of the related qualifying assets (see Notes 2.5 and 2.15).

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2.11 Leases The Company accounts for its leases as follows: (a) Company as Lessee

Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments (net of any incentive received from the lessor) are recognized as expense in profit or loss on a straight-line basis over the lease term. Associated costs, such as repairs and maintenance and insurance, are expensed as incurred.

(b) Company as Lessor

Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease income from operating leases is recognized in profit or loss on a straight-line basis over the lease term.

The Company determines whether an arrangement is, or contains, a lease based on the substance of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

2.12 Foreign Currency Transactions and Translation The accounting records of the Company are maintained in U.S. dollars. Foreign currency transactions during the year are translated into the functional currency at exchange rates which approximate those prevailing on transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies that arise from financing activities are presented as part of Finance Costs in the statement of comprehensive income.

2.13 Impairment of Non-financial Assets The Company’s property, plant and equipment and other non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amounts which is the higher of its fair value less costs to sell and its value-in-use. In determining value-in-use, management estimates the expected future cash flows from each cash-generating unit and determines the suitable interest rate in order to calculate the present value of those cash flows. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment loss is reversed if the asset’s or cash generating unit’s recoverable amount exceeds its carrying amount.

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2.14 Employee Benefits The Company provides post-employment benefits to employees through a defined benefit plan, as well as a defined contribution plan. (a) Defined Benefits Plan

A defined benefit plan is a post-employment plan that defines an amount of post-employment benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of post-employment plan remains with the Company, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long-term benefit fund, as well as qualifying insurance policies. The Company’s post-employment defined benefit pension plan covers all regular full-time employees. The liability recognized in the statement of financial position for a defined benefit plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using a discount rate derived from the interest rates of a zero coupon government bonds as published by Philippine Dealing and Exchange Corporation, that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related post-employment liability. Remeasurements, comprising of actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions and the return on plan assets (excluding amount included in net interest) are reflected immediately in the statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they arise. Net interest is calculated by applying the discount rate at the beginning of the period, taking account of any changes in the net defined benefit liability or asset during the period as a result of contributions and benefit payments. Net interest is reported as part of Finance Costs or Finance Income account in the statement of profit or loss. Past-service costs are recognized immediately in profit or loss in the period of a plan amendment.

(b) Defined Contribution Plan A defined contribution plan is a post-employment plan under which the Company pays fixed contributions into an independent entity. The Company has no legal or constructive obligations to pay further contributions after payment of the fixed contribution. The contributions recognized in respect of defined contribution plans are expensed as they fall due. Liabilities and assets may be recognized if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short-term nature.

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(c) Termination Benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits at the earlier of when it can no longer withdraw the offer of such benefits and when it recognizes costs for a restructuring that is within the scope of PAS 37, Provision, Contingent Liabilities and Contingent Assets, and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the reporting period are discounted to their present value.

(d) Compensated Absences Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the end of the reporting period. They are included in the Trade and Other Payables account at the undiscounted amount that the Company expects to pay as a result of the unused entitlement.

2.15 Borrowing Costs Borrowing costs are recognized as expenses in the period in which they are incurred, except to the extent that they are capitalized. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (i.e., an asset that takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of cost of such asset. The capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization ceases when substantially all such activities are complete. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

2.16 Income Taxes Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity, if any. Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the end of the reporting period. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in profit or loss.

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Deferred tax is accounted for using the liability method, on temporary differences at the end of the reporting period between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow such deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled provided such tax rates have been enacted or substantively enacted at the end of the reporting period.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted, that is, when the investment property is depreciable and is held within the business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The Company establishes liabilities for probable and estimable assessments by Bureau of Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent a reasonable provision for taxes ultimately expected to be paid and may need to be adjusted over time as more information becomes available. Deferred tax assets liabilities are offset if the Company has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred taxes relate to the same entity and the same taxation authority.

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2.17 Related Party Relationships and Transactions Related party transactions are transfers of resources, services or obligations between the Company and its related parties, regardless whether a price is charged. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. These parties include: (a) individuals owning, directly or indirectly through one or more intermediaries, control or are controlled by, or under common control with the Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company and close members of the family of any such individual; and, (d) the Company’s retirement plan. In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely on the legal form.

2.18 Equity Capital stock represents the nominal value of shares that have been issued. Additional paid-in capital includes any premium received on the issuance of capital stock. Any transaction costs associated with the issuance of shares are deducted from additional paid-in capital, net of any related income tax benefits. Revaluation reserves comprise gains and losses due to the revaluation of land and remeasurements of post-employment defined benefit obligation or asset, specifically actuarial gains and losses. Retained earnings represent all current and prior period results of operations as reported in the profit or loss section of the statements of comprehensive income, reduced by the amount of dividends declared. 2.19 Events after the End of the Reporting Period

Any post-year-end event that provides additional information about the Company’s financial position at the end of the reporting period (adjusting event) is reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the financial statements.

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3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Company’s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may ultimately vary from these estimates. 3.1 Critical Management Judgments in Applying Accounting Policies In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements: (a) Distinction between Operating and Finance Leases

The Company has entered into various lease agreements as a lessee. Critical judgment was exercised by management to distinguish each lease agreement as either an operating or finance lease by looking at the transfer or retention of significant risk and rewards of ownership of the properties covered by the agreements. Failure to make the right judgment will result in either overstatement or understatement of asset and liabilities. Based on management’s judgment such leases were determined to be operating leases.

(b) Recognition of Provisions and Contingencies

Judgment is exercised by management to distinguish between provisions and contingencies. Policies on recognition and disclosure of provision and contingencies are discussed in Note 2.9 and relevant disclosures in contingencies are presented in Note 20.

3.2 Key Sources of Estimation Uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: (a) Impairment of Trade and Other Receivables

Adequate amount of allowance for impairment is provided for specific and group of accounts, where objective evidence of impairment exists. The Company evaluates these accounts based on available facts and circumstances, including, but not limited to, the length of the Company’s relationship with the customers, the customers’ current credit status based on third party credit reports and known market forces, the average age of accounts, collection experience and historical loss experience. Based on the analysis done by management, certain receivables were identified to be impaired. The carrying value of trade and other receivables and analysis of allowance for impairment on such financial assets are shown in Note 6.

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(b) Determining Net Realizable Value of Inventories

In determining the net realizable value of inventories, management takes into account the most reliable evidence available at the dates the estimates are made. The future realization of the carrying amounts of inventories as presented in Note 7 is affected by price changes in different market segments. These are considered key sources of estimation, especially that such inventories are substantially perishable in nature and highly affective by temperature and other environmental conditions, uncertainty and may cause significant adjustments to the Company’s inventories within the next financial year.

(c) Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment, except land, based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. The carrying amounts of property, plant and equipment are analyzed in Note 9. Based on management’s assessment as at December 31, 2013, there is no change in estimated useful lives of property, plant and equipment during the year. Actual results, however, may vary due to changes in estimates brought about by changes in factors mentioned above.

(d) Determining the Fair Value of Land

The Company’s land is carried at revalued amount at the end of the reporting period. In determining the fair value of the land, the Company engages the services of professional and independent appraisers. The fair value is determined by reference to market-based evidence, which is the amount for which the asset could be exchanged between a knowledgeable willing buyer and seller in an arm’s length transaction as at the valuation date. Such amount is influenced by different factors including the location and specific characteristics of the property (e.g., size, features, and capacity), quantity of comparable properties available in the market, and economic condition and behaviour of the buying parties. A significant change in these elements may affect prices and the value of the asset. The amounts of revaluation and fair value gain recognized on land are disclosed in Note 9.

(e) Determining Recoverable Amount of Deferred Tax Assets

The Company reviews its deferred tax assets at the end of the reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The carrying value of deferred tax assets as at December 31, 2013 and 2012 which the management assessed to be probable of being fully utilized within the next two to three years is disclosed in Note 16.

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(f) Impairment of Non-financial Assets

The Company’s policy on estimating the impairment of non-financial assets is discussed in detail in Note 2.13. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations. No impairment loss was recognized on the Company’s non-financial assets in 2013 and 2012.

(g) Valuation of Post-employment Benefits

The determination of the Company’s obligation and cost of post-employment defined benefit are dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, discount rates and salary increase rates. In accordance with PFRS, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods. The amount of retirement benefit obligation (asset) and expense and an analysis of the movements in the estimated present value of post-employment benefit obligation and fair value of plan assets are presented in Note 15.2.

4. RISK MANAGEMENT OBJECTIVES AND POLICIES The Company is exposed to certain financial risks which result from both its operating and investing activities. The Company’s risk management is coordinated with its parent company, in close cooperation with the BOD, and focuses on actively securing the Company’s short-to-medium term cash flows by minimizing the exposure to financial markets. The Company does not engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Company is exposed to are described below.

4.1 Market Risk

The Company is exposed to market risk through its use of financial instruments and specifically to currency risk and interest risk which result from both its operating and investing activities. (a) Foreign Currency Risk

Most of the Company’s transactions are carried out in U.S. Dollars, its functional currency. Exposures to currency exchange rates arise from the interest-bearing loans from local banks, trade and other payables and due to related parties which are primarily denominated in Philippine peso. The Company also holds Philippine peso-denominated cash.

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To mitigate the Company’s exposure to foreign currency risk, non-U.S. dollar cash flows are regularly monitored. Foreign currency denominated financial assets and liabilities (in Philippine pesos), translated into U.S. dollars at the closing rate are as follows:

2013 2012 Short-term exposure: Financial assets $ 22,143,055 $ 2,095,713 Financial liabilities ( 53,444,704) ( 48,472,975 ) ( 31,301,649) ( 46,377,262 )

Long-term exposure – Financial liabilities - ( 364,148 ) Total exposure ( $ 31,301,649 ) ( $ 46,741,410 )

The sensitivity of the net results in regards to the Company’s financial assets and financial liabilities and the U.S. dollar – Philippine peso exchange rate assumes a +/-23.7% and +/-15.9% change of the U.S. dollar/Philippine peso exchange rate in 2013 and 2012, respectively. These percentages have been determined based on the average market volatility in exchange rates, using standard deviation, in the previous 12 months, estimated at 99% level of confidence. The sensitivity analysis is based on the Company’s foreign currency financial instruments held at the end of each reporting period, with effect estimated from the beginning of the year. If the Philippine peso had strengthened against the U.S. dollar, then this would have the following impact:

2013 2012 Profit before tax $ 22,255,472 $ 22,295,653 Equity 15,578,830 15,606,957

If the Philippine peso had weakened against the U.S. dollar, then this would have a reverse impact by the same amounts as above.

The exchange rates used to translate Philippine peso-denominated financial assets and liabilities to U.S. dollars at December 31, 2013 and December 31, 2012 was P44.41:$1 and P41.19:$1, respectively. The Company actively monitors the volatility of the foreign currency exchange rates to manage its foreign currency exposure.

Exposures to foreign currency exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Company’s currency risk.

(b) Interest Rate Risk

The Company has limited exposure to changes in market interest rates through its interest-bearing loans and cash and cash equivalents, which are mostly short-term and are subject to variable interest rates. These financial instruments have historically shown small or measured changes in interest rates. All other financial assets and liabilities have fixed rates.

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4.2 Credit Risk Credit risk is the risk that a counter party may fail to discharge an obligation to a Company. The Company is exposed to this risk with respect to certain financial instruments arising from selling goods to customers, including related parties, and placing deposits and short term placements with banks. The Company continuously monitors defaults of customers and other counterparties, if any identified either individually or by group, and incorporate this information into its credit risk controls. Where available at a reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Company’s policy is to deal only with creditworthy counterparties. In addition, for a significant proportion of sales, advance payments are received to mitigate credit risk. Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the statements of financial position (or in the detailed analysis provided in the notes to the financial statements), as summarized below. Notes 2013 2012

Cash and cash equivalents 5 $ 8,205,166 $ 2,201,727 Trade and other Receivables - net 6 20,158,886 4,619,685 $ 28,364,052 $ 6,821,412 The Company’s management considers that all the above financial assets that are not impaired or past due for each reporting period are of good credit quality. a. Cash and Cash Equivalents As part of Company policy, bank deposits are only maintained with reputable financial institutions. Cash in banks which are insured by the Philippine Deposit Insurance Corporation (PDIC) up to a maximum coverage of P500,000 ( approximately $11,259) per depositor per banking institution, as provided for under Republic Act No. 9576, Charter of PDIC, are still subject to credit risk.

b. Trade and Other Receivables In respect of trade and other receivables, the Company is exposed to significant credit risk exposure to a single counterparty. As of December 31, 2013, 25% of its trade receivable is from a single counterparty. To mitigate the risk, the Company has policies in place to ensure that goods are sold to customers with an appropriate credit history. Based on historical information about customer default rates, management consider the credit quality of trade receivables that are not past due or impaired to be good. There was no significant credit risk exposure to a single counterparty as of December 31, 2012.

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Financial assets that are past due but not impaired are as follows: 2013 2012 Less than one year $ 2,485,213 $ 1,566,491 More than one year - 259

$ 2,485,213 $ 1,566,750

4.3 Liquidity Risk

The ability of the Company to finance its operations and to meet obligations as these become due is extremely crucial to its viability as a business entity. The Company adopts a prudent liquidity risk management where it maintains sufficient cash to meet trade and other short-term payables as they fall due. The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in a day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a six-month and one-year period are identified monthly. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets. As at December 31, 2013, the Company’s financial liabilities have contractual maturities which are presented below.

Within 6 to 12 6 Months Months Interest-bearing loans $ 45,155,961 $ - Trade and other payables 8,199,726 - Due to related parties 5,238,586 - $ 58,594,273 $ -

This compares to the maturity of the Company’s financial liabilities as at December 31, 2012 as follows:

Within 6 to 12 6 Months Months

Interest-bearing loans $ 33,577,830 $ 370,986 Trade and other payables 10,868,961 - Due to related parties 4,085,368 - $ 48,532,159 $ 370,986

The above contractual maturities reflect the gross cash flows, which may differ from the carrying values of the liabilities at the end of each of the reporting periods.

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5. CASH AND CASH EQUIVALENTS The breakdown of this account is as follows: 2013 2012

Cash on hand $ 1,914 $ 1,821 Cash in bank 4,259,113 2,201,727 Short term placements 3,946,053 - $ 8,207,080 $ 2,203,548

Cash in banks generally earn interest at rates based on daily bank deposit rates. Short-term placements are made for varying periods between 30 to 90 days and earn effective interest ranging from 1.63% to 2.25% for both periods.

6. TRADE AND OTHER RECEIVABLES

This account (see also Note 4.2) is composed of the following: Note 2013 2012

Trade receivables $ 15,367,209 $ 4,737,828 Deposits on purchase 1,421,700 - Others 17.2 4,813,866 26,140 21,602,775 4,763,968 Allowance for impairment ( 22,189) ( 144,283 )

$ 21,580,586 $ 4,619,685

Trade receivables are usually due within 30 to 45 days and do not bear any interest. All trade and other receivables are subject to credit risk exposure. Deposit on purchase pertains to the Company’s advance payment to suppliers. All of the Company’s trade and other receivables have been reviewed for indicators of impairment. Certain receivables were identified to be impaired, hence, adequate amounts of allowance for impairment have been recognized. The Company recognized impairment losses of $22,189 in 2013 and $75,500 in 2012 and presented them as part of Impairment loss on trade and other receivables under Administrative Expenses in the statements of comprehensive income (see Note 13).

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A reconciliation of the allowance for impairment at the beginning and end of 2013 and 2012 is shown below. Note 2013 2012

Balance at beginning

of year $ 144,283 $ 68,783 Reversal of impairment ( 144,283) - Impairment losses 13 22,189 75,500 Balance at end of year $ 22,189 $ 144,283

In 2013, the Company recognized reversal of allowance for impairment on certain accounts amounting to P144,283 (nil in 2012) and presented it as part of Other income under Other Operating Expenses (Income) in the 2013 statement of comprehensive income.

7. INVENTORIES

Details of inventories are shown below. Note 2013 2012

Finished goods:

At cost $ 13,256,275 $ 10,268,611 At net realizable value 2,570,888 176,170

13 15,827,163 10,444,781 Raw and packaging materials 12,476,580 33,344,561

Spare parts, supplies and others 906,828 1,056,207

$ 29,210,571 $ 44,845,549

The inventory write-down amounting to $623,851 in 2013 and $291,319 in 2012 are included under changes in finished goods inventories and is presented as part of Cost of Goods Sold in the statements of comprehensive income, as the Company considers the write-down to be normal in its operations.

Cost of inventories charge to operation in 2013 and 2012 is analyzed in Note 13.

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8. PREPAYMENTS AND OTHER CURRENT ASSETS The composition of this account is shown below. 2013 2012

Tax credit certificates (TCC) from the Bureau of Customs (BOC) $ 1,004,460 $ 937,542 Prepaid insurance 9,579 12,385 Prepaid rent 337 363 Others 46,202 23,350 $ 1,060,578 $ 973,640

TCC from the BOC are granted to the Bureau of Investment (BOI) registered companies and are given for taxes and duties paid on raw materials used for the manufacture of their export products. The Company can offset their TCC against tax liabilities other than withholding tax or be converted to a cash refund.

9. PROPERTY, PLANT AND EQUIPMENT The gross carrying amounts and accumulated depreciation of property, plant and equipment at the beginning and end of 2013 and 2012 are shown below.

At Fair Value At Cost Transportation Machinery Construction- Land and Delivery and in- Land Buildings Improvements Equipment Equipment Progress Total

December 31, 2013 Cost $ - $ 9,098,002 $ 1,418,673 $ 26,955 $ 22,550,974 $ 661,260 $ 33,755,864 Accumulated depreciation - ( 4,785,580 ) ( 1,228,433 ) ( 26,955 ) ( 13,099,155 ) - ( 19,140,123 ) Carrying amounts $ - $ 4,312,422 $ 190,240 $ - $ 9,451,819 $ 661,260 $ 14,615,741 December 31, 2012 Cost $ 1,827,066 $ 8,600,943 $ 1,388,173 $ 26,955 $ 20,344,632 $ 705,335 $ 32,893,104 Revaluation increment 35,773 - - - - - 35,773 Accumulated depreciation - ( 4,209,932 ) ( 1,187,432 ) ( 26,955 ) ( 10,878,290 ) - ( 16,302,609 ) Carrying amounts $ 1,862,839 $ 4,391,011 $ 200,741 $ - $ 9,466,342 $ 705,335 $ 16,626,268 January 1, 2012 Cost $ 1,827,066 $ 8,069,346 $ 1,379,635 $ 77,729 $ 19,452,356 $ 426,790 $ 31,232,922 Revaluation increment 35,773 - - - - - 35,773 Accumulated depreciation - ( 3,571,941 ) ( 1,146,789 ) ( 77,729 ) ( 8,839,962 ) - ( 13,636,421 ) Carrying amounts $ 1,862,839 $ 4,497,405 $ 232,864 $ - $ 10,612,394 $ 426,790 $ 17,632,274

A reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of 2013 and 2012, is shown below.

At Fair Value At Cost Transportation Machinery Construction- Land and Delivery and in- Land Buildings Improvements Equipment Equipment Progress Total

Balance at January 1, 2013, net of accumulated depreciation $ 1,862,839 $ 4,391,011 $ 200,741 $ - $ 9,466,342 $ 705,335 $ 16,626,268 Additions - - 30,500 - 2,101,663 594,811 2,726,974 Disposals ( 1,862,839 ) - - - - - ( 1,862,839 ) Derecogntion - - - - ( 37,148 ) - ( 37,148 ) Reclassifications - 497,059 - - 141,827 ( 638,886 ) - Depreciation charges for the year - ( 575,648 ) ( 41,001 ) - ( 2,220,865 ) - ( 2,837,514 ) Carrying amounts $ - $ 4,312,422 $ 190,240 $ - $ 9,451,819 $ 661,260 $ 14,615,741 Balance at January 1, 2012, net of accumulated depreciation $ 1,862,839 $ 4,497,405 $ 232,846 $ - $ 10,612,394 $ 426,790 $ 17,632,274 Additions - 184,229 8,538 - 860,486 671,508 1,724,761 Disposals - - - - ( 1,508 ) - ( 1,508 ) Reclassifications - 347,368 - - 45,595 ( 392,963 ) - Depreciation and charges for the year - ( 637,991 ) ( 40,643 ) - ( 2,050,625 ) - ( 2,729,259 ) Carrying amounts $ 1,862,839 $ 4,391,011 $ 200,741 $ - $ 9,466,342 $ 705,335 $ 16,626,268

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Construction-in-progress pertains to the accumulated costs incurred on the ongoing construction of a new building and installation of machinery and equipment as part of the Company’s expansion program (see Note 20.3). In 2013 and 2012, portion of construction-in-progress amounting to $638,886 and $392,963, respectively, were completed and transferred by the Company to their proper account classification. The Company did not capitalize any borrowing cost related to their general borrowings in 2013 and 2012, since management determined that the effect is not material to the financial statements. On October 15, 2013, the Company’s land with a carrying value of $1,862,839 as at the date of sale was sold to CCC at its original cost of $1,827,066. Consequently, loss on disposal of land of $35,773 is recognized and shown as part of Loss on disposal of property and equipment under Other Expenses in the 2013 statement of comprehensive income (see Note 13). The corresponding revaluation reserve of $35,773, carried in equity is transferred directly to the Retained Earnings. The amount of depreciation (see Note 13) is allocated as follows: 2013 2012

Cost of goods sold $ 2,695,638 $ 2,550,836 Administrative expenses 141,876 178,423 $ 2,837,514 $ 2,729,259

Fully depreciated assets with total original cost of $4,635,448 and $3,887,265 as at December 31, 2013 and 2012 respectively, are still being used in operations. Certain machinery with net book value of $37,148 was no longer in use; hence, derecognized as at December 31, 2013.

10. OTHER NON-CURRENT ASSETS Other non-current assets are summarized below: Note 2013 2012

Input VAT 24.1(b) $ 331,784 $ 663,655 Others 16,706 1,697 $ 348,490 $ 665,352

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11. INTEREST-BEARING LOANS

The short-term and long-term interest-bearing loans, which are collateralized by a continuing joint suretyship of certain stockholders and a corporate guarantee of CCC (see Note 20), are broken down as follows:

2013 2012 in PHP in USD in PHP in USD Short-term P1,984,600,000 $ 44,684,109 P 1,320,700,000 $ 32,062,051 Long-term 15,000,000 337,731 75,000,000 1,820,742 P1,999,600,000 $ 45,021,840 P 1,395,700,000 $ 33,882,793

These loans were originally availed in Philippine peso and are presented in the statements of financial positions as follows: 2013 2012

Current $ 45,021,840 $ 33,518,645 Non-current - 364,148 $ 45,021,840 $ 33,882,793

Short-term loans consist of several borrowings from local banks which mature within 14 to 30 days and bear annual interest rates ranging from 2.50% to 2.65% in 2013 and 2.25% to 4.75% in 2012. Only the Company’s long-term loan is subject to a condition that requires the Company to meet certain financial ratios such as debt-to-equity ratio (not to exceed 2.5:1) and current ratio (of at least 1.0:1). In the event of default or non-compliance with any of the provisions of the loan agreement, the bank-creditor may (by written notice) either declare the loan terminated or declare the entire unpaid principal amount and interest of the loan due and demandable. The loan covenant has been consistently complied with by the Company but not as of December 31, 2013 (see Note 22). However, on February 27, 2014, complying with the long-term loan’s prescribed bank-scheduled-amortization, the Company has fully paid the remaining principal amount, denominated in Philippine peso, and included in current liabilities as at December 31, 2013 amounting to P15,000,000 (or approximately $337,731) without additional burden of penalties that the local bank could have imposed had the loan covenant conditions were applied. As such, the Company had foregone obtaining a bank loan waiver effective December 31, 2013. The Company’s management assessed that obtaining such waiver is academic, in the absence of a written notice issued by the bank, as full payment and non-imposition of any bank penalties has cured any breach of the loan covenant. Interest expense charged to operations amounted to $1,069,892 in 2013 and $816,041 in 2012 and presented as part of Finance Costs in the statements of comprehensive income (see Note 14). The unpaid balance of interest amounting to $64,678 and $52,116 as at December 31, 2013 and 2012, respectively, is presented as part of Accrued Expenses under the Trade and Other Payables account in the statements of financial position (see Note 12).

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12. TRADE AND OTHER PAYABLES

This account consists of: Notes 2013 2012

Trade payables $ 4,430,772 $ 9,020,599 Accrued expenses 11 1,407,665 771,418 Others 17.1, 17.3 17.5 2,374,405 1,076,944 $ 8,212,842 $ 10,868,961

Accrued expenses include the current portion of the Company’s obligations to its employees and service providers that are expected to be settled within 12 months from the end of the reporting period. These liabilities arise mainly from the accrual of various expenses such as rent, freight, interest on loans and payroll at the end of the period.

Others payable also include liabilities to various agencies and regulatory bodies. 13. COSTS AND OPERATING EXPENSES BY NATURE

The details of costs and operating expenses by nature are shown below.

Notes 2013 2012 Raw materials used $ 115,802,914 $ 62,956,137 Changes in finished goods inventories 7 ( 5,382,382) 1,531,579 Outside services 17.5 7,376,689 5,852,420 Rent 20.1 5,070,682 4,100,160 Depreciation 9 2,837,514 2,729,259 Gas, fuel and oil 2,382,700 2,156,957 Supplies 2,255,899 1,989,322 Communication, light and water 1,686,203 1,315,590 Freight 1,587,318 1,117,023 Salaries and employee benefits 15 1,145,041 1,134,103 Taxes and licenses 24.1(c) 356,812 299,395 Insurance 249,003 175,994 Repairs and maintenance 213,316 170,374 Loss on disposal of property and equipment 9 72,921 - Commissions 63,689 45,369 Impairment losses on trade and other receivables 6 22,189 75,500 Foreign currency losses – net - 989,185 Miscellaneous 296,626 248,560 $ 136,037,134 $ 86,886,927

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These expenses are classified in the statements of comprehensive income as follows: 2013 2012 Cost of goods sold $ 132,466,117 $ 83,175,582 Administrative expenses 1,844,935 2,500,647 Selling expenses 1,651,007 1,162,392 Other expenses 75,075 48,306 $ 136,037,134 $ 86,886,927

Cost of goods sold consists of the following:

Note 2013 2012 Finished goods at beginning of year 7 $ 10,444,781 $ 11,976,360

Cost of goods manufactured: Raw materials used 115,802,914 62,956,137

Direct labor 5,584,209 4,505,777 Manufacturing overhead 16,461,376 14,182,089

137,848,499 81,644,003 Total goods available for sale 148,293,280 93,620,363

Finished goods at end of year 7 ( 15,827,163 ) ( 10,444,781 ) $ 132,466,117 $ 83,175,582

14. FINANCE COSTS AND INCOME

The details of these accounts are presented below. Notes 2013 2012

14.1 Finance Costs Interest expense 11 $ 1,069,892 $ 816,041 Bank charges 93,370 109,693 Foreign currency losses - net - 372,426 $ 1,163,262 $ 1,298,160

14.2 Finance Income

Foreign currency gain - net $ 2,243,620 $ - Interest income 37,612 67,561 Net interest income from plan asset 15.2 654 1,477 $ 2,281,886 $ 69,038

The foreign currency gains and losses are recognized in profit or loss; none are recognized in other comprehensive income.

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15. EMPLOYEE BENEFITS 15.1 Salaries and Employee Benefits

Expenses recognized for salaries and employee benefits (see Notes 13 and 17.7) are presented below.

2013 2012 Short-term benefits $ 1,102,315 $ 1,093,927 Post-employment benefits 42,726 40,176 $ 1,145,041 $ 1,134,103

15.2 Post-employment Defined Benefit Plan

(a) Characteristics of the Defined Benefit Plan

The Company maintains a partially funded, tax-qualified, non-contributory post-employment benefit plan that is being administered by a trustee bank covering all regular full-time employees. The normal retirement age is 60 with a minimum of 5 years of credited service. The plan also provides for an early retirement at age 50 with a minimum of 10 years of credited service and late retirement after age 60, both subject to the approval of the Company’s BOD. Normal retirement benefit is an amount equivalent to 100% of the final monthly covered compensation (average monthly basic salary during the last 12 months of credited service) for every year of credited service.

(b) Explanation of Amounts Presented in the Financial Statements

Actuarial valuations are made annually to update the retirement benefit costs and the amount of contributions. All amounts presented below are based on the actuarial valuation report obtained from an independent actuary in 2013 including the comparative year which has been restated in line with the adoption of PAS 19 (Revised), see Note 2.2(a)(ii).

The amounts of post-employment defined benefit obligation recognized in the statements of financial position are determined as follows:

2013 2012 Present value of the obligation $ 415,197 $ 396,926 Fair value of plan assets ( 401,718 ) ( 408,017 ) Under (over) funded 13,479 ( 11,091 ) Effect of asset ceiling - 657 $ 13,479 ( $ 10,434 )

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The movements in present value of the post-employment benefit obligation are as follows:

2013 2012 Balance at beginning of year $ 396,926 $ 314,055 Current service 42,726 40,176 Interest costs 24,491 20,346 Remeasurements – actuarial loss (gain): Changes in financial assumptions 31,307 - Experience adjustments ( 30,796 ) - Benefits paid by the plan ( 28,898 ) - Effect of foreign currency exchange rate changes ( 20,559) 22,349 Balance at end of year $ 415,197 $ 396,926

The movement in the fair value of plan assets is presented below.

2013 2012 Balance at beginning of year $ 408,017 $ 316,719 Interest income 25,145 21,823 Contributions paid into the plan 29,248 35,762 Benefits paid by the plan ( 28,898 ) - Remeasurement- return on plan assets ( 11,445 ) 7,430 Effect of foreign currency exchange rate changes ( 20,349 ) 26,283 Balance at end of year $ 401,718 $ 408,017

Actual return on plan assets amounted to $9,509 in 2013 and $29,335 in 2012. The composition of the fair value of total plan assets at the end of the reporting period by category is shown below.

2013 2012 Cash and cash equivalents $ 38,967 $ 43,209 Debt instruments : Government bonds 244,566 247,340 Other bonds 87,333 80,175 Others 30,852 37,293 $ 401,718 $ 408,017

Plan assets do not comprise any of the Company’s own financial instruments or any of its assets occupied and/or used in its operations.

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The components of amounts recognized in profit or loss and in other comprehensive income in respect of the defined benefit post-employment plan are as follows:

2013 2012

Reported in profit or loss:

Current service costs $ 42,726 $ 40,176 Net interest income ( 654 ) ( 1,477 ) $ 42,072 $ 38,699

Reported in other comprehensive income:

Actuarial gains (losses) arising from changes in: Financial assumptions $ 31,307 $ - Experience adjustments ( 30,796) - Return on plan assets (excluding amounts included in net interest expense) ( 11,445) 7,430 Actuarial gain (loss) on change on the effect of the asset ceiling test 683 ( 171 ) Tax income (expense) 3,075 ( 2,178 ) ($ 7,176) $ 5,081

Current service cost is allocated and presented in the statements of profit or loss under the following accounts:

Note 2013 2012

Cost of goods sold 13 $ 35,024 $ 34,150

Administrative expenses 7,384 6,026 $ 42,726 $ 40,176

The net interest income is included in the caption Finance Income (see Note 14.2) and the amount recognized in other comprehensive income is included under item that will not be reclassified subsequently to profit or loss. In determining the amounts of the defined benefit post-employment obligation, the following significant actuarial assumptions were used:

2013 2012 Discount rates 4.37% 6.29% Expected rate of salary increases 3.00% 4.00%

Assumptions regarding future mortality experience are based on published statistics and mortality tables. The average remaining working lives of an individual retiring at the age of 65 is 22 for both males and females.

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These assumptions were developed by management with the assistance of an independent actuary. Discount factors are determined close to the end of each reporting period by reference to the interest rates of a zero coupon government bonds with terms to maturity approximating to the terms of the post-employment obligation. Other assumptions are based on current actuarial benchmarks and management’s historical experience.

(c) Risks Associated with the Retirement Plan

The plan exposes the Company to actuarial risks such as investment risk, interest rate risk, longevity risk and salary risk.

(i) Investment and Interest Risks The present value of the defined benefit obligation is calculated using a discount rate determined by reference to market yields of government bonds. Generally, a decrease in the interest rate of a reference government bonds will increase the plan obligation. However, this will be partially offset by an increase in the return on the plan’s investments in debt securities and if the return on plan asset falls below this rate, it will create a deficit in the plan. Currently, the plan is composed of investment in cash and cash equivalents, corporate and government debt securities. (ii) Longevity and Salary Risks The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of the plan participants both during and after their employment, and to their future salaries. Consequently, increases in the life expectancy and salary of the plan participants will result in an increase in the plan obligation.

(d) Other Information

The information on the sensitivity analysis for certain significant actuarial assumptions, the Company’s asset-liability matching strategy, and the timing and uncertainty of future cash flows related to the retirement plan are described below. (i) Sensitivity Analysis

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is shown below.

Impact on Defined Benefit Obligation Change in Increase in Decrease in Assumption Assumption Assumption Discount rate +/-1% ( $ 29,020 ) $ 32,051 Salary increase rate +/-1% 28,153 ( 26,163 )

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The sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. This analysis may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation recognized in the statements of financial position. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous years.

