CHAPTER I

INTRODUCTION

The sugar industry in the Philippines has had a colorful and dramatic history. By the time
Ferdinand Magellan, a Spaniard who discovered different islands of the Philippines in 1521, the
cultivation of the sugarcane in the Philippines was widespread in many of the islands. the
extraction of juice from the cane was done in a primitive manner. It was only during the turn of
the 19th century when the industry started to prosper under the American occupation. During
that time, sugar from the Philippines was allowed entry into the United States under a
preferential treatment. Several laws in the United States and Philippine were enacted since then
that allowed the continued flow of sugar imports from the Philippines to the United States under
preferential arrangements.
TRENDS?
COMMON ISSUE?
The raw sugar production of the sugar industry in the Philippines in crop year (CY) 2016-2017
increased to 2,500,509 MT after two consecutive years of decreased production from CY 2014-
2015 to crop year CY 2015-2016, while on the other hand, the total sugarcane plantation area for
crop year 2016-2017 was 423,995 hectares, also after two consecutive years of significant
decrease in the total plantation area from CY 2014-2015 to CY 2015-2016, the total area for this
crop year increased considerably. The said decrease in the plantation areas may be accounted
for by the conversion of sugarcane plantations to plantations for other crops.

Sugarcane growing areas cover 30 Mill Districts (MDs) – 7 MDs in Luzon (includes Isabela
Mill District), 3 MDs in Mindanao, 4 MDs in Panay, 3 MDs in Eastern / Central Visayas, 2 MDs in
Negros Oriental and 11 MDs in Negros Occidental. SRA created the Mill District Development
Committees (MDDCs) in the mill districts to oversee and implement programs and projects for the
development of the sugarcane industry.

Central Azucarera de Tarlac (CAT) was incorporated in 1927 and was renewed in 1976. It
operates an integrated manufacturing facility that processes sugar and all its by-products. Its
business and facilities include the sugar milling and refinery, distillery and carbon dioxide plants
located in Barrio San Miguel, Tarlac City. The sugar cane supply is sourced predominately from
the Tarlac district and a few in the nearby towns of Pampanga.

0
 The Company, in addition to its sugar processing operations, has a one hundred percent
100% stake in Luisita Land Corporation (LLC), a domestic corporation engaged in developing,
leasing, and selling real properties and other ancillary services.

1.1 NATURE OF BUSINESS / PRODUCTS / SERVICE

 Raw and Refined Sugar
The sugar cane is initially processed to extract sugar, most of the raw sugar extracted is
further processed in the refinery to produce refined sugar with the Company’s sugar milling and
refinery facilities’ capacity of 7,200 tons cane and 8,000 50-kg bags per day, respectively. The
mill’s raw sugar sales represent approximately 53% of the Company’s total revenues. The raw
and refined sugars produced are sold to industrial users through traders. Central Azucarera de
Tarlac operates within 5 to 6 months while the refinery operates between 8 to 9 months with the
crop year.

In addition to raw and refined sugar, the mill and refinery produce molasses, a by-
product. The molasses produced in the mill is likewise subjected to the planter-miller share of
31% and 69%, respectively.

 Alcohol
The combined captive molasses of the mill and refinery are processed further in the
distillery to produce alcohol. The distillery has a production capacity of about 65,000 gauge liters
per day. The various types of alcohol regularly produced and sold are rectified spirits (purified
alcohol), absolute alcohol and denatured alcohol. These alcohol products are sold to various
reputable distillers of wine, manufacturers of alcoholic beverages and a fraction goes to
producers of pharmaceutical products.

 Carbon Dioxide
The slops emanating from the distillery are captured by the carbon dioxide plant to produce
liquid carbon dioxide. The plant has a capacity of 30,000 kilos per day and operates for 4 to 5
months of the year. Carbon Dioxide sales account for 3% of the Company’s total revenues in
the last three years and are sold to industrial users.

 Industrial Services

1
 The Company, thru LLC, provides property management, water distribution and wastewater
treatment series to locators of Luisita Industrial Park and residents of Las Haciendas de Luisita.

MAJOR MARKET SERVED

The market for any type of business are the ones who buy products in bulk and on a

regular basis. In case of manufacturing business, the bulk buyers are usually the dealers or

distributors of the product. If a company has a strong dealer network, the product will reach end

consumers which will make the sales volume increase. Industrial users are firms that are

engaged in: sweetened-beverages, milk and milk products, sugar confectionery, and ice cream,

meat/fish canneries. While end consumers can be classified those who are engaged in retail

groceries, food and beverage firms such as bakeries, restaurants/coffee shops, hospitals, and

households.

NUMBER OF EMPLOYEES
Central Azucarera de Tarlac has a total of 300 employees in CAT-Tarlac, Makati and LRC.
Table 1.1 presents the breakdown of the number of employees of Central Azucarera de Tarlac,
Makati, and Luisita Realty Corporation as of June 30,2016.

Table 1.1 CAT Number of Employees

Executive / Managerial /
Rank / File Retainer
Supervisor
Total
Permanen Probationar Probationar Consultan
Permanent
t y y t
CAT – TARLAC 72 0 189 0 11 272
CAT- MAKATI 10 0 3 0 3 16
LRC 5 0 7 0 0 12
TOTAL 87 0 199 0 14 300
Source: CAT – FORM SEC17 – Annual Report – FY 2016

2
 CHAPTER II
RESEARCH DESIGN AND METHODOLOGY
This Chapter presents the research design and methodology and the data gathering
process used in the study.

Research Design
The research design that was used by the researcher to gather data and information were
descriptive and historical method. The descriptive research methods are used when the
researcher prefers to describe specific behavior or aspect as it occurs in the environment.
Descriptive method usually involves case studies and journals written by a credible author. On
the other hand, historical methods are used when the researcher prefers to inculcate data and
information from previous articles or journals written from the past.

Moreover, the researcher also used primary and secondary sources for the vital
information needed for this research paper. For the external analysis, current data and
projections on macro-economic and indicators were obtained from different reliable websites,
journals, and publications.

Data Gathering
The information gathered in this paper was obtained through primary and secondary
sources. The primary source is through the interview with CAT’s general manager. The
researcher conducted an interview in order to acquire vital information about Central Azucarera de
Tarlac (CAT) that will be conducive in this research paper.

The data used in this research came from various internet sources such as journals,
newsletters, news articles and also from different government agency sites like National Statistics
Office (NSO), Bangko Sentral ng Pilipinas, Department of Labor and Employment (DOLE), Sugar
Regulatory Administration (SRA), Sugar Alliance of the Philippines (SAP);

Official websites of Central Azucarera de Tarlac (CAT), Philippine Sugar Institute

(PHILSURIN), Philippine Sugar Technologists, Inc. (PHILSUTECH), Sugar Industry Foundation
Incorporate (SIFI), Philippine Sugar Millers Association (PSMA), Philippine Association of Sugar
Refiners Incorporated (PASRI), National Federation of Sugarcane Planters, Inc (NFSP),
Confederation of Sugar Producers Associations, Inc., Philippine Securities and Exchange

3
Commission (SEC), Business World, Philippine Inquirer, Philippine Star. These websites were
used as secondary source of data to be used in this study.

Most of the data used are from Central Azucarera de Tarlac’s website whose data is
visible to the public. The financial statements used herein came from the Securities and
Exchange Commission but is also available on their website.

The information used for the competitors came from the sites of the latter and the
financial statements that were readily available on the internet. The assessment of the company
as regards to its competitors is supported by data that came from the companies’ websites.

The formulas, implications, strategies, different strategy formulation, strategy formulation

tools, and the step-by-step process and guide used in this research was adapted from the
textbook and sample thesis papers and research papers available in the San Beda College of
Arts and Sciences Library. Other data and information came from the textbook which is “The
Introduction to Strategic Management 12th edition (2009)” by Fred David. The textbook was
used as a reference material for data and computations.

Scope and Limitation

The study of this Strategic Financial Management paper started during the 1 st semester
of A.Y. 2017-2018. Considering that there are many companies in the sugarcane industry, the
scope of this study is only limited to Central Azucarera de Tarlac (CAT) and its direct
competitors in the industry namely: BISCOM Inc, BUSCO Sugar Milling Co., Inc., Central
Azucarera de Bais and Sweet Crystals Integrated Sugar Mill Corporation.

Considering the situation where only limited information was available, the information of
the competitors’ gathered by the researcher was only based from their respective website,
Sugar Regulatory Administration (SRA), Philippine Stock Exchange Edge (PSE), and Securities
and Exchange Commission (SEC).

All data from the financial statements of the company were only limited from 2012-2016.
Central Azucarera de Tarlac’s (CAT) Financial Statements were used and utilized as one of the
secondary sources of all the figures of numbers needed for this research paper. The financial
statements of the direct companies also ranged from 2012-2016.

4
 CHAPTER III
EXTERNAL ANALYSIS

This chapter shows the discovery and identification of the opportunities and threats of
the industry with regards to the macro environmental forces and factors, that is to the political,
economic, socio-cultural, technological and government legal aspects.

3.1 PESTEL ANALYSIS

A PESTEL analysis is a framework or tool used by marketers to analyze and monitor the
macro-environmental factors that have an impact on an organization.

3.1.1 POLITICAL ENVIRONMENT

This factor refers to the stability of the political environment and the attitudes of political
parties or movement that manifests the government influences in a country.

a. ASEAN Integration
-Graph, Datas?
The Association of South East Asian Nations (ASEAN) is a regional intergovernmental
organization comprising ten Southeast Asian states which promotes Pan-Asianism and
intergovernmental cooperation and facilitates economic, political, military, educational and
cultural integration amongst its members and Asian states.

The establishment of the ASEAN Economic Community (AEC) in 2015 is a major milestone
in the regional economic integration agenda in ASEAN, offering opportunities in the form of a
huge market of US$2.6 trillion and over 622 million people. Certain industries in the agriculture
sector remain unprepared and are threatened by the upcoming establishment of the ASEAN
Economic Community (AEC), which will see the reduction of tariffs across goods. More
investments in the sugar industry will have to be made. These are expected to help ensure the
competitiveness of the industry once the Philippines opens up to freer trade with the 9-other
member-states of the ASEAN in two years’ time.

The sugarcane industry is believed to adversely affected. It will be a big challenge in the
industry since small farms cannot compete with bigger and better-financed firms in Thailand.

5
The government needs to allow reconsolidation, and to remove the Comprehensive Agrarian
Reform Program (CARP) Law for sugar, rice and most other crops.

The cost of sugar production domestically is distant compared to the Philippines’ ASEAN
neighbor considering that their sugar prices are much cheaper. Other ASEAN neighbors have
been providing this kind of support for years and will continue to boost their sugarcane industry,
while the Philippines is only starting. ASEAN neighbors like Thailand and Vietnam have
provided subsidies for their sugarcane industries which has resulted in them grabbing a much
larger share of the global market, while in the Philippines, sugarcane is probably the only
industry that is not receiving any subsidy from the government. One of the initiatives that help is
a co-generation scheme to develop biomass plants that uses sugarcane to produce power to
give farmers an additional market to sell to.

Relevance
The purpose of establishing an integrated economic community is to accelerate economic
growth, enhance trade development in the region, and allow the freer movement of goods,
services, skilled labor, and capital. While the ASEAN Integration is expected to level the playing
field among industries in the region, it is also expected that Philippine firms should brace for an
intense competition with their ASEAN counterparts. Intense competition will therefore raise the
bar for innovation, quality and productivity, which will enable businesses to compete head on
with other players.

The sugar industry of the Philippines will be put in grave risk with the ASEAN trade
integration implementation as the marginal farmers’ productivity cannot compete with Thailand’s
more efficient, and subsidized farmers. Thailand is reportedly the country’s prime competitor
and the source of majority of the smuggled sugar that enters the Philippines. it would be a big
challenge for the farmers in the region, especially that GAP certification is needed, which is a
regional standard to prevent the risks associated with production, harvesting and post-harvest
handling of fresh fruits and vegetables and to facilitate their trade within and beyond the region.

b. Peace and Order

Security concerns due to clashes between government troops and militants in Marawi City
coupled with warnings from President Rodrigo R. Duterte that he was ready to widen martial law
coverage to the entire country from just Mindanao will likely cause a temporary slide of financial

6
markets, but investors should eventually gain confidence from the national leadership’s display
of decisiveness.

The peso weakened by 0.35% against the dollar to P49.995, its poorest showing in over six
weeks, while the Philippine Stock Exchange index climbed for the fourth straight day at the end
of trading, edging up 0.33% to close 7,837.82 but only after opening weaker at 7,788.11 from
7,812.14 finishes and hitting the day’s low at 7,761.61. Business leaders said the incident could
spook investors momentarily, but they should be able to see through the smoke a state
exercising lawful powers to keep law and order needed for businesses to run smoothly.

Relevance
President Duterte’s decision in declaring Martial Law in Mindanao is a very decisive move
on the part of government will solve the worsening peace and order not just in Mindanao, but in
the whole Philippines as well. The main objective is to hasten the solution and improve the
security and peace and order situation which should lead to even greater confidence down the
road. This will give more flexibility to the President to fight terrorism. But President Duterte
should try to be vigilant against opportunistic elements who will use the martial law as an
excuse to further their bad intentions.

Peace and order is a vital factor for business establishments anywhere in the world. To a
large extent what has kept businesses out of Mindanao is exactly the peace-and-order situation,
hence from that point of view, it is essential that the situation will be contained. There may be
some transitory or temporary cautiousness, but in the end, it will lead to positive impact on
sentiment. We hope that it will not be abused by some sectors in the government. There should
be restraints in the use of power. We do not want history to repeat itself

c. Sugar Quedan System

WHAT IS QUEDAN SYSTEM?
One of the priorities of the incoming Duterte administration is to ensure that each family is
provided with food on the table; this means providing families with an affordable supply of
agriculturally based items. Sugar has been a key raw material in many of the food items that are
purchased by households. While sugar comprises only less than 1% of total household budgets,
it comprises 6 % of all agricultural inputs in food-processing industries, and more than 10% of all
inputs in the alcohol and beverage, and bakery and bakery products sectors.

7
 Domestic sugar prices are typically higher compared to world prices. May 2016 retail prices
of raw sugar in Metro Manila, as published in the Sugar Regulatory Administration (SRA), the
government’s policy-making body on the commodity, range from P43 to P44 per kilo. On the
other hand, world market prices, showed that sugar prices are at 38 US cents (around P17 to
P18) per kilo. Given the wide disparities in prices, even including transport and marketing costs,
sugar in the world market could still be drastically cheaper compared domestically. (World Bank,
2016)

There are several reasons for high prices, one of which can be the government supply
intervention in the domestic sugar markets in the country, which is also known as the quedan
System, it is a system in which the government intervenes in the market supply for sugar; A
quedan shows ownership of a specified amount of sugar in a warehouse or sugar central. it is a
primary trading document in the sugar industry. During the start of the milling season in August
of each year, the SRA allocates a certain portion of sugar to different markets, including those
for exports to the United States, for domestic consumption, for reserves and for export to
countries other than the US. This system was created for the orderly distribution of the US
allocation (quotas) among different sugar producers in the 1930s, as many planters and millers
wanted to sell their produce in the lucrative American market, which typically paid more than
that of the local markets.
The quedan system continues to exist under the government executive order creating
the SRA in 1986. The SRA typically allots 5 percent to 10 percent of total sugar output to the US
market each year. Although in some years, especially when there is a tight supply situation in
the domestic market, the allocation is zero or close to zero.

Relevance

By keeping the quedan and allowing exports to the US market, both local producers and
consumers lose; the former due to the lower prices that they receive for their product, and the
latter due to the fact that prices are slightly higher in the domestic market given the less supply
of the commodity, as some of the local sugar output is exported. The government even realizes
this as the market allocation to the US market in the current crop year is currently zero, given
expectations of the tight supply due to the weather disturbances in the country.

8
 At the same time, the quedan system provides justification for the government to limit
the amount of sugar into the country. Traders that import sugar need to receive clearance from
the SRA before it is released from Customs, and is classified under one of the markets under
the system. Many observers view the quedan as a so-called nontariff barrier, which constrains
trade in the commodity, and is apparently not allowed under multilateral trade rules. While the
government has, at times, been responsive to domestic prices by periodically adjusting the
amount of allowable importations, the experience in previous years had been that the volume of
sugar imports has not adequately correctly the high prices of the commodity.

d. Tax on Sugar-sweetened Beverages (House Bill No. 292)

The House Bill No. 292 seeks to impose an excise tax of Ten Pesos (Php 10.00) per liter of
volume capacity on sugar- sweetened beverages as the House ways and means committee has
included the measure in its revised substitute bill containing the first package of the Duterte
administration’s comprehensive tax reform program. This measure is proposed to provide
additional revenue collections for the country, which will then be allocated 50 percent to the
national government and the remaining 50 percent to be divided among the Departments of
Health (10 percent), Education (15 percent), Local Government (10 percent), Public Works and
Highways (10 percent) as well as the Food and Drug Administration (5 percent). (Philippine
Daily Inquirer, 2017)

Relevance
If the bill will be approved, there will be an advantage to the government as they will
have another source of revenue that would raise up to P82.7 billion which can be applied to
providing more projects that will benefit Filipinos; on the other hand, it will serve as a health
measure similar to the implementation of the “sin” tax reform aimed at safeguarding public
health.

Moreover, the implementation of sugar tax on sweetened beverages will greatly affect
the sugar industry in terms of its production and revenue as it has been calculated that the
popular brand of soft drinks were to cost as much as 36% more if the per-liter proposal excise
tax were to muster the houses of Congress. It will also have a substantial impact on prices that
will be a disadvantage to the manufacturer and consumers of sweetened beverages considering

9
that the beverage industry consumes as much as 40% of the country’s total sugar production
and its bottling facilities account for 60% of the industry demand.

e. Sugar Regulatory Administration (SRA) Abolition

President Rodrigo Duterte is planning to abolish two agencies namely the Road Board and
the Sugar Regulatory Board after he slammed the agency for hiring consultants who get paid at
least P200,000 a month which is even higher than his salary. The board is also believed to have
corrupt officials after he quoted: “If you can’t control corruption in the government, nothing will
happen to this life”

The Department of Agriculture (DA) plans to further discuss with President Duterte regarding
the proposed abolition of its attached agency, the Sugar Regulatory Administration (SRA) but
maintained that he would support whatever decision the President may come up with.

Relevance
The sugar leaders said more than five million people are directly and indirectly
dependent on the sugar industry from Luzon, Visayas, and Mindanao. Negros Occidental
produces about 60 percent of the country’s sugar output. The sugar leaders are confident that
the administration will see merit in the continuance of the Sugar Regulatory Board that has for
so long served and protected the interest of the industry from threats of sugar smuggling and
challenges of globalization.

The abolition of the Sugar Regulatory Board would spell a disaster for the sugar industry as
it is untimely as the industry is facing serious problems such as the impending excise tax on
sugar and sweeteners and the unabated oil price increase.

That is why the Sugar Regulatory Administration should remain especially this time that the
sugar industry is facing multitude of problems that has been equally challenging for the industry
which some surpassed because of the support from the President. The president should fire the
guilty, but not abolish the agency that has been doing its job. (Philippine Star, 2017)

3.1.2 ECONOMIC ENVIRONMENT

10
 This factor represents the wider economy which includes economic growth rates, levels of
employment and unemployment, export and imports.

a. Export & Import Competition

Table _: Top Sugar Exporting and Importing Countries 2015
AMOUNT AMOUNT
EXPORTING COUNTRY (in million IMPORTING COUNTRY (in million
metric tons) metric tons)
1 Brazil 24.01 China 5.65
2 Thailand 7.97 Indonesia 3.62
3 Australia 4.38 United States 3.16
4 Guatamala 2.16 Bangladesh 2.15
5 Mexico 1.67 European Union 1.80
6 India 1.26 Malaysia 1.70
7 Cuba 1.07 Algeria 1.53
8 Colombia 0.66 South Korea 1.51
9 Pakistan 0.66 Nigeria 1.48
10 Swaziland 0.62 Sudan 1.29
- Philippines 0.01 - -
Source: International Sugar Organization Yearbook 2015

International Trade
World sugar trade averages some 56 million tons per year. Raw sugar accounts for
more than 60% of internationally trade volumes. Although many countries produce sugar, ten
countries dominate global raw sugar exports, (As shown in Table _) with Brazil, Australia,
Thailand, Cuba, Guatemala, Colombia, Mexico, Pakistan and Swaziland accounting for 95 % of
the trade in 2014. Brazil, as the largest producing and exporting country in the world, dominates
world trade, accounting for 40% of global export trade in 2014, up from 21% in 2000.

China, Indonesia, the United states, the EU-28 and Malaysia were world’s largest
importing nations in 2015. These are also major destinations for raw sugar. Key destinations for
white sugar include the United States, Iraq, Sudan, Saudi Arabia and Sri Lanka.

Domestic Trade
The Sugar Regulatory Administration (SRA), an attached agency of the Department of
Agriculture (DA), has issued Sugar Order (SO) 1-A, which authorized the reallocation of locally
produced sugar in crop year (CY) 2017-2018 in order to promote the effective merchandising of

11
sugar and its products in the domestic, U.S. and World markets, it will be necessary to allocate
the CY 2017-2018 sugar production to such quantities as to place those engaged in the sugar
industry on a basis of economic viability;

Under SO 1-A, the SRA has reduced the allocation for “B” (domestic) sugar from 94% to
80%, “A” sugar, which is exported to the US, hiked the allocation to 10% from 6%. While the “D”
sugar exported to World market with 10% allocation. Sugar production for CY 2017-2018
(September 1, 2017 to August 31, 2018) is expected to be 2.38 million metric tons. While on the
other hand, the agency pegged that the domestic sugar demand is estimated to be more or less
2.17 million metric tons for CY 2017-2018 (Sugar Regulatory Administration, 2017)

Relevance
Exports and imports are important for the development and growth of national
economies
since not all countries have the resources and skills required to produce certain goods and
services. Nevertheless, countries impose trade barriers such as tariffs and import quotas, in
order to protect their domestic industries.

As shown in Table _, the amount of sugar exported by the Philippines’ Sugar Industry is
low as compared to other countries especially Thailand, who is the major competitor of the
industry among the ASEAN countries. Philippine sugar mills need to improve their sugar quality
to capture the current market destinations of Thailand, who is the world’s 2nd largest sugar
exporter, and the 4th largest producer in the world.

