cfa institute research challenge

CFA Institute Research Challengehosted by

CFA Society of the PhilippinesTeam Triton Investment Research

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MARKET SNAPSHOT Bloomberg CNPF:PM Shares Outstanding (mn)

3,541.03

Market Cap (Php mn) 60,551.59

Market Cap (USD mn) 1,142.11

Daily T/O (Php mn) 23.60

Daily T/O (USD mn) 0.50

Adj. 52 Week Low Php 9.89/sh

Adj. 52 Week High Php 18.30/sh

Closing Price Php 17.10/sh

Key Shareholders CPGI (68.7%) Arran Investment (10.4%)

Free Float 20.9% Source: Team Estimates

TARGET PRICE BREAKDOWN

SEGMENT VALUE

PER SHARE

% OF TARGET PRICE

Canned and processed fish 9.09 43.5%

Canned meat 7.75 37.1%

Dairy and mixes 1.81 8.7%

Tuna OEM 0.35 1.7%

Coconut OEM 1.91 9.1%

TARGET PRICE 20.91 100.0% Source: Team Estimates

TRAILING RETURN REL. PCOMP INDEX 1 MO 3 MO 1 YR

CNPF 2.4% 17.7% 49.1%

PCOMP -8.4% -8.5% -2.1% Source: Bloomberg

P/E REL. PCOMP INDEX

Source: Bloomberg

Source: Company Information, Bloomberg, Team Estimates

2014 2015 2016E 2017F 2018F 2019F 2020F

Revenue (Php mn) 20,438.6 23,324.5 28,132.3 31,066.2 34,031.9 37.027.3 40,280.6 Net Income (Php mn) 1,735.2 2,078.4 2,722.9 3,051.8 3,375.3 3,794.4 4,261.0 EPS (Php per share) 0.51 0.58 0.77 0.86 0.95 1.07 1.20 EPS Growth (%) 53.6 13.9 33.1 12.1 10.6 12.4 12.3 FCF Yield (%) (0.5) (2.9) 2.0 2.7 3.5 3.3 4.5 ROE (%) 33.8 22.8 23.6 22.4 21.2 20.4 19.8 Net Debt/Equity (%) (19.2) 14.8 8.0 1.4 (5.6) (9.7) (15.5) P/E (x) 21.5 19.0 22.4 19.8 17.9 16.0 14.2 EV/Sales (x) 1.7 1.6 2.2 2.0 1.8 1.7 1.5

C

CNPF: Reeling in Quality Growth

Attractive proxy to Philippine consumption story; initiating with a BUY We issue a BUY recommendation on Century Pacific Food, Inc. with a target price (TP) of Php 20.91/sh using our Discounted Cash Flow (DCF)-based Sum-of-the-Parts (SOTP) valuation. Our TP represents a 22.3% upside from current levels and implies a 19.8x 2017F P/E for CNPF, at a discount to domestic and regional peer averages (24.2x and 24.4x respectively). Our recommendation is grounded on CNPF’s a) dominant market position in fast-growing consumer markets; b) brand-building expertise that maximizes strong industry growth potential; and c) diversification strategy backed by robust financials. Dominant market position in fast-growing Philippine consumer markets CNPF is the leading producer and distributor of canned food in the Philippines, a fast-growing category in the consumer space (5.7% 2015A-2020F CAGR). It has maintained resilient market shares of 84% in canned tuna and 46% in corned beef owing to its a) superior brand equity; b) sustainable retail price leadership driven by cost efficiency and operating leverage; and c) nationwide presence that reaches 60% of all local points of sale. As the market leader, we believe CNPF is in prime position to take advantage of increasing per capita canned goods consumption driven by favorable consumer trends. Brand-building expertise maximizes growth opportunities Leveraging on its brand-building capacity and product development expertise, we believe CNPF can capitalize on uptrade opportunities from rising disposable income (6.2% 2015A-2020F CAGR), driving a 5-year sales CAGR of 11.6% from 2015A to 2020F. As evidence of growth maximization opportunities, CNPF has over 38 years of industry experience in transforming agricultural commodities into market-leading brands. Alongside its commitment to product innovation, the company is well-equipped to take advantage of higher demand for premium products (e.g. premium meats, milk, and coconut). Return-maximizing diversification strategy backed by robust financials We expect CNPF’s strategy of diversifying into new businesses to complement the strong profitability of its core segments, driving an above-industry ROE of 22.4% in 2017F (vs. domestic and regional peer ave. of 20.1% and 16.8% respectively). Alongside its brand-building capabilities, CNPF is focused on conducting value-accretive acquisitions in high growth or complementary categories (e.g. milk, premium meats, coconut) to maximize returns. Given its underleveraged capital structure (7.9% 2016E net D/E vs. 17.7% peer ave.) and strong FCF generation ability (3.2% ave. FCFF 2015A-2020F), CNPF has the flexibility to either maximize its dividend payout or to pursue organic growth and/or M&A opportunities. Brand equity, cost hedging, healthy balance sheet address key risks We identify greater than expected a) competition, b) execution risk, and c) volatility in input costs as key downside risks to our valuation. We believe that CNPF can mitigate risks from competition, execution, and volatile commodity prices by leveraging on its superior brand equity, marketing expertise, and effective cost mitigation efforts. Despite these investment risks, we maintain our investment case for CNPF given its capacity to ensure long-term market leadership and deliver reliable earnings growth (15.8% 2015A-2020F EPS CAGR), with further upside given its financial flexibility for its growth ventures.

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FIGURE 1: HISTORICAL REVENUE BREAKDOWN

Source: Company Information

FIGURE 2: GDP EXPENDITURE BREAKDOWN (IN PHP TN)

Source: Philippine Statistics Authority, Team Estimates

Business Description

Century Pacific Food, Inc. (CNPF) is the largest producer and distributor of canned goods in the Philippines with more than 38 years of operational excellence. From its initial establishment as a tuna canning facility, CNPF has built a portfolio of household brands in the canned and processed fish, canned meat, and dairy and mixes segments (see Table 1), recently diversifying its product portfolio with the acquisition of Birch Tree fortified milk and Swift premium meat.

CNPF is also the Philippines’ largest exporter of private label original equipment manufacturer (OEM) tuna products. Recently, the company also acquired Century Pacific Agricultural Ventures, Inc. (CPAVI), an integrated coconut producer catering to domestic and export markets. Market leader in core segments CNPF is the market leader in the canned and processed fish and canned meat segments in the Philippines, having maintained resilient market shares of at least 25% and 32% respectively since 2008A. Collectively, these segments have accounted for 67.4% of CNPF’s topline on average from 2013A to 2016E (see Figure 1). CNPF achieved its dominant market position through well-positioned and homegrown brands including Century Tuna, 555 Sardines, and Argentina Corned Beef. More discussion is found in Appendix B-2. Long-standing business relationships CNPF is partnered with 281,000 retail outlets, supporting the company’s expansion strategy in both traditional and modern retail platforms. Globally, CNPF is partnered with renowned global retailers such as Walmart, Carrefour, and Safeway, allowing its OEM products to be present in 58 countries worldwide. Locally, CNPF reaches 12,000 food service outlets and capitalizes on increasing out-of-home consumption through partnerships with Starbucks, Jollibee, Shakey’s, 7-Eleven, and Family Mart (see Appendix B-3).

Ownership structure CNPF is owned by two major shareholder groups—Century Pacific Group, Inc. (CPGI), the parent company which has managed the firm’s operations since 1978, and Arran Investment Private Limited, a sovereign wealth fund established by the Government of Singapore. CPGI and Arran Investment own 68.7% and 10.4% of CNPF’s common shares respectively. The balance of 20.9% corresponds to the public free float level of CNPF.

TABLE 1: CNPF SEGMENTS SNAPSHOT

SEGMENT COMPANIES BRANDS CURRENT MARKET SHARE

SALES CAGR (2013A-2016E)

SALES CAGR (2016E-2020F)

Canned and Processed

Fish

Century Canning Corporation,

Columbus Seafoods Corporation

Century, 555, Blue Bay,

Fresca, Lucky 7

54% 13.8% 10.0%

Canned Meat

Pacific Meat Company, Inc.

Argentina, Swift, WOW!, Lucky 7, 555

37% 20.4% 10.2%

Dairy and Mixes

Snow Mountain Dairy Corporation

Angel, Birch Tree,

Kaffe De Oro 1% 19.8% 13.8%

Tuna OEM General Tuna Corporation 34% -7.7% 2.4%

Coconut OEM

Century Pacific Agricultural

Ventures, Inc. 13.8%

Source: Company Information, Team Estimates

Industry Overview and Competitive Positioning Strong and Sustained Economic Growth Consumption-based economy drives sustainable growth The Philippines is set to deliver strong GDP growth (6.6% 2015A-2020F CAGR) backed by robust and resilient domestic demand for consumer goods (see Figure 2). Irrespective of political cycle, consumption has accounted for 72.2% of national income on average from 1986A to 2015A. Moreover, food and non-alcoholic beverages have accounted for 42.4% of household final consumption on average from 2008A to 2015A. We believe that these favorable macroeconomic tailwinds present a clear opportunity for CNPF given that its entire product portfolio revolves around food and non-alcoholic beverages.

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FIGURE 3: INFRASTRUCTURE SPENDING AS % OF GDP

Source: Department of Budget and Management

FIGURE 4: PER CAPITA CANNED GODDS, MILK CONSUMPTION

AND GDP PER CAPITA (IN USD)

Source: Company Information, Euromonitor, ANZ FIGURE 5: URBANIZATION LEVEL

AND REAL GDP PER CAPITA (IN PHP 000s)

Source: Philippine Statistics Authority

FIGURE 6: CONSUMER EXPECTATIONS SURVEY RESULTS

Source: Bangko Sentral ng Pilipinas

FIGURE 7: PH EXPORTS (IN PHP TN)

Source: Department of Budget and Management

Fiscal reforms to support Philippine consumption story The new administration plans to institute fiscal reforms promoting inclusive growth, becoming a potential catalyst to further accelerate consumer spending. Reforms include a) lowering personal tax rates (25% from 30%) which will lead to higher disposable income and b) accelerating public infrastructure spending to 5-6% of GDP (from 2.5%) and the rollout of pipelined PPP projects (see Figure 3), which will lead to the creation of high growth regional centers. We believe CNPF can capitalize on higher disposable income and improved accessibility resulting from these fiscal reforms to accelerate sales growth.

Healthy industry growth backed by macroeconomic tailwinds We expect healthy industry growth for canned goods and milk given favorable consumer trends and strong growth opportunities from low per capita consumption relative to mature ASEAN markets such as Singapore (see Figure 4). We expect the two segments to grow at a 1.4x multiple to forecasted per capita food consumption growth in mature ASEAN markets. Emergence of Favorable Consumer Trends Convenience due to rapid urbanization We expect the trend of rapid urbanization and rising disposable income to lead to greater demand for convenience products (see Figure 5 and Appendix C-4), including canned goods and ready-to-eat products. CNPF’s brand portfolio that consists of ready-to-eat products (e.g. Century Tuna, Argentina Corned Beef, WOW! Ulam) is at the forefront of taking advantage of these trends.

Premiumization due to rising disposable income, high consumer confidence Higher disposable income and improving consumer outlook are expected to create a premiumization effect, translating to a) greater canned goods consumption by lower socio-economic classes and fast-growing regions outside NCR and b) a shift toward premium products for higher income brackets. Consumer confidence for the low-income segment and in areas outside NCR both improved to their highest levels in 2015A, indicating uptrade and regional expansion opportunities (see Figure 6 and Appendix C-4).

Health and wellness due to higher disposable income We believe that CNPF is well-positioned to capture the health trend in the Philippines given its brand positioning and wide distribution channels. Domestic spending on well-being by Filipino consumers is expected to grow further by 5.2% from 2015A to 2020F (see Table 2 and Appendix C-2). This trend is especially beneficial for CNPF’s marine, milk, and coconut products whose health benefits have been established in the domestic market.

TABLE 2: SUMMARY OF FAVORABLE INDUSTRY TRENDS

MACROECONOMIC TREND CAGR

(2015A-2020F) DESCRIPTION

Household disposable income 6.2% Leads to a premiumization effect, benefitting CNPF’s core and higher-margin segments

Per capita canned goods consumption

5.8% (fish) 5.5% (meat)

Expected convergence to per capita canned goods consumption of mature ASEAN markets driven by rising disposable income and improving consumer optimism

Per capita milk consumption 5.3% Expected convergence to per capita milk consumption of mature ASEAN markets driven by rising disposable income and improving consumer optimism

Consumer well-being expenditures 5.2% Largely driven by higher disposable income, beneficial for CNPF’s marine, milk, and coconut products

Retail 4.2% Improving modern trade penetration seen as expansion opportunity given CNPF’s nationwide distribution network

Exports 8.3% Export recovery presents upside risk for CNPF’s tuna and cococnut OEM segments

Source: Company Information, Euromonitor, Philippine Statistics Authority, ANZ Bank, Team Estimates Multi-Format Distribution Channels Improving modern trade penetration With its 304 SKUs and presence in 652,000 local points of sale, we believe that CNPF can expand its consumer reach due to improving modern trade penetration (28.5% in 2016E to 30.2% in 2019F). This trend will drive a 5-year sales CAGR of 4.2% from 2015A to 2020F for gross domestic retail value (see Appendix C-2).

Favorable prospects for export growth We believe that CNPF can benefit from an expected export recovery both directly and indirectly. Government forecasts exports to grow by a 4-year CAGR of 6.7% 2015A-2019F (see Appendix C-3) given greater mobility of goods at lower tariffs and freight costs due to EU GSP+, the ASEAN integration, and the Amended Cabotage Law.