(ii) Asset-liability Matching Strategies

The Company has no specific matching strategy between the plan assets and the plan liabilities. However, concentration on government and corporate debt instruments, are evident to align securing the principal value of plan assets from volatility or high risk in loss of value.

(iii) Funding Arrangements and Expected Contributions The plan is currently underfunded by $13,479 based on the latest actuarial valuation but the Company does not expect any contribution to the retirement benefit plan in 2014. While there are no minimum funding requirement in the country, the size of the underfunding may pose a cash flow risk in about 6 years’ time when a significant number of employees is expected to retire. The maturity profile of undiscounted expected benefit payments from the plan follows:

Between 1 to 5 years $ 7,530 Between 6 to 10 years 111,318 $ 118,848

The weighted average duration of the defined benefit obligation at the end of the reporting period is 9.5 years.

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16. TAXES

The major components of tax expense as reported in profit or loss: Note 2013 2012 Reported in profit or loss: Current tax expense: Regular corporate income tax (RCIT) at 30% 18 $ 742,366 $ 931,329 Final taxes at 20% and 7.5% 7,191 13,249 749,557 944,578 Deferred tax income relating to reversal of temporary differences ( 82,075 ) ( 68,622) $ 667,482 $ 875,956 Reported in other comprehensive income – Deferred tax expense (income) relating to reversal of temporary differences $ 3,075 ($ 2,178)

The reconciliation of tax on pretax profit computed at the applicable statutory rates to tax expense reported in the statements of comprehensive income profit is as follows:

2013 2012 Tax on pretax profit at 30% $ 1,172,178 $ 917,039 Adjustment for income subjected to lower income tax rates ( 3,595 ) ( 7,019) Tax effects of: Income subjected to income tax holiday (ITH) ( 462,218 ) - Non-taxable income ( 44,608 ) ( 40,549 ) Non-deductible expenses 5,725 6,485 Tax expense $ 667,482 $ 875,956

The net deferred tax assets relate to the following: Statement of Comprehensive Income

Statements of Other Financial Position Profit or loss Comprehensive Income 2013 2012 2013 2012 2013 2012 Allowance for inventory write-down $ 178,875 $ 87,396 ( $ 91,479) ( $ 12,273 ) $ - $ - Unrealized foreign currency loss (gain) 23,690 ( 108 ) ( 23,797) ( 42,652 ) - - Past service cost 12,171 15,625 3,454 3,765 Allowance for impairment 6,362 43,285 36,923 ( 22,543 ) - - Post-employment benefit obligation (asset) 4,046 ( 3,130 ) ( 7,176) 5,081 3,075 ( 2,178 ) Net Deferred Tax Assets $ 225,144 $ 143,069 Deferred Tax Expense (Income) ($ 82,075 ) ( $ 68,622 ) $ 3,075 ( $ 2,178 )

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The Company is subject to the minimum corporate income tax (MCIT) which is computed at 2% of gross income, as defined under the tax regulations, or RCIT, whichever is higher. No MCIT was reported in 2013 and 2012 as the RCIT was higher than MCIT in both years. In 2013 and 2012, the Company opted to claim itemized deductions.

17. RELATED PARTY TRANSACTIONS

The Company’s related parties include its ultimate parent, parent, entities under common ownership, the Company’s key management personnel and others as described in Note 2.17. A summary of the Company’s transaction with related parties:

December 31, 2013 December 31, 2012 Related Party Amount of Receivable Amount of Receivable Category Notes Transactions (Payable) Transactions (Payable) Ultimate Parent Company Purchase of goods 17.1 $ 1,451,775 ($ 1,011,289) $ 993,893 ($ 700,010 ) Accommodation of purchases 17.2 5,535,725 - 11,702,675 - Advances 17.4 1,153,218 ( 5,238,586 ) ( 5,921,302 ) ( 4,085,368 ) Management and consultancy services 17.5 753,813 ( 210,744 ) 438,395 ( 149,555 ) Lease Services 17.3 489,057 125,035 1,092,821 - Related Parties Under

Common Ownership Accommodation of Purchases 17.2 7,856,250 4,577,777 2,242,496 - Key Management Personnel Compensation 17.7 42,447 - 45,539 -

Details of foregoing transaction are as follows:

17.1 Purchase of Goods The Company buys frozen and canned fish inventories from CCC which are then exported at cost. Purchases from CCC amounted to $1,451,775 in 2013 and $993,893 in 2012, which are presented as part of Cost of Good Sold in the statement of comprehensive income. The outstanding payable to CCC in relation to these purchases of goods amounts to $1,011,289 and $700,010 as at December 31, 2013 and 2012, respectively, and presented as part of Others under the Trade and Other Payables account in the statements of financial position (see Note 12). 17.2 Accommodation of Purchases In normal course of the Company’s operation, the Company accommodates purchases of raw material fish inventories and other raw materials for CCC and Columbus Seafoods Corporation (CSC), a related party under common ownership. The total amount of purchases made on behalf of these related parties amounted to $13,391,975 in 2013 and $13,945,171 in 2012. The outstanding balance of such transactions amounts to $4,577,777 as at December 31, 2013 (nil as at December 31, 2012), and is presented as part of Others under Trade and Other Receivables in the 2013 statement of financial position (see Note 6).

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The Company did not recognize any allowance for impairment on those receivables in both years, as these are settled in the normal course of operating cycle and none remains as long-outstanding in any given year. 17.3 Lease Services In 2012, the Company entered into a new agreement with CCC to lease a portion of plant, machinery and equipment and cold storage located in Brgy. Tambler, General Santos City. Both leases shall be from January 1, 2012 onwards and will continue to be in effect unless sooner terminated. Rentals amounted to $489,057 in 2013 and $1,092,821 in 2012. As of December 31, 2013, the outstanding liability arising from this transaction amounts to $125,035 (nil as of December 31, 2012) and is presented as part of part of Others under the Trade and Other Payable account in the 2013 statement of financial position (see Note 12). 17.4 Advances from Related Parties In the normal course of business, the Company obtains advances from CCC and Pacific Meat Company Incorporated (PMCI), a related party under common ownership, for working capital requirements and other purposes. The balance of these advances from related parties as at December 31, 2013 and 2012 is presented as Due to Related Parties in the statements of financial position. Advances from related parties are unsecured, noninterest-bearing and repayable within 12 months.

2013 2012 Balance at beginning of year $ 4,085,368 $ 10,006,670 Additions 12,669,366 16,616,604 Repayments ( 11,516,148) ( 22,537,906) Balance at end of year $ 5,238,586 $ 4,085,368

17.5 Management and Consultancy Fees

Beginning 2011, in addition to key management personnel compensation incurred, the Company entered into an agreement to allow CCC to allocate and charge common corporate expenses to its subsidiaries. The management and consultancy fees incurred by the Company amounted to $753,813 in 2013 and $438,395 in 2012. These are presented as part of Outside Services under Administrative Expenses (see Note 13). The Company’s outstanding liability arising from this agreement amounted to $210,744 and $149,555 as at December 31, 2013 and 2012, respectively, and is presented as part of Others under the Trade and Other Payables account in the statement of financial position and is expected to be settled in 2014 (see Note 12).

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17.6 Financial Guarantees The Company, jointly and severally with its related parties, entered into a cross-corporate guarantee arrangement with various local banks to secure the short-term loan availments of its related parties. The total guaranteed outstanding loan balance (denominated in Philippine peso) amounts to P2,514,700,000 (or approximately $56,619,534) and P1,447,400,000 (or approximately $35,137,891) as at December 31, 2013 and 2012, respectively. The Company did not record the allocated share in exposure measured at fair value (or gross cash outflows) of the guarantee liability because the Company’s management believes and in coordination with the BOD of the Company’s ultimate parent company that probability of default in paying the Company’s related parties respective borrowings is low. There has been no credit default by any related parties nor of the Company. 17.7 Key Management Personnel Compensation

The compensation of key management personnel including the members of Executive Committee and department heads (see Note 15.1), for employee services is shown below:

2013 2012 Short-term benefits $ 38,249 $ 41,136 Post-employment benefits 4,198 4,303 $ 42,447 $ 45,539

The key management personnel compensation is in line with the agreement entered into by the Company with CCC relating to management and consultancy fees (see Note 17.5).

18. REGISTRATION WITH BOI

On September 25, 2012, the BOI approved the Company’s application for registration as a new expanding export producer of frozen tuna loins on a non-pioneer status. The Company is entitled to ITH for a period of three years beginning February 1, 2013 using the project’s ability to contribute to the economy’s development pursuant to Article 7 of Executive Order 226 based on the following parameters: (1) project’s net value added; (2) job generation; (3) multiplier effect; and (4) measured capacity.

19. EQUITY 19.1 Capital Stock As at December 31, 2013, the Company has only one stockholder owning 100 or more shares of the Company’s capital stock.

19.2 Retained Earnings

On September 30, 2013, the BOD approved the declaration of cash dividend amounting to P320,000,000 (or approximately $7,388,764) for distribution to stockholders of record as of September 30, 2013. The related dividend was paid in full on November 19, 2013.

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20. COMMITMENTS AND CONTINGENCIES 20.1 Operating Leases The Company is a lessee under several short-term lease contracts with renewal options. The usual term of the lease contract extends to one year that usually ends in December. The amount of rent expense which is recognized as part of Manufacturing overhead under Cost of Goods Sold in the statements of comprehensive income amounted to $5,070,682 and $4,100,160, respectively, in 2013 and 2012 (see Note 13). As of December 31, 2013 and 2012, the future minimum lease payments under these lease agreements amounted to $4,217,330 and $3,583,273, respectively. 20.2 Financial Guarantees The Company together with its related parties has financial guarantees amounting to $56,619,534 and $35,137,891 for the loan obtained by various related parties from various local banks (see Note 17.6). 20.3 Capital Commitments As at December 31, 2013, the Company has construction in progress with an accumulated cost of $661,260. The construction relates to a new building in connection with the Company’s plant expansion. The construction is expected to be completed in 2014 and has remaining estimated costs to complete of P21,290,451 ($479,407) as at December 31, 2013. 20.4 Credit Facilities As at December 31, 2013, the Company together with its related parties has short term loan credit facilities from various local banks under corporate cross guarantee arrangement (see Note 17.6). As at December 31, 2013, the unused credit facilities amounts to $59,589,769. 20.5 Others There are other commitments, litigations and contingent liabilities that arise in the normal course of the Company’s operations which are not reflected in the accompanying financial statements. As at December 31, 2013, management is of the opinion that losses, if any, from these commitments and contingencies will not have a material effect on the Company’s financial statements.

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21. CATEGORIES, FAIR VALUE MEASUREMENTS AND OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

21.1 Carrying Amounts and Fair Values by Category

The carrying amounts and fair values of the categories of assets and liabilities presented in the statements of financial position are shown below.

Notes December 31, 2013 December 31, 2012 Carrying Fair Carrying Fair Values Values Values Values Financial Assets Loans and receivables: Cash 5 $ 8,207,080 $ 8,207,080 $ 2,203,548 $ 2,203,548 Trade and other receivables – net 6 20,158,886 20,158,886 4,619,685 4,619,685 $ 28,365,966 $ 28,365,966 $ 6,823,233 $ 6,823,233 Financial Liabilities Financial liabilities at amortized cost: Current: Interest-bearing loans 11 $ 45,021,840 $ 45,021,840 $ 33,518,645 $ 33,518,645 Trade and other payables 12 8,199,726 8,199,726 7,285,945 7,285,945 Advances from related parties 17.4 5,238,586 5,238,586 4,085,368 4,085,368 Non-current – Interest-bearing loans 11 - - 364,148 364,148 $ 58,460,152 $ 58,460,152 $ 45,254,106 $ 45,254,106

See Notes 2.3 and 2.7 for a description of the accounting policies for each category of financial instrument. A description of the Company’s risk management objectives and policies for financial instruments is provided in Note 4. Management considered the carrying amounts of these financial instruments to approximate their fair values as at December 31, 2013 and 2012.

21.2 Fair Value Hierarchy In accordance with PFRS 13, the fair value of financial assets and liabilities and non-financial assets which are measured at fair value on a recurring or non-recurring basis and those assets and liabilities not measured at fair value but for which fair value is disclosed in accordance with other relevant PFRS, are categorized into three levels based on the significance of inputs used to measure the fair value. The fair value hierarchy has the following levels:

a) Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities that an entity can access at the measurement date; b) Level 2: inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and,

c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level within which the asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

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For purposes of determining the market value at Level 1, a market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company has no financial assets and financial liabilities measured at fair value or that are not carried at fair value but are required to be disclosed as at December 31, 2013 and 2012. For financial asset and financial liabilities measured at amortized cost management considers that their carrying amounts approximate their fair values (see Note 21.1).

21.3 Offsetting of Financial Assets and Financial Liabilities The Company has no financial assets and financial liabilities which are presented as net as at December 31, 2013 and 2012. Currently, certain financial assets and financial liabilities are settled on a gross basis, except for certain transactions where the customer also supplies certain raw materials to the Company and wherein such amounts can be settled on a net basis upon the approval of both parties. As such, the Company’s related outstanding receivables amounting to $5.1 million can be offset by the amount of related outstanding liabilities of $1.2 million as of December 31, 2013. There was no similar transaction source of potential offsetting in 2012.

22. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES The Company’s capital management objectives are:

• To ensure the Company’s ability to continue as a going concern;

• To meet maturing obligation to creditors; and,

• To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity as presented on the face of the statements of financial position. The Company is required to meet a certain level of debt-to-equity ratio. With the declaration of cash dividend as of September 30, 2013 (see Note 19) the Company’s equity account as at December 31, 2013 significantly declined. As a result, the Company breached the level set forth in the long-term loan agreement. However, the subsequent full settlement of the loan balance as of February 27, 2014 cured bank imposed penalties, if any (see Note 11). Capital for the reporting periods under review is summarized as follows:

2013 2012 Total liabilities $ 58,503,306 $ 49,186,500 Total equity 16,744,884 20,901,045 Debt-to-equity ratio 3.49 : 1 2.35 : 1

The Company sets the amount of capital in proportion to its overall financing structure, i.e., equity and financial liabilities. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

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23. SUPPLEMENTARY INFORMATION ON STATEMENT OF FINANCIAL POSITION AND COMPREHENSIVE INCOME The Company’s financial statements are presented in U.S. dollars, its functional currency. The following information, which shows amounts of the Company’s statements of financial position and statements of comprehensive income in Philippine pesos, is presented for purposes of providing supplementary information to certain users and is not intended to be a presentation in accordance with PFRS. Under this supplemental information, transactions denominated in Philippines pesos were presented using the amounts at the dates of the transactions, while transactions denominated in U.S. dollars were translated using appropriate exchange rates. Foreign currency gains and losses are not translated.

Statements of Financial Position

2013 2012 ASSETS Current assets P 2,651,407,165 P 2,194,606,531 Non-current assets 606,584,984 674,726,869 Total Assets P 3,257,992,149 P 2,869,333,400 LIABILITIES AND EQUITY Current liabilities P 2,598,351,018 P 2,011,090,293 Non-current liabilities - 14,355,250 Total Liabilities 2,598,351,018 2,025,445,543 Equity 659,641,131 843,887,857 Total Liabilities and Equity P 3,257,992,149 P 2,869,333,400

Statements of Comprehensive Income 2013 2012 Revenue – net P 5,923,105,471 P 3,793,036,607 Cost of goods sold ( 5,551,720,786) ( 3,575,252,766 ) Other operating expenses and other charges ( 205,169,853) ( 93,713,393 ) Tax expense ( 29,979,210) ( 37,198,563 ) Net profit P 136,235,622 P 86,871,885

The translation into Philippine pesos should not be construed as a representation that the U.S. dollar amounts could be converted into Philippine Peso amounts or at any other rates of exchange.

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24. SUPPLEMENTARY INFORMATION REQUIRED BY THE BUREAU OF INTERNAL REVENUE

Presented below is the supplementary information which is required by the Bureau of Internal Revenue (BIR) under its existing revenue regulations to be disclosed as part of the notes to financial statements. This supplementary information is not a required disclosure under PFRS. 24.1 Requirements under Revenue Regulations (RR) 15-2010 The information on taxes, duties and license fees paid or accrued during the taxable year required under RR 15-2010 issued on November 25, 2010 are as follows:

(a) Output VAT

In 2013, the Company declared output VAT as follows:

In Philippine Pesos In U.S. Dollars Output Output

Tax Base VAT Tax Base VAT

VATable sales P 204,527,796 P 24,543,336 $ 4,605,030 $ 552,604

Zero-rated sales 5,447,951,376 - 122,662,930 -

Exempt sales 913,078,125 - 20,558,340 -

P 6,565,557,297 P 24,543,336 $ 147,826,300 $ 552,604

The Company’s zero-rated and VAT zero-rated and exempt sales/receipt were determined pursuant to Section 106(A)(2)(a), Zero-rated VAT on Export Sale of Goods, and Section 109, VAT Exempt Transactions, of the 1997 National Internal Revenue Code, as amended. The tax bases are included as part of Sales of Goods in the 2013 statement of comprehensive income. Total output VAT paid during the year amounting to P13,138,511 ($295,842) net of allowable input VAT.

(b) Input Value-added Tax The movements in Input VAT in 2013 are summarized below.

In Philippine In U.S. Pesos Dollars Balance at beginning of year P 27,337,273 $ 663,655 Goods for resale/manufacture or further processing 581,015 13,081 Capital goods subject to amortization 897,722 20,213 Services lodged under cost of goods sold 6,048,961 136,195 Claims for tax credit/refund ( 8,725,287 ) ( 196,454 ) Applied against output VAT ( 11,403,825 ) ( 256,762 ) Foreign currency adjustment - ( 48,145 ) Balance at end of year P 14,735,859 $ 331,784

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The balance of Input VAT amounting to P14,735,859 ($331,784) as at December 31, 2013 is presented as part of Other Non-current Assets in the 2013 statement of financial position (see Note 10). (c) Taxes on Importation

In 2013, the total landed cost of the Company’s imported inventory for the use in business amounted to P4,485,108,643 ($105,658,759). This amount includes customs’ duties and tariff fees of P539,022 ($12,698).

(d) Excise Tax

The Company did not have any transactions in 2013 which are subject to excise tax.

(e) Documentary Stamp Tax (DST)

In 2013, the total DST paid and accrued by the Company on loan instruments amounted to P9,382,081 ($221,020).

(f) Taxes and Licenses

The details of taxes and licenses for the year 2013 are broken down as follows:

Philippine U.S. Pesos Dollars

DST P 9,382,081 $ 221,020 Business tax 2,638,576 62,159 Real estate tax 2,092,098 49,285 Miscellaneous 1,033,565 24,348 P 15,146,320 $ 356,812

The amounts of taxes and licenses for the year 2013 are presented as part of Taxes and licenses under Administrative Expenses in the 2013 statement of comprehensive income (see Note 13).

(g) Withholding Taxes

The details of total withholding taxes for the year ended December 31, 2013 are shown below.

Philippine U.S. Pesos Dollars

Expanded P 25,507,685 $ 574,316 Compensation and benefits 3,376,105 76,014 Final 537,104 12,093 P 29,420,894 $ 662,423

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(h) Deficiency Tax Assessment and Tax Cases

As at December 31, 2013, the Company does not have any deficiency tax assessment with the BIR or tax cases outstanding or pending in courts or bodies outside of the BIR in any of the open years. 24.2 Requirements under RR 19-2011 RR 19-2011 requires schedules of taxable revenues and other non-operating income, costs of sales and services, and itemized deductions, to be disclosed in the notes to financial statements.

The amounts of taxable revenues and income, and deductible costs and expenses presented below are based on relevant tax regulations issued by the BIR, hence, may not be the same as the amounts reflected in the 2013 statement of comprehensive income. (a) Taxable Revenues

The composition of the Company’s taxable revenues arising from sale of goods for the year ended December 31, 2013 is presented below.

U.S. Dollar Philippine Peso Exempt $ 69,650,674 P 2,972,532,223 Regular rate 68,468,547 2,922,081,741 $ 138,119,221 P 5,894,613,964

Exempt transactions were determined pursuant to the guidelines on the issuance of certification to BOI-registered Company per Revenue Memorandum Order 9-2000, Tax Treatment of treatment of Sales of Goods, Properties and Services made by VAT-registered supplier to BOI-registered Manufacturers-Exporters with 100% Export Sales.

(b) Deductible Costs of Sale

Deductible costs of sales at regular tax rate for the year ended December 31, 2013 comprises the following:

Exempt Regular Rate U.S. Dollar Philippine Peso U.S. Dollar Philippine Peso Finished goods at beginning of year $ 8,180,447 P 222,375,120 $ 7,646,716 P 207,866,300 Cost of goods

manufactured 61,883,318 2,775,279,130 67,956,287 3,033,202,048

Total goods available

for sale 70,063,765 2,997,654,250 75,603,003 3,241,068,348

Finished goods at end

of year 4,053,874 180,048,758 11,773,289 522,898,873

$ 66,009,891 P 2,817,605,493 $ 63,829,714 P 2,718,169,475

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(c) Taxable Non-operating and Other Income

The details of taxable non-operating and other income in 2013 which are subject to regular tax rate are shown below.

Philippine U.S.

Pesos Dollars

Rental income P 20,760,000 $ 489,057

Others 178,585 4,207 P 20,938,585 $ 493,264

(d) Itemized Deductions

The amounts of itemized deductions at regular tax rate for the year ended December 31, 2013 are as follows:

Exempt Regular Rate U.S. Dollar Philippine Peso U.S. Dollar Philippine Peso Freight $ 549,024 P 23,668,348 $ 1,009,306 P 43,711,747 Interest 513,748 22,147,618 525,097 22,741,268 Outside services 428,937 18,491,416 501,392 21,714,630 Taxes and licenses 161,588 6,966,040 188,883 8,180,280 Salaries and employee benefits 152,526 5,390,358 178,290 6,395,369 Depreciation and amortization 64,251 3,092,741 75,104 3,631,832 Bank charges 45,361 1,955,516 46,363 2,007,932 Commissions 22,029 949,657 40,497 1,753,867 Losses 26,850 1,146,939 23,301 999,903 Bad debts 10,048 433,189 11,746 508,698 Rent 3,505 151,087 4,097 177,422 Supplies 3,180 137,103 3,718 161,001 Insurance 2,559 110,336 2,992 129,568 Communication, light and water 1,888 81,380 2,207 95,566 Miscellaneous 40,929 1,775,192 44,550 1,918,570

$ 2,026,423 P 86,496,920 $ 2,657,543 P 114,127,653

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DRAFT (For Discussion Purpose Only) 2011 2010

(As Restated - (As Restated -

Notes 2012 See Notes 2 and 19) See Note 2)

CURRENT ASSETS

Cash and cash equivalents 5 2,203,548 $ 2,060,127 $ 1,868,391 $

Trade and other receivables - net 6 4,619,685 5,948,373 7,538,536

Inventories 7 44,845,549 38,674,777 32,269,026

Other current assets 8 973,640 750,169 833,048

Total Current Assets 52,642,422 47,433,446 42,509,001

NON-CURRENT ASSETS

Property, plant and equipment - net 9 16,626,268 17,632,274 17,714,576

Deferred tax assets - net 16 141,504 71,896 223,373

Retirement benefit asset 15 15,652 17,692 27,096

Other non-current assets 10 665,352 692,415 830,171

Total Non-current Assets 17,448,776 18,414,277 18,795,216

TOTAL ASSETS 70,091,198 $ 65,847,723 $ 61,304,217 $

CURRENT LIABILITIES

Interest-bearing loans 11 33,518,645 $ 24,062,102 $ 23,322,320 $

Trade and other payables 12 10,868,961 9,372,685 4,951,619

Income tax payable 349,378 241,223 -

Dividends payable 19 - 1,732,062 -

Advances from related parties 17 4,085,368 10,006,670 10,839,318

Total Current Liabilities 48,822,352 45,414,742 39,113,257

NON-CURRENT LIABILITY

Interest-bearing loan 11 364,148 1,707,339 3,076,222

Total Liabilities 49,186,500 47,122,081 42,189,479

EQUITY

Capital stock 19 11,333,722 11,333,722 7,286,958

Additional paid-in capital 3,296,386 3,296,386 3,296,386

Revaluation reserves 35,773 35,773 35,773

Retained earnings 19 6,238,817 4,059,761 8,495,621

Total Equity 20,904,698 18,725,642 19,114,738

TOTAL LIABILITIES AND EQUITY 70,091,198 $ 65,847,723 $ 61,304,217 $

GENERAL TUNA CORPORATION

LIABILITIES AND EQUITY

A S S E T S

See Notes to Financial Statements.

(Amounts in United States Dollars)

DECEMBER 31, 2012, 2011 AND 2010

STATEMENTS OF FINANCIAL POSITION

(A Wholly Owned Subsidiary of Century Canning Corporation)

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2011

(As Restated -

Notes 2012 See Notes 2 and 19)

SALE OF GOODS 17 90,072,393 $ 80,131,155 $

COST OF GOODS SOLD 13 83,177,084 74,609,681

GROSS PROFIT 6,895,309 5,521,474

OPERATING EXPENSES (INCOME)

Administrative expenses 13 1,511,770 1,320,698

Selling expenses 13 1,162,392 1,129,637

Other income 17 1,100,454 )( 685,627 )(

Other expenses 13 48,306 27,357

1,622,014 1,792,065

OPERATING PROFIT 5,273,295 3,729,409

FINANCE COSTS 14 2,286,830 1,676,528

FINANCE INCOME 5 67,561 )( 19,797 )(

PROFIT BEFORE TAX 3,054,026 2,072,678

TAX EXPENSE 16 874,970 729,712

NET PROFIT 2,179,056 1,342,966

OTHER COMPREHENSIVE INCOME - -

TOTAL COMPREHENSIVE INCOME 2,179,056 $ 1,342,966 $

GENERAL TUNA CORPORATION

See Notes to Financial Statements.

STATEMENTS OF COMPREHENSIVE INCOME

(A Wholly Owned Subsidiary of Century Canning Corporation)

(Amounts in United States Dollars)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

F-289

Additional Revaluation Retained

Notes Capital Stock Paid-in Capital Reserves Earnings Total

Balance at January 1, 2012

As previously reported 11,333,722 $ 3,296,386 $ 35,773 $ 4,916,992 $ 19,582,873 $

Prior period adjustment 2, 19 - - - 857,231 )( 857,231 )(

As restated 11,333,722 3,296,386 35,773 4,059,761 18,725,642

Net profit for the year - - - 2,179,056 2,179,056

Balance at December 31, 2012 11,333,722 $ 3,296,386 $ 35,773 $ 6,238,817 $ 20,904,698 $

Balance at January 1, 2011 7,286,958 $ 3,296,386 $ 35,773 $ 8,495,621 $ 19,114,738 $

Cash dividend 19 - - - 1,732,062 )( 1,732,062 )(

Stock dividend 19 4,046,764 - - 4,046,764 )( -

Net profit for the year - - - 1,342,966 1,342,966

Balance at December 31, 2011 11,333,722 $ 3,296,386 $ 35,773 $ 4,059,761 $ 18,725,642 $

GENERAL TUNA CORPORATION

(A Wholly Owned Subsidiary of Century Canning Corporation)

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in United States Dollars)

DRAFT (For Discussion Purpose Only)

See Notes to Financial Statements.

F-290

Notes 2012 2011

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 3,054,026 $ 2,702,678 $

Adjustments for:

Depreciation 9 2,729,259 2,461,014

Unrealized foreign currency loss 1,361,096 867,227

Interest expense 14 816,041 605,044

Finance income 5 67,561 )( 19,797 )(

Loss on retirement of property and equipment 1,508 27,358

Operating profit before working capital changes 7,894,369 6,643,524

Decrease in trade and other receivables 1,360,818 1,584,338

Increase in inventories 6,170,772 )( 7,035,751 )(

Decrease (increase) in other current assets 765,487 )( 47,701

Decrease in retirement benefit asset 2,040 9,404

Decrease in other non-current assets 30,556 136,926

Increase in trade and other payables 875,219 2,859,741

Cash generated from operations 3,226,743 4,245,883

Income taxes paid 262,994 )( 128,421 )(

Net Cash From Operating Activities 2,963,749 4,117,462

CASH FLOWS USED IN INVESTING ACTIVITIES

Acquisitions of property, plant and equipment 9 1,724,761 )( 2,494,151 )(

Interest received 67,561 19,797

Proceeds from sale of property, plant and equipment - 88,081

Net Cash Used in Investing Activities 1,657,200 )( 2,386,273 )(

CASH FLOWS USED IN FINANCING ACTIVITIES

Proceeds from short-term interest-bearing loans 8,691,770 756,164

Repayments of advances from related parties 5,921,302 )( 690,564 )(

Payment of dividends declared in prior year 19 1,732,062 )( -

Repayments of long-term interest-bearing loans 1,456,594 )( 1,385,265 )(

Interest paid 763,925 )( 229,794 )(

Net Cash Used in Financing Activities 1,182,113 )( 1,549,459 )(

NET INCREASE IN CASH AND CASH EQUIVALENTS 124,436 181,730

Effect of Exchange Rate Changes on Cash and Cash Equivalents 18,985 10,006

BEGINNING OF YEAR CASH AND CASH EQUIVALENTS 2,060,127 1,868,391

END OF YEAR CASH AND CASH EQUIVALENTS 2,203,548 $ 2,060,127 $

Supplemental Information on Non-cash Investing and Financing Activities:

1)

2)

STATEMENTS OF CASH FLOWS

(A Wholly Owned Subsidiary of Century Canning Corporation)

GENERAL TUNA CORPORATION

See Notes to Financial Statements.

DRAFT (For Discussion Purpose Only)

(Amounts in United States Dollars)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

In the same year, the Company transferred certain available-for-sale financial assets to its parent company amounting to $185,370

as payment for certain advances from the parent company (see Note 17.2)

In 2011, the Company issued common shares amounting to $4,046,764 as stocks dividends (see Note 19); declared cash dividend

amounting to $1,732,062 which remained unpaid as at December 31, 2011 (see Note 19).

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DRAFT (For Discussion Purpose Only)

GENERAL TUNA CORPORATION (A Wholly Owned Subsidiary of Century Canning Corporation)

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 (Amounts in United States Dollars)

1. CORPORATE INFORMATION General Tuna Corporation (the Company) was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on March 10, 1997. It is presently engaged in manufacturing and exporting private label canned, pouched and frozen tuna products. The Company is a wholly owned subsidiary of Century Canning Corporation (CCC or the parent company), a company incorporated and domiciled in the Philippines. CCC is presently engaged in the manufacturing and distribution of canned tuna products for the Philippine market. The registered office, which is also the principal place of business, of CCC and the Company is located at 32 Arturo Drive, Bagumbayan, Taguig, Metro Manila and the Company’s processing plant is located at Brgy. Tambler, General Santos City. The financial statements of the Company for the year ended December 31, 2012 (including the comparatives for the year ended December 31, 2011) were authorized for issue by the Company’s Vice President for Finance on April 12, 2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies that have been used in the preparation of these financial statements are summarized below and in the succeeding pages. The policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards

The financial statements of the Company have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial Reporting Standards Council (FRSC) from the pronouncements issued by the International Accounting Standards Board (IASB). The financial statements have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies in the succeeding pages.

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(b) Presentation of Financial Statements

The financial statements are presented in accordance with Philippine Accounting Standard (PAS) 1, Presentation of Financial Statements. The Company presents all items of income and expense in a single statement of comprehensive income. Two comparative periods are presented for the statement of financial position when the Company applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or reclassifies items in the financial statements. In 2012, the Company restated its 2011 financial statements to reclassify the amount of cold storage rentals, which was inadvertently included as part of the Company’s inventoriable costs in 2011, should be expensed outright as the said expense is not directly related to the cost of its inventories.

(c) Functional and Presentation Currency

These financial statements are presented in United States (U.S.) Dollars, the Company’s functional and presentation currency, and all values represent absolute amounts except when otherwise indicated. Items included in the financial statements of the Company are measured using its functional currency. Functional currency is the currency of the primary economic environment in which the Company operates.

2.2 Adoption of New and Amended PFRS

(a) Effective in 2012 that are Relevant to the Company

In 2012, the Company adopted the following amendments to PFRS that are relevant to the Company and effective for financial statements for the annual periods beginning on or after July 1, 2011 or January 1, 2012: PFRS 7 (Amendment) : Financial Instruments: Disclosures – Transfers of Financial Assets PAS 12 (Amendment) : Income Taxes – Deferred Tax: Recovery of Underlying Assets Discussed below are the relevant information about these amended standards.

(i) PFRS 7 (Amendment), Financial Instruments: Disclosures – Transfers of Financial

Assets. The amendment requires additional disclosures that will allow users of financial statements to understand the relationship between transferred financial assets that are not derecognized in their entirety and the associated liabilities; and, to evaluate the nature of, and risk associated with any continuing involvement of the reporting entity in financial assets that are derecognized in their entirety. The Company did not transfer any financial asset involving this type of arrangement; hence, the amendment did not result in any significant change in the Company’s disclosures in its financial statements.