The decrease in sugar allocation for “B” (domestic) sugar from 94% to 80% and the
increment of “A” (US) sugar and “D” (World Market) to 10% is a good indicator that the
Philippine sugar industry has increased its sugar production that can cater the demand of the
local consumers which allowed them to allocate more sugar to US and World market which can
help the industry to stabilize its prices and supplies that can connect with various opportunities
and foreign investments in the Philippines.

12
 b. Growth of Gross Domestic Product in the Philippines
Figure _: GDP Growth Rate of the Philippines

Source: Philippine Statistics Authority 2017

The Gross Domestic Product (GDP) is the value of a country’s overall output of goods and

services by all people and companies in the country. It also serves as one of the primary

indicators to gauge the health of a country’s economy. Figure _ shows the Gross Domestic

Product (GDP) of the Philippines which expanded by 6.5 percent in the second quarter of 2017.

The main drivers of growth for the quarter were: Manufacturing, Trade, and Real Estate,

Renting and Business Activities. Manufacturing contributed the highest to the country’s GDP

with its 7.9 percent year-on-year growth.

On the other hand, Agriculture contributed 7.8 percent to total GDP, which grew by 6.3

percent in the second quarter of 2017. This contributed 0.5 percentage point to the 6.5 percent

GDP growth in the second quarter of 2017. The industry’s growth were contributed by the

growth of subsectors led by Palay which grew by 11.7 percent; Corn, with 45.9 percent;

Sugarcane, with 157.2 percent; Poultry with 8.3 percent; and Agriculture activities and services,

with 4.5 percent growth. (Philippine Statistical Authority, 2017)

Relevance
The Gross Domestic Product is one of the primary indicators used to gauge the health of
a country’s economy, A high GDP indicates that

13
 While the economy of the Philippines has been continuously growing, the economy of
other countries grows too. The economic crisis has surely affected the financial status and
buying power of consumers.

The Philippines economy grew by 6.5% in 2016

c. Limiting “High Fructose Corn Syrup” (HCFS) Imports

High Fructose Corn Syrup (HCFS) (also known as glucose-fructose, isoglucose and
glucose-gructose syrup) is a sweetener made from corn starch that has been processed by
glucose isomerase to convert some of its glucose into fructose. it is used by some industrial
users in beverages, cookies, and juices, often in combination with sugar

According to the Sugar Solidarity Against HFCS (a broad coalition within the sugar
industry), from 2011 to 2016, beverage makers and food processors imported almost 800,000
metric tons of HFCS into the country, displacing the demand for 23 million 50 kg bags of locally-
produced sugar and depriving the country, particularly the sugar industry, of P35.2 billion in
potential income. SSA-HFCS also claims that for Crop Year 2016-17, HFCS importation has
driven down sugar prices from a high of more than P1,800 per 50 kg bag in September 2016 to
less than P1,500 per 50 kg bag in December 2016, translating to potential revenue losses of
about P20 billion for the current crop year. (P50 = $1.)

A 50-kilogram bag of locally produced sugar used to be sold at P1,700 in the market; but
due to high number of HCFS imports, a 50-kilogram bag of locally produced sugar can now be
bought at P1,300. The cost of producing a 50-kg bag of sugar ranges from P1,000 to P1,100,
lowering of the price of local sugar has hurt the sector, which has had a slim profit margin to the
industry.

The Deputy director of the Philippine Sugar Millers Association, Jesus L. Barrera is asking
the Sugar Regulatory Administration (SRA) to do something to limit, restrict, control and
regulate the volume of HFCS that comes in that the importation of these goods affects the
livelihood of farmers, necessitating action from the SRA, mandated to promote the growth &
development of the sugar industry. Importation of High Fructose Corn Syrup (HCFS) in bulk by

14
various industrial beverage processors as sweetener for their products will have an impact on
the sugarcane farmers especially in the sugar industry because local farmers who have been
suffering from the HCFS importation, dramatically lowered the price of sugar in the country.

Relevance

d. Sugar Block Farming

Sugar Block farming espouses the operational consolidation of small farms to take
advantage of plantation-scale production, thus, improving their productivities and sugar yields.
Similar to the national convergence strategy, the Sugarcane Convergence Program (SCP) will
involve the DA, DAR, and DENR. Operations of small farms will be consolidated into minimum
“block farms” of 30-50 hectares. Ownership of each small farm is still maintained and respected,
thus giving the landowners a share in the profit or earnings in using the land for sugarcane
production.

Block farming doubles farmers’ yield and lowers their farming costs as this project aims to
boost the capacity of agrarian-reform beneficiaries to start their own sugarcane plantation as
new owners of the lands through different schemes, such as partnership, joint venture and
sharing, while preserving individual ownership of their awarded lands.

Relevance

e. Usage of alternative sweeteners of beverage firms

Multinationals Coca-Cola Femsa Philippines Inc. (CFPI) and Pepsi-Cola Products
Philippines Inc. (PCPI) are requesting to have access to the local sugar classified as “D”—sugar
shipped to countries other than the US—to hike their purchase of local sugar.

CFPI and PCPI agreed to increase their utilization and their procurement of local sugar
provided they are given access to ‘D’ sugar that’s bound for export. They wanted access to “D”
sugar because it is cheaper by P350 per 50-kilogram bag (l kg) than the “B” sugar, or sugar
allocated for the domestic market currently priced at P1,300/Lkg.

Relevance

15
 Usage of alternative sweeteners of beverage firms will have a huge impact in the sugar
industry for the reason that the Beverage industry in the Philippines consumes as much as 40
percent of the country's total sugar production, and its bottling facilities account for 60 percent of
the industry demand.

The revenue in the sugar industry will be stable or by any chance, will increase If the
SRA will approve the request of CFPI and PCPI in accessing the ‘D’ sugar, considering that
they agreed that they will increase their utilization and procurement if they were given access to
it.

3.1.3 SOCIO-CULTURAL ENVIRONMENT

a. High Demand for Sugarcane Farmers

For the first time in recent history, sugarcane farming has become the second hottest job in
the country; According to Bureau of Local Employment (BLE) data posted in January on the
government’s official job portal, www.phil-job.net. there are 12,400 vacancies for sugarcane
farmers and 100 job openings for sugarcane grinders.

The unexpected demand for sugarcane farmers can be credited to the stable sugar prices in
the global market. The price of sugar is unaffected by whatever developments in the world, so
supply for sugar is still in demand and that means good investment for our sugar industry,
whether for planters, millers and distributors
b. Low-sugar chocolates
Nestle has said it has discovered a way to cut the amount of sugar that goes into its Kit Kat,
Butterfinger and other candy bars, but without affecting the taste. The Swiss food giant's
scientists say a breakthrough will allow the company to cut sugar content by up to 40 percent.
Sweetness of chocolate and other confectionery products will be unchanged.

"Our scientists have discovered a completely new way to use a traditional, natural
ingredient," Nestle Chief Technology Officer Stefan Catsicas said in a statement ; the
researchers have found a way to "structure sugar differently," the company said, stressing that
"even when much less is used in chocolate, your tongue perceives an almost identical
sweetness to before."

16
 The company said it was patenting its findings and would begin using the faster-
dissolving sugar across a range of its confectionery products starting in 2018. The
announcement comes as food and beverage makers are under increasing pressure to provide
healthier alternatives to sugar-laden products, which have in part been blamed for swelling
obesity and diabetes rates around the globe.

Relevance
The World Health Organization has long said sugars should make up less than 10
percent of a person's total daily energy intake, and now urges countries to lower the bar to five
percent; Using less sugar can benefit to the health and also has potentially massive cost
savings to the part of the manufacturer of sweetened food and beverages, with them
discovering alternatives for lessening the sugar content will greatly affect the production of the
sugar industry.

c. New Small Players in the Market

The rapid rise in the premium end of the consumer food market, millennials’ growing trust in
smaller brands, and their interest and aptitude in online shopping and e-commerce present
opportunities for small manufacturers,

Small brands have been gobbling up shares in the premium space because millennials are
more likely to trust them to deliver features like natural, sustainably sourced and no artificial
ingredients. This shift of preference opens up wider opportunities for local entrepreneurs to start
up new business concepts, accommodating the modern preference of the new-age market.

Relevance
Having new consumers like small players in the food and beverage industry will have a
positive outcome for the industry since having new consumers means that there is high
demand, and high demand should be an increase in the production of supply.

d. Overconsumption of sugar-sweetened drinks

*Statistical data WHO, DOH

17
 By contributing to obesity and, through that, to diabetes, cardiovascular disease and cancer,
the consumption of sugar-sweetened drinks appears to kill about 25,000 American adults yearly
and is linked worldwide to the deaths of 180,000 each year, new research says.

Low- and middle-income countries are bearing the brunt of the death toll attributed to
overconsumption of sugar-sweetened sodas, sports drinks and fruit drinks, according to an
assessment published on Monday in the American Heart Association’s journal, Circulation.

Each year, more than 75 percent of the world’s deaths attributed to overconsumption of
sugar-sweetened beverages occur in those poor and developing countries.

Relevance
They drew from a growing number of studies to estimate the contribution of sugar-
sweetened beverage consumption to obesity, and of obesity to such diseases as Type 2
diabetes, cardiovascular disease and cancers of the breast, colon, esophagus, gall bladder,
kidney, pancreas and ovaries.

“There are no health benefits from sugar-sweetened beverages, and the potential impact
of reducing consumption is saving tens of thousands of deaths each year.” This is a negative
outcome for the industry.

3.1.4 TECHNOLOGICAL ENVIRONMENT

Figure _ Production and Exports of Brazil, Thailand and Philippines 2015

Australia 4.3
4.82

Brazil 24.01
34.24

India 1.26 28.87

Mexico 1.67 5.88

Thailand 7.97
28.87
0.01
Philippines 2.3
0 5 10 15 20 25 30 35 40

Exports Production

Source: International Sugar Organization Yearbook 2015 | Sugar Regulatory Administration Sugar Statistics 2015

18
 a. Adopting the Technology of Top Sugarcane Producing and Exporting Countries
Figure ___, shows that the Philippine Sugar Industry has been left behind in terms of its
exports and production compared to the top sugar producers and exporters in the world and
with this, the Philippine sugar industry could learn a great deal from two of the Top Sugar
Producing and Exporting countries namely Brazil, who is the largest Sugar Producer and
Exporter in the world, and Thailand, the world’s 2nd largest sugar exporter, and the 4th largest
producer in the world in terms of improving productivity and efficiency through extensive
investment, both by the government and the private sector, toward the development of new
technologies in order to boost the productivity of sugarcane farms in the Philippines

Brazil Technology
The SRA Administrator has requested the Brazilian government cooperation on the
exchange of technology on fermentation and yeast isolation, methodology and equipment
design for field trash recovery system, access to equipment design for mill power generation,
impact assessment models on bioenergy and biofuels, and varietal cooperation on good
ratooning, climate resilient, high yielding varieties of sugarcane

Thailand Technology
Sugar Regulatory Administration (SRA) aims to have relevant exchanges in agricultural
technologies and best practices on energy production and environmental management,
sugarcane cultivation and harvesting, and development of farm machinery suited for sugarcane
farms in the country.

The administrator of the Sugar Regulatory Administration received positive word of mouth
from some farmers that have bought Thai Farm Machinery and Equipment including harvesters
and that they will check if their machineries are suitable to our farms. Mechanized cane
harvesters and loaders must expedite harvesting and milling of canes due to significantly low
sugar per ton of canes. SRA will commence full implementation of the SIDA, and will focus on
research and development and strengthening of mill districts.

Relevance
Manila is considering acquiring sugar technology developed in Brazil and Thailand to make
local sugarcane farmers more competitive with the advent of the ASEAN free trade agreement.

19
 The team aims to gain relevant exchanges in agricultural technologies and best practices on
sugarcane cultivation and harvesting, energy production and environmental management, and
the development of farm machines suited for sugarcane farms in the Philippines. The agency
would utilize its funds provided under the Sugarcane Industry Development Act (SIDA), which
lays down the conditions for the maximization of the country’s sugarcane resources and provide
support to small farmers.

b. Usage of Genomics
The sugarcane industry is huge in the Philippines, with many other industries heavily
dependent on sugar, such as the energy and fuel sectors, including bioethanol. Therefore, the
sugarcane industry, along with its allied industries, need support to sustain this strong demand,
especially considering the fact that like any other crop, sugarcane deteriorates, becomes prone
to disease and its yield decreases as it remains in the field.

Relevance
Usage of genomics will help reduce the time it takes to develop a new sugarcane variety by
two to three years, thus, shortening the process to five to six years. Sugar genomics is good for
increased productivity, profitability, sustainability and global competitiveness of the Philippine
sugar industry.

c. Australian-inspired Irrigation and Sensor Technology

THE country’s sugarcane industry aims to raise yield levels by over a fourth to 75 metric
tons (MT) per hectare by utilizing an Australian-inspired irrigation and sensor technology that
would allow the sector to adapt to changes in the climate; Irrigation will be a major key to raising
sugar productivity, adding that the sector can further increase its present P87-billion contribution
to the economy by augmenting the application of irrigation.

Water Resources Management Center (WRMC) head said that “Water is a major limiting
factor for productivity (especially) in changing climatic conditions and weather patterns. The
industry expansion depends upon efficient water use”

Relevance

20
 With this technology, the PH sugar industry seeks to raise yield level by 25%; by over a
fourth to 75 metric tons per hectare by utilizing an Australian-inspired irrigation and sensor
technology that would allow the sector to adapt to changes in the climate.

d. Upgraded technology support from Philippine Sugar Technologists Association

Inc. (PHILSUTECH)

The country’s sugar production is seen to sustain local demand amid the waning supply of
sugar cane brought about by the conversion of farm lands to commercial developments.
Philippine Sugar Technologists Association Inc., (PHILSUTECH) partner Eric Ngo expressed
his optimism considering the improved technology being introduced to the industry in recent
years. Technology advancement aided the challenges faced by sugar producers in the country,
as amount of wastage for sugar production is minimized and co-generation of cane byproducts
such as fuel has improved. (Ngo, 2016)

Dynamic Castings was one of the exhibitors during the recently concluded 63rd
PHILSUTECH Convention, held in Waterfront Cebu City Hotel and Casinos last August 2016.
The convention is a national gathering of sugarcane technologists, sugar millers, sugarcane
planters, ethanol distillers, bio-energy producers, scientist, and providers of services, products
and equipment for the Philippines Sugar Industry.

The challenges faced by the sugar producers were the conversion of sugarcane farms to
commercial developments, smuggling of imported sugar, as threats that need to be addressed
immediately Among the immediate solutions eyed is to encourage sugar centrals or sugar
producers to invest in the latest technology to improve productivity and make use of cane by-
products for other commercial uses like fuel, among others, The supply of cane may not as
bountiful as before, but this does not mean that sugar production volume will also decline, as
available technology can maximize extraction of canes, or improve yield even with lesser cane
volume. (Ngo, 2016)

21
3.1.5 ENVIRONMENTAL FACTOR

a. Climate and Weather Condition

The year 2016 is seen to pose bigger challenges to the sugarcane industry in the
Philippines due to dwindling farm areas and the impending El Niño phenomenon. The Sugar
Regulatory Administration (SRA) said it is important to produce more sugar at a lower cost
following the continuous severe weather conditions brought about by El Niño. SRA also plans to
intensify the Block Farm Program to increase production and improve farm efficiency and
closely monitor production to ensure stable and sufficient supply of sugar.

Relevance
Climate conditions and weather patterns are the major factors which will determine the
outcome of sugarcane yields in 2016

b. Expansion of Plantation Areas

Figure _ Sugarcane Plantation Areas CY 2011-2012 to 2016-2017
426,000
424,000
423,995
422,000 423,333
420,000
size (in hectares)

418,000
416,000 416,893
414,000
412,000 413,435

410,000
408,000
2013-2014 2014-2015 2015-2016 2016-2017

Total Area (has.)

Source: Sugar Regulatory Administration – Overview of Sugar Industry 2017

Total sugarcane area in crop year 2013 – 2014 was 423,334 hectares planted in around 20
provinces within the 10 regions of the country. However, in crop year 2014 – 2015, the
plantation area for sugar production declined to 416,893 hectares. Further, in crop year 2015 –
2016 shows another shrinkage in plantation area to 413,435 hectares. The said decrease in the
plantation areas may be accounted for by the conversion of sugarcane plantations to plantations

22
for other crops. Moreover, the latest crop estimate of the Sugar Regulatory Administration
greatly increased to 423,995 hectares in crop year 2016-2017.

Farm Sector
The Philippine sugarcane farms are mostly small with more than 75% of the 62,175 farms
measuring 5 hectares and below. Only 6% of the total number of farms is above 25 hectares in
size. Meanwhile, Thailand sugarcane farms are relatively bigger wherein the majority (75% or
165,000 farms) is below eight hectares (50 rais). Only a very small percentage of the farms are
80 hectares (500 rais) and below.

In terms of the number of farms, Thailand has four times more farms as compared to the
Philippines but the distribution according to the land area is the same. In both countries, around
75% of the farms are small.

Relevance
a great number of sugar plantation means an increase in the sugar production locally and
internationally.

Thailand production was much larger than the Philippines. Aside from the larger sugarcane
farms in Thailand, area planted to sugarcane increased by 3% annually. By contrast, in the
Philippines, aside from its smaller farms, growth in the area planted was almost flat.

c. Environment Management System

Committed to implement and continuously improve a consistent Environmental
Management System (EMS) that shall help minimize the negative impacts of the above
operations to land, air, and water; and to provide a clean, safe, and healthy environment for the
reciprocal benefit of its employees, stakeholders, and the community where we operate.

23
Relevance
Having the environment management system will have an improvement of sustainable
development by developing, placing and continuously improving effective controls and
procedures to conserve energy, water and other raw materials to the industry.

d. Environmental Pollution
Environmental pollution has been recognized as the major problems of the modern
world. The problem of environmental pollution on account of essential industrial growth is
practical terms, the problem of disposal of industrial effluent, whether on solid, liquid or
gaseous. All the three types of wastes have the potentially of ultimately polluting water. The
effluents coming from industries some time percolates through subsoil and reaches the ground
water uses of industrial effluents and sewage sludge on agricultural land has become a
common practice in India as a result of which these toxic metals can be transferred and
concentrated into plant tissues from the soil. These metals have damaging effects on plants
themselves and may became a health hazards to man and animals.

Reason: A significant large amount of waste is generated during the manufacture of

sugar and contains a high amount of production load particularly in terms of suspended solids,
organic matters, effluent, sludge, press mud and bagasse.

3.1.5 Legal

1. R.A.10659 –“Sugarcane Industry Development Act of 2015″ (SIDA)

The Sugarcane Industry Development Act was enacted by the Senate and House of
Representatives of the Philippines in Congress to promote the competitiveness of the
sugarcane industry and maximize the utilization of sugarcane resources, and improve the
incomes of farmers and farm workers, through improved productivity, product diversification, job
generation, and increased efficiency of sugar mills.

To boost the production of sugarcane and sugar, and increase the incomes of sugarcane
farmers/planters and farm workers, the following Productivity Improvement Programs shall be
implemented:

24
 a. Block Farm Program – the program is the consolidation of small farms including farms
of agrarian reform beneficiaries, as one larger farm, with a minimum area of thirty (3)
hectares within a two-kilometer radius, to take advantage of the economies of scale in
the production of sugarcane, such that the activities in the small farms are aligned and
implemented to ensure the efficient use of farm machineries and equipment, deployment
of workers, volume purchase of inputs, financing and other operational advantages.
b. Farm Support Program- For other farms that are not eligible under the Block Farm
Program, the SRA shall make available a support program which shall include, among
others, the provision of (1) socialized credit; and (2) farm management, technical
assistance; and professional services
c. Farm Mechanization Program – Planters/farmers of sugarcane farms, including block
farms and farms of agrarian reform beneficiaries, shall be encouraged and trained to
utilize appropriate agricultural machineries and equipment necessary for the efficient
planting, cultivation, care and maintenance, harvesting and handling of sugarcane.

Relevance
This act boosts the production of sugarcane and sugar, and increase the income of
sugarcane farmers/planters and farm workers.

2. Sugar Order No. 1 – Sugar Policy for CY 2017-2018

This is an executive order by the Sugar Regulatory Administration (SRA) with the power
to establish and maintain a balanced relationship between sugar production and the
requirements of sugar and to maintain such marketing conditions as will ensure stabilized prices
at levels reasonably profitable to the producers and fair to consumers.

Whereas,
 Domestic demand is estimated to be more or less 2.17 million metric tons for Crop
Year 2017-2018;
 U.S market continues to be a reliable market and remains an instrument to stabilize
domestic sugar supply that its allocation is imperative regardless of volume
 To promote the effective merchandising of sugar and its products in the domestic,
U.S and world markets, it will be necessary to allocate the C.Y 2017-2018 sugar
production to such quantities as to place those engaged in the sugar industry on a
basis of economic viability.

25
3. R.A. 10845 – “Anti-Agricultural Smuggling Act of 2016″
It is the policy of the state to promote the productivity of the agricultural sector and to protect
the farmers from unscrupulous traders and importers who by their illegal importation of
agricultural products, especially rice, significantly affect the production, availability of supply and
stability of prices and the food security of the State.

Relevance
This act helps the industry to take control from illegal importation, as what is stated above,
which significantly affect the production, availability of supply and stability of prices and the food
security of the State.

4. Safety Management System

The company commits itself to comply with the current applicable Occupational Health
and Safety (OHS) legislations and with the other requirements to which it subscribes. All the
required governmental permits, licenses, registrations and clearances are lawfully obtained and
the subsequent reportorial requirements are strictly observed.

Relevance
Having this system will allow the company in the industry continuously improve its Safety
Management System (SMS) that shall provide a safe and healthy workplace. It aims to prevent
and/or minimize accidents, injuries, and occupational health hazards relevant to the activities,
products, and services of the organization.

5. R.A. 10601 – “Agricultural and Fisheries Mechanization (AFMEC) Law”

To promote the development and adoption of modern, appropriate and cost-effective
and environmentally-safe agricultural and fisheries machinery in order to achieve food security
and safety and increase farmers’ income;

Relevance
This is an act to promote agricultural (includes sugar) and fisheries mechanization
development in the country

26
 CHAPTER IV
INDUSTRY AND COMPETITOR ANALYSIS

This chapter shows vital information about the industry and its competitors, which includes
the comparisons of Net Income, Total Assets, and Revenue of the top sugar refineries in the
Philippines in 2017 named below. Porter’s Five Forces of Competitive Analysis, Competitive
Profile Matrix (CPM) and the External Factor Evaluation (EFE) were also presented.