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FIGURE 8: PORTER’S FIVE FORCES ANALYSIS (BRANDED)

Source: Team Analysis FIGURE 9: CENTURY TUNA AND

ARGENTINA CORNED BEEF MARKET SHARES (2013A-2015A)


TABLE 3: CNPF RETAIL PRICES VS. COMPETITORS AS OF NOV. 2016

Source: Brick-and-Mortar Supermarkets

TABLE 4: CNPF PRODUCT INNOVATIONS

Source: Company Information, Euromonitor FIGURE 10: PHILIPPINE RETAIL OUTLETS SERVICED BY CNPF


CANNED TUNA

Century Tuna Flakes (155 g) Php 27.00 555 Tuna Flakes (155 g) Php 24.50 San Marino Tuna Flakes (155 g) Php 33.95

CORNED BEEF Argentina Corned Beef (175 g) Php 31.50 Purefoods Sat Corned Beef (175 g) Php 33.50

Highlands Corned Beef (175 g) Php 45.75

Purefoods Corned Beef (175 g) Php 56.00

PRODUCT INNOVATION DESCRIPTION

Transparent sealed packaging

Transparent packaging to showcase processed

seafood product freshness Angel

Kremedensada Full cream milk and

condensed milk in a can Argentina Bacon

Norte Instant bacon bits

served in a can

Century Bangus Tocino

Packaged milkfish chunks marinated with locally-

inspired flavors

Century Tuna Loaf Ready-to-eat tuna in the

form of meat loaf 555 Tuna Rice

Afritada Packaged tuna and rice

with locally-inspired flavors

Agricultural exports are expected to recover with support from the weakening peso and accelerated infrastructure spending. Directly, we expect these tailwinds to benefit CNPF’s OEM businesses. Indirectly, we believe that CNPF’s branded businesses will also grow due to the boost in consumer wealth from export recovery as we estimate exports to account for 52.4% of GDP by 2020F. Competitive Positioning: Market Leadership Resilient market share and price leadership in high growth segments CNPF has been the market leader (37% market share) in the broad-based canned food category, a fast-growing but highly competitive consumer space (see Figure 8 and Appendix C-1). Within this market leadership includes an 84% market share in canned tuna and 46% share in corned meat. Coupled with cost mitigation efforts (see Appendix B-5), CNPF’s market leadership has allowed the company to have pricing power in the market, maintaining retail price leadership of at least 14.2% over the closest major competitor (see Table 3 and Appendix C-5) while enjoying better margins (13.4% 2016E EBIT margin) than those of regional peers (6.7%).

Nationwide distribution network We believe CNPF can take advantage of higher real GDP per capita growth and improving consumer optimism in regions outside NCR (See Appendix C-4) through its nationwide distribution network that reaches 652,000 local points of sale (60% presence). With over 39 distributors covering the entire archipelago, CNPF is able to reach 281,000 retail outlets, including 3,772 modern retail stores.

Strong export credentials We expect CNPF to capitalize on stronger exports growth through its a) market leadership and 38 years of industry experience in the tuna OEM exports industry (34% market share in 2015A), b) sustainability and quality control accreditations (see Appendix B-8), and c) expanded sales channels abroad, including its recent Kamayan and Century China acquisitions (see Appendix B-7). More discussion on the competitive dynamics of CNPF’s exports is found in Appendix C-1.

Corporate Growth Strategy and Key Directions Sustaining Market Dominance Aggressive marketing strategy to protect market leadership As a company focused on building brands, CNPF strives to maintain a top-of-mind awareness and to protect the market leadership of its core segments by allocating resources on marketing campaigns (7.5% of sales on average) such as the Century Tuna 2014 Superbods Contest and Argentina Corned Beef Ganado Ka campaign.

Optimization to maintain profit margins and price leadership CNPF strives to maintain price leadership and favorable margins by engaging in: a) strategic hedging and buying strategies for raw materials, including the utilization its new cold storage facility; b) maintenance of its extensive network of long-standing supply partners, giving the company bargaining power for raw material costs; and c) achievement of operating leverage through scale.

Diversifying Product Portfolio Well-positioned brands to capture broad-based growth CNPF aims to capture broad-based growth by maintaining a wide portfolio of brands that cater to consumers ranging from mass market to high-end segments (see Appendix B-2). While continuing to maintain its market share in mass market segments, the company also aims to capitalize on premiumization trends by launching higher-margin versions of their core products such as 555 Spanish Style Sardines, Century Handline Tuna, and Swift Premium Corned Beef.

Extensive local knowledge and R&D capability to enhance product portfolio CNPF is committed to diversify its product portfolio in line with prevailing consumer preferences, launching an average of 20 new SKUs (see Table 4) in retail shelves per year and expanding into lucrative segments of the food and beverage industry (e.g. milk, coconut). CNPF achieves this strategy of diversification through its strong local knowledge from 38 years of experience in the industry and consistent R&D efforts geared toward product development and value-accretive acquisitions. Expanding Consumer Reach Improving local and export distribution to expand points of sale CNPF is focused on continuously expanding its sales channels in both domestic and international markets. CNPF has expanded its local distribution network to 281,000 retail centers and maximized the strategic location of its six manufacturing facilities, enabling a presence in 60% of local points of sale. CNPF also aims to expand its international sales reach through key partnerships and acquisitions, recently expanding its sales channels in the USA, Canada, and China (see Appendix B-4).

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FIGURE 11: CNPF HISTORICAL AND

POTENTIAL PRICE CHART

Source: Bloomberg, Team Estimates

FIGURE 12: CNPF EBITDA LEVEL (IN PHP MN) AND GPM (2013A-2018F)

Source: Philippine Stock Exchange, Team Estimates

FIGURE 13: CNPF REVENUE (IN PHP MN) AND TOPLINE GROWTH

(2013A-2018F)


FIGURE 14: CNPF RETURN ON EQUITY

AND EPS GROWTH (2013A-2018F)


FIGURE 16: CNPF FCFF YIELD AND

NET DEBT-TO-EQUITY % (2013A-2018F)


Investment Summary We issue a BUY recommendation on CNPF with a target price of Php 20.91/sh using a DCF-based Sum-of-the-Parts valuation. This target price presents an upside of 22.3% based on the closing price of Php 17.10/sh. We estimate CNPF’s EPS to grow at a 5-year CAGR of 15.8% 2015A-2020F, driven by its a) commanding market leadership in high growth consumer segments, b) brand-building ability that maximizes growth potential, and c) expanding product portfolio backed by robust financials. Commanding market leadership in high growth segments CNPF has maintained a resilient market share in the canned tuna (84%) and corned meat (46%) segments, owing to its brand equity, cost efficiency from operational scale, and nationwide distribution network. We expect the company to sustain its market leadership through effective cost hedging, allowing CNPF to maintain price leadership (14.2% cheaper on average) while expanding its EBITDA margin (+224 bps 2015A-2020F). We believe that CNPF is in prime position to capitalize on low per capita canned goods consumption relative to ASEAN peers given rapid urbanization and improving consumer outlook. Established ability to build brands in order to maximize growth potential We believe that CNPF is at the forefront of capturing strong growth potential due to its strategic focus on brand-building, underpinning an 11.6% 5-year sales CAGR from 2015A to 2020F. Increasing urbanization, rising consumer confidence, and improving health consciousness point toward an uptrade to premium products such as canned tuna, powdered milk, and coconut water. Given its proven track record of brand building and focus on product development, we believe that CNPF is well-positioned to take advantage of these favorable consumer trends. Financial flexibility to maximize returns via portfolio diversification CNPF employs a dual strategy of maximizing the profitability of its existing businesses while pursuing value-accretive segments to enhance its product portfolio. Given this diversification strategy, we expect CNPF to generate stable cash flows with an average FCFF yield of 3.2% 2016E-2020F. CNPF also has a strong net debt/equity position (7.9% 2016E), providing flexibility either to internally support growth opportunities through organic expansion and/or M&As or to maximize shareholder returns via dividends (up to 30% of NI). We believe that CNPF’s strategy supports the robust growth of its core businesses, translating to an industry-leading ROE of 22.4% in 2017F, against the 19.6% peer average.

FIGURE 15: CNPF SEGMENTS PLOTTED ON BCG MATRIX

Source: Company Information, Team Analysis

DCF-based SOTP valuation supports investment case Our valuation confirms that CNPF is currently trading at a discount to domestic and regional peers. We conducted a DCF valuation for CNPF’s branded businesses, against a WACC of 8.81% and a terminal growth rate of 4.0%. Given export cyclicality, we applied a 12.0x and a 16.0x P/E for its tuna OEM and coconut OEM segments respectively based on the normalized multiples of relevant peers. We note that 89.2% of our fair value for CNPF is driven by domestic sales, indicating strong exposure to the Philippine consumption story. Competitive advantages address possible investment risks Key downside risks to our valuation include greater than expected competition, execution risk, and commodity price volatility. While we applied more conservative estimates to factor in these risks, we believe CNPF can further mitigate competition and execution risk by leveraging on its market leadership and brand-building expertise. We also expect CNPF to utilize its cold storage facility and its longstanding relationships with key suppliers to address volatility in input costs. Amid these risks, we maintain a base case 5-year EPS growth forecast of 15.8% 2015A-2020F CAGR, with further upside potential given its financial flexibility to pursue new ventures.

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FIGURE 17: CNPF YOY REVENUE GROWTH RATES (2016E-2020F)

Source: Team Estimates

FIGURE 18: MARINE EXPORTS,

COCONUT EXPORTS, REAL GDP YoY


FIGURE 18: CNPF COCONUT SEGMENT REVENUE

BREAKDOWN (2016E)


FIGURE 19: US COCONUT WATER MARKET SIZE (IN USD MN)


FIGURE 20: SKIPJACK TUNA PRICES (IN USD/MT)

Source: Food and Agriculture Organization

Valuation

We used an SOTP valuation to arrive at our target price of Php 20.91/sh, presenting a 22.3% upside from CNPF’s closing price of Php 17.10/sh. We conducted a DCF valuation for CNPF’s branded consumer segments (canned and processed fish, canned meat, dairy and mixes) while we used a P/E relative valuation for the company’s export segments.

TABLE 5: VALUATION SNAPSHOT SEGMENT IMPLICIT

PRICE WEIGHT IMPLIED

2017F P/E VALUATION METHODOLOGY

Canned and Processed Fish 9.09 43.5% 26.9x 10-year DCF against 8.81% WACC, 4.0% terminal growth rate

Canned Meat 7.75 37.1% 26.4x

Dairy and Mixes 1.81 8.7% 29.9x

Tuna OEM 0.35 1.7% 12.0x Relative Valuation method using 12.0x P/E multiple for Tuna OEM and 16.0x P/E multiple for Coconut OEM Coconut OEM 1.91 9.1% 16.0x

Target Price 20.91 100.0% 19.8x DCF-based Sum-of-the-Parts Source: Team Estimates

We applied a relative valuation for CNPF’s OEM segments given the cyclical nature of the exports industry (see Appendix D-4). We based the 12.0x P/E ratio for CNPF’s tuna OEM segment on the normalized P/E ratios of food manufacturers whose revenues are predominantly tuna exports. A 16.0x P/E multiple for CNPF’s coconut OEM business was taken from the mid-cycle P/E ratio of agricultural producers with export segments.

Marine and coconut exports have fluctuated by 38.9% and 15.9% respectively from 2005A to 2015A, versus the minimal variation in real GDP growth (1.4%), hence we valued CNPF’s OEM businesses using the mid-cycle P/E ratios of relevant peers. Revenue Growth

TABLE 6: REVENUE GROWTH ASSUMPTIONS

CANNED

FISH CANNED

MEAT

DAIRY AND

MIXES COMMENTS

Industry Growth 5.8% 5.5% 5.3% Forecast based on regression estimate (see Appendix D-2)

Market Share Grab 1.0% 2.0% 5.0% Reflection of brand-building capacity, especially with Birch Tree milk

Product Premiumization/Innovation

1.0% 1.5% 2.5% Driven by the launches of additional categories and SKUs, especially premium versions of core products

Uptrade Opportunity 2.2% 1.2% 1.0% Driven by higher disposable income and improving consumer optimism

CNPF 5-Year Sales CAGR 10.0% 10.2% 13.8% Growth premium based on exposure to fast-growing consumer markets;

Source: Team Analysis

Core Branded Businesses: Canned and Processed Fish, Canned Meat and Milk We forecasted CNPF’s branded sales growth using the expected industry growth rates of each individual category, while applying a company growth premium based on the CNPF’s individual strategies and competitive advantages. CNPF’s growth premium takes into account a) market share grab from its new growth businesses, b) exposure to faster growing sub-categories (e.g. growth of canned tuna expected to outpace canned sardines), c) uptrading to higher value premium products, and d) new product launches and innovations.

Growth and Expansion Business: Coconut OEM We projected CNPF’s coconut OEM segment to grow at 5-year sales CAGR of 13.8% 2015A-2020F based on the weighted average projected growth rates of coconut oil, coconut water, and other coconut by-products (see Figure 18). We see the trend of rising global demand for coconut to continue in the medium-term and based our estimates on historical demand for the following products—coconut oil (5.4% 2007A-2015A CAGR), coconut water (21.1% 2012A-2015A CAGR), and other coconut by-products (3.7% 2009A-2015A CAGR).

Export Business: Tuna OEM We forecasted CNPF’s tuna OEM segment’s sales growth at 2.4% 2015A-2020F CAGR. While we expect a 6.2% 2015A-2020F CAGR for global demand for tuna, we accounted for an offsetting -3.8% average decline in prices due to fluctuating skipjack tuna supply.