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DRAFT (For Discussion Purpose Only)

(ii) PAS 12 (Amendment), Income Taxes – Deferred Tax: Recovery of Underlying Assets. The amendment introduces a rebuttable presumption that the measurement of a deferred tax liability or asset that arises from investment property measured at fair value under PAS 40, Investment Property, should reflect the tax consequence of recovering the carrying amount of the asset entirely through sale. The presumption is rebutted for depreciable investment property (e.g., building) that is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the asset over time, rather than through sale. Moreover, Standing Interpretation Committee 21, Income Taxes – Recovery of Revalued Non-Depreciable Assets, is accordingly withdrawn and is incorporated under PAS 12 requiring that deferred tax on non-depreciable assets that are measured using the revaluation model in PAS 16, Property, Plant and Equipment, should always be measured on a sale basis of the asset. The amendment has no significant impact on the Company’s financial statements as the Company has no investment property while the Company’s land classified as property, plant and equipment which is measured at fair value is taxable with the same rate regardless of whether these assets will be sold or used in operation.

(b) Effective in 2012 that is not Relevant to the Company

Of the amendments to PFRS that are effective in 2012 only PFRS 1, First-time Adoption of PFRS, is not relevant to the Company.

(c) Early Adoption of Philippine Accounting Standard 1 (Amendment), Presentation of Financial Statements In the preparation of the 2012 financial statements, the Company adopted early the amendment made to PAS 1, issued by the IASB and adopted by the FRSC as part of the Annual Improvements to PFRS 2009-2011 Cycle, which will be effective for the annual period beginning on or after January 1, 2013. The amendment clarifies that when an entity applies an accounting policy retrospectively or makes a retrospective restatement or reclassification of items in its financial statements that has a material effect on the information in the statement of financial position at the beginning of the preceding period (i.e., opening statement of financial position), it shall present a third statement of financial position as at the beginning of that preceding period. Other than disclosures of certain specified information as described below, related notes to the opening statement of financial position are not required to be presented.

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(d) Effective Subsequent to 2012 but not Adopted Early

There are new PFRS, amendments, annual improvements and interpretations to existing standards that are effective for periods subsequent to 2012. Management has initially determined the following pronouncements, which the Company will apply in accordance with their transitional provisions, to be relevant to its financial statements:

(i) PAS 1 (Amendment), Financial Statements Presentation – Presentation of Items of Other

Comprehensive Income (effective from July 1, 2012). The amendment requires an entity to group items presented in other comprehensive income into those that, in accordance with other PFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. The Company’s management does not expect this amendment to have an impact on the Company’s financial statements as the Company does not have any transaction recognized in other comprehensive income.

(ii) PAS 19 (Revised), Employee Benefits (effective from January 1, 2013). The revision made a number of changes as part of the improvements throughout the standard. The main changes relate to defined benefit plans as follows: • eliminates the corridor approach under the existing guidance of PAS 19

and requires an entity to recognize all actuarial gains and losses arising in the reporting period;

• streamlines the presentation of changes in plan assets and liabilities

resulting in the disaggregation of changes into three main components of service costs, net interest on net defined benefit obligation or asset, and remeasurement; and,

• enhances disclosure requirements, including information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans.

Currently, the Company is using the corridor approach and its unrecognized actuarial loss as at December 31, 2012 amounts to $4,450 which will be retrospectively recognized as loss in other comprehensive income in 2013 (see Note 15.2).

(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (effective from January 1, 2013). The amendment requires qualitative and quantitative disclosures relating to gross and net amounts of recognized financial instruments that are set-off in accordance with PAS 32, Financial Instruments: Presentation. The amendment also requires disclosure of information about recognized financial instruments which are subject to enforceable master netting arrangements or similar agreements, even if they are not set-off in the statement of financial position, including those which do not meet some or all of the offsetting criteria under PAS 32 and amounts related to a financial collateral. These disclosures will allow financial statement users to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with recognized financial assets and financial liabilities on the entity’s financial position. The Company has initially assessed that the adoption of the amendment will not have a significant impact on its financial statements.

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DRAFT (For Discussion Purpose Only)

(iv) PFRS 13, Fair Value Measurement (effective from January 1, 2013). This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across PFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. Management is in the process of reviewing its valuation methodologies for conformity with the new requirements and has yet to assess the impact of the new standard on the Company’s financial statements.

(v) PAS 32 (Amendment), Financial Instruments: Presentation – Offsetting Financial Assets

and Financial Liabilities (effective from January 1, 2014). The amendment provides guidance to address inconsistencies in applying the criteria for offsetting financial assets and financial liabilities. It clarifies that a right of set-off is required to be legally enforceable, in the normal course of business; in the event of default; and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendment also clarifies the principle behind net settlement and provided characteristics of a gross settlement system that would satisfy the criterion for net settlement. The Company does not expect this amendment to have a significant impact on its financial statements.

(vi) PFRS 9, Financial Instruments: Classification and Measurement (effective from January 1, 2015). This is the first part of a new standard on financial instruments that will replace PAS 39, Financial Instruments: Recognition and Measurement, in its entirety. This chapter covers the classification and measurement of financial assets and financial liabilities and it deals with two measurement categories for financial assets: amortized cost and fair value. All equity instruments will be measured at fair value while debt instruments will be measured at amortized cost only if the entity is holding it to collect contractual cash flows which represent payment of principal and interest.

The accounting for embedded derivatives in host contracts that are financial assets is simplified by removing the requirement to consider whether or not they are closely related, and, in most arrangement, does not require separation from the host contract.

For liabilities, the standard retains most of the PAS 39 requirements which include amortized cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in case where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than in profit or loss, unless this creates an accounting mismatch. To date, other chapters of PFRS 9 dealing with impairment methodology and hedge accounting are still being completed. Further, in November 2011, the IASB tentatively decided to consider making limited modifications to International Financial Reporting Standard 9’s financial asset classification model to address certain application issues.

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DRAFT (For Discussion Purpose Only)

The Company does not expect to implement and adopt PFRS 9 until its effective date. In addition, management is currently assessing the impact of PFRS 9 on the financial statements of the Company and it plans to conduct a comprehensive study of the potential impact of this standard prior to its mandatory adoption date to assess the impact of all changes.

(vii) 2009-2011 Annual Improvements to PFRS. Annual improvements to PFRS (2009-2011 Cycle) made minor amendments to a number of PFRS, which are effective for annual periods beginning on or after January 1, 2013. Among those improvements, the following amendments are relevant to the Company but management does not expect a material impact on the Company’s financial statements:

(a) PAS 16 (Amendment), Property, Plant and Equipment – Classification of

Servicing Equipment. The amendment addresses a perceived inconsistency in the classification requirements for servicing equipment which resulted in classifying servicing equipment as part of inventory when it is used for more than one period. It clarifies that items such as spare parts, stand-by equipment and servicing equipment shall be recognized as property, plant and equipment when they meet the definition of property, plant and equipment, otherwise, these are classified as inventory.

(b) PAS 32 (Amendment), Financial Instruments – Presentation – Tax Effect of Distributions to Holders of Equity Instruments. The amendment clarifies that the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction shall be accounted for in accordance with PAS 12. Accordingly, income tax relating to distributions to holders of an equity instrument is recognized in profit or loss while income tax related to the transaction costs of an equity transaction is recognized in equity.

2.3 Financial Assets Financial assets are recognized when the Company becomes a party to the contractual terms of the financial instrument. Financial assets other than those designated and effective as hedging instruments are classified into the following categories: financial assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity investments and available-for-sale (AFS) financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. Regular purchases and sales of financial assets are recognized on their trade date. All financial assets that are not classified as at FVTPL are initially recognized at fair value plus any directly attributable transaction costs. Financial assets carried at FVTPL are initially recorded at fair value and related transaction costs are recognized in profit or loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period which are classified as non-current assets.

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DRAFT (For Discussion Purpose Only)

Loans and receivables are subsequently measured at amortized cost using the effective interest method for maturities extending beyond one year, less any impairment losses. Any change in their value is recognized in profit or loss. Impairment loss is provided when there is objective evidence that the Company will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment loss is determined as the difference between the assets’ carrying amount and the present value of estimated cash flows. The Company’s financial assets categorized as loans and receivables are presented as Cash and Cash Equivalents and Trade and Other Receivables (except Deposit on purchases) in the statement of financial position. Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

All income and expenses, excluding impairment losses and foreign currency exchange losses related to trade and other receivables, relating to financial assets that are recognized in profit or loss are presented as part of Finance Costs or Finance Income in the statement of comprehensive income.

Non-compounding interest and other cash flows resulting from holding financial assets are recognized in profit or loss when earned, regardless of how the related carrying amount of financial assets is measured. Derecognition of financial assets occurs when the rights to receive cash flows from the financial instruments expire and substantially all of the risks and rewards of ownership have been transferred. 2.4 Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined using the weighted-average method. Finished goods and work-in-process include the cost of raw materials, direct labor and a proportion of manufacturing overheads based on normal operating capacity. The cost of raw materials include all costs directly attributable to acquisition, such as the purchase price, import duties and other taxes that are not subsequently recoverable from taxing authorities. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Net realizable value of raw materials is the current replacement cost. 2.5 Property, Plant and Equipment Property and equipment, except land which is stated at fair value, are stated at cost less accumulated depreciation, and any impairment in value. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized; expenditures for repairs and maintenance are charged to expense as incurred.

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DRAFT (For Discussion Purpose Only)

Depreciation is computed on the straight-line basis over the estimated useful lives of the assets as follows: Buildings 15 years Machinery and equipment 10 years Land improvements 10 years Transportation and delivery equipment 5 years Fully depreciated assets are retained in the accounts until these are no longer in use. No further charge for depreciation is made in respect of those accounts. Construction-in-progress represents properties under construction and is stated at cost. This includes cost of construction, applicable borrowing cost and other direct costs (see Note 2.15). The account is not depreciated until such time that the assets are completed and available for use. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.13). The residual values and estimated useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at the end of each reporting period. An item of property, plant and equipment, including the related accumulated depreciation and any impairment losses, is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the year the item is derecognized. 2.6 Other Assets Other assets pertain to other resources controlled by the Company as a result of past events. They are recognized in the financial statements when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. Other recognized assets of similar nature, where future economic benefits are expected to flow to the Company beyond one year after the end of the reporting period (or in the normal operating cycle of the business, if longer), are classified as non-current assets. 2.7 Financial Liabilities Financial liabilities, which include interest-bearing loans, trade and other payables [except output value-added tax (VAT) and other taxes payable], advances from a stockholder and dividend payable are recognized when the Company becomes a party to the contractual terms of the instrument. These are recognized initially at their fair values and subsequently measured at amortized cost, using the effective interest method for maturities beyond one year, less settlement payments. All interest-related charges incurred on financial liability are recognized as an expense in profit or loss under the caption Finance Costs in the statement of comprehensive income.

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DRAFT (For Discussion Purpose Only)

Interest-bearing loans are raised for support of short-term or long-term funding of operations. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent that these are not settled in the period in which they arise. Dividend payable to shareholders are recognized as financial liabilities when the dividends are approved by the Company’s Board of Directors (BOD). Financial liabilities are derecognized from the statement of financial position only when the obligations are extinguished either through discharge, cancellation or expiration.

2.8 Offsetting Financial Instruments Financial assets and liabilities are offset and the resulting net amount is reported in the statement of financial position when there is a legally enforceable right to set-off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. 2.9 Provisions and Contingencies Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive obligation that has resulted from past events.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the end of the reporting period, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. When time value of money is material, long-term provisions are discounted to their present values using a pretax rate that reflects market assessments and the risks specific to the obligation. The increase in provision due to passage of time is recognized as interest expense. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Similarly, possible inflows of economic benefits to the Company that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements. On the other hand, any reimbursement that the Company can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset not exceeding the amount of the related provision.

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DRAFT (For Discussion Purpose Only)

2.10 Revenue and Expense Recognition

Revenue comprises revenue from the sale of goods measured by reference to the fair value of consideration received or receivable by the Company for goods supplied, excluding VAT and trade discounts. Revenue is recognized to the extent that the revenue can be reliably measured; it is probable that the economic benefits will flow to the Company; and the costs incurred or to be incurred can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: (a) Sale of goods – Revenue is recognized when the risks and rewards of ownership of the

goods have passed to the buyer. This is generally when the buyer has taken undisputed delivery of goods.

(b) Interest Income – Revenue is recognized as the interest accrues taking into account the effective yield on the asset.

Costs and expenses are recognized in the statement of comprehensive income upon receipt of goods and/or utilization of service or at the date they are incurred. Finance costs are reported on an accrual basis, except capitalized borrowing costs which are included as part of the cost of the related qualifying assets (see Note 2.15). 2.11 Leases (a) Company as Lessee

Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments (net of any incentive received from the lessor) are recognized as expense in profit or loss on a straight-line basis over the lease term. Associated costs, such as repairs and maintenance and insurance, are expensed as incurred.

(b) Company as Lessor

Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating leases. Lease income from operating leases is recognized in profit or loss on a straight-line basis over the lease term. The Company determines whether an arrangement is, or contains, a lease based on the substance of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

2.12 Foreign Currency Transactions and Translation The accounting records of the Company are maintained in U.S. Dollars. Foreign currency transactions during the year are translated into the functional currency at exchange rates which approximate those prevailing on transaction dates.

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DRAFT (For Discussion Purpose Only)

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are presented in the statement of comprehensive income as part of Finance Costs in the statement of comprehensive income.

2.13 Impairment of Non-financial Assets The Company’s property, plant and equipment and other non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flows evaluation. Impairment loss is charged pro rata to the other assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversal of the impairment loss.

2.14 Employee Benefits

(a) Defined Benefits Plan Post-employment benefits are provided to employees through a defined benefit plan. A defined benefit plan is a post-employment plan that defines an amount of post-employment benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of post-employment plan remains with the Company, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long-term benefit fund, as well as qualifying insurance policies. The Company’s post-employment defined benefit pension plan covers all regular full-time employees. The liability recognized in the statement of financial position for a defined benefit plan is the present value of the defined benefit obligation (DBO) at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The DBO is calculated annually by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using a discount rate derived from the interest rates of a zero coupon government bonds as published by Philippine Dealing and Exchange Corporation, that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related post-employment liability.

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Actuarial gains and losses are not recognized as an income or expense unless the total unrecognized gain or loss exceeds 10% of the greater of the obligation and related plan assets. The amount exceeding this 10% corridor is charged or credited to profit or loss over the employees’ expected average remaining working lives. Actuarial gains and losses within the 10% corridor are disclosed separately. Past service costs are recognized immediately in profit or loss, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period.

(b) Termination Benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits.

The Company recognizes termination benefits when it is demonstrably committed to either: (a) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or (b) providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.

(c) Compensated Absences

Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the end of the reporting period. They are included in the Trade and Other Payables account at the undiscounted amount that the Company expects to pay as a result of the unused entitlement. 2.15 Borrowing Costs Borrowing costs are recognized as expenses in the period in which they are incurred, except to the extent that they are capitalized. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (i.e., an asset that takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of cost of such asset. The capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization ceases when substantially all such activities are complete.

2.16 Income Taxes Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity, if any. Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the end of the reporting period. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in profit or loss.

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DRAFT (For Discussion Purpose Only)

Deferred tax is accounted for using the liability method, on temporary differences at the end of the reporting period between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow such deferred tax assets to be recovered.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled provided such tax rates have been enacted or substantively enacted at the end of the reporting period. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in profit or loss. Only changes in deferred tax assets or liabilities that relate to items recognized in other comprehensive income or directly in equity are recognized in other comprehensive income or directly in equity, respectively. Deferred tax assets and deferred tax liabilities are offset if the Company has a legally enforceable right to set-off current tax assets against current tax liabilities and the deferred taxes relate to the same entity and the same taxation authority.

The Company establishes liabilities for probable and estimable assessments by Bureau of Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent a reasonable provision for taxes ultimately expected to be paid and may need to be adjusted over time as more information becomes available.

2.17 Related Party Relationships and Transactions Related party transactions are transfers of resources, services or obligations between the Company and its related parties, regardless whether a price is charged. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. These parties include: (a) individuals owning, directly or indirectly through one or more intermediaries, control or are controlled by, or under common control with the Company; (b) associates; and, (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company and close members of the family of any such individual. In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely on the legal form.

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2.18 Equity Capital stock represents the nominal value of shares that have been issued. Additional paid-in capital includes any premium received on the issuance of capital stock. Any transaction costs associated with the issuance of shares are deducted from additional paid-in capital, net of any related income tax benefits. Revaluation reserves comprise gains and losses due to the revaluation of land. Retained earnings represent all current and prior period results of operations as reported in the profit or loss section of the statements of comprehensive income. 2.19 Events After the End of the Reporting Period

Any post-year-end event that provides additional information about the Company’s financial position at the end of the reporting period (adjusting event) is reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the financial statements.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Company’s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may ultimately vary from these estimates. 3.1 Critical Management Judgments in Applying Accounting Policies In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements: (a) Distinction between Operating and Finance Leases

The Company has entered into various lease agreements as a lessee. Critical judgment was exercised by management to distinguish each lease agreement as either an operating or finance lease by looking at the transfer or retention of significant risk and rewards of ownership of the properties covered by the agreements. Failure to make the right judgment will result in either overstatement or understatement of asset and liabilities. Based on management’s judgment such leases were determined to be operating leases.

(b) Recognition of Provisions and Contingencies Judgment is exercised by management to distinguish between provisions and contingencies. Policies on recognition and disclosure of provision and contingencies are discussed in Note 2.9 and relevant disclosures of contingencies are presented in Notes 20.

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DRAFT (For Discussion Purpose Only)

(c) Costing of Inventories

In determining cost, management uses judgment in properly allocating the labor and overhead between the cost of inventories on hand (finished goods and work-in-process) and cost of goods sold. The Company currently allocates production overhead on the basis of units produced. However, the amount of costs charged to finished goods and work-in-process inventories would differ if the Company utilized a different allocation base. Changes in allocated cost would affect the carrying cost of inventories and could potentially affect the valuation based on lower of cost and net realizable value.

3.2 Key Sources of Estimation Uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: (a) Impairment of Trade and Other Receivables

Adequate amount of allowance for impairment is provided for specific and group of accounts, where objective evidence of impairment exists. The Company evaluates these accounts based on available facts and circumstances, including, but not limited to, the length of the Company’s relationship with the customers, the customers’ current credit status based on third party credit reports and known market forces, the average age of accounts, collection experience and historical loss experience. Based on the analysis done by management, certain receivables were identified to be impaired. The carrying value of trade and other receivables and analysis of allowance for impairment on such financial assets are shown in Note 6.

(b) Determining Net Realizable Value of Inventories

In determining the net realizable value of inventories, management takes into account the most reliable evidence available at the dates the estimates are made. The future realization of the carrying amounts of inventories as presented in Note 7 is affected by price changes in different market segments. These are considered key sources of estimation, especially that such inventories are substantially perishable in nature and highly affective by temperature and other environmental conditions, uncertainty and may cause significant adjustments to the Company’s inventories within the next financial year.

(c) Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment, except land, based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets.

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DRAFT (For Discussion Purpose Only)

The carrying amounts of property, plant and equipment are analyzed in Note 9. Based on management’s assessment as at December 31, 2012, there is no change in estimated useful lives of property, plant and equipment during the year. Actual results, however, may vary due to changes in estimates brought about by changes in factors mentioned above.

(d) Determining the Fair Value of Land

The Company’s land is carried at revalued amount at the end of the reporting period. In determining the fair value of the land, the Company engages the services of professional and independent appraisers. The fair value is determined by reference to market-based evidence, which is the amount for which the asset could be exchanged between a knowledgeable willing buyer and seller in an arm’s length transaction as at the valuation date. Such amount is influenced by different factors including the location and specific characteristics of the property (e.g., size, features, and capacity), quantity of comparable properties available in the market, and economic condition and behaviour of the buying parties. A significant change in these elements may affect prices and the value of the asset. The amounts of revaluation and fair value gain recognized on land are disclosed in Note 9.

(e) Determining Recoverable Amount of Deferred Tax Assets

The Company reviews its deferred tax assets at the end of the reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The carrying value of deferred tax assets as at December 31, 2012 and 2011 which the management assessed to be probable of being utilized within the next two to three years is disclosed in Note 16.

(f) Impairment of Non-financial Assets

The Company’s policy on estimating the impairment of non-financial assets is discussed in detail in Note 2.13. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations. No impairment loss was recognized on the Company’s non-financial assets in 2012 and 2011.

(g) Valuation of Post-employment Benefits The determination of the Company’s obligation and cost of post-employment defined

benefit is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, discount rates, expected return on plan assets and salary increase rate. In accordance with PFRS, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods.

The amount of retirement benefit obligation (asset) and expense and an analysis of the

movements in the estimated present value of retirement benefit obligation (asset) are presented in Note 15.2.

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DRAFT (For Discussion Purpose Only)

4. RISK MANAGEMENT OBJECTIVES AND POLICIES The Company is exposed to certain financial risks which result from both its operating and investing activities. The Company’s risk management is coordinated with its parent company, in close cooperation with the BOD, and focuses on actively securing the Company’s short-to-medium term cash flows by minimizing the exposure to financial markets. The Company does not engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Company is exposed to are described below.

4.1 Market Risk

The Company is exposed to market risk through its use of financial instruments and specifically to currency risk and interest risk which result from both its operating and investing activities. (a) Foreign Currency Risk

Most of the Company’s transactions are carried out in U.S. Dollars, its functional currency. Exposures to currency exchange rates arise from the interest-bearing loans from local banks, trade and other payables and due to a related party which are primarily denominated in Philippine peso. The Company also holds Philippine peso-denominated cash.

To mitigate the Company’s exposure to foreign currency risk, non-U.S. dollar cash flows are regularly monitored.

Foreign currency denominated financial assets and liabilities (in Philippine pesos), translated into U.S. dollars at the closing rate are as follows:

2012 2011 Short-term exposure: Financial assets $ 2,095,713 $ 2,722,256 Financial liabilities ( 48,472,975 ) ( 45,270,647 ) ( 46,377,262 ) ( 42,548,391 )

Long-term exposure –

Financial liabilities ( 364,148 ) ( 1,707,339 ) Net exposure ( $ 46,741,410 ) ( $ 44,255,730 )

The sensitivity of the net results in regards to the Company’s financial assets and financial liabilities and the U.S. dollar – Philippine peso exchange rate assumes a +/-15.90% and +/-16.23% change of the U.S. dollar/Philippine peso exchange rate in 2012 and 2011, respectively. These percentages have been determined based on the average market volatility in exchange rates, using standard deviation, in the previous 12 months, estimated at 99% level of confidence. The sensitivity analysis is based on the Company’s foreign currency financial instruments held at the end of each reporting period, with effect estimated from the beginning of the year.

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DRAFT (For Discussion Purpose Only)

If the Philippine peso had strengthened against the U.S. dollar, then this would have the following impact:

2012 2011 Profit before tax $ 7,431,884 $ 7,182,705 Equity 5,202,319 4,886,443

If the Philippine peso had weakened against the U.S. dollar, then this would have a reverse impact by the same amounts as above.

The exchange rates used to translate Philippine peso – denominated financial assets and liabilities to U.S. dollars at December 31, 2012 and 2011 was P41.19:$1 and P43.93:$1, respectively. The Company actively monitors the volatility of the foreign currency exchange rates to manage its foreign currency exposure.

Exposures to foreign currency exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Company’s currency risk.

(b) Interest Rate Risk

The Company has limited exposure to changes in market interest rates through its interest-bearing loans and cash and cash equivalents, which are subject to variable interest rates. These financial instruments have historically shown small or measured changes in interest rates. All other financial assets and liabilities have fixed rates.

4.2 Credit Risk Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the statements of financial position (or in the detailed analysis provided in the notes to the financial statements), as summarized below.

Notes 2012 2011

Cash and cash equivalents 5 $ 2,201,717 $ 2,058,243 Trade and other receivables 6 4,619,685 5,446,965 $ 6,823,233 $ 7,507,092 As part of Company policy, bank deposits are only maintained with reputable financial institutions. Cash in banks which are insured by the Philippine Deposit Insurance Corporation (PDIC) up to a maximum coverage of (P500,000) per depositor per banking institution, as provided for under Republic Act No. 9576, Charter of PDIC, are still subject to credit risk. Trade and other receivables, as presented above, exclude deposit on purchases of $501,407 as of December 31, 2011. There was no outstanding balance of deposit on purchases as of December 31, 2012.

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DRAFT (For Discussion Purpose Only)

The Company continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporate this information into its credit risk controls. Where available at a reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Company’s policy is to deal only with creditworthy counterparties. In addition, for a significant proportion of sales, advance payments are received to mitigate credit risk.

The Company’s management considers that all the above financial assets that are not impaired or past due for each reporting period are off good credit quality.

In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Financial assets that are past due but not impaired are as follows: 2012 2011 Less than one year $ 144,024 $ 51,756 More than one year 259 16,065

$ 144,283 $ 67,821

The fair value of these short-term financial assets is not individually determined as the carrying amount is a reasonable approximation of fair value. 4.3 Liquidity Risk

The ability of the Company to finance its operations and to meet obligations as these become due is extremely crucial to its viability as a business entity. The Company adopts a prudent liquidity risk management where it maintains sufficient cash to meet trade and other short-term payables as they fall due. The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in a day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a six-month and one-year period are identified monthly. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets. As at December 31, 2012, the Company’s financial liabilities have contractual maturities which are presented below. Current Non-current

Within 6 to 12 1 to 5 6 Months Months Years Interest-bearing loans $ 33,518,645 $ 364,148 $ - Trade and other payables 10,868,961 - - Advances from related parties 4,085,368 - - $ 48,769,974 $ 364,148 $ -

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DRAFT (For Discussion Purpose Only)

This compares to the maturity of the Company’s financial liabilities as at December 31, 2011 as follows:

Current Non-current Within 6 to 12 1 to 5 6 Months Months Years

Interest-bearing loans $ 24,062,102 $ 1,365,871 $ 341,468 Advances from related parties 10,006,670 - - Trade and other payables 9,372,685 - - Dividend payable 1,732,062 - - $ 45,173,519 $ 1,365,871 $ 341,468

The above contractual maturities reflect the gross cash flows, which may differ from the carrying values of the liabilities at the end of each of the reporting periods.

5. CASH AND CASH EQUIVALENTS

The breakdown of this account is as follows: 2012 2011

Cash on hand $ 1,821 $ 1,884

Cash in bank 2,201,727 1,990,884 Short-term placements - 67,359

$ 2,203,548 $ 2,060,127

Cash in banks generally earn interest at rates based on daily bank deposit rates. Short-term placements are made for varying periods of between 15 to 30 days and earn effective interest ranging from 2.8% to 4.0% in both years. Interest income earned amounting to $67,561 and $ 19,797 in 2012 and 2011, respectively and presented as Finance Income in the statement of comprehensive income.

6. TRADE AND OTHER RECEIVABLES This account (see also Note 4.2) is composed of the following:

2012 2011

Trade receivables $ 4,737,828 $ 4,949,098 Deposit on purchases - 501,407 Others 26,140 566,651 4,763,968 6,017,156 Allowance for impairment ( 144,283 ) ( 68,783 ) $ 4,619,685 $ 5,948,373

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DRAFT (For Discussion Purpose Only)

Trade receivables are usually due within 30 to 45 days and do not bear any interest. All trade and other receivables are subject to credit risk exposure. However, the Company does not identify specific concentrations of credit risk with regard to trade and other receivables as the amounts recognized resemble a large number of receivables from various customers and counterparties.

Deposit on purchases pertains to advances made to suppliers for goods ordered. This is applied against billings from the suppliers upon the completion of such order; accordingly, not considered as financed assets (see also Note 4.2). All of the Company’s trade and other receivables have been reviewed for indicators of impairment. Certain receivables were identified to be impaired, hence, adequate amounts of allowance for impairment have been recognized. The Company recognized impairment losses on certain trade receivables amounting $75,500 in 2012 and $68,783 in 2011 and presented them as part of Impairment Loss on Trade and Other Receivables under Administrative Expense in the statements of comprehensive income (see Note 13).

A reconciliation of the allowance for impairment at the beginning and end of 2012 and 2011 is shown below. Note 2012 2011

Balance at beginning of year $ 68,783 $ - Impairment losses 13 75,500 68,783

Balance at end of year $ 144,283 $ 68,783

7. INVENTORIES

Details of inventories are shown below. Note 2012 2011

Finished goods: At cost $ 10,268,611 $ 11,439,866 At net realizable value 176,170 536,494 13 10,444,781 11,976,360

Raw and packaging materials 33,344,561 25,674,768

Spare parts, supplies and others 1,056,207 1,023,649 $ 44,845,549 $ 38,674,777 Raw and packaging materials include inventories amounting to $1,557,305 that are in transit as at December 31, 2011 (Nil as at December 31, 2012).

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DRAFT (For Discussion Purpose Only)

The inventory write-down amounting to $291,319 in 2012 and 249,395 in 2011, is presented as part of Cost of Goods Sold in the statements comprehensive income.

8. OTHER CURRENT ASSETS

The composition of this account is shown below.

2012 2011

Tax credit certificates from Bureau of Customs $ 937,542 $ 711,973 Prepaid insurance 12,385 14,839 Prepaid rent 363 340 Others 23,350 23,017 $ 973,640 $ 750,169

9. PROPERTY, PLANT AND EQUIPMENT The gross carrying amounts and accumulated depreciation of property, plant and equipment at the beginning and end of 2012 and 2011 are shown below.

At Fair Value At Cost Transportation Machinery Construction- Land and Delivery and in- Land Buildings Improvements Equipment Equipment Progress Total

December 31, 2012 Cost $ 1,827,066 $ 8,600,943 $ 1,388,173 $ 26,955 $ 20,344,632 $ 705,335 $ 32,893,104 Revaluation increment 35,773 - - - - - 35,773 Accumulated depreciation - ( 4,209,932 ) ( 1,187,432 ) ( 26,955 ) ( 10,878,290 ) - ( 16,302,609 ) Carrying value $ 1,862,839 $ 4,391,011 $ 200,741 $ - $ 9,466,342 $ 705,335 $ 16,626,268 December 31, 2011 Cost $ 1,827,066 $ 8,069,346 $ 1,379,635 $ 77,729 $ 19,452,356 $ 426,790 $ 31,232,922 Revaluation increment 35,773 - - - - - 35,773 Accumulated depreciation - ( 3,571,941 ) ( 1,146,789 ) ( 77,729 ) ( 8,839,962 ) - ( 13,636,421 ) Carrying value $ 1,862,839 $ 4,497,405 $ 232,846 $ - $ 10,612,394 $ 426,790 $ 17,632,274 January 1, 2011 Cost $ 1,827,066 $ 7,608,630 $ 1,333,668 $ 131,088 $ 18,991,805 $ 192,981 $ 30,085,238 Revaluation increment 35,773 - - - - - 35,773 Accumulated depreciation - ( 3,018,450 ) ( 1,080,559 ) ( 117,840 ) ( 8,189,586 ) - ( 12,406,435 ) Carrying value $ 1,862,839 $ 4,590,180 $ 253,109 $ 13,248 $ 10,802,219 $ 192,981 $ 17,714,576

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DRAFT (For Discussion Purpose Only)

A reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of 2012 and 2011, is shown below.

At Fair Value At Cost Transportation Machinery Construction- Land and Delivery and in- Land Buildings Improvements Equipment Equipment Progress Total

Balance at January 1, 2012, net of accumulated depreciation $ 1,862,839 $ 4,497,405 $ 232,846 $ - $ 10,612,394 $ 426,790 $ 17,632,274 Additions - 184,229 8,538 - 860,486 671,508 1,724,761 Disposals - - - - ( 1,508 ) - ( 1,508 ) Reclassifications - 347,368 - - 45,595 ( 392,963 ) - Depreciation charges for the year - ( 637,991 ) ( 40,643 ) - ( 2,050,625 ) - ( 2,729,259 ) Carrying value $ 1,862,839 $ 4,391,011 $ 200,741 $ - $ 9,466,342 $ 705,335 $ 16,626,268 Balance at January 1, 2011, net of accumulated depreciation $ 1,862,839 $ 4,590,180 $ 253,109 $ 13,248 $ 10,802,219 $ 192,981 $ 17,714,576 Additions - 287,626 31,384 - 1,547,647 627,494 2,494,151 Disposals - ( 47,505 ) ( 1,006 ) ( 8,313 ) ( 58,615 ) - ( 115,439 ) Reclassifications - 231,886 20,785 - 141,014 ( 393,685 ) - Depreciation and charges for the year - ( 564,782 ) ( 71,426 ) ( 4,935 ) ( 1,819,871 ) - ( 2,461,014 ) Carrying value $ 1,862,839 $ 4,497,405 $ 232,846 $ - $ 10,612,394 $ 426,790 $ 17,632,274

Construction-in-progress pertains to the accumulated costs incurred on the ongoing construction of a new building and installation of machinery and equipment as part of the Company’s expansion program (see Note 20.3). In 2012 and 2011, portion of construction-in-progress amounting to $392,963 and $393,685, respectively, were completed and reclassified by the Company to their proper account classification. In 2012 and 2011, management’s assessment showed that the fair value of the land, carried at revalued amount, did not materially change. Accordingly, no fair value gain or loss was recognized. The amount of depreciation (see Note 13) is allocated as follows: 2012 2011

Cost of goods sold $ 2,550,836 $ 2,381,301 Administrative expenses 178,423 79,713 $ 2,729,259 $ 2,461,014

Fully depreciated assets with total original cost of $3,887,265 and $3,047,799 as at December 31, 2012 and 2011 are still being used in operations.

