In partial fulfillment of the requirements for Financial Management 3

School Year 2017-2018

Submitted by:
Enteria, Angelica Alma B.
Rubin, Christylle M.
Salinas, Angelic E.
Vamenta, Honey Zuleika L.
Villarampa, Khea Wency B.

Submitted to:
Mr. Orlando Abrenica, Jr.

Date:
October 7, 2017
 Purpose

The purpose of the equity investment analysis is to

Overview

Pepsi-Cola Products Philippines, Inc. (the “Corporation”) was registered with the

Philippine Securities and Exchange Commission (“SEC”) on 8 March 1989 primarily to

engage in manufacturing, sales and distribution of carbonated soft-drinks and non-

carbonated beverages, as well as confectionery products, to retail, wholesale,

restaurants and bar trades. The registered office address and principal place of

business of the Corporation is Km. 29, National Road, Tunasan, Muntinlupa City. The

Corporation has amended its primary purpose clause and is now also authorized to

engage in the manufacture, sale and distribution of food and food products, and snacks.

The Corporation is a licensed bottler of PepsiCo, Inc. (“PepsiCo”) and Pepsi

Lipton International Limited (“Pepsi Lipton”) beverages in the Philippines. It

manufactures a range of carbonated soft drinks (“CSD”) and non-carbonated beverages

(“NCB”) that includes well-known brands Pepsi-Cola, 7Up, Mountain Dew, Mirinda, Mug,

Gatorade, Tropicana/Twister, Lipton, Sting, Propel, Milkis and Let’s Be.

Philippine Beverage Industry

The Corporation competes in the ready-to-drink, non-alcoholic beverage market

across the Philippines. The market is highly competitive and competition varies by

product category. The Corporation believes that the major competitive factors include
advertising and marketing programs that create brand awareness, pack and price

promotions, new product development, distribution and availability, packaging and

customer goodwill. The Corporation faces competition generally from both local and

multinational companies across the Corporation’s nationwide operations.

Competitors in the CSD market are The Coca-Cola Company and Asiawide

Refreshments Corporation. The substantial investment in multiple plants, distribution

infrastructure and systems, and the float of returnable glass bottles (“RGBs”) and plastic

shells required to operate a nationwide beverage business using RGBs represent a

significant barrier to potential competitors in widening their reach. The market for NCB

(including energy drinks) is more fragmented. Major competitors in this market are Del

Monte Pacific Limited, Universal Robina Corporation, Zesto Corporation, The Coca-

Cola Company, and Asia Brewery Incorporated, among others.

In recent years, the market has been relatively fluid with frequent product

launches and shifting consumer preferences. These trends are expected to continue.

Industry-wide competition intensified with marketing campaigns and trade and

consumer promotions. The Corporation believes that it can effectively compete by

maximizing its 360-degree marketing presence, maintaining its competitive price

structures, and expanding the range and reach of the Corporation’s portfolio. For the

years to come, the Corporation will continue to expand its beverage offerings leveraging

its wide manufacturing platform and extensive distribution reach to meet consumer

demands. Moreover, the Corporation invested aggressively, positioning the business for

long-term growth while ensuring financial flexibility to battle current challenges. The
Corporation expanded and upgraded 2 manufacturing facilities in different plants to

provide multiple product capabilities maximize cost savings, improve product quality,

and increase operating efficiencies.

Customers/Distribution Methods of the Products

The Corporation has a broad customer base nationwide. Its customers include

supermarkets, convenience stores, bars, sari-sari stores, and carinderias.

The Corporation’s sales volumes depend on the reach of its distribution network.

It increases the reach of its distribution system by adding routes and increasing

penetration by adding outlets on existing routes that currently do not stock its products.

It relies on a number of channels to reach retail outlets, including direct sales,

distributors, and wholesalers. The backbone of the distribution system is what is

referred to as “Entrepreneurial Distribution System,” which consists of independent

contractors who service one or more sales “routes,” usually by truck, selling directly to

retail outlets and collecting empty RGBs.

The Corporation also employs its own sales force, which principally sells to what

is referred to as the “modern trade” channel, consisting largely of supermarkets,

restaurants and convenience store chains. Most of these sales are credit sales. In

addition, it sells products to third party wholesalers and distributors, which sell them to

retail outlets. An important aspect of the distribution system is the infrastructure-

intensive process of selling and delivering RGB products to thousands of small retailers,

including sari-sari stores and carinderias. The efforts to increase the reach of the
Corporation’s distribution network require significant investments in distribution

infrastructure such as additional trucks, refrigeration equipment, warehouse space and

a larger “float” of glass bottles and plastic shells, as well as higher costs for additional

sales and distribution staff.