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FIGURE 20: SKIPJACK TUNA PRICES (IN USD/MT)

Source: Food and Agriculture Organization

FIGURE 22: VALUATION METRICS AND TARGET PRICE RANGES


TABLE 8: RELATIVE VALUATION PEERS TABLE


TICKER COMPANY MKT CAP (USD mn)

P/E (x) EV/SALES (x) ROE (%) PEG (x) EV/EBITDA (x)

2016E 2017F 2016E 2017F 2016E 2017F 2016E 2017F 2016E 2017F CNPF:PM Century Pacific Food, Inc. 1,142.11 22.4 19.8 2.2 2.0 23.6 22.4 0.7 1.6 15.3 13.8 JFC:PM Jollibee Foods Corp. 4,206.54 36.6 32.9 1.9 1.7 19.2 20.6 2.5 2.2 19.4 16.7 MAXS:PM Max's Group Inc. 547.85 28.4 24.7 2.6 2.3 14.6 15.0 21.6 18.7 DNL:PM D&L Industries Inc. 1,627.07 30.2 26.4 3.8 3.4 19.6 20.8 1.4 1.2 22.8 19.7 URC:PM Universal Robina Corp. 7,193.62 25.2 24.6 3.3 3.0 20.5 19.9 1.3 1.2 15.8 14.9 Domestic Ave.

26.9 24.2 2.9 2.6 16.3 16.8 1.8 1.6 17.6 15.4 TU:TB Thai Union Group Pcl 2,798.80 17.5x 14.7 1.0 1.0 11.8 13.0 1.3 1.1 13.0 11.1 2282:JP Nh Foods Ltd 5,483.22 22.9 20.6 0.6 0.6 8.3 8.3

9.6 9.0

000895:CH Henan Shuanghui 9,947.20 15.4 14.3 1.3 1.2 26.2 28.1 2.4 2.2 10.7 9.8 603288:CH Foshan Haitian Flavouring 11,452.26 28.5 25.4 6.2 5.5 29.8 29.7 2.5 2.1 21.8 18.9 Regional Ave.

25.2 24.4 2.5 2.2 19.2 20.1 2.1 1.8 15.8 14.0

Overall Ave.

26.0 24.3 2.7 2.4 17.8 18.4 1.9 1.7 16.7 14.7 Market-Cap Weighted Ave. 23.2 25.5 2.3 2.0 18.7 19.3 1.1 1.0 14.2 12.6

Capex We based CNPF’s maintenance capex on its existing and projected production and storage capacity, which utilizes the forecasted sales growth for each segment. We also considered the company’s backward integration and operational efficiency investments in computing for growth capex requirements (see Appendix B-3).

TABLE 7: VALUATION ASSUMPTIONS

ASSUMPTION RATE % OF WEIGHT METHODOLOGY

Risk-free Rate 5.00% Forward yield of 10-year Philippine government yield adjusted for rate hikes

Beta 0.71

Adjusted raw beta calculation based on covariance of CNPF’s returns vs. PCOMP index

Market Risk Premium 6.19%

Based on Bloomberg's average country risk premium (2014A-2016E)

Cost of Equity 9.39% 90.00% Calculated via CAPM Cost of Debt 5.00% Estimated future borrowing rates of CNPF Effective Tax Rate 30.00% CNPF's effective tax rate for branded businesses After-Tax Cost of Debt 3.50% 10.00% WACC 8.81%

Terminal Growth Rate 4.00%

Based on forecasted inflation, consumption expenditure growth, and per capita food consumption growth in mature markets


Weighted Average Cost of Capital As highlighted in Table 7, we arrived at a WACC of 8.81% based on an after-tax cost of debt of 3.50% and a cost of equity of 9.39%. Our risk free rate and cost of debt estimates incorporate upward adjustments for expected rate hikes. Our cost of equity utilizes an adjusted beta in order to better reflect expected future beta, given the company’s short listing period and recent increase in daily turnover.

Terminal Growth We estimated CNPF’s terminal growth rate at 4.0% based on a) the country’s projected inflation rate of 3.8%, b) forecasted long-term consumer expenditure growth rate for the Philippines (4.2%), and c) the expected per capita food sales growth of mature ASEAN markets like Singapore (4.1%).

Relative Valuation Apart from our SOTP valuation, we also conducted a relative valuation with comparable companies. CNPF’s 2017F P/E ratio of 19.8x shows that it is trading at a discount compared to domestic and regional peers (24.2x and 24.4x respectively) in spite of having an industry-leading ROE. This is supported by a comparable PEG ratio of 1.6x with the domestic and regional peer average of 1.6x and 1.8x respectively.

We also used the regional peer average P/E ratio to arrive at a relative target price. Applying the regional average P/E of 24.4x against our 2017F EPS of Php 0.86/sh, we obtained a target price of Php 21.03/sh with a 23.0% upside—close to our SOTP price objective.

8

TABLE 9: KEY FINANCIAL RATIOS 2013P 2014A 2015A 2016E 2017F 2018F 2019F 2020F Profitability Indicators Gross Profit Margin (%) 17.5 26.3 26.6 29.0 28.5 28.6 28.8 29.0 EBITDA Margin (%) 4.8 11.8 12.7 14.3 14.4 14.5 15.0 15.5 Operating Margin (%) 4.8 11.0 12.1 13.4 13.5 13.5 13.9 14.3 Net Income Margin (%) 3.9 8.5 8.9 9.6 9.8 9.9 10.2 10.6 Return on Assets (%) 7.7 16.5 13.8 15.0 15.5 15.7 16.1 16.1 Return on Equity (%) 22.3 33.8 22.8 23.6 22.4 21.2 20.4 19.8 Leverage Indicators Total Assets/Equity (%) 2.9 2.1 1.7 1.6 1.5 1.4 1.4 1.3 Net Debt/Equity (%) 67.3 -19.2 14.7 8.0 1.4 -5.6 -9.8 -15.5 Liquidity Indicators Current Ratio (x) 1.3 2.1 1.7 2.2 2.6 2.7 3.0 3.3 Quick Ratio (x) 0.6 0.9 0.7 0.9 1.0 1.1 1.3 1.6 Operating Efficiency Indicators Days Receivables 43.69 48.15 48.00 48.00 49.00 51.00 53.00 Days Inventory on Hand 107.93 118.49 114.00 112.00 114.00 116.00 114.00 Days Payable 73.19 81.37 75.00 76.00 75.00 76.00 73.00 Cash Conversion Cycle 78.42 85.27 87.00 84.00 88.00 91.00 94.00 Cash Flow Generation Indicators FCFF Yield (%) 1.1 -0.5 -2.8 2.0 2.7 3.5 3.3 4.5 CFO to Revenue (%) 5.2 1.3 -2.7 8.5 7.9 8.5 7.8 9.4 Shareholder Indicators EPS 0.33 0.51 0.58 0.77 0.86 0.95 1.07 1.20 EPS Growth (%) - 53.6 13.9 33.1 12.1 10.6 12.4 12.3


FIGURE 23: CNPF CASH CONVERSION CYCLE (2013A-2018F)

Source: Company Information, Team Estimates FIGURE 24: CNPF GROSS, EBITDA,

OPERATING, NET MARGINS (2013A-2018F)


IGURE 25: CNPF VS. PEERS NET DEBT-TO-EQUITY RATIO (2016E)

Source: Bloomberg, Team Estimates

Strong and resilient topline growth We estimate CNPF to deliver a strong 5-year sales CAGR of 11.6% 2015A-2020F, driven by the sustained strength of its core brands as well as momentum from its new growth businesses. We expect its canned fish and canned meat segments to grow at 10.0% and 10.2% 2015A-2020F CAGRs respectively, and its dairy and coconut growth platforms to post a 13.8% sales CAGR over the same period. We believe that CNPF’s resilient topline growth is driven by its strong brand-building and product development efforts, which allow CNPF to take advantage of opportunities in its consumer markets and maintain its momentum in spite of competition.

Quality growth underpinned by stable turnover We expect CNPF’s topline growth to be sustained while maintaining a stable cash conversion cycle—an indication of the company’s ability to pursue high quality and sustainable growth. Between 2015A and 2020F, we estimate CNPF’s CCC to be stable at an average of 88.21 days, with minimal variation only caused by the timing of purchases. With longstanding supplier relationships and an increasingly competitive retail industry improving credit terms, we are optimistic that CNPF’s CCC will be stable over the medium-term.

Improving margins and sales mix We expect CNPF’s GPM to expand from 26.6% in 2015A to 29.0% by 2020F driven by the shift to higher margin products including premium meats, dairy, and coconut. Likewise, CNPF’s operating margin is expected to increase by 224 bps from 2015A to 2020F (from 12.1% to 14.3%) as a favorable product mix and increased operational leverage offset any increase in A&P spending, shifts in commodity prices, and additional D&A expenses from new investments. Our GPM assumptions already factor in rising coconut and skipjack tuna prices.

Balanced earnings growth with upside risks Due to CNPF’s strong topline growth, favorable sales mix shift, and improving operational leverage, we estimate CNPF’s EPS to grow at a 5-year 15.8% CAGR 2015A-2020F, outpacing its topline growth. This strong EPS growth will be driven by a balanced growth of both its market leading segments and new growth platforms, which will contribute 11.6 ppts, and 3.7 ppts to overall growth, respectively. Furthermore, CNPF remains in constant pursuit for potential acquisitions that will accelerate growth over the medium-term, a strategy which represents a significant upside risk to our EPS growth forecasts.

Healthy balance sheet capable of supporting growth and payout Given CNPF’s strong FCFF generation ability and underleveraged capital structure, we believe that the company is well-positioned to capture organic and M&A growth opportunities. Even when factoring in expansionary capex, we estimate CNPF to post an average FCFF yield of 3.2% 2015A-2020F, allowing room to pursue new growth opportunities with minimal risk of equity raising. In addition, its low net debt-to-equity ratio of 7.9% 2016E highlights its capacity to gear up the balance sheet if M&A opportunities arise.

Financial Analysis

9

TABLE: GROSS PROFIT MARGIN PER SEGMENT


FIGURE 26: RISK MATRIX FOR CNPF


TABLE 10: SUMMARY OF INVESTMENT RISKS AND MITIGATING FACTORS


TABLE 11: RECOMMENDATION GUIDE

RATING TARGET PRICE % UPSIDE

BUY Greater than Php

18.81/sh >10%

HOLD Php 17.10/sh to

Php 18.81/sh 0 to 10%

SELL Less than Php

17.10/sh <0%


SEGMENT AVE. GROSS

PROFIT MARGIN (2016E-2020F)

Canned and Processed Fish 32.4%

Canned Meat 34.3%

Milk and Mixes 31.2%

Tuna Export 7.4%

Coconut Export 21.4%

RISKS MITIGATING FACTORS

MARKET RISKS

Consumption growth

slowdown

Strong brand equity, sustainable price leadership R&D efforts and maximizing

medium-term export recovery

Commodity price risk

Early lock-in of supplier prices

Hedging inventory, utilizing cold storage facility

Forex volatility USD-denominated sales

Currency hedging

INDUSTRY RISKS

Increasing competition

Market leadership and operational scale

Extensive nationwide distribution network

Environmental risk

Optimizing inventory levels Production of

higher-margin products OPERATIONAL RISKS

Corporate governance

Independent board members Qualification-based roles

M&A execution Brand-building expertise Management experience

and credentials

Superior ROE driven by value-accretive expansion We believe that CNPF will continue to deliver a strong ROE over the medium-term (21.7% on ave. 2015A-2020F), given its dual strategy of maximizing the profitability of its existing businesses and constant pursuit of value-accretive M&A opportunities. Organically, we see CNPF’s NIM expansion to be a key driver for maintaining a healthy ROE. CNPF’s strategy of allocating capital to higher margin branded businesses has shown its mindset of maximizing shareholder returns. In addition, CNPF’s fiscal discipline has allowed the company to maintain a healthy asset turnover ratio (1.49x on ave. 2015A-2020F) by limiting capex spending only to value-accretive opportunities such as CPAVI (+2.9 ppts 2016E ROE).

Investment Risks

Market Risk | Slowdown in consumption growth (MR1) CNPF faces the risk of slower than expected consumption growth due to uncertainty from OFW remittances and BPO growth. We believe CNPF can mitigate this risk by leveraging on its brand equity and price leadership, maximizing its R&D capability through product engineering, and capitalizing on medium-term export recovery through its OEM businesses. Market Risk | Sensitivity to raw material price volatility (MR2) Despite volatile input prices, we believe CNPF will be able to maintain its profitability given a) its ability to lock in supplier prices, b) its ability to hedge inventory up to six months, and c) its strategy of adjusting A&P spending in reaction to input price changes. With these measures, we expect the impact of rising commodity prices to be manageable in the medium-term.

Market Risk | Sensitivity to currency volatility (MR3) CNPF is exposed to higher input costs given that 40.8% of its inputs are USD-denominated. We believe that foreign exchange volatility will have no significant impact in the medium-term because 26.7% of CNPF’s revenue is also USD-denominated. This leaves a minimal 1.9% of sales net exposure for CNPF that it manages by increasing USD-denominated sales and engaging in hedging strategies.

Industry Risk | Increasing heavy local and global competition (IR1) CNPF’s business segments are threatened by increasing local and global competition, with Thai Union Frozen (TU:TB) considered as its closest peer (see Appendix C-8). We believe CNPF addresses competition for its branded businesses by leveraging on its scale and market leadership (74% domestic sales), differentiating itself from the export-focused TU (92% export sales). Similarly, CNPF can maintain its market share in its OEM segments by leveraging on its long-standing relationships with foreign retailers and its export credentials.

Industry Risk | Environmental issues (IR2) CNPF’s production may be affected by weather disturbances that could result in production loss and inventory shortages, as seen in the slowdown of coconut oil exports (-6.9% 2014A-2015A YoY) due to the El Niño phenomenon. We believe CNPF will be able to mitigate this risk by managing inventory levels to minimize shortage costs and by producing higher-value products such as virgin coconut oil, coconut water, and coconut sugar.

Operational Risk | Corporate governance issues (OR1) As a previously family-owned business by the Po group, CNPF may encounter issues on establishing their credibility and accountability in terms of how the Board governs the company. To address this, CNPF practices good governance policies by having independent members in the Board and assigning roles based on the qualifications.