10. OTHER NON-CURRENT ASSETS Other non-current assets are summarized below:

Note 2012 2011

Input VAT 24.1(b) $ 663,655 $ 685,132 Others 1,697 7,283 $ 665,352 $ 692,415

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DRAFT (For Discussion Purpose Only)

11. INTEREST-BEARING LOANS

The short-term and long-term interest-bearing loans [denominated in Philippine pesos (PHP)], which are collateralized by a continuing suretyship of certain stockholders and a corporate guarantee of CCC are broken down as follows:

2012 2011 in PHP in USD in PHP in USD Short-term P1,320,700,000 $ 32,062,051 P 997,000,000 $ 22,696,230 Long-term 75,000,000 1,820,742 135,000,000 3,073,211

P1,395,700,000 $ 33,882,793 P 1,132,000,000 $ 25,769,441

Short-term loans consist of several borrowings from local banks which mature within 14 to 30 days and bear annual interest rates ranging from 2.25% to 4.75% in 2012 and 3.25% to 3.60% in 2011. Long-term loan pertains to a five year loan with an original principal amount of $6,219,421 (P300,000,000) obtained on February 27, 2009 from a local commercial bank. The loan is payable quarterly and bears an annual interest of 7.51%. The long-term loan is subject to a condition that requires the Company to meet certain financial ratios such as debt-to-equity ratio (not to exceed 2.5:1) and current ratio (at least 1.0:1). In the event of default or non-compliance with any of the provisions of the loan agreement, the bank-creditor may (by written notice) either declare the loan terminated or declare the entire unpaid principal amount and interest of the loan due and demandable. As at December 31, 2012, the Company has complied with all the covenants set forth in the loan agreement (see Note 22). Interest-bearing loans are presented in the in statements of financial positions as follows: 2012 2011 Current $ 33,518,645 $ 24,062,102 Non-current 364,148 1,707,339 $ 33,882,793 $ 25,769,441

Interest expense charged to operations amounted to $816,041 in 2012 and $605,044 in 2011 and presented as part of Finance Costs in the statements of comprehensive income (see Note 14). The unpaid balance of interest amounting to $52,116 and $49,307 as at December 31, 2012 and 2011, respectively, is presented as part of Accrued Expenses under the Trade and Other Payables account in the statements of financial position (see Note 12).

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DRAFT (For Discussion Purpose Only)

12. TRADE AND OTHER PAYABLES

This account consists of:

Notes 2012 2011 Trade payables $ 9,020,599 $ 8,127,123 Accrued expenses 11 771,418 542,242 Others 17.3 1,076,944 703,320 $ 10,868,961 $ 9,372,685

Accrued expenses include the current portion of the Company’s obligations to its employees and service providers that are expected to be settled within 12 months from the end of the reporting period. These liabilities arise mainly from the accrual of various expenses such as rent, freight, interest on loans and payroll at the end of the period. The carrying amount of trade and other payables, which are expected to be settled within the next 12 months from the end of the reporting period, is a reasonable approximation of fair value.

Others payable include liabilities to various agencies and regulatory bodies. 13. COSTS AND OPERATING EXPENSES BY NATURE

The details of costs and operating expenses by nature are shown below.

Notes 2012 2011 Raw materials used $ 62,956,137 $ 54,166,359 Outside services 17.3 5,852,420 4,744,437 Rent 20.1 4,100,160 2,297,001 Depreciation and amortization 9 2,729,259 2,461,014 Gas, fuel and oil 2,156,957 2,195,909 Supplies 1,989,322 1,568,378 Changes in finished goods inventories 1,531,579 5,388,109 Communication, light and water 1,315,590 963,208 Salaries and employee benefits 15 1,135,913 1,097,485 Freight 1,117,023 1,282,947 Taxes and licenses 24.1 299,395 244,361 Insurance 175,994 113,946 Repairs and maintenance 170,374 140,078 Impairment loss on trade receivables 6 75,500 68,783 Commissions 45,369 84,781 Miscellaneous 248,560 270,577

$ 85,899,552 $ 77,087,373

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DRAFT (For Discussion Purpose Only)

These expenses are classified in the statements of comprehensive income as follows: 2012 2011 Cost of goods sold $ 83,177,084 $ 74,609,681 Administrative expenses 1,511,770 1,320,698 Selling expenses 1,162,392 1,129,637 Other expenses 48,306 27,357 $ 85,899,552 $ 77,087,373

Cost of goods sold for the years ended December 31, 2012 and 2011 consist of the following:

Note 2012 2011 Finished goods at beginning of year 7 $ 11,976,360 $ 17,412,482

Cost of goods manufactured: Raw materials used 62,956,137 54,166,359

Direct labor 4,505,777 3,475,044

Manufacturing overhead 14,183,591 11,532,156

81,645,505 69,173,559 Total goods available for sale 93,621,865 86,586,041

Finished goods at end of year 7 ( 10,444,781 ) ( 11,976,360 ) $ 83,177,084 $ 74,609,681

14. FINANCE COSTS

The details of finance costs are presented below. Note 2012 2011 Foreign currency losses $ 1,361,096 $ 858,018 Interest expense 11 816,041 605,044 Bank charges 109,693 166,205 Other finance charges - 47,261 $ 2,286,830 $ 1,676,528

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DRAFT (For Discussion Purpose Only)

15. EMPLOYEE BENEFITS 15.1 Salaries and Employee Benefits

Expenses recognized for salaries and employee benefits (see Note 13) are presented below.

2012 2011 Short-term benefits $ 1,093,928 $ 1,016,197 Post-employment benefits 41,985 81,288 $ 1,135,913 $ 1,097,485

15.2 Post-employment Defined Benefit

The Company maintains a fully funded, tax qualified, noncontributory retirement plan that is being administered by a trustee bank covering all regular full-time employees.

The amount of retirement benefit asset recognized in the statements of financial position is determined as follows:

2012 2011 Present value of the obligation $ 396,926 $ 314,055 Fair value of plan assets ( 408,017 ) ( 317,069 ) Excess of plan assets ( 11,091 ) ( 3,014 ) Unrecognized actuarial losses ( 4,450 ) ( 14,886 ) Effect of foreign currency exchange rate changes ( 111 ) 208 ($ 15,652 ) ( $ 17,692 )

The movements in present value of the retirement benefit obligation are as follows:

2012 2011 Balance at beginning of year $ 314,055 $ 185,465 Current service and interest costs 60,499 52,953 Actuarial loss - 95,099 Benefits paid by the plan - ( 17,453) Effect of foreign currency exchange rate changes 22,372 ( 2,009 ) Balance at end of year $ 396,926 $ 314,055

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DRAFT (For Discussion Purpose Only)

The movement in the fair value of plan assets is presented below.

2012 2011 Balance at beginning of year $ 317,069 $ 251,842 Expected return on plan assets 29,335 35,167 Contribution paid into the plan 35,762 71,778 Benefits paid by the plan - ( 17,453 ) Actuarial loss - ( 23,089 ) Effect of foreign currency exchange rate changes 25,851 ( 1,176 ) Balance at end of year $ 408,017 $ 317,069

Actual return on plan assets were $29,335 in 2012 and $12,078 in 2011. The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2012 2011 Cash 10.59% 8.34% Government securities 60.62% 46.30% Debt instruments 19.65% 35.73% Others 9.14% 9.63%

Presented below are the historical information related to the present value of the retirement benefit obligation, fair value of plan assets and excess or deficit in the plan. 2012 2011 2010 2009 2008 Present value of the obligation $ 396,926 $ 314,055 $ 185,465 $ 182,218 $ 245,560 Fair value of plan assets 408,017 317,069 251,842 169,637 89,119 Deficit (excess) in the plan ($ 11,091) ($ 3,014 ) ( $ 66,377 ) $ 12,581 $ 156,441 Experience adjustments arising on plan liabilities $ - $ 8,080 $ - $ 2,738 $ - Experience adjustments arising on plan assets $ - $ 23,089 $ - $ 3,042 $ -

The amounts of retirement benefits expense recognized in the profit or loss are as follows:

2012 2011 Current service costs $ 40,176 $ 37,657 Interest costs 20,323 15,296 Expected return on plan assets ( 29,335 ) ( 35,167 ) Net actuarial loss recognized during the year 10,821 63,502 $ 41,985 $ 81,288

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DRAFT (For Discussion Purpose Only)

The amounts of retirement benefits expense are allocated as follows: Note 2012 2011

Cost of goods sold 13 $ 33,866 $ 67,359

Administrative expenses 8,119 13,929 $ 41,985 $ 81,288 For the determination of the retirement benefit asset, obligation and related expenses, the following actuarial assumptions were used:

2012 2011 Discount rates 6.29% 6.22% Expected rate of return on plan assets 8.81% 6.00% Expected rate of salary increases 4.00% 4.00%

Assumptions regarding future mortality are based on published statistics and mortality tables. The average life expectancy of an individual retiring at the age of 60 is 18 for males and 20 for females.

16. TAXES

The major components of tax expense as reported in profit or loss: 2012 2011 Current tax expense: Regular corporate income tax (RCIT) at 30% $ 931,329 $ 574,892 Final taxes at 20% and 7.5% 13,249 3,343 944,578 578,235 Deferred tax expense (income) relating to origination of temporary differences ( 69,608 ) 151,477 $ 874,970 $ 729,712

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DRAFT (For Discussion Purpose Only)

The reconciliation of tax on pretax profit computed at the applicable statutory rates to tax expense reported in the statements of comprehensive income profit is as follows:

2012 2011 Tax on pretax profit at 30% $ 916,208 $ 621,804 Adjustment for income subjected to lower income tax rates ( 7,019 ) ( 2,596) Tax effects of: Non-taxable income ( 40,704 ) ( 65,504 ) Non-deductible expenses 6,485 1,736 Reversal of deferred tax asset - 174,272 Tax expense $ 874,970 $ 729,712

The net deferred tax assets relate to the following as at December 31: Statements of Statements of

Financial Position Comprehensive Income 2012 2011 2012 2011 Allowance for inventory write-down $ 87,396 $ 75,123 ( $ 12,273) $ 109,574 Allowance for impairment 43,178 20,635 ( 22,543) ( 20,635 ) Past service cost 15,626 19,391 3,765 ( 812 ) Retirement benefit asset ( 4,696 ) 2,813 7,509 ( 2,813 ) Unrealized foreign currency loss (gain) - ( 46,066 ) ( 46,066) 66,163 Net Deferred Tax Assets $ 141,504 $ 71,896 Deferred Tax Expense (Income) ($ 69,608) $ 151,477

The Company is subject to the MCIT which is computed at 2% of gross income, as defined under the tax regulations, or RCIT, whichever is higher. No MCIT was reported in 2012 and 2011 as the RCIT was higher than MCIT in both years. In 2012 and 2011, the Company opted to claim itemized deductions.

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DRAFT (For Discussion Purpose Only)

17. RELATED PARTY TRANSACTIONS

The Company’s related parties include its parent, entities under common ownership, the Company’s key management personnel and others as described below. The following are the transactions of the Company with related parties:

2012 2011 Outstanding Outstanding Related Party Amount of Receivable Amount of Receivable Category Notes Transactions (Payable) Transactions (Payable) Parent Sale of goods 17.1 $ 11,702,675 $ 380,231 $ 7,188,460 $ - Management and consultancy Services 17.3 438,395 149,555 351,142 - Advances 17.2 ( 5,921,302 ) ( 4,085,368 ) ( 832,648 ) ( 10,006,670 ) Lease services 17.1 1,092,821 - 415,578 - Related Parties Under Common Ownership Sale of goods 17.1 2,242,496 - 96,606 - Key Management Personnel Compensation 17.5 45,539 - 42,574 -

17.1 Sale of Goods and Services The Company sells raw material fish inventories to CCC and Columbus Seafoods Corporation (CSC), a related party under common ownership. Outstanding balance in relation to sale of goods amounts to $380,231 as at December 31, 2012 (nil in 2011). In 2012, the Company entered into a new agreement with CCC to lease a portion of plant, machinery and equipment and cold storage located in Brgy. Tambler, General Santos City. Both leases shall be from January 1, 2012 onwards and will continue to be in effect unless sooner terminated. Rentals are fully collected by the Company as at December 31, 2012.

Amount of Transactions 2012 2011 Parent company: Sale of goods $ 11,702,675 $ 7,188,460 Rental of facilities 1,092,821 415,578 12,795,496 7,604,038 Columbus Seafoods Corporation – Sale of goods 2,242,496 96,606 $ 15,037,992 $ 7,700,644

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DRAFT (For Discussion Purpose Only)

17.2 Advances from Related Parties In the normal course of business, the Company obtains advances from CCC and Pacific Meat Company Incorporated (PMCI), a related party under common ownership, for working capital requirements and other purposes. The balance of Advances from Related Parties amounts to $4,085,368 and $10,006,670 as at December 31, 2012 and 2011, respectively. Advances from related parties are unsecured, noninterest-bearing and repayable within 12 months.

2012 2011 Balance at beginning of year $ 10,006,670 $ 10,839,318 Net repayments during the year ( 5,921,302) ( 647,278) Transfer of AFS financial assets - ( 185,370) Balance at end of year $ 4,085,368 $ 10,006,670

In 2011, the Compnay paid certain advances from CCC by transferring all of its AFS financial assets to CCC. The AFS financial assets were transferred at their carrying amounts and because there is no available fair value at the time of transfer, no gain or loss was recognized. There was no similar transaction in 2012. 17.3 Consultancy and Management Fees

Beginning 2011, in addition to key management personnel compensation incurred, the Company entered into an agreement to allow CCC to allocate and charge common corporate expenses to its subsidiaries. The consultancy and management fee incurred by the Company amounted to $438,395 and $351,142 in 2012 and 2011, respectively. This amount is presented as part of Outside Services (see Note 13). As at December 31, 2012, the Company has $149,555 outstanding liability arising from this agreement and is presented as part of Others under the Trade and Other Payables account in the 2012 statement of financial position and is expected to be settled in 2013 (see Note 12). 17.4 Financial Guarantees The Company, together with its related parties, has entered into a cross-corporate guarantee for the short-term loan obtained by CCC and PMCI from various local banks. The outstanding balance of loan amounts to P1,447,400,000 ($35,137,891) and P1,910,400,000 ( $43,489,346) as at December 31, 2012 and 2011, respectively. The Company did not record the fair value of the guarantee liability because of the low probability of CCC and PMCI’s default in paying their respective borrowings. 17.5 Key Management Personnel Compensations

The short-term employee benefits of the key management personnel amounted to $45,539 in 2012 and $42,574 in 2011 and are included as part of Employee Benefits in the statements of comprehensive income. The increase in the key management personnel compensation was in line with the agreement entered into by the Company with CCC relating to consultancy and management fees (see Note 17.3).

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DRAFT (For Discussion Purpose Only)

18. REGISTRATION WITH THE BOARD OF INVESTMENTS (BOI)

On September 25, 2012, the BOI approved the Company’s registration as a new expanding export producer of frozen tuna loins on a non-pioneer status. The Company is entitled to ITH for a period of three years beginning February 1, 2013 using the project’s ability to contribute to the economy’s development pursuant to Article 7 of Executive Order 226 based on the following parameters in this order: (1) project’s net value added; (2) job generation; (3) multiplier effect; and (4) measured capacity.

19. EQUITY 19.1 Capital Stock

Capital stock consists of common shares with details as follows: Shares Amount

2012 2011 2012 2011

Authorized – P10 par value 50,000,000 50,000,000

Issued and outstanding:

Balance at beginning of year 50,000,000 32,477,106 P 500,000,000 P 324,771,060

Issuances during the year - 17,522,894 - 175,228,940

Balance at end of year 50,000,000 50,000,000 P 500,000,000 P 500,000,000

Balance at end of year (in U.S. dollars) $ 11,333,722 $ 11,333,722

As at December 31, 2012, the Company has six stockholders owning 100 or more shares each of the Company’s capital stock. 19.2 Dividend Declaration On December 6, 2011, the BOD approved the declaration of cash dividend of $1,732,062 (P75,000,000) for distribution to stockholders of record as at the same date. The related dividend was paid in full in 2012. On the same date, the BOD approved the declaration of stock dividend of $4,046,764 (P175,228,940) which is equivalent to 17,522,894 common shares in favor of all its existing stockholders of record as at December 31, 2011. The Company did not declare any cash or stock dividend in 2012.

19.3 Prior Period Adjustments In 2012, the Company’s management determined that the amount of cold storage rentals, which was inadvertently included as part of the Company’s inventoriable costs in 2011, should be expensed outright as the said expense is not directly related to the cost of its inventories. Accordingly, the balance of Retained Earnings as at January 1, 2012 has been restated from the amount previously reported to recognize the effects such change.

The restatement resulted in a decrease in the amount of the previously reported Retained Earnings by $857,231 as of January 1, 2012 and decrease in previously reported net profit by the same amount in 2011.

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DRAFT (For Discussion Purpose Only)

This prior period adjustment have the following effects on certain accounts in the statements of financial position as at December 31, 2011 and statements of comprehensive income for the year then ended.

As Previously Prior Period Reported Adjustment As Restated

Changes in Net Assets - Inventories $ 39,532,008 ( $ 857,231 ) $ 38,674,777 Changes in Profit or Loss:

Cost of Goods Sold $ 73,695,228 $ 866,440 $ 74,561,668 Finance Costs – net 1,665,940 ( 9,209 ) 1,656,731 Effect on Retained Earnings ( $ 857,231 )

20. COMMITMENTS AND CONTINGENCIES

20.1 Operating Leases The Company is a lessee under several short-term lease contracts with renewal options. The usual term of the lease contract extends to one year that usually ends in December. The amount of rent expense which is recognized as part of Manufacturing overhead under Cost of Goods Sold in the statements of comprehensive income amounted to $4,100,160 and $2,297,001, respectively, in 2012 and 2011 (see Note 13). As of December 31, 2012 and 2011, the future minimum lease payments under these lease agreements amounted to $3,583,273 and $3,195,928, respectively. 20.2 Financial Guarantees As at December 31, 2012, the Company together with its related parties has financial guarantees amounting to $35,137,891 for the loan obtained by CCC and PMCI from various local banks (see Note 17.4). 20.3 Capital Commitments As at December 31, 2012, the Company has construction in progress totaling $705,335. The construction relates to a new building in connection with the Company’s plant expansion. The construction is expected to be completed in 2013 and has remaining estimated costs to complete of P55,648,048 ($1,310,294) as at December 31, 2012. 20.4 Credit Facilities As at December 31, 2012, the Company has unused credit facilities with two local banks amounting to $207,564,575. Also, the Company has continuing surety with related parties on several credit facilities with a local bank which was fully utilized as at December 31, 2012. These credit facilities will expire in 2013.

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DRAFT (For Discussion Purpose Only)

20.5 Others There are other commitments, litigations and contingent liabilities that arise in the normal course of the Company’s operations which are not reflected in the accompanying financial statements. As at December 31, 2012, management is of the opinion that losses, if any, from these commitments and contingencies will not have a material effect on the Company’s financial statements.

21. CATEGORIES AND FAIR VALUES OF FINANCIAL ASSETS AND

LIABILITIES

The carrying amounts and fair values of the categories of assets and liabilities presented in the statements of financial position are shown below.

Notes 2012 2011 Carrying Fair Carrying Fair Values Values Values Values Financial Assets Cash and cash equivalents 5 $ 2,203,548 $ 2,203,548 $ 2,060,127 $ 2,060,127 Trade and other receivables – net 6 4,619,685 4,619,685 5,446,965 5,446,965 $ 6,823,233 $ 6,823,233 $ 7,507,092 $ 7,507,092

Financial Liabilities Current: Interest-bearing loans 11 $ 33,518,645 $ 33,518,645 $ 24,062,102 $ 24,062,102 Trade and other payables 12 10,868,962 10,868,962 9,372,685 9,372,685 Dividends payable - - 1,732,062 1,732,062 Advances from related parties 18 4,085,368 4,085,368 10,006,670 10,006,670 Non-current – Interest-bearing loans 11 364,148 364,148 1,707,339 1,707,339 $ 48,837,123 $ 48,837,123 $ 47,122,081 $ 47,122,081

See Notes 2.3 and 2.7 for a description of the accounting policies for each category of financial instrument. A description of the Company’s risk management objectives and policies for financial instruments is provided in Note 4. The Company has no financial instruments that are carried at fair values in the statement of financial position as of December 31, 2012 and 2011, hence no fair value hierarchy disclosure is presented.

22. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Company’s capital management objectives are:

• To ensure the Company’s ability to continue as a going concern;

• To meet maturing obligation to creditors; and,

• To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

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DRAFT (For Discussion Purpose Only)

The Company monitors capital on the basis of the carrying amount of equity as presented on the face of the statements of financial position. Capital for the reporting periods under review is summarized as follows:

2012 2011 Total liabilities $ 49,186,501 $ 47,122,081 Total equity 20,904,698 18,725,642 Debt-to-equity ratio 2.35 2.52

The Company sets the amount of capital in proportion to its overall financing structure, i.e., equity and financial liabilities. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

23. SUPPLEMENTARY INFORMATION ON STATEMENT OF FINANCIAL POSITION AND COMPREHENSIVE INCOME The Company’s financial statements are presented in U.S. dollars, its functional currency. The following information, which shows amounts of the Company’s statements of financial position and statements of comprehensive income in Philippine pesos, is presented for purposes of providing supplementary information to certain users and is not intended to be a presentation in accordance with PFRS. Under this supplemental information, transactions denominated in Philippines pesos were presented using the amounts at the dates of the transactions, while transactions denominated in U.S. dollars were translated using appropriate exchange rates. Foreign currency gains and losses are not translated.

Statements of Financial Position

2012 2011 ASSETS Current assets P 2,194,606,531 P 2,070,893,799 Non-current assets 674,726,869 755,014,918 Total Assets P 2,869,333,400 P 2,825,908,717 LIABILITIES AND EQUITY Current liabilities P 2,011,090,293 P 1,993,892,745 Non-current liabilities 14,355,250 75,000,000 Total Liabilities 2,025,445,543 2,068,892,745 Equity 843,887,857 757,015,972 Total Liabilities and Equity P 2,869,333,400 P 2,825,908,717

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DRAFT (For Discussion Purpose Only)

Statements of Comprehensive Income 2012 2011 Revenue – net P 3,793,036,607 P 3,468,026,827 Cost of goods sold ( 3,575,252,766) ( 3,307,175,759 ) Other operating expenses and other charges ( 93,713,393) ( 118,190,628 ) Tax expense ( 37,198,563) ( 31,702,294 ) Net profit P 86,871,885 P 10,958,146

The translation into Philippine pesos should not be construed as a representation that the U.S. dollar amounts could be converted into Philippine Peso amounts or at any other rates of exchange.

24. SUPPLEMENTARY INFORMATION REQUIRED BY THE BUREAU OF

INTERNAL REVENUE

Presented below is the supplementary information which is required by the Bureau of Internal Revenue (BIR) under its existing revenue regulations to be disclosed as part of the notes to financial statements. This supplementary information is not a required disclosure under PFRS. 24.1 Requirements under Revenue Regulations (RR) 15-2010 The information on taxes, duties and license fees paid or accrued during the taxable year required under RR 15-2010 issued on November 25, 2010 are as follows: (a) Output VAT

In 2012, the Company declared output VAT as follows:

In Philippine Pesos In U.S. Dollars

Output Output

Tax Base VAT Tax Base VAT

VATable sales P 47,847,911 P 5,741,740 $ 1,133,250 $ 135,990

Zero-rated sales 3,539,169,480 - 83,823,193 -

Exempt sales 844,879,945 - 20,010,496 -

P 4,431,897,336 P 5,741,740 $ 104,966,939 $ 135,990

The Company’s zero-rated and VAT exempt sales/receipt were determined pursuant to Section 106A, VAT on Export Sales of Goods or Properties, and Section 109, VAT Exempt Transactions, of Revenues in the 2012 statement of comprehensive income.

The tax bases are included as part of Sale of Goods and as part of Other Charges, with respect to other operating income, in the 2012 statement of comprehensive income. The tax bases for other operating income are based on the Company’s gross receipts for the year, hence, may not be the same with the amounts accrued in the 2012 statement of comprehensive income.

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DRAFT (For Discussion Purpose Only)

(a) Input Value-Added Tax The movements in Input VAT in 2012 are summarized below.

In Philippine In U.S. Pesos Dollars Balance at beginning of year P 30,096,474 $ 685,132 Goods for resale/manufacture or further processing 3,450,628 81,726 Capital goods subject to amortization 3,755,406 88,945 Services lodged under cost of goods sold 3,120,188 73,900 Claims for tax credit/refund ( 7,343,674 ) ( 173,931 ) Applied against output VAT ( 5,741,749 ) ( 135,990 ) Foreign currency adjustment - 43,873 Balance at end of year P 27,337,273 $ 663,655

The balance of Input VAT amounting to P27,337,273 ($663,655) as at December 31, 2012 is presented as part of Other Non-current Assets in the 2012 statement of financial position (see Note 10). (b) Taxes on Importation

In 2012, the total landed cost of the Company’s imported inventory for the use in business amounted to P3,081,938,799 ($72,993,948). This amount includes customs’ duties and tariff fees of P194,521,081 ($4,607,120). (c) Excise Tax

The Company did not have any transactions in 2012 which are subject to excise tax. (d) Documentary Stamp Tax (DST)

In 2012, the total DST paid and accrued by the Company on loan instruments amounted to P7,765,845 ($183,930).

(e) Taxes and Licenses

The details of taxes and licenses for the year 2012 are broken down as follows:

In Philippine In U.S. Pesos Dollars

DST P 7,765,845 $ 183,930 Business tax 2,422,464 57,375 Real estate tax 1,718,428 40,700 Miscellaneous 734,208 17,390 P 12,640,945 $ 299,395

The amounts of taxes and licenses for the year 2012 are presented as part of Taxes and licenses under Administrative Expenses in the 2012 statement of comprehensive income (see Note 14).

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DRAFT (For Discussion Purpose Only)

(f) Withholding Taxes

The details of total withholding taxes for the year ended December 31, 2012 are shown below.

In Philippine In U.S. Pesos Dollars

Expanded P 345,334 $ 8,179 Compensation and benefits 3,237,682 76,683 P 3,583,016 $ 84,862 The Company has no transactions in 2012 which are subject to final tax.

(g) Deficiency Tax Assessment and Tax Cases

As at December 31, 2012, the Company does not have any deficiency tax assessments with the BIR or tax cases outstanding or pending in courts or bodies outside of the BIR in any of the open years. 24.2 Requirements under RR 19-2011 RR 19-2011 requires schedules of taxable revenues and other non-operating income, costs of sales and services, and itemized deductions, to be disclosed in the notes to financial statements.

The amounts of taxable revenues and income, and deductible costs and expenses presented below are based on relevant tax regulations issued by the BIR, hence, may not be the same as the amounts reflected in the 2012 statement of comprehensive income. (a) Taxable Revenues

The Company’s sale of goods for the year ended December 31, 2012 which are subject to regular tax rate amounted to P3,793,036,607 ($90,072,393).

(b) Deductible Costs of Sales

Deductible costs of sales at regular tax rate for the year ended December 31, 2012 comprises the following:

In Philippine In U.S. Pesos Dollars

Finished goods at beginning of the year P 549,042,798 $ 11,976,360 Cost of goods manufactured 3,455,451,388 81,621,821 Total goods available for sale 4,004,494,186 93,598,181 Finished goods at end of year ( 430,241,420 ) ( 10,444,781 )

P 3,574,252,766 $ 83,153,400

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DRAFT (For Discussion Purpose Only)

(c) Taxable Non-operating and Other Income

The details of taxable non-operating and other income in 2012 which are subject to regular tax rate are shown below.

In Philippine In U.S.

Pesos Dollars

Rental income P 48,851,651 $ 1,092,821

Others 9,023,354 213,713 P 57,875,005 $ 1,306,534

(d) Itemized Deductions

The amounts of itemized deductions at regular tax rate for the year ended December 31, 2012 are as follows:

In Philippine In U.S.

Pesos Dollars

Freight and handling P 47,162,798 $ 1,117,024 Interest 33,542,104 794,425 Other outside services 20,338,231 481,699 Salaries and allowances 13,407,188 317,542 Taxes and licenses 12,640,945 299,395 Depreciation and amortization 8,171,695 178,423 Commissions 1,915,551 45,369 Communication, light and water 658,242 15,590 Office supplies 403,049 9,546 Insurance 235,953 5,588 Rental 208,000 4,926 Miscellaneous 6,900,366 163,431 P 145,584,122 $ 3,432,958

F-331

F-332

F-333

F-334

F-335

F-336

December 31, January 1,

2012 2012

December 31, (As Restated - (As Restated -Notes 2013 see Note 2) see Note 2)

CURRENT ASSETS

Cash and cash equivalents 5 49,156,818 P 36,933,115 P 25,373,381 P

Trade and other receivables - net 6 278,899,837 280,440,109 213,991,953

Inventories 7 304,661,051 430,924,704 560,094,395

Prepayments and other current assets 8 46,609,648 65,252,136 60,432,337

Total Current Assets 679,327,354 813,550,064 859,892,066

NON-CURRENT ASSETS

Property, plant and equipment - net 9 164,345,799 22,055,547 31,704,177

Post-employment benefit asset 15 622,299 - -

Deferrex tax asset - net 16 3,412,465 - -

Other non-current assets 10 42,013,295 42,884,295 42,435,295

Total Non-current Assets 210,393,858 64,939,842 74,139,472

TOTAL ASSETS 889,721,212 P 878,489,906 P 934,031,538 P

CURRENT LIABILITIES

Trade and other payables 11 159,735,096 P 334,282,846 P 317,917,167 P

Interest-bearing loans 12 215,000,000 - -

Due to related parties 18 7,965,473 278,872,672 415,465,566

Total Current Liabilities 382,700,569 613,155,518 733,382,733

NON-CURRENT LIABILITY

Post-employment benefit obligation 15 - 529,133 653,124

Total Liabilities 382,700,569 613,684,651 734,035,857

EQUITY

Capital stock 17 500,000,000 40,625,000 40,625,000

Deposits for future stock subscriptions 17 - 195,883,200 150,383,200

Other reserve 2, 15 4,800 )( 956,799 )( 1,013,863 )(

Retained earnings 17 7,025,443 29,253,854 10,001,344

Net Equity 507,020,643 264,805,255 199,995,681

TOTAL LIABILITIES AND EQUITY 889,721,212 P 878,489,906 P 934,031,538 P

See Notes to Financial Statements.

A S S E T S

LIABILITIES AND EQUITY

SNOW MOUNTAIN DAIRY CORPORATION

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

STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 2013 AND 2012

(Amounts in Philippine Pesos)

(With Corresponding Figures as of January 1, 2012)

F-337

2012

(As Restated -Notes 2013 see Note 2)

SALE OF GOODS 18 1,556,358,881 P 1,720,370,574 P

COST OF GOODS SOLD 13 1,222,454,203 1,419,620,458

GROSS PROFIT 333,904,678 300,750,116

OTHER OPERATING EXPENSES (INCOME)

Selling expenses 13 128,583,164 131,551,269

Marketing expenses 13 111,648,759 119,270,662

Administrative expenses 13 35,085,906 23,467,373

Other income 14,681 )( 128,616 )(

275,303,148 274,160,688

OPERATING PROFIT 58,601,530 26,589,428

FINANCE COSTS (INCOME) − Net 14 1,531,854 38,089 )(

PROFIT BEFORE TAX 57,069,676 26,627,517

TAX EXPENSE 16 15,298,087 7,375,007

NET PROFIT 41,771,589 19,252,510

OTHER COMPREHENSIVE INCOME

Item that will not be reclassified

subsequently to profit or loss

Remeasurement of post-employment

defined benefits obligation 15 949,942 57,064

Deferred tax income 16 2,057 -

951,999 57,064

TOTAL COMPREHENSIVE INCOME 42,723,588 P 19,309,574 P

See Notes to Financial Statements.