 Quantitative Financial Analysis
PEPSI-COLA PRODUCTS PHILIPPINES INC
STATEMENTS OF COMPREHENSIVE INCOME
(Common size as percentage)

Years ended December 31

2016 2015 2014

Net Sales 100 100 100
Cost of Goods Sold 77.20 76.63 75.04
Gross Profit 22.80 23.37 24.96
Operating Expenses
Selling and distribution 12.13 12.46 13.03
General and Administrative 3.32 2.66 3.16
Marketing 3.20 4.07 4.42
Operating Profit 4.16 4.18 4.34
Finance and other income
(expenses)
Equity in net earnings of 0.05 0.08 0.04
associates
Interest income 0.01 0.02 0.02
Interest expense (0.30) (0.25) (0.24)
Other Income-net 0.08 0.18 0.40
Profit Before Tax 4.00 4.20 4.56
Income Tax Expense 1.18 1.24 1.35
Profit 2.81 2.97 3.20
Other Comprehensive Loss
Remeasurement losses on 0.04 (0.01) (0.24)
net defined benefit liability-
net of deferred tax
TOTAL COMPREHENSIVE 2.85 2.97 2.96
INCOME
Basic/Diluted Earnings per
share
 PEPSI-COLA PRODUCTS PHILIPPINES INC
STATEMENTS OF FINANCIAL POSITION
(Common size as percentage)

2016 2015 2014

ASSETS
Current Assets
Cash 1.44 2.23 3.43
Receivables 8.68 8.23 8.92
Inventories 9.32 9.17 9.52
Due from related parties 2.64 2.85 3.27
Prepaid Expenses and 1.17 1.04 0.82
Years
other current assets
Ended
Total Current Assets 23.24 23.53 25.96
Noncurrent Assets
Investment in associates 2.63 2.74 2.91
Bottles and cases – net 22.78 23.24 23.79
Property, plant, and 49.61 45.60
equipment
Deferred tax assets –net 0.53 48.61 0.53
Other noncurrent assets 1.21 1.36 1.22
Total Noncurrent Assets 76.76 76.47 74.04
TOTAL ASSETS 100 100 100
December 31
 2016 2015 2014
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable 33.45 32.29 28.16
Short Term Debt 7.21 4.32 4.25
Current portion of long- 2.69 2.63 0.53
term debt
Income Tax Payable 0.02 0.64 0.53
Total Current Liabilities 43.37 39.88 33.46
Noncurrent Liabilities
Long-term debt-net of 7.86 11.26 15.33
current portion
Deferred tax liabilities- 4.05 4.06 4.74
net
Other noncurrent 3.45 3.76 4.12
liabilities
Total Noncurrent 15.37 19.08 24.19
Liabilities
TOTAL LIABILITIES 58.74 58.96 57.66
EQUITY
Share Capital 7.89 8.41 9.30
Remeasurement losses (1.20) (1.33) 1.47
on net defined benefit
liability
Retained Earnings 34.58 33.96 34.51
TOTAL EQUITY 41.26 41.04 42.34
TOTAL LIABILITIES AND 100 100 100
EQUITY

PEPSI-COLA PRODUCTS PHILIPPINES INC

STATEMENTS OF CASH FLOW
(Amounts in thousands)
 Years Ended December 31

2016 2015 2014

Cash Flows from Operating
Activities
Depreciation and 2739392 2,200,097 1,933,985
Amortization
Inventory (251245) (138,927) (495,051)
Prepaid Expenses (44349) (108,608) (33,184)
Other Working Capital 452413 1,323,205 392,917
Other Non-cash Items 862189 1,109,022 1,218,368
Net Cash provided by 3758400 4,384,789 3,017,035
operating activities
Cash Flows from Investing
Activities
Investments in Property, (3658211) (2,585,227) (2,424,029)
Plant and Equipment
Property, Plant and 267 314 22,941
Equipment Reductions
Other Investing Activities 13759 (1,577,913) (1,458,761)
Net Cash used for Investing (3644185) (4,162,826) (3,859,849)
Activities
Cash Flows from Financing
Activities
Debt Issued 10550000 5,475,000 5,150,000
Debt Repayment (10400000) (5,475,000) (3,900,000)
Dividend Paid (243789) (243,789) -
Other Financing Activities (165164) (158,769) (144,848)

Net Cash provided by (used (258953) (402,558) 1,105,152

for)financing activities
Net change in Cash (144738) (180,595) 262,338
Cash at beginning of period 464786 645,381 383,043
Cash at end of period 320048 464,786 645,381
Free Cash Flow
Operating Cash Flow 3758400 4,384,789 3,017,035
Capital Expenditure (3658211) (2,585,227) (2,424,029)
Free Cash Flow 100189 1,799,562 593,006

Other Financing Activities (165164) (158,769) (144,848)

Net Cash provided by (used (258953) (402,558) 1,105,152

for)financing activities
Net change in Cash (144738) (180,595) 262,338
Cash at beginning of period 464786 645,381 383,043
Cash at end of period 320048 464,786 645,381
Free Cash Flow
Operating Cash Flow 3758400 4,384,789 3,017,035
Capital Expenditure (3658211) (2,585,227) (2,424,029)
Free Cash Flow 100189 1,799,562 593,006
 FINANCIAL RATIOS
December 2016 December 2015 December 2014