Operational Risk | Execution risk for potential M&As (OR2) CNPF’s diversification strategy implies an execution risk for the company’s new growth platforms. We believe that CNPF can mitigate this risk through its commitment to its brand heritage and ability to build brands from the ground up, evidenced by its signature Century Tuna. Through highly-qualified managers, translating this proven track record into emerging brands (its dairy and coconut segments) mitigates any concerns on execution risk.

Scenario and Sensitivity Analysis

We conducted a sensitivity analysis on our valuation estimates relative to their key inputs. We consider a) raw material costs, b) GDP growth, and c) foreign exchange rates to be the most important variables as 75.1% of CNPF’s 2016E revenues are dependent on these factors. Our base case target price is Php 20.91/sh (22.3% upside; Php 0.86/sh 2017E EPS).

10

TABLE 12: SENSITIVITY ANALYSIS ON KEY INPUTS

FIGURE 27: REAL GDP GROWTH BASE, BULL, AND BEAR FORECASTS

Source: Department of Budget and Management, Bloomberg, Team Estimates

FIGURE 28: CORPORATE GOVERNANCE SNAPSHOT


Key Inputs Base Case Assumption

Positive Sensitivity

Impact (+) on TP

Impact (+) on 2017E EPS

Negative Sensitivity

Impact (-) on TP

Impact (-) on 2017E EPS

Change to HOLD

Change to SELL

Change in Tuna Prices +4.0% (2.0%) 22.94 0.89 +2.0% 18.90 0.83 +2.9% +4.2% Change in Canned Meat Prices 0.0% (2.0%) 23.52 0.88 +2.0% 19.61 0.84 +1.6% +2.9% Change in Milk Prices 0.0% (2.0%) 21.37 0.87 +2.0% 20.45 0.85 +4.5% +8.2% Change in Coconut Prices +2.0% (2.0%) 21.27 0.87 +2.0% 20.56 0.85 +5.9% +10.8%

Real GDP Growth Rate 6.6% +2.3% 22.30 0.89 (2.3%) 18.87 0.83 (2.4%) (3.6%)

USD/PHP Exchange Rate Php 51.32 (10.8%) 21.71 0.89 +9.7% 20.11 0.85 +24.9% +44.1%

We note that raw material costs are the most sensitive variable to our valuation. An increase in tuna and meat prices by 200 basis points beyond FAO estimates will reduce CNPF’s intrinsic value to Php 16.41/sh or Php 18.30/sh respectively. Unfavorable shifts in the PHP-USD exchange rate and GDP growth may also have an impact toward our valuation. Despite these risks, we believe CNPF will remain consistent in its execution, relying on its established market leadership, brand-building expertise, and financial flexibility to mitigate any unfavorable movements in key inputs.

We further assess our key growth drivers and valuation inputs (WACC and growth rates) versus certain thresholds that would change our recommendation to a HOLD or a SELL. Although unlikely, we outline our results in the Table 12 and Table 13.

TABLE 13: SENSITIVITY ANALYSIS ON DCF VALUATION ASSUMPTIONS

WACC (%)

7.81% 8.31% 8.81% 9.31% 9.81% 4.50% 25.00 23.15 21.73 20.61 19.70 4.00% 23.55 22.07 20.91 19.97 19.19 3.50% 22.43 21.22 20.25 19.44 18.76 3.00% 21.55 20.53 19.69 18.99 18.39 2.50% 20.83 19.96 19.23 18.61 18.08

Note: BUY and HOLD cases are highlighted in white and grey respectively; Source: Team Estimates

Corporate Governance

Corporate governance and social responsibility CNPF ensures compliance with principles of good corporate governance and provides support for social causes (see Figure 27). Leading the company toward sustained growth, CNPF’s executive officers consist of experts with over 25 years of experience in the industry (see Appendix E-1 and E-2). Moreover, by a) adhering to policies and initiatives set by international organizations, b) participating in animal conservation initiatives, and c) ensuring their raw materials are obtained through honorable practices, CNPF aims to embody a good reputation in the industry and promote environmental conservation to secure long-term sustainability (see Appendix E-3). A more detailed evaluation of CNPF’s corporate governance policies are outlined in Appendix E-4. Independence in the board By appointing two independent members in the board of directors, CNPF follows the stipulations in Rule 38 of the Amended IRR of the SRC. The independent directors, Johnip Cua and Fernan Lukban, along with the reputable Board Advisor, Enrique A. Gomez Jr., commit to following an unbiased approach in making decisions that will benefit the company. The Board of Directors ensure that these independent views and perspectives are taken into account in its decision-making process. Diffusion of responsibilities based on expertise The members of the Board are assigned to responsibilities that best suit their expertise (see Appendix E-1 and E-2). This is seen in the composition of the Board, most notably in the previous work experience of CEO Christopher Po and COO Teodoro Po, who serve as the company’s chief strategist and operations specialist respectively. Maintaining transactions on an arm’s length basis Although CNPF is engaged in related party transactions, the company maintains transactions on an arm’s length basis by hiring third-party consultants and auditors to value their transactions. This was seen when the company finalized its IPO and acquired CPAVI, which was priced at 20-25% discount to ensure value to the company’s shareholders. Company transactions are done in accordance to the best interest of CNPF’s shareholders., as seen in several key acquisitions (more discussion in Appendix B-7).

Source: Team Estimates : m

TERM

INA

L

GRO

WTH

RA

TE (%

)

11

Table of Contents LIST OF ABBREVIATIONS USED………………………………………………………………………………………………………………………………… 12 APPENDIX A: FINANCIALS………………………………………………………………………………………………………………………………………..... 12

Appendix A-1: Consolidated Balance Sheet.………………………………………………………………………………….......................................................................................... 13 Appendix A-2: Consolidated Income Statement.………………………………………………………………….................................................................................................... 13 Appendix A-3: Consolidated Statement of Cash Flows..…………………………………………………….....….............................................................................................. 14 Appendix A-4: Financials Summary per Segment…………………………………………………………………………………................................................................................. 14 Appendix A-5: Key Financial Ratios of Peers…………………………………………………………….................................................................................................................. 14

APPENDIX B: COMPANY OVERVIEW………………………………………………………………………..………………………............................. 15

Appendix B-1: CPGI Subsidiaries……………………………………………………………........................................................................................................................................ 15 Appendix B-2: Brand Positioning……………………………………………………………....................................................................................................................................... 15 Appendix B-3: Capacity Utilization…………………………………………………………….................................................................................................................................... 15 Appendix B-4: Sales Channels……………………………………………………………........................................................................................................................................... 16 Appendix B-5: Supply Chain……………………………………………………………............................................................................................................................................... 16 Appendix B-6: Key Acquisitions……………………………………………………………......................................................................................................................................... 16 Appendix B-7: Accreditations and Awards……………………………………………........................................................................................................................................ 17

APPENDIX C: INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING…………………………….………............................... 17

Appendix C-1: Porter’s Five Forces Analysis..…………………………………...........…………………………………….......................................................................................... 17 Appendix C-2: SWOT Analysis..…………………………………...........…………………………………….................…………….................................................................................. 19 Appendix C-3: Key Economic Figures…………………………………...........……………………………………...........…………............................................................................... 20 Appendix C-4: Convenience Product Demand and Premiumization Effect……..…………………………...........………….................................................................. 20 Appendix C-5: CNPF Market Shares in Branded and Export Segments…………………………...........…...……………….…...........…...……………….…...........…...…….. 21 Appendix C-7: CNPF Brands Perceptual Map...……….………………………………………………………………………………..…….…...........…...……………….…...........…...……… 21 Appendix C-8: CNPF:PM and TU:TB Comparison…………………………………………………………………………………..…….…...........…...……………….…...........…...……….. 22 Appendix C-9: Brick-and-Mortar Retail Prices Comparison………………………………………………………………………..…….…...........…...……………….…...........…...…… 22

APPENDIX D: VALUATION ………………………………………………………………………………………………………………………………………… 23

Appendix D-1: Branded Segments DCF Valuation……………………………………………………………………………………………………………………………………………………… 23 Appendix D-2: Branded Segments Regression Analysis for Revenue Growth Forecasts ………………………………...…………………………………………………… 24 Appendix D-3: Tuna OEM and Coconut OEM Segments P/E Multiple Valuation ……………………………………………...……………………………………………………. 25 Appendix D-4: Raw Material Prices and COGS Breakdown …………………………………………………………………………………………………………….……………………….. 25 Appendix D-5: Sensitivity to Valuation Assumptions…………..…………………………………………………………………………………………………………….……………………….. 27

APPENDIX E: CORPORATE GOVERNANCE ……………………………………………………………………………………………………………... 27

Appendix E-1: CNPF Board of Directors………………………………………………………………………..………………………….………………………….………………………….…………… 27 Appendix E-2: CNPF Senior Management………………………………………………………………………………………………..………………………….………………………….………….. 28 Appendix E-3: Corporate Social Responsibility and Sustainability Practices ………………………………………………….………………….………………………….………… 29 Appendix E-4: Evaluation oF CNPF’s Quality of Corporate Governance ……………………………………………………….……………….……………….………………………. 30

12

List of Abbreviations Abbreviation Full Term

CNPF Century Pacific Food, Inc.

CCC Century Canning Corporation

CSC Columbus Seafoods Corporation

PMCI Pacific Meat Company, Inc.

SMDC Snow Mountain Dairy Corporation

CPAVI Century Pacific Agricultural Ventures, Inc.

CPGI Century Pacific Group, Inc.

DCF Discounted Cash Flow

SOTP Sum-of-the-Parts CAGR Compounded Annual Growth Rate OEM Original Export Manufacturer

SKU Stock-Keeping Unit

CEO Chief Executive Officer

COO Chief Operating Officer

IPO Initial Public Offering

TP Target Price

DCF Discounted Cash Flow

SOTP Sum-of-the-Parts

P/E Price-to-Earnings Ratio

ROE Return on Equity

D/E Debt-to-Equity Ratio

FCFF Free Cash Flow to Firm

CCC Cash Conversion Cycle

EPS Earnings per Share

EBIT Earnings Before Interest and Taxes

NIM Net Income Margin

WACC Weighted Average Cost of Capital

CAPM Capital Asset Pricing Method

Capex Capital Expenditures

M&A Mergers and Acquisitions

R&D Research and Development

A&P Advertising and Promotions Expense

GDP Gross Domestic Product

PPP Public-Private Partnerships

ASEAN Association of Southeast Asian Nations

NCR National Capital Region

EU GSP+ European Union Generalized System of Preferences Plus

New administration Current government of President Rodrigo Duterte

Appendix A: Financials APPENDIX A-1: CONSOLIDATED BALANCE SHEET BALANCE SHEET (in PhP mn) 2013P 2014A 2015A 2016E 2017F 2018F 2019F 2020F ASSETS Current Assets Cash and cash equivalents 804.39 1,264.21 722.16 1,033.15 797.34 1,640.28 2,288.72 3,579.78 Trade and other receivables - net 2,330.89 2,561.73 3,592.69 3,806.49 4,364.35 4,772.99 5,574.35 6,123.56 Inventories - net 3,714.23 5,194.21 5,925.98 6,554.74 7,086.21 8,081.88 8,673.02 9,202.73 Due from related parties 212.66 41.37 108.56 119.89 131.33 142.89 155.45 Held-to-maturity investments - current 152.44 14.69 14.69 14.69 14.69 14.69 14.69 Biological assets 37.48 31.43 50.09 55.31 60.59 65.92 71.71 Prepayments and other current assets - net 176.75 118.61 218.68 621.30 686.09 751.59 817.74 889.59

Total Current Assets 7,026.26 9,541.33 10,547.00 12,189.01 13,123.88 15,453.34 17,577.34 20,037.51 Non-current Assets Property, plant, and equipment - net 1,046.78 1,421.37 3,133.94 4,089.38 4,621.77 5,055.15 5,563.93 6,128.32 Trademarks 40.00 40.00 2,955.33 2,955.33 2,955.33 2,955.33 2,955.33 2,955.33

13

Retirement benefit asset - - - - - - - - Held-to-matrurity investments - non-current 28.23 13.11 13.11 13.11 13.11 13.11 13.11 Deferred tax assets 21.75 56.68 81.73 81.73 81.73 81.73 81.73 81.73 Other non-current assets 23.86 101.11 50.84 100.25 110.70 121.27 131.95 143.54

Total Non-current Assets 1,132.38 1,647.40 6,234.94 7,239.79 7,782.63 8,226.58 8,746.04 9,322.02 Total Assets 8,158.64 11,188.73 16,781.95 19,428.80 20,906.51 23,679.92 26,323.38 29,359.53

LIABILITIES AND EQUITY Current Liabilities Notes payable 2,717.30 - 2,250.00 694.00 - - - - Trade and other payables 2,535.49 4,099.49 3,863.97 4,605.43 4,872.26 5,515.93 5,707.60 5,951.03 Income tax payable 51.84 128.49 146.53 146.53 146.53 146.53 146.53 146.53 Due to related parties - 286.07 13.98 13.98 13.98 13.98 13.98 13.98

Total Current Liabilities 5,304.63 4,514.06 6,274.48 5,459.94 5,032.77 5,676.44 5,868.11 6,111.55 Non Current Liabilities Long Term Loan - - - 1,320.00 990.00 660.00 330.00 - Retirement benefit obligation 13.95 93.87 157.04 157.04 157.04 157.04 157.04 157.04 Deferred tax liability 1.42 0.46 3.59 3.59 3.59 3.59 3.59 3.59

Total Non-current Liabilities 15.37 94.33 160.63 1,480.63 1,150.63 820.63 490.63 160.63 Total Liabilities 5,319.99 4,608.39 6,435.12 6,940.57 6,183.41 6,497.07 6,358.75 6,272.18