SNOW MOUNTAIN DAIRY CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in Philippine Pesos)

F-338

Deposits for

Future StockNotes Capital Stock Subscriptions Other Reserve Retained Earnings Total

Balance at January 1, 2013

As previously reported 40,625,000 P 195,883,200 P - 29,434,712 P 265,942,912 P

Prior period adjustments 2 - - 956,799 )( 180,858 )( 1,137,657 )(

As restated 40,625,000 195,883,200 956,799 )( 29,253,854 264,805,255

Transactions with owners 17

Issuance of shares during the year 459,375,000 195,883,200 )( - - 263,491,800

Cash dividend - - - 64,000,000 )( 64,000,000 )(

459,375,000 195,883,200 )( - 64,000,000 )( 199,491,800

Total comprehensive income

Net profit for the year - - - 41,771,589 41,771,589

Other comprehensive income for the year −

Remeasurement of post-employment

benefits obligation, net of tax 15 - - 951,999 - 951,999

- - 951,999 41,771,589 42,723,588

Balance at December 31, 2013 500,000,000 P - 4,800 )( P 7,025,443 P 507,020,643 P

Balance at January 1, 2012

As previously reported 40,625,000 P 150,383,200 P - 10,125,138 P 201,133,338 P

Prior period adjustments 2 - - 1,013,863 )( 123,794 )( 1,137,657 )(

As restated 40,625,000 150,383,200 1,013,863 )( 10,001,344 199,995,681

Transaction with owner

Conversion of advances from parent

during the year 17 - 45,500,000 - - 45,500,000

- 45,500,000 - - 45,500,000

Total comprehensive income

Net profit for the period - - - 19,252,510 19,252,510

Other comprehensive income for the year −

Remeasurement of post-employment

benefits obligation 15 - - 57,064 - 57,064

- - 57,064 19,252,510 19,309,574

Balance at December 31, 2012 40,625,000 P 195,883,200 P 956,799 )( P 29,253,854 P 264,805,255 P

See Notes to Financial Statements.

SNOW MOUNTAIN DAIRY CORPORATION

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

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in Philippine Pesos)

P

P

P

F-339

2012

(As Restated -Notes 2013 see Note 2.2)

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 57,069,676 P 26,627,517 P

Adjustments for:

Depreciation and amortization 9 9,515,021 11,919,169

Finance costs 14 1,646,343 149,281

Finance income 14 114,489 )( 187,370 )(

Impairment losses 6 - 512,760

Operating profit before working capital changes 68,116,551 39,021,357

Decrease (increase) in trade and other receivables 1,540,271 45,243,422 )(

Decrease in inventories 126,263,653 100,110,346

Increase in prepayments and other current assets 47,754 )( 4,819,799 )(

Increase in post-employment benefit asset 201,490 )( 92,183 )(

Decrease (increase) in other non-current assets 871,000 449,000 )(

Increase (decrease) in trade and other payables 174,547,750 )( 16,365,682

Cash generated from operations 21,994,481 104,892,981

Income taxes paid 18,253 )( 33,159 )(

Net Cash From Operating Activities 21,976,228 104,859,822

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment 9 151,805,272 )( 2,270,539 )(

Interest received 114,489 187,370

Net Cash Used in Investing Activities 151,690,783 )( 2,083,169 )(

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds of interest-bearing loans 12 540,000,000 -

Repayments of due to related parties 18 527,630,340 )( 91,092,894 )(

Repayment of interest-bearing loans 12 325,000,000 )( -

Proceeds from issuance of shares 17 263,491,800 -

Advances from related parties 18 256,723,141 -

Payment of cash dividend 17 64,000,000 )( -

Interest paid 1,646,343 )( 124,025 )(

Net Cash From (Used in) Financing Activities 141,938,258 91,216,919 )(

NET INCREASE IN CASH AND CASH EQUIVALENTS 12,223,703 11,559,734

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 36,933,115 25,373,381

CASH AND CASH EQUIVALENTS

AT END OF YEAR 49,156,818 P 36,933,115 P

Supplemental Information on Non-cash Financing Activities:

1)

2)

See Notes to Financial Statements.

SNOW MOUNTAIN DAIRY CORPORATION

(A Wholly Owned Subsidiary of Century Pacific Food, Inc.)STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in Philippine Pesos)

In 2013, the Company issued to Century Canning Corporation (CCC) 19,588,320 shares of stock, at par value,

which is equivalent to P195,883,200, upon application of the total balance of its deposits for future stock

subscription as full payment for its subscription (see Note 17).

In 2012, the Company and CCC agreed to convert portion of the Company’s advances from CCC amounting to

P45,500,000 to deposit for future stock subscription (see Note 17).

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SNOW MOUNTAIN DAIRY CORPORATION (A Wholly Owned Subsidiary of Century Pacific Food, Inc.)

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 and 2012

(Amounts in Philippine Pesos) 1. CORPORATE INFORMATION

Snow Mountain Dairy Corporation (the Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on February 14, 2001. It started commercial operations in November 2002. The Company is engaged in producing, canning, freezing, preserving, refining, packing, buying and selling at wholesale and retail, food products including all kinds of milk and dairy products, fruits and vegetable juices and other milk or dairy preparations and by-products. The Company is a subsidiary of Century Canning Corporation (CCC) until October 31, 2013 when CCC transferred for a consideration its 100% ownership interest in the Company to Century Pacific Food, Inc. (CPFI or the new parent company) as part of the corporate reorganization undertaken by the Century Pacific Group (the Group) within which CCC is the parent company (see also Note 17.1). CPFI is a newly incorporated subsidiary of CCC, which is now the Company’s ultimate parent company. CCC is engaged in the manufacture and distribution of canned tuna products for the Philippine market. CPFI will soon operate as a food manufacturing company. On January 7, 2014, the Board of Directors resolved to amend the Company’s articles of incorporation due to the change in the address of its registered office, which is also its principal place of business, from No.48 Amang Rodriguez Avenue, Ignacio Complex, Manggahan, Pasig City to 32 Arturo Drive, Bagumbayan, Taguig, Metro Manila as part of the Company’s expansion activities (see Note 9). The amendment was accordingly approved by the SEC on February 26, 2014. The ultimate parent and parent company’s registered office, which is also their principal place of business, is located at Suite 505 Centerpoint Building, Julia Vargas St., Ortigas Center, Pasig City. The financial statements of the Company for the year ended December 31, 2013 (including the comparatives financial statements for December 31, 2012 and the corresponding figures as of January 1, 2012) were authorized for issue by the Company’s Board of Directors on March 7, 2014.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies that have been used in the preparation of these financial statements are summarized below and in the succeeding pages. The policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards (PFRS)

The financial statements of the Company have been prepared in accordance with PFRS. PFRS are adopted by the Financial Reporting Standards Council from the pronouncements issued by the International Accounting Standards Board (IASB). The financial statements have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies that follow.

(b) Presentation of Financial Statements

The financial statements are presented in accordance with Philippine Accounting Standards (PAS) 1, Presentation of Financial Statements. The Company presents all items of income and expenses and other comprehensive income in a single statement of comprehensive income. The Company presents a third statement of financial position as at the beginning of the preceding period when it applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items that has a material effect on the information in the statement of financial position at the beginning of the preceding period. The related notes to the third statement of financial position are not required to be disclosed. The Company’s adoption of PAS 19 (Revised), Employee Benefits, resulted in material retrospective restatements on certain accounts in the comparative financial statements for December 31, 2012 and in the corresponding figures as of January 1, 2012 [see Note 2(a)(ii)]. Accordingly, the Company presents a third statement of financial position as at January 1, 2012 without the related notes, except for the disclosures required under PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

(c) Functional and Presentation Currency

These financial statements are presented in Philippine pesos, the Company’s functional and presentation currency, and all values represent absolute amounts except when otherwise indicated. Items included in the financial statements are measured using its functional currency, the currency of the primary economic environment in which the Company operates.

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2.2 Adoption of New and Amended PFRS

(a) Effective in 2013 that is Relevant to the Company

In 2013, the Company adopted for the first time the following new, amendments, revision and improvements to PFRS that are relevant to the Company and effective for financial statements for the annual periods beginning on or after July 1, 2012 or January 1, 2013:

PAS 1 (Amendment) : Financial Statements Presentation – Presentation of Items of Other Comprehensive Income PAS 19 (Revised) : Employee Benefits PFRS 7 (Amendment) : Financial Instrument: Disclosures – Offsetting Financial Assets and Financial Liabilities PFRS 13 : Fair Value Measurement Annual Improvements : Annual Improvements to PFRS (2009 – 2011 Cycle) Discussed below are the relevant information about these new, amended and revised standards and the corresponding impact in the Company’s financial statements.

(i) PAS 1 (Amendment), Financial Statements Presentation – Presentation of Items of

Other Comprehensive Income (effective from July 1, 2012). The amendment requires an entity to group items presented in other comprehensive income into those that, in accordance with other PFRS: (a) will not be reclassified subsequently to profit or loss, and, (b) will be reclassified subsequently to profit or loss when specific conditions are met. The amendment has been applied retrospectively, hence, the presentation of other comprehensive income has been modified to reflect the changes. Management determined that the amendment did not significantly affect the financial statements as its other comprehensive income is only comprised of actuarial gains and losses on post-employment defined benefit obligation, an item which is not reclassified subsequently to profit or loss.

(ii) PAS 19 (Revised 2011), Employee Benefits (effective from January 1, 2013). The revision made a number of changes as part of the improvements throughout the standard. The main changes relate to defined benefit plans as follows:

• eliminates the corridor approach and requires the recognition of remeasurements (including actuarial gains and losses) arising in the reporting period in other comprehensive income;

• changes the measurement and presentation of certain components of the defined benefit cost. The net amount in profit or loss is affected by the removal of the expected return on plan assets and interest cost components and their replacement by a net interest expense or income based on the net defined benefit liability or asset; and,

• enhances disclosure requirements, including information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans.

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The Company has applied PAS 19 (Revised) retrospectively in accordance with its transitional provision. Consequently, it restated the previous years presented. An analysis of the effect of the adjustments on the specific assets, liabilities, and equity components affected is presented below.

As Previously Prior PeriodReported Adjustment As Restated

December 31, 2012

Change in asset and liability:

Post-employment benefit asset 608,524 P 608,524 )( P -

Post-employment benefit

obligation - 529,133 )( 529,133 )(

Total decrease in equity 1,137,657 )( P

Changes in equity:

Retained earnings 29,434,712 P 180,858 )( P 29,253,854 P

Other reserve - 956,799 )( 956,799 )(

Total decrease in equity 1,137,657 )( P

P

P

January 1, 2012

Change in asset and liability:

Post-employment benefit asset 484,533 P 484,533 )( P -

Post-employment benefit obligation - 653,124 )( 653,124 )(

Total decrease in equity 1,137,657 )( P

Changes in equity:

Retained earnings 10,125,138 P 123,794 )( P 10,001,344 P Other reserve - 1,013,863 )( 1,013,863 )(

Total decrease in equity 1,137,657 )( P

P

The effect of the prior period adjustments arising from the adoption of PAS 19 (Revised) on certain line items of the statements of comprehensive income and statements of cash flows for the year ended December 31, 2012 is not material; accordingly, the analyses were no longer presented.

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(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (effective from January 1, 2013). The amendment requires qualitative and quantitative disclosures relating to gross and net amounts of recognized financial instruments that are set-off in accordance with PAS 32, Financial Instruments: Presentation. The amendment also requires disclosure of information about recognized financial instruments which are subject to enforceable master netting arrangements or similar agreements, even if they are not set-off in the statement of financial position, including those which do not meet some or all of the offsetting criteria under PAS 32 and amounts related to a financial collateral. These disclosures will allow financial statement users to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with recognized financial assets and financial liabilities on the entity’s financial position. This amendment did not have a significant impact on the Company’s financial statements as the Company has no and does not expect to have offsetting arrangements (see Note 20).

(iv) PFRS 13, Fair Value Measurement (effective from January 1, 2013). This new standard clarifies the definition of fair value and provides guidance and enhanced disclosures about fair value measurements. The requirements under the this standard do not extend the use of fair value accounting but provide guidance on how it should be applied to both financial instrument items and non-financial items for which other PFRS require or permit fair value measurements or disclosures about fair value measurements, except in certain circumstances. The amendment applies prospectively from annual periods beginning January 1, 2013; hence, disclosure requirements need not be resented in the comparative information in the first year of application. Other than the additional disclosures presented in Note 21, the application of this new standard had no significant impact in the amounts recognized in the financial statements.

(v) 2009-2011 Annual Improvements to PFRS. Annual improvements to PFRS (2009-2011 Cycle) made minor amendments to a number of PFRS, which are effective for annual periods beginning on or after January 1, 2013. Among those improvements, the following amendments are relevant to the Company:

(a) PAS 1 (Amendment), Presentation of Financial Statements – Clarification of the Requirements for Comparative Information. The amendment clarifies that a statement of financial position as at the beginning of the preceding period (third statement of financial position) is required when an entity applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items that has a material effect on the information in the third statement of financial position. The amendment specifies that other than disclosure of certain specified information in accordance with PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, related notes to the third statement of financial position are not required to be presented. Consequent to the Company’s adoption of PAS 19 (Revised) in the current year, which resulted in retrospective restatement of the prior years’ financial statements, the Company has presented a third statement of financial position as at January 1, 2012 without the related notes, except for the disclosure requirements of PAS 8, as allowed under this amendment to PAS 1.

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(b) PAS 16 (Amendment), Property, Plant and Equipment – Classification of Servicing Equipment. The amendment addresses a perceived inconsistency in the classification requirements for servicing equipment which resulted in classifying servicing equipment as part of inventory when it is used for more than one period. It clarifies that items such as spare parts, stand-by equipment and servicing equipment shall be recognized as property, plant and equipment when they meet the definition of property, plant and equipment, otherwise, these are classified as inventory. This amendment has no significant effect on the financial statements since the Company has already been applying the classification requirements of this amendment for the abovementioned spare parts and equipment in accordance with the recognition criteria under PAS 16.

(c) PAS 32 (Amendment), Financial Instruments : Presentation – Tax Effect of Distributions to Holders of Equity Instruments. The amendment clarifies that the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction shall be accounted for in accordance with PAS 12. Accordingly, income tax relating to distributions to holders of an equity instrument is recognized in profit or loss while income tax related to the transaction costs of an equity transaction is recognized in equity. The adoption of this amendment did not have an impact on the Company’s financial statements as the Company’s accounting policy on tax effect of transactions involving equity instruments is in accordance with the amendment.

(b) Effective in 2013 that are not Relevant to the Company

The following new PFRS, amendments and annual improvements to existing standards are mandatory for accounting periods beginning on after January 1, 2013 but are not relevant to the Company’s financial statements:

PAS 27 (Amendment) : Separate Financial Statements PAS 28 (Amendment) : Investment in Associate and Joint Venture PFRS 1 (Amendment) : First-time Adoption of PFRS – Government Loans PFRS 10 : Consolidated Financial Statements PFRS 11 : Joint Arrangements PFRS 12 : Disclosure of Interests in Other Entities PFRS 10, 11 and PFRS 12 (Amendment) : Amendments to PFRS 10, 11 and 12 – Transition Guidance to PFRS 10, 11 and 12 Philippine Interpretation International Financial Reporting Interpretations Committee 20 : Stripping Costs in the Production Phase of a Surface Mine

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Annual Improvements 2009-2011 Cycle PFRS 1 (Amendment) : First-time Adoption of PFRS – Repeated Application of PFRS 1 and Borrowing Cost PAS 34 (Amendment) : Interim Financial Reporting – Interim Financial Reporting and Segment Information for Total Assets and Liabilities

(c) Effective Subsequent to 2013 but not Adopted Early There are new PFRS, amendments and annual improvements to existing standards that are effective for periods subsequent to 2013. Management has initially determined the following pronouncements, which the Company will apply in accordance with their transitional provisions, to be relevant to its financial statements:

(i) PAS 19 (Amendment), Employee Benefits – Defined Benefit Plans – Employee

Contributions (effective from January 1, 2014). The amendment clarifies that if the amount of the contributions from employees or third parties is dependent on the number of years of service, an entity shall attribute the contributions to periods of service using the same attribution method (i.e., either using the plan’s contribution formula or on a straight-line basis) for the gross benefit. Management has initially determined that this amendment will have no impact on the Company’s financial statements.

(ii) PAS 32 (Amendment), Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities (effective from January 1, 2014). The amendment provides guidance to address inconsistencies in applying the criteria for offsetting financial assets and financial liabilities. It clarifies that a right of set-off is required to be legally enforceable, in the normal course of business; in the event of default; and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendment also clarifies the principle behind net settlement and provided characteristics of a gross settlement system that would satisfy the criterion for net settlement. The Company does not expect this amendment to have a significant impact on its financial statements.

(iii) PAS 36 (Amendment), Impairment of Assets – Recoverable Amount Disclosures for Non-financial Assets (effective from January 1, 2014). The amendment clarifies that the requirements for the disclosure of information about the recoverable amount of assets or cash-generating units is limited only to the recoverable amount of impaired assets that is based on fair value less cost of disposal. It also introduces an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount based on fair value less cost of disposal is determined using a present value technique. Management will reflect in its subsequent year’s financial statements the changes arising from this relief on disclosure requirements.

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(iv) PAS 39 (Amendment), Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting (effective January 1, 2014). The amendment provides some relief from the requirements on hedge accounting by allowing entities to continue the use of hedge accounting when a derivative is novated to a clearing counterparty resulting in termination or expiration of the original hedging instrument as a consequence of laws and regulations, or the introduction thereof. As the Company neither enters into transactions involving derivative instruments nor it applies hedge accounting, the amendment will not have any impact on the financial statements.

(v) PFRS 9, Financial Instruments: Classification and Measurement. This is the first part

of a new standard on financial instruments that will replace PAS 39, Financial Instruments: Recognition and Measurement, in its entirety. The first phase of the standard was issued on November 2009 and October 2010 and contains new requirements and guidance for the classification, measurement and recognition of financial assets and financial liabilities. It requires financial assets to be classified into two measurement categories: amortized cost or fair value. Debt instruments that are held within a business model whose objective is to collect the contractual cash flows that represent solely payments of principal and interest on the principal outstanding are generally measured at amortized cost. All other debt instruments and equity instruments are measured at fair value. In addition, PFRS 9 allows entities to make an irrevocable election to present subsequent changes in the fair value of an equity instrument that is not held for trading in other comprehensive income.

The accounting for embedded derivatives in host contracts that are financial assets is simplified by removing the requirement to consider whether or not they are closely related, and, in most arrangement, does not require separation from the host contract. For liabilities, the standard retains most of the PAS 39 requirements which include amortized cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in case where the fair value option is taken for financial liabilities, the part of a fair value change due to the liability’s credit risk is recognized in other comprehensive income rather than in profit or loss, unless this creates an accounting mismatch.

In November 2013, the IASB has published amendments to International Financial Reporting Standard (IFRS) 9 that contain new chapter and model on hedge accounting that provides significant improvements principally by aligning hedge accounting more closely with the risk management activities undertaken by entities when hedging their financial and non-financial risk exposures. The amendment also now requires changes in the fair value of an entity’s own debt instruments caused by changes in its own credit quality to be recognized in other comprehensive income rather in profit or loss. It also includes the removal of the January 1, 2015 mandatory effective date of IFRS 9.

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To date, the remaining chapter of IFRS 9 and PFRS 9 dealing with impairment methodology is still being completed. Further, the IASB is currently discussing some limited modifications to address certain application issues regarding classification of financial assets and to provide other considerations in determining business model. The Company does not expect to implement and adopt PFRS 9 until its effective date. In addition, management is currently assessing the impact of PFRS 9 on the financial statements of the Company and it plans to conduct a comprehensive study of the potential impact of this standard prior to its mandatory adoption date to assess the impact of all changes.

(vi) Annual Improvements to PFRS. Annual improvements to PFRS (2010-2012 Cycle) and PFRS (2011-2013 Cycle) made minor amendments to a number of PFRS, which are effective for annual periods beginning on or after July 1, 2014. Among those improvements, the following amendments are relevant to the Company but management does not expect a material impact on the Company’s financial statements: Annual Improvements to PFRS (2010-2012 Cycle) (a) PAS 16 (Amendment), Property, Plant and Equipment and PAS 38 (Amendment), Intangible Assets. The amendments clarify that when an item of property, plant and equipment, and intangible assets is revalued, the gross carrying amount is adjusted in a manner that is consistent with a revaluation of the carrying amount of the asset.

(b) PAS 24 (Amendment), Related Party Disclosures. The amendment clarifies

that entity providing key management services to a reporting entity is deemed to be a related party of the latter. It also requires and clarifies that the amounts incurred by the reporting entity for key management personnel services that are provided by a separate management entity should be disclosed in the financial statements, and not the amounts of compensation paid or payable by the key management entity to its employees or directors.

(c) PFRS 13 (Amendment), Fair Value Measurement. The amendment, through a revision only in the basis of conclusion of PFRS 13, clarifies that issuing PFRS 13 and amending certain provisions of PFRS 9 and PAS 39 related to discounting of financial instruments, did not remove the ability to measure short-term receivables and payables with no stated interest rate on an undiscounted basis, when the effect of not discounting is immaterial.

Annual Improvement to PFRS (2011-2013 Cycle) PFRS 13 (Amendment), Fair Value Measurement. The amendment clarifies that the scope of the exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis (the portfolio exception) applies to all contracts within the scope of, and accounted for in accordance with, PAS 39 or PFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in PAS 32.

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2.3 Financial Assets Financial assets are recognized when the Company becomes a party to the contractual terms of the financial instrument. Financial assets other than those designated and effective as hedging instruments are classified into the following categories: financial assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity investments and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. Regular purchases and sales of financial assets are recognized on their trade date. All financial assets that are not classified as at FVTPL are initially recognized at fair value plus any directly attributable transaction costs. Financial assets carried at FVTPL are initially recorded at fair value and related transaction costs that are recognized in profit or loss. The financial assets category that is relevant to the Company is loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period which are classified as non-current assets.

Loans and receivables are subsequently measured at amortized cost using the effective interest method, less impairment loss, if any. Impairment loss is provided when there is objective evidence that the Company will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment loss is determined as the difference between the assets’ carrying amount and the present value of estimated cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate or current effective interest rate determined under the contract if the loan has a variable interest rate. The Company’s financial assets categorized as loans and receivables are presented as Cash and Cash Equivalents, Trade and Other Receivables (except deposit on purchases) and as part of Other Non-current Assets, with respect to security deposits included therein, in the statement of financial position. Cash and cash equivalents include cash on hand, demand deposits and short-term, highly liquid investments with original maturities of three months or less, readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. All income and expenses, excluding those that relate to operating activities, relating to financial assets that are recognized in profit or loss in the statement of comprehensive income. Non-compounding interest, and other cash flows resulting from holding financial assets are recognized in profit or loss when earned, regardless of how the related carrying amount of financial assets is measured. Derecognition of financial assets occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred to another party.

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2.4 Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Finished goods and work-in-process include the cost of raw materials, direct labor and a proportion of manufacturing overhead based on normal operating capacity. The cost of raw materials include all costs directly attributable to acquisitions, such as the purchase price, import duties and other taxes that are not subsequently recoverable from taxing authorities. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Net realizable value of raw materials is the current replacement cost.

2.5 Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortization and any impairment in value. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized; expenditures for repairs and maintenance are charged to expense as incurred.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Plant, machinery and equipment 2 to 10 yearsLaboratory tools and equipment 1 to 10 years

Leasehold improvements are amortized over the term of the lease or the useful lives of the assets of 1 to 10 years, whichever is shorter. Construction-in-progress represents properties undergoing construction. It is stated at cost which includes cost of construction, applicable borrowing costs (see Note 2.15) and other direct costs. This account is not depreciated until such time that the assets are completed and available for use. Fully depreciated assets are retained in the accounts until these are no longer in use. No further charge for depreciation is made in respect of those accounts. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.13). The residual values and estimated useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at the end of each reporting period. An item of property, plant and equipment, including related accumulated depreciation and amortization and impairment losses, if any, is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the period the item is derecognized.

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2.6 Prepayments and Other Assets Prepayment and other assets pertain to the other resources controlled by the Company as a result of past events. They are recognized in the financial statements when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. Other recognized assets of similar nature, where future economic benefits are expected to flow to the Company beyond one year after the end of the reporting period (or in the normal operating cycle of the business, if longer), are classified as non-current assets. 2.7 Trademarks The cost of trademarks is the amount of cash or cash equivalents paid or the fair value of the other considerations given up to acquire the trademark. The Company’s trademark is not amortized but tested for impairment annually [see Notes 2.13 and 3.1(a)].

2.8 Financial Liabilities

Financial liabilities of the Company include trade and other payables (except tax-related liabilities) and due to related parties which are recognized when the Company becomes a party to the contractual terms of the instrument. All interest-related charges incurred on a financial liability that relates to financing activities are recognized as an expense in profit or loss under the caption Finance Costs (Income) – net in the statement of comprehensive income. Financial liabilities are recognized initially at their fair value and subsequently measured at amortized cost, using effective interest method for maturities of more than one year, less settlement payments. Financial liabilities are classified as current liabilities if payment is due to be settled within one year or less after the end of the reporting period (or in the normal operating cycle of the business, if longer), or the Company does not have an unconditional right to defer settlement of liability for at least 12 months after the end of the reporting period. Otherwise, these are presented as non-current liabilities. Financial liabilities are derecognized from the statement of financial position only when the obligations are extinguished either through discharge, cancellation or expiration. The difference between the carrying amount of the financial liability derecognized and the consideration paid or payable is recognized in profit or loss. 2.9 Offsetting Financial Instruments Financial assets and liabilities are offset and the resulting net amount is reported in the statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

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2.10 Provisions and Contingencies

Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive obligation that has resulted from past events.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the end of the reporting period, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. When time value of money is material, long-term provisions are discounted to their present values using a pretax rate that reflects market assessments and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. The provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate.

In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Similarly, possible inflows of economic benefits to the Company that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements. On the other hand, any reimbursement that the Company can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset not exceeding the amount of the related provision. 2.11 Revenue and Expense Recognition Revenue comprises of revenue from the sale of goods measured by reference to the fair value of consideration received or receivable by the Company for goods sold excluding value-added tax (VAT) and any trade discounts. Revenue is recognized to the extent that the revenue can be reliably measured; it is probable that the economic benefits will flow to the Company; and the costs incurred or to be incurred can be measured reliably. In addition, the following specific recognition criteria must also be met before revenue is recognized: (a) Sale of goods – Revenue is recognized when the risks and rewards of ownership of the

goods have passed to the buyer, i.e. generally when the customer has acknowledged delivery of goods.

(b) Interest income – Recognized as the interest accrues taking into account the effective yield on the asset.

Costs and expenses are recognized in profit or loss upon receipt of goods, utilization of services or at the date they are incurred. All finance costs are reported in profit or loss on an accrual basis, except capitalized borrowing costs which are included as part of the cost of the related qualifying asset (see Note 2.15).

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2.12 Leases – Company as Lessee Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as expense in the statement of comprehensive income on a straight-line basis over the lease term. Associated costs, such as repairs and maintenance and insurance, are expensed as incurred. The Company determines whether an arrangement is, or contains, a lease based on the substance of the arrangement. It makes an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. 2.13 Impairment of Non-financial Assets

The Company’s trademarks, having an indefinite useful life, are tested for impairment annually. Property, plant and equipment and other non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating unit). As a result, assets are tested for impairment either individually or at the cash-generating unit level. Impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal evaluation of discounted cash flow. Impairment loss is charged pro-rata to other assets in the cash-generating unit.

All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment loss is reversed if the asset’s or cash generating unit’s recoverable amount exceeds its carrying amount.

2.14 Employee Benefits

(a) Defined Benefit Plan

The Company provides post-employment benefits to employees through a defined benefit plan.

A defined benefit plan is a post-employment plan that defines an amount of post-employment benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of post-employment plan remains with the Company, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long-term benefit fund, as well as qualifying insurance policies. The Company’s defined benefit post-employment plan covers all regular full-time employees. The pension plan is tax-qualified, non-contributory and administered by a trustee.

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The liability recognized in the statement of financial position for a defined benefit plan is the present value of the defined benefit obligation (DBO) at the end of the reporting period less the fair value of plan assets. The DBO is calculated every other year by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using a discount rate derived from the interest rate of a zero coupon government bonds as published by Philippine Dealing and Exchange Corporation that are denominated in the currency in which the benefits will be paid and that have terms of maturity approximating to the terms of the related post-employment liability. Remeasurements, comprising of actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions and the return on plan assets (excluding amount included in net interest) are reflected immediately in the statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they arise. Net interest is calculated by applying the discount rate at the beginning of the period, taking account of any changes in the net defined benefit liability or asset during the period as a result of contributions and benefit payments. Net interest is reported as part of Finance Costs (Income) – net account in the statement of profit or loss. Past-service costs are recognized immediately in profit or loss in the period of any plan amendment.

(b) Termination Benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits at the earlier of when it can no longer withdraw the offer of such benefits and when it recognizes costs for a restructuring that is within the scope of PAS 37, Provision, Contingent Liabilities and Contingent Assets, and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the reporting period are discounted to their present value.

(c) Compensated Absences

Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the end of the reporting period. They are included in the Trade and Other Payables account in the statement of financial position at the undiscounted amount that the Company expects to pay as a result of the unused entitlement.

2.15 Borrowing Costs

Borrowing costs are recognized as expense in the period in which they are incurred, except to the extent that they are capitalized. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (i.e., an asset that takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of the cost of such asset. The capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization ceases when substantially all such activities are complete.

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Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

2.16 Foreign Currency Transactions and Translation

The accounting records of the Company are maintained in Philippine pesos. Foreign currency transactions during the period are translated into the functional currency at exchange rates which approximate those prevailing on transaction dates.

Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive income as part of profit or loss from operations.

2.17 Income Taxes Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity, if any.

Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the end of the reporting period. They are calculated using the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognized as a component of tax expense in profit or loss. Deferred tax is accounted for using the liability method, on temporary differences at the end of the reporting period between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow such deferred tax assets to be recovered. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to in the period when the asset is realized or the liability is settled provided such tax rates have been enacted or substantively enacted at the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

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Deferred tax assets and deferred tax liabilities are offset if the Company has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred taxes related to the same entity and the same taxation authority. The Company establishes liabilities for probable and estimable assessments by the Bureau of Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent a reasonable provision for taxes ultimately expected to be paid and may need to be adjusted over time as more information becomes available.

2.18 Related Party Relationships and Transactions

Related party transactions are transfer of resources, services or obligations between the Company and its related parties, regardless whether a price is charged. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. These parties include: (a) individuals owning, directly or indirectly through one or more intermediaries, control or are controlled by, or under common control with the Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company and close members of the family of any such individual; and, (d) the Company’s retirement plan. In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely on the legal form.

2.19 Equity

Capital stock represents the nominal value of shares that have been issued.

Deposits for future stock subscriptions represent deposits from the parent company as payment for future subscriptions. Other reserve represents actuarial gains and losses arising from the remeasurements of the Company’s net post-employment defined benefit obligation (asset) [see Note 2(a)(ii)]. Retained earnings represent all current and prior period results of operations as reported in the profit or loss section of the statement of comprehensive income reduced by the amounts of dividend declared.

2.20 Events After the End of the Reporting Period Any post-period-end event that provides additional information about the Company’s financial position at the end of the reporting period (adjusting event) is reflected in the financial statements. Post-period-end events that are not adjusting events, if any, are disclosed when material to the financial statements.

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3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Company’s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may ultimately differ from these estimates.

3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements:

(a) Determining the Useful Lives of Trademark

Under the Intellectual Property Code of the Philippines, the legal life of trademark is 10 years and may be perpetually renewed thereafter for another 10 years. However, considering that the management does not expect any circumstances or events which will cause it to decide not to renew its trademarks every 10 years, management has taken the position that the useful lives of its trademarks are indefinite; hence the related costs are not amortized but subjected to annual impairment testing (see Notes 2.7 and 2.13). Changes in assumption and circumstances in the future will substantially affect the financial statements of the Company, particularly the carrying value of such asset.

No impairment loss on trademark was recognized in both periods based on management evaluation. The carrying value of the Company’s trademark as at December 31, 2013 and 2012 is presented in Note 10.

(b) Distinction between Operating and Finance Leases

The Company has entered into various lease agreements as a lessee. Judgment was exercised by management to distinguish each lease agreement as either an operating or finance lease by looking at the transfer or retention of significant risk and rewards of ownership of the properties covered by the agreements. Failure to make the right judgment will result in either overstatement or understatement of assets and liabilities. Based on management’s judgment such leases were determined to be operating leases.

(c) Recognition of Provisions and Contingencies

Judgment is exercised by management to distinguish between provisions and contingencies. Accounting policies on recognition of provisions and contingencies are discussed in Notes 2.10 and disclosure on relevant provision and contingencies are presented in Note 19.

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3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period:

(a) Impairment of Trade and Other Receivables

Adequate amount of allowance is made for specific and groups of accounts, where objective evidence of impairment exists. The Company evaluates these accounts based on available facts and circumstances, including, but not limited to, the length of the Company’s relationship with the customers, the customers’ current credit status based on known market forces, average age of accounts, collection experience and historical loss experience.

Based on the analysis done by management, certain receivables were identified to be impaired and have been provided with adequate allowance for impairment. The carrying value of trade and other receivables and the analysis of allowance for impairment on such financial assets are shown in Note 6.

(b) Determining Net Realizable Value of Inventories

In determining the net selling prices of inventories, management takes into account the most reliable evidence available at the times the estimates are made. It also takes into consideration the obsolescence of the inventory in determining net realizable value. The future realization of the carrying amounts of inventories as disclosed in Note 7 is affected by price changes in different market segments. These aspects are considered key sources of estimation uncertainty and may cause significant adjustments to the Company’s inventories within the next financial period. Impairment loss on inventory amounting to P4.5 million relating to expired inventories that were written down to net realizable value is recognized in 2013 (see Note 7). No similar writedown on inventories was made in 2012.