GLOBAL SUGAR INDUSTRY http://www.fao.org/3/a-BO099e.pdf

Market Situation
International sugar prices fell by more than 30% in 2014. The prospect of a global sugar
production deficit has led to a price increase at the start of the current season, but with stocks still
at comfortable levels, the price increase is expected to average slightly above 2%in the 2015
marketing year

Indeed, there has been a slowdown in output growth since 2013, and global sugar
production is expected to fall by about 5 Mt in 2015. Given steady growth in global consumption,
this should put an end to the surplus phase. Increases in sugar production are foreseen in Brazil
(the leading producer and exporter), Australia, the Russian Federation and Thailand, but two
main producers, India and the European Union, will see a decrease. After four years of
replenishing global stocks, the stocks-to-use ratio should begin to decline at the start of the
2016-25 outlook period.

Prices
World sugar prices are low at the start of the Outlook period and are projected to stay low
in the short term before strengthening moderately in the following years. By 2025, they will be
higher than the 2013-2015 base period in nominal terms, but lower when expressed in real terms.
The nominal world raw sugar price is projected at USD 342/t (USD 15.5 cts/lb) and at USD 425/t
(USD 19.2 cts/lb) for white sugar, in 2025.

Sugar price volatility should diminish over the forecast period, largely due to low
production costs and the change in Indian sugar policy, implemented in 2013. India is the world’s
largest consumer and second largest producer of sugar, but has suffered cyclically from deficits
and at these times has relied on imports to meet demand when needed.

27
Production
After five years of production increases, a production deficit was experienced in 2015.
While there are increases in sugar production in Brazil and other smaller producing countries
such as the Russia Federation, South Africa and Australia, these are offset by decreases in
Europe and some key Asian countries. Over the forecast period, stocks are expected to
diminish and remain low for several years. Brazil, the largest sugar producer and supplier, will
continue to play a key role on world markets, but its dual use of sugarcane as a feedstock for
ethanol and for sugar production will continue to be affected by relative price competition
between the export-oriented market for sugar and the largely domestic ethanol market.

World sugar production is projected to grow by 2.1% p.a. to reach 210 Mt by 2025, up
nearly 39 Mt, 19% above the average for the base period. Higher increases are expected to
occur in developing countries with 79% of global sugar production in 2025 compared to 77%
during the base period. Growth in Asian sugar production is expected to increase by 2.4% p.a.
to 2025, compared to 2.2% p.a. in the previous decade, whereas growth in Latin America
should increase by 2.4% p.a. compared to 2.1% p.a. in the previous decade.

28
PHILIPPINE SUGAR INDUSTRY
The sugar industry contributes about P70 billion to the Philippine economy from the
production of raw and refined sugar, molasses, and bioethanol. In addition, it supports foreign
currency earnings through exports of sugar under the US Sugar Quota Program, exports of sugar
to other Asian countries, and exports of molasses. Through the sugarcane roadmap that was
released by the Sugar Regulatory Administration, the improved sugarcane industry will increase
its contribution to P100 billion through the addition of special sugars, electricity, biowater,
bioplastics and other products from sugarcane. The establishment of support industries shall
likewise contribute significantly to the revenue streams of an expanded sugarcane industry.

A. Target Outputs
1. Increase in sugarcane area from 422,384 hectares to 465,000 hectares.
2. Increase in farm productivity from 57 tons cane per hectare to 75 tons cane per hectare
(57 TC/Ha to 75 TC/Ha)
3. Increase in sugar yield from 1.80 bags per ton cane to 2.1 bags per ton cane (1.80
LKg/TC to 2.1 LKg/TC)

B. Programs and Interventions

1. Block farming (P300M)
2. Identification of expansion areas and increase in plantation-sized farms (P5B)
3. Farm inventory and baseline farm mapping (P60M)
4. Research, development and extension services and establishment of farm services
providers (P100M)
5. Farm-to-mill roads (P3B)
6. Farm mechanization and the establishment of farm equipment manufacturing industry
(P10M initial capital)
7. Irrigation (P5B)
8. Establishment of mill support industries (P20M initial capital)
9. Establishment of sugarcane special economic zones (P1B)

29
 Figure _ Conceptual Framework for a Sustainable
and Diversified Philippine Sugarcane Industry

 Improved income of  Local & Foreign Direct

farmers, millers, Investments
 Job Generation
producers,
 Countryside
and workers Development
 Cleaner Environment
Sugar Bioethanol
 Energy Sufficient
 Economic Growth
& efficiency
 Community
 Greenhouse gas
Development
reduction
Support Power
Industries

30
Area Coverage
The total sugarcane plantation area for crop year (CY) 2016-2017 was 423,995 hectares
(has.).after two consecutive years of significant decrease in the total plantation area from CY 14-
15 to CY 15-16, the total area for this crop year increased considerably. The said decrease in the
plantation areas may be accounted for by the conversion of sugarcane plantations to plantations
for other crops. Moreover, based on the data collected in CY 2015-2016, 55% of the sugarcane
areas are situated in Negros Island, 21% are in Mindanao, 14 % in Luzon, 7% in Panay and the
remaining 3% in Eastern Visayas.

Figure _ Distribution of Sugarcane Farms by Island, CY 2013-2014

31
 4.1. PLAYERS IN THE PHILIPPINE SUGAR INDUSTRY

Table 4: Directory of Sugar Mills in the Philippines

# SUGAR MILLS REGION CAPACITY/DAY

1 Universal Robina Corp. - Carsumco Region II 4,000

2 Central Azucarera Don Pedro, Inc Region IV-1 12,000

3 Pensumil Inc. Region V 3,500

Sweet Crystals Integrated Sugar Mill

4 Region III 2,500
Corporation (PORAC)

5 Central Azucarera de Tarlac Region III 7,200

Universal Robina Corp. Sugar &

6 Region IV-A 4,500
Renewables –
7 Central Azucarera de Bais Inc. Region NIR/XVIII 8,000
8 Biscom Inc. Region NIR/XVIII 14,000

9 First Farmers Holding Corp. Region NIR/XVIII 4,500

10 Hawaiian-Philippine Company Region NIR/XVIII 7,500

11 Central Azucarera de la Carlota, Inc. Region NIR/XVIII 15,000

12 Lopez Sugar Corp. Region NIR/XVIII 7,500

13 Universal Robina CORP. – Ursumco Region NIR/XVIII 8,000

14 Sagay Central, Inc Region NIR/XVIII 4,000

15 Universal Robina Corp – Sonedco Region NIR/XVIII 9,500

16 Universal Robina Corp – Tolong Region NIR/XVIII 4,000

17 Victorias Milling Company Inc Region NIR/XVIII 15,000

18 Organic Producers in the Island of Negros Region NIR/XVIII 500

19 Capiz Sugar Central Incorporated Region IV 4,500

20 Central Azucarera de San Antonio, Inc. Region VI 8,000

21 Universal Robina Corp. Passi Region VI 5,000

22 Bogo-Medellin Milling Company inc. Region VII 3,000

23 Hideco Sugar Milling Co., Inc. Region VIII 5,000

24 Busco Sugar Milling Company, Inc. Region X 18,000

25 Cotobato Sugar Central Co., Inc. Region XII 4,800
26 Crystal Sugar Company, Inc Region X 10,500

27 Davao Sugar Central Co, Inc. Region XI 5,000

Source: Sugar Regulatory Administration Directory of Sugar Mills
Table 4 : Immediate Competitiors (2015)

32
 COMPETITORS GROSS REVENUE NET INCOME TOTAL ASSETS
Biscom Inc. 2,956,616,929 229,760,911 3,938,626,078
BUSCO Sugar Milling Co., Inc. 5,264,984,364 129,923,058 4,419,096,756
Central Azucarera de Bais 1,160,689,679 19,615,910 1,140,705,911
Central Azucarera de Tarlac 1,023,902,805 144,210,459 5,713,786,662
Sweet Crystals Integrated
222,874,044 21,066,567 835,974,602
Sugar Mill Corporation
BISCOM Inc.
BISCOM INC. (BISCOM, Company) is a sugar manufacturing company engaged in raw
sugar manufacturing and sugar refining. The plant site comprises a total land area of more than
660,000 square meters and employs more than 600 regular personnel in raw sugar production,
quality control, warehousing, technical services, engineering support services, transportation and
administration.

BUSCO Sugar Milling Co., Inc.

BUSCO Sugar Milling Co., Inc is a sugar manufacturing company located in Bukidon. The
first sugarmill in Bukidnon was erected in Butong, Quezon, Bukidnon sometime in 1975. It was
erected by the Marubeni Corporation of Japan for Bukidnon Sugar Milling Co., Inc. with a capacity
of 4000 TCD.

It had its first milling season on December 21, 1976 to May 22, 1977 for which it crushed
148,530.96 tons cane and manufactured 260,056.00 piculs raw sugar with an average of 1.75
piculs sugar per ton cane. The area planted was 1,908 hectares from 54 planters, mostly from big
farms around the mill. In the succeeding years, the sugar cane agricultural development
prospered progressively such that after six years, for CY 1981-82, the mill crushed 894,752.04
tons cane and manufactured 1,488,254 piculs sugar. The mill was serving 1,167 planters cropping
about 14,000 hectares.

It was about the limit of the capacity to mill for a 4000 TCD Mill. Therefore, the company
undertook a capacity expansion program from 4000 TCD to 6000 TCD. After the second year of
expansion to 6000 TCD, the mill attained its highest production of 1,574,768 piculs raw sugar from
18,795.67 hectares.

Central Azucarera de Bais

33
 Central Azucarera de Bais is the largest producer of raw sugar in the province of Negros
Oriental. Established by the Tabacalera of Spain in the early 1900’s, it is also one of the pioneers
in the sugar industry in the Philippines.

Driving through the city’s main national highway, sugar plantations can immediately be
seen on both sides of the road. These areas are characterized by expansive lowlands that stretch
as far as the eyes can see and are ideal for sugar planting because of the city’s naturally fertile
soil. It is no wonder why 73% of the city’s total land area is devoted primarily to agriculture.

The Central Azucarera itself is an old foreboding structure of metal and hard wood. The
offices may have seen better days, the dank smell of nostalgia hang heavy in the air, but are still
functional. Nearby is the Casa Grande, an equally old residential compound surrounded by tall
acacia trees, which was built for the use of the employees of the Azucarera. The two storey
wooden houses are greatly influenced by old Spanish design and architecture. Much of the
houses have undergone restoration and continue to be used as homes.

Further on are the stately plantation houses owned by sugar planters, mostly standing on
one of the lots in the family hacienda. Inside the haciendas are chapels whose altar and icons
date back to the early 1917’s. Educational visits to these places may be arranged at the Bais City
Tourism Office. What is most interesting is you get to tour via the old railroad trams used by the
milling companies to hasten sugarcane transport.

Sweet Crystals Integrated Sugar Mill Corporation

Sweet Crystals Integrated Sugar Mills Corporation was organized on August 19,1997 for
the purpose of milling sugar cane to manufacture sugar and molasses. Their milling operations
started in 2001 and was established in Pampanga. The mill is strategically placed to reduce the
distance area planters have to traverse in order to mill their cane. It is the only raw sugar mill in
the Philippines that operates a direct bagging system.

4.2. MARKET ASPECTS

Products and Services
Raw and Refined Sugar, Bioethanol, Muscovado, Molasses,
Sugarcrops offers production alternatives to food, such as livestock feed, fibre and energy,
particularly biofuels (sugar-based ethanol) and/or co-generation of electricity (cane bagasse).

34
Sugarcane is generally regarded as one of the most significant and efficient sources of biomass
for biofuel production. Stronger linkages between world sugar and oil prices have emerged, driven
in part by the relationships between sugar as the primary ethanol feedstock in Brazil, the world’
dominant producer of sugarcane-based ethanol in the world. A wide range of environmental and
social issues are connected with sugar production and processing, and sugarcrop growers,
processors, plus energy and food companies, are seeking ways to address concerns related to
sugar production, biofuels and sustainability.

PRICES
The discussions on sugar prices covered the mill gate, wholesale and retail prices of raw
and refined sugar.

Production volumes contribute to the determination of mill gate prices of sugar. Another
determinant identified by SRA is the sugar stock balance. Sugar stock balance at any given time
represents the available supply in the market. It is said that there is a direct inverse relationship
between stock balance and price of sugar. That is, as stock balance inventory increases, prices
would tend to move downwards. As the milling season ends, prices would tend to inch upwards.
This is in consideration to the fact that sugar milling season in the country and therefore sugar
production, normally takes place within a period of six months in a year. During the other six
months when production is minimal or nil, the consumers use the stock balance.

35
 Domestic Prices
Table _ : Prevailing Sugar Prices in Metro Manila CY 2013-2016

WHOLESALE PRICE PER 50-KILO BAG

2016 2015 2014 2013
DATE
Raw Washed Refined Raw Washed Refined Raw Washed Refined Raw Washed Refined

JAN 2020 2080 2580 1700 1830 2170 1630 1730 2020 1,400 1,500 1,900

FEB 2040 2080 2600 1700 1850 2200 1600 1775 2000 1,550 1,580 2,000

MAR 2020 2130 2580 1800 1950 2220 1700 1850 2030 1,500 1,610 1,950

APR 2020 2100 2580 1800 2080 2400 1750 1970 2150 1,550 1,600 2,000

MAY 2020 2100 2580 1800 2080 2400 1850 2050 2250 1,600 1,750 2,020

JUN 2000 2100 2400 1930 2120 2500 1850 2050 2300 1,620 1,800 2,000

JUL 2000 2100 2400 1880 2080 2400 1800 2300 2300 1,580 1,780 2,000

AUG 1950 2100 2300 1850 2020 2420 1800 2295 2295 1,580 1,780 1,970

SEPT 1950 2100 2400 1830 2040 2380 1800 2230 2230 1,580 1,780 1,950

OCT 1950 2100 2350 1700 1900 2350 1700 2070 2070 1,620 1,775 1,950

NOV 1900 2080 2350 1950 2030 2550 1700 2070 2070 1,700 1,800 1,980

DEC 1850 2050 2300 1950 2030 2500 1700 2050 2050 1,650 1,730 2,030

RETAIL PRICE PER KILO

2016 2015 2014 2013
DATE
Raw Washed Refined Raw Washed Refined Raw Washed Refined Raw Washed Refined
39.0
JAN 47.00 50.00 55.00 43.50 47.50 51.50 40.00 45.00 44.00 44.00 50.00
0
39.0
FEB 50.00 51.00 56.00 43.50 47.50 51.50 40.00 44.00 44.00 44.00 50.00
0
36.5
MAR 50.00 51.00 56.00 43.50 47.50 51.00 39.00 43.50 38.00 42.00 50.00
0
38.0
APR 50.00 51.00 56.00 44.00 47.50 51.50 49.75 46.00 38.00 42.00 50.00
0
40.0
MAY 50.00 51.00 56.00 47.00 48.00 52.00 41.00 47.00 38.00 42.00 48.00
0
40.0
JUN 50.00 51.00 56.00 45.75 48.00 52.00 43.50 49.00 38.00 42.00 48.00
0
44.0
JUL 50.00 51.00 56.00 48.25 50.00 54.25 45.00 51.00 38.00 42.00 48.00
0
44.0
AUG 45.80 51.00 56.00 47.00 50.00 55.00 45.00 50.00 38.00 42.00 48.00
0
40.0
SEPT 48.50 51.00 56.00 47.00 50.00 55.00 45.00 50.00 38.00 42.00 48.00
0
44.0
OCT 48.00 51.00 56.00 47.00 50.00 54.25 44.00 50.00 38.00 41.50 48.00
0
44.0
NOV 50.00 51.00 56.00 49.00 50.00 55.00 44.00 50.00 39.00 42.50 47.00
0
44.0
DEC 49.00 51.00 56.00 49.00 50.00 55.00 44.00 50.00 39.00 42.50 47.00
0
Source: Regulations Dept. Sugar Production Bulletin 2013-2016

In years 2013-2016, prevailing wholesale prices of raw sugar in Metro Manila ranged from
P1,380-1,800, P1,500-1,800 and P1,600-1,850 per 50-kilo bag, respectively while retail prices
ranged from P36.50-44.00, P38.00 – P44.00, and P39.00-43.50 per kilo of raw sugar.

36
 The National Price Coordinating Council (NPCC) chaired by DTI established the
suggested retail price (SRP) of refined sugar at P50.00 per kilo in July 2011 and since then it
remained at the same level because of the stable millsite prices of sugar. The SRP of
commodities was set by the NPCC in times of abnormal price situations or whenever there is an
abrupt escalation of commodity prices. Average wholesale and retail prices in Metro Manila
groceries of raw, washed and refined sugar in crop years 2010-2011 to 2012-2013 are shown
below.

Table _ : Average and Prevailing Sugar Prices in Metro Manila CY 2017

WHOLESALE PRICE PER 50-KILO BAG

RAW WASHED REFINED
DATE Prevailin Averag Prevailin Averag
Average High Low High Low Prevailing High Low
g e g e
2,000.0 1,850.0 2,350.0
JAN 1,750.19 1,700.00 1,650.00 1,924.33 1,920.00 2,090.00 2,226.02 2,300.00 2,140.00
0 0 0
1,850.0 1,830.0 2,300.0
FEB 1,718.34 1,700.00 1,620.00 1,893.00 1,950.00 2,000.00 2,200.00 2,225.00 2,140.00
0 0 0
1,800.0 1,675.0 2,300.0
MAR 1,671.95 1,700.00 1,550.00 1,823.22 1,850.00 1,990.00 2,124.00 2,100.00 2,000.00
0 0 0
1,800.0 1,800.0 2,200.0
APR 1,700.00 1,700.00 1,600.00 1,886.00 1,900.00 2,000.00 2,108.34 2,100.00 2,000.00
0 0 0
1,800.0 1,700.0 2,200.0
MAY 1,598.52 1,550.00 1,550.00 1,755.56 1,750.00 2,000.00 2,055.37 2,050.00 2,000.00
0 0 0
1,650.0 1,700.0 2,050.0
JUN 1,617.22 1,650.00 1,570.00 1,738.67 1,750.00 1,750.00 2,028.33 2,050.00 2,000.00
0 0 0
1,650.0 1,670.0 2,050.0
JUL 1,620.42 1,650.00 1,550.00 1,732.50 1,750.00 1,750.00 2,022.00 2,000.00 2,000.00
0 0 0
1,650.0 1,700.0 2,050.0
AUG 1,587.50 1,600.00 1,550.00 1,716.00 1,750.00 1,750.00 2,025.83 2,000.00 2,000.00
0 0 0
RETAIL PRICE PER KILO
RAW WASHED REFINED
DATE Prevailin Averag Prevailin Averag
Average High Low High Low Prevailing High Low
g e g e
JAN 49.31 49.00 53.80 42.55 51.84 51.00 57.85 45.00 56.63 56.00 60.80 50.65

FEB 49.25 48.00 55.00 42.55 51.84 51.00 57.85 45.00 56.65 56.00 60.80 50.65

MAR 49.16 48.00 55.00 42.50 51.79 51.00 58.00 45.00 56.54 56.00 62.65 50.00

APR 49.18 48.00 55.20 42.50 51.66 51.00 62.00 45.00 56.52 56.00 62.65 50.00

MAY 49.41 45.00 55.20 42.50 50.96 51.00 62.00 45.00 55.71 56.00 65.00 50.00

JUN 47.81 45.00 56.50 38.00 50.34 50.96 58.00 40.00 55.22 53.00 62.85 49.00

JUL 48.15 45.50 55.20 38.00 50.50 50.34 57.60 40.00 55.43 53.00 62.85 46.75

AUG 48.18 45.50 55.20 40.00 50.57 50.50 57.60 44.00 55.45 53.00 62.85 48.75
Source: Regulations Dept. Sugar Production Bulletin 2013-2016

Sugar prices in the Philippines is market-driven, depending on the supply- demand

situation while in Thailand, preliminary and final mill gate prices are fixed by the Office of the Cane
and Sugar Board (OCSB).

37
 Domestic sugar prices are typically higher compared to world prices. May 2016 retail prices
of raw sugar in Metro Manila, as published in the Sugar Regulatory Administration (SRA), range
from P43 to P44 per kilo. On the other hand, world market prices, as published by the World
Bank commodity-price data, showed that sugar prices are at 38 US cents (around P17 to P18)
per kilo. Given the wide disparities in prices, even including transport and marketing costs,
sugar in the world market could still be drastically cheaper compared domestically.

Table _ : Average Mill Site Prices by Sugar Classification

Including Molasses CY 2009-2010 to 2015-2016
PRICES IN PESOS PER LKg (50-kilo) BAG
CY
"A" US "B" "C" "D" COMPOSITE MOLASSES
QUOTA DOMESTIC RESERVE WORLD PRICE (Pesos/MT)
2015-2016
2014-2015
2013-2014 806.54 1,536.05 792.86 1,480.07 6,029.43
2012-2013 756.00 1,393.00 781 1,280.95 5,837.00
2011-2012 1,234.34 1,419.23 1128.11 1,346.22 4,498.09
2010-2011 1,128.11 346.22 1,330.95 5,722.46
2009-2010 1,281.31 1,587.83 1420.73 1130.79 1,664.25 7,172.23
Source: Sugar Regulatory Administration 2017

The price of sugarcane is computed in terms of the millsite prices of sugar using sugar
yield factors or the LKg/TC and the prevailing sharing scheme implemented in each mill district.
Due to increasing trend of domestic demand, millsite price of raw sugar in crop year 2013-14
escalated at a composite price ranging from P 1,318 – P1,694 per LKg bag and a national
average of P1,480 per LKg bag. Average millsite prices of US quota sugar, domestic and world
market sugar were P806.54, P1,536.05 and P792.86 per LKg bag, respectively. In crop years
2000-01 to 2004-05, prices of US quota sugar exceeded the domestic prices, therefore, those
years became very attractive for the Philippine sugar of entering the US market.