Equity Share capital 1,500.00 2,231.02 2,360.69 3,541.03 3,541.03 3,541.03 3,541.03 3,541.03 Share premuim - 2,769.34 4,911.99 4,911.99 4,911.99 4,911.99 4,911.99 4,911.99 Share-based compensation reserve - 3.38 5.26 5.26 5.26 5.26 5.26 5.26 Other reserves - 30.63 30.63 30.63 30.63 30.63 30.63 30.63 Currency translation adjustment 19.35 19.48 48.51 48.51 48.51 48.51 48.51 48.51 Retained earnings 1,319.30 1,526.49 2,989.76 3,950.81 6,185.69 8,645.43 11,427.22 14,549.93

Total Equity 2,838.65 6,580.34 10,346.83 12,488.23 14,723.10 17,182.85 19,964.63 23,087.35 Total Liabilities and Equity 8,158.64 11,188.73 16,781.95 19,428.80 20,906.51 23,679.92 26,323.38 29,359.53 Source: Company Information, Bloomberg, Team Estimates APPENDIX A-2: CONSOLIDATED INCOME STATEMENT INCOME STATEMENT (in PhP mn) 2013P 2014A 2015A 2016E 2017F 2018F 2019F 2020F

Net Revenues 19,023.05 20,438.56 23,324.53 28,132.30 31,066.21 34,031.93 37,027.25 40,280.56 Cost of Goods Sold 15,696.78 15,063.99 17,128.16 19,980.10 22,227.45 24,282.25 26,360.09 28,616.88 Gross Profit 3,326.28 5,374.56 6,196.37 8,152.20 8,838.77 9,749.67 10,667.16 11,663.68 Interest Income 10.23 9.17 7.63 7.35 10.52 8.12 16.70 23.30 Other Income 165.58 181.69 92.52 - - - - - 3,491.86 5,556.25 6,288.89 8,159.55 8,849.28 9,757.79 10,683.86 11,686.98 Operating Expenses 2,415.24 3,119.55 3,376.65 4,136.31 4,367.20 4,811.26 5,117.08 5,432.44 Depreciation - 152.75 152.38 232.88 287.02 329.63 393.29 460.31 Finance Costs 112.45 15.29 1.16 81.72 45.01 33.76 22.51 11.25 Other Expenses 14.05 39.58 35.94 - - - - - 2,541.74 3,174.42 3,413.75 4,450.90 4,699.23 5,174.65 5,532.88 5,904.00 Profit (Loss) Before Tax 950.12 2,381.83 2,875.14 3,708.64 4,150.05 4,583.14 5,150.98 5,782.97 Income Tax Benefit (Expense) 216.43 646.66 796.71 985.70 1,098.29 1,207.87 1,356.61 1,521.95 Profit (Loss) for the Period 733.68 1,735.17 2,078.43 2,722.95 3,051.76 3,375.27 3,794.36 4,261.03 Core Net Income 743.92 1,532.40 1,938.50 2,722.95 3,051.76 3,375.27 3,794.36 4,261.03 Source: Company Information, Bloomberg, Team Estimates APPENDIX A-3: CONSOLIDATED CASH FLOW STATEMENT CASH FLOW STATEMENT (in PhP mn) 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F Cash Flows from Operating Activities Profit (Loss) before tax 960.35 2,238.25 2,730.39 3,708.64 4,150.05 4,583.14 5,150.98 5,782.97 Adjustments for: - - - - - - - -

Depreciation 193.39 152.75 152.38 232.88 287.02 329.63 393.29 460.31 Retirement benefit expense 9.31 18.08 57.82 - - - - - Loss on inventory obsolescence - 71.19 17.91 - - - - - Loss on impairment of input VAT - - 13.02 - - - - - Unrealized foreign exchange loss (gain) - (0.45) 11.11 - - - - - Doubtful accounts expense (2.57) 30.31 5.59 - - - - - Provisions - - 7.85 - - - - - Loss on decline in value of inventories (5.89) - 3.72 - - - - - Loss (gain) on disposal of property, plant, and

equipment 3.10 (0.31) 3.55 - - - - -

Share based compensation expense - 3.38 1.89 - - - - - Financial costs 112.45 15.29 1.16 81.72 45.01 33.76 22.51 11.25 Loss on transfer of retirement benefit obligation - 16.00 - - - - - - Interest income (10.23) (9.17) (7.63) (7.35) (10.52) (8.12) (16.70) (23.30)

Operating cash flows from working capital changes 1,259.90 2,535.31 2,998.76 4,015.89 4,471.57 4,938.41 5,550.08 6,231.24 Decrease (Increase) in: - - - - - - - -

Trade and other receivables (1,057.49) (1,560.16) (754.69) (213.80) (557.86) (408.63) (801.37) (549.21) Due from related parties - (903.51) 171.29 (67.20) (11.32) (11.44) (11.56) (12.55) Inventories 2,056.57 (3,663.38) (536.72) (628.76) (531.47) (995.67) (591.14) (529.70) Biological assets - (37.48) 6.05 (18.66) (5.22) (5.28) (5.33) (5.79) Prepayment and other current assets -net 144.22 24.57 1.08 (402.61) (64.80) (65.50) (66.15) (71.85) Other non-current assets 5.18 (78.78) 98.54 (49.41) (10.45) (10.57) (10.67) (11.59)

Incrase (Decrease) in: - - - - - - - - Trade and other payables (1,135.88) 4,008.74 (404.64) 741.46 266.84 643.66 191.68 243.43

14

Due to related parties - 500.52 (1,378.30) - - - - - Other non-current liabilities (64.94) - - - - - - -

Exchange differences on translating operating assets and liabiltiies

7.02 1.55 (32.75) - - - - -

Cash generated from operations 1,214.58 827.38 168.62 3,376.91 3,557.27

4,084.98 4,255.53 5,293.98

Contribution to the retirement fund (8.43) (30.55) (30.62) - - - - - Income tax paid (221.08) (534.70) (783.03) (985.70) (1,098.29) (1,207.87) (1,356.61) (1,521.95) Interest received - - 6.06 - - - - - Net cash from (used in) operating activities 985.08 262.12 (638.98) 2,391.21 2,458.98 2,877.11 2,898.91 3,772.03 Cash Flows from Investing Activities Acquisitionss of subsidiaries (net of cash acquired) - - (3,396.81) - - - - - Acquisitions of property, plant, and equipment (341.81) (539.74) (1,101.07) (1,188.31) (819.41) (763.00) (902.08) (1,024.70) Proceeds from sale of property, plan, and equipment 79.70 4.89 364.48 - - - - - Maturities (Acquisition) of HTM investments - (182.83) 151.41 - - - - - Interest income received 10.23 11.33 2.83 7.35 10.52 8.12 16.70 23.30 Net cash used in investing activities (251.87) (706.35) (3,979.17) (1,180.96) (808.89) (754.89) (885.38) (1,001.41) Cash Flows from Financing Activities Proceeds from issuance of share capital - 3,500.36 2,272.31 - - - - - Proceeds from notes payable - - 2,250.00 694.00 - - - - Proceeds from long term debt - - - 1,650.00 - - - - Dividends paid - - (446.20) (581.55) (816.88) (915.53) (1,012.58) (1,138.31) Net receipts from related parties - - - - - - - - Net repayments of loans (555.85) (2,214.60) - (2,580.00) (1,024.00) (330.00) (330.00) (330.00) Finance costs paid (112.45) (15.29) - (81.72) (45.01) (33.76) (22.51) (11.25)

Net cash from financing activities (668.30) 1,270.47 4,076.11 (899.27) (1,885.90) (1,279.29) (1,365.09

) (1,479.56)

Net Increase (Decrease) in Cash and Cash Equivalents

64.91 826.24 (542.05) 310.98 (235.81) 842.94 648.44 1,291.06

Cash and Cash Equivalents, Beginning 739.49 437.96 1,264.21 722.16 1,033.15 797.34 1,640.28 2,288.72 Cash and Cash Equivalents, Ending 804.39 1,264.21 722.16 1,033.15 797.34 1,640.28 2,288.72 3,579.78 Source: Company Information, Bloomberg, Team Estimates APPENDIX A-4: FINANCIAL SUMMARY PER SEGMENT Canned and Processed Fish 2016E 2017F 2018F 2019F 2020F Net Revenues 10,356.09 11,495.26 12,644.79 13,782.82 15,023.27 Gross Margin 34.02% 32.02% 32.02% 32.02% 32.02% Operating Margin 15.11% 15.02% 14.97% 15.39% 15.82% Net Income Margin 10.38% 10.40% 10.38% 10.70% 11.02% EPS 0.30 0.34 0.37 0.42 0.47 Canned Meat 2016E 2017F 2018F 2019F 2020F Net Revenues 8,098.28 8,989.09 9,888.00 10,777.91 11,747.93 Gross Margin 34.34% 34.34% 34.34% 34.34% 34.34% Operating Margin 16.79% 16.70% 16.65% 17.07% 17.50% Net Income Margin 11.55% 11.57% 11.56% 11.88% 12.19% EPS 0.26 0.29 0.32 0.36 0.40 Milk and Mixes 2016E 2017F 2018F 2019F 2020F Net Revenues 2,682.32 3,084.67 3,516.52 3,973.67 4,450.51 Gross Margin 31.22% 31.22% 31.22% 31.22% 31.22% Operating Margin 10.20% 10.08% 10.08% 10.49% 10.91% Net Income Margin 6.94% 6.94% 6.97% 7.27% 7.58% EPS 0.05 0.06 0.07 0.08 0.10 Tuna Export 2016E 2017F 2018F 2019F 2020F Net Revenues 4,564.61 4,701.55 4,795.58 4,891.49 4,989.32 Gross Margin 9.00% 7.00% 7.00% 7.00% 7.00% Operating Margin 3.54% 3.44% 3.39% 3.32% 3.25% Net Income Margin 2.27% 2.30% 2.28% 2.25% 2.22% EPS 0.03 0.03 0.03 0.03 0.03 Coconut Export 2016E 2017F 2018F 2019F 2020F Net Revenues 2,431.00 2,795.65 3,187.04 3,601.36 4,069.53 Gross Margin 23.00% 21.00% 21.00% 21.00% 21.00% Operating Margin 17.69% 17.59% 17.54% 17.47% 17.40% Net Income Margin 17.40% 17.43% 17.41% 17.36% 17.32% EPS 0.12 0.14 0.16 0.18 0.20 Source: Company Information, Bloomberg, Team Estimates

APPENDIX A-5: KEY FINANCIAL RATIOS OF PEERS

Ticker Name Country Mkt Cap (USD mn)

FCFF Yld (%) EBITDA Margin

(%) Net D/E (%)

Ast TO %)

CNPF:PM Century Pacific Food, Inc. PH 1,142.11 2.71% 14.28% 7.85% 1.55% TU:TB Thai Union Group Pcl TH 2,798.80 1.22% 8.03% 92.02% 1.15%

2282:JP NH Foods Ltd JN 5,483.22 7.01% 5.59% 16.64% 1.74% 000895:CH Henan Shuanghui Investment - A CH 9,947.20 7.01% - -5.55% 2.30% 600597:CH Bright Dairy & Food Co Ltd - A CH 2,345.96 -7.10% - -20.76% 0.67%

VNM:VN Vietnam Dairy Products Jsc VN 8,063.49 4.14% 25.62% -38.68% 1.72% 603288:CH Foshan Haitian Flavouring - A CH 11,452.26 3.09% 0.00% -33.28% 1.15%

KFB:MK Kawan Food Bhd. MA 228.41 -3.07% 26.84% -23.85% 0.62% 2587:JP Suntory Beverage & Food Ltd. JN 12,780.67 0.00% 13.00% 45.31% 0.98% NEST:IN Nestle India Ltd. IN 8,457.29 1.73% 20.80% 0.00% 1.37%

15

Regional Mean 1.76% 16.65% 3.98% 1.30% Regional Median 2.41% 16.90% -13.15% 1.15% CNPF:PM Century Pacific Food Inc. PH 1,142.11 2.71% 14.28% 7.85% 1.55% JFC:PM Jollibee Foods Corp. PH 4,206.54 2.97% 9.15% -12.43% 1.77% MAXS:PM Max's Group Inc PH 547.85 -0.67% - 73.63% 1.03% DNL:PM D&L Industries Inc. PH 1,627.07 1.88% 17.39% 18.46% 1.12% URC:PM Universal Robina Corp. PH 7,193.62 3.35% 20.36% 18.11% 1.04% PGOLD:PM Puregold Price Club Inc. PH 2,174.09 -0.10% 8.58% 11.86% 1.94% RRHI:PM Robinsons Retail Holdings Inc. PH 2,074.41 2.70% 7.04% -3.13% 1.57% Philippine Mean 1.69% 12.50% 17.75% 1.41% Philippine Median 2.70% 13.27% 11.86% 1.55% Overall Average 1.72% 14.58% 10.86% 1.36% Market Cap Weighted Average

2.80% 10.76% 3.69% 1.43%

Source: Company Information, Bloomberg, Team Estimates

Appendix B: Company Overview

APPENDIX B-1: CPGI SUBSIDIARIES


APPENDIX B-2: CNPF BRAND POSITIONING In line with its mission to “nourish everyone, everyday, everywhere,” CNPF ensures that it caters to the whole socio-economic spectrum of Filipino consumers. Its brand catalog shows that it positions itself from mass markets to affluent segments of the consumer market in order to capture broad-based growth.


APPENDIX B-3: CNPF CAPACITY UTILIZATION The following table shows CNPF's capacity for each product category considering projected revenue growth from 2016E to 2020F.