(c) Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. The carrying amounts of property, plant and equipment are analyzed in Note 9. Based on management’s assessment as at December 31, 2013 and 2012, there is no change in estimated useful lives of property, plant and equipment during those periods. Actual results, however, may vary due to changes in estimates brought about by changes in factors mentioned above.

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(d) Determining Realizable Amount of Deferred Tax Assets The Company reviews its deferred tax assets at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Management assessed that the deferred tax assets recognized as of December 31, 2013 will be fully utilized in the coming years. The details of deferred tax assets as of December 31, 2013 are disclosed in Note 16.

(e) Impairment of Non-financial Assets

Except for trademarks with indefinite useful lives which are reviewed for impairment annually or regularly, PFRS requires that an impairment review be performed when certain impairment indicators are present. The Company’s policy on estimating the impairment of non-financial assets is discussed in detail in Note 2.13. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations. No impairment loss on non-financial assets was recognized in 2013 and 2012.

(f) Valuation of Post-employment Defined Benefit

The determination of the Company’s obligation and cost of post-employment defined benefit are dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, discount rates and salary increase rates. In accordance with PFRS, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods. The amount of post-employment benefit obligation (asset), related expense and an analysis of the movements in the estimated present value of post-employment benefit obligation and fair value of plan asset are presented in Note 15.2.

4. RISK MANAGEMENT OBJECTIVES AND POLICIES The Company is exposed to certain financial risks in relation to financial instruments. The Company’s financial assets and liabilities by category are summarized in Note 20. The main types of risks are market risk, credit risk and liquidity risk.

The Company’s risk management is coordinated with its Board of Directors (BOD), and focuses on actively securing the Company’s short to medium-term cash flows by minimizing the exposure to financial markets.

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The Company does not engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Company is exposed to are described below. 4.1 Credit Risk

Credit risk is the risk that a counterparty may fail to discharge an obligation to the Company. The Company is exposed to this risk for various financial instruments arising from selling goods to customers, including related parties, providing security deposits to lessors, and placing deposits with banks. The Company continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporate this information into its credit risk controls. The Company’s policy is to deal only with creditworthy counterparties. Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the statements of financial position (or in detailed analysis provided in the notes to the financial statements), as summarized below.

Notes 2013 2012

Cash and cash equivalents 5 42,985,172 P 36,424,315 P

Trade and

other receivables – net 6 258,579,504 246,999,008

Security deposits 10 1,780,295 1,780,295

303,344,971 P 285,203,618 P

None of the Company’s financial assets are secured by collateral or other credit enhancements, except for cash and cash equivalents as described below. (a) Cash and Cash Equivalents

The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Included in the cash and cash equivalents are cash in banks and short-term placements. As part of Company policy, bank deposits are only maintained with reputable financial institutions. Cash in banks which are insured by the Philippine Deposit Insurance Corporation (PDIC) up to a maximum coverage of P500,000 per depositor per banking institution, as provided for under Republic Act (R.A.) No. 9576, Charter of PDIC, are still subject to credit risk. (b) Trade and Other Receivables In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Trade receivables consist of a large number of customers in various industries and geographical areas. Based on historical information about customer default rates, management consider the credit quality of trade receivables that are not past due or impaired to be good.

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Some of the financial assets, which are all trade receivables, are past due but unimpaired as at the end of the reporting periods. Trade receivables that are past due but not impaired are as follows:

2013 2012

Not more than three months 78,650,977 P 48,647,741 P

More than three months but not morethan six months 6,546,544 24,223,084

85,197,521 P 72,870,825 P

The fair value of these short-term financial assets is not individually determined as the carrying amount is a reasonable approximation of fair value. 4.2 Liquidity Risk The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 6-month and one-year period are identified monthly. The Company maintains cash to meet its liquidity requirements for up to 60-day periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets. As at December 31, 2013 and 2012, the Company’s financial liabilities have contractual maturities within six months or less.

4.3 Foreign Currency Risk Most of the Company’s transactions are carried out in Philippine pesos, its functional

currency. Exposures to currency exchange rates arise from the Company’s overseas purchases, which are denominated in United States (U.S.) dollars. The Company also holds U.S. dollar-denominated cash in banks.

To mitigate the Company’s exposure to foreign currency risk, non-Philippine peso cash flows are monitored and settled within a short period, in the case of liabilities. Accordingly, the Company does not have significant exposure to foreign currency exchange rates.

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5. CASH AND CASH EQUIVALENTS

The breakdown of this account are as follows:

2013 2012

Cash in banks 42,985,172 P 35,381,811 P

Cash on hand 6,171,646 508,800 Short-term placements - 1,042,504

49,156,818 P 36,933,115 P

Cash in banks generally earn interest at rates based on daily bank deposit rates. Short-term placements are made for varying periods between 30 to 90 days and earn effective interest ranging from 1.63% to 2.25% for both periods. Interest income earned amounting to P91,267 in 2013 and P165,794 in 2012 is presented as part of Finance Costs (Income) – net in the statements of comprehensive income (see Note 14).

6. TRADE AND OTHER RECEIVABLES

This account is composed of the following:

Notes 2013 2012

Trade receivables 18.1 257,171,099 P 252,608,378 P Advances to suppliers 17,509,562 29,059,344 Others 7 11,072,931 5,626,142

285,753,592 287,293,864

Allowance for impairment 6,853,755 )( 6,853,755 )(

278,899,837 P 280,440,109 P

Trade receivables are usually due within 30 to 90 days and do not bear any interest.

The Company’s trade and other receivables, which are subject to credit risk exposure (see Note 4.1), have been reviewed for indicators of impairment. Certain trade receivables were identified to be impaired; hence, adequate amount of allowance for impairment has been recognized [see Note 3.2(a)].

A reconciliation of the allowance for impairment at the beginning and end of the years ended December 31, 2013 and 2012 is shown below.

Note 2013 2012

Balance at beginning of year 6,853,755 P 6,340,995 P

Impairment loss

during the year 13 - 512,760

Balance at end of year 6,853,755 P 6,853,755 P

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7. INVENTORIES

Inventories at the end of December 31 2013 and 2012 are broken down as follows:

Note 2013 2012

At Cost:Finished goods 172,179,775 P 314,973,334 P Raw and packaging materials 127,469,371 109,877,664 Other supplies 5,011,905 6,073,706

304,661,051 430,924,704

At Net Realizable Value (NRV):Finished goods 4,143,035 - Raw and packaging materials 319,283 -

4,462,318 - Allowance to writedown

inventory to NRV 13 4,462,318 )( - - -

304,661,051 P 430,924,704 P

The cost of inventories charged to operations for the years ended December 31, 2013 and 2012 are analysed in Note 13.

In 2013, the Company’s management determined that certain raw materials and finished goods may no longer be used in production nor the carrying amounts can be recovered through sale. Accordingly, the Company recognized impairment loss on inventory amounting to P4.5 million which is presented as Loss on inventory obsolescence under Administrative Expenses in the 2013 statement of comprehensive income [see Notes 3.2(b) and 13]. There was no loss on inventory obsolescence recognized in 2012.

The Company has a warehouse located in Tacloban City, Leyte. In November 2013, the warehouse facility was destroyed by a typhoon that resulted in estimated inventory losses of P2.8 million, which is equivalent to the claims filed with the insurance company. The said claim is still outstanding as at December 31, 2013 and is presented as part of Others under the Trade and Other Receivables in the 2013 statement of financial position (see Note 6). There was no similar transaction in 2012.

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8. PREPAYMENTS AND OTHER CURRENT ASSETS

The composition of this account is shown below.

Note 2013 2012

Input VAT 23.1(b) 29,418,474 P 40,180,862 P

Prepaid taxes 16,917,569 24,007,139 Others 273,605 1,064,135

46,609,648 P 65,252,136 P

The Company’s prepaid taxes represent taxes withheld by the Company’s customers amounting to P16,100,323 and P23,189,893 as at December 31, 2013 and 2012, respectively, and tax credit certificates issued by the Bureau of Customs (BOC) amounting to both P817,246 as at December 31, 2013 and 2012.

9. PROPERTY, PLANT AND EQUIPMENT

The gross carrying amounts and accumulated depreciation and amortization of property, plant and equipment at the beginning and end of the years ended December 31, 2013 and 2012, are shown below.

Plant, Laboratory

Machinery and Tools and Leasehold Construction-Equipment Equipment Improvements in-Progress Total

December 31, 2013

Cost 108,453,610 P 8,195,012 P 15,753,041 P 145,137,943 P 277,539,606 P Accumulated

depreciation and

amortization 94,422,848 )( 4,818,838 )( 13,952,121 )( - 113,193,807 )(

Net carrying amount 14,030,762 P 3,376,174 P 1,800,920 P 145,137,943 P 164,345,799 P

December 31, 2012

Cost 106,608,328 P 5,020,726 P 14,105,279 P - 125,734,333 P Accumulated

depreciation and

amortization 86,677,856 )( 4,323,334 )( 12,677,596 )( - 103,678,786 )(

Net carrying amount 19,930,472 P 697,392 P 1,427,683 P - 22,055,547 P

January 1, 2012

Cost 104,956,773 P 4,615,406 P 13,891,615 P - 123,463,794 P

Accumulateddepreciation and

amortization 77,093,388 )( 3,977,007 )( 10,689,222 )( - 91,759,617 )(

Net carrying amount 27,863,385 P 638,399 P 3,202,393 P - 31,704,177 P

P

P

P

P

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A reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of the years ended December 31, 2013 and 2012, is presented below.

Plant, Laboratory

Machinery and Tools and Leasehold Construction-Equipment Equipment Improvements in-Progress Total

Balance at January 1, 2013,

net of accumulated depreciation and

amortization 19,930,472 P 697,392 P 1,427,684 P - 22,055,548 P Additions 1,845,282 3,174,286 1,647,761 145,137,943 151,805,272

Depreciation and amortization charges

for the year 7,744,992 )( 495,504 )( 1,274,525 )( - 9,515,021 )(

Balance at December 31, 2013, net

of accumulated depreciation and

amortization 14,030,762 P 3,376,174 P 1,800,920 P 145,137,943 P 164,345,799 P

Balance at

January 1, 2012, net of accumulated

depreciation and amortization 27,863,385 P 638,399 P 3,202,393 P - 31,704,177 P

Additions 1,651,555 405,320 213,664 - 2,270,539 Depreciation and

amortization chargesfor the year 9,584,468 )( 346,327 )( 1,988,374 )( - 11,919,169 )(

Balance at

December 31, 2012, net of accumulated

depreciation and

amortization 19,930,472 P 697,392 P 1,427,683 P - 22,055,547 P

P

P

P

Construction-in-progress pertains to the accumulated costs incurred on the ongoing construction, which started in 2013, of the Company’s new production plant and administration building as part of the Company’s expansion activities (see Notes 1 and 19.2). As at December 31, 2013, the construction is not yet complete. The cost of fully depreciated property, plant and equipment as at December 31, 2013 and 2012 which are still being used in operations amounts to P82,828,129 and P46,505,687, respectively. The Company did not capitalize any borrowing cost related to their general borrowings in 2013, since management determined that the effect is not material to the financial statements.

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The depreciation and amortization for the years ended December 31 is allocated as follows (see Note 13):

2013 2012

Cost of goods sold 9,317,311 P 11,345,333 P

Administrative expenses 197,710 573,836

9,515,021 P 11,919,169 P

10. OTHER NON-CURRENT ASSETS

This account consists of:

Note 2013 2012

Trademarks 40,000,000 P 40,000,000 P

Security deposits 4.1 1,780,295 1,780,295 Returnable containers 233,000 1,104,000

42,013,295 P 42,884,295 P

In July 2008, the Company purchased from General Milling Corporation (GMC) certain trademarks owned and registered with the Intellectual Property Office under the name of GMC. As discussed in Note 3.1(a), the Company’s trademarks are subject to annual impairment testing. No impairment losses were recognized for the years ended December 31, 2013 and 2012 as the recoverable amounts of the trademarks were determined to be higher than their carrying values. Security deposits pertain to deposits required under the terms of the lease agreements of the Company with certain lessors. The carrying amount of these deposits is a reasonable approximation of its fair value based on management’s assessment as at December 31, 2013 and 2012.

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11. TRADE AND OTHER PAYABLES The composition of this account is shown below.

Note 2013 2012

Trade payables 18.4 134,974,596 P 328,397,554 P

Accrued expenses 18.3 19,389,701 2,591,982 Others 5,370,799 3,293,310

159,735,096 P 334,282,846 P

Accrued expenses include obligations relating to trucking and shipment fee, consultancy and management fee and salaries and employee benefits. Other payables consist of various payables to government agencies which includes taxes and employer’s shares in certain mandatory employee benefits. Due to the short duration of trade and other payables, management considers the carrying amounts to be a reasonable approximation of fair values.

12. INTEREST-BEARING LOANS On October 30, 2013, the Company obtained two unsecured interest-bearing loans from a local bank for its working capital and capital expenditure requirements (see Note 19.2) totalling to P540.0 million. These loans both bear fixed interest rate of 2.5% per annum and are to be repaid on November 30, 2013. In November and December 2013, the Company repaid a portion of these loans amounting to P325.0 million. The outstanding balance of these unsecured interest-bearing loans as at December 31, 2013 is presented as Interest-Bearing Loans in the 2013 statement of financial position. Interest expense arising from these loans which amounted to P1.6 million is presented as part of Finance costs under Finance Costs (Income) – Net in the 2013 statement of comprehensive income (see Note 14). There is no outstanding interest payable as of December 31, 2013.

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13. COSTS AND EXPENSES BY NATURE

The details of costs and expenses by nature are shown below.

2012Notes 2013 (As Restated)

Milk and ingredients 734,122,138 P 821,975,535 P

Packaging and other materials 261,172,270 380,053,910

Changes in inventories of

finished goods 138,650,524 101,850,269

Advertisements 111,507,292 116,893,508

Outside services 18.3 46,447,826 49,546,397

Freight 46,253,380 44,342,447

Forwarding and other

warehousing fees 44,724,843 55,231,107

Merchandisers’ salary 34,951,327 32,607,195

Communication, light and water 16,325,822 20,972,321

Salaries and employee benefits 15.1, 18.5 14,398,014 13,977,192

Rentals 18.4 9,606,064 11,031,433

Depreciation and amortization 9 9,515,021 11,919,169

Gas, fuel and oil 8,787,684 12,837,058

Taxes and licenses 23.1(f) 7,311,020 6,897,574 Supplies 4,522,876 6,213,439 Loss on inventory

obsolescence 7 4,462,318 -

Repairs and maintenance 1,156,243 1,962,046

Impairment loss

on trade receivables 6 - 512,760 Miscellaneous 3,857,370 5,086,402

1,497,772,032 P 1,693,909,762 P

These expenses are classified in the statements of comprehensive income as follows:

20122013 (As Restated)

Cost of goods sold 1,222,454,203 P 1,419,620,458 P

Selling expenses 128,583,164 131,551,269

Marketing expenses 111,648,759 119,270,662 Administrative expenses 35,085,906 23,467,373

1,497,772,032 P 1,693,909,762 P

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Cost of goods sold for the years ended December 31, 2013 and 2012 consist of the following:

2012Notes 2013 (As Restated)

Raw and packaging materials used:

Raw and packaging

materials at beginning of year 109,877,664 P 135,545,967 P

Net purchases

during the year 1,013,207,042 1,176,361,142 Raw and packaging

materials at end of year 7 127,788,654 )( 109,877,664 )(

995,296,052 1,202,029,445

Direct labor 922,621 1,000,537

Manufacturing overhead:

Outside services 27,416,959 39,432,092

Communication,

light and water 16,243,975 20,877,595

Rentals 18.4 9,592,647 11,024,845

Depreciation and

amortization 9 9,317,311 11,345,333

Indirect labor 15.1 8,906,519 8,258,283

Gas, fuel and oil 8,787,684 12,834,545

Supplies 4,492,636 6,171,109 Repairs and maintenance 1,152,517 1,953,615 Others 1,674,758 2,841,143

87,585,006 114,738,560

Total cost of goods manufactured 1,083,803,679 1,317,768,542

Finished goods at

beginning of year 314,973,334 416,825,250 Finished goods at

end of year 7 176,322,810 )( 314,973,334 )(

1,222,454,203 P 1,419,620,458 P

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14. FINANCE COSTS (INCOME)

The details of Finance Costs (Income) – net are presented below.

2012Notes 2013 (As Restated)

Finance costs 12, 15.2 1,646,343 P 149,281 P

Finance income 5 114,489 )( 187,370 )(

1,531,854 P 38,089 )( P

15. EMPLOYEE BENEFITS

15.1 Employee Benefits Expense Expenses recognized for salaries and employee benefits are presented below.

2012Notes 2013 (As Restated)

Short-term benefits 14,103,227 P 13,557,311 P Post-employment benefits 15.2 294,787 419,881

13 14,398,014 P 13,977,192 P

The amount of employee benefits expense is allocated as follows:

2012Note 2013 (As Restated)

Cost of goods sold 13 9,829,140 P 9,258,820 P Administrative expenses 4,568,874 4,718,372

13 14,398,014 P 13,977,192 P

15.2 Post-employment Defined Benefit

(a) Characteristics of the Defined Benefit Plan

The Company maintains a fully funded, tax-qualified, non-contributory post-employment benefit plan that is being administered by a trustee bank covering all regular full-time employees. The normal retirement age is 60 with a minimum of 5 years of credited service. The plan also provides for an early retirement at age 50 with a minimum of 10 years of credited service and late retirement after age 65, both subject to the approval of the Company’s BOD. Normal retirement benefit is an amount equivalent to 100% of the final monthly covered compensation (average monthly basic salary during the last 12 months of credited service) for every year of credited service.

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(b) Explanation of Amounts Presented in the Financial Statements

Actuarial valuations are made every other year to update the retirement benefit costs and the amount of contributions. All amounts presented below are based on the actuarial valuation report obtained from an independent actuary in 2013 including the comparative year which has been restated in line with the adoption of PAS 19 (Revised), see Note 2.2(a)(ii). The amounts of post-employment benefit obligation (asset) recognized in the statements of financial position are determined as follows:

20122013 (As Restated)

Present value of the obligation 2,560,525 P 3,379,996 P Fair value of plan assets 3,212,678 )( 2,850,863 )(

Under (over) funded 652,153 )( 529,133 Effect of asset ceiling 29,854 -

622,299 )( P 529,133 P

The movements in the present value of the post-employment benefit obligation recognized in the books are as follows:

2012

2013 (As Restated)

Balance at beginning of year 3,379,996 P 2,802,558 P

Current service cost 294,787 419,881

Interest expense 158,296 157,557

Remeasurements − Actuarial losses(gains) arising from:− changes in financial assumption 427,968 - − experience adjustments 1,700,522 )( -

Balance at end of year 2,560,525 P 3,379,996 P

The movements in the fair value of plan assets are presented below [see also Note 15.2(b)].

20122013 (As Restated)

Balance at beginning of year 2,850,863 P 2,149,434 P Contributions 512,064 512,064 Interest income 142,509 132,301 Return on plan assets (excluding -

amounts included in net interest) 292,758 )( 57,064

Balance at end of year 3,212,678 P 2,850,863 P

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The composition of the fair value of plan assets as at December 31, 2013 and 2012 for each category and risk characteristics is shown below.

2013 2012

Cash and cash equivalents 311,630 P 301,906 P Debt instruments - government bonds 1,955,878 1,728,193 Debt instruments - other bonds 452,024 560,195 Others 493,146 260,569

3,212,678 P 2,850,863 P

Except for cash and cash equivalents which have insignificant risk of changes in value, the fair values of the above financial assets are determined based on quoted market prices in active markets. The plan assets do not comprise any of the Company’s own financial instruments or any of its assets occupied and/or used in its operations. It incurred a negative return of P0.2 million in 2013 and positive return of P0.2 million in 2012. The components of amounts recognized in profit or loss and in other comprehensive income in respect of the defined benefit plan are as follows:

20122013 (As Restated)

Recognized in profit or loss:

Current service cost 294,787 P 419,881 P

Net interest expense 15,787 25,256

310,574 P 445,137 P

Recognized in other comprehensive income:

Actuarial losses (gains) arising from:

−experience adjustments 1,700,522 )( P -

−changes in financial assumptions 427,968 -

Return of plan assets

(excluding amount included in

net interest expense) 292,758 57,064 )(

Effect of asset ceiling 29,854 -

949,942 )( P 57,064 )( P

P

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Current service cost is allocated and presented in the statements of comprehensive income under the following accounts:

2013 2012

Cost of goods sold 261,689 P 363,309 P Administrative expenses 33,098 56,572

294,787 P 419,881 P

Net interest expense is included in Finance Costs (Income) – net account in the statements of comprehensive income (see Note 14). The amount recognized in other comprehensive income was classified as item that will not be reclassified subsequently to profit or loss. In determining the amounts of the post-employment benefit obligation, the following significant actuarial assumptions were used:

2013 2012

Discount rates 4.63% 5.62%Expected rate of salary increases 3.00% 2.00%

Assumptions regarding future mortality experience are based on published statistics and mortality tables. The average remaining working lives of an individual retiring at the age of 60 is 22 for males and 30 for females. These assumptions were developed by management with the assistance of an independent actuary. Discount factors are determined close to the end of each reporting period by reference to the interest rates of a zero coupon bond government bonds with terms to maturity approximating to the terms of the retirement obligation. Other assumptions are based on current actuarial benchmarks and management’s historical experience.

(c) Risks Associated with the Retirement Plan

The plan exposes the Company to actuarial risks such as investment risk, interest rate risk, longevity risk and salary risk.

(i) Investment and Interest Risk

The present value of the defined benefit obligation is calculated using a discount rate determined by reference to market yields of government bonds. Generally, a decrease in the interest rate of a reference government bond will increase the plan obligation. However, this will be partially offset by an increase in the return on the plan’s investments in debt securities and if the return on plan asset falls below this rate, it will create a deficit in the plan. Currently, the plan has significant investment in debt instruments.

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(ii) Longevity and Salary Risks The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of the plan participants both during and after their employment and to their future salaries. Consequently, increases in the life expectancy and salary of the plan participants will result in an increase in the plan obligation.

(d) Other Information

The information on the sensitivity analysis for certain significant actuarial assumptions, the Company’s asset-liability matching strategy, and the timing and uncertainty of future cash flows related to the retirement plan are described as follows:

(i) Sensitivity Analysis

The following table summarizes the effects of changes in the significant actuarial assumptions used in the determination of the defined benefit obligation as of December 31, 2013:

Change in Increase in Decrease inassumption assumption assumption

Salary increase rate +9.3% to - 8.5% 238,550 P 217,830 )( P

Discount rate +10.3% to - 9.1% 234,207 )( 263,271

Impact on post-employment define benefit obligation

The sensitivity analysis in the foregoing table is based on a change in an assumption while holding all other assumptions constant. This analysis may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the previous page sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognized in the statements of financial position. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous years. (ii) Asset-liability Matching Strategies

To efficiently manage the retirement plan, the Company ensures that the investment positions are managed in accordance with its asset-liability matching strategy to achieve that long-term investments are in line with the obligations under the retirement scheme. This strategy aims to match the plan assets to the retirement obligations by investing in long-term fixed interest securities (i.e., government or corporate bonds) with maturities that match the benefit payments as they fall due and in the appropriate currency. The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the retirement benefit obligations.

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In view of this, investments are made in reasonably diversified portfolio congruent to the level of credit risks identified on such investments, such that the failure of any single investment will be minimized and would not have a material impact on the overall level of assets. A large portion of the plan assets as of December 31, 2013 and 2012 consists of debt securities, although the Company also invests in cash and cash equivalents and other forms of investments. The Company believes that the debt securities which mainly represent government bond investments offer the best returns over the long term with an acceptable level of risk. There has been no change in the Company’s strategies to manage its risks from previous periods.

(iii) Funding Arrangements and Expected Contributions The plan is currently overfunded by P0.6 million based on the latest actuarial valuation. While there are no minimum funding requirement in the country, expected retirement of significant number of employees may pose a cash flow risk in about 12 years’ time. The maturity profile of undiscounted expected benefits payments from the plan is between 6 to 10 years amounting to P1.1 million. The weighted average duration of the defined benefit obligation at the end of the reporting period is 12 years.

16. CURRENT AND DEFERRED TAXES

The components of tax expense as reported in profit or loss and other comprehensive income are as follows:

2013 2012

Recognized in profit or loss:

Regular corporate income tax (RCIT) at 30% 18,690,242 P 7,341,848 P

Final tax at 20% and 7.5% 18,253 33,159

18,708,495 7,375,007 Deferred tax income relating

to origination and reversal of temporary difference 3,410,408 )( -

15,298,087 P 7,375,007 P

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2013 2012

Recognized in other comprehensive income:

Recognition of previously unrecognized DTA 287,040 )( P -

Deferred tax expense for the year 284,983 -

2,057 )( P -

P

P

A reconciliation of tax on pretax profit computed at the applicable statutory rates to tax expense reported in the statements of comprehensive income is presented below.

2013 2012

Tax on pretax profit at 30% 17,120,903 P 7,988,255 P

Adjustment for income subjected to

lower income tax rates 9,127 )( 16,579 )(

Tax effects of:

Recognition of previously

unrecognized DTA 2,188,081 )( -

Non-deductible expenses 374,392 16,414 Unrecognized deductible

temporary difference - 127,757 Application of previously

unrecognized DTA on minimum corporate income tax (MCIT) - 740,840 )(

Tax Expense 15,298,087 P 7,375,007 P

The Company did not recognize deferred tax assets (as restated) related to the following temporary differences as at December 31, 2012, since their recoverability and utilization is not yet certain during that period based on the management’s assessment.

Deferred tax assets:Allowance for impairment loss

on trade and other receivables 2,056,127 P Unamortized past service cost 267,537 Retirement benefit obligation 158,739

2,482,403 Deferred tax liabilities −

Unrealized foreign currency gain 7,282 )(

Unrecognized Net Deferred Tax Assets 2,475,121 P

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However, based on the recent historical profitability analysis made in 2013 and positive expectations on future results of the Company’s operations, the Company recognized the deferred tax assets related to the following temporary differences as at December 31, 2013:

Statement of OtherFinancial ComprehensivePosition Profit or Loss Income

Deferred tax assets:Allowance for impairment loss

on trade and other receivables 2,056,127 P 2,056,127 P - Allowance to write-down

inventory to NRV 1,338,695 1,338,695 - Unamortized past service cost 287,596 287,596 -

3,682,418 3,682,418 -

Deferred tax liabilities:Post-employment benefit asset 186,690 )( 188,747 )( 2,057

Prepayments 82,082 )( 82,082 )( - Unrealized foreign currency gain 1,181 )( 1,181 )( -

269,953 )( 272,010 )( 2,057

Net Deferred Tax Assets 3,412,465 P

Net Deferred Tax Income 3,410,408 P 2,057 P

Comprehensive IncomeStatement of Other

P

The Company is subject to MCIT which is computed at 2% of gross income, as defined under tax regulations, or RCIT, whichever is higher. In 2013 and 2012, RCIT was higher than MCIT. As at December 31, 2012, the Company has fully utilized its MCIT amounting to P740,840 which represents the total of MCIT incurred in 2011 (P133,950) and 2010 (P606,890). For the years ended December 31, 2013 and 2012, the Company opted to claim itemized deductions in computing its income tax due.

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17. EQUITY 17.1 Capital Stock Capital stock consists of common shares with details as follows:

Note 2013 2012 2013 2012

Authorized – P10 par value:Balance at beginning

of year 5,000,000 5,000,000 50,000,000 P 50,000,000 P

Increase during the year 17.2 45,000,000 - 450,000,000 -

Balance at end of year 50,000,000 5,000,000 500,000,000 P 50,000,000 P

Issued and outstanding:

Balance at beginning of year 4,062,500 4,062,500 40,625,000 P 40,625,000 P

Issuances during

the year:

Cash subscription 17.2 25,411,680 - 254,116,800 -

Application of deposit for future stock

subscription 17.2 19,588,320 - 195,883,200 -

Collection of subscription

receivable 937,500 - 9,375,000 -

Balance at end of year 50,000,000 4,062,500 500,000,000 40,625,000

Subscribed:

Balance at beginning of year 937,500 937,500 9,375,000 9,375,000

Additional subscription

during the year 45,000,000 - 450,000,000 -

Issued during the year 45,937,500 )( - 459,375,000 )( -

Balance at end of year - 937,500 - 9,375,000

Subscription receivable:

Balance at beginning 9,375,000 )( 9,375,000 )( of year

Collection 17.2 9,375,000 -

Balance at end of year - 9,375,000 )(

500,000,000 P 40,625,000 P

Shares Amount

In 2013, apart from CCC’s subscription to the increase in authorized capital stock paid by way of application of its deposits for future stock subscription (see Note 17.2), it also subscribed to additional shares amounting to P254.1 million, which was paid in cash by CCC. The Company also collected its P9.4 million outstanding subscription receivable in previous years. In October 2013, CCC sold 100% of its ownership interest to CPFI (see Note 1).

As at December 31, 2013 and 2012, the Company has three stockholders owning 100 or more shares each of the Company’s capital stock.

-

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17.2 Deposits for Future Stock Subscriptions

On October 18, 2012, the Company filed an application with the SEC for its proposed increase in authorized capital stock from P50.0 million divided into 5,000,000 to P500.0 million divided into 50,000,000 shares with the same par value per share of P10. This was previously approved by the Company’s BOD on December 6, 2011. In compliance with the SEC’s rules relating to the foregoing, the Company applied a portion of the parent company’s advances to the Company amounting to P45,500,000 (see Note 18.2) and the parent company’s previously recognized Deposits for Future Stock Subscriptions amounting to P150,383,200 as subscription payments. As at December 31, 2012, approval of the application is still pending with the SEC. Accordingly, the subscription payments were presented as Deposits for Future Stock Subscriptions in the 2012 statement of financial position. Subsequently, on April 15, 2013, the SEC approved the Company’s proposed increase in authorized capital stock. Accordingly, on the same date, the Company issued 19,588,320 shares to CCC by applying its deposits on future stock subscription of P195,883,200 on the subscription price which equals the par value of the shares; hence, no additional paid-in-capital arose from this equity transaction. 17.3 Dividends Declaration The BOD approved the declaration of cash dividend amounting to P64.0 million on September 30, 2013 payable to stockholders of record as of September 30, 2013. The cash dividend was fully settled in October 2013. There was no dividend declaration in 2012.

18. RELATED PARTY TRANSACTIONS

The Company’s related parties include its ultimate parent company, the Company’s key management personnel, related parties under common ownership and retirement plan assets.

The summary of the Company’s related party transactions is presented below.

Outstanding OutstandingAmount of Receivable Amount of Receivable

Note Transactions (Payable) Transactions (Payable)

Related Parties Under

Common Ownership:

Sale of goods 18.1 8,378,197 P - 127,866,796 P 7,044,926 P Consultancy and

management fees 18.3 12,087,285 8,334,584 )( 7,279,445 2,556,101 )( Advances 18.2 270,907,199 )( 7,965,473 )( 136,592,894 )( 278,872,672 )( Rentals 18.4 - - 1,547,100 3,456,221 )(

Key Management

Personnel

Compensation 18.5 3,165,483 - 2,958,888 -

2013 2012

P

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18.1 Sale of Goods The Company sold finished goods inventories to CCC amounting to P8.4 million in 2013 and P127.9 million in 2012 which is presented as part of Sale of Goods in the statements of comprehensive income. Outstanding balance in relation to the sale of goods as at December 31, 2012 amounts to P7.0 million and is shown as part of Trade receivables under the Trade and Other Receivables account in the 2012 statement of financial position (see Note 6). There is no outstanding balance of receivable from this transaction as at December 31, 2013. Also, no impairment loss was recognized in both years on the Company’s receivable from parent company. 18.2 Advances from Related Parties In the normal course of business, the Company obtains unsecured, noninterest-bearing advances from related parties, including its parent company and entities under common ownership, for working capital requirements and other purposes. Such advances are presented as Due to Related Parties in the statements of financial position. Presented below are the movement in the account.

Note 2013 2012

Balance at beginning of year 278,872,672 P 415,465,566 P Additional borrowings

during the year 256,723,141 - Repayments during the year 527,630,340 )( 91,092,894 )( Applied as deposits for

future stock subscription 18.2 - 45,500,000 )(

Balance at end of year 7,965,473 P 278,872,672 P

These are due on demand and normally repaid in cash.

18.3 Consultancy and Management Fees The Company incurs management and consultancy fees based on an agreement between CCC and the Company. Under the agreement, CCC can allocate and charge common corporate expenses to its subsidiaries. The consultancy and management fees incurred and paid by the Company for the years ended December 31, 2013 and 2012 amounted to P12.1 million and P7.3 million, respectively, and is presented as part of Outside Services under Administrative Expenses in the statements of comprehensive income (see Note 13). The outstanding payables arising from these transactions amount to P8.3 million and P2.6 million as at December 31, 2013 and 2012, respectively, are shown as part of Accrued expenses under the Trade and Other Payables account in the statements of financial position (see Note 11).