Millsite prices of raw sugar showed a downward trend from crop year 2007-2008 to 2008-
2009 and an upward trend from crop year 2008-2009 to 2009-2010. Composite prices of raw
sugar from crop year 2007-2008 to 2009-2010 were P1,057, P945 and P1,539 per 50-kilo bag,
respectively. Molasses as well showed an upward trend at P4,099, P4,272 and P6,973 per metric
ton from crop year 2007-2008 to 2009-2010, respectively.

38
 Raw sugar millsite prices in CY 2009-2010 turned abnormally high which triggered the
importation of sugar under the tax expenditure subsidy program of the National Food Authority
(NFA). Millsite price trends for the past 5 crop years are shown in Table _

Crop year 2010-2011 is seen to be a profitable season for sugarcane farmers in the
Philippines with an average composite millsite price of P1,864 per 50-kilo bag while crop year
2011-2012 showed a sharp decline in millsite price to an average of P1,345 per 50-kilo bag. The
traders and millers with large sugar stocks were having huge exposures during the sharp decline
of sugar prices in CY 2011- 2012. Millsite prices further declined to P1,280 per 50-kilo bag in crop
year 2012- 2013 but have recovered to P1,480 in CY 2013-14.

Table _ : Average Monthly Mill Site Prices of Raw Sugar and Molasses
(Philippine Average Crop Year 2016-2017) in Peso /LKg

COMPOSITE
"A" US QUOTA "B" DOMESTIC "D" WORLD MOLASSES
PRICE
January 2017 1,253.77 1,538.26 1,515.50 9,123.88
February 2017 1,318.97 1,470.36 1,461.27 8,657.96
March 2017 1,334.37 1,382.45 872.77 1,325.06 7,606.93
April 2017 1,288.16 1,384.78 854.14 1,272.86 6,562.26
May 2017 1,230.98 1,384.43 754.76 1,249.28 5,890.62
June 2017 1,194.50 1,387.20 660.09 1,230.22 6,951.62
Source: Sugar Regulatory Administration 2017

39
Table _ : Bioethanol Reference Price, CY 2016-2017

40
Promotion

Figure _ Sugar Quedan System

Source: Sugar Regulatory Administration (SRA) - 2017

Sugar Marketing
In the Philippine setting, payment of sugar is based on the raw sugar output reflected in
the sugar quedans (shown in Figure _ ) under the sugar sharing scheme.

 Domestic
The domestic sugar market is divided into two main segments: household and industrial.
Among industrial users, sugar is an important input to the food processing industry. Major users
are the beverage industry, confectioneries, food service outlets, and preserved fruits, among
others.

The flow of sugar for the domestic market follows an established pattern. After getting the
quedans, the planters usually sell these immediately to the local traders who in turn sell them to
bigger traders, who accumulate the quedans and subsequently sell the volume sugar either to
wholesalers, the distributors or the processors. The processors use the sugar as input for
processing while the wholesalers and distributors sell their sugar to the retailers. The sugar
eventually reaches the consumers through the supermarkets, wet markets and sari-sari stores.

41
  Export
Table _ : List of Major Sugar Traders in the Philippines
Sugar Trader Location
All Asian Counter Trade, Inc National Capital Region
Sucden Philippines National Capital Region
Oro Allado Commodities National Capital Region, Negros
Delmax National Capital Region, Negros
Tao Commodities National Capital Region
Busco Sugar Milling Co., Inc. Bukidnon
La Perla Sugar Export Corp. National Capital Region
ED&F Man National Capital Region, Negros
Source: Sugar Regulatory Administration Roadmap 2017

There are about 258 sugar traders and 156 molasses traders in the country. Table _ shows
the major registered sugar traders in the country namely: All Asian Counter Trade, ED&F Man,
Sucden, Oro Allado, Delmax and Busco Sugar Milling.

The Philippines used to export both raw and refined sugar. However, since 2003, refined
sugar exports had been minimal and becoming nil because of the Advance VAT collected by the
Bureau of Internal Revenue on refined sugar for exports. Meanwhile, raw sugar export was
generally on the uptrend by 8.2 percent annual growth averaging 163,661 tons per year from
2000 to 2010. The upward trend from 2003 to 2009 can be explained by the changes in the
sugar quota allocation of the Philippines from the US, the country’s sole export market.

 Imports

In the event that local production does not meet local demand, importation of sugar is done
by the Philippines.

Channels of Distribution

42
4.3 MARKET GROWTH RATE AND STAGE IN THE GROWTH CIRCLE

Figure _ Market Growth of Competitors FY 2015

6000000000
5000000000
4000000000
3000000000
GROSS REVENUE
2000000000
NET INCOME
1000000000 TOTAL ASSETS
0
C en t r al BISCOM BUSCO C en t r al S w eet
Azu c ar er a Inc. Su gar Azu c ar er a C r yst al s
d e Tar l ac Mi l l i n g d e Bai s I n t egr at ed
Co., Inc. Su gar Mi l l
Corp.
Source: Securities and Exchange Commission - Company Annual Report 2015

Table _ : Gross Revenue, Net Income & Total Assets of CAT’s Competitors
GROSS REVENUE NET INCOME TOTAL ASSETS
COMPETITORS
(in Php) (in Php) (in Php)
Biscom Inc. 2,956,616,929 229,760,911 3,938,626,078
BUSCO Sugar Milling Co., Inc. 5,264,984,364 129,923,058 4,419,096,756
Central Azucarera de Bais 1,160,689,679 19,615,910 1,140,705,911
Central Azucarera de Tarlac 1,023,902,805 144,210,459 5,713,786,662
Sweet Crystals Integrated Sugar Mill Corporation 222,874,044 21,066,567 835,974,602
Source: Securities and Exchange Commission - Company Annual Report 2015

Figure _ shows the graphical representation of the market growth of Central Azucarera de
Tarlac and its competitors. Among the 5 companies, Busco Sugar Milling Co., Inc. attains the
highest gross revenue amounting to P5,264,984,364; while the company with the highest net
income is Biscom Inc. with P229,760,911. Lastly, Central Azucarera de Tarlac attains the highest
total assets with P5,713,786,662 in FY 2015

4.4 MARKET SHARE ANALYSIS

There are 27 Mill Districts engaged in production of sugar, - 6 Mill Districts in Luzon

(which includes Isabela Mill District, a newly created mill district dedicated to bioethanol fuel

production), 4 Mill Districts in Mindanao, 3 Mill Districts in Panay, 2 MDs in Eastern/Central

Visayas (Durano Mill District is merged with Bogo-Medellin Mill District due to the closure of its

sugar mill), 3 Mill Districts in Negros Oriental and 9 Mill Districts in Negros Occidental.

43
 Figure _ Market Share of Competitors FY 2015

Biscom Inc. BUSCO Sugar Central Azu-

3% Milling Co., Inc
6% carera de Bais
1%
Central Azu-
MARKET SHARE
carera de Tar- Biscom Inc.
lac BUSCO Sugar Milling Co., Inc
1%
Central Azucarera de Bais
Sweet Crystals
IntegratedCentral Azucarera de Tarlac
Sugar Mill
Corp. Sweet Crystals Integrated Sugar
0% Mill Corp.
Others Others
88%

Source: Securities and Exchange Commission - Company Annual Report 2015 | Sugar Regulatory Administration 2015

Table _ : Market Share and Gross Revenue of CAT’s Competitors

COMPETITORS GROSS REVENUE MARKET SHARE

Biscom Inc. 2,956,616,929 3.40%

BUSCO Sugar Milling Co., Inc. 5,264,984,364 6.05%

Central Azucarera de Bais 1,160,689,679 1.33%

Central Azucarera de Tarlac 1,023,902,805 1.18%

0.26%
Sweet Crystals Integrated Sugar Mill Corporation 222,874,044

Source: Securities and Exchange Commission - Company Annual Report 2015

Figure _ shows the market share of Central Azucarera de Tarlac and its competitors,

with an estimate Industry revenue of P87 billion, Central Azucarera de Tarlac contributes 1.18%

in the market while its competitors namely Biscom which contributes 3.40% in the industry,

BUSCO Sugar Milling Co., Inc with 6.05%, Central Azucarera de Bais with 1.33%, and Sweet

Crystals Integrated Sugar Mill Corporation with 0.26%

44
4.5 COSTS AND EFFICIENCIES
4.6 BUYER/ CUSTOMER COMPOSITION AND CHARACTERISTICS
The primary customers for any type of business are the ones who buys products in bulk

and on a regular basis. In case of manufacturing business, the bulk buyers are usually the

dealers or distributors of the product. If a company has a strong dealer network, the product will

reach end consumers which will make the sales volume increase. Industrial users are firms that

are engaged in: sweetened-beverages, milk and milk products, sugar confectionery, and ice

cream, meat/fish canneries. While end consumers can be classified those who are engaged in

retail groceries, food and beverage firms such as bakeries, restaurants/coffee shops, hospitals,

and households.

4.7 OPERATIONS / PRODUCTION ASPECTS

Plan of Operation
Outlook for FY 2016-2017
For the second year in a row, the world sugar economy is projected to post a production
deficit. Only recently, the International Sugar Organization (ISO) released its first full- scale
forecast for 2016-17. World sugar output is projected at 168.010 MMT. On the other hand, the
world consumption is estimated to reach 175.058 MMT. As a result, another year of production
deficit is projected of around 7.048 MMT. A deficit reduces the stock-to-consumption ratio to 43%,
the lowest level in recent past. The projected deficit might trigger a surge in market values of 24
cents per pound as what occurred in 2009-10 & 2011-12 when the stock consumption ratio was at
45%. Seemingly, world market values is poised to continue moving upwards particularly in the first
half of 2017 when the harvest in the all-important Centre-South of Brazil will end.

World Sugar Balance

Source: (Million tons, raw value) CAT –
FORM Change SEC17
– 2016-17 2015-16 Annual
Report In min t In percent – FY
2016 Production 168.010 165.840 2.170 1.31%
Consumption 175.058 171.584 3.474 2.02%
Deficit (7.048) (5.744) (1.304) 22.70%
Import Demand 56.695 58.362 (1.667) -2.86%
Export Availability 56.610 58.501 (1.891) -3.23%
End Stocks 75.598 82.561 (6.963) -8.43%
Stock/ Consumption Ratio,
43.18% 48.12%
in percent

45
 The Philippines is projected to produce approximately 2.25 million tons of raw sugar for
Crop Year 2016-17. Based on recent SRA issuance of Sugar Order No. 1 dated August 31, 2016,
the allocation is as follows:
Table _ : Sugar Classes

SUGAR CLASSES PRODUCTION MMT % ALLOCATION

“A” or U.S Market Sugar 0.180 8%

“B” or Domestic Sugar Market 2.070 92%
“D” or World Sugar Market - 0%
2.25 100% Source:
CAT – FORM SEC17 – Annual Report – FY 2016

The allocation for “A” US quota allows for reallocation of unfilled shipments by other quota-
holder countries.

Meanwhile the allocation of “B” sugar can be affected by the carry-over stock from around
750,000 tons including the sugar imports in CY 2015-16. This could put downward pressure on
the domestic market values for the sweetener which is currently at a relatively high level of P1,700
– P1,800 per 50-kilogram bag of raw sugar.

46
Production

Manufacturing Process
1. Cleaning
After the cane arrives at the mill yards, it is mechanically unloaded, and excessive soil and
rocks are removed. The cane is cleaned by flooding the carrier with warm or by spreading the
cane on agitating conveyors that pass through strong jets of water and combing drums. At this
point, the cane is clean and ready to be milled.

2. Slicing
After the cleaning process, a machine led by a series of rotating knives, shreds the cane into
pieces. This is known as "grinding.” During grinding, hot water is sprayed on to the sugarcane to
dissolve any remaining hard sugar. The smaller pieces of cane are then spread out on a
conveyer belt.

3. Juice Extraction Pressing

The shredded pieces of sugarcane travel on the conveyer belt through a series of heavy-
duty rollers, which extract juice from the pulp. The pulp that remains or "bagasse" is dried and
used as fuel. The raw juice moves on through the mill to be clarified.

4. Purification
The juice from the mills, a dark green color, is acid and turbid. The clarification (or
defecation) process is designed to remove both soluble and insoluble impurities (such as sand,

47
soil, and ground rock) that have not been removed by preliminary screening. The process
employs lime and heat as the clarifying agents.

Carbon dioxide and the milk of a lime are added to the liquid sugar mixture and it is heated
to the boiling point, as the process of clarifying begins. As the carbon dioxide travels through the
liquid it forms calcium carbonate, which attracts non-sugar debris (fats, gums, and wax) from the
juice, and pulls them away from the sugar juice. The juice is then pushed through a series of
filters to remove any remaining impurities.

The muds separate from the clear juice through sedimentation. The non-sugar impurities are
removed by continuous filtration. The final clarified juice contains about 85 percent water and
has the same composition as the raw extracted juice except for the removed impurities.

5. Evaporation
To concentrate this clarified juice, about two-thirds of the water is removed through vacuum
evaporation. Generally, four vacuum-boiling cells or bodies are arranged in series so that each
succeeding body has a higher vacuum (and therefore boils at a lower temperature). • The syrup
leaves the last body continuously with about 65 percent solids and 35 percent water.

6. Crystallization
The crystallization process takes place in vacuum pans which boil the juice at lower
temperatures under vacuum. • When the juice concentrates it is 'seeded' with tiny sugar crystals
which provide the nucleus for larger crystals to form and grow. When the crystals reach the
desired size the process is stopped. • The remaining mixture is a thick mass of large crystals,
which is sent to a centrifuge to spin and dry the crystals. The dried product is raw sugar, still
inedible.

7. Refinery
Raw sugar is transported to a Cane Sugar Refinery for the removal of molasses, minerals and
other non-sugars, which still contaminate the sugar. This is known as the purification process. •
Raw sugar is mixed with a solution of sugar and water to loosen the molasses from the outside
of the raw sugar crystals, producing a thick matter known as "magma."

Large machines then spin the magma, which separate the molasses from the crystals.

48
Crystals are promptly washed, dissolved and filtered to remove impurities. The golden syrup
which is produced is then sent through filters to remove the color and water. What's left is a
concentrated, clear syrup, which is again fed into a vacuum pan.

8. Separation and Packaging

Once the final evaporation and drying process is done, screens separate the different sized
sugar crystals. Large and small crystals are packaged and shipped, labeled as white, refined,
sugar.

Raw Sugar Production by Month (2011-2016) (in metric tons)

Area planted and yield per hectare (LKg per Hectare)

Source of Data: Final Sugar Production Bulletin Regulation Department

49
 Refined Sugar Production by Month CY 2011-2016 (in 50kg bag)

Source
of Data: Final Sugar Production Bulletin Regulation Department

50
PORTER’S FIVE FORCES MODEL

Michael Porter provided a framework that models an industry as being influenced by five
forces. The strategic business manager seeking to develop an edge over rival firms can use this
model to better understand the industry context in which the firm operates.

Through this, the researcher seeks to analyze the applicability of Porters model in the
sugar industry – to compare and contrast the profitability and growth of a firm in these
industries.

Figure _ Porters Five Forces Model

THREAT OF NEW
ENTRANTS
 Product Differentiation
 Capital Requirement
 Buyer Concentration
 Similar Product Line
 Bulk Buying

BARGAINING POWER COMPETITIVE RIVALRY

BARGAINING POWER
OF SUPPLIERS  Similar Products that OF CUSTOMERS
are being offered  Buyer Concentration
 Bulk Buying  Large number of  Similar Product Line
competitors Bulk Buying
 Number of Suppliers

THREAT OF
SUBSTITUTES
 Several Alternative for
Sugar
 Health of Consumer
 Switching Cost

51
 1. Threat of New Entrants
FACTORS
 Product Differentiation
 Capital Requirement
 Buyer Concentration
 Similar Product Line
 Bulk Buying
2. Threat of Substitute Products or Services
FACTORS
 Several Alternative for Sugar
 Health of Consumer
 Switching Cost
LEVEL ANALYSIS
 This threat of new entrants examines
how easy or difficult it is for
competitors to join the marketplace in
the industry that is being examined.
 The Philippine Sugar Industry is
characterized with modest entry
barriers which means that it is not that
easy for a manufacturing company to
Moderate enter in the industry since there are
requirements needed in order to build
a sugar refinery such as the required
size of the sugar plant, required
metric tons, required size crop per
year, etc.
LEVEL ANALYSIS
 The threat of substitutes in the sugar
industry is high due to wide variety of
products that can be used and serve
as a sweetener such as maple syrup,
honey, apple sauce, high fructose
corn syrup, etc.
 The consumers can easily switch from
one product to another both
immediate and long-term as well as
High
buyer’s inclination to change with
prices and quality to compare with,
this can be determined if they can
lower their costs even more due to
high number of manufacturers and
suppliers in the market.
52
3. Bargaining Power of Customer
FACTORS LEVEL ANALYSIS

 This force looks at the power of the

consumer to affect pricing and
quality.
 The bargaining power of customers
in the sugar industry is moderate,
there are a lot of consumers and
sellers as well and it is easy to switch
from one product to another since
the substitute for product is also high.
 Based on the article that was issued
by Philippine star, top players of
sweetened beverages like Coca Cola
– FEMSA and PEPSICO, demanded
to have access to the local sugar
classified as “D”—sugar shipped to
countries other than the US—to hike
their purchase of local sugar

CFPI and PCPI agreed to increase their

 Buyer Concentration utilization and their procurement of local
Moderate
 Similar Product Line sugar provided they are given access to ‘D’
 Bulk Buying sugar that’s bound for export. They wanted
access to “D” sugar because it is cheaper by
P350 per 50-kilogram bag (l kg) than the “B”
sugar, or sugar allocated for the domestic
market currently priced at P1,300/l kg.

 This actually depends to the sugar

mill manufacturers if they will allow
these firms to access the ‘D’ sugar,
(which is relatively cheaper) because
if they will not allow their request,
there is a high chance that these
firms will switch to alternative
sweeteners which can greatly affect
the sugar industry in the country
quality to compare with, this can be
determined if they can lower their
costs even more due to high number
of manufacturers and suppliers in the
market.

53
 4. Bargaining Power of Suppliers
FACTORS
 Bulk Buying
 Number of Suppliers
5. Competitive Rivalry
FACTORS
 Similar Products that are being
offered
 Large number of competitors
LEVEL ANALYSIS
 This force analyzes how much power
of a business’s supplier has and how
much control it has over the potential
to raise its prices, which, in turn,
would lower a business’s profitability.
 The bargaining of suppliers in the
sugar milling industry is relatively low
Low
because they don’t need much
suppliers to produce sugarcane since
most of the companies are harvesting
in their own plantation.
 The bargaining power of suppliers will
rise if there is a presence of shortage
in sugarcanes
LEVEL ANALYSIS
High
 This force examines how intense the
competition currently is in the
marketplace, which is determined by
the number of existing competitors of
what each is capable of doing.
 Competitiveness among the sugar
players in the Philippines is relatively
high; with around 27 Mill Districts
engaged in production of sugar, - 6
Mill Districts in Luzon (which includes
Isabela Mill District, a newly created
mill district dedicated to bioethanol
fuel production), 4 Mill Districts in
Mindanao, 3 Mill Districts in Panay, 2
MDs in Eastern/Central Visayas
(Durano Mill District is merged with
Bogo-Medellin Mill District due to the
closure of its sugar mill), 3 Mill
Districts in Negros Oriental and 9 Mill
Districts in Negros Occidental.
 The competition between established
firms on this market is really high.
First as we saw it, there are strong
competitors and many substitutes. In
addition, there is a low degree of
product differentiation.
 Different competitors propose the
same kind and there is no major
difference between products, they use
the same ingredients and
components.
54
  When rivalry competition is high,
advertising and price wars can ensue,
which can hurt a business's bottom
line. suppliers to produce sugarcane
since most of the companies are
harvesting in their own plantation. The
bargaining power of suppliers will rise
if there is a presence of shortage in
sugarcanes

INDUSTRY TRENDS
PROBLEMS IN THE INDUSTRY

 Sugar tariff and its implications

 Maintaining profitability in the Philippine Sugarcane Industry
 Performance of Philippine Sugar Mills and Deterrents to Mill Improvements
 Implementation of the Biofuels and renewable energy laws.

The main challenge confronting the Philippine sugar industry is how to improve competitiveness
in view of new trade arrangements. The Philippines’ trade policy has not undergone any major
changes since 2005. Tariffs are the main policy instrument for protecting the domestic industry.
The country has entered into bilateral agreements with 15 preferential partners including those
under new ASEAN Regional Trade Agreements (RTAs), namely: Australia and New Zealand,
China, India, Japan, and Korea. Despite these numerous trade agreements, the country has no
effective recourse against sugar smuggling particularly from co-ASEAN members like Thailand.
It has already lodged complaints for three anti-dumping investigations in 2005 and 13 cases from
1999-2003.

The Philippines has long maintained high tariffs on raw and refined sugar imports, but Executive
Order No. 892 reduced the tariffs under the ASEAN Free Trade Agreement (AFTA) – from 38%
in 2010 to five percent (5%) in 2015. This reduction in AFTA tariffs is expected to significantly
impact on Philippine sugar production and trade, as other ASEAN producers, particularly
Thailand, enjoy lower production costs. Industry sources cite that in April 2013, a metric ton of
Philippine sugarcane was sold for about US $ 55/MT while its Thai counterpart was sold at US $
34/MT.16

New trade agreements are likely to render tariffs ineffective for protecting the country’s interests.
The Common Effective Preferential Tariff-ASEAN Free Trade Area (CEPT-AFTA) of 1992
effectively brought down the average tariff range to 0 to 5 percent (0-5%). This includes sugar in
the CEPT Inclusion List (CEPT IL) of the ASEAN 6 (the original members composed of Brunei,
Indonesia, Malaysia, Philippines, Singapore, and Thailand).17 However, the Philippine
government can always invoke a provision in the ASEAN Trade in Goods Agreement of 2009

55
(ATIGA) that allows an ASEAN member state to suspend tariff concessions or raise tariffs on
rice and sugar when an import surge threatens domestic producers.18

The Philippines has no General Competition Law and no Anti—Dumping measures in

place, in the event of tariff-free imports beginning 2015 and beyond. There are no safeguards
against the lower production costs of government-subsidized sugarcane among other ASEAN
countries.