2014A 2015A 2016E 2017F 2018F 2019F 2020F

Tuna 77% 88% 98% 80% 90% 98% 90% Sardines 45% 51% 57% 63% 69% 76% 82% Meat 82% 70% 78% 87% 96% 90% 98% Milk and Mixes 29% 33% 38% 44% 50% 56% 63% Tuna OEM 79% 86% 88% 91% 93% 95% 96% Coconut 70% 81% 92% 90% 90%


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APPENDIX B-4: CNPF’S SALES CHANNELS Source: Company Information On top of its local and global distribution networks, CNPF also has additional sales channels through food service outlets. Consumer food service outlets are also steadily increasing in number (6.3% CAGR 2011A-2015A), providing CNPF another lever to grow. We expect CNPF to benefit from the increase in out-of-home food consumption. CNPF supplies to over 3,500 leading institutional accounts such as Starbucks, Jollibee, Shakey’s, 7-Eleven, and Family Mart, who have more than 12,000 food service outlets. While the segment only accounts for 3.0% of revenues, the opportunity for growth remains favorable as food service outlets continue to expand their geographic reach and share in consumer expenditures. APPENDIX B-5: CNPF’S SUPPLY CHAIN CNPF company engages in forward contracts for raw materials, conducts bulk purchasing strategies, and attempts to extract operational synergies while maintaining long-standing partnerships with key suppliers and regional distributors. It maximizes its production facilities, which are located near input sources.


APPENDIX B-6: CNPF’S KEY ACQUISITIONS

ACQUISITION YEAR SEGMENT DESCRIPTION

Blue Bay 2001 Canned and

processed fish Blue Bay is a middle market canned tuna brand that helps enable CNPF’s multi-brand, multi-product portfolio in the canned fish market.

Birch Tree 2003 Dairy and mixes Birch Tree, known as everybody’s milk in the ‘80s, was relaunched and is now a trusted household milk brand, nourishing children with high levels of calcium and zinc through its full cream or fortified variants.

Kaffe de Oro 2008 Dairy and mixes Kaffe de Oro is an up-and-coming coffee brand that conveniently comes in sleek and handy three-in-one packs – even sugar-free versions are available for the health-conscious.

Home Pride 2008 Dairy and mixes Home Pride is CNPF’s mixes brand that produces tasty and easy-to-prepare mixes for everyday soups or dishes that are constantly consumed locally.

Swift 2012 Canned and processed meat

Swift is a well-trusted brand known for its high quality and delicious canned meat products that allows CNPF to further expand and support its local and international canned meat operations.

Vita Coco - Exclusive Distributor Rights 2014 Coconut OEM

Vita Coco is the best-selling coconut water brand in the US and EU, with CNPF becoming the Philippines’ exclusive distributor.

Century Pacific Agricultural Ventures

Inc. (CPAVI) 2016 Coconut OEM

CPAVI creates quality coconut products (such as virgin coconut oil, coco flour, and coco water) for both export and domestic markets, establishing CNPF’s long-term presence in the high growth health wellness based market.

Kamayan, North America

2016 USA & Canada distribution

Kamayan is the leading shrimp paste brand in North America that will help support the export presence and growth of CNPF’s international branded businesses.

Century China Group of Companies 2016 China distribution CNPF acquires full control of distributing Century Tuna in while creating an opportunity for future

growth in China’s expansive growing canned food market. Source: Company Information

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APPENDIX B-7: CNPF’S ACCREDITATIONS AND AWARDS


Appendix C: Industry Overview and Competitive Positioning

APPENDIX C-1: PORTER’S FIVE FORCES ANALYSIS To distinguish the wide array of industries that CNPF operates in and the key buyers the company transacts with, a Porter’s Five Forces Analysis was separately made for CNPF’s branded and export businesses, as seen below:

PORTER’S FIVE FORCES ANALYSIS FOR CNPF’S BRANDED AND EXPORT BUSINESSES

The consumer packaged foods industry is analyzed by taking manufacturers and distributors of the canned and processed, canned meat, powdered milk and condensed milk as players. As for the buyers, consumers exert moderate buying power due to low cost and ease to switching to different variations of the same product. By maintaining long-standing relationships with their independent suppliers, coupled with forward integration for their fish and tin can inputs, suppliers have moderate bargaining power to the business. Despite ASEAN integration, threat to new entry is low because of the presence of strong brands in the market, high fixed costs, high investment costs and low accessibility of suppliers and distributors. There is significant threat to substitutes due to low switching cost to more beneficial alternatives. These factors, coupled with established competitors and low product differentiation results in significant rivalry amongst competitors. The agricultural exports industry is analyzed by taking exporters of skipjack tuna, yellowfin tuna and coconut as players. As for the buyers, firms who source their skipjack and yellowfin tuna, as well as coconut water, coconut copra, or desiccated coconuts exert moderate bargaining power because of large order sizes, low differentiation in products and price sensitivity of exports. By transacting with small tuna vendors and small coconut farmers, and as suppliers themselves, CNPF maintains low bargaining power with its suppliers. Threat to new entrants is also low because of high investment costs, high fixed costs, limited accessibility to suppliers and distributors. There is a low threat to substitutes since there would be a high cost to switch raw materials in their products, and limited number of cheaper alternatives to tuna and coconut. There is moderate rivalry between existing competitors because of limited number of large tuna and coconut exporters who have low product differentiation.

MODERATE BARGAINING POWER OF BUYERS FOR BOTH BRANDED AND EXPORT BUSINESSES

EVENT YEAR AWARDS

Agora Awards 2011 Century Canning Marketing Company of the Year

Readers Digest Trusted Brand 2011-2016 Readers Digest Trusted Brand - Century Tuna

Readers Digest Trusted Brand 2012-2013 Reader’s Digest Trusted Brand – Argentina Meats

International Seafood Sustainability Foundation (ISSF) Admittance 2013 First Filipino Member Company to be admitted into the

ISSF

Marine Stewardship Council Recognition 2013 CNPF recognized as MSC Partner

Agora Awards 2014 Gregory Banzon (VP and GM), Awardee for Marketing Excellence

The Asset’s Triple A Awards 2014 CNPF IPO, Deal of the Year

Asia Marketing Federation Recognition 2016 CNPF, Asia’s Marketing Company of the Year

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Consumers in the packaged foods industry have a significant tendency to switch because of their independence to the companies and their sensitivity to prices. Thus, companies in the packaged foods industry compete with price wars, product segmentation or trade penetration in order to become more accessible and relevant to consumers and their needs. Overall, buyers have moderate bargaining power in the consumer packaged foods industry.

Firms may have large order sizes and financial muscle, however they don't have the flexibility to switch suppliers because of the costs they incur when doing so. Therefore, companies in the agricultural export industry must price their products at competitive prices while maintaining their product quality. Exporters, especially in the tuna export industry have to adhere to an international standard for them to compete in the market. Overall, buyers have moderate bargaining power in the agricultural export industry.

MODERATE BARGAINING POWER OF SUPPLIERS FOR BRANDED BUSINESS AND LOW BARGAINING POWER OF SUPPLIERS FOR EXPORT BUSINESS

Suppliers for their canned meat and dairy are independent because inputs for those segments are imported from New Zealand. Regardless. CNPF has numerous longstanding relationships with small scale suppliers, effectively allowing CNPF to purchase raw materials at competitive prices. By engaging in short term supply contracts, CNPF also maintains product quality and freshness. In addition to this, CNPF engages in forward integration practices for their canned and processed fish segments, effectively making suppliers have moderate buying power. Even if there is pressure to maintain product quality, CNPF has numerous longstanding relationships with small scale suppliers, effectively allowing CNPF to purchase raw materials at competitive prices. By engaging in short term supply contracts, CNPF also maintains product quality and freshness. On top of all of this, since CNPF itself is a supplier for tuna and coconut and engages in forward integration practices, bargaining power for suppliers is low.

LOW THREAT OF NEW ENTRANTS FOR BOTH BRANDED AND EXPORT BUSINESSES

Foreign competitors may pose as a threat to businesses in the consumer packaged foods industry, considering that consumers don't incur costs when switching between brands. However, the consumer packaged foods industry is very capital intensive with heavy importance on economies of scale, and established value chain. High fixed costs associated with equipment, machineries and plants in order to manufacture and store the packaged foods. Thus, threat of new entrants is low in the consumer packaged goods industry. The barrier to new entrants in the agricultural exports industry is very high due to capital intensity and the importance of economies of scale. High fixed costs are associated with equipment and machineries in order to harvest and store their exports. Also, a highly integrated value chain which leverages on strategic locations for supply and distribution is also needed to ensure the freshness and quality of products. Thus, threat of new entrants is low in the agricultural exports industry.

SIGNIFICANT THREAT OF SUBSTITUTE PRODUCTS AND SERVICES FOR BRANDED BUSINESS AND LOW THREAT OF SUBSTITUTE PRODUCTS AND SERVICES FOR EXPORT BUSINESS

19

Pre-prepared meals or healthy fast food may be competitive alternatives to canned food because of the convenience and flavor they offer. However, canned food still remain to be cheaper than the alternatives mentioned. Thus, threat of substitutes is significant in the consumer packaged foods industry. Firms who switch their raw materials will incur high switching costs because of how it would affect their product quality. Also, tuna and coconut are healthy products that already satisfy basic dietary needs, so there would only be a limited number of alternatives. Salmon and sardines are possible alternatives to tuna, but tuna contains the most protein and the least fat, effectively making it the best choice among its alternatives. And since there limited number of cheaper alternatives to coconut, the threat of substitute products and services is low in the agricultural exports industry.

MODERATE TO SIGNIFICANT RIVALRY OF EXISTING COMPETITORS FOR BRANDED BUSINESS AND MODERATE THREAT OF RIVALRY OF EXISTING COMPETITORS FOR EXPORT BUSINESS

The consumer packaged foods industry has numerous established players in the market such as Purefoods, CDO, and Ligo for the canned food segment and Alaska and Nestle for the dairy and mixes segment. The presence of key competitors, low switching costs and low differentiation among products leads to significant rivalry among competitors. Although there are large players in the tuna and coconut export industry which offer products with low differentiation, there is moderate rivalry among competitors because there are limited players in the market. Firms would also incur high costs when switching suppliers to ensure product quality is maintained. APPENDIX C-2: SWOT ANALYSIS Presented below are the strengths, weaknesses, opportunities, and threats we have identified for CNPF.

FIGURE 30: PH CONSUMER WELL-BEING EXPENDITURES

(IN PHP BN) (2013A-2018F)

Source: Euromonitor

FIGURE 30: PH RETAIL VALUE (IN PHP TN) (2013A-2018F)

Source: Euromonitor

STRENGTHS WEAKNESSES

• Leading and high-quality brands

• Multi-brand, multi-channel strategy

• Extensive distribution network • Marketing expertise to build brands

• Strong research and development for innovation

• Price Leadership (see Appendix C-9)

• 100% of meat and dairy raw materials sourced abroad

OPPORTUNITIES THREATS

• Regional wealth expansion (see Figure 29)

• Rapid urbanization

• Increasing consumer disposable income • Health and convenience trends

• (see Figure 30)

• Improving modern trade penetration (see Figure 31)

• Low refrigeration penetration rate

• Philippine relations with China for exports

• Slowdown in Philippine BPO sector growth

• Decrease in OFW remittances

• Increasing competition both locally and globally • Foreign exchange risk • Rising input costs • Execution risk of new product acquisitions • Corporate governance risk • Lessening tuna supply • Political risk • Environment and calamity risk


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APPENDIX C-3: KEY ECONOMIC FIGURES

GDP GROWTH FORECASTS 2016E 2017F 2018F 2019F 2020F DESCRIPTION C 6.2% 5.1% 5.3% 5.5% 5.7% I 10.0% 9.0% 12.0% 11.0% 13.0% G 15.0% 17.5% 11.0% 10.0% 7.0% X 5.0% 7.0% 8.0% 10.0% 11.5% M 7.5% 8.5% 9.5% 11.5% 13.0% Y 6.8% 6.6% 5.2% 6.6% 4.2% Agriculture 4.0% 3.0% 2.8% 2.4% 2.5% Industry 7.4% 7.2% 8.1% 8.4% 9.1% Services 6.9% 6.8% 6.5% 5.8% 5.7% Y 6.8% 6.6% 6.7% 6.4% 6.6% Base Case Real GDP Growth 6.8% 6.6% 6.7% 6.4% 6.6%

Bull Case Real GDP Growth 6.8% 9.2% 10.5% 9.4% 8.6%

Accelerated consumption from regional wealth expansion. better than expected export recovery

Bear Case Real GDP Growth 6.8% 4.3% 3.8% 3.1% 3.5%

Slowdown in OFW remittances and BPO contributions, delays in comprehensive tax reform and pipelined infra projects

KEY HISTORICAL ECONOMIC FIGURES

2009 2010 2011 2012 2013 2014 2015

Real GDP Growth (YoY) 1.1% 7.6% 3.7% 6.7% 7.1% 6.2% 5.9%

CPI (YoY) 4.3% 3.8% 4.7% 3.2% 2.9% 4.2% 1.4%

Unemployment Rate (%) 7.5% 7.3% 7.0% 7.0% 7.1% 6.8% 6.3%

Current Accounts (% of GDP) 5.0% 3.6% 2.5% 2.7% 4.2% 3.8% 2.6%

Consumption (% of GDP) 72.1% 69.2% 70.5% 70.5% 69.5% 69.1% 69.3%

Government Expenditures (as % of GDP) 17.0% 20.8% 20.6% 18.5% 22.1% 21.9% 23.8%

Capital Formation (as % of GDP) 10.4% 10.0% 9.8% 10.7% 10.5% 10.2% 10.3%

Exports (as % of GDP) 45.0% 50.6% 47.6% 48.4% 44.8% 47.1% 48.5%

Imports (as % of GDP) 44.4% 50.6% 48.5% 48.0% 46.8% 48.2% 51.9%

Food and Non-Alcoholic Beverages (as % of C) 42.0% 41.9% 42.0% 41.9% 41.8% 41.5% 41.3% Source: Philippine Statistics Authority, Bloomberg, Team Estimates

APPENDIX C-4: CONVENIENCE PRODUCT DEMAND AND PREMIUMIZATION EFFECT We conducted a regression analysis and discovered a high correlation between the Philippines’s average regional GDP per capita and consumption of canned and processed fish, canned meat, and dairy products. The results of this analysis are supported by the improvement in the consumer confidence index (see Figure 6), which is based on economic outlook and household income, as well as higher growth in areas ouside NCR. These findings support CNPF’s strategy of expanding to premium, higher-margin segments.