Liquidity Analysis
Ratios
Current Ratio 0.54 0.59 0.78
Quick Ratio 0.32 0.36 0.49

Solvency Ratio 1.70 1.70 1.73

Activity Ratios
Inventory Turnover(percentage) 11.31 2016 2015
10.97 2014 10.6
ASSETS
Days of Turnover 32.27 33.27 34
Current Assets
Total Assets Turnover 1.37 1.31 1.34
Cash 150.41 127.98 100
Financial Leverage
Receivables
Ratios Inventories 115.40 106.48 100
Debt Ratio Due from related parties 0.59 0.59 0.58
Debt-to-Equity Ratio Expenses 2.42
Prepaid 167.89 0.44
139.23 100 0.47
Times Interest Earned
Other current assets 109.40 17.69
100.51 100 19.85
Ratio Total Current Assets 105.56 100.16 100
Asset to Equity Ratio
Noncurrent Assets 2.44 2.36
Profitability Property,
Ratios plant and
Gross Profit equipment
Margin 23% 0.23 0.25
Operating Profit
Gross property, plant4.16%
and 126.40 0.04
115.30 100 0.04
Margin equipment
Net Profit Margin
Accumulated 2.81% 125.01 0.03
113.12 100 0.03
Return on Assets 0.04 0.04 0.04
Depreciation
Return on Equity 0.09
Net Property, plant, and 186.23 0.10
117.24 100 0.10

Market Ratioequipment
Deferred income tax 117.75 109.41 100
Price/Earnings Ratio 15.10 15.10
Other noncurrent assets (183.65) 109.10 100
Market/ Book Ratio
Total Noncurrent Assets 122.20 1521.74
114.14 100 1590.91
TOTAL ASSETS 117.88 110.51 100

PEPSI-COLA PRODUCTS PHILIPPINES INC

COMPARATIVE BALANCE SHEET
Years Ended December 31
 2016 2015 2014
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable 110.48 100 -
Short Term Debt 1144.29 160.80 100
Income Tax Payable (194.83) 133.21 100
Other Current Liabilities
Total Current Liabilities 152.77 131.70 100
Noncurrent Liabilities
Long-term debt-net of (139.56) (118.84) 100
current portion
Deferred tax liabilities- 2016
100.89 2015
(105.25) 2014
100
Net Sales 119.72 107.93 100
net
Cost of Goods Sold 123.16 110.21 100
Other noncurrent (101.35) 100.82 100
Gross Profit 109.40 101.07 100
liabilities
Operating Expenses
Total
Sales,Noncurrent
General and (125.13)
108.26 (112.83)
100.44 100
100
Liabilities
Administrative
TOTAL LIABILITIES
Other Operating Expenses 120.08 113.01 100
EQUITY
Total Operating Expenses 108.26 100.44 100
Additional paid-in Capital
Operating Income 114.84 104.07 100
Interest Expense
Retained Earnings 148.29
118.12 112.64
108.74 100
100
Other Income-net
Accumulated other (164.30)
100.63 (134.42)
(100.09) 100
100
Income before taxes 105.07 (100.27) 100
Comprehensive Income
Provision for income taxes 104.74 (101.25) 100
TOTAL EQUITY 114.88 107.11 100
NET INCOME 105.20 100.14 100
TOTAL LIABILITIES AND
Basic/Diluted Earnings per
117.88 110.51 100
EQUITY
share

PEPSI-COLA PRODUCTS PHILIPPINES INC.

COMPARATIVE INCOME STATEMENT
Years ended December 31
 Detailed Accounting Analysis
Major Risk
 Sales and profitability are affected by the overall performance of the Philippine

economy:

- Natural seasonality of sales (sales volume affected by the weather)

- Competitive environment of the beverage market in the Philippines
- Changes in cost structures:
 Company’s sales ( Philippine pesos) while some cost such as

purchases of packaging materials (United States dollars)

 Cost and supply of raw materials, water and energy could be

adversely affected by changes in the world market prices

 Margins differ between beverage products and package types and

sizes
- Subject to credit risk, liquidity risks and various market risk
Basic Measurements
The financial statements have been prepared on a historical cost basis of

accounting, except for the defined benefit liability which is recognized at the

present value of the defined benefit obligation less fair value of plain assets.
Significant Accounting Policies
Inventories are valued at the lower of cost and net realizable value. The

cost of inventories includes expenditure incurred in acquiring the inventories,

production or conversion costs and other costs incurred in bringing them to their

existing location and condition. In the case of manufactured inventories and work

in process, cost includes an appropriate share of production overheads based on

normal operating capacity. Net realizable value of inventories other than spare

parts and supplies, is the estimated selling price in the ordinary course of

business, less estimated cost of completion and selling expenses. For the spare

parts and supplies, net realizable value is the estimated selling price less cost to

sell.
 Comprehensive Analysis

Financial Analysis Decision