The domestic industry is also vulnerable to unfair competition due to smuggling. Weak
border controls and corruption nurture illegal cross-border trade that impact on domestic supply
and prices. For example, no official imports were expected for MY 2012/13 due to adequate
sugar production but industry sources and newspaper articles reported the smuggling of sugar
(and other crops) from Thailand ranging from 150,000 to 200,000 MT annually.

Overall, there is a need to improve productivity, enhance efficiency, and modernize

infrastructure and facilities, especially milling and storage facilities.

56
 COMPETITORS PROFILE MATRIX

Competitive Profile Matrix (CPM) is one of the strategic management tools to

differentiate among different players with an industry. Competitive Profile Matrix indicates the
snapshot of the companies about their weak and strong points relative to their competitors. In
this matrix, players are measured on the basis of their critical success factors. The Competitive
Profile Matrix identifies the firm’s major competitors and its particular strengths and weaknesses
in relation to a sample firm’s strategic position.

CSF # 1: Operations and Production Capacity = 20%

The operations and production capacity is weighted 20% because it is very important in
the sugar industry as it is the volume of raw and refined sugar that can be produced by a
refinery by using its current resources and at the same time, in order to deliver a safe, efficient,
cost-effective, and world-class operation to produce quality products and services for
customers.

This is very important for the majority who are engaged in manufacturing businesses not
just in the sugar industry since the final product is dependent in its operations, production
process and capacity, same goes to the revenue. The higher the production capacity, the higher
the company can generate its revenue.

Table _ PRODUCTION CAPACITY of CAT and its Competitors

CAPACITY/DAY as of 2016
RANK COMPETITOR
(in metric tons)
1 BUSCO Sugar Milling Co., Inc. 18,000
2 BISCOM Inc. 14,000
3 Central Azucarera de Bais 8,000
4 Central Azucarera de Tarlac 7,200
5 Sweet Crystals Integrated Sugar 2,500
Source: Securities and Exchange Commission - Company Annual Report 2015

As shown in table _, BUSCO Sugar Milling Co., Inc obtained the highest rating of 4 and
an attractiveness score of 0.80 in the critical success factor of operations and production
capacity with 18,000 metric tons of raw and refined sugar per day; while its competitors,
BISCOM Inc. ranked 2nd with a rating of 3 and an attractiveness score of 0.60 with capacity of
14,000 metric tons per day; Central Azucarera de Bais with a rating of 2 and an attractiveness
score of .40 with capacity of 8,000 metric tons per day; Central Azucarera de Tarlac with a
rating of 2 and an attractiveness score of .40 with capacity of 7,200 metric tons per day; and

57
lastly, Sweet Crystals Integrated Sugar with a rating of 1 and an attractiveness score of .20 with
capacity of 2,500 metric tons of raw and refined sugar per day

CSF # 2: Size of Sugar Plantation = 19%

Geographical Location plays a vital role in the industry since it is the main tool for a sugar
production. Without a proper location, there would be no finished product that will be catered to
the market.
Table _ Size of Sugar Plantation of CAT and its Competitors
SIZE OF SUGAR
RANK COMPETITOR PLANTATION as of 2016
(in hectares)
1 BUSCO Sugar Milling Co., Inc. 230
2 BISCOM Inc. 66
3 Central Azucarera de Bais
4 Central Azucarera de Tarlac 627.9
5 Sweet Crystals Integrated Sugar
Source: Securities and Exchange Commission - Company Annual Report 2015

CAT has the distinct advantage of having its own sugar refinery, a capability currently
not possessed by its neighboring mills. This being so, CAT remains to be the only major source
of easily accessible commercial grade refined sugar to cater to the demands of Central and
Northern Luzon. In the last several years, CAT produced approximately 1.0M to 1.2M 50-
kilogram bags of commercial grade refined sugar per season, a volume insufficient to meet the
demand of its own market especially during off-season months of June to October.

58
CSF # 3: Variety of Distribution Channels = 16%
A distribution channel is the path through which products pass to get from the producer to
the consumer. This may be business-to-business or business-to-customer, in this case, a sugar
manufacturing company is set to have business-business distribution channel that may include;
Wholesaler or Distributor, Retail and Groceries, etc.

Distribution channel has a weight of 16% since it plays a vital role in a critical success of the
industry, from production to processing of sugarcane varieties, to distribution of raw and refined
sugar, to retail companies down to the end consumers.

The basis for the ratings of the competitors are financial aspects wherein we can identify the
performance of the distribution channel of the company through inventory turnover ratio,
revenue and net income and various information from its annual report. BUSCO Sugar Milling
Co., Inc. obtained the highest rating of 4 and attractiveness score of 0.64; meanwhile BISCOM
Inc. and Central Azucarera de Tarlac both has a rating of 3 and an attractiveness score of 0.48;
and lastly, Central Azucarera de Bais and Sweet Crystals Integrated Sugar Mill Corp obtained a
rating and attractiveness score of 2 and 0.32, respectively.

CSF # 4: Profitability and Growth = 13%

Profitability ranked 13% for the reason that is the primary goal of all business ventures.
To be successful and remain in business, profitability is necessary for a company to survive and
remain attractive to investors and analysts. Without profitability, the business will not survive in
the long run. The weight of profitability is lower than production capacity and size of sugar
plantation because in order for a company to generate income, it needs to have efficient
operations and enough capacity utilization to cater its production demand.

Table _ Net Profit Margin of CAT and its Competitors

RAN NET PROFIT MARGIN
COMPETITOR
K (as of 2015)
1 Central Azucarera de Tarlac 14.08%
2 BISCOM Inc. 9.25%
3 BUSCO Sugar Milling Co., Inc. 2.47%
4 Central Azucarera de Bais 1.69%
5 Sweet Crystals Integrated Sugar 0.29%
Source: Securities and Exchange Commission - Company Annual Report 2015

With this being so, the net profit margin is used to measure the percentage of revenue
left after all expenses have been deducted from sales. As shown in table _, Central Azucarera

59
de Tarlac obtained the highest rating of 4 with an attractiveness of 0.52 and a net profit margin
of 14.08%; while its competitors BISCOM Inc. obtained a rating of 3 and an attractiveness score
of 0.39 with net profit margin of 9.25%; BUSCO Sugar Milling Co., Inc and Central Azucarera de
Bais obtained a rating of 2 with an attractiveness score of 0.26 and net profit margin of 2.47%
and 1.69% respectively; and lastly, Sweet Crystals Integrated Sugar obtained a rating of 1,
attractiveness score of 0.13 and net profit margin of 0.29.

CSF # 5: Market Share = 13%

Market share obtained a weight of 13% because it serves as an important metric for
business success, it represents the effectiveness of any possible revenue generating effort such
as marketing campaigns, branding initiatives, etc. it has a weight lower compared to CSF #1-3,
and with the same rating with profitability, because profitability and market share are dependent
upon their performance. If the operations, production and distribution channel is good, then it
will generate profit to the company and obtain a higher market share in the industry.

Table _ Market Share of CAT and its Competitors

RAN GROSS REVENUE MARKET SHARE
COMPETITOR
K (as of 2015) (as of 2015)
1 BUSCO Sugar Milling Co., Inc. 5,264,984,364 6.05%
2 BISCOM Inc. 2,956,616,929 3.40%
3 Central Azucarera de Bais 1,160,689,670 1.33%
4 Central Azucarera de Tarlac 1,023,902,805 1.18%
5 Sweet Crystals Integrated Sugar 222,874,044 0.26%
Others 76,370,932,188 87.78%
TOTAL 87,000,000,000 100%
Source: Securities and Exchange Commission - Company Annual Report 2015

As shown in table _, BUSCO Sugar Milling Co., Inc obtained the highest rating of 4 and
an attractiveness score of 0.52 with market share of 6.05%, while BISCOM Inc. ranked 2 nd with
a rating of 3, attractiveness score of 0.39 and market share of 3.40%; meanwhile, Central
Azucarera de Bais and Central Azucarera de Tarlac both obtained a rating and attractiveness
score of 2 and 0.26 with market share of 1.33% and 1.18% respectively; and lastly, Sweet
Crystals Integrated Sugar obtained a rating of 1, attractiveness score of 0.13 with market share
percentage of 0.26%.

60
CSF # 6: Financial Position = 10%
The statement of financial position weighted 10% as it can be used for a number of
financial analysis such as comparing debt to equity or comparing current assets to current
liabilities. A company’s financial position is defined by its assets and liabilities wherein it also
includes shareholders’ equity. It ranks lower than CF # 1 to CF # 5 for the reason that a
company will not have a good financial position if their performance is weak and inefficient.

Table _ Financial Position of CAT and its Competitors

RAN TOTAL TOTAL WORKING CAPITAL
COMPETITOR
K ASSETS LIABILITIES (as of 2015)
1 Central Azucarera de Tarlac 5,713,786,62 3,404,801,374 1,277,661,048
2 Central Azucarera de Bais 1,140,705,911 130,561,938 441,887,915
3 BUSCO Sugar Milling Co., Inc. 4,419,096,756 2,376,946,806 2,529,986,739
4 BISCOM Inc. 3,938,626,078 2,798,976,893 118,620,050
5 Sweet Crystals Integrated 740,553,883 113,245,430 -45,785,255
Sugar
Source: Securities and Exchange Commission - Company Annual Report 2015

Table _ shows the basis of the ratings of the competitors which are: total assets, total
liabilities and working capital in the year 2015.

CSF #7: Solvency = 9%

Solvency is weighted 9% for the reason that it is one of the financial aspects that is
monitored. It determines the ability of a company to meet its financial obligations on an ongoing
basis, not just over the short term. With this being so, the Debt-to-Equity Ratio is used as a
basis to measure a company’s financial leverage to determine how much debt a company is
using to finance its assets relative to the amount of value represented in shareholders’ equity.

Table _ Debt/Equity Ratio of CAT and its Competitors

RAN TOTAL TOTAL DEBT/EQUITY RATIO
COMPETITOR
K LIABILITIES EQUITY (as of 2015)
1 Central Azucarera de Bais 130,561,938 1,010,143,973 0.12
2 Sweet Crystals Integrated Sugar 113,245,430 627,308,453 0.18
3 BISCOM Inc. 2,798,976,893 1,139,649,185 0.40
4 BUSCO Sugar Milling Co., Inc. 2,376,946,806 2,042,149,950 1.16
5 Central Azucarera de Tarlac 3,404,801,374 2,308,985,288 1.47

As shown in table _, Central Azucarera de Bais and Sweet Crystals Integrated Sugar Milling
Corp. obtained the highest rating and attractiveness score of 4 and 0.36, with a debt-to-equity

61
ratio of 0.12 and 0.18 respectively. A low debt-to-equity ratio is good since it indicates that a
company is not taking advantage of the increased profits that financial leverage may bring.

Meanwhile, a high debt-to-equity ratio indicates that a company may not be able to generate
enough cash to satisfy its debt obligations. This means that for every peso of ____ owned by
the shareholders, ____owes 1.50 to creditors.

62
 Table _ : Competitors Profile Matrix
COMPETITORS
Central Sweet Crystals
CRITICAL Azucarera de Central
BUSCO Sugar Integrated
# SUCCESS WEIGHT Tarlac BISCOM Inc. Azucarera de
Milling Co., Inc. Sugar Milling
FACTORS Bais
Corp.
RATING AS RATING AS RATING AS RATING AS RATING AS
Operations and
1 Production .20 2 0.40 3 0.60 4 0.80 2 0.40 1 0.20
Capacity
Size of Sugar
2 .19 4 0.76 2 0.38 3 0.57 2 0.38 1 0.19
Plantation
Variety of
3 Distribution .16 3 0.48 3 0.48 4 0.64 2 0.32 2 0.32
Channels
4 Profitability .13 4 0.52 3 0.39 2 0.26 2 0.26 1 0.13
4 Market Share .13 2 0.26 3 0.39 4 0.52 2 0.26 1 0.13
5 Financial Position .10
6 Solvency .09 1 0.09 3 0.27 2 0.18 4 0.36 4 0.36
TOTAL: 100 3.48 3.82 3.18 2.43

CRITICAL SUCCESS FACTORS

As indicated by the total weighted score of 2.43, Sweet Crystals Integrated Sugar Milling

Corporation is weakest whilst BISCOM Inc, with a total weighted score of 3.82 is the strongest.

BUSCO total sugarcane area 69,663 ha. 11,395 farmers

BISCOM 28,725 ha. 2,572 farmers
CADB 26,836 ha. 6,867 farmers
CAT 15,106 ha. 1,917 farmers
SC 4,060 ha. 613 farmers

63
1. Variety of Distribution Channels

64
 EXTERNAL FACTOR EVALUATION MATRIX
The External Factor Evaluation Matrix is a good strategic-management tool often used
for assessment of current business conditions which can also visualize and prioritize the
opportunities and threats that a business is facing. The numbers range from 1 to 4, where 1-
Poor Response, 2- Average Response, 3- Above Average Response and 4- Superior
Response.

Table _ : Opportunities and Threats

EXTERNAL FACTORS SOURCE WEIGHT RATING SCORE
OPPORTUNITIES
1 Wide Variety of Distribution Channels CPM 18% 4 0.72
2 Demand for Sugarcane Varieties CPM 15% 3 0.45
Infrastructure Support from The Department of
3 Agriculture (DA) and The National Economic and Political Factor 10% 3 0.30
Development Authority (NEDA)
Transformation of Block Farms as Agribusiness
4 Units in the Mill Districts
Porters 7% 3 0.21
ASEAN Economic Community Integration which
may encourage more exports of surplus raw sugar
5 to complement the need for raw materials of the
Political Factor 5% 4 0.20
sugar refineries in ASEAN Countries
THREATS
Environmental
1 Climate and Weather Condition
Factor
15% 4 0.60

2 Weak Economy due to High Inflation CPM 12% 4 0.48

Abolition of the Sugar Regulatory Administration
3 (SRA)
Political Factor 10% 4 0.40
Entry of Alternative Sweeteners like Stevia, HFCS, Economic
4 Synthetic Sweeteners, Etc. Factor
5% 3 0.15
Reduction of Tariff to 5% and Full Integration of
Economic
5 AEC which may result to the free flow of imported
Factor
3% 3 0.09
sugar into the country
TOTAL WEIGHTED SCORE 100% 3.60
(1) Poor Response, (2) Average Response, (3) Above-Average Response, (4) Superior Response)

The highest possible total weighted score for a company is 4.0 and the lowest is 1.0. The average
total weighted score of Central Azucarera de Tarlac is 3.60 which means that CAT’s strategies has been
managing to respond in an above average way to their opportunities and threats found in their industry

65
CHAPTER V
COMPANY ANALYSIS (INTERNAL AUDIT, 7S, IFE)
This chapter presents the internal analysis Central Azucarera de Tarlac (CAT). It
presents the company’s operations and financial performance, and how they respond to the
internal and external factors they are facing in regards with its strengths and weaknesses

5.1 MISSION STATEMENT

Company Mission
“Bringing peace and prosperity to the countryside
Connecting Farmers to the rest of the world while connecting the world to our Farmers
One Farmer, One Hectare One Community at a time.”

Table _ : Mission Statement Evaluation Matrix

PARAMETER YES/NO EVALUATION
“Connecting farmers to the rest of the world while
1. Customers Yes
connecting the world to our farmers”
2. Products and Services No -
“Bringing peace and prosperity to the countryside”
3. Markets Yes “Connecting farmers to the rest of the world while
connecting the world to our farmers””
4. Technology No -

5. Concern for Survival, “Bringing peace and prosperity to the countryside,

Yes
Growth and Profitability one farmer, one hectare, one community at a time”

“Bringing peace and prosperity to the countryside

6. Philosophy Yes Connecting Farmers to the rest of the world while
connecting the world to our Farmers”

“Bringing peace and prosperity to the countryside,

7. Self-concept Yes
one farmer, one hectare, one community at a time”

“Connecting Farmers to the rest of the world while

8. Concern for employees Yes
connecting the world to our Farmers”

9. Concern for nation One Farmer, One Hectare One Community at a

Yes
building time

66
COMPANY BACKGROUND
Incorporated on June 19, 1927, Central Azucarera de Tarlac (CAT) operates an integrated
manufacturing facility that processes sugar and all its by-products. Its business and facilities
include the sugar milling and refinery, distillery and carbon dioxide plants located in Barrio San
Miguel, Tarlac City. The sugar cane supply is sourced predominately from the Tarlac district and
a few in the nearby towns of Pampanga.

CAT's main products are raw and refined sugar, with the mill and refinery process also
producing molasses as a by-product. The combined captive molasses are further processed in
the distillery to produce alcohol. The various types of alcohol regularly produced and sold are
rectified spirits (purified alcohol), absolute alcohol and denatured alcohol. The slops from the
distillery are also captured by the carbon dioxide plant to produce liquid carbon dioxide also in
tandem with the distillery.

The Company owns a 100% stake in Luisita Land Corporation (LLC), a domestic
corporation engaged in developing, leasing, and selling real properties and other ancillary
services. CAT, thru LLC, provides water distribution and wastewater treatment series to locators
of Luisita Industrial Park and residents of Las Haciendas de Luisita.

Tarlac Mill District – Tarlac Region III

Tarlac Mill District covers 12 municipalities and 127 barangays in the province of Tarlac. In
crop year 2013-14, Tarlac mill district had a total sugarcane area of 15,106 hectares with 1,917
farmers where 85% were small farmers. Average farm yield was 39.74 tons cane per hectare.
The mill district produced 51,985 tons sugar equivalent to 2.13% of the national production.
Generally small farms had the lowest farm productivity level from CY 2008-09 to 2011-2012
except for CY 2009-10 where small farms surpassed the large farms, 43.41 TC/Ha for small
farms against 40.77 TC/Ha for large farms. There are two organized block farms in Tarlac under
the DAR-DA-SRA convergence initiative, the North Cluster MPC in Paniqui and the Binhi ni
Abraham in Concepcion. Both block farms were financed by Land Bank of the Philippines.

CY 2013-2014 farm profile data of Tarlac mill district as gathered by SRA Agricultural
Extension unit shows that the mill district is composed of 1,578 farmers where 63.62% are
farming less than 5 hectares which constitutes 11.22% of the total sugarcane plantations of
Tarlac.

67
 Tarlac mill district has one sugar mill, the Central Azucarera de Tarlac having a capacity
utilization of 73.21% of its rated capacity of 7,200 tons cane per day (TCD) and a reduced
overall sugar recovery of 81.65% against the standard overall recovery of 81.02%, based on
data taken from the CY 2013-2014 SRA Annual Synopsis of Raw Sugar Factories.

Table _ Performance of Tarlac Mill District, CY 2009-2010 to 2013-2014

CY Area,Hectares (Ha.) TonsCane (TC) TonsRawSugar (TS) TC/Ha LKg/Ha LKg/TC

2013-14 15,106 600,262 51,985 39.74 68.83 1.73

2012-13 16,235 700,764 65,401 43.16 80.57 1.87
2011-12 15,700 760,319 64,084 48.43 81.64 1.69
2010-11 12,700 720,754 61,720 56.75 97.2 1.71
2009-10 13,400 557,728 54,250 41.62 80.97 1.95
Source: SRA Agricultural Extension Reports, CY 2009-2010 to 2013-2014

Table _ Profile of Sugarcane Farms and Farmers, CY 2013-2014

TARLAC MILL DISTRICT

# OF PERCENT # PERCENT # PERCENT
FARM SIZE # OF FARMS AREA (has)
FARMERS OF FARMERS OF FARMS AREA
Below 5.00
1004 63.62% 2459 29.27% 1,694.69 11.22%
Has.
5.01 - 10.00 237 15.02% 1280 15.24% 1,697.60 11.24%
10.01 -25.00 209 13.24% 1513 18.01% 3,262.32 21.60%
25.01 - 50.00 70 4.44% 1100 13.10% 2,311.84 15.30%
50.01 -
38 2.41% 905 10.77% 2,508.59 16.61%
100.00
100.01 &
20 1.27% 1143 13.61% 3,631.50 24.04%
Above
TOTAL 1578 100.00% 8400 100.00%% 15,106.54 100.00%
Source: SRA Agricultural Extension Report, CY 2013-2014

68
 MCKINSEY’S 7S FRAMEWORK

McKinsey 7s framework is a tool that analyzes the firm’s organizational design by

looking at seven key internal elements namely: strategy, structure, systems, shared values,
style, staff and skills, in order to identify if they are effectively aligned and allow organization to
achieve its objectives.

Structure
-Board of
Directors -
Composition and
Structure –
Senior Officers

Strategy Systems
- Personal and
- Compliance
Proactive
system
- focused on their
- Audit system
multi-prolonged
- Consumer loans
strategy
origination system

Shared
Values
- Core values
- Corporate social
responsibility
- Corporate
governance
Style
Skills - Bank’s
management of
- Technical being a caring,
and leadership supportive and
training appreciative
program

Staff
-Compensation
and benefits
- Code of
conduct

69
 FRAMEWORK
Strategy
 What is our strategy?
 How do we intend to
achieve our objectives?
 How do we deal with
competitive pressure?
 How are changes in
customer demands dealt
with?
 How is strategy adjusted
for environmental issues?
DISCUSSION
Central Azucarera de Tarlac seeks to achieve these
strategies in order for a sustainable growth in the
company:
1. Improvement of farm productivity and sugar yield
Sugar yield per ton cane is dependent on mill
efficiencies and cane quality. Old and dilapidated sugar
mills usually has low grinding efficiencies and cane quality
is influenced by good agricultural practices, timely delivery
to sugar mills and weather conditions aside from the
application of the right quantity of fertilizer and
pest/disease infestations.
2. Mill Rehabilitation to Improve capacity utilization of
sugar mills
Currently, capacity utilization of the country’s
sugar mills is around 60%. Sugar mills within the same
province are competing for the supply of cane by
providing some hauling subsidies to farmers just to
capture a bigger supply of sugarcane.
3. Promote the production of bioethanol from
sugarcane and molasses
Bioethanol production from sugarcane and
molasses should be promoted to have an alternative
market for sugarcane, hence, provide market flexibility for
the farmers and a balance in the quantity of sugar that will
be produced to have stable domestic prices of sugar. On
the other hand, the use of molasses for bioethanol
production adds value to molasses in a sense that it
opens up a new market aside from the potable bioethanol
or industrial alcohol market.
4. Selling Electricity under Power cogeneration
The sugar mills have long been cogenerating the
power produced from bagasse for its own consumption in
the processing of sugar. The potential for exporting
excess power to nearby communities is very promising
most especially when the renewable energy law was
passed in 2008 which provides for incentives to
70
 renewable energy developers.