SUMMARY OUTPUT

Regression Statistics Multiple R 0.981453667 R Square 0.963251301 Adjusted R Square 0.955901561 Standard Error 1178770465 Observations 7

ANOVA

df SS MS F Significance F Regression 1 1.82107E+20 1.82107E+20 131.0592384 8.9078E-05 Residual 5 6.9475E+18 1.3895E+18

Total 6 1.89054E+20

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -4126413282 5207534487 -0.792392886 0.464051075 -17512806841 9259980278 -17512806841 9259980278

X Variable 1 900014.0548 78616.81976 11.44811069 8.9078E-05 697923.0859 1102105.024 697923.0859 1102105.024

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APPENDIX C-5: CNPF MARKET SHARES IN BRANDED AND EXPORT SEGMENTS

SEGMENT CNPF

MARKET SHARE

CLOSEST COMPETITOR MARKET SHARE DIFFERENCE CNPF’S COMPETITIVE ADVANTAGE

Canned & Preserved Food Industry

35% – Rank 1 11% – Purefoods (PF.PM) 24% Marketing expertise combined with excellent multi-brand, multi-segment strategy that takes advantage of a nationwide distribution network

Canned & Processed Fish 54% – Rank 1 19% – Liberty Gold 35% Established Century Tuna brand and sheer scale over

competitors

Canned Meat 37% – Rank 1 30% – Purefoods (PF.PM) 7% Multi-brand presence from mass market to affluent segments

Corned Meat 46% – Rank 1 18% – CDO Foodsphere 28% Excellent advertising and promotions combined with renowned Argentina brand

Luncheon Meat 34% – Rank 1 15% – Maling 19% Expansive distribution network

Canned Tuna 84% – Rank 1 15% – CDO Foodsphere 69% Dominant brand equity

Private Label Tuna Export 34% – Rank 1 31% – Philbest 3% Longstanding relationships and key partnerships

Source: Company Data, Euromonitor, Nielsen, Bureau of Customs as of Sep 2016 APPENDIX C-6: CNPF BRANDS PERCEPTUAL MAP


22

APPENDIX C-7: CNPF:PM AND TU:TB COMPARISON

Revenue Breakdown CENTURY PACIFIC FOODS, INC. (CNPF) THAI UNION FOODS (TU)

Geography

Domestic 74% 8%

Export 26% 92%

Business Branded segment 77% 43%

Private Label OEMs 23% 57%

Strategy Focus Domestic dominance Expanding internationally

Source: Bloomberg, Company Data

Revenue breakdown by geography Revenue breakdown by business

Source: Company Data, Euromonitor

APPENDIX C-8: BRICK-AND-MORTAR RETAIL PRICES COMPARISON

Retail prices

Weight

Canned Fish

Tuna

Century Tuna 33.5 180 g

Century Tuna Premium Century Tuna Lite

San Marino 33.95 180 g

Surebuy 39 185 g

CDO 31.55 180 g

Ligo 36.75 184 g

Mega 35.95 180 g

Sardines/Mackerel

555 14 155 g

Rosebowl 14.8 155 g

Saba 14.35 155 g

Unipak 13.55 155 g

Family's Brand 13.75 155 g

Master 18.65 155 g

Ligo 15 155 g

Lucky 7 15.95 155 g

Mega 14.5 155 g

Senorita 14.95 155 g

Meat

Corned Beef

Swift 25.25 150 g

Star 35.3 150 g

Argentina 32.25 175 g

Retail prices

Weight

Purefoods 56.5 150 g

Surebuy 25.95 150 g Meat Loaf

Swift 17.75 170 g Argentina 13.5 100 g

Star 18.15 180 g Sausage

Swift 27.95 155 g Argentina 25 175 g Purefoods 44.3 230 g Surebuy 33.95 114 g Libbys 41.1 130 g

Dairy Condensada

Angel 39.5 380 g Alaska 51.25 390 g

Jolly Cow 42.5 380 g Evaporada

Angel 30.25 410 ml Alaska 37 370 ml

Coffee Creamer Angel 34.75 200 g

Cream All 53 300 g Coffeemate 38.35 170 g Krem Top 34.95 180 g

Milk Birchtree 121.5 300 g

Alaska 221 700 g Anchor 199.9 655 g

Bearbrand 105.65 320 g Source: Brick-and-Mortar Supermarkets

23

Appendix D: Valuation APPENDIX D-1: BRANDED SEGMENTS DCF VALUATION To estimate the industry size, we made a multiple regression analysis with industry size (in Php bn) as dependent variable and (1) modern retail, (2) traditional retail, and (3) household expenditures of food and non-alcoholic beverages as drivers (independent variables). Source: Team Estimates

DCF VALUATION ASSUMPTIONS Valuation date 29 Nov 2016 Beta 0.71 Closing price (Php) 17.10 Equity risk premium 6.19% No. of shares outstanding 3,541,028,900 Risk free rate 5.00% Options outstanding - Cost of equity 9.39% Fully diluted shares outstanding 3,541,028,900 Equity risk premium 6.19% Market cap 60,551,594,181 Tax rate 30.00% MV of debt 2,014,000,000 Cost of debt (after tax) 3.50% Debt Weight 10.00% WACC 8.81% Equity Weight 90.00% DCF terminal stage assumptions Terminal growth rate 4.00% DCF VALUATION (FYE 31 Dec, in PHP mn) 2016E 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F

Unlevered free cash flow (FCF)

EBIT 3,199 3,540 3,894 4,380 4,921 5,291 5,690 6,064 6,459 6,869

Add amortisation and depreciation 175 218 252 303 357 385 415 443 473 496

Less taxes (941) (1,052) (1,160) (1,309) (1,474) (1,587) (1,707) (1,819) (1,938) (2,061)

Less increase / (decrease) in NWC (480) (694) (653) (998) (726) (629) (474) (249) (1,329) (29)

Less Capex (780) (409) (384) (450) (523) (326) (355) (333) (356) (314)

Unlevered FCF 1,172 1,603 1,949 1,927 2,554 3,134 3,569 4,107 3,309 4,962

Discount period (years) 0.089 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

Discount factor 0.9925 0.9191 0.8447 0.7763 0.7135 0.6558 0.6027 0.5539 0.5091 0.4679

PV of unlevered FCF - 1,473 1,646 1,496 1,823 2,055 2,151 2,275 1,684 2,321

Terminal value 107,379

PV of terminal value 50,242

Enterprise value 67,166

Less total debt (1,761)

Add cash 724

Equity value 66,037

Implied price/share 18.65

APPENDIX D-2: BRANDED SEGMENTS REGRESSION ANALYSIS FOR REVENUE GROWTH FORECASTS We used a DCF valuation for the core branded segments of CNPF - canned and processed fish, canned meat and dairy and mixes.

Canned and Processed Fish Regression Analysis

R² 0.999

Adjusted R² 0.998 n 8

R 0.999 k 3

Std. Error 0.098 Dep. Var. Industry Size (in PhP bn)

ANOVA table

Source SS df MS F p-value

Regression 36.8619 3 12.2873 1288.86 2.00E-06

Residual 0.0381 4 0.0095

Total 36.9000 7

Equation = -0.0039X1 + 0.0097X2 + 0.0025X3 - 4.5097

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Canned Meat Regression Analysis

R² 0.998


R 0.999 k 3


ANOVA table


Regression 18.6310 3 6.2103 858.08 4.51E-06

Residual 0.0290 4 0.0072

Total 18.6600 7

Equation = 0.0020X1 + 0.0023X2 + 0.0018X3 + 0.1561

Dairy and Mixes Regression Analysis

R² 0.969


R 0.984 k 3


ANOVA table


Regression 298.6966 3 99.5655 41.69 .0018

Residual 9.5522 4 2.3880

Total 308.2488 7

Equation = -0.1418X1 + 0.0703X2 + 0.0198X3 - 35.9843


Canned and Processed Fish Canned Meat Milk and Mixes

Year Industry Size (in

PhP bn) Industry Growth

Rate Industry Size (in

Php bn) Industry Growth

Rate Industry Size (in

PhP) Industry

Growth Rate

2008 10.5 - 7.5 - 43.6 - 2009 11.3 7.62% 7.9 5.33% 46 5.50% 2010 12.1 7.08% 8.5 7.59% 51.6 12.17% 2011 13 7.44% 9.2 8.24% 53.6 3.88% 2012 14 7.69% 9.8 6.52% 55.6 3.73% 2013 14.9 6.43% 10.5 7.14% 57.1 2.70% 2014 15.9 6.71% 11.3 7.62% 59.8 4.73% 2015 17.1 7.55% 12.1 7.08% 63.2 5.69%

2016E 18.1 5.61% 12.8 5.58% 65.0 2.90% 2017F 19.1 5.56% 13.5 5.43% 67.8 4.22% 2018F 20.2 5.74% 14.2 5.42% 71.4 5.37% 2019F 21.3 5.90% 15.0 5.40% 76.0 6.46%

2020F 22.6 6.06% 15.8 5.41% 81.6 7.34%

CAGR

5.77%

5.45%

5.25% Source: Euromonitor, Team Estimates

25

APPENDIX D-3: TUNA OEM AND COCONUT OEM SEGMENTS P/E RELATIVE VALUATION We used a normalized P/E of the closest peers of CNPF on the tuna and coconut OEM. Tuna Peers We chose Thai Union and Sajo Seafood Co as tuna OEM peers for: (1) they engage in tuna products and (2) majority of their revenue comes from export sales. Coconut Peers We chose IJM Corp, PT Astra Argo, United Plantations, TSH Resources, Archer Daniels, and Bunge Limited as coconut OEM peers for because these companies are agricultural producers which engage in export business. We believe that using agricultural processors instead of coconut would be a more conservative estimate as coconut has higher growth than other agricultural crops.

APPENDIX D-4: RAW MATERIAL PRICES AND COGS ASSUMPTIONS

COCONUT PEERS

Country Normalized P/E Classification

IJM Corp Malaysia 17.60 Large Grains & Oilseed Plantations and Processors

PT Astra Argo Indonesia 18.52 Large Grains & Oilseed Plantations and Processors

United Plantations Malaysia 15.31 Large Grains & Oilseed Plantations and Processors

TSH Resources Malaysia 17.59 Medium Grains & Oilseed Plantations and Processors

Archer Daniels US 13.92 Global Agricultural Processors and Traders

Bunge Limited US 14.94 Global Agricultural Processors and Traders TUNA PEERS

Country Normalized P/E Classification

Sajo Seafood Co., Ltd. Korea 9.53 Tuna Exporter

Thai Union Group PCL Thailand 15.98 Tuna Exporter

26

APPENDIX D-5: SENSITIVITY TO VALUATION ASSUMPTIONS

WACC (%) 7.81% 8.31% 8.81% 9.31% 9.81%

4.50% 25.00 23.15 21.73 20.61 19.70

4.00% 23.55 22.07 20.91 19.97 19.19

3.50% 22.43 21.22 20.25 19.44 18.76

3.00% 21.55 20.53 19.69 18.99 18.39

Terminal Growth (%) 2.50% 20.83 19.96 19.23 18.61 18.08

Milk CAGR 9.79% 11.79% 13.79% 15.79% 17.79%

15.75% 20.76 20.84 20.92 20.98 21.04

13.75% 20.75 20.84 20.91 20.97 21.03

11.75% 20.69 20.78 20.85 20.91 20.96

Coconut CAGR 9.75% 20.57 20.66 20.74 20.80 20.85

Appendix E: Corporate Governance

APPENDIX E-1: CNPF BOARD OF DIRECTORS DIRECTOR YRS AFFILIATED POSITION AFFILIATIONS

Ricardo S. Po, Sr. 38 Chairman Emeritus Founder and Chairman of CPG-RSPo Foundation

Ricardo Gabriel T. Po 26 Vice Chairman

Served as COO of the CPG from 1990 to 2006 Took the Harvard Business School Executive Program Director of Arthaland Corporation Vice Chairman of IP E-Game Ventures

Christopher T. Po 12

Chairman of the Board President

President of the CPG-RSPo Foundation

Chief Executive Officer

Served as Managing Director of Guggenheim Partners Served as Management Consultant at McKinsey and Company Served as Head of Corporate Planning for JG Summit Holdings Director of Arthaland Corporation Member of the Board of Trustees of WWF-Philippines Member of the Wharton Penn Alumni Club of the Philippines

Teodoro T. Po 26 Vice Chairman of the Board

Executive Vice President Chief Operating Officer

Graduated summa cum laude from Boston University with a Bachelor of Science degree in Manufacturing Engineering Completed the Executive Education Program at Harvard Business School Designed, built and managed several factories of Century Pacific Group, Inc.