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18.4 Rentals For the year ended December 31, 2012, CCC leased out storage and production facilities to the Company. In 2013, both parties agreed that the Company may use the facilities at no cost to the Company. Rental expense incurred amounting to P1.5 million for the year ended December 31, 2012 is presented as part of Rentals under Cost of Goods Sold in the 2012 statement of comprehensive income (see Note 13). The outstanding payables arising from these transactions amounts to P3.5 million as at December 31, 2012 and are shown as part of Trade payables under the Trade and Other Payables account in the 2012 statement of financial position (see Note 11).

18.5 Key Management Personnel Compensations

The short-term employee benefits of the key management personnel amounted to P3.2 million and P3.0 million for the years ended December 31, 2013 and 2012, are included in Salaries and employee benefits presented as part of Administrative Expenses in the statements of comprehensive income (see Note 13). 18.6 Retirement Plan

The Company’s retirement plan for its post-employment defined benefit plan is administered and managed by a trustee bank. The fair value and the composition of the plan assets as well as details of the contributions of the Company and benefits paid out by the plan as of December 31, 2013 and 2012 are presented in Note 15.2(b).

The retirement fund neither provides any guarantee or surety for any obligation of the Company nor its investments covered by any restriction or liens.

19. COMMITMENTS AND CONTINGENCIES

The following are the significant commitments and contingencies involving the Company. 19.1 Credit Facilities

The Company has continuing surety with related parties on a P2,700,000,000 credit facility with a major local bank and a P1,345,376,000 combined sub-limits through inter corporate guarantee lines from other local banks. 19.2 Capital Commitments

As at December 31, 2013, the Company has construction-in-progress totalling P145,137,943. The construction relates to the Company’s new production plant in Taguig City (see Note 9). The construction is expected to be completed in 2014 and has remaining estimated costs to complete of P51,925,717 as at December 31, 2013 which is partly financed by the interest-bearing loans obtained from a local bank on October 30, 2013 (see Note 12).

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19.3 Others

There are other commitments, guarantees, litigations and contingent liabilities that arise in the normal course of the Company’s operations which are not reflected in the accompanying financial statements. As at December 31, 2013, management is of the opinion that losses, if any, from these commitments and contingencies will not have a material effect on the Company’s financial statements.

20. CATEGORIES AND OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

The carrying amounts and fair values of the categories of assets and liabilities presented in the statements of financial position are shown below.

Notes Carrying Values Fair Values Carrying Values Fair Values

Financial assets Loans and receivables:

Cash and cash equivalents 5 49,156,818 P 49,156,818 P 36,933,115 P 36,933,115 P

Trade and other

receivables – net 6 258,579,504 258,579,504 246,999,008 246,999,008

Security deposits 10 1,780,295 1,780,295 1,780,295 1,780,295

309,516,617 P 309,516,617 P 285,712,418 P 285,712,418 P

Financial Liabilities

At amortized cost:

Trade and other payables 11 158,555,004 P 158,555,004 P 331,787,190 P 331,787,190 P

Interest-bearing loans 12 215,000,000 215,000,000 - -

Due to related parties 18 7,965,473 7,965,473 278,872,672 278,872,672

381,520,477 P 381,520,477 P 610,659,862 P 610,659,862 P

2013 2012

See Notes 2.3 and 2.8 for a description of the accounting policies for each category of financial instrument. A description of the Company’s risk management objectives and policies for financial instruments is provided in Note 4.

The Company has no financial instrument offsetting arrangements in 2013 and 2012.

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21. FAIR VALUE MEASUREMENT AND DISCLOSURE 21.1 Fair Value Hierarchy In accordance with PFRS 13, the fair value of financial assets and liabilities and non-financial assets which are measured at fair value on a recurring or non-recurring basis and those assets and liabilities not measured at fair value but for which fair value is disclosed in accordance with other relevant PFRS, are categorized into three levels based on the significance of inputs used to measure the fair value. The fair value hierarchy has the following levels: a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that an entity can access at the measurement date; b) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and, c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level within which the asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement. For purposes of determining the market value at Level 1, a market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company has no financial assets and financial liabilities measured at fair value or that are not carried at fair value but are required to be disclosed as at December 31, 2013 and 2012. For financial assets and financial liabilities measured at amortized cost management consider that their carrying amounts approximate their fair value (see Note 20).

22. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Company’s capital management objectives are:

• To ensure the Company’s ability to continue as a going concern; and,

• To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity as presented in the statements of financial position. Capital for the reporting periods under review is summarized as follows:

2013 2012

Total liabilities 382,700,569 P 613,684,651 P

Total equity 507,020,643 264,805,255

Debt-to-equity ratio 0.75 : 1 2.32 : 1

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The Company sets the amount of capital in proportion to its overall financing structure, i.e., equity and liabilities. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

23. SUPPLEMENTARY INFORMATION REQUIRED BY THE BIR

Presented below is the supplementary information which is required by the BIR under its existing revenue regulations to be disclosed as part of the notes to financial statements. This supplementary information is not a required disclosure under PFRS. 23.1 Requirements under Revenue Regulations (RR) 15-2010 The information on taxes, duties and license fees paid or accrued during the taxable year required under RR 15-2010 are as follows: (a) Output VAT

The total revenue and corresponding VAT of the Company for 2013 is as follows:

OutputTax Base VAT

VATable sales 1,551,915,037 P 186,229,804 P

Zero-rated sales 4,443,844 -

1,556,358,881 P 186,229,804 P

The Company’s VAT zero-rated sales/receipt were determined pursuant to Section 106(A)(2)(a), Zero-rated VAT on Export Sale of Goods, and Section 109, VAT Exempt Transactions, of the 1997 National Internal Revenue Code.

The tax bases are presented as Sale of Goods in the 2013 statement of comprehensive income. There is no outstanding output VAT payable as of December 31, 2013.

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(b) Input VAT The movements in input VAT, which is presented as part of the Prepayments and Other Current Assets (see Note 8), in 2013 are summarized below.

Balance at beginning of year 40,180,862 P Input tax on imported goods 73,843,567 Goods for resale/manufacture

or further processing 46,589,848 Services lodged under other accounts 45,564,142 Services lodged under cost of goods sold 9,000,435 Capital goods not subject to amortization 469,424 Applied against output VAT 186,229,804 )(

Balance at end of year 29,418,474 P

(c) Taxes on Importation

In 2013, the total landed cost of the Company’s imported inventory for use in business amounted to P615,363,047. This amount includes customs duties and tariff fees of P6,320,868.

(d) Excise Tax

The Company does not have excise tax in 2013 since it does not have any transactions which are subject to excise tax.

(e) Documentary Stamp Tax (DST)

In 2013, the Company incurred DST amounting to P2,250,000 [see Note 23.1(f)] in connection with its increase in the authorized capital stock (see Note 17.2).

(f) Taxes and Licenses

The details of Taxes and licenses are broken down as follows:

Notes

Business tax 4,936,848 P

DST 23.1(e) 2,250,000

Municipal license and permit 70,764

Miscellaneous 53,408

13 7,311,020 P

The amounts of taxes and licenses are allocated as follows:

Cost of goods sold 161,729 P Operating expenses 7,149,291

7,311,020 P

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(g) Withholding Taxes

The details of total withholding taxes for the year ended December 31, 2013 are shown below.

Expanded 13,965,214 P Compensation and benefits 1,785,175

15,750,389 P

The Company has no transaction in 2013 which are subject to final tax.

(h) Deficiency Tax Assessment and Tax Cases

As of December 31, 2013, the Company does not have any final deficiency tax assessment from the BIR nor does it have tax cases outstanding or pending in courts or bodies outside of the BIR in any of the open years. 23.2 Requirements under RR 19-2011

RR 19-2011 requires schedules of taxable revenues and other non-operating income, costs of g, itemized deductions and other significant tax information, to be disclosed in the notes to financial statements. The amount of taxable revenues and income, and deductible costs and expenses presented below are based on relevant tax regulations issued by the BIR, hence, may not be the same as the amounts reflected in the 2013 statement of comprehensive income.

(a) Taxable Revenues

The Company’s taxable revenues subject to regular tax rate for the year ended December 31, 2013 amounted to P1,556,358,881. (b) Deductible Cost of Goods Sold Deductible cost of goods sold for the year ended December 31, 2013 which is subject to regular tax rate comprises the following:

Finished goods at beginning of year 314,973,334 P Cost of goods manufactured 1,084,309,547

Total goods available for sale 1,399,282,881 Finished goods at end of year 176,322,810 )(

1,222,960,071 P

(c) Taxable Non-operating and Other Income

Taxable non-operating and other income which are subject to the regular tax rate amounted to P58,240.

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(d) Itemized Deductions The amounts of itemized deductions for the year ended December 31, 2013 follow:

Advertisements 111,507,292 P Freight 45,810,049 Forwarding and other warehousing fees 44,724,843 Merchandisers’ salary 34,951,327 Outside services 19,030,867 Taxes and licenses 7,149,291 Salaries and employee benefits 4,585,762 Finance costs 1,630,556 Depreciation and amortization 197,710 Communication, light and water 81,847 Supplies 30,240 Rentals 13,417 Repairs and maintenance 3,726 Miscellaneous 1,439,317

271,156,244 P

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F-391

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F-393

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F-395

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F-397

F-398

Notes 2012 2011

CURRENT ASSETS

Cash and cash equivalents 5 36,933,115 P 25,373,381 P

Trade and other receivables - net 6 251,380,765 213,991,953

Inventories 7 459,984,049 560,094,395

Prepayments and other current assets 8 65,252,136 60,432,337

Total Current Assets 813,550,065 859,892,066

NON-CURRENT ASSETS

Property, plant and equipment - net 9 22,055,547 31,704,177

Retirement benefit asset 15 608,524 484,533

Other non-current assets 10 42,884,295 42,435,295

Total Non-current Assets 65,548,366 74,624,005

TOTAL ASSETS 879,098,431 P 934,516,071 P

CURRENT LIABILITIES

Trade and other payables 11 334,282,849 P 317,917,167 P

Due to related parties 17 278,872,672 415,465,566

Total Liabilities 613,155,521 733,382,733

EQUITY

Capital stock 16 40,625,000 40,625,000

Deposits for future stock subscriptions 16 195,883,200 150,383,200

Retained earnings 29,434,710 10,125,138

Net Equity 265,942,910 201,133,338

TOTAL LIABILITIES AND EQUITY 879,098,431 P 934,516,071 P

SNOW MOUNTAIN DAIRY CORPORATION

STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

See Notes to Financial Statements.

A S S E T S

LIABILITIES AND EQUITY

(A Subsidiary of Century Canning Corporation)

F-399

Notes 2012 2011

SALE OF GOODS 17 1,720,370,574 P 1,279,476,627 P

COST OF GOODS SOLD 12 1,419,592,252 1,088,308,409

GROSS PROFIT 300,778,322 191,168,218

OPERATING EXPENSES (INCOME)

Selling expenses 12 131,551,269 94,115,732

Marketing expenses 12 119,270,662 64,472,398

Administrative expenses 12 23,318,349 21,348,147

Other income 128,616 )( 1,298,461 )(

274,011,664 178,637,816

OPERATING PROFIT 26,766,658 12,530,402

FINANCE COSTS - Net 13 82,077 337,244

PROFIT BEFORE TAX 26,684,581 12,193,158

TAX EXPENSE 15 7,375,007 3,884,847

NET PROFIT 19,309,574 8,308,311

OTHER COMPREHENSIVE INCOME - -

TOTAL COMPREHENSIVE INCOME 19,309,574 P 8,308,311 P

SNOW MOUNTAIN DAIRY CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

See Notes to Financial Statements.

(A Subsidiary of Century Canning Corporation)

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Note 2012 2011

CAPITAL STOCK 16

Balance at beginning of year 40,625,000 P 3,125,000 P

Issuance of shares during the year - 37,500,000

Balance at end of year 40,625,000 40,625,000

DEPOSITS FOR FUTURE STOCK

SUBSCRIPTIONS 16

Balance at beginning of year 150,383,200 187,883,200

Additional subscription during the year 45,500,000 -

Applied to subscription during the year - 37,500,000 )(

Balance at end of year 195,883,200 150,383,200

RETAINED EARNINGS

Balance at beginning of year 10,125,136 1,816,827

Net profit 19,309,574 8,308,311

Balance at end of year 29,434,710 10,125,138

TOTAL EQUITY 265,942,910 P 201,133,338 P

SNOW MOUNTAIN DAIRY CORPORATION

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

See Notes to Financial Statements.

(A Subsidiary of Century Canning Corporation)

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Notes 2012 2011

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 26,684,581 P 12,193,158 P

Adjustments for:

Depreciation and amortization 9 11,919,168 14,192,440

Impairment losses 6 512,760 )( 319,869 )(

Finance costs 13 124,025 261,567

Finance income 13 187,370 )( 158,321 )(

Operating profit before working capital changes 38,027,644 26,168,975

Increase in trade and other receivables 44,217,902 )( 6,919,250 )(

Decrease in inventories 100,110,346 261,135,452

Increase in prepayments and other current assets 4,819,799 )( 9,841,291 )(

Increase in retirement benefit asset 123,991 )( 225,788 )(

Increase in other non-current assets 449,000 )( 542,180 )(

Increase in trade and other payables 16,365,682 10,144,512

Cash generated from operations 104,892,980 279,920,430

Interest received 187,370 158,321

Income taxes paid 33,159 )( 27,844 )(

Net Cash From Operating Activities 105,047,191 280,050,907

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment 9 2,270,538 )( 57,221 )(

CASH FLOWS FROM FINANCING ACTIVITIES

Repayments of due to related parties 17 91,092,894 )( 282,232,333 )(

Interest paid 124,025 )( 261,567 )(

Net Cash Used in Financing Activities 91,216,919 )( 282,493,900 )(

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS 11,559,734 2,500,214 )(

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 25,373,381 27,873,595

CASH AND CASH EQUIVALENTS

AT END OF YEAR 36,933,115 P 25,373,381 P

Supplemental Information on Non-cash Financing Activities:

1)

2)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in Philippine Pesos)

See Notes to Financial Statements.

SNOW MOUNTAIN DAIRY CORPORATION

STATEMENTS OF CASH FLOWS

(A Subsidiary of Century Canning Corporation)

In 2012, the Company and Century Canning Corporation (CCC) agreed to convert portion of

the Company's advances from CCC amounting to P45,500,000 to equity (see Note 16).

In December 2011, the Company issued 3,750,000 shares to a stockholder by applying the

stockholder's deposit for future stock subscription amounting to P37,500,000 (see Note 16).

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SNOW MOUNTAIN DAIRY CORPORATION (A Subsidiary of Century Canning Corporation)

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 (Amounts in Philippine Pesos)

1. CORPORATE INFORMATION

1.1 Incorporation and Operations Snow Mountain Dairy Corporation (the Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on February 14, 2001. It started commercial operations in November 2002. The Company is engaged in producing, canning, freezing, preserving, refining, packing, buying and selling at wholesale and retail, food products including all kinds of milk and dairy products, fruits and vegetable juices and other milk or dairy preparations and by-products. In December 2011, the Company became a subsidiary of Century Canning Corporation (CCC or the parent company), a company incorporated and domiciled in the Philippines. CCC is presently engaged in manufacturing and distribution of canned tuna products for the Philippine market. The registered office of the Company, which is also its principal place of business, is located at No. 48 Amang Rodriguez Avenue, Ignacio Complex, Manggahan, Pasig City. CCC’s registered office, which is also its principal place of business, is located at 32 Arturo Drive, Bagumbayan, Taguig, Metro Manila.

1.2 Approval of Financial Statements

The financial statements of the Company for the year ended December 31, 2012 (including the comparatives for the year ended December 31, 2011) were authorized for issue by the Company’s Vice President for Finance on April 12, 2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these financial statements are summarized below and in the succeeding pages. The policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards

The financial statements of the Company have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial Reporting Standards Council from the pronouncements issued by the International Accounting Standards Board (IASB).

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The financial statements have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expenses. The measurement bases are more fully described in the accounting policies that follow.

(b) Presentation of Financial Statements

The financial statements are presented in accordance with Philippine Accounting Standards (PAS) 1, Presentation of Financial Statements. The Company presents all items of income and expenses in a single statement of comprehensive income. Two comparative periods are presented for the statement of financial position when the Company applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements, or reclassifies items in the financial statements.

(c) Functional and Presentation Currency

These financial statements are presented in Philippine pesos, the Company’s functional and presentation currency, and all values represent absolute amounts except when otherwise indicated. Items included in the financial statements of the Company are measured using its functional currency, the currency of the primary economic environment in which the entity operates.

2.2 Adoption of New and Amended PFRS (a) Effective in 2012 that is Relevant to the Company

In 2012, the Company adopted PFRS 7 (Amendment), Financial Instruments: Disclosures – Transfers of Financial Assets, effective for financial statements for the annual periods beginning on or after July 1, 2011. The amendment requires additional disclosures that will allow users of financial statements to understand the relationship between transferred financial assets that are not derecognized in their entirety and the associated liabilities; and, to evaluate the nature of, and risk associated with any continuing involvement of the reporting entity in financial assets that are derecognized in their entirety. The Company did not transfer any financial asset involving this type of arrangement; hence, the amendment did not result in any significant change in the Company’s disclosures in its financial statements.

(b) Effective in 2012 that are not Relevant to the Company

The following amendments and improvement to PFRS are mandatory for accounting periods beginning on or after July 1, 2011 or January 1, 2012 but are not relevant to the Company’s financial statements: PFRS 1 (Amendment) : First time adoption of PFRS – Severe Hyperinflation and Removal of Fixed Date for First-time Adopters PAS 12 (Amendment) : Income Taxes – Deferred Tax: Recovery of Underlying Assets

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(c) Effective Subsequent to 2012 but not Adopted Early There are new PFRS, amendments and annual improvements to existing standards that are effective for periods subsequent to 2012. Management has initially determined the following pronouncements, which the Company will apply in accordance with their transitional provisions, to be relevant to its financial statements:

(i) PAS 1 (Amendment), Financial Statements Presentation – Presentation of Items of Other Comprehensive Income (effective from July 1, 2012). The amendment requires an entity to group items presented in other comprehensive income into those that, in accordance with other PFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. The Company’s management expects that this will not change the current presentation of items in other comprehensive income.

(ii) PAS 19 (Revised), Employee Benefits (effective from January 1, 2013). The revision made a number of changes as part of the improvements throughout the standard. The main changes relate to defined benefit plans as follows:

• eliminates the corridor approach under the existing guidance of PAS 19 and requires an entity to recognize all actuarial gains and losses arising in the reporting period;

• streamlines the presentation of changes in plan assets and liabilities resulting in the disaggregation of changes into three main components of service costs, net interest on net defined benefit obligation or asset, and remeasurement; and,

• enhances disclosure requirements, including information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans.

Currently, the Company is using the corridor approach and its unrecognized actuarial loss as at December 31, 2012 which amounts to P1.1 million (see Note 14.2) which will be retrospectively recognized as loss in other comprehensive income in 2013.

(iii) PFRS 7 (Amendment), Financial Instruments: Disclosures – Offsetting Financial

Assets and Financial Liabilities (effective from January 1, 2013). The amendment requires qualitative and quantitative disclosures relating to gross and net amounts of recognized financial instruments that are set-off in accordance with PAS 32, Financial Instruments: Presentation. The amendment also requires disclosure of information about recognized financial instruments which are subject to enforceable master netting arrangements or similar agreements, even if they are not set-off in the statement of financial position, including those which do not meet some or all of the offsetting criteria under PAS 32 and amounts related to a financial collateral. These disclosures will allow financial statement users to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with recognized financial assets and financial liabilities on the entity’s financial position. The Company has initially assessed that the adoption of the amendment will not have a significant impact on its financial statements.

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(iv) PFRS 13, Fair Value Measurement (effective from January 1, 2013). This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across PFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. Management is in the process of reviewing its valuation methodologies for conformity with the new requirements and has yet to assess the impact of the new standard on the Company’s financial statements.

(v) PAS 32 (Amendment), Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities (effective from January 1, 2014). The amendment provides guidance to address inconsistencies in applying the criteria for offsetting financial assets and financial liabilities. It clarifies that a right of set-off is required to be legally enforceable, in the normal course of business; in the event of default; and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendment also clarifies the principle behind net settlement and provided characteristics of a gross settlement system that would satisfy the criterion for net settlement. The Company does not expect this amendment to have a significant impact on its financial statements.

(vi) PFRS 9, Financial Instruments: Classification and Measurement (effective from

January 1, 2015). This is the first part of a new standard on financial instruments that will replace PAS 39, Financial Instruments: Recognition and Measurement, in its entirety. This chapter covers the classification and measurement of financial assets and financial liabilities and it deals with two measurement categories for financial assets: amortized cost and fair value. All equity instruments will be measured at fair value while debt instruments will be measured at amortized cost only if the entity is holding it to collect contractual cash flows which represent payment of principal and interest. The accounting for embedded derivatives in host contracts that are financial assets is simplified by removing the requirement to consider whether or not they are closely related, and, in most arrangement, does not require separation from the host contract. For liabilities, the standard retains most of the PAS 39 requirements which include amortized cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in case where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than in profit or loss, unless this creates an accounting mismatch. To date, other chapters of PFRS 9 dealing with impairment methodology and hedge accounting are still being completed. Further, in November 2011, the IASB tentatively decided to consider making limited modifications to International Financial Reporting Standard (IFRS) 9’s financial asset classification model to address certain application issues.

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The Company does not expect to implement and adopt PFRS 9 until its effective date. In addition, management is currently assessing the impact of PFRS 9 on the financial statements of the Company and it plans to conduct a comprehensive study of the potential impact of this standard prior to its mandatory adoption date to assess the impact of all changes.

(vii) 2009-2011 Annual Improvements to PFRS. Annual improvements to PFRS (2009-2011 Cycle) made minor amendments to a number of PFRS, which are effective for annual periods beginning on or after January 1, 2013. Among those improvements, the following amendments are relevant to the Company but management does not expect a material impact on the Company’s financial statements:

(a) PAS 1 (Amendment), Presentation of Financial Statements – Clarification of the Requirements for Comparative Information. The amendment clarifies the requirements for presenting comparative information for the following:

• Requirements for opening statement of financial position

If an entity applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items that has a material effect on the information in the statement of financial position at the beginning of the preceding period (i.e., opening statement of financial position), it shall present such third statement of financial position. Other than disclosure of certain specified information in accordance with PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, related notes to the opening statement of financial position as at the beginning of the preceding period are not required to be presented.

• Requirements for additional comparative information beyond minimum requirements If an entity presented comparative information in the financial statements beyond the minimum comparative information requirements, the additional financial statements information should be presented in accordance with PFRS including disclosure of comparative information in the related notes for that additional information. Presenting additional comparative information voluntarily would not trigger a requirement to provide a complete set of financial statements.

(b) PAS 16 (Amendment), Property, Plant and Equipment – Classification of Servicing Equipment. The amendment addresses a perceived inconsistency in the classification requirements for servicing equipment which resulted in classifying servicing equipment as part of inventory when it is used for more than one period. It clarifies that items such as spare parts, stand-by equipment and servicing equipment shall be recognized as property, plant and equipment when they meet the definition of property, plant and equipment, otherwise, these are classified as inventory.

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(c) PAS 32 (Amendment), Financial Instruments : Presentation – Tax Effect of Distributions to Holders of Equity Instruments. The amendment clarifies that the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction shall be accounted for in accordance with PAS 12. Accordingly, income tax relating to distributions to holders of an equity instrument is recognized in profit or loss while income tax related to the transaction costs of an equity transaction is recognized in equity.

2.3 Financial Assets Financial assets are recognized when the Company becomes a party to the contractual terms of the financial instrument. Financial assets other than those designated and effective as hedging instruments are classified into the following categories: financial assets at fair value through profit or loss (FVTPL), loans and receivables, held-to-maturity investments and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. Regular purchases and sales of financial assets are recognized on their trade date. All financial assets that are not classified as at FVTPL are initially recognized at fair value plus any directly attributable transaction costs. Financial assets carried at FVTPL are initially recorded at fair value and related transaction costs that are recognized in profit or loss. The financial assets currently category relevant to the Company is loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period which are classified as non-current assets.

Loans and receivables are subsequently measured at amortized cost using the effective interest method for maturities extending beyond one year, less impairment losses. Any change in their value is recognized in profit or loss. Impairment loss is provided when there is objective evidence that the Company will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment loss is determined as the difference between the assets’ carrying amount and the present value of estimated cash flows. The Company’s financial assets categorized as loans and receivables are presented as Cash and Cash Equivalents, Trade and Other Receivables (except deposit on purchases) and Other Non-current Assets, with respect to security deposits included therein, in the statement of financial position. Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. All income and expenses, except impairment loss on trade and other receivables which is considered administrative expense, relating to financial assets that are recognized in profit or loss are presented as part of Finance Costs (Income) in the statement of comprehensive income.

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Non-compounding interest, and other cash flows resulting from holding financial assets are recognized in profit or loss when earned, regardless of how the related carrying amount of financial assets is measured.

Derecognition of financial assets occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. 2.4 Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Finished goods and work-in-process include the cost of raw materials, direct labor and a proportion of manufacturing overhead based on normal operating capacity. The cost of raw materials include all costs directly attributable to acquisitions, such as the purchase price, import duties and other taxes that are not subsequently recoverable from taxing authorities. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Net realizable value of raw materials is the current replacement cost.

2.5 Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortization and any impairment loss. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized; expenditures for repairs and maintenance are charged to expense as incurred.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows and any impairment loss:

Plant, machinery and equipment 2 to 10 years Laboratory tools and equipment 1 to 10 years

Leasehold improvements are amortized over the term of the lease or useful lives of the assets of 1 to 10 years, whichever is shorter. Fully depreciated assets are retained in the accounts until these are no longer in use. No further charge for depreciation is made in respect of those accounts. Construction-in-progress represents properties undergoing construction. It is stated at cost which includes cost of construction, applicable borrowing cost (see Note 2.15) and other direct costs. This account is not depreciated until such time that the assets are completed and available for use. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.13). The residual values and estimated useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at the end of each reporting period.

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An item of property, plant and equipment, including related accumulated depreciation and amortization and impairment losses, if any, is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the year the item is derecognized. 2.6 Prepayments and Other Assets Prepayment and other assets pertain to the other resources controlled by the Company as a result of past events. They are recognized in the financial statements when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. Other recognized assets of similar nature, where future economic benefits are expected to flow to the Company beyond one year after the end of the reporting period (or in the normal operating cycle of the business, if longer), are classified as non-current assets.

2.7 Trademarks The cost of trademarks is the amount of cash or cash equivalents paid or the fair value of the other considerations given up to acquire the trademark. The Company’s trademark is not amortized but tested for impairment annually [see Notes 2.13 and 3.1(a)]. 2.8 Financial Liabilities

Financial liabilities of the Company include trade and other payables (excepts tax-related liabilities) and due to related parties which are recognized when the Company becomes a party to the contractual terms of the instrument. These are recognized initially at their fair value and subsequently measured at amortized cost, using effective interest method for maturities of more than one year less settlement payments. All interest-related charges are recognized as an expense in profit or loss under the caption Finance Costs (Income) in the statement of comprehensive income. Financial liabilities are classified as current liabilities if payment is due to be settled within one year or less after the end of the reporting period (or in the normal operating cycle of the business, if longer), or the Company does not have an unconditional right to defer settlement of liability for at least twelve months after the end of the reporting period. Otherwise, these are presented as non-current liabilities. Financial liabilities are derecognized from the statement of financial position only when the obligations are extinguished either through discharge, cancellation or expiration. 2.9 Offsetting Financial Instruments Financial assets and liabilities are offset and the resulting net amount is reported in the statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

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2.10 Provisions and Contingencies Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive obligation that has resulted from past events.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the end of the reporting period, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. When time value of money is material, long-term provisions are discounted to their present values using a pretax rate that reflects market assessments and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. The provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate.

In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Similarly, possible inflows of economic benefits to the Company that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements. On the other hand, any reimbursement that the Company can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset not exceeding the amount of the related provision. 2.11 Revenue and Expense Recognition Revenue comprise of revenue from the sale of goods are measured by reference to the fair value of consideration received or receivable by the Company for goods sold excluding vlue-added tax (VAT).

Revenue is recognized to the extent that the revenue can be reliably measured; it is probable that the economic benefits will flow to the Company; and the costs incurred or to be incurred can be measured reliably. In addition, the following specific recognition criteria must also be met before revenue is recognized:

(a) Sale of goods – Revenue is recognized when the risks and rewards of ownership of the

goods have passed to the buyer, i.e. generally when the customer has acknowledged delivery of goods.

(b) Interest income – Recognized as the interest accrues taking into account the effective yield on the asset.

Costs and expenses are recognized in profit or loss upon receipt of goods and/or utilization of services or at the date they are incurred. All finance costs are reported in profit or loss on an accrual basis.

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2.12 Leases – Company as Lessee Leases, which do not transfer to the Company substantially all the risks and benefits of ownership of the asset, are classified as operating leases. Operating lease payments are recognized as expense in the statement of comprehensive income on a straight-line basis over the lease term. Associated costs, such as repairs and maintenance and insurance, are expensed as incurred. The Company determines whether an arrangement is, or contains, a lease based on the substance of the arrangement. It makes an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. 2.13 Impairment of Non-financial Assets

The Company’s trademarks, having an indefinite useful life, are tested for impairment annually. Property, plant and equipment and other nonfinancial are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating unit). As a result, assets are tested for impairment either individually or at the cash-generating unit level. Impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal evaluation of discounted cash flow. Impairment loss is charged pro-rata to other assets in the cash-generating unit.

All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversal of the impairment loss.

2.14 Employee Benefits

The Company provides post-employment benefits to employees through a defined benefit plan. (a) Post-employment Benefits

A defined benefit plan is a post-employment plan that defines an amount of post-employment benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of post-employment plan remains with the Company, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long-term benefit fund, as well as qualifying insurance policies. The Company’s post-employment defined benefit pension plan covers all regular full-time employees. The pension plan is tax-qualified, noncontributory and administered by a trustee bank.

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The assets recognized in the statement of financial position for post-employment defined benefit pension plans is the present value of the defined benefit obligation (DBO) at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The DBO is calculated regularly by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related post-employment liability.

Actuarial gains and losses are not recognized as an income or expense unless the total unrecognized gain or loss exceeds 10% of the greater of the obligation and related plan assets. The amount exceeding this 10% corridor is charged or credited to profit or loss over the employees’ expected average remaining working lives. Actuarial gains and losses within the 10% corridor are disclosed separately. Past service costs are recognized immediately in profit or loss, unless the changes to the post-employment plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period.

(b) Termination Benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it is demonstrably committed to either: (a) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or (b) providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the reporting period are discounted to present value.

(c) Compensated Absences

Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the end of the reporting period. They are included in the Trade and Other Payables account in the statement of financial position at the undiscounted amount that the Company expects to pay as a result of the unused entitlement.

2.15 Borrowing Costs

Borrowing costs are recognized as expense in the period in which they are incurred, except to the extent that they are capitalized. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (i.e., an asset that takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of the cost of such asset. The capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization ceases when substantially all such activities are complete.

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2.16 Foreign Currency Transactions and Translation The accounting records of the Company are maintained in Philippine pesos. Foreign currency transactions during the year are translated into the functional currency at exchange rates which approximate those prevailing on transaction dates. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive income as part of profit or loss from operations.

2.17 Income Taxes Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity, if any.

Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the end of the reporting period. They are calculated using the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in profit or loss. Deferred tax is accounted for using the liability method, on temporary differences at the end of the reporting period between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow such deferred tax assets to be recovered. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled provided such tax rates have been enacted or substantively enacted at the end of the reporting period. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in profit or loss. Only changes in deferred tax assets or liabilities that relate to items recognized in other comprehensive income or directly in equity are recognized in other comprehensive income or directly in equity. The Company establishes liabilities for probable and estimable assessments by the Bureau of Internal Revenue (BIR) resulting from any known tax exposures. Estimates represent a reasonable provision for taxes ultimately expected to be paid and may need to be adjusted over time as more information becomes available.

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2.18 Related Party Relationships and Transactions

Related party transactions are transfer of resources, services or obligations between the Company and its related parties, regardless whether a price is charged. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. These parties include: (a) individuals owning, directly or indirectly through one or more intermediaries, control or are controlled by, or under common control with the Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company and close members of the family of any such individual; and, (d) the Company’s retirement plan. In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely on the legal form.

2.19 Equity

Capital stock represents the nominal value of shares that have been issued.

Deposits for future stock subscriptions represent deposits from the parent company as payment for future subscriptions. Retained earnings represent all current and prior period results of operations as reported in the profit or loss section of the statements of comprehensive income.

2.20 Events After the End of the Reporting Period

Any post-year-end event that provides additional information about the Company’s financial position at the end of the reporting period (adjusting event) is reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the financial statements.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Company’s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may ultimately differ from these estimates.

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3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements:

(a) Determining the Useful Lives of Trademark

Under the Intellectual Property Code of the Philippines, the legal life of trademark is 10 years and may be renewed every other 10 years. However, considering that the management does not expect any circumstances or events which will cause it to decide not to renew its trademarks every 10 years, management has taken the position that the useful lives of its trademarks is indefinite; hence its costs is not amortized but subjected to annual impairment testing (see Note 2.7 and 2.13). Changes in assumption and circumstances in the future will substantially affect the financial statements of the Company, particularly the carrying value of assets. No impairment loss on trademark was recognized in both years based on management evaluation.