5. Development of other value added products from

sugarcane
Bio-water and bio-plastics are the most promising
value-added products that can be derived from
sugarcane. Bio-plastics is environment-friendly and can
be produced from sugarcane bagasse. In sugar
processing, so much water is being extracted from
sugarcane which is wasted and goes with the liquid
effluents. The potential of utilizing sugarcane water into
bio-water can be realized through an additional
investment in a bio-water facility adjunct to sugar mills.

Structure CAT puts premium in the fair and impartial dealings

 How is the with third parties. Directors, Officers and Employees are
company/team divided? enjoined conduct fair business transactions with the
 What is the Hierarchy?
corporation and ensure that his personal interest does not
 How do the various
conflict with the interests of the corporation. Further,
departments coordinate
activities? Directors, Officers and Employees must not use their
 How do the team position of connection to the corporation to profit or gain
members organize and some benefit or advantage for himself and/or his related
align themselves? interests at the expense of the Corporation.
 Is decision making and
controlling centralized or A conflict of interest shall be considered material if the
decentralized? Is this as Director’s, Officer’s or Employee’s personal or business
it should be, given what
interest is antagonistic to that of the corporation or stands
we’re doing?
 Where are the lines of to acquire or gain financial advantage at the expense of
communication? Explicit the corporation.
and Implicit? Specifically, the Board of Directors are expected to
foster the long-term success of the corporation and to
sustain its competitiveness and profitability in a manner
consistent with its corporate objectives and the best
interests of its stockholders and other stakeholders. A
system of check and balance must be present within the
Board. A regular review of the effectiveness of such
system should be conducted to ensure the integrity of the
decisions making and reporting processes at all times.
There should be continuing review of the corporation’s
internal control system in order to maintain its adequacy
and effectiveness

A director should act in the best interest of the

corporation in a manner characterized by transparency,

71
 accountability and fairness. The basic principle to be
observed is that a director should not use his position to
profit or gain some benefit or advantage for himself and/or
his related interests. He should avoid situations that may
compromise his impartiality. If an actual or potential
conflict of interest may arise on the part of a director, he
should fully and immediately disclose it and should not
participate in the decision making process. A director who
has a continuing material conflict of interest should
seriously consider resigning from his position.

Employees are prohibited from transacting personal

business on company premises whether the employee is
on or off-duty is prohibited and subject to disciplinary
action ranging from reprimand to dismissal.

Any employee who commits an act of immorality and

whose immoral conduct interferes with the proper
performance of his duties, or cause actual harm to the
interest of the Company or has a reasonable tendency to
cause such harm shall be penalized with termination of
employment

Any employee who by any of the means falsified

document to the damage or detriment of the interest of the
Company, or with the intention of causing such damage or
detriment to Company interests shall be penalized with
termination of employment.

The Board’s oversight responsibility pursuant to Section

6.1 of the Manual on Corporate Governance includes,
conflict of interest situations. The Audit Committee has
been created to assist the Board in fulfilling its oversight
responsibility of the Company’s corporate governance
process relating to the determination and resolution of
possible conflict of interest between and the Company
and/or its group and their directors, officers and significant
shareholders
Environment Management System
Systems
CAT is committed to implement and continuously
 What are the main
systems that run the improve a consistent Environmental Management System
organization? Consider (EMS) that shall help minimize the negative impacts of the
Financial and HR
systems as well as above operations to land, air, and water; and to provide a

72
 communications and clean, safe, and healthy environment for the reciprocal
document storage
benefit of its employees, stakeholders, and the community
 Where are the controls
and how are they where we operate.
monitored and
evaluated?
 What internal rules and CAT strives for continuous improvement of
processes does the team sustainable development by developing, placing and
use to keep on track?
continuously improving effective controls and procedures
to conserve energy, water and other raw materials.
Implementation of reduce water consumption and other
supporting programs has been spearheaded to prevent
depletion of water resources. CAT encourages the
implementation of re-using and recycling materials to
reduce environmental impact down to a minimum.

CAT seeks to prevent pollution at its source

reduce solid-liquid waste generated at our facilities and to
establish and support pollution-prevention
procedures/programs that shall prevent, if not minimize,
adverse effects of activities and/or conditions to its
employees and to the environment. All chemical wastes
are ensured to be treated before disposal to prevent harsh
impact to the environment and to the employees.

Further, CAT is committed to complying with all

relevant national and local environmental laws, rules and
regulations. It shall aim to regularly monitor and improve
means to control air emissions, land and water discharges
to assure compliance.
Central Azucarera de Tarlac – “Our Values”
Shared Values
Success in our business requires an awareness
 What are the core
values? that each one of us is part a greater whole. The actions of
 What is the one affect the results of others.
corporate/team culture?
How strong are the As a factory operator, I know that I am merely part
values? of a greater whole. My actions while directly affecting my

73
 What are the unit shall also have an effect on processes before me and
fundamental values that processes after me. Achieving my goals at the expense of
the company/team was
built on? other processes is a still a failure on my part. In other
words, I need to achieve my goals while also allowing the
processes before and after to attain or even exceed their
own goals.
In order to attain Oneness, we instill in each
everyone the value of teamwork and open
communication. We value teamwork over and above
individual achievement. We push for open communication
and candor between and among all employees across all
departments and across all hierarchies. Each one should
be free to express his views tempered of course by
respect for the dignity of others. Through teamwork, open
communication and candor, we not only create a
harmonious environment, but we also release the unique
potential of each and every individual. Allowing each
person to shine, show and share his true talents for the
benefit of his fellow employees, for the Company, for the
customer and for the community.

WE ARE FAMILY. | Trust. Respect. Discipline.

We operate like one big family. We grow and
process canes and we also grow people because we are
aware that people are our most valuable assets and
source of our competitive advantage.
Each individual is unique that is why we respect
one another and we recognize that each of us has our
own talents. We treat each other fairly and objectively.
We value our corporate family, and care for our customer
and community. For this reason, we adhere to the goals of
the organization and consistently follow our rules and
regulations.
We maintain cleanliness, discipline and order at

74
the workplace out of our own free will. We avoid waste of
our resources including time.
Superiors lead by example and subordinates
develop to be future leaders.

WE GROW BY LEARNING. IMPROVEMENT | Change.

Research. Teaching
We value people. We continuously develop
ourselves. In the process, we live in a learning
Organization.
We set high standards in all our endeavors and
continuously search for better ways to improve our work.
We pay more attention to prevention rather than to
correction
As employees, we nurture a progressive career
path and attain growth through training, coaching and
counseling.

We strive to have an accurate information about

our job and our operation regardless of our position. We
are open to change, criticism and willing to accept and
correct our mistakes.

WE LOVE OUR PLANTERS. PLANTER-FRIENDLY |

Genuine Concern. Fairness. Equity
At CAT, our farmers are called planters. We also
call them customers or even partners. We want them to
be happy and continue planting sugarcane and improve
their productivity. We do our best to make them globally
competitive.
We treat them equitably. No planter is too small
not to merit our total commitment. We will not be friendly
to some at the expense of others.

75
 WE CARE FOR OUR CUSTOMERS. CUSTOMER–
FRIENDLY
Genuine Concern. Fairness. Equity
We recognize the value of our customers as the
foundation of our sustained existence. Aware of this, we
will do our best to meet their requirements from the macro
needs of quality, quantity, on time delivery and price up to
the micro level of ensuring consistency in weight.
We will therefore continuously exert efforts to have a
complete understanding of their needs.

WE BUILD COMMUNITIES. BEYOND CSR

Our commitment to our community is not a
responsibility, it is a passion we strongly believe.
We create farming communities composed of
people who know sugarcane farming and support the
industry.
Our strength is anchored on the sustainable
development of the communities where we operate. As
such, sugarcane farming provides food on their table,
education for their children, shelter for their family, and
other needs.
We create value and make people want to be part
of the community and make them part of something big of
a bigger whole enjoying rapport among themselves.

WE HAVE A NAME TO LIVE UP TO. INTEGRITY |

Honesty. Ethics. Trust.
ABOVE ALL, WE VALUE INTEGRITY.
We have a name to live up to. That phrase sums
up all our beliefs on how we should deal with one another.

Style
 How participative is the

76
 management/leadership
style?
 How effective is that
leadership?
 Do employees/team
members tend to be
competitive or
cooperative?
 Are there real teams
functioning within the
organization or are they
just nominal groups?

Staff Their transitional structure is from the Executives,

 What positions or Managerial, Supervisors, Board Committees and lastly,
specializations are
represented within the the farmers.
team?
 What positions need to
be filled? As of June 30, 2016, Central Azucarera de Tarlac has a
 Are there gaps in total number of 300 employees in CAT - TARLAC and
required competencies?
subsidiaries namely: CAT-Makati and Luisita Realty
Corporation (LRC). A total of 272 employees in CAT-
Tarlac, 16 employees in CAT-Makati Office, and total of
12 employees in Luisita Realty Corporation (LRC)

Skills
CAT encourages employees from all levels to actively
 What are the strongest
skills represented within participate and support all programs of protection of
the company/team? human health, occupational safety, and protection of the
 Are there any skills gaps?
 What is the environment that shall improve productivity and reduce
company/team known for incidence of work accidents. CAT shall provide
doing well?
 Do the current appropriate environmental training and awareness to
employees/team encourage its employees to practice this awareness and
members have the ability
to do the job? to actively promote a sense of responsibility among
 How are skills monitored themselves and to other interested parties.
and assessed?

CAT shall provide the employees are with the required

trainings and protective clothing and gears used in the
handling of machineries inside the sugar mill. Further,
they are educated to assess and be prepared for

77
emergency situations within the workplace to minimize, if
not to eliminate, disastrous accidents

Training and Development

CAT believes in the creation of learning
opportunity to its employees to achieve their full potential
and development. The Corporation views development as
an on-going partnership between the company and its
employees, with the latter having the responsibility to
grow in knowledge, skills and values or attitudes in areas
that match the needs of the company.

Training shall focus on the development of the

alignment of purpose and performance across the
company, with particular emphasis on individual
employee; team; and the total organization.

Trainings are provided in order to develop and

maintain a competitive workforce through formal training
and/or informal training, which shall equally provide the
trainee. Formal training events includes formal training
courses (both in-house and external), on-the-job-training,
study tour, temporary work assignments. Informal training
events includes projects and task force assignments,
readings, fora, seminars, video and audio presentations.

Trainings are particularly provided for the following

individuals:
1. New hired employees
2. Employees who assume new responsibilities or
positions
3. Employees who needs improvement in job
performance and
4. Employees who must acquire changes in

78
 technology, services, practices, procedures, and
governmental requirements

Scope of the Trainings shall focus on the following

various contents:
5. Managerial/Supervisory – related to leadership
and management roles and fuinctions
6. Technical
1. Functional – job related function
2. Environmental, Health, and Safety –
related to compliance with company p
olicies, objectives, and procedures; and
governmental laws.
3. Computer – related to software
applications

The Organization Manpower and Resource

Development Department (OMRDD) shall:
1. Identify the training needs of the employees,
including the general awareness for environmental
aspects and impacts, and other specialized jobs.
2. Prepare and submit to the Resident Manager for
approval the training plan including budget, and
other resources needed.
3. Implement, conduct, or monitor the training,
seminar, or workshop programs. Resource
person/trainor must have the competency
requirements based on education, training and/or
experience as evidenced by his/her training
certificates.
Research and Development Spend
CAT spends approximately 0.09-0.10% for product
research and development over the last three (3) years.
The Company adheres to its core product, sugar, and

79
finds no need to further conduct product research and
development. However, it continuously adopts new
production technology to which spending is through
capital expenditure amounting to P100-120M annually.

80
 1.2 KEY PERFORMANCE INDICATORS

The following identify the top five (5) Key Performance Indicators of the Company, which
allow the measure of growth, financial performance and return on investment.
Table _ 5 Key Performance Indicators

REVENUE
2014 2015 2016
Revenue (in million PHP) 988.67 1,023.90 1,214.04
% Growth 4% 4% 19%
EBITDA
2014 2015 2016
EBITDA (in million PHP) 268.2 370.7 447.8
% Growth 54% 38% 21%
EBITDA Margin 27% 36% 37%
NET INCOME
2014 2015 2016
Net Income (in million PHP) 121.23 144.21 176.65
% Growth 168% 19% 22%
Net Income Margin 12% 14% 15%
EARNINGS PER SHARE
2014 2015 2016
Earnings per share (in php) 4.29 5.1 6.25
MILLING RECOVERY
2014 2015 2016
Milling Recovery (Lkg/TC) 1.88 1.841 1.652
Source: CAT – FORM SEC17 – Annual Report – FY 2016

81
Revenue

Figure _ Sale of Products and Services for FY 2014-2016

Sale of Products and Services

700

600
Sugar
500 Tolling of Refined Sugar
Alcohol
400 Tolling of Alcohol
Axis Title

Carbon Dioxide
300 Industrial Services
Real Estate Sale
200

100

0
2014 2015 2016
Source: CAT – FORM SEC17 – Annual Report – FY 2016

Figure_ shows the gross revenue from the sale of products and services of Central
Azucarera de Tarlac which amounted from P988.7M of FY 2014 to P1,214M of FY 2016.

Table 1.3 Revenue for FY 2014-2016

Growth %
REVENUES 2016 2015 2014
2016 vs 2015 2015 vs 2014
Sugar 572.4 546.6 562.8 5% -3%
Tolling of Refined Sugar 224.0 227.9 239.4 -2% -5%
Alcohol 347.2 187.3 130.6 85% 43%
Tolling of Alcohol .0 3.5 28.1 -100% -87%
Carbon Dioxide 36.2 27.6 27.8 31% -1%
Industrial Services 33.3 25.6 .0 30% 0%
Real Estate Sale 1.0 5.4 .0 -82% 0%
1,023.
TOTAL 1,214 9 988.7 19% 4%
Source: CAT – FORM SEC17 – Annual Report – FY 2016

For the Fiscal Year 2015-2016, the gross revenues from the sale of products and services
amounted to P1,214.0M, higher by P190.1M or 19% from the last year. The increase in the total
revenues was achieved despite the almost 19% drop in cane tonnage and its resultant effects in

82
the overall productivity. The achievement was a combination of improved market prices for raw
sugar, alcohol, tolling fee and other operational actions instituted to mitigate the negative effects of
the lower cane tonnage.
 Improved raw sugar composite price triggered the increase in sugar sales by P25.8M or
5% despite of decreased volume sold.
 Tolling of refined sugar decreased by P3.8M or 2% due to lower available raw sugar for
refining, despite of the increase in tolling fee per 50-kilogram bag of refined sugar by 8%.
 Alcohol sales volume growth by 60% and price growth of 16% boosted the significant
increase in alcohol revenues by P159.9M or 43%.
Carbon dioxide sales increased by P8.6M or 31% due to the increase in volume sales by 48% in
spite of the decrease in average selling price
Table 1.3 Consolidated Statement of Income FY 2014-2016

83
 Source: CAT – FORM SEC17 – Annual Report – FY 2016

Central Azucarera de Tarlac concluded the fiscal year 2016 with an EBITDA of P447.8M
and Net Income of P176.7M, an increase of 21% and 22% respectively, compared with fiscal
year 2015. The continuous growth in profitability was a result of focused initiatives to sustain the
financial performance progression of the Company amidst the challenges encountered.

Despite the occurrence of “El Nino” which greatly affected the cane supply within Central
Luzon and brought about the drop in sugar cane volume from 627K TC to 527K TC, the
Company came ahead with 2016’s sugar revenues of P572.4M from P546.6M in 2015. Sugar
prices played a significant role in compensating the drop in volume allowing most players in the
sugar industry to maintain its revenue levels.

Moreover, CAT has optimized the sale of other auxiliary products such as alcohol and
carbon dioxide, both impacting the Company’s revenues with P168.5M increase or 198%.
Meanwhile, the 5% increase in cost of goods sold resulted from the decreased cane supply
unable to cover fixed manufacturing costs, the further increase in such was mitigated by
affecting the Company’s strategies on the plant productivity and efficiencies.
The operating expenses with a drop of P20.0M or 15% were the outcome of the
Company’s continuous commitment to manage competently and effectively its resources to
guarantee continuous maximization of the business.

Capping the fiscal year 2016, CAT forged ahead as it successfully upheld its yearly
increases in its EBITDA margin with 37% and with a respectable Net Income margin of 15%.

The data shown above is the Consolidated Statement of Income of the Company and its
subsidiary, Luisita Land Corporation (“LLC”), for the fiscal years ending 31 June 2016, 2015 &
2014. LLC’s results of operations were consolidated beginning 16 October 2014.

84
5.3 COMPANY’S FINANCIAL PERFORMANCE IN TERMS OF FINANCIAL RATIOS
MEASURE OF SOLVENCY
Table _ Measure of Solvency

2016 2015 2014

Current Ratio 2.45 2.23 0.71
Quick Ratio 2.26 2.09 0.51
Receivables Turnover 1.69 2.16 3.57
In Days 216 169 103
Payable Turnover
Inventory Turnover 4.03 4.43 5.27
In Days 73 83 70

Current Ratio

The current ratio of Central Azucarera de Tarlac increased by 1.52 from 0.71 to 2.23 in

Fiscal Year 2014 to 2015 and an increment of 0.22 in Fiscal Year 2015-2016 due to the

increase in Inventories, Real Estate held for sale and development, and advances for land

maintenance to advance costs for future land preparation, planting and harvesting to augment

the cane supply in alignment with the management’s strategy.

Quick Ratio

The quick ratio of Central Azucarera de Tarlac from 2014 to 2016 increased by 1.51 and

0.17 in Fiscal Year 2014-2015 and Fiscal Year 2015-2016 respectively. This indicates that the

company increased its demands from quick assets which are Cash, Marketable Securities,

Accounts and Notes Receivables.

Receivables Turnover Ratio

The Receivables Turnover determines the rapidity of the collection of receivables and

measures the ability and efficiency of the credit department in this case, The Receivables

Turnover of Central Azucarera de Tarlac in Fiscal Year 2016, 2015 and 2014 were 1.69 which is

216 days, 2.16 which is 169 days, and 3.57 which is 103 days, respectively. This can be

assumed that Central Azucarera de Tarlac have poor collecting processes, a bad credit policy

85
and is not efficient in collecting its receivables since it takes them 216 days in order for them to

collect their receivables.

Inventory Turnover

The speed with which a company can sell inventory is a critical measure of business

performance since it shows the number of times that the inventory was sold on the average

during the period which can also be a component of calculation for return on Assets. The

Receivables Turnover of Central Azucarera de Tarlac in Fiscal Year 2016, 2015 and 2014 were

5.03 which is 73 days, 4.43 which is 83 days, and 5.27 which is 70 days, respectively. Central

Azucarera de Tarlac was able to sell roughly 5 times in the same years with an average of 75

days which can be assumed to have strong sales and/or large discounts.

Assets Turnover

The Assets Turnover of the Central Azucarera de Tarlac shows that its total investment

(total assets) is relatively low. It can be assumed that it does not earn much from its net sales

due to its decrease in ratio from FY 2014-2016 amounting from 0.33, 0.18, and 0.19 in Fiscal

Year 2014, 2015 and 2016 respectively

The solvency ratios measure the firm’s ability to satisfy its obligations as they come due
and it is a good leading indicator of cash flow problems. Based on the given data, all of the
ratios in 2016 became higher compared to 2015. The Current Ratio increased by 0.22 because
of increased in cash levels, receivables and inventory; Quick Ratio by 0.17 which means that
the company increased its demands from quick assets (Cash, Marketable Securities, Accounts
and Notes Receivables), and an increase of 0.18 in Solvency Ratio. It is good because it
indicates that the firm has improved its system in meeting obligations.

86
 Table _ Measure of Profitability

2016 2015 2014

Gross Margin 0.39 0.41 0.36
Net Operating Margin 0.15 0.14 0.12
Return on Assets 0.03 0.03 0.03
Return on Equity 0.06 0.06 0.07
Price to Earnings 38.23 18.04

Profitability ratios are among the most closely watched and widely quoted financial
ratios. The primary objective is to earn maximum profit at the minimum expense or cost. Many
firms link employee bonuses to profitability ratios and stock prices react sharply to unexpected
changes in these measures.

Gross Margin

The Gross Margin of Central Azucarera de Tarlac slightly increased by 5% from Fiscal Year

2014 to 2015 and decrease of 2% in Fiscal Year 2015 to 2016. The Gross Margin represents

the percentage the company needs to retain in each peso of sales to service its costs and

liabilities. This means that Central Azucarera de Tarlac needs to retain the 39% of the total

sales revenue incurred in the direct costs associated with producing the goods and services it

sells.

Net Operating Margin

This ratio is widely considered to be one of the most important measurements of

operational efficiency since it measures the organization’s operating income over net sales. The

Net Operating Margin of Central Azucarera de Tarlac from Fiscal Year 2014-2016 plays at 0.12

to 0.15 with the highest ratio in Fiscal Year 2016 which is 0.15. which means that every peso in

revenue earned brings 15 pesos in profit.

Return on Assets

87
 Central Azucarera de Tarlac’s Rate of Return on Assets in Fiscal Year 2016 and 2015 were

3% while 4% in Fiscal Year 2014. This shows that Central Azucarera is somehow not efficient in

using its assets to generate earnings.

Return on Equity

The Rate of Return on Equity (ROE) measures the amount earned in relation to the

amount invested. Central Azucarera de Tarlac’s Return on equity shows that Central Azucarera

de Tarlac’s return on equity is relatively low with 6% return in Fiscal Year 2016 and 2015, and

7% return in Fiscal Year 2014.

Price to Earnings

According to the analysis, the ratios of Return on Assets (ROA) and Return on Equity
(ROI) did not change, which means that CAT is efficient in stabilizing its assets and amount
invested from FY 2015-2016.

The Gross Profit Margin is the only ratio that decreased of 0.02, Which means that there
is a slight decrease with the proportion of money left over from revenues after accounting for the
cost of goods sold. And lastly, there is an increase with Net Profit Margin and Price/Earnings
with a ratio of 0.14 to 0.15 from FY 2015 to 2016 and 18.04 to 38.23 respectively.