Leonardo Arthur T. Po 11 Treasurer

Executive Director of CPG

Independent Director of IPVG Corp. President and CEO of MovieClub Systems, Inc. CEO of Reality Multimedia Treasurer of Arthaland Corporation

Johnip Cua 3 Independent Director

Served as President and General Manager of Procter & Gamble Philippines (1995-2006) Served as Manager of Product Development Proctor & Gamble Served as Project Supply at Proctor & Gamble Taiwan Served as Category Manager of Proctor & Gamble Philippines Chairman and President of Taibrews Corporation Director of BDO Private Bank Director of MacroAsia Corporation Director of STI Education Systems Holdings, Inc. Agora Awards’ Outstanding Achievement in Marketing Management (1998) Procter & Gamble Global Marketing Organization’s Passionate Leadership Award (2006)

Fernan Lukban 3 Independent Director

Served as Consultant, Mentor and Guest Lecturer of University of Asia & the Pacific Founding Fellow of the Institute of Corporate Directors International Fellow of the Australian Institute of Company Directors Independent Director of Central Azucarera de Tarlac Independent Director of Arthaland Corporation

Enrique A. Gomez, Jr. 9 Board Advisor

Chairman of IdeaForma Asia Pacific Group, Inc. Served as President of San Miguel Food and Beverage International, Inc. (2004-2005) Served as President of San Miguel Purefoods Company (2001-2004) President of La Tondena Distillers, Inc. (2000-2001) President of Destileria Bago, Inc. (2000-2001)

Source: Company Inofrmation

27

APPENDIX E-2: CNPF SENIOR MANAGEMENT DIRECTOR YRS AFFILIATED POSITION AFFILIATIONS

Manuel Z. Gonzalez 21 Corporate Secretary Compliance Officer

Senior Partner in the Martinez Vergara Gonzalez & Serrano Law Office Served as Director and Corporate Secretary Companies in CPG since 1995 Served as Director and Corporate Secretary to Nomura Securities Philippines since since 2006 Served as Director and Corporate Secretary to ADP Philippines, Inc

Oscar A. Pobre 24 Chief Financial Officer Chief Information Officer

Served as Assistant Analyst in the Manila Electric Company Served as Division Chief for Subsidiary Operations Comptrollership Group for Human Settlements Development Corporation Served as Finance Manager for Commander Drug Corporation Served as Budget & Cost Department Manager for Dole Philippines, Inc. Served as Corporate Planning Manager for RFM Corporation Served as Corporate Controller for Cosmos Bottling Corporation

Gregory Banzon 6 Vice President - General Manager (Canned and

Processed Fish, Tuna Division)

Served as Vice President - Marketing of Johnson & Johnson ASEAN Served as Country General Manager of Johnson & Johnson Indonesia Served as General Manager of RFM

Edwin Africa 2 Vice President - General Manager (Dairy and Mixes Division)

Served as General Manager for Pepsico from 2010 to 2012 Served as Executive Director of Pycor Inc. from 2012 to 2014

Rex Agarrado 18 Vice President - General Manager (Canned Meat

Division Director of Philippine Association of Meat Processors, Inc. Served as President of Philippine Association of Meat Processors, Inc.

Teddy Kho 3 Vice President - General Manager

(Tuna Export Division) Served as President and General Manager of San Miguel Foods Vietnam Served as Plant Manager of San Miguel Hoecheong

Ronald Agoncillo 8 Vice President - Head of Sales, Trade Marketing and

Demand Planning

Served as Area Customer Development Manager for Unilever from 2000 to 2006 Served as National Sales Manager for Cadbury from 2006 to 2009 Served as Head of Sales Division for Century Pacific Food, Inc. from 2008-2012

Cezar Cruz, Jr. 10 Vice President - General Manager (Canned and

Processed Fish, Sardines Division) President of the Sardine Association of the Philippines

Emerson Villarante 9 Vice President - Human Resources and Corporate of

Affairs

Served as Vice President of Human Resources of Bechtel and Alan Served as Regional VP of Corporate Communications for Asia Pacific for Alcan Food Packaging from 2005 to 2006 Served as Head of HR and Operations Manager of Petnet Western Union from 2006 to 2007

Noel M. Tempongko, Jr. 3 Vice President - General Manager (Century Pacific

Agricultural Ventures, Inc.)

Vice President and General Manager of The Pacific Meat Company Senior Vice President and General Manager of Frabelle Corporation Served as Vice President and General Manager of Great Foods Solutions, San Miguel Pure Foods Company from 2003 to 2005 Served as Vice President and General Manager of The Purefoods Hornel Company from 2005 to 2010

Source: Company Data

28

APPENDIX E-3: CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY PRACTICES CNPF’s on social responsibility are focused on their thrusts for environmental conservation and community development. For their environmental conservation efforts, CNPF supports and complies with global regulations, environmental advocates and industry organizations to ensure long term sustainability of their raw materials. Some of the entities they support and comply with include the Western and Central Pacific Fisheries Commission, Bureau of Fisheries and Aquatic Resources, Earth Island Institute/Dolphin Safe Tuna, World Wildlife Fund (WWF) and International Seafood Sustainability Foundation (ISSF). On the other hand, CNPF engages with society in community development efforts through its RSPo Foundation (CPG-RSPo Foundation, Inc.). The foundation has three main thrusts, namely to 1) help in feeding the poor and hungry children and to provide health care (if necessary), 2) help in providing education to deserving students and 3) support other charitable and humanitarian causes, especially causes that protect the environment. The following are corporate social responsibility projects listed in their 2014 Annual Report: Sustainability

• Participation and Collaboration with the International Seafood Sustainability Foundation (ISSF)

o Promotes science-based initiatives for long-term conservation and sustainable use of tuna stocks, reduction of by-catch and promotion of ecosystem health.

• Support for Regional Fisheries Management Organizations, Government Agencies and environmental advocates such as

o Western and Central Pacific Commission

o Bureau of Fisheries and Aquatic Resources

o Earth Island Institute/Dolphin Safe Tuna

o World Wildlife Fund (WWF)

• Century Tuna Handline Product

• Traceability System audited by the Bureau of Fisheries and Aquatic Resources, International Food Standard (IFS) and British Retail Consortium (BRC).

• Honorable Buying Policies

• Dolphin Safe Accreditation

• Anti-Finning Policy Community Development

• KAIN Po Feeding Program: a Feeding initiative that aims to alleviate malnutrition and hunger to nourish children

• Partnerships with numerous organizations

o Partnership with Habitat for Humanity for Feeding Program

o Industrial Technician Program for CITE Students

o Donation of Tins for Financial Aid

o Indigenous Peoples Feeding Programs and Academic Support with Octo Riders Club

o Feeding Program with Project Pearls, Feeding Metro Manila, Pro Labore Dei International, Hapag-Asa, DSWD, St. Joseph’s Orphanage, Consuelo Chito Madgrigal Foundation, Happy2help, Real Life Foundation, IHome Greater Metro Manila

o Free Education Program with City Gates Academy

o “Adopt-a-Public-School Program” with Developing Family Values Foundation, inc.

o Poverty Reduction Programs with Philippine Business for Social Progress

• Educational Scholars from UST and children of CPG Employees

APPENDIX E-4: EVALUATION OF CNPF’S QUALITY OF CORPORATE GOVERNANCE To evaluate the company’s quality of corporate governance, each committee of the board is evaluated on a scale of 1 to 4 based on the roles that they have to fulfill and criteria corresponding to these roles as enumerated in CFA Institute Corporate Governance Manual for Investors. The following table summarizes the analysis: Legend: 1 - The company did not follow the criteria at all, 2 - The company did not follow the criteria, 3 - The company followed the criteria, 4 - The company has excellent policies on thiscriteria.

CRITERIA DESCRIPTION RATING COMPANY POLICIES

EXECUTIVE COMMITTEE

Independence Boards must be willing and able to effectively scrutinize strategy and management performance and set reasonable compensation

3 The board of directors is not majority independent, however they follow the regulations set by the Securities Exchange Commission.

Accountability Governance practices should reflect a board that is answerable to its owners 4

Roles among Executive, Non-Executive and Independent Directors are clearly defined in such a way that evenly distributes the power among members of the board. Aside from this, each committee is required to report on issues it has addressed within the year and plans to undertake in the next year.

Responsiveness Directors must be responsive to the wishes of its shareholders as expressed through elections or votes on shareholder proposals and respond accordingly

4 CNPF aims to protect shareholder rights and encourage shareholder participation by disseminating information before the meeting of the board.

Competence Directors should add value through skills or expertise in a particular field

4 Members of the board have an average of 20 years of experience, 11 years of tenure in the company and come from diverse backgrounds and fields of expertise,

Elections Annually Elected Directors 4 The nomination committee screens candidates for the board based on requirements needed to become a board member.

Board Attendance Adequate attendance at board and committee meetings 4 All board members have attended all board meetings.

Directorship Reasonable number of board directorships 4 There are 7 members in the board, with a board advisor that provides consultation when needed.

Elections Majority voting in director elections 4 The vote required for the election of directors is majority of the outstanding capital stock. Based on the Final List of Candidates, directors are elected by shareholders individually.

Related Party Transactions Absence of material related party transactions 2 CNPF engages in related party transactions, however they conduct these transactions on an arm’s length basis by hiring third party consultants and auditors.

Board Members Board of at least 5 but no more than 15 members 4 The board consists of 8 members, which is within the criteria for good governance.

Independent Members Board must have greater of: 2 independent directors or 20% independent members of the board 4 CNPF has 2 independent board of directors, namely Johnip Cua and Fernan Lukban

Role Delegation Role of CEO and Chair should be separate 2 Christopher T. Po is both the Chief Executive Officer and Chairman of the Board. However, the company ensures independent views are taken into account in its decision-making process.

29

Committees Established Risk, Compensation, Executive, Nomination and Election Committees

4 The Audit Committee accounts for the risks. Compensation, Executive, Nomination and Election Committees are established.

AVERAGE SCORE

3.6

AUDIT COMMITTEE

Independent Audit Auditor should provide an impartial and professional opinion. Independence is compromised when the author receives significant payments for non-audit work

4 CNPF has an Audit Committee who reviews the performance of an external auditor. They pre-approve all auditing and non-audit services. The Audit Committee is also led by an independent member of the board.

Independent Audit Board’s Audit Committee should be independent 4 The chairman of the Nomination Committee is independent.

Integrity of Financials

Company’s financials should have integrity. (Items that raise concerns include changes in auditors, irregularities over many years, material weaknesses in the company’s controls, certain restatements, and excessive fees paid for non-audit work)

3

The Audit committee is assisted by the Internal Audit Department in ensuring the reliability and integrity of financial and operating information. Any issues raised against the audit plans and performance are reported and addressed accordingly. In addition, company financial statements are disclosed with notes that help investors understand how accounts were settled.

Selection of Auditor Company should allow shareholders to ratify the selection of the auditor 4

The Audit and Risk Committee recommends to the BOD the appointment, re-appointment and removal of any auditor. BOD and stockholders approve of the recommendation. Recommendations and changes are also reported in their company disclosures.

AVERAGE SCORE

3.75

COMPENSATION COMMITTEE

Performance Metrics Performance metrics should encourage executives to make decisions that benefit shareholders 3

Compensation is determined by their attendance in board meetings. However, the BOD’s variable compensation is subject to objection or ratification of the stockholders.

Performance Metrics Performance Metrics should be communicated to shareholders

4 The Annual Corporate Governance Report outlines the performance metrics used in order to determine the BOD’s compensation.

Performance Metrics A substantial amount of an executive’s pay should be “at risk”

4 Directors receive reasonable per diems for their attendance at each meeting of the board.

Performance Metrics A portion of executive compensation should be in the form of equity

1 The company does not grant stock rights, options or warrants over company shares.

Performance Metrics Shareholders should have an advisory vote on executive compensation 4

The company complies with Sec. 30 of the Corporation Code of the Philippines, which states that compensation other than per diems may be granted to directors by the vote of shareholders representing at least a majority of the outstanding capital stock.

AVERAGE SCORE

3.2

PROTECTION OF SHAREHOLDER RIGHTS

Election One share, one vote 4 All stock stockholders are entitled to vote using the one share, one vote system.

Shareholder Rights Right to Dividend 4 Stockholders are entitled to receive dividends subject to the discretion of the Board. Dividends are declared when the company’s retained earnings are in excess of 100% of its paid-in-capital stock.

Shareholder Rights Absence of supermajority vote requirements 4 In all meeting of stockholders, a majority of the outstanding capital stock must be present or represented in order to constitute a quorum. If no quorum is constituted, the meeting shall be adjourned until the requisite number of stock shall be present.

Shareholder Rights Right of shareholders to call special meetings 4 In the Code of Ethics, shareholders (also the minority) are allowed to propose a meeting and the items in the agenda of the meeting, provided the items are for legitimate business purposes and in accordance with law, jurisprudence and best practice.

Shareholder Rights Information 4 All shareholders have the right to inspect corporate books and records in accordance with the Corporate Code of the Philippines. They also have the right to ask for periodic reports about officers as well as matters for which management is accountable.

Shareholder Rights Appraisal Rights 4 Stockholders may exercise their appraisal right or the right to dissent and demand payment of the fair value of their shares pursuant of Section 81 of the Corporate Code of the Philippines.

AVERAGE SCORE

4

Disclosures:Ownershipandmaterialconflictsofinterest:Theauthor(s),oramemberoftheirhousehold,ofthisreportdoesnotholdafinancialinterestinthesecuri8esofthiscompany.Theauthor(s),oramemberoftheirhousehold,ofthisreportdoesnotknowoftheexistenceofanyconflictsofinterestthatmightbiasthecontentorpublica8onofthisreport.Receiptofcompensa8on:Compensa8onoftheauthor(s)ofthisreportisnotbasedoninvestmentbankingrevenue.Posi8onasaofficerordirector:Theauthor(s),oramemberoftheirhousehold,doesnotserveasanofficer,directororadvisoryboardmemberofthesubjectcompany.Marketmaking:Theauthor(s)doesnotactasamarketmakerinthesubjectcompany’ssecuri8es.Disclaimer:Theinforma8onsetforthhereinhasbeenobtainedorderivedfromsourcesgenerallyavailabletothepublicandbelievedbytheauthor(s)tobereliable,buttheauthor(s)doesnotmakeanyrepresenta8onorwarranty,expressorimplied,astoitsaccuracyorcompleteness.Theinforma8onisnotintendedtobeusedasthebasisofanyinvestmentdecisionsbyanypersonoren8ty.Thisinforma8ondoesnotcons8tuteinvestmentadvice,norisitanofferorasolicita8onofanoffertobuyorsellanysecurity.Thisreportshouldnotbeconsideredtobearecommenda8onbyanyindividualaffiliatedwithCFASocietyofthePhilippines,CFAIns8tuteortheCFAIns8tuteResearchChallengewithregardtothiscompany’sstock.

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