(b) Distinction between Operating and Finance Leases

The Company has entered into various lease agreements as a lessee. Judgment was exercised by management to distinguish each lease agreement as either an operating or finance lease by looking at the transfer or retention of significant risk and rewards of ownership of the properties covered by the agreements. Failure to make the right judgment will result in either overstatement or understatement of assets and liabilities. Based on management’s judgment such leases were determined to be operating leases.

(c) Recognition of Provisions and Contingencies

Judgment is exercised by management to distinguish between provisions and contingencies. Accounting policies on provisions and contingencies are discussed in Notes 2.10 and relevant disclosures are presented in Note 18.

3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

(a) Impairment of Trade and Other Receivables

Adequate amount of allowance is made for specific and groups of accounts, where objective evidence of impairment exists. The Company evaluates these accounts based on available facts and circumstances, including, but not limited to, the length of the Company’s relationship with the customers, the customers’ current credit status based on known market forces, average age of accounts, collection experience and historical loss experience. The carrying value of trade and other receivables and the analysis of allowance for impairment on such financial assets are shown in Note 6.

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(b) Determining Net Realizable Value of Inventories

In determining the net selling prices of inventories, management takes into account the most reliable evidence available at the times the estimates are made. It also takes into consideration the obsolescence of the inventory in determining net realizable value. The future realization of the carrying amounts of inventories as disclosed in Note 7 is affected by price changes in different market segments. These aspects are considered key sources of estimation uncertainty and may cause significant adjustments to the Company’s inventories within the next financial year. No impairment loss on inventory was recognized in both years based on management’s assessment..

(c) Estimating Useful Lives of Property, Plant and Equipment

The Company estimates the useful lives of property, plant and equipment, except land, based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. The carrying amounts of property, plant and equipment are analyzed in Note 9. Based on management’s assessment as at December 31, 2012 and 2011 there is no change in estimated useful lives of property, plant and equipment during those years. Actual results, however, may vary due to changes in estimates brought about by changes in factors mentioned above.

(d) Determining Recoverable Value of Deferred Tax Assets The Company reviews its deferred tax assets at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The Company did not recognize any deferred tax assets as at December 31, 2012 and 2011 as the management believes that it cannot realize the tax benefits from its deductible temporary differences in the foreseeable future. The details of deferred tax assets that were not recognized by the Company are disclosed in Note 15.

(e) Impairment of Non-financial Assets

Except for trademarks with indefinite useful lives which are reviewed for impairment annually or regularly, PFRS requires that an impairment review be performed when certain impairment indicators are present. The Company’s policy on estimating the impairment of non-financial assets is discussed in detail in Note 2.13. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations. No impairment loss on non-financial assets was recognized both in 2012 and 2011.

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(f) Valuation of Post-employment Defined Benefit

The determination of the Company’s obligation and cost of post-employment defined benefit are dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 14.2 and include, among others, discount rates, expected return on plan assets, salary increase rate and employee turnover. In accordance with PFRS, actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. The amount of retirement benefit asset and expense and an analysis of the movements in the estimated present value of retirement benefit asset are presented in Note 14.2.

4. RISK MANAGEMENT OBJECTIVES AND POLICIES The Company is exposed to certain financial risks in relation to financial instruments. The Company’s financial assets and liabilities by category are summarized in Note 19. The main types of risks are market risk, credit risk and liquidity risk. The Company’s risk management is coordinated with its Board of Directors, and focuses on actively securing the Company’s short to medium-term cash flows by minimizing the exposure to financial markets. The Company does not engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Company is exposed to are described below. 4.1 Credit Risk

Credit risk is the risk that a counterparty may fail to discharge an obligation to the Company. The Company is exposed to this risk for various financial instruments, for example by granting loans and receivables to customers and placing deposits. The Company continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporate this information into its credit risk controls. The Company’s policy is to deal only with creditworthy counterparties. In addition, for a significant portion of sales, advance payments are received to mitigate credit risk. Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the statements of financial position (or in detailed analysis provided in the notes to the financial statements), as summarized below.

Notes 2012 2011

Cash and cash equivalents 5 P 36,933,115 P 25,373,381 Trade and other receivables – net 6 254,367,946 211,381,610 Security deposits 10 1,780,295 1,780,295

P 293,081,356 P 238,535,286

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(a) Cash and Cash Equivalents

The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Included in the cash and cash equivalents are cash in banks and short-term placements. As part of Company policy, bank deposits are only maintained with reputable financial institutions. Cash in banks which are insured by the Philippine Deposit Insurance Corporation (PDIC) up to a maximum coverage of P500,000 per depositor per banking institution, as provided for under Republic Act (RA) No. 9576, Charter of PDIC, are still subject to credit risk. (b) Trade and Other Receivables In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Trade receivables consist of a large number of customers in various industries and geographical areas. Based on historical information about customer default rates management consider the credit quality of trade receivables that are not past due or impaired to be good. Some of the unimpaired trade receivables are past due as at the end of the reporting period. Trade receivables that are past due but not impaired are as follows:

2012 2011

Not more than three months P 48,647,741 P 33,623,543 More than three months but not more

than six months 24,223,084 6,990,171 P 72,870,825 P 40,613,714

4.2 Liquidity Risk The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 6-month and one-year period are identified monthly. The Company maintains cash to meet its liquidity requirements for up to 60-day periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets. In 2012 and 2011, the Company’s financial liabilities have contractual maturities within six months.

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5. CASH AND CASH EQUIVALENTS

The breakdown of this account as of December 31 follows:

2012 2011 Cash in banks P 35,381,811 P 24,961,420 Cash on hand 508,800 411,961 Short-term placements 1,042,504 - P 36,933,115 P 25,373,381

Cash in banks generally earn interest at rates based on daily bank deposit rates. Short-term placements are made for varying periods of between 30 to 90 days and earn effective interest ranging from 1.63% to 2.25% for both years. There was no short-term placement as at December 31, 2011. Interest income earned amounting to P165,794 and P139,218 in 2012 and 2011, respectively and presented as part of Finance Costs - net in the statements of comprehensive income (see Note 13).

6. TRADE AND OTHER RECEIVABLES

This account (see also Note 4.1) is composed of the following:

2012 2011 Trade receivables P 252,608,378 P 217,449,658 Others 5,626,142 2,883,290 258,234,520 220,332,948 Allowance for impairment ( 6,853,755 ) ( 6,340,995 ) P 251,380,765 P 213,991,953

Trade receivables are usually due within 30 to 90 days and do not bear any interest. The Company’s trade and other receivables, which are subject to credit risk exposure (see Note 4.1), have been reviewed for indicators of impairment. Certain trade receivables were identified to be impaired; hence, adequate amount of allowance for impairment has been recorded.

A reconciliation of the allowance for impairment at the beginning and end of 2012 and 2011 is shown below.

Note 2012 2011 Balance at beginning of year P 6,340,995 P 6,021,126 Impairment loss during the year 12 512,760 319,869 Balance at end of year P 6,853,755 P 6,340,995

Due to their short duration, the net carrying amounts of trade and other receivables is a reasonable approximation of fair values.

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7. INVENTORIES

All inventories at the end of 2012 and 2011 are stated at cost and are broken down as follows:

Note 2012 2011 Finished goods 12 P 314,973,334 P 416,825,250 Raw materials 12 138,937,009 135,545,967 Packaging materials and other supplies 6,073,706 7,723,178 P 459,984,049 P 560,094,395

Raw materials include items in transit amounting to P29,059,345 and P9,866,353 as at December 31, 2012 and 2011, respectively. The cost of inventories charged to operations in 2012 and 2011 are analysed in Note 12.

8. PREPAYMENTS AND OTHER CURRENT ASSETS

The composition of this account is shown below.

Note 2012 2011 Input VAT 21.1(b) P 40,180,862 P 40,794,187 Prepaid taxes 24,007,117 18,462,173 Others 1,064,157 1,175,977 P 65,252,136 P 60,432,337

The Company’s prepaid taxes represent taxes withheld by the Company’s customers amounting to P23,189,873 and P17,644,949 as at December 31, 2012 and 2011, respectively, and tax credit certificates issued by the Bureau of Customs (BOC) amounting to P817,244 as at December 31, 2012 and 2011.

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9. PROPERTY, PLANT AND EQUIPMENT

The gross carrying amounts and accumulated depreciation and amortization of property, plant and equipment at the beginning and end of 2012 and 2011, are shown below.

Plant, Laboratory Machinery and Tools and Leasehold Construction- Equipment Equipment Improvements in-Progress Total

December 31, 2012 Cost P 106,608,328 P 5,020,726 P 14,105,279 P - P 125,734,333 Accumulated depreciation and amortization ( 86,677,856 ) ( 4,323,334 ) ( 12,677,596 ) - ( 103,678,786 ) Net carrying amount P 19,930,472 P 697,392 P 1,427,683 P - P 22,055,547

December 31, 2011 Cost P 104,956,773 P 4,615,406 P 13,891,615 P - P 123,463,794 Accumulated depreciation and amortization ( 77,093,388 ) ( 3,977,007 ) ( 10,689,222 ) - ( 91,759,617 ) Net carrying amount P 27,863,385 P 638,399 P 3,202,393 P - P 31,704,177 January 1, 2011 Cost P 91,088,979 P 4,124,558 P 11,155,442 P 17,037,594 P 123,406,573 Accumulated depreciation and amortization ( 66,255,721 ) ( 3,668,861 ) ( 7,642,595 ) - ( 77,567,177 ) Net carrying amount P 24,833,258 P 455,697 P 3,512,847 P 17,037,594 P 45,839,396

A reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of 2012 and 2011, is presented below.

Plant, Laboratory Machinery and Tools and Leasehold Construction- Equipment Equipment Improvements in-Progress Total

Balance at

January 1, 2012, net of accumulated depreciation and amortization P 27,863,385 P 638,399 P 3,202,393 P - P 31,704,177 Additions 1,651,554 405,321 213,664 - 2,270,539 Depreciation and amortization charges for the year ( 9,584,467 ) ( 346,328 ) ( 1,988,374 ) - ( 11,919,169 )

Balance at

December 31, 2012, net of accumulated depreciation and amortization P 19,930,472 P 697,392 P 1,427,683 P - P 22,055,547

Balance at

January 1, 2011, net of accumulated depreciation and amortization P 24,833,258 P 455,697 P 3,512,847 P 17,037,594 P 45,839,396 Additions 57,221 - - - 57,221 Reclassification 13,810,573 490,848 2,736,173 ( 17,037,594 ) - Depreciation and amortization charges for the year ( 10,837,667 ) ( 308,146 ) ( 3,046,627 ) - ( 14,192,440 )

Balance at

December 31, 2011, net of accumulated depreciation and amortization P 27,863,385 P 638,399 P 3,202,393 P - P 31,704,177

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In 2011, certain assets amounting to P17,037,594 were completed and, accordingly, reclassified to their appropriate classification within the Property, Plant and Equipment account. The cost of fully depreciated property, plant and equipment as at December 31, 2012 and 2011 which are still being used in operations amounts to P46,505,687 and P34,513,265, respectively. The depreciation and amortization for the year is allocated as follows:

Note 2012 2011 Cost of goods sold P 11,345,333 P 12,636,367 Administrative expenses 573,835 1,556,073

12 P 11,919,168 P 14,192,440 10. OTHER NON-CURRENT ASSETS

This account consists of:

Note 2012 2011 Trademarks 3.1(a) P 40,000,000 P 40,000,000 Security deposits 1,780,295 1,780,295 Returnable containers 1,104,000 655,000 P 42,884,295 P 42,435,295

In July 2008, the Company purchased from General Milling Corporation (GMC) certain trademarks owned and registered with the Intellectual Property Office under the name of GMC. As discussed in Note 3.1(a), the Company’s trademarks are subject to annual impairment testing. No impairment losses were recognized in 2012 and 2011 as the recoverable amounts of the trademarks were determined to be higher than their carrying values. Security deposits pertain to deposits required under the terms of the lease agreements of the Company with certain lessors (see Note 18.1). The carrying amount of these deposits is a reasonable approximation of its fair value based on management assessment as at December 31, 2012 and 2011.

11. TRADE AND OTHER PAYABLES The composition of this account is shown below. Note 2012 2011 Trade payables P 330,953,655 P 312,873,691 Accrued expenses 35,881 2,057,667 Others 17.1 3,293,313 2,985,809 P 334,282,849 P 317,917,167

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Due to the short duration of trade and other payables, management considers the carrying amounts to be a reasonable approximation of fair values.

12. COSTS AND EXPENSES BY NATURE

The details of costs and expenses by nature are shown below. Notes 2012 2011 Milk and ingredients P 821,975,535 P 721,790,335 Packaging and other materials 380,053,910 240,054,709 Advertisements 116,893,508 64,317,897 Changes in inventories of finished goods 7 101,851,916 47,779,399 Forwarding and other warehousing fees 55,231,107 35,247,175 Outside services 17.2 49,546,397 40,106,072 Freight 44,342,447 30,783,423 Merchandisers’ salary 32,607,195 28,526,805 Communication, light and water 20,972,321 12,742,850 Salaries and employee benefits 14 13,945,384 12,357,164 Gas, fuel and oil 12,837,058 70,133 Depreciation and amortization 9 11,919,168 14,192,440 Rentals 17.1, 18.1 11,031,433 10,914,244 Taxes and licenses 21.1(f) 6,897,574 6,124,444 Supplies 6,213,439 178,326 Repairs and maintenance 1,960,399 1,259,265 Impairment loss on trade receivables 6 512,760 319,869 Miscellaneous 4,940,981 1,480,136 P 1,693,732,532 P 1,268,244,686

These expenses are classified in the statements of comprehensive income as follows: 2012 2011 Cost of goods sold P 1,419,592,252 P 1,088,308,409 Selling expenses 131,551,269 94,115,732 Marketing expenses 119,270,662 64,472,398 Administrative expenses 23,318,349 21,348,147 P 1,693,732,532 P 1,268,244,686

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Cost of goods sold for the years ended December 31, 2012 and 2011 consist of the following:

Notes 2012 2011 Raw materials used: Raw materials at beginning of year 7 P 135,545,967 P 348,324,445 Net purchases during the year 1,205,420,487 749,066,566 Raw materials at end of year 7 ( 138,937,009) ( 135,545,967 ) 1,202,029,445 961,845,044 Direct labor 14 1,000,537 751,657

Manufacturing overhead: Outside services 39,432,092 31,954,958 Communication, light and water 20,877,595 12,599,068

Depreciation and amortization 9 11,345,333 12,636,367 Rentals 17.1, 18.1 11,024,845 10,906,609 Indirect labor 14 8,230,077 6,692,786 Repairs and maintenance 1,953,615 1,157,785 Supplies 6,171,109 135,809 Gas, fuel and oil 12,834,545 44,209

Others 2,841,143 1,804,718 114,710,354 77,932,309

Total cost of goods manufactured 1,317,740,336 1,040,529,010 Finished goods at beginning of year 7 416,825,250 464,604,649 Finished goods at end of year 7 ( 314,973,334) ( 416,825,250)

P 1,419,592,252 P 1,088,308,409

13. FINANCE COSTS (INCOME)

The details of Finance Costs (Income) are presented below.

Note 2012 2011 Finance income 5 (P 187,370) (P 158,321 ) Finance costs 124,025 261,567 Other finance charges 145,422 233,998 P 82,077 P 337,244

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14. EMPLOYEE BENEFITS

14.1 Employee Benefits Expense Expenses recognized for salaries and employee benefits are presented below (see Note 12).

2012 2011

Short-term benefits P 13,557,311 P 11,830,280 Post-employment benefits 388,073 526,884 P 13,945,384 P 12,357,164

The amount of employee benefits expense is allocated as follows:

Note 2012 2011

Cost of goods sold 12 P 9,230,614 P 7,444,443 Administrative expenses 12 4,714,770 4,912,721 P 13,945,384 P 12,357,164

14.2 Post-employment Benefits The Company maintains a partially funded, tax qualified, noncontributory post-employment benefit plan that is being administered by a trustee bank covering all regular full-time employees. The amount of retirement benefit asset recognized in the statements of financial position is determined as follows:

2012 2011 Present value of the obligation P 3,379,996 P 2,802,558 Fair value of plan assets ( 2,850,863 ) ( 2,149,434 ) Unfunded obligation 529,133 653,124 Unrecognized actuarial losses ( 1,137,657 ) ( 1,137,657 ) (P 608,524 ) (P 484,533 )

The movement in the present value of the retirement benefit obligation is as follows:

2012 2011 Balance at beginning of year P 2,802,558 P 2,260,245 Current service and interest costs 577,438 620,721 Benefits paid - ( 475,028 ) Actuarial loss - 396,620 Balance at end of year P 3,379,996 P 2,802,558

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The movement in the fair value of plan assets is presented below. 2012 2011 Balance at beginning of year P 2,149,434 P 1,872,842 Contributions paid into the plan 512,064 752,672 Benefits paid - ( 475,028 ) Actuarial loss - ( 111,694 ) Expected return on plan assets 189,365 110,642 P 2,850,863 P 2,149,434

Actual return (loss) on plan assets were P189,365 in 2012 and (P1,052) in 2011. As at December 31, 2012, the Company has no definite plan of funding its retirement benefit plan in 2013. The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2012 2011 Cash 10.59% 8.34% Government securities 60.62% 46.30% Debt instruments 19.65% 35.73% Others 9.14% 9.63%

Presented below are the historical information related to the present value of the retirement benefit obligation, fair value of plan assets and excess or deficit in the plan. 2012 2011 2010 2009 2008 Present value of the obligation P 3,379,996 P 2,802,558 P 2,260,245 P 1,907,108 P1,253,261 Fair value of plan assets 2,850,863 2,149,434 1,872,842 996,681 487,564 Deficit in the plan (P 529,133)( P 653,124 ) ( P 387,403 ) (P 910,427) ( P 765,697) Experience adjustments arising on plan liabilities P - ( P 449,976 ) P - (P 851,376) P - Experience adjustments arising on plan assets P - ( P 111,694 ) P - (P 17,673 ) P -

The amounts of post-employment benefits expense recognized in the statements of comprehensive income are as follows:

2012 2011 Current service costs P 419,881 P 411,648 Interest costs 157,557 209,073 Expected return on plan assets ( 189,365) ( 110,642) Net actuarial loss recognized in the year - 16,805 P 388,073 P 526,884

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The amounts of post-retirement benefits expense are allocated as follows: 2012 2011 Cost of goods sold P 335,103 P 405,190

Administrative expenses 52,970 121,694 P 388,073 P 526,884 For the determination of the present value of retirement benefit obligation, fair value of plan assets and related expense, the following actuarial obligation were used:

2012 2011 Expected rate of return on plan assets 8.81% 9.25% Expected rate of salary increases 2.00% 2.00% Discount rates 5.62% 5.50%

Assumptions regarding future mortality are based on published statistics and mortality tables. The average remaining working life of an individual, male and female, retiring at the age of 60 is 25 years.

15. CURRENT AND DEFERRED TAXES

The components of tax expense (all are current) as reported in profit or loss are as follows:

2012 2011 Regular corporate income tax (RCIT) at 30% P 7,341,848 P 3,723,053 Excess of minimum corporate income tax (MCIT) at 2% over RCIT - 133,950 Final tax at 20% and 7.5% 33,159 27,844 P 7,375,007 P 3,884,847

A reconciliation of tax on pretax profit computed at the applicable statutory rates to tax expense reported in the statements of comprehensive income is presented below.

2012 2011 Tax on pretax profit at 30% P 8,005,374 P 3,657,947 Adjustment for income subjected to lower income tax rates ( 16,579 ) ( 13,922) Tax effects of: Application of previously unrecognized DTA on MCIT ( 740,840 ) - Unrecognized deductible temporary difference 110,638 82,450 Non-deductible expenses 16,414 24,422 Unrecognized DTA on MCIT - 133,950 Tax expense P 7,375,007 P 3,884,847

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The Company did not recognize net deferred tax assets totalling to P2,133,825 and P2,764,027 as at December 31, 2012 and 2011, respectively, since their recoverability and utilization is unlikely at this time based on the assessment of management. The net deferred tax assets not recognized as at December 31, 2012 and 2011 pertain to the following:

2012 2011 Amount Tax Effect Amount Tax Effect Allowance for impairment loss P 6,853,755 P 2,056,127 P 6,340,995 P 1,902,299 Unamortized past service cost 891,788 267,537 928,294 278,489 MCIT - - 740,840 740,840 Retirement benefit assets ( 608,524 ) ( 182,557 ) ( 484,533 ) ( 145,360 ) Unrealized foreign currency gain ( 24,272 ) ( 7,282 ) ( 40,803 ) ( 12,241 ) P 7,112,747 P 2,133,825 P 7,484,793 P 2,764,027

The Company is subject to MCIT which is computed at 2% of gross income, as defined under tax regulations, or RCIT, whichever is higher. In 2012, RCIT was higher than MCIT while MCIT was higher in 2011. As at December 31, 2012, the Company has fully utilized its MCIT amounting to P740,840 which represents that total of MCIT incurred in 2011 (P133,950) and 2010 (P606,890). In 2012 and 2011, the Company opted to claim itemized deductions in computing for its income tax due.

16. EQUITY

16.1 Capital Stock Capital stock consists of common shares with details as follows:

Shares Amount

2012 2011 2012 2011

Authorized – P10 par value 5,000,000 5,000,000

Issued and outstanding:

Balance at beginning of year 4,062,500 312,500 P 40,625,000 P 3,125,000

Issuances during the year - 3,750,000 - 37,500,000 Balance at end of year 4,062,500 4,062,500 40,625,000 40,625,000

Subscribed:

Balance at beginning of year 937,500 937,500 9,375,000 9,375,000

Subscription during the year 3,750,000 - 37,500,000

Issuances during the year - ( 3,750,000 ) - ( 37,500,000 ) Balance at end of year 937,500 937,500 9,375,000 9,375,000

Subscription receivable ( 9,375,000)( 9,375,000 )

P 40,625,000 P 40,625,000

As at December 31, 2012 and 2011, the Company has three stockholders owning 100 or more shares each of the Company’s capital stock.

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16.2 Deposits on Future Stock Subscriptions

On October 18, 2012, the Company filed an application with the SEC for its proposed increase in authorized capital stock from P50.0 million divided into 5,000,000 to P500.0 million divided into 50,000,000 shares with the same value per share of P10. This was previously approved by the Company’s BOD on December 6, 2011. In compliance with the SEC’s rules relating to the foregoing, the Company applied a portion of the parent company’s advances to the Company amounting to P45,500,000 and the parent company’s previously recognized Deposits for Future Stock Subscriptions amounting to P150,383,200 as subscription payments. As at December 31, 2012, approval of the application is still pending with the SEC. Accordingly, the subscription payments were presented as Deposits for Future Stock Subscriptions in the statements of financial position. In December 2011, the Company issued 3,750,000 shares to a stockholder by applying deposits on future stock subscription amounting to P37,500,000 on the subscription price which equals the par value of the shares, hence, no additional paid-in-capital was recognized.

17. RELATED PARTY TRANSACTIONS

A summary of the Company’s related party transactions is presented below.

2012 2011 Outstanding Outstanding Amount of Receivable Amount of Receivable Note Transactions (Payable) Transactions (Payable) Parent: Sale of goods 17.1 P 127,866,796 P 7,044,926 P - P - Consultancy and management fees 17.3 7,279,445 ( 2,556,101) 5,088,473 - Advances 17.2 127,929,279 ( 278,872,672) 290,895,948 ( 406,801,951) Rentals 17.4 1,547,100 ( 3,456,221) 1,986,476 ( 1,986,476) Related Parties Under Common Ownership – Advances 17.2 8,663,615 - ( 8,663,615) ( 8,663,615)

Key Management Personnel Compensation 17.5 2,958,888 - 2,748,221 -

17.1 Sale of Goods In 2012, the Company sold P127,866,796 (nil in 2011) worth of finished goods inventories to CCC included in Sale of Goods in the 2012 statement of comprehensive income. Outstanding balance in relation to the sale of goods as at December 31, 2012 amounts to P7.0 million and is shown as part of Trade Receivables under Trade and Other Receivables account in the 2012 statement of financial position.

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17.2 Advances from Related Parties In the normal course of business, the Company obtains unsecured, noninterest-bearing advances from related parties, including stockholders and entities under common ownership, for working capital requirements and other purposes. Such advances are presented as Due to Related Parties in the statements of financial position and has an outstanding balance of P278,872,672 and P415,465,566 as at December 31, 2012 and 2011, respectively. Presented below are the movements in the account.

Note 2012 2011 Balance at beginning of year P 415,465,566 P 697,697,899 Repayments during the year ( 91,092,394) ( 724,743,133) Applied as deposits for future stock subscription 16 ( 45,500,000) - Additional borrowings during the year - 442,510,800 Balance at end of year P 278,872,672 P 415,465,566

17.3 Consultancy and Management Fees

The Company incurs management and consultancy fees based on an agreement between CCC and the Company. Under the agreement, CCC can allocate and charge common corporate expenses to its subsidiaries. The consultancy and management fees incurred and paid by the Company amounted to P7,279,445 in 2012 and P5,088,473 in 2011 and is presented as part of Outside Services under Administrative Expenses in the statements of comprehensive income (see Note 12). As at December 31, 2012 and 2011, the Company has no outstanding liability arising from this agreement.

17.4 Rentals In 2012 and 2011, CCC leased out storage and production facilities to the Company. Rental expense incurred amounting to P1,547,100 in 2012 and P1,986,476 in 2011 is presented as part of Rentals under Cost of Goods Sold in the statements of comprehensive income. The outstanding payables amounting to P3,456,221 and P1,986,476 as at December 31, 2012 and 2011, respectively, arising from these transactions are shown as part of Trade Payables under Trade and Other Payables (see Note 11). 17.5 Key Management Personnel Compensations

The short-term employee benefits of the key management personnel amounted to P2,958,888 in 2012 and P2,748,221 in 2011, and are included in the salaries and employee benefits presented as part of Administrative expenses in the statements of comprehensive income (see Note 12).

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18. COMMITMENTS AND CONTINGENCIES

The following are the significant commitments and contingencies involving the Company.

18.1 Operating Leases The Company is a lessee under several short-term lease contracts with renewal options. The usual term of the lease contract is one year that usually ends in December. The amount of rent expense is allocated as follows:

Note 2012 2011 Cost of goods sold 12 P 11,024,845 P 10,906,609 Administrative expenses 6,588 7,635 P 11,031,433 P 10,914,244

As of December 31, 2012, the future minimum lease payments under these lease agreements amounted to P7,052,625.

18.2 Credit Facilities The Company has continuing surety with related parties on several credit facilities with various local banks amounting to P250,000,000. These credit facilities will expire in 2013. 18.3 Others

There are other commitments, guarantees, litigations and contingent liabilities that arise in the normal course of the Company’s operations which are not reflected in the accompanying financial statements. As at December 31, 2012, management is of the opinion that losses, if any, from these commitments and contingencies will not have a material effect on the Company’s financial statements.

19. CATEGORIES AND FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES The carrying amounts and fair values of the categories of assets and liabilities presented in the statements of financial position are shown below.

Notes 2012 2011

Carrying Values Fair Values Carrying Values Fair Values

Financial assets

Cash and cash equivalents 5 P 36,933,115 P 36,933,115 P 25,373,381 P 25,373,381

Trade and other receivables – net 6 254,367,946 254,367,946 211,381,610 211,381,610

Security deposits 10 1,780,295 1,780,295 1,780,295 1,780,295 P 293,081,356 P 293,081,356 P 238,535,286 P 238,535,286

Financial Liabilities

Trade and other payables P 334,282,849 P 334,282,849 P 317,917,167 P 317,917,167

Due to related parties 17 278,872,672 278,872,672 415,465,566 415,465,566

P 613,155,521 P 613,155,521 P 733,382,733 P 733,382,733

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See Notes 2.3 and 2.8 for a description of the accounting policies for each category of financial instrument. A description of the Company’s risk management objectives and policies for financial instruments is provided in Note 4. There is no disclosure of fair value hierarchy as the Company does not have any financial instruments valued at fair value in the statements of financial position as at December 31, 2012 and 2011.

20. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Company’s capital management objectives are:

• To ensure the Company’s ability to continue as a going concern; and,

• To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity as presented in the statements of financial position. Capital for the reporting periods under review is summarized as follows:

2012 2011 Total liabilities P 613,155,521 P 733,382,733 Total equity 265,942,910 201,133,338 Debt-to-equity ratio 2.31:1 3.65:1

The Company sets the amount of capital in proportion to its overall financing structure, i.e., equity and liabilities. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

21. SUPPLEMENTARY INFORMATION REQUIRED BY THE BUREAU OF INTERNAL REVENUE Presented in the succeeding pages is the supplementary information which is required by the BIR under its existing revenue regulations to be disclosed as part of the notes to financial statements. This supplementary information is not a required disclosure under PFRS.

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21.1 Requirements under Revenue Regulations (RR) 15-2010 The information on taxes, duties and license fees paid or accrued during the taxable year required under RR 15-2010 issued on November 25, 2010 follows:

(a) Output VAT

In 2012, the Company declared output VAT on the sale of goods as follows:

Output Tax Base VAT Taxable sales P 1,715,808,460 P 205,897,015 Zero-rated sales 3,907,898 - Government related sales 654,216 78,506 P1,720,370,574 P 205,975,521

The Company’s VAT zero-rated sales/receipt were determined pursuant to Section 106(A)(2)(a), Zero-rated VAT on Export Sale of Goods, and Section 109, VAT Exempt Transactions, of the 1997 National Internal Revenue Code. The tax bases are presented as Sale of Goods in the 2012 statement of comprehensive income. There is no outstanding output VAT payable as of December 31, 2012.

(b) Input VAT

The movements in input VAT, which is presented as part of the Prepayments and Other Current Assets account (see Note 8), in 2012 are summarized below.

Balance at beginning of year P 40,794,187 Goods for resale/manufacture or further processing 77,249,604 Services lodged under other accounts 29,,906,819 Services lodged under cost of goods sold 10,241,643 Goods other than for resale or manufacture 2,359,409 Capital goods not subject to amortization 197,009 Claims for tax credit/refund and other adjustments 896,987 Input tax on imported goods 84,432,219 Applied against output VAT ( 205,897,015 ) Balance at end of year P 40,180,862

(c) Taxes on Importation

In 2012, the total landed cost of the Company’s imported inventory for use in business amounted to P704,256,038. This amount includes customs duties and tariff fees of P9,770,978.

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(d) Excise Tax

The Company did not have any transactions in 2012 subject to excise tax. (e) Documentary Stamp Tax

In 2012, the Company incurred documentary stamp tax (DST) on intercompany advances amounting to P2,238,059.

(f) Taxes and Licenses

Details of taxes and licenses which are presented under the Other Operating Expenses account in the 2012 statement of comprehensive income are as follows:

Business tax P 3,616,698 DST 2,238,059 Municipal license and permits 987,154 Miscellaneous 55,663

P 6,897,574

The amounts of taxes and licenses are allocated as follows:

Cost of goods sold P 59,987 Operating expenses 6,852,957

P 6,897,574

(g) Withholding Taxes

The details of total withholding taxes in 2012 are shown below.

Expanded P 14,682,941 Compensation and benefits 1,503,978 P 16,186,919

The Company has no transaction in 2012 which are subject to final tax.

(h) Deficiency Tax Assessment and Tax Cases

As at December 31, 2012, the Company does not have any final deficiency tax assessment with the BIR or tax cases outstanding or pending in courts or bodies outside of the BIR in any of the open years.

21.2 Requirements under RR 19-2011 RR 19-2011 requires schedules of taxable revenues and other non-operating income, costs of sales and services, itemized deductions and other significant tax information, to be disclosed in the notes to financial statements.

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The amounts of taxable revenues and income, and deductible costs and expenses presented below are based on relevant tax regulations issued by the BIR, hence, may not be the same as the amounts of revenues reflected in the 2012 statement of comprehensive income. (a) Taxable Revenues

The Company’s taxable revenues subject to regular tax rate for the year ended December 31, 2012 amounted to P1,720,370,574.

(b) Deductible Cost of Goods Sold

Deductible cost of goods sold for the year ended December 31, 2012 which is subject to regular tax rate comprises the following:

Finished goods at beginning of the year P 416,825,250 Cost of goods manufactured 1,317,740,336 Total goods available for sale 1,734,565,586 Finished goods at end of year ( 314,973,334 ) P 1,419,592,252

(c) Taxable Non-operating and Other Income

Taxable non-operating and other income which are subject to the regular tax rate amounted to P150,192.

(d) Itemized Deductions

The amounts of itemized deductions for the year ended December 31, 2011 follow:

Advertising P 116,893,508 Forwarding and other warehousing fees 55,246,967 Freight 43,326,311 Merchandisers’ salary 32,607,195 Outside services 12,377,781 Taxes and licenses 6,837,587 Salaries and benefits 4,875,267 Depreciation 573,834 Communication, light and water 94,726 Interest 69,313 Supplies and materials 42,330 Repairs and maintenance 7,188 Rental 6,588 Fuel and oil 2,513 Miscellaneous 1,025,113 P 273,986,221

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