88
 Table _ Measure of Stability

2015 2016
Debt Ratio 0.60 0.54
Debt/Equity Ratio 1.47 1.16
Interest Coverage 3.32 3.17
Asset/Equity Ratio 2.47 2.16
Debt Service Coverage 1.38 0.88

2016 2015 2014

Total Debt to Equity 1.16 1.47 0.85
Interest Coverage 3.17 3.32
Asset to Equity 2.16 2.47
Debt Service Coverage 0.88 1.38

Measure of stability is a stable flow of income facilitates the planning activities of a

business and gives sense of security to investors, creditors, employees and other parties. Debt
management ratios measure the extent to which a firm uses money from creditors rather than
shareholders to finance its operations for every peso of shareholder’s equity. All of the stability
ratios of CAT decreased.

Debt to Equity
Debt-to-Equity ratio is the ratio of total liabilities of the company to its stockholder’s
equity. The Debt to Equity ratio slightly diminished from 1.47 to 1.16 due to the increased
availment of a loan from a local bank.

Asset to Equity
The Asset-to-Equity ratio decreased from 2.47 to 2.16. it indicates the relationship of the
total assets of the company to its stockholder’s equity. The Company’s assets have been
slightly financed more by debt than equity as a result of the acquisition of the Company and its
subsidiary.

Debt Service Coverage

89
 Debt Service Coverage measures the company’s ability to service its outstanding debt.
The Company’s debt service coverage had improved due to higher earnings during the current
year.
From a banker’s point of view, the higher the debt to equity ratio, the weaker a company
is because such ratio indicates more risk. Said differently, a low debt to equity ratio indicates
that the firm is committing a large portion of equity in financing the business. Therefore, a firm
with a low debt to equity ratio is less risky and consequently stronger than a firm with higher
debt to equity.

90
COMPANY’S PRICING AND COSTS STRUCTURE

91
 INTERNAL FACTOR EVALUATION MATRIX

IFE (Internal factor evaluation) matrix is one of the best strategic tool to perform internal
audit of any firm. IFE is use for internal analysis of different functional areas of business such as
finance, marketing, IT, operations, accounts, Human Resources and others depend upon the
nature of business and its size. The numbers range from 4 to 1, where 4 – Major Strength, 3-
Minor Strength, 2- Minor Weakness, and 1- Major Weakness. Strengths can only receive ratings
3 and 4 while Weaknesses can only receive ratings of 2 and 1.

Table _ : Strengths and Weaknesses

INTERNAL FACTORS WEIGHT RATING SCORE
STRENGTHS
Capability of having its own sugar refinery which
makes CAT to be the only major source of easily
1 accessible commercial grade refined sugar to cater
20% 4 0.80
the demands of Central and Northern Luzon
Property Management and Utility Distribution -
2 No limitations as to the properties’ usage since CAT 15% 4 0.60
owns all its properties.
CAT is one of the few sugar milling company that is
publicly listed in The Philippine Stock Exchange
3 10% 4 0.4
which can generate more capital through its
shareholders
Proficient training and development provided to
4 its employees to achieve their full potential and 7% 3 0.21
development in the workforce
CAT’s Product and Research and Development
5 spend of P100-120M annually to continuously adopt 3% 3 0.09
new production technology.
WEAKNESSES
Deficiencies and inefficiency of infrastructure,
1 public utilities, with their related high costs
15% 1 0.15
Low volume of farm productivity with an average
2 daily output of 7,200 tons cane and 8,000 50-kg 12% 1 0.12
bags of refined sugar
Lack of financing and credit facilities at low
3 interest rates to fund farm operations for the mills 10% 1 0.1
and farm machineries;
Undersupply of sugar cane – nearby planters in
Tarlac and Pampanga who have become beneficial
4 owners of agricultural land have begun to explore or
5% 2 0.1
engage in sugar planting.
Ageing researchers, scientists, engineers and lack
5 of experts for the development of CAT
3% 2 0.06
TOTAL WEIGHTED SCORE 100% 2.63
(1) Major Weakness, (2) Minor Weakness, (3) Minor Strength, (4) Major Strength
Table _ : IFE EVALUATION

92

WEIGHT
S1 Capability of having its
own sugar refinery
S2 No Limitations as to
Property Management and
Utility Distribution
S3 CAT as one of the few
sugar milling companies
that are publicly listed at
Philippine Stock Exchange
STRENGTHS
EXPLANATION
S1 is weighted 20% because Geographical
Location plays a vital role in the industry since it is
the main tool for a sugar production. Without a proper
location, there would be no finished product that will
be catered to the market.
The distinct advantage of Central Azucarera de
Tarlac (CAT) having its own sugar refinery is
currently not possessed by its neighboring mills. This
being so, Central Azucarera de Tarlac (CAT) remains
20%
to be the only major source of easily accessible
commercial grade refined sugar to cater to the
demands of Central and Northern Luzon.
In the last several years, Central Azucarera de
Tarlac (CAT) produced approximately 1.0M to 1.2M
50-kilogram bags of commercial grade refined sugar
per season, a volume insufficient to meet the
demand of its own market especially during off-
season months of June to October.
S2 is weighted 15% because thru Central
Azucarera de Tarlac’s subsidiary, Luisita Land
Corporation (LLC), the company provides property
management and water distribution services to
locators to commercial and industrial districts within
the 10 barangay of Tarlac City.
15%
The Company owns all the properties. There
are no limitations as to the properties’ usage. These
are under the Mortgage Trust Indenture as a security
to the long-term loan the Company secured from a
local bank. Currently, Central Azucarera de Tarlac
(CAT) does not lease any of these properties.
10%
S5 is weighted 10% because Central Azucarera
de Tarlac (CAT) is one of the few sugar milling
company that is publicly listed in The Philippine
Stock Exchange which can generate more capital
through its shareholders
Capital can be used to fund research and
development (R&D), fund capital expenditure, or
even used to pay off existing debt. Another
93
 advantage is an increased public awareness of the
company because IPOs often generate publicity by
making their products known to a new group of
potential customers.

S4 is weighted 7% because Central Azucarera

de Tarlac (CAT) believes in the creation of learning
opportunity to its employees to achieve their full
potential and development. The Corporation views
development as an on-going partnership between the
company and its employees, with the latter having
the responsibility to grow in knowledge, skills and
values or attitudes in areas that match the needs of
the company.

CAT conducts their monthly trainings to develop

and maintain a competitive workforce through formal
and/or informal training.

Trainings are particularly provided for the following

individuals:
S4 Proficient Training and  Newly hired employees
7%  Employees who assume new responsibilities or
Development
positions
 Employees who needs improvement in job
performance and
 Employees who must acquire changes in
technology, services, practices, procedures and
governmental requirements

Scope of the trainings shall focus on the following

various contents:
 Technical
o Functional – job related function
 Environmental, Health and Safety – related
to compliance with company policies,
objectives, and procedures and
governmental laws.
 Computer – related to software applications
S3 is weighted 3% because CAT spends
approximately 0.09-0.10% for product research and
development over the last three (3) years. The
Company adheres to its core product, sugar, and
S5 Product Research and finds no need to further conduct product research
3%
Development
and development. However, it continuously adopts
new production technology to which spending is
through capital expenditure amounting to P100-120M
annually.

94
 WEAKNESSES
WEIGHT EXPLANATION
W4 is weighted 15% because the deficiencies of
factory facilities can result to downtime and leading to
decreased production output which is very crucial
especially in the sugar milling business.
Challenges faced by the district include the lack
W1 Deficiencies and
of farm-to-mill roads, irrigation facilities like shallow
Inefficiency of 15%
tube wells and portable engines and pumps,
Infrastructures
drainage problem, lack of farm mechanization
equipment such as tractors, trucks and harvesters,
shortage of sugarcane HYV nurseries, labor shortage
during harvesting and lack of boom sprayer for weed
control.
W2 is weighted 12% because farm productivity
plays a vital role in the corporation since the
revenues that can be generated relies on the
productivity and capacity of the farm.
W2 Low Volume of Farm
12% Central Azucarera de Tarlac currently has an
Productivity
average farm productivity of 7,200 tons cane and
8,000 50-kg bags of refined sugar which is relatively
low compared to its immediate competitors which can
produce up to 18,000 tons cane of sugar per day.
W3 is weighted 10% because Lack of financing
and credit facilities at low interest rates can greatly
affect the corporation. In order for a business to
W3 Lack of Financing and operate, it needs to have a capital and at least, a
10%
Credit Facilities financing and credit facilities with low interest rates in
order for them to invest in materials, machineries that
they will be able to use for production.

W1 is weighted 5% because Central Azucarera

de Tarlac’s sources of sugar cane predominately
come from Tarlac and the nearby province of
Pampanga. Planters who have become beneficial
owners of agricultural land have begun to explore or
W4 Undersupply of Sugar
5% engage in sugar planting. In addition, the Company
Cane
continuously augments its planters programs,
incentives, aids and other services to entice
planter/land owners to return to sugar crop
propagation and engage CAT for its milling and
refinery requirements.
W5 is weighted 3% because we all know that
researchers, engineers, scientists plays a vital role in
CAT since they are the ones who can improve and
discover new technologies that can improve farm
W5 Ageing Researchers,
productivity.
Scientists, Engineers and 3%
Lack of Experts
Central Azucarera de Tarlac would not be able
to function well like before with ageing researchers,
scientists, engineers since they are not that
productive like they were used to be.

95
 CHAPTER VI
STRATEGY FORMULATION

This chapter shows different strategy formulation tools such as TOWS Matrix, SPACE

Matrix, Internal-External Matrix, Grand Strategy Matrix, and Quantitative Strategic Planning

Matrix that are used in order to formulate strategies for Central Azucarera de Tarlac.

6.1 TOWS MATRIX

TOWS Matrix is used in order to come up with strategies for the company by combining its

internal strengths and weaknesses with its external opportunities and threats.

Table _ TOWS Matrix

Strengths (S) Weaknesses (W)

W1. Deficiencies and inefficiency
S1. Capability of having its own
of infrastructure, public utilities,
sugar refinery which makes CAT to
with their related high costs.
be the only major source of easily
accessible commercial grade
Of production facilities
refined sugar to cater the demands
of Central and Northern Luzon
W2. Low volume of farm
S2. Property Management and
productivity with an average daily
Utility Distribution - No limitations
output of 7,200 tons cane and 8,000
as to the properties’ usage since
50-kg bags of refined sugar
CAT owns all its properties.

S3. CAT is one of the few sugar
milling company that is publicly
listed in The Philippine Stock
Exchange which can generate more
Capital through its shareholders
W3. Lack of financing and credit
facilities at low interest rates to
fund farm operations for the mills
and farm machineries;

S4. Proficient Training and W4. Undersupply of sugar cane –

Development provided to its
employees to achieve their full
potential and development in the
workforce
nearby planters in Tarlac and
Pampanga who have become
beneficial owners of agricultural
land have begun to explore or
engage in sugar planting

S5.CAT’s Product and Research W5. Ageing researchers,

& Development spend of P100-
120M annually to continuously
adopt new production technology.
Opportunities (O) SO Strategies
O1. Wide Variety of Distribution SO1. Develop and maintain a
Channels Workforce Development Plan in
order to engage a skilled and
knowledgeable workforce
scientists, engineers and lack of
experts for the development of CAT
WO Strategies
WO1. Develop career pathways in
partnership with education providers
to strengthen the knowledge and

96
 skills of middle-aged researchers,
scientists and engineers of CAT in
order for them to somehow ‘match’
their knowledge and experiences
(S4, S5, O1)
with superiors for the sake of better
handling of the company to improve
productivity.
(W5, O1)

WO2. Mill rehabilitation to

improve farm productivity and
capacity utilization of sugar mills

Increase area of sugarcane

production
SO2. Promote positive health
 Restore previous
message about sugar by engaging
sugarcane growing land
in the national sugar nutrient
 Secure and develop new
strategy
sugarcane growing land
O2. Demand for Sugarcane As a positive public attitude towards  Prevent loss of current
Varieties
the role of sugar as a natural part of sugarcane growing land
diet Restore/increase sugarcane yield
 Improve soil health with
fewer inputs
(S4, S5, O2)
 Plant genetically modified
sugarcane varieties
 Improve irrigation and
chemical use
 Reduce harvesting losses

(W2, W4, O2, O4, O5)

SO3. Attract investments for
growth and diversification WO3. Secure supporting
infrastructure infrastructure for growth and
 Identify required growth and diversification
diversification infrastructure  Identify required supporting
 Develop alternative financing infrastructure
O3. Infrastructure Support from The
approaches for growth and  Develop alternative financing
Department of Agriculture (DA) and
diversification infrastructure approaches for supporting
The National Economic and
 Attract required growth and infrastructure
Development Authority (NEDA)
diversification infrastructure  Partner with government and
investment other industries to facilitate
common infrastructure delivery
Collaboration, compliance and handling facility
(W1, W2, W3, W4), O3, O5)
(S1, S2, S3, O3, O4)

O4. Transformation of Block Farms SO4. WO4. Develop alternative financing

as Agribusiness Units in the Mill approaches for new entrants
Districts involved in expansion /
S3O1, diversification
S4O2 MARK DEV.
(W1, W3, O3, O4, O5)

O5. ASEAN Economic Community SO5. Improve Investor WO5.

Integration which may encourage Confidence
more exports of surplus raw sugar  Continue improving market
to complement the need for raw access to sugar importing
materials of the sugar refineries in countries
ASEAN Countries
*collaboration/integrating with
ASEAN community* O5

97

Threats (T)
T1. Climate and Weather Condition
T2. Weak Economy due to High
Inflation
T3. Abolition of the Sugar
Regulatory Administration (SRA)
T4. Entry of Alternative Sweeteners
like Stevia, HFCS, Synthetic
Sweeteners, Etc.
T5. Reduction of Tariff to 5% and
full integration of AEC which may
result to the free flow of imported
sugar into the country
(S3, O5)
ST Strategies
ST1. Develop and maintain and
create * the Product and Research
Development in order to discover
new technologies for manufacturing
which can boost the farm
productivity and refining process
since Central Azucarera de Tarlac
has no limitations to its properties’
usage in order to prevent shortage
of crops during bad climate and
weather condition
Incentives,
Fertilizer-
Waste management* fuel,
bioethanol.
(S1, S2, S4, S5, T1)
ST2. Determine and improve the
economics of the sugar industry
by measuring the economic
contribution annually, including flow
on impacts in order to formulate
product development and market
penetration to generate high
revenue
(S4, S5, T2, T3, T4, T5)
ST3. Promote and develop other
value-added products other than
raw and refined sugar like
bioethanol and molasses in order
for the Sugar Regulatory
Administration (SRA) to have a
reason to continue its service to the
country.
(S4, S5, T3)
what product?
ST4. Research and Develop
viability of new products from
sugarcane which can compete with
alternative sweeteners in the market
(S4, S5, T4)
ST5. Implement a Research
Development Plan to adopt a new
technology which can enhance the
farm productivity of raw and refined
sugar at a lower cost in order to
compete with the prices of sugar
imports.
WT Strategies
WT1. Ensure widespread adoption
by researching most promising
productivity improvements to
enhance capacity to respond to
adverse events
 Develop disaster
management plan
 Industry viability /
profitability enables rapid
disaster recovery
 Manage risks of disasters
on support industries
WT2.
WT3. Develop alternative revenue
streams to raw sugar
 Advocate to retain RET
and increase cogeneration
from bagasse
 Advocate for biofuel
mandate
 Attract other industries that
benefit from renewable
steam/electricity
 Commercialize 1-3 other
biochemical products
(W2, W3, T3,T4, T5)
WT4.
WT5. Strengthen the strict
implementation of The Sugar
Quedan System in order to limit the
entry of imports in the country which
can surely affect the industry in
terms of production since sugar
imports are relatively cheaper than
98
 local sugar.
(S1, S2, S4, S5, T2, T3, T4 T5)
(W2, W4, T2, T3, T4, T5)

Market Penetration Strategies

Market Development Strategies
Product Development Strategies
Related Diversification

 Sell majority of raw sugar under an accreditation scheme

 Sell direct to food and beverage manufacturers

Selling electricity under power cogeneration

5.1 Present a single community interface

5.1.1 Deliver a regional PR strategy

5.2 Effectively manage our natural resources and adopt sustainable solutions
5.2.1 Regularly measure and report greenhouse gas emissions. Further improve efficiencies
and reduce greenhouse gas emissions
5.2.2 Encourage growers to engage in government programs to improve water quality
5.2.3 Commitment to continuous improvement in sugar production,

6.1 Determine and improve the economics of the sugar industry

6.1.2 Measure ROE for each stage of the supply chain
6.1.3 Develop programs to improve ROE at each stage of the supply chain

99
6.2 SPACE MATRIX

The Strategic Position and Action Evaluation Matrix or SPACE Matrix is a useful technique

for evaluating a particular strategic plan. It represents two internal dimensions which are

Financial Position and Competitive Position and two external dimensions which are Stability

Position and Industry Position. These factors are important determinants for the organization’s

overall strategic position. Each quadrant indicates aggressive, conservative, defensive, and

competitive strategies of the company.

Financial Strength (FS): use +1 (worst) to +6 (best)

Central Azucarera de Tarlac has a Working Capital amounting to 1,189,905,533

Industry Strength (IS): use +1 (worst) to +6 (best)

Financial Stability indicates a stable flow of income facilitates the planning of a business and

gives sense of security to investorsDebt to Equity Ratio of 1.47

Competitive Advantage (CA): use -1 (best) to -6 (worst)

Environmental Stability (ES): use -1 (best) to -6 (worst)

100
 Table _ SPACE Matrix

INTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITION

Ratings Ratings
Financial Strength (FS) +1 (worst) to Environmental Stability (ES) -1 (best) to
+6 (best) -6 (worst)
Solvency +5 Inflation Rate -2
Working Capital +5 Private Consumption -3
Leverage +3 Political Stability -4
Return On Investments +2 Entry Barriers -3
Return On Assets +2 Competitive Intensity -1
TOTAL +17 TOTAL -13
TOTAL AVERAGE +3.4 TOTAL AVERAGE -2.6
Ratings Ratings
Competitive Advantage (CA) -1 (best) to Industry Strength (IS) +1 (worst)
-6 (worst) to +6 (best)
Market Share -3 Growth Potential +5
Product Quality -2 Profit Potential +4
Product Variety -3 Financial Stability +4
Information Technology -4
Strategic Location -2
TOTAL -14 TOTAL +13
TOTAL AVERAGE -2.8 TOTAL AVERAGE +4.3
CONCLUSION
X-Axis (CA Average + IS Average) ( -2.8+4.3 = 1.5)
Y-Axis (ES Average + FS Average) ( -2.6+3.4 = 0.8)

101
 Figure _ SPACE Matrix Graph

 Backward, Forward,

 Market Penetration Horizontal Integration

 Market Development  Market Penetration

 Product Development  Market Development

 Related Diversification  Product Development

CAT
 Diversification
(related/unrelated)

 Backward, Forward,
 Retrenchment
Horizontal Integration
 Divestiture
 Market Penetration
 Liquidation
 Market Development
 Product Development

Central Azucarera de Tarlac falls under the Aggressive quadrant. the company’s x-axis

that consists of competitive advantage and industry strength is 1.5 and the y-axis which consists

of environmental stability and financial strengths is 0.8

102
6.3 INTERNAL AND EXTERNAL MATRIX
The IE matrix is based in two key dimensions which provide the basis of the IE matrix. IE
matrix includes the total weighted average of IFE matrix and EFE matrix.

Table _ IE Matrix

IFE TOTAL WEIGHTED SCORE

2.63
Strong Average Weak
EFE 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
TOTAL High
WEIGHTED 3.0 to 4.0 I II III
SCORE
3.60 Medium
2.0 to 2.99 IV V VI
Low
1.0 to 1.99 VII VIII IX

Referring to Table _, the total EFE rating is 3.60 while the total IFE rating from section _
is 2.63. Plotting the said figures in the I-E matrix as shown in table _, Central Azucarera de
Tarlac falls under Quadrant II which means that the firm has an opportunity for a Grow and Build
Zone. The recommended strategies under this area therefore are Integration, Market
Penetration, and Product Development.

103
 6.4 GRAND STRATEGY MATRIX

The grand strategy matrix is primarily based on four essential elements: rapid market
growth, slow market growth, strong competitive position and weak competitive position. Using
the analysis from the internal and external evaluation, appropriate strategies for an organization
to consider are listed in sequential order of attractiveness in each quadrant of the matrix.

Figure _ Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

1. Market development 1. Market development

2. Market penetration 2. Market penetration
3. Product development 3. Product development
CAT
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
Strong
Weak Quadrant III Quadrant IV Competitive
Competitive Position
Position

1. Retrenchment
1. Concentric diversification
2. Concentric diversification
2. Horizontal diversification
3. Conglomerate diversification
3. Conglomerate diversification
4. Horizontal diversification
4. Joint ventures
5. Divestiture
6. Liquidation

Slow Market Growth

Central Azucarera de Tarlac falls in Quadrant 1 with the suggestion that the company
should employ market development and market penetration

104
6.5 SUMMARY OF STRATEGIES

Summary of strategies shows which strategies from the strategy formulation tools are

recommended for Central Azucarera de Tarlac.

STRATEGY OPTIONS TOWS IE GRAND SPACE TOTAL

Market Development     4
Market Penetration     4
Product Development     4
Horizontal Integration    3
Forward Integration    3
Backward Integration    3
Divestiture 0
Liquidation 0
Related Diversification 0
Unrelated Diversification 0
Retrenchment 0
Joint Ventures 0

105
6.6 QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

QSPM
STRATEGY 1 STRATEGY 2 STRATEGY 3
KEY FACTORS WEIGHT AS TAS AS TAS AS TAS
Opportunities

Threats

Strengths

Weakness

106
 CHAPTER VII

STRATEGY IMPLEMENTATION

1.1 REVISED MISSION – VISION

Proposed Vision Statement

“To be a world-class leader in the sugar cane industry

by providing world-class products and services in the Asia pacific region by year 2020”

Table _ : Proposed Vision Statement Evauation Matrix

PARAMETER YES/NO EVALUATION

Does it clearly answer the

“To be a world-class leader in the
question: What do we want to Yes
sugar cane industry”
become?

Is is concise enough yet It is straight to the point but at the same

Yes
aspirational time, motivational.

“To be a world-class leader in the

sugar cane industry
by providing world-class products and
Is it aspirational? Yes
services in the Asia pacific region by
year 2020”

Does it give clear indication as

No “year 2020”
to when it should be attained

107
Proposed Mission Statement

“Bringing peace and prosperity to the countryside

To provide quality sugarcane-based products and services to our customers,
To enhance shareholder value with reasonable return on equity to our stockholders
To provide professional growth, development and recognition to our people
Connecting Farmers to the rest of the world, while connecting the world to our farmers
One Farmer, one hectare, one community at a time”

Table _ : Mission Statement Evaluation Matrix

PARAMETER YES/NO EVALUATION

1. Customers Yes “To provide quality sugarcane-based products and

services to our customers

2. Products and Services Yes To provide quality sugarcane-based products and

services
To enhance shareholder value with reasonable
3. Markets Yes return on equity to our stockholders
Connecting Farmers to the rest of the world, while
connecting the world to our farmers

4. Technology Yes To provide quality sugarcane-based products and

services

5. Concern for Survival, “Bringing peace and prosperity to the countryside

Growth and Profitability
6. Philosophy
Yes To provide professional growth, development and
recognition to our people
One Farmer, one hectare, one community at a time”
Bringing peace and prosperity to the countryside
Yes Connecting Farmers to the rest of the world, while
connecting the world to our farmers

7. Self-concept Yes Bringing peace and prosperity to the countryside

One Farmer, one hectare, one community at a time”

To provide professional growth, development and

8. Concern for employees
9. Concern for nation
building
Yes recognition to our people
Connecting Farmers to the rest of the world, while
connecting the world to our farmers
Yes One Farmer, one hectare, one community at a time

1.2 PROPOSED STRATEGY

1.3 DEPARTMENTAL PROGRAMS

108
1.3.1 Human Resource

1.3.2 Marketing

1.3.3 Finance

1.3.4 Operations / Logistics

109
 CHAPTER VIII
STRATEGY MONITORING AND CONTROL

8.1 BALANCED SCORECARD

110
 8.2 THREE YEAR FINANCIAL PROJECTION
8.2.1 Balance Sheet
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30
2016 2017 2018 2019
ASSETS
Current Assets
Cash and cash equivalents (Note 7)
Receivables (Note 8)
Inventories (Note 9)
Real estate held for sale and development (Note 10)
Other current assets (Note 12)

Assets classified as held for sale (Note 11)

Noncurrent Assets
Available-for-sale financial assets (Note 11)
Property, plant and equipment:
Land-at revalued amount (Note 15)
Property, plant and equipment - at cost (Note 15)
Investment property (Note 16)
Retriement asset (Note 25)
Goodwill (Note 13)
Other noncurrent assets (Note 17)

TOTAL ASSETS

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables (Note 18)
Current portion of notes payable (Note 20)
Deposits (Note 19)
Income tax payable

Noncurrent Liabilities
Notes payable - net of current portion (Note 20)
Deferred tax liability (Note 27)
Other noncurrent liabilities

Equity
Capital stock (Note 29)
Retained earnings
Revaluation increment (Note 15)
Remeasurement gains on defined benefit liability (Note 25)
Unrealized cumulative gain on available-for-sale financial
assets (Note 14)

Less cost of 720 shares of stock in treasury (Note 29)

TOTAL LIABILITIES AND EQUITY

111
8.2.2 Income Statement
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30
2016 2017 2018 2019
REVENUES
Sale of sugar and by-products
Tolling fees
Tolling fees
Real estate sale

COST OF GOODS SOLD AND SERVICES

Cost of goods sold (Note 21)
Cost of tolling services (Note 22)
Cost of industrial services (Note 23)
Cost of real estate sale

GROSS INCOME

OPERATING EXPENSES (Note 24)

OTHER INCOME (EXPENSES)

Interest expense (Note 20)
Interest income (Notes 7 and 8)
Gain on sale of shares (Note 11)
Others - net

INCOME BEFORE INCOME TAX

PROVISION FOR (BENEFIT FROM)
INCOME TAX (Note 27)
Current
Deferred

NET INCOME
Basic / diluted earnings per share (Note
29)

112
8.2.3 Significant Ratios

113
Financial Statement
Balance Sheet Fiscal Year 2014 - 2016
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30
2016 2015 2014
ASSETS
Current Assets
Cash and cash equivalents (Note 7) 93,948,771 252,839,700 145,717,989
Receivables (Note 8) 659,429,276 777,891,888 169,089,889
Inventories (Note 9) 154,755,136 142,368,808 129,732,878
Real estate held for sale and development (Note 10) 987,962,514 987,238,512 -
Other current assets (Note 12) 117,003,714 61,200,350 16,812,856
2,013,099,411 221,539,258 461,353,612
Assets classified as held for sale (Note 11) - 95,500,000 -
2,013,099,411 2,317,039,258 461,353,612
Noncurrent Assets
Available-for-sale financial assets (Note 11) 104,066,900 103,517,560 86,536,687
Property, plant and equipment:
Land-at revalued amount (Note 15) 716,600,000 685,700,000 1,976,000,000
Property, plant and equipment - at cost (Note 15) 429,143,238 374,098,540 315,857,084
Investment property (Note 16) 1,357,400,000 1,357,400,000 -
Retriement asset (Note 25) 706,471,536 154,067,475 189,809,829
Goodwill (Note 13) 702,146,249 702,146,249 -
Other noncurrent assets (Note 17) 199,004,448 19,817,580 8,954,953
4,214,832,371 3,396,747,404 2,577,158,553
TOTAL ASSETS 6,227,931,782 5,713,786,662 3,038,512,165

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables (Note 18) 413,850,059 816,780,683 321,367,669
Current portion of notes payable (Note 20) 392,284,295 185,344,935 237,676,811
Deposits (Note 19) 6,596,212 5,793,053 -
Income tax payable 10,463,312 31,459,539 1,699,473
823,193,878 1,039,378,210 650,743,953
Noncurrent Liabilities
Notes payable - net of current portion (Note 20) 2,042,507,595 2,057,202,066 88,666,667
Deferred tax liability (Note 27) 480,765,975 308,221,098 619,201,445
Other noncurrent liabilities - - 35,368,649
2,523,273,570 2,365,423,164 743,236,761
Equity
Capital stock (Note 29) 282,545,960 282,545,960 282,545,960
Retained earnings 193,840,135 17,190,004 (191,904,343)
Revaluation increment (Note 15) 1,836,613,293 1,814,983,293 1,365,157,402
Remeasurement gains on defined benefit liability (Note 25) 490,982,816 117,333,241 128,780,515
Unrealized cumulative gain on available-for-sale financial
assets (Note 14) 77,489,330 76,939,990 59,959,117
2,881,471,534 2,308,992,488 1,644,538,651
Less cost of 720 shares of stock in treasury (Note 29) (7,200) (7,200) (7,200)
2,881,464,334 2,308,985,288 1,644,531,451
TOTAL LIABILITIES AND EQUITY 6,227,931,782 5,713,786,662 3,038,512,165

114
 Income Statement Fiscal Year 2014 - 2016
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
June 30
2016 2015 2014
REVENUES
Sale of sugar and by-products 955,769,538 761,534,665 721,170,547
Tolling fees 224,035,212 231,394,319 267,513,085
Tolling fees 33,279,618 25,565,781 -
Real estate sale 954,000 5,408,040 -
1,214,038,368 1,023,902,805 988,683,632
COST OF GOODS SOLD AND SERVICES
Cost of goods sold (Note 21) 626,375,661 477,478,489 511,808,351
Cost of tolling services (Note 22) 2,029,869 112,695,745 121,670,759
Cost of industrial services (Note 23) 18,066,725 12,166,485 -
Cost of real estate sale 84,367 97,001 -
746,556,622 602,437,720 633,479,110

GROSS INCOME 467,481,746 421,465,085 355,204,522

OPERATING EXPENSES (Note 24) (109,194,977) (129,219,884) (157,100,285)

OTHER INCOME (EXPENSES)

Interest expense (Note 20) (123,688,110) (95,181,025) (48,598,105)
Interest income (Notes 7 and 8) 1,225,821 4,232,088 2,891,132
Gain on sale of shares (Note 11) 25,622,574 - -
Others - net 7,065,350 19,134,242 15,113,798
(89,774,365) (71,814,695) (30,593,175)
INCOME BEFORE INCOME TAX 268,512,404 220,430,506 167,511,062
PROVISION FOR (BENEFIT FROM) INCOME
TAX (Note 27)
Current 89,131,599 79,470,457 37,825,593
Deferred 2,730,674 (3,250,410) 8,438,952
91,862,273 76,220,047 46,264,545
NET INCOME 176,650,131 144,210,459 121,246,517
Basic / diluted earnings per share (Note 29) 6.25 5.10 4.29

115
HORIZONTAL ANALYSIS
Balance Sheet Fiscal Year 2016 – 2015
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30
HORIZONTAL ANALYSIS 2016 2015
ASSETS
Current Assets
Cash and cash equivalents (Note 7) (158,890,929) -63% 100%
Receivables (Note 8) (118,462,612) -15% 100%
Inventories (Note 9) 12,386,328 9% 100%
Real estate held for sale and development (Note
724,002 0% 100%
10)
Other current assets (Note 12) 55,803,364 91% 100%
1,791,560,153 809% 100%
Assets classified as held for sale (Note 11) 0% 100%
(303,939,847) -13% 100%
Noncurrent Assets
Available-for-sale financial assets (Note 11) 549,340 1% 100%
Property, plant and equipment:
Land-at revalued amount (Note 15) 30,900,000 5% 100%
Property, plant and equipment - at cost (Note
55,044,698 15% 100%
15)
Investment property (Note 16) 0% 100%
Retirement asset (Note 25) 552,404,061 359% 100%
Goodwill (Note 13) 0% 100%
Other noncurrent assets (Note 17) 179,186,868 904% 100%
818,084,967 24% 100%
TOTAL ASSETS 514,145,120 9% 100%

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables (Note 18) (402,930,624) -49% 100%
Current portion of notes payable (Note 20) 206,939,360 112% 100%
Deposits (Note 19) 803,159 14% 100%
Income tax payable (20,996,227) -67% 100%
(216,184,332) -21% 100%
Noncurrent Liabilities
Notes payable - net of current portion (Note 20) (14,694,471) -1% 100%
Deferred tax liability (Note 27) 172,544,877 56% 100%
Other noncurrent liabilities
157,850,406 7% 100%

Equity
Capital stock (Note 29) - 0% 100%
Retained earnings 176,650,131 1028% 100%
Revaluation increment (Note 15) 21,630,000 1% 100%
Remeasurement gains on defined benefit liability
373,649,575 318% 100%
(Note 25)
Unrealized cumulative gain on available-for-sale
549,340 1% 100%
financial assets (Note 14)
572,479,046 25% 100%
Less cost of 720 shares of stock in treasury (Note
- 0% 100%
29)
572,479,046 25% 100%
TOTAL LIABILITIES AND EQUITY 514,145,120 9% 100%

116
 Income Statement Fiscal Year 2016 – 2015
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
June 30
HORIZONTAL ANALYSIS 2016 2015
REVENUES
Sale of sugar and by-products 194,234,873 26% 100%
Tolling fees (7,359,107) -3% 100%
Industrial Services 7,713,837 30% 100%
Real estate sale (4,454,040) -82% 100%
190,135,563 19% 100%
COST OF GOODS SOLD AND SERVICES
Cost of goods sold (Note 21) 148,897,172 31% 100%
Cost of tolling services (Note 22) (110,665,876) -98% 100%
Cost of industrial services (Note 23) 5,900,240 48% 100%
Cost of real estate sale (12,634) -13% 100%
144,118,902 24% 100%

GROSS INCOME 46,016,661 11% 100%

OPERATING EXPENSES (Note 24) 20,024,907 -15% 100%

OTHER INCOME (EXPENSES)

Interest expense (Note 20) (28,507,085) 30% 100%
Interest income (Notes 7 and 8) (3,006,267) -71% 100%
Gain on sale of shares (Note 11) - - -
Others - net (12,068,892) -63% 100%
(17,959,670) 25% 100%
INCOME BEFORE INCOME TAX 48,081,898 22% 100%
PROVISION FOR (BENEFIT FROM) INCOME TAX (Note
27)
Current 9,661,142 12% 100%
Deferred 5,981,084 -184% 100%
15,642,226 21% 100%
NET INCOME 32,439,672 22% 100%
Basic / diluted earnings per share (Note 29) 115% 23% 100%

117
 Balance Sheet Fiscal Year 2015 – 2014
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30
HORIZONTAL ANALYSIS 2015 2014
ASSETS
Current Assets
Cash and cash equivalents (Note 7) 107,121,711 74% 100%
Receivables (Note 8) 608,801,999 360% 100%
Inventories (Note 9) 12,635,930 10% 100%
Real estate held for sale and development (Note 10) - - -
Other current assets (Note 12) 44,387,494 264% 100%
(239,814,354) -52% 100%
Assets classified as held for sale (Note 11) - - 100%
1,855,685,646 402% 100%
Noncurrent Assets
Available-for-sale financial assets (Note 11) 16,980,873 20% 100%
Property, plant and equipment:
(1,290,300,000
Land-at revalued amount (Note 15) ) -65% 100%
Property, plant and equipment - at cost (Note 15) 58,241,456 18% 100%
Investment property (Note 16) -
Retriement asset (Note 25) (35,742,354) -19% 100%
Goodwill (Note 13) -
Other noncurrent assets (Note 17) 10,862,627 121% 100%
819,588,851 32% 100%
TOTAL ASSETS 2,675,274,497 88% 100%

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables (Note 18) 495,413,014 154% 100%
Current portion of notes payable (Note 20) (52,331,876) -22% 100%
Deposits (Note 19) 5,793,053 -
Income tax payable 29,760,066 1751% 100%
388,634,257 60% 100%
Noncurrent Liabilities
Notes payable - net of current portion (Note 20) 1,968,535,399 2220% 100%
Deferred tax liability (Note 27) (310,980,347) -50% 100%
Other noncurrent liabilities - - 100%
1,622,186,403 218% 100%

Equity
Capital stock (Note 29) - 0% 100%
Retained earnings 209,094,347 -109% 100%
Revaluation increment (Note 15) 449,825,891 33% 100%
Remeasurement gains on defined benefit liability (Note
25) (11,447,274) -9% 100%
Unrealized cumulative gain on available-for-sale financial
assets (Note 14) 16,980,873 28% 100%
664,453,837 40% 100%
Less cost of 720 shares of stock in treasury (Note 29) - 0% 100%

TOTAL LIABILITIES AND EQUITY

118
 Income Statement Fiscal Year 2015 – 2014
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
June 30
HORIZONTAL ANALYSIS 2015 2014
REVENUES
Sale of sugar and by-products 40,364,118 6% 100%
Tolling fees (36,118,766) -14% 100%
Industrial Services - - -
Real estate sale - - -
35,219,173 4% 100%
COST OF GOODS SOLD AND SERVICES
Cost of goods sold (Note 21) (34,329,862) -7% 100%
Cost of tolling services (Note 22) (8,975,014) -7% 100%
Cost of industrial services (Note 23) - - -
Cost of real estate sale - - -
(31,041,390) -5% 100%

GROSS INCOME 66,260,563 19% 100%

OPERATING EXPENSES (Note 24) 27,880,401 -18% 100%

OTHER INCOME (EXPENSES)

Interest expense (Note 20) (46,582,920) 96% 100%
Interest income (Notes 7 and 8) 1,340,956 46% 100%
Gain on sale of shares (Note 11) - - -
Others - net 4,020,444 27% 100%
(41,221,520) 135% 100%
INCOME BEFORE INCOME TAX 52,919,444 32% 100%
PROVISION FOR (BENEFIT FROM) INCOME
TAX (Note 27)
Current 41,644,864 110% 100%
Deferred (11,689,362) -139% 100%
29,955,502 65% 100%
NET INCOME 22,963,942 19% 100%
Basic / diluted earnings per share (Note 29) 1 19% 100%

119
 Balance Sheet Fiscal Year 2014 – 2013

CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
June 30
HORIZONTAL ANALYSIS 2014 2013
ASSETS
Current Assets
Cash and cash equivalents (Notes 6, 23 and 24) 64,314,866 79% 100%
Receivables (Notes 7, 18, 23 and 24) (215,537,724) -56% 100%
Inventories (Note 9) 18,961,974 17% 100%
Other current assets (Note 9) (36,981,419) -69% 100%
Total Current Assets (169,242,303) -27% 100%
Noncurrent Assets
Available-for-sale financial assets (Notes 10, 18, 23 and 24) 163,248 0% 100%
Property, plant and equipment:
Land-at revalued amount (Note 11 and 23) 219,000,000 12% 100%
Property, plant and equipment - at cost (Note 11) 9,220,211 3% 100%
Retriement asset (Note 17)
Other noncurrent assets 42,128 0% 100%
Total Noncurrent Assets 418,235,416 19% 100%
TOTAL ASSETS 248,993,113 9% 100%

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables (Notes 12, 18, 23 and 24) (258,128,664) -45% 100%
Current portion of notes payable (Notes 13, 18, 23 and 24) 63,676,811 24% 100%
Income tax payable - -
Total Current Liabilities (192,752,380) -23% 100%
Noncurrent Liabilities
Notes payable - net of current portion (Note 20) (47,166,667) -35% 100%
Retirement liability (Note 17) - - 100%
Deferred tax liability (Note 19) 154,562,172 33% 100%
Other noncurrent liabilities (Notes 12, 23 and 24) (34,134,458) -49% 100%
Total Noncurrent Liabilities (20,618,453) -3% 100%
Equity
Capital stock -P10 par value (Note 21)
Authorized - 40,000,000 shares
Issued - 28,254,596 shares - 0% 100%
Deficit 121,246,517 -39% 100%
Revaluation increment (Note 11) 153,300,000 13% 100%
Remeasurement gains (losses) on defined benefit liability
(Note 17) 187,654,181 -319% 100%
Unrealized cumulative gain on available-for-sale financial
assets (Note 10) 163,248 0% 100%
462,363,946 39% 100%
Less cost of 720 shares of stock in treasury (Note 21) 0% 100%
Total Equity 462,363,946 39% 100%
TOTAL LIABILITIES AND EQUITY 248,993,113 9% 100%

120
Income Statement Fiscal Year 2014 - 2013
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
June 30
HORIZONTAL ANALYSIS 2014 2013
REVENUES
Sale of sugar and by-products (Note 20) 1,791,201 0% 100%
Tolling fees (Note 20) (23,155,106) -8% 100%
(21,363,905) -2% 100%
COST OF GOODS SOLD AND SERVICES
Cost of goods sold (Note 14) (42,744,685) -8% 100%
Cost of tolling services (Note 15) (5,395,461) -4% 100%
(48,140,146) -7% 100%
GROSS INCOME 26,776,241 8% 100%
Operating expenses (Note 16) 545,953 0% 100%
Penalties and interest expense (Notes 12, 13, 18 and 20) (9,326,058) 24% 100%
Interest income (Notes 6, 7 and 18) (9,819) 0% 100%
Other income - net 1,487,939 11% 100%
INCOME BEFORE INCOME TAX 19,474,256 13% 100%
PROVISION FOR INCOME TAX (Note 19)
Current 29,859,775 375% 100%
Deferred 4,906,056 139% 100%
34,765,831 302% 100%
NET INCOME (LOSS) (15,291,575) -11% 100%
Basic / diluted earnings per share (Note 21) (1) -11% 100%

121
VERTICAL ANALYSIS
Balance Sheet Fiscal Year 2016 – 2014
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30
VERTICAL ANALYSIS 2016 2015 2014
ASSETS
Current Assets
Cash and cash equivalents 2% 4% 5%
Receivables 11% 14% 6%
Inventories 2% 2% 4%
Real estate held for sale and development 16% 17% 0%
Other current assets 2% 1% 1%
32% 4% 15%
Assets classified as held for sale - 2% -
32% 41% 15%
Noncurrent Assets
Available-for-sale financial assets 2% 2% 3%
Property, plant and equipment:
Land-at revalued amount 12% 12% 65%
Property, plant and equipment - at cost 7% 7% 10%
Investment property 22% 24% -
Retriement asset 11% 3% 6%
Goodwill 11% 12% -
Other noncurrent assets 3% 0% 0%
68% 59% 85%
TOTAL ASSETS 100% 100% 100%

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables 7% 14% 11%
Current portion of notes payable 6% 3% 8%
Deposits 0% 0% -
Income tax payable 0% 1% 0%
13% 18% 21%
Noncurrent Liabilities
Notes payable - net of current portion 33% 36% 3%
Deferred tax liability 8% 5% 20%
Other noncurrent liabilities - - 1%
- - 24%
Equity
Capital stock 5% 5% 9%
Retained earnings 3% 0% -6%
Revaluation increment 29% 32% 45%
Remeasurement gains on defined benefit liability 8% 2% 4%
Unrealized cumulative gain on available-for-sale financial
assets 1% 1% 2%
46% 40% 54%
Less cost of 720 shares of stock in treasury 0% 0% 0%
46% 40% 54%
TOTAL LIABILITIES AND EQUITY 100% 100% 100%

122
 Income Statement Fiscal Year 2016 – 2014
CENTRAL AZUCARERA DE TARLAC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
June 30
VERTICAL ANALYSIS 2016 2015 2014
REVENUES
Sale of sugar and by-products 79% 74% 73%
Tolling fees 18% 23% 27%
Industrial services 3% 2% -
Real estate sale 0% 1% -
100% 100% 100%
COST OF GOODS SOLD AND SERVICES
Cost of goods sold 52% 47% 52%
Cost of tolling services 0% 11% 12%
Cost of industrial services 1% 1% -
Cost of real estate sale 0% 0% -
61% 59% 64%

GROSS INCOME 39% 41% 36%

OPERATING EXPENSES -9% -13% -16%

OTHER INCOME (EXPENSES)

Interest expense -10% -9% -5%
Interest income 0% 0% 0%
Gain on sale of shares 2% - -
Others - net 1% 2% 2%
-7% -7% -3%
INCOME BEFORE INCOME TAX 22% 22% 17%
PROVISION FOR (BENEFIT FROM) INCOME TAX
Current 7% 8% 4%
Deferred 0% 0% 1%
8% 7% 5%
NET INCOME 15% 14% 12%
Basic / diluted earnings per share 0% 0% 0%

123
 CHAPTER IX
CONCLUSION
9.1 Executive Summary
9.2 Abstract, Significant Findings

124